UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [Fee Required]
For the fiscal year ended April 30, 1995
Commission file number 0-2258
SMITHFIELD FOODS, INC.
(Exact name of Registrant as specified in its charter)
Delaware 52-0845861
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
501 North Church Street, Smithfield, VA 23430
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code.............(804) 357-4321
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.50 par value
(Title of Class)
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
The aggregate market value of the shares of Registrant's Common Stock held by
non-affiliates as of July 14, 1995 was approximately $240,237,000. This
figure was calculated by multiplying (i) the $23.00 last sales price of
Registrant's Common Stock as reported on The Nasdaq National Market on July
14, 1995 by (ii) the number of shares of Registrant's Common Stock not held
by any officer or director of the Registrant or any person known to the
Registrant to own more than five percent of the outstanding Common Stock of
the Registrant. Such calculation does not constitute an admission or
determination that any such officer, director or holder of more than five
percent of the outstanding shares of Common Stock of the Registrant is in
fact an affiliate of the Registrant.
At July 14, 1995, 16,397,526 shares of the Registrant's Common stock were
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Annual Report to Stockholders for Fiscal Year
Ended April 30, 1995 are incorporated by reference into Part II.
Portions of the Proxy Statement for the Annual Meeting of
Stockholders to be held on August 30, 1995 are incorporated by reference into
Part III.
1-24
TABLE OF CONTENTS
Item Page
1. Business......................................................... 3
2. Properties....................................................... 8
3. Legal Proceedings................................................ 10
4. Submission of Matters to a Vote of Security Holders.............. 10
4A. Executive Officers of the Company................................ 10
PART II
5. Market for Company's Common Equity and Related Stockholder Matters 11
6. Selected Financial Data.......................................... 11
7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.......................................... 11
8. Financial Statements and Supplementary Data...................... 11
9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure...................................... 11
PART III
10. Directors and Executive Officers of the Company.................. 12
11. Executive Compensation........................................... 12
12. Security Ownership of Certain Beneficial Owners and Management... 12
13. Certain Relationships and Related Transactions.................. 12
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 12
2-24
PART I
Item 1. BUSINESS
General
As a holding company, Smithfield Foods, Inc. conducts its pork
processing operations through three principal subsidiaries: Gwaltney of
Smithfield, Ltd. ("Gwaltney") and The Smithfield Packing Company,
Incorporated ("Smithfield Packing"), both based in Smithfield, Virginia, and
Patrick Cudahy Incorporated ("Patrick Cudahy"), based in Cudahy, Wisconsin.
The Company, in furthering its strategy of vertical integration, also
conducts hog production operations through its Brown's of Carolina, Inc.
subsidiary ("Brown's") and Smithfield-Carroll's, a joint hog production
arrangement between the Company and Carroll's Foods of Virginia, Inc., an
affiliate of Carroll's Foods, Inc., Warsaw, North Carolina. Both Brown's and
Smithfield-Carroll's produce hogs for the Company's pork processing plants in
Smithfield, Virginia and Bladen County, North Carolina. The Company is also
a participant in the Circle Four joint hog production arrangement with
Carroll's Foods, Inc., Murphy Farms, Inc. and Prestage Farms, Inc., all large
North Carolina hog producers, which conducts hog production operations in
Milford, Utah. The Company, through its Ed Kelly, Inc. subsidiary ("Kelly"),
operates a retail consumer electronics chain based in Winston-Salem, North
Carolina. The Company has adopted a plan to sell Kelly, and its results are
shown as discontinued operations on the Company's consolidated statements of
income. In this report, references to "Smithfield Foods" or the "Company"
are to Smithfield Foods, Inc. together with all of its subsidiaries, unless
the context otherwise indicates.
The Company is the largest pork processor in the eastern United
States. The Company produces a wide variety of fresh pork and processed meat
products which it markets principally in the eastern United States. The
Company has also expanded to national distribution and to international sales
in Japan, Mexico and other foreign markets.
As consumers have become more health conscious, pork producers and
processors, including the Company, have focused on providing leaner fresh
pork products as well as lower-salt processed meats. Management believes
that lean pork products which are more attractive to diet-conscious
Americans, together with the industry's efforts to heighten public awareness
of pork as an attractive protein source, have led to increased consumer
demand for pork products. The Company, through its NPD pig program, is
developing a line of extra-lean pork products to meet consumer demand for
leaner pork.
Business Strategy
Since 1975, when current management assumed control, Smithfield
Foods has expanded both its production capacity and markets through a
combination of strong internal growth and the acquisition of regional
operations with well-recognized brand identities. In fiscal 1982, the
Company acquired Gwaltney, then Smithfield Packing's principal regional
competitor. This acquisition doubled the Company's size and added several
popular lines of branded products along with a state-of-the-art hot dog
production facility. The proximity of Gwaltney to Smithfield Packing allowed
for synergies and cost savings in manufacturing, purchasing and
transportation.
This combination set the stage for a series of acquisitions of
smaller regional processors with widely-recognized brands. In fiscal 1985,
the Company acquired Patrick Cudahy, which added a prominent line of dry
sausage products. In fiscal 1986, the Company acquired Esskay, Inc., a firm
with a broad line of delicatessen products having substantial brand loyalty
in the Baltimore-Washington, D.C. metropolitan area. In fiscal 1991, the
Company acquired the Mash's brand name and a ham processing plant in
Landover, Maryland. In fiscal 1993, the Company acquired the Valleydale and
Reelfoot brand names and a processing plant in Salem, Virginia.
3-24
The Company's business is based around four strategic initiatives:
(i) use of the leanest genetics available to enable the Company to market
highly differentiated pork products, (ii) vertical integration into state-of-
the-art hog production through company-owned hog production operations and
long-term partnerships and alliances with large and efficient hog producers,
(iii) operation of highly efficient processing facilities, and (iv)
plant locations that reduce freight expense and permit rapid delivery and
response to customers.
As a complement to the Company's hog processing operations, the
Company has vertically integrated into state-of-the-art hog production
through Brown's and Smithfield-Carroll's. In addition, the Company is
supplementing the hogs it obtains from these hog production operations with
market-indexed, multi-year agreements with several of the nation's largest
suppliers of high quality hogs strategically located in North Carolina,
including Carroll's Foods, Inc., Murphy Farms, Inc., Prestage Farms, Inc. and
Maxwell Foods, Inc.
In May 1991, Smithfield-Carroll's, through Smithfield-Carroll's
Farms (a partnership between the Company and an affiliate of Carroll's Foods,
Inc.), acquired from National Pig Development Company ("NPD"), a British
firm, the exclusive United States franchise rights for genetic lines of
specialized breeding stock. The NPD hogs produced by these superior genetic
lines are significantly leaner than almost any other animals available in
commercial volume in the United States. Management believes that the
leanness and increased meat yields of these hogs will, over time, improve the
Company's profitability with respect to both fresh pork and processed meat
products and provide a competitive advantage over other domestic pork
processors. Smithfield-Carroll's and Brown's have replaced a significant
proportion of their breeding stock with these superior genetic animals.
During the past four years, the Company has improved its
competitive position through an aggressive capital investment program
designed to increase production and reduce costs at its Mid-Atlantic
locations. As part of this program, the Company, in October 1992, began
operations at its new, state-of-the-art fresh pork processing plant in Bladen
County, North Carolina. The Company's principal competitors are located in
the Midwest. The Company's Mid-Atlantic and Southeastern locations provide
advantages to the Company over these competitors because of the Company's
lower freight costs to East Coast customers and longer effective shelf-life
for fresh pork products. Management believes that the benefits from its
capital investment program and its new Bladen County plant, together with
these transportation advantages, make the Company highly competitive in the
Eastern United States, particularly in the corridor from Florida to Maine.
The Company's operations are in one industry segment, meat
processing. The following table shows for the fiscal periods indicated the
percentages of the Company's revenues derived from processed meats, fresh
pork and other products.
1995 1994 1993 1992 1991
Fresh Pork 51% 48% 41% 39% 44%
Processed Meats 45% 49% 55% 57% 53%
Other Products 4% 3% 4% 4% 3%
100% 100% 100% 100% 100%
The increase in revenues derived from fresh pork in fiscal 1995 resulted from
an increase in the number of hogs slaughtered at the Bladen County plant.
The meat processing industry is generally characterized by narrow margins.
Profit margins on processed meats are greater than profit margins on fresh
pork and on other products.
4-24
Processed Meat Products
The Company manufactures a wide variety of processed meats,
including smoked and boiled hams, bacon, sausage, hot dogs (pork, beef and
chicken), deli and luncheon meats and specialty products such as pepperoni
and dry salami. The Company markets its processed meat products under labels
that include, among others, Smithfield, Luter's, Hamilton's, Great, Gwaltney,
Esskay, Patrick Cudahy, Mash's and Valleydale.
In response to growing consumer preferences for more nutritious and
healthful meats, the Company has emphasized production of more closely-
trimmed, leaner and lower salt processed meats such as Smithfield Packing's
Hamilton's Easy-Karv Ham and Patrick Cudahy's 97% fat-free Realean Ham.
Fresh Pork Products
The Company increased its commitment to fresh pork with the opening
of its Bladen County plant. The plant, which is operated by Smithfield
Packing's Carolina Food Processors Division, led to an increase in fresh pork
output, both in absolute terms and relative to the Company's processed meats
output, in fiscal 1995. The plant, which is currently processing 16,000 hogs
per day on a one-shift basis, plans to process as many as 24,000 hogs per day
on a two-shift basis beginning in the second quarter of fiscal 1996. This
will lead to an additional increase in fresh pork output in fiscal 1996. A
substantial portion of the Company's fresh pork is sold to its customers as
unprocessed, trimmed cuts such as loins (including roasts and chops), butts,
picnics and ribs. The Company is putting greater emphasis on the sale of
value-added, higher-margin fresh pork products, such as boneless loins, hams,
butts and picnics. In addition to meeting a growing consumer demand for its
fresh pork, the Company's commitment to fresh pork also provides its
processing operations with raw material of much higher quality than that
generally available through market purchases.
The Company is also marketing an extensive product line of NPD
fresh pork cuts (including boneless loins, shoulder cuts, chops, ribs and
processed and cubed pork) to the foodservice industry under the Smithfield
Lean Generation Pork trademark.
Smithfield Packing has developed a case-ready pork program designed
to supply supermarket chains with pre-packaged, weighed, labeled and priced
fresh pork, ready for immediate sale to the consumer. Management believes
that this initiative, over time, should result in greater brand
identification and higher margins for the Company's fresh pork products.
Raw Materials
The Company's primary raw material is live hogs. Historically, hog
prices have been subject to substantial fluctuations. In addition, hog
prices tend to rise as hog supplies decrease during the hot summer months and
tend to decline as supplies increase during the fall. This is due to a lower
farrowing performance during the winter months and slower animal growth rates
during the hot summer months. Hog supplies, and consequently prices, are
also affected by factors such as feed prices, weather and interest rates.
The Company produces its own hogs through Brown's and Smithfield-
Carroll's and purchases hogs from several of the nation's largest hog
producers strategically located in North Carolina, such as Carroll's Foods,
Inc., Murphy Farms, Inc., Prestage Farms, Inc. and Maxwell Foods, Inc. as
well as from other independent hog producers and dealers located in the East,
Southeast and Midwest. The Company obtained 12.1% of the live hogs it
processed in fiscal 1995 from Brown's and Smithfield-Carroll's. The
Company's raw material costs fall when hog production at Brown's and
Smithfield-Carroll's is profitable and conversely rise when such production
is unprofitable. Management believes that hog production at Brown's and
Smithfield-Carroll's will further the Company's strategic initiative to
become vertically
5-24
integrated and may reduce exposure to the fluctuations of profitability
historically experienced by the pork processing industry. The Company has
established multi-year agreements with Carroll's Foods, Murphy Farms,
Prestage Farms and Maxwell Foods which provide the Company with a stable
supply of high-quality hogs at market-indexed prices. These producers
supplied 52.2% of the hogs processed by the Company in fiscal 1995.
As a result of the hogs obtained from Brown's and Smithfield-
Carroll's and from these major North Carolina producers, the percentage of
hogs obtained by the Company from Midwestern sources has declined from 34.0%
in fiscal 1987 to 7.2% in fiscal 1995. Midwestern hogs have historically
been the Company's higher-cost hogs due to such factors as higher
transportation costs, in-transit weight losses and inconsistency in size and
quality. The Company anticipates that the percentage of hogs obtained by the
Company from Midwestern sources will decline further as more hogs are
produced by Brown's, Smithfield-Carroll's and the major North Carolina
producers.
The Company purchases its hogs on a daily basis at its plants in
Smithfield, Virginia and Bladen County, North Carolina, at buying stations in
Virginia, North Carolina and South Carolina and at independent dealer-
operated buying stations in the Midwest. The Company also purchases fresh
pork from other meat processors to supplement its processing requirements,
and raw beef, poultry and other meat products to add to its sausage, hot dogs
and luncheon meats. Such meat products and other materials and supplies,
including seasonings, smoking and curing agents, sausage casings and
packaging materials are readily available from numerous sources at
competitive prices.
Customers and Marketing
The Company has dominant market shares in the Mid-Atlantic and
Southeastern United States, and growing market shares in the Northeast,
South, Midwest and West. The Company's fundamental marketing strategy is to
sell large quantities of moderate-priced processed meat products as well as
fresh pork to national and regional supermarket chains, wholesale
distributors and the foodservice industry (fast food, restaurant and hotel
chains, hospitals and other institutional customers). Management believes
that this marketing approach reaches the largest number of value-conscious
consumers without requiring large advertising and promotional campaigns. The
Company uses both salaried salesmen and independent commission brokers to
sell its products. Except for a small number of orders for hams, the Company
does not make sales directly to consumers. In fiscal 1995, the Company made
sales to more than 3,000 customers, none of whom accounted for as much as 10%
of the Company's revenues. The Company has no significant or seasonally
variable backlog because most customers prefer to order products shortly
before shipment, and therefore, do not enter into formal long-term contracts.
Management believes that its registered trademarks have been important to the
success of its branded processed meat products.
The Company, in fiscal 1994, entered into an agreement with
Sumitomo Corporation for the exclusive distribution of a line of unique
branded fresh pork products in Japan. Export sales to Japan increased
substantially in fiscal 1995. The Company also had significant export sales
to Russia and Mexico in fiscal 1995, and export sales in varying amounts to
other foreign markets.
The Company's business is seasonal in that, traditionally, the
heavier periods of sales for hams are the holiday seasons such as Easter,
Thanksgiving and Christmas, and the heavier periods of sales for hot dogs and
luncheon meats are the summer months. The Company maintains large
inventories of hams in anticipation of its holiday seasons' business. Fresh
pork is shipped, generally within two to three days after slaughter, by
refrigerated trucks which are leased and operated by the Company and by
common carrier. The Company enters into commodity futures contracts to
reduce the risk of adverse price changes on the profitability of its hog
production operations and future sales commitments, such as future sales
commitments for hams for the holiday seasons.
6-24
Distribution
Because of the Mid-Atlantic and Southeastern locations of all but
one production facility, the Company offers next-day delivery to most of its
customers which affords it a competitive advantage in terms of service and
freight costs. The Company's Mid-Atlantic and Southeastern locations allow
it to supply customers in the Northeastern, Mid-Atlantic, Southeastern and
Southern states with fresh pork products with a longer effective shelf-life
than those shipped from competing Midwestern processors.
Competition
The protein industry generally, and the pork processing industry in
particular, are highly competitive. The Company's products compete with a
large number of other protein sources, including beef, chicken, turkey and
seafood, but the Company's principal competition comes from other pork
processors.
Management believes that the principal competitive factors in the
pork processing industry are price, quality and brand loyalty. Many of the
Company's competitors are considerably larger, have correspondingly greater
financial and other resources and enjoy wider recognition for their branded
products. Some of these competitors are also more diversified than the
Company. To the extent that their other operations generate profits, such
companies may be able to subsidize their pork processing operations.
The Company believes it is one of the largest producers of smoked
meats, including hams, bacon and picnics, in the United States. The Company
is the largest producer of "Genuine Smithfield" hams. By statute of the
Commonwealth of Virginia, only hams processed within the Town of Smithfield
can be labeled "Genuine Smithfield" hams.
Regulation
Like other participants in the meat processing industry, the
Company is subject to various laws and regulations administered by federal,
state and other government entities, including the Environmental Protection
Agency and corresponding state agencies such as the Virginia State Water
Control Board ("SWCB"), the North Carolina Division of Environmental
Management, the United States Department of Agriculture and the Occupational
Safety and Health Administration. Management believes that the Company
complies with all such laws and regulations in all material respects, except
as set forth immediately below, and that continued compliance with these
standards will not have a material effect on the Company's financial
position.
The wastewater discharge permit for the Company's major meat
processing plants in Smithfield, Virginia, imposes more stringent phosphorus
and ammonia effluent limitations than the plants can currently meet. To
achieve compliance, the Company agreed to discontinue its wastewater
discharges to the Pagan River and connect its wastewater treatment plants to
the regional sewage collection and treatment system operated by the Hampton
Roads Sanitation District ("HRSD"). This connection will likely be made in
early 1996, following completion by the HRSD of the necessary pipeline
facilities. The Company expects to incur approximately $2,000,000 in capital
costs to upgrade its existing treatment systems and make this connection.
The Company will incur sewer charges in addition to the existing costs of
effluent treatment in fiscal 1996. These sewer charges will be accounted for
as current period costs beginning in fiscal 1996.
Pending connection to the HRSD system, the plants are being
operated under an administrative consent order entered into with the SWCB.
During the period May 1994 through April 1995, the Company's plants had
several violations of its permit and the consent order which led the SWCB to
place the Company's plants on its "significant noncompliance" list.
Placement on that list is required by the SWCB when any one of several
circumstances occur, including a single violation of an administrative
consent order provision. The Company has
7-24
corrected the conditions which caused these violations, and the plants are
presently in full compliance with the SWCB permit and the administrative
order. No administrative or judicial proceedings have been instituted as a
result of these violations, and the Company does not believe that such
proceedings will likely be instituted as a result of these violations.
The Company regularly conducts tests of wastewater discharges to
assure compliance with the provisions of the wastewater discharge permits for
its manufacturing plants. Federal and state laws require that records of
such tests be maintained for three years. Failure to maintain such records
may result in the imposition of civil penalties and, if records are
destroyed, criminal sanctions. In the course of an SWCB inspection in May
1994, it was discovered that records of certain tests conducted by the
Company from 1992 through early 1994 could not be located. The employee
responsible for the supervision of the tests and maintenance of the test
records has been replaced. No administrative or judicial proceedings have
been instituted against the Company as a result of its inability to locate
the records for the period noted. At this time the Company cannot express
any view as to the likelihood that any such proceedings will be instituted
against it.
Employees
The Company has approximately 9,000 employees, approximately 5,200
of whom are covered by collective bargaining agreements expiring between
February 6, 1997 and March 15, 1999. The Company believes that its
relationship with its employees is good.
Working Capital
The pork processing industry is characterized by high unit sales
volume and rapid turnover of inventories and accounts receivable. Because of
the rapid turnover rate, the
Company considers its inventories and accounts receivable highly liquid and
readily convertible into cash. Borrowings under lines of credit are used to
finance increases in the levels of inventories and accounts receivable
resulting from seasonal and other market-related fluctuations in raw material
costs. The demand for seasonal borrowings usually peaks in early November
when ham inventories are at their highest levels, and borrowings are repaid
in January when the accounts receivable generated by the sales of these hams
are collected. At April 30, 1995, the Company had aggregate lines of credit
of $120.0 million. Borrowings under the lines of credit are secured by
substantially all of the Company's inventories and accounts receivable.
Weighted average borrowings under the lines were $69.9 million in fiscal
1995, $66.6 million in fiscal 1994 and $79.2 million in fiscal 1993. Maximum
borrowings were $117.0 million in fiscal 1995, $105.1 million in fiscal 1994
and $105.7 million in fiscal 1993. The outstanding balances under these
lines totaled $67.2 million as of April 30, 1995 and $52.1 million as of May
1, 1994.
Miscellaneous
With the exception of the franchise agreement between Smithfield-
Carroll's and National Pig Development Company (See Item 1. Business), the
Company has no patents, licenses, franchises or concessions which it
considers material to its business.
The Company is not involved in significant research activities.
Item 2. PROPERTIES.
The following table summarizes information concerning the principal
plants and other materially important physical properties of the Company:
8-24
<TABLE>
<CAPTION>
APPROXIMATE
LAND AREA FLOOR SPACE
LOCATION OPERATION (ACRES) (SQ.FT.)
<S> <C> <C> <C>
Smithfield Packing Plant No. 1 Slaughtering and cutting 25.5 457,000
501 North Church Street hogs; manufacture of
Smithfield, Virginia bacon products, smoked
meats, and dry salt meats;
production of hams and
picnics
Smithfield Packing Plant No. 2 Production of bone-in and 20.0 218,000
2501 West Vernon Avenue boneless cooked and smoked
Kinston, North Carolina ham and other smoked meat
products
Smithfield Packing Plant No. 3 Production of bone-in smoked 7.8 136,000
5801 Columbia Park Drive ham and other smoked meat
Landover, Maryland products
Smithfield Packing Plant No. 4 Slaughtering and cutting 860.0 966,000
Carolina Food Processors hogs; production of boneless
Division (Bladen County) hams and loins
Route #87
Tarheel, North Carolina
Gwaltney Plant No. 1 Slaughtering and cutting 56.4 556,000
601 North Church Street hogs; manufacture of bacon
Smithfield, Virginia products and sausage; produc-
tion of bone-in and boneless
cooked and smoked hams and
picnics
Gwaltney Plant No. 2 Manufacture of hot dogs, 13.1 200,000
3515 Airline Blvd. bologna, luncheon meats
Portsmouth, Virginia and sausage products
Gwaltney Plant No. 3 Manufacture of bacon, smoked 11.0 152,000
1013 Iowa Street sausage and boneless cooked
Salem, Virginia hams
Patrick Cudahy Plant Manufacture of bacon, dry 60.0 1,090,000
3500 E. Barnard Ave. sausage, boneless cooked hams
Cudahy, Wisconsin and operation of a refinery
</TABLE>
The Company operates hog buying stations in Virginia, North
Carolina and South Carolina which have facilities for purchasing and loading
hogs for shipment to the Company's plant's in Smithfield, Virginia and Bladen
County, North Carolina.
The Company, through Brown's, owns and leases hog production
facilities in North Carolina, and through Smithfield-Carroll's, owns hog
production facilities in North Carolina and Virginia.
Smithfield Packing Plants No. 1 and No. 2, including all real
property, machinery and equipment, are pledged as security for Smithfield
Packing's 9.8% Secured Notes, due August 2003, and 10.75% Secured Notes, due
August 2005, held by John Hancock Mutual Life Insurance Company. The
machinery and equipment in Smithfield Packing Plant No. 3 is pledged as
security for Smithfield Packing's 7.15% Secured Notes, due October 1997, held
by MetLife Capital Corporation. Smithfield Packing Plant No. 4, including
all real property, machinery
9-24
and equipment, is pledged as security for Smithfield Packing's 8.41% Secured
Notes, due February 2013, held by John Hancock Mutual Life Insurance Company,
Massachusetts Mutual Life Insurance Company and MML Pension Insurance
Company, and Smithfield Foods, Inc.'s 6.48% Notes, due September 1998, and
prime rate based Term Loan, due October 1997, held by NationsBank of
Virginia, N.A. Gwaltney Plants No. 1 and No. 2, including all real property,
machinery and equipment, are pledged as security for Gwaltney's 6.24% Secured
Notes, due November 1998, and 9.85% Secured Notes, due November 2006, held by
John Hancock Mutual Life Insurance Company.
Based on standard hourly rates of production, converted to annual
capacities based on a 40-hour work week, Smithfield Plant No. 1 has an annual
slaughter capacity of 2,080,000 head and Gwaltney Plant No. 1 has an annual
slaughter capacity of 2,080,000 head. Based on standard hourly rates of
production, converted to an annual capacity based on a 40-hour work week,
Smithfield Plant No. 4 has an annual slaughter capacity on a one-shift basis
of 4,160,000 head. The plant is designed to operate on a two-shift basis.
Subject to applicable environmental and other regulations, production at all
the Company's plants can
be increased without physically expanding existing facilities by increasing
the number of production hours.
Item 3. LEGAL PROCEEDINGS.
Smithfield Foods and its subsidiaries are defendants in various
lawsuits arising in the ordinary course of business. In the opinion of
management, any ultimate liability with respect to these matters will not
have a material effect on the Company's financial statements.
Reference is made to "Item 1.--Business--Regulation."
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
Item 4A. EXECUTIVE OFFICERS OF THE COMPANY.
The executive officers of the Company as of July 15, 1994 are as
follows:
Officer
Name Age Office Since
Joseph W. Luter, III 56 Chairman of the Board and 1975
Chief Executive Officer of
the Company
John O. Nielson 64 President and Chief Operating 1995
Officer of the Company and
Smithfield Packing
Roger R. Kapella 53 President and Chief Operating 1985
Officer of Patrick Cudahy
Lewis R. Little 51 President and Chief Operating 1993
Officer of Gwaltney
Aaron D. Trub 60 Vice President, Secretary and 1970
Treasurer of the Company
C. Larry Pope 40 Controller of the Company 1981
10-24
Mr. Luter is Chairman of the Board and Chief Executive Officer of
the Company. He was also President of the Company prior to May 1995.
Mr. Nielson is President and Chief Operating Officer of the Company
and Smithfield Packing. He was a consultant and private investor from June
1989 to May 1995. Prior to June 1989, he held various executive positions
with John Morrell & Co., including president and chief operating officer.
Mr. Kapella is President and Chief Operating Officer of Patrick
Cudahy.
Mr. Little has been President and Chief Operating Officer of
Gwaltney since May 1993. He was Executive Vice President of Gwaltney prior
to May 1993.
Mr. Trub is Vice President, Secretary and Treasurer of the Company.
Mr. Pope is Controller of the Company.
There is no family relationship among any officers.
The officers of Smithfield Foods, Inc. and its subsidiaries are
elected annually by the Board of Directors of the respective company of which
they are an officer. Each officer holds the office to which he was elected
at the discretion of the Board of his company for the ensuing year or until
removed or replaced.
PART II
Item 5. MARKET FOR COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
For information required by this item, see the information in
Exhibit 13-1995 Annual Report to Stockholders (i) on page 24 adjacent to the
caption "Common Stockholders of Record" and (ii) under the caption "Common
Stock Data" on the inside back cover, which information is incorporated
herein by reference.
Item 6. SELECTED FINANCIAL DATA.
For selected financial data required by this item, see the data in
Exhibit 13-1995 Annual Report to Stockholders under the caption "Financial
Summary" on pages 24 and 25, which data are incorporated herein by reference.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
For information required by this item, see information in Exhibit
13-1995 Annual Report to Stockholders under the caption "Financial
Discussion" on pages 20 through 22, which information is incorporated herein
by reference.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The consolidated financial statements required by this item are on
pages 26 through 41 of Exhibit 13-1995 Annual Report to Stockholders and are
incorporated herein by reference.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None
11-24
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY.
For information concerning the directors and nominees for
directorship, see the information under the captions "Election of Directors"
on pages 3 and 4, and "Board of Directors and Committees" on pages 6 and 7 in
the Company's Proxy Statement for Annual Meeting of Stockholders to be held
on August 30, 1995, which information is incorporated herein by reference.
For information concerning executive officers of the Company,
reference is made to "Item 4A. Executive Officers of the Company."
Item 11. EXECUTIVE COMPENSATION.
For information required by this item, see the information under
the captions "Executive Compensation" on pages 7 through 10 and "Board of
Directors and Committees" on
pages 6 and 7 in the Company's Proxy Statement for Annual Meeting of
Stockholders to be held on August 30, 1995, which information is incorporated
herein by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
For information required by this item, see the information under
the captions "Principal Stockholders" on pages 2 and 3 and "Common Stock
Ownership of Executive Officers and Directors" on pages 5 and 6 in the
Company's Proxy Statement for Annual Meeting of Stockholders to be held on
August 30, 1995, which information is incorporated herein by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
For information required by this item, see the information under
the caption "Other Transactions" on pages 13 and 14 in the Company's Proxy
Statement for Annual Meeting of Stockholders to be held on August 30, 1995,
which information is incorporated herein by reference.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
<TABLE>
<CAPTION>
Reference
Annual Report
to Stockholders Form 10-K
Page Page
<S> <C> <C>
(a)(1) Financial Statements
The following consolidated financial
statements of Smithfield Foods, Inc.
and its consolidated subsidiaries are
incorporated by reference in Item 8:
Consolidated statements of income -
52 weeks ended April 30, 1995,
52 weeks ended May 1, 1994,
52 weeks ended May 2, 1993. 28
Consolidated balance sheets -
April 30, 1995 and May 1, 1994 26, 27
12-24
Consolidated statements of cash flows -
52 weeks ended April 30, 1995,
52 Weeks ended May 1, 1994,
52 weeks ended May 2, 1993. 29
Consolidated statements of stockholders' equity
52 weeks ended April 30, 1995,
52 weeks ended May 1, 1994,
52 weeks ended May 2, 1993. 30
Notes to consolidated financial
statements 31-39
Report of Management 40
Report of Independent Public
Accountants 41
(a)(2) Financial Statement Schedules
III. Condensed Financial Information
of Registrant 21-24
</TABLE>
Schedules other than those listed above have been omitted since they are
either not required or not applicable, or the information called for is
shown in the financial statements or in the notes thereto.
(a)(3) Exhibits
Exhibit 3.1 - Composite Certificate of Incorporation of the Company,
as amended to date (incorporated by reference to
Exhibit 3.1 to the Company's Form 10-K Annual Report
for the fiscal year ended April 28, 1991).
Exhibit 3.1(a) - Certificate of Designations of Series B 6-3/4%
Cumulative Convertible Preferred Stock, par value $1.00
per share, of the Company (incorporated by reference to
Exhibit 3.1(a) to the Company's Form 10-K Annual Report
for the fiscal year ended May 2, 1993).
Exhibit 3.2 - By-laws of the Company, as amended to date
(incorporated by reference to Exhibit 3.2 to the
Company's Form 10-K Annual Report for the fiscal year
ended April 28, 1991).
Exhibit 4.1 - Composite Certificate of Incorporation - See Exhibit
3.1.
Exhibit 4.2 - Form of Certificate representing the Company's Common
Stock, par value $.50 per share (including Rights
legend) (incorporated by reference to Exhibit 4.2 to
the Company's Form 10-K Annual Report for the fiscal
year ended April 28, 1991).
13-24
Exhibit 4.3 - Form of Certificate representing the Company's Series B
6-3/4% Cumulative Convertible Preferred Stock, par
value $1.00 per share (including Rights legend)
(incorporated by reference to Exhibit 4.3 to the
Company's Form 10-K Annual Report for the fiscal year
ended May 2, 1993).
Exhibit 4.4 - Form of Certificate representing Rights (incorporated
by reference to Exhibit 4 to the Company's Amendment
No. 1 to Registration Statement on Form 8-A dated May
23, 1991 (the "Amended Form 8-A").
Exhibit 4.5 - Rights Agreement, dated as of May 8, 1991, as amended
by Amendment No. 1 dated as of January 31, 1994, by and
between Smithfield Foods, Inc. and First Union National
Bank of North Carolina, Rights Agent (incorporated by
reference to Exhibit 4.5 to the Company's Form 10-K
Annual Report for the fiscal year ended May 1, 1994).
Exhibit 4.6 - Second Amended, Restated and Continued Revolving Credit
Agreement dated March 1, 1994, among Gwaltney of
Smithfield, Ltd., The Smithfield Packing Company,
Incorporated, Patrick Cudahy Incorporated, Esskay,
Inc., Brown's of Carolina, Inc., Carolina Food
Processors, Inc. and Cooperative Centrale
Raiffeisen-Boerenleenbank B.A., "Rabobank Nederland",
New York Branch, as agent and each bank a party thereto
(incorporated by reference to Exhibit 4.6 to the
Company's Form 10-K Annual Report for the fiscal year
ended May 1, 1994).
Exhibit 4.6(a) - First Amendment to Credit Agreement and First Amendment
to Security Agreement dated March 1, 1994 of The
Smithfield Packing Company, Incorporated (incorporated
by reference to Exhibit 4.6(a) to the Company's Form
10-K Annual Report for the fiscal year ended May 1,
1994).
Exhibit 4.6(b) - Second Amended, Restated and Continued Guaranty, dated
March 1, 1994 made by Smithfield Foods, Inc. in favor
of Rabobank Nederland (incorporated by reference to
Exhibit 4.6(b) to the Company's Form 10-K Annual Report
for the year ended May 1, 1994).
Exhibit 4.7 - Note Agreement dated July 29, 1988, between The
Smithfield Packing Company, Incorporated and John
Hancock Mutual Life Insurance Company, covering
$15,000,000 9.8% Secured Notes due August 1, 2003
(incorporated by reference to Exhibit 4.11 to the
Company's Form 10-K Annual Report for the fiscal year
ended April 30, 1989).
Exhibit 4.7(a) - Guaranty and Agreement by Smithfield Foods, Inc. dated
July 29, 1988 (incorporated by reference to Exhibit
4.11(a) to the Company's Form 10-K Annual Report for
the fiscal year ended April 30, 1989).
Exhibit 4.8 - Note Agreement dated August 6, 1990, between The
Smithfield Packing Company, Incorporated and John
Hancock Mutual Life Insurance Company, covering
$15,000,000 10.75% Secured Notes due August 1, 2005
(incorporated by reference to Exhibit 4.10 to the
Company's Form 10-K Annual Report for the fiscal year
ended April 28, 1991).
14-24
Exhibit 4.8(a) - Form of Guaranty and Agreement by Smithfield Foods,
Inc. dated August 6, 1990 (incorporated by reference to
Exhibit 4.10(a) to the Company's Form 10-K Annual
Report for the fiscal year ended April 28, 1991).
Exhibit 4.9 - Note Agreement dated October 31, 1991, between Gwaltney
of Smithfield, Ltd. and John Hancock Mutual Life
Insurance Company, covering $20,000,000 9.85% Secured
Notes due November 1, 2006 (incorporated by reference
to Exhibit 4.9 to the Company's Form 10-K Annual Report
for fiscal year ended May 3, 1992).
Exhibit 4.9(a) - Guaranty and Agreement by Smithfield Foods, Inc. dated
October 31, 1991 (incorporated by reference to Exhibit
4.9(a) to the Company's Form 10-K Annual Report for
fiscal year ended May 3, 1992).
Exhibit 4.10 - Note Purchase Agreement dated January 15, 1993 by and
among Carolina Food Processors, Inc. and Smithfield
Foods, Inc. and John Hancock Mutual Life Insurance
Company, Massachusetts Mutual Life Insurance Company
and MML Pension Insurance Company, covering $25,000,000
8.41% Senior Secured Notes due February 1, 2013,
guaranteed by Smithfield Foods, Inc. (incorporated by
reference to Exhibit 4.11 to the Company's Form 10-K
Annual Report for fiscal year ended May 2, 1993).
Exhibit 4.10(a)- Omnibus Amendment Agreement dated December 1, 1993 by
and among Smithfield Foods, Inc., Carolina Foods
Processors, Inc., John Hancock Mutual Life Insurance
Company, Massachusetts Mutual Life Insurance Company
and MML Pension Insurance Company (incorporated by
reference to Exhibit 4.10(a) to the Company's Form 10-K
Annual Report for the fiscal year ended May 1, 1994).
Exhibit 4.10(b)- Assumption, Waiver and Amendment Agreement dated May 1,
1994 by and among The Smithfield Packing Company,
Incorporated. Smithfield Foods, Inc., John Hancock
Mutual Life Insurance Company, Massachusetts Mutual
Life Insurance Company and MML Pension Insurance
Company (incorporated by reference to Exhibit 4.10(b)
to the Company's Form 10-K Annual Report for the fiscal
year ended May 1, 1994).
Exhibit 4.11 - Master Lease Agreement dated May 14, 1993 between
General Electric Capital Corporation and Brown's of
Carolina, Inc. (incorporated by reference to Exhibit
4.12 to the Company's Form 10-K Annual Report for
fiscal year ended May 2, 1993).
Exhibit 4.11(a)- Corporate Guaranty by Smithfield Foods, Inc. dated May
14, 1993 (incorporated by reference to Exhibit 4.12(a)
to the Company's Form 10-K Annual Report for fiscal
year ended May 2, 1993).
Exhibit 4.12 - Amended and Restated Credit Agreement dated June 28,
1993 between Smithfield Foods, Inc. and NationsBank of
Virginia, N.A., covering $25,000,000 6.48% Notes due
September 30, 1998 (incorporated by reference to
Exhibit 4.13 to the Company's Form 10-K Annual Report
for fiscal year ended May 2, 1993).
15-24
Exhibit 4.12(a) -Loan Modification Agreement dated April 30, 1994 among
Smithfield Foods, Inc., Carolina Food Processors, Inc.,
The Smithfield Packing Company, Incorporated and
NationsBank of Virginia, N.A. (incorporated by
reference to Exhibit 4.12(a) to the Company's Form 10-K
Annual Report for fiscal year ended May 1, 1994).
Exhibit 4.13 - Credit Agreement dated August 19, 1994 between
Smithfield Foods, Inc. and NationsBank of Virginia,
N.A., covering $50,000,000 Term Loan due October 1997.
Exhibit 10.1 - Subscription Agreement dated September 3, 1992 between
Smithfield Foods, Inc. and Carroll's Foods, Inc.,
covering 1,000,000 shares of Smithfield Foods, Inc.
Common Stock (incorporated by reference to Exhibit 10.1
of the Company's Form 10-K Annual Report for fiscal
year ended May 2, 1993).
Exhibit 10.2 - Subscription Agreement dated as of October 21, 1992
between Smithfield Foods, Inc. and Wake Forest
University, covering $10,000,000 Series B 6-3/4%
Cumulative Convertible Preferred Stock (incorporated by
reference to Exhibit 10.2 of the Company's Form 10-K
Annual Report for fiscal year ended May 2, 1993).
Exhibit 10.3 - Smithfield Foods, Inc. Stock Option Plan (1984), as
amended (incorporated by reference to Exhibit 10.1 to
the Company's Form 10-K Annual Report for fiscal year
ended April 28, 1991).
Exhibit 10.4 - Smithfield Foods, Inc. 1992 Stock Incentive Plan
(incorporated by reference to Exhibit 10.4 to the
Company's Form 10-K Annual Report for fiscal year ended
May 2, 1993).
Exhibit 10.5 - Master Lease Agreement (Smithfield 91-1) dated December
9, 1991, between State Street Bank and Trust Company of
Connecticut, National Association, as Lessor, and The
Smithfield Packing Company, Incorporated, as Lessee
(Trailers and Yard Equipment) (incorporated by
reference to Exhibit 10.2 to the Company's Form 10-K
Annual Report for fiscal year ended May 3, 1992).
Exhibit 10.5(a)- Master Lease Agreement (Smithfield 91-2) dated December
9, 1991, between State Street Bank and Trust Company of
Connecticut, National Association, as Lessor, and The
Smithfield Packing Company, Incorporated, as Lessee
(Tractors) (incorporated by reference to Exhibit
10.2(a) to the Company's Form 10-K Annual Report for
fiscal year ended May 3, 1992).
Exhibit 10.5(b)- Master Lease Agreement (Smithfield 91-3) dated December
9, 1991, between State Street Bank and Trust Company of
Connecticut, National Association, as Lessor, and
Gwaltney of Smithfield, Ltd., as Lessee (Trailers and
Yard Equipment) (incorporated by reference to Exhibit
10.2(b) to the Company's Form 10-K Annual Report for
fiscal year ended May 3, 1992).
16-24
Exhibit 10.5(c)- Master Lease Agreement (Smithfield 91-4) dated December
9, 1991, between State Street Bank and Trust Company of
Connecticut, National Association, as Lessor, and
Gwaltney of Smithfield, Ltd., as Lessee (Tractors)
(incorporated by reference to Exhibit 10.2(c) to the
Company's Form 10-K Annual Report for fiscal year ended
May 3, 1992).
Exhibit 10.6 - Storage Agreement dated September 4, 1987, by and
between RCS-Smithfield, Inc. and Smithfield Foods, Inc.
(incorporated by reference to Exhibit 10.9 to the
Company's Form 10-K Annual Report for the fiscal year
ended May 1, 1988).
Exhibit 10.7 - Storage Agreement dated September 18, 1991, by and
between Carolina Cold Storage Limited Partnership and
Smithfield Foods, Inc. (incorporated by reference to
Exhibit 10.5 of the Company's Form 10-K Annual Report
for fiscal year ended May 3, 1992).
Exhibit 10.8 - Smithfield Foods, Inc. Incentive Bonus Plan.
Exhibit 11 - Computation of Net Income Per Common Share.
Exhibit 13 - 1995 Annual Report to Stockholders (With the exception
of the data incorporated by reference in Items 5, 6, 7
and 8, no other data appearing in the accompanying 1995
Annual Report to Stockholders is to be deemed filed as
part of this Form 10-K Annual Report).
Exhibit 21 - List of Subsidiaries of Smithfield Foods, Inc.
Exhibit 23 - Consent of Independent Public Accountants (see page
immediately following the signature pages of this Form
10-K Annual Report).
(b) Reports on Form 8-K
None.
17-24
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Company has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
SMITHFIELD FOODS, INC.
By /s/ Joseph W. Luter, III
Joseph W. Luter, III
Chairman of the Board and
Chief Executive Officer
Date 7/14/95
18-24
Pursuant to the requirements of the Securities Act of 1934, this
report has been signed below by the following persons on behalf of the Company
and in the capacities indicated.
By /s/ Joseph W. Luter, III By /s/ John O. Nielson
Joseph W. Luter, III John O. Nielson
Chairman of the Board and President and Chief Operating
Chief Executive Officer of Officer of the Company and The
the Company and Director Smithfield Packing Company,
Incorporated and Director
Date 7/14/95 Date 7/14/95
By /s/ Roger R. Kapella By /s/ Lewis R. Little
Roger R. Kapella Lewis R. Little
President and Chief Operating President and Chief Operating
Officer of Patrick Cudahy Officer of Gwaltney of Smithfield,
Incorporated and Director Ltd. and Director
Date 7/13/95 Date 7/14/95
By /s/ Robert W. Manly, IV By /s/ Aaron D. Trub
Robert W. Manly, IV Aaron D. Trub
Executive Vice President of Vice President, Secretary and
the Company and Director Treasurer of the Company and
Director
Date 7/13/95 Date 7/14/95
By /s/ C. Larry Pope By /s/ F. J. Faison, Jr.
C. Larry Pope F. J. Faison, Jr.
Controller of the Company Director
Date 7/21/95 Date 7/21/95
By /s/ Joel W. Greenberg By /s/ Cecil W. Gwaltney
Joel W. Greenberg Cecil W. Gwaltney
Director Director
Date 7/13/95 Date 7/13/95
By /s/ George E. Hamilton, Jr. By /s/ Richard J. Holland
George E. Hamilton, Jr. Richard J. Holland
Director Director
Date 7/13/95 Date 7/13/95
By /s/ Wendell H. Murphy By /s/ William H. Prestage
Wendell H. Murphy William H. Prestage
Director Director
Date 7/19/95 Date 7/12/95
19-24
SMITHFIELD FOODS, INC.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULES
To Smithfield Foods, Inc.:
We have audited in accordance with generally accepted auditing standards, the
financial statements included in Smithfield Foods, Inc.'s 1995 annual report
to stockholders incorporated by reference in this Form 10-K, and have issued
our report thereon dated June 13, 1995. Our report on the financial
statements includes an explanatory paragraph with respect to the change in
the method of accounting for income taxes as discussed in Note 5 to the
financial statements. Our audits were made for the purpose of forming an
opinion on those statements taken as a whole. The schedules listed in the
index under Item 14(a)(2) are the responsibility of the Company's management
and are presented for purposes of complying with the Securities and Exchange
Commission's rules and are not part of the basic financial statements. These
schedules have been subjected to the auditing procedures applied in the audit
of the basic financial statements and, in our opinion, fairly state in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Richmond, Virginia,
June 13, 1995
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our reports included (or incorporated by reference) in this Form 10-K, into
the Company's previously filed Registration Statements File No. 33-14219, No.
33-14220 and No. 33-53024.
ARTHUR ANDERSEN LLP
Richmond, Virginia,
July 28, 1995
20-24
SCHEDULE III - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
SMITHFIELD FOODS, INC.
PARENT COMPANY BALANCE SHEETS
AS OF APRIL 30, 1995 AND MAY 1, 1994
<TABLE>
<CAPTION>
ASSETS
April 30, May 1,
1995 1994
<S> <C> <C>
Current assets:
Cash $ 157,000 $ 331,000
Accounts receivable 175,000 120,000
Receivables from related parties 15,765,000 18,834,000
Refundable income taxes 3,458,000 -
Deferred income taxes 9,246,000 8,470,000
Other 452,000 517,000
Total current assets 29,253,000 28,272,000
Investments in and net advances to
subsidiaries, at cost plus equity
in undistributed earnings 233,993,000 184,324,000
Other assets:
Investments in partnerships 26,026,000 9,403,000
Property, plant and equipment, net 6,554,000 2,518,000
Other 10,563,000 2,128,000
Total other assets 43,143,000 14,049,000
$306,389,000 $226,645,000
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable $ 2,500,000 $ -
Current portion of long-term debt 2,420,000 1,938,000
Accounts payable 895,000 2,211,000
Accrued expenses 16,933,000 15,071,000
Income taxes payable - 3,154,000
Total current liabilities 22,748,000 22,374,000
Long-term debt 68,140,000 25,360,000
Deferred income taxes and other noncurrent liabilities 21,485,000 13,961,000
Series B 6.75% cumulative convertible
redeemable preferred stock 10,000,000 10,000,000
Stockholders' equity 184,016,000 154,950,000
$306,389,000 $226,645,000
</TABLE>
The accompanying notes are an integral part of these balance sheets.
21-24
SCHEDULE III - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
SMITHFIELD FOODS, INC
PARENT COMPANY STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
52 Weeks 52 Weeks 52 Weeks
Ended Ended Ended
April 30, 1995 May 1, 1994 May 2, 1993
<S> <C> <C> <C>
Sales $ - $ - $ -
Cost of sales - - -
Gross profit - - -
General and administrative expenses,
net of allocation to subsidiaries 1,312,000 928,000 1,773,000
Depreciation expense 496,000 452,000 540,000
Interest expense 2,596,000 2,046,000 274,000
Income (loss) before income taxes,
cumulative effect of change in
accounting for income tax and
equity in earnings of
subsidiaries (4,404,000) (3,426,000) (2,587,000)
Income tax credit (1,003,000) (600,000) (627,000)
Income (loss) before cumulative effect
of change in accounting for income
taxes and equity in earnings of
subsidiaries (3,401,000) (2,826,000) (1,960,000)
Cumulative effect of change in
accounting for income taxes - - (1,138,000)
Net income (loss) before equity in
earnings of subsidiaries (3,401,000) (2,826,000) (822,000)
Equity in earnings of
subsidiaries 31,241,000 22,528,000 4,811,000
Net income $27,840,000 $19,702,000 $ 3,989,000
</TABLE>
The accompanying notes are an integral part of these statements.
22-24
SCHEDULE III - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
SMITHFIELD FOODS, INC.
PARENT COMPANY STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
52 Weeks 52 Weeks 53 Weeks
Ended Ended Ended
April 30, 1995 May 1, 1994 May 2, 1993
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 27,840,000 $ 19,702,000 $ 3,989,000
Adjustments to reconcile net income to
net cash used in operating
activities:
Depreciation and amortization 619,000 452,000 540,000
Gain on sale of property and
equipment (5,000) - (1,000)
Cumulative effect of change in
accounting for income taxes - - (1,138,000)
(Increase) decrease in deferred
income taxes and other
noncurrent liabilities 6,748,000 3,768,000 (2,618,000)
(Increase) decrease in accounts
receivable (55,000) 103,000 (2,000)
Decrease in receivables from
related parties 3,069,000 996,000 8,801,000
Increase in investments in and
advances to subsidiaries (49,669,000) (58,670,000) (44,407,000)
(Increase) decrease in other
current assets 65,000 (229,000) (211,000)
Increase in accounts payable
and accrued expenses 546,000 7,001,000 3,926,000
(Increase) decrease in refundable
income taxes (3,458,000) 1,303,000 (1,303,000)
Increase (decrease) in taxes
payable (3,154,000) 3,154,000 (540,000)
Increase in other assets (8,558,000) (215,000) (498,000)
Net cash used in operating
activities (26,012,000) (22,635,000) (33,462,000)
Cash flows from investing activities:
Capital expenditures (4,534,000) (1,394,000) 673,000
Proceeds from sale of property,
plant and equipment 7,000 1,500,000 6,000
Investment in partnerships (16,623,000) (988,000) 138,000
Net cash provided by (used in)
investing activities (21,150,000) (882,000) 817,000
Cash flows from financing activities:
Proceeds from issuance of short-
term note 2,500,000 - -
Proceeds from issuance of long-term
debt 50,000,000 25,000,000 3,800,000
Principal payments on long-term debt (6,738,000) (1,309,000) (193,000)
Proceeds from sale of common stock - - 16,750,000
Exercise of options 1,901,000 153,000 1,642,000
Issuance of preferred stock - - 10,000,000
Preferred dividends (675,000) (675,000) (365,000)
Net cash provided by financing
activities 46,988,000 23,169,000 31,634,000
Net decrease in cash (174,000) (348,000) (1,011,000)
Cash at beginning of year 331,000 679,000 1,690,000
Cash at end of year $ 157,000 $ 331,000 $ 679,000
</TABLE>
The accompanying notes are an integral part of these statements.
23-24
SCHEDULE III - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
SMITHFIELD FOODS, INC.
NOTES TO PARENT COMPANY FINANCIAL STATEMENTS
APRIL 30, 1995 AND MAY 1, 1994
1. The Notes to Parent Company Financial Statements should be read in
conjunction with the Notes to Registrant's Annual Report to Stockholders for
the years then ended.
2. Restricted assets of Registrant:
Existing loan covenants contain provisions which substantially limit the
amount of funds available for transfer from the subsidiaries to Smithfield
Foods, Inc. without the consent of certain lenders.
3. Accrued expenses as of April 30, 1995 and May 1, 1994 are as follows:
1995 1994
Self-insurance reserves $10,718,000 $10,489,000
Payroll and related benefits 4,489,000 2,056,000
Professional fees 374,000 438,000
Other 1,352,000 2,088,000
$16,933,000 $15,071,000
4. Long-Term Debt:
As of April 30, 1995, the Registrant is guaranteeing $87,532,000 of long-
term debt and capital lease obligations of its subsidiaries and lines of
credit aggregating $120,000,000 (of which $67,195,000 is outstanding) which
the Registrant and its subsidiaries have with banks.
Scheduled maturities of the Registrant's long-term debt consists of the
following:
FISCAL YEAR
1996 $ 2,420,000
1997 3,304,000
1998 50,586,000
1999 14,250,000
$70,560,000
5. The amount of dividends received from subsidiaries in fiscal 1995 and 1994
was $17,626,000 and $12,000,000, respectively. No dividends were received
in fiscal 1993.
6. Income Taxes:
During fiscal 1993, the Registrant adopted SFAS No. 109, "Accounting for
Income Taxes," which requires the use of the liability method in accounting
for income taxes. The cumulative effect of adopting this change totaled
$1,138,000 and has been reflected in the statements of operations.
7. Supplemental disclosures of cash flow information:
<TABLE>
<CAPTION>
Cash paid during year for: 1995 1994 1993
<S> <C> <C> <C>
Interest $ 2,403,000 $ 1,007,000 $ 306,000
Income taxes $16,254,000 $ 5,574,000 $ 5,018,000
</TABLE>
24-24
- ----------------------------------------------------------------
- ----------------------------------------------------------------
SMITHFIELD FOODS, INC.
______________________________________
CREDIT AGREEMENT
Dated as of August 19, 1994
______________________________________
NATIONSBANK OF VIRGINIA, N. A.
CREDIT AGREEMENT dated as of August 19, 1994, between SMITHFIELD
FOODS, INC. a Delaware corporation (the "Company"), and NATIONSBANK OF
VIRGINIA, N.A. (the "Bank").
RECITALS
The Bank has agreed to make a loan of $50,000,000.00 to the Company
pursuant to the terms hereof.
AGREEMENT
The parties hereto hereby agree as follows:
SECTION 1. DEFINITIONS
1.1. Defined Terms. As used in this Agreement, the following terms
have the following meanings:
"Affiliate": as to the Company, (a) any Person which, directly
or indirectly, is in control of, is controlled by, or is under common
control with, the Company, or (b) any Person who is a director,
officer or employee (i) of the Company, (ii) of any Subsidiary of the
Company or (iii) of any Person described in the preceding clause (a).
For purposes of this definition, control of a Person shall mean (A)
the power, direct or indirect, (i) to vote 15% or more of the
securities having ordinary voting power for the election of directors
of such Person or (ii) to direct or cause the direction of the
management and policies of such Person whether by contract or
otherwise, of (B) the ownership, direct or indirect, of 15% or more of
any class of common stock of such Person.
"Agreement": this Credit Agreement, as amended, supplemented or
otherwise modified from time to time.
"Applicable Margin": (i) 0% for the period commencing on the
date hereof through February 19, 1996, (ii) 0.25% for the period
commencing on February 20, 1996 through August 18, 1996, (iii) 0.50%
for the period commencing on August 19, 1996 through February 19, 1997
and (iv) 0.75% for the period commencing on February 20, 1997 through
July 31, 1997.
"Business Day": a day other than a Saturday, Sunday or other day
on which commercial banks in Richmond, Virginia are authorized or
required by law to close.
"Code": the Internal Revenue Code of 1986, as amended from time
to time.
"Commonly Controlled Entity": an entity, whether or not
incorporated, which is under common control with the Company within
the meaning of Section 414(c) of the Code.
"Consolidated Capitalization": Consolidated Funded Debt plus
Consolidated Tangible Net Worth.
"Consolidated Capitalized Lease Obligations": as of the date of
any determination thereof, the consolidated obligations of any Person,
contingent or otherwise, under any agreements for the lease, hire or
use of real or personal property which agreements have been, or under
GAAP are required to be, capitalized whether or not such obligations
are shown as liabilities or commitments on the balance sheet of such
Person.
"Consolidated Current Assets": of a Person, at a particular
date, all amounts which would, in conformity with GAAP, be included
under consolidated current assets on a balance sheet of such Person as
at such date, provided that there shall be excluded therefrom (a) all
prepared expenses of every type and nature, (b) any receivables that
arise outside the ordinary course of business, and (c) all amounts due
from officers, stockholders, employees and affiliates.
"Consolidated Current Liabilities": of a Person, at a particular
date, the sum of all amounts which would, in conformity with GAAP, be
included under consolidated current liabilities on a balance sheet of
such Person as at such date.
"Consolidated Funded Debt": any Indebtedness of the Company and
its consolidated Subsidiaries for borrowed money which has an original
maturity in excess of one year (excluding (a) Consolidated Funded Debt
constituting a guaranty of the funded debt of Smithfield-Carroll's
Farms if the tangible net worth of Smithfield-Carroll's Farms at such
time is greater than zero and (b) the obligations set forth in the
Production Sales Agreements, as defined in the Note Purchase
Agreement).
"Consolidated EBIT": for any period, the sum of (i) Consolidated
Net Income plus (ii) (to the extent deducted in determining
Consolidated Net Income for such period) (a) all provisions for
federal, state or other taxes based on the income of the Company and
its consolidated Subsidiaries plus (b) depreciation and amortization
expense of the Company and its consolidated Subsidiaries during such
period plus (c) Consolidated Interest Expense for such period.
"Consolidated Interest Expense": for any period, the
consolidated interest expense of the Company for such period,
including, without limitation, the portion of any Consolidated
Capitalized Lease Obligation allocable to interest expense in
accordance with GAAP.
"Consolidated Net Income": of a Person, for a particular period,
the net income of such Person, all as determined in accordance with
GAAP for such period.
"Consolidated Tangible Net Worth": at a particular date, all
amounts which would, in conformity with GAAP, be included under
shareholders' equity on a balance sheet of the Company at such date;
provided, however, such amounts are to be net of amounts carried on
the books of the Company for (a) any write-up in the book value of any
assets of the Company resulting from a revaluation thereof, (b)
treasury stock, (c) unamortized debt discount and expense, (d) any
cost of investments in excess of net assets acquired at any time of
acquisition by the Company, (e) patents, patent applications,
copyrights, trademarks, trade names, and other like intangibles and
(f) goodwill, experimental or organizational expenses and other like
intangibles.
"Contingent Obligation": as to any Person, any obligation of
such Person guaranteeing or in effect guaranteeing any Indebtedness,
leases, dividends or other obligations ("primary obligations") of any
other Person (the "primary obligor") in any manner, whether directly
or indirectly, including, without limitation, any obligation of such
Person, whether or not contingent, (a) to purchase any such primary
obligation or any property constituting direct or indirect security
therefor, (b) to advance or supply funds (i) for the purchase or
payment of any such primary obligation or (ii) to maintain working
capital or equity capital of the primary obligor or otherwise to
maintain the net worth or solvency of the primary obligor, (c) to pur-
chase property, securities or services primarily for the purpose of
assuring the owner of any such primary obligation of the ability of
the primary obligor to make payment of such primary obligation or (d)
otherwise to assure or hold harmless the owner of such primary
obligation against loss in respect thereof; provided, however, that
the term Contingent Obligation shall not include endorsements of
instruments for deposit or collection in the ordinary course of
business.
"Contractual Obligation": as to any Person, any provision of any
security issued by such Person or of any agreement, instrument or
undertaking to which such Person is a party or by which it or any of
its property is bound.
"Default": any of the events specified in Section 7, whether or
not any requirement for the giving of notice, the lapse of time, or
both, or any other condition, has been satisfied.
"Equipment": the meaning assigned thereto in the Security
Agreement.
"ERISA": The Employee Retirement Income Security Act of 1974, as
amended from time to time.
"Event of Default": any of the events specified in Section 7,
provided that any requirement for the giving of notice, the lapse of
time, or both, or any other condition, has been satisfied.
"Facility": the Guarantor's production facility in Bladen
County, North Carolina.
"GAAP": Generally Accepted Accounting Principles in the United
States of America in effect from time to time.
"Governmental Authority": any nation or government, any state or
other political subdivision thereof, and any entity exercising
executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government, and any corporation or other
entity owned or controlled (through stock or capital ownership or
otherwise) by any of the foregoing.
"Guarantee": the Guarantee executed and delivered by the
Guarantor in favor of the Bank pursuant hereto, substantially in the
form of Exhibit B hereto, as the same may be amended, supplemented or
otherwise modified from time to time.
"Guarantor": Smithfield Packing Company, Incorporated, a
Virginia corporation and a wholly owned Subsidiary of the Company.
"Indebtedness": as to any Person, at a particular time, (a) all
indebtedness for borrowed money or for the deferred purchase price of
property or services in respect of which such Person is liable,
contingently or otherwise, as obligor, guarantor or otherwise, or in
respect of which such Person otherwise assures a creditor against
loss, including, without limitation, accounts payable, accrued
expenses and other current liabilities, and inter-company accounts,
(b) all liabilities secured by any Lien on any property owned by such
Person even though such Person has not assumed or otherwise become
liable for the payment thereof, and (c) Capitalized Lease Obligations
of such Person.
"Lien": any mortgage, pledge, hypothecation, assignment, deposit
arrangement, encumbrance, lien (statutory or other), or preference,
priority or other security agreement or preferential arrangement of
any kind or nature whatsoever (including, without limitation, any
conditional sale or other title retention agreement, any financing
lease having substantially the same economic effect as any of the
foregoing, and the filing of any financing statement under the Uniform
Commercial Code or comparable law of any jurisdiction).
"Mortgage": the reference to the Deed of Trust and Security
Agreement, to be executed and delivered by the Guarantor in favor of
the Bank, in respect of certain of the real property owned by the
Guarantor in Bladen County, North Carolina substantially in the form
of Exhibit D hereto, as it may be amended, supplemented or otherwise
modified from time to time.
"Multiemployer Plan": a Plan which is a multiemployer plan as
defined in Section 4001(a)(3) of ERISA.
"Note": the Term Note described in subsection 2.2.
"Note Purchase Agreement": shall mean collectively the Note
Purchase Agreements dated as of January 15, 1993, copies of which have
been delivered to the Bank, entered into between the Guarantor and the
various purchasers who are parties thereto, pursuant to which the
Guarantor issued $25,000,000 of its 8.41% Senior Secured Notes due
February 1, 2013, as amended by Amendment Agreement dated as of June
15, 1993 but not as further amended.
"PBGC": the Pension Benefit Guaranty Corporation established
pursuant to Subtitle A of Title IV of ERISA.
"Person": an individual, a partnership, a corporation, a
business trust, a joint stock company, a trust, an unincorporated
association, a joint venture, a Governmental Authority or any other
entity of whatever nature.
"Plan": any plan of a type described in Section 4021(a) of ERISA
in respect of which the Company or a Commonly Controlled Entity is an
"employer" as defined in Section 3(5) of ERISA.
"Prime Rate" means the rate of interest publicly announced by the
Bank in Charlotte, North Carolina from time to time as its "prime
rate", which shall not necessarily be the best or lowest rate of
interest offered by the Bank.
"Reportable Event": any of the events set forth in Section
4043(b) of ERISA or the regulations thereunder.
"Requirement of Law": as to any Person, the Certificate of
Incorporation and By-Laws or other organizational or governing
documents of such Person, and any law, treasury rule or regulation, or
determination of an arbitrator or a court or other Government
Authority, in each case applicable to or binding upon such Person or
any of its properties or to which such Person or any of its property
is subject.
"Responsible Officer": the Chairman, the President or any Vice
President of the Company or, with respect to financial matters, the
chief financial officer of such Company or the chief accounting
officer of the Company or such other person designated by the Bank and
the Company, in writing.
"Security Agreement": the Security Agreement to be executed and
delivered by the Company in favor of the Bank, substantially in the
form of Exhibit C hereto, as the same may be amended, supplemented or
otherwise modified from time to time.
"Security Documents": the collective reference to the Security
Agreement, the Mortgage, and all additional deeds of trust, security
agreements and pledge agreements as may from time to time be delivered
by the Company or the Guarantor to the Bank pursuant hereto;
individually, a "Security Document".
"Subsidiary": as to any Person, a corporation of which shares of
stock having ordinary voting power (other than stock having such power
only by reason of the happening of a contingency) to elect a majority
of the board of directors or other managers of such corporation are at
the time owned, or the management of which is otherwise controlled,
directly, or indirectly through one or more intermediaries, or both,
by such Person.
"Withdrawal Liability": at a particular date, the aggregate
liability of the Company or any Commonly Controlled Entity (regardless
of the date of payment) to any Multiemployer Plans pursuant to (S)4201
of ERISA if, on such date, the Company or any Commonly Controlled
Entity were to withdraw from such Plans.
1.2. Other Definitional Provisions.
(a) All terms defined in this Agreement shall have the defined
meanings when used in the Note, the Security Documents and the
Guarantee and in any certificate or other document made or delivered
pursuant hereto or thereto, unless otherwise defined therein.
(b) As used herein and in the Note, and any certificate or other
document made or delivered pursuant hereto, accounting terms relating
to the Company not defined in subsection 1.1, and accounting terms
partly defined in subsection 1.1 to the extent not defined, shall have
the respective meanings given to them under GAAP.
SECTION 2. THE LOAN
2.1. Loan. Subject to the terms and conditions hereof, the Bank
agrees to make a loan to the Company in an amount not to exceed FIFTY
MILLION DOLLARS ($50,000,000.00), the proceeds of which must be drawn by
the Company by October 31, 1994.
2.2. Note. The term loan made by the Bank pursuant hereto shall be
evidenced by the term note of the Company, substantially in the form of
Exhibit A hereto with appropriate insertions (the "Note"), payable to the
order of the Bank, representing the obligation of the Company to pay the
term loan with interest thereon as described in this subsection 2.2.
(a) Interest Rate. The Note shall bear interest from the date
thereof on the unpaid principal amount thereof until such amount shall
become due and payable (whether at the stated maturity, by
acceleration or otherwise) at a rate per annum equal to the Prime Rate
plus the Applicable Margin, and thereafter at a rate per annum equal
to the Prime Rate plus three percent (3%), until paid in full (both
before and after judgment).
(b) Late Charge. In the event the Company fails to pay any
installment of principal and/or interest or otherwise fails to repay
the Note within ten (10) days of its due date, the Company will pay
the Bank on demand a late charge of 5% of the overdue payment.
(c) Payment of Principal and Interest. Interest accrued on the
Note shall be payable quarterly on the first day of each calendar
quarter commencing on October 1, 1994, and upon payment (including
prepayment) in full thereof. Principal on the Note shall be payable
on July 31, 1997.
(d) Security. The Note shall be secured by the Security
Documents.
2.3. Prepayments.
(a) Voluntary Prepayments. The principal of the Note may be prepaid
in full or in part at any time provided that any partial prepayments shall
be in increments of $10,000.
(b) Mandatory Prepayment. The Company shall prepay the Note with the
proceeds of any Indebtedness incurred by the Company subsequent to the date
hereof (other than any indebtedness permitted hereunder or under the
Guarantee). Such prepayments shall be made simultaneously with the receipt
by the Company of such proceeds.
2.4. Computation of Interest and Fees. Interest and fees shall be
calculated on the basis of a 360-day year for the actual days elapsed. Any
change in the interest rate on the Note resulting from a change in the
NationsBank Rate shall become effective as of the opening of the business
on the date on which such change in the NationsBank Rate shall become
effective.
2.5. Payments. Each payment by the Company on account of principal,
interest and fees with respect to the term loan shall be made to the Bank.
All payments (including prepayments) by the Company on account of
principal, interest and fees shall be made without set-off or counterclaim
to the Bank at the office of the Bank in lawful money of the United States
of America and in immediately available funds. If any payment hereunder or
on the Note becomes due and payable on a day other than a Business Day, the
maturity thereof shall be extended to the next succeeding Business Day and,
with respect to payments of principal or interest thereon shall be payable
at the then applicable rate during such extension. The Company hereby
authorizes and directs the Bank to charge any account of the Company
maintained at any office of the Bank with the amount of any principal,
interest or fee when the same becomes due and payable under the terms
hereof or of the Note.
2.6. Use of Proceeds. The proceeds of the loan made hereunder shall
be used by the Company to fund the expansion of the Facility and for other
general corporate purposes.
2.7 Facility Fee. The Company shall pay the Bank a facility fee on
October 31, 1994 in an amount equal to the greater of (i) $20,000.00 or
(ii) an amount equal to .20% per annum on the daily average unused amount
of the loan proceeds available hereunder for the period commencing on the
date hereof through October 31, 1994.
2.8 Origination Fee. The Company shall pay the Bank an origination
fee of $200,000.00 on the date hereof.
SECTION 3. REPRESENTATIONS AND WARRANTIES
In order to induce the Bank to enter into this Agreement and to make
the loan herein provided for, the Company hereby covenants, represents and
warrants to the Bank that:
3.1. Corporate Existence; Compliance with Law. The Company (a) is
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation, (b) has the corporate power and
authority to own and operate its property, to lease the property it
operates and to conduct the business in which it is currently engaged, (c)
is duly qualified as a foreign corporation and in good standing under the
laws of each jurisdiction where its ownership, lease or operation of
property or the conduct of its business required such qualification, and
(d) is in compliance with all Requirements of Law except to the extent that
the failure to comply therewith could not, in the aggregate, have a
material adverse effect on the business, operations, property or financial
or other condition of the Company and could not materially adversely affect
the ability of the Company to perform its obligations under the Agreement,
the Note and the Security Documents and to effectuate the transactions
contemplated hereby and thereby.
3.2. Corporate Power; Authorization; Enforceable Obligations. The
Company and the Guarantor, as the case may be, have the corporate power and
authority to make, deliver and perform this Agreement, the Note and the
Security Documents, to borrow hereunder and to effectuate the transactions
contemplated hereby and have taken all necessary corporate action to
authorize the borrowings on the terms and conditions of this Agreement and
the Note, to grant the mortgage liens and security interests pursuant to
the Security Documents and to authorize the execution, delivery and
performance of this Agreement, the Note and the Security Documents. No
consent or authorization of, filing with, or other act by or in respect of
any Person or any Governmental Authority, is required or advisable in
connection with the borrowings hereunder or with the execution, delivery,
performance, validity or enforceability of this Agreement, the Note and the
Security Documents. This Agreement has been, and the Note and Security
Document will be, duly executed and delivered on behalf of the Company and
the Guarantor, as the case may be, and this Agreement constitutes, and the
Note and each Security Document when executed and delivered will
constitute, a legal, valid and binding obligation of the Company or the
Guarantor, as the case may be, enforceable against the Company or the
Guarantor, as the case may be, in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally.
3.3. No Legal Bar. The execution, delivery and performance of this
Agreement, the Note and the Security Documents and the borrowings
hereunder, the use of the proceeds thereof and the granting of the mortgage
liens and security interests pursuant to the Security Documents will not
violate any Requirement of Law or any Contractual Obligation of the
Company, and will not result in, or require, the creation or imposition of
any lien on any of its properties or revenues pursuant to any Requirement
of Law or Contractual Obligation except as permitted in subsection 6.2
hereof.
3.4. No Material Litigation. No litigation, investigation or
proceeding of or before any arbitrator or Governmental Authority is pending
or, to the knowledge of the Company, threatened by or against the Company
or against any of its properties or revenues (a) with respect to this
Agreement, the Note, the Guarantee, any of the Security Documents or any of
the transactions contemplated hereby or thereby, or (b) which could have a
material adverse effect on the business, operations, property or financial
or other condition of the Company.
3.5. No Default. The Company is not in default under or with respect
to any Contractual Obligation in any respect which could be materially
adverse to the business, operations, property or financial or other
condition of the Company, or which could materially adversely affect the
ability of the Company to perform its obligations under this Agreement, the
Note or any of the Security Documents. No Default or Event of Default has
occurred and is continuing.
3.6. Ownership of Property; Liens. The Company has good record and
marketable title in fee simple to all its real property, and good title to
all its other property, and none of such property is subject to any Lien,
except as permitted in subsection 6.2 hereof.
3.7. No Burdensome Restrictions. No Contractual Obligation of the
Company and no Requirement of Law materially adversely affects, or insofar
as the Company may reasonably foresee may so affect, the business,
operations, property or financial or other condition of the Company.
3.8. Taxes. The Company has filed or caused to be filed all tax
returns which to the knowledge of the Company are required to be filed, and
has paid all taxes shown to be due and payable on said returns or on any
assessments made against it or any of its property and all other taxes,
fees or other charges imposed on it or any of its property by any
Governmental Authority; and no tax liens have been filed and, to the
knowledge of the Company, no claims are being asserted with respect to any
such taxes, fees or other charges.
3.9. Federal Regulations. The Company is not engaged and will not
engage, principally or as one of its important activities, in the business
of extending credit for the purpose of "purchasing" or "carrying" any
"margin stock" within the respective meanings of each of the quoted terms
under Regulation U of the Board of Governors of the Federal Reserve System
as now and from time to time hereafter in effect. No part of the proceeds
of any loans hereunder will be used for "purchasing" or "carrying" "margin
stock" as so defined or for any purpose which violates, or which would be
inconsistent with, the provisions of the Regulations of such Board of
Governors.
3.10. ERISA. No prohibited transaction or accumulated funding
deficiency (each as defined in Section 7) or Reportable Event has occurred
with respect to any Plan except those reported to the Bank prior to the
execution hereof. The present value of all benefits vested under all Plans
except Multiemployer Plans does not exceed the value of the assets of such
Plans allocable to such vested benefits. None of the Plans is a
Multiemployer Plan.
3.11. Investment Company Act. The Company is not an "investment
company" or a company "controlled" by an "investment company", within the
meaning of the Investment Company Act of 1940, as amended.
3.12. Patents, Copyrights, Permits, Licenses, Trademarks and Leases.
Either the Company or an Affiliate of the Company owns all of the patents,
trademarks, permits, service marks, trade names, copyrights and licenses,
or rights with respect to the foregoing, and shall have obtained
assignments of all material leases and other rights of whatever nature,
necessary for the present conduct of the Company's business, without any
known conflict with the rights of others which might result in a material
adverse effect on the business, operations, property or financial or other
condition of the Company.
3.13. The Security Documents.
(a) Upon the due execution and delivery thereof pursuant to this
Agreement, the provisions of the Security Agreement will be effective
to create in favor of the Bank, a legal, valid and enforceable
security interest in all right, title and interest of the Guarantor in
the collateral described therein, which collateral constitutes all of
the Equipment owned by the Guarantor and located at the Facility.
When Uniform Commercial Code financing statements have been filed in
the offices in the jurisdictions listed in Schedule 1 hereto under the
names set forth in such Schedule, the Security Agreement shall
constitute a fully perfected third security interest in all right,
title and interest of the Guarantor in such collateral (except that
the Security Agreement creates a fourth security interest in the back-
up power plant located at the Facility) superior in right to any
Liens, which the Company or any third Person may have against such
collateral or interest therein, except as permitted by Section 6.2,
hereof or by Section 10(b) of the Guarantee.
(b) Upon the due execution and delivery thereof pursuant to this
Agreement, the Mortgage will be effective to grant to the Bank a
legal, valid and enforceable Lien on all the property described
therein, which property includes all of the real property owned by the
Guarantor in Bladen County, North Carolina. When the Mortgage is duly
recorded in the office of the Register of Deeds of Bladen County,
North Carolina and the recording fees and taxes in respect thereof are
paid, the Mortgage shall constitute a fully perfected fourth Lien on
the back-up power plant if the back-up power plant is a fixture and a
third Lien on the balance of the mortgaged property, subject to the
encumbrances and exceptions to title approved by the Bank, and
subordinate only to Liens permitted hereby; and when financing
statements have been filed in the offices listed on Schedule 1 hereto
under the names set forth in such Schedule, the Mortgage shall also
create a legal, valid and enforceable fully perfected third or fourth
security interest in all personal property which is the subject of the
Mortgage, subject to the encumbrances and exceptions to title approved
by the Bank, and subordinate only to Liens permitted hereby. All such
interests of the Bank shall, except as noted above, be superior in
right to any Lien, existing or future, which the Company or any third
Person may have against the mortgaged property or interests therein,
other than as may be expressly permitted in the Mortgage or by Section
6.2 hereof or by Section 10(b) of the Guarantee.
SECTION 4. CONDITIONS PRECEDENT
The obligation of the Bank to make the loan hereunder is subject to
the satisfaction of the following conditions precedent:
4.1. Note. The Bank shall have received the Note conforming to the
requirements hereof, duly executed and delivered by a duly authorized
officer of the Company.
4.2. Legal Opinion of Counsel. The Bank shall have received an
executed legal opinion of Ward and Smith, counsel to the Company, addressed
to the Bank, substantially in the form of Exhibit E hereto and covering
such other matters incidental to the transactions contemplated hereby as
the Bank may reasonably require and satisfactory in form and substance to
the Bank.
4.3. Corporate Proceedings. The Bank shall have received a copy of
the resolutions (in form and substance satisfactory to the Bank) of the
Board of Directors of the Company authorizing (i) the execution, delivery
and performance of this Agreement, (ii) the consummation of the
transactions contemplated hereby, (iii) the borrowings herein provided for
and the granting of the mortgage Liens and security interest pursuant to
the Security Documents, and (iv) the execution, delivery and performance of
the Note, the Security Documents and the other documents provided for in
this Agreement, certified by the Secretary or the Assistant Secretary of
the Company. Such certificate shall state that the resolutions set forth
therein have not been amended, modified, revoked or rescinded as of the
date of such certificate. The Bank shall have also received copies of such
other corporate documents of the Company as it may request.
4.4. Incumbency Certificate of Company. The Bank shall have received
a certificate of the Secretary or an Assistant Secretary of the Company, as
to the incumbency and signature of the officers of the Company executing
this Agreement, the Note and any certificate or other document to be
delivered pursuant hereto or thereto, together with evidence of the
incumbency of such Secretary or Assistant Secretary.
4.5. Corporate Proceedings of Guarantor. The Bank shall have
received a copy of the resolutions (in form and substance satisfactory to
the Bank) of the Board of Directors of the Guarantor authorizing (i) the
execution, delivery and performance of the Guaranty, the Security Agreement
and the Mortgage, (ii) the consummation of the transactions contemplated
hereby and thereby, and (iii) the granting of the mortgage Liens and
security interests pursuant to the Security Documents, certified by the
Secretary or the Assistant Secretary of the Guarantor. Such certificate
shall state that the resolutions set forth therein have not been amended,
modified, revoked or rescinded as of the date of such certificate. The
Bank shall have also received certified copies of the certificate of
incorporation and bylaws of the Guarantor and evidence that the Guarantor
is qualified to do business in North Carolina.
4.6. Incumbency Certificate of Guarantor. The Bank shall have
received a certificate of the Secretary or an Assistant Secretary of the
Guarantor, as to the incumbency and signature of the officers of the
Guarantor executing the Guarantee, the Security Documents and any
certificate or other document to be delivered pursuant hereto or thereto,
together with evidence of the incumbency of such Secretary or Assistant
Secretary.
4.7. Guarantee. The Bank shall have received the Guarantee, duly
executed and delivered by the Guarantor and dated the date hereof.
4.8. No Proceedings or Litigation. No action, suit or proceeding
before any arbitrator or any Governmental Authority shall have been
commenced, no investigation by any Governmental Authority shall have been
threatened, against the Company or the Guarantor or any of the officers or
directors of the Company seeking to restrain, prevent or change the
transactions contemplated by this Agreement in whole or in part or
questioning the validity or legality of the transactions contemplated by
this Agreement or seeking damages in connection with such transactions.
4.9. Security Agreement. The Bank shall have received the Security
Agreement, duly executed and delivered by a duly authorized Responsible
Officer of the Guarantor.
4.10. Mortgage. The Bank shall have received the Mortgage, executed
and delivered by a duly authorized Responsible Officer of the Guarantor and
duly acknowledged.
4.11. Filings, Registrations and Recordings. Any documents
(including, without limitation, Uniform Commercial Code financing
statements) required to be filed, registered or recorded in order to
create, in favor of the Bank, a perfected second Lien on the collateral
described in the Security Documents shall have been properly filed,
registered or recorded in each office in each jurisdiction in which such
filings, registrations and recordations are required; the Bank shall have
received acknowledgment copies of all such filings, registrations and
recordations stamped by the appropriate filing, registration or recording
officer (or, in lieu thereof, other evidence satisfactory to the Bank that
all such filings, registrations and recordations have been made); and the
Bank shall have received evidence that all necessary filing, subscription
and inscription fees and all recording and other similar fees, and all
taxes and other expenses related to such filings, registrations and
recordings have been paid in full by or on behalf of the Company.
4.12. Survey. The Bank shall have received a survey of the real
property conveyed by the Mortgage, in form and substance satisfactory to
the Bank.
4.13. Title Insurance Policies. The Bank shall have received for the
Mortgage a mortgagee's title policy or marked up unconditional binder for
such insurance and any endorsements reflecting amendments to the Mortgage
deemed necessary by the Bank. The policies shall (i) be in amounts
reasonably satisfactory to the Bank; (ii) be issued at ordinary rates;
(iii) insure that the Mortgage insured thereby creates a valid third Lien
on the real property covered by such Mortgage free and clear of all defects
and encumbrances except encumbrances approved by the Bank; (iv) name the
Bank, as the insured thereunder; (v) be in the form of an ALTA Loan Policy
acceptable to the Bank; and (vi) contain such other endorsements and
affirmative coverage as the Bank may request. The Bank shall also have
received evidence satisfactory to it that all premiums in respect of such
policies have been paid by or on behalf of the Company.
4.14. Copies of Documents. The Bank shall have received certified
copies of all recorded documents referred to, or listed as exceptions to
title in, the title policy referred to in paragraph (m) above and copies,
certified by such parties as the Bank may deem appropriate, of all other
documents affecting the properties covered by the Mortgage.
4.15. Insurance. The Bank shall have received evidence satisfactory
to it that the Company or other appropriate party has obtained the policies
of insurance required by the Security Documents and subsection 5.5 of this
Agreement.
4.16. Environmental Compliance. The Bank shall have received a
recent Phase I environmental audit with respect to the Facility and such
additional evidence as it may require that the Facility is in compliance
with all applicable environmental laws and laws relating to hazardous
materials.
4.17. Consents, Licenses, Approvals, etc. The Bank shall have
received certified true copies of all consents, licenses and approvals
required or advisable in connection with the execution, delivery,
performance, validity and enforceability of this Agreement, the Note, the
Guarantee and the Security Documents, and such consents, licenses and
approvals shall be in full force and effect and be satisfactory in form and
substance to the Bank.
4.18. Facility Compliance. The Bank shall have received such
evidence as it may request satisfactory in form and substance to the Bank
that the Facility and the land conveyed by the Mortgage are in compliance
with all Requirements of Law, including, without limitation, evidence that
the land conveyed by the Mortgage is a separate tax parcel and is in
compliance with zoning and subdivision ordinances, evidence that necessary
utilities are available at the Facility, and a letter from an architect or
engineer stating that all permits required for the construction of the
Facility have been obtained.
4.19. Lien Searches. The Bank shall have received the results of
searches for Uniform Commercial Code financing statements, judgments and
tax Liens conducted in the jurisdictions listed on Schedule 1 hereto.
4.20. Facilities for Handicapped. The Bank shall have received and
approved evidence satisfactory to the Bank that the Facility when completed
will comply with all Requirements of Law regarding access or facilities for
handicapped or disabled persons, including, without limitation and to the
extent applicable, The Federal Architectural Barriers Act (42 U.S.C. (S)4151
et seq.), The Fair Housing Amendments Act of 1988 (42 U.S.C. (S)3601 et
seq.), The Americans with Disabilities Act of 1990 (42 U.S.C. (S)12101 et
seq.), The Rehabilitation Act of 1973 (29 U.S.C. (S)794) and any applicable
state statutes relating to access and facilities for handicapped or
disabled persons.
4.21. Evidence of Cost. The Company shall have delivered to the Bank
evidence, satisfactory in form and substance to the Bank, that (i) the
costs of expanding the Facility which have been actually paid by the
Company or the Guarantor plus (ii) the costs of Equipment incurred in
connection with such expansion which have been actually paid by the Company
or the Guarantor equal or exceed $23,402,069.25.
4.22. No Default or Event of Default. No Default or Event of Default
shall have occurred and be continuing hereunder or after giving effect to
the making of the loans hereunder.
4.23. Additional Information. The Bank shall have received, such
additional information and materials which it shall have reasonably
requested, including, without limitation, copies of any debt agreements,
security agreements and other material contracts.
4.24. Additional Matters. All corporate and other proceedings and all
other documents and legal matters in connection with the transactions
contemplated by this Agreement, the Guarantee, the Note, and the Security
Documents shall be reasonably satisfactory in form and substance to the
Bank and its counsel.
SECTION 5. AFFIRMATIVE COVENANTS
The Company hereby agrees that, so long as the Note remains
outstanding and unpaid or any other amount is owing to the Bank hereunder,
the Company shall:
5.1. Financial Statements and Reports. Furnish to the Bank:
(a) as soon as available, but in any event within 120 days after
the end of the fiscal year of the Company, a copy of the consolidated
and consolidating balance sheet of the Company as at the end of such
year and the related consolidated and consolidating statements of
income and retained earnings and paid-in capital and cash flows for
such year, setting forth in each case in comparative form the figures
for the previous year, certified (except for consolidating statements)
without a "going concern" or like qualification or exception, or
qualification arising out of the scope of the audit, by an independent
certified public accountant acceptable to the Bank and certified by a
Responsible Officer;
(b) as soon as available, but in any event not later than 45
days after the end of each accounting quarter of the Company, the
unaudited consolidated and consolidating balance sheet of the Company
as at the end of each such quarter and the related unaudited
consolidated and consolidating statements of income and retained
earnings and paid-in capital and cash flows of the Company for such
quarterly period and the portion of the fiscal year through such date,
setting forth in each case in comparative form the figures for the
previous comparable period, certified by a Responsible Officer
(subject to normal year-end adjustments);
All such financial statements to be complete and correct in all
material respects and be prepared in reasonable detail and in
accordance with GAAP applied consistently throughout the periods
reflected therein and with prior periods.
5.2. Certificates; Other Information. Furnish to the Bank (or in the
case of 5.2(c) below, cause the Guarantor to furnish to the Bank:
(a) concurrently with the delivery of the financial statements
referred to in subsection 5.1(a) above, a certificate of the
independent certified public accountants certifying such financial
statements stating that in making the examination necessary therefor
no knowledge was obtained of any Default or Event of Default, except
as specified in such certificate;
(b) concurrently with the delivery of the financial statements
referred to in subsections 5.1(a) and (b) above, a certificate of a
Responsible Officer of the Company stating that, to the best of such
officer's knowledge, the Company during such period has observed or
performed all of its covenants and other agreements, and satisfied
every condition, contained in this Agreement, the Note and the
Security Documents to be observed, performed or satisfied by it, and
that such officer has obtained no knowledge of any Default or Event of
Default except as specified in such certificate and further
illustrating the calculation of the matters covered by Sections 6.1,
6.6, 6.7, 6.8 and 6.9.
(c) promptly, such additional financial and other information as
the Bank may from time to time reasonably request (including
verifications of the use of the proceeds of the loan made hereunder).
5.3. Payment of Obligations. Pay, discharge or otherwise satisfy at
or before maturity or before they become delinquent, as the case may be,
all its Indebtedness and other obligations of whatever nature, except, in
the case of such other obligations, when the amount or validity thereof is
currently being contested in good faith by appropriate proceedings and
reserves in conformity with GAAP with respect thereto have been provided on
the books of the Company.
5.4. Conduct of Business and Maintenance of Existence. Engage in
business of the same general type as now conducted, and preserve, renew and
keep in full force and effect its corporate existence and take all
reasonable action to maintain all rights, privileges and franchises
necessary or desirable in the normal conduct of its business; comply with
all Contractual Obligations and Requirements of Law except to the extent
that the failure to comply therewith could not, in the aggregate, have a
material adverse effect on the business, operations, property or financial
or other condition of the Company.
5.5. Maintenance of Property, Insurance. Keep all property useful
and necessary in its business in good working order and condition, normal
wear and tear excepted; maintain with financially sound and reputable
insurance companies insurance on all its property in at least such amounts
and against at least such risks as are usually insured against in the same
general area by companies engaged in the same or a similar business,
designating the Bank as loss payee, provided that, in any event, the
Company shall maintain insurance at all times on its tangible personal
property and real property in an amount equal to the replacement cost of
such property at such time; and furnish to the Bank, upon written request,
full information as to the insurance carried.
5.6. Inspection of Property; Books and Records; Discussions. Keep
proper books of record and account in which full, true and correct entries
in conformity with GAAP and all Requirements of Law shall be made of all
dealings and transactions in relation to its business and activities; and
permit representatives of the Bank to visit and inspect any of its
properties and examine and make abstracts from any of its books and records
at any reasonable time and as often as may reasonably be desired, and to
discuss the business, operations, properties and financial and other
condition of the Company with officers and employees of the Company and
with its independent certified public accountants.
5.7. Notices. Promptly give notice to the Bank:
(a) of the occurrence of any Default or Event of Default;
(b) of any (i) default or event of default under any Contractual
Obligation of the Company or (ii) litigation, investigation or
proceeding which may exist at any time between the Company and any
Governmental Authority, which in either case could have a material
adverse effect on the business, operations, property or financial or
other condition of the Company;
(c) of any litigation or proceeding affecting the Company in
which the amount involved is $100,000 or more and not fully covered by
insurance or in which injunctive or similar relief is sought and of
any material adverse development in such litigation or proceeding;
(d) of the following events, as soon as possible and in any
event within 30 days after the Company knows or has reason to know
thereof: (i) the occurrence or expected occurrence of any Reportable
Event with respect to any Plan, or (ii) the institution of proceedings
or the taking or expected taking of any other action by PBGC or the
Company or any Plan, and in addition to such notice, deliver to the
Bank whichever of the following may be applicable: (A) a certificate
of the chief financial officer of the Company setting forth details as
to such Reportable Event and the action that the Company or Commonly
Controlled Entity proposes to take with respect thereto, together with
a copy of any notice of such Reportable Event that may be required to
be filed with PBGC, or (B) any notice delivered by PBGC evidencing its
intent to institute such proceedings or any notice to PBGC that such
Plan is to be terminated, as the case may be; and
(e) of a material adverse change in the business, operations,
property or financial or other condition of the Company.
Each notice pursuant to this subsection shall be accompanied by a
statement of the chief executive officer or chief financial officer of the
Company setting forth details of the occurrence referred to therein and
stating what action the Company proposes to take with respect thereto. For
all purposes of clause (d) of this subsection, the Company shall be deemed
to have knowledge of all facts attributable to the administrator of such
Plan.
instruments, and perform such other acts, as the Bank may determine are
necessary or advisable to maintain the third or fourth priority, as the
case may be, of the Liens of the Security Documents in all property subject
thereto.
SECTION 6. NEGATIVE COVENANTS
The Company hereby agrees that, so long as the Note remains
outstanding and unpaid or any other amount is owing to the Bank hereunder,
the Company shall not, directly or indirectly without the Bank's consent:
6.1. Consolidated Funded Debt. Create, incur, assume or suffer to
exist any Consolidated Funded Debt not in existence on the date of this
Agreement and reflected on the financial statements of the Company
previously delivered to the Bank unless after giving effect thereto,
Consolidated Funded Debt does not exceed the percentage of Consolidated
Capitalization at such time as set forth in the following table:
Percentage of Consolidated
If such time is Capitalization at such time
Before April 30, 1995 55%
On or After April 30, 1995 50%
6.2. Limitation on Liens. Create, incur, assume or suffer to exist,
any Lien on any of its assets or the assets of its Subsidiaries, except as
permitted in the Note Purchase Agreement.
6.3. Limitation on Contingent Obligations. Agree to, or assume,
guarantee, endorse or otherwise in any way, be or become responsible or
liable for, directly or indirectly, any Contingent Obligation, except those
incurred in the ordinary course of business or those in existence on the
date of this Agreement and reflected on the financial statements of the
Company previously delivered to the Bank.
6.4. Prohibition of Fundamental Changes. Except as permitted by the
Note Purchase Agreement, enter into any transaction of merger or
consolidation or amalgamation, or liquidate, wind up or dissolve itself (or
suffer any liquidation or dissolution), or convey, sell, lease, transfer or
otherwise dispose of, in one transaction or a series of transactions, all
or any part of its business or assets or stock in a Subsidiary, whether now
owned or hereafter acquired (including, without limitation, receivables and
leasehold interests but excluding obsolete or worn out property, or
inventory disposed of in the ordinary course of business), or acquire by
purchase or otherwise all or substantially all the business or assets of,
or stock or other evidence of beneficial ownership of, any Person, or make
any material change in its present method of conducting business.
6.5. Dividends. Except as permitted by the Note Purchase Agreement,
declare any dividends on, or make any payment on account of, or set apart
assets for a sinking or other analogous fund for, the purchase, redemption,
retirement or other acquisition of any shares of any class of stock of the
Company, whether now or hereafter outstanding, or make any other
distribution in respect thereof, either directly or indirectly, whether in
cash or property or in obligations of the Company.
6.6. Maintenance of Working Capital. At any time permit the excess
of Consolidated Current Assets of the Company over Consolidated Current
Liabilities of the Company to be less than the amount applicable at such
time set forth in the following table:
Amount Applicable
If such time is at such time
After May 1, 1994 and on or
before April 30, 1995 $ 55,000,000
After April 30, 1995 $ 60,000,000
of the Company over Consolidated Current Liabilities of the Company to be
less than 1.25 to 1.0.
6.8. Consolidated Tangible Net Worth. Permit the Consolidated
Tangible Net Worth of the Company to be less than $150,000,000.00.
6.9. Charge Coverage Ratio. Permit the ratio of (i) Consolidated
EBIT plus Consolidated Lease Expense to (ii) Consolidated Interest Expense
plus Consolidated Lease Expense to be less than 1.50 to 1.00, tested on the
last day of each calendar quarter by calculating the average of the eight
most recent quarterly periods.
6.10. Transactions with Affiliates and Officers. Enter into any
transactions, including, without limitation, the purchase, sale or exchange
of property or the rendering of any services, with any Affiliate, or enter,
assume or suffer to exist any employment or consulting contract with any
Affiliate or any officer thereof, except a transaction or contract which is
in the ordinary course of the Company's business and which is upon fair and
reasonable terms no less favorable to the Company than it would obtain in a
comparable arm's length transaction with a Person not an Affiliate.
6.11. Compliance with ERISA. (a) Terminate any Plan so as to result
in any material liability to PBGC or any material Withdrawal Liability, (b)
engage in or permit any Person to engage in any "prohibited transaction"
(as defined in Section 406 of ERISA or Section 4975 of the Code) involving
any Plan which would subject the Company to any material tax, penalty or
other liability, (c) incur or suffer to exist any material "accumulated
funding deficiency" (as defined in Section 302 of ERISA), whether or not
waived, involving any Plan, or (d) allow or permit to exist any event or
condition which presents a material risk of incurring a material liability
to PBGC.
6.12. Management. Permit any change in senior management of the
Company.
6.13. Trademark Subsidiaries.
(a) Basic Provisions. Except as set forth on Annex 1 hereto and
as otherwise permitted under Section 6.13(b) hereof, the Company will
not, and will not permit any Subsidiaries other than SF Investments,
Inc. to, own any patents, trademarks, service marks, trade names,
copyrights and other similar licenses and intangibles used or useful
in the conduct of the business of the Company or any of its
Subsidiaries. The Company will at all times directly or indirectly
own one hundred percent (100%) of the capital stock of SF Investments,
Inc. and at least eighty percent (80%) of the common stock and one
hundred percent (100%) of the Preferred Stock of Patcud Investments,
Inc. outstanding at such time.
(b) No Sale or Merger. The Company will not permit SF
Investments, Inc. or Patcud Investments, Inc. to merge with or into,
consolidate with, or sell, lease, transfer or otherwise dispose of all
or substantially all of its property to, any other Person or permit
any other Person to merge with or into or consolidate with it (except
Patcud Investments, Inc. may merge into, or sell, lease, transfer or
otherwise dispose of all or substantially all of its assets to, SF
Investments, Inc.). The Company will not permit SF Investments, Inc.
or Patcud Investments, Inc. to sell, lease as lessor, transfer or
otherwise dispose of any patents, trademarks, service marks, trade
names, copyrights and licenses (except Patcud Investments, Inc. may
sell such assets to SF Investments, Inc.); provided that the foregoing
restrictions will not apply to sales, leases, transfers or other
dispositions of each such patent, trademark, service mark, trade name,
copyright and license to the Subsidiary designated as its "User" on
Annex 1 hereto if, on or prior to the date of disposition, such
Subsidiary enters into an enforceable and unconditional Guaranty of
the obligations of the Company hereunder and under the Note upon terms
and conditions satisfactory to the Bank.
(c) No Debt or Liens. The Company will not permit SF
Investments, Inc. or Patcud Investments, Inc. to cause or permit, or
agree or consent to cause or permit in the future (upon the happening
of a contingency or otherwise), any of its property, whether now owned
or hereafter acquired, to be subject to a Lien. The Company will not
at any time permit SF Investments, Inc. or Patcud Investments, Inc. to
be or become liable for any Indebtedness or to issue mandatorily
redeemable stock.
6.14 Capital Expenditures. Incur, on a consolidated basis with its
Subsidiaries, capital expenditures (other than expenditures for normal
replacements in the ordinary course of business) in the fiscal year ending
April 30, 1995 in excess of $85,000,000 or, in any successive fiscal year,
in excess of $50,000,000.
SECTION 7. EVENTS OF DEFAULT
Upon the occurrence of any of the following events:
(a) The Company shall fail to pay any interest on the Note
within five (5) days of the date such amount becomes due, or the
Company shall fail to pay any principal of the Note or any other
amount payable hereunder in accordance with the terms hereof, or
(b) Any representation or warranty made or deemed made by the
Company or the Guarantor herein or in any Security Document, the
Guarantee or in any certificate, document or financial or other
statement furnished at any time under or in connection with this
Agreement, the Guarantee or any Security Document shall prove to have
been incorrect in any material respect on or as of the date made or
deemed made; or
(c) The Company shall default in the observance or performance
of any agreement contained in subsection 5.5 or Section 6 hereof; or
(d) The Company shall default in the observance or performance
of any other covenant or agreement contained in this Agreement, and
such default shall continue unremedied for a period of 30 days; or
(e) Any Security Document or the Guarantee shall cease, for any
reason, to be in full force and effect in accordance with its terms or
any party thereto shall so assert in writing; or the Security
Agreement shall cease, for any reason, to grant to the Bank a legal,
valid and enforceable lien on any of the collateral described therein
or shall cease, for any reason, to have the priority purported to be
created thereby at the time of the execution thereof; or any party to
any Security Document or the Guarantee shall default in the observance
or performance of any of the covenants or agreements contained
therein; or
(f) The Company shall (i) default in any payment of principal of
or interest on any Indebtedness (other than the Note) or in the
payment of any Contingent Obligation, beyond the period of grace, if
any, provided in the instrument or agreement under which such
Indebtedness or Contingent Obligation was created; or (ii) default in
the observance or performance of any other agreement or condition
relating to any such Indebtedness or Contingent Obligation or
contained in any instrument or agreement evidencing, securing or
relating thereto, or any other event shall occur, and as a result of
the events specified in (i) or (ii) above such Indebtedness shall have
become due prior to its stated maturity or such Contingent Obligation
shall have become payable; or
(g) (i) The Company shall commence any case, proceeding or other
action (A) under any existing or future law of any jurisdiction,
domestic or foreign, relating to bankruptcy, insolvency,
reorganization or relief of debtors, seeking to have an order for
relief entered with respect to it, or seeking to adjudicate it a
bankrupt or insolvent, or seeking reorganization, arrangement,
adjustment, winding-up, liquidation, dissolution, composition or other
relief with respect to it or its debts, or (B) seeking appointment of
a receiver, trustee, custodian or other similar official for it, or
for all or any substantial part of its assets, or the Company shall
make a general assignment for the benefit of its creditors; or (ii)
there shall be commenced against the Company any case, proceeding or
other action of a nature referred to in clause (i) above which results
in the entry of an order for relief or any such adjudication or
appointment; or (iii) there shall be commenced against the Company any
case, proceeding or other action seeking issuance of a warrant of
attachment, execution, distraint or similar process against all or any
substantial part of its assets, which results in the entry of an order
for any such relief which shall not have been vacated, discharged or
stayed or bonded pending appeal within 60 days from the entry thereof;
or (iv) the Company shall take any action in furtherance of, or
indicating its consent to, approval of, or acquiescence in, any of the
acts set forth in clause (i), (ii) or (iii) above; or (v) the Company
shall generally not, or shall be unable to, or shall admit in writing
its inability to, pay its debts as they become due; or
(h) (i) Any Person shall engage in any "prohibited transaction"
(as defined in Section 406 of ERISA or Section 4975 of the Code)
involving any Plan, (ii) any "accumulated funding deficiency" (as
defined in Section 302 of ERISA), whether or not waived, shall exist
with respect to any Plan, (iii) a Reportable Event shall occur with
respect to, or proceedings shall commence to have a trustee appointed,
or a trustee shall be appointed, to administer or to terminate, any
Plan, which Reportable Event or institution of proceedings is, in the
reasonable opinion of the Bank, likely to result in the termination of
such Plan for purposes of Title IV of ERISA, and, in the case of a
Reportable Event, the continuance of such Reportable Event unremedied
for ten days after notice of such Reportable Event pursuant to Section
4043(a), (c) or (d) of ERISA is given or the continuance of such
proceedings for ten days after commencement thereof, as the case may
be, (iv) any Plan shall terminate for purposes of Title IV of ERISA,
(v) if on any date, the Withdrawal Liability exceeds $250,000.00, or
(vi) any other event or condition shall occur or exist and in each
case in clauses (i) through (vi) above, such event or condition,
together with all other such events or conditions, if any, could
subject the Company to any tax, penalty or other liabilities which in
the aggregate are material in relation to the business, operations,
property or financial or other condition of the Company, or
(i) One or more judgments or decrees shall be entered against
the Company involving in the aggregate a liability (not paid or fully
covered by insurance) of $100,000.00 or more and all such judgments or
decrees shall not have been vacated, discharged, or stayed within 60
days from the entry thereof; or
(j) Joseph W. Luter, III shall cease to own at least 12% of the
voting stock of the Company or any Person other than Joseph W. Luter,
III shall hold 12% or more of the voting stock of the Company
(calculated on the same basis as the Company calculates stock
ownership for purposes of reporting to the Securities and Exchange
Commission); or
(k) An Event of Default shall occur under the Note Purchase
Agreement.
then, and in any such event, (a) if such event is an Event of Default
specified in paragraph (g) above, all amounts owing under this Agreement
and the Note shall immediately become due and payable, and (b) if such
event is any other Event of Default and has not been cured within any
applicable grace period the Bank may, by notice of default to the Company,
declare the loans hereunder (with accrued interest thereon) and all other
amounts owing under this Agreement and the Note to be due and payable
forthwith, whereupon the same shall immediately become due and payable.
Except as expressly provided above in this Section, presentment, demand,
protest and all other notices of any kind are hereby expressly waived.
SECTION 8. MISCELLANEOUS
8.1 Amendments and Waivers. No provision of this Agreement, the
Note, the Guarantee or any of the Security Documents may be amended or
modified in any way, nor may non-compliance therewith be waived, except
pursuant to a written instrument executed by the Bank and the Company. In
the case of any waiver, the Company and the Bank shall be restored to their
former position and rights hereunder and under the Note, the Guarantee and
the Security Documents, and any Default or Event of Default waived shall be
deemed to be cured and not continuing; but no such waiver shall extend to
any subsequent or other Default or Event of Default, or impair any right
consequent thereon.
8.2 Notices. All notices, requests and demands to or upon the
respective parties hereto to be effective shall be in writing, which shall
include telefax and, unless otherwise expressly provided herein, shall be
deemed to have been duly given or made when delivered by hand, or when
deposited in the mail, postage prepaid, or, in the case of telefaxed
notice, when delivered, addressed as follows or to such address as may be
hereafter notified by the respective parties hereto and any future holders
of the Note:
The Company: Smithfield Foods, Inc.
501 North Church Street
Smithfield, Virginia 23430
Attn: Aaron D. Trub
Vice President
The Bank: NationsBank of Virginia, N.A.
6610 Rockledge Drive
1st Floor
Bethesda, Maryland 20817
Attn: Michael R. Heredia
Vice President
provided that any notice, request or demand to or upon the Bank shall not
be effective until received.
8.3 No Waiver; Cumulative Remedies. No failure to exercise and no
delay in exercising, on the part of the Bank, any right, remedy, power or
privilege hereunder, under the Guarantee or under any Security Document,
shall operate as a waiver thereof, nor shall any single or partial exercise
of any right, remedy, power or privilege hereunder or thereunder preclude
any other or further exercise thereof or the exercise of any other right,
remedy, power or privilege. The rights, remedies, powers and privileges
herein or therein provided are cumulative and not exclusive of any rights,
remedies, powers and privileges provided by law.
8.4 Survival of Representations and Warranties. All representations
and warranties made hereunder, under the Guarantee and under any Security
Document and in any document, certificate or statement delivered pursuant
hereto or thereto or in connection herewith or therewith shall survive the
execution and delivery of this Agreement, the Note, the Guarantee and such
Security Document.
8.5 Payment of Expenses and Taxes. The Company agrees (a) to pay or
reimburse the Bank for all of its out-of-pocket costs and expenses incurred
in connection with the development, preparation and execution of, and any
amendment, supplement or modification to, this Agreement, the Guarantee,
the Note and the Security Documents and any other documents prepared in
connection herewith or therewith, and the consummation of the transactions
contemplated hereby and thereby, including, without limitation, the fees
and disbursements of counsel to the Bank, (b) to pay or reimburse the Bank
for all its costs and expenses incurred in connection with the enforcement
or preservation of any rights under this Agreement, the Note, the Guarantee
and the Security Documents and any such other documents, including, without
limitation, fees and disbursements of counsel to the Bank, (c) to pay,
indemnify, and to hold the Bank harmless from, any and all recording and
filing fees and taxes and any and all liabilities with respect to, or
resulting from any delay in paying, stamp, excise and other taxes, if any,
which may be payable or determined to be payable in connection with the
execution and delivery and recordation of, or consummation of any of the
transactions contemplated by, or any amendment, supplement or modification
of, or any waiver or consent under or in respect of, this Agreement, the
Note, the Security Documents, the Guarantee and any such other documents,
and (d) to pay, indemnify, and hold the Bank harmless from and against any
and all other liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements of any kind or
nature whatsoever with respect to the execution, delivery, enforcement,
performance and administration of this Agreement, the Note, the Guarantee
and any of the Security Documents or any transaction financed in whole or
in part directly or indirectly with the proceeds of any loans made under
this Agreement (all the foregoing, collectively, the "indemnified
liabilities"), provided, that the Company shall have no obligation
hereunder with respect to indemnified liabilities arising from (i) the
gross negligence or willful misconduct of the Bank or (ii) legal
proceedings commenced against the Bank by any security holder or creditor
thereof arising out of and based upon rights afforded any such security
holder or creditor solely in its capacity as such. The agreements in this
subsection shall survive repayment of the Note and all other amounts
payable hereunder.
8.6 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the Company and the Bank, all future holders of the
Note and their respective successors and assigns, except that the Company
may not assign or transfer any of its rights or obligations under this
Agreement without the prior written consent of the Bank.
8.7 Setoff.
(a) The Company agrees that the Bank shall have the right to set
off and apply against all amounts owing to the Bank by the Company
under the Note, the Security Documents and this Agreement, any amount
owing to the Company from the Bank, subject to the rights of others,
if any, in such amounts.
(b) In addition to any rights and remedies of the Bank provided
by law, the Bank shall have the right, without prior notice to the
Company, any such notice being expressly waived by the Company to the
extent permitted by applicable law, upon the filing of a petition
under any of the provisions of the federal bankruptcy act or
amendments thereto, by or against; the making of an assignment for the
benefit of creditors by; the application for the appointment, or the
appointment, of any receiver of, or of any of the property of; the
issuance of any execution against any of the property of; the issuance
of a subpoena or order, in supplementary proceedings, against or with
respect to any of the property of; the Company to set off and apply
against all amounts owing to the Bank by the Company under the Note,
the Security Documents, and this Agreement, and against any other
Indebtedness, whether matured or unmatured, of the Company to the
Bank, any amount owing from the Bank to the Company, at, or at any
time after, the happening of any of the above-mentioned events, and
the aforesaid right of setoff may be exercised by the Bank against the
Company or against any trustee in bankruptcy, debtor in possession,
assignee for the benefit of creditors, receiver, or execution,
judgment or attachment creditor of the Company, or any of them, or
against anyone else claiming through or against the Company or such
trustee in bankruptcy, debtor in possession, assignee for the benefit
of creditors, receiver, or execution, judgment or attachment creditor
of the Company, or any of them, or against anyone else claiming
through or against the Company or such trustee in bankruptcy, debtor
in possession, assignee for the benefit of creditors, receiver, or
execution, judgment or attachment creditor of the Company, or any of
them, or against anyone else claiming through or against the Company
or such trustee in bankruptcy, debtor in possession, assignee for the
benefit of creditors, receivers, or execution, judgment or attachment
creditor, notwithstanding the fact that such right of setoff shall not
have been exercised by the Bank prior to the making, filing or
issuance, or service upon the Bank of, or of notice of, any such
petition; assignment for the benefit of creditors; appointment or
application for the appointment of a receiver; or issuance of
execution, subpoena or order or warrant.
8.8 Counterparts. This Agreement may be executed by one or more of
the parties to this Agreement on any number of separate counterparts and
all of said counterparts taken together shall be deemed to constitute one
and the same instrument. A set of the copies of this Agreement signed by
all parties shall be lodged with the Company and the Bank.
8.9 Governing Law. This Agreement, the Note, the Guarantee and the
Security Documents and the rights and obligations of the parties under this
Agreement, the Note, the Guarantee and the Security Documents shall be
governed by, and construed and interpreted in accordance with, the law of
the State of Virginia, except to the extent that the perfection of any Lien
on any collateral may be governed by the law of the state in which such
collateral is located.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered by their properly and duly authorized
officers as of the day and year first above written.
SMITHFIELD FOODS, INC.
By:__________________________
Title:_______________________
NATIONSBANK OF VIRGINIA, N.A.
By:__________________________
Title:_______________________
Schedule 1
Jurisdictions for filing Uniform Commercial Code financing statements
under the name Carolina Food Processors, Inc.:
Register of Deeds, Bladen County, North Carolina
Secretary of State, North Carolina
ANNEX 1
<TABLE>
<CAPTION>
MARK GOODS REG/APPLN STATUS OWNER USER FILE
<S> <C> <C> <C> <C> <C> <C>
ABERDEEN cooked and uncooked REG. ISSUED 12/18/90 SF Gwaltney 40860
FARMS smoked ham, sliced 1,628,491 AFFIDAVITS: Investments
bacon, chicken 12/18/96
frankfurters, RENEWAL:
chicken, pork and 12/18/2000
bacon hot dogs,
pork sausage,
bologna
ABERDEEN cooked and uncooked REG. ISSUED 1/29/91 SF Gwaltney 40861
FARMS & Oval smoked ham, sliced 1,633,321 AFFIDAVITS: Investments
& Scenery bacon, chicken 1/29/97
Design frankfurters, RENEWAL:
chicken, pork and 1/29/2001
bacon hot dogs,
pork sausage,
bologna
AGAR bacon and cooked REG. ISSUED 1/8/91 PatCud Patrick 40828
hams 1,631,010 AFFIDAVITS: Investments Cudahy
1/8/97
RENEWAL: 1/8/2001
APPLE BLOSSOM cooked ham REG. 747,697 ISSUED 4/2/63 PatCud Patrick 40830
RENEWAL: 4/2/2003 Investments Cudahy
APPLE BLOSSOM bacon, turkey ham REG. ISSUED 8/29/91 PatCud Patrick 40829
and sausage 1,654,655 AFFIDAVITS: Investments Cudahy
8/20/97
RENEWAL:
8/20/2001
BAKE-KING hydrogenated lard REG. 571,213 ISSUED 3/3/53 PatCud Patrick 40831
RENEWAL: 3/3/93 Investments Cudahy
BIG 8'S frankfurters REG. 974,101 ISSUED 11/27/73 SF Gwaltney 40826
RENEWAL: 11/27/93 Investments
</TABLE>
<TABLE>
<CAPTION>
MARK GOODS REG/APPLN STATUS OWNER USER FILE
<S> <C> <C> <C> <C> <C> <C>
BLUEBIRD & hams and pork REG. 968,746 ISSUED 9/18/73 PatCud Patrick 40832
Design shoulders RENEWAL: 9/18/93 Investments Cudahy
BRIGGS & fresh, canned, and REG. 628,792 ISSUED 6/12/56 Esskay, Inc. ??? 40823
Design smoked hams, bacon, RENEWAL: 6/12/96
lard, sausage,
luncheon meats,
scrapple, hamburger
steak, liverwurst,
salami, bologna,
pepper loaf, pork
and cheese loaf,
olive loaf
BRITISH pork products S.N. 245,227 FILED 2/7/92 Smithfield Smithfiel 40___
RESPONSE DUE: Foods d Foods _
1/1/93 NEED TO
ASSIGN TO SF
INVESTMENTS
WHEN USE
BEGINS
BURST OF bacon S.N. _____ FILED 11/12/92 PatCud Patrick 41137
BACON Investments Cudahy
CEBECO smoked meats- REG. 372,712 ISSUED 11/14/30 PatCud Patrick 40833
(stylized) namely, bacon RENEWAL: 11/14/99 Investments Cudahy
CIRCLE "A" pork shoulders REG. ISSUED 2/21/78 PatCud Patrick 40834
BRAND & 1,086,100 RENEWAL: 2/21/98 Investments Cudahy
Branding Iron
Design
CORNER ham and luncheon REG. ISSUED 10/27/98 SF Gwaltney 40863
BUTCHER meats 1,463,023 AFFIDAVITS: Investments
10/27/93
</TABLE>
<TABLE>
<CAPTION>
MARK GOODS REG/APPLN STATUS OWNER USER FILE
<S> <C> <C> <C> <C> <C> <C>
CRAFT MASTER pork products S.N. 308,887 FILED 4/1/92 Patrick Patrick 40679
Cudahy NEED Cudahy
TO ASSIGN TO
PATCUD AFTER
USE BEGINS
CYPRESS smoked, sliced REG. 598,572 ISSUED 11/23/54 SF Gwaltney 40865
bacon RENEWAL: 11/23/94 Investments
DANDY prepared meats- REG. 670,691 ISSUED 12/2/58 PatCud Patrick 40835
namely, bacon, RENEWAL: 12/2/98 Investments Cudahy
vienna sausage,
potted meat and
pork jowls
DANZIG & ham REG. ISSUED 7/20/76 PatCud Patrick 40836
Design 1,044,326 RENEWAL: 7/29/96 Investments Cudahy
EASY-KARV ham REG. ISSUED 3/31/87 - SF Smithfiel 40866
1,435,143 Supplemental Investments d Packing
Register
RENEWAL:
3/31/2007
EL GORDITO rendered pork fat REG. ISSUED 6/28/55 PatCud Patrick 40837
(stylized) 608,072 RENEWAL: 6/28/95 Investments Cudahy
"The little
fat one"
ENGLISH meat S.N. 260,923 FILED 3/30/92 Smithfield Smithfiel 40629
RESPONSE DUE Foods d Foods
1/8/93 NEED TO
ASSIGN TO SF
INVESTMENTS
WHEN USE
BEGINS
</TABLE>
<TABLE>
<CAPTION>
MARK GOODS REG/APPLN STATUS OWNER USER FILE
<S> <C> <C> <C> <C> <C> <C>
ESS-KAY creamery butter, REG. 154,687 ISSUED 4/18/22 SF Esskay 40689
(stylized) pure lard, hams, RENEWAL: Investments
bacon, shoulders, 4/18/2002
sausages, pork
rolls, dried beef,
cheese, and lard
compounds made of
cottonseed oil
ESS-KAY lards REG. 154,807 ISSUED 5/9/22 SF Esskay 40868
REFINED PURE RENEWAL: 5/9/2002 Investments
LARD, SK &
Design
ESSKAY & hams, bacon, REG. ISSUED 7/2/91 SF Esskay 40870
Curved frankfurters, 1,649,603 AFFIDAVITS: Investments
Rectangle sausages, bologna 7/2/97
background RENEWAL: 7/2/2001
F.F.V. cured meats, namely REG. ISSUED 2/12/91 SF Smithfiel 40871
hams 1,634,925 AFFIDAVITS: Investments d Packing
2/12/97
RENEWAL:
2/12/2001
FLAVOR-TAINER bacon REG. ISSUED 7/17/90 PatCud Patrick 40838
1,606,560 AFFIDAVITS: Investments Cudahy
7/17/96
RENEWAL:
7/17/2010
FROM THE LAND cooked Smithfield REG. 699,087 ISSUED 6/7/60 SF Gwaltney 40872
OF PEANUTS hams, uncooked RENEWAL: 6/7/2000 Investments
Smithfield hams,
smoked ham, sausage
and lard
</TABLE>
<TABLE>
<CAPTION>
MARK GOODS REG/APPLN STATUS OWNER USER FILE
<S> <C> <C> <C> <C> <C> <C>
GWALTNEY bacon, sausage, S.N. 183,867 FILED 7/11/91 SF Gwaltney 40678
frankfurters made Investments
of chicken, pork
and bacon, bologna,
smoked hams, fresh
hams, picnics, pork
tenderloin tips,
pork ribs, pork
butts and pork
chitterlings
GWALTNEY & smoked, cooked and REG. 815,084 ISSUED 9/13/66 - SF Gwaltney 40873
Oval Design boned hams, bacon, (S)2(f) Investments
(lined for sausage and lard RENEWAL:
red) 9/13/2006
GWALTNEY & bacon, sausage, S.N. 183,660 FILED 7/11/91 ownership Gwaltney 40677
Oval Design frankfurters made PUBLISHED 8/25/92 needs
of chicken, pork correction:
and bacon, bologna, application
smoked hams, fresh filed by SF
hams, picnics, pork Investments,
tenderloin tips, then
pork ribs, port unnecessary
butts and pork assignment
chitterlings from gwaltney
to SF filed;
as published
applicant is
Gwaltney of
Smithfield
GWALTNEY frankfurters, REG. ISSUED 2/20/79 SF Gwaltney 41856
SILVER bacon, ham, sausage 1,113,726 RENEWAL: 2/20/99 Investments
SERVICE & and lunch meat
Design
</TABLE>
<TABLE>
<CAPTION>
MARK GOODS REG/APPLN STATUS OWNER USER FILE
<S> <C> <C> <C> <C> <C> <C>
HAMDINGERS ham patties REG. ISSUED 1/27/76 PatCud Patrick 40839
1,031,614 RENEWAL: 1/27//96 Investments Cudahy
HAMILTON'S 40676
TAVERN HAM
HANCOCK'S sliced and whole REG. 870,563 ISSUED 6/3/69 SF Gwaltney 40874
COUNTRY BRAND hams, ham butts, RENEWAL: 6/3/99 Investments
& Design ham hocks, sausage
and bacon and pork
side meat
HI-FLAKE shortening of REG. 670,706 ISSUED 12/2/58 PatCud Patrick 40840
animal origin RENEWAL: 12/2/98 Investments Cudahy
HIGHLAND pork and beef REG. 163,395 ISSUED 1/9/23 SF Esskay 40875
(stylized) products; namely RENEWAL: 1/9/2003 Investments
ham, bacon, corned
beef and cooked
shoulder
HOME OF SWEET ham, ham patties REG. ISSUED 1/26/88 PatCud Patrick 40842
APPLE-WOOD and ham and cheese 1,474,345 AFFIDAVITS: Investments Cudahy
SMOKE FLAVOR patties 1/26/94
RENEWAL:
1/26/2008
HOME OF SWEET bacon, fresh and REG. ISSUED 4/9/91 PatCud Patrick 40841
APPLE-WOOD dry sausage and 1,640,636 AFFIDAVITS: Investments Cudahy
SMOKE FLAVOR smoked and cooked 4/9/97
hams RENEWAL: 4/9/2001
HYDROLARD hydrogenated lard REG. 607,458 ISSUED 6/14/55 - PatCud Patrick 40843
(stylized) Supplemental Investments Cudahy
Register
RENEWAL: 6/14/95
JACK SPRAT bacon and ham REG. 122,466 ISSUED 8/29/18 PatCud Patrick 40844
(stylized) RENEWAL: 8/20/98 Investments Cudahy
</TABLE>
<TABLE>
<CAPTION>
MARK GOODS REG/APPLN STATUS OWNER USER FILE
<S> <C> <C> <C> <C> <C> <C>
JAMESTOWN cured and smoked REG. 875,734 ISSUED 8/26/69 SF Smithfiel 40876
ham, slab and RENEWAL: 8/26/99 Investments d Packing
sliced bacon, fresh
and smoked sausage,
bologna and
frankfurters
JORDAN'S ham, bacon and pork REG. 544,493 ISSUED 7/3/51 SF Smithfiel 40877
(stylized) shoulder steaks RENEWAL: 7/3/2001 Investments d Foods
KING hot dogs S.N. 242,876 FILED 1/31/92 Gwaltney of Gwaltney 40685
RICHARD'S STATEMENT OF USE Smithfield,
DUE 3/15/93 Ltd. NEEDS
ASSIGNMENT TO
SF
INVESTMENTS
AFTER USE
BEGINS
LA FORTUNA dry sausage, namely REG. ISSUED 8/14/90 PatCud Patrick 40845
salami 1,609,953 AFFIDAVITS: Investments Cudahy
8/14/96
RENEWAL:
8/14/2000
LUTER'S cured ham, cooked REG. 568,899 ISSUED 1/6/53 SF Smithfiel 40878
ham RENEWAL: 1/6/2003 Investments d Packing
MAPLEAN ham S.N. 214,625 FILED: 10/19/91 Patrick Patrick 4____
STATEMENT OF USE Cudahy NEEDS Cudahy
DUE 2/11/93 ASSIGNMENT TO
PATCUD AFTER
USE BEGINS
MASH'S & Oval meats and meat REG. ISSUED 7/11/89 Esskay, Inc. Esskay 40827
Design products - namely, 1,547,564 AFFIDAVITS:
bacon, hams, 7/11/95
pastrami, corned RENEWAL:
beef and roast beef 7/11/2009
</TABLE>
<TABLE>
<CAPTION>
MARK GOODS REG/APPLN STATUS OWNER USER FILE
<S> <C> <C> <C> <C> <C> <C>
MASH'S & hams REG. 85-6488 ISSUED 7/1/75 Esskay, Inc. Esskay 40824
Design RENEWAL: 7/1/95
MARYLAND
STATE
REGISTRATION
MASH'S & corned beef brisket REG. 85-6489 ISSUED 7/1/75 Esskay, Inc. Esskay 40825
Design RENEWAL: 7/1/95
MARYLAND
STATE
REGISTRATION
MASH'S & corned beef round REG. 85-6490 ISSUED 7/1/75 Esskay, Inc. Esskay 40826
Design RENEWAL: 7/1/95
MARYLAND
STATE
REGISTRATION
MAXI LEAN pork S.N. 254,011 ISSUED 3/10/92 Patrick Patrick 40681
PUBLISHED 8/18/92 Cudahy NEEDS Cudahy
ASSIGNMENT TO
PATCUD AFTER
USE BEGINS
OLDE fresh sausage, REG. ISSUED 10/14/80 SF Gwaltney 40879
SMITHFIELD bacon and ham 1,140,468 RENEWAL: Investments
10/14/2000
OLDE frankfurters REG. ISSUED 6/2/87 SF Gwaltney 40880
SMITHFIELD 1,441,351 RENEWAL: 6/2/2007 Investments
PAGAN hams, picnics, REG. ISSUED 1/21/41 SF Gwaltney 40881
(stylized) bacon and shoulder 384,542 RENEWAL: Investments
butts 1/21/2001
PATRICK'S bacon S.N. FILED: 3/20/92 PatCud Patrick 40684
PRIDE 257,265 PUBLISHED 10/6/92 Investments Cudahy
</TABLE>
<TABLE>
<CAPTION>
MARK GOODS REG/APPLN STATUS OWNER USER FILE
<S> <C> <C> <C> <C> <C> <C>
PARTICK'S ham REG. ISSUED 4/9/91 PatCud Patrick 4____
PRIDE 1,640,648 AFFIDAVITS: Investments Cudahy
4/9/97
RENEWAL: 4/9/2001
PAVONE beef and pork REG. ISSUED 11/14/39 PatCud Patrick 40847
products - namely, 372,713 RENEWAL: 11/14/99 Investments Cudahy
salami sausages,
peppered butts and
prosciutto (ham)
PEPPERINOS pepporoni REG. ISSUED 8/14/90 PatCud Patrick 40848
1,609,955 AFFIDAVITS: Investments Cudahy
8/14/96
RENEWAL:
8/14/2000
QUEEN shortening prepared REG. 681,220 ISSUED 6/30/59 PatCud Patrick 40849
O'HEARTS from meat fats and RENEWAL: 6/30/99 Investments Cudahy
vegetable oils
REALEAN hams REG. ISSUED 12/16/86 - PatCud Patrick 40850
1,421,583 Supplemental Investments Cudahy
Register
RENEWAL:
12/16/2006
ROSSO dry sausage, namely REG. ISSUED 8/14/90 PatCud Patrick 40851
("Red") pepperoni 1,609,954 AFFIDAVITS: Investments Cudahy
8/14/96
RENEWAL:
8/14/2000
ROYALEAN ham S.N. 234,470 FILED 12/27/91 Patrick Patrick 40682
STATEMENT OF USE Cudahy Cudahy
DUE: 3/19/93 NEEDS
ASSIGNMENT TO
PATCUD AFTER
USE BEGINS
</TABLE>
<TABLE>
<CAPTION>
MARK GOODS REG/APPLN STATUS OWNER USER FILE
<S> <C> <C> <C> <C> <C> <C>
SIGNAL frankfurters, hams, REG. ISSUED 2/20/79 SF Gwaltney 40882
fresh and smoked 1,113,723 RENEWAL: 2/20/99 Investments
sausage and bologna
SILVER LABEL fresh, canned, REG. 900,879 ISSUED 10/13/70 SF Esskay 40684
frozen, smoked and RENEWAL: Investments
processed ham, 10/13/2000
pork, bacon and
luncheon meats
SK & Design creamery butter, REG. 156,921 ISSUED 7/18/22 SF Esskay 40885
pure lard, hams, RENEWAL: Investments
bacon, shoulders, 7/28/2002
sausages, pork
rolls, dried beef
and cheese
SMITHFIELD BY fresh meats, hams, REG. ISSUED 10/17/78 SF Smithfiel 40886
LUTER & House bacon, sausage, 1,104,410 RENEWAL: 10/17/98 Investments d Packing
Design franks, lard CHECK
ASSIGNMENT
SMITHFIELD'S restaurant services REG. ISSUED 3/14/89 SF Gregory 40687
CHICKEN 'N specializing in 1,530,259 AFFIDAVITS: Investments Allen
BAR-B-Q serving barbeque 3/14/95 Moore
chicken dinners RENEWAL:
3/14/2009
SMITHFIELD'S ? REG. 0006163 ISSUED 9/17/85 SF Gregory 41854
CHICKEN 'N RENEWAL: 9/17/95 Investments Allen
BAR-B-Q Moore
North
Carolina
state
registration
</TABLE>
<TABLE>
<CAPTION>
MARK GOODS REG/APPLN STATUS OWNER USER FILE
<S> <C> <C> <C> <C> <C> <C>
SNOW BALL lard, tallow, REG. ISSUED 12/25/90 PatCud Patrick 40852
animal fat 1,629,306 AFFIDAVITS: Investments Cudahy
shortening, 12/26/96
hydrogenated lard RENEWALS:
or tallow, and 12/25/2000
deodorized lard or
tallow
</TABLE>
SMITHFIELD FOODS, INC.
INCENTIVE BONUS PLAN
1. Purpose. Smithfield Foods, Inc. hereby establishes an Incentive
Bonus Plan (the "Plan") applicable to Joseph W. Luter, III, as President
and Chief Executive Officer of the Company ("Executive"). The Company
intends to provide the Executive with incentive bonuses that are related to
and measured by the Company's performance under a program intended to meet
the requirements of Code section 162(m) and regulations thereunder. The
Plan was adopted by the Committee and ratified by the Board on January 26,
1994 and is subject to approval of the Company's stockholders. The Plan is
effective as of May 3, 1993.
2. Definitions. As used in the Plan, the following terms have the
meanings indicated.
(a) "Auditor" means the independent public accounting firm then
employed by the Company to prepare the Company's financial statements.
(b) "Beneficiary" means the person or persons designated by the
Executive in a writing filed with the Company to receive his Bonus
Payment upon his death.
(c) "Board" means the board of directors of the Company.
(d) "Bonus Base" means the consolidated net income of the
Company and its subsidiaries prepared in accordance with generally
accepted accounting principles before (i) Bonus Payments to Executive,
(ii) accounting for minority ownership interests in subsidiaries,
(iii) incentive payments due officers based on income approved by the
Board, and (iv) applicable federal and state income taxes.
(e) "Bonus Payment" means the amount due the Executive under the
Bonus Plan, as computed by the Company, and certified by the
Committee.
(f) "Cause" means (i) continued neglect by Executive of his
employment duties (as reasonably determined by the Company's Board of
Directors) after delivery of written notice thereof to Executive
specifying with particularity the duties Executive has neglected, (ii)
willful misconduct in connection with the performance of Executive's
duties, including by way of example but without limitation,
intentional misappropriation of funds or property of the Company or
any of its subsidiaries, or securing or attempting to secure
personally any profit in connection with any transaction entered into
on behalf of the Company or any of its subsidiaries, (iii) conduct by
Executive that would result in material injury to the reputation of
the Company or any of its subsidiaries (whether publicly known or
unknown), including by way of example but without limitation, pleading
guilty to or conviction of a felony involving moral turpitude, or (iv)
certification by a physician that Executive is unable to regularly
perform his duties hereunder by reason of Executive's addiction to
alcohol or a controlled substance.
(g) "Code" means the Internal Revenue Code of 1986, as amended,
and regulations thereunder.
(h) "Committee" means two or more directors appointed by the
Board who are "outside directors" within the meaning of section 162(m)
of the Internal Revenue Code. The Committee may be a duly appointed
sub-committee of the Compensation Committee.
(i) "Company" means Smithfield Foods, Inc., a Delaware
corporation.
(j) "Disabled" means, in general, the inability to perform the
services for which the Executive was employed. The Committee shall
determine whether a Disability exists and such determination shall be
conclusive.
(k) "Executive" means Joseph W. Luter, III.
(l) "1993 Bonus Plan" means the incentive bonus plan covering
the Executive adopted by the Board on January 18, 1993 as in effect
for the calendar year 1993.
(m) "Transition Payments" means the portion of the aggregate
payments made to the Executive pursuant to the 1993 Bonus Plan with
respect to the Bonus Base for the period May 3 through January 2,
1994, computed in accordance with the 1993 Bonus Plan.
3. Incentive Bonuses.
(a) Executive shall be entitled to receive as a Bonus Payment
with respect to the fiscal year beginning May 3, 1993 and ending May 1,
1994, an amount in cash equal to the sum of (i) 1% of the first $15,000,000
of the Bonus Base, and (ii) 2% of the excess of the Bonus Base over
$15,000,000, less (iii) any Transition Payments.
(b) Subject to (c), Executive shall be entitled to receive as a
Bonus Payment with respect to the fiscal year beginning May 2, 1994 and
ending April 30, 1995, and each fiscal year thereafter, and until the Plan
is terminated by the Company, an amount in cash equal to the sum of (1) 1%
of the first $15,000,000 of the Bonus Base, and (2) 2% of the excess of the
Bonus Base over $15,000,000.
(c) The Committee may before the first day of each fiscal year
beginning on or after May 2, 1994, establish such other threshold and
percentage requirements for receipt of a Bonus Payment as the Committee
shall deem appropriate.
(d) Notwithstanding the provisions of (a) and (b), the Committee
expressly reserves the right to reduce or eliminate entirely any Bonus
Payment if it determines it is in the best interests of the Company to do
so. Such determination shall be conclusive and binding.
4. Payment of Incentive Bonuses. The Bonus Payment will be made (i)
after the date the Company's audited financial statements have been
certified by the Auditor for the relevant fiscal year of computation and
the Committee has certified that the performance criteria have been met,
and (ii) before the date by which the Bonus Payment must be made to be
otherwise deductible by the Company.
5. Termination of Employment. If Executive ceases to be employed,
his right to receive a Bonus Payment shall be governed by the following
principles:
(a) If the termination occurs as a result of death, Disability,
termination by the Company without Cause, retirement or voluntarily by
the Executive, the Executive (or the Executive's Beneficiary in the
event of death) shall be entitled to receive an amount equal to the
Bonus Payment Executive would have received if the last day of the
fiscal year coincided with the date of Executive's termination of
employment, computed based on unaudited financial information.
(b) If the termination of employment occurs for Cause, the
Executive shall forfeit all rights to a Bonus Payment for the fiscal
year in which such termination of employment occurs.
6. Administration.
(a) The Plan shall be administered by the Compensation Committee
of the Board of Directors (the "Committee"), which shall be comprised
solely of two or more "outside directors", as that term is defined for
purposes of Code section 162(m).
(b) The Board from time to time may appoint members previously
appointed and may fill vacancies, however caused, in the Committee.
Insofar as it is necessary to satisfy the requirements of Section 16(b) of
the Securities Exchange Act of 1934, no member of the Committee shall be
eligible to participate in the Plan or in any other similar plan of the
Company or any Parent or Subsidiary of the Company.
(c) If any member of the Committee fails to qualify as an
"outside director" or otherwise meet the requirements of this section, such
person shall immediately cease to be a member of the Committee solely for
purposes of the Plan and shall not take part in future Committee
deliberations.
(d) The Committee may adopt rules and regulations for carrying
out the Plan, and the Committee may take such actions as it deems
appropriate to ensure that the Plan is administered in the best interests
of the Company. The Committee has the authority to construe and interpret
the Plan, resolve any ambiguities, and make determinations with respect to
the eligibility for or amount of any award. The interpretation,
construction and administration of the Plan by the Committee shall be final
and conclusive. The Committee may consult with counsel, who may be counsel
to the Company, and shall not incur any liability for any action taken in
good faith in reliance upon the advice of counsel.
7. Rights. Participation in the Plan and the right to receive cash
awards under the Plan shall not give Executive any proprietary interest in
the Company, any subsidiary or any of their assets. No trust fund shall be
created in connection with the Plan, and there shall be no required funding
of amounts that may become payable under the Plan. Executive shall for all
purposes be a general creditor of the Company. The interests of Executive
cannot be assigned, anticipated, sold, encumbered or pledged and shall not
be subject to the claims of his creditors. Nothing in the Plan shall
confer upon Executive the right to continue in the employ of the Company or
any subsidiary or shall interfere with or restrict in any way the right of
the Company and its subsidiaries to discharge Executive at any time for any
reason whatsoever, with or without cause.
8. Successors. The Plan shall be binding on the Executive and his
personal representatives. If the Company becomes a party to any merger,
consolidation, reorganization or other corporate transaction, the Plan
shall remain in full force and effect as an obligation of the Company or
its successor in interest.
9. Amendment and Termination. The Board may amend or terminate the
Plan at any time as it deems appropriate; provided that (a) no amendment or
termination of the Plan after the end of a fiscal year may increase the
Bonus Payment for the fiscal year just ended, and (b) to the extent
required to meet the requirements of Code section 162(m) for performance-
based compensation, any amendment that makes a material change to the Plan
must be approved by the stockholders of the Company. The Board is
specifically authorized to amend the Plan and take such other action as
necessary or appropriate to comply with Code section 162(m) and regulations
issued thereunder, and to comply with or avoid administration of the Plan
in a manner that could cause a Participant to incur liability under Section
16(b) of the Securities Exchange Act of 1934 and regulations issued
thereunder.
10. Construction. The Plan shall be construed in accordance with the
laws of Delaware. The headings in this Plan have been inserted for
convenience of reference only and are to be ignored in any construction of
the provisions. If a provision of this Plan is not valid, that invalidity
does not affect other provisions.
EXHIBIT 11
SMITHFIELD FOODS, INC.
COMPUTATION OF NET INCOME PER COMMON SHARE
Income and the number of shares used in the computation of net income per
common and common equivalent shares were computed as follows:
<TABLE>
<CAPTION>
52 Weeks 52 Weeks 52 Weeks
Ended Ended Ended
Income April 30,1995 May 1, 1994 May 2, 1993
<S> <C> <C> <C>
Net income $27,840,000 $19,702,000 $ 3,989,000
Dividends accumulated for
Series B preferred stock (675,000) (675,000) (365,000)
Net income available to
common stockholders $27,165,000 $19,027,000 $ 3,624,000
Shares
Weighted average common shares:
Outstanding 16,397,000 16,276,000 15,842,000
Incremental common shares for
outstanding stock options
and dilutive preferred shares 662,000 492,000 530,000
Common shares for computation 17,059,000 16,768,000 16,372,000
Net income per common share $1.59 $1.13 $ .22
</TABLE>
FINANCIAL DISCUSSION
OPERATIONS FISCAL 1995 COMPARED TO FISCAL 1994 Sales in fiscal 1995 increased
$123.0 million, or 8.8%, from fiscal 1994. The increase was the result of an
18.0% increase in sales tonnage offset by a 7.8% decrease in unit selling prices
due to lower live hog costs. The increase in sales tonnage was the result of a
16.5% increase in fresh pork tonnage combined with a 17.1% increase in processed
meats tonnage.
Cost of sales increased $74.9 million, or 6.2%,in fiscal 1995, primarily
due to the increased sales tonnage offset by a 16.0% decrease in the cost of
live hogs. Gross profit increased $48.1 million, or 25.3%, in fiscal 1995,
compared to fiscal 1994. The increase in gross profit resulted from the
increased sales tonnage of both fresh pork (51.2% of dollar sales) and processed
meats (44.6% of dollar sales), and increased margins on sales of both fresh pork
and processed meats.
Gross profit in fiscal 1995 was adversely affected by a $0.2 million
increase in cost of sales as a result of the performance of Brown's of Carolina,
Inc. ("Brown's") and the Smithfield-Carroll's joint hog production arrangement
("Smithfield-Carroll's"). In fiscal 1994, the performance of these operations
resulted in a reduction in cost of sales of $10.3 million. The Company obtained
12.1% of the hogs which it processed in fiscal 1995 from Brown's and Smithfield-
Carroll's, compared to 11.4% in fiscal 1994.
Selling, general and administrative expenses increased $28.8 million, or
22.9%, in fiscal 1995. The increase reflected higher storage and delivery costs
associated with the increased sales tonnage, including significantly higher
export tonnage, and increased compensation and administrative costs related to
additional sales, supervisory and support staff for current and anticipated
future growth.
Depreciation expense decreased $1.6 million, or 7.5%, in fiscal 1995.
Increased depreciation charges related to expansion at the Company's Bladen
County, North Carolina, plant and Brown's were offset by reduced depreciation
charges resulting from a revision in estimated useful lives of certain assets
beginning in the third quarter of fiscal 1994. This change in accounting
estimate reduced depreciation by $7.7 million in fiscal 1995 and $3.9 million in
fiscal 1994.
Interest expense increased $2.4 million, or 21.1%, 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 rates.
The effective income tax rate in fiscal 1995 decreased to 36.7% from 39.5%
in the prior year, reflecting the impact of increased employment incentive
credits, lower taxes on foreign sales, and benefits related to certain insurance
contracts.The Company had no valuation allowance related to income tax assets as
of April 30, 1995, and there was no change in the valuation allowance during
fiscal 1995.
The increase in income from continuing operations in fiscal 1995 was
largely attributable to substantially higher sales margins on fresh pork in the
second and third quarters which resulted from a large supply of hogs and the
lowest hog prices in a decade. Margins on both fresh pork and processed meats
narrowed as hog prices rose during the fourth quarter. Margins in the quarter
were also pressured by strong price competition from burdensome supplies of
beef, pork and poultry. In addition, fourth quarter results were adversely
impacted by ongoing costs associated with maximizing production capacity in the
new conversion room and start-up costs related to a new vacuum-packaging
operation, both at the Bladen County plant. The Company expects to see continued
pressure on margins in fiscal 1996 from large supplies of competing protein
products as well as from additional slaughter capacity which the Company
anticipates will be brought on line by several large processors in the fall of
1995 in geographic areas of the country where hogs are already in short supply.
As of April 30, 1995, the Company adopted a plan to sell the assets and
business of Ed Kelly, Inc. ("Kelly"), the Company's retail electronics
subsidiary. The operating results of Kelly, net of tax, for fiscal 1995 and 1994
are shown as income (loss) from discontinued operations. The loss from
discontinued operations in fiscal 1995 includes the write-off of the goodwill
and all costs and write-downs related to the planned disposal of the assets and
business of Kelly.
Reflecting the factors discussed above, net income increased to $27.8
million in fiscal 1995,up from $19.7 million in the prior fiscal year.
<PAGE>
FISCAL 1994 COMPARED TO FISCAL 1993 Sales in fiscal 1994 increased $289.8
million, or 26.0%, from fiscal 1993. The increase was the result of a 20.2%
increase in sales tonnage and a 4.8% increase in unit sales prices. The increase
in sales tonnage was the result of a 39.4% increase in fresh pork tonnage
combined with a 4.8% increase in processed meats tonnage.The substantial
increase in fresh pork tonnage reflected the operation of the Company's Bladen
County plant for the full year,compared to six months of operation in fiscal
1993.
Cost of sales increased $233.8 million, or 23.9%, in fiscal 1994, primarily
due to the increased sales tonnage and a 3.3% increase in the cost of live hogs.
Gross profit increased $55.9 million, or 41.6%, in fiscal 1994 compared to
fiscal 1993. This increase in gross profit resulted from the increased sales
tonnage of both fresh pork (48.4% of dollar sales) and processed meats (47.7% of
dollar sales), and increased margins on sales of both fresh pork and processed
meats.
Gross profit in fiscal 1994 was favorably affected by a $10.3 million
reduction in cost of sales as a result of the performance of Brown's and
Smithfield-Carroll's. In fiscal 1993, the performance of these operations
resulted in a reduction in cost of sales of $4.0 million. The Company obtained
11.4% of the hogs which it processed in fiscal 1994 from Brown's and Smithfield-
Carroll's, compared to 9.4% in fiscal 1993.
Selling, general and administrative expenses increased $24.2 million, or
23.9%, in fiscal 1994, reflecting sharply increased distribution costs related
to increased sales tonnage of fresh pork produced at the Bladen County plant,
increased marketing costs associated with increased sales tonnage of both fresh
pork and processed meats, and increased storage costs related to an overall
increase in business levels.
Depreciation expense increased $2.9 million, or 15.8%, in fiscal 1994,
reflecting the high levels of capital expenditures in recent years related to
the expansion of the Company's hog production facilities and modernization and
expansion of its meat processing plants. In light of the Company's aggressive
capital expenditure programs over the past four fiscal years during which the
Company invested $218.6 million in new plant and equipment, the Company reviewed
the estimated useful lives of these most recently acquired assets which were
being used for depreciation purposes. As a result of this review, effective
November 1, 1993, the Company revised these lives to more accurately reflect the
economic useful lives of these assets and to better align them with those
generally used in the meat processing industry. This change in accounting
estimate reduced depreciation charges in fiscal 1994 by $3.9 million.
Interest expense increased $5.4 million, or 87.7%, reflecting significantly
higher carrying costs on 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 interest rates.
In fiscal 1993,the Company recorded a nonrecurring pre-tax charge of $3.6
million related to the closing of Esskay, Inc.'s meat processing plant in
Baltimore, Maryland.
The effective income tax rate in fiscal 1994 increased to 39.5% from 34.1%
in the prior year, reflecting the impact of an increase in the statutory rate at
the federal level and the reduced impact of tax credits for the year.
The increase in income from continuing operations in fiscal 1994 was
largely attributable to improved sales margins and operating efficiencies at
Gwaltney of Smithfield, Ltd. and The Smithfield Packing Company, Incorporated
during the second half of the year. The improvement in financial results also
reflected generally improved conditions in the pork processing industry.
As a result of the adoption of a plan to dispose of the assets and business
of Kelly as of April 30, 1995, the operating results of Kelly, net of tax, for
fiscal 1994 and 1993 are shown as income (loss) from discontinued operations.
Reflecting the factors discussed above, net income increased $15.7 million
in fiscal 1994, up sharply from $4.0 million in the prior fiscal year.Net income
in fiscal 1993 included 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. The
Company had no valuation allowance related to income tax assets as of May 1,
1994, and there was no change in the valuation allowance during fiscal 1994.
<PAGE>
FINANCIAL CONDITION The pork processing industry is characterized by high sales
tonnage and rapid turnover of inventories and accounts receivable. Because of
the rapid turnover rate, the Company considers its inventories and accounts
receivable highly liquid and readily convertible into cash. Borrowings under the
Company's lines of credit and accounts receivable resulting from seasonal and
other market-related fluctuations in raw material costs. The demand for
seasonal borrowings usually peaks in early November when ham inventories are at
their highest levels, and borrowings are repaid in January when accounts
receivable generated by sales of these hams are collected. As of April 30, 1995,
the Company had aggregate lines of credit of $120.0 million. credit are secured
by substantially all of the Company's inventories and accounts receivable.
Weighted average borrowings under the lines were $69.9 million in fiscal 1995,
$66.6 million in fiscal 1994 and $79.2 million in fiscal 1993 at weighted
average interest rates of approximately 6%, 4% and 4%, respectively. Maximum
borrowings were $117.0 million in fiscal 1995, $105.1 million in fiscal 1994 and
$105.7 million in fiscal 1993.The outstanding balances under these lines totaled
$67.2 million and $52.1 million as of April 30, 1995 and May 1, 1994 at weighted
average interest rates of 7% and 5%, respectively.
Capital expenditures totaled $91.9 million in fiscal 1995. These large
expenditures included $54.7 million for capital projects at the Company's Bladen
County plant, including a rapid carcass-chilling system, a new value-added
conversion room and additional hog coolers. In connection with its strategy of
vertical integration, the Company expended $22.3 million on the construction of
hog production facilities at Brown's. In addition to the expansion at Brown's,
the Company increased its advances to, and investments in, joint hog production
arrangements by $10.4 million.These capital expenditures and advances and
investments were funded with $47.2 million in cash provided by operations and
the placement of a new $50.0 million three-year term loan with a bank.
In fiscal 1996,the Company plans to expend approximately $69.0 million in
capital expenditures, consisting of $37.0 million for additional capital
projects at the Company's various meat processing facilities and $28.0 million
for additional hog production facilities at Brown's. In addition, the Company
expects to make $4.0 million of advances to, and investments in, hog production
arrangements.
These capital expenditures and advances and investments will be funded with
cash from operations and borrowings under a new $200.0 million revolving line of
credit facility for which the Company has received commitments from a bank
group. This new credit facility will replace the Company's existing $110.0
million line of credit facility.
The Company's various debt agreements contain covenants regarding working
capital, current ratio, fixed charges coverage and net worth, and, among other
restrictions, limit additional borrowings, the acquisition, disposition and
leasing of assets, and payments of dividends to stockholders. Additionally,
existing loan covenants contain provisions which substantially limit the amount
of funds available for transfer from its subsidiaries to Smithfield Foods, Inc.
without the consent of certain lenders.
<PAGE>
FINANCIAL SUMMARY
SMITHFIELD FOODS, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) APRIL 30,1995 MAY 1, 1994(1) MAY 2, 1993(1)
<S> <C> <C> <C>
Sales $1,526,518 $1,403,485 $1,113,712
Gross profit 238,492 190,387 134,441
Selling, general and administrative expenses 154,283 125,520 101,281
Interest expense 14,054 11,605 6,183
Income from continuing operations before
extraordinary loss and change in
accounting for income taxes 31,915 19,319 3,271
Income (loss) from discontinued operations (4,075) 383 (420)
Extraordinary loss and change in accounting
for income taxes - - 1,138(2)
Net income 27,840 19,702 3,989
FINANCIAL POSITION:
Working capital $ 60,911 $ 81,529 $ 64,671
Total assets 550,225 452,279 399,567
Long-term debt and capital lease obligations 155,047 118,942 124,517
Stockholders' equity 184,015 154,950 135,770
FINANCIAL RATIOS:
Current ratio 1.35 1.56 1.57
Long-term debt to total capitalization 44.4% 41.9% 46.1%
Return on average stockholders' equity(4) 18.4% 12.8% 2.3%
PER COMMON SHARE:
Income from continuing operations
before extraordinary loss and change
in accounting for income taxes $ 1.83 $ 1.11 $ .18
Income (loss) from discontinued operations (.24) .02 (.03)
Extraordinary loss and change in accounting
for income taxes - - .07(2)
Net income 1.59 1.13 .22
Book value 11.82 9.43 8.32
Weighted average common shares outstanding 17,059 16,768 16,372
OTHER INFORMATION:
Capital expenditures(5) $ 91,921 $ 29,291 $ 87,992
Depreciation expense 19,717 21,327 18,418
Common stockholders of record 1,571 1,796 1,867
Number of employees 9,000 8,000 7,000
</TABLE>
(1) Restated for discontinued operations (see Note 2 to Consolidated Financial
Statements) (2) Change in accounting principle (see Note 5 to Consolidated
Financial Statements) (3) Extraordinary loss (4) Computed using income from
continuing operations before extraordinary loss and cumulative effect of change
in accounting for income taxes (5) Excludes capital expenditures related to
acquisitions
<PAGE>
<TABLE>
<CAPTION>
MAY 3, 1992(1) APRIL 28, 1991 APRIL 29,1990 APRIL 30, 1989 MAY 1, 1988 MAY 3, 1987 APRIL 27, 1986
<S> <C> <C> <C> <C> <C> <C>
$1,036,613 $1,071,791 $853,401 $774,790 $916,328 $1,046,642 $864,324
135,137 140,302 97,504 94,976 106,020 98,563 86,138
87,789 81,052 71,831 67,042 67,150 66,377 59,773
3,903 7,739 6,346 4,130 4,670 5,628 5,986
21,824 28,658 7,060 9,814 15,152 9,743 9,193
(189) - - - - - -
- - - - - (2,097)(3) (4,553)(3)
21,635 28,658 7,060 9,814 15,152 7,646 4,660
$ 26,672 $ 35,288 $ 14,991 $ 25,337 $ 21,747 $ 21,419 $ 23,280
277,685 200,797 164,886 152,150 132,933 134,924 130,014
49,091 37,392 28,193 27,596 18,469 26,137 33,591
113,754 71,081 45,359 43,829 40,471 37,055 27,312
1.27 1.46 1.20 1.43 1.41 1.39 1.43
30.1% 34.5% 38.3% 38.6% 31.4% 41.7% 55.2%
23.6% 49.2% 15.8% 23.2% 39.1% 30.3% 40.5%
$ 1.38 $ 1.99 $ .48 $ .60 $ .85 $ .55 $ .47
(.01) - - - - - -
- - - - - (.12)(3) (.22)(3)
1.37 1.99 .48 .60 .85 .43 .25
7.55 5.29 3.20 2.92 2.60 2.13 1.69
15,813 14,402 14,818 16,242 17,900 18,220 20,184
$ 74,793 $ 26,518 $ 19,555 $ 16,034 $ 6,941 $ 11,094 $ 6,602
12,630 11,382 9,912 8,564 8,643 8,099 7,325
1,544 1,148 1,239 1,334 1,414 1,523 1,395
5,400 5,000 4,200 3,900 4,100 4,700 4,800
</TABLE>
<PAGE>
CONSOLIDATED BALANCE SHEETS
SMITHFIELD FOODS, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
(IN THOUSANDS) APRIL 30, 1995 MAY 1, 1994
<S> <C> <C>
ASSETS
Current Assets:
Cash $ 14,790 $ 12,350
Accounts receivable less allowances of $540 and $458 66,727 60,586
Inventories 119,170 119,269
Advances to joint hog production arrangements 14,042 20,178
Prepaid expenses and other current assets 18,564 13,946
Total current assets 233,293 226,329
Property, plant and equipment:
Land 9,747 8,039
Buildings and improvements 116,637 108,901
Machinery and equipment 220,750 203,443
Construction in progress 68,705 9,750
415,839 330,133
Less accumulated depreciation (141,533) (124,112)
Net property, plant and equipment 274,306 206,021
Other assets:
Cost in excess of net assets acquired less accumulated
amortization of $1,429 and $1,456 4,835 4,385
Investments in partnerships 27,209 10,672
Other 10,582 4,872
Total other assets 42,626 19,929
$ 550,225 $ 452,279
</TABLE>
The accompanying notes are an integral part of these balance sheets.
<PAGE>
<TABLE>
<CAPTION>
(IN THOUSANDS) APRIL 30, 1995 MAY 1, 1994
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 69,695 $ 52,135
Current portion of long-term debt and capital lease
obligations 9,961 9,655
Accounts payable 55,371 48,017
Accrued expenses and other current liabilities 37,355 31,840
Income taxes payable - 3,153
Total current liabilities 172,382 144,800
Long-term debt and capital lease obligations 155,047 118,942
Other noncurrent liabilities:
Deferred income taxes 18,404 11,767
Pension and post-retirement benefits 4,733 5,220
Other 5,644 6,600
Total other noncurrent liabilities 28,781 23,587
Commitments and contingencies
Series B 6.75% cumulative convertible 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 49,804 47,964
Retained earnings 133,437 106,272
Treasury stock, at cost, 437,000 shares (7,643) (7,643)
Total stockholders' equity 184,015 154,950
$550,225 $452,279
</TABLE>
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
SMITHFIELD FOODS, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
52 WEEKS ENDED 52 WEEKS ENDED 52 WEEKS ENDED
(IN THOUSANDS, EXCEPT PER SHARE DATA) APRIL 30, 1995 MAY 1, 1994 MAY 2, 1993
<S> <C> <C> <C>
Sales $1,526,518 $1,403,485 $1,113,712
Cost of sales 1,288,026 1,213,098 979,271
Gross profit 238,492 190,387 134,441
Selling, general and administrative expenses 154,283 125,520 101,281
Depreciation expense 19,717 21,327 18,418
Interest expense 14,054 11,605 6,183
Plant closing costs - - 3,598
Income from continuing operations before income taxes 50,438 31,935 4,961
Income taxes 18,523 12,616 1,690
Income from continuing operations before cumulative
effect of change in accounting for income taxes 31,915 19,319 3,271
Income (loss) from discontinued operations,
net of tax (4,075) 383 (420)
Income before cumulative effect of change in accounting
for income taxes 27,840 19,702 2,851
Cumulative effect of change in accounting
for income taxes - - 1,138
Net income $ 27,840 $ 19,702 $ 3,989
Net income available to common stockholders $ 27,165 $ 19,027 $ 3,624
Income (loss) per common share:
Continuing operations before cumulative effect of
change in accounting for income taxes $ 1.83 $ 1.11 $ .18
Discontinued operations (.24) .02 (.03)
Cumulative effect of change in
accounting for income taxes - - .07
Net income $ 1.59 $ 1.13 $ .22
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
SMITHFIELD FOODS, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
52 WEEKS ENDED 52 WEEKS ENDED 52 WEEKS ENDED
(IN THOUSANDS) APRIL 30, 1995 MAY 1, 1994 MAY 2, 1993
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 27,840 $ 19,702 $ 3,989
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 22,127 23,010 20,055
Loss on sale of property, plant
and equipment 1,130 1,088 1,169
Increase in accounts receivable (6,141) (9,763) (13,899)
(Increase) decrease in inventories 99 (24,447) (43,327)
(Increase) decrease in prepaid expenses and
other current assets (4,618) (4,529) 2,432
Increase in other assets (8,121) (1,398) (3,489)
Increase in accounts payable, accrued
expenses and other liabilities 8,272 25,608 7,667
Cumulative effect of change in accounting
for income taxes - - (1,138)
Increase (decrease) in deferred income taxes 6,637 6,177 (1,023)
Net cash provided by (used in) operating activities 47,225 35,448 (27,564)
Cash flows from investing activities:
Capital expenditures (91,921) (29,291) (87,992)
Proceeds from sale of property, plant and equipment 2,340 4,494 1,112
Investments in partnerships (16,537) (2,257) (100)
Advances to joint hog production arrangements (18,130) (20,178) (19,830)
Reductions of advances to joint hog
production arrangements 24,266 19,830 23,330
Net cash used in investing activities (99,982) (27,402) (83,480)
Cash flows from financing activities:
Net borrowings on notes payable 17,560 4,322 6,627
Proceeds from issuance of long-term debt
and capital lease obligations 50,000 5,341 83,036
Principal payments on long-term debt
and capital lease obligations (13,588) (7,916) (5,303)
Proceeds from sale of preferred stock - - 10,000
Proceeds from sale of common stock - - 16,750
Exercise of common stock options 1,900 153 1,642
Dividends on preferred stock (675) (675) (365)
Net cash provided by financing activities 55,197 1,225 112,387
Net increase in cash 2,440 9,271 1,343
Cash at beginning of year 12,350 3,079 1,736
Cash at end of year $ 14,790 $ 12,350 $ 3,079
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest, net of amount capitalized $ 14,630 $ 12,379 $ 9,037
Income taxes $ 16,254 $ 5,574 $ 5,018
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
SMITHFIELD FOODS, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED TREASURY
(IN THOUSANDS) STOCK CAPITAL EARNINGS STOCK
<S> <C> <C> <C> <C>
Balance, May 3, 1992 $7,775 $30,001 $ 83,621 $ (7,643)
Net income - - 3,989 -
Sale of common stock 500 16,250 - -
Exercise of stock options 75 1,567 - -
Dividends on preferred stock - - (365) -
Balance, May 2, 1993 8,350 47,818 87,245 (7,643)
Net income - - 19,702 -
Exercise of stock options 7 146 - -
Dividends on preferred stock - - (675) -
Balance, May 1, 1994 8,357 47,964 106,272 (7,643)
Net income - - 27,840 -
Exercise of stock options 60 1,840 - -
Dividends on preferred stock - - (675) -
Balance,April 30, 1995 $8,417 $49,804 $133,437 $ (7,643)
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SMITHFIELD FOODS, INC. AND SUBSIDIARIES
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
Smithfield Foods,Inc. and subsidiaries (the "Company").The Company's principal
subsidiaries include Brown's of Carolina, Inc. ("Brown's"), Esskay, Inc.
("Esskay"), Gwaltney of Smithfield, Ltd. ("Gwaltney"), Patrick Cudahy
Incorporated ("Patrick Cudahy"), Smithfield International, Inc.
("International") and The Smithfield Packing Company, Incorporated ("Smithfield
Packing"). The accounts of Ed Kelly, Inc. ("Kelly") are reflected as
discontinued operations (see Note 2) and are reported separately on the
consolidated statements of income. All material intercompany balances and
transactions have been eliminated.
FISCAL YEAR The Company's fiscal year is the 52 or 53 week period which ends on
the Sunday nearest April 30.
INVENTORIES The Company's inventories are valued at the lower of first-in,
first-out (FIFO) cost or market. Inventories consist of the following:
(IN THOUSANDS) APRIL 30, 1995 MAY 1, 1994
Fresh and processed meats $ 82,957 $ 90,219
Livestock and manufacturing
supplies 28,596 19,809
Other 7,617 9,241
$119,170 $119,269
PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment is stated at cost.
Buildings and improvements are depreciated over periods from 10 to 40 years.
Machinery and equipment is depreciated over periods from 3 to 25 years. Repairs
and maintenance are charged to expense as incurred. Improvements and betterments
are capitalized. Gains and losses from dispositions or retirements of property,
plant and equipment are recognized currently.
In fiscal 1994,the Company revised the estimated useful lives of certain
assets to more accurately reflect their economic useful lives and to better
align them with those generally used in the meat processing industry. This
change was made to assets acquired after April 1990 and is reflected on a
prospective basis beginning in November 1993. This change reduced depreciation
charges and increased net income by $7,732,000 and $4,932,000, respectively, in
fiscal 1995 and by $3,868,000 and $2,336,000, respectively, in fiscal 1994.
Interest on capital projects is capitalized during the construction period.
Total interest capitalized was $842,000 in fiscal 1995, $612,000 in fiscal 1994
and $1,860,000 in $50,975,000, $40,713,000 and $36,830,000 in fiscal 1995, 1994
and 1993, respectively.
OTHER ASSETS Cost in excess of net assets acquired is amortized over 40 years.
Organization costs are amortized over a five-year period. Deferred debt issuance
costs are amortized over the terms of the related loan agreements. Start-up
costs associated with hog production are amortized over a three-year period.
ENVIRONMENTAL EXPENDITURES Environmental expenditures that relate to current or
future revenues are expensed or capitalized as appropriate. Expenditures that
relate to an existing condition caused by past operations and do not contribute
to current or future revenue generation are expensed. Liabilities are recorded
when environmental assessments and/or cleanups are probable and the cost can be
reasonably estimated. Generally, the timing of these accruals coincides with
the Company's commitment to a formal plan of action.
SELF-INSURANCE PROGRAMS The Company is self-insured for certain levels of
general and vehicle liability, workers' compensation and health care coverage.
The estimated cost of these self-insurance programs is accrued based upon
projected settlements for known and anticipated claims. Any resulting
adjustments to previously recorded reserves are reflected in current operating
results.
COMMODITY FUTURES The Company, from time to time,enters into commodity futures
contracts for hogs, pork bellies and corn to minimize its exposure to price
fluctuations. As of April 30, 1995, the Company had deposits of $1,208,000 with
brokers for all outstanding commodity futures contracts. Contracts for hogs and
pork bellies related to firm sales commitments are accounted for as hedges.
Gains and losses on these contracts are deferred and recorded to cost of sales
when the sales commitments are fulfilled. As of April 30, 1995, $222,000 of
unrealized hedging gains on outstanding futures contracts were deferred. These
contracts mature within one year.
In addition, the Company uses futures contracts to reduce the risk
associated with the Company's hog production operations. These contracts are
marked to market with gains and losses recognized in cost of sales currently. As
of April 30, 1995, unrealized gains of $371,000 were recognized on open
contracts having a total market value of $11,136,000. These contracts mature
within one year.
INCOME PER COMMON SHARE Income per common share is computed using the weighted
average shares of common stock and dilutive common stock equivalents (options
and convertible preferred stock) outstanding during the respective periods.
<PAGE>
Net income available to common stockholders is net income less dividends on
preferred stock. The number of weighted average shares used in calculating
income per common share was 17,059,000 in fiscal 1995, 16,768,000 in fiscal 1994
and 16,372,000 in fiscal 1993.
RECLASSIFICATIONS Certain prior year balances have been reclassified to conform
to fiscal 1995 presentations.
NOTE 2 - DISCONTINUED OPERATIONS As of April 30, 1995, the Company adopted a
plan to dispose of the assets and business of Kelly, its retail electronics
subsidiary. Under the plan, the Company will aggressively reduce operating
expenses, close certain stores and seek to sell the business. The operations of
Kelly in fiscal 1995, 1994 and 1993 have been reported separately as
discontinued operations in the consolidated statements of income.
The loss from discontinued operations in fiscal 1995 includes the write-off
of goodwill and all costs and write-downs related to the planned disposal of
assets and business of Kelly. The Company anticipates little, if any, loss from
disposal of Kelly. As of April 30, 1995, Kelly had total current assets of
$11,635,000, noncurrent assets of $1,012,000 and total liabilities of
$13,748,000.
NOTE 3 - JOINT HOG PRODUCTION ARRANGEMENTS
SMITHFIELD-CARROLL'S The Company has an arrangement with affiliates of Carroll's
Foods,Inc. ("CFI") to produce hogs for the Company's meat processing plants. The
arrangement involves: (1) Smithfield-Carroll's Farms, a partnership owned
jointly by the Company and Carroll's Farms of Virginia, Inc. ("CFAV"), which
owns the hog raising facilities, and (2) a long-term purchase contract between
the Company and Carroll's Foods of Virginia, Inc. ("CFOV"), which leases and
operates the facilities, that obligates the Company to purchase all the hogs
produced by CFOV at prices which are equivalent to market at the time of
delivery. A director of the Company is the president and a director of CFI, CFAV
and CFOV. In addition, the Company has a long-term agreement to purchase hogs
from CFI at prices which, in the opinion of management, are equivalent to
market.
As of April 30, 1995 and May 1, 1994, the Company had investments of
$20,231,000 and $7,757,000, respectively, in the partnership which are accounted
for using the equity method. During fiscal 1995, the Company converted
$12,500,000 of advances to partners' equity, which is included in investments in
partnerships on the consolidated balance sheet as of April 30, 1995. In
addition, as of April 30, 1995, the Company had $6,960,000 of working capital
loans outstanding to the partnership. These demand loans are expected to be
repaid in the next fiscal year. Unaudited summarized financial information
relative to the partnership is as follows:
(IN THOUSANDS) APRIL 30, 1995 MAY 1, 1994
Current assets $ 1,621 $ 847
Property and equipment 64,731 66,448
Other assets 288 383
$66,640 $67,678
Current liabilities $13,774 $25,461
Long-term debt 25,013 26,812
Partners' equity 27,853 15,405
$66,640 $67,678
Substantially all revenues of the partnership consist of lease payments from
CFOV which cover debt service, depreciation charges and other operating
expenses. For the fiscal years 1995, 1994 and 1993, revenues were $9,479,000,
$9,706,000 and $8,242,000, respectively.
Pursuant to the long-term purchase contract, the Company purchased
$54,081,000, $62,348,000 and $52,871,000 of live hogs from CFOV in fiscal years
1995, 1994 and 1993, respectively. The contract resulted in increased raw
material costs (as compared to market costs) of $2,615,000 in fiscal 1995 and
decreased raw material costs of $2,223,000 and $2,892,000 in fiscal 1994 and
1993, respectively. In fiscal 1995, the Company made $10,805,000 of working
capital loans to CFOV, of which $8,805,000 were outstanding as of April 30,
1995. These demand loans are expected to be repaid in the next fiscal year.
Pursuant to the agreement with CFI, the Company purchased $134,937,000,
$127,849,000 and $87,477,000 of hogs in fiscal 1995, 1994 and 1993,
respectively.
CIRCLE FOUR In fiscal 1994, the Company entered into a joint hog production
arrangement with three of its principal hog suppliers to produce hogs in the
state of Utah. The chief executive officers of two of the suppliers and the
president of another serve as directors of the Company. As of April 30, 1995,
the Company had a 31.5% interest in the arrangement which is accounted for using
the equity method. In fiscal 1994, the Company transferred certain real estate
and related costs to the arrangement for an aggregate sales price of $1,694,000,
which represented the historical cost of the assets to the Company. As of April
30, 1995 and May 1, 1994, the Company had investments of $5,050,000 and
$1,000,000, respectively, in the partnership. The arrangement had no sales in
fiscal 1995 or 1994.
B&G In fiscal 1994, Brown's entered into a joint hog production arrangement with
a company owned by the daughter and son-in-law of the chairman and chief
executive officer of the Company. The arrangement, B&G Farms LLC ("B&G"),
involves the leasing of hog production facilities to Brown's and the production
of hogs by Brown's on a contractual basis. In
<PAGE>
addition,the Company has a contract to purchase all of the hogs produced by B&G
at prices, which in the opinion of management, are equivalent to market. Profits
and losses are shared equally under the arrangement. In fiscal 1994, each
participant invested $1,200,000 and loaned an additional $1,100,000 to B&G. The
loans were repaid in fiscal 1995. In fiscal 1994, Brown's sold hog production
facilities to B&G for $3,302,000, which represented the historical cost of the
facilities to Brown's. As of April 30, 1995 and May 1, 1994, B&G had advanced
$1,723,000 and $1,295,000, respectively, to Brown's for working capital.
B&G's revenues consist of lease payments from Brown's, which cover debt
service and depreciation charges, and the profits or losses on the sale of hogs.
Pursuant to the contract, the Company purchased $3,048,000 of hogs in fiscal
1995. B&G had no sales during fiscal 1994.
NOTE 4 - DEBT LONG-TERM DEBT Long-term debt consists of the following:
(IN THOUSANDS) APRIL 30, 1995 MAY 1, 1994
Notes payable to institutional lenders:
6.24% notes, payable through
November 1998 $ 4,237 $ 5,085
7.00% notes, payable through
September 1998 2,017 2,521
7.15% notes, payable through
October 1997 4,899 6,628
8.41% notes, payable through
February 2013 25,000 25,000
9.80% notes, payable through
August 2003 9,938 10,688
9.85% notes, payable through
November 2006 15,667 16,667
10.75% notes, payable through
August 2005 10,500 11,250
11.00% notes, payable through
October 1994 - 500
Notes payable to banks:
6.48% notes, payable through
September 1998 22,600 24,100
7.10% notes, payable through
September 1997 2,760 3,198
Notes, payable
October 1997 45,000 -
Other note payable:
9.00% note, payable through
February 1999 200 -
142,818 105,637
Less current portion (9,030) (8,885)
$133,788 $ 96,752
Scheduled maturities of long-term debt are as follows:
(IN THOUSANDS)
Fiscal year
1996 $ 9,030
1997 11,560
1998 57,944
1999 19,924
2000 4,554
Thereafter 39,806
$142,818
In fiscal 1995, the Company placed $50,000,000 of three-year notes with a
bank. The notes bear interest at rates increasing from prime (9.00% as of April
30, 1995) to three-quarters of a percentage point above prime over the
three-year term of the loan. The Company prepaid $5,000,000 of these notes in
fiscal 1995. In fiscal 1994, the Company placed $25,000,000 of five-year 6.48%
notes with a bank and $2,800,000 of five-year 7.00% notes with an institutional
lender. Notes payable to institutional lenders and banks are collateralized by
substantially all of the assets of Gwaltney and Smithfield Packing.
The fair value of long-term debt as of April 30, 1995 was $148,652,000,
based on the market value of debt with similar maturities and covenants.
LINES OF CREDIT The Company has aggregate lines of credit of $120,000,000. The
lines have no material compensating balance requirements but require commitment
fees based on the unused portions of the lines. Borrowings under the lines of
credit are secured by substantially all of the Company's inventories and
accounts receivable. Weighted average borrowings under the lines were
$69,857,000 in fiscal 1995, $66,586,000 in fiscal 1994 and $79,206,000 in fiscal
1993 at weighted average interest rates of 6%, 4% and 4%, respectively. Maximum
borrowings were $117,038,000 in fiscal 1995, $105,079,000 in fiscal 1994 and
$105,653,000 in fiscal 1993. The outstanding balances under these lines totaled
$67,195,000 and $52,135,000 as of April 30, 1995 and May 1, 1994 at weighted
average interest rates of 7% and 5%, respectively.
DEBT COVENANTS The Company's various debt agreements contain covenants regarding
current ratio, fixed charges coverage, net worth, and, among other restrictions,
limit additional borrowings, the acquisition, disposition and leasing of assets
and payments of dividends to stockholders. Additionally, existing loan covenants
contain provisions which substantially limit the amount of funds available for
transfer from subsidiaries to the parent company without the consent of certain
lenders.
<PAGE>
NOTE 5 - INCOME TAXES Total income tax expense (benefit) was allocated as
follows:
APRIL 30, MAY 1, MAY 2,
(IN THOUSANDS) 1995 1994 1993
Income from continuing
operations $18,523 $12,616 $1,690
Discontinued operations (2,716) 305 (240)
$15,807 $12,921 $1,450
Income tax expense attributable to income from continuing operations consists of
the following:
APRIL 30, MAY 1, MAY 2,
(IN THOUSANDS) 1995 1994 1993
Current tax expense:
Federal $10,373 $ 7,235 $ 2,350
State 1,835 1,675 44
12,208 8,910 2,394
Deferred tax expense (benefit):
Federal 5,301 3,108 (1,031)
State 1,014 598 327
6,315 3,706 (704)
$18,523 $12,616 $ 1,690
A reconciliation of taxes computed at the federal statutory rate to the
provision for income taxes is as follows:
APRIL 30, MAY 1, MAY 2,
(IN THOUSANDS) 1995 1994 1993
Federal income taxes at
statutory rate $17,653 $11,177 $1,687
State income taxes, net of
federal tax benefit 1,852 1,478 245
Reduction in tax reserves - - (250)
Other (982) (39) 8
$18,523 $12,616 $1,690
The tax effects of temporary differences consist of the following:
APRIL 30, MAY 1,
(IN THOUSANDS) 1995 1994
Deferred tax assets:
Employee benefits $ 6,019 $ 7,003
Alternative minimum
tax credit 2,680 2,540
Tax credits and net operating
losses 2,709 867
Inventories 1,155 814
Other assets 968 -
Accrued expenses 1,041 1,154
$14,572 $12,378
Deferred tax liabilities:
Property, plant and
equipment $21,853 $13,791
Investment in subsidiary 574 715
Start-up costs 1,303 1,033
$23,730 $15,539
Effective May 4, 1992, the Company adopted SFAS No. 109, "Accounting for
Income Taxes," which requires the use of the liability method in accounting for
income taxes. The cumulative effect of adopting this change totaled $1,138,000
($.07 per common share) and has been reflected in the consolidated statements of
income as the cumulative effect of a change in accounting for income taxes.
As of April 30, 1995 and May 1, 1994, the Company had $9,246,000 and
$8,470,000, respectively, of net current deferred tax assets included in prepaid
expenses and other current assets. The Company had no valuation allowance
related to income tax assets as of April 30, 1995 or May 1, 1994, and there was
no change in the valuation allowance during fiscal 1995 and 1994.
As of April 30, 1995, the Company had $1,836,000 and $873,000 of deferred
tax assets relating to net operating losses and tax credits, respectively, which
expire from fiscal 1999 to 2000. In addition, deferred tax assets include
alternative minimum tax credits of $2,680,000 which do not expire.
<PAGE>
NOTE 6-ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES Accrued expenses and other
current liabilities consist of the following:
(IN THOUSANDS) APRIL 30, 1995 MAY 1, 1994
Payroll and related benefits $15,531 $11,599
Self-insurance reserves 12,357 11,690
Other 9,467 8,551
$37,355 $31,840
NOTE 7-STOCKHOLDERS' EQUITY AND PREFERRED STOCK
ISSUANCE OF COMMON STOCK In fiscal 1993, the Company issued 1,000,000 shares of
its common stock for $16,750,000 in a private transaction (see Note 10).
PREFERRED STOCK The Company has 1,000,000 shares of $1.00 par value preferred
stock authorized, of which 999,000 shares are unissued. The Board of Directors
is authorized to issue preferred stock in series and to fix by resolution the
designation,dividend rate,redemption provisions, liquidation rights, sinking
fund provisions, conversion rights and voting rights of each series of preferred
stock.
In fiscal 1993, the Company authorized and issued 1,000 shares of Series B
6.75% cumulative convertible redeemable preferred stock in a private transaction
for $10,000,000. These shares are convertible into 465,000 shares of the
Company's common stock at $21.50 per share. The shares are mandatorily
redeemable in fiscal 2003 at $10,000 per share plus accumulated and unpaid
dividends and have an equivalent liquidation preference.
STOCK OPTIONS Under the Company's 1984 Stock Option Plan ("1984 Plan"), officers
and certain key employees were granted incentive and nonstatutory stock options
to purchase shares of the Company's common stock for periods not exceeding 10
years at prices that were not less than the fair market value of the common
stock on the date of grant.Stock appreciation rights which are exercisable upon
a change in control of the Company are attached to the options granted pursuant
to the 1984 Plan. The Company granted options for 1,400,000 shares of common
stock under the 1984 Plan, which expired in May 1994.
In fiscal 1993, the Company adopted the 1992 Stock Incentive Plan ("1992
Plan"). Under the plan, management and other key employees may be granted
nonstatutory stock options to purchase shares of the Company's common stock
exercisable five years after grant for periods not exceeding 10 years. The
exercise price for options granted prior to August 31, 1994 is not less than
150% of the fair market value of the common stock on the date of grant.On August
31, 1994, the Company amended and restated the 1992 Plan, changing the exercise
price of options granted on or after that date to not less than the fair market
value of the common stock on the date of grant. The Company has reserved
1,250,000 shares of common stock under the 1992 Plan. As of April 30, 1995,
there were 459,500 options available for grant under the 1992 Plan.
The following is a summary of transactions for the 1984 Plan and 1992 Plan
during fiscal 1994 and 1995:
NUMBER OF SHARES PER SHARE RANGE
Outstanding options
at May 2, 1993 910,000 $ 5.50-8.13
Granted 755,500 23.06
Exercised (13,500) 8.13
Outstanding options
at May 1, 1994 1,652,000 5.50-23.06
Granted 60,000 30.63
Exercised (120,900) 5.50-8.13
Cancelled (25,000) 23.06
Outstanding options
at April 30, 1995 1,566,100 $5.50-30.63
Options exercisable
at April 30, 1995 775,600 $ 5.50-8.13
PREFERRED SHARE PURCHASE RIGHTS In fiscal 1992, adopted a preferred share
purchase rights plan (the Plan") and declared a dividend of one preferred share
purchase right (a "Right") on each outstanding share of common stock. Under the
terms of the Rights Plan, if the Company is acquired in a merger or other
business combination transaction, each Right will entitle its holder to
purchase, at the Right's then current exercise price,a number of the acquiring
company's common shares having a market value of twice such price. In addition,
if a person or group acquires 20% (or other applicable percentage, as summarized
in the Rights Plan) or more of the outstanding common stock, each Right will
entitle its holder (other than such person or members of such group) to
purchase, at the Right's then current exercise price, a number of shares of
common stock having a market value of twice such price.
<PAGE>
Each Right will entitle its holder to buy five ten-thousandths of a
share of Series A junior participating preferred stock, par value $1.00 per
share, at an exercise price of $75 subject to adjustment. Each share of Series A
junior participating preferred stock will entitle its holder to 1,000 votes and
will have an aggregate dividend rate of 1,000 times the amount, if any, paid to
holders of common stock. Currently, 25,000 shares of Series A junior
participating preferred stock have been reserved. The Rights will expire in
fiscal 2002 unless previously exercised or redeemed at the option of the Board
of Directors for $.005 per Right. Generally, each share of common stock issued
after May 31, 1991 will have one Right attached.
NOTE 8-RETIREMENT PLANS The Company and its subsidiaries sponsor several
defined benefit pension plans covering substantially all employees. Pension
expense for fiscal 1995, 1994 and 1993 was $2,306,000, $2,078,000 and
$2,301,000, respectively. It is the Company's policy to fund the plans based on
the minimum contribution required under ERISA. The plans' assets consist of
listed corporate stocks, corporate and government bonds, insurance contracts and
cash and cash equivalents. Effective January 1, 1994, the Company merged several
of its defined benefit plans, primarily related to salaried employees, into one
consolidated plan. Certain plan information as of May 1, 1994 has been restated
as a result of the merger. The status of the Company's plans is as follows:
<TABLE>
<CAPTION>
APRIL 30,1995 MAY 1,1994
OVERFUNDED UNDERFUNDED OVERFUNDED UNDERFUNDED
(In thousands) PLANS PLANS PLANS PLANS
<S> <C> <C> <C> <C>
Accumulated benefit obligation $ 23,705 $ 16,398 $ 21,394 $ 16,095
Vested benefit obligation $ 21,274 $ 15,819 $ 19,364 $ 15,513
Plan assets at fair value $ 30,625 $ 11,946 $ 27,466 $ 12,959
Projected benefit obligation (29,782) (16,397) (28,029) (16,096)
Plan assets in excess of (less than) projected
benefit obligation 843 (4,451) (563) (3,137)
Items not recorded on balance sheet:
Unrecognized net assets at transition (271) - (362) -
Unrecognized net loss (gain) due to past
experience different from assumptions made 825 283 2,155 (1,030)
Prior service cost (benefit) not yet
recognized in net periodic pension costs (462) 946 (638) 1,105
Prepaid (accrued) pension costs $ 935 $ (3,222) $ 592 $ (3,062)
</TABLE>
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Net pension expense included the following:
Service costs-benefits earned during the year
Interest cost on projected benefit obligation $ 2,079 $ 1,690 $ 1,585
Actual return on plan assets 3,089 2,890 2,912
Amortization of net assets at transition (2,558) (3,185) (3,303)
and deferred gains (losses)
Net pension expense (304) 683 1,107
$ 2,306 $ 2,078 $ 2,301
</TABLE>
<PAGE>
In determining the projected benefit obligation in fiscal 1995 and 1994,
the weighted average assumed discount rate was 7.5% and 7%, respectively, while
the assumed rate of increase in future compensation was 6% in both years. The
weighted average expected long-term rate of return on plan assets was 8% and
7.5% in fiscal 1995 and 1994, respectively.
The Company provides health care and life insurance benefits for certain
retired employees at Esskay and Patrick Cudahy. Certain vested benefits for
retired employees at Esskay were recorded at the date of acquisition. The total
cost to provide retiree benefits was $406,000, $994,000 and $746,000 in fiscal
1995, 1994 and 1993, respectively. The adoption of SFAS No. 106, "Employers'
Accounting for Post-Retirement Benefits Other Than Pensions" in fiscal 1994
resulted in no additional expense and is not material to the Company on an
overall basis.
NOTE 9-LEASE AND SERVICE OBLIGATIONS The Company leases transportation equipment
under operating leases ranging from one to 10 years with options to cancel at
earlier dates. In addition, the Company has a long-term maintenance agreement
related to this equipment. Maintenance fees are based upon fixed monthly
charges for each vehicle, as well as the maintenance facility itself and
contingent fees based upon transportation equipment usage. The amounts shown
below as minimum rental commitments do not include contingent maintenance fees.
The Company has agreements, expiring in fiscal 2004 and 2008, to use two
cold storage warehouses owned by a partnership, 50% of which is owned by the
Company. The Company has agreed to pay prevailing competitive rates for use of
the facilities, subject to aggregate guaranteed minimum annual fees of
$3,600,000. In fiscal 1995, 1994 and 1993, the Company paid $5,986,000,
$5,284,000 and $3,959,000, respectively, in fees for use of the facilities. As
of April 30, 1995 and May 1, 1994, the Company had investments of $744,000 and
$645,000, respectively, in the partnership which are accounted for using the
equity method. Under certain conditions, the Company is obligated to purchase
the other 50% partnership interest for $750,000.
Minimum rental commitments under all noncancelable operating leases and
maintenance agreements are as follows:
(IN THOUSANDS)
Fiscal year
1996 $14,465
1997 12,563
1998 10,985
1999 9,279
2000 8,467
Thereafter 31,147
$86,906
Rental expense was $15,025,000 in fiscal 1995, $12,159,000 in fiscal 1994
and $10,525,000 in fiscal 1993. Rental expense in fiscal 1995, 1994 and 1993
included $2,681,000, $2,137,000 and $1,955,000 of contingent maintenance fees,
respectively.
In fiscal 1994, the Company entered into a 12-year sale and leaseback
arrangement for certain hog production facilities at Brown's. These lease
agreements provide for an early termination at predetermined amounts after 10
years.
Property, plant and equipment under capital leases as of April 30, 1995
consists of land of $1,911,000, buildings and improvements of $15,840,000 and
machinery and equipment of $6,384,000, less accumulated amortization of
$3,344,000.
Future minimum lease payments for assets under capital leases and the
present value of the net minimum lease payments are as follows:
(IN THOUSANDS)
Fiscal year
1996 $ 2,750
1997 2,822
1998 2,900
1999 3,016
2000 3,070
Thereafter 19,168
33,726
Less amounts representing interest (11,536)
Present value of net minimum obligations 22,190
Less current portion (931)
Long-term capital lease obligations $ 21,259
NOTE 10-RELATED PARTY TRANSACTIONS A director of the Company is the chairman
and chief executive officer and a director of Murphy Farms,Inc.("MFI"). The
Company has a long-term agreement to purchase hogs from MFI at prices, which in
the opinion of management, are equivalent to market. Pursuant to this agreement
with MFI, the Company purchased $168,105,000, $197,997,000 and $159,153,000 of
hogs in fiscal 1995, 1994 and 1993, respectively.
<PAGE>
The Company's chairman and chief executive officer is an officer and the
majority owner of the capital stock of a company to which the Company made sales
of fresh pork and processed meat products totaling $328,000, $321,000 and
$349,000 in fiscal 1995, 1994 and 1993, respectively. In fiscal 1995, 1994 and
1993, the Company purchased raw materials totaling $7,535,000, $8,159,000 and
$7,986,000, respectively, from a company which is 48% owned by the chairman's
children.
A director of the Company is the chairman of the board of a company from
which the Company made purchases of automotive parts and equipment, as well as
maintenance and leasing services, totaling $489,000, $515,000 and $526,000 in
fiscal 1995, 1994 and 1993, respectively. In addition, the Company leases
substantially all of its automobiles under three-year leases arranged by this
company. As of April 30, 1995, the Company was obligated to make a total of
$914,000 in future lease payments under these leases.
The Company paid a director of the Company, who was formerly president and
chief operating officer of a subsidiary, $221,000 for consulting services during
fiscal 1995.
The Company is a 50% partner in a partnership which owns two cold storage
warehouses (see Note 9). In fiscal 1995, the partnership purchased the capital
stock of a company which previously owned one of the warehouses, 18% of the
capital stock of which was owned by a group of the Company's officers and
directors. The purchase price approximated the net book value of the company as
of December 31, 1994, the effective purchase date.
In fiscal 1993, the Company sold 1,000,000 shares of its common stock in a
private transaction to CFI (see Notes 3 and 7) for $16,750,000.
NOTE 11-COMMITMENTS AND CONTINGENCIES As of April 30,1995,the Company had
outstanding commitments for construction of hog production facilities and plant
expansion projects of approximately $40,508,000.
The Company and its subsidiaries are defendants in various lawsuits and
claims arising in the ordinary course of business. In the opinion of management,
any ultimate liability with respect to these matters will not have a material
effect on the Company's consolidated financial position.
Like other participants in the meat processing industry, the Company is
subject to various laws and regulations administered by federal, state and other
government entities, including the Environmental Protection Agency and
corresponding state agencies such as the Virginia State Water Control Board
("SWCB"), the North Carolina Division of Environmental Management, the United
States Department of Agriculture and the Occupational Safety and Health
Administration. Management believes that the Company complies with all such
laws and regulations in all material respects, except as set forth immediately
below, and that continued compliance with these standards will not have a
material effect on the Company's consolidated financial position.
The wastewater discharge permit for the Company's major meat processing
plants in Smithfield,Virginia,imposes more stringent phosphorus and ammonia
effluent limitations than the plants can currently meet. To achieve compliance,
the Company agreed to discontinue its wastewater discharges to the Pagan River
and connect its wastewater treatment plants to the regional sewage collection
and treatment system operated by the Hampton Roads Sanitation District ("HRSD").
This connection will likely be made in early 1996, following completion by the
HRSD of the necessary pipeline facilities. The Company expects to incur
approximately $2,000,000 in capital costs to upgrade its existing treatment
systems and make this connection. The Company will incur sewer charges in
addition to the existing costs of effluent treatment in fiscal 1996. These sewer
charges will be accounted for as current period costs beginning in fiscal 1996.
Pending connection to the HRSD system, the plants are being operated under
an administrative consent order entered into with the SWCB. During the period
May 1994 through April 1995, the Company's plants had several violations of its
permit and the consent order which led the SWCB to place the Company's plants on
its "significant noncompliance" list. Placement on that list is required by the
SWCB when any one of several circumstances occur, including a single violation
of an administrative consent order provision. The Company has corrected the
conditions which caused these violations, and the plants are presently in full
compliance with the SWCB permit and the administrative order. No administrative
or judicial proceedings have been instituted as a result of these violations,
and the Company does not believe that such proceedings will likely be
instituted.
The Company regularly conducts tests of wastewater discharges to assure
compliance with the provisions of the wastewater discharge permits for its
manufacturing plants. Federal and state laws require that records of such tests
be maintained for three years. Failure to maintain such records may result in
the imposition of civil penalties and, if records are destroyed, criminal
sanctions. In the course of an SWCB inspection in May 1994, it was discovered
that records of certain tests conducted by the Company from 1992 through early
1994 could not be located.The employee responsible for the supervision of the
tests and maintenance of the test records has been replaced. No administrative
or judicial proceedings have been instituted against the Company as a result of
its inability to locate the records for the period noted. At this time the
Company cannot express any view as to the likelihood that any such proceedings
will be instituted against it.
NOTE 12-PLANT CLOSING COSTS In fiscal 1993, the Company recorded a nonrecurring
charge of $3,598,000 related to the closing of Esskay's Baltimore, Maryland,
plant.
<PAGE>
NOTE 13-QUARTERLY RESULTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA) FIRST SECOND THIRD FOURTH
<S> <C> <C> <C> <C>
1995
Sales $331,761 $373,839 $439,353 $381,565
Gross profit 43,688 57,947 83,501 53,356
Income from continuing operations 2,547 8,080 18,048 3,240
Discontinued operations (177) (278) (718) (2,902)
Net income 2,370 7,802 17,330 338
Income (loss) per common share:
Continuing operations .14 .47 1.04 .18
Discontinued operations (.01) (.02) (.04) (.17)
Net income .13 .45 1.00 .01
1994
Sales $291,711 $344,282 $413,620 $353,872
Gross profit 35,807 41,813 60,279 52,488
Income (loss) from continuing operations (285) 861 11,171 7,572
Discontinued operations (84) 62 578 (173)
Net income (loss) (369) 923 11,749 7,399
Income (loss) per common share:
Continuing operations (.03) .04 .66 .44
Discontinued operations - - .03 (.01)
Net income (loss) (.03) .04 .69 .43
</TABLE>
<PAGE>
REPORT OF MANAGEMENT
The management of Smithfield Foods, Inc. and its subsidiaries has the
responsibility for preparing the accompanying financial statements and for their
integrity and objectivity. The statements were prepared in accordance with
generally accepted accounting principles applied on a consistent basis.The
financial statements include amounts that are based on management's best
estimates and judgments. Management also prepared the other information in the
annual report and is responsible for its accuracy and consistency with the
financial statements.
The Company's financial statements have been audited by Arthur Andersen LLP,
independent public accountants, elected by the stockholders. Management has made
available to Arthur Andersen LLP all of the Company's financial records and
related data as well as the minutes of stockholders' and directors' meetings.
Furthermore, management believes that all representations made to Arthur
Andersen LLP during its audits were valid and appropriate.
Management has established and maintains a system of internal control that
provides reasonable assurance as to the integrity and reliability of the
financial statements, the protection of assets from unauthorized use or
disposition and the prevention and detection of fraudulent financial reporting.
The system of internal control provides for appropriate division of
responsibilities among employees and is based upon policies and procedures that
are communicated to those with significant roles in the financial reporting
process. Management continually monitors the system of internal control for
compliance and updates this system as it deems necessary.
Management believes that, as of June 13, 1995, the Company's system of
internal control is adequate to accomplish the objectives discussed herein.
(signature) (signature)
JOSEPH W. LUTER, III AARON D. TRUB
CHAIRMAN AND CHIEF EXECUTIVE OFFICER VICE PRESIDENT, SECRETARY
AND TREASURER
(signature) (signature)
JOHN O. NIELSON C. LARRY POPE
PRESIDENT AND CHIEF OPERATING OFFICER CONTROLLER
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of Smithfield Foods, Inc.:
We have audited the accompanying consolidated balance sheets of Smithfield
Foods, Inc. (a Delaware corporation) and subsidiaries as of April 30, 1995 and
May 1, 1994, and the related consolidated statements of income, cash flows and
stockholders' equity for each of the three years in the period ended April 30,
1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Smithfield Foods, Inc. and
subsidiaries as of April 30, 1995 and May 1, 1994, and the results of their
operations and their cash flows for each of the three years in the period ended
April 30, 1995, in conformity with generally accepted accounting principles.
As discussed in note 5 to the consolidated financial statements, effective
May 4, 1992, the Company changed its method of accounting for income taxes.
ARTHUR ANDERSEN LLP
Richmond, Virginia,
JUNE 13, 1995
EXHIBIT 21
SMITHFIELD FOODS, INC. AND SUBSIDIARIES
Set forth below is a list of Smithfield Foods, Inc.'s subsidiaries
(other than subsidiaries whose names may be omitted in accordance with
Regulation S-K Item 601(21)(ii)) and their respective jurisdictions of
organization.
Brown's of Carolina, Inc................................North Carolina
Esskay, Inc.............................................Delaware
Gwaltney of Smithfield, Ltd.............................Delaware
Patrick Cudahy Incorporated.............................Delaware
Smithfield International, Inc...........................Delaware
The Smithfield Packing Company, Incorporated............Virginia
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-30-1995
<PERIOD-END> APR-30-1995
<CASH> 14,790
<SECURITIES> 0
<RECEIVABLES> 67,267
<ALLOWANCES> 540
<INVENTORY> 119,170
<CURRENT-ASSETS> 233,293
<PP&E> 415,839
<DEPRECIATION> 141,533
<TOTAL-ASSETS> 550,225
<CURRENT-LIABILITIES> 172,382
<BONDS> 155,047
<COMMON> 8,417
10,000
0
<OTHER-SE> 175,598
<TOTAL-LIABILITY-AND-EQUITY> 550,225
<SALES> 1,526,518
<TOTAL-REVENUES> 1,526,518
<CGS> 1,288,026
<TOTAL-COSTS> 1,288,026
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 256
<INTEREST-EXPENSE> 14,054
<INCOME-PRETAX> 50,438
<INCOME-TAX> 18,523
<INCOME-CONTINUING> 31,915
<DISCONTINUED> (4,075)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 27,840
<EPS-PRIMARY> 1.59
<EPS-DILUTED> 0
</TABLE>
