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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 30, 2000
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from....................to..........................
COMMISSION FILE NUMBER 0-2258
SMITHFIELD FOODS, INC.
200 Commerce Street
Smithfield, Virginia 23430
(757) 365-3000
Virginia 52-0845861
---------------------------- -------------------------
(State of Incorporation) (I.R.S. Employer
Identification Number)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (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
------ ------
Class Shares outstanding at September 8, 2000
---------------------------- ----------------------------------------
Common Stock, $.50 par value 54,492,911
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SMITHFIELD FOODS, INC.
CONTENTS
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PART I. FINANCIAL INFORMATION PAGE
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Item 1. Financial Statements
Consolidated Condensed Balance Sheets - July 30, 2000 and April 30, 2000 3-4
Consolidated Condensed Statements of Income - 13 Weeks Ended July 30, 2000
and August 1, 1999 5
Consolidated Condensed Statements of Cash Flows - 13 Weeks Ended July 30, 2000
and August 1, 1999 6
Notes to Consolidated Condensed Financial Statements 7-9
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations 10-12
PART II. OTHER INFORMATION
Item 2. Change in Securities and Use of Proceeds 13
Item 4. Submission of Matters to a Vote of Security Holders 13-14
Item 6. Exhibits and Reports on Form 8-K 14
</TABLE>
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PART I. FINANCIAL INFORMATION
SMITHFIELD FOODS, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands) July 30, 2000 April 30, 2000
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ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $ 46,157 $ 49,882
Accounts receivable, net 367,575 390,037
Inventories 699,546 665,143
Prepaid expenses and other current assets 90,003 127,664
---------- ----------
Total current assets 1,203,281 1,232,726
---------- ----------
Property, plant and equipment 1,659,791 1,612,043
Less accumulated depreciation (425,825) (398,469)
---------- ----------
Net property, plant and equipment 1,233,966 1,213,574
---------- ----------
Other assets:
Goodwill 326,280 320,148
Investments in partnerships 109,646 102,551
Other 309,619 260,614
---------- ----------
Total other assets 745,545 683,313
---------- ----------
$3,182,792 $3,129,613
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See Notes to Consolidated Condensed Financial Statements
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SMITHFIELD FOODS, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
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<CAPTION>
(In thousands) July 30, 2000 April 30, 2000
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LIABILITIES AND SHAREHOLDERS' EQUITY (Unaudited)
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Current liabilities:
Notes payable $ 75,222 $ 64,924
Current portion of long-term debt and capital lease obligations 45,847 48,505
Accounts payable 277,929 270,004
Accrued expenses and other current liabilities 223,627 239,436
---------- ----------
Total current liabilities 622,625 622,869
---------- ----------
Long-term debt and capital lease obligations 1,213,585 1,187,770
---------- ----------
Other noncurrent liabilities:
Deferred income taxes 276,206 274,329
Pension and postretirement benefits 77,129 78,656
Other 30,145 30,311
---------- ----------
Total other noncurrent liabilities 383,480 383,296
---------- ----------
Minority interests 30,305 32,769
---------- ----------
Shareholders' equity:
Preferred stock, $1.00 par value, 1,000,000 authorized
shares
Common stock, $.50 par value, 100,000,000
authorized shares; 54,468,911 and 54,705,386 issued 27,235 27,353
Additional paid-in capital 467,017 473,974
Retained earnings 459,833 415,266
Accumulated other comprehensive income (21,288) (13,684)
---------- ----------
Total shareholders' equity 932,797 902,909
---------- ----------
$3,182,792 $3,129,613
========== ==========
</TABLE>
See Notes to Consolidated Condensed Financial Statements
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SMITHFIELD FOODS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
13 Weeks Ended 13 Weeks Ended
(In thousands, except per share data) July 30, 2000 August 1, 1999
-----------------------------------------------------------------------------
Sales $1,421,326 $1,142,415
Cost of sales 1,191,926 994,919
---------- ----------
Gross profit 229,400 147,496
Selling, general and administrative expenses 103,845 94,550
Depreciation expense 30,655 24,858
Interest expense 23,388 14,533
Minority interests (246) 2,761
---------- ----------
Income before income taxes 71,758 10,794
Income taxes 27,189 3,864
---------- ----------
Net income $ 44,569 $ 6,930
========== ==========
Net income per common share:
Basic $ .82 $ .15
========== ==========
Diluted $ .81 $ .15
========== ==========
Average common shares outstanding:
Basic 54,660 45,859
========== ==========
Diluted 55,343 47,088
========== ==========
See Notes to Consolidated Condensed Financial Statements
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SMITHFIELD FOODS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
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13 Weeks Ended 13 Weeks Ended
(In thousands) July 30, 2000 August 1, 1999
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Cash flows from operating activities:
Net income $ 44,569 $ 6,930
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 33,897 25,968
Loss on sale of property, plant and equipment 1,463 603
Changes in operating assets and liabilities, net of effect of
acquisitions (20,070) (19,056)
-------- --------
Net cash provided by operating activities 59,859 14,445
-------- --------
Cash flows from investing activities:
Capital expenditures (30,506) (28,877)
Business acquisitions, net of cash (7,916) (4,849)
Proceeds from sale of property, plant and equipment 859 983
Investments in partnerships and other assets (38,478) 2,372
-------- --------
Net cash used in investing activities (76,041) (30,371)
-------- --------
Cash flows from financing activities:
Net borrowings (repayments) on notes payable 5,418 (84,685)
Proceeds from issuance of long-term debt 627 11,006
Net borrowings on long-term credit facility 26,000 94,000
Principal payments on long-term debt and capital lease obligations (12,024) (9,969)
Repurchase and retirement of common stock (7,992) -
Exercise of common stock options 471 1,886
-------- --------
Net cash provided by financing activities 12,500 12,238
-------- --------
Net decrease in cash and cash equivalents (3,682) (3,688)
Effect of foreign exchange rate changes on cash (43) 403
Cash and cash equivalents at beginning of period 49,882 30,590
-------- --------
Cash and cash equivalents at end of period $ 46,157 $ 27,305
======== ========
Supplemental disclosures of cash flow information: Cash payments during period:
Interest (net of amount capitalized) $ 20,589 $ 10,980
======== ========
Income taxes $ 15,607 $ 10,886
======== ========
Noncash Investing and Financing Activities:
As discussed in Note 8, in fiscal 2000, the Company completed the acquisition of CFI and its affiliated
companies and partnership interests in exchange for 4.3 million shares of the Company's common stock and the
assumption of approximately $231.0 million in debt, plus other liabilities.
</TABLE>
See Notes to Consolidated Condensed Financial Statements
6-15
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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(1) These statements should be read in conjunction with the Consolidated
Financial Statements and related notes which are included in the Company's
Annual Report for the fiscal year ended April 30, 2000.
(2) The interim consolidated condensed financial information furnished herein
is unaudited. The information reflects all adjustments (which include only
normal recurring adjustments) which are, in the opinion of management,
necessary to a fair statement of the financial position and results of
operations for the periods included in this report.
(3) Inventories consist of the following:
(In thousands) July 30, 2000 April 30, 2000
-------------- ------------- --------------
Hogs on farms $333,019 $323,639
Fresh and processed meats 292,188 264,479
Manufacturing supplies 53,479 55,937
Other 20,860 21,088
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$699,546 $665,143
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(4) Net income per basic share is computed based on the average common shares
outstanding during the period. Net income per diluted share is computed
based on the average common shares outstanding during the period adjusted
for the effect of potential common stock equivalents, such as stock
options. The computation for basic and diluted net income per share is as
follows:
13 Weeks 13 Weeks
Ended Ended
(In thousands, except per share data) July 30, 2000 August 1,1999
------------------------------------- ------------- -------------
Net income $44,569 $ 6,930
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Average common shares outstanding:
Basic 54,660 45,859
Dilutive stock options 683 1,229
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Diluted 55,343 47,088
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Net income per common share:
Basic $ .82 $ .15
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Diluted $ .81 $ .15
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The summary below lists stock options outstanding at the end of each
fiscal period which were not included in the computation of net income per
diluted share because the options' exercise price was greater than the
average market price of the common shares.
July 30, 2000 August 1, 1999
------------- --------------
Stock option shares excluded 1,235,000 55,000
Average option price per share $27.03 $32.38
(5) The components of comprehensive income, net of related taxes, consist of:
13 Weeks 13 Weeks
Ended Ended
(In thousands) July 30, 2000 August 1, 1999
-------------- ------------- --------------
Net income $44,569 $ 6,930
Other comprehensive income:
Foreign currency translation (1,313) (1,400)
Unrealized (loss) gain on securities (6,291) 82
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Comprehensive income $36,965 $5,612
======= ======
(6) The following table presents information about the results of operations
for each of the Company's reportable segments for the 13 weeks ended July
30, 2000 and August 1, 1999. Certain prior year amounts have been restated
to conform to fiscal 2001 presentations.
Meat Hog General
(In thousands) Processing Production Corporate Total
--------------------- -------------------------------------------------
July 30, 2000
---------------------
Sales $1,330,024 $324,717 $ - $1,654,741
Intersegment sales - (233,415) - (233,415)
Operating (loss) profit (7,818) 111,151 (8,187) 95,146
August 1, 1999
---------------------
Sales $1,099,795 $142,196 $ - $1,241,991
Intersegment sales - (99,576) - (99,576)
Operating profit (loss) 14,900 16,486 (6,059) 25,327
(7) In January of fiscal 2000, the Company completed the acquisition of Murphy
Farms, Inc. ("MFI") and its affiliated companies for 11.1 million shares
of the Company's common stock (subject to post-closing adjustments) and
the assumption of approximately $203.0 million in debt, plus other
liabilities. The balance of the purchase price in excess of the fair value
of the assets acquired and the liabilities assumed at the date of
acquisition was recorded as an intangible asset totaling $147.0 million.
The acquisition was accounted for using the purchase method of accounting
and, accordingly, the accompanying financial statements include the
financial position and results of operations from the date of acquisition.
Had the acquisition of MFI occurred at the beginning of fiscal 2000 it
would not have had a material effect on sales. Net income and net income
per diluted share would have been $8.2 million and $0.14 respectively for
the 13 weeks ended August 1, 1999.
8-15
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(8) In May of fiscal 2000, the Company completed the acquisition of Carrolls
Foods Inc. ("CFI") and its affiliated companies and partnership interests
for 4.3 million shares of the Company's common stock and the assumption of
approximately $231.0 million in debt, plus other liabilities. The balance
of the purchase price in excess of the fair value of the assets acquired
and the liabilities assumed at the date of acquisition was recorded as an
intangible asset totaling $45.1 million.
9-15
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
Smithfield Foods, Inc. (the "Company") is comprised of a Meat Processing Group
("MPG") and a Hog Production Group ("HPG"). The MPG consists of five wholly
owned domestic pork processing subsidiaries and four international meat
processing entities. The HPG consists primarily of three hog production
operations located in the United States and certain joint venture investments
outside the United States.
RESULTS OF OPERATIONS
The following acquisitions affect the comparability of the results of operations
for the 13 week periods ended July 30, 2000 and August 1, 1999:
In January of fiscal 2000, the Company completed the acquisition of
Murphy Farms, Inc. ("MFI") and its affiliated companies for 11.1 million shares
of the Company's common stock (subject to post-closing adjustments) and the
assumption of approximately $203.0 million in debt, plus other liabilities. MFI
is a hog producer that has approximately 345,000 sows which produce
approximately 6.0 million market hogs annually. The balance of the purchase
price in excess of the fair value of the assets acquired and the liabilities
assumed at the date of acquisition was recorded as an intangible asset totaling
$147.0 million.
In August of fiscal 2000, the Company acquired the capital stock of
Societe Financiere de Gestion et de Participation S.A. ("SFGP") a private-label
processed meats manufacturer in France. SFGP had sales of approximately $100.0
million in calendar year 1998.
The acquisitions were accounted for using the purchase method of
accounting and, accordingly, the accompanying financial statements include the
results of operations from the dates of acquisition.
Consolidated
13 Weeks Ended July 30, 2000 -
13 Weeks Ended August 1, 1999
Sales in the first quarter of fiscal 2001 increased $278.9 million, or 24.4%,
from the comparable period in the prior year. The increase in sales primarily
reflected a 23.8% increase in unit selling prices in the MPG and the incremental
sales of acquired businesses in both the HPG and MPG partially offset by a
decrease in sales volume in fresh pork in the MPG as compared to the first
quarter in the prior year. See the following section for comments on sales
changes by business segment.
Gross profit in the current quarter increased $81.9 million, or 55.5%,
from the comparable period in the prior year primarily on the inclusion of MFI
and sharply improved margins in the HPG due to higher live hog prices.
Selling, general and administrative expenses increased $9.3 million, or
9.8%, in the first quarter of fiscal 2001 from the comparable period in fiscal
2000. The increase was primarily due to the inclusion of expenses of acquired
businesses.
Depreciation expense increased $5.8 million, or 23.3%, in the first
quarter of fiscal 2001 from the comparable period in the prior year primarily
due to the inclusion of the depreciation expense of acquired businesses.
10-15
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Interest expense increased $8.9 million, or 60.9%, in the first quarter of
fiscal 2001 from the comparable period in the prior year primarily due to an
increase in average interest rates, additional borrowings associated with the
share repurchase program, interest expense of acquired businesses and other
long-term investments.
The effective income tax rate for the first quarter of fiscal 2001
increased to 37.9% compared to 35.8% in the corresponding period of fiscal 2000
primarily on the inclusion of foreign earnings at higher marginal tax rates. The
Company had a valuation allowance of $7.2 million related to income tax assets
as of July 30, 2000 primarily related to losses in foreign jurisdictions for
which no tax benefit was recognized. At August 1, 1999, the Company had no
valuation allowances for deferred tax assets.
Reflecting the factors previously discussed, net income increased to
$44.6 million, or $ .81 per diluted share, in the first quarter of fiscal 2001,
up from $6.9 million, or $.15 per diluted share, in the first quarter of fiscal
2000. Earnings per diluted share was also effected by a 19.2% increase in
average shares outstanding due to shares issued in connection with business
acquisitions in fiscal 2000.
Meat Processing Group
13 Weeks Ended July 30, 2000 -
13 Weeks Ended August 1, 1999
Sales in the MPG segment increased $230.2 million or 20.9% on a 23.8% increase
in unit selling prices partially offset by a decrease in fresh pork volumes.
Total sales tonnage decreased 4.8% primarily due to the decrease in fresh pork
volumes as a result of a cutback in the number of hogs slaughtered. The Company
reduced slaughter levels as a result of higher hog costs which increased 41.1%
in the current quarter compared to the prior year.
The MPG incurred an operating loss of $7.8 million compared to
operating profit of $14.9 million in the prior year on a substantial increase in
raw material costs (live hogs) noted above partially offset by an increase in
unit selling prices.
Hog Production Group
13 Weeks Ended July 30, 2000 -
13 Weeks Ended August 1, 1999
The majority of the sales of the HPG group are to the MPG and, therefore, are
eliminated in the Company's consolidated statements of income. Before
intercompany eliminations, HPG sales increased sharply as a result of the
inclusion of the sales of MFI and higher live hog prices in the period. With the
acquisition of MFI, hogs sold in the current quarter increased to 2.7 million
compared to approximately 1.3 million for the first quarter of fiscal 2000.
Operating profit in the HPG improved to $111.2 million from $16.5
million in the previous year primarily as a result of the additional operating
profits of MFI, a sharp increase in hog prices noted above and an increase in
the number of hogs sold in the base business at substantially better margins in
the current year.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operations totaled $59.9 million for the 13 weeks ended July
30, 2000 compared to $14.4 million in the same period last year. In addition to
the impact of sharply higher earnings in the current quarter, non-cash charges
increased to $33.9 million from $26.0 million due primarily to the depreciation
and amortization expense of acquired businesses.
11-15
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Cash used in investing activities increased to $76.0 million in the
current quarter from $30.4 million in the same period in the prior year. Capital
expenditures totaled $30.5 million in the first quarter of fiscal 2001 primarily
related to processed meats and plant improvement projects. In addition, during
the current quarter, the Company made investments in long-term marketable
securities and other long-term investments. These capital expenditures and
investments were funded with cash provided by operations and borrowings under
the Company's long-term revolving credit facility. As of July 30, 2000, the
Company had definitive commitments of $60.2 million for capital expenditures
primarily to increase its value-added fresh pork capacity at several of its
processing plants. These expenditures are expected to be funded with cash
provided by operations.
Financing activities provided $12.5 million in the current quarter as
additional borrowings were used for the repurchase of 0.3 million shares of the
Company's common stock. The Company has been authorized to repurchase 4.0
million shares of which 3.3 million shares have been purchased under this
authorization.
FORWARD-LOOKING STATEMENTS
This Form 10-Q may contain "forward-looking" information within the meaning of
the federal securities laws. The forward-looking information may include, among
other information, statements concerning the Company's outlook for the future.
There may also be other statements of beliefs, future plans and strategies or
anticipated events and similar expressions concerning matters that are not
historical facts. Such forward-looking statements involve known and unknown
risks, uncertainties and other important factors that could cause the actual
results, performance or achievements of the Company, or industry results, to
differ materially from any future results, performance or achievements expressed
or implied by such forward-looking statements. Such risks, uncertainties and
other important factors include, among others: availability and prices of live
hogs and other raw materials, product pricing, competitive environment and
related market conditions, operating efficiencies, access to capital, the cost
of compliance with environmental and health standards and actions of domestic
and foreign governments.
12-15
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PART II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
At the annual meeting of shareholders held on August 29, 2000, the Company's
shareholders approved an amendment to the Company's Articles of Incorporation to
provide for: (i) the classification, effective immediately, of the Board of
Directors into three classes of directors with staggered terms of office, (ii)
the removal of directors only with cause by the affirmative vote of the holders
of shares representing at least two-thirds of the votes entitled to be cast on
such action, and (iii) the filling of vacancies on the Board of Directors only
by the remaining directors. The amendment further provides that these provisions
may not be amended or repealed unless such action has been approved by the
affirmative vote of the holders of shares representing at least two-thirds of
the votes entitled to be cast by each voting group entitled to vote on such
action. A copy of the amendment to the Articles of Incorporation is filed as
Exhibit 3.1(b) to this Form 10-Q.
Item 4. Submission of Matters to a Vote of Security Holders
(a) Annual meeting of Shareholders held August 29, 2000.
(b) Not applicable
(c) There were 54,039,934 shares of Company's Common Stock and one Series B
Special Voting Preferred Share outstanding as of July 12, 2000, the
record date for the 2000 Annual Meeting of Shareholders. Each share of
Common Stock entitled the holder thereof to one vote; the Series B
Special Voting Preferred Share entitled the holder thereof to 691,636
votes; the total number of votes that shareholders could cast at the
2000 Annual Meeting of Shareholders was therefore 54,731,570. A total
of 50,311,616 votes (or 91.9% of the total) were cast.
All of management's nominees for directors of the corporation were
elected with the following vote:
Votes Broker
Director Nominee Votes For Withheld Non-Voters
---------------------- --------------- --------------- ------------
Robert L. Burrus, Jr. 49,163,324 1,116,169 0
Carol T. Crawford 49,715,633 563,860 0
Ray A. Goldberg 49,700,354 579,139 0
George E. Hamilton, Jr. 49,548,277 731,216 0
Joseph W. Luter, III 49,576,141 703,352 0
Wendell H. Murphy 49,578,542 700,951 0
William H. Prestage 49,562,738 716,755 0
Melvin O. Wright 49,712,538 566,955 0
A proposal to amend the Company's Articles of Incorporation to provide,
among other things, for the classification of the Board of Directors
into three classes was approved by the shareholders with the following
vote:
Votes Broker
Votes For Votes Against Withheld Non-Votes
---------- ------------- --------- ---------
30,618,938 12,785,875 1,555,282 5,319,398
A proposal to amend the Company's 1998 Stock Incentive Plan to provide,
among other things, for an increase by 1,500,000 in the number of
shares of the Company's Common Stock reserved for issuance thereunder
was approved by the shareholders with the following vote:
Votes Broker
Votes For Votes Against Withheld Non-Votes
---------- ------------- --------- ---------
47,486,266 1,045,728 1,747,499 0
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A proposal to ratify the selection of Arthur Andersen LLP as
independent public accountants of the Company for the fiscal year
ending April 29, 2001 was approved by the shareholders with the
following vote:
Votes Broker
Votes For Votes Against Withheld Non-Votes
---------- ------------- --------- ----------
48,330,380 421,847 1,527,266 0
(d) Not applicable
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits
Exhibit 3.1(a) - Amended and Restated Articles of Incorporation of
the Company, as amended through September 12,
2000.
Exhibit 3.1(b) - Amendment to the Articles of Incorporation of the
Company approved by the shareholders of the
Company on August 29, 2000.
Exhibit 27 - Financial Data Schedule
14-15
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SIGNATURES
Pursuant to the requirements 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.
/s/ C. LARRY POPE
----------------------------------------------
C. Larry Pope
Vice President and Chief Financial Officer
/s/ DANIEL G. STEVENS
-------------------------------------------
Daniel G. Stevens
Vice President and Corporate Controller
Date: September 13, 2000
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