Virginia | 52-0845861 | |||
(State of Incorporation) | (I.R.S. Employer Identification Number) |
Large accelerated filer | x | Accelerated filer | o |
Non-accelerated filer | o | Smaller reporting company | o |
PAGE | ||
PART I-FINANCIAL INFORMATION | ||
Item 1. | ||
Consolidated Condensed Balance Sheets—July 29, 2012 and April 29, 2012 | ||
Item 2. | ||
Item 3. | ||
Item 4. | ||
PART II-OTHER INFORMATION | ||
Item 1. | ||
Item 1A. | ||
Item 2. | ||
Item 3. | ||
Item 4. | Mine Safety Disclosures | |
Item 5. | ||
Item 6. | ||
Three Months Ended | ||||||||
July 29, 2012 | July 31, 2011 | |||||||
(unaudited) | ||||||||
Sales | $ | 3,091.3 | $ | 3,094.2 | ||||
Cost of sales | 2,759.1 | 2,687.1 | ||||||
Gross profit | 332.2 | 407.1 | ||||||
Selling, general and administrative expenses | 201.1 | 238.7 | ||||||
Income from equity method investments | (0.7 | ) | (4.8 | ) | ||||
Operating profit | 131.8 | 173.2 | ||||||
Interest expense | 42.5 | 48.1 | ||||||
Loss on debt extinguishment | — | 1.2 | ||||||
Income before income taxes | 89.3 | 123.9 | ||||||
Income tax expense | 27.6 | 41.8 | ||||||
Net income | $ | 61.7 | $ | 82.1 | ||||
Net income per share: | ||||||||
Basic | $ | .40 | $ | .50 | ||||
Diluted | $ | .40 | $ | .49 | ||||
Weighted average shares outstanding: | ||||||||
Basic | 154.3 | 165.8 | ||||||
Effect of dilutive shares | 1.0 | 1.2 | ||||||
Diluted | 155.3 | 167.0 |
Three Months Ended | ||||||||
July 29, 2012 | July 31, 2011 | |||||||
(unaudited) | ||||||||
Net income | $ | 61.7 | $ | 82.1 | ||||
Other comprehensive income (loss): | ||||||||
Foreign currency translation | (84.1 | ) | (44.3 | ) | ||||
Pension accounting | 8.2 | 3.5 | ||||||
Hedge accounting | 59.2 | (28.1 | ) | |||||
Total other comprehensive loss | (16.7 | ) | (68.9 | ) | ||||
Total comprehensive income | $ | 45.0 | $ | 13.2 |
July 29, 2012 | April 29, 2012 | |||||||
(unaudited) | ||||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 208.1 | $ | 324.3 | ||||
Accounts receivable, net | 625.3 | 624.7 | ||||||
Inventories | 2,152.7 | 2,072.4 | ||||||
Prepaid expenses and other current assets | 343.2 | 277.6 | ||||||
Total current assets | 3,329.3 | 3,299.0 | ||||||
Property, plant and equipment, net | 2,233.8 | 2,277.2 | ||||||
Goodwill | 759.3 | 768.2 | ||||||
Investments | 502.4 | 522.6 | ||||||
Intangible assets, net | 380.7 | 381.8 | ||||||
Other assets | 166.8 | 173.4 | ||||||
Total assets | $ | 7,372.3 | $ | 7,422.2 | ||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Current portion of long-term debt and capital lease obligations | $ | 616.2 | $ | 63.5 | ||||
Accounts payable | 397.9 | 415.8 | ||||||
Accrued expenses and other current liabilities | 651.0 | 657.0 | ||||||
Total current liabilities | 1,665.1 | 1,136.3 | ||||||
Long-term debt and capital lease obligations | 1,372.9 | 1,900.9 | ||||||
Other liabilities | 1,041.1 | 995.0 | ||||||
Redeemable noncontrolling interests | 2.0 | 2.0 | ||||||
Commitments and contingencies | ||||||||
Equity: | ||||||||
Shareholders' equity: | ||||||||
Preferred stock, $1.00 par value, 1,000,000 authorized shares | — | — | ||||||
Common stock, $.50 par value, 500,000,000 authorized shares; 150,319,326 and 157,408,077 issued and outstanding | 75.2 | 78.7 | ||||||
Additional paid-in capital | 1,491.3 | 1,561.0 | ||||||
Stock held in trust | (68.1 | ) | (67.9 | ) | ||||
Retained earnings | 2,320.0 | 2,326.4 | ||||||
Accumulated other comprehensive loss | (527.6 | ) | (510.9 | ) | ||||
Total shareholders’ equity | 3,290.8 | 3,387.3 | ||||||
Noncontrolling interests | 0.4 | 0.7 | ||||||
Total equity | 3,291.2 | 3,388.0 | ||||||
Total liabilities and equity | $ | 7,372.3 | $ | 7,422.2 |
Three Months Ended | ||||||||
July 29, 2012 | July 31, 2011 | |||||||
(unaudited) | ||||||||
Cash flows from operating activities: | ||||||||
Net income | $ | 61.7 | $ | 82.1 | ||||
Adjustments to reconcile net cash flows from operating activities: | ||||||||
Depreciation and amortization | 58.8 | 61.5 | ||||||
Loss (gain) on sale of property, plant and equipment, including breeding stock | 3.9 | (10.5 | ) | |||||
Income from equity method investments | (0.7 | ) | (4.8 | ) | ||||
Pension expense | 24.0 | 14.3 | ||||||
Pension contributions | (8.6 | ) | (108.2 | ) | ||||
Changes in operating assets and liabilities and other, net | (71.8 | ) | (98.6 | ) | ||||
Net cash flows from operating activities | 67.3 | (64.2 | ) | |||||
Cash flows from investing activities: | ||||||||
Capital expenditures | (61.2 | ) | (62.9 | ) | ||||
Net (expenditures) proceeds from breeding stock transactions | (6.5 | ) | 2.6 | |||||
Proceeds from the sale of property, plant and equipment | 6.5 | 1.3 | ||||||
Net cash flows from investing activities | (61.2 | ) | (59.0 | ) | ||||
Cash flows from financing activities: | ||||||||
Proceeds from the issuance of long-term debt | 24.2 | — | ||||||
Principal payments on long-term debt and capital lease obligations | (4.2 | ) | (81.1 | ) | ||||
Net proceeds from revolving credit facilities and notes payable | 6.5 | 23.8 | ||||||
Repurchase of common stock | (145.3 | ) | (34.1 | ) | ||||
Debt issuance costs and other | 0.2 | (8.8 | ) | |||||
Net cash flows from financing activities | (118.6 | ) | (100.2 | ) | ||||
Effect of foreign exchange rate changes on cash | (3.7 | ) | (1.4 | ) | ||||
Net change in cash and cash equivalents | (116.2 | ) | (224.8 | ) | ||||
Cash and cash equivalents at beginning of period | 324.3 | 374.7 | ||||||
Cash and cash equivalents at end of period | $ | 208.1 | $ | 149.9 |
NOTE 1: | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
NOTE 2: | INVENTORIES |
July 29, 2012 | April 29, 2012 | |||||||
(in millions) | ||||||||
Livestock | $ | 1,015.4 | $ | 962.8 | ||||
Fresh and packaged meats | 924.2 | 912.1 | ||||||
Grains | 107.9 | 90.4 | ||||||
Manufacturing supplies | 53.3 | 59.1 | ||||||
Other | 51.9 | 48.0 | ||||||
Total inventories | $ | 2,152.7 | $ | 2,072.4 |
NOTE 3: | DERIVATIVE FINANCIAL INSTRUMENTS |
Assets | Liabilities | |||||||||||||||
July 29, 2012 | April 29, 2012 | July 29, 2012 | April 29, 2012 | |||||||||||||
(in millions) | (in millions) | |||||||||||||||
Derivatives using the "hedge accounting" method: | ||||||||||||||||
Grain contracts | $ | 102.6 | $ | 35.3 | $ | 15.3 | $ | 9.6 | ||||||||
Livestock contracts | 3.6 | 22.9 | 5.9 | — | ||||||||||||
Foreign exchange contracts | 0.9 | 1.9 | 0.7 | — | ||||||||||||
Total | 107.1 | 60.1 | 21.9 | 9.6 | ||||||||||||
Derivatives using the "mark-to-market" method: | ||||||||||||||||
Grain contracts | 21.1 | 9.1 | 34.2 | 1.0 | ||||||||||||
Livestock contracts | 2.7 | 7.4 | 2.0 | 7.2 | ||||||||||||
Energy contracts | 1.7 | — | 6.0 | 12.2 | ||||||||||||
Foreign exchange contracts | 0.3 | 2.4 | 0.4 | 0.7 | ||||||||||||
Total | 25.8 | 18.9 | 42.6 | 21.1 | ||||||||||||
Total fair value of derivative instruments | $ | 132.9 | $ | 79.0 | $ | 64.5 | $ | 30.7 |
Minimum | Maximum | Metric | ||||||
Commodities: | ||||||||
Corn | 30,885,000 | 56,730,000 | Bushels | |||||
Soybean meal | 303,886 | 553,854 | Tons | |||||
Lean hogs | — | 421,040,000 | Pounds | |||||
Foreign currency (1) | 39,968,781 | 69,266,888 | U.S. Dollars |
(1) | Amounts represent the U.S. dollar equivalent of various foreign currency contracts. |
Gains (Losses) Recognized in Other Comprehensive Income (Loss) on Derivative (Effective Portion) | Gains (Losses) Reclassified from Accumulated Other Comprehensive Loss into Earnings (Effective Portion) | Gains (Losses) Recognized in Earnings on Derivative (Ineffective Portion) | ||||||||||||||||||||||
Three Months Ended | Three Months Ended | Three Months Ended | ||||||||||||||||||||||
July 29, 2012 | July 31, 2011 | July 29, 2012 | July 31, 2011 | July 29, 2012 | July 31, 2011 | |||||||||||||||||||
(in millions) | (in millions) | (in millions) | ||||||||||||||||||||||
Commodity contracts: | ||||||||||||||||||||||||
Grain contracts | $ | 133.9 | $ | (14.0 | ) | $ | 2.7 | $ | 43.8 | $ | 2.7 | $ | (0.1 | ) | ||||||||||
Lean hog contracts | 0.3 | 8.0 | 32.2 | (1.7 | ) | 0.1 | (0.1 | ) | ||||||||||||||||
Interest rate contracts | — | — | — | (1.8 | ) | — | — | |||||||||||||||||
Foreign exchange contracts | (1.8 | ) | 0.3 | (0.2 | ) | 0.2 | — | — | ||||||||||||||||
Total | $ | 132.4 | $ | (5.7 | ) | $ | 34.7 | $ | 40.5 | $ | 2.8 | $ | (0.2 | ) |
Minimum | Maximum | Metric | ||||||
Commodities: | ||||||||
Lean hogs | — | 286,800,000 | Pounds | |||||
Corn | 3,015,000 | 12,975,000 | Bushels |
Gains (Losses) Recognized in Earnings on Derivative | Gains (Losses) Recognized in Earnings on Related Hedged Item | |||||||||||||||
Three Months Ended | Three Months Ended | |||||||||||||||
July 29, 2012 | July 31, 2011 | July 29, 2012 | July 31, 2011 | |||||||||||||
(in millions) | (in millions) | |||||||||||||||
Commodity contracts | $ | (26.4 | ) | $ | 9.7 | $ | 20.3 | $ | (3.6 | ) |
Minimum | Maximum | Metric | ||||||
Commodities: | ||||||||
Lean hogs | 320,000 | 94,800,000 | Pounds | |||||
Corn | 4,825,000 | 22,960,000 | Bushels | |||||
Soybean meal | 40,314 | 105,102 | Tons | |||||
Soybeans | 235,000 | 695,000 | Bushels | |||||
Wheat | — | 2,000,000 | Bushels | |||||
Natural gas | 10,580,000 | 11,030,000 | Million BTU | |||||
Diesel | — | 2,016,000 | Gallons | |||||
Crude oil | 18,000 | 31,000 | Barrels | |||||
Foreign currency (1) | 43,255,205 | 100,186,869 | U.S. Dollars |
(1) | Amounts represent the U.S. dollar equivalent of various foreign currency contracts. |
Three Months Ended | ||||||||
July 29, 2012 | July 31, 2011 | |||||||
(in millions) | ||||||||
Commodity contracts | $ | (8.2 | ) | $ | 20.8 | |||
Foreign exchange contracts | 4.6 | 1.3 | ||||||
Total | $ | (3.6 | ) | $ | 22.1 |
NOTE 4: | INVESTMENTS |
Equity Investment | % Owned | July 29, 2012 | April 29, 2012 | |||||||
(in millions) | ||||||||||
Campofrío Food Group (CFG) | 37% | $ | 367.6 | $ | 385.2 | |||||
Mexican joint ventures | 50% | 108.3 | 111.2 | |||||||
Other | Various | 26.5 | 26.2 | |||||||
Total investments | $ | 502.4 | $ | 522.6 |
▪ | the minority shares traded on the Madrid Exchange confer no special rights or privileges to buyers. In contrast, the shares comprising our 37% stake in CFG contractually entitle us to two seats on CFG's 9-person board of directors, giving us the ability to exert significant influence over the strategic and operational decisions of our investee. |
▪ | the stock is very thinly traded. CFG is a closely held company, with the three largest shareholders owning approximately 74% of the outstanding shares. We are CFG's largest shareholder, with a 37% stake. |
Date | Share Price | Carrying Value | ||||||
February 17, 2012 | € | 7.20 | € | 7.54 | ||||
July 29, 2012 (1) | € | 5.85 | € | 7.89 | ||||
August 23, 2012 | € | 6.20 | € | 7.80 |
(1) | Share prices on quarter end date reflect the last trading day in the quarter. |
Three Months Ended | ||||||||||
Equity Investment | Segment | July 29, 2012 | July 31, 2011 | |||||||
(in millions) | ||||||||||
CFG (1) | International | $ | (0.1 | ) | $ | (0.2 | ) | |||
Mexican joint ventures | International | 0.4 | (3.0 | ) | ||||||
All other equity method investments | Various | (1.0 | ) | (1.6 | ) | |||||
Income from equity method investments | $ | (0.7 | ) | $ | (4.8 | ) |
(1) | CFG prepares its financial statements in accordance with International Financial Reporting Standards. Our share of CFG’s results reflects U.S. GAAP adjustments and thus, there may be differences between the amounts we report for CFG and the amounts reported by CFG. |
NOTE 5: | DEBT |
NOTE 6: | GUARANTEES |
NOTE 7: | INCOME TAXES |
NOTE 8: | PENSION PLANS |
Three Months Ended | ||||||||
July 29, 2012 | July 31, 2011 | |||||||
(in millions) | ||||||||
Service cost | $ | 11.8 | $ | 9.3 | ||||
Interest cost | 18.7 | 19.0 | ||||||
Expected return on plan assets | (19.7 | ) | (19.9 | ) | ||||
Net amortization | 13.2 | 5.9 | ||||||
Net periodic pension cost | $ | 24.0 | $ | 14.3 |
NOTE 9: | SHAREHOLDERS’ EQUITY |
NOTE 10: | FAIR VALUE MEASUREMENTS |
▪ | Level 1—quoted prices in active markets for identical assets or liabilities accessible by the reporting entity. |
▪ | Level 2—observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data. |
▪ | Level 3—unobservable for an asset or liability. Unobservable inputs should only be used to the extent observable inputs are not available. |
July 29, 2012 | April 29, 2012 | |||||||||||||||||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||||||||||
(in millions) | (in millions) | |||||||||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||||||
Derivatives: | ||||||||||||||||||||||||||||||||
Commodity contracts | $ | 87.6 | $ | 33.4 | $ | — | $ | 121.0 | $ | 52.0 | $ | 1.3 | $ | — | $ | 53.3 | ||||||||||||||||
Foreign exchange contracts | — | 1.2 | — | 1.2 | — | 4.3 | — | 4.3 | ||||||||||||||||||||||||
Open-ended mutual funds | 11.6 | — | — | 11.6 | 12.2 | — | — | 12.2 | ||||||||||||||||||||||||
Insurance contracts | — | 50.9 | — | 50.9 | — | 51.3 | — | 51.3 | ||||||||||||||||||||||||
Total | $ | 99.2 | $ | 85.5 | $ | — | $ | 184.7 | $ | 64.2 | $ | 56.9 | $ | — | $ | 121.1 | ||||||||||||||||
Liabilities | ||||||||||||||||||||||||||||||||
Derivatives: | ||||||||||||||||||||||||||||||||
Commodity contracts | $ | 51.8 | $ | 0.9 | $ | — | $ | 52.7 | $ | — | $ | 8.6 | $ | — | $ | 8.6 | ||||||||||||||||
Foreign exchange contracts | — | 1.1 | — | 1.1 | — | 0.7 | — | 0.7 | ||||||||||||||||||||||||
Total | $ | 51.8 | $ | 2.0 | $ | — | $ | 53.8 | $ | — | $ | 9.3 | $ | — | $ | 9.3 |
▪ | Derivatives—Derivatives classified within Level 1 are valued using quoted market prices. In some cases where quoted market prices are not available, we value the derivatives using pricing models based on the net present value of estimated future cash flows to calculate fair value, in which case the measurements are classified within Level 2. These valuation models make use of market-based observable inputs, including market prices and rates, yield curves, credit curves, and measures of volatility. |
▪ | Open-ended mutual funds—Open-ended mutual funds are valued at their net asset value (NAV), which approximates fair value, and classified as Level 1. |
▪ | Insurance contracts—Insurance contracts are valued at their cash surrender value using the daily asset unit value (AUV) which is based on the quoted market price of the underlying securities and classified within Level 2. |
July 29, 2012 | April 29, 2012 | |||||||||||||||
Fair Value | Carrying Value | Fair Value | Carrying Value | |||||||||||||
(in millions) | ||||||||||||||||
Long-term debt, including current portion | $ | 2,121.7 | $ | 1,962.3 | $ | 2,176.5 | $ | 1,937.3 |
NOTE 11: | CONTINGENCIES |
NOTE 12: | REPORTABLE SEGMENTS |
Three Months Ended | ||||||||
July 29, 2012 | July 31, 2011 | |||||||
(in millions) | ||||||||
Sales: | ||||||||
Segment sales— | ||||||||
Pork | $ | 2,599.6 | $ | 2,597.3 | ||||
Hog Production | 728.8 | 749.8 | ||||||
International | 346.8 | 375.0 | ||||||
Total segment sales | 3,675.2 | 3,722.1 | ||||||
Intersegment sales— | ||||||||
Pork | (8.4 | ) | (9.4 | ) | ||||
Hog Production | (567.3 | ) | (611.6 | ) | ||||
International | (8.2 | ) | (6.9 | ) | ||||
Total intersegment sales | (583.9 | ) | (627.9 | ) | ||||
Consolidated sales | $ | 3,091.3 | $ | 3,094.2 | ||||
Operating profit (loss): | ||||||||
Pork | $ | 118.6 | $ | 136.7 | ||||
Hog Production | 23.1 | 69.7 | ||||||
International | 15.8 | — | ||||||
Corporate | (25.7 | ) | (33.2 | ) | ||||
Consolidated operating profit | $ | 131.8 | $ | 173.2 |
NOTE 13: | SUBSEQUENT EVENTS |
ITEM 2. | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
▪ | maintain and expand market share, particularly in packaged meats, |
▪ | develop and maintain strong customer relationships, |
▪ | continually innovate and differentiate our products, |
▪ | manage risk in volatile commodities markets, and |
▪ | maintain our position as a low cost producer of live hogs, fresh pork and packaged meats. |
▪ | Pork segment operating profit decreased to $118.6 million from $136.7 million as higher pork supplies pressured margins. |
▪ | Hog Production segment operating profit decreased $46.6 million primarily as a result of higher feed costs. |
▪ | International segment operating profit increased by $15.8 million driven by positive hog production fundamentals, higher meat volumes and higher unit sales prices in our Eastern European operations. |
▪ | Corporate segment results improved by $7.5 million. The prior year included $5.7 million in professional fees associated with the potential acquisition of a controlling interest in Campofrío Food Group (CFG). In June 2011 (fiscal 2012), we terminated negotiations to purchase the additional interest. |
▪ | Focus On Twelve Core Brands—In connection with our Pork segment restructuring, which was completed in fiscal 2011, we rationalized our large brand portfolio and began to focus our marketing support on twelve major brand names: Smithfield, Farmland, John Morrell, Gwaltney, Armour, Eckrich, Margherita, Carando, Kretschmar, Cook’s, Curly's and Healthy Ones. Approximately three-quarters of our domestic retail packaged meats sales are branded products, with nearly 90% of those branded sales being core brands. |
▪ | Invest in Advertising to Activate Brands—We have begun to invest more heavily in marketing talent and advertising campaigns to drive consumer awareness. In December 2011 (fiscal 2012), we entered into a multi-year sponsorship agreement with the Richard Petty Motorsports NASCAR team to help activate our brands with consumer-focused marketing. |
▪ | Build a Strong Innovation Pipeline—We are driving consumer relevant product innovation by focusing on delivering convenience oriented products such as our Smithfield marinated pork products, convenient packaging such as our Smithfield bacon pouch pack and healthier, reduced sodium products. In fiscal 2012, we opened a 37,000 square foot research and development center with three state of the art kitchens, a dedicated cutting room, multimedia technology, and a pilot plant that simulates full scale manufacturing processes. This facility allows us to co-develop prototypes with customers and make quick product modifications for speed to the market. |
▪ | Coordinated Sales and Marketing Team—In connection with our Pork segment restructuring plan, we merged two independent fresh pork sales forces and consolidated our international sales organizations for our U.S. pork companies into one group responsible for exports. The restructured sales groups provide for a more coordinated and focused strategy to access markets and service customers. |
▪ | Pork—The first quarter is a seasonally weak period for fresh pork. Fresh pork margins suffered from high pork supplies and sluggish retail demand during the quarter. However, margins have shown considerable improvement as we begin to emerge from the seasonally weak period. Looking forward, we believe the fundamentals support solid profitability in fresh pork for the full fiscal year. Lower supplies of competing proteins, continued strength in export demand and relatively high pork prices around the world should support healthy fresh pork profitability within the normalized range of $3-$7 per head for fiscal 2013. |
▪ | Hog Production—Live hog market prices averaged $66 per hundredweight in the first quarter of fiscal 2013. As we move into the second quarter of fiscal 2013, hog prices are expected to move seasonally lower before recovering in the second half of the fiscal year. Industry sow slaughter rates have turned noticeably positive over the past six weeks and supplies of other proteins are expected to contract, which should be supportive of healthy hog prices going forward. |
▪ | International—Our International segment generated $15.8 million of operating profit in the first quarter of fiscal 2013 compared to break even profitability in the same period a year ago. Our European hog production operations should continue to benefit from tightening hog supplies on the continent. Industry forecasters predict higher feed costs combined with heightened environmental and welfare regulations in Europe will cause producers to contract, improving an already favorable production environment for our Polish and Romanian hog farms. Our Mexican hog production joint ventures are currently operating in a challenging production environment. We expect modest improvements for the balance of fiscal 2013. However, before meaningful contributions to segment profitability can be expected, additional improvements in live hog prices and/or feed grain cost will be needed. |
Three Months Ended | |||||||||||
July 29, 2012 | July 31, 2011 | % Change | |||||||||
(in millions) | |||||||||||
Sales | $ | 3,091.3 | $ | 3,094.2 | — | % | |||||
Cost of sales | 2,759.1 | 2,687.1 | 3 | ||||||||
Gross profit | $ | 332.2 | $ | 407.1 | (18 | )% | |||||
Gross profit margin | 11 | % | 13 | % |
▪ | Sales in the current year were comparable to the prior year as higher volumes in our domestic and international meat processing operations were offset by lower selling prices in the Pork segment and the effects of foreign currency translation. |
▪ | The decline in gross profit margin was primarily caused by higher raising costs in the Hog Production segment. |
Three Months Ended | |||||||||||
July 29, 2012 | July 31, 2011 | % Change | |||||||||
(in millions) | |||||||||||
Selling, general and administrative expenses | $ | 201.1 | $ | 238.7 | (16 | )% |
▪ | The prior year included a charge of $39.0 million related to the Missouri litigation, which is more fully described under "Significant Events Affecting Results of Operations." |
▪ | The prior year included $5.7 million in professional fees associated with the potential acquisition of a controlling interest in Campofrío Food Group (CFG). In June 2011 (fiscal 2012), we terminated negotiations to purchase the additional interest. |
▪ | Pension and other postretirement benefit expense increased approximately $7 million. |
Three Months Ended | |||||||||||
July 29, 2012 | July 31, 2011 | % Change | |||||||||
(in millions) | |||||||||||
CFG | $ | (0.1 | ) | $ | (0.2 | ) | (50 | )% | |||
Mexican joint ventures | 0.4 | (3.0 | ) | (113 | ) | ||||||
All other equity method investments | (1.0 | ) | (1.6 | ) | (38 | ) | |||||
Income from equity method investments | $ | (0.7 | ) | $ | (4.8 | ) | (85 | )% |
Three Months Ended | |||||||||||
July 29, 2012 | July 31, 2011 | % Change | |||||||||
(in millions) | |||||||||||
Interest expense | $ | 42.5 | $ | 48.1 | (12 | )% |
Three Months Ended | |||||||||||
July 29, 2012 | July 31, 2011 | % Change | |||||||||
(in millions) | |||||||||||
Loss on debt extinguishment | $ | — | $ | 1.2 | (100 | )% |
Three Months Ended | ||||||||
July 29, 2012 | July 31, 2011 | |||||||
(in millions) | ||||||||
Income tax expense | $ | 27.6 | $ | 41.8 | ||||
Effective tax rate | 31 | % | 34 | % |
Three Months Ended | |||||||||||
July 29, 2012 | July 31, 2011 | % Change | |||||||||
(in millions, unless indicated otherwise) | |||||||||||
Sales: | |||||||||||
Fresh pork (1) | $ | 1,261.0 | $ | 1,254.2 | 1 | % | |||||
Packaged meats | 1,338.6 | 1,343.1 | — | ||||||||
Total | $ | 2,599.6 | $ | 2,597.3 | — | % | |||||
Operating profit (loss): (2) | |||||||||||
Fresh pork (1) | $ | (12.0 | ) | $ | 35.4 | (134 | )% | ||||
Packaged meats | 130.6 | 101.3 | 29 | ||||||||
Total | $ | 118.6 | $ | 136.7 | (13 | )% | |||||
Sales volume: | |||||||||||
Fresh pork | 5 | % | |||||||||
Packaged meats | 4 | % | |||||||||
Total | 4 | % | |||||||||
Average unit selling price: | |||||||||||
Fresh pork | (4 | )% | |||||||||
Packaged meats | (4 | )% | |||||||||
Total | (4 | )% | |||||||||
Hogs processed | 3 | % | |||||||||
Average domestic live hog prices (per hundredweight) (3) | $ | 66.47 | $ | 68.98 | (4 | )% |
(1) | Includes by-products and rendering. |
(2) | Fresh pork and packaged meats operating profits represent management's estimated allocation of total Pork segment operating profit. |
(3) | Represents the average live hog market price as quoted by the Iowa-Southern Minnesota hog market. |
▪ | Sales were positively impacted by higher sales volumes as hog slaughter levels increased. |
▪ | Sales and operating profit were negatively impacted by lower average unit selling prices resulting from higher pork supplies. |
▪ | Fresh pork operating results decreased to a loss of $2 per head from profit of $6 per head as higher pork supplies and sluggish retail demand decreased fresh meat prices. |
▪ | Packaged meats operating profit improved to a record $.21 per pound for the first quarter from $.17 per pound benefiting from lower raw material costs. |
Three Months Ended | |||||||||||
July 29, 2012 | July 31, 2011 | % Change | |||||||||
(in millions, unless indicated otherwise) | |||||||||||
Sales | $ | 728.8 | $ | 749.8 | (3 | )% | |||||
Operating profit | $ | 23.1 | $ | 69.7 | (67 | )% | |||||
Head sold | 3.62 | 3.80 | (5 | )% | |||||||
Average domestic live hog prices (per hundredweight) (1) | $ | 66.47 | $ | 68.98 | (4 | )% | |||||
Domestic raising costs (per hundredweight) (2) | $ | 66.93 | $ | 62.88 | 6 | % |
(1) | Represents the average live hog market price as quoted by the Iowa-Southern Minnesota hog market. These prices do not reflect premiums we receive or the impact of hedging on our actual sales price. |
(2) | Includes the effects of grain derivative contracts designated in hedging relationships. Does not include the effects of grain derivative contracts that are not designated in hedging relationships for accounting purposes. |
▪ | Sales were negatively impacted by lower volume resulting from temporary disruptions from our cost savings initiative. |
▪ | Raising costs increased as a result of higher feed costs. |
▪ | Operating profit in the prior year included a charge of $39.0 million related to the Missouri litigation, which is more fully described under "Significant Events Affecting Results of Operations." |
Three Months Ended | |||||||||||
July 29, 2012 | July 31, 2011 | % Change | |||||||||
(in millions, unless indicated otherwise) | |||||||||||
Sales: | |||||||||||
Poland | $ | 262.4 | $ | 292.1 | (10 | )% | |||||
Romania | 63.5 | 57.6 | 10 | ||||||||
Other | 20.9 | 25.3 | (17 | ) | |||||||
Total | $ | 346.8 | $ | 375.0 | (8 | )% | |||||
Operating profit (loss): | |||||||||||
Poland | $ | 14.1 | $ | 2.6 | 442 | % | |||||
Romania | 4.9 | (4.6 | ) | 207 | |||||||
Other (1) | (3.2 | ) | 2.0 | (260 | ) | ||||||
Total | $ | 15.8 | $ | — | NM | ||||||
Poland: | |||||||||||
Sales volume (2) | 6 | % | |||||||||
Average unit selling price (2) | — | % | |||||||||
Hogs processed | 16 | % | |||||||||
Raising costs (per hundredweight) (3) | 2 | % | |||||||||
Romania: | |||||||||||
Sales volume (2) | 22 | % | |||||||||
Average unit selling price (2) | 13 | % | |||||||||
Hogs processed | 22 | % | |||||||||
Raising costs (per hundredweight) (3) | — | % |
(1) | Includes our equity method investments in Mexico and the results from our investment in CFG. |
(2) | Excludes the sale of live hogs and the impact of foreign currency translation. |
(3) | Excludes the impact of foreign currency translation. |
▪ | The effect of foreign currency translation decreased sales $61.9 million, or 17%. |
▪ | Sales volumes in our Polish operations increased primarily due to a 16% increase in hogs processed. Unit sales prices in our Polish operations increased in several key product categories; however, higher volumes of lower value by-products that resulted from more processed hogs effectively diminished the overall average unit selling price in the current year. |
▪ | Sales and operating profit improved significantly in our Romanian meat processing operations benefiting from the approval to export pork products to European Union member countries beginning in the fourth quarter of fiscal 2012. |
▪ | Operating results from our Mexican joint ventures were hindered by higher feed costs. |
Three Months Ended | |||||||||||
July 29, 2012 | July 31, 2011 | % Change | |||||||||
Operating loss | $ | (25.7 | ) | $ | (33.2 | ) | 23 | % |
July 29, 2012 | ||||||||||||||||||||
Facility | Capacity | Borrowing Base Adjustment | Outstanding Letters of Credit | Outstanding Borrowings | Amount Available | |||||||||||||||
(in millions) | ||||||||||||||||||||
Inventory Revolver | $ | 925.0 | $ | — | $ | — | $ | — | $ | 925.0 | ||||||||||
Securitization Facility | 275.0 | (1.9 | ) | (101.0 | ) | — | 172.1 | |||||||||||||
International facilities | 99.0 | — | — | (67.4 | ) | 31.6 | ||||||||||||||
Total credit facilities | $ | 1,299.0 | $ | (1.9 | ) | $ | (101.0 | ) | $ | (67.4 | ) | $ | 1,128.7 |
Three Months Ended | ||||||||
July 29, 2012 | July 31, 2011 | |||||||
(in millions) | ||||||||
Net cash flows from operating activities | $ | 67.3 | $ | (64.2 | ) |
▪ | We contributed $8.6 million to our qualified and non-qualified pension plans in fiscal 2013 compared to $108.2 million, including a $100.0 million voluntary contribution, in fiscal 2012. |
▪ | Net cash receipts related to domestic income taxes increased $77.1 million due to a significant refund in the current year. |
▪ | Cash paid for grain purchased by the Hog Production segment decreased approximately $12.1 million from the prior year. |
▪ | Cash paid to outside hog suppliers was lower due to a 4% decrease in average domestic live hog prices. |
▪ | Cash received for the settlement of derivative contracts and for margin requirements decreased $13.8 million in fiscal 2013. |
▪ | Cash received from customers decreased primarily as a result of lower selling prices. |
Three Months Ended | ||||||||
July 29, 2012 | July 31, 2011 | |||||||
(in millions) | ||||||||
Capital expenditures | $ | (61.2 | ) | $ | (62.9 | ) | ||
Net (expenditures) proceeds from breeding stock transactions | (6.5 | ) | 2.6 | |||||
Proceeds from the sale of property, plant and equipment | 6.5 | 1.3 | ||||||
Net cash flows from investing activities | $ | (61.2 | ) | $ | (59.0 | ) |
▪ | Capital expenditures included $21.3 million related to our Kinston, North Carolina plant expansion project. The remaining capital expenditures primarily related to plant and hog farm improvement projects. |
▪ | Capital expenditures primarily related to our plan to improve the cost structure and profitability of our domestic hog production operations and the replacement of gestation stalls with group pens, which is more fully explained under "Additional Matters Affecting Liquidity." |
Three Months Ended | ||||||||
July 29, 2012 | July 31, 2011 | |||||||
(in millions) | ||||||||
Proceeds from the issuance of long-term debt | $ | 24.2 | $ | — | ||||
Principal payments on long-term debt and capital lease obligations | (4.2 | ) | (81.1 | ) | ||||
Net proceeds from revolving credit facilities and notes payable | 6.5 | 23.8 | ||||||
Repurchase of common stock | (145.3 | ) | (34.1 | ) | ||||
Debt issuance costs and other | 0.2 | (8.8 | ) | |||||
Net cash flows from financing activities | $ | (118.6 | ) | $ | (100.2 | ) |
▪ | We repurchased 7,421,231 shares of our common stock for $145.3 million as part of the Share Repurchase Program, which is more fully explained under "Additional Matters Affecting Liquidity." |
▪ | We redeemed the remaining $77.8 million of our 7% senior unsecured notes due August 2011. |
▪ | We received $23.8 million from draws on credit facilities in the International segment. |
▪ | We repurchased 1,527,196 shares of our common stock for $34.1 million as part of the Share Repurchase Program, which is more fully explained under "Additional Matters Affecting Liquidity." |
▪ | We paid $10.8 million of debt issuance costs in connection with the refinancing of the ABL Credit Facility in the first quarter of fiscal 2012. |
ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
July 29, 2012 | April 29, 2012 | |||||||
(in millions) | ||||||||
Grains | $ | 8.5 | $ | 49.4 | ||||
Livestock | 27.1 | 18.0 | ||||||
Energy | 4.9 | 3.3 | ||||||
Foreign currency | 9.0 | 11.9 |
ITEM 4. | CONTROLS AND PROCEDURES |
ITEM 1. | LEGAL PROCEEDINGS |
ITEM 1A. | RISK FACTORS |
ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
Period | (a) Total Number of Shares Purchased | (b) Average Price Paid per Share | (c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | (d) Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (1) | ||||||||||
April 30, 2012 to May 30, 2012 | 1,807,744 | $ | 20.13 | 1,807,744 | $ | 24,518,773 | ||||||||
May 31, 2012 to June 29, 2012 | 2,716,961 | (2) | $ | 19.97 | 2,706,926 | $ | 221,487,126 | |||||||
June 30, 2012 to July 29, 2012 | 2,906,561 | $ | 18.84 | 2,906,561 | $ | 265,504,605 | ||||||||
Total | 7,431,266 | $ | 19.57 | 7,421,231 | $ | 265,504,605 |
(1) | On June 16, 2011, we announced that our board of directors had approved a share repurchase program authorizing the Company to buy up to $150,000,000 of its common stock. In September 2011, our board of directors approved a $100,000,000 increase to the authorized amount. In June 2012 and July 2012, our board of directors approved an increase in the authorized amount of $250,000,000 and $100,000,000, respectively. This share repurchase program expires on June 13, 2014. |
(2) | Purchases of 10,035 shares were made in open market transactions by Wells Fargo, as trustee, and these 10,035 shares are held in a rabbi trust for the benefit of participants in the Smithfield Foods, Inc. 2008 Incentive Compensation Plan director fee deferral program. The 2008 Incentive Compensation Plan was approved by our shareholders on August 27, 2008. |
ITEM 3. | DEFAULTS UPON SENIOR SECURITIES |
ITEM 4. | MINE SAFETY DISCLOSURES |
ITEM 5. | OTHER INFORMATION |
ITEM 6. | EXHIBITS |
Exhibit 3.1 | — | Articles of Amendment effective August 27, 2009 to the Amended and Restated Articles of Incorporation, including the Amended and Restated Articles of Incorporation of the Company, as amended to date (incorporated by reference to Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q filed with the SEC on September 11, 2009). |
Exhibit 3.2 | — | Amendment to the Bylaws effective June 16, 2010, including the Bylaws of the Company, as amended to date (incorporated by reference to Exhibit 3.2 to the Company's Annual Report on Form 10-K filed with the SEC on June 18, 2010). |
Exhibit 4.1 | — | Third Supplemental Indenture to the Indenture -Senior Debt Securities between the Company and U.S. Bank National Association, as trustee, dated as of August 1, 2012 regarding the issuance by the Company of the 2012 6.625% Senior Notes due 2022 (incorporated by reference to Exhibit 4.3 to the Company's Current Report on Form 8-K filed with the SEC on August 1, 2012). |
Exhibit 4.2 | — | Form of 6.625% Senior Note Due 2022 (incorporated by reference to Exhibit 4.2 to the Company's Current Report on Form 8-K filed with the SEC on August 1, 2012). |
Exhibit 10.1 | — | Certain Compensation for Named Executive Officers for Fiscal 2013 (filed herewith). |
Exhibit 10.2 | — | Form of Smithfield Foods, Inc. 2008 Incentive Compensation Plan Performance Share Unit Award to certain Executive Officers granted June 2012 (filed herewith). |
Exhibit 31.1 | — | Certification of C. Larry Pope, President and Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith). |
Exhibit 31.2 | — | Certification of Robert W. Manly, IV, Executive Vice President and Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith). |
Exhibit 32.1 | — | Certification of C. Larry Pope, President and Chief Executive Officer, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith). |
Exhibit 32.2 | — | Certification of Robert W. Manly, IV, Executive Vice President and Chief Financial Officer, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith). |
Exhibit 101 | — | The following financial statements from Smithfield Foods, Inc.'s Quarterly Report on Form 10-Q for the quarter ended July 29, 2012, formatted in XBRL: (i) Consolidated Condensed Statements of Income, (ii) Consolidated Condensed Statements of Comprehensive Income, (iii) Consolidated Condensed Balance Sheets, (iv) Consolidated Condensed Statements of Cash Flows, and (v) the Notes to Consolidated Condensed Financial Statements (filed herewith). |
Smithfield Foods, Inc. | ||
/s/ ROBERT W. MANLY, IV | ||
Robert W. Manly, IV Executive Vice President and Chief Financial Officer | ||
/s/ KENNETH M. SULLIVAN | ||
Kenneth M. Sullivan Senior Vice President, Finance and Chief Accounting Officer |
Name | Principal Position | Annual Base Salary | Annual Cash Incentive(1) | ||
C. Larry Pope | President and Chief Executive Officer | $ | 1,100,000 | (2) | |
Robert W. Manly, IV | Executive Vice President and Chief Financial Officer | $ | 750,000 | (3) | |
George H. Richter | President and Chief Operating Officer, Pork Group | $ | 800,000 | (4) | |
Joseph B. Sebring | President of John Morrell | $ | 735,000 | (5) | |
Joseph W. Luter, IV | Executive Vice President, Sales and Marketing, Pork Group | $ | 700,000 | (6) |
(1) | For the annual cash incentive awards, “pre-tax profits” are generally defined as net income before deduction for income taxes and incentive payments to key employees. |
(2) | The annual cash incentive formula for Mr. Pope is equal to 1% of Company pre-tax profits subject to a cap of $8 million. |
(3) | The annual cash incentive formula for Mr. Manly is equal to 0.50% of Company pre-tax profits subject to a cap of $4 million. |
(4) | The annual cash incentive formula for Mr. Richter is equal to 0.50% of Pork Group pre-tax profits subject to a cap of $4 million. |
(5) | The annual cash incentive formula for Mr. Sebring is equal to 0.25% of Pork Group pre-tax profits subject to a cap of $2.94 million. |
• | 0.13% of the Pork Group pre-tax profits, plus |
• | 0.5% of the International Group pre-tax profits, all subject to a cap of $2.8 million. |
TSR Performance | Percentage of Target Number to be Paid |
Greater than 90th percentile | 200% |
Greater than 50th but less than or equal to 90th percentile | 100.01% - 200% |
Equal to or greater than 25th but less than or equal to 50th percentile | 50% - 100% |
Less than 25th percentile | 0% |
Campbell Soup Company | Kellogg Company |
Chiquita Brands International, Inc. | Kraft Foods, Inc. |
ConAgra Foods, Inc. | McCormick & Company, Inc. |
Dean Foods, Inc. | Pilgrim’s Pride Corporation |
General Mills, Inc. | Sanderson Farms, Inc. |
H. J. Heinz Company | Sara Lee Corporation (Hillshire Brands Company) |
Hershey Foods Corp. | Seaboard Corporation |
Hormel Foods Corporation | Seneca Foods Corporation |
J. M. Smucker Company, Inc. | Tyson Foods Inc. |
(a) | The Participant shall acquire the shares of Company Stock issuable with respect to the Performance Share Units granted hereunder for investment purposes only and not with a view to resale or other distribution thereof to the public in violation of the Securities Act of 1933, as amended (the “1933 Act”), and shall not dispose of any such Stock in transactions which, in the opinion of counsel to the Company, violate the 1933 Act, or the rules and regulations thereunder, or any applicable state securities or “blue sky” laws; |
(b) | If any shares of Company Stock acquired with respect to the Performance Share Units shall be registered under the 1933 Act, no public offering (otherwise than on a national securities exchange, as defined in the Exchange Act) of any such stock shall be made by the Participant under such circumstances that he or she (or such other person) may be deemed an underwriter, as defined in the 1933 Act; and |
(c) | The Company shall have the authority to endorse upon the certificate or certificates representing the shares acquired hereunder such legends referring to the foregoing restrictions. |
(a) | Change of Control. If both (i) a Qualifying Change of Control occurs prior to the end of the performance period and (ii) the Participant has not terminated employment for a reason other than death, Disability or Retirement prior to the date of the Qualifying Change of Control, then the maximum number of Performance Share Units shall be deemed to be earned under this Award, and |
(b) | Adjustments to Shares. Subject to Plan Section 16, in the event of any merger, reorganization, recapitalization, stock dividend, stock split, extraordinary distribution with respect to the Stock or other change in corporate structure affecting the Company Stock, the Committee or Board if Directors of the Company may make such substitution or adjustments in the aggregate number and kind of shares of Company Stock subject to this Performance Share Unit Award as it may determine, in its sole discretion, to prevent dilution or enlargement of rights. |
(c) | Notices. Any written notice required or permitted under this Award shall be deemed given when delivered personally, as appropriate, either to the Participant or to the Executive Compensation Department of the Company, or when deposited in a United States Post Office as registered mail, postage prepaid, addressed, as appropriate, either to the Participant at his or her address set forth above or such other address as he or she may designate in writing to the Company, or to the Attention: Corporate Secretary., at its headquarters office or such other address as the Company may designate in writing to the Participant. |
(d) | Failure To Enforce Not a Waiver. The failure of the Company to enforce at any time any provision of this Award shall in no way be construed to be a waiver of such provision or of any other provision hereof. |
(e) | Governing Law. All questions concerning the construction, validity and interpretation of this Award shall be governed by and construed according to the internal law, and not the law of conflicts, of the Commonwealth of Virginia, except that questions concerning the relative rights of the Company and the Participant with respect to Shares, shall be governed by the corporate law of the Commonwealth of Virginia. |
(f) | Provisions of Plan. The Performance Share Units provided for herein are |
(g) | Tax Compliance. It is intended that this Award comply with section 409A of the Internal Revenue Code and that any payments pursuant to this Award to a Participant who is a “covered officer” within the meaning of section 162(m) of the Internal Revenue Code constitute “qualified performance-based compensation” within the meaning of section 1.162.27(e) of the Income Tax Regulations. To the maximum extent possible, this Award and the Plan shall be so interpreted and construed. No amounts in excess of the number of Performance Share Units earned under Section 3 of this Award shall be paid to the Participant. |
(h) | Section 16 Compliance. If required for compliance with Section 16 of the Exchange Act, except in the case of death or Disability, at least six months must elapse from the date of acquisition of the Performance Share Units granted hereunder to the date of the Participant’s disposition of such Performance Share Units or the underlying shares of Company Stock. |
1. | I have reviewed this quarterly report on Form 10-Q of Smithfield Foods, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
5. | The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
/s/ C. LARRY POPE | |
C. Larry Pope | |
President and Chief Executive Officer |
1. | I have reviewed this quarterly report on Form 10-Q of Smithfield Foods, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
5. | The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
/s/ ROBERT W. MANLY, IV | |
Robert W. Manly, IV Executive Vice President and Chief Financial Officer |
(1) | The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and |
(2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: September 6, 2012 | |
/s/ C. LARRY POPE | |
C. Larry Pope President and Chief Executive Officer | |
(1) | The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and |
(2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: September 6, 2012 | |
/s/ ROBERT W. MANLY, IV | |
Robert W. Manly, IV Executive Vice President and Chief Financial Officer | |
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DEBT Narrative (Details) (USD $)
In Millions, unless otherwise specified |
Jul. 29, 2012
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Senior Unsecured Convertible Notes, Four Percent, Due June 2013 [Member]
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Debt Instrument [Line Items] | |
Long-term Debt, Current Maturities | $ 378.7 |
Debt Instrument, Unamortized Discount (Premium), Net | 21.3 |
Senior Unsecured Notes, Seven Point Seven Five Percent, Due May 2013 [Member]
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Debt Instrument [Line Items] | |
Long-term Debt, Current Maturities | $ 160.0 |
REPORTABLE SEGMENT (Details) (USD $)
In Millions, unless otherwise specified |
3 Months Ended | |
---|---|---|
Jul. 29, 2012
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Jul. 31, 2011
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Segment Reporting Information [Line Items] | ||
Segment sales | $ 3,675.2 | $ 3,722.1 |
Intersegment sales | (583.9) | (627.9) |
Sales | 3,091.3 | 3,094.2 |
Operating profit | 131.8 | 173.2 |
Pork Segment [Member]
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Segment Reporting Information [Line Items] | ||
Segment sales | 2,599.6 | 2,597.3 |
Intersegment sales | (8.4) | (9.4) |
Operating profit | 118.6 | 136.7 |
Hog Production Segment [Member]
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Segment Reporting Information [Line Items] | ||
Segment sales | 728.8 | 749.8 |
Intersegment sales | (567.3) | (611.6) |
Operating profit | 23.1 | 69.7 |
International Segment [Member]
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Segment Reporting Information [Line Items] | ||
Segment sales | 346.8 | 375.0 |
Intersegment sales | (8.2) | (6.9) |
Operating profit | 15.8 | 0 |
Corporate Segment [Member]
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Segment Reporting Information [Line Items] | ||
Operating profit | $ (25.7) | $ (33.2) |
DERIVATIVE FINANCIAL INSTRUMENTS Gains (Losses) Recognized in Earnings on Fair Value Hedges (Details) (Commodity Contract [Member], Cost of Sales [Member], Fair Value Hedging [Member], USD $)
In Millions, unless otherwise specified |
3 Months Ended | |
---|---|---|
Jul. 29, 2012
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Jul. 31, 2011
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Commodity Contract [Member] | Cost of Sales [Member] | Fair Value Hedging [Member]
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Derivative Instruments, Gain (Loss) [Line Items] | ||
Change in Unrealized Gain (Loss) on Fair Value Hedging Instruments | $ (26.4) | $ 9.7 |
Change in Unrealized Gain (Loss) on Hedged Item in Fair Value Hedge | $ 20.3 | $ (3.6) |
FAIR VALUE MEASUREMENTS (Tables)
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Jul. 29, 2012
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Fair Value Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis [Table Text Block] | The following tables set forth, by level within the fair value hierarchy, our non-pension financial assets and liabilities that were measured at fair value on a recurring basis as of July 29, 2012 and April 29, 2012:
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Fair Value and Carrying Value of Debt [Table Text Block] | The following table presents the fair value and carrying value of long-term debt, including the current portion of long-term debt as of July 29, 2012 and April 29, 2012.
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INCOME TAXES (Details)
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3 Months Ended | |
---|---|---|
Jul. 29, 2012
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Jul. 31, 2011
|
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Income Tax Disclosure [Abstract] | ||
Effective Income Tax Rate | 31.00% | 34.00% |
INVESTMENTS Equity Method Investments (Details) (USD $)
In Millions, unless otherwise specified |
Jul. 29, 2012
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Apr. 29, 2012
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---|---|---|
Schedule of Equity Method Investments [Line Items] | ||
Investments | $ 502.4 | $ 522.6 |
Campofrio Food Group [Member]
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Schedule of Equity Method Investments [Line Items] | ||
Ownership Percentage | 37.00% | |
Investments | 367.6 | 385.2 |
Mexican Joint Ventures [Member]
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Schedule of Equity Method Investments [Line Items] | ||
Ownership Percentage | 50.00% | |
Investments | 108.3 | 111.2 |
Other Equity Method Investments [Member]
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Schedule of Equity Method Investments [Line Items] | ||
Investments | $ 26.5 | $ 26.2 |
FAIR VALUE MEASUREMENTS Fair Value and Carrying Value of Debt (Details) (USD $)
In Millions, unless otherwise specified |
Jul. 29, 2012
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Apr. 29, 2012
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Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items] | ||
Long-term Debt, Fair Value | $ 2,121.7 | $ 2,176.5 |
Long-term Debt | $ 1,962.3 | $ 1,937.3 |
DERIVATIVE FINANCIAL INSTRUMENTS
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3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jul. 29, 2012
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Derivative Instruments and Hedging Activities Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
DERIVATIVES FINANCIAL INSTRUMENTS | DERIVATIVE FINANCIAL INSTRUMENTS Our meat processing and hog production operations use various raw materials, primarily live hogs, corn and soybean meal, which are actively traded on commodity exchanges. We hedge these commodities when we determine conditions are appropriate to mitigate price risk. While this hedging may limit our ability to participate in gains from favorable commodity fluctuations, it also tends to reduce the risk of loss from adverse changes in raw material prices. We attempt to closely match the commodity contract terms with the hedged item. We also periodically enter into interest rate swaps to hedge exposure to changes in interest rates on certain financial instruments and foreign exchange forward contracts to hedge certain exposures to fluctuating foreign currency rates. We record all derivatives in the balance sheet as either assets or liabilities at fair value. Accounting for changes in the fair value of a derivative depends on whether it qualifies and has been designated as part of a hedging relationship. For derivatives that qualify and have been designated as hedges for accounting purposes, changes in fair value have no net impact on earnings, to the extent the derivative is considered perfectly effective in achieving offsetting changes in fair value or cash flows attributable to the risk being hedged, until the hedged item is recognized in earnings (commonly referred to as the “hedge accounting” method). For derivatives that do not qualify or are not designated as hedging instruments for accounting purposes, changes in fair value are recorded in current period earnings (commonly referred to as the “mark-to-market” method). We may elect either method of accounting for our derivative portfolio, assuming all the necessary requirements are met. We have in the past availed ourselves of either acceptable method and expect to do so in the future. We believe all of our derivative instruments represent economic hedges against changes in prices and rates, regardless of their designation for accounting purposes. We do not offset the fair value of derivative instruments with cash collateral held with or received from the same counterparty under a master netting arrangement. As of July 29, 2012, prepaid expenses and other current assets included $72.5 million representing cash on deposit with brokers to cover losses on our open derivative instruments and accrued expenses and other current liabilities included $70.9 million representing cash deposits received from brokers to cover gains on our open derivative instruments. Changes in commodity prices could have a significant impact on cash deposit requirements under our broker and counterparty agreements. Additionally, certain of our derivative contracts contain credit risk related contingent features, which would require us to post additional cash collateral to cover net losses on open derivative instruments if our credit rating was downgraded. As of July 29, 2012, the net liability position of our open derivative instruments that are subject to credit risk related contingent features was not material. We are exposed to losses in the event of nonperformance or nonpayment by counterparties under financial instruments. Although our counterparties primarily consist of financial institutions that are investment grade, there is still a possibility that one or more of these companies could default. However, a majority of our financial instruments are exchange traded futures contracts held with brokers and counterparties with whom we maintain margin accounts that are settled on a daily basis, thereby limiting our credit exposure to non-exchange traded derivatives. Determination of the credit quality of our counterparties is based upon a number of factors, including credit ratings and our evaluation of their financial condition. As of July 29, 2012, we had credit exposure of $39.7 million on non-exchange traded derivative contracts, excluding the effects of netting arrangements. As a result of netting arrangements, our credit exposure was reduced to $33.7 million as of July 29, 2012. No significant concentrations of credit risk existed as of July 29, 2012. The size and mix of our derivative portfolio varies from time to time based upon our analysis of current and future market conditions. All derivative contracts are recorded in prepaid expenses and other current assets or accrued expenses and other current liabilities within the consolidated condensed balance sheets, as appropriate. The following table presents the fair values of our open derivative financial instruments in the consolidated condensed balance sheets on a gross basis.
Hedge Accounting Method Cash Flow Hedges We enter into derivative instruments, such as futures, swaps and options contracts, to manage our exposure to the variability in expected future cash flows attributable to commodity price risk associated with the forecasted sale of live hogs and fresh pork, and the forecasted purchase of corn and soybean meal. In addition, we enter into interest rate swaps to manage our exposure to changes in interest rates associated with our variable interest rate debt, and we enter into foreign exchange contracts to manage our exposure to the variability in expected future cash flows attributable to changes in foreign exchange rates associated with the forecasted purchase or sale of assets denominated in foreign currencies. As of July 29, 2012, we had no cash flow hedges for forecasted transactions beyond April 2013. When cash flow hedge accounting is applied, derivative gains or losses are recognized as a component of other comprehensive income (loss) and reclassified into earnings in the same period or periods during which the hedged transactions affect earnings. Derivative gains and losses, when reclassified into earnings, are recorded in cost of sales for grain contracts, sales for lean hog contracts, interest expense for interest rate contracts and selling, general and administrative expenses for foreign exchange contracts. Gains and losses on derivatives designed to hedge price risk associated with fresh pork sales are recorded in the Hog Production segment. During the three months ended July 29, 2012, the range of notional volumes associated with open derivative instruments designated in cash flow hedging relationships was as follows:
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The following table presents the effects on our consolidated condensed financial statements of pre-tax gains and losses on derivative instruments designated in cash flow hedging relationships for the fiscal periods indicated:
For the fiscal periods presented, foreign exchange contracts were determined to be highly effective. We have excluded from the assessment of effectiveness differences between spot and forward rates, which we have determined to be immaterial. During the first quarter of fiscal 2012, we discontinued cash flow hedge accounting on a number of grain contracts as it became probable that the original forecasted transactions would not transpire. As a result of this change, the table above for the three months ended July 31, 2011 includes gains of $12.0 million on grain contracts de-designated from hedging relationships that were reclassified from accumulated other comprehensive loss into earnings in the first quarter of fiscal 2012. As of July 29, 2012, there were deferred net gains of $110.4 million, net of tax of $70.2 million, in accumulated other comprehensive loss. We expect to reclassify $82.0 million ($50.1 million net of tax) of deferred net gains on closed commodity contracts into earnings within the next twelve months. We are unable to estimate the gains or losses to be reclassified into earnings within the next twelve months related to open contracts as their values are subject to change. Fair Value Hedges We enter into derivative instruments (primarily futures contracts) that are designed to hedge changes in the fair value of live hog inventories and firm commitments to buy grains. When fair value hedge accounting is applied, derivative gains and losses are recognized in earnings currently along with the change in fair value of the hedged item attributable to the risk being hedged. The gains or losses on the derivative instruments and the offsetting losses or gains on the related hedged items are recorded in cost of sales for commodity contracts. During the three months ended July 29, 2012, the range of notional volumes associated with open derivative instruments designated in fair value hedging relationships was as follows:
The following table presents the effects on our consolidated condensed statements of income of gains and losses on derivative instruments designated in fair value hedging relationships and the related hedged items for the fiscal periods indicated:
We recognized gains of $3.4 million and $5.9 million for the three months ended July 29, 2012 and July 31, 2011, respectively, on closed commodity derivative contracts as the underlying cash transactions affected earnings. For fair value hedges of inventory, we elect to exclude from the assessment of effectiveness differences between the spot and futures prices. These differences are recorded directly into earnings as they occur. These differences resulted in losses of $6.3 million and gains of $5.7 million for the three months ended July 29, 2012 and July 31, 2011, respectively. Mark-to-Market Method Derivative instruments that are not designated as a hedge, have been de-designated from a hedging relationship, or do not meet the criteria for hedge accounting are marked-to-market with the unrealized gains and losses together with actual realized gains and losses from closed contracts being recognized in current period earnings. Under the mark-to-market method, gains and losses are recorded in cost of sales for commodity contracts, and selling, general and administrative expenses for foreign exchange contracts. During the three months ended July 29, 2012, the range of notional volumes associated with open derivative instruments using the “mark-to-market” method was as follows:
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The following table presents the amount of gains and losses recognized in the consolidated condensed statements of income on derivative instruments using the “mark-to-market” method by type of derivative contract for the fiscal periods indicated:
The table above reflects gains and losses from both open and closed contracts including, among other things, gains and losses related to contracts designed to hedge price movements that occur entirely within a quarter. The table includes amounts for both realized and unrealized gains and losses. The table is not, therefore, a simple representation of unrealized gains and losses recognized in the income statement during any period presented. |