-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JWWuwRQ1tRap5FeN1pzpBF3pymAF/hc3Fv79J1kSMajGQYp+AZUIvRXrKrNnSF2y s4AVfaF09KaFLC0k0YW8qw== 0000916641-00-000238.txt : 20000315 0000916641-00-000238.hdr.sgml : 20000315 ACCESSION NUMBER: 0000916641-00-000238 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000130 FILED AS OF DATE: 20000314 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SMITHFIELD FOODS INC CENTRAL INDEX KEY: 0000091388 STANDARD INDUSTRIAL CLASSIFICATION: MEAT PACKING PLANTS [2011] IRS NUMBER: 520845861 STATE OF INCORPORATION: VA FISCAL YEAR END: 0427 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-15321 FILM NUMBER: 568778 BUSINESS ADDRESS: STREET 1: 200 COMMERCE STREET STREET 2: 999 WATERSIDE DRIVE CITY: SMITHFIELD STATE: VA ZIP: 23430 BUSINESS PHONE: 7573653000 MAIL ADDRESS: STREET 1: 900 DOMINION TOWER STREET 2: 999 WATERSIDE DRIVE CITY: NORFOLK STATE: VA ZIP: 23510 FORMER COMPANY: FORMER CONFORMED NAME: LIBERTY EQUITIES CORP DATE OF NAME CHANGE: 19710221 FORMER COMPANY: FORMER CONFORMED NAME: LIBERTY REAL ESTATE TRUST DATE OF NAME CHANGE: 19661113 10-Q 1 SMITHFIELD FOODS FORM 10-Q 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 January 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 March 10, 2000 - ------------------------------- --------------------------------------- Common Stock, $.50 par value 54,848,267 1-18 SMITHFIELD FOODS, INC. CONTENTS
PART I. FINANCIAL INFORMATION PAGE Item 1. Financial Statements Consolidated Condensed Balance Sheets - January 30, 2000 (unaudited) and May 2, 1999 3-4 Consolidated Condensed Statements of Income (unaudited) - 13 Weeks Ended January 30, 2000 and January 31, 1999 and 39 Weeks Ended January 30, 2000 and January 31, 1999 5 Consolidated Condensed Statements of Cash Flows (unaudited) - 39 Weeks Ended January 30, 2000 and January 31, 1999 6 Notes to Consolidated Condensed Financial Statements 7-10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of 11-15 Operations PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders 16 Item 6. Exhibits and Reports on Form 8-K 17
2-18 PART I. FINANCIAL INFORMATION SMITHFIELD FOODS, INC. CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands) January 30, 2000 May 2, 1999 - ------------------------------------------------------------------------------------------------------------------- ASSETS (Unaudited) Current assets: Cash and cash equivalents $ 69,710 $ 30,590 Accounts receivable, net 328,020 252,332 Inventories 652,428 348,856 Prepaid expenses and other current assets 61,016 50,302 ------------ ----------- Total current assets 1,111,174 682,080 ------------ ----------- Property, plant and equipment 1,589,454 1,083,416 Less accumulated depreciation (363,357) (292,640) ------------ ----------- Net property, plant and equipment 1,226,097 790,776 ------------ ----------- Other assets: Investments in partnerships 101,811 80,182 Goodwill 283,854 103,017 Other 318,843 115,559 ------------ ----------- Total other assets 704,508 298,758 ------------ ----------- $3,041,779 $1,771,614 ============ ===========
See accompanying notes to consolidated condensed financial statements. 3-18 SMITHFIELD FOODS, INC. CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands) January 30, 2000 May 2, 1999 - ---------------------------------------------------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY (Unaudited) Current liabilities: Notes payable $ 41,398 $ 63,900 Current portion of long-term debt and capital lease obligations 41,701 25,828 Accounts payable 253,770 207,703 Accrued expenses and other current liabilities 239,133 168,784 ----------- ---------- Total current liabilities 576,002 466,215 ----------- ---------- Long-term debt and capital lease obligations 1,193,985 594,241 ----------- ---------- Other noncurrent liabilities: Pension and postretirement benefits 79,174 62,276 Deferred income taxes 264,402 31,523 Other 11,874 17,638 ----------- ---------- Total other noncurrent liabilities 355,450 111,437 ----------- ---------- Minority interests 35,468 57,475 ----------- ---------- Shareholders' equity: Preferred stock, $1.00 par value, 1,000,000 authorized shares Common stock, $.50 par value, 100,000,000 authorized shares; 54,866,367 and 41,847,359 issued 27,433 20,924 Additional paid-in capital 477,436 180,020 Retained earnings 386,786 340,154 Accumulated other comprehensive income (10,781) 1,148 ----------- ---------- Total shareholders' equity 880,874 542,246 ----------- ---------- $3,041,779 $1,771,614 =========== ===========
See accompanying notes to consolidated condensed financial statements. 4-18 SMITHFIELD FOODS, INC. CONSOLIDATED CONDENSED STATEMENTS OF INCOME (Unaudited)
13 Weeks Ended 13 Weeks Ended 39 Weeks Ended 39 Weeks Ended (In thousands, except per share data) January 30, 2000 January 31, 1999 January 30, 2000 January 31, 1999 - ----------------------------------------------------------------------------------------------------------------------------------- Sales $1,377,166 $1,035,728 $3,749,710 $2,775,929 Cost of sales 1,200,983 834,524 3,253,391 2,387,415 ----------- ----------- ---------- ---------- Gross profit 176,183 201,204 496,319 388,514 Selling, general and administrative expenses 99,215 88,780 290,521 212,751 Depreciation expense 28,430 17,740 79,104 44,694 Interest expense 20,370 10,553 51,663 31,175 Minority interests 921 (765) 2,807 (3,696) ----------- ------------ ---------- ----------- Income before income taxes 27,247 84,896 72,224 103,590 Income taxes 9,759 29,916 25,592 35,454 ----------- ----------- ---------- ---------- Net income $ 17,488 $ 54,980 $ 46,632 $ 68,136 =========== =========== ========== ========== Net income per common share: Basic $ .37 $ 1.35 $ 1.00 $ 1.75 =========== =========== ========== =========== Diluted $ .36 $ 1.31 $ .98 $ 1.69 =========== =========== ========== =========== Average common shares outstanding: Basic 47,800 40,856 46,570 38,889 =========== =========== ========== =========== Diluted 48,413 41,836 47,366 40,376 =========== =========== ========== ===========
See accompanying notes to consolidated condensed financial statements. 5-18 SMITHFIELD FOODS, INC. CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
39 Weeks Ended 39 Weeks Ended January 30, 2000 January 31, 1999 - ---------------------------------------------------------------------------------------------------------------------- Cash flows from operating activities: Net income $46,632 $68,136 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 86,262 48,843 (Gain) loss on sale of property, plant and equipment (1,087) 282 Changes in operating assets and liabilities, net of effect of acquisitions (11,361) (11,320) --------- --------- Net cash provided by operating activities 120,446 105,941 --------- --------- Cash flows from investing activities: Capital expenditures (75,940) (63,400) Business acquisitions, net of cash (25,729) (109,942) Proceeds from sale of property, plant and equipment 3,484 575 Investments in partnerships and other assets (52,251) 703 ---------- ---------- Net cash used in investing activities (150,436) (172,064) ---------- ---------- Cash flows from financing activities: Net (repayments) borrowings on notes payable (269,101) 1,965 Proceeds from issuance of long-term debt 250,082 3,536 Net borrowings on long-term credit facility 312,000 35,000 Principal payments on long-term debt and capital lease obligations (158,031) (18,560) Repurchase of common stock (69,695) - Exercise of common stock options 3,507 12,023 --------- --------- Net cash provided by financing activities 68,762 33,964 --------- ---------- Net increase (decrease) in cash and cash equivalents 38,772 (32,159) Effect of currency exchange rates 348 336 Cash and cash equivalents at beginning of period 30,590 60,522 --------- --------- Cash and cash equivalents at end of period $ 69,710 $ 28,699 ========= ========== Supplemental disclosures of cash flow information: Cash payments during period: Interest (net of amount capitalized) $ 42,935 $ 20,892 ========= ========= Income taxes $ 13,761 $ 4,478 ========= =========
Noncash investing and financing activities: As discussed in Note 8, effective May 3, 1999, the Company completed the acquisition of Carroll's Foods, Inc. 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. Effective January 5, 2000, the Company completed the acquisition of Murphy Farms, Inc. and its affiliated companies in exchange for 11.1 million shares of Company's common stock and the assumption of approximately $203.0 million in debt, plus other liabilities. See accompanying notes to consolidated condensed financial statements. 6-18 SMITHFIELD FOODS, INC. 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 May 2, 1999. (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) January 30, 2000 May 2, 1999 -------------- ---------------- ----------- Hogs on farms $305,832 $ 83,352 Fresh and processed meats 252,402 219,647 Manufacturing supplies 76,008 30,201 Other 18,186 15,656 ---------- -------- $652,428 $348,856 ========== ======== (4) Income per basic share is computed based on the average common shares outstanding during the period. Income per diluted share is computed based on the average common shares outstanding during the period adjusted for the effect of potential common shares, such as stock options. The computation for basic and diluted income per share is as follows:
13 Weeks 13 Weeks 39 Weeks 39 Weeks Ended Ended Ended Ended (In thousands, except per share data) January 30, 2000 January 31, 1999 January 30, 2000 January 31, 1999 ------------------------------------- ---------------- ---------------- ---------------- ---------------- Net income $17,488 $54,980 $46,632 $68,136 ======== ======== ======== ========= Average common shares outstanding: Basic 47,800 40,856 46,570 38,889 Dilutive stock options 613 980 796 1,487 -------- -------- -------- --------- Diluted 48,413 41,836 47,366 40,376 ======== ======== ======== ========= Net income per common share: Basic $.37 $1.35 $1.00 $1.75 ======== ======== ======== ========= Diluted $.36 $1.31 $.98 $1.69 ======== ======== ======== =========
7-18 Summarized below are stock option shares outstanding at the end of each fiscal period which were not included in the computation of income per diluted share because the average exercise price of the options was greater than the average market price of the common shares.
13 Weeks Ended 39 Weeks Ended -------------- -------------- January 30, 2000 January 31, 1999 January 30, 2000 January 31, 1999 ---------------- ---------------- ---------------- ---------------- Stock option shares excluded 495,000 55,000 345,000 405,000 Average option price per share $27.92 $32.38 $28.64 $25.31
(5) The Company adopted Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income," in fiscal 1999. The components of comprehensive income, net of related tax, consist of:
13 Weeks Ended 39 Weeks Ended -------------- -------------- (In thousands) January 30, 2000 January 31, 1999 January 30, 2000 January 31, 1999 -------------- ---------------- ---------------- ---------------- ---------------- Net income $17,488 $54,980 $46,632 $68,136 Other comprehensive income: Foreign currency translation adjustment (324) (115) (3,210) 3,374 Unrealized (loss) gain on securities (8,331) 1,804 (8,719) 2,741 --------- ---------- --------- --------- Comprehensive income $ 8,833 $56,669 $34,703 $74,251 ========= ========== ========= =========
(6) The Company adopted Statement of Financial Accounting Standard No. 131, "Disclosure about Segments of an Enterprise and Related Information," in fiscal 1999. The segments identified include the Meat Processing Group ("MPG") and the Hog Production Group ("HPG"). The underlying factors used to identify the reportable segments include differences in products produced and sold. The following table presents information about the results of operations for each of the Company's reportable segments for the 13 and 39 weeks ended January 30, 2000 and January 31, 1999, respectively. In connection with the acquisition of Carroll Foods, Inc. ("CFI") in the first quarter and the acquisition of Murphy Farms, Inc. in the third quarter of fiscal 2000, assets for the HPG increased by approximately $1.0 billion to a total of $1.2 billion. 8-18
Meat Hog General (In thousands) Processing Production Corporate Total --------------------------- ------------------------------------------------------------ 13 Weeks Ended January 30, 2000 --------------------------- Sales $1,331,607 $ 190,934 $ - $1,522,541 Intersegment sales - (145,375) - (145,375) Operating profit (loss) 41,486 13,011 (6,880) 47,617 13 Weeks Ended January 31, 1999 --------------------------- Sales $1,027,550 $ 27,829 $ - $1,055,379 Intersegment sales - (19,651) - (19,651) Operating profit (loss) 128,704 (24,684) (8,571) 95,449 39 Weeks Ended January 30, 2000 --------------------------- Sales $3,662,201 $ 434,932 $ - $4,097,133 Intersegment sales - (347,423) - (347,423) Operating profit (loss) 100,706 42,775 (19,594) 123,887 39 Weeks Ended January 31, 1999 --------------------------- Sales $2,746,088 $ 113,569 $ - $2,859,657 Intersegment sales - (83,728) - (83,728) Operating profit (loss) 188,311 (36,670) (16,876) 134,765
(7) The Company placed $225.0 million in senior secured notes and increased the existing revolving credit facility borrowing capacity from $300.0 million to $650.0 million. The $225.0 million in senior secured notes includes, $75.0 million in variable rate debt, $100.0 million of notes at 7.89% and $50.0 million of notes at 8.44%. As of January 30, 2000, the Company has unused availability of $268.2 million under the long-term credit facility. (8) Effective May 3, 1999, the Company completed the acquisition of 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 acquisition included 100% of the capital stock of CFI, CFI's 50% interest in Smithfield- Carroll's, CFI's 16% interest in Circle Four, CFI's 50% interest in Tar Heel Turkey Hatchery, 100% of CFI's turkey grow-out operations, CFI's 49% interest in Carolina Turkeys, and certain hog production interests in Brazil and Mexico. Effective January 5, 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 acquisitions of CFI and MFI were accounted for using the purchase method of accounting and, accordingly, the accompanying financial statements include the financial position and results of operations from the dates of acquisition. Had the acquisitions of CFI and MFI occurred at the beginning of fiscal 1999, it would not have had a material effect on pro forma combined sales as a significant portion of CFI's and MFI's sales would have been intercompany. Pro forma combined net income and net income per diluted share would have been $24.0 million and $.43, in the 13 weeks ended January 30, 2000, respectively, $29.1 million and $.51, in the 13 weeks ended January 31, 1999, respectively, $47.6 million and $.83, in the 39 weeks ended January 30, 2000, respectively, and a loss of $16.3 million and $.29, in the 39 weeks ended January 31, 1999, respectively. 9-18 (9) In August 1999, the Company acquired all of the capital stock of Societe Financiere de Gestion et de Participation S.A. ("SFGP"). SFGP had sales of approximately $100.0 million in calendar year 1998. 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. (10) In September 1999, the Company invested approximately $22.0 million for a 49% interest in the joint venture Agroindustrial del Noroeste ("Agroindustrial"). Agroindustrial consists of Grupo Alpro, a fresh and processed meats operation based in Hermosillo Mexico and operates Agrofarms, a hog production operation, which is the primary source of hogs for Grupo Alpro's fresh and processed meats operation. The joint venture is accounted for using the equity method of accounting. (11) In the third quarter of fiscal 1999, the Company acquired 100% of the voting common shares of Schneider Corporation ("Schneider") and approximately 59% of its Class A non-voting shares, which in the aggregate represents approximately 63% of the total equity of Schneider, in exchange for approximately 2.5 million Exchangeable Shares of Smithfield Canada Limited, a wholly-owned subsidiary of the Company. Each Exchangeable Share is exchangeable by the holder at any time for one common share of the Company. Schneider had sales in its fiscal year ended October 1998 of $548.1 million. In April 1999, the Company acquired, in a tender offer, 67% of the total equity and 51% of the voting control of Animex S.A. ("Animex"). During the 39-week period ended January 30, 2000, the Company increased its ownership in Animex to 85% of total equity. Animex had calendar year 1998 sales of approximately $400.0 million. In September 1998, the Company acquired all of the capital stock of Societe Bretonne de Salaisons ("SBS"). SBS had calendar year 1998 sales of approximately $100.0 million. In October 1998, the Company acquired all the assets and business of North Side Foods Corp. ("North Side"). North Side had calendar year 1998 sales of approximately $58.0 million. Each of these acquisitions 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 dates of acquisition. 10-18 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 six wholly-owned domestic pork processing subsidiaries and four international pork processing entities. The HPG consists primarily of three hog production operations located in the United States. RESULTS OF OPERATIONS - --------------------- Several acquisitions affect the comparability of the results of operations for the 13 week and 39 week periods ended January 30, 2000 and January 31, 1999, including the following: Effective January 5, 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 had sales of $492.0 million in fiscal year ended October 1998. A significant portion of these sales were to the MPG. In May 1999, the Company completed the acquisition of Carroll's 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. CFI had sales of $348.0 million in calendar year 1998. A significant portion of these sales were to the MPG. On August 12, 1999, 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. In April 1999, the Company acquired, in a tender offer, 67% of the total equity and 51% of the voting control of Animex S.A. ("Animex"). During the 39 week period ended January 30, 2000, the Company increased its ownership in Animex to 85% of total equity. Animex had calendar year 1998 sales of approximately $400.0 million. Each of these acquisitions was 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 JANUARY 30, 2000 - 13 WEEKS ENDED JANUARY 31, 1999 Sales in the third quarter of fiscal 2000 increased $341.4 million, or 33.0%, from the comparable period in fiscal 1999. The increase in sales was primarily attributable to the inclusion of sales of acquired businesses and increases in both processed meats volume and unit sales prices of meat products in the base business. See the following sections for comments on sales changes by business segment. Gross profit in the current quarter decreased $25.0 million, or 12.4%, on sharply higher raw material costs in the MPG. In the comparable period in the prior year, the MPG experienced exceptionally high margins as live hog prices were at a record low. The significantly higher costs in the MPG in the current quarter were partially offset by higher unit selling prices in the MPG and increased margins in the HPG. In addition, margins were adversely affected by the aftereffects of the flooding experienced by the Company's hog farms and meat processing facilities in North Carolina. 11-18 Selling, general and administrative expenses increased $10.4 million, or 11.8%, primarily due to the inclusion of expenses of acquired businesses. Depreciation expense increased $10.7 million, or 60.3%, in the third quarter of fiscal 2000 from the comparable period in fiscal 1999, primarily related to the inclusion of the depreciation expense of acquired businesses and higher depreciation expense in the base business related to higher capital spending in the MPG. Interest expense increased $9.8 million, or 93.0%, in the third quarter of fiscal 2000 from the comparable period in fiscal 1999, reflecting the inclusion of the interest expense of the acquired businesses, increases in interest rates and the cost of borrowings to finance acquisitions. The effective income tax rate for the third quarter of fiscal 2000 increased slightly to 35.8% compared to 35.2% in the corresponding period of fiscal 1999, primarily related to the inclusion of foreign results at higher tax rates. Reflecting the factors previously discussed, net income decreased to $17.5 million, or $.36 per diluted share, in the third quarter of fiscal 2000, down from $55.0 million, or $1.31 per diluted share, in the third quarter of fiscal 1999. 39 WEEKS ENDED JANUARY 30, 2000 - 39 WEEKS ENDED JANUARY 31, 1999 Sales in the first nine months of fiscal 2000 increased $973.8 million, or 35.1%, from the comparable period in fiscal 1999. The increase in sales was primarily attributable to the inclusion of sales of acquired businesses and increases in both processed meats volume and unit sales prices of meat products in the base business. See the following sections for comments on sales changes by business segment. Gross profit in the first nine months of fiscal 2000 increased $107.8 million, or 27.8%, primarily on the inclusion of acquired businesses. Excluding acquisitions, gross profit in the base business declined as a result of sharply higher live hog prices especially in the third quarter. In the HPG, margins improved as a result of acquisitions in the current year and increases in live hog prices. The HPG's current year's results were also favorably impacted by commodity hedging gains. Selling, general and administrative expenses increased $77.8 million, or 36.6%, primarily related to the inclusion of acquired businesses. In the base business, costs increased on efforts to market branded fresh pork and processed meats and expenses associated with the Year 2000. Depreciation expense increased $34.4 million, or 77.0%, in the first nine months of fiscal 2000 from the comparable period in fiscal 1999, primarily related to the inclusion of acquired businesses. Interest expense increased $20.5 million, or 65.7%, in the first nine months of fiscal 2000 from the comparable period in fiscal 1999, reflecting the inclusion of the interest expense of the acquired businesses and the cost of borrowings to finance acquisitions. The effective income tax rate for the first nine months of fiscal 2000 increased to 35.4% compared to 34.2% in the corresponding period of fiscal 1999, primarily on the inclusion of foreign results at higher tax rates. Reflecting the factors previously discussed, net income decreased to $46.6 million, or $.98 per diluted share, in the first nine months of fiscal 2000, down from $68.1 million, or $1.69 per diluted share, in the first nine months of fiscal 1999. 12-18 MEAT PROCESSING GROUP 13 WEEKS ENDED JANUARY 30, 2000 - 13 WEEKS ENDED JANUARY 31, 1999 MPG sales in the third quarter of fiscal 2000 increased $304.1 million, or 29.6%, from the comparable period in fiscal 1999 due primarily to incremental processed meats volume and the inclusion of acquired businesses. In addition, unit-selling prices increased 20.0% due to higher live hog prices and a greater proportion of value-added processed meats in the sales mix. Excluding acquired businesses, processed meats volume increased 2.3% offset by a 9.8% decline in fresh meats volume. Fresh meats volume decreased as the Company reduced slaughter levels due to lower margins in fresh pork. Operating profit in the MPG decreased to $41.5 million from $128.7 million in the prior year. The MPG experienced lower margins on sales of both fresh and processed meats due to a 73.8% increase in live hog prices. In the current quarter, higher raw material costs, compared to record lows in the prior year, were only partially offset by higher unit-selling prices. Operating profit in the current quarter continued to be impacted by the aftereffects from the severe flooding experienced by the Company's meat processing facilities in North Carolina which reduced the Company's supply of hams for the holiday season. With the exception of Animex, which continues to incur operating losses, international acquisitions made positive contributions in the quarter. 39 WEEKS ENDED JANUARY 30, 2000 - 39 WEEKS ENDED JANUARY 31, 1999 MPG sales in the first nine months of fiscal 2000 increased $916.1 million, or 33.4%, due primarily to incremental processed meats volumes on the inclusion of acquired businesses. Processed and fresh meats volume increased 43.2% and 4.3%, respectively. In addition, unit-selling prices increased 10.6% due to higher live hog costs and a greater proportion of value-added processed meats in the sales mix. Excluding acquired businesses, processed meats volume increased 6.0% and fresh meats volume declined 7.7%. Fresh meats volume decreased as the Company reduced slaughter levels due to lower margins in fresh pork. Operating profit in the MPG decreased to $100.7 million in the first nine months of fiscal 2000 from $188.3 million on an 18.4% increase in live hog costs. In addition, increased spending in the base business on the market expansion of fresh and processed meats brands, the implementation of food safety programs at Company facilities and increased spending on information systems related to Year 2000 projects contributed to lower operating profit. HOG PRODUCTION GROUP 13 WEEKS ENDED JANUARY 30, 2000 - 13 WEEKS ENDED JANUARY 31, 1999 A significant portion of the sales in the HPG are to the MPG and, therefore, are eliminated in the Company's consolidated condensed statements of income. HPG sales in the third quarter of fiscal 2000 increased sharply compared to the same period in fiscal 1999 as a result of the inclusion of the sales of CFI and MFI and an increase in live hog prices. With the acquisition of CFI and MFI, hogs sold in the current quarter of fiscal 2000 increased to 2.0 million from 0.6 million in the comparable period in fiscal 1999. Operating profit in the HPG improved to $13.0 million in the third quarter of fiscal 2000 compared to a loss of $24.7 million in the comparable period in fiscal 1999 as a result of the inclusion of CFI and MFI, an increase in live hog prices and lower feed costs. The increase was partially offset by the aftereffects of severe flooding experienced by the Company's hog farms in North Carolina last fall which affected the number of market hogs sold in the quarter. Additionally, the current quarter's operating profit was favorably impacted by certain litigation settlements. 13-18 39 WEEKS ENDED JANUARY 30, 2000 - 39 WEEKS ENDED JANUARY 31, 1999 For the first nine months of fiscal 2000, HPG sales increased sharply compared to the period in fiscal 1999 as a result of the inclusion of the sales of CFI and MFI and an increase in live hog prices. With the acquisition of CFI and MFI, hogs sold in the nine months of fiscal 2000 increased to 5.7 million from 1.6 million in the comparable period in fiscal 1999. Operating profit in the HPG improved to $42.8 million compared to a loss of $36.7 million in the comparable period of fiscal 1999 as a result of the inclusion of CFI and MFI, an increase in live hog prices coupled with lower feed costs, and the impact of gains recognized on favorable commodity hedging contracts. LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- Cash provided by operations totaled $120.5 million for the thirty-nine weeks ended January 30, 2000 compared to $105.9 million in the comparable period in fiscal 1999. Increases in non-cash charges were partially offset by decreases in net income. Non-cash charges increased to $86.2 million from $48.8 million due primarily to the incremental depreciation and amortization of acquired businesses. Cash used in investing activities declined to $150.4 million in the current year from $172.1 million from the comparable period in fiscal 1999 as a result of a substantial decrease in acquisitions paid using cash during the first nine months of the prior year. Capital expenditures totaled $75.9 million in the first nine months of fiscal 2000 related to processed meats expansion and improvement projects, additional hog production facilities at Circle Four and replacement systems associated with the Year 2000. In addition, during the first nine months of fiscal 2000, the Company made investments in Agroindustrial del Noroeste, a Mexican meat processing and hog production joint venture, 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 January 30, 2000, the Company had definitive commitments of $43.7 million for capital expenditures primarily to increase its value-added fresh pork capacity at several of its processing plants and for additional hog production facilities at Circle Four. These expenditures are expected to be funded with cash provided by operations. Financing activities provided $68.8 million in the first nine months of fiscal 2000 as additional borrowings on revolving credit facilities were used primarily for the repayment of notes payable and the repurchase of approximately 2.8 million shares of the Company's common stock. The Company has been authorized to repurchase a total of 4.0 million shares. As of March 10, the Company has 1.2 million shares available to repurchase under this authorization. During the first nine months of fiscal 2000, the Company refinanced a substantial portion of the debt assumed in connection with the CFI and MFI acquisitions. Financing activities included the placement of $225.0 million 10- year senior secured notes and an increase in the existing revolving credit facility borrowing capacity from $300.0 million to $650.0 million. The $225.0 million in senior secured notes includes, $75.0 million is variable rate debt, $100.0 million of notes at 7.89% and $50.0 million of notes at 8.44%. As of January 30, 2000, the Company has unused availability of $268.2 million under the long-term credit facility. YEAR 2000 - --------- The Company completed its Year 2000 project as scheduled. As of January 30, 2000, the Company's production, computing and communication infrastructure systems have operated without any significant Year 2000 related problems and appear to be Year 2000 compliant. The Company is not aware that any major customers or third-party suppliers have experienced any significant Year 2000 related problems. The Company believes all critical systems are Year 2000 compliant. However, there is no guarantee that the Company has discovered all possible Year 2000 failure points including non-compliant third parties whose systems and operation impact the Company and other uncertainties. Total costs incurred since the inception of the project to ready the Company for the Year 2000 is $35.8 million of which $20.3 million was capitalized in accordance with generally accepted accounting principles. 14-18 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 raw materials, product pricing, competitive environment and related market conditions, operating efficiencies, access to capital, integration of acquisitions and changes in, or the failure or inability to comply with, governmental regulation, including without limitation, environmental and health regulations. 15-18 PART II - OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (a) Special Meeting of Shareholders held December 21, 1999. (b) Not applicable (c) There were 43,922,266 shares of the Company's Common Stock and one Series B Special Voting Preferred Share outstanding as of November 15, 1999, the record date for the Special 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 to 1,016,679 votes; the total number of votes that shareholders could cast at the Special Meeting of Shareholders was therefore 44,938,945. A total of 32,273,883 votes (or 71.8% of the total) were cast. At the Special Meeting of Shareholders, a proposal to approve the issuance of 10,652,070 shares of Common Stock (plus or minus shares to be issued by or returned to the Company in connection with post-closing adjustments or indemnification obligations provided for in the acquisition agreement) in connection with the acquisition of Murphy Family Farms Companies, (as defined and more fully described in the proxy statement for the Special Meeting of Shareholders) was approved by the shareholders with the following vote: Votes Broker Votes For Votes Against Withheld Non-Votes ---------- ------------- -------- --------- 31,998,929 205,192 69,762 0 (d) Not applicable 16-18 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. A. Exhibits Exhibit 27 - Financial Data Schedule B. Reports on Form 8-K. 1. A Current Report on Form 8-K for November 22, 1999, was filed with the Securities and Exchange Commission on December 6, 1999 to report, under Item 5, that the Company had entered into a definitive agreement to acquire all of the capital stock of Murphy Farms, Inc. and its affiliated companies. 17-18 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SMITHFIELD FOODS, INC. /s/ C. LARRY POPE - -------------------------------------------- C. Larry Pope Vice President and Chief Financial Officer /s/ DANIEL G. STEVENS - -------------------------------------------- Daniel G. Stevens Corporate Controller Date: March 14, 2000 18-18 EX-27 2 EX 27-1 FINANCIAL DATA SCHEDULE
5 1,000 9-MOS MAY-02-1999 JAN-30-2000 69,710 0 331,481 3,461 652,428 1,111,174 1,589,454 363,357 3,041,779 576,002 1,193,985 0 0 27,433 853,441 3,041,779 3,749,710 3,749,710 3,253,391 3,253,391 0 0 51,663 72,224 25,592 46,632 0 0 0 46,632 1.00 0.98
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