-----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, TTci3KbDlQdOGHhWiPPU3l9en5aeRuXJqGOIUEbdY1hfIys5O/YzxYeF49WtQTjU +n65Uke89ul+jtXWjmftaA== 0000916641-00-001822.txt : 20001214 0000916641-00-001822.hdr.sgml : 20001214 ACCESSION NUMBER: 0000916641-00-001822 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20001029 FILED AS OF DATE: 20001213 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: 788419 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 0001.txt 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 October 29, 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 December 8, 2000 - ---------------------------- -------------------------------------- Common Stock, $.50 par value 54,440,211 1-16 SMITHFIELD FOODS, INC. CONTENTS PART I. FINANCIAL INFORMATION PAGE Item 1. Financial Statements Consolidated Condensed Balance Sheets - October 29, 2000 and April 30, 2000 3-4 Consolidated Condensed Statements of Income - 13 Weeks Ended October 29, 2000 and October 31,1999 and 26 Weeks Ended October 29, 2000 and October 31,1999 5 Consolidated Condensed Statements of Cash Flows - 26 Weeks Ended October 29, 2000 and October 31, 1999 6 Notes to Consolidated Condensed Financial Statements 7-9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10-14 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 15
2-16 PART I. FINANCIAL INFORMATION SMITHFIELD FOODS, INC. CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands) October 29, 2000 April 30, 2000 - ----------------------------------------------------------------------------------------- ASSETS (Unaudited) Current assets: Cash and cash equivalents $ 50,295 $ 49,882 Accounts receivable, net 380,581 390,037 Inventories 726,313 665,143 Prepaid expenses and other current assets 71,958 127,664 ---------- ---------- Total current assets 1,229,147 1,232,726 ---------- ---------- Property, plant and equipment 1,680,881 1,612,043 Less accumulated depreciation (451,702) (398,469) ---------- ---------- Net property, plant and equipment 1,229,179 1,213,574 ---------- ---------- Other assets: Goodwill 319,714 320,148 Investments in partnerships 118,953 102,551 Other 379,961 260,614 ---------- ---------- Total other assets 818,628 683,313 ---------- ---------- $3,276,954 $3,129,613 ========== ==========
See Notes to Consolidated Condensed Financial Statements 3-16 SMITHFIELD FOODS, INC. CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands) October 29, 2000 April 30, 2000 - ------------------------------------------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY (Unaudited) Current liabilities: Notes payable $ 58,152 $ 64,924 Current portion of long-term debt and capital lease obligations 41,702 48,505 Accounts payable 269,186 270,004 Accrued expenses and other current liabilities 235,382 239,436 ---------- ---------- Total current liabilities 604,422 622,869 ---------- ---------- Long-term debt and capital lease obligations 1,260,360 1,187,770 ---------- ---------- Other noncurrent liabilities: Deferred income taxes 287,572 274,329 Pension and postretirement benefits 74,353 78,656 Other 27,242 30,311 ---------- ---------- Total other noncurrent liabilities 389,167 383,296 ---------- ---------- Minority interests 27,693 32,769 ---------- ---------- Shareholders' equity: Preferred stock, $1.00 par value, 1,000,000 authorized shares - - Common stock, $.50 par value, 100,000,000 authorized shares; 54,429,711 and 54,705,386 issued 27,215 27,353 Additional paid-in capital 465,947 473,974 Retained earnings 504,410 415,266 Accumulated other comprehensive income (2,260) (13,684) ---------- ---------- Total shareholders' equity 995,312 902,909 ---------- ---------- $3,276,954 $3,129,613 ========== ==========
See Notes to Consolidated Condensed Financial Statements 4-16 SMITHFIELD FOODS, INC. CONSOLIDATED CONDENSED STATEMENTS OF INCOME (Unaudited)
13 Weeks Ended 13 Weeks Ended 26 Weeks Ended 26 Weeks Ended (In thousands, except per share data) October 29, 2000 October 31, 1999 October 29, 2000 October 31, 1999 - ---------------------------------------------------------------------------------------------------------------------- Sales $1,430,918 $1,230,129 $2,852,244 $2,372,544 Cost of sales 1,196,123 1,057,525 2,388,049 2,052,408 ---------- ---------- ---------- --------- Gross profit 234,795 172,604 464,195 320,136 Selling, general and administrative expenses 108,417 96,721 212,262 191,306 Depreciation expense 30,524 25,815 61,179 50,674 Interest expense 25,007 16,760 48,395 31,293 Minority interests (923) (875) (1,169) 1,886 ---------- ---------- ---------- --------- Income before income taxes 71,770 34,183 143,528 44,977 Income taxes 27,194 11,969 54,383 15,833 ---------- ---------- ---------- --------- Net income $ 44,576 $ 22,214 $ 89,145 $ 29,144 ========== ========== ========== ========== Net income per common share: Basic $ .82 $ .49 $ 1.63 $ .64 ========== ========== ========== ========== Diluted $ .81 $ .48 $ 1.61 $ .62 ========== ========== ========== ========== Average common shares outstanding: Basic 54,474 45,585 54,567 45,722 ========== ========== ========== ========== Diluted 55,158 46,433 55,252 46,772 ========== ========== ========== ==========
See Notes to Consolidated Condensed Financial Statements 5-16 SMITHFIELD FOODS, INC. CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
26 Weeks Ended 26 Weeks Ended (In thousands) October 29, 2000 October 31, 1999 - ------------------------------------------------------------------------------------------------------------------ Cash flows from operating activities: Net income $ 89,145 $ 29,144 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 68,169 54,328 (Gain) loss on sale of property, plant and equipment 4,857 (182) Changes in operating assets and liabilities, net of effect of acquisitions (43,798) (75,589) --------- --------- Net cash provided by operating activities 118,373 7,701 --------- --------- Cash flows from investing activities: Capital expenditures (69,709) (52,917) Business acquisitions, net of cash (7,930) (25,478) Proceeds from sale of property, plant and equipment 387 2,335 Investments in long-term marketable securities (60,415) (10,262) Investments in partnerships (17,936) (3,913) --------- --------- Net cash used in investing activities (155,603) (90,235) --------- --------- Cash flows from financing activities: Net repayments on notes payable (9,206) (164,613) Proceeds from issuance of long-term debt 19,688 249,523 Net borrowings on long-term credit facility 57,000 173,000 Principal payments on long-term debt and capital lease obligations (22,558) (149,983) Repurchase and retirement of common stock (9,691) (31,667) Exercise of common stock options 906 2,946 --------- --------- Net cash provided by financing activities 36,139 79,206 --------- --------- Net decrease in cash and cash equivalents (1,091) (3,328) Effect of foreign exchange rate changes on cash 1,504 (384) Cash and cash equivalents at beginning of period 49,882 30,590 --------- --------- Cash and cash equivalents at end of period $ 50,295 $ 26,878 ========= ========= Supplemental disclosures of cash flow information: Cash payments during period: Interest (net of amount capitalized) $ 52,801 $ 28,088 ========= ========= Income taxes $ 47,639 $ 12,362 ========= =========
Noncash investing and financing activities: In May of fiscal 2000, 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. See also Note 7. See Notes to Consolidated Condensed Financial Statements 6-16 NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (1) These statements should be read in conjunction with the Consolidated Financial Statements and related notes, which are included in the Company's Annual Report, for the fiscal year ended April 30, 2000. 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 for a fair presentation of the financial position and results of operations for the periods included in this report. (2) Inventories consist of the following: (In thousands) October 29, 2000 April 30, 2000 -------------- ---------------- -------------- Hogs on farms $ 316,816 $ 323,639 Fresh and processed meats 335,480 264,479 Manufacturing supplies 56,002 55,937 Other 18,015 21,088 --------- --------- $ 726,313 $ 665,143 ========= ========= (3) Net income per basic share is computed based on the average common shares outstanding during the period. Net income per diluted share is computed based on the average common shares outstanding during the period adjusted for the effect of potential common stock equivalents, such as stock options. The computation for basic and diluted net income per share is as follows:
13 Weeks Ended 26 Weeks Ended -------------------------------------------------------------------- (In thousands, October 29, October 31, October 29, October 31, except per share data) 2000 1999 2000 1999 - --------------------- ---------- ---------- --------- ---------- Net income $44,576 $22,214 $ 89,145 $29,144 ------- ------- -------- ------- Average common shares outstanding: Basic 54,474 45,585 54,567 45,722 Dilutive stock options 684 848 685 1,050 ------- ------- -------- ------- Diluted 55,158 46,433 55,252 46,772 ======= ======= ======== ======= Net income per common share: Basic $ .82 $ .49 $ 1.63 $ .64 ======= ======= ======== ======= Diluted $ .81 $ .48 $ 1.61 $ .62 ======= ======= ======== =======
The summary below lists stock options outstanding at the end of each fiscal period which were not included in the computation of net income per diluted share because the options' exercise prices were greater than the average market price of the common shares.
13 Weeks Ended 26 Weeks Ended ----------------------------------------------------------------------- October 29, October 31, October 29, October 31, 2000 1999 2000 1999 ---------- ---------- ---------- ---------- Stock option shares excluded 1,045,000 370,000 1,195,000 180,000 Average option price per share $27.14 $28.92 $27.03 $30.16
(4) The components of comprehensive income, net of related taxes, consist of: 7-16
13 Weeks Ended 26 Weeks Ended --------------------------------------------------------------------- October 29, October 31, October 29, October 31, (In thousands) 2000 1999 2000 1999 - -------------- ---------- ---------- ---------- ---------- Net income $44,576 $22,214 $ 89,145 $29,144 Other comprehensive income: Foreign currency translation (6,327) (1,485) (7,640) (2,985) Unrealized gain (loss) on securities 25,355 (471) 19,064 (288) ------- ------- -------- ------- Comprehensive income $63,604 $20,258 $100,569 $25,871 ======= ======= ======== =======
(5) The following table presents information about the results of operations for each of the Company's reportable segments for the 13 and 26 weeks ended October 29, 2000 and October 31, 1999, respectively. Certain prior year amounts have been restated to conform to fiscal 2001 presentations.
Meat Hog General (In thousands) Processing Production Corporate Total - ----------------------------------------------------------------------------------------------------- 13 Weeks Ended: October 29, 2000 --------------------- Sales $1,351,582 $311,752 $ - $1,663,334 Intersegment sales - (232,416) - (232,416) Operating profit (loss) 32,429 72,736 (8,388) 96,777 October 31, 1999 --------------------- Sales $1,208,974 $123,627 $ - $1,332,601 Intersegment sales - (102,472) - (102,472) Operating profit (loss) 44,320 13,279 (6,656) 50,943 - ------------------------------------------------------------------------------------------------------ 26 Weeks Ended: October 29, 2000 --------------------- Sales $2,681,606 $636,469 $ - $3,318,075 Intersegment sales - (465,831) - (465,831) Operating profit (loss) 24,611 183,887 (16,575) 191,923 October 31, 1999 --------------------- Sales $2,330,594 $243,998 $ - $2,574,592 Intersegment sales - (202,048) - (202,048) Operating profit (loss) 59,220 29,764 (12,714) 76,270
(6) In January 2000, the Company completed the acquisition of Murphy Farms, Inc. ("MFI") and its affiliated companies for 11.1 million shares of the Company's common stock (subject to post-closing adjustments) and the assumption of approximately $203.0 million in debt, plus other liabilities. The balance of the purchase price in excess of the fair value of the assets acquired and the liabilities assumed at the date of acquisition was recorded as an intangible asset totaling $147.0 million. The acquisition was accounted for using the purchase method of accounting and, accordingly, the accompanying financial statements include the financial position and results of operations from the date of acquisition. Had the acquisition of MFI occurred at the beginning of fiscal 2000, sales would have been $1.3 million and $2.5 million for the 13 weeks and the 26 weeks ended October 31, 1999, respectively. Net income and net income per diluted share would have been $20.5 million and $.36, respectively, for the 13 weeks ended October 31, 1999, and $28.6 million and $.50, respectively, for the 26 weeks ended October 31, 1999. 8-16 (7) In May 1999 (fiscal 2000), 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. The balance of the purchase price in excess of the fair value of the assets acquired and the liabilities assumed at the date of acquisition was recorded as an intangible asset totaling $45.1 million. (8) In August 1999 (fiscal 2000), 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. (9) On October 1, 2000, IBP, inc. ("IBP") entered into a merger agreement with Rawhide Holdings Corporation, an affiliate of Donaldson Lufkin & Jenrette, certain members of IBP senior management, Archer Daniels Midland Company and Booth Creek Partners which provided for a leveraged buyout of IBP for $22.25 per share in cash. On November 12, 2000, the Company made an offer to a special committee of the board of directors of IBP to acquire all of the outstanding shares of IBP through a tax-free merger. Pursuant to the merger, IBP shareholders would receive $25.00 per share payable in Smithfield Foods common stock at an exchange ratio based on the average price of Smithfield Foods shares for a period prior to the closing. The proposal provides for a maximum exchange ratio of 0.878 for each IBP share if the pre-closing average trading price of Smithfield Foods stock is below $28.46 and a minimum exchange ratio of 0.719 if the pre-closing average trading price is above $34.79. The proposed transaction would have a total transaction value of approximately $4.1 billion, including the assumption of $1.4 billion of IBP debt. The Company expects to use the pooling-of-interests method of accounting for the proposed combination. The offer is subject to certain conditions set forth in the Company's proposal letter which is included in the press release attached as Exhibit 1 to the Company's Schedule 13D. On November 16, 2000, the Company and IBP entered into a confidentiality agreement. Since that time the Company and its advisors have been conducting a due diligence review of IBP and have engaged in discussions with IBP and its advisors. On December 4, 2000, Tyson Foods, Inc. made an offer to the special committee of the board of directors of IBP to acquire all of the outstanding shares of IBP through a transaction in which Tyson would first make a cash tender offer for 50.1% of the outstanding IBP shares at a price of $26.00 per share and would then effect a merger in which each remaining IBP share would be converted into the right to receive an amount of Tyson Class A Common Stock derived from a formula based on the pre-closing average trading price of Tyson Class A Common Stock subject to a maximum exchange ratio of 2.063 Tyson shares and a minimum exchange ratio of 1.688 Tyson shares per IBP share. The Tyson offer is also subject to certain conditions described in Tyson's offer letter. On December 4, 2000, IBP announced that it had executed a confidentiality agreement with Tyson and would commence discussions with Tyson and permit Tyson to engage in a due diligence review of IBP. On December 4, 2000, the Company issued a press release regarding the Tyson proposal. The Company's response included, in part, the following statements. "It is by no means clear that the proposal Tyson made today represents superior long-term value over ours. Indeed, we believe that the Smithfield-IBP combination is the more attractive combination given our experience in the meat business, the synergies we can generate by combining our companies, our track record of successfully integrating management teams, and our history of creating shareholder value. . . . We will continue moving forward with the due diligence process and evaluating our next steps, consistent with our disciplined approach to investing our shareholders' assets." On December 12, 2000, Tyson commenced a cash tender offer for 50.1% of the outstanding shares of IBP at a price of $26.00 per share. 9-16 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL - ------- Smithfield Foods, Inc. (the "Company") is comprised of a Meat Processing Group ("MPG") and a Hog Production Group ("HPG"). The MPG consists of five wholly owned domestic pork processing subsidiaries and four international meat processing entities. The HPG consists primarily of three hog production operations located in the United States and certain joint venture investments outside the United States. RESULTS OF OPERATIONS - --------------------- The following acquisitions affect the comparability of the results of operations for the 13 and 26 weeks ended October 29, 2000 and October 31, 1999: In January of fiscal 2000, the Company completed the acquisition of Murphy Farms, Inc. ("MFI") and its affiliated companies for 11.1 million shares of the Company's common stock (subject to post-closing adjustments) and the assumption of approximately $203.0 million in debt, plus other liabilities. MFI is a hog producer with approximately 345,000 sows that produce approximately 6.0 million market hogs annually. The purchase price in excess of the fair value of the assets acquired and the liabilities assumed at the date of acquisition was recorded as an intangible asset totaling $147.0 million. In August of fiscal 2000, the Company acquired the capital stock of Societe Financiere de Gestion et de Participation S.A. ("SFGP"), a private-label processed meats manufacturer in France. SFGP had sales of approximately $100.0 million in calendar year 1998. These acquisitions were accounted for using the purchase method of accounting and, accordingly, the accompanying financial statements include the results of operations from the dates of acquisition. Consolidated Sales in the 13 and 26 weeks ended October 29, 2000 increased by $200.8 million, or 16.3%, and by $479.7 million, or 20.2%, respectively, from the comparable prior year periods. The increases in sales reflected a 12.1% and a 19.2% increase in unit selling prices in the MPG for the 13 and 26 weeks ended October 29, 2000, respectively, and the incremental sales of acquired businesses. See the following section for comments on sales changes by business segment. Gross profit in the 13 and 26 weeks ended October 29, 2000 increased $62.2 million, or 36.0%, and $144.1 million, or 45.0%, respectively, from the comparable periods last year. The current year gross profit increases are primarily the result of the inclusion of MFI and sharply improved margins in the HPG due to higher live hog prices. Selling, general and administrative expenses in the 13 and 26 weeks ended October 29, 2000 increased $11.7 million, or 12.1%, and $21.0 million, or 11.0%, respectively, from the comparable periods in fiscal 2000. The increases were primarily due to the inclusion of expenses of acquired businesses and increased promotion of processed meats. Depreciation expense in the 13 and 26 weeks ended October 29, 2000 increased $4.7 million, or 18.2%, and $10.5 million, or 20.7%, respectively, from the comparable periods a year earlier. The increases are primarily due to the inclusion of depreciation expense of acquired businesses. In addition, depreciation increased in the base business reflecting prior capital expenditures to increase processed meats and value-added fresh pork capacities. 10-16 Interest expense increased $8.2 million, or 49.2%, and $17.1 million, or 54.7%, in the 13 and 26 weeks ended October 29, 2000, respectively, compared to the same periods last year. This increase is primarily due to the interest expense of acquired businesses, additional borrowings associated with the Company's investment in the common stock of IBP, inc. and the share repurchase program and an increase in average interest rates. The effective income tax rate increased to 37.9% in both the 13 and 26 weeks ended October 29, 2000 compared to 35.0% and 35.2%, respectively, in the corresponding periods last year on the inclusion of foreign earnings at higher effective tax rates. The Company had a valuation allowance of $8.7 million related to income tax assets as of October 29, 2000 primarily related to losses in foreign jurisdictions for which no tax benefit was recognized. Reflecting the foregoing factors, net income increased to $44.6 million, or $.81 per diluted share, and $89.1 million, or $1.61 per diluted share, in the 13 and 26 weeks ended October 29, 2000, respectively, as compared to $22.2 million, or $.48 per diluted share, and $29.1 million, or $.62 per diluted share, in the same periods ending October 31, 1999, respectively. Earnings per diluted share in the 13 and 26 weeks ended October 29, 2000 was effected by an 18.8% and an 18.1% increase, respectively, in the average common shares outstanding due to shares issued in connection with business acquisitions in the last half of fiscal 2000. Meat Processing Group Sales in the MPG segment increased $142.6 million, or 11.8%, in the 13 weeks ended October 29, 2000 on a 12.1% increase in unit selling prices. In this period, total sales tonnage remained flat with a modest increase in fresh pork volume being offset by a slight decrease in processed meats volume. Sales increased $351.0 million, or 15.1%, in the 26 weeks ended October 29, 2000 on a 19.2% increase in unit selling prices offset by a 3% decrease in total sales volume. This sales volume decrease is primarily due to the elimination of certain low margin export product lines. MPG operating profit in the 13 and 26 weeks ended October 29, 2000 decreased to $32.4 million from $44.3 million and to $24.6 million from $59.2 million, respectively, in the corresponding prior year periods due to sharply lower fresh pork margins. The lower margins were due to a 20.4% and a 30.0% increase in raw material costs (live hogs) in the 13- and 26-week periods, respectively, all of which could not be passed through in the form of higher unit selling prices. The decrease in fresh pork margins was partially offset by an increase in processed meats margins, which benefited from better pricing and production efficiencies. Hog Production Group HPG sales increased sharply as a result of the inclusion of the sales of MFI and higher live hog prices in the period. With the acquisition of MFI, hogs sold in the 13 and 26 weeks ended October 29, 2000 increased to 3.2 million and 6.0 million, respectively, compared to 1.4 million and 2.8 million, respectively, for the corresponding prior year periods. Most HPG sales represent intersegment sales to the MPG and, therefore, are eliminated in the Company's consolidated condensed statements of income. Operating profit in the 13 and 26 weeks ended October 29, 2000 at the HPG improved to $72.7 million and $183.9 million, respectively, from $13.3 million and $29.8 million, respectively, for the comparable prior year periods primarily as a result of sharp increases in hog prices, the additional hog production of MFI, and improved raising efficiencies and synergies between the HPG and the MPG. Operating profit in the current 13-week period includes a pretax gain of $7.0 million for insurance settlements for the recovery of losses incurred in hog production related to Hurricane Floyd. The actual losses arising from production inefficiencies associated with the hurricane were reflected in each of the last four quarters. 11-16 LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- Cash provided by operations totaled $118.4 million for the 26 weeks ended October 29, 2000 compared to $7.7 million in the same period last year. In addition to the impact of sharply higher earnings in the current period, non-cash charges increased to $68.2 million from $54.3 million due to the inclusion of depreciation and amortization expenses of acquired businesses. Changes in operating assets and liabilities traditionally show significant cash usage during this period of the fiscal year as the Company builds large inventories of hams in the summer months to be sold during the fall holiday season in the third quarter. Cash usage for operating assets and liabilities was $31. 8 million less in the current period compared to the same period last year primarily due to large reductions from the April 30, 2000 position in deposits with brokers for outstanding commodity futures contracts. Cash used in investing activities increased to $155.6 million in the first half of fiscal 2001 from $90.2 million in the same period in fiscal 2000. Capital expenditures totaled $69.7 million in the current period primarily related to processed meats and plant improvement projects. In addition, during the current period, the Company invested $60.4 million in long-term marketable securities, $25.8 million in partnerships and business acquisitions. 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 October 29, 2000, the Company had definitive commitments of $72.3 million for capital expenditures primarily for processed meats expansion, production efficiencies and the addition of hog production facilities in Utah. Financing activities provided cash of $36.1 million in the current period. The Company borrowed $57.0 million on the long-term credit facility and issued $19.7 million of new debt to cover operating and investing activities as well as for the repayment of scheduled debt and for the repurchase of 0.3 million shares of the Company's common stock. The Company has been authorized to repurchase 4.0 million shares of which 3.3 million shares have been purchased under this authorization. OUTLOOK - ------- Hog prices are expected to decline, as they traditionally do, in the third fiscal quarter. This will impact the profitability of the HPG; however, margins in fresh pork are expected to improve significantly from the first half of the year. The third quarter is traditionally the best quarter for the MPG as fresh pork margins are generally good and margins on processed meats peak as the result of strong sales for the fall and holiday seasons. RECENT DEVELOPMENTS - ------------------- On October 1, 2000, IBP, inc. ("IBP") entered into a merger agreement with Rawhide Holdings Corporation, an affiliate of Donaldson Lufkin & Jenrette, certain members of IBP senior management, Archer Daniels Midland Company and Booth Creek Partners which provided for a leveraged buyout of IBP for $22.25 per share in cash. On November 12, 2000, the Company made an offer to a special committee of the board of directors of IBP to acquire all of the outstanding shares of IBP through a tax-free merger. Pursuant to the merger, IBP shareholders would receive $25.00 per share payable in Smithfield Foods common stock at an exchange ratio based on the average price of Smithfield Foods shares for a period prior to the closing. The proposal provides for a maximum exchange ratio of 0.878 for each IBP share if the pre-closing average trading price of Smithfield Foods stock is below $28.46 and a minimum exchange ratio of 0.719 if the pre-closing average trading price is above $34.79. The proposed transaction would have a total transaction value of approximately $4.1 billion, including the assumption of $1.4 billion of IBP debt. The Company expects to use the pooling-of-interests method of accounting for the proposed combination. The offer is subject to certain conditions set forth in the Company's proposal letter which is included in the press release attached as Exhibit 1 to the Company's Schedule 13D. On November 16, 2000, the Company and IBP entered into a confidentiality agreement. Since that time the Company and its advisors have been conducting a due diligence review of IBP and have engaged in discussions with IBP and its advisors. 12-16 On December 4, 2000, Tyson Foods, Inc. made an offer to the special committee of the board of directors of IBP to acquire all of the outstanding shares of IBP through a transaction in which Tyson would first make a cash tender offer for 50.1% of the outstanding IBP shares at a price of $26.00 per share and would then effect a merger in which each remaining IBP share would be converted into the right to receive an amount of Tyson Class A Common Stock derived from a formula based on the pre-closing average trading price of Tyson Class A Common Stock subject to a maximum exchange ratio of 2.063 Tyson shares and a minimum exchange ratio of 1.688 Tyson shares per IBP share. The Tyson offer is also subject to certain conditions described in Tyson's offer letter. On December 4, 2000, IBP announced that it had executed a confidentiality agreement with Tyson and would commence discussions with Tyson and permit Tyson to engage in a due diligence review of IBP. On December 4, 2000, the Company issued a press release regarding the Tyson proposal. The Company's response included, in part, the following statements. "It is by no means clear that the proposal Tyson made today represents superior long-term value over ours. Indeed, we believe that the Smithfield-IBP combination is the more attractive combination given our experience in the meat business, the synergies we can generate by combining our companies, our track record of successfully integrating management teams, and our history of creating shareholder value. . . . We will continue moving forward with the due diligence process and evaluating our next steps, consistent with our disciplined approach to investing our shareholders' assets." On December 12, 2000, Tyson commenced a cash tender offer for 50.1% of the outstanding shares of IBP at a price of $26.00 per share. 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 statements concerning Smithfield's or IBP's outlook for the future, the ability to realize estimated synergies, as well as other statements of beliefs, future plans and strategies or anticipated events, and similar expressions concerning matters that are not historical facts. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in, or implied by, the statements. The following factors, among others, could cause actual results to differ materially from those expressed in, or implied by, the statements: the risks that Smithfield's and IBP's businesses will not be integrated successfully, the risk that Smithfield and IBP will not realize estimated synergies, costs relating to the proposed transaction, the availability and prices of live hogs, live cattle, raw materials and supplies, product pricing, the competitive environment and related market conditions, operating efficiencies, access to capital, actions of domestic and foreign governments and other factors discussed in Smithfield's and IBP's respective filings with the SEC. More detailed information pertaining to Smithfield's proposal will be set forth in appropriate filings to be made with the SEC. We urge stockholders to read any relevant documents that may be filed with the SEC because they will contain important information. Stockholders will be able to obtain a free copy of any filings containing information about Smithfield and IBP, without charge, at the SEC's Internet site (http://www.sec.gov). Copies of any filings containing information about Smithfield can also be obtained, without charge, by directing a request to Smithfield Foods, Inc., 200 Commerce Street, Smithfield, Virginia 23430, Attention: Office of the Corporate Secretary (757-365-3000). This communication shall not constitute an offer to sell or the solicitation of an offer to buy securities, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of such jurisdiction. Smithfield and certain other persons named below may be deemed to be participants in the solicitation of proxies. The participants in this solicitation may include the directors and executive officers of Smithfield. A detailed list of the names of Smithfield's directors and officers 13-16 is contained in Smithfield's proxy statement for its 2000 annual meeting, which may be obtained without charge at the SEC's Internet site (http://www.sec.gov). As of the date of this communication, none of the foregoing participants, other than Smithfield (which beneficially owns approximately 6.6% of IBP's common stock), individually beneficially owns in excess of 5% of IBP's common stock. Except as disclosed above and in Smithfield's proxy statement for its 2000 annual meeting and other documents filed with the SEC including Smithfield's Schedule 13D relating to the IBP common stock, to the knowledge of Smithfield, none of the directors or executive officers of Smithfield has any material interest, direct or indirect, by security holdings or otherwise, in Smithfield or IBP. 14-16 PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K A. Exhibits Exhibit 27 - Financial Data Schedule
B. Reports on Form 8-K None 15-16 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SMITHFIELD FOODS, INC. /s/ C. LARRY POPE - -------------------------------------------- C. Larry Pope Vice President and Chief Financial Officer /s/ DANIEL G. STEVENS - -------------------------------------------- Daniel G. Stevens Vice President and Corporate Controller Date: December 13, 2000 16-16 EX-27 2 0002.txt FINANCIAL DATA SCHEDULE
5 1,000 6-MOS APR-30-2000 OCT-29-2000 50,295 0 386,017 5,436 726,313 1,229,147 1,680,881 451,702 3,276,954 604,422 1,260,360 0 0 27,215 968,097 3,276,954 2,852,244 2,852,244 2,388,049 2,388,049 0 0 48,395 143,528 54,383 89,145 0 0 0 89,145 1.63 1.61
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