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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal
year ended April 28, 1996
or
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the
transition period from to
COMMISSION FILE NUMBER: 0-2258
SMITHFIELD FOODS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 52-0845861
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
900 DOMINION TOWER
999 WATERSIDE DRIVE
NORFOLK, VIRGINIA 23510
(Address of principal executive offices) (Zip Code)
(804) 365-3000
(Registrant's telephone number, including area code)
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
(Title of Class)
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $.50 PAR VALUE PER SHARE
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the shares of Registrant's Common Stock held
by non-affiliates as of July 12, 1996 was approximately $269,536,688. This
figure was calculated by multiplying (i) the $23-7/16 last sales price of
Registrant's Common Stock as reported on The Nasdaq National Market on July 12,
1996 by (ii) the number of shares of Registrant's Common Stock not held by any
officer or director of the Registrant or any person known to the Registrant to
own more than five percent of the outstanding Common Stock of the Registrant.
Such calculation does not constitute an admission or determination that any such
officer, director or holder of more than five percent of the outstanding shares
of Common Stock of the Registrant is in fact an affiliate of the Registrant.
At July 12, 1996, 18,016,015 shares of the Registrant's Common stock were
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Part III incorporates certain information by reference from the
Registrant's definitive proxy statement to be filed with respect to its Annual
Meeting of Stockholders to be held on August 28, 1996.
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TABLE OF CONTENTS
ITEM
NUMBER PAGE
PART I
1. Business................................................................ 3
General.............................................................. 3
Business Strategy.................................................... 3
Revenue by Source.................................................... 4
Fresh Pork Products ................................................. 4
Processed Meat Products.............................................. 5
Raw Materials ....................................................... 5
Customers and Marketing ............................................. 6
Distribution......................................................... 6
Competition ......................................................... 6
Regulation .......................................................... 7
Employees ........................................................... 8
Other .............................................................. 8
2. Properties ............................................................. 8
3. Legal Proceedings ..................................................... 10
4. Submission of Matters to a Vote
of Security Holders ................................................ 10
4A. Executive Officers of the Company ..................................... 11
PART II
5. Market for Company's Common Equity
and Related Stockholder Matters .................................... 13
6. Selected Financial Data ............................................... 14
7. Management's Discussion and Analysis of
Financial Condition and Results of Operations ...................... 15
8. Financial Statements and Supplementary Data ........................... 18
9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure ............................. 18
PART III
10. Directors and Executive Officers of the Company ....................... 19
11. Executive Compensation ................................................ 19
12. Security Ownership of Certain Beneficial Owners
and Management ..................................................... 19
13. Certain Relationships and Related Transactions ........................ 19
PART IV
14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K............................................. 20
SIGNATURES ............................................................... S-1
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE ........... F-1
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PART I
ITEM 1. BUSINESS
GENERAL
Smithfield Foods, Inc. (the "Company"), as a holding company, conducts
its pork processing operations through four principal subsidiaries: Gwaltney of
Smithfield, Ltd. ("Gwaltney") and The Smithfield Packing Company, Incorporated
("Smithfield Packing"), both based in Smithfield, Virginia; John Morrell & Co.
("John Morrell"), based in Cincinnati, Ohio; and Patrick Cudahy Incorporated
("Patrick Cudahy"), based in Cudahy, Wisconsin. The Company also conducts hog
production operations through its Brown's of Carolina, Inc. subsidiary
("Brown's") and Smithfield-Carroll's, a joint hog production arrangement between
the Company and Carroll's Foods of Virginia, Inc., an affiliate of Carroll's
Foods, Inc., Warsaw, North Carolina. Both Brown's and Smithfield-Carroll's
produce hogs for the Company's pork processing plants in Bladen County, North
Carolina and Smithfield, Virginia. The Company is also a participant in the
Circle Four joint hog production arrangement with Carroll's Foods, Inc., Murphy
Family Farms, Inc. and Prestage Farms, Inc., all large North Carolina hog
producers, which conducts hog production operations in Milford, Utah. In this
report, references to "Smithfield Foods" or the "Company" are to Smithfield
Foods, Inc. together with all of its subsidiaries (including John Morrell from
December 20, 1995), unless the context otherwise indicates.
The Company is one of the largest combined pork slaughterers and further
processors in the United States, producing a wide variety of fresh pork and
processed meat products which it markets domestically and to selected foreign
markets, including Japan, Russia, Mexico and other countries.
As consumers have become more health conscious, pork producers and
processors, including the Company, have focused on providing leaner fresh pork
products as well as fat-free, lower-fat and lower-salt processed meats.
Management believes that lean pork products which are more attractive to
diet-conscious Americans, together with the industry's efforts to heighten
public awareness of pork as an attractive protein source, have led to increased
consumer demand for pork products. The Company has developed and is marketing a
line of extremely lean, premium fresh pork products under the Smithfield Lean
Generation trademark to selected retail chains and institutional foodservice
customers.
BUSINESS STRATEGY
Since 1975, when current management assumed control, Smithfield Foods
has expanded both its production capacity and its markets through a combination
of strong internal growth and the acquisition of regional and multi-regional
companies with well-recognized brand identities. In fiscal 1982, the Company
acquired Gwaltney, then Smithfield Packing's principal Mid-Atlantic competitor.
This acquisition doubled the Company's sales and slaughter capacity and added
several popular lines of branded products along with a state-of-the-art hot dog
and luncheon meats production facility. The proximity of Gwaltney to Smithfield
Packing allowed for synergies and cost savings in manufacturing, purchasing,
engineering and transportation.
This combination set the stage for a series of acquisitions of smaller
regional processors with widely-recognized brands. In fiscal 1985, the Company
acquired Patrick Cudahy, which added a prominent line of dry sausage products to
the Company's existing line of processed meats. In fiscal 1986, the Company
acquired Esskay, Inc., a firm with a broad line of delicatessen products having
substantial brand loyalty in the Baltimore-Washington, D.C. metropolitan area.
In fiscal 1991, the Company acquired the Mash's brand name and a ham processing
plant in Landover, Maryland. In fiscal 1993, the Company acquired the Valleydale
brand name and a bacon processing plant in Salem, Virginia.
On December 20, 1995, the Company acquired John Morrell & Co., a major
Midwestern pork processor with primary markets in the Midwest, Northeast and
Western United States. This acquisition changed the Company's character from a
large multi-regional pork processor to one with national distribution. It also
doubled the Company's sales and slaughter capacity, added several popular lines
of branded processed meat products along with four efficient processing
facilities and more than doubled the Company's international sales. The Company
believes that John Morrell's strength in smoked sausage, hot dogs, luncheon
meats, bacon and smoked hams complements the strong smoked meats, hot dog and
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bacon business of the Company's Eastern operations. In addition, by pooling the
operational skills and expertise of management personnel, the combined Company
has already improved operating performance at a number of its plants.
Furthermore, the combination presents substantial opportunities for cost savings
in the areas of processing, marketing, purchasing and distribution.
The Company's business is based around four strategic initiatives: (i)
capitalizing on the Company's new status as a major national pork processor;
(ii) use of the leanest genetics commercially available to enable the Company to
market highly differentiated pork products; (iii) vertical integration into
state-of-the-art hog production through Company-owned hog production operations
and long-term partnerships and alliances with large and efficient hog producers;
and (iv) continued growth through selective acquisition of regional pork
processors and brands.
As a complement to the Company's hog processing operations, the Company
has vertically integrated into state-of-the-art hog production through Brown's
and Smithfield-Carroll's. In addition, the Company is supplementing the hogs it
obtains from these hog production operations with market-indexed, multi-year
agreements with several of the nation's largest suppliers of high quality hogs,
strategically located in North Carolina, including Carroll's Foods, Inc.,
Maxwell Foods, Inc., Murphy Family Farms, Inc., and Prestage Farms, Inc.
In May 1991, Smithfield-Carroll's acquired from National Pig Development
Company ("NPD"), a British firm, the exclusive United States franchise rights
for genetic lines of specialized breeding stock. The NPD hogs produced by these
superior genetic lines are significantly leaner than almost any other animals
available in commercial volume in the United States. Management believes that
the leanness and increased meat yields of these hogs will, over time, improve
the Company's profitability with respect to both fresh pork and processed meat
products and provide a competitive advantage over other domestic pork
processors. In fiscal 1996, the Company processed 847,000 NPD hogs.
REVENUES BY SOURCE
The Company's sales are in one industry segment, meat processing. The
following table shows for the fiscal periods indicated the percentages of the
Company's revenues derived from fresh pork, processed meats, and other products
(including John Morrell from December 20, 1995).
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Fresh Pork............ 59% 51% 48% 41% 39%
Processed Meats....... 37% 45% 49% 55% 57%
Other Products........ 4% 4% 3% 4% 4%
---- ---- ---- ---- ----
100% 100% 100% 100% 100%
=== === === === ===
The increase in percentage of revenues derived from fresh pork since
fiscal 1992 resulted principally from an increase in the number of hogs
slaughtered at the Bladen County plant. The Company expects this percentage to
increase again in fiscal 1997. The meat industry is generally characterized by
narrow margins; however, profit margins on processed meats are greater than
profit margins on fresh pork and on other products.
FRESH PORK PRODUCTS
The Company is one of the two largest fresh pork processors in the
United States. The Company slaughters hogs at five of its plants (three in the
Southeast and two in the Midwest), with an aggregate slaughter capacity of
72,300 per day. The Company currently slaughters approximately 70,000 hogs
daily. The Company plans to add an additional 8,000 hogs per day of capacity by
the end of fiscal 1997, which will lead to an additional increase in fresh pork
output. A substantial portion of the Company's fresh pork is sold to retail
customers as unprocessed, trimmed cuts such as loins (including roasts and
chops), butts, picnics and ribs. The Company also sells hams, bellies and
trimmings to other further processors. The Company is putting greater emphasis
on the sale of value-added, higher margin fresh pork products, such as boneless
loins, hams, butts and picnics. In addition, the Company provides its own
processing operations with raw material of much higher quality and freshness
than that generally available through market purchases.
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The Company is marketing an extensive product line of NPD fresh pork
cuts (including boneless loins, shoulder cuts, chops, ribs and processed and
cubed pork) under the Smithfield Lean Generation Pork trademark to selected
retail chains and institutional foodservice customers. Smithfield Packing has
also developed a case-ready pork program designed to supply supermarket chains
with pre-packaged, weighed, labeled and priced fresh pork, ready for immediate
sale to the consumer. Management believes that these initiatives, over time,
should result in greater brand identification and higher margins for the
Company's fresh pork products.
PROCESSED MEAT PRODUCTS
The Company manufactures a wide variety of processed meats, including
smoked and boiled hams, bacon, sausage, hot dogs (pork, beef and chicken), deli
and luncheon meats and specialty products such as pepperoni and dry salami. The
Company markets its processed meat products under labels that include, among
others, Smithfield, Gwaltney, Patrick Cudahy and John Morrell, as well as Dinner
Bell, Esskay, Great, Hamilton's, Jamestown, Kretschmar, Luter's, Peyton's,
Tobin's First Prize and Valleydale. The Company also sells a substantial
quantity of processed meats as private label products. The Company believes it
is one of the largest producers of smoked hams and picnics in the United States.
In response to growing consumer preference for more nutritious and
healthful meats, the Company has for several years emphasized production of more
closely-trimmed, leaner and lower salt processed meats, such as 40
percent-lower-fat bacon. As a follow-up to the fiscal 1996 introduction of a
lower-fat line of value-priced luncheon meats, smoked sausage and hot dogs, the
Company is introducing in fiscal 1997 such items as fat-free hot dogs and
fat-free deli ham.
RAW MATERIALS
The Company's primary raw material is live hogs. Historically, hog
prices have been subject to substantial fluctuations. In addition, hog prices
tend to rise seasonally as hog supplies decrease during the hot summer months
and tend to decline as supplies increase during the fall. This is due to lower
farrowing performance during the winter months and slower animal growth rates
during the hot summer months. Hog supplies, and consequently prices, are also
affected by factors such as corn and soybean prices, weather and interest rates.
The Company produces its own hogs through Brown's and
Smithfield-Carroll's and purchases hogs from several of the nation's largest hog
producers strategically located in North Carolina, such as Carroll's Foods,
Inc., Maxwell Foods, Inc., Murphy Family Farms, Inc. and Prestage Farms, Inc. as
well as from other independent hog producers and dealers located in the East,
Southeast and Midwest. The Company obtained 11.3% of the hogs it processed in
fiscal 1996 from Brown's and Smithfield-Carroll's. The Company's raw material
costs fall when hog production at Brown's and Smithfield-Carroll's is profitable
and conversely rise when such production is unprofitable. The profitability of
hog production is directly related to the market price of live hogs and the cost
of corn. Hog producers such as Brown's and Smithfield-Carroll's generate higher
profits when hog prices are high and corn prices are low, and lower profits (or
losses) when hog prices are low and corn prices are high. Management believes
that hog production at Brown's and Smithfield-Carroll's furthers the Company's
strategic initiative to become vertically integrated and reduces exposure to the
fluctuations of profitability historically experienced by the pork processing
industry. The Company has also established multi-year agreements with Carroll's
Foods, Maxwell Foods, Murphy Family Farms and Prestage Farms which provide the
Company with a stable supply of high-quality hogs at market-indexed prices.
These producers supplied 50.0% of the hogs processed by the Company in fiscal
1996.
The Company purchases its hogs on a daily basis at its Southeastern and
Midwestern slaughter plants; at Company-owned buying stations in three
Southeastern and five Midwestern states; from certain Canadian sources; and
through certain exclusive dealer-operated buying stations in the Midwest. The
Company also purchases fresh pork from other meat processors to supplement its
processing requirements, and raw beef, poultry and other meat products to add to
its sausage, hot dogs and luncheon meats. Such meat products and other materials
and supplies, including seasonings, smoking and curing agents, sausage casings
and packaging materials are readily available from numerous sources at
competitive prices.
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CUSTOMERS AND MARKETING
The Company has dominant market shares in the Mid-Atlantic and Southeast
and strong market positions in the Northeast, South, Midwest, Southwest and
Western United States. The Company's fundamental marketing strategy is to sell
large quantities of value-priced processed meat products as well as fresh pork
to national and regional supermarket chains, wholesale distributors and the
foodservice industry (fast food, restaurant and hotel chains, hospitals and
other institutional customers) and export markets. Management believes that this
marketing approach reaches the largest number of value-conscious consumers
without requiring large advertising and promotional campaigns. The Company uses
both in-house salesmen as well as independent commission brokers to sell its
products. In fiscal 1996, the Company sold its products to more than 3,500
customers, none of whom accounted for as much as 10% of the Company's revenues.
The Company has no significant or seasonally variable backlog because most
customers prefer to order products shortly before shipment, and therefore, do
not enter into formal long-term contracts. Management believes that its
registered trademarks have been important to the success of its branded
processed meat products.
The Company in recent years has placed major emphasis on growing and
expanding its international sales, which currently comprise approximately 7% of
its total dollar sales. The Company provides the Japanese market with a line of
unique branded, as well as other chilled and frozen unbranded, fresh pork
products. Export sales to Japan increased significantly in fiscal 1996,
reflecting increased volume through a distributorship arrangement with Sumitomo
Corporation of America. The Company also had export sales to Russia and Mexico
in fiscal 1996, and export sales in varying amounts to other foreign markets.
The Company expects continued growth in its international sales for the
foreseeable future. The Company is targeting Europe and attractive Pacific Rim
markets such as Korea, Taiwan, Hong Kong and Singapore for international sales
expansion. International sales are subject to factors beyond the Company's
control, such as tariffs, exchange rate fluctuations and changes in governmental
policies. The Company conducts all of its export sales in dollars and therefore
bears no currency translation risk.
The Company's processed meats business is somewhat seasonal in that,
traditionally, the heavier periods of sales for hams are the holiday seasons
such as Thanksgiving, Christmas and Easter, and the heavier periods of sales of
smoked sausage, hot dogs and luncheon meats are the summer months. The Company
typically builds substantial inventories of hams in anticipation of its holiday
seasons' business.
The Company uses recognized price risk management and hedging techniques
to enhance sales and to reduce the effect of adverse price changes on the
Company's profitability. The Company's price risk management and hedging
activities currently are utilized in the areas of forward sales, hog production
margin management, procurement of raw materials (ham and bacon) for seasonal
demand peaks, inventory hedging, hog contracting and truck fleet fuel purchases.
DISTRIBUTION
The Company uses a private fleet of leased tractors and trailers, as
well as independent common carriers, to distribute both fresh pork and processed
meats to its customers, as well as to move raw material between plants for
further processing. The Company coordinates deliveries and employs backhauling
to reduce overall transportation costs. The Company distributes its products
directly from certain of its plants and from leased distribution centers located
in Connecticut, Indiana, Missouri, Kansas, Texas and California. During fiscal
1997, the Company expects to complete a distribution center adjacent to its
plant in Sioux Falls, South Dakota.
COMPETITION
The protein industry generally, and the pork processing industry in
particular, are highly competitive. The Company's products compete with a large
number of other protein sources, including beef, chicken, turkey and seafood,
but the Company's principal competition comes from other pork processors.
Management believes that the principal competitive factors in the pork
processing industry are price, quality, product distribution and brand loyalty.
Some of the Company's competitors are larger, have correspondingly greater
financial and other resources and enjoy wider recognition for their branded
products. Some of these competitors are also more diverse
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than the Company. To the extent that their other operations generate profits,
such companies may be able to subsidize their pork processing operations for a
time.
REGULATION
Like other participants in the meat processing industry, the Company is
subject to various laws and regulations administered by federal, state and other
government entities, including the Environmental Protection Agency ("EPA") and
corresponding state agencies such as the Virginia State Water Control Board
("SWCB"), the North Carolina Division of Environmental Management, the Iowa
Department of Natural Resources, the South Dakota Department of Environment and
Natural Resources, the United States Department of Agriculture and the
Occupational Safety and Health Administration. Management believes that the
Company complies with all such laws and regulations in all material respects,
except as set forth immediately below, and that continued compliance with these
standards will not have a material adverse effect on the Company's financial
position or results of operations.
The wastewater discharge permit for Smithfield Packing's and Gwaltney's
plants in Smithfield, Virginia imposes more stringent phosphorus and ammonia
effluent limitations than the plants can currently meet. To achieve compliance,
the Company agreed to discontinue its wastewater discharges to the Pagan River
and connect its wastewater treatment plants to the regional sewage collection
and treatment system operated by the Hampton Roads Sanitation District ("HRSD").
The Company has received a directive to connect its Gwaltney wastewater system
to the HRSD system by June 25, 1996, and expects to receive before the end of
calendar year 1996 a similar directive with respect to its Smithfield Packing
wastewater system. The Company expects to incur approximately $2.7 million in
capital costs (of which $1.3 million has been expended through the end of fiscal
1996) to upgrade its existing treatment systems and make these connections.
After such connections have been made the Company will incur sewer use charges
(approximately $1.7 million annually) imposed by HRSD in addition to the
Company's existing costs of pretreating its wastewater before discharge to the
HRSD system. These HRSD sewer use costs will be accounted for as current period
charges in the years in which such costs are incurred.
Pending connection to the HRSD system, the plants are being operated
under an administrative consent order entered into with the SWCB. During the
period May 1994 through January 1995, the Company's plants had a number of
violations of its permit and the consent order, which led the SWCB to place
these Company plants on its "significant noncompliance" list. Placement on that
list is required by the SWCB's practices when any one of several circumstances
occur, including a single violation of an administrative consent order
provision. The Company has corrected the conditions which caused these
violations, and has experienced only three isolated daily permit violations
during the past year. These two plants are presently in compliance with the
effluent limitations in the SWCB administrative order and those effluent
limitations in its permit except phosphorus and ammonia limitations. The SWCB's
staff has given the Company written notice of its intention to recommend that
the SWCB refer these and other permit violations, including the recordkeeping
violations discussed below, to the Virginia Attorney General for appropriate
legal action. The nature and extent of any action that may be taken by the SWCB
or the Virginia Attorney General or of any sanctions or other requirements which
may be imposed upon the Company are not known.
The Company regularly conducts tests of its wastewater discharges to
assure compliance with the provisions of its wastewater discharge permits.
Federal and state laws require that records of tests be maintained for three
years. Failure to maintain these records may result in the imposition of civil
penalties. Criminal sanctions may be imposed in the event of false reporting or
destruction of records. In the course of a SWCB inspection of its Smithfield,
Virginia plants in May, 1994, it was discovered that records of certain tests
conducted by the Company from 1992 through early 1994 could not be located. The
employee responsible for the supervision of the tests and maintenance of the
test records was replaced. No judicial proceedings have yet been instituted
against the Company as a result of its inability to locate the records for the
period noted and, other than the written notice referred to above, no
administrative proceeding has yet been initiated. The U.S. Department of
Justice, EPA and Federal Bureau of Investigation are engaged in an investigation
of possible criminal charges of false reporting and destruction of records. In
April, 1996, an attorney with the Department of Justice advised the Company that
the Company was not then a target of the investigation, and that the
investigation was focused on the former employee responsible for supervision of
the tests and maintenance of the records. The Company has heard nothing further
from the Department of Justice. The nature and extent of any action that may be
taken by one or more governmental agencies or of any sanctions or other
requirements which may be imposed upon the Company are not known.
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Based on its knowledge, as summarized above, of the facts and
circumstances surrounding the violations and investigations discussed above, the
Company believes that the ultimate resolution of these matters will not have a
material adverse effect on its financial position or annual results of
operations.
On February 7, 1996, John Morrell executed a Plea Agreement with the
Department of Justice in connection with water pollution violations that
allegedly occurred at its Sioux Falls, South Dakota plant from 1985 through
1992, several years prior to the Company's acquisition of John Morrell. On May
28, 1996, the Agreement was executed by the government and entered by the court,
and John Morrell pled guilty to six counts of violating the Clean Water Act due
to numerous discharge exceedances, failure to report the exceedances, and
submitting false reports. John Morrell paid a $3 million penalty. Under two
related civil consent decrees, John Morrell also will pay a $250,000 civil
penalty, make certain improvements at the Sioux Falls plant, and carry out
pollution-prevention and compliance-management audits. In view of these
improvements and commitments, and especially due to efforts by both John Morrell
and the Company to improve John Morrell's environmental compliance programs, on
May 28, 1996, the EPA formally agreed not to debar John Morrell from contracting
with the government. EPA determined that John Morrell and the Company had fully
corrected the conditions giving rise to the violations.
EMPLOYEES
The Company has approximately 16,300 employees, approximately 9,700 of
whom are covered by collective bargaining agreements expiring between February
5, 1997 and May 19, 2000. The Company believes that its relationship with its
employees is good.
OTHER
With the exception of the franchise agreement between
Smithfield-Carroll's and NPD (referred to above), the Company has no patents,
licenses, franchises or concessions which it considers material to its business.
The Company owns and uses numerous marks, which are registered
trademarks of the Company or are otherwise subject to protection under
applicable intellectual property laws. Such registrations may be kept in force
in perpetuity through continued use of the marks and timely renewal. The Company
considers these marks and the accompanying goodwill and customer recognition
valuable and material to its business.
ITEM 2. PROPERTIES
The following table summarizes information concerning the principal
plants and other materially important physical properties of the Company:
APPROXIMATE
LAND AREA FLOOR SPACE
LOCATION OPERATION (ACRES) (SQ. FT.)
- -------------------------------------------------------------------------------------------------------
Smithfield Packing Plant No. 1* Slaughtering and cutting hogs; 25.5 457,000
501 North Church Street manufacture of bacon products, smoked
Smithfield, Virginia meats, and dry salt meats; production of
hams and picnics
Smithfield Packing Plant No. 2* Production of bone-in and boneless 20.0 218,000
2501 West Vernon Avenue cooked and smoked ham and other
Kinston, North Carolina smoked meat products
Smithfield Packing Plant No. 3* Production of bone-in smoked ham and 7.8 136,000
5801 Columbia Park Drive other smoked meat products
Landover, Maryland
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APPROXIMATE
LAND AREA FLOOR SPACE
LOCATION OPERATION (ACRES) (SQ. FT.)
- ------------------------------------------------------------------------------------------------------
Smithfield Packing Plant No. 4* Slaughtering and cutting hogs; 860.0 966,000
Carolina Food Processors production of boneless hams and loins
Division (Bladen County)
Route #87
Tarheel, North Carolina
Gwaltney Plant No. 1* Slaughtering and cutting hogs; 56.4 556,000
601 North Church Street production of boneless loins, bacon,
Smithfield, Virginia sausage, bone-in and boneless cooked
and smoked hams and picnics
Gwaltney Plant No. 2* Production of hot dogs, luncheon meats 13.1 200,000
3515 Airline Boulevard and sausage products
Portsmouth, Virginia
Gwaltney Plant No. 3 Manufacture of bacon, smoked sausage 11.0 152,000
1013 Iowa Street and boneless cooked hams
Salem, Virginia
John Morrell Plant No. 1 Slaughtering and cutting hogs and 88.0 2,350,000
1400 N. Weber Avenue lambs; production of boneless loins,
Sioux Falls, South Dakota bacon, bot dogs, luncheon meats,
smoked and canned hams, and packaged
lard
John Morrell Plant No. 2 Slaughtering and cutting hogs; 22.0 243,000
1200 Bluff Road production of boneless hams, loins, butts
Sioux City, Iowa and picnics
John Morrell Plant No. 3 Production of hot dogs, luncheon meats, 21.0 177,000
801 East Kemper Road smoked sausage and smoked hams
Springdale, Ohio
John Morrell Plant No. 4 Production of bacon and smoked hams 60.0 150,000
South 281 Highway
Great Bend, Kansas
Patrick Cudahy Plant Manufacture of bacon, dry sausage, 60.0 1,090,000
3500 E. Barnard Avenue boneless cooked hams and refinery
Cudahy, Wisconsin products
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* Pledged as collateral under various loan agreements.
The Company, through John Morrell, leases John Morrell Plant No. 3 under
the terms of a 20-year lease expiring in September 2000. The lease includes an
option to purchase the property.
The Company, through Brown's, owns and leases hog production facilities
in North Carolina and South Carolina, and through Smithfield-Carroll's, owns hog
production facilities in North Carolina and Virginia.
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The Company operates hog buying stations in North Carolina, South
Carolina and Virginia which have facilities for purchasing and loading hogs for
shipment to the Company's plants in Smithfield, Virginia and Bladen County,
North Carolina, and hog buying stations in Iowa, Kansas, Minnesota, Nebraska and
South Dakota, which have facilities for purchasing and loading hogs for shipment
to the Company's plants in Sioux City, Iowa and Sioux Falls, South Dakota.
ITEM 3. LEGAL PROCEEDINGS
Smithfield Foods and its subsidiaries and affiliates are parties in
various lawsuits arising in the ordinary course of business, excluding certain
matters discussed under "Business -- Regulation" above. In the opinion of
management, any ultimate liability with respect to these matters will not have a
material adverse effect on the Company's financial position or results of
operations. For a discussion of certain other regulatory and environmental
matters, see "Item 1. Business -Regulation" above.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted during the fourth quarter of the fiscal year
covered by this report to a vote of security holders, through the solicitation
of proxies or otherwise.
- 10 -
ITEM 4A. EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth the name and age, position with the
Company and business experience during the past five years of each of the
executive officers of the Company. The Board of Directors elects executive
officers to hold office until the next annual meeting of the Board or Directors
or until their successors are elected, or until their resignation or removal.
POSITION BUSINESS EXPERIENCE
NAME AND AGE WITH THE COMPANY DURING PAST FIVE YEARS
- ----------------------------------------------------------------------------------------------------
Joseph W. Luter, III (57) Chairman of the Board and Mr. Luter has served as Chairman of
Chief Executive Officer the Board and Chief Executive
of the Company Officer since 1975. Prior to
May 1995, he also served as
President of the Company.
John O. Nielson (65) President and Chief Operating Mr. Nielson joined the Company in
Officer of the Company May 1995 as President and Chief
Operating Officer.
Between May 1995 and
December 1995, he also served
as President and Chief
Operating Officer of
Smithfield Packing. Mr.
Nielson was a consultant and
private investor from
June 1989 to May 1995. Prior
to June 1989, he held various
executive positions with
John Morrell, including
President and Chief Operating
Officer.
Thomas D. Davis (40) President and Chief Operating Mr. Davis was elected President and
Officer of Smithfield Packing Chief Operating Officer of
Smithfield Packing in December
1995. He served as Senior Vice
President of Smithfield Packing from
June 1995 until December 1995.
Between February 1995 and June
1995, Mr. Davis was Vice President
of Triad Food Marketing, Inc.
Between October 1994 and February
1995, he held a senior management
position with Chiquita Brands
International, Inc. Prior to October
1994, Mr. Davis was Executive Vice
President of John Morrell.
Roger R. Kapella (54) President and Chief Operating Mr. Kapella has served as President
Officer of Patrick Cudahy and Chief Operating Officer of
Patrick Cudahy since 1986.
- 11 -
POSITION BUSINESS EXPERIENCE
NAME AND AGE WITH THE COMPANY DURING PAST FIVE YEARS
- ------------------------------------------------------------------------------------------------------
Lewis R. Little (52) President and Chief Operating Mr. Little was elected President and
Officer of Gwaltney Chief Operating Officer of Gwaltney
in May 1993. Prior to May 1993,
Mr. Little served as Executive Vice
President of Gwaltney.
Joseph B. Sebring (49) President and Chief Operating Mr. Sebring has served as President
Officer of John Morrell and Chief Operating Officer of John
Morrell since May 1994. Between
1992 and May 1994, he served as
President and Chief Executive
Officer of Indiana Packers Company.
Prior to 1992, Mr. Sebring was
Executive Vice President of Fresh
Mark, Inc.
Robert W. Manly, IV (44) Executive Vice President Mr. Manly has served as Executive
of the Company Vice President of the Company since
June 1995 and prior to June
1994. Between June 1994 and
June 1995, he served as
President and Chief Operating
Officer of Smithfield Packing.
C. Larry Pope (41) Vice President and Controller Mr. Pope joined the Company as
of the Company Controller in 1980. He was elected
Vice President and Controller in
August 1995.
Aaron D. Trub (61) Vice President, Secretary and Mr. Trub has served as Vice
Treasurer of the Company President, Secretary and Treasurer of
the Company since 1978.
- 12 -
PART II
ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
The Common Stock of the Company is traded in the national
over-the-counter market and is authorized for quotation on The Nasdaq National
Market under the symbol "SFDS."
The following table sets forth, for the fiscal periods indicated, the
highest and lowest sales prices of the Common Stock on The Nasdaq National
Market.
Range of Sales Prices
-------------------------
High Low
-------------------------
Fiscal year ended April 30, 1995
First quarter ....................... $30.25 $21.50
Second quarter ...................... 31.75 24.00
Third quarter ....................... 34.00 26.50
Fourth quarter ...................... 34.25 20.75
Fiscal year ended April 28, 1996
First quarter ....................... 24.25 19.50
Second quarter ...................... 27.00 19.75
Third quarter ....................... 32.75 24.75
Fourth quarter ...................... 31.06 25.25
HOLDERS
As of July 12, 1996, there were 1,346 record holders of the Common
Stock.
DIVIDENDS
The Company has never paid a cash dividend on its Common Stock and does
not anticipate paying cash dividends on its Common Stock in the foreseeable
future. In addition, the terms of certain of the Company's debt agreements
prohibit the payment of cash dividends on the Common Stock. The payment of cash
dividends, if any, will be made only from assets legally available for that
purpose, and will depend on the Company's financial condition, results of
operations, current and anticipated capital requirements, restrictions under
then existing debt instruments and other factors deemed relevant by the board of
directors.
- 13 -
ITEM 6. SELECTED FINANCIAL DATA
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below for the fiscal
years indicated were derived from the Company's audited consolidated financial
statements. The information should be read in conjunction with the Company's
consolidated financial statements (including the notes thereto) and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" appearing elsewhere in, or incorporated by reference into, this
report.
FISCAL YEAR ENDED
APRIL 28, APRIL 30, MAY 1, MAY 2, MAY 3,
1996 1995 1994 1993 1992
(IN THOUSANDS, EXCEPT PER SHARE DATA)
INCOME STATEMENT DATA:
Sales................................................ $2,383,893 $1,526,518 $ 1,403,485 $1,113,712 $1,036,613
Cost of sales (1).................................... 2,203,626 1,380,586 1,287,880 1,037,628 949,200
Gross profit (1)..................................... 180,267 145,932 115,605 76,084 87,413
Selling, general and administrative expenses (1)..... 103,095 61,723 50,738 42,924 40,065
Depreciation expense................................. 25,979 19,717 21,327 18,418 12,630
Interest expense..................................... 20,942 14,054 11,605 6,183 3,903
Plant closing costs.................................. -- -- -- 3,598 --
Gain on sale of marketable securities................ -- -- -- -- (2,830)
Income from continuing operations before
income taxes and change in accounting
for income taxes.................................. 30,251 50,438 31,935 4,961 33,645
Income taxes......................................... 10,465 18,523 12,616 1,690 11,821
Income from continuing operations before change in
accounting for income taxes....................... 19,786 31,915 19,319 3,271 21,824
Income (loss) from discontinued operations........... (3,900) (4,075) 383 (420) (189)
Cumulative effect of change in accounting for income
taxes............................................. -- -- -- 1,138 --
Net income........................................ $ 15,886 $ 27,840 $ 19,702 $ 3,989 $ 21,635
NET INCOME (LOSS) PER SHARE:
Continuing operations before cumulative effect of
change in accounting for income taxes............. $ 1.06 $ 1.83 $ 1.11 $ .18 $ 1.38
Discontinued operations.............................. (.22) (.24) .02 (.03) (.01)
Cumulative effect of change in accounting for
income taxes...................................... -- -- -- .07 --
Net income........................................... $ .84 $ 1.59 $ 1.13 $ .22 $ 1.37
Weighted average shares outstanding.................. 17,530 17,059 16,768 16,372 15,813
BALANCE SHEET DATA:
Working capital...................................... $ 88,026 $ 60,911 $ 81,529 $ 64,671 $ 26,672
Total assets......................................... 857,619 550,225 452,279 399,567 277,685
Long-term debt and capital lease obligations......... 188,618 155,047 118,942 124,517 49,091
Stockholders' equity................................. 242,516 184,015 154,950 135,770 113,754
OPERATING DATA:
Fresh pork sales (pounds)............................ 1,635,300 955,290 820,203 588,284 527,611
Processed meats sales (pounds)....................... 839,341 774,615 661,783 631,521 581,303
Total hogs purchased................................. 12,211 8,678 7,414 5,767 4,790
(1) Certain expenses previously classified as selling, general and
administrative have been reclassified as cost of sales.
- 14 -
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Management's discussion and analysis set forth below should be read in
conjunction with the Company's consolidated financial statements (including the
notes thereto) appearing elsewhere in this Form 10-K.
FISCAL 1996 COMPARED TO FISCAL 1995
On December 20, 1995, the Company acquired all of the capital stock of
John Morrell for $58.0 million comprised of $25.0 million in cash and $33.0
million of the Company's common stock plus the assumption of all of John
Morrell's liabilities. The Company's fiscal 1996 operating results include the
results of operations of John Morrell for the period from December 20, 1995
through April 28, 1996.
Sales in fiscal 1996 increased $857.4 million, or 56.2%, from fiscal
1995. The increase was primarily due to the inclusion of the sales of John
Morrell for the eighteen-week period and increased sales of fresh pork related
to increased slaughter levels at the Company's Bladen County, North Carolina
plant. The increase in sales was the result of a 42.0% increase in sales tonnage
combined with a 9.9% increase in unit selling prices, reflecting the passthrough
to the consumer of higher raw material (live hog) costs. The increase in sales
tonnage reflected a 71.2% increase in fresh pork tonnage and a 8.4% increase in
processed meats tonnage.
Cost of sales increased $823.0 million, or 59.6%, in fiscal 1996,
reflecting the increased sales tonnage, a 20.0% increase in live hog costs and
higher warehousing and distribution costs associated with the increase in sales
tonnage. During fiscal 1996, certain warehousing and distribution costs were
reclassified from selling, general and administrative expenses to cost of sales.
Gross profit increased $34.3 million, or 23.5%, in fiscal 1996, compared to
fiscal 1995. The increase in gross profit resulted from the increased sales
tonnage of both fresh pork (58.8% of dollar sales) and processed meats (36.7% of
dollar sales), offset by lower sales margins on both fresh pork and processed
meats. In addition, gross profit was favorably affected by a $10.8 million
reduction in cost of sales as a result of the Company's hog production
operations and joint hog production arrangements. In fiscal 1995, gross profit
was adversely affected by a $0.2 million increase in cost of sales as a result
of the performance of these operations. During fiscal 1996, the Company obtained
11.3% of the hogs it processed from Brown's and Smithfield-Carroll's.
The Company uses recognized price risk management and hedging techniques
to enhance sales and to reduce the effect of adverse price changes on the
Company's profitability. The Company's price risk management and hedging
activities currently are utilized in the areas of forward sales, hog production
margin management, procurement of raw materials (ham and bacon) for seasonal
demand peaks and inventory hedging. The Company recognizes gains and losses
resulting from hedging transactions when the related sales are made and hedges
are lifted. As of April 28, 1996, the Company had deferred $2.2 million of
unrealized hedging gains on outstanding futures contracts pending the completion
of the sales transaction and lifting of the hedges.
Selling, general and administrative expenses increased $41.4 million, or
67.0%, in fiscal 1996. The increase was primarily due to the inclusion of the
operations of John Morrell and higher selling and marketing costs associated
with the increase in fresh pork tonnage.
Depreciation expense increased $6.3 million, or 31.8%, in fiscal 1996
from fiscal 1995. The increase was related to continued expansion at the Bladen
County plant, additional hog production facilities at Brown's and the inclusion
of the operations of John Morrell.
Interest expense increased $6.9 million, or 49.0%, in fiscal 1996,
reflecting increased carrying costs on long-term debt related to the funding of
capital projects at the Bladen County plant and Brown's, higher short- and
long-term interest rates, and interest costs associated with the cash portion of
the purchase price related to the acquisition of John Morrell.
The effective income tax rate in fiscal 1996 decreased to 34.6% from
36.7% in fiscal 1995 reflecting a lower tax rate on foreign sales and benefits
related to certain insurance contracts. The Company had no valuation allowance
related to income tax assets as of April 28, 1996, and there was no change in
the valuation allowance during fiscal 1996.
- 15 -
Income from continuing operations decreased $12.1 million in fiscal
1996, reflecting lower sales margins on both fresh pork and processed meats
compared to fiscal 1995. The prior year's results reflected exceptionally strong
margins on fresh pork due to unusually low hog prices. In addition, the
Company's fiscal 1996 profitability was adversely affected by inefficiencies and
increased costs associated with the start-up of the second shift at the Bladen
County plant which brought the operation of the plant to 75% of its planned
slaughter capacity. John Morrell made a significant contribution to the
Company's overall profitability in fiscal 1996. In the first quarter of fiscal
1997, the Company continues to experience strong pressure on both fresh pork and
processed meats margins as a result of sharply higher live hog costs, continued
industry overcapacity, large supplies of low-priced beef and consumer resistance
to higher-priced pork products. While the pork industry is cyclical and
financial performance is not highly predictable, the Company anticipates that
the present highly-competitive and difficult environment will moderate as fiscal
1997 progresses. In addition, the Company expects that its export business will
continue to grow and positively impact profitability in fiscal 1997.
In fiscal 1996, the Company completed the disposition of the assets and
business of Ed Kelly, Inc. ("Kelly"), its former retail electronics subsidiary,
which is reported separately as discontinued operations in the consolidated
statements of income. The delay in the final disposition of the assets and
business led to an unanticipated deterioration of Kelly's estimated realization
value, resulting in an additional loss from discontinued operations of $3.9
million in fiscal 1996. Fiscal 1995 reflected a loss from discontinued
operations related to Kelly of $4.1 million.
Reflecting the factors discussed above, net income decreased to $15.9
million in fiscal 1996 from $27.8 million in fiscal 1995.
FISCAL 1995 COMPARED TO FISCAL 1994
Sales in fiscal 1995 increased $123.0 million, or 8.8%, from fiscal
1994. The increase was the result of an 18.0% increase in sales tonnage offset
by a 7.8% decrease in unit selling prices due to lower live hog costs. The
increase in sales tonnage was the result of a 16.5% increase in fresh pork
tonnage combined with a 17.1% increase in processed meats tonnage.
Cost of sales increased $92.7 million, or 7.2%, in fiscal 1995,
primarily due to the increased sales tonnage offset by a 16.0% decrease in the
cost of live hogs. Gross profit increased $30.3 million, or 26.2%, in fiscal
1995, compared to fiscal 1994. The increase in gross profit resulted from the
increased sales tonnage of both fresh pork (51.2% of dollar sales) and processed
meats (44.6% of dollar sales), and increased margins on sales of both fresh pork
and processed meats.
Gross profit in fiscal 1995 was adversely affected by a $0.2 million
increase in cost of sales as a result of the performance of Brown's and
Smithfield-Carroll's. In fiscal 1994, the performance of these operations
resulted in a reduction in cost of sales of $10.3 million. The Company obtained
12.1% of the hogs which it processed in fiscal 1995 from Brown's and
Smithfield-Carroll's, compared with 11.4% in fiscal 1994.
Selling, general and administrative expenses increased $10.9 million, or
21.7%, in fiscal 1995. The increase reflected higher personnel costs and
administrative expenses related to additional supervisory and support staff for
current and anticipated future growth.
Depreciation expense decreased $1.6 million, or 7.5%, in fiscal 1995.
Increased depreciation charges related to expansion at the Bladen County plant
and Brown's were offset by reduced depreciation charges resulting from a
revision in estimated useful lives of certain assets beginning in the third
quarter of fiscal 1994. This change in accounting estimate reduced depreciation
by $7.7 million in fiscal 1995 and $3.9 million in fiscal 1994.
Interest expense increased $2.4 million, or 21.1%, reflecting higher
long-term debt related to the funding of capital projects at the Bladen County
plant and Brown's, and higher short- and long-term rates.
The effective income tax rate in fiscal 1995 decreased to 36.7% from
39.5% in the prior year, reflecting the impact of increased employment incentive
credits, lower taxes on foreign sales and benefits related to certain insurance
contracts.
- 16 -
The Company had no valuation allowance related to income tax assets as of April
30, 1995, and there was no change in the valuation allowance during fiscal 1995.
The increase in income from continuing operations in fiscal 1995 was
largely attributable to substantially higher sales margins on fresh pork in the
second and third quarters which resulted from a large supply of hogs and the
lowest hog prices in a decade.
As of April 30, 1995, the Company adopted a plan to sell the assets and
business of Kelly, the Company's former retail electronics subsidiary and
reflected the operations as discontinued operations on the consolidated
statements of income. The loss from discontinued operations in fiscal 1995
includes the write-off of the goodwill and all estimated costs and write-downs
related to the planned disposal of the assets and business of Kelly.
Reflecting the factors discussed above, net income increased to $27.8
million in fiscal 1995 from $19.7 million in fiscal year 1994.
FINANCIAL CONDITION
The pork processing industry is characterized by high sales tonnage and
rapid turnover of inventories and accounts receivable. Because of the rapid
turnover rate, the Company considers its inventories and accounts receivable
highly liquid and readily convertible into cash. Borrowings under the Company's
lines of credit are used to finance increases in the levels of inventories and
accounts receivable resulting from seasonal and other market-related
fluctuations in raw material costs. The demand for seasonal borrowings usually
peaks in early November when ham inventories are at their highest levels and
borrowings are repaid in January when accounts receivable generated by sales of
these hams are collected.
On December 20, 1995, the Company acquired from Chiquita Brands
International, Inc. all of the capital stock of John Morrell for a total
purchase price of $58.0 million, consisting of $25.0 million in cash and $33.0
million of its common stock (1,094,273 shares). The Company also assumed all of
John Morrell's liabilities, including $71.7 million in unfunded pension
liabilities.
As of April 28, 1996, the Company had aggregate lines of credit of
$265.0 million, including a $75.0 million line of credit assumed in connection
with the acquisition of John Morrell. Borrowings under the lines are secured by
substantially all of the Company's inventories and accounts receivable. Weighted
average borrowings under the lines were $133.4 million in fiscal 1996, $69.9
million in fiscal 1995 and $66.6 million in fiscal 1994 at weighted average
interest rates of approximately 7%, 6% and 4%, respectively. Maximum borrowings
were $179.8 million in fiscal 1996, $117.0 million in fiscal 1995 and $105.1
million in fiscal 1994. The outstanding balances under these lines totaled
$151.3 million and $67.2 million as of April 28, 1996 and April 30, 1995,
respectively, at a weighted average interest rate of 7% for both years.
Subsequent to year-end, the Company consolidated its lines of credit into a
single line of credit by increasing a previously existing $200.0 million line of
credit to $255.0 million. This line consists of a 364-day, $205.0 million
revolving credit facility and a two-year, $50.0 million revolving credit
facility. The short-term facility is being used for seasonal inventory and
receivable needs and the long-term facility is being used for working capital
and capital expenditures. The Company terminated the $75.0 million John Morrell
credit facility on April 30, 1996.
Capital expenditures totaled $74.9 million in fiscal 1996 and consisted
primarily of $26.1 million for hog production facilities at Brown's and $23.4
million for capital projects at the Bladen County plant, including a new storage
and distribution center. The capital expenditures were funded with a portion of
the $50.0 million bank revolving credit facility and $20.0 million in cash from
the private sale of the Company's Series C 6.75% cumulative convertible
redeemable preferred stock to Sumitomo Corporation of America. This preferred
stock is convertible into 666,666 shares of the Company's common stock at $30.00
per share.
During fiscal 1996, all of the Company's Series B 6.75% preferred stock
was converted into 465,116 shares of the Company's common stock at $21.50 per
share.
The Company has negotiated the private placement of $140.0 million of 7-
and 10-year senior secured notes with a group of institutional lenders. The
proceeds from this financing will be used to repay $65.7 million of presently
existing
- 17 -
long-term debt and reduce short-term borrowings. The Company expects to close
this transaction in the first quarter of fiscal 1997.
In fiscal 1997, the Company expects a reduction in capital spending from
its levels in recent years. The fiscal 1997 capital expenditure plans include
certain capital improvements to John Morrell's Sioux Falls, South Dakota plant,
completion of Patrick Cudahy Incorporated's new dry sausage facility and
completion of Brown's expansion program including a feed mill.
The Company's various debt agreements contain covenants regarding
working capital, current ratio, fixed charges coverage and net worth, and, among
other restrictions, limit additional borrowings, the acquisition, disposition
and leasing of assets, and payment of dividends to stockholders. Additionally,
existing loan covenants contain provisions which substantially limit the amount
of funds available for transfer from its subsidiaries to Smithfield Foods, Inc.
without the consent of certain lenders.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements listed in Item 14(a) hereof are
incorporated herein by reference and are filed as a part of this report
beginning on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
- 18 -
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
(a) Information required by this Item regarding directors and all
persons nominated or chosen to become directors is incorporated by reference
from the Company's definitive proxy statement to be filed with respect to its
Annual Meeting of Stockholders to be held on August 28, 1996.
(b) Information required by this Item regarding the executive officers
of the Company is included in Part I, Item 4A of this report.
There is no family relationship between any of the persons named in
response to Item 10.
ITEM 11. EXECUTIVE COMPENSATION
Information required by this Item is incorporated by reference from the
Company's definitive proxy statement to be filed with respect to its Annual
Meeting of Stockholders to be held on August 28, 1996.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by this Item is incorporated by reference from the
Company's definitive proxy statement to be filed with respect to its Annual
Meeting of Stockholders to be held on August 28, 1996.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this Item is incorporated by reference from the
Company's definitive proxy statement to be filed with respect to its Annual
Meeting of Stockholders to be held on August 28, 1996.
- 19 -
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. and 2. Index to Financial Statements and Financial Statement
Schedule
An "Index to Financial Statements and Financial Statement Schedule" has
been filed as a part of this Form 10-K Annual Report on page F-1 hereof.
3. Exhibits
Exhibit 3.1 -- Composite Certificate of Incorporation of the Company, as
amended to date (incorporated by reference to Exhibit 3.1 to
the Company's Form 10-K Annual Report for the fiscal year
ended April 28, 1991).
Exhibit 3.1(a) -- Certificate of Designation of Series C 6-3/4% Cumulative
Convertible Preferred Stock, par value $1.00 per share, of
the Company.
Exhibit 3.2 -- By-Laws of the Company, as amended to date.
Exhibit 4.1 -- Composite Certificate of Incorporation of the Company, as
amended to date (see Exhibit 3.1 above).
Exhibit 4.2 -- Form of Certificate representing the Company's Common Stock,
par value $.50 per share (including Rights legend)
(incorporated by reference to Exhibit 4.2 to the Company's
Form 10-K Annual Report for the fiscal year ended April 28,
1991).
Exhibit 4.3 -- Form of Certificate representing the Company's Series C
6-3/4% Cumulative Convertible Preferred Stock, par value
$1.00 per share (including Rights legend).
Exhibit 4.4 -- Form of Certificate representing Rights (incorporated by
reference to Exhibit 4 to the Company's Amendment No. 1 to
Registration Statement on Form 8-A dated May 23, 1991).
Exhibit 4.5 -- Rights Agreement dated as of May 8, 1991, as amended by
Amendment No. 1 dated as of January 31, 1994, by and between
the Company and First Union National Bank of North Carolina,
Rights Agent (incorporated by reference to Exhibit 4.5 to the
Company's Form 10-K Annual Report for the fiscal year ended
May 1, 1994).
Exhibit 4.6 -- Fourth Amended, Restated and Continued Revolving Credit
Agreement dated as of April 30, 1996 among Gwaltney of
Smithfield, Ltd., The Smithfield Packing Company,
Incorporated, Patrick Cudahy Incorporated, Esskay, Inc.,
Brown's of Carolina, and John Morrell & Co., and Cooperative
Centrale Raiffeisen-Boerenleenbank B.A., "Rabobank
Nederland", New York Branch, as agent, and each bank a party
thereto.
Exhibit 4.6(a) -- Fourth Amended, Restated and Continued Guaranty dated as of
April 30, 1996, made by Smithfield Foods, Inc. in favor of
Cooperative Centrale Raiffeisen-Boerenleenbank B.A.,
"Rabobank Nederland", New York Branch, as agent for the banks
a party to the Credit Agreement, as defined therein.
Exhibit 4.6(b) -- Fourth Amended, Restated and Continued Security Agreement
dated as of April 30, 1996 made by Gwaltney of Smithfield,
Ltd. to Cooperative Centrale Raiffeisen-Boerenleenbank B.A.,
"Rabobank Nederland", New York Branch, as Agent under the
Credit Agreement.
- 20 -
Exhibit 4.6(c) -- Fourth Amended, Restated and Continued Security Agreement
dated as of April 30, 1996 made by The Smithfield Packing
Company, Incorporated, to Cooperative Centrale
RaiffeisenBoerenleenbank B.A., "Rabobank Nederland", New York
Branch, as Agent under the Credit Agreement.
Exhibit 4.6(d) -- Fourth Amended, Restated and Continued Security Agreement
dated as of April 30, 1996 made by Patrick Cudahy
Incorporated to Cooperative Centrale
Raiffeisen-Boerenleenbank B.A., "Rabobank Nederland", New
York Branch, as Agent under the Credit Agreement.
Exhibit 4.6(e) -- Fourth Amended, Restated and Continued Security Agreement
dated as of April 30, 1996 made by Esskay, Incorporated to
Cooperative Centrale Raiffeisen-Boerenleenbank B.A.,
"Rabobank Nederland", New York Branch, as Agent under the
Credit Agreement.
Exhibit 4.6(f) -- Fourth Amended, Restated and Continued Security Agreement
dated as of April 30, 1996 made by Brown's of Carolina, Inc.
to Cooperative Centrale Raiffeisen-Boerenleenbank B.A.,
"Rabobank Nederland", New York Branch, as Agent under the
Credit Agreement.
Exhibit 4.6(g) -- Fourth Amended, Restated and Continued Security Agreement
dated as of April 30, 1996 made by John Morrell & Co. to
Cooperative Centrale Raiffeisen-Boerenleenbank B.A.,
"Rabobank Nederland", New York Branch, as Agent under the
Credit Agreement.
Exhibit 4.7 -- Note Agreement dated July 29, 1988 between The Smithfield
Packing Company, Incorporated and John Hancock Mutual Life
Insurance Company, covering $15,000,000 9.80% Secured Notes
due August 1, 2003 (incorporated by reference to Exhibit 4.11
to the Company's Form 10-K Annual Report for the fiscal year
ended April 30, 1989).
Exhibit 4.7(a) -- Guaranty and Agreement by Smithfield Foods, Inc. dated July
29, 1988 (incorporated by reference to Exhibit 4.11(a) to the
Company's Form 10-K Annual Report for the fiscal year ended
April 30, 1989).
Exhibit 4.8 -- Note Agreement dated August 6, 1990 between The Smithfield
Packing Company, Incorporated and John Hancock Mutual Life
Insurance Company, covering $15,000,000 10.75% Secured Notes
due August 1, 2005 (incorporated by reference to Exhibit 4.10
to the Company's Form 10-K Annual Report for the fiscal year
ended April 28, 1991).
Exhibit 4.8(a) -- Guaranty and Agreement by Smithfield Foods, Inc. dated August
6, 1990 (incorporated by reference to Exhibit 4.10(a) to the
Company's Form 10-K Annual Report for the fiscal year ended
April 28, 1991).
Exhibit 4.9 -- Note Agreement dated October 31, 1991 between Gwaltney of
Smithfield, Ltd. and John Hancock Mutual Life Insurance
Company, covering $20,000,000 9.85% Secured Notes due
November 1, 2006 (incorporated by reference to Exhibit 4.9 to
the Company's Form 10-K Annual Report for the fiscal year
ended May 3, 1992).
Exhibit 4.9(a) -- Guaranty and Agreement by Smithfield Foods, Inc. dated
October 31, 1991 (incorporated by reference to Exhibit 4.9(a)
to the Company's Form 10-K Annual Report for the fiscal year
ended May 3, 1992).
Exhibit 4.10 -- Note Purchase Agreement dated January 15, 1993, by and among
Carolina Food Processors, Inc. and Smithfield Foods, Inc. and
John Hancock Mutual Life Insurance Company, Massachusetts
Mutual Life Insurance Company and MML Pension Insurance
Company, covering $25,000,000 8.41% Senior Secured Notes due
February 1, 2013, guaranteed by Smithfield Foods, Inc.
(incorporated by reference to Exhibit 4.11 to the Company's
Form 10-K Annual Report for the fiscal year ended May 2,
1993).
- 21 -
Exhibit 4.10(a) -- Omnibus Amendment Agreement dated December 1, 1993 by and
among Smithfield Foods, Inc., Carolina Food Processors, Inc.,
John Hancock Mutual Life Insurance Company and MML Pension
Insurance Company (incorporated by reference to Exhibit
4.10(a) to the Company's Form 10-K Annual Report for the
fiscal year ended May 1, 1994).
Exhibit 4.10(b) -- Assumption, Waiver and Amendment Agreement dated May 1, 1994,
by and among The Smithfield Packing Company, Incorporated,
Smithfield Foods, Inc., John Hancock Mutual Life Insurance
Company and MML Pension Insurance Company (incorporated by
reference to Exhibit 4.10(b) to the Company's Form 10-K
Annual Report for the fiscal year ended May 1, 1994).
Exhibit 4.11 -- Master Lease Agreement dated May 14, 1993 between General
Electric Capital Corporation and Brown's of Carolina, Inc.
(incorporated by reference to Exhibit 4.12 to the Company's
Form 10--K Annual Report for the fiscal year ended May 2,
1993).
Exhibit 4.11(a) -- Corporate Guaranty by Smithfield Foods, Inc. dated May 14,
1993 (incorporated by reference to Exhibit 4.12(a) to the
Company's Form 10-K Annual Report for the fiscal year ended
May 2, 1993).
Exhibit 4.12 -- Amended and Restated Credit Agreement dated June 28, 1993
between Smithfield Foods, Inc. and NationsBank of Virginia,
N.A., covering $25,000,000 6.48% Notes due September 30, 1998
(incorporated by reference to Exhibit 4.13 to the Company's
Form 10-K Annual Report for the fiscal year ended May 2,
1993).
Exhibit 4.12(a) -- Loan Modification Agreement dated April 30, 1994, among
Smithfield Foods, Inc., Carolina Food Processors, Inc., The
Smithfield Packing Company, Incorporated and NationsBank of
Virginia, N.A. (incorporated by reference to Exhibit 4.12(a)
to the Company's Form 10-K Annual Report for the fiscal year
ended May 1, 1994).
Exhibit 4.13 -- Credit Agreement dated August 19, 1994 between Smithfield
Foods, Inc. and NationsBank of Virginia, N.A. covering
$50,000,000 Term Loan due October 1997 (incorporated by
reference to Exhibit 4.13 to the Company's Form 10-K Annual
Report for the fiscal year ended April 30, 1995).
Exhibit 10.1 -- Subscription Agreement dated September 3, 1992 between
Smithfield Foods, Inc. and Carroll's Foods, Inc., covering
1,000,000 shares of Smithfield Foods, Inc. Common Stock
(incorporated by reference to Exhibit 10.1 of the Company's
Form 10-K Annual Report for the fiscal year ended May 2,
1993); and Amendment No. 1 to Subscription Agreement dated
January 31, 1995.
Exhibit 10.2 -- Subscription Agreement dated October 26, 1995 between
Smithfield Foods, Inc. and Sumitomo Corporation of America,
covering $20,000,000 Series C 6-3/4% Cumulative Convertible
Preferred Stock.
Exhibit 10.3 -- Smithfield Foods, Inc. 1984 Stock Option Plan, as amended
(incorporated by reference to Exhibit 10.1 to the Company's
Form 10-K Annual Report for the fiscal year ended April 28,
1991).
Exhibit 10.4 -- Smithfield Foods, Inc. 1992 Stock Option Plan (incorporated
by reference to Exhibit 10.4 to the Company's Form 10-K
Annual Report for the fiscal year ended May 2, 1993).
Exhibit 10.5 -- Smithfield Foods, Inc. Incentive Bonus Plan applicable to the
Company's Chairman of the Board and Chief Executive Officer
(incorporated by reference to Exhibit 10.8 to the Company's
Form 10-K Annual Report for the fiscal year ended April 30,
1995).
Exhibit 10.6 -- Smithfield Foods, Inc. 1997 Incentive Bonus Plan applicable
to the Company's President and Chief Operating Officer.
- 22 -
Exhibit 11 -- Computation of Net Income Per Common Share.
Exhibit 21 -- Subsidiaries of the Registrant.
Exhibit 23 -- Consent of Independent Public Accountants.
Exhibit 27 -- Financial Data Schedule.
(b) Reports on Form 8-K
1. A Current Report on Form 8-K for February 9, 1996 was filed with the
Securities and Exchange Commission on February 9, 1996 to report, under Item 5,
that John Morrell & Co., a wholly-owned subsidiary of the Company, which was
acquired in December 1995, had entered a plea of guilty to a six-count charge by
the United States government involving reporting violations of the Clean Water
Act and other related charges.
2. An Amended Current Report on Form 8-K for December 21, 1995 was filed
with the Securities and Exchange Commission on March 4, 1996, to report, under
Items 2 and 7, the acquisition by the Company from Chiquita Brands
International, Inc. of all of the outstanding capital stock of John Morrell &
Co.
(This space intentionally left blank)
- 23 -
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Date: July 18, 1996 By: /s/ JOSEPH W. LUTER, III
-------------------------
Joseph W. Luter, III
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on July 18, 1996.
SIGNATURE TITLE
Chairman of the Board,
Chief Executive Officer,
/s/ JOSEPH W. LUTER, III and Director
Joseph W. Luter, III
President, Chief Operating
Officer, and Director
/s/ JOHN O. NIELSON
John O. Nielson
Vice President, Secretary
and Treasurer
/s/ AARON D. TRUB (Principal Financial Officer)
Aaron D. Trub
Vice President and Controller
/s/ C. LARRY POPE (Principal Accounting Officer)
C. Larry Pope
Director
/s/ F.J. FAISON
F. J. Faison
Director
/s/ JOEL W. GREENBERG
Joel W. Greenberg
Director
/s/ CECIL W. GWALTNEY
Cecil W. Gwaltney
Director
/s/ GEORGE E. HAMILTON, JR.
George E. Hamilton, Jr.
Director
/s/ RICHARD J. HOLLAND
Richard J. Holland
- S-1 -
Director
/s/ ROGER R. KAPELLA
Roger R. Kapella
Director
/s/ LEWIS R. LITTLE
Lewis R. Little
Director
/s/ ROBERT W. MANLY, IV
Robert W. Manly, IV
Director
/s/ WENDELL H. MURPHY
Wendell H. Murphy
Director
/s/ WILLIAM H. PRESTAGE
William H. Prestage
- S-2 -
SMITHFIELD FOODS, INC.
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
PAGE(S)
FINANCIAL STATEMENTS
Report of Independent Public Accountants............................... F-2
Consolidated Statements of Income for the Years Ended April 28, 1996,
April 30, 1995, and May 1, 1994.................................... F-3
Consolidated Balance Sheets at April 28, 1996 and April 30, 1995....... F-4
Consolidated Statements of Cash Flows for the Years ended April 28,
1996, April 30, 1995, and May 1, 1994.............................. F-5
Consolidated Statements of Stockholders' Equity for the Years ended
April 28, 1996, April 30, 1995, and May 1, 1994.................... F-6
Notes to Consolidated Financial Statements............................. F-7
to
F-20
FINANCIAL STATEMENT SCHEDULE
Independent Public Accountants' Report on Financial Statement Schedule. F-21
Schedule I - Condensed Financial Information of Registrant ............ F-22
to
F-26
- F-1 -
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE STOCKHOLDERS OF SMITHFIELD FOODS, INC.:
We have audited the accompanying consolidated balance sheets of Smithfield
Foods, Inc. (a Delaware corporation) and subsidiaries as of April 28, 1996 and
April 30, 1995, and the related consolidated statements of income, cash flows
and stockholders' equity for each of the three years in the period ended April
28, 1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Smithfield Foods, Inc. and
subsidiaries as of April 28, 1996 and April 30, 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
April 28, 1996, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Richmond, Virginia,
June 11, 1996.
F-2
SMITHFIELD FOODS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
52 WEEKS 52 WEEKS 52 WEEKS
ENDED ENDED ENDED
APRIL 28, 1996 APRIL 30, 1995 MAY 1, 1994
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Sales............................................................................ $2,383,893 $1,526,518 $ 1,403,485
Cost of sales.................................................................... 2,203,626 1,380,586 1,287,880
Gross profit................................................................... 180,267 145,932 115,605
Selling, general and administrative expenses..................................... 103,095 61,723 50,738
Depreciation expense............................................................. 25,979 19,717 21,327
Interest expense................................................................. 20,942 14,054 11,605
Income from continuing operations before income taxes............................ 30,251 50,438 31,935
Income taxes..................................................................... 10,465 18,523 12,616
Income from continuing operations................................................ 19,786 31,915 19,319
Income (loss) from discontinued operations, net of tax........................... (3,900) (4,075) 383
Net income....................................................................... $ 15,886 $ 27,840 $ 19,702
Net income available to common stockholders...................................... $ 14,734 $ 27,165 $ 19,027
Income (loss) per common share:
Continuing operations.......................................................... $ 1.06 $ 1.83 $ 1.11
Discontinued operations........................................................ (.22) (.24) .02
Net Income..................................................................... $ .84 $ 1.59 $ 1.13
The accompanying notes are an integral part of these statements.
F-3
SMITHFIELD FOODS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
APRIL 28, APRIL 30,
1996 1995
(IN THOUSANDS, EXCEPT
SHARE DATA)
ASSETS
Current assets:
Cash.............................................................................................. $ 28,529 $ 14,790
Accounts receivable less allowances of $1,084 and $540............................................ 144,956 66,727
Inventories....................................................................................... 210,759 120,986
Advances to joint hog production arrangements..................................................... 7,578 14,042
Prepaid expenses and other current assets......................................................... 28,585 16,748
Total current assets........................................................................... 420,407 233,293
Property, plant and equipment:
Land.............................................................................................. 12,453 9,747
Buildings and improvements........................................................................ 146,545 116,637
Machinery and equipment........................................................................... 303,384 220,750
Construction in progress.......................................................................... 74,207 68,705
536,589 415,839
Less accumulated depreciation..................................................................... (163,866) (141,533)
Net property, plant and equipment.............................................................. 372,723 274,306
Other assets:
Investments in partnerships....................................................................... 29,662 27,209
Deferred income taxes............................................................................. 10,235 -
Other............................................................................................. 24,592 15,417
Total other assets............................................................................. 64,489 42,626
$ 857,619 $ 550,225
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable..................................................................................... $ 110,563 $ 69,695
Current portion of long-term debt and capital lease obligations................................... 13,392 9,961
Accounts payable.................................................................................. 113,344 55,371
Accrued expenses and other current liabilities.................................................... 95,082 37,355
Total current liabilities...................................................................... 332,381 172,382
Long-term debt and capital lease obligations........................................................ 188,618 155,047
Other noncurrent liabilities:
Pension and post-retirement benefits.............................................................. 59,128 4,733
Deferred income taxes............................................................................. - 18,404
Other............................................................................................. 14,975 5,644
Total other noncurrent liabilities............................................................. 74,103 28,781
Commitments and contingencies
Redeemable preferred stock.......................................................................... 20,000 10,000
Stockholders' equity:
Preferred stock, $1.00 par value, authorized 1,000,000 shares..................................... - -
Common stock, $.50 par value, authorized 25,000,000 shares; issued 18,453,015 and 16,834,026
shares......................................................................................... 9,227 8,417
Additional paid-in capital........................................................................ 92,762 49,804
Retained earnings................................................................................. 148,171 133,437
Treasury stock, at cost, 437,000 shares........................................................... (7,643) (7,643)
Total stockholders' equity..................................................................... 242,517 184,015
$ 857,619 $ 550,225
The accompanying notes are an integral part of these balance sheets.
F-4
SMITHFIELD FOODS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
52 WEEKS 52 WEEKS 52 WEEKS
ENDED ENDED ENDED
APRIL 28, 1996 APRIL 30, 1995 MAY 1, 1994
(IN THOUSANDS)
Cash flows from operating activities:
Net income...................................................................... $ 15,886 $ 27,840 $19,702
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization.............................................. 28,299 22,127 23,010
Increase in accounts receivable............................................ (9,251) (6,141) (9,763)
Increase in inventories.................................................... (41,316) (1,717) (24,447)
(Increase) decrease in prepaid expenses and other current assets........... 1,535 (2,802) (4,529)
(Increase) decrease in other assets........................................ 22,682 (8,121) (1,398)
Increase in accounts payable, accrued expenses and other liabilities....... 19,166 8,272 25,608
Increase (decrease) in deferred income taxes............................... (27,059) 6,637 6,177
Loss on sale of property, plant and equipment.............................. 2,168 1,130 1,088
Net cash provided by operating activities......................................... 12,110 47,225 35,448
Cash flows from investing activities:
Capital expenditures............................................................ (74,888) (90,550) (25,241)
Payment of cash portion for acquisition of John Morrell & Co.,
net of cash acquired......................................................... (14,079) - -
Investments in partnerships..................................................... (2,486) (16,537) (2,257)
Advances to joint hog production arrangements................................... (4,636) (18,130) (20,178)
Reductions of advances to joint hog production arrangements..................... 11,100 24,266 19,830
Proceeds from sale of property, plant and equipment............................. 82 969 444
Net cash used in investing activities............................................. (84,907) (99,982) (27,402)
Cash flows from financing activities:
Net borrowings on notes payable................................................. 33,592 17,560 4,322
Proceeds from issuance of long-term debt and capital lease obligations.......... 50,000 50,000 5,341
Principal payments on long-term debt and capital lease obligations.............. (16,672) (13,588) (7,916)
Proceeds from issuance of preferred stock....................................... 20,000 - -
Exercise of common stock options................................................ 768 1,900 153
Dividends on preferred stock.................................................... (1,152) (675) (675)
Net cash provided by financing activities......................................... 86,536 55,197 1,225
Net increase in cash.............................................................. 13,739 2,440 9,271
Cash at beginning of year......................................................... 14,790 12,350 3,079
Cash at end of year............................................................... $ 28,529 $ 14,790 $12,350
Supplemental disclosures of cash flow information:
Cash payments during the year for:
Interest, net of amount capitalized.......................................... $ 20,684 $ 14,630 $12,379
Income taxes................................................................. $ 1,685 $ 16,254 $ 5,574
The accompanying notes are an integral part of these statements.
F-5
SMITHFIELD FOODS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
ADDITIONAL
COMMON PAID-IN RETAINED TREASURY
STOCK CAPITAL EARNINGS STOCK
(IN THOUSANDS)
Balance, May 2, 1993............................................................ $8,350 $ 47,818 $ 87,245 $ (7,643)
Net income.................................................................... - - 19,702 -
Exercise of stock options..................................................... 7 146 - -
Dividends on preferred stock.................................................. - - (675) -
Balance, May 1, 1994............................................................ 8,357 47,964 106,272 (7,643)
Net income.................................................................... - - 27,840 -
Exercise of stock options..................................................... 60 1,840 - -
Dividends on preferred stock.................................................. - - (675) -
Balance April 30, 1995.......................................................... 8,417 49,804 133,437 (7,643)
Net income.................................................................... - - 15,886 -
Common stock issued for acquisition of John Morrell & Co...................... 547 32,453 - -
Conversion of preferred stock................................................. 233 9,767 - -
Exercise of stock options..................................................... 30 738 - -
Dividends on preferred stock.................................................. - - (1,152) -
Balance, April 28, 1996......................................................... $9,227 $ 92,762 $148,171 $ (7,643)
The accompanying notes are an integral part of these statements.
F-6
SMITHFIELD FOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
Smithfield Foods, Inc., and subsidiaries (the "Company"). The Company's
principal subsidiaries include Brown's of Carolina, Inc. ("Brown's"), Esskay,
Inc. ("Esskay"), Gwaltney of Smithfield, Ltd. ("Gwaltney"), John Morrell & Co.
("John Morrell"), Patrick Cudahy Incorporated ("Patrick Cudahy"), Smithfield
International, Inc. ("International") and The Smithfield Packing Company,
Incorporated ("Smithfield Packing"). The accounts of Ed Kelly, Inc. ("Kelly")
are reflected as discontinued operations (see Note 3) and are reported
separately on the consolidated statements of income. All material intercompany
balances and transactions have been eliminated.
FISCAL YEAR
The Company's fiscal year is the 52 or 53 week period which ends on the
Sunday nearest April 30.
INVENTORIES
The Company's inventories are valued at the lower of first-in, first-out
(FIFO) cost or market. Inventories consist of the following:
APRIL APRIL
28, 30,
1996 1995
(IN THOUSANDS)
Fresh and processed meats..................................................... $154,110 $ 82,957
Livestock and manufacturing supplies.......................................... 51,145 28,596
Other......................................................................... 5,504 9,433
$210,759 $120,986
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost and depreciated over the
estimated useful lives of the assets. Buildings and improvements are depreciated
over periods from 10 to 40 years. Machinery and equipment is depreciated over
periods from 3 to 25 years. Repair and maintenance charges are expensed as
incurred. Improvements and betterments that materially extend the life of the
asset are capitalized. Gains and losses from dispositions or retirements of
property, plant and equipment are recognized currently.
In fiscal 1994, the Company revised the estimated useful lives of certain
assets to more accurately reflect their economic useful lives and to better
align them with those generally used in the meat processing industry. This
change was made to assets acquired after April 1990 and has been reflected on a
prospective basis since November 1993. The lives of the affected buildings and
improvements were revised from 10 to 40 years to 20 to 40 years. The lives of
the affected machinery and equipment were revised from 3 to 12 years to 10 to 25
years.
Interest on capital projects is capitalized during the construction period.
Total interest capitalized was $2,021,000 in fiscal 1996, $842,000 in fiscal
1995 and $612,000 in fiscal 1994. Repair and maintenance expenses totaled
$59,951,000, $50,975,000 and $40,713,000 in fiscal 1996, 1995 and 1994,
respectively.
OTHER ASSETS
Cost in excess of net assets acquired is amortized over 40 years.
Organization costs are amortized over a five-year period. Deferred debt issuance
costs are amortized over the terms of the related loan agreements. Start-up
costs associated with hog production are amortized over a three-year period.
ENVIRONMENTAL EXPENDITURES
Environmental expenditures that relate to current or future operations are
expensed or capitalized as appropriate. Expenditures that relate to an existing
condition caused by past operations and do not contribute to current or future
revenue generation are expensed. Liabilities are recorded when environmental
assessments and/or cleanups are probable and the cost
F-7
SMITHFIELD FOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- Continued
can be reasonably estimated. Other than for assessments, the timing of these
accruals coincides with the Company's commitment to a formal plan of action.
SELF-INSURANCE PROGRAMS
The Company is self-insured for certain levels of general and vehicle
liability, workers' compensation and health care coverage. The cost of these
self-insurance programs is accrued based upon estimated settlements for known
and anticipated claims. Any resulting adjustments to previously recorded
reserves are reflected in current operating results.
PRICE RISK MANAGEMENT AND HEDGING
The Company uses recognized price risk management and hedging techniques to
enhance sales and to reduce the effect of adverse price changes on the Company's
profitability. The Company's price risk management and hedging activities
currently are utilized in the areas of forward sales, hog production margin
management, procurement of raw materials (ham and bacon) for seasonal demand
peaks and inventory hedging. Contracts related to sales or purchase commitments
are accounted for as hedges. Gains and losses on these contracts are deferred
and recorded to cost of sales when the sales or purchase commitments are
fulfilled. As of April 28, 1996 and April 30, 1995, the Company had deferred
unrealized hedging gains of $2,160,000 and $222,000, respectively, on
outstanding futures contracts. All contracts mature within one year.
INCOME PER COMMON SHARE
Income per common share is computed using the weighted average shares of
common stock and dilutive common stock equivalents (options and convertible
preferred stock) outstanding during the respective periods. Net income available
to common stockholders is net income less dividends on preferred stock. The
number of weighted average shares used in calculating income per common share
was 17,530,000 in fiscal 1996, 17,059,000 in fiscal 1995 and 16,768,000 in
fiscal 1994.
USE OF ESTIMATES
Financial statements prepared in conformity with generally accepted
accounting principles require management to make estimates and assumptions that
affect amounts reported therein. Actual results could differ from those
estimates.
RECLASSIFICATIONS
Certain prior year balances have been reclassified to conform to fiscal
1996 presentations including warehousing and distribution costs which have been
reclassified from selling, general and administrative expenses to cost of sales.
NOTE 2 -- ACQUISITION
On December 20, 1995, the Company acquired all of the capital stock of John
Morrell from Chiquita Brands International, Inc. ("Chiquita") for $58,000,000,
consisting of $25,000,000 in cash and $33,000,000 of the Company's common stock
(1,094,273 shares), plus the assumption of all of John Morrell's liabilities.
The Company accounted for the acquisition using the purchase method of
accounting and, accordingly, the results of operations of John Morrell from
December 20, 1995 are included in the accompanying consolidated financial
statements.
F-8
SMITHFIELD FOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 2 -- ACQUISITION -- Continued
The following unaudited pro forma information combines the operating
results of the Company and John Morrell assuming the acquisition had been made
as of the beginning of the fiscal year ended April 30, 1995.
52 WEEKS 52 WEEKS
ENDED ENDED
APRIL 28, 1996 APRIL 30, 1995
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
Sales............................................................................... $3,414,561 $2,949,426
Income from continuing operations................................................... 25,094 49,257
Net income.......................................................................... 21,194 45,182
Income per common share:
Continuing operations............................................................. 1.31 2.68
Net income........................................................................ 1.10 2.45
NOTE 3 -- DISCONTINUED OPERATIONS
In fiscal 1996, the Company completed the disposition of the assets and
business of Kelly, its former retail electronics subsidiary, which is reported
separately as discontinued operations in the consolidated statements of income.
The delay in the final disposition of the assets and business led to an
unanticipated deterioration of Kelly's estimated realization value, resulting in
an additional loss from discontinued operations of $3.9 million in fiscal 1996.
Fiscal 1995 reflected a loss from discontinued operations related to Kelly of
$4.1 million.
NOTE 4 -- JOINT HOG PRODUCTION ARRANGEMENTS
SMITHFIELD-CARROLL'S
The Company has an arrangement with affiliates of Carroll's Foods, Inc.
("CFI") to produce hogs for the Company's meat processing plants in North
Carolina and Virginia. The arrangement involves: (1) Smithfield-Carroll's Farms,
a partnership owned jointly by the Company and Carroll's Farms of Virginia, Inc.
("CFAV"), which owns the hog raising facilities, and (2) a long-term purchase
contract between the Company and Carroll's Foods of Virginia, Inc. ("CFOV"),
which leases and operates the facilities, that obligates the Company to purchase
all the hogs produced by CFOV at prices which are equivalent to market at the
time of delivery. A director of the Company is the president and a director of
CFI, CFAV and CFOV. In addition, the Company has a long-term agreement to
purchase hogs from CFI at prices which, in the opinion of management, are
equivalent to market.
As of April 28, 1996 and April 30, 1995, the Company had investments of
$20,252,000 and $20,231,000, respectively, in the partnership which are
accounted for using the equity method. Profits and losses are shared equally
under the arrangement. During fiscal 1995, the Company converted $12,500,000 of
advances to partners' equity, which is included in the investments above. In
addition, as of April 28, 1996, the Company had $2,200,000 of working capital
loans outstanding to the partnership. These demand loans are expected to be
repaid in the next fiscal year.
Substantially all revenues of the partnership consist of lease payments
from CFOV which cover debt service, depreciation charges and other operating
expenses. For the fiscal years 1996, 1995 and 1994, revenues were $8,912,000,
$9,479,000 and $9,706,000, respectively.
Pursuant to the long-term purchase contract, the Company purchased
$70,540,000, $54,081,000 and $62,348,000 of live hogs from CFOV in fiscal years
1996, 1995 and 1994, respectively. The contract resulted in decreased raw
material costs (as compared to market costs) of $2,617,000 and $2,223,000 in
fiscal 1996 and 1994, respectively, and increased raw material costs of
$2,615,000 in fiscal 1995. In fiscal 1996, the Company made $2,800,000 of
working capital loans to CFOV and received payments of $4,700,000. Demand loans
of $6,905,000 are outstanding as of April 28, 1996 and are expected to be repaid
in the next fiscal year.
F-9
SMITHFIELD FOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 4 -- JOINT HOG PRODUCTION ARRANGEMENTS -- Continued
Pursuant to the agreement with CFI, the Company purchased $201,878,000,
$134,937,000 and $127,849,000 of hogs in fiscal 1996, 1995 and 1994,
respectively.
CIRCLE FOUR
The Company has an arrangement with three of its principal hog suppliers to
produce hogs in the state of Utah for sale to an unrelated party. The chief
executive officers of two of the suppliers and the president of another serve as
directors of the Company. As of April 28, 1996, the Company had a 33% interest
in the arrangement, which is accounted for using the equity method. As of April
28, 1996 and April 30, 1995, the Company had investments of $7,083,000 and
$5,050,000, respectively, in the arrangement.
B&G
Brown's has an arrangement with a company owned by the daughter and
son-in-law of the chairman and chief executive officer of the Company. The
arrangement, B&G Farms LLC ("B&G"), involves the leasing of hog production
facilities to Brown's and the production of hogs by Brown's on a contractual
basis. In addition, the Company has a contract to purchase all of the hogs
produced by B&G at prices, which in the opinion of management, are equivalent to
market. Profits and losses are shared equally under the arrangement. As of April
28, 1996 and April 30, 1995, B&G had advanced $1,527,000 and $1,723,000,
respectively, to Brown's for working capital. As of April 28, 1996 and April 30,
1995, the Company had investments of $1,260,000 and $1,157,000, respectively, in
the partnership.
B&G's revenues consist of lease payments from Brown's, which cover debt
service and depreciation charges, and the profits or losses on the sale of hogs.
Pursuant to the contract, the Company purchased $7,990,000 and $3,048,000 of
hogs in fiscal 1996 and 1995, respectively.
The summarized unaudited financial information which follows represents an
aggregation of the Company's unconsolidated hog production operations of
Smithfield-Carroll's, Circle Four and B&G.
APRIL 28, APRIL 30,
1996 1995
(IN THOUSANDS)
Current assets.......................................................... $ 6,532 $ 4,108
Property and equipment.................................................. 107,996 84,255
Other assets............................................................ 6,094 2,296
$120,622 $ 90,659
Current liabilities..................................................... $ 11,785 $ 16,029
Long-term debt.......................................................... 54,926 28,310
Equity.................................................................. 53,911 46,321
$120,622 $ 90,660
F-10
SMITHFIELD FOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 5 -- DEBT
Long-term debt consists of the following:
APRIL 28, APRIL 30,
1996 1995
(IN THOUSANDS)
Notes payable to institutional lenders:
8.41% notes, payable through February 2013.................................. $ 25,000 $ 25,000
9.85% notes, payable through November 2006.................................. 14,333 15,667
10.75% notes, payable through August 2005................................... 9,500 10,500
9.80% notes, payable through August 2003.................................... 9,187 9,938
6.24% notes, payable through November 1998.................................. 3,108 4,237
7.15% notes, payable through October 1997................................... 3,044 4,899
7.00% notes, payable through September 1998................................. 1,429 2,017
Notes payable to banks:
Notes, payable October 1997................................................. 45,000 45,000
Line of credit, expiring July 1997.......................................... 43,750 -
6.48% notes, payable through September 1998................................. 20,700 22,600
7.10% notes, payable through September 1997................................. 2,290 2,760
Other notes payable........................................................... 407 200
177,748 142,818
Less current portion.......................................................... (11,810) (9,030)
$ 165,938 $ 133,788
F-11
SMITHFIELD FOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 5 -- DEBT -- Continued
Scheduled maturities of long-term debt are as follows:
(IN THOUSANDS)
Fiscal year
1997....................................................................... $ 11,810
1998....................................................................... 101,655
1999....................................................................... 19,924
2000....................................................................... 4,554
2001....................................................................... 4,554
Thereafter................................................................. 35,251
$177,748
As of April 28, 1996, the fair value of long-term debt, based on the market
value of debt with similar maturities and covenants, approximates recorded
values.
Notes payable and lines of credit to institutional lenders and banks are
collateralized with all of the Company's inventories and accounts receivable,
and certain of the Company's property, plant and equipment.
As of April 28, 1996, the Company had aggregate lines of credit of
$265,000,000, including a $75,000,000 line assumed in connection with the
acquisition of John Morrell. Subsequent to year-end, the Company consolidated
its lines of credit into a single line by increasing a previously existing
$200,000,000 line of credit to $255,000,000. This line consists of a 364-day,
$205,000,000 revolving credit facility and a two-year, $50,000,000 revolving
credit facility. The short-term facility is being used for seasonal inventory
and receivable needs and the long-term facility is being used for working
capital and capital expenditures. The increased line expires in July 1996 and is
expected to be extended for an additional year in the first quarter of fiscal
1997. The line of credit has no compensating balance requirements, but requires
commitment fees based on the unused portion. The Company terminated the
$75,000,000 John Morrell line of credit on April 30, 1996.
Weighted average borrowings under the lines were $133,400,000 in fiscal
1996, $69,900,000 in fiscal 1995 and $66,600,000 in fiscal 1994 at weighted
average interest rates of approximately 7%, 6% and 4%, respectively. Maximum
borrowings were $179,800,000 in fiscal 1996, $117,000,000 in fiscal 1995 and
$105,100,000 in fiscal 1994. The outstanding balances under these lines totaled
$151,300,000 and $67,200,000 as of April 28, 1996 and April 30, 1995,
respectively, at a weighted average interest rate of 7% for both years.
The Company's various debt agreements contain covenants regarding current
ratio, fixed charges coverage, net worth, and, among other restrictions, limit
additional borrowings, the acquisition, disposition and leasing of assets and
payments of dividends to stockholders. Additionally, existing loan covenants
contain provisions which substantially limit the amount of funds available for
transfer from its subsidiaries to Smithfield Foods, Inc. without the consent of
certain lenders.
NOTE 6 -- INCOME TAXES
Total income tax expense (benefit) was allocated as follows:
APRIL 28, APRIL 30, MAY 1,
1996 1995 1994
(IN THOUSANDS)
Income from continuing operations........................... $ 10,465 $ 18,523 $12,616
Discontinued operations..................................... (2,600) (2,716) 305
$ 7,865 $ 15,807 $12,921
F-12
SMITHFIELD FOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 6 -- INCOME TAXES -- Continued
Income tax expense attributable to income from continuing operations
consists of the following:
APRIL 28, APRIL 30, MAY 1,
1996 1995 1994
(IN THOUSANDS)
Current tax expense:
Federal................................................... $ 8,850 $ 10,373 $ 7,235
State..................................................... 1,530 1,835 1,675
10,380 12,208 8,910
Deferred tax expense (benefit):
Federal................................................... (129) 5,301 3,108
State..................................................... 214 1,014 598
85 6,315 3,706
$ 10,465 $ 18,523 $12,616
A reconciliation of taxes computed at the federal statutory rate to the
provision for income taxes is as follows:
APRIL 28, APRIL 30, MAY 1,
1996 1995 1994
Federal income taxes at statutory rate.................................. 35.0% 35.0% 35.0%
State income taxes, net of federal tax benefit.......................... 3.9 3.6 4.6
Other................................................................... (4.3) (1.9) (0.1)
34.6% 36.7% 39.5%
The tax effects of temporary differences consist of the following:
APRIL 28, APRIL 30,
1996 1995
(IN THOUSANDS)
Deferred tax assets:
Employee benefits..................................................... $ 35,925 $ 6,019
Alternative minimum tax credit........................................ 5,607 2,680
Tax credits, carryforwards and net operating losses................... 12,523 2,709
Inventories........................................................... 1,297 1,155
Other assets.......................................................... 317 968
Accrued expenses...................................................... 12,004 1,041
$ 67,673 $ 14,572
Deferred tax liabilities:
Property, plant and equipment......................................... $ 33,643 $ 21,853
Investment in subsidiary.............................................. 574 574
Start-up costs........................................................ 1,805 1,303
$ 36,022 $ 23,730
As of April 28, 1996 and April 30, 1995, the Company had $21,416,000 and
$9,246,000, respectively, of net current deferred tax assets included in prepaid
expenses and other current assets. The Company had no valuation allowance
related to income tax assets as of April 28, 1996 or April 30, 1995, and there
was no change in the valuation allowance during fiscal 1996 and 1995.
As of April 28, 1996 and April 30, 1995, the Company had $12,241,000 and
$1,836,000 of deferred tax assets relating to net operating losses and tax
credits, respectively, which expire from fiscal 1998 to 2001. In addition,
deferred tax assets include alternative minimum tax credits of $5,607,000 which
do not expire.
F-13
SMITHFIELD FOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 7 -- ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consist of the following:
APRIL 28, APRIL 30,
1996 1995
(IN THOUSANDS)
Payroll and related benefits............................................ $ 42,737 $ 15,531
Self-insurance reserves................................................. 18,914 12,357
Other................................................................... 33,431 9,467
$ 95,082 $ 37,355
NOTE 8 -- STOCKHOLDERS' EQUITY AND PREFERRED STOCK
ISSUANCE OF COMMON STOCK
In fiscal 1996, the Company issued 1,094,273 shares of its common stock to
Chiquita as part of the acquisition of John Morrell (See Note 2).
PREFERRED STOCK
The Company has 1,000,000 shares of $1.00 par value preferred stock
authorized, of which 998,000 shares are unissued. The board of directors is
authorized to issue preferred stock in series and to fix by resolution the
designation, dividend rate, redemption provisions, liquidation rights, sinking
fund provisions, conversion rights and voting rights of each series of preferred
stock.
In fiscal 1996, all of the Series B 6.75% cumulative convertible redeemable
preferred stock totaling $10,000,000 was converted into 465,116 shares of the
Company's common stock at $21.50 per share.
In fiscal 1996, the Company authorized and issued 2,000 shares of Series C
6.75% cumulative convertible redeemable preferred stock in a private transaction
for $20,000,000. These shares are convertible into 666,666 shares of the
Company's common stock at $30.00 per share. The shares are mandatorily
redeemable in fiscal 2006 at $10,000 per share, plus accumulated and unpaid
dividends and have an equivalent liquidation preference.
Redeemable preferred stock consists of the following:
APRIL 28, APRIL 30,
1996 1995
(IN THOUSANDS)
Series B 6.75% cumulative convertible redeemable preferred stock,
$1.00 par value, 1,000 shares authorized, issued and outstanding.............................. $ - $ 10,000
Series C 6.75% cumulative convertible redeemable preferred stock,
$1.00 par value, 2,000 shares authorized, issued and outstanding.............................. 20,000 -
$ 20,000 $ 10,000
STOCK OPTIONS
Under the Company's 1984 Stock Option Plan ("1984 Plan"), which expired in
fiscal 1995, officers and certain key employees were granted incentive and
nonstatutory stock options to purchase shares of the Company's common stock for
periods not exceeding 10 years at prices that were not less than the fair market
value of the common stock on the date of grant. Stock appreciation rights which
are exercisable upon a change in control of the Company are attached to the
options granted pursuant to the 1984 Plan. The Company granted options for
1,400,000 shares of common stock under the 1984 Plan.
Under the Company's 1992 Stock Incentive Plan ("1992 Plan"), management and
other key employees may be granted nonstatutory stock options to purchase shares
of the Company's common stock exercisable five years after grant for periods not
exceeding 10 years. The exercise price for options granted prior to August 31,
1994 was not less than 150% of the fair market value of the common stock on the
date of grant. On August 31, 1994, the Company amended and restated the 1992
F-14
SMITHFIELD FOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 8 -- STOCKHOLDERS' EQUITY AND PREFERRED STOCK -- Continued
Plan, changing the exercise price of options granted on or after that date to
not less than the fair market value of the common stock on the date of grant.
The Company has reserved 1,250,000 shares of common stock under the 1992 Plan.
As of April 28, 1996, there were 164,500 options available for grant under the
1992 Plan.
The following is a summary of transactions for the 1984 Plan and 1992 Plan
during fiscal 1995 and 1996.
NUMBER OF SHARES PER SHARE RANGE
Outstanding options at May 1, 1994................................ 1,652,000 $ 5.50-23.06
Granted......................................................... 60,000 30.63
Exercised....................................................... (120,900) 5.50- 8.13
Cancelled....................................................... (25,000) 23.06
Outstanding options at April 30, 1995............................. 1,566,100 5.50-30.63
Granted......................................................... 345,000 21.50-27.25
Exercised....................................................... (59,600) 5.50- 8.13
Cancelled....................................................... (50,000) 23.06
Outstanding options at April 28, 1996............................. 1,801,500 $ 5.50-30.63
Options exercisable at April 28, 1996............................. 716,000 $ 5.50- 8.13
In October 1995, the Financial Accounting Standards Board issued Statement
No. 123, "Accounting for Stock-Based Compensation," ("SFAS No. 123") which is
effective for fiscal 1997. The Company has not completed all of the analyses
required to estimate the impact of the statement. The Company intends to
continue to apply the accounting provisions of APB Opinion No. 25, "Accounting
for Stock Issued to Employees;" and will comply with the disclosure requirements
of SFAS No. 123.
PREFERRED SHARE PURCHASE RIGHTS
In fiscal 1992, the Company adopted a preferred share purchase rights plan
(the "Rights Plan") and declared a dividend of one preferred share purchase
right (a "Right") on each outstanding share of common stock. Under the terms of
the Rights Plan, if the Company is acquired in a merger or other business
combination transaction, each Right will entitle its holder to purchase, at the
Right's then current exercise price, a number of the acquiring company's common
shares having a market value of twice such price. In addition, if a person or
group acquires 20% (or other applicable percentage, as summarized in the Rights
Plan) or more of the outstanding common stock, each Right will entitle its
holder (other than such person or members of such group) to purchase, at the
Right's then current exercise price, a number of shares of common stock having a
market value of twice such price.
Each Right will entitle its holder to buy five ten-thousandths of a share
of Series A junior participating preferred stock, par value $1.00 per share, at
an exercise price of $75 subject to adjustment. Each share of Series A junior
participating preferred stock will entitle its holder to 1,000 votes and will
have an aggregate dividend rate of 1,000 times the amount, if any, paid to
holders of common stock. Currently, 25,000 shares of Series A junior
participating preferred stock have been reserved. The Rights will expire in
fiscal 2002 unless previously exercised or redeemed at the option of the board
of directors for $.005 per Right. Generally, each share of common stock issued
after May 31, 1991 will have one Right attached.
NOTE 9 -- PENSION AND OTHER RETIREMENT PLANS
The Company and its subsidiaries sponsor several defined benefit pension
plans covering substantially all employees. Pension expense for fiscal 1996,
1995 and 1994 was $3,303,000, $2,306,000 and $2,078,000, respectively. It is the
Company's policy to fund the plans based on the minimum contribution required
under ERISA. The plans' assets consist of listed corporate stocks, corporate and
government bonds, insurance contracts and cash and cash equivalents.
In connection with the John Morrell acquisition, the Company assumed the
obligations under two non-contributory, defined benefit pension plans for
substantially all full-time salaried and hourly employees. Benefit accrual for
substantially
F-15
SMITHFIELD FOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 9 -- PENSION AND OTHER RETIREMENT PLANS -- Continued
all hourly employees under the defined benefit pension plan ceased as of March
1991. Current benefits for these employees are provided by a defined
contribution plan covering both salaried and hourly employees.
The status of the Company's plans and the components of pension expense are
as follows:
APRIL 28, 1996 APRIL 30, 1995
OVERFUNDED UNDERFUNDED OVERFUNDED UNDERFUNDED
PLANS PLANS PLANS PLANS
(IN THOUSANDS)
Accumulated benefit obligation................................ $ 29,548 $ 175,103 $ 23,705 $ 16,398
Vested benefit obligation..................................... $ 25,591 $ 169,468 $ 21,274 $ 15,819
Plan assets at fair value..................................... $ 39,127 $ 116,542 $ 30,625 $ 11,946
Projected benefit obligation.................................. (36,434) (181,306) (29,782) (16,397)
Excess (deficiency) of plan assets over projected benefit
obligation.................................................. 2,693 (64,764) 843 (4,451)
Items not recorded on consolidated balance sheets:
Unrecognized net transition gain............................ (181) - (271) -
Unrecognized net loss (gain) from experience differences.... (3,356) (8,710) 825 283
Unrecognized prior service cost (benefit)................... 1,188 175 (462) 946
Prepaid (accrued) pension costs.......................... $ 344 $ (73,299) $ 935 $ (3,222)
Net pension expense included the following: 1996 1995 1994
Service costs for benefits earned........................... $2,662 $2,079 $1,690
Interest accrued on projected benefit obligation............ 7,532 3,089 2,890
Actual return on plan assets................................ (6,691) (2,558) (3,185)
Net amortization and deferral............................... (200) (304) 683
Net pension expense......................................... $3,303 $2,306 $2,078
In determining the projected benefit obligation in fiscal 1996 and 1995,
the weighted average assumed discount rate was 7.75% and 7.5%, respectively,
while the assumed rate of increase in future compensation was 5% to 6% in fiscal
1996 and 6% in fiscal 1995. The weighted average expected long-term rate of
return on plan assets was 9% and 8% in fiscal 1996 and 1995, respectively.
The Company provides health care and life insurance benefits for certain
retired employees at Esskay, John Morrell and Patrick Cudahy. The total cost to
provide retiree benefits was $673,000, $406,000 and $994,000 in fiscal 1996,
1995 and 1994, respectively.
NOTE 10 -- LEASE AND SERVICE OBLIGATIONS
The Company leases transportation equipment under operating leases ranging
from 1 to 10 years with options to cancel at earlier dates. In addition, the
Company has a long-term maintenance agreement related to this equipment.
Maintenance fees are based upon fixed monthly charges for each vehicle, as well
as the maintenance facility itself and contingent fees based upon transportation
equipment usage. The amounts shown below as minimum rental commitments do not
include contingent maintenance fees.
The Company has agreements, expiring in fiscal 2004 and 2008, to use two
cold storage warehouses owned by a partnership, 50% of which is owned by the
Company. The Company has agreed to pay prevailing competitive rates for use of
the facilities, subject to aggregate guaranteed minimum annual fees of
$3,600,000. In fiscal 1996, 1995 and 1994, the Company paid $4,641,000,
$5,986,000 and $5,284,000, respectively, in fees for use of the facilities. As
of April 28, 1996 and April 30,
F-16
SMITHFIELD FOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 10 -- LEASE AND SERVICE OBLIGATIONS -- Continued
1995, the Company had investments of $1,067,000 and $744,000, respectively, in
the partnership which are accounted for using the equity method.
Minimum rental commitments under all noncancelable operating leases and
maintenance agreements are as follows:
(IN THOUSANDS)
Fiscal year
1997....................................................................... $ 20,850
1998....................................................................... 17,400
1999....................................................................... 14,441
2000....................................................................... 12,938
2001....................................................................... 10,939
Thereafter................................................................. 32,772
$109,340
Rental expense was $17,664,000 in fiscal 1996, $15,025,000 in fiscal 1995
and $12,159,000 in fiscal 1994. Rental expense in fiscal 1996, 1995 and 1994
included $3,389,000, $2,681,000 and $2,137,000 of contingent maintenance fees,
respectively.
The Company has entered into a sale and leaseback arrangement for certain
hog production facilities at Brown's. The arrangement provides for an early
termination at predetermined amounts after 10 years.
Property, plant and equipment under capital leases as of April 28, 1996
consist of land of $2,659,000, buildings and improvements of $7,017,000 and
machinery and equipment of $6,701,000, less accumulated amortization of
$3,707,000.
Future minimum lease payments for assets under capital leases and the
present value of the net minimum lease payments are as follows:
(IN THOUSANDS)
Fiscal year
1997....................................................................... $ 3,798
1998....................................................................... 3,876
1999....................................................................... 3,991
2000....................................................................... 4,046
2001....................................................................... 3,675
Thereafter................................................................. 15,982
35,368
Less amounts representing interest......................................... (11,106)
Present value of net minimum obligations................................... 24,262
Less current portion....................................................... (1,582)
Long-term capital lease obligations........................................ $ 22,680
NOTE 11 -- RELATED PARTY TRANSACTIONS
The Company's chairman and chief executive officer is an officer and the
majority owner of the capital stock of a company to which the Company made sales
of fresh pork and processed meat products totaling $299,000, $328,000 and
$321,000 in fiscal 1996, 1995 and 1994, respectively. In fiscal 1996, 1995 and
1994, the Company purchased raw materials totaling $10,069,000, $7,535,000 and
$8,159,000, respectively, from a company which is 48% owned by the chairman's
children.
F-17
SMITHFIELD FOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 11 -- RELATED PARTY TRANSACTIONS -- Continued
A director of the Company is the chairman and chief executive officer and a
director of Murphy Family Farms, Inc. ("MFF"). The Company has a long-term
agreement to purchase hogs from MFF at prices, which in the opinion of
management, are equivalent to market. Pursuant to this agreement with MFF, the
Company purchased $330,033,000, $232,130,000 and $237,889,000 of hogs in fiscal
1996, 1995 and 1994, respectively.
A director of the Company is the chairman and chief executive officer and a
director of Prestage Farms Inc., ("PFI"). The Company has a long-term agreement
to purchase hogs from PFI at prices, which in the opinion of management, are
equivalent to market. Pursuant to this agreement with PFI, the Company purchased
$129,577,000, $79,292,000 and $70,258,000 of hogs in fiscal 1996, 1995 and 1994,
respectively.
A director of the Company is the chairman of the board of a company from
which the Company made purchases of automotive parts and equipment, as well as
maintenance and leasing services, totaling $556,000, $489,000 and $515,000 in
fiscal 1996, 1995 and 1994, respectively. In addition, the Company leases
substantially all of its automobiles under three-year leases arranged by this
company. As of April 28, 1996, the Company was obligated to make a total of
$1,265,000 in future lease payments under these leases.
The Company paid a director of the Company, who was formerly president and
chief operating officer of a subsidiary, $250,000 and $221,000 for consulting
services during fiscal 1996 and 1995, respectively.
The Company is a 50% partner in a partnership which owns two cold storage
warehouses (see Note 10). In fiscal 1995, the partnership purchased the capital
stock of a company which previously owned one of the warehouses, 18% of the
capital stock of which was owned by a group of the Company's officers and
directors. The purchase price approximated the net book value of the company as
of December 31, 1994, the effective purchase date.
The Company is engaged in hog production arrangements with several related
parties. See Note 4 for additional information regarding these arrangements.
NOTE 12 -- COMMITMENTS AND CONTINGENCIES
As of April 28, 1996, the Company had outstanding commitments for
construction of hog production facilities and plant expansion projects of
approximately $37,845,000.
The Company and its subsidiaries are defendants in various lawsuits and
claims arising in the ordinary course of business. In the opinion of management,
any ultimate liability with respect to these matters will not have a material
effect on the Company's consolidated financial position or results of
operations.
Like other participants in the meat processing industry, the Company is
subject to various laws and regulations administered by federal, state and other
government entities, including the Environmental Protection Agency ("EPA") and
corresponding state agencies such as the Virginia State Water Control Board
("SWCB"), the North Carolina Division of Environmental Management, the Iowa
Department of Natural Resources, the South Dakota Department of Environment and
Natural Resources, the United States Department of Agriculture and the
Occupational Safety and Health Administration. Management believes that the
Company complies with all such laws and regulations in all material respects,
except as set forth immediately below, and that continued compliance with these
standards will not have a material adverse effect on the Company's financial
position or results of operations.
The wastewater discharge permit for Smithfield Packing's and Gwaltney's
plants in Smithfield, Virginia imposes more stringent phosphorus and ammonia
effluent limitations than the plants can currently meet. To achieve compliance,
the Company agreed to discontinue its wastewater discharges to the Pagan River
and connect its wastewater treatment plants to the regional sewage collection
and treatment system operated by the Hampton Roads Sanitation District ("HRSD").
The Company has received a directive to connect its Gwaltney wastewater system
to the HRSD system by June 25, 1996, and expects to receive before the end of
calendar year 1996 a similar directive with respect to its Smithfield Packing
wastewater system. The Company expects to incur approximately $2,664,000 capital
costs (of which $1,292,000 has been expended through the end of fiscal 1996) to
upgrade its existing treatment systems and make these connections. After such
connections have been made the Company will incur sewer use charges
(approximately $1,700,000 annually) imposed by HRSD in addition to its
F-18
SMITHFIELD FOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 12 -- COMMITMENTS AND CONTINGENCIES -- Continued
existing costs of pretreating its wastewater before discharge to the HRSD
system. These HRSD sewer use costs will be accounted for as current period
charges in the years in which such costs are incurred.
Pending connection to the HRSD system, the plants are being operated under
an administrative consent order entered into with the SWCB. During the period
May 1994 through April 1995, the Company's plants had a number of violations of
its permit and the consent order, which led the SWCB to place these Company
plants on its "significant noncompliance" list. Placement on that list is
required by the SWCB's practices when any one of several circumstances occur,
including a single violation of an administrative consent order provision. The
Company has corrected the conditions which caused these violations, and has
experienced only two isolated daily permit violations during the past year.
These two plants are presently in compliance with the effluent limitations in
the SWCB administrative order and those effluent limitations in its permit
except phosphorus and ammonia limitations. The SWCB's staff has given the
Company written notice of its intention to recommend that the SWCB refer these
and other permit violations, including the recordkeeping violations discussed
below, to the Virginia Attorney General for appropriate legal action. The nature
and extent of any action that may be taken by the SWCB or the Virginia Attorney
General or of any sanctions or other requirements which may be imposed upon the
Company are not known.
The Company regularly conducts tests of its wastewater discharges to assure
compliance with the provisions of its wastewater discharge permits. Federal and
state laws require that records of tests be maintained for three years. Failure
to maintain these records may result in the imposition of civil penalties.
Criminal sanctions may be imposed in the event of false reporting or destruction
of records. In the course of a SWCB inspection of its Smithfield, Virginia
plants in May, 1994, it was discovered that records of certain tests conducted
by the Company from 1992 through early 1994 could not be located. The employee
responsible for the supervision of the tests and maintenance of the test records
was replaced. No judicial proceedings have yet been instituted against the
Company as a result of its inability to locate the records for the period noted
and, other than the written notice referred to above, no administrative
proceeding has yet been initiated. The U.S. Department of Justice, EPA and
Federal Bureau of Investigation are engaged in an investigation of possible
criminal charges of false reporting and destruction of records. In April, 1996,
an attorney with the Department of Justice advised the Company that the Company
was not then a target of the investigation, and that the investigation was
focused on the former employee responsible for supervision of the tests and
maintenance of the records. The Company has heard nothing further from the
Department of Justice. The nature and extent of any action that may be taken by
one or more governmental agencies or of any sanctions or other requirements
which may be imposed upon the Company are not known.
Based on its knowledge, as summarized above, of the facts and circumstances
surrounding the violations and investigations discussed above, the Company
believes that the ultimate resolution of these matters will not have a material
adverse effect on its financial position or annual results of operations.
On February 7, 1996, John Morrell executed a Plea Agreement with the
Department of Justice in connection with water pollution violations that
allegedly occurred at its Sioux Falls, South Dakota plant from 1985 through
1992, several years prior to the Company's acquisition of John Morrell. On May
28, 1996, the Agreement was executed by the government and entered by the court,
and John Morrell pled guilty to six counts of violating the Clean Water Act due
to numerous discharge exceedances, failure to report the exceedances, and
submitting false reports. John Morrell paid a $3,000,000 penalty. Under two
related civil consent decrees, John Morrell also will pay a $250,000 civil
penalty, make certain improvements at the Sioux Falls plant, and carry out
pollution-prevention and compliance-management audits. In view of these
improvements and commitments, and especially due to efforts by both John Morrell
and the Company to improve John Morrell's environmental compliance programs, on
May 28, 1996, the EPA formally agreed not to debar John Morrell from contracting
with the government. EPA determined that John Morrell and the Company had fully
corrected the conditions giving rise to the violations.
F-19
SMITHFIELD FOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 13 -- QUARTERLY RESULTS OF OPERATIONS (Unaudited)
FIRST SECOND THIRD FOURTH
(IN THOUSANDS, EXCEPT PER SHARE DATA)
1996
Sales........................................................................ $367,328 $455,799 $687,000 $873,766
Gross profit................................................................. 21,023 35,412 56,319 67,513
Income (loss) from continuing operations..................................... (2,594) 4,615 10,787 6,978
Discontinued operations...................................................... (1,800) - (2,100) -
Net income (loss)............................................................ (4,394) 4,615 8,687 6,978
Income (loss) per common share:
Continuing operations........................................................ (.16) .26 .58 .35
Discontinued operations...................................................... (.11) - (.12) -
Net income (loss)............................................................ (.27) .26 .46 .35
1995
Sales........................................................................ $331,761 $373,839 $439,353 $381,565
Gross profit................................................................. 24,641 36,182 55,190 29,919
Income from continuing operations............................................ 2,547 8,080 18,048 3,240
Discontinued operations...................................................... (177) (278) (718) (2,902)
Net income................................................................... 2,370 7,802 17,330 338
Income (loss) per common share:
Continuing operations........................................................ .14 .47 1.04 .18
Discontinued operations...................................................... (.01) (.02) (.04) (.17)
Net income................................................................... .13 .45 1.00 .01
F-20
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE
TO THE STOCKHOLDERS OF SMITHFIELD FOODS, INC.
We have audited in accordance with generally accepted auditing standards the
financial statements included in the Form 10-K Annual Report of Smithfield
Foods, Inc. for the fiscal year ended April 28, 1996, and have issued our report
thereon dated June 11, 1996. Our audit was made for the purpose of forming an
opinion on the basic financial statements taken as a whole. The schedule listed
on the Index to Financial Statements and Financial Schedule filed as a part of
the Company's Form 10-K Annual Report is the responsibility of the Company's
management and is presented for purposes of complying with the Securities and
Exchange Commission's rules and is not part of the basic financial statements.
The schedule has been subjected to the auditing procedures applied in the audit
of the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Richmond, Virginia,
June 11, 1996
- F-21 -
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
SMITHFIELD FOODS, INC.
PARENT COMPANY BALANCE SHEETS
AS OF APRIL 28, 1996 AND APRIL 30, 1995
ASSETS
April 28, April 30,
(In thousands) 1996 1995
------------ -----------
Current assets:
Cash $ 563 $ 157
Accounts receivable 2,346 175
Receivables from related parties 9,150 15,765
Refundable income taxes - 3,458
Deferred income taxes 6,857 9,246
Other 1,770 452
-------- --------
Total current assets 20,686 29,253
-------- --------
Investments in and net advances to
subsidiaries, at cost plus equity
in undistributed earnings 303,642 233,993
-------- --------
Other assets:
Investments in partnerships 28,402 26,026
Property, plant and equipment, net 8,612 6,554
Other 15,071 10,563
-------- --------
Total other assets 52,085 43,143
-------- --------
$376,413 $306,389
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable $ 3,000 $ 2,500
Current portion of long-term debt 3,304 2,420
Accounts payable 1,325 895
Accrued expenses 16,763 16,933
Income taxes payable 229 -
-------- --------
Total current liabilities 24,621 22,748
-------- --------
Long-term debt 64,836 68,140
-------- --------
Deferred income taxes and other noncurrent liabilities 24,439 21,485
-------- --------
Redeemable preferred stock 20,000 10,000
-------- --------
Stockholders' equity 242,517 184,016
-------- --------
$376,413 $306,389
The accompanying notes are an integral part of these balance sheets.
- F-22 -
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
SMITHFIELD FOODS, INC.
PARENT COMPANY STATEMENTS OF OPERATIONS
52 Weeks 52 Weeks 52 Weeks
Ended Ended Ended
April 28, 1996 April 30, 1995 May 1, 1994
-------------- -------------- -----------
(In thousands)
Sales $ - $ - $ -
Cost of sales (2,540) (1,368) (192)
------- ------- -------
Gross profit 2,540 1,368 192
General and administrative expenses,
net of allocation to subsidiaries 5,780 2,680 1,120
Depreciation expense 892 496 452
Interest expense 2,556 2,596 2,046
------- ------- -------
Loss before income taxes and
equity in earnings of
subsidiaries (6,688) (4,404) (3,426)
Income tax benefit (2,400) (1,003) (600)
------- ------- -------
Loss before equity in
earnings of subsidiaries (4,288) (3,401) (2,826)
Equity in earnings of
subsidiaries 20,174 31,241 22,528
------- ------- -------
Net income $15,886 $27,840 $19,702
======= ======= =======
The accompanying notes are an integral part of these statements.
- F-23 -
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
SMITHFIELD FOODS, INC.
PARENT COMPANY STATEMENTS OF CASH FLOWS
52 Weeks 52 Weeks 52 Weeks
Ended Ended Ended
April 28, April 30, May 1,
(In thousands) 1996 1995 1994
--------- --------- ------
Cash flows from operating activities:
Net income $15,886 $27,840 $19,702
Adjustments to reconcile net income to
net cash used in operating activities:
Depreciation and amortization 1,162 619 452
Gain on sale of property and equipment (1) (5) -
Decrease in deferred income taxes and
other noncurrent liabilities 5,343 6,748 3,768
(Increase) decrease in accounts
receivable (2,171) (55) 103
Decrease in receivables from related
parties 6,615 3,069 996
Increase in investments in and advances
to subsidiaries, net of common stock
issued to acquire John Morrell & Co. (36,649) (49,669) (58,670)
(Increase) decrease in other current
assets (1,318) 65 (229)
Increase in accounts payable and
accrued expenses 260 546 7,001
(Increase) decrease in refundable
income taxes 3,458 (3,458) 1,303
Increase (decrease) in taxes payable 229 (3,154) 3,154
Increase in other assets (4,778) (8,558) (215)
-------- -------- --------
Net cash used in operating activities (11,964) (26,012) (22,635)
-------- -------- --------
Cash flows from investing activities:
Capital expenditures (2,987) (4,534) (1,394)
Proceeds from sale of property, plant
and equipment 38 7 1,500
Investment in partnerships (2,376) (16,623) (988)
-------- -------- --------
Net cash used in investing activities (5,325) (21,150) (882)
-------- -------- --------
Cash flows from financing activities:
Proceeds from issuance of short-term note 500 2,500 -
Proceeds from issuance of long-term debt - 50,000 25,000
Principal payments on long-term debt (2,420) (6,738) (1,309)
Exercise of options 767 1,901 153
Issuance of preferred stock 20,000 - -
Preferred dividends (1,152) (675) (675)
-------- -------- --------
Net cash provided by financing activities 17,695 46,988 23,169
-------- -------- --------
Net decrease in cash 406 (174) (348)
Cash at beginning of year 157 331 679
-------- -------- --------
Cash at end of year $ 563 $ 157 $ 331
======== ======== ========
The accompanying notes are an integral part of these statements.
- F-24 -
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
SMITHFIELD FOODS, INC.
NOTES TO PARENT COMPANY FINANCIAL STATEMENTS
APRIL 28, 1996 AND APRIL 30, 1995
1. The Notes to Parent Company Financial Statements should be read in
conjunction with the Notes to Registrant's Consolidated Financial
Statements included herein.
2. Restricted assets of Registrant:
Existing loan covenants contain provisions which substantially limit the
amount of funds available for transfer from the subsidiaries to Smithfield
Foods, Inc. without the consent of certain lenders.
3. Accrued expenses as of April 28, 1996 and April 30, 1995 are as follows:
(In thousands) 1996 1995
-------------- ------- ------
Self-insurance reserves $ 8,784 $10,718
Payroll and related benefits 5,696 4,489
Other 2,283 1,726
------- -------
$16,763 $16,933
======= =======
4. Long-Term Debt:
As of April 28, 1996, the Registrant is guaranteeing $126,137,000 of
long-term debtand capital lease obligations of its subsidiaries and lines
of credit aggregating $265,000,000 (of which $151,300,000 is outstanding
and $43,750,000 is included in long-term debt).
Scheduled maturities of the Registrant's long-term debt consists of the
following:
Fiscal Year (In thousands)
----------- --------------
1997 $ 3,304
1998 50,586
1999 14,250
-------
$68,140
5. The amount of dividends received from subsidiaries in fiscal 1996 and 1995
was $5,000,000 and $17,626,000, respectively.
6. Redeemable preferred stock consists of the following:
1996 1995
(In thousands)
Series B 6.75% cumulative convertible redeemable
preferred stock $ - $10,000
Series C 6.75% cumulative convertible redeemable
preferred stock 20,000 -
------- -------
$20,000 $10,000
- F-25 -
7. Supplemental disclosures of cash flow information (in thousands):
Cash paid during year for: 1996 1995 1994
------- ------- ------
Interest $ 1,807 $ 2,403 $ 1,007
======= ======= =======
Income taxes $ 1,685 $16,254 $ 5,574
======= ======= =======
8. Certain prior year balances have been reclassified to conform to fiscal
1996 presentations.
- F-26 -