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Exhibit D

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l0-K405
1
000l.txt
FORM l0-K405

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549


FORM 10-K
 
[  X  ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended April 30, 2000
 
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                         to                        
 
 
Commission file number: 0-2258
SMITHFIELD FOODS, INC.
(Exact name of registrant as specified in its charter)
 
Virginia
(State or other jurisdiction
of incorporation or organization)		 52-0845861
(I.R.S. Employer
Identification No.)
 
200 Commerce Street Smithfield, Virginia
(Address of principal executive offices)		 23430
(Zip Code)
 
(757) 365-3000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
 


Title of each class

Common Stock, $.50 par value per share

 
Name of each exchange on which registered

New York Stock Exchange
 
Securities registered pursuant to Section 12(g) of the Act:
None

(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 [_]

The aggregate market value of the shares of Registrant's Common Stock held by non-affiliates as of July 12, 2000 was approximately $1,123,815,666. This figure was calculated by multiplying (i) the $27.19 last sales price of Registrant's Common Stock as reported on the New York Stock Exchange on July 12,

Part III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY

ITEM 11. EXECUTIVE COMPENSATION

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Part IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

SIGNATURES

INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE


PART I

 

Item 1. Business

General

Smithfield Foods, Inc. is the world's largest pork processor and hog producer. As a holding company, Smithfield Foods conducts its business through two groups, the Meat Processing Group and the Hog Production Group, each comprised of a number of subsidiaries. In this discussion, the terms "Smithfield Foods" and "the Company" include subsidiaries, unless otherwise indicated.

Meat Processing Group

The Meat Processing Group produces domestically and internationally a wide variety of fresh pork and processed meat products and markets them nationwide and to over 25 foreign markets, including Canada, Poland, France, Japan and Mexico. The Meat Processing Group consists primarily of six domestic processing subsidiaries and four international pork processing entities. All these subsidiaries are wholly-owned except as indicated below. Collectively, these subsidiaries currently operate 48 slaughtering and further processing plants.

Meat Processing Group

 

 

 

 

Subsidiary
Headquarters
Fiscal 2000 Sales
     
John Morrell & Co. Cincinnati, Ohio $1.5 billion
The Smithfield Packing Company, Incorporated Smithfield, Virginia $1.5 billion
Schneider Corporation (63%-owned) Kitchener, Ontario, Canada $640 million
Gwaltney of Smithfield, Ltd. Smithfield, Virginia $540 million
Animex (85%-owned) Warsaw, Poland $345 million
Lykes Meat Group, Inc. Plant City, Florida $183 million
Patrick Cudahy Incorporated Cudahy, Wisconsin $179 million
Societe Bretonne de Salaisons Lampaul Guimiliau, France $87 million
North Side Foods Corp. Arnold, Pennsylvania $71 million
Societe Financiere de Gestion et de Participation Quimper and Lyon, France $70 million*

 

*Estimated annualized sales

Hog Production Group

To complement its processing operations, the Company has vertically integrated into hog production through its Hog Production Group, which currently provides the Meat Processing Group with approximately 50% of its live hog requirements. The Hog Production Group operates numerous production facilities through three wholly-owned subsidiaries headquartered in North Carolina as indicated below.

Hog Production Group

 

 

 

Subsidiary
Principal Locations
Number of Sows
Annualized Market Hog
Production
       
Carroll's Foods, Inc. North Carolina and Virginia 180,000 2.9 million
Brown's of Carolina,
Inc.*		 North Carolina, Utah, Colorado and
South Carolina		 170,000 2.7 million
Murphy Farms, Inc. North Carolina, Missouri, Oklahoma,
Illinois, South Dakota and Texas		 345,000 6.0 million

 

* Numbers include 100% of the sows and market hogs produced by Circle Four Farms, LLC, a wholly-owned subsidiary of Smithfield Foods.

1

The discussion below of the Company's business first summarizes the Company's strategic initiatives and its historical expansion through a combination of internal growth and acquisitions. We will next discuss the Meat Processing Group's United States processing operations and international processing operations, then the Hog Production Group.

Business Strategy

The Company's business is based around four strategic initiatives:

  • vertical integration into hog production through Company-owned hog production operations and long-term partnerships and alliances with other large and efficient hog producers;
  • use of genetics which produce hogs that are among the leanest commercially available to enable the Company to market highly differentiated pork products;
  • continued growth through opportunistic strategic acquisitions, both domestically and internationally; and
  • balancing fresh pork and processed meats to maximize the value from all fresh pork cuts.

Historical Expansion and Acquisitions

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. Beginning in fiscal 1999, the

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 of Directors or until their successors are elected, or until their resignation or removal.

 

 

 

Name and Age
Position with the Company
Business Experience During Past Five Years
     
Joseph W. Luter, III (61) Chairman of the Board, President
and Chief Executive Officer of the
Company
 		 Mr. Luter has served as Chairman of the Board and Chief Executive Officer since 1975. Prior to May 1995, and since June, 2000, he has also served as President of the Company.
 
Lewis R. Little (56) President and Chief Operating
Officer of Smithfield Packing and
Lykes		 Mr. Little was elected President and Chief Operating Officer of the Company and Smithfield Packing in November 1996 and President and Chief Operating Officer of Lykes in June 1998. Mr. Little served as Chief Operating Officer of the Company until June, 2000. From May 1993 until November 1996, he was President and Chief Operating Officer of Gwaltney.
 
Joseph B. Sebring (53) President and Chief Operating
Officer of John Morrell		 Mr. Sebring has served as President and Chief Operating Officer of John Morrell since May 1994.
 
C. Larry Pope (45) Vice President and Chief Financial
Officer		 Mr. Pope served as Vice President, Finance of the Company from July 1998 until September 1999. He served as Vice President and Controller from August 1995 to July 1998, and prior to that time as Controller.
 
Richard J. M. Poulson (61) Vice President, General Counsel
and Senior Advisor to the Chairman		 Mr. Poulson joined the Company as Vice President and Senior Advisor to the Chairman in July 1998. Between 1994 and 1998, he was a senior managing director of the Appian Group, a private merchant bank with offices in Washington, D.C. and Paris. Prior to 1994, Mr. Poulson was a senior corporate partner with the law firm Hogan & Hartson in Washington, D.C. and London.
 

11
PART II

Item 5. Market for Company's Common Equity and Related Stockholder Matters

Market Information

The Common Stock of the Company has traded on The New York Stock Exchange under the symbol "SFD" since September 28, 1999. Prior to that the Common Stock traded on The Nasdaq National Market under the symbol "SFDS." The following table shows the high and low sales price of the Common Stock of the Company for each quarter of fiscal 2000 and 1999.

 

 

 

 

Range of Sales Price
  High
  Low
     
Fiscal year ended May 2, 1999
   First quarter 31.00 22.62
   Second quarter 27.00 14.69
   Third quarter 36.12 19.62
   Fourth quarter 30.00 20.00
 
Fiscal year ended April 30, 2000
   First quarter 34.06 23.50
   Second quarter 31.88 21.38
   Third quarter 26.00 16.69
   Fourth quarter 22.75 14.88

Holders

As of July 12, 2000, there were 1,253 record holders of the Common Stock. In addition, there were on such date 244 record holders of the Exchangeable Shares issued by Smithfield Foods' subsidiary Smithfield Canada Limited, an Ontario corporation. The terms of such Exchangeable Shares are incorporated by reference as an exhibit to this Annual Report on Form 10-K.

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, would be made only from assets legally available for that purpose and would depend on the Company's financial condition, results of operations, current and anticipated capital requirements, restrictions under then existing debt instruments and other factors then deemed relevant by the board of directors.

Item 6. Selected 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 30,
2000		   May 2,
1999		   May 3,
1998		   April 27,
1997		   April 28
1996
 
  (In thousands, except per share data)
           
INCOME STATEMENT DATA:
   Sales $5,150,469 $3,774,989 $3,867,442 $3,870,611 $2,383,893
   Costs of sales 4,456,403 3,235,414 3,479,629 3,546,816 2,202,112
  ======== ======== ======== ======== ========
   Gross profit 694,066 539,575 387,813 323,795 181,781
   Selling, general and administrative expenses 390,634 295,610 219,861 191,225 103,095
   Depreciation expense 109,893 63,524 42,300 35,825 25,979
   Interest expense 71,944 40,521 31,891 26,211 20,942
   Minority interests 1,608 (3,518) 199 2,857 1,514
   Nonrecurring charge - - 12,600 - -
  ---------- ---------- ---------- ---------- ----------
   Income from continuing operations before income taxes 119,987 143,438 80,962 67,677 30,251
   Income taxes 44,875 48,554 27,562 22,740 10,465
  ---------- ---------- ---------- ---------- ----------
   Income from continuing operations 75,112 94,884 53,400 44,937 19,786
  ---------- ---------- ---------- ---------- ----------
   Income (loss) from discontinued operations - - - - (3,900)
  ---------- ---------- ---------- ---------- ----------
   Net Income $ 75,112 $ 94,884 $ 53,400 44,937 15,886
  ======== ======== ======== ======== ========
DILUTED INCOME (LOSS) PER SHARE:
   Continuing operations $ 1.52 $ 2.32 $ 1.34 $ 1.17 $ 0.53
   Discontinued operations   - - - (0.11)
  ---------- ---------- ---------- ---------- ----------
   Net income $ 1.52 $ 2.32 $ 1.34 $ 1.17 $ 0.42
  ---------- ---------- ---------- ---------- ----------
   Average diluted shares outstanding 49,386 40,962 39,732 38,558 35,000

BALANCE SHEET DATA:
   Working capital $ 609,857 $ 215,865 $ 259,188 164,312 88,026
   Total assets 3,129,613 1,771,614 1,083,645 995,254 857,619
   Low term debt and capital lease obligations 1,187,770 594,241 407,272 288,486 188,618
   Shareholders' equity 902,909 542,246 361,010 307,486 242,514

OPERATING DATA:
   Fresh pork sales (pounds) 2,786,400 2,687,412 2,539,221 2,320,477 1,635,300
   Processed meats sales (pounds) 2,192,100 1,606,021 1,370,232 1,218,835 839,341
   Total hogs purchased 19,358 19,093 17,952 16,869 12,211

 

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

12

This discussion of management's views on the financial condition and results of operations of the Company should be read in conjunction with the consolidated financial statements and the notes to the consolidated financial statements appearing elsewhere in this Form 10-K.

Introduction

Smithfield Foods, Inc. (the "Company") is comprised of a Meat Processing Group ("MPG") and a Hog Production Group ("HPGl'). The MPG consists primarily of six wholly owned domestic pork processing subsidiaries and four international pork processing entities. The HPG consists primarily of three hog production operations located in the United States and certain joint venture investments outside the United States.

Acquisitions

Several acquisitions affect the comparability of the results of operations for fiscal year 2000, 1999 and 1998 including the following:

In January of fiscal 2000, the Company completed the acquisition of Murphy Farms, Inc. ("MFI") and its affiliated companies for 11.1 million shares of the Company's common stock (subject to post-closing adjustments) and the assumption of approximately $203.0 million in debt, plus other liabilities. MFI is a hog

Investments in and net advances to subsidiaries, at cost plus equity in undistributed earnings 1,457,414   885,291
  ---------- ----------
Other assets:
   Investment in partnerships 545 31,139
   Property, plant and equipment, net 20,412 21,422
   Other 47,691 42,447
  ---------- ----------
      Total other assets 68,648 94,008
  ---------- ----------
  $1,604,437 $1,037,525
  ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
   Current portion of long-term debt $ 18,133 $ 5,633
   Accounts payable 6,996 5,086
   Accrued expenses 53,368 61,254
  ---------- ----------
      Total current liabilities 78,497 71,973
  ---------- ----------
Long-term debt 571,237 385,470
Deferred income taxes and other noncurrent liabilities 51,794 37,936
  ---------- ----------
Shareholders' equity 902,909 542.246
  ---------- ----------
  $1,604,437 $1,037,525
  ======== ========

The accompanying notes are an integral part of these statements

 

 

 

F-25
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT

 

SMITHFIELD FOODS, INC.

PARENT COMPANY STATEMENTS OF INCOME

 

 



 

 

  52 Weeks Ended
April 30, 2000		   52 Weeks Ended
May 2, 1999		   53 Weeks Ended
May 3, 1998
 
  (In thousands)
       
Sales $        - $        - $        -
Cost of Sales (8,379) 5,073 9,589
  --------- --------- ---------
Gross Profit 8,379 (5,073) (9,589)
  --------- --------- ---------
General and administrative expenses, net of allocation to subsidiaries 24,696 8,366 4,686
Depreciation expense 2,205 1,252 843
Interest expense 31,756 24,930 24,578
Nonrecurring charge - - 12,600
  --------- --------- ---------
Loss before income tax benefit and equity in earnings of subsidiaries (50,278) (39,621) (52,296)
Income tax benefit (21,795) (16,677) (19,130)
  --------- --------- ---------
Loss before equity in earnings of subsidiaries (28,483) (22,944) (33,166)
  --------- --------- ---------
Equity in earnings of subsidiaries 103,595 117,828 86,566
  --------- --------- ---------
Net income $75,112 $94,884 $53,400
  ======= ======= =======
The accompanying notes are an integral part of these statements

F-26

 


SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT

 

SMITHFIELD FOODS, INC.

PARENT COMPANY STATEMENTS OF CASH FLOWS

 

 

  52 Weeks Ended
April 30, 2000		   52 Weeks Ended
May 2, 1999		   53 Weeks Ended
May 3, 1998
 
  (In thousands)
       
Cashflows from operating activities:
   Net Income $75,112 $94,884 $53,400
   Adjustments to reconcile net income to net cash provided by operating activities:
      Depreciation and amortization 4,119 2,758 1,461
      (Gain) loss on sale of property, plant and equipment -   30 -  
      Changes in operating assets and liabilities:
         Deferred income taxes and other noncurrent liabilities 19,214 23,145 13,966
         Accounts receivable 3,621 (14,813) 3,351
         Receivables from related parties 4,051 (4,051) 1,414
         Other current assets (33,647) (84) (10,784)
         Accounts payable and accrued expenses (5,976) 18,313 14,243
         Refundable income taxes (529) 842 (4,089)
         Other assets (7,158) (17,600) (10,495)
  ---------- ---------- ----------
   Net cash provided by operating activities 53,807 103,424 62,467
  ---------- ---------- ----------
Cashflows from investing activities:
   Capital expenditures (1,196) (4,377) (9,332)
Increase in investment in and net advances to subsidiaries
 (217,547) (131,827) (235,117)
   Investments in partnerships 30,594 15,827 (5,212)
  ---------- ---------- ----------
      Net cash used in investing activities: (188,149) (120,377) (249,662)
Cash flows from financing activities:
   Proceeds from issuance of long-term debt 225,000 -   447,150
   Principal payments on long-term debt (26,633) (2,977) (252,317)
   Repurchase and retirement of common stock (73,145) -   -  
   Proceeds from exercise of stock options 4,121 12,154 124
  ---------- ---------- ----------
      Net cash provided by financing activities: 129,343 9,177 194,957
  ---------- ---------- ----------
Net (decrease) increase in cash and cash equivalents 1 (7,776) 7,762
Cash and cash equivalents at beginning of year 24 7,800 38
  ---------- ---------- ----------
Cash and cash equivalents at end of year $ 25 $ 25 $ 7,800
  ======= ======= =======
The accompanying notes are an integral part of these st

F-27

 


Schedule I-Condensed Financial Information of Registrant

 

 

Smithfield Foods, Inc.

Notes to Parent Company Financial Statements

(Dollars In Thousands)

April 30, 2000 and May 2, 1999

  1. The Notes to Parent Company Financial Statements should be read in conjunction with the Registrant's Notes to Consolidated Financial Statements included herein.
  2. Restricted assets of Registrant: Existing loan convenants contain provisions which 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 30, 2000 and May 2, 1999 are as follows:

 

 

  2000   1999
     
Self-insurance reserves $22,006 $20,216
Interest 10,626 8,957
Other 20,736 32,081
  --------- ---------
$53,368 $61,254
======= =======

 

  1. Long-term Debt:

    In fiscal 2000, the Company increased the revolving credit facility borrowing from $300,000 to $650,000. The borrowings are prepayable and bear interest, at the Company's option, at various rates based on margins over the federal funds rate or Eurodollar rate and expires in July 2002.

    In fiscal 2000, the Company placed $225,000 ten-year senior secured notes. The $225,000 million in senior secured notes include $75,000 in variable rate debt, $100,000 of notes at 7.89% and $50,000 of notes at 8.44%. A substantial portion of the proceeds from the notes were advanced to the Registrant's subsidiaries.

    As of April 30, 2000, the Registrant guaranteed $18,171 of capital lease obligations of its subsidiaries.

    Scheduled maturities of the Registrant's long-term debt consists of the following:

 

 

 

Fiscal Year  
 
     
2001 $ 18,133
2002 18,084
2003 25,473
2004 64,886
2005 26,414
Thereafter 436,380
  ---------
$589,370
=======

 

 

  1. The amount of dividends received from subsidiaries in fiscal 2000 and 1999 was $37,800 and $76,700 million, respectively.

F-28

  1. In fiscal 1998, the Registrant's shareholders approved the reincorporation of the Registrant in Virginia from Delaware. The purpose of the reincorporation was to reduce annual franchise taxes and does not affect the Registrant's capitalization or the manner in which it operates.
  2. Supplemental disclosures of cash flow information:

 

 

  2000   1999   1998
--------- --------- ---------
           
Interest paid, net of amount capitalized $ 39,107 $28,180 $20,901
  --------- --------- ---------
Income taxes paid $ 24,458 $15,306 $10,179
  --------- --------- ---------
Noncash investing and financing activities:
   Common stock issued for acquisitions $369,407 $73,049      $   -   
Updated January 11, 2023