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Smithfield Foods Inc. Reports Operating Results (10-K)

June 18, 2010 | About:
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10qk

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Smithfield Foods Inc. (SFD) filed Annual Report for the period ended 2010-05-02.

Smithfield Foods Inc. has a market cap of $2.71 billion; its shares were traded at around $16.35 with and P/S ratio of 0.2. SFD is in the portfolios of Andreas Halvorsen of Viking Global Investors LP, Stanley Druckenmiller of Duquesne Capital Management, LLC, Arnold Schneider of Schneider Capital Management, Steven Cohen of SAC Capital Advisors, Pioneer Investments, Pioneer Investments.

Highlight of Business Operations:

As a result of the Cost Savings Initiative, we recorded pre-tax charges totaling $9.1 million in the fourth quarter of fiscal 2010, including impairment and accelerated depreciation charges of $2.5 million and $3.8 million, respectively, as well as contract termination costs of $2.8 million. These charges were recorded in cost of sales in the Hog Production segment.

Certain of the activities associated with the Cost Savings Initiative are expected to occur over a two to three-year period in order to allow for the successful transformation of farms while minimizing disruption of supply. We anticipate recording additional charges over this period in the range of $30 million to $35 million primarily associated with future contract terminations. We also anticipate capital expenditures totaling approximately $86 million will be required in connection with the farm reconfigurations and other cost savings activities.

In October 2009 (fiscal 2010), we entered into an agreement to sell substantially all of the assets of RMH, a subsidiary within the Pork segment, for $9.5 million, plus the assumption by the buyer of certain liabilities, subject to customary post-closing adjustments, including adjustments for differences in working capital at closing from agreed-upon targets. We recorded pre-tax charges totaling $3.5 million, including $0.5 million of goodwill impairment, in the Pork segment in the second quarter of fiscal 2010 to write-down the assets of RMH to their fair values. These charges were recorded in cost of sales. In December 2009 (fiscal 2010), we completed the sale of RMH for $9.1 million, plus $1.4 million of liabilities assumed by the buyer.

In November 2009 (fiscal 2010), we completed the sale of our investment in Farasia, a 50/50 Chinese joint venture formed in 2001, for RMB 97.0 million ($14.2 million at the time of the transaction). Farasia's wholly-owned subsidiary, Maverick Food Company Limited, focuses mainly on hot dogs and other sausages, whole and sliced ham, bacon, Chinese-style processed meat, and frozen and convenience food. We recorded, in selling, general and administrative expenses, a $4.5 million pre-tax gain in the third quarter of fiscal 2010 on the sale of our investment in Farasia.

In fiscal 2010, as a result of discussions with the noncontrolling interest holders, we determined that the noncontrolling interests were probable of becoming redeemable. As such, in fiscal 2010, we recorded an adjustment to increase the carrying amount of the redeemable noncontrolling interests by $32.2 million with an offsetting decrease of $19.4 million to additional paid-in capital and $12.8 million to deferred tax assets.

As a result of the planned closure, we recorded charges of $13.1 million in the third quarter of fiscal 2010. These charges consisted of $3.6 million for the write-down of long-lived assets, $2.5 million of unusable inventories and $7.0 million for estimated severance benefits pursuant to contractual and ongoing benefit arrangements, of which $5.5 million were paid-out during the fourth quarter of fiscal 2010. Substantially all of these charges were recorded in cost of sales in the Pork segment. We do not expect any significant future charges associated with the plant closure.

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