Registrant’s telephone number, including area code: (970) 506-8000
Not applicable
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the
filing obligation of the registrant under any of the following provisions:
o
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b))
o
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
240.13e-4(c))
Item 2.02 Results of Operations and Financial Condition.
The information set forth below in Item 7.01 under the caption “Recent Developments” is
incorporated by reference into this Item 2.02.
As provided in General Instruction B.2 of Form 8-K, the information contained in this Item
2.02 shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of
1934, as amended (the “Exchange Act”), nor shall it be deemed to be incorporated by reference in
any filing under the Securities Act of 1933, as amended (the “Securities Act”), except as shall be
expressly set forth by specific reference in such a filing. By furnishing this information, we make
no admission as to the materiality of any information in this report that is required to be
disclosed solely by reason of Regulation FD.
Item 5.02 Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain
Officers; Compensatory Arrangements of Certain Officers.
On
June 25, 2007, Swift & Company (“Swift”) announced that immediately following the consummation of the
Transactions, Wesley Mendonça Batista will replace Sam B. Rovit as the President and Chief
Executive Officer of Swift. Mr. Batista, 37, is also expected to serve as a director of Swift
following the Transactions and is currently the Executive Director of Operations of JBS S.A. and
the Vice-President of its board of directors. Mr. Batista has served in various capacities at JBS
since 1987. For more information please see the press release attached hereto as Exhibit 99.1
which is incorporated herein by reference.
Item 7.01 Regulation FD Disclosure.
As previously announced on May 29, 2007, Swift Foods Company (“SFC”) entered into a definitive
Agreement and Plan of Merger (the “Merger Agreement”) by and among SFC, J&F Participações S.A.
(“Parent”), J&F Acquisition Co., a wholly-owned subsidiary of Parent (“Buyer”), J&F I Finance Co.,
a wholly-owned subsidiary of Buyer (“Finance Sub”), and J&F II Finance Co., a wholly-owned
subsidiary of Buyer. Pursuant to the Merger Agreement, upon the closing of the transaction, Buyer
will merge with and into SFC, with SFC continuing as the surviving corporation, and Finance Sub
will merge with and into Swift, with Swift continuing as the surviving corporation. Thereafter
Swift will merge with and into its parent, S&C Holdco 3, Inc. (“Holdco 3”), with Holdco 3
continuing as the surviving corporation. Holdco 3 will change its name to Swift & Company.
Holdco 3
hereby furnishes the following information regarding its business
that was prepared in connection with the financing activities related
to the Transactions.
“Safe Harbor” Statement under Private Securities Litigation Reform Act of 1995
This Current Report on Form 8-K contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. These forward-looking statements can be
identified by the use of such words as “may,”“will,”“should,”“expects,”“plans,”“anticipates”
and “believes.” All statements made relating to the Transactions described in this Current Report
on Form 8-K or to our estimated and projected earnings, margins, costs, expenditures, cash flows
and financial results are forward-looking statements. These forward-looking statements are based
on current expectations and projections about future events and actual events could differ
materially from those projected. You are cautioned that forward-looking statements are not
guarantees of future performance or results and involve risks, assumptions and uncertainties that
cannot be predicted or quantified. These risks, assumptions and uncertainties include but are not
limited to uncertainties related to the completion of the Transactions, including the fulfillment
or waiver of conditions to the closing under the related Merger Agreement, and other risks
described elsewhere in this Current Report on Form 8-K as well as in Holdco 3’s SEC reports,
including its Annual Report on Form 10-K filed with the Securities and Exchange Commission and
available on the SEC’s website. Holdco 3 undertakes no obligation to update any forward-looking
statement as a result of new information or future events.
As provided in General Instruction B.2 of Form 8-K, the information contained in this Item
7.01 shall not be deemed to be “filed” for purposes of Section 18 of the Exchange Act nor shall it
be deemed to be incorporated by
reference in any filing under the Securities Act, except as shall be expressly set forth by
specific reference in such a filing. By furnishing this information, we make no admission as to the
materiality of any information in this report that is required to be disclosed solely by reason of
Regulation FD.
Unless the context requires otherwise, the terms “we,”“us” and “our” refer to the combined
business of Swift and its subsidiaries, after the consummation of the Transactions. Throughout
this Item 7.01, the “Transactions” refer to the acquisition and related financing transactions.
Recent developments
December ICE event
On May 11, 2007 we reported our return to standard staffing levels at all four domestic beef
processing facilities following the loss of workers in the December 12, 2006 investigation (“ICE
event”) by the Immigration and Customs Enforcement division of the US Department of Homeland
Security (“ICE”). On April 10, 2007, we announced that our domestic pork operations had returned
to normal levels in March 2007. We also revised our estimate of the one-time impact on our fiscal
year ended May 27, 2007 of the December ICE event from $45 million to approximately $53 million.
Financial results
Our preliminary financial results for the thirteen weeks ended May 27, 2007 and fiscal year ended
May 27, 2007 are as follows:
For the thirteen weeks ended May 27, 2007, we had consolidated net sales and EBITDA of
approximately $2.37 billion and $19.4 million, respectively, compared to approximately $2.39
billion and $4.4 million, respectively, for the same period of 2006. For the fiscal year ended May27, 2007, we had consolidated net sales and EBITDA of approximately $9.52 billion and $96.3
million, respectively, compared to approximately $9.35 billion and $5.7 million, respectively, for
the fiscal year ended May 26, 2006.
Net Sales. Higher net sales for the fiscal year were the result of increases in selling prices for
Swift Beef (largely offset, in the fourth quarter, by lower volumes due to the December ICE event);
increases in selling prices and volumes for Swift Pork; and increases in selling prices and volumes
for Swift Australia, concentrated largely in the grass-fed operations, including the effect of an
appreciation in the Australian dollar vis-á-vis the US dollar. The same factors were responsible
for the net sales for the thirteen weeks, except that the lower volumes of Swift Beef due to the
December ICE event had a greater impact for the period, with a resulting decline compared to the
corresponding period of the prior year.
EBITDA. EBITDA increases for the fiscal year ended May 27, 2007 occurred in Swift Beef and Swift
Australia and were partially offset by a decline in Swift Pork. Swift Beef EBITDA improvement was
attributable to selling price increases on lower volumes which more than offset increases in
livestock prices. Swift Pork EBITDA decline was attributable to sales prices increases on higher
volumes which was more than offset by higher production costs. Swift Australia EBITDA improvement
was attributable to higher sales prices on increased volumes concentrated largely in the grass fed
operations. EBITDA for the US beef and US pork businesses were also negatively impacted in the
current year by the impact of the ICE event on December 12, 2006.
EBITDA of Swift Beef improved in the thirteen weeks ended May 27, 2007 as compared to the
corresponding period in the prior year despite volume declines caused by the impact of the ICE
event as lower selling, general and administrative costs (“SG&A”) and lower nominal plant costs
contributed to offset the sales declines. EBITDA of Swift Pork improved reflecting an increase in
the spread between selling prices and raw material costs on higher volumes, coupled with lower
SG&A. EBITDA of Swift Australia declined in the thirteen weeks ended May 27, 2007 from the
corresponding period in the prior year reflecting higher sales on modestly higher volumes, more
than offset by slightly higher SG&A and plant costs.
Because financial statements for the thirteen weeks and the fiscal year ended May 27, 2007 are not
yet available, the information above for the thirteen weeks ended May 27, 2007 and the fiscal year
ended May 27, 2007 is preliminary and unaudited and subject to revision based upon our review and
an audit with respect to our 2007 fiscal year, by our independent registered public accounting
firm, of our financial condition and results of operations. Once we and
our independent registered public accounting firm have completed our review and audit,
respectively, we may report results that are materially different.
Summary historical and pro forma consolidated financial and other data
The following table sets forth our summary historical financial data at the dates and for the
periods indicated. We derived the summary historical statement of earnings data for the fiscal
years ended May 30, 2004, May 29, 2005 and May 28,2006 and balance sheet data at May 30, 2004, May 29, 2005 and
May 28, 2006 from the audited historical financial statements of
Holdco 3.
The summary historical statement of earning data for the thirty-nine weeks ended February 25, 2007
have been derived from the unaudited historical financial statement of Holdco 3 which, in the
opinion of management, include all adjustments (consisting of normal recurring accruals) necessary
for a fair presentation of the financial data. The results of operations for any quarter or a
partial fiscal year period or for the periods presented are not necessarily indicative of the
results of operations to be expected for other periods or for the full fiscal year.
Holdco 3 is a Delaware corporation which owns 100% of the issued and outstanding capital stock
of Swift & Company. The operations of Swift & Company and its subsidiaries constitute the
operations of Holdco 3 presented under accounting principles generally accepted in the United
States of America (“GAAP”). On September 19, 2002, HMTF Rawhide, L.P. (“Rawhide”), the partnership
formed by our equity sponsors, HM Capital Partners LLC (formerly knows as Hicks, Muse, Tate &
Furst, Incorporated) (“HM Capital”) and Booth Creek Management Corporation, acquired a 54% interest
in the US beef, pork, and lamb processing business and the Australian beef business of ConAgra
Foods Inc. (“ConAgra”) in a transaction we refer to as the “2002 Transaction.” In September 2004,
Rawhide purchased ConAgra’s remaining interest in these businesses. The entities that were
historically operated by ConAgra as an integrated business, which include entities that were not
acquired in the 2002 Transaction, are referred to as our “Predecessor.” Those entities and
operations that were acquired in the 2002 Transaction and which are being operated by us are
referred to as the “Acquired Business” or “Successor.”
Consolidated
Pro Forma
Fifty-Two
Fifty-Two Weeks
Fiscal Year Ended
Thirty-Nine Weeks Ended
Weeks Ended
Ended
May 30,
May 29,
May 28,
February 26,
February 25,
February 25,
February 25,
(In thousands)
2004
2005
2006
2006
2007
2007
2007
Statement of earnings:
Net sales
$
9,436,160
$
9,669,102
$
9,350,027
$
6,957,100
$
7,147,859
$
9,540,786
$
9,540,786
Cost of goods sold
9,165,466
9,452,637
9,267,419
6,902,305
7,021,972
9,387,086
9,400,416
Gross profit
270,694
216,465
82,608
54,795
125,887
153,700
140,370
Selling, general and administrative
134,016
136,381
156,860
113,563
105,133
148,430
154,449
Translation (gains) losses
824
(396)
19
225
(117)
(323)
(323)
Goodwill impairment charges
—
1,028
21,137
—
—
21,137
21,137
Interest expense
73,446
80,229
87,538
63,794
67,896
91,640
96,289
Total expenses
208,286
217,242
265,554
177,582
172,912
260,884
271,552
Income (loss) from continuing
operations before income taxes
62,408
(777)
(182,946)
(122,787)
(47,025)
(107,184)
(131,182)
Income tax expense (benefit)
21,546
(15,710)
(53,398)
(42,509)
1,562
(9,327)
(17,648)
Income from discontinued
operations, including, gain on sale of $22,860, net of tax in
fiscal 2005
3,672
25,909
—
—
—
—
—
Net income (loss)
$
44,534
$
40,842
$
(129,548)
$
(80,278)
$
(48,587)
$
(97,857)
$
(113,534)
Other financial data:
EBITDA(a)
$
220,121
$
162,985
$
5,719
$
1,356
$
76,926
$
81,289
$
83,977
Adjusted EBITDA(b)
253,578
191,565
34,369
22,898
117,599
129,070
129,070
Cash flows from operating activities
79,171
90,054
(70,291)
(10,909)
65,922
6,640
—
Cash flows from investing activities
(59,658)
20,808
(20,331)
(34,266)
(22,815)
(8,880)
—
Cash flows from financing activities
(15,241)
(132,455)
61,964
15,590
(48,364)
(1,990)
—
Capital expenditures
62,058
51,398
54,053
36,452
30,165
47,766
47,766
Operating data:
Cattle processed — Swift
Beef
4,993
4,450
4,373
3,199
3,083
4,257
4,257
Lamb slaughtered — Swift
Beef
749
564
571
397
422
595
595
Hogs processed — Swift
Pork
11,641
11,171
11,469
8,658
8,608
11,419
11,419
Cattle processed — Swift
Australia
1,411
1,448
1,338
955
1,033
1,416
1,416
Balance sheet data (at period
end):
Cash and cash equivalents
$
100,255
$
79,348
$
51,681
$
49,747
$
46,687
$
46,687
$
46,687
Accounts receivable, net
363,410
373,208
366,744
324,449
319,565
319,565
319,565
Inventory
480,679
499,039
503,426
493,795
460,993
460,993
460,993
Property, plant and equipment, net
601,915
570,506
510,921
541,340
493,759
493,759
621,030
Total assets
1,697,687
1,640,774
1,530,241
1,526,487
1,415,603
1,415,603
2,004,951
Stockholder’s equity
490,233
323,684
191,935
236,905
152,487
152,487
500,000
(a)
EBITDA represents earnings before
interest, income taxes, depreciation and amortization. EBITDA is
not intended to represent cash flow from operations as defined
by generally accepted accounting principles (“GAAP”)
and should not be considered as an alternative to cash flow or
operating income (as measured by GAAP). We believe EBITDA
provides investors and analysts in the meat processing industry
useful information with which to analyze and compare our results
on a comparable basis with other companies on the basis of
operating performance, leverage and liquidity. However, since
EBITDA is not defined by GAAP, it may not be calculated on the
same basis as other similarly titled measures of other companies
within the meat processing industry. The following table sets
forth a reconciliation of EBITDA to income (loss) from
continuing operations before income taxes for the periods
presented:
Pro Forma
Fifty-Two
Fifty-Two Weeks
Fiscal Year Ended
Thirty-Nine Weeks Ended
Weeks Ended
Ended
May 30,
May 29,
May 28,
February 26,
February 25,
February 25,
February 25,
(In thousands)
2004
2005
2006
2006
2007
2007
2007
EBITDA
$
220,121
$
162,985
$
5,719
$
1,356
$
76,926
$
81,289
$
83,977
Depreciation, amortization, and
goodwill impairment charges
(84,267)
(83,533)
(101,127)
(60,349)
(56,055)
(96,833)
(118,870)
Interest expense, net
(73,446)
(80,229)
(87,538)
(63,794)
(67,896)
(91,640)
(96,289)
Income (loss) from continuing
operations before income taxes
$
62,408
$
(777)
$
(182,946)
$
(122,787)
$
(47,025)
$
(107,184)
$
(131,182)
(b)
The following table sets forth a
reconciliation of EBITDA to Adjusted EBITDA for the periods
presented:
Pro Forma
Fifty-Two Weeks
Fifty-Two Weeks
Fiscal Year Ended
Thirty-Nine Weeks Ended
Ended
Ended
May 30,
May 29,
May 28,
February 26,
February 25,
February 25,
February 25,
(In thousands)
2004
2005
2006
2006
2007
2007
2007
EBITDA
$
220,121
$
162,985
$
5,719
$
1,356
$
76,926
$
81,289
$
83,977
Payments made to HM
Capitala
2,663
3,997
3,053
1,959
1,594
2,688
—
Cattle on feed losses due to
ConAgra agreement on total
placementsb
72
8,470
—
—
—
—
—
Non-cash impact of
BSEc
42,963
—
—
—
—
—
—
Severance/retention
paymentsd
—
1,972
803
—
993
1,796
1,796
Bain consulting
feese
—
7,752
13,214
10,111
2,632
5,735
5,735
Impact of ICE event on Swift
plantsf
—
—
—
—
33,573
33,573
33,573
Stock option
expenseg
—
2,963
637
445
611
803
803
Non-fed business operating
income/lossh
(12,241
)
3,426
10,943
9,027
1,270
3,186
3,186
Adjusted EBITDA
$
253,578
$
191,565
$
34,369
$
22,898
$
117,599
$
129,070
$
129,070
(a)
HM Capital is paid a management fee
by Swift & Company in an amount of 1% of plan EBITDA
or a minimum of $2.0 million annually. In addition, under a
financial advisory agreement, HM Capital is entitled to receive
a fee equal to 1.5% of the transaction value for any transaction
Swift & Company is involved in during the term of the
agreement. In connection with the sale of the FJ Walker division
in fiscal year 2005, Swift & Company paid HM Capital
$0.8 million. Swift & Company also paid
$0.4 million in connection with the sale of the non-fed
cattle processing facilities in fiscal year 2006. As a result of
the Transactions, Swift & Company will no longer be
making these payments.
(b)
ConAgra owned certain feed yards
which provided fed cattle to Swift & Company’s
Greeley, Cactus and Hyrum beef plants. During 2004 as market
conditions for feeder cattle fluctuated, Swift &
Company agreed to reimburse ConAgra for feeder animals placed on
feed (and committed for ultimate sale when finished to
Swift & Company plants) at times when it would not
have been economical for ConAgra to place animals on feed. These
payments were expensed as the related finished animals were
delivered to Swift & Company for slaughter.
(c)
Change related to one-time impacts
of the December 23, 2003 identification of BSE in a single
dairy cow in Washington, including write down of inventory in
transit to Asia (whose borders closed immediately and thus the
product had to be re-sold at a significant discount), write
downs in inventory which had been processed but not yet shipped
to export markets and for which few alternative domestic markets
existed, as well as approximately $5.5 million in sudden
market losses from our live cattle futures positions held at
December 23, 2003.
(d)
Represents severance and retention
payments to senior management.
(e)
Consulting fees to evaluate cost
savings and efficiency opportunities.
(f)
See “Recent developments.”
(g)
Swift & Company has
outstanding stock options that result in non-cash expense based
on vesting schedules. As a result of the Transactions, Swift
& Company will no longer have stock options.
(h)
In August 2005, Swift &
Company closed its Nampa, Idaho non-fed cattle processing
facility. In May 2006, this facility and the operating Omaha,
Nebraska non-fed cattle processing facility were sold to XL
Foods, Inc. Due to continuing involvement with the Omaha
facility (agreement to purchase trim products from the facility)
these operations were not shown as discontinued operations in
the fiscal year 2006 audited financial statements. These amounts
represent the losses incurred by these facilities that are
included in the results of Swift & Company.
Risk factors
We will have a new chief executive officer who is affiliated with our controlling shareholder, and
there may be other management changes at or after the closing of this offering, which may be
disruptive.
Upon closing, Wesley Mendonça Batista will become our new Chief Executive Officer. He has no
previous history at Swift & Company. In addition, our parent company, J&F, may determine to make
additional management changes, which may include hiring additional people who have no previous
history at Swift & Company. These changes may be disruptive to our operations, and there can be no
assurance that we will be successful in finding replacements for existing management members or
that new management members will work effectively with existing employees.
Our business could be materially adversely affected as a result of unusual weather conditions in
our areas of operations.
Changes in the historical climate in the areas in which we operate could have a material adverse
effect on our business. For instance, the timing of delivery to market and availability of
livestock for our grass fed division in Australia is dependent on access to range lands and
paddocks which can be negatively impacted by periods of extended drought. In addition, our
cattlefeeding operations in Australia and meat packing facilities in the US and Australia rely on
large volumes of potable water for the raising of health livestock and the fabrication of our meat
products. Potable water is generally available form municipal supplies and/or naturally
replenished aquifers, the access to which and availability of which could be affected in the event
rainfall patterns change, aquifers become depleted and municipal supplies are not maintained.
Occurrences of any of these events could have a material adverse effect on our business, financial
condition, results of operations and cash flows.
Our
controlling stockholders may have interests that conflict with the
interests of holders of
debt securities of SFC and its subsidiaries. In addition, our
controlling stockholders’ controlling interests in JBS involves risks to
holders of debt securities of SFC and its subsidiaries.
Upon the closing, members of the Batista family will control Swift. The Batista family
will have the ability to elect the entire membership of our Board of Directors and to select our
management team, determine our corporate and management policies and
make decisions relating to
fundamental corporate actions. Upon closing, Wesley Mendoça Batista will become our President and
Chief Executive Officer. He is the son of José Batista Sobrinho,
the founder of JBS S.A. (“JBS”). He and his
brother, Joesly Mendoça Batista will constitute our Board of Directors immediately following
closing. The directors will have the authority to make decisions affecting our capital structure,
including the issuance of additional debt and declaration of dividends, and to authorize
transactions, such as joint ventures or acquisitions, subject to certain restrictions set forth in
the indentures and in existing and future credit facilities. They could take actions that they
believe could enhance the Batista Family’s equity investment
while involving risks to a holder’s investment in debt
securities of SFC and its subsidiaries.
The Batista family also controls JBS, the largest beef processor in Latin America and one of
the largest exporters of beef in the world. JBS’s equity is publicly traded in Brazil. The Batista
family may cause JBS to effect transactions, with us (subject to the limitations in the indentures)
or with third parties, that they believe may enhance the value of their investment in JBS but
involve risks to a holder’s investment in debt securities of SFC
and its subsidiaries.
Our
substantial debt could adversely affect our business and a
holder’s investment in debt securities of SFC and its
subsidiaries.
We have a significant amount of debt. As of February 25, 2007, on a pro forma basis after giving
effect to the Transactions, we would have had total outstanding consolidated debt of $985.2
million. In addition, we would have had $24.7 million of outstanding letters of credit and $318.3
million of additional debt available for borrowing under our senior secured revolving credit
facility.
Our substantial debt could:
•
make it difficult for us to satisfy our obligations, including making interest payments
on our debt obligations;
•
limit our ability to obtain additional financing to operate our business;
•
require us to dedicate a substantial portion of our cash flow to payments on our debt,
reducing our ability to use our cash flow to fund working capital, capital expenditures and
other general corporate requirements;
•
limit our flexibility to plan for and react to changes in our business and the industry
in which we operate;
•
place us at a competitive disadvantage relative to some of our competitors that have
less debt than us; and
•
increase our vulnerability to general adverse economic and industry conditions,
including changes in interest rates, lower cattle and hog prices or a downturn in our
business or the economy.
Our interest expense would increase if interest rates increase.
As of February 25, 2007, after giving pro forma effect to the Transactions, we would have had
$668.3 million of outstanding floating rate debt and the ability to incur up to an additional
$318.3 million of floating rate debt under our senior revolving credit facility. Any increase in
short-term interest rates would result in higher interest costs which would increase our interest
expense. While we may seek to use interest rate swaps or other derivative instruments to hedge
portions of our floating rate exposure, we may not be successful in obtaining hedges on acceptable
terms, which could have a material adverse effect on our ability to service our outstanding
indebtedness.
Unaudited pro forma consolidated financial data
We derived the unaudited pro forma consolidated financial data
set forth below by the application of pro forma adjustments to
the historical consolidated financial statements of
Holdco 3.
The unaudited pro forma consolidated statements of earnings for
the fiscal year ended May 28, 2006 and the thirty-nine
weeks ended February 25, 2007 give effect to the
Transactions as if they had occurred at the beginning of fiscal
2006. The unaudited pro forma consolidated statement of earnings
for the fifty-two weeks ended February 25, 2007 has been
derived by taking the historical audited consolidated statement
of earnings for the fiscal year ended May 28, 2006, less
the historical unaudited consolidated statement of earnings for
the thirty-nine weeks ended February 26, 2006, plus the
historical unaudited consolidated statement of earnings for the
thirty-nine weeks ended February 25, 2007, and then
applying pro forma adjustments to give effect to the
Transactions described herein. The unaudited pro forma
consolidated financial information for the fifty-two weeks ended
February 25, 2007 has been included in order to provide
investors with pro forma information for the latest practicable
fifty-two week period. The unaudited pro forma consolidated
balance sheet as of February 25, 2007 has been prepared as
if the Transactions occurred on that date. The adjustments are
described in the notes to the unaudited pro forma consolidated
financial statements. The unaudited pro forma consolidated
financial data does not purport to represent what the results of
our operations or financial information would have been if the
Transactions had occurred as of the dates indicated or what such
results will be for any future periods.
The unaudited pro forma consolidated financial data has been
prepared giving effect to the Transactions, which are accounted
for in accordance with SFAS No. 141 Business
Combinations. The respective total purchase price for the
Acquired Business is allocated to the net assets of the Acquired
Business based upon estimates of fair value. The purchase price
allocations for the Transactions are preliminary and further
refinements are likely to be made based on the results of final
appraisals. The pro forma adjustments reflect preliminary
estimates of the purchase price allocation under purchase
accounting, which are expected to change upon finalization of
appraisals and other valuation studies that Swift & Company
has arranged to obtain. The final allocation will be based on
the actual assets and liabilities that exist as of the date of
closing of the Transactions. Any additional purchase price
allocation to property, plant and equipment or finite lived
intangible assets would result in additional depreciation and
amortization expense, which may be significant. Property, plant
and equipment balances and intangible assets have been adjusted
to reflect their estimated fair values. In addition, Swift
& Company’s reported current assets and current
liabilities are assumed to be their estimated fair values
included in the unaudited pro forma consolidated condensed
financial statements. The final allocation of the purchase price
of the acquisition will differ from the amounts represented in
the unaudited pro forma consolidated condensed financial
statements.
The unaudited pro forma adjustments are based upon available
information and certain assumptions that we believe are
reasonable. You should read the unaudited pro forma consolidated
financial statements and the accompanying notes in conjunction
with the historical consolidated financial statements and the
accompanying notes thereto and other financial information
contained in Holdco 3’s filings with the SEC.
Swift
& Company
(successor to J&F Finance I as a result of merger with
Swift & Company and subsequent merger with S&C
Holdco 3)
Unaudited pro forma
consolidated statements of earnings
The unaudited pro forma consolidated financial statements have
been prepared giving effect to the Transactions in accordance
with SFAS No. 141, Business Combinations.
Finance Sub #1 will issue the notes and borrow under
the new senior secured revolving credit facility and then
immediately thereafter merge with and into Swift &
Company, with Swift & Company surviving the merger.
Thereafter Swift & Company will merge with and into
S&C Holdco 3, which will survive the merger, be
renamed Swift & Company.
(b)
This amount represents the adjustment to historical expense to
reflect estimated depreciation expense based on the estimated
fair values of the plant and corporate assets included in the
Transactions assuming an average remaining seven-year useful
life, as the final valuation report has not been completed.
The table below summarizes the changes in depreciation expense:
This amount includes the fees paid to HM Capital for the
management and oversight, and financial advisory agreements, and
the reimbursement of miscellaneous expenses for HM Capital and
Booth Creek shareholders. These items are not expected to
continue after the Transactions. The table below summarizes the
changes in fees:
Represents pro forma interest expense calculated using assumed
interest rates based on (1) an estimated outstanding
balance of $357 million on our new $700.0 million
revolving credit facility using an estimated interest rate of
three-month LIBOR of 5.4% plus 1.75%, (2) the notes offered
hereby using an assumed weighted average interest rate of 10.5%
and (3) an assumed commitment fee of 0.25% on the estimated
unused portion of our new revolving credit facility. A
1/8%
variance in assumed interest rates on floating rate debt would
amount to a change in total pro forma interest expense of
$0.7 million for a full fiscal year ($0.4 million for
the revolving credit facility and $0.3 for the floating rate
notes).
(e)
This amount represents the adjustment to historical expense to
reflect estimated amortization expense based on the estimated
fair values of the identified intangible assets included in the
Transactions based on a preliminary third party valuation
report. The identified intangible asset lives vary from between
six to twenty years.
The following table summarizes the change in amortization
expense by category:
Trade accounts receivable, net of
allowance for doubtful accounts of $970
319,565
0
319,565
Inventories
460,993
0
460,993
Other current assets
39,812
0
39,812
Total current assets
867,057
0
867,057
Property, plant, and equipment, net
493,759
127,271
b
621,030
Goodwill
12,681
313,594
c
326,275
Other intangibles, net
17,362
131,987
b
149,349
Other assets
24,744
16,496
d
41,240
Total assets
$
1,415,603
$
589,348
$
2,004,951
LIABILITIES AND
STOCKHOLDER’S
EQUITY
Current liabilities:
Current portion of long-term debt
$
1,963
$
0
$
1,963
Accounts payable, including book
overdrafts
204,367
0
204,367
Accounts payable to related parties
3,187
(3,187
)e
0
Accrued liabilities
203,631
(26,600
)f
177,031
Total current liabilities
413,148
(29,787
)
383,361
Long-term debt, less current
portion
803,825
179,421
g
983,246
Other non-current liabilities
46,143
92,201
i
138,344
Total liabilities
1,263,116
241,835
1,504,951
Stockholder’s equity:
Common stock, par value $0.01,
1,000 shares authorized, issued and outstanding at
February 25, 2007
0
0
0
Additional paid-in capital
263,444
236,556
h
500,000
Accumulated deficit
(167,850
)
167,850
h
0
Accumulated other comprehensive
income
56,893
(56,893
)h
0
Total stockholder’s equity
152,487
347,513
500,000
Total liabilities and
stockholder’s equity
$
1,415,603
$
589,348
$
2,004,951
See Notes to unaudited pro forma
consolidated balance sheet.
Notes to
unaudited pro forma consolidated balance sheet
Note: All pro forma adjustments are
preliminary. Tangible and intangible assets and liabilities will
be adjusted to fair values, based on appropriate methodologies,
subsequent to completion of the Transactions.
(a)
The unaudited pro forma
consolidated financial statements have been prepared assuming
the Transactions will be accounted for in accordance with
SFAS 141, Business Combinations. Finance
Sub #1 will issue the notes and borrow under the new senior
secured revolving credit facility and then immediately
thereafter merge with and into Swift & Company, with
Swift & Company surviving the merger. Thereafter
Swift & Company will merge with and into S&C
Holdco 3, which will survive the merger, be renamed
Swift & Company. The following table sets forth the
components of the purchase price and the allocation of the
purchase price to the assets and liabilities based on the
preliminary estimated fair values.
Total equity contribution
$
500.0
Total estimated borrowings
927.0
Estimated Transactions costs
30.0
Total Estimated Purchase Price
$
1,457.0
Estimated amounts allocated to
current
assets1
$
855.7
Estimated amounts allocated to
current
liabilities1
(377.3
)
Estimated amounts allocated to
other non-current
assets1
11.2
Estimated amounts allocated to
other non-current
liabilities1
(49.9
)
Estimated fair value of property,
plant and
equipment2
621.0
Estimated fair value of identified
intangibles2
149.3
Estimated deferred financing
costs3
30.0
Estimated impact on deferred tax
liability4
(109.3
)
Estimated amounts allocated to
identifiable assets and liabilities
$
1,130.7
Estimated amount allocated to
non-amortizing
goodwill
$
326.3
(1)
Estimated net book values based on the preliminary
February 25, 2007 balance sheet, subject to change upon the
actual closing date.
(2)
Estimated fair values of property, plant and equipment and
identified intangibles are based on a preliminary third party
valuation report which is expected to be finalized shortly after
the closing of the Transactions.
(3)
Reflects $30 million in deferred financing costs related to
the Transactions consisting of placement fees for the notes,
bank fees from the senior credit facility, legal fees,
accounting and other professional fees directly related to the
Transactions.
(4)
Represents the estimated deferred income tax liability, based on
our statutory tax rate multiplied by the fair value adjustments.
Note:
Estimated fair values of product inventory will be based on a
preliminary third party valuation report which is expected to be
available shortly after the closing of the Transactions. Certain
Australian meat inventories have historically been recorded at
cost, however, in accordance with SFAS 141, the inventories
will be adjusted to fair value less costs to sell and a
reasonable profit for the selling effort at the acquisition
date. In addition, as Swift & Company sells the
inventory, its cost of sales will reflect the increased
valuation, if any, of Swift Australia’s inventory, which
will temporarily reduce Swift & Company’s gross
margins until such inventory is sold. This is considered a
non-recurring adjustment and as such is not included in the
unaudited pro forma consolidated income statements.
The assumptions used in these proforma financial statements
related to interest rate, term of debt, and issuance cost may
differ from the final terms of the financing agreements.
Furthermore, once the terms of the financing arrangements have
been finalized, Swift & Company will perform an
analysis to identify any potential derivative implications.
(b)
Reflects the fair value adjustment
to historical net book value of property, plant and equipment
and identified intangibles based on a preliminary third party
valuation report which is expected to be finalized shortly after
the closing of the Transactions. The estimated fair values are
subject to change based upon finalization of the valuation
studies and management review.
(c)
Reflects the fair value adjustment
to historical value of goodwill, in accordance with
SFAS 141, Business Combinations.
(d)
Reflects the preliminary estimate
of deferred financing costs ($30.0M) related to the Transactions
consisting of placement fees for notes, bank fees from the
senior credit facility, legal, accounting and other professional
fees and the write off of existing deferred financing costs
which will be paid off in the Transactions ($13.5M).
(e)
Reflects the anticipated
elimination of related party payable to parent upon completion
of the Transactions.
(f)
Reflects the elimination of accrued
interest related to the historical capital structure, which will
be paid at the closing of the Transactions.
(g)
Reflects the net impact of
incurrence of debt and other obligations related to the
Transactions.
(h)
Reflects the change in equity
balances as a result of the Transactions, in accordance with
SFAS 141, Business Combinations.
(i)
Reflects the net change in deferred
tax liabilities as a result of the Transactions.
Liquidity and capital resources following the Transactions
As of February 25, 2007, on a pro forma basis after giving effect to the Transactions, we would
have had total outstanding consolidated debt of $985.2 million. In addition, we would have had
$24.7 million of outstanding letters of credit and $318.3 million of additional debt available for
borrowing under our revolving credit facility.
We anticipate capital expenditures of approximately $75.7 million in our fiscal year ending May 25,2008, primarily related to plant expansion and production efficiency projects. Approximately half
of this capital expenditure will relate to growth and process improvement projects and the
remainder will relate to major renewals and
improvements of our facilities. We expect to fund these capital expenditures with cash flows from
operations and borrowings under our revolving credit facility.
We believe that available borrowings under our revolving credit facility, available cash, and
internally generated funds will be sufficient to support our working capital, capital expenditures,
and debt service requirements for the foreseeable future. Our ability to generate sufficient cash,
however, is subject to certain general economic, financial, industry, legislative, regulatory, and
other factors beyond our control.
Regulation and environmental matters
In the environmental area our operations are subject to extensive regulation by the EPA and other
state and local authorities relating to handling and discharge of waste water, storm water, air
emissions, treatment, storage and disposal of wastes, and remediation of contaminated soil, surface
water and groundwater. Our Australian operations are also subject to extensive regulation by the
Australian Quarantine Inspection Service and other Australian state and local authorities. We
believe that we currently are in substantial compliance with all governmental laws and regulations
and maintain all material permits and licenses relating to our operations. We are not aware of any
significant violations of such laws and regulations that are likely to result in material penalties
or pending changes in such laws or regulations that are likely to result in material increases in
operating costs or any sites that require significant remediation by us at this time. The EPA has
adopted revisions to the effluent limitations guidelines and standards for wastewater discharge by
entities in the meat processing industry. These regulatory changed affecting the red meat
processing industry wastewater discharges are expected to require us to incur approximately $19.0
million in capital and operating expenses during the next five years, including $8.4 million and
$2.8 million for the fiscal years ended May 27, 2007 and May 25, 2008, respectively.
On March 23, 2007, the State of Nebraska’s environmental regulatory agency notified us that it has
determined that groundwater remediation is necessary at our former Grand Island Platte River
By-Products site. The State has ranked this site as Remedial Action Class I, based on the
neighboring home using a well in the area of contamination and is requiring us, as the property
owner, to submit a remedial action plan by June 29, 2007. The estimated cost of remediation is
between $70,000 and $1.1 million. It is unknown if the groundwater contamination is attributable
to National By-Products, LLC (the company to whom we leased the land) or ConAgra when it was
operating the facility. Darling International, Inc. (who acquired National By-Products, LLC)
and/or ConAgra may be liable for a portion of the preparation and implementation of any
remedial action plan for the site.
Legal proceedings
On July 1, 2002, a lawsuit entitled Herman Schumacher et
al v. Tyson Fresh Meats, Inc., et al was filed against
ConAgra Beef Company (which was part of the businesses acquired
in the 2002 Transaction and renamed Swift Beef Company
(“Swift Beef”), Tyson Foods, Inc., Excel Company, and
Farmland National Beef Packing Company, L.P. in the United
States District Court for the District of South Dakota seeking
certification of a class of all persons who sold cattle to the
defendants for cash, or on a basis affected by the cash price
for cattle, during the period from April 2, 2001 through
May 11, 2001 and for some period up to two weeks
thereafter. The case was filed by three named plaintiffs on
behalf of a nationwide class that plaintiffs estimate is
comprised of hundreds or thousands of members. The complaint
alleges that the defendants, in violation of the Packers and
Stockyards Act of 1921, knowingly used, without correction or
disclosure, incorrect and misleading boxed beef price
information generated by the USDA to purchase cattle offered for
sale by the plaintiffs at a price substantially lower than was
justified by the actual and correct price of boxed beef during
this period. The plaintiffs sought an estimated
$9.2 million in actual damages against Swift Beef under
various causes of action, including restitution based on
equitable principles of unjust enrichment. The plaintiffs also
seek attorneys’ fees and expenses. On April 12, 2006,
the jury returned a verdict against three of the four
defendants, including a $2.3 million verdict against Swift
Beef. On February 15, 2007 a judgment was entered on the
verdict by the court and on March 12, 2007 we filed a
notice of appeal. Although we have begun the process of
appealing this judgment, a liability for the amount of the
verdict was recorded during the final thirteen weeks of the
fiscal year ended May 28, 2006. We believe that Swift Beef
has acted properly and lawfully in its dealings with cattle
producers.
Swift Beef is a defendant in a lawsuit entitled United States
of America, ex rel, Ali Bahrani v. ConAgra, Inc., ConAgra
Foods, Inc., ConAgra Hide Division, ConAgra Beef Company and
Monfort, Inc., filed in the United States District Court for
the District of Colorado in May 2000 by the relator on behalf of
the United States of America and himself for alleged violations
of the False Claims Act. Under the False Claims Act, a private
litigant, termed the “relator,” may file a civil
action on the United States government’s behalf against
another party for violation of the statute, which, if proven,
would entitle the relator to recover a portion of any amounts
recovered by the government. The relator in this case is a
former employee of Swift & Company. The lawsuit
alleges that the defendants violated the False Claims Act by
forging
and/or
improperly altering USDA export certificates used from 1991 to
2002 to export beef, pork, poultry and bovine hides to foreign
countries. The lawsuit seeks to recover three times the actual
damages allegedly sustained by the government, plus
per-violation civil penalties that would range, at the
court’s discretion, from $5,000 to $10,000 for each false
claim made on or before September 28, 1999, and from $5,500
to $11,000 for each false claim made after September 28,1999, together with attorneys’ fees and costs. Pursuant to
the acquisition agreement entered into to effect the 2002
Transaction, SFC agreed to indemnify ConAgra Foods against all
direct liabilities and damages relating to this lawsuit,
including the costs and expenses of defending the lawsuit.
On September 30, 2004, the United States District Court
granted the defendants’ motions for summary judgment on all
claims. In October 2004, the relator appealed to the United
States Court of Appeals for the Tenth Circuit, which reversed
the summary judgment on October 12, 2006 and remanded the
case to the trial court for further proceedings consistent with
the court’s opinion. Defendants filed a Motion for
Rehearing En Banc on October 26, 2006. On
May 10, 2007, the Tenth Circuit denied that motion.
Defendants are currently preparing a petition for writ of
certiorari to the United States Supreme Court, which will be
filed on or before August 8, 2007.
The case is now before the trial court, although the court has
not yet set a trial date or entered a schedule. Prior to the
Tenth Circuit’s holding that the False Claims Act imposes a
materiality standard that limits potential liability to
materially altered export certificates, the relator estimated in
his complaint that the defendants are liable for approximately
$6.7 million as actual damages and between
$520 million and $1.04 billion in civil penalties.
Swift Beef believes that this lawsuit is meritless and intends
to vigorously defend against all claims. Swift Beef is unable to
estimate what liability, if any, it may have in connection with
this lawsuit or to reasonably estimate the amount or range of
any loss that may result from this lawsuit. In accordance with
SFAS No. 5, Accounting for Contingencies, Swift
Beef has not established a loss accrual for this claim. However,
an adverse development in this matter could have a material
adverse effect on its business, financial condition, results of
operations and cash flows.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
