010724 Schneider Corp -- Fiscal 2001 Report

Kitchener, Ontario - Following is a letter to shareholders of Schneider Corporation”

The Corporation changed its year end for fiscal 2000 to the Sunday nearest April 30 to correspond with the year end of its controlling shareholder, Smithfield Foods, Inc. The new reporting calendar has four quarters of thirteen weeks. Our report, therefore, compares the twelve months ended April 29, 2001, to the six months ended April 30, 2000.

Sales for the year were $1,299.8 million, the first fiscal year in its history that the Corporation has reported sales in excess of $1 billion. Sales growth was achieved in all segments of our business reflecting both volume growth and selling price increases. Also, sales for fiscal 2001 include the consolidation of Mitchell's Gourmet Foods Inc. with the increase of our ownership to 54% on November 1, 2000.

Earnings from operations amounted to $38.4 million. Margins were under pressure during the year and declined as a result of higher raw material costs and significantly higher energy costs which could not be recovered through selling price increases.

Net earnings were $23.3 million which amounted to $3.20 per share.

Consumer Foods

Sales for the year were $978.5 million and earnings from operations amounted to $28.8 million. Margins decreased in the year due to higher raw material and energy costs.

The Schneiders brand name is one of the most trusted by Canadian consumers for quality, great taste, and dependability, and is the market leader in almost every category in which it participates: hot dogs, sliced luncheon and deli meats, frozen sausage, meat snacks, dinner hams, and frozen entrees. In fiscal 2001, we finished the year with record market shares in wieners, sliced luncheon meats, and lunchkits, and also continued to see significant volume increases in value-added processed meats, bakery products, and poultry.

A number of strategic expansion initiatives were completed to address key capacity constraints and to position the Corporation for future business growth. A baked goods plant expansion was completed at a cost of $16 million which will add much needed additional capacity for sales to customers in the United States. Restructuring of the poultry processing facility acquired with the acquisition of Gallant Foods Inc. has been completed, and the facility is meeting planned production levels. In partnership with Prince Foods, we opened a new bacon processing facility in Cornwall, Ontario, to support both Canadian and United States growth.

The Corporation also increased its investment in Cappola Food Inc. to 68% and in National Meats Inc. to 100% at various times during the year which now puts the Corporation in a controlling position to expand our business in the Italian ethnic market and support growth in burgers and cooked meats.

Our growth can also be traced to new products. New introductions included case-ready poultry, single and family portion meat pies, frozen “restaurant quality” premium entrees under the name Ristorante, and frozen microwaveable entrees for kids, “Zapp'ems.” New flavour extensions were added to the popular Juicy Jumbo line of premium hotdogs, and two new Lunchmate product lines were launched.

The company's latest new product is Schneiders Hot Stuffs, frozen microwaveable hand-held pocket-style entrees. Baked, not fried, they are available in ten flavours such as Chicken Caesar, Italian Sausage, Meatballs and Mozzarella, and Smoked Ham and Cheddar. Hot Stuffs are different from other hand-held entrees because they are more nutritious, have more interesting flavours, and are made with a soft bread crust specially developed to stand up to quick microwave cooking. The response from supermarkets indicates that Hot Stuffs will be a very successful addition to the Schneider grocery product line.

Pork

Sales for the year were $321.3 million and earnings from operations amounted to $13.7 million.

The sale of the Manitoba pork assets was completed on March 5, 2001, and therefore results for the year included ten months of operations from the two Manitoba plants. We remain committed to the fresh pork business in Canada through our investment in the Mitchell's Gourmet Foods operations in Saskatoon, Saskatchewan.

Growth in total assets reflects the significant investment activity and capital expansion plans undertaken during the fiscal year to position the Corporation for growth in value-added business. Proceeds from the sale of the Pork property, plants, equipment and inventory amounted to $53.4 million and resulted in a gain before income taxes of $9.7 million. This has provided for a substantial increase in working capital which can be re-deployed to support continued growth in our retail and foodservice businesses.

Outlook

An element of the success of the Corporation can be attributed to the strength of the Schneiders brand that has been built over more than 100 years. The brand stands for success, for quality, for ethical business practices, and for the type of business and product that employees, customers and consumers want to be associated with. In order to capitalize on and continue to promote the Schneiders name, we will be moving to the name Schneider Foods for all of our Consumer Foods' business and plants and operations across Canada. This will involve the name Schneider Foods Inc. being used for the amalgamated company of J. M. Schneider Inc., Consolidated Food Brands Inc., National Meats Inc. and Gallant Foods Inc.

On April 24, 2001, the Corporation announced that it had been advised by Smithfield Foods, Inc. that Smithfield Foods intends to make an offer to acquire the shares of Schneiders that it does not currently own.

Through its subsidiary, Smithfield Canada Limited, Smithfield Foods currently owns indirectly all of the outstanding common shares and approximately 60% of the Class A shares of Schneiders. Shareholders holding an aggregate of 2.37 million Schneider Class A shares (or approximately 91% of the public float) have entered into irrevocable agreements with Smithfield to tender all of their Schneider Class A shares to the Smithfield offer.

An independent committee of the Board of Directors of Schneiders will be reviewing the proposed transaction, and the Corporation will communicate the results of that review to its minority shareholders.

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