-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, D4ZOkAuP0tHlOnCECSo/H43bMyNeh2K3XPgXLcrE8ple6FukOBTYTSast9Kf0tt/ niOOdmdY5yRG8xc8V8YFeQ== 0000052477-00-000007.txt : 20000510 0000052477-00-000007.hdr.sgml : 20000510 ACCESSION NUMBER: 0000052477-00-000007 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000325 FILED AS OF DATE: 20000509 FILER: COMPANY DATA: COMPANY CONFORMED NAME: IBP INC CENTRAL INDEX KEY: 0000052477 STANDARD INDUSTRIAL CLASSIFICATION: MEAT PACKING PLANTS [2011] IRS NUMBER: 420838666 STATE OF INCORPORATION: DE FISCAL YEAR END: 1226 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-06085 FILM NUMBER: 623085 BUSINESS ADDRESS: STREET 1: IBP AVE STREET 2: P O BOX 515 CITY: DAKOTA CITY STATE: NE ZIP: 68731 BUSINESS PHONE: 4024942061 MAIL ADDRESS: STREET 1: IBP AVE STREET 2: P O BOX 515 CITY: DAKOTA CITY STATE: NE ZIP: 68731 FORMER COMPANY: FORMER CONFORMED NAME: IOWA BEEF PROCESSORS INC /PRED/ DATE OF NAME CHANGE: 19821109 FORMER COMPANY: FORMER CONFORMED NAME: IOWA BEEF PACKERS INC DATE OF NAME CHANGE: 19701130 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-Q --------------------------- [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the 13 weeks ended March 25, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 1-6085 ---------------------------- IBP, inc. a Delaware Corporation I.R.S. Employer Identification No. 42-0838666 800 Stevens Port Drive Dakota Dunes, South Dakota 57049 Telephone 605-235-2061 ---------------------------- 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, and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ] As of May 1, 2000, the registrant had outstanding 105,867,943 shares of its common stock ($.05 par value). PART I. FINANCIAL INFORMATION IBP, inc. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands) March 25, December 25, 2000 1999 --------- ------------ ASSETS - ------ CURRENT ASSETS: Cash and cash equivalents $ 34,357 $ 33,294 Accounts receivable, less allowance for doubtful accounts of $31,652 and $19,805 802,632 851,654 Inventories 711,598 619,977 Deferred income tax benefits and prepaid expenses 101,253 84,930 --------- -------- TOTAL CURRENT ASSETS 1,649,840 1,589,855 Property, plant and equipment less accumulated depreciation of $991,927 and $960,386 1,402,851 1,362,765 Goodwill, net of accumulated amortization of $197,188 and $189,395 1,050,203 1,054,839 Other assets 149,719 145,225 --------- --------- $4,252,613 $4,152,684 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------ CURRENT LIABILITIES: Notes payable to banks 757,000 447,960 Accounts payable 403,562 422,942 Deferred income taxes and other current liabilities 442,406 562,301 --------- --------- TOTAL CURRENT LIABILITIES 1,602,968 1,433,203 Long-term debt and capital lease obligations 710,321 789,861 Deferred income taxes and other liabilities 169,997 168,934 --------- --------- TOTAL LIABILITIES 2,483,286 2,391,998 --------- --------- REDEEMABLE STOCK 25,020 44,564 --------- --------- STOCKHOLDERS' EQUITY: Common stock at par value 5,434 5,434 Additional paid-in capital 418,666 403,993 Retained earnings 1,389,074 1,374,610 Accumulated other comprehensive income (7,706) (8,600) Treasury stock (61,161) (59,315) --------- --------- TOTAL STOCKHOLDERS' EQUITY 1,744,307 1,716,122 --------- --------- $4,252,613 $4,152,684 ========= ========= See accompanying notes to condensed consolidated financial statements. IBP, inc. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (In thousands, except per share data) 13 Weeks Ended ------------------------- March 25, March 27, 2000 1999 ----------- ----------- Net sales $3,882,037 $3,211,174 Cost of products sold 3,642,058 3,006,156 --------- --------- Gross profit 239,979 205,018 Selling, general and administrative expense 131,349 99,353 Nonrecurring merger-related expense 31,299 - --------- --------- EARNINGS FROM OPERATIONS 77,331 105,665 Interest expense, net 21,316 13,744 --------- --------- Earnings before income taxes and extraordinary item 56,015 91,921 Income tax expense 21,300 35,319 --------- --------- Earnings before extraordinary item 34,715 56,602 Extraordinary loss on early extinguishment of debt, less applicable taxes (15,037) - --------- --------- NET EARNINGS $ 19,678 $ 56,602 ========= ========= Earnings per common share: Earnings before extraordinary item $ .30 $ .58 Extraordinary item (.14) - --------- --------- Net earnings $ .16 $ .58 ========= ========= Earnings per common share - assuming dilution: Earnings before extraordinary item $ .30 $ .53 Extraordinary item (.14) - --------- --------- Net earnings $ .16 $ .53 ========= ========= Dividends per share $.025 $.025 ========= ========= See accompanying notes to condensed consolidated financial statements. IBP, inc. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) 13 Weeks Ended ------------------------- March 25, March 27, 2000 1999 ----------- ----------- Inflows (outflows) NET CASH FLOWS USED BY OPERATING ACTIVITIES $ (37,259) $ (35,241) --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (75,663) (47,363) Purchases of marketable securities - (19,400) Proceeds from disposals of marketable securities - 14,400 Other investing activities, net (8,566) 1,988 --------- --------- Net cash flows used by investing activities (84,229) (50,375) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Increase in short-term debt 309,040 63,511 Principal payments on long-term obligations (482,738) (2,520) Proceeds from issuance of long-term debt 295,541 - Net change in checks in process of clearance 33,404 33,276 Redemption of preferred stock (28,512) - Other financing activities, net (4,250) (5,356) --------- --------- Net cash flows provided by financing activities 122,485 88,911 --------- --------- Effect of exchange rate on cash and cash equivalents 66 332 --------- --------- Net change in cash and cash equivalents 1,063 3,627 Cash and cash equivalents at beginning of period 33,294 29,296 --------- --------- Cash and cash equivalents at end of period $ 34,357 $ 32,923 ========= ========= SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the periods for: Interest, net of amounts capitalized $ 20,345 $ 14,945 Income taxes, net of refunds received 10,030 30,952 Depreciation and amortization expense 33,896 27,222 Amortization of intangible assets 8,517 6,527 See accompanying notes to condensed consolidated financial statements. IBP, inc. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Columnar amounts in thousands, except per share amounts A. GENERAL The condensed consolidated balance sheet of IBP, inc. and subsidiaries ("IBP" or "the company") at December 25, 1999 has been taken from audited financial statements at that date and condensed. All other condensed consolidated financial statements contained herein have been prepared by IBP and are unaudited. The condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in IBP's Annual Report on Form 10-K for the year ended December 25, 1999. On February 7, 2000, the company completed a merger with Corporate Brand Foods America, Inc. ("CBFA") (see Note F). The merger has been accounted for as a pooling of interests and, accordingly, all prior period consolidated financial statements have been restated to include the combined results of operations, financial position and cash flows of CBFA. In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the financial position of IBP at March 25, 2000 and the results of its operations and its cash flows for the periods presented herein. Certain reclassifications have been made to prior financial statements to conform to the current year presentation. B. OTHER IBP's interim operating results of its Fresh Meats segment may be subject to substantial fluctuations which do not necessarily occur or recur on a seasonal basis. Such fluctuations are normally caused by competitive and other conditions in the cattle and hog markets over which IBP has little or no control. Therefore, the results of operations for the interim periods presented are not necessarily indicative of the results to be attained for the full fiscal year. C. INVENTORIES Inventories, valued at the lower of first-in, first-out cost or market, are comprised of the following: March 25, December 25, 2000 1999 --------- ------------ Product inventories: Raw materials $ 79,626 $ 37,846 Work in process 86,639 83,638 Finished goods 298,341 274,624 ------- ------- 464,606 396,108 Livestock 154,002 137,300 Supplies 92,990 86,569 ------- ------- $711,598 $619,977 ======= ======= D. EARNINGS PER SHARE 13 Weeks Ended ----------------------- March 25, March 27, 2000 1999 --------- --------- Numerator: Earnings before extraordinary item $ 34,715 $ 56,602 Preferred stock dividends and accretion (2,566) (656) ------- ------- Available for common shares $ 32,149 $ 55,946 ======= ======= Denominator: Weighted average common shares outstanding 106,042 96,584 Dilutive effect of employee stock plans 1,455 9,666 ------- ------- Diluted average common shares outstanding 107,497 106,250 ======= ======= Basic earnings before extraordinary item per common share $ .30 $ .58 ==== ==== Diluted earnings before extraordinary item per common share $ .30 $ .53 ==== ==== The summary below lists stock options outstanding at the end of the fiscal quarters which were not included in the computations of diluted EPS because the options' exercise price was greater than the average market price of the common shares. These options had varying expiration dates. 2000 1999 ---------- ---------- Stock options excluded from diluted EPS computation 3,484 905 Average option price per share $21.01 $25.66 E. COMPREHENSIVE INCOME Comprehensive income consists of net earnings and foreign currency translation adjustments. Management considers its foreign investments to be permanent in nature and does not provide for taxes on currency translation adjustments arising from converting the investment in a foreign currency to U.S. dollars. Comprehensive income for the quarters ended March 25, 2000 and March 27, 1999 was as follows: 13 Weeks Ended ------------------------ March 25, March 27, 2000 1999 --------- --------- NET EARNINGS $19,678 $56,602 Other comprehensive income: Foreign currency translation adjustments 894 3,116 ------ ------ COMPREHENSIVE INCOME $20,572 $59,718 ====== ====== F. ACQUISITION On February 7, 2000, the company acquired the outstanding common stock of Corporate Brand Foods America, Inc. ("CBFA"), a privately held processor and marketer of meat and poultry products for the retail and foodservice markets. In the transaction, which was accounted for as a pooling of interests, IBP issued approximately 14.4 million common shares for all of the outstanding common stock of CBFA. The company also assumed $344 million of CBFA's debt and preferred stock obligations. At the acquisition date, all of the debt obligations were refinanced (see Note G) and the preferred stock was redeemed. The companies incurred $31 million of nonrecurring merger-related expenses, related primarily to an increase in the valuation of CBFA's restricted redeemable stock, a non-cash charge of $21 million, and transaction-related fees of $8 million. IBP had product sales to CBFA in IBP's fiscal quarters ended March 25, 2000 and March 27, 1999, totaling $29 million and $14 million, respectively. These intercompany sales have been eliminated in consolidation. The effects of conforming CBFA's accounting policies to those of IBP were not material. The company, by virtue of its acquisition of CBFA, has a restricted stock plan for which, upon termination of employment with the company, grantees have the right to require the company to purchase the vested portion of shares issued under the plan at fair market value. As a result of this mandatory redemption feature (the "Put Features"), shares issued under the plan are classified as redeemable stock in the accompanying consolidated balance sheet, and the plan is accounted for as a "variable plan" in accordance with APB Opinion #25. Since the inception of the plan, no grantees have exercised their Put Features, and management considers the likelihood of significant Put Features being exercised in the future to be remote. Prior to the merger, CBFA's fiscal year ended on the Sunday closest to the last day of February. The following information presents certain statement of earnings data for the separate companies corresponding to IBP's fiscal first quarters of 2000 and 1999: Quarter ended ------------------------------- March 25, 2000 March 27, 1999 -------------- -------------- Net sales: IBP, as reported $3,739,037 $3,097,652 Intercompany sales to CBFA (28,507) (14,335) --------- --------- Net IBP sales 3,710,530 3,083,317 CBFA 171,507 127,857 --------- --------- $3,882,037 $3,211,174 ========= ========= Net earnings (loss): IBP $ 58,567 $ 56,898 CBFA (38,889) (296) --------- --------- $ 19,678 $ 56,602 ========= ========= G. LONG-TERM OBLIGATIONS: Long-term obligations are summarized as follows: March 25, December 25, 2000 1999 --------- ------------ 7.95% Senior Notes due 2010 $300,000 $ - 7.45% Senior Notes due 2007 125,000 125,000 6.125% Senior Notes due 2006 100,000 100,000 7.125% Senior Notes due 2026 100,000 100,000 6.0% Securities due 2001 50,000 50,000 CBFA long-term obligations - 306,633 Revolving credit facilities - 175,000 Present value of minimum Capital lease obligations 25,851 26,728 Other 13,498 13,725 ------- ------- 714,349 897,086 Less amounts due within one year 4,028 107,225 ------- ------- $710,321 $789,861 ======= ======= On January 31, 2000, the company issued $300 million of 7.95% 10-year notes under its $550 million Debt Securities program originally registered with the Securities and Exchange Commission ("SEC") in 1996. This Debt Securities program was subsequently amended and filed with the SEC on January 27, 2000. The net proceeds, issued at a slight discount to par, were used to reduce IBP's revolving credit facilities, $175 million of which had been classified as non-current at December 25, 1999. Interest is payable semiannually. On February 7, 2000, the company completed its merger with CBFA and, at the same time, refinanced all of CBFA's various existing debt obligations, using available IBP credit facilities which were at more favorable terms. Prepayment premiums, accelerated amortization of unamortized deferred financing costs, and transaction expenses totaled $22 million, before applicable income tax benefit of $7 million, and was accounted for as an extraordinary loss in the condensed consolidated statement of earnings. H. CONTINGENCIES: IBP is involved in numerous disputes incident to the ordinary course of its business. While the impact on future financial results is not subject to reasonable estimation because considerable uncertainty exists, management believes that any liability for which provision has not been made relative to the various lawsuits, claims and administrative proceedings pending against IBP, including those described below, will not have a material adverse effect on its future consolidated results, financial position or liquidity. In July 1996, a lawsuit was filed against IBP by certain cattle producers in the U.S. District Court, Middle District of Alabama, seeking certification of a class of all cattle producers. The complaint alleges that IBP has used its market power and alleged "captive supply" agreements to reduce the prices paid to producers for cattle. Plaintiffs have disclosed that, in addition to declaratory relief, they seek actual and punitive damages. The original motion for class certification was denied by the District Court; plaintiffs then amended their motion, defining a narrower class consisting of only those cattle producers who sold cattle directly to IBP from 1994 through the date of certification. The District Court approved this narrower class in April 1999. The 11th Circuit granted IBP's request for a review of the class certification decision, and a decision was rendered on April 20, 2000 reversing the district court decision to certify a class, on the basis that there were inherent conflicts amongst class members preventing the named plaintiffs from providing adequate representation to the class. IBP expects the plaintiffs to attempt to file pleadings seeking to certify an amended class. In plaintiffs' expert reports filed prior to the 11th Circuit decision reversing the class certification decision, plaintiffs were seeking up to $3 billion in damages on behalf of the class. Management continues to believe that the company has acted properly and lawfully in its dealings with cattle producers. On January 12, 2000, The United States Department of Justice, on behalf of the Environmental Protection Agency ("EPA"), filed a lawsuit against IBP in U. S. District Court for the District of Nebraska, alleging violations of various environmental laws at IBP's Dakota City facility. This action alleges, among other things, violations of: (1) the Clean Air Act; (2) the Clean Water Act; (3) the Resource, Conservation and Recovery Act; (4) the Comprehensive Environmental Response Compensation and Liability Act ("CERCLA"); and (5) the Emergency Planning and Community Right to Know Act ("EPCRA"). The action seeks injunctive relief to remedy alleged violations and damages of $25,000 per violation per day for alleged violations which occurred prior to January 30, 1997, and $27,500 per violation per day for alleged violations after that date. The Complaint alleges that some violations began to occur as early as 1989, although the great majority of the violations are alleged to have occurred much later, and continue into the present. IBP believes that the company has meritorious defenses on each of these allegations and intends to aggressively defend these claims. The EPA has also sent IBP an information request under the Clean Air Act and CERCLA seeking additional information regarding hydrogen sulfide emissions from the company's Dakota City facility. The EPA claims it seeks information to determine whether the emissions pose an imminent and substantial endangerment to human health or the environment. If the EPA makes this finding, it could trigger further action including an administrative order for compliance concerning the facility. IBP disputes and would vigorously contest any claim that the emissions pose any such threat. On February 22, 2000, a lawsuit was filed against IBP by certain shareholders in the United States District Court for the District of Nebraska seeking to certify a class of all persons who purchased IBP stock between March 25, 1999 to January 12, 2000. The complaint, seeking unspecified damages, alleges that IBP violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 there under, and claims IBP issued materially false statements about the company's compliance with environmental laws in order to inflate the company's stock price. Management believes it has accurately reported the company's compliance with environmental laws, and the company intends to vigorously contest these claims. I. BUSINESS SEGMENTS The company is managed and operated as two divisions, Fresh Meats and Foodbrands America, and, accordingly, has two business segments. IBP's Fresh Meats operation relates principally to the meat processing industry and primarily involves cattle and hog carcass production, beef and pork fabrication and related allied product processing activities. This segment markets its products to food retailers, distributors, wholesalers, restaurant and hotel chains, other food processors and leather makers, as well as manufacturers of pharmaceuticals and animal feeds. The Foodbrands America segment consists of several IBP subsidiaries, principally Foodbrands America, Inc. ("Foodbrands"), The Bruss Company, IBP Foods, Inc., and CBFA. The Foodbrands America group produces, markets and distributes a variety of frozen and refrigerated products to the "away from home" food preparation market, other food processors and to the retail grocery market. Products include pizza toppings and crusts, value-added beef and pork-based products, ethnic specialty foods, appetizers, soups, sauces and side dishes as well as deli meats and processed beef, pork and poultry products. Foodbrands America also produces portion-controlled premium beef and pork products for sale to restaurants and foodservice customers in domestic and international markets. The company operates principally in the United States. Intersegment sales have been recorded at amounts approximating market. Earnings from operations are comprised of net sales less all identifiable operating expenses, allocated corporate selling, general and administrative expenses, and goodwill amortization. Net interest expense and income taxes have been excluded from segment operations. 13 Weeks Ended ---------------------- March 25, March 27, 2000 1999 --------- --------- NET SALES - --------- Sales to unaffiliated customers: Fresh Meats $3,194,437 $2,774,970 Foodbrands America 687,600 436,204 --------- --------- $3,882,037 $3,211,174 ========= ========= Intersegment sales: Fresh Meats $ 119,593 $ 66,360 Intersegment elimination (119,593) (66,360) --------- --------- - - ========= ========= Net sales: Fresh Meats $3,314,030 $2,841,330 Foodbrands America 687,600 436,204 Intersegment elimination (119,593) (66,360) --------- --------- $3,882,037 $3,211,174 ========= ========= EARNINGS FROM OPERATIONS - ------------------------ Fresh Meats $ 103,336 $ 84,991 Foodbrands America (26,005) 20,674 --------- --------- Total earnings from operations 77,331 105,665 Net interest expense (21,316) (13,744) --------- --------- Pre-tax earnings $ 56,015 $ 91,921 ========= ========= NET SALES BY LOCATION OF CUSTOMERS - --------------------- United States $3,282,553 $2,730,212 Japan 244,174 201,435 Canada 130,771 108,203 Korea 75,809 42,581 Mexico 54,079 40,730 Other foreign countries 94,651 88,013 --------- --------- $3,882,037 $3,211,174 ========= ========= MANAGEMENT'S DISCUSSION AND ANALYSIS ------------------------------------ This quarterly report on Form 10-Q contains forward-looking statements which reflect management's current view with respect to future events and financial performance. Specifically, these forward-looking statements include risks and uncertainties. Thus, actual results may differ materially from those expressed or implied in those statements. Those risks and uncertainties include, without limitation, risks of changing market conditions with regard to livestock supplies and demand for the company's products, domestic and international legal and regulatory risks, the costs of environmental compliance, the impact of governmental regulations, operating efficiencies, as well as competitive and other risks over which IBP has little or no control. Moreover, past financial performance should not be considered a reliable indicator of future performance. The company makes no commitment to update any forward- looking statement, or to disclose any facts, events or circumstances after the date hereof that may affect the accuracy of any forward- looking statement. ACQUISITION ----------- On February 7, 2000, the company acquired the outstanding common stock of Corporate Brand Foods America, Inc. ("CBFA"), a privately held processor and marketer of meat and poultry products for the retail and foodservice markets. In the transaction, which was accounted for as a pooling of interests, IBP issued approximately 14.4 million common shares for all of the outstanding common stock of CBFA. The company also assumed $344 million of CBFA's debt and preferred stock obligations. At the acquisition date, all of the debt obligations were refinanced (see Note G) and the preferred stock was redeemed. The companies incurred $31 million of nonrecurring merger- related expenses, related primarily to an increase in the valuation of CBFA's restricted redeemable stock, a non-cash charge of $21 million, and transaction-related fees of $8 million. RESULTS OF OPERATIONS - --------------------- Fresh Meats' operating earnings improved to 3.2% of net sales in the first quarter 2000 versus 3.1% in the first quarter 1999. Beef operations continued their strong pace from 1999 as demand was excellent and capacity utilization improved. Meanwhile, the pork performance in the first quarter 2000 was better than in any first quarter in any year other than 1999. The first quarter 1999 results included a receivables write-down of $4 million or net $.03 per diluted share related to a customer in bankruptcy proceedings. In the Foodbrands America segment, operating earnings in 2000 were reduced by two unusual items. The most significant item was $31 million in pre-tax, nonrecurring CBFA merger-related expense, which consisted of $21 million in increased valuation of CBFA's restricted redeemable stock and $10 million in professional fees and other expenses. The second unusual item was an $11 million pre-tax bad debt provision increase due to a customer's bankruptcy. Additionally, the IBP Foods, Inc. operation, consisting of former Thorn Apple Valley, Inc. facilities purchased in the third quarter 1999, lost $11 million in the first quarter 2000. Excluding the unusual items and the IBP Foods, Inc. loss, the Foodbrands America segment earned $27 million from operations compared to $21 million in the first quarter 1999, primarily due to new acquisitions and stronger foodservice performance. The latest estimates by the U.S. Department of Agriculture ("USDA") and industry analysts predict that beef production in 2000 will be close to 1999 levels and higher than earlier expected. Thus, it appears that live cattle supplies will be abundant for most of this year. The USDA also forecasted pork production for 2000 to be down 2% to 3% from 1999. COMPARATIVE SEGMENT RESULTS --------------------------- 13 Weeks Ended ----------------------- March 25, March 27, 2000 1999 % Change --------- --------- -------- (in thousands) Net Sales: Fresh Meats $3,194,437 $2,774,970 +15% Foodbrands America 687,600 436,204 +58% --------- --------- $3,882,037 $3,211,174 +21% ========= ========= Earnings from Operations: Fresh Meats $ 103,336 $ 84,991 +22% Foodbrands America (26,005) 20,674 n/a --------- --------- $ 77,331 $ 105,665 -27% ========= ========= SALES The 15% increase in Fresh Meats' net sales was due primarily to higher average selling prices of beef and pork and a slight increase in total pounds of beef and pork products sold. The higher selling prices were reflective of continued strong demand for red meat in the United States and international markets. The 58% increase in Foodbrands America's net sales was due in large part to acquisitions in 1999 subsequent to the first quarter. The 1999 additions (Russer Foods and H&M Foods in the second quarter, IBP Foods and Wilton Foods in the third quarter and Wright Brand Foods, Inc. (by CBFA) in the fourth quarter) increased net sales by almost $200 million. Excluding the effect of acquisitions, existing operations' net sales increased 13% on higher sales volume and price increases. Net export sales increased 25% in the first quarter 2000 from the year earlier despite an increase in pounds sold of only 2% from the prior year. The 25% net sales increase resulted from both pricing and product mix factors. As the Far East has continued to recover from the economic difficulties of the recent past, the product mix sold to the region has shifted more toward higher-end products. Net sales into Asia, which accounted for 75% of total exports, increased 32% in the first quarter 2000 from the prior year. Sales into Mexico also improved 33% on a volume increase of 31%. Net export sales accounted for 13% of total net sales in the first quarter of 2000 versus 12% in the same 1999 period. COST OF PRODUCTS SOLD In the Fresh Meats segment, the cost of products sold in the first quarter 2000 increased 6% from the first quarter 1999. Higher average live cattle and hog prices and increased beef volume were the principal reasons for the higher 2000 costs. Plant costs also increased due in large part to higher labor costs. Foodbrands America's first quarter 2000 cost of products sold increased 66% from the first quarter 1999. Excluding the effect of acquisitions, higher costs resulted from increased volume of products sold and higher raw material costs. SELLING, GENERAL AND ADMINISTRATIVE EXPENSE First quarter 2000 expense increased 32% over the first quarter 1999. Higher bad debt expense, the effect of acquisitions, higher volume-related selling expense and increased personnel-related expenses were the principal reasons for the increase. INTEREST EXPENSE The 55% increase in 2000 net interest expense versus the first quarter 1999 was due primarily to an increase in average borrowings in 2000. The higher 2000 average outstanding borrowings versus the first quarter 1999 reflected approximately $500 million of cash spent on acquisitions in 1999 subsequent to the first quarter. LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- Total outstanding borrowings averaged $1,410 million in the first three months of 2000 compared to $949 million in the comparable 1999 period. Borrowings outstanding under committed and uncommitted credit facilities at March 25, 2000 totaled $757 million compared to $623 million (excluding CBFA) at December 25, 1999, and available unused credit capacity under committed facilities at March 25, 2000 was $115 million. On January 31, 2000, the company issued $300 million of 7.95% 10-year notes under its $550 million Debt Securities program originally registered with the Securities and Exchange Commission ("SEC") in 1996. This Debt Securities program was subsequently amended and filed with the SEC on January 27, 2000. The net proceeds, issued at a slight discount to par, were used to reduce IBP's revolving credit facilities, $175 million of which had been classified as non-current at December 25, 1999. Interest is payable semiannually. In January 2000, the company put in place $300 million of additional revolving credit capacity via a 364-day facility with two major financial institutions. Credit terms were similar to those in existing credit facilities. Meanwhile, IBP's $100 million Promissory Note expired in February 2000, which left the company with $800 million total borrowing capacity under committed facilities. On February 7, 2000, the company completed its merger with CBFA and, at the same time, refinanced substantially all of CBFA's various existing debt obligations, using available IBP credit facilities that were at more favorable terms. Year-to-date capital expenditures through March 25, 2000 totaled $76 million compared to $47 million in the first three months of 1999. Major projects included renovations of the Norfolk, Nebraska, beef processing plant, case-ready and other value-added product projects, and development of forward warehouses for product distribution. Approximately 75% of the 2000 spending was for revenue enhancement or cost-saving projects, while the remainder went toward upgrades and replacements of existing equipment and facilities. PART II. OTHER INFORMATION Item 5. Other Information - -------------------------- In connection with its Medium-Term Notes program, the company hereby reports the following computations: 13 Weeks Ended ------------------------ March 25, March 27, 2000 1999 --------- --------- Earnings before income taxes and extraordinary item $ 56,015 $ 91,921 Total fixed charges 29,500 19,235 Capitalized interest (1,126) (2,197) ------- ------- Earnings before fixed charges, income taxes and extraordinary item $ 84,389 $108,959 ======= ======= Ratio of earnings to fixed charges 2.9 5.7 === === Item 6. Exhibits and Reports on Form 8-K - ----------------------------------------- (b) Reports on Form 8-K ------------------- No reports on Form 8-K were filed by the company during the quarter ended March 25, 2000. SIGNATURES Pursuant to the requirements of the Securities Act of 1934, the registrant has caused this report to be signed on its behalf by the undersigned thereunto duly authorized. IBP, inc. --------------------------- (Registrant) May 9, 2000 /s/ Robert L. Peterson - ------------------------ --------------------------- (date) Robert L. Peterson Chairman of the Board and Chief Executive Officer /s/ Larry Shipley --------------------------- Larry Shipley Chief Financial Officer /s/ Craig J. Hart --------------------------- Craig J. Hart Vice President and Controller 19 EX-27 2
5 1,000,000 3-MOS DEC-30-2000 MAR-25-2000 34 0 834 32 712 1,650 2,395 992 4,253 1,603 710 0 0 5 1,739 4,253 3,882 3,882 3,642 3,642 151 12 21 56 21 35 0 (15) 0 20 .16 .16
EX-27 3
5 Restated for impact of acquisition of CBFA in February 2000, accounted for as a pooling of interests. 1,000,000 3-MOS DEC-25-1999 MAR-27-1999 33 6 660 5 499 1,264 2,914 869 3,382 940 769 6 0 4 1,481 3,382 3,211 3,211 3,006 3,006 99,348 5 14 92 35 57 0 0 0 57 .58 .53
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