-----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, Lbxh+rd3n3ZXMDbrjsFs454VeGOxNd3siiO+RH8XZQApnpLY3PI7D2fLAG4WmIfI 11kubaQbwGN0jV/a1aN9Hw== 0000052477-99-000017.txt : 19991110 0000052477-99-000017.hdr.sgml : 19991110 ACCESSION NUMBER: 0000052477-99-000017 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990925 FILED AS OF DATE: 19991109 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: 99744316 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 39 weeks ended September 25, 1999 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 November 1, 1999, the registrant had outstanding 92.3 million shares of its common stock ($.05 par value). PART I. FINANCIAL INFORMATION IBP, inc. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands) September 25, December 26, 1999 1998 ------------- ------------ (Unaudited) ASSETS - ------ CURRENT ASSETS: Cash and cash equivalents $ 28,010 $ 27,254 Accounts receivable, less allowance for doubtful accounts of $11,674 and $12,111 822,901 599,999 Inventories 587,035 405,418 Deferred income tax benefits, prepaid expenses and other 69,690 64,144 --------- --------- TOTAL CURRENT ASSETS 1,507,636 1,096,815 Property, plant and equipment, less accumulated depreciation of $914,181 and $843,937 1,269,039 1,072,093 Goodwill, net of accumulated amortization of $177,194 and $158,808 881,501 724,089 Other assets 95,613 115,099 --------- --------- $3,753,789 $3,008,096 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Notes payable to banks $ 588,948 $ 140,967 Accounts payable 347,788 315,861 Deferred income taxes and other current liabilities 427,838 408,984 --------- --------- TOTAL CURRENT LIABILITIES 1,364,574 865,812 Long-term debt and capital lease obligations 587,620 575,522 Deferred income taxes and other liabilities 173,651 165,848 STOCKHOLDERS' EQUITY: Common stock at par value 4,750 4,750 Additional paid-in capital 401,925 405,278 Retained earnings 1,292,551 1,067,725 Accumulated other comprehensive income (10,529) (16,456) Treasury stock (60,753) (60,383) --------- --------- TOTAL STOCKHOLDERS' EQUITY 1,627,944 1,400,914 --------- --------- $3,753,789 $3,008,096 ========= ========= See accompanying notes to condensed consolidated financial statements. -2- IBP, inc. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited) (In thousands, except per share data) 13 Weeks Ended 39 Weeks Ended -------------------- --------------------- Sept. 25, Sept. 26, Sept. 25, Sept. 26, 1999 1998 1999 1998 --------- --------- --------- --------- Net sales $3,648,390 $3,210,689 $10,224,509 $9,769,973 Cost of products sold 3,384,759 3,017,438 9,573,696 9,346,752 --------- --------- ---------- --------- Gross profit 263,631 193,251 650,813 423,221 Selling, general and administrative expense 98,726 77,319 266,252 206,092 --------- --------- ---------- --------- EARNINGS FROM OPERATIONS 164,905 115,932 384,561 217,129 Interest expense, net 11,999 9,951 33,014 34,596 --------- --------- ---------- --------- Earnings before income taxes and extraordinary item 152,906 105,981 351,547 182,533 Income tax expense 44,300 40,400 119,800 69,500 --------- --------- ---------- --------- Earnings before extraordinary item 108,606 65,581 231,747 113,033 Extraordinary loss on early extinguishment of debt, less applicable taxes - - - (14,815) --------- --------- ---------- --------- NET EARNINGS $ 108,606 $ 65,581 $ 231,747 $ 98,218 ========= ========= ========== ========= Earnings per share: Earnings before extraordinary item $1.18 $ .71 $2.51 $1.22 Extraordinary item - - - (.16) ---- ---- ---- ---- Net earnings $1.18 $ .71 $2.51 $1.06 ==== ==== ==== ==== Earnings per share - assuming dilution: Earnings before extraordinary item $1.16 $ .70 $2.48 $1.21 Extraordinary item - - - (.16) ---- ---- ---- ---- Net earnings $1.16 $ .70 $2.48 $1.05 ==== ==== ==== ==== Dividends per share $.025 $.025 $.075 $.075 ==== ==== ==== ==== See accompanying notes to condensed consolidated financial statements. -3- IBP, inc. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands) 39 Weeks Ended --------------------------- Sept. 25, Sept. 26, 1999 1998 ---------- ---------- Inflows(outflows) NET CASH FLOWS PROVIDED BY OPERATING ACTIVITIES $ 51,204 $ 128,365 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Acquisitions, net of cash acquired (394,599) - Capital expenditures (141,349) (123,182) Proceeds from disposals of marketable securities 20,800 177,370 Purchases of marketable securities ( 19,400) (200,227) Investment in life insurance contracts - (33,000) Other investing activities, net 6,896 4,686 -------- -------- Net cash flows used by investing activities (527,652) (174,353) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Increase in borrowings under revolving credit agreements 448,000 113,500 Net change in checks in process of clearance 39,725 1,665 Proceeds from issuance of long-term debt 3,020 49,766 Principal payments on long-term obligations (2,660) (113,765) Premiums paid on early retirement of debt - (20,636) Other financing activities, net (10,664) (13,513) -------- -------- Net cash flows provided by financing activities 477,421 17,017 -------- -------- Effect of exchange rate on cash and cash equivalents (217) (119) -------- -------- Net change in cash and cash equivalents 756 (29,090) Cash and cash equivalents at beginning of period 27,254 69,022 -------- -------- Cash and cash equivalents at end of period $ 28,010 $ 39,932 ======== ======== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the periods for: Interest, net of amounts capitalized $ 35,997 $ 45,424 Income taxes, net of refunds received 124,099 26,140 Depreciation and amortization expense 81,300 74,841 Amortization of intangible assets 19,313 19,731 See accompanying notes to condensed consolidated financial statements. -4- IBP, inc. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS A. GENERAL The condensed consolidated balance sheet of IBP, inc. and subsidiaries ("IBP" or "the company") at December 26, 1998 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 26, 1998. 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 September 25, 1999 and the results of its operations and its cash flows for the periods presented herein. 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: September 25, December 26, 1999 1998 ------------- ------------ (In thousands) Product inventories: Raw materials $ 39,375 $ 22,552 Work in process 85,863 69,790 Finished goods 240,597 148,542 ------- ------- 365,835 240,884 Livestock 133,745 89,321 Supplies 87,455 75,213 ------- ------- $587,035 $405,418 ======= ======= -5- D. EARNINGS PER SHARE (in thousands, except per share amounts) For the Thirteen Weeks Ended Sept. 25, 1999 ------------------------------------------- Earnings Shares Per Share (Numerator) (Denominator) Amount ----------- ------------- --------- Basic EPS: Net earnings $108,606 92,284 $1.18 ======= ==== Effect of dilutive securities: Employee stock plans 1,074 ------ Diluted EPS $108,606 93,358 $1.16 ======= ====== ==== For the Thirteen Weeks Ended Sept. 26, 1998 ------------------------------------------- Earnings Shares Per Share (Numerator) (Denominator) Amount ----------- ------------- --------- Basic EPS: Earnings before extraordinary item $ 65,581 92,495 $ .71 ======= ==== Effect of dilutive securities: Employee stock plans 759 ------ Diluted EPS $ 65,581 93,254 $ .70 ======= ====== ==== For the Thirty-nine Weeks Ended Sept. 25, 1999 ---------------------------------------------- Earnings Shares Per Share (Numerator) (Denominator) Amount ----------- ------------- --------- Basic EPS: Net earnings $231,747 92,284 $2.51 ======= ==== Effect of dilutive securities: Employee stock plans 1,001 ------ Diluted EPS $231,747 93,285 $2.48 ======= ====== ==== For the Thirty-nine Weeks Ended Sept. 26, 1998 ---------------------------------------------- Earnings Shares Per Share (Numerator) (Denominator) Amount ----------- ------------- --------- Basic EPS: Earnings before extraordinary item $113,033 92,540 $1.22 ======= ==== Effect of dilutive securities: Employee stock plans 845 ------ Diluted EPS $113,033 93,385 $1.21 ======= ====== ==== 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. 1999 1998 ------ ------ Stock options excluded from diluted EPS computation 937 2,014 Average option price per share $25.55 $23.67 -6- 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 thirty- nine weeks ended Sept. 25, 1999 and Sept. 26, 1998 was as follows (unaudited): 39 Weeks Ended ----------------------- Sept. 25, Sept. 26, 1999 1998 --------- --------- (in thousands) NET EARNINGS $108,606 $98,218 Other comprehensive income: Foreign currency translation adjustments 5,927 (5,961) ------- ------ COMPREHENSIVE INCOME $114,533 $92,257 ======= ====== F. COMMITMENTS AND CONTINGENCIES IBP is involved in numerous disputes incident to the ordinary course of its business. In the opinion of management, 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 consolidated results of operations, 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, inter alia, 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, although plaintiffs have not specified the amounts they seek. 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 on April 28, 1999. However, the Court noted, in response to concerns raised about conflicts within the class and about plaintiffs' ability to prove their theory on a class-wide basis, that it could decertify the class as discovery proceeds. The 11th Circuit granted IBP's request for a review of the class certification decision and is expected to issue an opinion in early 2000. Management continues to believe that the company has acted properly and lawfully in its dealings with cattle producers. -7- IBP recently received notice that the U.S. Environmental Protection Agency ("EPA") had referred several alleged violations of various environmental laws involving IBP's Dakota City, Nebraska, facility to the U.S. Department of Justice ("DOJ") for further handling. These violations include, without limitation, alleged violations of the Clean Air Act and the Clean Water Act. IBP has agreed to toll the statute of limitations and pursue discussions with DOJ and EPA in an effort to reach an amicable resolution on these issues. G. ACQUISITIONS Early in the second quarter 1999, the company acquired the outstanding stock of two companies, H&M Food Systems Company, Inc. ("H&M") and Zemco Industries, Inc., the owner of Russer Foods. H&M is a producer of custom-formulated pre-cooked meat products and prepared foods with two plants in Texas. Russer Foods, based in Buffalo, New York, produces and markets a variety of premium deli meats. Both operations will operate as part of IBP's Foodbrands America, Inc. ("Foodbrands") subsidiary. Early in the third quarter 1999, Foodbrands acquired Wilton Foods, Inc., ("Wilton Foods") a leading producer of premium kosher meals and prepared foods for airlines and institutions. Wilton Foods, based in Goshen, New York, also produces premium kosher hors d'oeuvres and appetizers. In late August 1999, IBP, through its IBP Foods, Inc. subsidiary, purchased substantially all of the operating assets of Thorn Apple Valley, Inc. ("TAVI"), a further processor of pork and poultry products, which had been involved in bankruptcy proceedings. The purchase of the TAVI assets includes five processing plants, most of its current assets and a number of product brand names. The following pro forma financial information assumes the above businesses were acquired at the beginning of 1998. These results have been prepared for comparative purposes only and do not purport to be indicative of what would have occurred had the businesses been acquired at the beginning of 1998, or of the results which may occur in the future. The pro forma results do not include TAVI's discontinued fresh pork operation which IBP did not purchase. However, the pro forma results do include significant nonrecurring charges related to goodwill and asset impairments, Russian credit losses, product recalls and bankruptcy-related legal and financing expenses. 39 Weeks Ended -------------------------- Sept. 25, Sept. 26, 1999 1998 ----------- ----------- (in thousands, except per share data) Net sales $10,704,870 $10,327,599 Earnings from operations 341,201 241,068 Earnings before extraordinary items 166,042 124,603 Net earnings 166,042 107,965 Earnings per diluted share: Earnings before extraordinary items $1.78 $1.33 Net earnings 1.78 1.16 -8- H. BUSINESS SEGMENTS The company is managed and operated as two divisions, Fresh Meats and Enterprises, 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 Enterprises segment consists of three IBP subsidiaries: Foodbrands, The Bruss Company ("Bruss") and IBP Foods, Inc. The Enterprises group produces, markets and distributes a variety of frozen and refrigerated products to the retail and "away from home" food preparation markets. These 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. Enterprises 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 39 Weeks Ended --------------------- --------------------- Sept. 25, Sept. 26, Sept. 25, Sept. 26, 1999 1998 1999 1998 --------- --------- --------- --------- (in thousands) NET SALES - --------- Sales to unaffiliated customers: Fresh Meats $3,191,811 $2,922,803 $ 9,097,244 $8,933,620 Enterprises 456,579 287,886 1,127,265 836,353 --------- --------- ---------- --------- 3,648,390 $3,210,689 10,224,509 9,769,973 ========= ========= ========== ========= Intersegment sales: Fresh Meats 75,819 47,204 190,769 138,215 Intersegment elimination (75,819) (47,204) (190,769) ( 138,215) --------- ---------- ---------- --------- - - - - --------- ---------- ---------- --------- Net sales: Fresh Meats 3,267,630 2,970,007 9,288,013 9,071,835 Enterprises 456,579 287,886 1,127,265 836,353 Intersegment elimination (75,819) (47,204) (190,769) (138,215) --------- --------- ---------- --------- $3,648,390 $3,210,689 $10,224,509 $9,769,973 ========= ========= ========== ========= -9- EARNINGS FROM OPERATIONS - ------------------------ Fresh Meats $ 142,234 $ 96,378 $ 316,991 $ 164,200 Enterprises 22,671 19,554 67,570 52,929 -------- --------- ---------- --------- Total earnings from operations 164,905 115,932 384,561 217,129 Net interest expense (11,999) ( 9,951) (33,014) (34,596) -------- --------- ---------- --------- Pre-tax earnings $ 152,906 $ 105,981 $ 351,547 $ 182,533 ======== ========= ========== ========= NET SALES BY LOCATION - --------------------- OF CUSTOMERS ------------ United States $3,092,442 $2,755,085 $ 8,664,436 $8,299,086 Japan 209,635 190,033 618,781 609,425 Canada 132,272 107,878 380,634 350,839 Korea 63,109 32,130 152,918 91,647 Mexico 49,698 44,816 133,365 126,175 Other foreign countries 101,234 80,747 274,375 292,801 --------- --------- ---------- --------- $3,648,390 $3,210,689 $10,224,509 $9,769,973 ========= ========= ========== ========= -10- MANAGEMENT'S DISCUSSION AND ANALYSIS ------------------------------------ The matters discussed herein contain forward-looking statements. 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. ACQUISITIONS - ------------ Early in the second quarter 1999, the company acquired the outstanding stock of two companies, H&M Food Systems Company, Inc. ("H&M") and Zemco Industries, Inc., the owner of Russer Foods. H&M is a producer of custom-formulated pre-cooked meat products and prepared foods with two plants in Texas. Russer Foods, based in Buffalo, New York, produces and markets a variety of premium deli meats. Both operations will operate as part of IBP's Foodbrands America, Inc. ("Foodbrands") subsidiary. Early in the third quarter 1999, Foodbrands acquired Wilton Foods, Inc., ("Wilton Foods") a leading producer of premium kosher meals and prepared foods for airlines and institutions. Wilton Foods, based in Goshen, New York, also produces premium kosher hors d'oeuvres and appetizers. In late August 1999, IBP, through its IBP Foods, Inc. subsidiary, purchased substantially all of the operating assets of Thorn Apple Valley, Inc. ("TAVI"), a further processor of pork and poultry products, which had been involved in bankruptcy proceedings. The purchase of the TAVI assets includes five processing plants, most of its current assets and a number of product brand names. RESULTS OF OPERATIONS - --------------------- Fresh Meats' operating earnings improved to 4.5% of net sales in the third quarter 1999 versus 3.3% in the third quarter 1998. On a year-to-date basis through September, the 1999 operating margin as a percentage of net sales, before non-recurring charges, was 3.7% compared to 1.8% in the prior year. Both beef and pork operations performed above prior year levels due to steady to higher levels of plant capacity utilization, improved domestic and export demand and relatively stable livestock prices. -11- In the second quarter 1999, Fresh Meats incurred a pre-tax, non- cash charge of $17 million for cow slaughter and boning operation impairment write-downs. IBP's Palestine, Texas, cow plant, which closed in April 1999, was written off as part of the charge. The charge also included write-downs related to its Tama, Iowa, cow plant, which the company announced in October 1999 will close permanently in December 1999. The charge reduced year-to-date 1999 net earnings by $10 million or $.11 per diluted share. Enterprises' third quarter 1999 operating earnings decreased to 5.0% of net sales compared to 6.8% in the third quarter 1998. Through nine months, the comparable figures were 6.0% in 1999 versus 6.3% in 1998. Higher 1999 raw material and selling costs were the primary factors which reduced margins. Estimates prepared by the United States Department of Agriculture ("USDA") and various industry analysts predict that beef production in 1999 will likely exceed 1998 levels. Also, significant reported placements into feedlots in recent months should translate into ample supplies into next year. At the same time, pork production is expected to remain strong for the remainder of 1999 and into 2000. Cattle and hog supplies are predicted to be down somewhat during the latter part of 2000, but management believes they will be sufficient for suitable production levels. During the first quarter 1998, the company completed its purchase of all of Foodbrands' $112 million outstanding 10.75% Senior Subordinated Notes. Net prepayment premiums, accelerated amortization of unamortized deferred financing costs, and transaction expenses totaled $23.9 million, before applicable income tax benefit of $9.1 million, and was accounted for as an extraordinary loss in the condensed consolidated statement of earnings. 13 Weeks Ended 39 Weeks Ended --------------------- ---------------------- Sept. 25, Sept. 26, Sept. 25, Sept. 26, 1999 1998 1999 1998 ---------- ---------- ---------- ---------- Net Sales: Fresh Meats $3,191,811 $2,922,803 $ 9,097,244 $8,933,620 Enterprises 456,579 287,886 1,127,265 836,353 --------- --------- ---------- --------- $3,648,390 $3,210,689 $10,224,509 $9,769,973 ========= ========= ========== ========= Earnings from Operations: Fresh Meats: Before Non-recurring Charges $142,234 $96,378 $333,686 $164,200 ======= ====== ======= ======= After Non-recurring Charges $142,234 $96,378 $316,991 $164,200 ======= ====== ======= ======= Enterprises $ 22,671 $19,554 $ 67,570 $ 52,929 ======= ====== ======= ======= -12- SALES In the third quarter 1999, Fresh Meats' net sales increased 9% over the third quarter 1998. Increased pounds of beef products sold was the chief contributing factor, while average beef selling prices were also higher. Pork selling prices and volume were off slightly in the third quarter 1999 versus the year-earlier period. Enterprises' 59% net sales increase from the prior year third quarter was due in large part to Foodbrands' acquisitions (the appetizer division of the Diversified Food Group ("DFG Foods"), which was acquired in the fourth quarter 1998, as well as the 1999 acquisitions Russer Foods, H&M, Wilton Foods and IBP Foods), although existing Enterprises' net sales increased 13%, primarily on volume. For the nine months ended September, the 2% increase in Fresh Meats' 1999 net sales over 1998 was the result of increased pounds of beef products sold, partially offset by lower average pork selling prices. Enterprises' 1999 net sales through September increased 35% over the first nine months of 1998. Excluding acquisitions, net sales increased 9% due to sales volume increases at Bruss and other Foodbrands divisions. Export volumes increased 10% in the third quarter and 7% in the first nine months of 1999 compared to the same 1998 periods. At the same time, net export dollar sales during the third quarter 1999 increased 10% over the second quarter 1999 and 19% above the third quarter 1998. Meanwhile, year-to-date export dollars through September increased 3% over the first nine months of 1998. Net export sales accounted for 12% of year-to-date 1999 and 1998 net sales. Economic conditions in the Far East appear to be improving, as evidenced by support of higher IBP selling prices and a sales mix to the region shifting toward higher value products. Year-to-date 1999 export sales dollars to Japan, IBP's most significant export destination, increased 2% over 1998 despite a volume decrease of 8% from the prior year. Additionally, year-to-date 1999 export volume into Korea and Taiwan was up significantly over the first nine months of 1998. Closer to home, export volumes and dollar sales to customers in Mexico were up solidly during the first nine months of 1999 versus 1998. COST OF PRODUCTS SOLD In the third quarter, Fresh Meats' 1999 cost of products sold increased 8% from the third quarter 1998 as both beef production volumes and average live cattle prices increased from the prior year quarter. The production volume increase also caused higher beef plant costs. Enterprises' third quarter 1999 cost of products sold increased 63% from the third quarter 1998. Excluding acquisitions, the increase was 14% as the volume of products sold increased and raw materials prices also were higher. -13- In the year-to-date period ended September, Fresh Meats' cost of products sold in 1999 was comparable with 1998. Lower average live hog prices were the most significant factor, offset somewhat by higher live cattle prices and increased volume of Fresh Meats products sold. Plant costs were also higher, due in part to the second quarter 1999 $17 million of cow plant asset write-downs mentioned earlier. Enterprises' nine months' cost of products sold in 1999 versus 1998 increased 35% from the first half of 1998. Excluding acquisitions, the increase was 8% primarily due to higher volume of products sold. SELLING, GENERAL AND ADMINISTRATIVE EXPENSE Third quarter and nine months' 1999 expenses increased 28% and 29%, respectively, over the comparable 1998 periods. The increases were chiefly a result of new acquisitions, corporate salaries, consulting expense, and a $7 million second quarter 1998 credit for export-related harbor maintenance tax refunds. INTEREST EXPENSE Third quarter 1999 net interest expense increased 21% over the third quarter 1998. Average borrowings for the 1999 period increased 29% due to business acquisitions, although the effective interest rate in the third quarter 1999 was lower by 37 basis points. The 5% decrease in year-to-date 1999 net interest expense versus the first nine months of 1998 was due primarily to a lower, by 50 basis points, average effective interest rate offset somewhat by 12% higher average borrowings in 1999. Average borrowings and net interest expense will continue at higher levels in the fourth quarter 1999 and into 2000 because of the additional borrowings required for the recent acquisitions and the increased capital expenditures. INCOME TAXES IBP's effective income tax rate in the third quarter 1999 decreased to 29% and was 34% through nine months, compared to 38% for the comparable 1998 periods. The 1999 rate reduction resulted from a settlement with the Internal Revenue Service on all audit issues related to fiscal years 1989, 1990 and 1991. The settlement decreased 1999 income tax expense by $14 million or $0.15 per diluted share. Management expects that its full-year 1999 effective tax rate, excluding the audit settlement impact, will be in the 38% range. LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- The acquisitions of Russer Foods, H&M, Wilton Foods and the TAVI assets required cash payments of approximately $395 million, which were funded with available unused credit facilities. The company intends to secure longer-term financing for some or all of the borrowings at a later date. -14- Total outstanding borrowings averaged $958 million in the first nine months of 1999 compared to $858 million in the comparable 1998 period. The higher 1999 average outstanding borrowings versus the first nine months of 1998 were due primarily to the aforementioned 1999 acquisitions. Borrowings outstanding under committed and uncommitted credit facilities at September 25, 1999 totaled $764 million compared to $316 million at December 26, 1998, and available unused credit capacity under committed facilities was $50 million. Working capital and related liquidity ratios at September 25, 1999 have decreased compared to a year ago and last year-end, due to the higher level of short-term borrowings. Meanwhile, consolidated receivables and inventory turnover rates have slowed somewhat as IBP's growing value-added operations, with their typically slower turns, have become a more significant part of IBP's business. For IBP's Fresh Meats business, turnover rates were in line with historical comparisons. Year-to-date capital expenditures through September 25, 1999 totaled $141 million compared to $123 million in the first nine months of 1998. Significant projects with 1999 spending included various beef plant food safety projects, several plant expansions, and completion of the company's world headquarters complex. Approximately one half of the 1999 spending was for revenue enhancement or cost-saving projects, while the remainder generally went toward upgrades and replacements of existing equipment and facilities. YEAR 2000 - --------- The "Year 2000" problem relates to computer systems that have time and date-sensitive programs that were designed to read years beginning with "19," but may not properly recognize the year 2000. If a computer system or other equipment with embedded chips or processors (collectively, "Business Systems") used by the company or a third party dealing with the company fails because of the inability of the system or application to properly read the year "2000", the results could conceivably have a material adverse effect on the company. This Year 2000 issue can arise at any point in the company's supply, manufacturing, processing, distribution, and financial chains. The company has an internal team responsible for assessing the impact of Year 2000 and leading and monitoring the company's state of readiness with respect to this issue. The planning, implementation and primary testing phases are finished. The team has continued to do follow-up testing and monitoring of the company's systems. As part of the Year 2000 readiness program, significant service providers, vendors, suppliers, customers, and governmental entities ("Key Business Partners") that are considered critical to business operations around January 1, 2000, have been identified. Steps have been taken to reasonably ascertain their stage of Year 2000 readiness as it relates directly or indirectly to the company. -15- The possible consequences of the company or its Key Business Partners not being fully Year 2000 compliant by January 1, 2000 include, among other things, temporary plant closings, delays in the delivery of products and/or receipt of supplies, invoice and collection errors and inventory and supply obsolescence. However, the company believes that its Year 2000 readiness program, including the contingency planning discussed below, should significantly reduce the adverse effect any such disruptions may have. The company has in place a formal contingency plan to address risks considered critical to operations. In addition, the progress of the Year 2000 readiness program has been closely monitored and additional measures will be taken as risks arise. Such measures may include stockpiling critical supplies and packaging materials, securing alternate sources of supplies or services, and other appropriate measures. It is currently estimated that the aggregate cost of the company's Year 2000 efforts will be approximately $13 million, virtually all of which has been spent or committed. The spending included approximately $8 million for computer hardware, most of which was capitalized. The remaining $5 million was primarily for computer software, all of which has been expensed as incurred and funded with operating cash flows. The company's Year 2000 readiness program is an ongoing process and the estimates of costs and completion dates for various components of the Year 2000 readiness program described above are subject to change. -16- Item 5. Other Information - -------------------------- In connection with its Medium-Term Notes program, the company hereby reports the following computations: 39 Weeks Ended ---------------------- Sept. 25, Sept. 26, 1999 1998 --------- --------- Earnings before income taxes and extraordinary item $351,547 $182,553 Total fixed charges 49,223 48,858 Capitalized interest (6,687) (5,792) ------- ------- Earnings before fixed charges, income taxes and extraordinary item $394,083 $225,619 ======= ======= Ratio of earnings to fixed charges 8.0 4.6 === === 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 September 25, 1999. -17- 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) November 8, 1999 /s/ Robert L. Peterson ---------------------- ---------------------------- (date) Robert L. Peterson Chairman of the Board and Chief Executive Officer /s/ Larry Shipley ---------------------------- Larry Shipley Chief Financial Officer and President of IBP Enterprises /s/ Craig J. Hart ---------------------------- Craig J. Hart Vice President and Controller -18- EX-27 2
5 1,000 9-MOS DEC-25-1999 SEP-25-1999 28,010 0 834,575 11,674 587,035 1,507,636 2,183,220 914,181 3,753,789 1,364,574 587,620 0 0 4,750 1,623,194 3,753,789 10,224,509 10,224,509 9,573,696 9,573,696 266,252 0 33,014 351,547 119,800 231,747 0 0 0 231,747 2.51 2.48
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