SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[ X ] Annual report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended August 31, 1998 or [ ] Transition report
pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 for the
transition period from _________ to _________.
Commission File No. 1-13479
AGRIBRANDS INTERNATIONAL, INC.
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(Exact name of registrant as specified in its charter)
MISSOURI 43-1794250
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(State of Incorporation) (I.R.S. Employer Identification No.)
9811 SOUTH FORTY DRIVE, ST. LOUIS MISSOURI 63124
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(Address of principal executive offices) (Zip Code)
(314) 812-0500
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(Registrant's telephone number, including area code)
Securities Registered Pursuant to Section 12(b) of the Act:
Name of each Exchange
Title of Each Class on which Registered
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Agribrands International, Inc. New York Stock Exchange, Inc.
Common Stock, par value $.01 per share
Securities Registered Pursuant to Section 12(g) of the Act: None
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 (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting stock held by nonaffiliates of the
Registrant is $249,017,958, based upon the closing market price on October 1,
1998. Excluded from this figure is the voting stock held by Registrant's
Directors, who are the only persons known to Registrant who may be considered to
be its "affiliates" as defined under Rule 12b-2.
The number of shares of Common Stock, $.01 par value, outstanding as of the
close of business on October 1, 1998: 10,668,571.
Documents Incorporated by Reference:
Portions of Registrant's 1999 Notice of Annual Meeting and Proxy Statement
(to be filed) are incorporated by reference into Part III of the Form 10-K.
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TABLE OF CONTENTS
Page
INTRODUCTION
Forward Looking Statements 1
Risk Factors 1
PART I
Item 1 Business 7
Item 2. Properties 12
Item 3. Legal Proceedings 14
Item 4. Submission of Matters to a Vote of Security Holders 15
PART II
Item 5. Market for the Registrant's Common Stock and Related
Stockholder Matters 15
Item 6. Selected Financial Data 16
Item 7. Management's Discussion and Analysis of Financial Condition
And Results of Operations 17
Item 7A. Quantitative and Qualitative Disclosures about Market Risk 27
Item 8. Financial Statements and Supplementary Data 27
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosures 53
PART III
Item 10. Directors and Executive Officers of the Registrant 53
Item 11. Executive Compensation 53
Item 12. Security Ownership of Certain Beneficial Owners and Management 53
Item 13. Certain Relationships and Related Transactions 53
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 54
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FORWARD-LOOKING STATEMENTS
Certain statements in this report are "forward-looking statements" within
the meaning of the federal securities law. This includes statements concerning
plans and objectives of management relating to Agribrands' operations or
economic performance, and assumptions related thereto. Because such
forward-looking statements involve risks and uncertainties, there are important
factors that could cause actual events or results to differ materially from
those expressed or implied by such forward-looking statements.
RISK FACTORS
Company and Industry Specific Risks
Limited Operating History as an Independent Company
The assets associated with Ralston Purina Company's ("Ralston")
international animal feeds and agricultural products business were first
contributed to Agribrands International, Inc. ("Agribrands" or "Company") on
April 1, 1998 (the "Distribution Date") when the shares of Agribrands were
distributed to the Ralston shareholders (the "Distribution"). As a result,
Agribrands has a limited operating history as an independent company. While the
business conducted by Agribrands and its subsidiaries was profitable as part of
Ralston, there is no assurance that it can be operated profitably as a
stand-alone public company. In addition, from time to time, certain local
operations of Agribrands have operated at a loss. Agribrands is no longer able
to rely on Ralston for financial support or benefit from its relationship with
Ralston to obtain credit or receive favorable terms for the purchase or sale of
certain goods and services. In addition, except for certain transitional
services, Agribrands is responsible for its own corporate administrative
services such as tax, treasury, accounting, legal, research and development,
information systems and human resources.
Obligations to Ralston
Under agreements entered into with Ralston at the time of the Distribution,
Agribrands has agreed to indemnify Ralston against, among other things,
liabilities relating to the operation of the Agribrands business and other
former businesses associated with Ralston's international animal feeds
operations, or the ownership of the assets utilized in those businesses, except
to the extent such were assumed or retained by Ralston. Agribrands has also
agreed that neither Agribrands nor its subsidiaries will enter into certain
transactions, which could cause the Distribution to be determined to be a
taxable event for three years following the Distribution, and to indemnify
Ralston and its shareholders as of the date of the Distribution against tax
liabilities incurred by reason of the Distribution being a taxable event if
Agribrands engages in any such transactions.
Animal Feeds Industry
The Company, as a supplier of animal feeds and other agricultural products,
is subject to the risks and uncertainties associated with the animal production
industry and the resulting fluctuations in demand for Agribrands' products. The
animal production industry, and consequently the animal feeds industry, in a
particular country, can be negatively affected by a number of factors, including
the following: the prices of commodities and the ability to pass costs on to
customers; the market price of livestock, poultry and other animals and their
food products; alternative feed sources; changes in consumer demand for, and
consumption of, grain, meat, fish, milk and eggs; outbreaks of diseases in
humans or animals (such as BSE or "mad cow disease," foot and mouth disease or
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aviarian virus); real estate values; urban development; weather conditions;
government farm programs; government regulations; restrictive quota policies and
trade policies and tariffs; production difficulties, including capacity and
supply surpluses and constraints; and general economic conditions, either
locally, regionally or globally. In certain markets, the increasing nutritional
efficiency of available feeds has resulted in lower volume demand for feeds.
Profit pressure and overcapacity in various markets has led to consolidation of
both the feed production and animal production industries in those markets.
Larger animal producers have tended to integrate their business by acquiring or
constructing feed production facilities to meet some or all of their feed
requirements, and consequently have relied less on outside suppliers of animal
feeds.
Significant Competitive Activity
There is substantial excess capacity in the animal feed business worldwide,
including the countries in which the Company operates. The Company currently
faces intense, and as a result of consolidation may face increasingly intense,
competition from large multinational and other international as well as local
and regional feed manufacturers, cooperatives, single-owner establishments and,
in the case of a number of countries, government feed companies. Some of these
competitors are larger and have greater financial resources than Agribrands, and
in some countries cooperatives and government feed companies may have
significant financial and political advantages. Because of limited technological
or capital constraints on entry to the animal feed industry and the extremely
fragmented nature of the industry, new competitors with relatively modest return
objectives can arise in any market at any time. In addition, lower priced
alternative feed sources or methods of feeding may be elected by Agribrands'
customers during times of weak economic conditions affecting their markets and
operations.
The animal feed and animal production industries are consolidating as a
result of end-product price pressures and overcapacity, and management expects
this trend to continue. The tendency of large producers to vertically integrate
their businesses by acquiring or constructing feed production facilities has at
times led to significantly less reliance on outside suppliers of feed. As the
consolidation of animal producers continues, competition is likely to increase
among independent feed suppliers, and that industry is also likely to
consolidate.
Competition is based upon price, product quality and efficiency, customer
service and the ability to identify and satisfy animal production needs in
particular countries. The Company from time to time experiences price pressure
in certain of its markets as a result of competitors' pricing practices. As the
Company operates on an international basis and markets a broad line of animal
feeds and other agricultural products, it bears higher costs associated with a
multi-layered distribution system, a complex production system, and tax and
financing obligations imposed by its international and multi-currency structure.
Such higher costs may restrict its ability to compete in particular markets on
the basis of price.
Also, low commodity prices may reduce the value of and demand for complete
feeds as livestock and poultry feeders switch pre-mix or concentrate products
which are mixed with directly acquired commodities. A significant reduction in
demand for complete feeds could materially affect the utilization of the
Company's fixed assets thereby affecting its financial performance.
Raw Material Price Volatility
The prices of raw materials generally dictate that the principal raw
materials used in the Company's business, such as grain, grain products and
protein ingredients, be sourced locally rather than regionally or globally, and
as a result the costs associated with raw materials procurement are especially
susceptible to currency fluctuations and fluctuations due to weather conditions,
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crop disease or pestilence, government regulations, economic climate, labor
disputes or other unforeseen circumstances, and such fluctuation may be
volatile. Operating results may be affected by the price volatility of raw
materials which constitute a substantial component of the cost of goods sold for
the Company's business. The rapid turnover of certain raw material inventory
items and, for certain products, the ability to substitute alternative lower
cost ingredients to produce feeds with specified nutritional characteristics at
a lower total cost may provide Agribrands with some protection against
fluctuating raw material prices. Agribrands believes that adequate supplies of
its necessary raw materials are available at the present time, but cannot
predict future availability or prices of such products and materials. There can
be no assurance that Agribrands will be able to pass increases in raw material
costs through to its customers in the form of price increases, and any such
inability would have an adverse impact upon the profitability of Agribrands.
Agribrands may from time to time hedge its commodities purchases or otherwise
take market positions in various ingredients. Although such transactions would
be intended to assure supply or establish ingredient costs for anticipated sales
volume, such transactions may under certain circumstances magnify the adverse
effect of unanticipated changes in market prices.
Non-Compete Agreements
The Company has agreed with Ralston that, until April 1, 2003, the Company
will not engage in the manufacture, distribution or sale of foods for pets, pet
products, pet supplies, pet accessories, litter or personal care products for
cats, dogs or other pets, subject to certain limited exceptions. If the Company
does enter into any of those businesses following the restriction period, it
will not have the right to use its trademarks Purina(R) and Chow(R) and the
"Checkerboard" Nine Square Logo(R), on pet food products, other than products
produced for Ralston, or provided by Ralston.
Year 2000 and European Economic and Monetary Union
Many computer systems and other systems with embedded chip technology
process dates based on two digits for the year of a transaction rather than a
full four digits. These systems are unable to properly process dates in the year
2000 and beyond. Agribrands utilizes a number of computer systems across its
entire worldwide operation. The Company has identified its significant software
coding issues related to the year 2000 date recognition for key financial and
operational systems. The Company has already resolved the year 2000 matter at a
number of its locations and plans to continue resolving the matter through
either replacement of existing systems with new year 2000 compatible systems or
reprogramming existing systems. The Company incurred costs of less than $0.5
million in 1998 for year 2000 reprogramming of existing systems. Year 2000
reprogramming costs were negligible in 1997 and 1996 as Agribrands was
converting to new systems in anticipation of the Distribution. To make all of
its systems year 2000 compliant, the Company estimates incurring an additional
$0.5 million of reprogramming costs and spending an additional $1.7 million on
replacement hardware and software. Completion of all reprogramming, hardware and
software replacement, and appropriate testing is expected to occur by August 31,
1999. All costs related to the reprogramming of existing systems for the year
2000 issue are expensed as incurred. Hardware and software replacement costs
will be capitalized.
Based on the Company's efforts to date, management believes that its
systems will be year 2000 compliant. The Company is working with its key
customers and suppliers to obtain assurances that their systems are year 2000
compliant. However, the Company does not have any control over these third
parties and, as a result, cannot currently determine to what extent future
operating results may be adversely effected by the failure of these third
parties to successfully address their year 2000 issues. In addition, the Company
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operates in sixteen countries on four continents at various stages of economic
development and is dependent on systems operated by governments, financial
institutions, utilities, communications suppliers and others in each of these
countries. The failure of any of such infrastructural systems to be year 2000
compliant could disrupt the Company's business for a period of time and if not
quickly resolved could have a material adverse effect on the Company. The
Company has not yet developed formal contingency plans in the event of a Year
2000 failure.
On January 1, 1999, eleven of the European Union countries (including four
countries where Agribrands' operations are located) are scheduled to adopt the
Euro as their single currency, and there will be fixed conversion rates between
their existing currencies ("legacy currencies") and the Euro. The Euro will then
trade on currency exchanges and be available for noncash transactions. Following
the introduction of the Euro, the legacy currencies will remain legal tender in
the participating countries during the transition period from January 1, 1999
through January 1, 2002. Beginning on January 1, 2002, the European Central Bank
will issue Euro-denominated bills and coins for use in cash transactions. On or
before July 1, 2002, the participating countries will withdraw all legacy bills
and coins and use the Euro as their legal currency.
The Company's key financial information systems in Europe are equipped to
process both Euro and legacy currency transactions during the transition period
from January 1, 1999 through January 1, 2002; however, they are not equipped to
handle the July 1, 2002 withdrawal of all legacy currencies. As part of an
initiative to make all of the Company's key financial systems consistent across
the organization, management is planning to replace these old systems with a new
system that can handle the July 1, 2002 mandatory conversion to the Euro. All
costs associated with the new system will be capitalized. The Company has not
incurred any reprogramming costs in connection with the conversion to the Euro
and does not anticipate incurring any such costs in the future. From a broader
business perspective, conversion to the Euro may cause pricing disparities in
different markets to narrow, lowering the Company's margins.
Foreign Operations Risk
Worldwide Regulatory and Political Risk
The Company has interests in operating companies in 16 countries around the
world and is subject to government regulation and political risk in each market.
Because the Company operates through its subsidiaries, the Company is subject to
regulation by numerous common market, national and local governmental entities
and agencies around the world. Changes in the laws or administrative practices
relating to foreign ownership and control, local employment and benefits, air
and water quality, noise pollution, underground fuel storage tanks, waste
handling and disposal and other regulations intended to protect public health
and the environment, currency exchange controls, alienability of property,
taxation or other matters in any of such jurisdictions could have a material
adverse effect on the operations and prospects of the Company in such
jurisdiction and as a whole. Such countries differ widely with respect to legal
and political structure and stability and some of such countries lack stable
legal and regulatory systems. For example, many European countries, as well as
the European Union, have been very active in adopting and enforcing food
handling regulations, while many developing countries in which the Company
operates have not adopted or enforced significant regulation relating to food
safety, the environment, occupational safety, employment practices or other
matters extensively regulated in the United States. As such economies develop,
it is possible that new and expanded regulations may increase the risk and
expense of doing business in such countries. Governmental regulations may also
restrict the ability of the Company's operating subsidiaries to remit funds to
the Company, or impose minimum requirements as to the capital structure of local
operating companies.
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In addition, the Company's operations may at times in the future be subject
to expropriation, confiscatory taxation or price controls, and political and
economic changes may damage operating and growth prospects by causing political
and regulatory uncertainty or economic difficulties. For example, in Europe, any
failure of a country in which the Company does business to join the European
Union or the European Monetary Union may have a negative effect on borrowing,
exchange rates and economic stability in such country, and any delay in the
expansion or development of those Unions may have a negative effect on
borrowing, exchange rates and economic stability in Europe as a whole.
Furthermore, conversion to the Euro may cause pricing disparities in different
markets to narrow, lowering the Company's margins. In Asia, the recent
devaluation of the Korean currency, combined with the effects of government
sponsored cooperatives resistance to changes in selling prices, may have a
significant negative impact on operating profits in Korea.
Inflation and High Local Interest Rates
Many developing countries have in the recent past experienced, and in some
cases still experience, substantial or at times extremely high rates of
inflation and correspondingly high interest rates. Inflation, hyperinflation and
rapid fluctuations in inflation rates have had and may continue to have negative
effects on the currencies, economies, capital markets and the business
environment of certain developing countries and could have an adverse effect on
various of the Company's operating subsidiaries and investments in those
countries, including an adverse effect on their ability to obtain financing.
Currency Fluctuations
The assets, liabilities, sales and expenses of the Company's operating
subsidiaries are in general denominated in local currency. Consequently, the
value of the Company's investment in an operating subsidiary, and of payments
made by such entity to the Company, is partially a function of the currency
exchange rate between the U.S. Dollar and the applicable local currency. In
addition, the Company's operating subsidiaries report their results of
operations in the local currency while the Company reports its results of
operations and other financial data in U.S. Dollars. Accordingly, the Company's
results of operations are affected by changes in currency exchange rates between
those currencies and the U.S. Dollar. Agribrands periodically enters into
foreign exchange forward contracts to mitigate economic exposure to changes in
exchange rates, but does not as a matter of policy, hedge against all such
exposure. As a result, the Company may experience economic loss with respect to
its investments and fluctuations in its results of operations solely as a result
of currency exchange rate fluctuations. For example, the Company experienced a
significant decline in the value of its investment in its Korean operating
subsidiary as a result of the sharp decline in the value of the Korean Won
during fiscal 1998, and the attendant economic instability in Korea. Many of the
currencies of developing countries where the Company operates have experienced
steady devaluations relative to the U.S. Dollar. Sudden major adjustments have
also been made in the past and may again occur in the future. Any such
devaluation could have a material adverse effect on the Company. In addition,
while the revenues of the Company's operating subsidiaries are generally in
local currency, many of their significant liabilities (such as grain or oil seed
purchases) and expenses (such as debt and debt service on borrowings from local
financial institutions) are payable in U.S. Dollars or in currencies other than
the local currency. As a result, any devaluation of the local currency relative
to the currencies in which such liabilities are payable could have a material
adverse effect on such subsidiary, and, indirectly, on the Company.
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U.S. Regulation of International Commerce
The Company is subject to the Foreign Corrupt Practices Act ("FCPA"), which
generally prohibits U.S. companies and their intermediaries from bribing foreign
officials for the purpose of obtaining or keeping business or licenses or
otherwise obtaining favorable treatment. Although the Company has taken
precautions to comply with the FCPA, there can be no assurance that such
precautions will protect the Company against liability under the FCPA,
particularly as a result of actions which may in the past have been taken or
which may be taken in the future by agents and other intermediaries for whose
actions the Company may be held liable under the FCPA. In particular, the
Company may be held responsible for actions taken by its local agents even
though such agents may not be subject to the FCPA, and actions which may be
customary and considered to be ethical under local practice may result in
inadvertent violations of the FCPA. Any determination that the Company has
violated the FCPA could have a material adverse effect on the Company.
Trade sanctions imposed by the United States in response to political
developments may limit the Company's access to suppliers or customers. In
addition, the Company may at times become subject to conflicting obligations
under the laws of the United States and the laws of the jurisdictions in which
it operates, including circumstances when trade sanctions or boycotts may be
imposed by the laws of one jurisdiction, while laws of the other jurisdiction
may expressly prohibit participation in such sanctions or boycott.
International Tax Risks
Income earned by the Company's operating subsidiaries and distributions of
earnings and other payments made by the Company's operating subsidiaries are
often subject to withholding and other taxes imposed by the jurisdictions in
which such entities are formed or operating. In general, a United States
corporation may claim a foreign tax credit against any federal income tax
expense for such foreign withholding taxes and foreign taxes paid directly by
corporate entities in which the Company owns 10% or more of the voting stock.
The ability to claim such foreign tax credits and to utilize net foreign losses
is, however, subject to numerous limitations, and the ability of the Company to
utilize such credits may be limited because (i) tax rates are higher in certain
jurisdictions than the comparable tax rates in the United States and (ii) the
Company may not be in a tax-paying position in the United States. Intense focus
by tax authorities on intercompany transactions of international companies could
lead to challenges of the Companies' tax treatment of such items which, if
sustained, could generate tax liabilities, material to a particular quarter or
annual period.
Reporting Standards and Financial Data
Companies operating overseas are subject to accounting, auditing and
financial standards and requirements that differ, in some cases significantly,
from those applicable under U.S. GAAP. The Company's ability to comply with the
informational and filing requirements will depend on the timely receipt of
accurate and complete financial and other information from the Company's
operating subsidiaries. The failure to receive such information on a timely
basis could have a material adverse effect on the Company, including preventing
it from satisfying the informational and filing requirements. Furthermore,
maintenance of adequate internal control systems may be made more difficult by
the geographical dispersion and autonomous management structure of the
Agribrands business.
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Entering New Markets
Agribrands anticipates that it will continue to explore opportunities to
enter new geographic markets when appropriate opportunities are identified.
Opening such new markets can result in increased earnings for the Company, but
not all such ventures are likely to be successful, which could have an adverse
effect on the overall operating results of the Company. The success of new
ventures will be dependent, to a significant extent, on the efforts of the local
managers.
PART I
ITEM 1. Business
General
The Company, incorporated in Missouri in 1997, is a leading international
producer and marketer of a broad line of animal feeds and other agricultural and
nutrition products for hogs, dairy cows, cattle, poultry (broilers and layers),
rabbits, horses, shrimp and fish. The Company operates 74 manufacturing plants
in 16 countries on four continents. Management believes that, among commercial
producers of complete animal foods, Agribrands is the most geographically
diversified company of its type in the world, and that its local operations rank
among the top three in share of the commercial animal feed market in most of the
countries in which it operates.
The Agribrands business consists of the international animal feed and
agricultural products businesses conducted by Ralston prior to April 1, 1998,
when the shares of the Company were distributed to the Ralston shareholders.
Accordingly, the Company benefits from Ralston's over 100 years of experience in
the animal feeds and agricultural products industry, during which time it has
built and maintained a leading industry position by consistently providing
high-quality, research-proven products and customer service. The Company has
more than thirty years' experience operating across four continents.
Principal Products
The Company's animal feeds and other agricultural products are sold as
complete feeds or as concentrates which are mixed with the customer's base
ingredients. The Company's products are generally marketed under the "Purina"(R)
and "Chow"(R) brands and the "Checkerboard"(R) logo, and product names such as
"Omolene"(R) and "Hi-Octane"(R).
Sources and Availability of Raw Materials
Because of high transportation costs, animal feeds, as a general rule, are
produced locally--close to their end markets--using available local ingredients
with imported ingredients when cost-effective. The local markets served by
Agribrands vary dramatically with respect to locally available ingredients,
animal species being raised, climate, real estate values and economic
conditions. In order to manage effectively in this environment, day-to-day
operating decisions are made by local managers with extensive experience and
with knowledge of local factors, who operate on a highly autonomous basis.
Regional and global oversight procedures are designed to provide the local
managers with the benefits of the Company's combined resources and worldwide
best practices, which the managers can apply taking into account the unique
local circumstances.
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Distribution Network
Agribrands' distribution network consists of over 3,200 independent
dealers, most of whom sell the Company's products on an exclusive basis. The
dealers are independent wholesalers who redistribute to thousands of points of
sale. More than 70% of the Company's sales are made through these dealers, with
the balance made through direct sales to primarily large feeders. The Company
offers assistance to dealers in establishing sound financial and business
practices, including training, marketing support, promotional materials, and
formal business management programs, including assistance in obtaining bank
financing. As a result, the Company enjoys a high level of dealer loyalty.
Patents and Trademarks
At the time of the Distribution, Ralston entered into a Trademark Agreement
with Agribrands pursuant to which Ralston assigned to Agribrands all of
Ralston's rights in certain country specific trademarks associated solely with
the Agribrands business, such as "Omolene"(R) and "Hi-Octane"(R) and granted to
Agribrands a perpetual license, on a royalty-free basis, to use the trademarks
"Purina"(R) and "Chow"(R) brands and the "Checkerboard" (R) logo, and certain
other trademarks with respect to agricultural and certain other products,
subject to the rights of Purina Mills, Inc. referred to below. Agribrands does
not have the right to use such trademarks on pet food products, other than
products produced for Ralston or provided by Ralston.
The Company has agreed with Ralston that, until April 1, 2003, the Company
will not engage in the manufacture, distribution or sale of foods for pets, pet
products, pet supplies, pet accessories, litter or personal care products for
cats, dogs or other pets, subject to certain limited exceptions.
In 1986, Ralston sold the outstanding capital stock of its Purina Mills,
Inc. ("PMI") subsidiary, which was engaged in the animal feed and agricultural
products business in the United States. In connection with that sale, PMI was
granted a perpetual license in the United States with respect to certain
significant trademarks which are currently used by Agribrands outside of the
United States. Although Agribrands does not currently compete with PMI in the
United States, there are no restrictions on Agribrands' right to expand into the
United States market, subject to the exclusive rights of PMI to utilize such
trademarks and trade names and certain proprietary technologies in the United
States. PMI may expand into markets outside the United States, subject to the
exclusive rights of the Company as described above, and is competing with
Agribrands in the Philippines. In March of 1998, PMI was acquired by Koch
Agriculture, a privately held company.
Seasonality of Business
Sales prices and volume can both be impacted by seasonal factors.
Agricultural product sales prices are directly influenced by changes in the
underlying commodity prices for the raw materials used to formulate animal
feeds. Commodity prices are usually at their lowest in the months immediately
following the fall harvest. Sales volume may fluctuate somewhat seasonally as
temperature affects caloric intake or breeding cycles.
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Currently, seasonal factors have a minimal impact on the Company's total
performance in any given period. Seasonality of commodity prices does not
materially affect earnings due to the industry practice of pricing at a
relatively constant margin over ingredient costs. Seasonally driven changes in
consumption do not materially affect volume or earnings due to the geographic
and species diversification of Agribrands' operations.
Competition
The animal feed business has substantial excess capacity on a worldwide
basis, including excess capacity in the countries where the Company operates.
The Company faces competition in most of its markets from other feed
manufacturers, including, in certain countries, large multinational corporations
such as Nutreco, Ridley, Cargill and Charoen Pokphand, cooperatives,
single-owner establishments and, in a number of countries, government feed
companies. Some of these competitors are larger and have greater financial
resources than Agribrands, and in some countries cooperatives and government
feed companies may have significant financial and political advantages. Because
of limited technological or capital constraints on entry into the animal feed
business, new competitors with relatively modest return objectives can arise in
any market at any time. In addition, less effective but lower priced feed
sources become an attractive alternative to Agribrands' products when livestock,
poultry and other animal end product prices are low and customers are unwilling
to pay a premium for quality feeds. Although the strength of competitors varies
by geographic area and product line, Agribrands believes that no other
commercial producer of complete feeds produces and markets as broad a line of
animal feed products in as many countries as Agribrands.
Both the animal feeds and animal production industries are consolidating,
and this trend is expected to continue. In the past, Agribrands has been
successful in generating sales to large producers. However, the tendency of
large producers to vertically integrate their businesses by acquiring or
constructing feed production facilities has at times led to significantly less
reliance on outside suppliers of feed. As the consolidation of animal producers
continues, competition is likely to increase among independent feed suppliers,
and that industry is also likely to consolidate. Agribrands believes that the
superiority of its products and its reputation for service and knowledge about
animal nutrition needs should allow it to effectively compete in the face of
such trends.
Much of the competition in the animal feeds and agricultural products
industry centers around price, due to the commodity-like aspects of basic animal
feed. Agribrands generally bears higher costs associated with a multi-layered
distribution system, a complex production system, and tax and financing
obligations imposed by its international and multi-currency structure. Such
higher costs may restrict its ability to compete in particular markets on the
basis of price. However, Agribrands believes that product quality, customer
service and the ability to identify and satisfy animal production needs in
individual markets are also significant competitive factors. Agribrands also
believes it has significant advantages due to its extensive dealer distribution
network, its nutritional expertise, its ability to convert its research and
technology into products which meet the diverse requirements of its customers in
different markets under different economic circumstances, its high level of
customer service and the responsiveness of its locally autonomous structure, and
the breadth, quality and efficacy of its product lines.
The animal feeds and agricultural products business is expected to remain
highly competitive in the foreseeable future. Future growth opportunities are
expected to depend on the Company's ability to implement its strategies for
competing effectively in new, growing agricultural markets, maintaining
9
<PAGE>
effective cost control programs, making strategic acquisitions, effectively
managing customers changing preferences for complete feeds, concentrates or
premixes, and developing and implementing methods for more efficient
manufacturing and distribution operations, while at the same time maintaining
aggressive pricing and promotion of its products.
Research and Development
Agribrands research and engineering development is coordinated centrally
but conducted on a decentralized basis in each of the three regions (Americas,
Europe and Asia). Fundamental research is conducted in cooperation with leading
agricultural research universities, institutes and commercial entities such as
Purdue University (U.S.A.), Massey University (New Zealand), INRA (France) and
Guelph University (Canada). Agribrands provides funding for leading edge
research in exchange for the rights to commercially apply the results.
Research projects are selected based on priorities established by the
Agribrands' research and technology department and an Agribrands
interdisciplinary product steering group. The product steering group is composed
of senior management, research, engineering, operating personnel and specialists
for key animal species groups.
The Agribrands research group consists of more than 25 persons with post
graduate or doctoral degrees in animal nutrition, veterinary medicine or
agricultural sciences. In 1998, Agribrands expenditures for research and
development amounted to $5.5 million. The increase from 1997 expenditures of
$3.2 million is due to a transfer of non-allocated research costs in Europe from
general administrative costs to research and development costs and not due to an
increase in total expenditures on research and development.
Governmental Regulation and Environmental Matters
The operations of Agribrands are subject to regulation by various common
market and local governmental entities and agencies and various common market,
national and local laws and regulations with respect to environmental matters,
including air and water quality, noise pollution, underground fuel storage
tanks, waste handling and disposal and other regulations intended to protect
public health and the environment. Many European countries, as well as the
European Union, have been very active in adopting and enforcing environmental
regulations. In many developing countries in which Agribrands operates, there
has not been significant governmental regulation relating to the environment,
occupational safety, employment practices or other business matters routinely
regulated in the United States. As such economies develop, it is possible that
new regulations may increase the risk and expense of doing business in such
countries. Evolving environmental and zoning requirements have led to Agribrands
relocating two of its Korean facilities from urban areas to industrial sites.
While it is difficult to quantify with certainty the potential financial
impact of actions regarding expenditures for environmental matters, particularly
remediation, and future capital expenditures for environmental control
equipment, in the opinion of management, based upon the information currently
available, the ultimate liability arising from such environmental matters will
not have a material effect on Agribrands' financial position but could be
material to capital expenditures or earnings.
10
<PAGE>
Employees
The Company, as a whole, employs 45 employees in the United States and
5,736 in foreign jurisdictions.
Executive Officers of the Registrant
The following is a list of all the executive officers (8) of Agribrands as
of August 31, 1998. All of these officers were elected by the Board and shall
serve in such positions until their successors shall have been duly elected and
qualified. There are no family relationships between any of the executive
officers.
Name Age Positions
William P. Stiritz 64 Chairman of the Board, Chief Executive Officer and
President for Agribrands since 1998. Mr. Stiritz
joined Ralston in 1963 and served as Chief Executive
Officer and President of Ralston from 1982 until his
retirement in 1997.
David R. Wenzel 35 Chief Financial Officer for Agribrands since 1998.
Mr. Wenzel served as the Chief Financial Officer
for Ralston's international agricultural products
business since 1996. He joined Ralston's Protein
Technologies subsidiary as Director of Strategic
Planning in 1993 and in 1994 became Director of
Corporate Planning for Ralston. Prior to joining
Ralston, Mr. Wenzel was a Manager, Tax Services,
for PricewaterhouseCoopers LLP in their St. Louis
office.
Bill G. Armstrong 50 Chief Operating Officer for Agribrands since 1998.
Mr. Armstrong served as Executive Vice President of
Operations for Ralston's international agricultural
products business during 1997 and Regional Chief
Executive Officer - South Asia from 1995 to 1997. He
served as Managing Director of Ralston's
international agricultural products Philippine
operations from 1992 to 1995.
Gonzalo Dal Borgo 58 Vice President, Strategic Project Development for
Agribrands since 1998. Mr Dal Borgo joined
Ralston in 1968. He served as Ralston's
international agricultural products Regional Chief
Executive Officer - Americas from 1994 to 1998, and
President and Managing Director for Ralston's
international agricultural products Brazilian and
South American operations from 1991 to 1994.
Kim Ki Yong 53 Chief Operating Officer - North Asia Region for
Agribrands since 1998. Mr. Kim served as Regional
Chief Executive Officer - North Asia of Ralston's
international agricultural products business since
1995 and President and Chief Executive Officer of
Ralston's international agricultural products Korean
operations from 1993 to 1995.
Eric M. Poole 53 Chief Operating Officer - Europe Region for
Agribrands since 1998. Mr. Poole served as Vice
President - Americas for Ralston's international
agricultural products operations from 1993 to 1995;
and as international agricultural products Regional
Chief Executive Officer - Europe from 1995 to 1998.
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Michael J. Costello 46 Secretary and General Counsel for Agribrands since
1998. Mr. Costello served as International Counsel
for Ralston's international animal and human foods
businesses from 1989 to 1998.
Robert W. Rickert, Jr. 47 Treasurer for Agribrands since 1998. Mr. Rickert
served as Director of International Finance Services
for Ralston's international agricultural products
business from 1990 to 1998; Director International
Finance - Latin America, Middle East, and Africa
from 1988 to 1992; and Manager,International Finance
from 1986 to 1988.
ITEM 2. PROPERTIES
Agribrands' principal properties are its animal feed manufacturing
locations. Shown below are the locations of the principal properties of
Agribrands, all of which, except as indicated, are owned by Agribrands or its
wholly owned subsidiaries. Agribrands' facilities in the Peoples Republic of
China are located on sites subject to long-term lease agreements. Due to
restrictions on foreign land ownership, Agribrands facilities in the Philippines
are leased from a company which owns the sites. Agribrands' Philippine affiliate
owns forty percent of the shares of the leasing company. Agribrands leases the
office space in St. Louis County, Missouri where its principal executive offices
are located. Although a substantial number of these manufacturing facilities are
more than twenty years old, management believes the Company's facilities are
adequately maintained and are suitable and adequate for the purposes for which
they are used. During the fiscal year ended August 31, 1998, the utilization of
these facilities averaged approximately 70% of capacity, and management believes
that existing capacity should be sufficient for anticipated needs.
12
<PAGE>
BRAZIL KOREA
Canoas Kimhae
Carmo do Cajaru (1) Kunsan
Inhumas Pusan (3)
Maringa Songtan
Paulinia
Recife MEXICO
Volta Redonda Cuautitlan
Ganadon
CANADA Guadalajara
Addison, Ontario Merida (2)
Courtice, Ontario (1) Mexicali
Drummondville, Quebec Monterrey
Palmerston, Ontario Obregon
St. Romuald, Quebec Salamanca
Strathroy, Ontario Tehuacan
Woodstock, Ontario
PEOPLE'S REPUBLIC OF CHINA
COLOMBIA Fushun (2)
Buga Langfang
Cartagena Nanjing (2)
Giron (1) Yantai (2)
Ibaque (1)
Medellin (1) PERU
Mosquera Arequipa (1)
Chiclayo
FRANCE Lima
Chatillon (2)
Courchelettes PHILIPPINES
Limoges (2) Pulilan
Longue Villasis
Pommevic
St. Ybard (2) PORTUGAL
Sorcy Benavente (3)
Cantenhede
GUATEMALA
Guatemala City SPAIN
Benavente
HUNGARY Dos Hermanas
Kaposvar La Coruna
Karcag Marcilla
Merida
ITALY Torrejon
Borgoratto (3) Valencia
Sospiro
Spessa TURKEY
San Felice Bolu
Termoli Gonen
Luleburgaz
VENEZUELA
Barcelona
Cabimas (2) (3)
Maracaibo
Maracay
Hatcheries - Valencia, Venezuela
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In addition to the properties identified above, Agribrands and its
subsidiaries own and/or operate sales offices, regional offices, storage
facilities, distribution centers and terminals and related properties.
(1) Leased (2) Joint Venture (3) To be Divested
ITEM 3. LEGAL PROCEEDINGS
In the fall of 1997, Agribrands' wholly owned subsidiary, Agribrands
Philippines, Inc. (formerly Purina Philippines, Inc.), applied for renewal of a
warehouse license to store corn and rice and by-products therefrom at its
Pulilan facility. The Philippines National Food Authority ("NFA"), the
governmental agency that administers the Philippines laws and regulations
governing the corn and rice industry, advised Agribrands Philippines by letter
dated October 31, 1997, that its license renewal application was denied. The
letter cites Philippines legislation and regulations requiring that businesses
operating in the corn and rice industry not have more than 40% foreign
ownership. Since the NFA believes that Agribrands Philippines is in the corn and
rice industry, they have requested Agribrands Philippines to file a divestment
plan in order to comply with the 40% maximum foreign ownership requirement.
Agribrands Philippines has appealed the denial of its license renewal, and
on January 23, 1998, Agribrands Philippines received notification that it may
operate its warehouse under a "provisional permit" pending the resolution of the
appeal. The appeal has been transferred by Presidential Decree from the Office
of the Secretary of Agriculture to the Office of the President. Agribrands
Philippines believes it does not need a warehouse license, as it believes it is
not engaged in the corn and rice industry as defined by law. Furthermore,
Agribrands Philippines believes that it should not be subject to the NFA
regulation based upon its original Board of Investments One Stop investment
approval of a 100% foreign owned investment. Agribrands Philippines intends to
pursue its appeal in the Philippines legal system.
In the event that Agribrands Philippines is required to file a divestiture
plan, it is expected, based on previous case precedents, that a plan would be
approved that would permit the necessary divestiture over a considerable period
of time.
Various tax and labor claims have been asserted against the Agribrands
Business in Brazil. The claims arose principally from monetary corrections made
in connection with the institution of economic plans by prior Brazilian
administrations to control inflation.
On June 14, 1997, a claim seeking compensatory damages, punitive damages
and damages under the U.S. Racketeer Influenced and Corrupt Organization Act
totalling approximately $300 million was filed against Ralston Purina
International Holding Company, Inc. ("RPIHCI"), a subsidiary of Ralston which
was merged into Ralston. The plaintiff, Menichetti Fuente, a Chilean company, is
the former partner with RPIHCI in a joint venture named Alimentos Purina Chile
S.A. ("APCH"). This joint venture was originally formed in 1991 between RPIHCI
and Menichetti Fuente which agreement was subsequently amended, effective March,
1993. The amended joint venture agreement by its terms lapsed as of December 31,
1996. This dispute has been submitted to arbitration in Santiago, Chile. Ralston
14
<PAGE>
and Agribrands have agreed that Agribrands will pay 80% and Ralston will pay 20%
of any award or settlement and all costs related to this claim up to $2.5
million. Any amounts over $2.5 million will be shared equally. The claim is
being vigorously defended and Agribrands believes that Ralston has numerous
meritorious defenses.
Ralston or local subsidiaries engaged in the Agribrands Business are
parties to a number of other legal proceedings in various foreign jurisdictions
arising out of the operations of the Agribrands Business. Agribrands will assume
liability for these proceedings except to the extent liability is assumed by
Ralston in connection with the Distribution.
Many of the foregoing legal matters are in preliminary stages, involve
complex issues of law and fact and may proceed for protracted periods of time.
The amount of the eventual liability, if any, from these proceedings cannot be
determined with certainty; however, in the opinion of Agribrands management,
based upon the information presently known, as well as upon the limitation of
certain of its liabilities under the Agreement and Plan of Reorganization
between Ralston and Agribrands for the spin-off of Agribrands, the ultimate
liability of Agribrands, if any, arising from the pending legal proceedings, as
well as from asserted legal claims and known potential legal claims which are
probable of assertion, taking into account established accruals for estimated
liabilities, should not be material to the financial position of Agribrands but
could be material to results of operations or cash flows for a particular
quarter or annual period.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's common stock (AGX) is traded on the New York Stock Exchange.
There were 18,148 shareholders of record on October 1, 1998. The Company has not
paid cash dividends in 1998 and does not intend to begin paying cash dividends
in fiscal 1999. The following table sets forth, for the five months ended August
31, the range of high and low sale prices of Agribrands Common Stock as reported
on the NYSE Composite Tape.
AGRIBRANDS COMMON STOCK
MARKET PRICES
HIGH LOW DIVIDENDS
1998
Fourth Quarter $35.69 $29.13 --
Third Quarter (April 1 - May 31) $42.69 $32.25
15
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
FIVE YEAR FINANCIAL SUMMARY
(In millions except per share data)
<CAPTION>
For the year ended August 31,
----------------------------------------------------------------------------
------------- --------------- ------------- ------------- -------------
STATEMENT OF EARNINGS DATA 1998 1997 1996 1995 1994
------------- --------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Tons of feed product sold 5.2 5.1 4.8 4.3 4.0
Net sales $ 1,410.1 $ 1,527.6 $ 1,401.3 $ 1,147.2 $ 1,024.5
Income over ingredient cost (IOIC) 345.8 361.7 333.3 298.0 278.9
Depreciation and amortization 21.2 21.9 20.4 17.5 16.8
Provisions for restructuring 3.0 3.2 8.3 1.8 2.8
(Gain)/loss on sale of property - - (3.6) (1.6) (13.5)
Interest expense 12.0 10.9 13.0 12.1 16.7
Investment Income (5.2) (4.2) (3.6) (4.9) (7.6)
Translation and exchange loss 12.8 3.7 8.3 4.0 11.8
Earnings before income taxes 34.2 33.1 24.9 33.4 32.4
Income taxes 20.4 24.4 14.0 18.7 25.8
Net earnings (a,b) $ 13.8 $ 8.7 $ 10.9 $ 14.7 $ 6.6
Earnings per share:
Basic (c) $ 1.29 $ .82 $ 1.02 $ 1.37 $ .62
Diluted (c) $ 1.29 $ .82 $ 1.02 $ 1.37 $ .62
August 31,
----------------------------------------------------------------------------
BALANCE SHEET DATA 1998 1997 1996 1995 1994
------------- --------------- ------------- ------------- -------------
Working capital $ 153.7 $ 46.7 $ 59.4 $ 37.4 $ 43.4
Net property 176.6 156.9 145.6 137.1 139.0
Additions (during the period) 44.6 44.1 28.5 27.1 24.9
Depreciation (during the period) 19.3 19.6 19.1 17.3 16.8
Total assets 578.4 481.2 497.8 407.8 364.2
Long-term debt 14.2 22.8 41.3 34.3 45.2
Shareholders equity $ 339.4 $ 198.1 $ 190.3 $ 139.9 $ 130.1
Average common shares outstanding:
Basic (c) 10.7 10.7 10.7 10.7 10.7
Diluted (c) 10.7 10.7 10.7 10.7 10.7
</TABLE>
- ---------------------------------------
(a) After-tax provisions for restructuring reduced net earnings by $1.7 in the
year ended August 31, 1998, $3.2 in 1997, $7.2 in 1996, $1.0 in 1995 and
$2.8 in 1994.
(b) After-tax gain on the sale of property increased net earnings by $2.9 in
the year ended August 31, 1996, $1.1 in 1995, and $3.8 in 1994.
(c) Assumes 10.7 million shares outstanding for all periods prior to the
Distribution Date.
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<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion is a summary of the key factors management
considers necessary in reviewing Agribrands results of operations, operating
segment results, liquidity and capital resources.
Agribrands is a leading international producer and marketer of formula
animal feeds and other agricultural products. Prior to April 1, 1998, the
Company was a wholly-owned subsidiary of Ralston. On that date, Ralston
distributed the common stock of the Company to its shareholders in a tax-free
spin-off. The Company is a successor to Ralston's over 100 years of experience
in the animal feeds and agricultural products industry.
The production and sale of animal feed was the primary business of Ralston
when it was established in 1894. From that date until the Distribution, Ralston
built and maintained its industry position by consistently providing
high-quality, research-proven products and customer service. Although this
business originated in the United States, it expanded throughout the world,
entering the Americas (outside of the United States) in 1927, Europe in 1957 and
Asia in 1967. The Company now operates 74 manufacturing plants in 16 countries,
and has more than thirty years' experience operating across four continents.
The primary animal feed business of Agribrands is conducted almost
exclusively outside the United States. Ralston sold its U.S. animal feeds and
agricultural products business in 1986. The U.S. animal feeds and agricultural
products business formerly owned by Ralston is currently a subsidiary of Koch
Agriculture.
Key Measures for Understanding the Business
Agricultural product sales prices and percent of sales gross profit margins
are directly influenced by changes in the underlying commodity prices for raw
materials used to formulate animal feeds. The feed industry generally prices
products on the basis of aggregate ingredient cost plus a fixed margin, rather
than a gross margin percentage. As ingredient prices fluctuate, the changes are
generally passed on to customers through changes in the Company's product
pricing. Income over ingredient cost ("IOIC"- which is equal to net sales minus
cost of ingredients), rather than sales dollars, is the key indicator of sales
performance because of the distortions in sales dollars caused by changes in
commodity prices. In addition to gross IOIC, IOIC per ton sold is another key
measure used by management to evaluate sales trends.
17
<PAGE>
<TABLE>
RESULTS OF OPERATIONS
<CAPTION>
Consolidated Americas Europe Asia
<S> <C> <C> <C> <C>
Year Ended August 31, 1998:
Net Sales $1,410.1 $625.6 $397.2 $387.3
Operating Profit $ 56.3 (a) $33.5 $ 11.9 $ 28.2
Tons of feed product sold (in thousands) 5,178 2,190 1,585 1,403
Income over Ingredient Costs $ 345.8 $145.2 $115.2 $ 85.4
Year Ended August 31, 1997:
Net Sales $1,527.6 $599.6 $467.7 $460.3
Operating Profit $ 43.5 (a) $ 16.0 $ 5.1 $ 32.8
Tons of feed product sold (in thousands) 5,078 2,004 1,686 1,388
Income over Ingredient Costs $ 361.7 $127.1 $123.2 $111.4
Year Ended August 31, 1996:
Net Sales $1,401.3 $573.7 $461.5 $366.1
Operating Profit $ 41.2 (a) $ 22.7 $ 6.5 $ 20.7
Tons of feed product sold (in thousands) 4,761 2,067 1,564 1,130
Income over Ingredient Costs $ 333.3 $127.7 $118.1 $ 87.5
</TABLE>
Note:
(a) Consolidated operating profit includes unallocated corporate expenses,
provisions for restructuring and gains on sale of property. Refer to the
Geographic Segment Information in the notes to the financial statements for a
reconciliation of consolidated operating profit.
Year ended August 31, 1998 as compared to year ended August 31, 1997
--------------------------------------------------------------------
Net Sales
Consolidated net sales decreased $117.5 million, or 7.7%, to $1,410.1
million in 1998 from $1,527.6 million in 1997. Volume increased 100,000 tons, or
2.0%, to 5,178,000 tons in 1998 from 5,078,000 tons in 1997. The decline in net
sales was generated by a decrease in commodity prices and devaluation of
functional currencies against the U.S. Dollar in excess of increased sales
prices in the local currencies. Declining worldwide commodity costs contributed
to constrained pricing consistent with the feed industry's practice of adjusting
prices to achieve relatively stable unit margins. The increase in volume is due
primarily to strong growth in the Americas.
18
<PAGE>
Net sales in the Americas increased $26.0 million, or 4.3%, to $625.6
million in 1998 from $599.6 million in 1997. The increase in net sales was
generated by incremental revenue from increased unit volume, which was only
partially offset by a $14 per ton decline in average selling prices. The decline
in revenues per ton primarily reflects the decline in commodity costs. This
decline was less than that seen in other regions due to increasing sales of
higher priced aqua feeds (primarily shrimp feeds). Unit volume for the Americas
operations increased 9.3% in 1998, primarily as a result of increased feed sales
in Mexico. Agribrands' operations in Mexico experienced increased demand due to
improved economic conditions when compared to the prior year.
Net sales in Europe decreased $70.5 million, or 15.1%, to $397.2 million in
1998 from $467.7 million in 1997. The decline in net sales resulted from a
combination of decreased volume and lower ingredient costs. Europe experienced
volume declines in the rabbit segment, which suffered from a decline in feed
consumption as a result of an epidemic in that species, and across all segments
due to plant closures.
Net sales in Asia decreased $73.0 million, or 15.9%, to $387.3 million in
1998 from $460.3 million in 1997. Unit volume for the Asia region was
essentially flat for the year due to recessionary trends following the financial
crisis in the region. The decline in net sales is due to devaluation of the
local currencies against the Dollar in excess of increased sales prices in the
local currencies and a decline in commodity costs. During fiscal year 1998, the
Korean Won and Philippine Peso both devalued approximately one-third against the
Dollar.
Operating Profit
Consolidated operating profit increased $12.8 million, or 29.4%, to $56.3
million in 1998 from $43.5 million in 1997. Operating profit increased
significantly as improved margins and increased volume in the Americas region
and better results from Europe more than offset a decline in the Asia region.
Corporate administrative expenses increased $7.1 million, reflecting the
stand-alone cost structure of the Company versus lower overheads incurred while
the Agribrands businesses were owned by Ralston.
Operating profit in the Americas increased $17.5 million, or 109.4%, to
$33.5 million in 1998 from $16.0 million in 1997. The improvement in operating
profit was broad-based but most notable in Mexico where increased aqua feed
sales, with their overall higher margins, helped increase profitability.
Ingredient costs per ton declined $16 as a result of lower commodity prices. The
per ton decline in ingredient costs in the region is less than that seen in
other regions because of cost increases in specialized ingredients for aqua
feeds and more regulated markets for locally-sourced feedstuffs. IOIC improved
14.2% on higher volume and improved mix including higher aqua sales.
Operating profit in Europe increased $6.8 million, or 133.3%, to $11.9
million in 1998 from $5.1 million in 1997. Costs for feed ingredients in the
region decreased $62.5 million as per unit costs declined $26, reflecting the
decrease in worldwide commodity prices. IOIC declined $8.0 million, or 6.5%,
largely due to the reduction in volume. The decline in IOIC was more than offset
by a $14.8 million reduction in production, overhead and miscellaneous costs. A
19
<PAGE>
devaluation benefit in these cost categories was partially offset by increased
local currency costs including increased marketing and administrative expenses.
The operations in Hungary continue to be the largest contributor to earnings in
the region.
Operating profit in Asia decreased $4.6 million, or 14.0%, to $28.2 million
in 1998 from $32.8 million in 1997. Costs for feed ingredients in the region
decreased $47.0 million as per unit costs declined $36, reflecting the decrease
in worldwide commodity prices. IOIC declined $26.0 million, or 23.3%, as local
pricing adjustments were unable to offset the full effect of devaluation of
local currencies. IOIC declined $19 per ton in this environment. The decline in
IOIC was largely offset by a $21.4 million reduction in production, overhead and
miscellaneous costs. A devaluation benefit in these cost categories was
partially offset by increased local currency costs, including increased
provision for bad debts in Korea.
Asian operating results for the current period were adversely affected by
difficult economic conditions in the region, particularly in Korea which
represents approximately 75% of the Company's Asian sales volume. Reduced demand
for meat products caused wholesale meat prices to settle near or below
production costs. This restricted the Korean operations' ability to maintain
volume and margins, particularly in its largest product category - hog feed. In
spite of this difficult economic environment, the overall Korean operations have
remained profitable in part through successful development and introduction of
new products into the marketplace.
Restructuring activities
In 1998, Agribrands recorded provisions for restructuring which reduced
earnings before income taxes and net earnings by $3.0 million and $1.7 million,
respectively. These charges represented primarily severance costs and fixed
asset write-offs associated with the streamlining of Agribrands' operations in
Europe. The restructuring provided for the severance of approximately 40
employees, most of whom were released prior to August 31, 1998. Severance costs
related to these restructuring provisions were substantially paid by August 31,
1998. The pre-tax cost savings from these restructuring activities approximated
$0.9 million in 1998 and are expected to approximate $2.3 million annually
beginning in 1999.
In 1997, Agribrands recorded provisions for restructuring which reduced
earnings before income taxes and net earnings by $3.2 million.
Earnings Before Income Taxes
Earnings before income taxes increased $1.1 million, or 3.3%, to $34.2
million in 1998 from $33.1 million in 1997.
Interest expense totaled $12.0 million in 1998 compared to $10.9 million in
1997. The increase is primarily due to higher interest rates in the markets in
which the Company operates.
Other income/expense, net, was unfavorable by $10.6 million in 1998
compared to 1997. Translation and exchange losses were substantially higher
during 1998 as a result of higher foreign currency exchange losses on Dollar
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<PAGE>
denominated debt in Korea and Colombia and higher translation losses in Mexico,
where the Company uses hyper-inflationary accounting. Earnings for 1998 were
also adversely impacted by a $2.5 million charge to write-off financing costs
associated with a credit facility the Company elected not to close. Investment
income was $1.0 million higher in 1998 due to higher levels of interest bearing
investments.
Net Earnings
Net earnings increased $5.1 million, or 58.6%, to $13.8 million in 1998
from $8.7 million in 1997. Income taxes, which included United States and
foreign taxes, were 59.6% of pre-tax earnings in 1998 and 73.7% in 1997. The
lower effective rate for 1998 resulted from changes in the earnings mix
including a significant reduction of foreign losses in countries for which no
tax benefit could be currently recognized. Absent unforeseen operating losses,
management anticipates a further decrease of its effective tax rate to
approximately 50% of pre-tax earnings in 1999.
Year ended August 31, 1997 as compared to year ended August 31, 1996
--------------------------------------------------------------------
Net Sales
Consolidated net sales increased $126.3 million, or 9.0%, to $1,527.6
million in 1997 from $1,401.3 million in 1996. Volume increased 317,000 tons, or
6.7%, to 5,078,000 tons in 1997 from 4,761,000 tons in 1996. Net sales and
volume increases were primarily due to the strong performance of the Asia
region.
Net sales in the Americas increased $25.9 million, or 4.5%, to $599.6
million in 1997 from $573.7 million in 1996. Volume decreased in the Americas
region from 2,067,000 tons in 1996 to 2,004,000 tons in 1997, primarily due to
declines in Mexico and Venezuela where difficult economic conditions had the
greatest impact. Despite these volume decreases, higher prices charged to cover
rising commodity prices resulted in increased net sales.
Net sales in Europe increased $6.2 million, or 1.3%, to $467.7 million in
1997 from $461.5 million in 1996. Volume and net sales in Europe increased due
to an acquisition in France and the impact of a full year of consolidated
results from the 1996 acquisition of the remaining interest in Agribrands'
business in Spain, which were partially offset by declines in net sales in Italy
and Portugal. Italy experienced volume declines mainly in the dairy and cattle
segments, which suffered from red meat concerns due to BSE or "Mad Cow" disease
and reduced milk production quotas imposed by the European Union. In Portugal,
volume declined in conjunction with a restructuring of its operations.
Net sales in Asia increased $94.2 million, or 25.7%, to $460.3 million in
1997 from $366.1 million in 1996. Volume and net sales in Asia increased due to
strengthening demand for Agribrands products as well as rapid overall economic
growth in the region.
Operating Profit
Consolidated operating profit increased $2.3 million, or 5.6%, to $43.5
million in 1997 from $41.2 million in 1996. Operating profit improved as
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<PAGE>
favorable margins and increased volume in Asia was only partially offset by
lower operating profit in Europe and the Americas. Consolidated operating profit
also reflects provisions for restructuring, which decreased $5.1 million, or
61%, to $3.2 million in 1997 from $8.3 million in 1996.
Operating profit in the Americas decreased $6.7 million, or 29.5%, to $16.0
million in 1997 from $22.7 million in 1996. Included in operating profit for
1997 is a $2 million charge incurred in connection with exiting an unsuccessful
joint venture in Chile. The competitive pressure in Mexico and Venezuela also
contributed to the decline in operating profit in 1997.
Operating profit in Europe decreased $1.4 million, or 21.5%, to $5.1
million in 1997 from $6.5 million in 1996. This decrease was primarily caused by
a $6.5 million, or 5.8%, increase in production and overhead costs. Increased
IOIC of $5.1 million on the increased volume helped to offset the majority of
the increased production and overhead costs.
Operating profit in Asia increased $12.1 million, or 58.5%, to $32.8
million in 1997 from $20.7 million in 1996. Operating profit in Asia increased
on higher volume and improved margins. The margin improvement was most notable
in the Philippines where Agribrands experienced favorable ingredient costs,
gains in production efficiency and strong end-product markets. Operations also
remained strong in Korea accounting for approximately 75% of the net sales and
50% of the region's operating profit during 1997.
Restructuring Activities
In 1997, Agribrands recorded provisions for restructuring which reduced
earnings before income taxes and net earnings by $3.2 million. In 1996,
Agribrands recorded provisions for restructuring which reduced earnings before
income taxes and net earnings by $8.3 million and $7.2 million, respectively.
These charges primarily represented asset write-downs and severance costs and
were associated with the streamlining of the Agribrands operations in advance of
the planned spin-off. The restructuring provided for the severance of
approximately 300 employees, most of whom were released prior to August 31,
1997. Severance costs related to these restructuring provisions were
substantially paid by August 31, 1997. The pre-tax cost savings from these
restructuring activities were approximately $7.0 million in 1997.
Earnings Before Income Taxes
Earnings before income taxes increased $8.2 million, or 32.9%, to $33.1
million in 1997 from $24.9 million in 1996.
Interest expense totaled $10.9 million in 1997 compared to $13.0 million in
1996. The decrease in 1997 resulted from lower average outstanding borrowings
and lower interest rates.
In 1997, other income/expense, net, improved by $3.8 million on lower
foreign currency exchange losses in Mexico and lower translation losses in
Venezuela.
Net Earnings.
Net earnings decreased $2.2 million, or 20.2%, to $8.7 million in 1997 from
$10.9 million in 1996. Income taxes, which include United States and foreign
22
<PAGE>
taxes, were 73.7% of pretax earnings in 1997 and 56.2% in 1996. The increase
in the effective rate for 1997 resulted from changes in the earnings mix
including increased foreign losses in countries for which no tax benefit
could be currently recognized. In addition, Agribrands experienced higher taxes
in 1997 because of increased repatriation of foreign earnings to the United
States.
Liquidity and Capital Resources
Cash flow from operations totaled $33.3 million in 1998. Inventory levels
increased primarily to support the growth of the business in Mexico. Accounts
receivable increased primarily as a result of $12.9 million in receivables due
from Ralston in connection with the Distribution. Accounts payable and accrued
liabilities declined due to changes in the timing of payments, primarily in
Korea. Cash flow from operations was higher in 1997 as a result of lower
inventory and other working capital requirements. Lower inventory levels were
most notable in Korea where strong fourth quarter sales volume combined with
timely inventory purchases to result in a very favorable inventory position at
August 31, 1997. Cash flow from operations decreased in 1996 as Agribrands
experienced significant increases in receivables and inventory as a result of
substantial increases in commodity prices and in support of the growth of the
business.
Capital expenditures, primarily to replace or enhance existing production
facilities and equipment, totaled $44.6 million, $44.1 million and $28.5 million
in fiscal years 1998, 1997 and 1996, respectively. Projected capital
expenditures of approximately $30 million in 1999 are expected to be funded with
existing cash reserves as well as from cash generated from operations and
borrowings from banks.
Agribrands is continually evaluating new investment opportunities. In
December 1997, Agribrands invested $5.0 million in Agribrands Purina (Langfang)
Feedmill Co., Ltd., a new wholly owned foreign subsidiary. The new subsidiary
utilized these funds along with $2 million in proceeds from the issuance of debt
to acquire a feed mill in Langfang, Peoples Republic of China. In January 1998,
Agribrands acquired a feed mill in Maracay, Venezuela for $4.3 million. In
January 1998, Agribrands also acquired a feed mill in Spessa, Italy for $7.3
million. Agribrands had previously leased the feed mills in both Maracay and
Spessa. These acquisitions were funded through a combination of funds provided
by Ralston and local country borrowings. Assuming these acquisitions had
occurred as of September 1, 1997, they would not have had a material effect on
net sales or net earnings.
Agribrands' capital investments and acquisitions have been partially funded
with investments by and advances from Ralston. Net proceeds from Ralston were
$141.9 million, $13.7 million, and $51.3 million in fiscal years 1998, 1997, and
1996, respectively. During 1998, in connection with the Distribution, Agribrands
received approximately $90.0 million of cash from Ralston (offset by
approximately $65.0 million of debt retained by Agribrands' affiliates.)
The Company's subsidiaries generally fund their working capital needs
through short-term borrowings provided by local country banks and branches of
multi-national banks. Intercompany loans are also used by the Company and have
the effect of reducing external local borrowing costs by more than the
opportunity cost of lower U.S. invested reserves. Short-term borrowings of the
Company's subsidiaries increased from $33.8 million in 1997 to $46.9 million in
1998 primarily through a shift from long-term debt. The Company continues to
utilize lenders which provided financing prior to the Distribution. Uncommitted
23
<PAGE>
credit lines are generally established in each country with several lenders in
order to assure availability of working capital. On August 31, 1998 total unused
uncommitted lines of credit were approximately $175 million. The $175 million
includes approximately $90 million of uncommitted lines of credit for the
Company's Korean subsidiary.
Cash on hand, cash flow from operations, and borrowings under various lines
of credit are Agribrands' primary sources of liquidity. Management has a strong
focus on cash flow and the effective use of excess cash flow. The combined
operating, cash and equity position of Agribrands should continue to provide the
capital flexibility necessary to fund future opportunities as well as to meet
existing obligations.
Foreign Currency Exchange Risks
International operations account for almost all of Agribrands' revenue and
operating income. Foreign currency exposures arise from transactions, including
firm commitments and anticipated transactions, denominated in a currency other
than an entity's functional currency and from foreign denominated revenues and
profits translated into U.S. Dollars.
Agribrands periodically enters into foreign exchange forward contracts to
mitigate Agribrands' economic exposure to changes in exchange rates. Company
policy allows foreign currency hedging transactions only for identifiable
foreign currency exposures and, therefore, Agribrands does not enter into
foreign currency contracts for trading purposes where the objective is to
generate profits. The potential loss in fair value at August 31, 1998 for such
net currency positions resulting from a hypothetical 10% adverse change in
foreign currency exchange rates is $0.3 million.
Agribrands generally views as long-term its investments in foreign
subsidiaries with a functional currency other than the U.S. Dollar. As a result,
Agribrands does not generally hedge these net investments. However, Agribrands
uses capital structuring techniques to manage its net investment in foreign
currencies as considered necessary. Additionally, Agribrands closely monitors
its U.S. Dollar net monetary liabilities in currencies of countries with
historically high rates of inflation. The net investment in Agribrands' foreign
subsidiaries and affiliates translated into dollars using the year-end exchange
rates is approximately $205 million at August 31, 1998. The potential loss in
value of Agribrands' net investment in foreign subsidiaries resulting from a
hypothetical 10% adverse change in quoted foreign currency exchange rates at
August 31, 1998 amounts to $18.7 million.
The net investment in Agribrands' Korean operations translated into dollars
using the year-end exchange rates is approximately $49 million at August 31,
1998. The potential loss in value of Agribrands' net investment in Korean
operations resulting from a hypothetical 10% adverse change in the quoted Korean
won currency exchange rate at August 31, 1998 amounts to $4.5 million.
Commodity Price Risks
The availability and price of agricultural products are subject to wide
fluctuations due to unpredictable factors such as weather conditions, government
regulations, economic climate or other unforeseen circumstances. The Company
utilizes highly correlative and effective commodity futures contracts and
options to manage certain of these exposures. The Company hedges only firm
24
<PAGE>
commitments or anticipated transactions, and Company policy prohibits the use of
commodity derivatives for speculation. The potential loss in fair value at
August 31, 1998 of the Company's commodity positions, excluding inventory on
hand and fixed price contracts, resulting from a hypothetical 10% adverse change
in commodity prices is $0.2 million.
Year 2000 Costs
Many computer systems and other systems with embedded chip technology
process dates based on two digits for the year of a transaction rather than a
full four digits. These systems are unable to properly process dates in the year
2000 and beyond. Agribrands utilizes a number of computer systems across its
entire worldwide operation. The Company has identified its significant software
coding issues related to the year 2000 date recognition for key financial and
operational systems. The Company has already resolved the year 2000 matter at a
number of its locations and plans to continue resolving the matter through
either replacement of existing systems with new year 2000 compatible systems or
reprogramming existing systems. The Company incurred costs of less than $0.5
million in 1998 for year 2000 reprogramming of existing systems. Year 2000
reprogramming costs were negligible in 1997 and 1996 as Agribrands was
converting to new systems in anticipation of the Distribution. To make all of
its systems year 2000 compliant, the Company estimates incurring an additional
$0.5 million of reprogramming costs and spending an additional $1.7 million on
replacement hardware and software. Completion of all reprogramming, hardware and
software replacement, and appropriate testing is expected to occur by August 31,
1999. All costs related to the reprogramming of existing systems for the year
2000 issue are expensed as incurred. Hardware and software replacement costs
will be capitalized.
Based on the Company's efforts to date, management believes that its
systems will be year 2000 compliant. The Company is working with its key
customers and suppliers to obtain assurances that their systems are year 2000
compliant. However, the Company does not have any control over these third
parties and, as a result, cannot currently determine to what extent future
operating results may be adversely effected by the failure of these third
parties to successfully address their year 2000 issues. In addition, the Company
operates in sixteen countries on four continents at various stages of economic
development and is dependent on systems operated by governments, financial
institutions, utilities, communications suppliers and others in each of these
countries. The failure of any of such infrastructural systems to be year 2000
compliant could disrupt the Company's business for a period of time and if not
quickly resolved could have a material adverse effect on the Company. The
Company has not yet developed formal contingency plans in the event of a Year
2000 failure.
European Economic Monetary Union
On January 1, 1999, eleven of the European Union countries (including four
countries where Agribrands' operations are located) are scheduled to adopt the
Euro as their single currency, and there will be fixed conversion rates between
their existing currencies ("legacy currencies") and the Euro. The Euro will then
trade on currency exchanges and be available for noncash transactions. Following
the introduction of the Euro, the legacy currencies will remain legal tender in
the participating countries during the transition period from January 1, 1999
through January 1, 2002. Beginning on January 1, 2002, the European Central Bank
will issue euro-denominated bills and coins for use in cash transactions. On or
before July 1, 2002, the participating countries will withdraw all legacy bills
and coins and use the Euro as their legal currency.
25
<PAGE>
The Company's key financial information systems in Europe are equipped to
process both Euro and legacy currency transactions during the transition period
from January 1, 1999 through January 1, 2002; however, they are not equipped to
handle the July 1, 2002 withdrawal of all legacy currencies. As part of an
initiative to make all of the Company's key financial systems consistent across
the organization, management is planning to replace these old systems with a new
system that can handle the July 1, 2002 mandatory conversion to the Euro. All
costs associated with the new system will be capitalized. The Company has not
incurred any reprogramming costs in connection with the conversion to the Euro
and does not anticipate incurring any such costs in the future. From a broader
business perspective, conversion to the Euro may cause pricing disparities in
different markets to narrow, lowering the Company's margins.
Inflation
Management recognizes that inflationary pressures may have an adverse
effect on Agribrands through higher asset replacement costs and related
depreciation and higher material costs. In addition, hyperinflationary
conditions have occurred in many of the countries in which Agribrands operates.
Agribrands tries to minimize these effects through geographical diversification,
cost reductions and productivity improvements as well as price increases to
maintain reasonable profit margins. It is management's view that inflation has
not had a significant impact on the consolidated operations in the three years
ended August 31, 1998.
Seasonality
Sales prices and volume can both be impacted by seasonal factors.
Agricultural product sales prices are directly influenced by changes in the
underlying commodity prices for the raw materials used to formulate animal
feeds. Commodity prices are usually at their lowest in the months immediately
following the fall harvest. Sales volume may fluctuate somewhat seasonally as
temperature affects caloric intake and breeding cycles.
Currently, seasonal factors have a minimal impact on the Company's total
performance in any given period. Seasonality of commodity prices does not
materially affect earnings due to the industry practice of pricing at a
relatively constant margin over ingredient costs. Seasonally driven changes in
consumption do not materially affect volume or earnings due to the geographic
and species diversification of Agribrands' operations.
Outlook
Operating results in the Americas region improved significantly during
fiscal 1998 largely driven by improved margins and increased volume,
particularly in Mexico. Management believes the strategic initiatives underlying
these trends are sustainable operationally, but expects that financial results
will remain highly sensitive to potentially volatile macro-economic conditions
in Central and South America, consistent with troubles across emerging markets
globally.
The European animal feed industry is mature, fragmented and highly
competitive with excess capacity. Consolidation of the animal feed and animal
production industries is underway throughout Europe. In response to these
factors, the Company recently announced a management reorganization whereby the
26
<PAGE>
Western Europe operations (France, Italy, Spain and Portugal) will be operated
as a single unit under one operational management team (previously, there was a
team within each country). It is hoped that the new structure will facilitate
dissemination of research, manufacturing, and sales and marketing concepts
across the region and, over time, allow for further administrative efficiencies.
The new structure will also allow management to view opportunities arising from
industry consolidation in the context of a regionwide approach. Earnings growth
and value creation in the region is dependent on Management's ability to
implement this approach successfully.
Recent results in Asia reflect the sensitivity of the Company's operations
to local macro-economic conditions. This sensitivity is heightened when a region
is dependent on imported feed ingredients typically valued in U.S. Dollars at
global market prices. The local currency costs of ingredients imported into a
region increase as the local currencies devalue. This may cause short-term
declines in margins due to delays in changing feed prices. More significantly,
the resulting local currency cost increase for the animal producer can lead to
unfavorable economics for livestock and poultry producers leading to a
contraction in the feed market. These conditions currently apply to Agribrands
operations in Korea and the Philippines whose currencies devalued by one-third
in fiscal 1998.
If the Asia region's financial condition stabilizes, management anticipates
a further, though less severe, decline in total industry output in fiscal 1999,
as the region makes a long-term adjustment to the new economic environment.
Agribrands' return to prior levels of profitability and renewed growth in Asia
will require both favorable economic circumstances and continued tactical
excellence in Korea and in the Philippines which was the region's largest
contributor to operating profit in fiscal 1998.
While current conditions have made operating in the Asian region more
difficult, Agribrands remains committed to the Asian market and views the
current financial crises as a possible opportunity to strengthen its long-term
market position within the region.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
See Note 5 of the Company's Notes to Financial Statements for management's
quantitative and qualitative disclosure about market risk.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF MANAGEMENT
The management of Agribrands International, Inc. has prepared the
accompanying consolidated financial statements for the years ended August 31,
1998, 1997 and 1996 and is responsible for their integrity and objectivity. The
statements were prepared in conformity with generally accepted accounting
principles, applying certain estimates and judgments as required.
The Company maintains accounting and internal control systems which it
believes are adequate to provide reasonable assurance that assets are
safeguarded against loss from unauthorized use or disposition and financial
records are reliable for preparing financial statements. The selection and
27
<PAGE>
training of qualified personnel, the establishment and communication of
accounting and administrative policies and procedures, and an extensive program
of internal audits, are important elements of these control systems.
The Board of Directors, through its Audit Committee consisting solely of
non-management directors, meets periodically with management, internal audit and
the independent accountants to discuss audit and financial reporting matters.
Both the internal auditors and PricewaterhouseCoopers LLP have direct access to
the Audit Committee.
The report of PricewaterhouseCoopers LLP appears below.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of Agribrands International, Inc.:
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of earnings, of cash flows and of shareholders
equity present fairly, in all material respects, the financial position of
Agribrands International, Inc. and its subsidiaries at August 31, 1998 and 1997,
and the results of their operations and their cash flows for each of the three
years in the period ended August 31, 1998, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
/S/ PricewaterhouseCoopers LLP
St. Louis, Missouri
October 20, 1998
28
<PAGE>
AGRIBRANDS INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF EARNINGS
Year ended August 31
(Dollars in Millions)
<TABLE>
<CAPTION>
1998 1997 1996
--------- ---------- ----------
<S> <C> <C> <C>
Net Sales $ 1,410.1 $ 1,527.6 $ 1,401.3
Costs and Expenses
Cost of products sold 1,207.2 1,322.0 1,217.4
Selling, general and administrative 143.6 158.9 138.0
Interest 12.0 10.9 13.0
Provisions for restructuring 3.0 3.2 8.3
Gain on sale of property - - (3.6)
Other (income)/expense, net 10.1 (0.5) 3.3
--------- ---------- ---------
1,375.9 1,494.5 1,376.4
--------- ---------- ---------
Earnings before Income Taxes 34.2 33.1 24.9
Income Taxes 20.4 24.4 14.0
--------- --------- ---------
Net Earnings $ 13.8 $ 8.7 $ 10.9
========= ========== =========
Earnings Per Share
Basic $ 1.29 $ .82 $ 1.02
========= ========== =========
Diluted $ 1.29 $ .82 $ 1.02
========= ========== =========
</TABLE>
The above financial statement should be read in conjunction with the Notes to
Financial Statements.
29
<PAGE>
<TABLE>
AGRIBRANDS INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEET
August 31
(Dollars in Millions)
<CAPTION>
1998 1997
-------- ----------
<S> <C> <C>
Assets
Current Assets
Cash and cash equivalents $ 136.5 $ 25.2
Marketable securities 1.5 6.8
Receivables, less allowance for doubtful accounts 103.0 114.4
Inventories 98.8 112.0
Other current assets 11.1 11.7
-------- ----------
Total Current Assets 350.9 270.1
-------- ----------
Investments and Other Assets 50.9 54.2
Property, Plant and Equipment - net 176.6 156.9
-------- ----------
Total $ 578.4 $ 481.2
======== ==========
Liabilities and Shareholders Equity
Current Liabilities
Current maturities of long-term debt $ 8.7 $ 19.4
Notes payable 46.9 33.8
Accounts payable and accrued liabilities 132.8 162.7
Income taxes 8.8 7.5
-------- ----------
Total Current Liabilities 197.2 223.4
-------- ----------
Long-Term Debt 14.2 22.8
Deferred Income Taxes 2.7 9.6
Other Liabilities 24.9 27.3
Shareholders Equity
Common stock, $.01 par value, issued
10,668,571 shares 0.1
Capital in excess of par 419.5
Retained earnings 6.1
Cumulative translation adjustment (86.3)
--------- ----------
Total Shareholders Equity 339.4
--------- ----------
Ralston Equity Investment 198.1
--------- ----------
Total $ 578.4 $ 481.2
========= ==========
</TABLE>
The above financial statement should be read in conjunction with the Notes to
Financial Statements.
30
<PAGE>
<TABLE>
AGRIBRANDS INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
Year Ended August 31
(Dollars in Millions)
<CAPTION>
1998 1997 1996
-------- -------- -------
<S> <C> <C> <C>
Cash Flow from Operations
Net earnings $ 13.8 $ 8.7 $10.9
Adjustments to reconcile net earnings to cash from operations:
Depreciation and amortization 21.2 21.9 20.4
Translation and exchange loss 12.8 3.7 8.3
Non-cash restructuring 0.7 2.2 -
Deferred income taxes (5.1) 1.9 (3.4)
Gain on sale of property - - (3.6)
Changes in assets and liabilities used in operations:
Increase in accounts receivable (6.5) (2.7) (17.3)
(Increase) decrease in inventories (4.1) 16.6 (43.8)
(Increase) decrease in other current assets (1.2) (1.1) 1.2
(Decrease) increase in accounts payable and accrued liabilities (6.0) 10.3 17.2
Increase (decrease) in income taxes payable 3.3 0.7 (0.4)
Other, net 4.4 5.6 (7.8)
-------- -------- -------
Net cash provided by (used by) operations 33.3 67.8 (18.3)
-------- -------- -------
Cash Flow from Investing Activities
Acquisitions of businesses (16.6) (3.3) (25.6)
Property additions (44.6) (44.1) (28.5)
Proceeds from the sale of Korean cereal business - - 10.0
Proceeds from the sale of property 1.2 2.0 1.2
Other, net 0.3 6.9 6.8
-------- -------- -------
Net cash used by investing activities (59.7) (38.5) (36.1)
-------- -------- -------
Cash Flow from Financing Activities
Proceeds from issuance of long-term debt 19.0 3.8 10.7
Principal payments on long-term debt, including current maturities (32.4) (5.3) (17.0)
Net increase (decrease) in notes payable 16.7 (33.3) 16.1
Net transactions with Ralston 141.9 13.7 51.3
-------- -------- -------
Net cash provided by (used by) financing activities 145.2 (21.1) 61.1
-------- -------- -------
Effect of Exchange Rate Changes on Cash and Cash Equivalents (7.5) (3.3) (2.2)
-------- -------- -------
Net Increase in Cash and Cash Equivalents 111.3 4.9 4.5
Cash and Cash Equivalents, Beginning of Period 25.2 20.3 15.8
-------- -------- --------
Cash and Cash Equivalents, End of Period $136.5 $ 25.2 $ 20.3
======== ======== =======
The above financial statement should be read in conjunction with the Notes to
Financial Statements.
</TABLE>
31
<PAGE>
- --------------------------------------------------------------------------------
AGRIBRANDS INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY
Three years ended August 31, 1997
(Dollars in Millions)
<TABLE>
<CAPTION>
Ralston Capital in Cumulative
Equity Common Excess of Retained Translation
Investment Stock Par Value Earnings Adjustment
<S> <C> <C> <C> <C> <C>
Balance at August 31, 1995 $ 136.3
Net earnings 10.9
Net transactions with Ralston 47.5
Foreign currency translation adjustment (4.4)
--------
Balance at August 31, 1996 $ 190.3
Net earnings 8.7
Net transactions with Ralston 20.5
Foreign currency translation adjustment (21.4)
--------
Balance at August 31, 1997 $ 198.1
Net earnings 7.7
Net transactions with Ralston 142.8
Foreign currency translation adjustment (15.3)
--------
Balance at March 31, 1998 $ 333.3
Distribution to Ralston's shareholders (333.3) $ .1 $ 419.5 - $ (86.3)
Net earnings - - - $ 6.1 -
Foreign currency translation adjustment - - - - -
-------- ------- -------- -------- --------
Balance at August 31, 1998 $ - $ .1 $ 419.5 $ 6.1 $ (86.3)
======== ======= ======== ======== ========
</TABLE>
The above financial statement should be read in conjunction with the Notes to
Financial Statements.
===============================================================================
32
<PAGE>
AGRIBRANDS INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions)
1. BASIS OF PRESENTATION
Effective April 1, 1998 (the "Distribution Date"), Agribrands
International, Inc. (the "Company" or "Agribrands") became an independent,
publicly owned company as a result of the distribution by Ralston Purina Company
("Ralston")of the Company's $.01 par value Common Stock to holders of Ralston
Purina Company Common Stock at a distribution ratio of one for ten (the
"Distribution"). Prior to the Distribution, the Company was formed as a wholly
owned subsidiary of Ralston for the purpose of effecting the Distribution.
Included in this transaction was the transfer of substantially all of the assets
and liabilities related to the animal feeds and agricultural products businesses
(the "Agribrands Businesses"). Ralston's international pet products businesses
("RPI Consumer") were not included in the spin-off. Ralston did not retain any
ownership interest in the Company.
Agribrands is one of the leading international producers and marketers of
animal feeds and, through its subsidiaries and joint venture partners, operates
74 manufacturing plants in 16 countries. Its products are marketed outside the
United States under the Purina and Chow brands and the Checkerboard logo through
a network of approximately 3,200 independent dealers, as well as an independent
and a direct sales force.
The Balance Sheet as of August 31, 1998 is presented on a consolidated
basis. The Statement of Earnings for the year ended August 31, 1998 includes the
combined results of operations of the Agribrands Businesses under Ralston for
the seven months prior to the Distribution Date and the consolidated results of
operations of the Company for the five month period ended August 31, 1998. The
financial statements as of August 31, 1997 and for all periods prior to the
Distribution Date are presented on a combined basis and reflect periods during
which the Agribrands Businesses operated primarily as wholly-owned subsidiaries
of Ralston and its subsidiaries. The combined financial statements include
assets, liabilities, revenues, and expenses that are directly related to the
Agribrands Businesses. All significant intercompany transactions have been
eliminated from the combined financial statements.
RPI Consumer, while not included in the accompanying financial statements,
generally operated within the same subsidiaries and affiliates as the Agribrands
Businesses prior to the Distribution Date. See Related Party Activity note for a
more complete discussion.
Certain previously reported amounts have been reclassified to make them
consistent with the current year presentation.
2. SUMMARY OF ACCOUNTING POLICIES
Agribrand's significant accounting policies, which conform to generally
accepted accounting principles and are applied on a consistent basis among
years, except as indicated, are described below:
Principles of Consolidation - These financial statements include the
accounts of Agribrands and its majority-owned subsidiaries. All significant
33
<PAGE>
intercompany transactions have been eliminated. Investments in affiliated
companies, 20% through 50%-owned, are carried at equity.
Minority interests in earnings of subsidiaries and Agribrands' share of the
net earnings of unconsolidated companies carried at equity are included in
selling, general and administrative expenses.
Foreign Currency Translation - Financial statements of foreign operations
where the local currency is the functional currency are translated using
exchange rates in effect at period end for assets and liabilities and average
exchange rates during the period for results of operations. Related translation
adjustments are reported as a separate component of Shareholders Equity.
For foreign operations where the U.S. Dollar is the functional currency and
for countries which are considered highly inflationary, translation practices
differ in that inventories, investments, properties, accumulated depreciation
and depreciation accounts are translated at historical rates of exchange and
related translation adjustments are included in earnings. Gains and losses from
foreign currency transactions are generally included in earnings.
Derivative Financial Instruments - All derivative financial instruments
held by the Company are designated as hedges, have a high degree of correlation
with the underlying exposure and are highly effective in offsetting underlying
price movements. Accordingly, gains and losses from changes in derivative fair
values are deferred and recognized in the statement of earnings in the same
period as the underlying transaction. If the underlying transaction was no
longer expected to occur, any gain or loss would be recognized immediately in
the statement of earnings. See FINANCIAL INSTRUMENTS for additional information.
Cash Equivalents, for purposes of the statement of cash flows, are
considered to be all highly liquid investments with a maturity of three months
or less when purchased, including time deposits of $12.8 and $6.4 at August 31,
1998 and 1997, respectively.
Marketable Securities are valued at cost which approximates market.
Inventories are valued generally at the lower of average cost or market.
Property at Cost - Expenditures for new facilities and those which
substantially increase the useful lives of the property, including interest
during construction, are capitalized. Maintenance, repairs and minor renewals
are expensed as incurred. When properties are retired or otherwise disposed of,
the related cost and accumulated depreciation are removed from the accounts and
gains or losses on the dispositions are reflected in earnings.
Depreciation is generally provided on the straight-line basis by charges to
costs or expenses at rates based on the estimated useful lives of the
properties. Estimated useful lives range from 5 to 15 years for machinery and
equipment and 15 to 40 years for buildings. Depreciation expense was $19.3 in
1998, $19.6 in 1997, and $19.1 in 1996.
34
<PAGE>
AGRIBRANDS INTERNATIONAL, INC.
NOTE TO FINANCIAL STATEMENTS
(Dollars in Millions)
Goodwill, which is included in Investments and Other Assets, represents the
excess of cost over the net tangible assets of acquired businesses and is
amortized over periods of up to 40 years, with the majority being amortized over
a 25 year period.
Subsequent to acquisition, Agribrands continually evaluates whether later
events and circumstances have occurred that indicate the remaining estimated
useful life of businesses carrying goodwill may warrant revision or that the
remaining balance of goodwill may not be recoverable. The measurement of
possible impairment is based on the ability to recover the balance of goodwill
from expected future operating cash flows on an undiscounted basis. In the
opinion of management, no such impairment existed as of August 31, 1998 and
1997.
Revenue is recognized when products are shipped to customers. Sales
discounts, returns and allowances are included in net sales. The provision for
doubtful accounts is included in selling, general and administrative expenses.
Advertising Costs are expensed as incurred and were $13.7 in 1998, $16.8 in
1997 and $15.7 in 1996.
Research and Development Costs are expensed as incurred and were $5.5 in
1998 and $3.2 in 1997 and 1996.
Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Income Taxes - Agribrands follows the liability method of accounting for
income taxes. Deferred income taxes are recognized for the effect of temporary
differences between financial and tax reporting. No additional U.S. taxes have
been provided on earnings of foreign subsidiaries expected to be reinvested
indefinitely. Additional income taxes are provided, however, on planned
repatriation of foreign earnings after taking into account tax-exempt earnings
and applicable foreign tax credits. Management assesses the realizability of
deferred tax assets and provides valuation allowances as deemed necessary.
Earnings per Share - Basic earnings per share are based on the weighted
average number of shares outstanding during the year including assumed shares
outstanding of 10.7 million for all periods prior to the Distribution Date.
Diluted earnings per share are adjusted for the dilutive effect of common stock
equivalents. See EARNINGS PER SHARE for additional information.
New Accounting Standards - The Financial Accounting Standards Board issued
SFAS No. 130, "Reporting Comprehensive Income," and SFAS No. 133, "Accounting
for Derivative Instruments and Hedging Activities," in June 1997 and June 1998,
respectively. The Company is evaluating the effects these statements will have
on its financial reporting and disclosures. The Company will adopt SFAS No. 130
in fiscal year 1999 and SFAS No. 133 in fiscal year 2000.
35
<PAGE>
AGRIBRANDS INTERNATIONAL, INC.
NOTE TO FINANCIAL STATEMENTS
(Dollars in Millions)
3. ACQUISITIONS
In January 1998, the Company acquired feed mills in Maracay, Venezuela and
Spessa, Italy for $4.3 and $7.3, respectively. Agribrands had previously leased
the feed mills in both Maracay and Spessa.
In December 1997, Agribrands invested $5.0 in Agribrands Purina (Langfang)
Feedmill Co., Ltd., a new wholly owned foreign subsidiary. The new subsidiary
utilized the funds to acquire a feed mill in Langfang, People's Republic of
China.
In May 1997, Agribrands acquired a 75% interest in Purina Fushun Feed Mill
Co. Ltd., a new joint venture in Fushun, People's Republic of China, for $3.0.
These acquisitions were accounted for using the purchase method of
accounting and the results of operations have been included in the consolidated
statement of earnings from the date of acquisition. Assuming these acquisitions
had occurred as of the beginning of their respective fiscal years, they would
not have had a material effect on net sales or net earnings.
36
<PAGE>
AGRIBRANDS INTERNATIONAL, INC.
NOTE TO FINANCIAL STATEMENTS
(Dollars in Millions)
<TABLE>
4. GEOGRAPHIC SEGMENT INFORMATION
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Sales
Americas $ 625.6 $ 599.6 $ 573.7
Europe 397.2 467.7 461.5
Asia 387.3 460.3 366.1
-------- -------- --------
Total $1,410.1 $1,527.6 $1,401.3
======== ======== ========
Income over Ingredient Costs
Americas $ 145.2 $ 127.1 $ 127.7
Europe 115.2 123.2 118.1
Asia 85.4 111.4 87.5
-------- -------- --------
Total $ 345.8 $ 361.7 $ 333.3
======== ======== ========
Operating Profit
Americas $ 33.5 $ 16.0 $ 22.7
Europe 11.9 5.1 6.5
Asia 28.2 32.8 20.7
Provisions for Restructuring (3.0) (3.2) (8.3)
Gain on Sale of Property - - 3.6
Unallocated Corporate Expenses (14.3) (7.2) (4.0)
-------- -------- --------
Operating Profit 56.3 43.5 41.2
Interest Expense (12.0) (10.9) (13.0)
Other Income/(Expense), Net (10.1) 0.5 (3.3)
-------- -------- --------
Earnings Before Income Taxes $ 34.2 $ 33.1 $ 24.9
======== ======== ========
Depreciation & Amortization
Americas $ 7.0 $ 6.9 $ 6.4
Europe 8.3 8.6 7.6
Asia 5.9 6.4 6.4
-------- -------- --------
Total $ 21.2 $ 21.9 $ 20.4
======== ======== ========
Translation & Exchange (Gain) / Loss
Americas $ 9.1 $ 2.7 $ 6.9
Europe (0.5) 0.5 0.3
Asia 4.2 0.5 1.1
-------- -------- --------
Total $ 12.8 $ 3.7 $ 8.3
======== ======== ========
Total Assets
Americas $ 306.2 $ 180.7 $ 168.7
Europe 139.7 143.9 163.6
Asia 132.5 156.6 165.5
-------- -------- --------
Total $ 578.4 $ 481.2 $ 497.8
======== ======== ========
</TABLE>
37
<PAGE>
AGRIBRANDS INTERNATIONAL, INC.
NOTE TO FINANCIAL STATEMENTS
(Dollars in Millions)
5. FINANCIAL INSTRUMENTS
Derivatives - The Company currently uses forwards and option contracts to
manage foreign currency risk and futures and options to manage commodity price
risk. All gains and losses from changes in derivative fair values are deferred;
therefore, derivatives have no carrying value. Derivatives used by the Company
have an initial term of less than a year, and all currently hedged transactions
are expected to occur within the next year. Because the Company hedges with
instruments that have high correlation with the underlying transaction pricing,
changes in derivative values are expected to be offset by changes in pricing.
The following summarizes the underlying notional transaction amounts and
fair values for outstanding derivatives, by risk category and instrument type,
at August 31:
<TABLE>
1998 1997
----------------------- -------------------
Notional Fair Notional Fair
Amount Value Amount Value
<S> <C> <C> <C> <C>
---------- ------- ---------- -----
Foreign Currency:
Forwards $ 2.5 $ - $ 1.4 $ -
Options - - - -
---------- ------- ---------- -----
2.5 - 1.4 -
---------- ------- ---------- -----
Commodity Price:
Futures 2.3 0.3 - -
Options 1.8 (0.1) - -
---------- ------- ---------- -----
4.1 0.2 - -
---------- ------- ---------- -----
Total of outstanding derivatives $ 6.6 $ 0.2 $ 1.4 $ -
========== ======= ========== =====
</TABLE>
The fair value of derivative financial instruments is the amount that
Agribrands would receive or pay to terminate the specific agreements,
considering first, quoted market prices of comparable agreements, or in the
absence of quoted market prices, such factors as currency exchange rates and
remaining maturities.
Concentration of Credit Risk - The Company does not have a material
concentration of credit risk. Concentrations of credit risk with respect to
accounts receivable are limited due to the large number of customers, generally
short payment terms and their dispersion across geographic areas.
Nonderivative Financial Instruments - Nonderivative financial instruments
include cash equivalents, marketable securities, and short-term and long-term
debt. Due to the nature of cash equivalents and marketable securities, carrying
amounts on the balance sheet approximate fair value.
38
<PAGE>
AGRIBRANDS INTERNATIONAL, INC.
NOTE TO FINANCIAL STATEMENTS
(Dollars in Millions)
Agribrands has borrowings in numerous countries under a variety of terms
and arrangements. Due to the number of countries involved and the availability
of information about market value of debt in these countries, it is not
practicable to determine the market value of such debt of Agribrands at August
31, 1998.
6. INCENTIVE COMPENSATION PLANS
Under terms of the Company's 1998 incentive stock plan, officers, directors
and employees may be granted options to purchase the Company's common stock at
no less than 100% of the market price on the date the option is granted. The
plan also authorizes the issuance of stock appreciation rights (SARs) settled by
cash payment. Options and SARs generally vest over five years and have a maximum
term of 10 years. At August 31, 1998, there were 1.5 million shares available
for future awards under the plan.
The Company recognizes compensation expense for SARs based on the amount
that the Company's common share price exceeds the exercise price. At August 31,
1998, there were 98,500 SARs outstanding. No compensation expense was recognized
for SARs in 1998 because the exercise prices of the SARs were greater than the
year-end market price of the common shares.
The Company applies APB Opinion No. 25 and related interpretations in
accounting for its stock options. Had compensation cost for the Company's stock
options been recognized based on the fair value on the grant date under the
methodology prescribed by SFAS No. 123, the Company's net earnings and earnings
per share would have been reduced to the pro forma amounts indicated in the
following table.
1998
------------
Reported net earnings $ 13.8
Pro forma net earnings 12.8
Reported diluted earnings per share $ 1.29
Pro forma diluted earnings per share 1.20
The fair value of options granted (which is amortized to expense over the
options vesting period in determining the pro forma impact) is estimated on the
date of grant using the Black-Scholes option pricing model with the following
weighted-average assumptions:
1998
-----------------
Risk-free interest rate 5.6% to 5.7%
Expected life of option 9 years
Expected volatility of Agribrands stock 30.0%
Expected dividend yield on Agribrands stock 0.0%
39
<PAGE>
AGRIBRANDS INTERNATIONAL, INC.
NOTE TO FINANCIAL STATEMENTS
(Dollars in Millions)
The weighted average fair value of options granted during 1998 is as
follows:
1998
----------
Fair value of each option granted $ 18.62
Total number of options granted (in millions) 1.12
-------
Total fair value of options granted (in millions) $ 20.9
=======
The following table summarizes stock option plan activity:
<TABLE>
- -------------------------------------------------------------------------------------------
Wtd. Avg. Wtd. Avg.
Exercise Options Exercise
Options Price Exercisable Price
<S> <C> <C> <C> <C>
Balance at March 31, 1998 - $ - - $ -
Granted 1,122,500 36.41 - -
Exercised - - - -
Cancelled (7,500) 34.25 - -
---------- -------- --------- ---------
Balance at August 31, 1998 1,115,000 $ 36.43 - $ -
========= ======== ========= =========
</TABLE>
A summary of stock options currently outstanding and exercisable at August
31, 1998 is presented below:
<TABLE>
Options Outstanding Options Exercisable
Wtd. Avg. Wtd. Avg. Wtd. Avg.
Range of Remaining Exercise Exercise
Prices Number Life Price Number Price
<S> <C> <C> <C> <C> <C>
$34-37 1,115,000 10 years $ 36.43 - $ -
</TABLE>
40
<PAGE>
AGRIBRANDS INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions)
7. PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS
Certain foreign employees are covered by defined benefit plans, some of
which are required by local law or coordinated with government-sponsored plans.
These plans generally provide retirement or severance benefits based on years of
service and compensation. In addition, substantially all U.S. administrative
employees participate in the Company's defined contribution plan.
Prior to the Distribution Date, most U.S. employees participated in
Ralston's noncontributory defined benefit plan. The costs of this plan allocated
to the Company based on employee population were $0.2, $0.3 and $0.2 in the
years ended August 31, 1998, 1997 and 1996, respectively.
Pension cost and other retirement savings plan costs included the following
components for the years ended August 31:
<TABLE>
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Defined benefit plans
Service cost for benefits earned during the year $ 5.1 $ 4.2 $ 4.2
Interest cost on projected benefit obligation 2.2 2.4 2.4
Return on plan assets (1.0) (6.7) (4.0)
Net amortization and deferral (2.0) 3.6 1.0
----- ----- -----
Total defined benefit plans 4.3 3.5 3.6
Defined contribution plans 0.1 - -
----- ----- -----
Total $ 4.4 $ 3.5 $ 3.6
====== ===== =====
</TABLE>
The following table presents the funded status of the principal defined benefit
plans and amounts recognized in the balance sheet at August 31:
<TABLE>
<CAPTION>
1998 1997
------------- --------------
<S> <C> <C>
Actuarial present value of:
Vested benefits $ (10.8) $ (19.0)
Nonvested benefits (0.3) -
-------- --------
Accumulated benefit obligation (11.1) (19.0)
Effect of future salary increases (7.0) (9.1)
-------- --------
Projected benefit obligation (18.1) (28.1)
Plan assets at fair value 14.7 36.8
-------- --------
Funded status (3.4) 8.7
Unrecognized net loss (gain) 1.7 (1.3)
Unrecognized prior service cost 0.6 0.7
Unrecognized net asset at transition, net of
amortization (0.4) (3.2)
-------- --------
Net pension (liability) asset $ (1.5) $ 4.9
======== ========
</TABLE>
41
<PAGE>
AGRIBRANDS INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions)
The assumptions used in determining the preceding information reflect
weighted averages for the component plans and are as follows:
1998 1997
---- ----
Discount rate 8.3% 9.0%
Rate of increase of future compensation levels 6.7% 7.3%
Long-term rate of return on assets 8.6% 9.2%
The net pension (liability) asset disclosed above does not include balance
sheet accruals for unfunded plans of $12.3 and $12.4 as of August 31, 1998 and
1997, respectively. These accruals approximate the actuarial present value of
vested benefits for these plans or represent accrual amounts that comply with
local regulations for required termination payments.
In connection with the Distribution, in March 1998 Agribrands transferred
to Ralston $9.7 of net pension asset previously allocated to the Agribrands
Business in Canada.
Prior to the Distribution Date, Ralston provided health care and life
insurance benefits for a limited group of retired employees who met specified
age and years of service requirements. Ralston also sponsored plans whereby
certain management employees could defer compensation in exchange for cash
benefits after retirement. The cost of these postretirement benefits has been
allocated to Agribrands based on employee population and was $0.5 in the seven
months ended March 31, 1998 and $0.8 in the years ended August 31, 1997 and
1996.
8. PROVISIONS FOR RESTRUCTURING
In 1998, Agribrands recorded provisions for restructuring which reduced
earnings before income taxes by $3.0 and net earnings by $1.7. These charges
represented primarily severance costs and fixed asset write-offs associated with
the streamlining of Agribrands' operations in Europe. The restructuring provided
for the severance of approximately 40 employees, most of whom were released
prior to August 31, 1998. Provisions for restructuring in previous years related
to closing of production facilities and reorganization of certain administrative
functions. Severance costs related to these restructuring provisions were
substantially paid by August 31, 1998.
Components of the provisions for the years ended August 31 are as follows:
1998 1997 1996
------------- -------------- --------------
Severance $2.2 $0.6 $7.1
Other cash costs 0.1 0.4 1.2
Fixed asset writedown 0.7 2.2 -
------------- ------------- -------------
$3.0 $3.2 $8.3
============= ============== ==============
42
<PAGE>
AGRIBRANDS INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions)
The following summarizes activity within the restructuring reserves:
1998 1997 1996
---------- ----------- ---------
Balance at beginning of year $ 1.4 $ 4.3 $ 2.4
Provision during year 3.0 3.2 8.3
Spending/fixed asset writedown during year (3.1) (6.1) (6.4)
---------- ------- -------
Balance at end of year $1.3 $ 1.4 $4.3
========== ======= =======
Most of the reserve balance is expected to be expended in 1999.
9. OTHER (INCOME)/EXPENSE, NET
1998 1997 1996
---------- ---------- ---------
Translation and exchange loss $ 12.8 $ 3.7 $ 8.3
Investment income (5.2) (4.2) (3.6)
Write-off financing costs 2.5 - -
Other income - - (1.4)
-------- ------- -------
$ 10.1 $ (0.5) $ 3.3
======== ======= =======
In 1998, the Company incurred a $2.5 charge to write-off financing costs
associated with a credit facility the Company elected not to close.
10. INCOME TAXES
The provisions for income taxes consisted of the following for the years
ended August 31:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -----
<S> <C> <C> <C>
Currently payable:
United States $ 1.7 $ 3.8 $ 6.5
Foreign 19.1 14.5 8.5
Taxes on repatriation of foreign earnings 4.7 4.2 2.4
------- ------- ------
Total current 25.5 22.5 17.4
------- ------- ------
Deferred:
United States (0.2) - -
Foreign (4.9) 1.9 (3.4)
------- ------- ------
Total deferred (5.1) 1.9 (3.4)
------- ------- ------
$ 20.4 $ 24.4 $ 14.0
======= ======= ======
The source of pre-tax earnings was:
1998 1997 1996
------- ------- ------
United States $ 1.2 $ 3.2 $ 12.2
Foreign 33.0 29.9 12.7
------- ------ -------
Total $ 34.2 $ 33.1 $ 24.9
======= ===== ======
</TABLE>
43
<PAGE>
AGRIBRANDS INTERNATIONAL, INC.
NOTE TO FINANCIAL STATEMENTS
(Dollars in Millions)
A reconciliation of income taxes with the amounts computed at the statutory
federal rate follows:
1998 1997 1996
------ ------- ------
Computed tax at federal statutory rate $ 12.0 $ 11.6 $ 8.7
Increases (decreases) in taxes resulting from:
Foreign tax rates other than domestic rate (2.7) (1.0) 1.4
Change in valuation allowance 3.0 6.9 (0.6)
Taxes on repatriation of foreign earnings 4.7 4.2 2.4
Other, net 3.4 2.7 2.1
------ ------ -----
$ 20.4 $ 24.4 $14.0
====== ====== =====
Deferred tax assets and deferred tax liabilities recorded on the balance sheet
as of August 31, 1998 and 1997 are as follows:
1998 1997
----------- ----------
Deferred Tax Liabilities:
Depreciation and property differences $ 6.3 $ 4.5
Inventory differences 6.2 5.0
Retirement plans 2.3 3.6
Other tax liabilities, current 0.5 0.6
Other tax liabilities, non-current 9.2 10.5
----------- ----------
Gross deferred tax liabilities $ 24.5 $ 24.2
----------- ----------
Deferred Tax Assets:
Tax loss carryforwards $ (13.9) $ (3.8)
Accrued expenses (7.7) (5.7)
Tax credits (5.7) (3.8)
Other tax assets, current (5.8) (6.0)
Other tax assets, non-current (8.2) (6.2)
----------- ----------
Gross deferred tax (assets) (41.3) (25.5)
Valuation allowance 19.5 10.9
----------- ----------
Net deferred tax liabilities $ 2.7 $ 9.6
=========== ==========
Approximately $0.2 of tax loss carryforwards and tax credits expired in
1998. Future expiration of tax loss carryforwards and tax credits, if not
utilized, are as follows: 1999 - none, 2000 - none, 2001 - $1.5, 2002 - $3.3,
2003 - $2.0 and beyond - $12.8. The valuation allowance is primarily attributed
to certain tax loss carryforwards and tax credits outside the United States. In
connection with the Distribution, in March 1998 Ralston transferred to
Agribrands $5.6 of deferred tax assets, primarily tax loss carryforwards, and
related valuation allowance.
At August 31, 1998, approximately $78.0 of foreign subsidiary net earnings
was considered permanently invested in those businesses. Accordingly, U.S.
44
<PAGE>
AGRIBRANDS INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions)
income taxes have not been provided for such earnings. It is not practicable to
determine the amount of unrecognized deferred tax liabilities associated with
such earnings.
Prior to the Distribution Date, U.S. income tax payments, refunds, credits,
provision and deferred tax components were allocated to Agribrands in accordance
with Ralston's tax allocation policy. Such policy allocated tax components
included in the consolidated income tax return of Ralston to Agribrands to the
extent such components were generated by or related to Agribrands. Tax payments
due on income earned prior to the Distribution Date are the responsibility of
Ralston.
Had Agribrands' income tax provision been calculated as if Agribrands was a
single, stand-alone U.S. taxpayer during periods prior to the Distribution Date,
the income tax provision would have been lower by approximately $1.1 in the
seven months ended March 31, 1998 and $3.8 and $2.8 in the years ended August
31, 1997 and 1996, respectively.
11. EARNINGS PER SHARE
Basic earnings per share ("EPS") is computed using the average number of
common shares outstanding during the period. Diluted EPS gives effect to the
dilution that would occur if stock options were exercised. Basic and diluted EPS
computations for the three years ended August 31 follow:
1998 1997 1996
--------- --------- -----------
Numerator:
Net earnings $ 13.8 $ 8.7 $ 10.9
Effect of dilutive securities - - -
---------- ---------- ----------
Net earnings - assuming dilution $ 13.8 $ 8.7 $ 10.9
========== =========== ==========
Denominator:
Weighted average shares outstanding 10,668,571 10,668,571 10,668,571
Assumed conversion of stock options - - -
---------- ---------- ----------
Weighted average shares - assuming
dilution 10,668,571 10,668,571 10,668,571
========== =========== ===========
Basic earnings per share $ 1.29 $ .82 $ 1.02
========== =========== ===========
Diluted earnings per share $ 1.29 $ .82 $ 1.02
========== =========== ===========
There were 10,668,571 shares of common stock outstanding at August 31, 1998
and the Distribution Date. The above EPS calculations assume 10,668,571 shares
outstanding for all periods prior to the Distribution Date. As of August 31,
1998, stock options to purchase 1,115,000 shares of common stock were
outstanding but were not included in the computation of diluted EPS because the
exercise prices of the options were greater than the average market price of the
common shares.
45
<PAGE>
AGRIBRANDS INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions)
12. PREFERRED AND COMMON STOCK
At August 31, 1998, 10,000,000 shares of $.01 par value preferred stock
were authorized and unissued. The Company's Board of Directors is expressly
authorized, prior to issuance, to set preferences, voting powers, annual
dividend rates (if any) and other terms and conditions relating to the shares.
The Company has been authorized to issue 50,000,000 shares of $.01 par
value common stock as of August 31, 1998. There were 10,668,571 shares
outstanding at August 31, 1998
On September 25, 1998, the Company's Board of Directors authorized the
purchase by the Company of up to 2,000,000 shares of Agribrands common stock in
open market transactions.
13. RELATED PARTY ACTIVITY
Prior to the Distribution Date, the Agribrands Businesses and RPI Consumer
shared some general and administrative functions and distributed some product
through a combined distribution network. Costs of these shared activities were
allocated to the Company based on utilization or other methods which management
believes to be reasonable. Total costs of these shared activities were $22.1 in
the seven months ended March 31, 1998 and $46.0 and $56.9 in the years ended
August 31, 1997 and 1996, respectively. Of such costs, allocations to Agribrands
were $19.1 in the seven months ended March 31, 1998 and $38.7 and $40.8 in the
years ended August 31, 1997 and 1996, respectively.
Ralston also provided certain general and administrative services to the
Agribrands Businesses including finance, legal, facilities and systems. These
expenses were allocated to Agribrands based on utilization or other methods
which management believes to be reasonable. These allocations were $1.2 in the
seven months ended March 31, 1998 and $2.0 and $1.3 in the years ended August
31, 1997 and 1996, respectively.
Agribrands receives technical service fees from non-consolidated affiliates
which are carried under the equity method of accounting. Included in other
income and expense is service fee income from such affiliates of $1.4 in 1996.
Service fee income from non-consolidated affiliates was insignificant in 1998
and 1997.
Included in Ralston Equity Investment are cumulative translation
adjustments occurring in non-hyperinflationary countries of $71.0 at August 31,
1997, representing net devaluation of currencies relative to the U.S. Dollar
over the period of investment. Also included in Ralston Equity Investment are
accounts payable and receivable between Agribrands and Ralston and Agribrands
borrowings from Ralston.
46
<PAGE>
AGRIBRANDS INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions)
14. LEGAL AND ENVIRONMENTAL MATTERS
The Company is subject to legal proceedings and claims arising out of its
business that cover a wide range of matters, including trade regulation,
contracts, environmental issues, product liability, patent and trademark
matters, and taxes. These proceedings are in varying stages and many may proceed
for protracted periods of time. Some proceedings involve highly complex
questions of fact and law.
In the fall of 1997, Agribrands' wholly owned subsidiary, Agribrands
Philippines, Inc. (formerly Purina Philippines, Inc.), applied for renewal of a
warehouse license to store corn and rice and by-products therefrom at its
Pulilan facility. The Philippines National Food Authority ("NFA"), the
governmental agency that administers the Philippines laws and regulations
governing the corn and rice industry, advised Agribrands Philippines by letter
dated October 31, 1997, that its license renewal application was denied. The
letter cites Philippines legislation and regulations requiring that businesses
operating in the corn and rice industry not have more than 40% foreign
ownership. Since the NFA believes that Agribrands Philippines is in the corn and
rice industry, they have requested Agribrands Philippines to file a divestment
plan in order to comply with the 40% maximum foreign ownership requirement.
Agribrands Philippines has appealed the denial of its license renewal, and
on January 23, 1998, Agribrands Philippines received notification that it may
operate its warehouse under a "provisional permit" pending the resolution of the
appeal. The appeal has been transferred by Presidential Decree from the Office
of the Secretary of Agriculture to the Office of the President. Agribrands
Philippines believes it does not need a warehouse license, as it believes it is
not engaged in the corn and rice industry as defined by law. Furthermore,
Agribrands Philippines believes that it should not be subject to the NFA
regulation based upon its original Board of Investments One Stop investment
approval of a 100% foreign owned investment. Agribrands Philippines intends to
pursue its appeal in the Philippines legal system.
In the event that Agribrands Philippines is required to file a divestiture
plan, it is expected, based on previous case precedents, that a plan would be
approved that would permit the necessary divestiture over a considerable period
of time.
Various tax and labor claims have been asserted against the Agribrands
Business in Brazil. The claims arose principally from monetary corrections made
in connection with the institution of economic plans by prior Brazilian
administrations to control inflation.
On June 14, 1997, a claim seeking compensatory damages, punitive damages
and damages under the U.S. Racketeer Influenced and Corrupt Organization Act
totaling approximately $300 million was filed against Ralston Purina
International Holding Company, Inc. ("RPIHCI"), a subsidiary of Ralston which
was merged into Ralston. The plaintiff, Menichetti Fuente, a Chilean company, is
the former partner with RPIHCI in a joint venture named Alimentos Purina Chile
S.A. ("APCH"). This joint venture was originally formed in 1991 between RPIHCI
and Menichetti Fuente which agreement was subsequently amended, effective March,
1993. The amended joint venture agreement by its terms lapsed as of December 31,
47
<PAGE>
AGRIBRANDS INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions
1996. This dispute has been submitted to arbitration in Santiago, Chile. Ralston
and Agribrands have agreed that Agribrands will pay 80% and Ralston will pay 20%
of any award or settlement and all costs related to this claim up to $2.5
million. Any amounts over $2.5 million will be shared equally. The claim is
being vigorously defended and Agribrands believes that Ralston has numerous
meritorious defenses.
Ralston or local subsidiaries engaged in the Agribrands Business are
parties to a number of other legal proceedings in various foreign jurisdictions
arising out of the operations of the Agribrands Business. Agribrands will assume
liability for these proceedings except to the extent liability is assumed by
Ralston in connection with the Distribution.
Many of the foregoing legal matters are in preliminary stages, involve
complex issues of law and fact and may proceed for protracted periods of time.
The amount of the eventual liability, if any, from these proceedings cannot be
determined with certainty; however, in the opinion of Agribrands management,
based upon the information presently known, as well as upon the limitation of
certain of its liabilities under the Agreement and Plan of Reorganization
between Ralston and Agribrands for the spin-off of Agribrands, the ultimate
liability of Agribrands, if any, arising from the pending legal proceedings, as
well as from asserted legal claims and known potential legal claims which are
probable of assertion, taking into account established accruals for estimated
liabilities, should not be material to the financial position of Agribrands but
could be material to results of operations or cash flows for a particular
quarter or annual period.
15. OTHER CONTINGENCIES AND COMMITMENTS
Guarantees - At August 31, 1998, Agribrands had third party guarantees
outstanding in the aggregate amount of approximately $12.0. These guarantees
relate to financial arrangements with customers, suppliers and other business
relations.
Sale of Receivables - Agribrands sells certain of its trade accounts
receivable and notes receivable to others subject to defined limited recourse
provisions. The Company is responsible for collection of the accounts and remits
the proceeds to the purchaser on a monthly basis. During 1998, Agribrands sold,
on average, accounts receivable totaling $2.2 each month. At August 31, 1998,
$1.7 of transferred receivables were outstanding and subject to recourse
provisions.
Other Commitments - Future minimum rental commitments under noncancellable
operating leases in effect as of August 31, 1998 were: 1999 - $1.4, 2000 - $1.2,
2001 - $0.6, 2002 - $0.3, 2003 - $0.2 and thereafter - $0.2. Total rental
expense for all operating leases was $7.1 in 1998, $10.8 in 1997 and $7.5 in
1996.
16. NOTES PAYABLE
Notes payable of $46.9 and $33.8 at August 31, 1998 and 1997, respectively,
had a weighted average interest rate of 18.0% and 11.2%, respectively. At August
48
<PAGE>
AGRIBRANDS INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions)
31, 1998, substantially all notes payable are denominated in local currencies
and are due to banks. Compensating balance arrangements ensure future credit
availability and do not restrict the withdrawal of funds. Under these
arrangements, Agribrands maintained compensating bank balances of $21.6 and $5.6
at August 31, 1998 and 1997, respectively.
On August 31, 1998, total unused uncommitted lines of credit were
approximately $175.
17. LONG-TERM DEBT
The detail of long-term debt as of August 31 follows:
1998 1997
------- ------
Korean subsidiary, interest rate of 10.0%; due 1999 $ 5.8 $ 8.8
Korean subsidiary, interest rate of 11.0%; open-ended maturity 3.7 7.3
Italian subsidiary, interest rate of 5.0%; due 2000 3.2 -
Canadian subsidiary, weighted average interest rate of 4.1%
at August 31, 1997 - 11.5
Colombian subsidiary, Libor + .25%, or 5.9% at August 31, 1997 - 4.5
Other long-term debt with interest rates ranging from 1.3% to
12.8% 10.2 10.1
------ ------
22.9 42.2
Less: Current Maturities (8.7) (19.4)
------ ------
$14.2 $ 22.8
====== =======
Aggregate maturities of long-term debt are $5.7, $1.3, $1.8 and $0.2 for
the years ending August 31, 2000 through 2003, respectively.
49
<PAGE>
AGRIBRANDS INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions)
18. SUPPLEMENTAL BALANCE SHEET INFORMATION
August 31
1998 1997
--------- ----------
Receivables (current)
Trade $ 79.8 $ 92.1
Value added tax 6.9 12.1
Receivable from Ralston 12.9 -
Other 13.8 20.0
Allowance for doubtful accounts (10.4) (9.8)
-------- --------
$ 103.0 $ 114.4
======== ========
Inventories
Raw materials and supplies $ 77.8 $ 89.7
Finished products 21.0 22.3
-------- --------
$ 98.8 $ 112.0
======== ========
Investments and Other Assets
Goodwill (net of accumulated amortization of $ 32.4 $ 34.0
$5.8 in 1998 and $4.1 in 1997)
Investments in affiliated companies 6.5 4.1
Deferred charges and other assets 12.0 16.1
-------- --------
$ 50.9 $ 54.2
======== ========
Property, Plant and Equipment - net
Land $ 11.0 $ 12.2
Buildings 81.8 68.7
Machinery and equipment 241.9 228.0
Construction in progress 12.2 20.7
-------- --------
346.9 329.6
Accumulated depreciation (170.3) (172.7)
-------- --------
$ 176.6 $ 156.9
======== ========
Accounts Payable and Accrued Liabilities
Trade accounts payable $ 81.4 $ 107.2
Incentive compensation, salaries and vacations 15.8 14.8
Restructuring reserves 1.3 1.4
Other items 34.3 39.3
-------- --------
$ 132.8 $ 162.7
======== ========
Other Liabilities
Retirement and other employee benefits $ 20.3 $ 16.2
Minority interests 2.7 2.7
Other 1.9 8.4
-------- --------
$ 24.9 $ 27.3
======== ========
50
<PAGE>
AGRIBRANDS INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions)
19. ALLOWANCE FOR DOUBTFUL ACCOUNTS
1998 1997 1996
----------- ------------ ------------
Balance, beginning of year $ 9.8 $ 7.2 $ 4.5
Provision charged to expense 6.4 4.6 3.8
Write-offs, less recoveries (4.0) (1.0) (0.7)
Translation adjustment (1.8) (1.0) (0.4)
------- ------- -------
Balance, end of year $ 10.4 $ 9.8 $ 7.2
======= ======= =======
20. SUPPLEMENTAL CASH FLOW STATEMENT INFORMATION
1998 1997 1996
----------- ------------ ------------
Interest paid $ 11.8 $ 10.4 $ 11.6
======= ======= =======
Income taxes paid $ 22.6 $ 21.1 $ 14.2
======= ======= =======
51
<PAGE>
AGRIBRANDS INTERNATIONAL, INC.
QUARTERLY FINANCIAL INFORMATION
(Dollars in millions except per share data)
(unaudited)
The results of any single quarter are not necessarily indicative of
Agribrands' results for the year. The following tables assume 10.7 million
shares outstanding for all periods prior to the Distribution Date.
Fiscal 1998
First Second Third Fourth
-------- --------- --------- ---------
Net sales $ 374.8 $ 333.0 $ 351.1 $ 351.2
Gross profit 56.1 46.4 46.7 53.7
Net earnings (a) 4.0 2.0 3.4 4.4
Basic earnings per share (a) .37 .19 .32 .41
Diluted earnings per share (a) .37 .19 .32 .41
(a) Net earnings and earnings per share were reduced by the following
amounts due to provisions for restructuring:
First Second Third Fourth
--------- --------- -------- ---------
Net earnings - $ 1.1 - $ .6
Basic earnings per share - .10 - .06
Diluted earnings per share - .10 - .06
Fiscal 1997
First Second Third Fourth
-------- --------- -------- ---------
Net sales $ 390.0 $ 363.1 $ 375.5 $ 399.0
Gross profit 54.1 50.7 51.6 49.2
Net earnings (b) 7.0 1.2 6.6 (6.1)
Basic earnings (loss) per share (b) .65 .12 .62 (.57)
Diluted earnings (loss) per share (b) .65 .12 .62 (.57)
(b) Net earnings and earnings per share in 1997 were reduced by the following
amounts due to provisions for restructuring:
First Second Third Fourth
-------- -------- -------- ---------
Net earnings - - - $ 3.2
Basic earnings per share - - - .30
Diluted earnings per share - - - .30
52
<PAGE>
AGRIBRANDS INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions)
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information regarding directors and the information appearing under
"Compliance with Section 16(a) of the Exchange Act" will be contained in The
Notice of the 1999 Annual Meeting and Proxy Statement, to be filed pursuant to
Regulation 14-A, is incorporated herein by reference.
The executive officers of the Company are listed under Item 1 of this
document.
ITEM 11. EXECUTIVE COMPENSATION
Information appearing under "Executive Compensation", "Compensation
Committee Interlocks and Insider Participation", "Nominating and Compensation
Committee Report on Executive Compensation", "Performance Graph", "Stock
Ownership" and the remuneration information under "Directors Meetings,
Committees and Fees" will be contained in The Notice of the 1999 Annual Meeting
and Proxy Statement, to be filed pursuant to Regulation 14-A, is incorporated
herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The discussion of the security ownership of certain beneficial owners and
management appearing under "Stock Ownership" will be contained in The Notice of
the 1999 Annual Meeting and Proxy Statement, to be filed pursuant to Regulation
14-A, is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information appearing under "Compensation Committee Interlocks and Insider
Participation" will be contained in The Notice of the 1999 Annual Meeting and
Proxy Statement, to be filed pursuant to Regulation 14-A, is incorporated herein
by reference.
53
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1.) Financial Statements
The following financial statements are filed as a part of this document
under Item 8. Financial Statements and Supplementary Data.
Consolidated Balance Sheet - for years ended August 31, 1998 and 1997
Consolidated Statement of Earnings - for years ended August 31, 1998, 1997
and 1996
Consolidated Statement of Shareholders Equity - for years ended August 31,
1998,1997 and 1996
Consolidated Statement of Cash Flows - for years ended August 31, 1998,
1997 and 1996
Notes to Consolidated Financial Statements
Report of Independent Accountants
(a)(2.) Financial Statement Schedules
All financial statement schedules have been included in the consolidated
financial statements or are either not applicable or not significant.
54
<PAGE>
(a)(3.) Exhibits (Listed by numbers corresponding to the Exhibit Table of Item
601 in Regulation S-K)
2.1 Agreement and Plan of Reorganization (Filed as Exhibit (10)(i) to the
Company's 10-Q filed for the Quarter Ending February 28, 1998)
3.1 Articles of Incorporation of Agribrands International, Inc. (Filed as
Exhibit 3.1 to the Company's Registration Statement on Form 10 dated
February 9, 1998)
3.2 Bylaws of Agribrands International, Inc. (Filed as Exhibit 3.2 to the
Company's Registration Statement on Form 10 dated February 9, 1998)
4.1 Rights Agreement (Filed as Exhibit 4.1 to the Company's Registration
Statement on Form 10 dated February 9, 1998)
10.1 Technology Transfer and License Agreement (Filed as Exhibit (10)(ii)
to the Company's Form 10-Q for the Period Ending February 28, 1998)
10.2 Trademark Agreement (Filed as Exhibit (10)(iii) to the Company's Form
10-Q for the Period Ending February 28, 1998)
10.3 Credit Agreements (Long and Short Term) (Filed as Exhibit (10)(iv) to
the Company's Form 10-Q for the Period Ending February 28, 1998)
10.4 Tax Sharing Agreement (Filed as Exhibit 2.2 to the Company's
Registration Statement on Form 10 dated March 19, 1998)
10.5 Bridging Agreement (Filed as Exhibit 2.3 to the Company's Registration
Statement on Form 10 dated March 19, 1998)
*10.6 Incentive Stock Plan (Filed as Exhibit 10.1 to the Company's
Registration Statement on Form 10 dated March 19, 1998)
*10.7 Form of Management Continuity Agreement (Filed as Exhibit 10.3 to the
Company's Registration Statement on Form 10 dated February 9, 1998)
*10.8 Non-Qualified Deferred Compensation Plan (Filed as Exhibit 10.2 to
the Company's Registration Statement on Form 10 dated March 19, 1998)
*10.9 Form of Non-Qualified Stock Option Agreement dated May 12, 1998, with
Chief Executive Officer of the Company (Filed as Exhibit 10.1 to
Company's Form 10-Q for the Period Ending May 31, 1998)
*10.10 Form of Non-Qualified Stock Option Agreement dated May 29, 1998,
with certain executive officers of the Company (Filed as Exhibit
10.2 to the Company's Form 10-Q for the Period Ending May 31, 1998)
10.11 First Amendment to Agreement and Plan of Reorganization dated May 29,
1998
*10.12 Form of Notice of Stock Appreciation Right dated May 29, 1998
*10.13 Form of Indemnification Agreement between the Company and its
Directors
55
<PAGE>
*10.14 Form of Indemnification Agreement between the Company and its
executive officers
*10.15 Financial Planning Reimbursement Program
*10.16 Form of Split Dollar Life Insurance Agreement
*10.17 Form of letter amending the May 29, 1998 Non-Qualified Stock Option
Agreements
21 Subsidiaries of the Company
27 Financial Data Schedule
*Denotes a management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K.
No Current Reports on Form 8-K were filed by the Company during the
fourth quarter of its fiscal year ended August 31, 1998.
56
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, Agribrands International, Inc. has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
AGRIBRANDS INTERNATIONAL, INC.
/s/ William P. Stiritz
-----------------------------------
William P. Stiritz
Chairman of the Board,
Chief Executive Officer and President
Date: October 29, 1998
KNOW ALL MEN BY THESE PRESENTS, that the below-named director of Agribrands
International, Inc. whose signature appears below constitutes and appoints M. J.
Costello and W. P. Stiritz and each of them, his true and lawful
attorney-in-fact and agent, with full power of substitution and resolution, for
him and in his name, place, and stead, in any and all capacities, to sign any
and all amendments to this report, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully and to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents or their substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
/s/ William P. Stiritz Chairman of the Board, October 29, 1998
- --------------------- Chief Executive Officer,
William P. Stiritz and President
/s/ David R. Wenzel Chief Financial Officer October 29, 1998
- ----------------------
David R. Wenzel
/s/ Douglas W. Faust Controller (Chief October 29, 1998
- ---------------------- Accounting Officer)
Douglas W. Faust
/s/ David R. Banks Director October 29, 1998
- ----------------------
David R. Banks
/s/ Jay W. Brown Director October 29, 1998
- ----------------------
Jay W. Brown
57
<PAGE>
/s/ M. Darrell Ingram Director October 29, 1998
- ----------------------
M. Darrell Ingram
/s/ H. Davis McCarty Director October 29, 1998
- ----------------------
H. Davis McCarty
/s/ Joe R. Micheletto Director October 29, 1998
- ----------------------
Joe R. Micheletto
/S/ Martin K. Sneider Director October 29, 1998
- ----------------------
Martin K. Sneider
58
<PAGE>
Exhibit 10.11
FIRST AMENDMENT TO AGREEMENT AND
PLAN OF REORGANIZATION
This First Amendment ("First Amendment") to the Agreement and Plan of
Reorganization by and between Ralston Purina Company, a Missouri corporation
("Ralston"), and Agribrands International, Inc., a Missouri corporation
("Agribrands").
WITNESSETH:
WHEREAS, Ralston and Agribrands, formerly a wholly owned subsidiary of
Ralston, executed an Agreement and Plan of Reorganization dated as of April 1,
1998 (the "Reorganization Agreement"), to effect the Distribution of Agribrands;
and
WHEREAS, in such Reorganization Agreement Ralston agreed to continue to
guarantee certain indebtedness of Purina Korea, Inc., a subsidiary of
Agribrands, for a period of time after the Distribution but no later than May
31, 1998, in consideration for which Ralston retained a certain portion of the
Agribrands Cash Holdings which otherwise would have been transferred to
Agribrands as of the Distribution; and
WHEREAS, the parties to the Reorganization Agreement have mutually agreed
to a limited extension of the period of such guarantee by Ralston; and
WHEREAS, pursuant to Section 12.07 of the Reorganization Agreement, the
Reorganization Agreement may be amended in writing by the parties thereto; and
WHEREAS, Ralston and Agribrands now desire to amend the Reorganization
Agreement; and
<PAGE>
NOW THEREFORE, in consideration of the premises and the mutual covenants
herein contained and intending to be legally bound thereby, the parties hereto
agree as follows:
1. Section 2.04(a) of the Reorganization Agreement shall be amended to
delete the date May 31, 1998 contained therein, and to substitute therefor the
date June 30, 1998.
2. Section 2.04(g) of the Reorganization Agreement shall be amended to
delete the following sentence:
"A preliminary determination of the actual Cash and Indebtedness of
Agribrands as of the Distribution shall be made no later than 60 days
after the Distribution Date in order to make a preliminary adjustment
of Cash from Ralston to Agribrands or vice versa, as the findings
warrant."
and to substitute therefor:
"A preliminary determination of the actual Cash and Indebtedness of
Agribrands as of the Distribution shall be made no later than June 30,
1998 in order to make a preliminary adjustment of Cash from Ralston to
Agribrands or vice versa, as the findings warrant."
In addition, the phrase at the end of the last sentence of the first
paragraph of Section 2.04(g) shall be amended to delete "up to 60 days after the
Distribution Date" and to substitute therefor "ending no later than June 30,
1998."
3. All capitalized terms set forth in this First Amendment which are not
otherwise defined herein shall have the meanings assigned to such terms in the
Reorganization Agreement unless the context otherwise requires.
4. This First Amendment may be executed in two or more counterparts, all of
which shall be considered one and the same agreement and each of which shall be
deemed an original.
5. This First Amendment shall be of no force or effect until executed and
delivered by each of the parties hereto. The amendments contained herein shall
be deemed to be a part of the Reorganization Agreement as of the date thereof,
and shall be governed by, subject to and construed in accordance with the terms
of the Reorganization Agreement.
2
<PAGE>
6. Except as otherwise provided for herein, all of the terms and conditions
of the Reorganization Agreement are hereby ratified and shall remain unchanged
and continue in full force and effect.
7. This First Amendment and the legal relations between the parties hereto
shall be governed by and construed in accordance with the laws of the State of
Missouri.
IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to
be duly executed as of this 29th day of May, 1998.
AGRIBRANDS INTERNATIONAL, INC. RALSTON PURINA COMPANY
By:______________________________ By:____________________________
David R. Wenzel James R. Elsesser
Chief Financial Officer Vice President and
Chief Financial Officer
Attest:____________________________ _____________________________
Michael J. Costello Nancy E. Hamilton
Secretary Secretary
3
Exhibit 10.12
NOTICE OF AWARD
OF
STOCK APPRECIATION RIGHT
Name of Awardee: Name
Date of Award: May 29, 1998
Award Units: SARAmount
SAR Base Price: U.S.$34.25
Employing Affiliate: Employer
Agribrands International, Inc. (the "Company" or "Agribrands") has adopted
a Incentive Stock Plan (the "Plan") to attract, retain and motivate key
employees of the Company or Affiliates of the Company (hereinafter referred to
as an "Affiliate") who make important contributions to the Company or its
Affiliates.
Certain key employees of Affiliates are nationals of countries other than
the United States residing outside the United States. Due to the legal
uncertainty or conditions related to issuing stock to individuals outside of the
U.S., the Plan in paragraph G of Section VI allows for the issuance of Stock
Appreciation Rights ("SAR").
From time to time, the Company will request that its Affiliate(s) provide a
benefit in the form of a SAR to such key Employees. This is a notice that you
have been awarded SARs under this Plan.
The above named Affiliate, therefore, is being asked to establish a cash
compensation program which will entitle you to receive this SAR.
1. Grant of SAR. As of the Date of Award, you are granted a SAR. This SAR
entitles you to receive from the Affiliate a payment in cash based on
the number of Award Units identified above. The value of the award
will be equal to the Award Units then being exercised multiplied by
the difference between Fair Market Value of the Company's Stock and
the SAR Base Price on the Exercise Date, less all applicable tax or
benefit withholdings subject to the terms of this award (the "Unit
Value").
The Fair Market Value of the Company's Stock shall mean the closing price
for a share of Company Stock as reported by the New York Stock
Exchange for Composite Transactions on the Exercise Date.
2. Exercise Period. Subject to the terms and conditions identified here
and in the Plan, you may Exercise the SAR, fully or partially, during
the period beginning on May 29, 2003 and ending on May 28, 2008,
unless you are no longer employed by the Company or an Affiliate. If
you are no longer an Employee of Company or an Affiliate, this Award
will only be Exercisable in accordance with the provisions in Section
<PAGE>
3. This SAR Award may also become fully Exercisable for reasons other
than termination of employment which are identified in Sections 3 and
4 below.
3. Acceleration of Exercise Period. This SAR Award will become
immediately Exercisable upon the occurrence of any of the following
events while you are an Employee of the Company or any Affiliate:
a. death;
b. determination of Disability;
c. voluntary termination of employment at or after attainment of the
age of 62;
d. the involuntary termination of employment, other than a
Termination for Cause, including but not limited to, termination
due to the sale or other disposition of the stock or
substantially all of the assets of the Company or the Affiliate
with which you are then employed; or
e. a Change of Control of the Company as defined in the Plan.
Transfers among the Company and its Affiliates do not constitute a
termination of employment and do not cause the Exercise Period to be
Accelerated.
4. Exercise After Certain Events. Upon the occurrence of any of the
events described in Section 3 above, any Award Units which are or
become Exercisable on the date of such event shall remain Exercisable
during the period stated below, but, in any event, not later than May
28, 2008:
a. If your employment is terminated due to death, Disability or
retirement at or after attainment of age 62, if no event of
forfeiture occurs, such Award Units shall remain Exercisable for
three (3) years thereafter;
b. If your employment is involuntarily terminated, for reasons other
than Termination for Cause, such Award Units shall remain
Exercisable for six (6) months thereafter; or
c. When, prior to a Change of Control, there has occurred an event
of forfeiture as defined in Section 6 herein below, the Award
Units, to the extent exercisable, shall remain Exercisable for
thirty (30) days thereafter.
5. Exercise of SAR. You may Exercise, totally or partially, a SAR by
delivering to the Secretary of the Company at the Corporate Office in
St. Louis, a completed Notice of Stock Appreciation Right Exercise,
using the form attached hereto as Exhibit A (the "Notice of
Exercise"). The Exercise Date will be the Business Day on which the
Secretary receives the Notice of Exercise provided it is received on a
date after all conditions to Exercise are satisfied. Any issues
regarding the date of receipt of the Notice of Exercise shall be
finally determined by the Secretary in his/her sole discretion.
2
<PAGE>
Within thirty (30) days, following the Exercise Date, the Company will
direct the Affiliate then currently employing you to pay to you in
local currency a bonus equivalent to the Unit Value. The local
currency equivalent due will be calculated at the free market rate for
purchasing local currency with United States Dollars on the Exercise
Date (any questions regarding the relevant local currency rate of
exchange will be finally determined by the Nominating & Compensation
Committee of the Board of Directors of the Company or its delegee (the
"Committee"). All decisions of the Committee, including its delegee,
shall be final and within its sole discretion.
6. Forfeiture. Prior to a change of Control, this Award is subject to
forfeiture upon the occurrence of one of the following events:
a. Your employment by the Affiliate is Terminated for Cause;
b. You engage in competition with the Company or any Affiliate; or
c. You voluntary terminate your employment prior to the age of 62.
If there is an event of forfeiture, the portion of the Award that is
exercisable at that time may be exercised as set forth in Section 4
hereof. Forfeiture shall be determined by the Committee or its delegee
and all decisions of the Committee or its delegee shall be final and
within its sole discretion.
7. Definitions. Unless otherwise defined in this Award, defined terms
used in this document shall have the same meaning as set forth in the
Plan.
"Disability" shall mean a mental or physical disability as, in
the opinion of the Committee or its delegee, will prevent an Awardee
from ever resuming work of the same general nature as that which was
performed for the Company or Affiliate, as applicable, prior to the
disability.
"Termination for Cause" shall mean Awardee's termination of
employment
with the Affiliate because of the willful engaging in gross
misconduct; provided, however, that a Termination for Cause shall not
include termination attributable to: (i) poor work performance, bad
judgment or negligence on the part of Awardee, (ii) an act or omission
believed by Awardee in good faith to have been in or not opposed to
the best interests of the Company and its Affiliates and reasonably
believed by Awardee to be lawful, or (iii) the good faith conduct of
Awardee in connection with a Change of Control (including opposition
to or support of such Change of Control).
8. Severability. The invalidity or unenforceability of any provision of
this document in any jurisdiction shall not affect the validity or
enforceability of the remainder in that jurisdiction, or the validity
or enforceability of this Award, including that provision, in any
other jurisdiction. To the extent permitted by applicable law, the
Company and Awardee each waive any provision of law that renders any
provision in this document invalid, prohibited or unenforceable in any
respect. If any provision of this Award is held to be unenforceable
3
<PAGE>
for any reason, it shall be adjusted rather than voided, if possible,
in order to achieve the intent of the parties to the extent possible.
9. Adjustments. Upon any extraordinary dividend, stock split-up, stock
dividend, issuance of any targeted stock, recapitalization, warrant or
rights issuance or combination, exchange or reclassification with
respect to any outstanding class or series of Stock, or consolidation,
merger or sale of all or substantially all of the assets of the
Company, the Committee shall cause appropriate adjustments to be made
to the terms of this Award.
10. Non-transferability. The SAR's are non-assignable and
non-transferrable other than by will or the laws of descent and
distribution, and are Exercisable, during your lifetime, only by you.
11. Stockholder Rights. You shall not have any rights as a stockholder of
the Company with respect to any Stock which may be the basis for
calculating this Award.
12. Employment. The Awardee is employed by the Affiliate. You agree that
the Award does not create an employment relationship with the Company.
13. No Illegal Transactions. You shall not be entitled to Exercise a SAR
nor receive the benefits thereof, and neither the Company nor any
Affiliate shall pay benefits to you if such Exercise, delivery,
receipt or payment of benefits would constitute a violation of any
provision of any law or regulation of any governmental authority which
may be applicable to the Plan or this Award.
Acknowledged and Accepted:. Agribrands International, Inc.
____________________________ By: __________________________
Awardee D. R. Wenzel
Date: _______________________ Chief Financial Officer
Location: ____________________
4
Exhibit 10.13
INDEMNIFICATION AGREEMENT
INDEMNIFICATION AGREEMENT (the "Agreement") made this 1st day of April
1998, between AGRIBRANDS INTERNATIONAL, INC., a Missouri corporation (the
"Company") and ____________________ ("Director").
WHEREAS, Director is a member of the Board of Directors of Company, and in
such capacity is performing a valuable service for Company; and
WHEREAS, the Company's Articles of Incorporation (the "Articles") permit
the indemnification of directors, officers, employees and certain agents of the
Company, and indemnification is also authorized by Section 351.355 of the
Missouri Revised Statutes, as amended to date (the "Indemnification Statute");
and
WHEREAS, the Articles and the Indemnification Statute permit full
indemnification of directors absent knowingly fraudulent, deliberately dishonest
or willful misconduct; and
WHEREAS, in order to induce Director to serve as a member of the Board of
Directors of Company, Company has determined and agreed to enter into this
contract with Director;
NOW THEREFORE, in consideration of Director's continued service as a
director after the date hereof, the Company and Director agree as follows:
1. Indemnity of Director. Company hereby agrees to hold harmless and
indemnify Director to the full extent authorized or permitted by the provisions
of the Indemnification Statute, or by any amendment thereof, or any other
statutory provisions authorizing or permitting such indemnification which is
adopted after the date hereof.
2. Additional Indemnity. Subject to the exclusions set forth in Section 3
hereof, Company further agrees to hold harmless and indemnify Director against
any and all expenses (including attorneys' fees), judgments, fines and amounts
paid in settlement, actually and reasonably incurred by Director in connection
with any threatened, pending or completed action, claim, suit or proceeding,
whether civil, criminal, administrative or investigative (including an action by
<PAGE>
or in the right of the Company) to which Director is, was or at any time becomes
a party, or is threatened to be made a party, by reason of the fact that
Director is, was or at any time whether before or after the date of this
Agreement, becomes a director, officer, employee or agent of the Company, or is
or was serving or at any time serves at the request of the Company as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise.
3. Limitations on Additional Indemnity. No indemnity pursuant to Section 2
hereof shall be paid by Company:
(a) Except to the extent the aggregate of losses to be indemnified
thereunder exceeds the amount of such losses for which the Director is
indemnified pursuant to Section 1 hereof or pursuant to any insurance
policies or other comparable policies purchased and maintained by the
Company;
(b) In respect to remuneration paid to Director if it shall be finally
judicially adjudged that such remuneration was in violation of law;
(c) On account of any suit for an accounting of profits made from the
purchase or sale by Director of securities of the Company pursuant to the
provisions of Section 16(b) of the Securities Exchange Act of 1934, as
amended or similar provisions of any state or local statutory law;
(d) On account of Director's conduct which is finally judicially
adjudged to have been knowingly fraudulent, deliberately dishonest or
willful misconduct;
(e) If a final decision by a Court having jurisdiction in the matter
(all appeals having been denied or none having been taken) shall determine
that such indemnification is not lawful.
4. Continuation of Indemnity. All agreements and obligations of Company
contained herein shall continue during the period Director is a member of the
Board of Directors of Company and shall continue thereafter so long as Director
shall be subject to any possible claim or threatened, pending or completed
action or claim, suit or proceeding, whether civil, criminal, administrative or
2
<PAGE>
investigative, by reason of the fact that Director was a director of the Company
or was serving in any other capacity referred to herein.
5. Notification and Defense of Claim. Promptly after receipt by Director of
notice of the commencement of any action, claim, suit or proceeding against
Director by reason of Director's status as a director, officer, employee or
agent, Director will notify Company of the commencement thereof; provided,
however, that the omission so to notify Company will not relieve Company from
any liability which it may have to Director under this Agreement unless and to
the extent that Company's rights are prejudiced by such failure. With respect to
any such action, claim, suit or proceeding as to which Director notifies Company
of the commencement thereof:
(a) Company will be entitled to participate therein at its own
expense;
(b) Except as otherwise provided below, to the extent that it may
wish, Company jointly with any other party will be entitled to assume the
defense thereof, with counsel satisfactory to Director. After notice from
Company to Director of its election so to assume the defense thereof,
Company will not be liable to Director under this Agreement for any legal
or other expenses subsequently incurred by Director in connection with the
defense thereof unless Director shall have reasonably concluded that there
may be a conflict of interest between Company and Director in the conduct
of the defense of such action, in which case, Company shall not be entitled
to assume the defense of any action, claim, suit or proceeding brought by
or on behalf of Company;
(c) Company shall not be liable to indemnify Director under this
Agreement for any amounts paid in settlement of any action or claim
effected without its written consent. Company shall not settle any action
or claim in any manner which would impose any penalty or limitation on
Director without Director's written consent. Neither Company nor Director
will unreasonably withhold their consent to any proposed settlement.
3
<PAGE>
6. Advancement and Repayment of Expenses.
(a) To the extent that the Company assumes the defense of any action,
claim, suit or proceeding against Director, Director agrees that he will
reimburse Company for all reasonable expenses paid by Company in defending
any civil or criminal action, claim, suit or proceeding against Director in
the event and only to the extent that it shall be ultimately judicially
determined that Director is not entitled to be indemnified by Company for
such expenses under the provisions of the Indemnification Statute, the
Articles, this Agreement or otherwise.
(b) To the extent that the Company does not assume the defense of any
action, claim, suit or proceeding against Director, Company shall advance
to Director all reasonable expenses, including all reasonable attorneys'
fees, retainers, court costs, transcript costs, fees of experts, witness
fees, travel expenses, duplicating costs, printing and binding costs,
telephone charges, postage, delivery service fees, and all other
disbursements or expenses of the types customarily incurred in connection
with defending, preparing to defend or investigating any civil or criminal
action, suit or proceeding, within twenty days after the receipt by Company
of a statement or statements from Director requesting such advance or
advances, whether prior to or after final disposition of such action, suit
or proceeding. Such statement or statements shall reasonably evidence the
expenses incurred by Director and shall include or be preceded or
accompanied by an undertaking by or on behalf of Director to repay all of
such expenses advanced if it shall be ultimately judicially determined that
Director is not entitled to be indemnified against such expenses. Any
advances and undertakings to repay pursuant to this paragraph shall be
unsecured and interest free.
7. Enforcement.
(a) Company expressly confirms and agrees that it has entered into
this Agreement and assumed the obligations imposed on Company hereby in
4
<PAGE>
order to induce Director to serve as a director of Company, and
acknowledges that Director is relying upon this Agreement in serving in
such capacity.
(b) In the event Director is required to bring any action to enforce
rights or to collect moneys due under this Agreement and is successful in
such action, Company shall reimburse Director for all of Director's
reasonable fees and expenses in bringing and pursuing such action.
8. Separability. Each of the provisions of this Agreement is a separate and
distinct agreement and independent of the others, so that if any provision
hereof shall be held to be invalid or unenforceable for any reason, such
invalidity or unenforceability shall not affect the validity or enforceability
of the other provisions hereof.
9. Governing Law; Binding Effect; Amendment and Termination.
(a) This Agreement shall be interpreted and enforced in accordance
with the laws of the State of Missouri.
(b) This Agreement shall be binding upon Director and upon Company,
its successors and assigns, and shall inure to the benefit of Director, the
Director's heirs, personal representatives and assigns, and to the benefit
of Company, its successors and assigns.
(c) No amendment, modification, termination or cancellation of this
Agreement shall be effective unless in writing signed by both parties
hereto.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on and
as of the day and year first above written.
AGRIBRANDS INTERNATIONAL, INC.
By:________________________________
M. J. Costello, Secretary
DIRECTOR
________________________________
5
Exhibit 10.14
INDEMNIFICATION AGREEMENT
INDEMNIFICATION AGREEMENT (the "Agreement") made this 1st day of April,
1998, between AGRIBRANDS INTERNATIONAL, INC., a Missouri corporation (the
"Company") and __________________ ("Officer").
WHEREAS, Officer is an executive officer of the Company, and in such
capacity is performing a valuable
service for Company; and
WHEREAS, the Company's Articles of Incorporation (the "Articles") permit
the indemnification of directors, officers, employees and certain agents of the
Company, and indemnification is also authorized by Section 351.355 of the
Missouri Revised Statutes 1978, as amended to date (the "Indemnification
Statute"); and
WHEREAS, the Articles and the Indemnification Statute permit full
indemnification of officers absent knowingly fraudulent, deliberately dishonest
or willful misconduct; and
WHEREAS, in order to induce Officer to continue to serve as a Corporate
Officer of the Company, Company has determined and agreed to enter into this
contract with Officer;
NOW THEREFORE, in consideration of Officer's continued service as a
Corporate Officer after the date hereof, the Company and Officer agree as
follows:
1. Indemnity of Officer. Company hereby agrees to hold harmless and
indemnify Officer to the full extent authorized or permitted by the provisions
of the Indemnification Statute, or by any amendment thereof, or any other
statutory provisions authorizing or permitting such indemnification which is
adopted after the date hereof.
<PAGE>
2. Additional Indemnity. Subject to the exclusions set forth in Section 3
hereof, Company further agrees to hold harmless and indemnify Officer against
any and all expenses (including attorneys' fees), judgments, fines and amounts
paid in settlement, actually and reasonably incurred by Officer in connection
with any threatened, pending or completed action, claim, suit or proceeding,
whether civil, criminal, administrative or investigative (including an action by
or in the right of the Company) to which Officer is, was or at any time becomes
a party, or is threatened to be made a party, by reason of the fact that Officer
is, was or at any time whether before or after the date of this Agreement,
becomes a director, officer, employee or agent of the Company, or is or was
serving or at any time serves at the request of the Company as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise.
3. Limitations on Additional Indemnity. No indemnity pursuant to Section 2
hereof shall be paid
by Company:
(a) Except to the extent the aggregate of losses to be indemnified
thereunder exceeds the amount of such losses for which the Officer is
indemnified pursuant to Section 1 hereof or pursuant to any insurance policies
or other comparable policies purchased and maintained by the Company;
(b) In respect to remuneration paid to Officer if it shall be finally
judicially adjudged that such remuneration was in violation of law;
(c) On account of any suit for an accounting of profits made from the
purchase or sale by Officer of securities of the Company pursuant to the
provisions of Section 16(b) of the Securities Exchange Act of 1934, as amended
2
<PAGE>
or similar provisions of any state or local statutory law;
(d) On account of Officer's conduct which is finally judicially adjudged to
have been knowingly fraudulent, deliberately dishonest or willful misconduct;
(e) If a final decision by a Court having jurisdiction in the matter (all
appeals having been denied or none having been taken) shall determine that such
indemnification is not lawful.
4. Continuation of Indemnity. All agreements and obligations of Company
contained herein shall continue during the period Officer is a Corporate Officer
of Company and shall continue thereafter so long as Officer shall be subject to
any possible claim or threatened, pending or completed action or claim, suit or
proceeding, whether civil, criminal, administrative or investigative, by reason
of the fact that Officer was a Corporate Officer of the Company or was serving
in any other capacity referred to herein.
5. Notification and Defense of Claim. Promptly after receipt by Officer of
notice of the commencement of any action, claim, suit or proceeding against him
by reason of his status as a director, officer, employee or agent, Officer will
notify Company of the commencement thereof; provided, however, that the omission
to so notify Company will not relieve Company from any liability which it may
have to Officer under this Agreement unless and to the extent that Company's
rights are prejudiced by such failure. With respect to any such action, claim,
suit or proceeding as to which Officer notifies Company of the commencement
thereof:
(a) Company will be entitled to participate therein at its own expense;
and,
(b) Except as otherwise provided below, to the extent that it may wish,
3
<PAGE>
Company jointly with any other party will be entitled to assume the defense
thereof, with counsel satisfactory to Officer. After notice from Company to
Officer of its election to so assume the defense thereof, Company will not be
liable to Officer under this Agreement for any legal or other expenses
subsequently incurred by Officer in connection with the defense thereof unless
Officer shall have reasonably concluded that there may be a conflict of interest
between Company and Officer in the conduct of the defense of such action, in
which case, Company shall not be entitled to assume the defense of any action,
claim, suit or proceeding brought by or on behalf of Company;
(c) Company shall not be liable to indemnify Officer under this Agreement
for any amounts paid in settlement of any action or claim effected without its
written consent. Company shall not settle any action or claim in any manner
which would impose any penalty or limitation on Officer without Officers written
consent. Neither Company nor Officer will unreasonably withhold their consent to
any proposed settlement.
6. Advancement and Repayment of Expenses.
(a) To the extent that the Company assumes the defense of any action,
claim, suit or proceeding against Officer, Officer agrees that he will reimburse
Company for all reasonable expenses paid by Company in defending any civil or
criminal action, claim, suit or proceeding against Officer in the event and only
to the extent that it shall be ultimately judicially determined that Officer is
not entitled to be indemnified by Company for such expenses under the provisions
of the Indemnification Statute, the Articles, this Agreement or otherwise.
(b) To the extent that the Company does not assume the defense of any
4
<PAGE>
action, claim, suit or proceeding against Officer, Company shall advance to
Officer all reasonable expenses, including all reasonable attorneys' fees,
retainers, court costs, transcript costs, fees of experts, witness fees, travel
expenses, duplicating costs, printing and binding costs, telephone charges,
postage, delivery service fees, and all other disbursements or expenses of the
types customarily incurred in connection with defending, preparing to defend or
investigating any civil or criminal action, suit or proceeding, within twenty
days after the receipt by Company of a statement or statements from Officer
requesting such advance or advances, whether prior to or after final disposition
of such action, suit or proceeding. Such statement or statements shall
reasonably evidence the expenses incurred by Officer and shall include or be
preceded or accompanied by an undertaking by or on behalf of Officer to repay
all of such expenses advanced if it shall be ultimately judicially determined
that Officer is not entitled to be indemnified against such expenses. Any
advances and undertakings to repay pursuant to this paragraph shall be unsecured
and interest free.
7. Enforcement.
(a) Company expressly confirms and agrees that it has entered into this
Agreement and assumed the obligations imposed on Company hereby in order to
induce Officer to continue to serve as a Corporate Officer of Company, and
acknowledges that Officer is relying upon this Agreement in continuing in such
capacity.
(b) In the event Officer is required to bring any action to enforce rights
or to collect moneys due under this Agreement and is successful in such action,
Company shall reimburse Officer for all of Officer's reasonable fees and
expenses in bringing and pursuing such action.
5
<PAGE>
8. Separability. Each of the provisions of this Agreement is a separate and
distinct agreement and independent of the others, so that if any provision
hereof shall be held to be invalid or unenforceable for any reason, such
invalidity or unenforceability shall not affect the validity or enforceability
of the other provisions hereof.
9. Governing Law; Binding Effect; Amendment and Termination.
(a) This Agreement shall be interpreted and enforced in accordance with the
laws of the State of Missouri.
(b) This Agreement shall be binding upon Officer and upon Company, its
successors and assigns, and shall inure to the benefit of Officer, his or her
heirs, personal representatives and assigns, and to the benefit of Company, its
successors and assigns.
(c) No amendment, modification, termination or cancellation of this
Agreement shall be effective unless signed in writing by both parties hereto.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on and
as of the day and year first above written.
AGRIBRANDS INTERNATIONAL, INC.
By:_____________________________
D. R. Wenzel
Chief Financial Officer
OFFICER
By:_____________________________
6
Exhibit 10.15
FINANCIAL PLANNING REIMBURSEMENT PROGRAM
The Financial Planning Reimbursement Program (the "Plan") is designed to help
you in your personal financial planning by sharing the expense of assistance in
this complex area. This program is voluntary and the choice of advisors is your
personal decision.
With the complexity of personal tax laws and investment opportunities
increasing, the Company is pleased to offer you personal financial planning - an
individualized financial management benefit program. This benefit can provide
additional peace of mind by assisting you in maximizing your pre and post-tax
dollars and ensuring their productive employment.
I. ELIGIBILITY
The class of employees eligible for coverage under this Plan consists of:
Chief Executive Officer of the Company.
Executives of the Company or its affiliates authorized by Chief Executive
Officer.
Service will cease when you are no longer actively employed by the Company
except in the case of your death while actively employed. In this event,
currently employed services will extend to your estate for one year. You
can participate in this Plan as long as you continue to meet the
eligibility requirements.
II. COVERED SERVICES AND EXPENSES
Eligibility for covered services and expenses consists of reimbursement for
the types of services listed below or as determined by the Director, Human
Resources.
A. Overall financial planning and preparation of documents related to:
Investments
Cash flow and budgeting
Estate
Tax
Retirement
Insurance
Educational funding
Company compensation and benefits
Software for any of the above having a price in excess of $500.
1
<PAGE>
III. SERVICES EXCLUDED
A. Financial service commissions such as broker's fees and mutual fund
fees.
B. Fees related to employee's (or spouse's) "active" financial interest
or legal obligations in any outside business, except to the extent of
direct impact on the preparation of the executive's tax returns.
C. Trust fees to banks or other financial institutions.
IV. REIMBURSEMENT
A. You exclusively manage your own services including selection of
advisors.
B. You pay your own bills.
C. The Company will reimburse you in accordance with the reimbursement
table below for all financial planning, counseling, eligible legal
services, and tax preparation giving you a personal stake in all
services you select and manage. Simply submit paid bills to the
Director, Human Resources.
D. The following table lists maximum reimbursable limits:
Position Aggregate Annual % of Reimbursement
-------- ---------------- ------------------
Chief Executive $15,000 Per Annum 100%
Officer
Other Executives Benefit not presently offered -
This program will be administered on a calendar year basis with December
31st ending the first "year" of eligibility for all participants regardless
of when you became eligible that year. Any services rendered during a
calendar year shall be submitted for reimbursement by not later than sixty
(60) days following the end of the calendar year. (For example, calendar
year tax return preparation in March or succeeding months shall be
reimbursable in the succeeding year rather than the year for which the tax
return pertains.)
2
<PAGE>
V. CHOICE OF ADVISORS
You are free to choose any financial planning, accounting, legal or tax
consultants. The Company neither recommends nor endorses any advisor nor
firm. It is up to you to decide which firm meets your needs. The Company
does not assume responsibility for your selection of firms nor the results
of services you receive.
VI. TAX DEDUCTIBILITY AND WITHHOLDING
Reimbursements will be taxable income to you and will be handled as such by
the Company.
Reimbursements are not used in calculating benefit earnings for Company
benefit plans.
VII. AMENDMENT AND TERMINATION
The Company may modify or terminate the Plan or any participant's
participation in the Plan without prior notice or obligation to reimburse
any participant for any amount incurred and not submitted prior to such
notification or termination.
3
Exhibit 10.16
SPLIT-DOLLAR AGREEMENT
THIS AGREEMENT made and entered into this 1st day of September, 1998, by
and among Agribrands International, Inc., a corporation with principal offices
and place of business in the State of Missouri (hereinafter referred to as the
"Corporation"), William P. Stiritz, an individual residing in the State of
Missouri (hereinafter referred to as the "Employee"), and Fidelity Management
Trust Company, Trustee of the William P. Stiritz 1998 Irrevocable Insurance
Trust U/A September 1, 1998 (hereinafter referred to as the "Owner"),
WITNESSETH THAT:
WHEREAS, the Employee is employed by the Corporation; and
WHEREAS, the Employee wishes to provide life insurance protection for his
family in the event of his death, under a policy of life insurance insuring his
life (hereinafter referred to as the "Policy"), which is described in Exhibit A
attached hereto and by this reference made a part hereof, and which is being
issued by Zurich Kemper Life (hereinafter referred to as the "Insurer"); and
WHEREAS, the Corporation is willing to pay a portion of the premiums due on
the Policy as an: additional employment benefit for the Employee, on the terms
and conditions hereinafter set forth; and
WHEREAS, Owner is the owner of the Policy and, as such, possesses all
incidents of ownership in and to the Policy; and
WHEREAS, the Corporation wishes to have the Policy collaterally assigned to
it by the Owner, in order to secure the repayment of the amounts which it will
pay toward the premiums on the Policy; and
NOW, THEREFORE, in consideration of the premises and of the mutual promises
contained herein, the parties hereto agree as follows:
1. Purchase of Policy. The Owner will contemporaneously purchase the Policy
from the Insurer in the total face amount of $102,000,000. The parties hereto
agree that they will take all necessary action to cause the Insurer to issue the
Policy, and shall take any further action which may be necessary to cause the
Policy to conform to the provisions of this Agreement. The parties hereto agree
that the Policy shall be subject to the terms and conditions of this Agreement
and of the collateral assignment filed with the Insurer relating to the Policy
2. Ownership of Policy. The Owner shall be the sole and absolute owner of
the Policy, and may exercise all ownership rights granted to the owner thereof
by the terms of the Policy, except as may otherwise be provided herein.
3. Payment of Premiums.
a. Thirty (30) days prior to the due date of each Policy premium, the
Corporation shall notify the Employee and the Owner of the exact amount due from
the Employee hereunder, which shall be an amount equal to the annual cost of
current life insurance protection on the life of the Employee, measured by the
lower of the PS 58 rate, set forth in Revenue Ruling 55-747 (or the
corresponding applicable provision of any future Revenue Ruling), or the
Insurer's current published premium rate for annually renewable term insurance
for standard risks. Either the Employee or the Owner, on behalf of the Employee,
shall pay such required contribution to the Corporation prior to the premium due
date. If neither the Employee nor the Owner makes such timely payment, the
Corporation, in its sole discretion, may elect to make the Employee's portion of
the premium payment, which payment shall be recovered by the Corporation as
provided herein.
<PAGE>
b. On or before the due date of each Policy premium, or within the grace
period provided therein, the Corporation shall pay the full amount of the
premium to the Insurer, and shall, upon request, promptly furnish the Employee
evidence of timely payment of such premium. The Corporation shall annually
furnish the Employee a statement of the amount of income reportable by the
Employee for federal and state income tax purposes, if any, as a result of the
insurance protection provided the Owner as the Policy beneficiary.
4. Collateral Assignment. To secure the repayment to the Corporation of the
amount of the premiums on the Policy paid by it hereunder, the Owner has,
contemporaneously herewith, assigned the Policy to the Corporation as
collateral, under the form used by the Insurer for such assignments. The
collateral assignment of the Policy to the Corporation hereunder shall not be
terminated, altered or amended by the Owner, without the express written consent
of the Corporation. The parties hereto agree to take all action necessary to
cause such collateral assignment to conform to the provisions of this Agreement.
5. Limitations on Owner's Rights in Policy.
a. Except as otherwise provided herein, the Owner shall not sell, assign,
transfer, borrow against, surrender or cancel the Policy, nor change the
beneficiary designation provision thereof, without, in any such case, the
express written consent of the Corporation.
b. Notwithstanding any provision hereof to the contrary, the Company shall
have the sole authority to direct the manner in which the Account established
pursuant to the terms of the Policy shall be invested among the various
investment options from time to time available pursuant to the terms of the
Policy.
Collection of Death Proceeds.
c. Upon the death of the Employee, the Corporation shall cooperate with the
Owner to take whatever action is necessary to collect the death benefit provided
under the Policy; when such benefit has been collected and paid as provided
herein, this Agreement shall thereupon terminate.
d. Upon the death of the Employee, the Corporation shall have the
unqualified right to receive a portion of such Death Benefit equal to
$100,000,000 plus the total amount of the premiums paid by it hereunder, reduced
by any outstanding indebtedness which was incurred by the Corporation and
secured by the Policy, including any interest due on such indebtedness. The
balance of the Death Benefit provided under the Policy, if any, shall be paid
directly to the Owner in the manner and in the amount or amounts provided in the
beneficiary designation provision of the Policy. In no event shall the amount
payable to the Corporation hereunder exceed the Policy proceeds payable as a
result of the maturity of the Policy as a death claim. No amount shall be paid
from such Death Benefit to the Owner until the final amount due the Corporation
hereunder has been paid. The parties agree that the beneficiary designation
provision of the Policy shall conform to the provisions hereof.
e. Notwithstanding any provision hereof to the contrary, in the event that,
for any reason whatsoever, no death benefit is payable under the Policy upon the
death of the Employee and in lieu thereof the Insurer refunds all or any part of
the premiums paid for the Policy, the Corporation and the Owner shall have the
unqualified right to share such premiums based on their respective cumulative
contributions thereto.
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<PAGE>
6. Termination of the Agreement During the Employee's Lifetime.
a. This Agreement shall terminate, during the Employee's lifetime, without
notice, upon the occurrence of any of the following events: (a) total cessation
of the Corporation's business; (b) bankruptcy, receivership or dissolution of
the Corporation; (c) termination of Employee's employment by the Corporation
(other than by reason of his death), or (d) failure of the Employee to timely
pay to the Corporation the Employee's portion of the premium, if any, due
hereunder, unless the Corporation elects to make such payment on behalf of the
Employee, as provided herein.
b. In addition, the Employee may terminate this Agreement, while no premium
under the Policy is overdue, by written notice to the Corporation. Such
termination shall be effective as of the date of such notice.
c. In addition, the Corporation may terminate this Agreement by written
notice to the Owner and the Employee. Such termination shall be effective as of
the date of such notice.
7. Disposition of the Policy on Termination of the Agreement During the
Employee's Lifetime.
a. For sixty (60) days after the date of the termination of this Agreement
during the Employee's lifetime, the Owner shall have the option of obtaining the
release of the collateral assignment of the Policy to the Corporation. To obtain
such release, the Owner shall repay to the Corporation the total amount of the
premium payments made hereunder, less any indebtedness secured by the Policy
which was incurred by the Corporation and remains outstanding as of the date of
such termination, including any interest due on such indebtedness. Upon receipt
of such amount, the Corporation shall release the collateral assignment of the
Policy, by the execution and delivery of an appropriate instrument of release.
b. If the Owner fails to exercise such option within such sixty (60) day
period, then, at the request of the Corporation, the Owner shall execute any
document or documents required by the Insurer to transfer the interest of the
Owner in the Policy to the Corporation. Alternatively, the Corporation may
enforce its right to be repaid the amount of the premiums on the Policy paid by
it from the surrender value of the Policy under the collateral assignment of the
Policy; provided that in the event the surrender value of the Policy exceeds the
amount due the Corporation, such excess shall be paid to the Owner. Thereafter,
neither the Owner nor the Owner's successors, assigns or beneficiaries shall
have any further interest in and to the Policy, either under the terms thereof
or under this Agreement.
8. Insurer Not a Party. The Insurer shall be fully discharged from its
obligations under the Policy by payment of the Policy Death Benefit to the
beneficiary or beneficiaries named in the Policy, subject to the terms and
conditions of the Policy. In no event shall the Insurer be considered a party to
this Agreement, or any modification or amendment hereof. No provision of this
Agreement, nor of any modification or amendment hereof, shall in any way be
construed as enlarging, changing, varying, or in any other way affecting the
obligations of the Insurer as expressly provided in the Policy, except insofar
as the provisions hereof are made a part of the Policy by the collateral
assignment executed by the Owner and filed with the Insurer in connection
herewith.
3
<PAGE>
9. Named Fiduciary, Determination of Benefits, Claims Procedure and
Administration.
a. The Corporation is hereby designated as the named fiduciary under this
Agreement. The named fiduciary shall have authority to control and manage the
operation and administration of this Agreement, and it shall be responsible for
establishing and carrying out a funding policy and method consistent with the
objectives of this Agreement.
b. (1) Claim. A person who believes that he or she is being denied a
benefit to which he or she is entitled under this Agreement (hereinafter
referred to as a "Claimant") may file a written request for such benefit with
the Corporation, setting forth his or her claim. The request must be addressed
to the President of the Corporation at its then principal place of business.
(2) Claim Decision. Upon receipt of a claim, the Corporation shall advise
the Claimant that a reply will be forthcoming within ninety (90) days and shall,
in fact, deliver such reply within such period. The Corporation may, however,
extend the reply period for an additional ninety (90) days for reasonable cause.
If the claim is denied in whole or in part, the Corporation shall adopt a
written opinion, using language calculated to be understood by the Claimant,
setting forth: (a) the specific reason or reasons for such denial; (b) the
specific reference to pertinent provisions of this Agreement on which such
denial is based; (c) a description of any additional material or information
necessary for the Claimant to perfect his or her claim and an explanation why
such material or such information is necessary; (d) appropriate information as
to the steps to be taken if the Claimant wishes to submit the claim for review;
and (e) the time limits for requesting a review under subsection (3) and for
review under subsection (4) hereof.
(3) Request for Review. With sixty (60) days after the receipt by the
Claimant of the written opinion described above, the Claimant may request in
writing that the Secretary of the Corporation review the determination of the
Corporation. Such request must be addressed to the Secretary of the Corporation,
at its then principal place of business. The Claimant or his or her duly
authorized representative may, but need not, review the pertinent documents and
submit issues and comments in writing for consideration by the Corporation. If
the Claimant does not request a review of the Corporation's determination by the
Secretary of the Corporation within such sixty (60) day period, he or she shall
be barred and estopped from challenging the Corporation's determination.
(4) Review of Decision. Within sixty (60) days after the Secretary's
receipt of a request for review, he will review the Corporation's determination.
After considering all materials presented by the Claimant, the Secretary will
render a written opinion, written in a manner calculated to be understood by the
Claimant, setting forth the specific reasons for the decision and containing
specific references to the pertinent provisions of this Agreement on which the
decision is based. If special circumstances require that the sixty (60) day time
period be extended, the Secretary will so notify the Claimant and will render
the decision as soon as possible, but no later than one hundred twenty (120)
days after receipt of the request for review.
10. Amendment. This Agreement may not be amended, altered or modified,
except by a written instrument signed by the parties hereto, or their respective
successors or assigns, and may not be otherwise terminated except as provided
herein.
4
<PAGE>
11. Binding Effect. This Agreement shall be binding upon and inure to the
benefit of the Corporation and its successors and assigns, and the Employee, the
Owner, and their respective successors, assigns, heirs, executors,
administrators and beneficiaries.
12. Notice. Any notice, consent or demand required or permitted to be given
under the provisions of this Agreement shall be in writing, and shall be signed
by the party giving or making the same. If such notice, consent or demand is
mailed to a party hereto, it shall be sent by United States certified mail,
postage prepaid, addressed to such party's last known address as shown on the
records of the Corporation. The date of such mailing shall be deemed the date of
notice, consent or demand.
13. Governing Law. This Agreement, and the rights of the parties hereunder,
shall be governed by and construed in accordance with the laws of the State of
Missouri.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement, in
triplicate, as of the day and year first above written.
AGRIBRANDS INTERNATIONAL, INC.
By: __________________________________
Title:
"Corporation"
ATTEST:
- --------------------------------
Secretary
--------------------------------------
WILLIAM P. STIRITZ
"Employee"
William P. Stiritz 1998 Irrevocable
Insurance Trust U/A Sept. 1., 1998, by
-----------------------------------------
FIDELITY MANAGEMENT TRUST COMPANY
"Owner"
Exhibit 10.17
September 3, 1998
TO: Name
RE: AMENDMENT OF NON-QUALIFIED STOCK OPTION AWARDS
The Non-Qualified Stock Option contract for your May 29, 1998 grant
failed to address one important aspect of the terms of the grant relating to
forfeiture of the award if you voluntarily terminate employment with the Company
prior to age 62. Therefore, Sections 3.c. and 4 of your contract are hereby
rescinded to be replaced in their entirety with the following:
3.c. When, prior to a Change of Control, there has occurred an
event of forfeiture as defined in Section 4 herein, the
Option, to the extent exercisable, shall remain exercisable
for thirty (30) days thereafter.
4. Forfeiture. Prior to a change of Control, this Option is
subject to forfeiture upon the occurrence of one of the
following events:
a. The Optionee's employment is Terminated for Cause; or
b. The Optionee engages in competition with the Company or
an Affiliate; or
c. The Optionee voluntarily terminates employment prior to
the age of 62.
If there is an event of forfeiture, the portion of the Option
that is exercisable at that time may be exercised as set forth
in Section 3 hereof.
All other terms and conditions of your Award remain the same.
Please acknowledge your acceptance of the amendment set forth above by
signing and dating one copy of this note in the space provided below and
returning it to Janet Andis. Upon receipt of a copy of this note signed by you,
your Award will be deemed amended accordingly.
AGREED:________________________ ___________________________
D. R. Wenzel
Date: ___________________________ Chief Financial Officer
Exhibit 21
AGRIBRANDS INTERNATIONAL, INC. SUBSIDIARIES
Name Of Subsidiaries Organized Under the
Laws of
Agri Holding, Inc. Delaware
Agribrands Purina Korea, Inc. Korea
AGX Services, Inc. Delaware
Agribrands Purina (Fushun) Feedmill Co., Ltd. China
Agribrands Purina (Langfang) Feedmill Co., Ltd. China
Agribrands Purina Nanjing Feed Mill Co., Ltd. China
Agribrands Purina Yantai Feedmill Co., Limited China
Agribrands Philippines, Inc. Philippines
Puriphil Realty Development Philippines
Agribrands Purina do Brazil Ltda Brazil
Agribrands Purina Canada Inc. Canada
Agribrands Purina Colombia S.A. Colombia
Agribrands Purina Guatemala, S.A. Guatemala
Auto-Cafes Purina S.A. Guatemala
Industrias Purina S.A. de C.V. Mexico
Industrias Purina Ltd. Grand Caymen Islands
Agribrands Purina Mexico S.A. de C.V. Mexico
Alimentos Nutritivos S.A. de C.V. Mexico
Proveedora De Alimentos Ave-Pecuarios S.A. de C.V. Mexico
Ralston de Mexico S.A. de C. V. Mexico
Agribrands Purina Peru S.A. Peru
Latin Americas Agribusiness Development Corporation S.A. Panama
Agribrands Purina Venezuela C.A. Venezuela
Granjas Geneticas Porcinas de Venezuela, C.A. Venezuela
Nutrimentos Lomgimar, C.A. Venezuela
Agribrands Europe France S.A. France
Cofanimo Sarl France France
Sorelap SA France
Sarl Ferard Feres France
SA Sofidelf France
Establissements Leandre Ferard Et Fils S.A. France
Purina Sud Est
Agribrands Europe Hungary Animal Feed And Trading Hungary
Company Limited
Agribrands Europe Italia S.p.A. Italy
Ralston Purina Trading Italia S.r.l. Italy
Purina Portugal-Alimentacao e Sanidade Animal Lda. Portugal
Agribrands Europe Espana S.A. Spain
Purina Besin Maddeleri Sanayi Ve Ticaret A.S. Turkey
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
8/31/98 AGRIBRANDS INTERNATIONAL, INC. BALANCE SHEET AND STATEMENT OF EARNINGS
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-END> AUG-31-1998
<CASH> 136,500
<SECURITIES> 1,500
<RECEIVABLES> 113,400
<ALLOWANCES> 10,400
<INVENTORY> 98,800
<CURRENT-ASSETS> 350,900
<PP&E> 346,900
<DEPRECIATION> 170,300
<TOTAL-ASSETS> 578,400
<CURRENT-LIABILITIES> 197,200
<BONDS> 14,200
0
0
<COMMON> 100
<OTHER-SE> 339,300
<TOTAL-LIABILITY-AND-EQUITY> 578,400
<SALES> 1,410,100
<TOTAL-REVENUES> 1,410,100
<CGS> 1,207,200
<TOTAL-COSTS> 1,207,200
<OTHER-EXPENSES> 150,300
<LOSS-PROVISION> 6,400
<INTEREST-EXPENSE> 12,000
<INCOME-PRETAX> 34,200
<INCOME-TAX> 20,400
<INCOME-CONTINUING> 13,800
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,800
<EPS-BASIC> 1.29
<EPS-DILUTED> 1.29
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