SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended February 28, 1999
Commission File No. 1-13479
AGRIBRANDS INTERNATIONAL, INC.
-----------------------------------------------------------
(Exact name of registrant as specified in its charter)
MISSOURI 43-1794250
------------------------------------------------------------
(State of Incorporation) (I.R.S. Employer Identification No.)
9811 SOUTH FORTY DRIVE, ST. LOUIS MISSOURI 63124
------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(314) 812-0500
------------------------------------------------------------
(Registrant's telephone number, including area code)
Registrant (1) has filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12 months, and (2)
has been subject to such filing requirements for the past 90 days.
YES: X NO: _____
Number of shares of Agribrands common stock, $.01 par value, outstanding as of
the close of business on March 30, 1999:
10,526,511
--------------
<PAGE>
PART I - FINANCIAL INFORMATION
AGRIBRANDS INTERNATIONAL, INC.
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 International, Inc. (the "Company") 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 Purina Company ("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
per unit, 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 trends.
The Company manufactures and sells its products in countries around the
world, including several countries whose currencies have tended to weaken
against the U.S. Dollar. Currency fluctuations are usually not the cause of
significant variations in average selling prices and IOIC when translated into
U.S. Dollars. Therefore, gross sales and IOIC are generally not significantly
impacted by currency fluctuations, unless the macro-economic circumstances
generating the currency fluctuations impact volume. Generally, efficient,
dollar-driven global ingredient markets cause local currency ingredient prices
to adjust quickly to changes in exchange rates. Due to the usually quick
turnover of ingredient inventories and the industry's practice of pricing based
on a margin over ingredient costs, such changes in local currency costs are soon
reflected in the local currency price of feed products. For these reasons,
1
<PAGE>
changes in the dollar cost of ingredients generally have a greater impact on the
Company's dollar translated selling prices than changes in exchange rates.
RESULTS OF OPERATIONS - DOLLARS IN MILLIONS
(unless otherwise noted, all references herein to prices, costs and margins
reflect U.S. Dollar results after translation of foreign currency financial
statements in accordance with SFAS No. 52)
<TABLE>
<CAPTION>
Three Months Ended February 28, 1999 Six Months Ended February 28, 1999
---------------------------------------------------- -------------------------------------------------
Consolidated Americas Europe Asia Consolidated Americas Europe Asia
-------------- ---------- ----------- ------------ -------------- ------------ ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $ 310.7 $ 138.1 $ 87.9 $ 84.7 $ 643.1 $ 287.4 $ 183.4 $ 172.3
Operating profit $ 16.2 (a) $ 6.4 $ 4.6 $ 8.3 $ 38.1 (a) $ 15.8 $ 10.4 $ 17.9
Tons of feed sold 1,210,000 525,000 376,000 309,000 2,488,000 1,082,000 768,000 638,000
IOIC $ 85.5 $ 33.1 $ 29.4 $ 23.0 $ 180.4 $ 73.4 $ 61.5 $ 45.5
</TABLE>
<TABLE>
Three Months Ended February 28, 1998 Six Months Ended February 28, 1998
---------------------------------------------------- -------------------------------------------------
Consolidated Americas Europe Asia Consolidated Americas Europe Asia
-------------- ---------- ----------- ------------ -------------- ------------ ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $ 333.0 $ 149.2 $ 102.0 $ 81.8 $ 707.8 $ 305.4 $ 204.1 $ 198.3
Operating profit $ 12.5 (a) $ 6.4 $ 3.1 $ 8.0 $ 29.5 (a) $ 14.0 $ 5.2 $ 18.0
Tons of feed sold 1,285,000 522,000 407,000 356,000 2,586,000 1,046,000 800,000 740,000
IOIC $ 81.0 $ 33.8 $ 28.0 $ 19.2 $ 173.1 $ 69.0 $ 57.3 $ 46.8
</TABLE>
(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 condensed financial
statements for a reconciliation of consolidated operating profit.
Net Sales
Consolidated net sales decreased $22.3 million or 6.7% in the second
quarter and $64.7 million or 9.1% in the six months ended February 28, 1999 as
compared to the same periods last year. Volume decreased 75,000 tons or 5.8% in
the second quarter and 98,000 tons or 3.8% in the six months. Lower selling
prices in the Americas and both lower volume and lower selling prices in Europe
resulted in sales declines during both periods. The lower selling prices reflect
lower commodity costs relative to the same period last year, consistent with the
feed industry's practice of adjusting prices to reflect changes in ingredient
costs. In Asia, volume declines following last year's financial crisis
contributed to the decline in net sales during the six months ended February 28,
1999.
Net sales in the Americas decreased $11.1 million or 7.4% in the second
quarter and $18.0 million or 5.9% in the six months ended February 28, 1999 as
compared to the same periods last year. Average selling prices declined $23 per
ton in the second quarter and $26 per ton in the six months primarily as a
result of lower ingredient costs everywhere except Colombia where a new value
added tax on certain ingredient purchases went into effect on January 1, 1999.
2
<PAGE>
The losses in revenue per ton were partially offset by a 0.6% increase in volume
during the second quarter and a 3.4% increase in volume during the six months.
The Mexican operations' hog and poultry lines and the Venezuelan operations'
poultry line experienced significant volume increases during the second quarter;
however, these improvements were almost completely offset by volume declines in
both Brazil, which recently experienced a slowdown in its economy, and Colombia,
where an earthquake affected the local market for some of the Company's dealers.
A first quarter increase in the Mexican operations' hog and shrimp feed business
contributed to the current year-to-date increase in volumes as compared to last
year.
Net sales in Europe decreased $14.1 million or 13.8% in the second
quarter and $20.7 million or 10.1% in the six months ended February 28, 1999 as
compared to the same periods last year. Average selling prices declined $17 per
ton in the second quarter and $16 per ton in the six months (versus the prior
year) primarily as a result of lower ingredient costs, consistent with the feed
industry's practice of adjusting prices to reflect changes in ingredient costs.
Volumes were down 31,000 tons or 7.6% in the second quarter and 32,000 tons or
4.0% in the six month period primarily due to the sale of an unprofitable
subsidiary of the Company's French subsidiary.
Net sales in Asia increased $2.9 million or 3.5% in the second quarter
but decreased $26.0 million or 13.1% in the six months ended February 28, 1999
as compared to the same periods last year. Volume for the Asia region was down
47,000 tons or 13.2% in the second quarter and 102,000 tons or 13.8% in the six
month period. Nearly all of the volume declines occurred in Korea where the
Company's affiliate has faced both a shrinking feed market following last year's
financial crisis and a drop in market share for the Company's higher-price,
higher-performance line of products. Average selling prices in Asia increased by
$44 per ton or 19.3% in the second quarter and $2 per ton or 0.8% in the six
month period. Higher selling prices reflect a movement toward pre-crisis unit
margins, specifically in Korea, and a strengthening of the Korean Won versus the
Dollar.
Operating Profit
Consolidated operating profit increased $3.7 million or 29.6% in the
second quarter and $8.6 million or 29.2% in the six months ended February 28,
1999 as compared to the same periods last year. Operating profit increased
significantly in the second quarter due to improved margins in Europe. In
addition, the prior year results include restructuring charges of $2.0 million
related to rationalization of facilities and overhead in Europe. Operating
results increased significantly in the six months ended February 28, 1999 due to
both improved margins in Europe and increased volume in the Americas region.
Operating profit in the Americas stayed flat in the second quarter and
increased by $1.8 million or 12.9% in the six months ended February 28, 1999 as
compared to the same periods last year. In the second quarter, IOIC declined by
$0.7 million or 2.1% as declines in Brazil and other locations were only
partially offset by an improvement in Venezuela, where the Company's affiliate
experienced both favorable ingredient costs and increased volume in its poultry
feed line. The decline in Americas' second quarter IOIC was negated by a similar
decline in Brazil's plant expenses, which were lower in Dollar terms due to a
40% devaluation of the local currency (Real) against the Dollar in January 1999.
The year-to-date improvement in operating profit occurred mainly in Venezuela
but was partially offset by a $1.8 million charge incurred in the first quarter
to settle a claim by a former joint venture partner in Chile.
Operating profit in Europe increased $1.5 million or 48.4% in the
second quarter and $5.2 million or 100.0% in the six months ended February 28,
3
<PAGE>
1999 as compared to the same periods last year. The improvements in operating
profit were broad based across the region. Ingredient costs in the region
declined $15.5 million or $26 per ton in the second quarter and $24.9 million or
$25 per ton in the six months ended February 28, 1999, reflecting lower
worldwide commodity prices compared to the same periods last year. Despite a
decline in volumes, IOIC improved by $1.4 million or 5.0% in the second quarter
and $4.2 million or 7.3% in the six month period because average selling prices
declined by less than average ingredient costs.
Operating profit in Asia remained relatively flat in both the second
quarter and the six months ended February 28, 1999. The region reported a $24
per ton increase in ingredient costs in the second quarter versus the prior year
despite a decline in worldwide commodity prices. This anomaly is the result of
translating local currency results, specifically in Korea where the effect of
last year's 29% second quarter devaluation of the Korean Won more than offset a
16% decrease in the true dollar cost of ingredients. In the second quarter,
average selling prices in Asia increased by $44 per ton and IOIC increased by
$20 per ton. The increase in second quarter IOIC per ton was almost entirely
offset by reduced volumes and higher production and overhead costs. Nearly all
of the increase in production and overhead costs was the result of translating
approximately constant local currency costs at new (stronger) foreign currency
exchange rates.
Earnings Before Income Taxes
Earnings before income taxes increased $8.6 million or 187.0% to $13.2
million in the second quarter and $20.9 million or 149.3% to $34.9 million in
the six months ended February 28, 1999 as compared to the same periods last
year.
Interest expense totaled $2.3 million and $5.2 million for second
quarter and the six months ended February 28, 1999, respectively, compared to
$3.0 million and $6.1 million for the same periods last year. The decreases are
primarily due to lower levels of debt outstanding during the current periods.
Other income/expense, net, changed favorably by $4.2 million in the
second quarter and $11.4 million in the six months ended February 28, 1999
compared to the same periods last year. Translation and exchange losses were
substantially higher in both periods last year as a result of foreign currency
exchange losses on U.S. Dollar denominated debt in Korea and Colombia and
translation losses on local currency denominated net monetary assets in Mexico,
where the Company used hyper-inflationary accounting. In this year's second
quarter, the Company incurred a $4.5 million foreign currency exchange loss on
U.S. Dollar denominated debt in Brazil which was partially offset by exchange
gains in Korea and elsewhere. Investment income was $2.1 million higher in the
second quarter and $3.7 million higher in the six months ended February 28, 1999
due to higher levels of interest bearing investments.
Net Earnings
Net earnings increased $5.8 million or 290.0% to $7.8 million in the
second quarter and $12.9 million or 215.0% in the six months ended February 28,
1999 as compared to the same periods last year. Income taxes, which included
United States and foreign taxes, were 40.9% and 45.8% of pre-tax earnings for
the second quarter and the six months ended February 28, 1999, respectively,
compared to 56.5% and 57.1% for the same periods last year. The lower effective
rate for the current periods 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. Also, in this year's second quarter the Company
recognized a $0.7 million tax benefit to reduce a valuation allowance against
deferred tax assets in Spain.
4
<PAGE>
Financial Condition
Cash flows from (used by) operations were $47.2 million and $(16.6)
million for the six months ended February 28, 1999 and 1998, respectively. The
significant increase in operating cash flows between the two periods resulted
from the improvement in earnings and changes in working capital during the
respective periods. Receivables and inventories declined significantly during
the six months ended February 28, 1999. Receivables declined mainly due to the
collection of approximately $12 million due from Ralston. Inventories declined
by $7.5 million during the six months ended February 28, 1999 due to lower
volumes in Asia and strategic grain purchases made by Mexico in August 1998.
Conversely, inventories increased by $27 million during the six months ended
February 28, 1998 with most of the increase occurring in Korea. This reported
increase in Korea's inventories differs from the change in the historical Dollar
cost of inventories due to the combined impact of exchange rate variations and
use of the local currency as the functional currency in Korea. For reporting
purposes, changes in Korea's inventories are measured in local currency and then
translated into Dollars. The historical Dollar cost of inventories in Korea
increased only slightly during the six months ended February 28, 1998.
Agribrands is continually evaluating new investment opportunities. In
last year's second quarter, the Company used $16.6 million to purchase
businesses in Venezuela, Italy and China. These acquisitions were funded through
a combination of net proceeds from Ralston and local country borrowings. If
these acquisitions had occurred as of September 1, 1997, they would not have had
a material effect on net sales or net earnings during any of the periods
reported.
Capital expenditures, primarily to replace or enhance existing
production facilities and equipment, totaled $15.8 million and $22.5 million
during the six months ended February 28, 1999 and 1998, respectively.
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.
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.
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 at management's discretion and depending on market
conditions. The Company purchased 141,400 shares of Agribrands common stock
during the six months ended February 28, 1999.
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
5
<PAGE>
worldwide operations. 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. Agribrands has spent approximately $0.7 million
to replace existing hardware and software during the six months ended February
28, 1999. The Company incurred costs for year 2000 reprogramming of existing
systems of approximately $0.3 million and $0.2 million during the six months
ended February 28, 1999 and 1998, respectively. To make all of its systems year
2000 compliant, the Company estimates incurring an additional $0.2 million of
reprogramming costs and spending an additional $1.0 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
key computer systems and other systems containing embedded chip technology will
be year 2000 compliant before January 1, 2000. The Company has identified its
key customers and suppliers and is working with them 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 is currently in the process of developing contingency plans in the
event of substantial year 2000 failures. The Company believes that its
geographic diversification and transactional independence between business units
helps to limit the risk associated with isolated business interruptions.
European Economic Monetary Union (EMU)
On January 1, 1999, eleven of the European Union countries (including
four countries where Agribrands' operations are located) adopted the Euro as
their single currency, and there is now a fixed conversion rate between their
existing currencies ("legacy currencies") and the Euro. 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
6
<PAGE>
broader business perspective, conversion to the Euro may cause pricing
disparities in different markets to narrow, lowering the Company's margins. The
Company believes the conversion to the Euro will not have a material impact on
the Company's consolidated financial results.
Mexico's Status as a Highly Inflationary Economy
The Company's operations in Mexico currently use the U.S. Dollar as
their functional currency. Effective March 1, 1999, Mexico ceased to be
considered a highly inflationary economy, as defined by generally accepted
accounting principles, and the Company's Mexican affiliate is no longer required
to maintain the U.S. Dollar as its functional currency. Management is currently
considering whether it is appropriate to change the functional currency for its
operations in Mexico to the Mexican Peso based on the guidance in Statement of
Financial Accounting Standards No. 52, "Foreign Currency Translation." If the
Company changes its functional currency in Mexico to the Peso, U.S. Dollar
liabilities of the Mexican affiliate may generate significant exchange gains and
losses as the Peso fluctuates in value versus the Dollar. The Company currently
provides approximately $20 million of intercompany, dollar-denominated financing
to the Mexican affiliate and does not anticipate changing this structure.
Management views exchange gains and losses on dollar liabilities as having
neither economic nor cash flow impact on a consolidated basis.
Outlook
Assuming relative economic stability in its major markets, the Company
views the current quarter operating results to be reasonably representative of
its near-term prospects. While continuing to explore strategic alternatives for
long-term growth and searching for attractive investment opportunities,
Management remains focused on optimizing the performance of its existing
operations.
Net earnings results are more difficult to forecast due, in particular,
to the unpredictability of translation and exchange gains and losses as a result
of volatile exchange rates and changing capital structures within the foreign
affiliates. Currently, the Company's most significant exposures to translation
and exchange gains and losses impacting net earnings are in Brazilian Real,
Canadian Dollars, Mexican Pesos and Korean Won.
Forward-looking Statements & Business Risks
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. Factors that
could cause actual results to differ materially include, but are not limited to,
the Company's limited operating history as an independent public company, its
obligations to Ralston (such as its indemnification obligations, pet food
non-compete and tax sharing obligations), changes in general economic and
business conditions (including agricultural markets) in the various regions of
the world in which Agribrands operates, Agribrands' ability to recover its raw
material costs in the pricing of its products, the availability of capital and
ingredients on acceptable terms, actions of competitors and government entities,
political and economic instability in countries or regions where the Agribrands
business is conducted, the level of demand for Agribrands' products, changes in
Agribrands' business strategies and repercussions surrounding year 2000 and EMU
matters.
7
<PAGE>
Agribrands, as a supplier of animal feeds and other animal health and
nutrition products, is also 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 in a particular country can
be negatively affected by a number of factors, including macro economic
conditions, weather conditions, commodity prices, price controls, alternative
feed sources, the market price of livestock, poultry and other animals, animal
diseases (such as BSE or mad cow disease, hoof and mouth and avarian flu),
changes in consumer demand, real estate values, government farm programs and
other government regulations, restrictive quota and trade policies and tariffs,
production difficulties, including capacity and supply constraints, labor
disputes and general economic conditions.
Consolidation of the animal feed production and animal production
industries around the world will continue to bring about significant changes in
the product production and distribution patterns. Such changes will affect the
growth prospects and pricing practices of Agribrands. Future growth
opportunities for Agribrands are expected to depend on its ability to implement
strategies for expanding in growing, lesser-developed agricultural markets,
making strategic acquisitions and divestitures, particularly in more mature
markets, maintaining effective cost control programs, and developing and
implementing more efficient manufacturing and distribution methodologies, while
at the same time maintaining aggressive pricing and promotion of its products.
8
<PAGE>
<TABLE>
- --------------------------------------------------------------------------------------------------------------
AGRIBRANDS INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
(Dollars in millions except per share data)
<CAPTION>
Quarter Ended Six Months Ended
February 28, February 28,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Net Sales $ 310.7 $ 333.0 $ 643.1 $ 707.8
Costs and Expenses
Cost of products sold 260.7 286.6 534.4 605.3
Selling, general and administrative 34.3 31.9 71.1 71.4
Interest 2.3 3.0 5.2 6.1
Provisions for restructuring - 2.0 - 2.0
Gain on sale of property (0.5) - (0.5) (0.4)
Other (income)/expense, net 0.7 4.9 (2.0) 9.4
------- ------- ------- --------
297.5 328.4 608.2 693.8
------- ------- ------- --------
Earnings before Income Taxes 13.2 4.6 34.9 14.0
Income Taxes 5.4 2.6 16.0 8.0
------- ------- ------- --------
Net Earnings $ 7.8 $ 2.0 $ 18.9 $ 6.0
======== ======== ======== ========
Earnings Per Share
Basic $ .73 $ .19 $ 1.77 $ .56
======== ======== ======== ========
Diluted $ .72 $ .19 $ 1.76 $ .56
======== ======== ======== ========
</TABLE>
See Accompanying Notes to Condensed Financial Statements
9
<PAGE>
AGRIBRANDS INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(Dollars in millions)
<TABLE>
<CAPTION>
February 28, August 31,
1999 1998
------------ ----------
<S> <C> <C>
Assets
Current Assets
Cash and cash equivalents $ 160.4 $ 136.5
Marketable securities 1.5 1.5
Receivables, less allowance for
doubtful accounts 82.1 103.0
Inventories 88.4 98.8
Other current assets 11.8 11.1
---------- ----------
Total Current Assets 344.2 350.9
---------- ----------
Investments and Other Assets 53.0 50.9
Property at Cost 344.0 346.9
Accumulated Depreciation (166.2) (170.3)
---------- ----------
177.8 176.6
---------- ----------
Total $ 575.0 $ 578.4
========== ==========
Liabilities and Shareholders' Equity
Current Liabilities
Current maturities of long-term debt $ 10.8 $ 8.7
Notes payable 42.1 46.9
Accounts payable and accrued liabilities 120.3 132.8
Income taxes 10.0 8.8
---------- ----------
Total Current Liabilities 183.2 197.2
---------- ----------
Long-Term Debt 8.6 14.2
Deferred Income Taxes and Other Liabilities 28.9 27.6
Shareholders' Equity
Common stock .1 .1
Capital in excess of par 419.5 419.5
Retained earnings 25.0 6.1
Cumulative translation adjustment (85.7) (86.3)
Common stock in treasury, at cost (4.6) -
---------- ----------
Total Shareholders' Equity 354.3 339.4
---------- ----------
Total $ 575.0 $ 578.4
========== ==========
</TABLE>
See Accompanying Notes to Condensed Financial Statements
10
<PAGE>
AGRIBRANDS INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in millions)
<TABLE>
<CAPTION>
Six Months Ended
February 28,
--------------------
1999 1998
<S> <C> <C>
------- --------
Cash Flow from Operations
Net earnings $ 18.9 $ 6.0
Non-cash items included in income
Depreciation and amortization 11.7 9.7
Translation and exchange loss 3.5 11.2
Non-cash restructuring - 0.5
Deferred income taxes 2.5 2.4
Gain on sale of property (0.5) (0.4)
Changes in operating assets and liabilities
used in operations 16.1 (43.9)
Other, net (5.0) (2.1)
------- --------
Net cash provided by (used by) operations 47.2 (16.6)
------- --------
Cash Flow from Investing Activities
Acquisitions of businesses - (16.6)
Property additions (15.8) (22.5)
Proceeds from the sale of property 2.5 0.9
Other, net (0.7) (1.0)
------- --------
Net cash used by investing activities (14.0) (39.2)
------- --------
Cash Flow from Financing Activities
Proceeds from sale of long-term debt 1.7 3.1
Principal payments on long-term debt,
including current maturities (1.9) (7.8)
Net (decrease) increase in notes payable (3.9) 39.7
Treasury stock purchases (4.6) -
Net transactions with Ralston - 27.1
------- --------
Net cash (used by) provided by
financing activities (8.7) 62.1
------- --------
Effect of Exchange Rate Changes on Cash and
Cash Equivalents (0.6) (6.6)
------- --------
Net Increase (Decrease) in Cash and Cash Equivalents 23.9 (0.3)
Cash and Cash Equivalents, Beginning of Period 136.5 25.2
------- --------
Cash and Cash Equivalents, End of Period $160.4 $ 24.9
======= ========
</TABLE>
See Accompanying Notes to Condensed Financial Statements
11
<PAGE>
AGRIBRANDS INTERNATIONAL, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
FEBRUARY 28, 1999
(Dollars in millions)
Note 1 - Effective April 1, 1998 (the Distribution Date), Agribrands
International, Inc. (the Company) 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. Ralston did not retain any ownership interest in
the Company.
Note 2 - The accompanying unaudited financial statements have been
prepared in accordance with the instructions for Form 10-Q and do
not include all of the information and footnotes required by
generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments,
consisting only of normal recurring adjustments considered
necessary for a fair presentation, have been included. Operating
results for any quarter are not necessarily indicative of the
results for any other quarter or for the full year. These
statements should be read in conjunction with the financial
statements of Agribrands and notes thereto for the year ended
August 31, 1998.
The Balance Sheets as of February 28, 1999 and August 31, 1998
and the Statement of Earnings for the six months ended February
28, 1999 are presented on a consolidated basis. The Statement of
Earnings for the six months ended February 28, 1998 is presented
on a combined basis and reflects a period during which the
Agribrands businesses operated primarily as wholly-owned
subsidiaries of Ralston and its subsidiaries. The combined
Statement of Earnings includes revenues and expenses that are
directly related to the Agribrands businesses.
Note 3 - Effective with the first quarter of fiscal year 1999, the Company
adopted Statement of Financial Accounting Standards No. 130 (SFAS
No. 130), "Reporting Comprehensive Income." SFAS No. 130 requires
that noncash changes in shareholders equity be combined with net
income and reported in a new financial statement category
entitled "comprehensive income." The following table sets forth
the components of comprehensive income:
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
February 28, February 28,
1999 1998 1999 1998
------ ------- ------ -------
<S> <C> <C> <C> <C>
Net earnings $ 7.8 $ 2.0 $ 18.9 $ 6.0
Foreign currency translation adjustment (3.2) (11.7) 0.6 (27.0)
------ -------- ------ --------
Comprehensive income $ 4.6 $ (9.7) $ 19.5 $ (21.0)
====== ======== ====== ========
</TABLE>
12
<PAGE>
Note 4 - GEOGRAPHIC SEGMENT INFORMATION
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
February 28, February 28,
-------------------- --------------------
1999 1998 1999 1998
--------- -------- -------- ---------
<S> <C> <C> <C> <C>
Sales
Americas $ 138.1 $ 149.2 $ 287.4 $ 305.4
Europe 87.9 102.0 183.4 204.1
Asia 84.7 81.8 172.3 198.3
-------- ------- ------- -------
Total $ 310.7 $ 333.0 $ 643.1 $ 707.8
======== ======= ======= =======
Operating Profit
Americas $ 6.4 $ 6.4 $ 15.8 $ 14.0
Europe 4.6 3.1 10.4 5.2
Asia 8.3 8.0 17.9 18.0
Provisions for Restructuring - (2.0) - (2.0)
Gain on Sale of Property 0.5 - 0.5 0.4
Unallocated Corporate Expenses (3.6) (3.0) (6.5) (6.1)
-------- -------- -------- --------
Operating Profit 16.2 12.5 38.1 29.5
Interest Expense (2.3) (3.0) (5.2) (6.1)
Other Income/(Expense), Net (0.7) (4.9) 2.0 (9.4)
-------- -------- -------- --------
Earnings Before Income Taxes $ 13.2 $ 4.6 $ 34.9 $ 14.0
======== ======== ======== ========
</TABLE>
<TABLE>
February 28, August 31,
1999 1998
------------ -----------
<S> <C> <C>
Total Assets
Americas $ 301.5 $ 306.2
Europe 132.3 139.7
Asia 141.2 132.5
-------- --------
Total $ 575.0 $ 578.4
======== ========
</TABLE>
The above information has been prepared on a basis consistent
with the Company's financial statements for the year ended August
31, 1998 and does not necessarily meet the requirements of SFAS
No. 131, "Disclosures about Segments of an Enterprise and Related
Information," which establishes new requirements for the
reporting of segment information. Management is still evaluating
the effect SFAS No. 131 will have on the Company's disclosures.
The Company is required to adopt SFAS No. 131 in its financial
statements for the year ending August 31, 1999.
Note 5 - There were 10,526,511 and 10,668,571 shares of common stock
outstanding at February 28, 1999 and August 31, 1998,
respectively.
13
<PAGE>
Basic earnings per share is based on the average number of
common shares outstanding during the period. Diluted earnings
per share is based on the average number of shares used for the
basic earnings per share calculation, adjusted for the dilutive
effect of stock options. The following table sets forth the
computation of basic and diluted earnings per share:
<TABLE>
<CAPTION>
Quarter ended Six Months ended
February 28, February 28,
---------------------------- ----------------------------
1999 1998 1999 1998
<S> <C> <C> <C> <C>
------------ ------------ -------------- ------------
Numerator:
Numerator for basic earnings per share -
Net earnings $ 7.8 $ 2.0 $ 18.9 $ 6.0
Effect of dilutive securities - - - -
---------- ----------- ----------- -----------
Numerator for dilutive earnings per share -
Net earnings $ 7.8 $ 2.0 $ 18.9 $ 6.0
=========== =========== =========== ===========
Denominator:
Denominator for basic earnings per share -
Weighted-average shares (1) 10,639,605 10,668,571 10,654,168 10,668,571
Effect of dilutive securities:
Stock options (2) 125,930 - 100,661 -
---------- ---------- ---------- ----------
Denominator for dilutive earnings per share -
Weighted-average shares and assumed conversions
10,765,535 10,668,571 10,754,829 10,668,571
=========== ========== =========== ==========
Basic earnings per share (3) $ .73 $ .19 $ 1.77 $ .56
=========== ========== =========== ==========
Diluted earnings per share (3) $ .72 $ .19 $ 1.76 $ .56
=========== ========== =========== ==========
<FN>
(1) Assumes 10,668,571 shares outstanding during periods prior to the
Distribution Date.
(2) Options to purchase 1,114,500 shares of common stock at prices ranging
from $34.25 to $36.68 per share were outstanding during the quarter and
six months ended February 28, 1999 but were not included in the
computation of diluted earnings per share because the options' exercise
price was greater than the average market price of the common shares.
(3) The sum of quarterly EPS data will not necessarily equal year-to-date
EPS data.
</FN>
</TABLE>
Note 6 - Receivables consist of the following:
<TABLE>
<CAPTION>
February 28, August 31,
1999 1998
------------ ----------
<S> <C> <C>
Gross receivables $ 92.0 $ 113.4
Allowance for doubtful accounts (9.9) (10.4)
--------- --------
$ 82.1 $ 103.0
========= ========
</TABLE>
14
<PAGE>
Note 7 - Inventories consist of the following:
<TABLE>
<CAPTION>
February 28, August 31,
1999 1998
------------ ----------
<S> <C> <C>
Raw materials and supplies $ 69.8 $ 77.8
Finished products 18.6 21.0
--------- --------
$ 88.4 $ 98.8
========= ========
</TABLE>
Note 8 - Investments and Other Assets consist of the following:
<TABLE>
<CAPTION>
February 28, August 31,
1999 1998
------------ ----------
<S> <C> <C>
Goodwill, net of accumulated amortization of
$6.1 at February 28 and $5.6 at August 31 $ 30.0 $ 32.4
Investments in affiliated companies 6.5 6.6
Deferred charges and other assets 16.5 11.9
--------- --------
$ 53.0 $ 50.9
========= ========
</TABLE>
Note 9 - Accounts payable and accrued liabilities consist of the
following:
<TABLE>
<CAPTION>
February 28, August 31,
1999 1998
------------- ----------
<S> <C> <C>
Trade accounts payable $ 75.5 $ 81.4
Incentive compensation, salaries and vacations 12.3 15.8
Restructuring reserves 0.6 1.3
Other items 31.9 34.3
--------- --------
$ 120.3 $ 132.8
========= ========
</TABLE>
Note 10 - Other (income)/expense, net consists of the following:
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
February 28, February 28,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Translation and exchange loss $ 3.6 $ 5.7 $ 3.5 $ 11.2
Investment income (2.9) (0.8) (5.5) (1.8)
------- ------- ------- -------
$ 0.7 $ 4.9 $ (2.0) $ 9.4
======= ======= ======= =======
</TABLE>
Note 11 - The Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities,"
in June 1998. The Company is evaluating the effect this statement
will have on its financial reporting and disclosures. The Company
will adopt SFAS No. 133 in fiscal year 2000.
Note 12 - On January 8, 1999, a claim filed by C. A. Menichetti Fuente,
S.A.I., a Chilean group of companies ("MF"), against Ralston
15
<PAGE>
Purina International Holding Company, Inc. ("RPIHCI"), a
subsidiary of Ralston which was merged into Ralston, was settled
for $6.5 million. MF was the former partner with RPIHCI in a
joint venture named Alimentos Purina Chile S.A. Pursuant to the
terms of an indemnity agreement between Ralston and Agribrands,
Agribrands paid $4.0 million and Ralston paid $2.5 million of the
settlement, with each party bearing its share of the costs and
expenses of the legal proceedings. The settlement agreement with
MF releases Agribrands and Ralston from any further liability to
MF. The settlement also terminates all agreements and relations
between any member of the MF group and any person or entity
affiliated with Ralston or Agribrands. During the quarter ended
November 30, 1998, Agribrands incurred a nonrecurring, pretax
charge of $1.8 million related to the settlement of this claim.
16
<PAGE>
AGRIBRANDS INTERNATIONAL, INC.
SELECTED QUARTERLY FINANCIAL INFORMATION
(Dollars in Millions)
(Unaudited)
<TABLE>
<CAPTION>
FISCAL 1999
First Second
<S> <C> <C>
---------- --------
Tons of feed product sold (in thousands)
Americas 557 525
Europe 392 376
Asia 329 309
-------- --------
Total 1,278 1,210
======== ========
Income over Ingredient Costs
Americas $ 40.3 $ 33.1
Europe 32.1 29.4
Asia 22.5 23.0
-------- --------
Total $ 94.9 $ 85.5
======== ========
Depreciation and Amortization
Americas $ 2.0 $ 2.1
Europe 2.0 2.1
Asia 1.7 1.8
-------- --------
Total $ 5.7 $ 6.0
======== ========
Translation and Exchange (Gain)/Loss
Americas $ 0.1 $ 4.0
Europe 0.2 -
Asia (0.4) (0.4)
-------- --------
Total $ (0.1) $ 3.6
======== ========
</TABLE>
<TABLE>
FISCAL 1998
<CAPTION>
First Second Third Fourth
<S> <C> <C> <C> <C>
--------- --------- --------- ---------
Tons of feed product sold (in thousands)
Americas 524 522 558 586
Europe 393 407 404 381
Asia 384 356 342 321
--------- --------- --------- ---------
Total 1,301 1,285 1,304 1,288
========= ========= ========= =========
Income over Ingredient Costs
Americas $ 35.2 $ 33.8 $ 35.5 $ 40.7
Europe 29.3 28.0 28.4 29.5
Asia 27.6 19.2 18.4 20.2
--------- --------- --------- ---------
Total $ 92.1 $ 81.0 $ 82.3 $ 90.4
========= ========= ========= =========
17
<PAGE>
FISCAL 1998 (continued)
First Second Third Fourth
--------- --------- --------- ---------
Depreciation and Amortization
Americas $ 1.6 $ 1.7 $ 1.9 $ 1.8
Europe 1.9 1.9 2.2 2.3
Asia 1.5 1.1 1.4 1.9
--------- --------- --------- ---------
Total $ 5.0 $ 4.7 $ 5.5 $ 6.0
========= ========= ========= =========
Translation and Exchange (Gain)/Loss
Americas $ 2.7 $ 1.4 $ 1.3 $ 3.7
Europe 0.1 0.1 (0.4) (0.3)
Asia 2.7 4.2 (1.9) (0.8)
--------- --------- --------- ---------
Total $ 5.5 $ 5.7 $ (1.0) $ 2.6
========= ========= ========= =========
</TABLE>
PART II - OTHER INFORMATION
There is no information required to be reported under any items
except those indicated below.
Item 4. Submission of Matter to a Vote of Security Holders
On January 28, 1999, the Registrant held its Annual Meeting for
the purpose of electing three directors to serve three-year terms
ending at the Annual Meeting of Shareholders in January 2002, or
when their successors are elected.
The number of shares voting for or against each candidate, is as
follows:
VOTES VOTES BROKER
FOR WITHHELD NON-VOTES
David R. Banks 9,710,325 64,914 N/A
Jay W. Brown 9,705,440 69,799 N/A
M. Darrell Ingram 9,716,693 58,546 N/A
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits filed with this Report:
(27) Financial Data Schedule
(b) Reports on Form 8-K:
No Current Reports on Form 8-K were filed by the Company during
the quarter ended February 28, 1999.
18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AGRIBRANDS INTERNATIONAL, INC.
------------------------------------
Registrant
By: / s / David R. Wenzel
------------------------------------
David R. Wenzel
Chief Financial Officer
Date: March 30, 1999
19
<PAGE>
EXHIBIT INDEX
- -------------
Exhibits
- --------
EX-27 Financial data schedule for 2nd Quarter of Fiscal 1999.
(Documents prepared on Edgar and provided electronically)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE 2/28/98
AGRIBRANDS INTERNATIONAL, INC. BALANCE SHEET AND STATEMENT OF EARNINGS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001047598
<NAME> AGRIBRANDS INTERNATIONAL, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-1999
<PERIOD-END> FEB-28-1999
<CASH> 160,400
<SECURITIES> 1,500
<RECEIVABLES> 92,000
<ALLOWANCES> 9,900
<INVENTORY> 88,400
<CURRENT-ASSETS> 344,200
<PP&E> 344,000
<DEPRECIATION> 166,200
<TOTAL-ASSETS> 575,000
<CURRENT-LIABILITIES> 183,200
<BONDS> 8,600
<COMMON> 100
0
0
<OTHER-SE> 354,200
<TOTAL-LIABILITY-AND-EQUITY> 575,000
<SALES> 643,100
<TOTAL-REVENUES> 643,100
<CGS> 534,400
<TOTAL-COSTS> 534,400
<OTHER-EXPENSES> 68,600
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,200
<INCOME-PRETAX> 34,900
<INCOME-TAX> 16,000
<INCOME-CONTINUING> 18,900
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,900
<EPS-PRIMARY> 1.77
<EPS-DILUTED> 1.76
<FN>
F1 LOSS - PROVISION INCLUDED IN OTHER-EXPENSE ABOVE
</FN>
</TABLE>
