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 November 30, 1998
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)
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 January 12, 1999:
10,668,571
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<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,
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 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
2
<PAGE>
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, changes in the dollar
cost of ingredients globally have a greater impact on the Company's dollar
translated selling prices than changes in exchange rates.
<TABLE>
RESULTS OF OPERATIONS - DOLLARS IN MILLIONS
<CAPTION>
Consolidated Americas Europe Asia
<S> <C> <C> <C> <C>
Quarter Ended November, 1998:
Net Sales $332.4 $149.3 $95.5 $87.6
Operating Profit $21.9(a) $9.4 $5.8 $9.6
Tons of feed product sold (in thousands) 1,278 557 392 329
Income over Ingredient Costs $94.9 $40.3 $32.1 $22.5
Quarter Ended November, 1997:
Net Sales $374.8 $156.2 $102.1 $116.5
Operating Profit $17.0(a) $7.6 $2.1 $10.0
Tons of feed product sold (in thousands) 1,301 524 393 384
Income over Ingredient Costs $92.1 $35.2 $29.3 $27.6
</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 for the three months ended November 30, 1998
decreased $42.4 million, or 11.3%, to $332.4 million compared to $374.8 million
for the same period last year. Volume decreased 23,000 tons, or 1.8%, to
1,278,000 tons for the first quarter compared to 1,301,000 tons for last year's
first quarter. The decline in net sales was primarily the result of lower dollar
translated selling prices reflecting lower commodity costs relative to the same
period last year, consistent with the feed industry's practice of adjusting
prices to achieve relatively stable unit margins. The decrease in volume is due
primarily to the financial crisis in Asia which began last year after the first
quarter was completed. Asia's decline in volume was mostly offset by an increase
in volume in the Americas.
Net sales in the Americas decreased $6.9 million, or 4.4%, to $149.3
million for the three months ended November 30, 1998 from $156.2 million for the
same period last year. Average selling prices declined $30 per ton compared to
the same period last year as a result of lower ingredient costs. The loss in
revenue per ton was partially offset by a 6.3% increase in volume, primarily in
Mexico's shrimp and hog feed business.
3
<PAGE>
Net sales in Europe decreased $6.6 million, or 6.5%, to $95.5 million
for the three months ended November 30, 1998 from $102.1 million for the same
period last year. Average selling prices declined $16 per ton reflecting lower
ingredient costs, consistent with the feed industry's practice of adjusting
prices to achieve relatively stable unit margins. Europe's first quarter volume
was flat compared to last year.
Net sales in Asia decreased $28.9 million, or 24.8%, to $87.6 million
for the three months ended November 30, 1998 from $116.5 million for the same
period last year due to both lower volume and lower selling prices. Volume for
the Asia region was down 55,000 tons, or 14.3%, compared to last year due to a
shrinking feed market following the financial crisis which occurred in the
region last year after the first quarter was completed. Average selling prices
declined $37 per ton compared to the same period last year reflecting lower
ingredient costs.
Operating Profit
Consolidated operating profit increased $4.9 million, or 28.8%, to
$21.9 million for the three months ended November 30, 1998 from $17.0 million
for the same period last year. Operating profit increased significantly as
improved margins and increased volume in the Americas region and better results
from Europe more than offset a small decline in the Asia region.
Operating profit in the Americas increased $1.8 million, or 23.7%, to
$9.4 million for the three months ended November 30, 1998 from $7.6 million for
the same period last year. The improvement in operating profit occurred mainly
in Mexico and Venezuela where the Company experienced increased volume in the
shrimp, hog and broiler lines and favorable ingredient costs. IOIC in the
Americas improved $5.1 million, or 14.5%; however, these gains were mostly
offset by higher production and overhead costs in Mexico and a $1.8 million
charge incurred to settle a claim by a former joint venture partner in Chile.
See the notes to the condensed financial statements for more information
concerning the settlement of this claim.
Operating profit in Europe increased $3.7 million, or 176.2%, to $5.8
million for the three months ended November 30, 1998 from $2.1 million for the
same period last year. Costs for feed ingredients in the region decreased $9.4
million, or $24 per ton, reflecting the decline in worldwide commodity prices
compared to the same period last year. Despite no change in volume, IOIC
improved by $2.8 million, or 9.6%, because average selling prices declined less
than average ingredient costs. The operations in Hungary continue to be the
largest contributor to earnings in the region; however, the operations in
France, Italy and Spain accounted for most of the improvement in operating
profit for the first quarter.
Operating profit in Asia decreased $0.4 million, or 4.0%, to $9.6 for
the three months ended November 30, 1998 from $10.0 million for the same period
last year. Costs for feed ingredients in the region decreased $23.8 million, or
$34 per ton, reflecting the decline in worldwide commodity prices. IOIC declined
$5.1 million, or 18.5%, compared to the first quarter last year. The decline in
IOIC was largely offset by a $4.7 million reduction in production and overhead
costs. Nearly all of this cost reduction occurred in Korea where the local
currency devalued against the U.S. Dollar by approximately 25% compared to the
same period last year and expenditures on advertising and promotional items were
cut back in response to the financial crisis.
Asian feed markets shrank following the financial crisis in the region,
particularly in Korea which represented approximately 70% of the Company's Asian
4
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sales volume during the first quarter. Reduced demand for meat products caused
wholesale meat prices to settle near or below production costs. This has
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 through cost reductions and the introduction of new products into the
marketplace.
Earnings Before Income Taxes
Earnings before income taxes increased $12.3 million, or 130.9%, to
$21.7 million for the three months ended November 30, 1998 from $9.4 million for
the same period last year.
Interest expense totaled $2.9 million for the three months ended
November 30, 1998 compared to $3.1 million for the same period last year. The
decrease is due to lower levels of debt outstanding during the current period.
Other income/expense, net, changed favorably by $7.2 million for the
three months ended November 30, 1998 compared to the same period last year.
Translation and exchange losses were substantially higher for the first quarter
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 uses
hyper-inflationary accounting. Investment income was $1.6 million higher for the
three months ended November 30, 1998 due to higher levels of interest bearing
investments.
Net Earnings
Net earnings increased $7.1 million, or 177.5%, to $11.1 million for
the three months ended November 30, 1998 from $4.0 million for the same period
last year. Income taxes, which included United States and foreign taxes, were
48.8% of pre-tax earnings for the current period and 57.4% last year. The lower
effective rate for the current quarter 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.
Financial Condition
Cash flows from operations were $29.7 million and $7.0 million for the
three months ended November 30, 1998 and 1997, respectively. The significant
increase in operating cash flows between the two periods resulted from the
improvement in earnings and changes in inventory levels during the respective
periods. Inventory levels declined during the three months ended November 30,
1998 due to better than expected sales volume for the quarter with most of the
decline occurring in Korea, Mexico and Colombia. Conversely, inventory levels
had increased during the three months ended November 30, 1997 with most of the
increase occurring in Venezuela and Korea.
Capital expenditures, primarily to replace or enhance existing
production facilities and equipment, totaled $7.4 million and $10.9 million for
the three months ended November 30, 1998 and 1997, 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
5
<PAGE>
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 has not yet purchased any shares under this
authorization.
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 approximately
$0.2 million in the quarter ended November 30, 1998 for year 2000 reprogramming
of existing systems. Year 2000 reprogramming costs were negligible in the
quarter ended November 30, 1997. 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 $1.5 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 the turn of the millennium. 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.
6
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European Economic Monetary Union
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
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 will cease to be
considered a highly inflationary economy. After that date, the Company's Mexican
affiliate will no longer be 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."
Outlook
As noted earlier, pricing in the animal feed industry around the world
is generally driven directly by the cost of the ingredients used to make feed.
The industry is highly fragmented in most places around the world and feed
prices tend to adjust quickly to achieve levels where producers are provided a
stable return on the assets employed in processing feed. In effect, feed
producers are paid a fee for the "service" of grinding, mixing, and processing
commodity and other ingredients and are reimbursed for the presumed cost of the
ingredients. These dynamics generally lead to stable unit margins.
The current quarter's results reflect higher than normal unit margins.
Management believes a portion of the variance from normal margins is an
increased premium over industry margins by virtue of cost advantages over
competition achieved through effective purchasing. However, it also appears that
the average industry margin was higher due to unusual circumstances in the
commodity markets. Management believes that the recent sharp drop in commodity
costs (principally soy and corn) after more than a year of declining commodity
costs generated a situation where the industry did not fully reduce its prices
for feed to reflect the lower costs.
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Both of these circumstances are believed to be short-term effects. As
commodity prices stabilize, industry margins should return to normal. As a
result, management anticipates future unit margins to move toward historical
averages. For this reason and the likelihood of lower comparisons continuing,
management does not expect to maintain the operating profit level achieved in
the first quarter. On a consolidated basis, operating profit results for the
remainder of the fiscal year should compare more closely with the same periods
in prior years. Based on current trends, Europe should continue to improve on
prior year results, offset by continued weakness in Asia. There is no particular
basis for expecting the Americas to perform differently than in the prior year,
but results remain highly sensitive to fragile macro-economic conditions in the
region.
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 Canadian Dollars,
Mexican Pesos and Korean Won. With respect to income taxes, the Company's
consolidated effective rate is expected to track close to the 49% rate achieved
in the first quarter.
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 and change
in Agribrands' business strategies.
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
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<TABLE>
AGRIBRANDS INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF EARNINGS
(DOLLARS IN MILLIONS EXCEPT PER SHARE DATA)
<CAPTION>
Quarter ended
November 30,
--------------------------
1998 1997
-------- --------
<S> <C> <C>
Net Sales $ 332.4 $ 374.8
Costs and Expenses
Cost of products sold 273.7 318.7
Selling, general and administrative 36.8 39.5
Interest 2.9 3.1
Gain on sale of property - (0.4)
Other (income)/expense, net (2.7) 4.5
-------- --------
310.7 365.4
-------- --------
Earnings before Income Taxes 21.7 9.4
Income Taxes 10.6 5.4
-------- --------
Net Earnings $ 11.1 $ 4.0
======== ========
Earnings Per Share
Basic $ 1.04 $ .37
======== ========
Diluted $ 1.03 $ .37
======== ========
</TABLE>
See Accompanying Notes to Condensed Financial Statements
================================================================================
9
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<TABLE>
AGRIBRANDS INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEET
(CONDENSED - DOLLARS IN MILLIONS)
<CAPTION>
November 30, August 31,
1998 1998
<S> <C> <C>
----------- -----------
Assets
Current Assets
Cash and cash equivalents $ 163.1 $ 136.5
Marketable securities 1.5 1.5
Receivables, less allowance for doubtful accounts 105.1 103.0
Inventories 89.6 98.8
Other current assets 13.0 11.1
---------- ----------
Total Current Assets 372.3 350.9
---------- ----------
Investments and Other Assets 55.0 50.9
Property at Cost 359.9 346.9
Accumulated Depreciation (176.6) (170.3)
---------- ----------
183.3 176.6
---------- ----------
Total $ 610.6 $ 578.4
========== ==========
Liabilities and Shareholders Equity
Current Liabilities
Current maturities of long-term debt $ 9.1 $ 8.7
Notes payable 50.4 46.9
Accounts payable and accrued liabilities 138.6 132.8
Income taxes 13.7 8.8
---------- ----------
Total Current Liabilities 211.8 197.2
---------- ----------
Long-Term Debt 14.6 14.2
Deferred Income Taxes 4.1 2.7
Other Liabilities 25.8 24.9
Shareholders Equity
Common stock .1 .1
Capital in excess of par 419.5 419.5
Retained earnings 17.2 6.1
Cumulative translation adjustment (82.5) (86.3)
---------- ----------
Total Shareholders Equity 354.3 339.4
---------- ----------
Total $ 610.6 $ 578.4
========== ==========
</TABLE>
See Accompanying Notes to Condensed Financial Statements
10
<PAGE>
<TABLE>
AGRIBRANDS INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(CONDENSED - DOLLARS IN MILLIONS)
<CAPTION>
Three Months ended
November 30,
-------------------------
1998 1997
<S> <C> <C>
----------- --------
Cash Flow from Operations
Net earnings $ 11.1 $ 4.0
Non-cash items included in income
Depreciation and amortization 5.7 5.0
Translation and exchange (gain)/loss (0.1) 5.6
Deferred income taxes 1.4 2.0
Gain on sale of property - (0.4)
Changes in operating assets and liabilities used in 15.7 (9.4)
operations
Other, net (4.1) 0.2
--------- --------
Net cash provided by operations 29.7 7.0
--------- --------
Cash Flow from Investing Activities
Property additions (7.4) (10.9)
Proceeds from the sale of property 0.7 0.7
Other, net 0.1 (1.7)
--------- --------
Net cash used by investing activities (6.6) (11.9)
--------- --------
Cash Flow from Financing Activities
Proceeds from sale of long-term debt 0.2 0.8
Principal payments on long-term debt, including current
maturities (0.4) (1.1)
Net increase in notes payable 3.2 23.6
Net transactions with Ralston - (10.4)
--------- --------
Net cash provided by financing activities 3.0 12.9
--------- --------
Effect of Exchange Rate Changes on Cash and Cash Equivalents 0.5 (3.0)
--------- --------
Net Increase in Cash and Cash Equivalents 26.6 5.0
Cash and Cash Equivalents, Beginning of Period 136.5 25.2
--------- --------
Cash and Cash Equivalents, End of Period $ 163.1 $ 30.2
========= ========
</TABLE>
See Accompanying Notes to Condensed Financial Statements
11
<PAGE>
AGRIBRANDS INTERNATIONAL, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
NOVEMBER 30, 1998
(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 procedures 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 connection with the financial
statements of Agribrands and notes thereto for the year ended
August 31, 1998.
The Balance Sheets as of November 30, 1998 and August 31, 1998
and the Statement of Earnings for the three months ended November
30, 1998 are presented on a consolidated basis. The Statement of
Earnings for the three months ended November 30, 1997 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>
Quarter ended
November 30,
---------------------
<CAPTION>
1998 1997
--------- --------
<S> <C> <C>
Net earnings $ 11.1 $ 4.0
Foreign currency translation adjustment 3.8 (15.3)
------- --------
Comprehensive income $ 14.9 $(11.3)
======= ========
</TABLE>
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<PAGE>
Note 4 - GEOGRAPHIC SEGMENT INFORMATION
<TABLE>
<CAPTION>
Quarter ended
November 30,
--------------------
1998 1997
-------- -------
<S> <C> <C>
Sales
Americas $ 149.3 $ 156.2
Europe 95.5 102.1
Asia 87.6 116.5
-------- --------
Total $ 332.4 $ 374.8
======== ========
Income over Ingredient Costs
Americas $ 40.3 $ 35.2
Europe 32.1 29.3
Asia 22.5 27.6
-------- --------
Total $ 94.9 $ 92.1
======== ========
Operating Profit
Americas $ 9.4 $ 7.6
Europe 5.8 2.1
Asia 9.6 10.0
Gain on Sale of Property - 0.4
Unallocated Corporate Expenses (2.9) (3.1)
-------- --------
Operating Profit 21.9 17.0
Interest Expense (2.9) (3.1)
Other Income/(Expense), Net 2.7 (4.5)
-------- --------
Earnings Before Income Taxes $ 21.7 $ 9.4
======== ========
Depreciation & Amortization
Americas $ 2.0 $ 1.6
Europe 2.0 1.9
Asia 1.7 1.5
-------- --------
Total $ 5.7 $ 5.0
======== ========
Translation & Exchange (Gain)/Loss
Americas $ 0.1 $ 2.7
Europe 0.2 0.1
Asia (0.4) 2.7
-------- --------
Total $ (0.1) $ 5.5
======== ========
Total Assets
Americas $ 323.4 $ 192.3
Europe 143.4 143.1
Asia 143.8 137.9
-------- --------
Total $ 610.6 $ 473.3
======== ========
</TABLE>
13
<PAGE>
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-ended August 31, 1999.
Note 5 - There were 10,668,571 shares of common stock outstanding at
November 30, 1998 and August 31, 1998.
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>
Quarter ended
November 30,
------------------------------
<CAPTION>
1998 1997
<S> <C> <C>
----------- ------------
Numerator:
Numerator for basic earnings per share -
Net earnings $ 11.1 $ 4.0
Effect of dilutive securities - -
------------ ------------
Numerator for dilutive earnings per share -
Net earnings $ 11.1 $ 4.0
=========== ============
Denominator:
Denominator for basic earnings per share -
Weighted-average shares 10,668,571 10,668,571(1)
Effect of dilutive securities:
Stock options 75,393(2) -
------------ ------------
Denominator for dilutive earnings per share -
Weighted-average shares and assumed conversions 10,743,964 10,668,571
============ ============
Basic earnings per share $ 1.04 $ .37
============ ============
Diluted earnings per share $ 1.03 $ .37
============ ============
</TABLE>
(1) Assumes 10,668,571 shares outstanding during quarter ended
November 30, 1997 (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 ended November 30, 1998 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.
14
<PAGE>
<TABLE>
Note 6 - Receivables consist of the following:
<CAPTION>
November 30, August 31,
1998 1998
-------------- ----------
<S> <C> <C>
Gross receivables $ 116.6 $ 113.4
Allowance for doubtful accounts (11.5) (10.4)
-------- --------
$ 105.1 $ 103.0
======== ========
Note 7 - Inventories consist of the following:
November 30, August 31,
1998 1998
-------------- ----------
Raw materials and supplies $ 70.6 $ 77.8
Finished products 19.0 21.0
-------- -------
$ 89.6 $ 98.8
======== =======
Note 8 - Investments and Other Assets consist of the
following:
November 30, August 31,
1998 1998
------------- ----------
Goodwill, net of accumulated amortization of
$5.9 at November 30 and $5.6 at August 31 $ 32.1 $ 32.4
Investments in affiliated companies 6.8 6.6
Deferred charges and other assets 16.1 11.9
-------- --------
$ 55.0 $ 50.9
======== =========
Note 9 - Accounts payable and accrued liabilities consist of the following:
November 30, August 31,
1998 1998
--------------- ----------
Trade accounts payable $ 88.0 $ 81.4
Incentive compensation, salaries and vacations 13.3 15.8
Restructuring reserves 0.9 1.3
Other items 36.4 34.3
-------- --------
$ 138.6 $ 132.8
======== ==========
Note 10 - Other (income)/expense, net consists of the following:
</TABLE>
<TABLE>
<CAPTION>
Quarter ended
November 30,
----------------------------
<S> <C> <C>
1998 1997
---------- ------------
Translation and exchange (gain)/loss $ (0.1) $ 5.5
Investment income (2.6) (1.0)
---------- ------------
$ (2.7) $ 4.5
========== ============
</TABLE>
15
<PAGE>
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
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.
PART II - OTHER INFORMATION
There is no information required to be reported under any items
except those indicated below.
Item 1. Legal Proceedings
The claim asserted against Ralston in connection with the
Company's phased withdrawal from an unsuccessful joint venture in
Chile was settled for $6.5 million. The Company's portion of the
settlement was $4.0 million plus its share of the costs and
expenses of the legal proceedings. Information about this
settlement is set forth in Note 12 of the Notes to Condensed
Financial Statements set forth above.
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 November 30, 1998.
<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: January 12, 1999
<PAGE>
EXHIBIT INDEX
- -------------
Exhibits
- --------
EX-27 Financial data schedule for 1st 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 11/30/98
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> 3-MOS
<FISCAL-YEAR-END> AUG-31-1999
<PERIOD-END> NOV-30-1998
<CASH> 163,100
<SECURITIES> 1,500
<RECEIVABLES> 116,600
<ALLOWANCES> 11,500
<INVENTORY> 89,600
<CURRENT-ASSETS> 372,300
<PP&E> 359,900
<DEPRECIATION> 176,600
<TOTAL-ASSETS> 610,600
<CURRENT-LIABILITIES> 211,800
<BONDS> 14,600
<COMMON> 100
0
0
<OTHER-SE> 354,200
<TOTAL-LIABILITY-AND-EQUITY> 610,600
<SALES> 332,400
<TOTAL-REVENUES> 332,400
<CGS> 273,700
<TOTAL-COSTS> 273,700
<OTHER-EXPENSES> 34,100
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,900
<INCOME-PRETAX> 21,700
<INCOME-TAX> 10,600
<INCOME-CONTINUING> 11,100
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,100
<EPS-PRIMARY> 1.04
<EPS-DILUTED> 1.03
<FN>
F1 LOSS - PROVISION INCLUDED IN OTHER-EXPENSE ABOVE
</FN>
</TABLE>
