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, 2000
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 9, 2001:
9,813,851
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<PAGE>
PART I - FINANCIAL INFORMATION
AGRIBRANDS INTERNATIONAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Management has included a section on key measures and concepts for
understanding the business which follows the discussions of consolidated results
of operations, segment results and liquidity and capital resources. Unless
otherwise noted, all references to prices, costs and margins reflect U.S. Dollar
results after translation of foreign currency financial statements in accordance
with Statement of Financial Accounting Standards No. 52 (FAS 52). Because the
Company operates predominantly outside the United States, changes in foreign
exchange rates against the Dollar can have a material impact on the Company's
reported results.
Recent Events
On December 1, 2000, the Company and Cargill, Incorporated ("Cargill")
entered into an Agreement and Plan of Merger (the "Merger Agreement"), under
which Cargill would acquire Agribrands in a cash merger at a price of $54.50 per
share. Agribrands elected to terminate its prior merger agreement with Ralcorp
Holdings, Inc. ("Ralcorp") and as a result, paid a $5 million termination fee to
Ralcorp.
The Merger Agreement has been approved by Agribrands' Board of Directors
upon the unanimous recommendation of a committee of its independent directors.
The transaction is expected to close in April 2001 and is subject to various
conditions, including the approval by two-thirds of Agribrands' shareholders,
receipt of a ruling from the Internal Revenue Service that the merger will not
impact the tax-free treatment of Agribrands' 1998 spin-off from Ralston Purina,
regulatory approvals and other customary conditions. Cargill may waive the
requirement for the tax ruling.
On January 9, 2001, the Company filed a preliminary proxy statement with
the SEC to amend its preliminary proxy statement and prospectus filed by it and
Ralcorp on September 29, 2000.
REVIEW OF CONSOLIDATED RESULTS OF OPERATIONS
Net Sales
Consolidated net sales for the three months ended November 30, 2000
increased $1.1 million or 0.4% compared to the same period last year due to
higher average selling prices in the Americas segment and to a lesser extent in
the Asia segment. Average selling prices increased $6 per ton due to increased
sales of premixes and other higher value feeds in Brazil and higher commodity
costs in most parts of the world relative to the same periods last year. This is
consistent with the feed industry's practice of adjusting prices to reflect
changes in ingredient costs. Consolidated feed sales volume for the first
quarter was down slightly at 23,900 metric tons or 1.9% compared to the same
period last year.
Gross Profit
Gross profit was $56.6 million in the first quarter of fiscal 2001 compared
to $60.6 million in the same period last year, a decrease of $4.0 million, or
6.6%. Gross profit decreased primarily as a result of both lower volume and
lower margins in Europe.
2
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Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $1.2 million or 2.9%
in the three months ended November 30, 2000 due primarily to higher expenses in
the Americas segment and the Corporate and Tradico segment, partially offset by
lower expenses in Europe.
Merger Expenses
In the current quarter, Agribrands recorded a pre-tax charge of $6.2
million and an after-tax charge of $4.0 million for costs primarily associated
with the terminated merger between Agribrands and Ralcorp, combined with some
expenses related to the merger with Cargill. These charges included the accrual
of a $5 million termination fee which was paid to Ralcorp in December 2000.
Restructuring Activities
In the current quarter, Agribrands recorded provisions for restructuring
which reduced earnings before income taxes by $0.6 million and net earnings by
$0.4 million. These charges represented primarily severance costs associated
with the streamlining of Agribrands' operations in Spain. The restructuring
provided for the termination of 14 production employees, all of whom have been
released as of November 30, 2000. Beginning in fiscal 2002, these restructuring
actions are expected to result in annual pre-tax cost savings of approximately
$0.2 million.
Interest Expense and Other Income/Expense
Interest expense totaled $0.8 million for the three months ended November
30, 2000 compared to $0.9 million for the same period last year.
Other income/expense, net changed unfavorably by $1.4 million for the three
months ended November 30, 2000 compared to the same period last year. The
Company recognized a $1.5 million foreign exchange loss in the first quarter of
this year versus a $0.3 million foreign exchange gain in the first quarter of
last year. In this year's first quarter, the currencies in Brazil, Canada,
Mexico and Korea weakened somewhat versus the U.S. Dollar resulting in an
exchange loss on U.S. Dollar debt carried in those countries. Investment income
was $0.2 million lower in this year's first quarter mainly as a result of lower
average cash balances during the current year.
Net Earnings
Net earnings were $4.9 million for the three months ended November 30, 2000
compared to $13.9 million for the same period last year. Income taxes, which
include United States and foreign taxes, were 36.4% of pre-tax earnings for the
current period and 33.8% for the same period last year.
3
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REVIEW OF SEGMENT RESULTS
(Dollars in millions)
<TABLE>
<CAPTION>
Corporate and
Americas Europe Asia Tradico Consolidated
---------------- --------------- --------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Quarter Ended November 30, 2000:
Net sales $ 141.3 $ 63.4 $ 97.3 - $ 302.0
Segment profitability $ 7.0 $ 3.6 $ 8.4 $ (4.5) $ 14.5
Tons of feed product sold 514,400 315,600 372,200 - 1,202,200
Income over ingredient cost * $ 37.5 $ 20.2 $ 26.0 $ 0.1 $ 83.8
Quarter Ended November 30, 1999:
Net sales $ 134.5 $ 76.9 $ 89.4 $ 0.1 $ 300.9
Segment profitability $ 7.8 $ 4.5 $ 10.7 $ (3.3) $ 19.7
Tons of feed product sold 524,700 358,000 343,000 100 1,225,800
Income over ingredient cost * $ 35.5 $ 26.4 $ 26.5 $ (0.1) $ 88.3
<FN>
* The commercial animal feed industry generally prices products on the basis
of aggregate ingredient cost plus a per-unit margin. As ingredient prices
fluctuate, the changes are generally passed on to customers through changes
in the Company's product pricing. Income over ingredient cost (which is
equal to net sales minus the cost of ingredients), rather than sales
dollars, is the key indicator of revenue performance because of the
distortions in sales dollars caused by changes in commodity prices.
Management also monitors IOIC per ton to evaluate trends in pricing and
relative product value.
</FN>
</TABLE>
Americas
Net sales in the Americas segment (which excludes the United States)
increased $6.8 million or 5.1% for the three months ended November 30, 2000
compared to the same period last year. The increase in net sales was the result
of higher average selling prices, which were only partially offset by a 2.0%
decline in volume. Most of the change occurred in Brazil where its increased
sales force focused selling efforts on higher value complete feeds and higher
margin premixes resulting in increased net sales and IOIC of $5.4 million and
$2.5 million, respectively.
Segment profitability in the Americas decreased $0.8 million or 10.3% as
increased operating expenses more than offset the improvement in IOIC for the
region. Operating expenses increased to support the increased selling efforts in
Brazil. Operating expenses also increased due to local inflationary increases in
excess of the rate at which the local currencies weakened versus the U.S.
Dollar.
Europe
Net sales in Europe decreased $13.5 million or 17.6% for the three months
ended November 30, 2000 as compared to the same period last year. The decrease
in net sales was due to a combination of lower volume and lower average selling
prices. Feed volume declined by 42,400 tons or 11.8% as the entire region
experienced difficult market conditions. Average selling prices for the Europe
segment declined $14 per ton or 6.5% in the first quarter as higher average
local currency selling prices were translated at significantly weaker foreign
currency exchange rates.
Segment profitability in the Europe segment decreased $0.9 million or
20.0%. IOIC in Europe decreased $6.2 million or 23.5% due to both lower feed
volume and lower margins. The decline in IOIC was mostly offset by $5.3 million
4
<PAGE>
lower operating expenses which reflect the translation of local currency
expenses at significantly weaker exchange rates.
Asia
Net sales in the Asia segment increased $7.9 million or 8.8% for the three
months ended November 30, 2000 compared to the same period last year. This
increase is primarily due to increased feed volume in China where feed volume
was up 26,500 tons or 79.2% over the same period last year. Positive response to
recent sales initiatives combined with favorable animal farm prices in the China
market have contributed to the increased sales in China.
Segment profitability in the Asia segment decreased $2.3 million or 21.5%.
IOIC in Asia decreased $0.5 million or 1.9% as the impact of deteriorating hog
market conditions in Korea more than offset the improvement experienced in
China. Segment profitability was also negatively impacted by a $1.8 million or
11.4% increase in operating expenses. Operating expenses increased reflecting
the growth in China and the addition of an animal health business acquired last
July in the Philippines.
Corporate and Tradico
The corporate and Tradico segment is located primarily in the United
States. This segment contains certain corporate items which are not allocated to
other segments. Tradico, a division within the Company, acquires and resells
ingredients, equipment and feed products primarily to foreign affiliates. A
subsidiary named "Tradico, Inc." was organized in Missouri in August 2000 and
acquired a manufacturing facility in Greenville, Mississippi. In the first
quarter of this fiscal year, Tradico recorded intercompany sales of $28.4
million.
In terms of segment profitability, the corporate and Tradico segment
recorded losses of $4.5 million and $3.3 million for the quarters ended November
30, 2000 and 1999, respectively. These losses are primarily related to
unallocated corporate administrative items. The increase in unallocated
corporate administrative expenses is partially the result of $0.5 million in
litigation expenses incurred in the current quarter in connection with the
Company's efforts to recover vitamin price fixing damages in a class action
lawsuit. The remainder of the increase is due to inflationary increases and
additional administrative & research personnel. Tradico's margins on
intercompany sales have been allocated to the region/segment that purchased the
goods.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows from operations were $14.8 million and $16.3 million for the
three months ended November 30, 2000 and 1999, respectively. The decrease in
operating cash flows between the two periods primarily resulted from the decline
in net earnings.
Capital expenditures, primarily to replace or enhance existing production
facilities and equipment, totaled $5.6 million and $6.5 million for the three
months ended November 30, 2000 and 1999, respectively. The Company has no
material commitments for capital expenditures as of November 30, 2000.
Anticipated capital expenditures are expected to be funded with existing cash
reserves as well as cash generated from operations.
The Company's working capital requirements for inventories and receivables
are influenced somewhat by seasonality, the availability of raw materials and
changes in commodity costs, and as a result may fluctuate widely. Since its
spin-off, the Company's operating units have generally financed their seasonal
and other working capital requirements through intercompany loans and advances
provided by the U.S. parent. Short-term borrowings provided by local foreign
banks and branches of multinational banks are also utilized. The Company reduced
its short-term borrowings from $27.8 million at August 31, 2000 to $19.2 million
at November 30, 2000.
5
<PAGE>
Cash on hand, cash flow from operations and local affiliate 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. As of November 30, 2000, the Company had purchased 855,052 shares
pursuant to this authorization at an average cost of $39.54 per share. No
purchases occurred during the three months ended November 30, 2000.
KEY MEASURES AND CONCEPTS FOR UNDERSTANDING THE BUSINESS
Dollar-Responsive Economics of International Feed Operations
Feed is manufactured by processing a combination of grains, proteins,
vitamins, and minerals. Approximately 80% of the Company's total costs is the
cost of these ingredients, most of which are widely traded in Dollar-denominated
global commodity markets. Excluding logistics costs, the Dollar values (and
costs) of ingredients around the world are broadly comparable. Local currency
prices for ingredients, therefore, typically adjust quickly to reflect changes
in quoted dollar prices and changes in the exchange rate between the local
currency and the Dollar. As raw materials inventories are replenished after an
exchange rate change, new local currency ingredient costs are reflected in local
currency feed prices.
The margin added to ingredient costs is less responsive to exchange rate
changes because industry pricing is influenced by local competitors.
Nevertheless, exchange rates between the U.S. Dollar and other currencies
(particularly in countries with systemic high inflation like many of those where
the Company operates) are related closely to differentials between the U.S. and
local inflation and interest rates. As a result, Dollar-translated IOIC levels
of the Company's international operations generally fluctuate closely around
long-term norms, particularly on a consolidated basis.
Dollar-Based Earnings Before Interest, Taxes, Depreciation and Amortization
(EBITDA)
Management believes the required method of translating foreign currency
financial statements for most of the Company's foreign affiliates (that is using
the local currency as functional currency) can distort the economic impact of
certain items, specifically costs of goods sold and foreign exchange gains and
losses. Because the Company operates predominantly outside of the U.S., these
distortions can have a disproportionate effect on reported results. For this
reason, management believes it is important to understand the Company's
operational results computed using the U.S. Dollar as the functional currency.
Dollar-based accounting was required practice prior to the issuance of FAS
52 in 1981 and continues to be required for U.S. affiliates operating in
hyper-inflationary environments. This exception is in recognition of the
possible distortions of local-currency based accounting. "Hyper-inflationary"
accounting is limited under FAS 52 to countries with cumulative inflation
greater than 100% over three years. This fails to cover numerous countries
(including those in which the Company generates the majority of its earnings)
with consistently higher inflation than the U.S., whose currency values remain
unstable (typically devaluing over time versus the Dollar).
When exchange rates fluctuate, earnings results using U.S. Dollar-based
accounting differ from results under local currency based accounting in three
important ways. Under U.S. Dollar-based accounting:
o Cost of goods sold is measured using the exchange rate at the time
inventory was purchased rather than the exchange rate at the time
finished product was sold.
6
<PAGE>
o Foreign exchange gains and losses are computed on assets and
liabilities denominated in currencies other than the Dollar instead of
assets and liabilities denominated in currencies other than the local
currency.
o Depreciation is computed by applying the appropriate factor to the
historical Dollar value of the asset rather than by applying the
appropriate factor to the historical local currency value and
translating the result at the current exchange rate.
Because of its principal focus on cash flows, management uses Dollar-based
EBITDA as a key determinant of awards for corporate management under its annual
incentive plan. The following table provides a reconciliation of pre-tax
earnings to Dollar-based EBITDA for the quarters ended November 30, 2000 and
1999:
Dollar-based EBITDA
(Dollars in millions)
Quarter Ended
November 30,
----------------------
2000 1999
---------- ----------
Earnings before Income Taxes $ 7.7 $ 21.0
Adjustments:
o Depreciation and amortization 6.0 6.3
o Interest expense 0.8 0.9
o Investment income (2.3) (2.5)
o Merger expenses 6.2 -
o Provisions for restructuring 0.6 -
---------- ----------
EBITDA reported after translation under FAS 52 19.0 25.7
Adjustments to report EBITDA on a Dollar basis:
1) Difference in cost of products sold (2.4) (1.1)
2) Reversal of foreign exchange loss reported 1.5 0.3
under FAS 52
3) Dollar-based foreign exchange gain 1.5 1.5
---------- ----------
EBITDA reported on a U.S. Dollar basis $ 19.6 $ 26.4
========== ==========
Explanation of adjustments to EBITDA:
1) Difference in cost of products sold. Cost of products sold was lower under
FAS 52 in each period due to devaluation of the local currencies against
the Dollar. Under Dollar-based accounting, inventories are initially
recorded and maintained in Dollars.
2) Reversal of foreign exchange losses reported under FAS 52. In this year's
first quarter, the Company reported a $1.5 million foreign exchange loss
under FAS 52. Most of this exchange loss occurred in Brazil and Canada,
where the Company carried U.S. Dollar denominated debt and the local
currency devalued versus the Dollar.
3) Dollar-based foreign exchange gains and losses. If Agribrands had used
Dollar-based accounting worldwide, it would have recognized a foreign
exchange gain of $1.5 million in both the quarter ended November 30, 2000
and the quarter ended November 30, 1999. Much of these gains occurred in
Europe and Asia, where the Company has net liabilities denominated in the
local currencies. During each period as the local currency weakened, these
liabilities decreased in Dollar terms resulting in a foreign exchange gain.
7
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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 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 ready to
handle the July 1, 2002 withdrawal of all legacy currencies. Management is
currently planning to modify the Company's key financial systems so they can
handle the July 1, 2002 mandatory conversion to the Euro. The Company has not
yet incurred any material costs related to the conversion, and future costs for
replacing computer equipment and reprogramming existing systems are not expected
to be material. The Company plans to complete system modifications and necessary
testing by September 1, 2001.
From a broader business perspective, conversion to the Euro may cause
pricing disparities in different markets to narrow, lowering the Company's
margins. Nevertheless, the Company believes the conversion to the Euro will not
have a material impact on the Company's consolidated financial results.
OUTLOOK
It is difficult to forecast short-term operating results due to the number
of environmental factors that may impact current results. Local agricultural
markets are highly responsive to a number of variables including macro-economic
conditions, weather, and current concerns over food and environmental safety.
Typically, large and small changes in factors like these in locations where the
Company operates will randomly influence consolidated earnings.
Excluding merger expenses and restructuring charges, consolidated operating
results for the quarter ended November 30, 2000 more closely matched the results
of the previous three quarters than the results for the same period last year.
Management expects consolidated operating results for the quarter ended February
28, 2001 to also fall below the comparative quarter for fiscal 2000. However,
consolidated operating results for the latter half of the current fiscal year
should meet or exceed results for the same period last year.
Pre-tax earnings remain subject to volatility due, in particular, to
foreign exchange gains and losses generated by volatile exchange rates and
changing capital structures within the foreign affiliates. Currently, the
Company's most significant exposures to foreign exchange gains and losses
impacting net earnings are U.S. Dollar liabilities carried in Mexico, Brazil,
Canada, Korea and Colombia. As discussed earlier, management focuses on the
Company's exposure to the change in the dollar value of net monetary asset or
liability positions in currencies other than the U.S. Dollar. These values can
also be volatile as the cost of hedging these exposures often exceeds the likely
benefit. The Company currently has significant net monetary asset or liability
positions in Euros, Philippine Pesos, Chinese Renminbi, Canadian Dollars and
Colombian Pesos.
The Company's income tax position is quite complex due to the interaction
between income taxes paid locally by its foreign affiliates, dividends and
royalties received from its affiliates and the method for determining the credit
the Company receives on its U.S. tax return for foreign income and withholding
taxes. Based on current projections for these relevant items, management
believes its global effective rate should remain around 35% for the foreseeable
future.
8
<PAGE>
FORWARD-LOOKING STATEMENTS & BUSINESS RISKS
Certain statements under "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Outlook" and elsewhere in this report
constitute "forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.
Any statements that express, or involve discussions as to, expectations,
beliefs, plans, objectives, assumptions or future events or performance (which
may use words or phrases such as "will likely result," "are expected to," "will
continue," "anticipates," "expects," "estimates," "intends," "plans,"
"projects," and "outlook") are not historical facts and may be forward-looking.
Such forward-looking statements involve known and unknown risks, uncertainties
and other factors that may cause the actual results, levels of activity, cost
savings, performance or achievements of the Company, or industry results, to be
materially different from any future results, levels of activity, cost savings,
performance or achievements expressed or implied by such forward-looking
statements, and accordingly, such statements should be read in conjunction with
and are qualified in their entirety by reference to, such risks, uncertainties
and other factors, which are described below and elsewhere in this report. Such
factors include, among others, the following: (i) changing conditions or market
trends in the animal feeds and agricultural products industries; (ii) general
economic and business conditions, including a regional recession in any of the
various regions of the world in which Agribrands operates; (iii) the ability of
the Company to implement its business strategy and maintain and enhance its
competitive strengths; (iv) the ability of the Company to recover its raw
material costs in the pricing of its products, (v) political and economic
instability in countries or regions where the Company's business is conducted,
(vi) the level of demand for Agribrands' products,(vii) the ability of the
Company to obtain financing for specific or general corporate purposes; (viii)
actions of competitors and government entities; (ix) availability of key
personnel; (x) industry capacity trends; (xi) changes in the economic or
financial impact of, or failure to comply with, government regulations and (xii)
changes brought about by e-commerce initiatives. As a result of the foregoing
and other factors, no assurance can be given as to future results, levels of
activity and achievements, and neither Agribrands nor any other person assumes
responsibility for the accuracy and completeness of these forward-looking
statements. Any forward-looking statements contained herein speak solely as of
the date as of which such statements are made, and Agribrands undertakes no
obligation to update any forward-looking statements to reflect events or
circumstances after the date on which such statements were made or to reflect
the occurrence of unanticipated events.
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 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
aviarian virus); real estate values; urban development; weather conditions;
government farm programs; government regulations; tariffs, restrictive quota and
trade policies; production difficulties, including capacity constraints and
supply surpluses; and general economic conditions, either local, regional or
global. 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 have 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.
9
<PAGE>
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
effective cost controls, 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, including development of e-commerce strategies, while
at the same time maintaining aggressive pricing and promotion of its products.
10
<PAGE>
AGRIBRANDS INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF EARNINGS (UNAUDITED)
(Dollars in millions except per share data)
Quarter Ended
November 30,
-----------------------------
2000 1999
------------- --------------
Net Sales $ 302.0 $ 300.9
------------- --------------
Costs and Expenses
Cost of products sold 245.4 240.3
Selling, general and administrative 42.1 40.9
Merger expenses 6.2 -
Interest expense 0.8 0.9
Provisions for restructuring 0.6 -
Other (income)/expense, net (0.8) (2.2)
------------- --------------
294.3 279.9
------------- --------------
Earnings before Income Taxes 7.7 21.0
Income Taxes 2.8 7.1
------------- --------------
Net Earnings $ 4.9 $ 13.9
============= ==============
Earnings Per Share
Basic $ .50 $ 1.34
============= ==============
Diluted $ .48 $ 1.29
============= ==============
See Accompanying Notes to Consolidated Financial Statements
11
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AGRIBRANDS INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
(Dollars in millions)
<TABLE>
<CAPTION>
November 30, August 31,
2000 2000
------------------ ---------------
Assets
------
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 171.8 $ 174.6
Receivables, less allowance for doubtful accounts 76.7 75.4
Inventories 90.3 96.6
Other current assets 8.7 7.1
------------------ ---------------
Total Current Assets 347.5 353.7
------------------ ---------------
Investments and Other Assets 62.0 59.5
Property at Cost 343.0 351.7
Accumulated Depreciation (182.2) (183.3)
------------------ ---------------
160.8 168.4
------------------ ---------------
Total $ 570.3 $ 581.6
================== ===============
Liabilities and Shareholders' Equity
------------------------------------
Current Liabilities
Current maturities of long-term debt $ 1.0 $ 0.4
Notes payable 19.2 27.8
Accounts payable and accrued liabilities 116.4 116.0
Income taxes 4.5 4.5
------------------ ---------------
Total Current Liabilities 141.1 148.7
------------------ ---------------
Long-Term Debt 9.6 10.7
Deferred Income Taxes and Other Liabilities 29.8 28.7
Shareholders' Equity
Common stock .1 .1
Capital in excess of par 419.5 419.5
Retained earnings 100.0 95.1
Common stock in treasury, at cost (33.8) (33.8)
Accumulated other comprehensive loss (96.0) (87.4)
------------------ ---------------
Total Shareholders' Equity 389.8 393.5
------------------ ---------------
Total $ 570.3 $ 581.6
================== ===============
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
12
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AGRIBRANDS INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
(Dollars in millions)
<TABLE>
<CAPTION>
Three Months Ended
November 30,
-------------------------------------
2000 1999
---------------- ----------------
<S> <C> <C>
Cash Flow from Operations
Net earnings $ 4.9 $ 13.9
Non-cash items included in income
Depreciation and amortization 6.0 6.3
Foreign exchange loss 1.5 0.3
Provision for doubtful accounts 0.5 0.9
Deferred income taxes - 2.6
Changes in operating assets and liabilities used in operations 0.7 (7.7)
Other, net 1.2 -
---------------- ----------------
Net cash provided by operations 14.8 16.3
---------------- ----------------
Cash Flow from Investing Activities
Property additions (5.6) (6.5)
Proceeds from the sale of property 0.3 0.4
Purchase of key man life insurance (2.5) (5.0)
Other, net (0.2) (0.5)
---------------- ----------------
Net cash used by investing activities (8.0) (11.6)
---------------- ----------------
Cash Flow from Financing Activities
Proceeds from issuance of long-term debt 0.4 -
Principal payments on long-term debt, including current maturities (0.2) (0.3)
Net increase (decrease) in notes payable (8.1) (0.5)
Treasury stock purchases - (0.8)
---------------- ----------------
Net cash used by financing activities (7.9) (1.6)
---------------- ----------------
Effect of Exchange Rate Changes on Cash and Cash Equivalents (1.7) (0.6)
---------------- ----------------
Net (Decrease) Increase in Cash and Cash Equivalents (2.8) 2.5
Cash and Cash Equivalents, Beginning of Period 174.6 178.0
---------------- ----------------
Cash and Cash Equivalents, End of Period $ 171.8 $ 180.5
================ ================
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
13
<PAGE>
AGRIBRANDS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions)
Note 1 - SUBSEQUENT EVENT. On December 1, 2000, Agribrands and Cargill,
Incorporated ("Cargill") entered into an Agreement and Plan of Merger
(the "Merger Agreement"), under which Cargill would acquire Agribrands
in a cash merger at a price of $54.50 per share. Agribrands elected to
terminate its prior merger agreement with Ralcorp Holdings, Inc.
("Ralcorp") and as a result, paid a $5 million termination fee to
Ralcorp.
The Merger Agreement has been approved by Agribrands' Board of
Directors upon the unanimous recommendation of a committee of its
independent directors. The transaction is expected to close in April
2001 and is subject to various conditions, including the approval by
two-thirds of Agribrands' shareholders, receipt of a ruling from the
Internal Revenue Service that the merger will not impact the tax-free
treatment of Agribrands' 1998 spin-off from Ralston Purina, regulatory
approvals and other customary conditions. Cargill may waive the
requirement for the tax ruling. Agribrands filed a preliminary proxy
statement with the SEC on January 9, 2001 relating to the Cargill
merger.
Note 2 - UNAUDITED FINANCIAL STATEMENTS. The accompanying unaudited financial
statements have been prepared in accordance with generally accepted
accounting principles and applicable SEC guidelines pertaining to
interim financial information. 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 Company's financial
statements and notes thereto for the year ended August 31, 2000.
Certain previously reported amounts have been reclassified to make
them consistent with the current year presentation. In particular,
certain costs for fiscal 2000 have been reclassified from cost of
products sold to selling, general and administrative expenses. In
fiscal 2001, the Company changed its method of allocating costs to
inventories and cost of goods sold to exclude certain items that are
more appropriately classified as selling, general and administrative
expenses. The effect of this change on inventory valuations at August
31, 2000 was immaterial.
Note 3 - COMPREHENSIVE (LOSS)/INCOME:
Quarter Ended
November 30,
---------------------------------
2000 1999
--------------- ----------------
Net earnings $ 4.9 $ 13.9
Foreign currency translation adjustment (8.6) (0.2)
--------------- ----------------
Comprehensive (loss)/income $ (3.7) $ 13.7
=============== ================
14
<PAGE>
Note 4 - BUSINESS SEGMENT INFORMATION. Sales, profitability and total assets
are presented below for each of the Company's reportable segments
along with a reconciliation of total segment profitability to total
earnings before income taxes:
Quarter Ended
November 30,
-------------------------------
2000 1999
--------------- --------------
Net Sales - External:
Americas $ 141.3 $ 134.5
Europe 63.4 76.9
Asia 97.3 89.4
Corporate and Tradico (U.S.) - 0.1
--------------- --------------
Total $ 302.0 $ 300.9
=============== ==============
Net Sales - Intersegment:
Americas $ - $ -
Europe - -
Asia - -
Corporate and Tradico (U.S.) 28.4 22.8
--------------- --------------
Total $ 28.4 $ 22.8
=============== ==============
Segment Profitability:
Americas $ 7.0 $ 7.8
Europe 3.6 4.5
Asia 8.4 10.7
Corporate and Tradico (U.S.) (4.5) (3.3)
--------------- --------------
14.5 19.7
Merger expenses (6.2) -
Provisions for restructuring (0.6) -
Interest expense (0.8) (0.9)
Other income/(expense), net 0.8 2.2
--------------- --------------
Earnings before Income Taxes $ 7.7 $ 21.0
=============== ==============
Depreciation and Amortization:
Americas $ 1.8 $ 1.8
Europe 1.7 1.9
Asia 2.3 2.4
Corporate and Tradico (U.S.) 0.2 0.2
--------------- --------------
Total $ 6.0 $ 6.3
=============== ==============
November 30, August 31,
2000 2000
--------------- --------------
Total Assets:
Americas $ 169.7 $ 175.5
Europe 92.6 93.5
Asia 148.3 162.2
Corporate and Tradico (U.S.) 159.7 150.4
--------------- --------------
Total $ 570.3 $ 581.6
=============== ==============
15
<PAGE>
Note 5 - SUPPLEMENTAL BALANCE SHEET INFORMATION:
November 30, August 31,
2000 2000
------------ ----------
Receivables:
Gross receivables $ 88.7 $ 87.5
Allowance for doubtful accounts (12.0) (12.1)
------------ ----------
$ 76.7 $ 75.4
============ ==========
Inventories:
Raw materials and supplies $ 70.6 $ 77.0
Finished products 19.7 19.6
------------ ----------
$ 90.3 $ 96.6
============ ==========
Investments and Other Assets:
Goodwill, net of accumulated amortization of $ 26.5 $ 27.1
$9.1 at November 30 and $8.6 at August 31
Investments in affiliated companies 7.3 7.0
Cash surrender value of key man life insurance 12.5 10.0
Deferred charges and other assets 15.7 15.4
------------ ----------
$ 62.0 $ 59.5
============ ==========
Accounts payable and accrued liabilities:
Trade accounts payable $ 77.2 $ 72.2
Incentive compensation, salaries and vacations 11.4 14.2
Restructuring reserves 0.8 0.5
Other items 27.0 29.1
------------ ----------
$ 116.4 $ 116.0
============ ==========
Note 6 - RESTRUCTURING. In the current quarter, Agribrands recorded provisions
for restructuring which reduced earnings before income taxes by $0.6
million and net earnings by $0.4 million. These charges represented
primarily severance costs associated with the streamlining of
Agribrands' operations in Spain. The restructuring provided for the
termination of 14 production employees, all of whom have been released
as of November 30, 2000. Beginning in fiscal 2002, these restructuring
actions are expected to result in annual pre-tax cost savings of
approximately $0.2 million. The following table summarizes the
activity within the restructuring reserves during the quarter ended
November 30, 2000. Substantially all actions associated with the
remaining reserves are expected to be completed by the end of the
second quarter.
Reserves at August 31, 2000 $ 0.5
Provision 0.6
Spending (0.3)
------------
Reserves at November 30, 2000 $ 0.8
============
16
<PAGE>
Note 7 - OTHER (INCOME)/EXPENSE, NET:
Quarter Ended
November 30,
----------------------
2000 1999
---------- ----------
Foreign exchange loss $ 1.5 $ 0.3
Investment income (2.3) (2.5)
---------- ----------
$ (0.8) $ (2.2)
========== ==========
Note 8 - COMMON STOCK. There were 9,813,851 shares of common stock outstanding
at November 30, 2000 and August 31, 2000.
Note 9 - EARNINGS PER SHARE. 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:
Quarter Ended
November 30,
-----------------------
2000 1999
---------- ----------
Numerator:
Net earnings $ 4.9 $ 13.9
========== ==========
Denominator:
Weighted average shares outstanding 9,813,851 10,368,308
Assumed conversion of stock options (1) 309,352 397,798
---------- ----------
Weighted average shares - assuming dilution 10,123,203 10,766,106
========== ==========
Basic earnings per share (2) $ .50 $ 1.34
========== ==========
Diluted earnings per share (2) $ .48 $ 1.29
========== ==========
Note 10 - NEW ACCOUNTING STANDARD. Effective September 1, 2000, the Company
adopted Statement of Financial Accounting Standards No. 133 (FAS 133),
"Accounting for Derivative Instruments and Hedging Activities." FAS
133 establishes standards for recognition and measurement of
derivatives and hedging activities. The transition adjustments
resulting from the adoption of this Statement were immaterial to the
Company's results of operations in the first quarter of fiscal 2001.
Note 11 - DERIVATIVE FINANCIAL INSTRUMENTS. The Company currently uses forwards
and options to manage foreign currency risk and futures and options to
manage commodity price risk. Derivatives used by the Company have an
initial term of less than one year. Beginning September 1, 2000, all
derivative instruments are carried on the balance sheet at fair value
as required by FAS 133; the effect of adoption was insignificant to
the first quarter financial statements. The Company primarily uses
17
<PAGE>
foreign exchange forward and option contracts to hedge recognized
foreign currency denominated assets and liabilities. From time to
time, the Company may designate a foreign exchange forward contract as
a hedge of an unrecognized foreign currency denominated firm
commitment. In that case, the changes in the fair value of the
foreign exchange forward contract are recognized currently in earnings
along with the offsetting changes in the fair value of the hedged firm
commitment.
For internal control reasons, Agribrands uses a centralized approach
to commodity price risk management. The Company's commodity futures
and options trades are conducted almost exclusively at the corporate
level and with the Chicago Board of Trade. While Agribrands has
considerable exposure to commodity prices, it does relatively little
hedging due to complexities presented by the Company's foreign
operations. Many of the Company's hedging transactions may not be
eligible for hedge accounting on the basis of FAS 133's high
effectiveness rule and the requirement that the party at risk be a
party to the hedge. For these reasons, the Company has elected not to
apply hedge accounting to any of its commodity hedges. Changes in the
fair value of commodity futures and option contracts are recognized
immediately in earnings on the cost of products sold line.
PART II - OTHER INFORMATION
There is no information required to be reported under any items except
those indicated below.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits filed with this Report:
2.1 Agreement and Plan of Merger, dated as of December 1,
2000, between Agribrands International, Inc., Cargill,
Incorporated and Abacus Acquisition Corp. (Filed as
Exhibit 2.1 to Company's Form 8-K on December 4, 2000)
10.1 Second Amended Rights Agreement
(b) Reports on Form 8-K:
Current Report on Form 8-K filed October 26, 2000 relating to
earnings press release
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: January 10, 2001
19
<PAGE>
EXHIBIT INDEX
-------------
Exhibits
--------
EX-10.1 Second Amended Rights Agreement.
(Documents prepared on Edgar and provided electronically)
20
