<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------
FORM 10-Q
-------------
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
FOR THE QUARTER ENDED SEPTEMBER 30, 1999
COMMISSION FILE NUMBER 1-4199
BESTFOODS
(Exact name of Registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation or organization)
36-2385545
(I.R.S. Employer Identification Number)
700 SYLVAN AVENUE
INTERNATIONAL PLAZA
ENGLEWOOD CLIFFS, N.J. 07632-9976
(Address of principal executive offices) (Zip Code)
(201) 894-4000
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed since
last report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No _____
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
CLASS OUTSTANDING AT SEPTEMBER 30, 1999
Common Stock, $.25 par value 278,933,406 shares
<PAGE> 2
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BESTFOODS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
($ Millions except per share amounts) September 30, September 30,
------------------- ------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $2,064 $1,992 $6,414 $6,247
Cost of sales 1,081 1,074 3,389 3,409
------ ------ ------ ------
Gross profit 983 918 3,025 2,838
Operating expenses 649 626 2,073 1,969
------ ------ ------ ------
Operating income 334 292 952 869
------ ------ ------ ------
Financing costs 47 38 144 122
------ ------ ------ ------
Income from continuing operations before taxes 287 254 808 747
Provision for income taxes 91 83 271 258
------ ------ ------ ------
196 171 537 489
Minority stockholders' interest 12 4 33 16
------ ------ ------ ------
Income from continuing operations 184 167 504 473
Gain on disposal of discontinued operations, net of
income tax benefit ($.4 - 1998) - 1 - 1
------ ------ ------ ------
Net income $ 184 $ 168 $ 504 $ 474
====== ====== ====== ======
AVERAGE COMMON SHARES OUTSTANDING:
Basic 279.0 286.9 279.6 287.8
Diluted 287.8 297.1 288.6 298.8
EARNINGS PER COMMON SHARE:
Basic $ 0.65 $ 0.58 $ 1.78 $ 1.62
Diluted $ 0.64 $ 0.56 $ 1.74 $ 1.58
CASH DIVIDENDS DECLARED PER COMMON SHARE $0.265 $0.245 $0.755 $0.695
</TABLE>
See notes to consolidated financial statements.
1
<PAGE> 3
BESTFOODS AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
($ Millions) Sept. 30, 1999 Dec. 31, 1998
-------------- -------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 127 $ 142
Notes and accounts receivable, net 1,194 1,281
Inventories 757 827
Prepaid expenses 98 75
Deferred tax asset 75 80
------- -------
Total current assets 2,251 2,405
------- -------
Investments in and loans to unconsolidated affiliates 18 12
------- -------
Plant and properties 3,410 3,462
Less accumulated depreciation 1,515 1,497
------- -------
1,895 1,965
------- -------
Excess cost over net assets of businesses acquired and other
Intangible assets (net of accumulated amortization of $349 and $329) 1,628 1,854
------- -------
Other assets 183 199
======= =======
$ 5,975 $ 6,435
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Notes and drafts payable $ 567 $ 604
Accounts payable and accrued liabilities 1,348 1,476
Income taxes payable 170 162
Dividends payable 74 70
------- -------
Total current liabilities 2,159 2,312
------- -------
Non-current liabilities 904 928
------- -------
Long-term debt 1,884 2,053
------- -------
Deferred taxes on income 27 5
------- -------
Minority interest 168 156
------- -------
Stockholders' equity
Preferred stock, authorized 25 million shares $1 par value -- --
Series B ESOP convertible 3 million shares designated
1.7 million shares issued at stated value (1998: 1.8 million shares) 152 157
Series A Junior Participating 2 million shares designated - none issued -- --
Common stock authorized 900 million shares $.25 par value - issued
390.5 million shares 98 98
Capital in excess of par value of stock 168 171
Unearned ESOP compensation (73) (80)
Accumulated other comprehensive income (679) (413)
Common stock in treasury at cost - 111.6 million shares
(1998: 108.6 million shares) (2,068) (1,900)
Retained earnings 3,235 2,948
------- -------
Total stockholders' equity 833 981
======= =======
$ 5,975 $ 6,435
======= =======
</TABLE>
See notes to consolidated financial statements.
2
<PAGE> 4
BESTFOODS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
($ Millions) September 30,
------------------
1999 1998
---- ----
<S> <C> <C>
Cash flows from (used for) operating activities
Net income from continuing operations $ 504 $ 474
Non-cash charges (credits) to net income
Depreciation and amortization 188 186
Deferred taxes 13 34
Other, net 6 5
Changes in trade working capital:
Notes and accounts receivable and prepaid expenses (7) (39)
Inventories 22 (43)
Accounts payable and accrued liabilities (28) (12)
----- -----
Net cash flows from operating activities 698 605
----- -----
Cash flows from (used for) investing activities
Capital expenditures (185) (178)
Proceeds from disposal of plants and properties 17 50
Proceeds from businesses sold --- 73
Businesses acquired (26) (41)
----- -----
Net cash flows used for investing activities (194) (96)
----- -----
Net cash flows after investments 504 509
----- -----
Cash flows from (used for) financing activities
Purchase of treasury stock (180) (211)
Repayment of long-term debt (29) (60)
New long-term debt 18 350
Net change in short-term debt (117) (295)
Dividends paid on common stock (209) (195)
Dividends paid on preferred stock (6) (6)
Common stock issued 12 14
Other liabilities (assets) 3 (20)
----- -----
Net cash flows used for financing activities (508) (423)
----- -----
Effects of exchange rates on cash (11) (5)
----- -----
Increase (decrease) in cash and cash equivalents (15) 81
----- -----
Cash and cash equivalents, beginning of year 142 39
===== =====
Cash and cash equivalents, end of period $ 127 $ 120
===== =====
</TABLE>
See notes to consolidated financial statements.
3
<PAGE> 5
BESTFOODS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
($ Millions)
Capital in
Comprehensive Preferred Common Excess of
Income Stock Stock Par Value
----------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, December 31, 1998 $ 157 $ 98 $ 171
Comprehensive income
Net income for the period $ 504
Foreign currency translation
adjustment ($400 pre-tax) (266)
-------
Comprehensive income $ 238
=======
ESOP compensation earned
ESOP shares redeemed (5) (7)
Dividends:
Common stock
Preferred stock
Shares issued for:
Stock options and deferred
compensation 4
Treasury stock acquired
------- ------- -------
Balance, September 30, 1999 $ 152 $ 98 $ 168
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
($ Millions) Accumulated
Unearned Other
ESOP Comprehensive Treasury Retained
Compensation Income Stock Earnings
----------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, December 31, 1998 $ (80) $ (413) $(1,900) $ 2,948
Comprehensive income
Net income for the period 504
Foreign currency translation
adjustment ($400 pre-tax) (266)
Comprehensive income
ESOP compensation earned 7
ESOP shares redeemed
Dividends:
Common stock (212)
Preferred stock (5)
Shares issued for:
Stock options and deferred
compensation 12
Treasury stock acquired (180)
------- ------- ------- -------
Balance, September 30, 1999 $ (73) $ (679) $(2,068) $ 3,235
======= ======= ======= =======
</TABLE>
See notes to consolidated financial statements.
4
<PAGE> 6
BESTFOODS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. INTERIM FINANCIAL STATEMENTS
The unaudited consolidated interim financial statements included herein
were prepared by management and reflect all adjustments (consisting solely of
normal recurring items) which are, in the opinion of management, necessary to
present a fair statement of results of operations for the interim periods ended
September 30, 1999 and 1998 and the financial position as of September 30, 1999.
References to "the Company" are to Bestfoods and its consolidated
subsidiaries. These statements should be read in conjunction with the
consolidated financial statements and the related footnotes to these statements
contained in the Company's Annual Report to Stockholders which were incorporated
by reference in Form 10-K for the fiscal year ended December 31, 1998.
2. RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the 1999
presentation. Net sales and cost of sales have been restated for each of the
four quarters of 1998 along with the first quarter of 1999 to reclassify certain
transportation costs from sales deductions to cost of sales.
3. ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement No. 133 (FAS 133), "Accounting for Derivative Instruments and Hedging
Activities," which requires the recognition of all derivatives as assets or
liabilities in the statement of financial position and measure those instruments
at fair value. Changes in fair value of derivatives are recorded in earnings or
other comprehensive income depending upon the intended use of the derivative and
the resulting designation. The effective date of this statement has been delayed
to fiscal years beginning after June 15, 2000. The Company is in the process of
determining the impact the adoption of this statement on its financial position
and results of operations, which is not expected to be significant.
4. ACQUISITIONS AND DIVESTITURES
During the third quarter of 1999, the Company reached an agreement to
purchase Case Swayne Co., Inc., a leading developer and processor of custom
sauces and seasonings for the foodservice industry. The results of operations
will be included from the date of acquisition of October 1999. This acquisition
will be accounted for by the purchase method. Also during the quarter, the
Company agreed to dissolve the International Desserts Partners joint venture
with General Mills, which will be completed by the end of the year.
5
<PAGE> 7
5. INVENTORIES
Inventories are summarized as follow:
<TABLE>
<CAPTION>
($ Millions) Sept. 30, 1999 Dec. 31, 1998
-------------- -------------
<S> <C> <C>
Finished and goods in process $503 $533
Raw materials 160 186
Supplies 94 108
==== ====
$757 $827
==== ====
</TABLE>
6. LONG-TERM DEBT
Long-term debt is summarized as follows:
<TABLE>
<CAPTION>
($ Millions) Sept. 30, 1999 Dec. 31, 1998
-------------- -------------
<S> <C> <C>
7.71% ESOP guaranteed notes due December 2004 $ 104 $ 113
5.625% -- 6.75% pollution control revenue bonds due
2007-2016 15 15
5.6% notes due 2097 (effective rate 7.3%) 100 100
7.0% notes due 2017 150 150
6.15% notes due 2006 300 300
7.25% notes due 2026 300 300
6.625% notes due 2028 250 250
Medium term notes at various rates due 2000-2005 175 175
5% Swiss franc debentures 129 144
6.75% German mark debentures 106 120
2.3% Japanese yen term loan 18 21
Other secured and unsecured notes and loans at various
rates and due dates 354 428
------ ------
2,001 2,116
------ ------
Less current maturities 117 63
====== ======
$1,884 $2,053
====== ======
</TABLE>
7. CONSOLIDATED STATEMENTS OF CASH FLOWS
Supplementary information for the consolidated statements of cash flows is set
forth below:
<TABLE>
<CAPTION>
($ Millions) Nine Months Ended Sept. 30,
1999 1998
---- ----
<S> <C> <C>
Cash paid during the period for:
Interest $133 $ 99
Income taxes 188 159
Details of businesses acquired were as follows:
Fair value of assets acquired 33 56
Less: Liabilities assumed 7 15
==== ====
Net cash paid $ 26 $ 41
==== ====
</TABLE>
6
<PAGE> 8
8. FINANCIAL INSTRUMENTS
The Company's policies regarding hedging of foreign currency cash flows and
commodity purchases are set forth in the Annual Report to Stockholders which was
filed as Exhibit 13 to Form 10-K for the year ended December 31, 1998.
FOREIGN EXCHANGE CONTRACTS
At September 30, 1999, the outstanding forward exchange contracts were not
material to the Company's financial position or results of operations.
At December 31, 1998, the Company had forward exchange contracts to deliver
$150 million of foreign currencies comprising $58 million in French francs, $28
million in German marks, $20 million in Italian lira, $12 million in Irish
punts, and $32 million in various other currencies. The Company also had
contracts to purchase $134 million in foreign currencies consisting of $49
million in French francs, $29 million in Dutch guilders, $24 million in Italian
lira, $13 million in Spanish pesatas, and the $19 million in various other
currencies.
COMMODITIES
At September 30, 1999 and December 31, 1998 the outstanding commodity
contracts were not material to the Company's financial position or results of
operations.
INTEREST RATE SWAPS
At September 30, 1999 and December 31, 1998, the Company had interest rate
swap agreements outstanding with notional amounts of $200 million. A portion of
the Company's fixed-rate debt position was hedged with these agreements. The
floating weighted-average pay rate was 5.0% and 5.2% and the weighted-average
receive rate was 5.3% at September 30, 1999 and December 31, 1998, respectively.
These swap agreements terminate on various dates through 2003.
7
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
NET SALES for the three months ended September 30, 1999 increased $72
million to $2,064 million, up 3.6% from the $1,992 million for the same period
last year. Contributing to the increase was a 6.9% improvement in worldwide
volumes as well as a 1.4% improvement in prices for all divisions. Volume
additions from businesses acquired since the third quarter of last year net of
disposals of several non-core businesses in the same period increased volumes by
.6%. Partially offsetting these increases was the negative 4.7% impact of
currency values, particularly in Latin America and Europe.
Net sales for the nine months ended September 30, 1999 were $6,414 million,
up 2.7% from the $6,247 million for the same period last year. Contributing to
the increase in sales were a 3.4% improvement in worldwide volumes as well as a
2% improvement in prices of all divisions. The impact on volumes of business
acquired net of businesses disposed of was not significant for the nine month
period. Partially offsetting these increases was the 2.7% negative impact of
currency values, particularly in Latin America.
An analysis of net sales by division is as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
($ Millions) September 30, September 30,
------------------------ ------------------------
1999 1998 1999 1998
------ ------ ------ ------
<S> <C> <C> <C> <C>
North America $ 450 $ 420 $1,334 $1,303
Europe 828 808 2,726 2,590
Latin America 265 276 798 861
Asia 96 77 281 246
Baking 425 411 1,275 1,247
====== ====== ====== ======
Total $2,064 $1,992 $6,414 $6,247
====== ====== ====== ======
</TABLE>
In North America, sales were up 7.2% for the third quarter and 2.4% for the
nine-month period. Volumes increased 10% in the third quarter bringing the
nine-month period to an increase of 2.4%. Volumes of mayonnaise, peanut butter ,
Knorr products and oil were up for the third quarter. For the nine-month period,
mayonnaise volumes were flat while peanut butter and oil were higher compared to
last year. Overall, prices for the division were lower in the third quarter but
higher in the nine-month period. Currency comparisons were positive for the
third quarter but still slightly negative for the year-to-date period.
In Europe, net sales improved 2.5% for the quarter and 5.3% for the
nine-month period compared to the prior year. Volumes improved 7.2% for the
quarter bringing the nine-month period to an increase of 5.4%. The net volumes
of businesses acquired and disposed of since the third quarter of last year
added 2.1% to volumes for the quarter and 1.5% for the nine months. For both
periods prices were positive, while currency comparisons were negative.
In Latin America, net sales were 4% and 7.3% lower for the third quarter
and nine-month period, respectively, compared to the prior year. Volumes and
prices were both up and currency comparisons were negative in both periods. The
main factor impacting results was the weak economic conditions of the region,
particularly in Colombia and Argentina; however, Brazil's economy began to show
improvement in the quarter with improved volume levels.
In Asia, net sales improved 24% and 15% for the third quarter and
nine-month period compared to the prior year. Improved volumes were the main
factor in this increase, improving by 19% and 11.4%, respectively. Prices also
improved for both periods, while currency comparisons were flat for the quarter
but still negative for the nine-month period.
8
<PAGE> 10
In the Baking business, net sales increased 3.4% and 2.2% for the third
quarter and nine-month period, respectively compared to last year. Volumes
increased 2.9% in the third quarter and 2.1% for the year-to-date period,
excluding the impact of the sale of the business in the United Kingdom, which
was sold at the end of 1998. Also contributing to the increased sales were
higher prices in both periods.
COST OF SALES AND OPERATING EXPENSES. Cost of sales as a percentage of net
sales was 52.4% for the three months ended September 30, 1999, resulting in a
gross profit margin of 47.6%, which is better than the 46.1% in the third
quarter of last year. Gains from improved pricing, better efficiencies and lower
commodity costs contributed to the increase. Operating expenses increased 3.9%
from the prior year.
Cost of sales as a percentage of net sales was 52.8% for the nine months
ended September 30, 1999, resulting in a gross profit margin of 47.2%, which is
better than the 45.4% in the same period of last year. The improvement in this
period was due to the same factors discussed above for the third quarter. In
addition, last year's operating expenses included an $18 million gain on the
sale of a non-core business in Europe.
OPERATING INCOME for the three months ended September 30, 1999 increased
14% to $334 million compared to $292 million last year. This increase was
chiefly the result of the higher volumes and improved margins in most divisions,
as the Company continued to benefit from the cost-improvement efforts of the
last several years. Negative currency comparisons to last year partially offset
the gains mentioned above. Gross margins improved by 3.3% but were partially
offset by the higher operating expenses discussed above.
Operating income for the nine months ended September 30, 1999 increased
9.5% compared to last year. This gain was chiefly the result of the higher
volumes and improved margins, as the Company continued to benefit from the
cost-improvement efforts of the last several years. Negative currency
comparisons to last year slightly offset the gains mentioned above. Gross
margins improved by 4% but were partially offset by the higher operating
expenses discussed above.
FINANCING COSTS of $47 and $144 million for the third quarter and
nine-month period, respectively, increased significantly compared to the last
year mainly due to higher borrowing levels for the share buyback program and
acquisitions, and slightly higher interest rates. Also, last year's financing
costs included interest income related to the favorable settlement of an
environmental case.
PROVISION FOR INCOME TAXES. The effective tax rate was 31.7% in the third
quarter and 33.5% in the nine-month period of 1999 compared to 32.6% and 34.5%
for the same periods of last year. The lower rate in 1999 resulted from a
decrease in the effective tax rates in various foreign jurisdictions. The
Company expects the effective tax rate to remain at 33.5% for the foreseeable
future.
INCOME FROM CONTINUING OPERATIONS AND EARNINGS PER DILUTED COMMON SHARE for
the three months ended September 30, 1999 increased 9.5% and 14%, respectively
to $184 million or $.64 per diluted share compared to $167 million or $.56 per
diluted share last year. Contributing to the improved results were a $.10 per
share improvement in operating income, a slightly lower effective tax rate
contributing $.01 per share, and fewer shares outstanding adding $.02 per share.
These increases were partially offset by decreases of $.02 per share from higher
financing costs and $.03 per share from higher minority stockholders' interest.
Income from continuing operations and earnings per diluted common share for
the nine months ended September 30, 1999 increased 6.4% and 10.1%, respectively
to $504 million or $1.74 per diluted share compared to $473 million or $1.58 per
diluted share last year. Contributing to the improved results were a $.19 per
share improvement in operating income, a slightly lower effective tax rate
contributing $.03 per share, and fewer shares outstanding adding $.05 per share.
Partially offsetting these increases were reductions of $.05 per share from
higher financing costs and $.06 per share from higher minority stockholders'
interest.
9
<PAGE> 11
RISKS AND UNCERTAINTIES
The Company operates in more than sixty countries, and in each country, the
business is subject to varying degrees of risk and uncertainty. It insures its
business and assets in each country against insurable risks in a manner it deems
appropriate. Because of its diversity, the Company believes that the risk of
loss from non-insurable events in any one business or country would not have a
material adverse affect on the Company's operations as a whole. Additionally,
the Company believes there is no concentration of risk with any single customer
or supplier, or small group of suppliers or customers, whose failure or
non-performance would materially affect the Company's results.
Also because of the Company's broad operational reach, it is subject to
risks due to changes in foreign currencies that could affect earnings. As a
practical matter, it is not feasible to cover these fluctuations with currency
hedges. Additionally, the Company believes that over time most currencies of
major countries in which it operates will equalize against the U.S. dollar.
However, the Company does maintain a policy of hedging its exposure to foreign
currency cash flows to cover planned dividends, fees and royalties,
inter-company loans, and other similar transactions. In addition, the Company
hedges certain net investments with borrowings denominated in the particular
currency. As a matter of policy, the Company does not speculate in foreign
currencies.
For certain of its North American raw material purchases, the Company
hedges its exposure to commodity price fluctuations with commodity futures
contracts. The Company's products are manufactured from a number of raw
materials, including soybean and other edible oils, peanuts and wheat, all of
which are, and are expected to be, in adequate supply. Such raw materials may or
may not be hedged at any given time based on management's decisions as to the
need to fix the cost of raw materials to protect the Company's profitability.
The value of raw materials subject to commodity hedging represents a small
percentage of the total worldwide cost of sales. The historical price volatility
of raw materials, combined with the relatively low percentage of raw materials
to cost of sales, have never yielded a material adverse effect on gross margins
and are not expected to in the future. In addition, any significant change in
commodity prices can generally be recovered in higher selling prices, thereby
further minimizing the impact on the Company's margins.
LIQUIDITY AND CAPITAL RESOURCES
During the nine-month period ended September 30, 1999, strong cash flows
from operations continued to fund the Company's working capital requirements,
capital expenditures and dividend payments. Working capital on a cash flow basis
increased $13 million during the first nine months of 1999 compared to $94
million for the same period of 1998. Capital expenditures were slightly higher
than last year's nine-month period at $185 million, and the previously announced
share buyback program continued totaling $176 million (3.6 million shares) for
the year-to-date period.
During the third quarter of 1999, the Company agreed to purchase Case
Swayne Co., Inc., a leading developer and processor of custom sauces and
seasonings for the foodservice industry. Also during the quarter, the Company
agreed to dissolve the International Desserts Partners joint venture with
General Mills.
The Company's indebtedness at September 30, 1999 and December 31, 1998 is
summarized herein under the caption "Long-term debt" on page 6. Material terms
of all loans, lines of credit and covenants are discussed in the "Long-term
debt" note found on pages 33 and 34 of the Company's 1998 Annual Report and
filed as Exhibit 13 to the 1998 Form 10-K.
At September 30, 1999, the ratio of consolidated borrowed debt to EBITDA
was 1.6. Additionally, the ratio of EBITDA to interest was 8.1 at September 30,
1999.
10
<PAGE> 12
READINESS FOR THE YEAR 2000
The Bestfoods Year 2000 Program, as discussed on pages 23 and 24 of the
Company's 1998 Annual Report which was filed as Exhibit 13 to the 1998 Form
10-K, continued on track during the third quarter. The Inventory and Impact
Assessment phases of the program were completed before December 31, 1998 while
the Remediation, Testing, and Implementation phases have already been completed
for a substantial number of systems.
Based upon the Company's progress with its Y2K program, the cost of
remediation, replacement and acceleration of replacement systems has been
lowered from the original estimate of $20 million and is now not expected to
exceed $15 million.
We have received written assurances from the majority of our suppliers,
customers, and third party service providers that their businesses will be Y2K
ready. Additionally, we are visiting the suppliers, customers, and third party
service providers that we consider of critical importance for the purpose of
making our own independent assessment of their Y2K readiness. Although we do not
anticipate any significant Y2K related problems, we are establishing contingency
plans to ensure business continuity in the event of Y2K related problems of our
suppliers, customers, third party service providers, and internal systems. Some
examples of contingency plans are inventory stockpiling, alternate sources of
supply, manual processes, personal computer programs, and computer disaster
recovery systems.
EURO CONVERSION
The Company continues to believe, as discussed on page 24 of the Company's
1998 Annual Report, which was filed as Exhibit 13 to the 1998 Form 10-K, that
conversion to the Euro will not have a material impact on its results of
operations. The Company's Euro task force continues to monitor the impact of
Euro conversion and does not expect the overall costs of this conversion to
exceed $5 million.
FORWARD LOOKING AND CAUTIONARY STATEMENTS
This report may contain forward-looking statements based on our best
current information and reasonable assumptions about anticipated developments.
Statements including such words as "believes," "expects," "anticipates,"
"intends," "plans," "estimates," and other similar expressions are intended to
identify such forward-looking statements. Because of the risks and uncertainties
that always exist in any operating environment or business, we cannot make
assurances that these expectations will prove correct. Actual results and
developments may differ materially depending upon currency values, competitive
pricing, consumption levels, costs and political and social conditions in the
economies and environments where Bestfoods operates.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Quantitative Disclosure - There have been no material changes in the
Company's market risk during the nine months ended September 30, 1999.
Qualitative Disclosure - This information is set forth on page 31, under
the caption "Financial Instruments," of the Company's 1998 Annual Report which
was filed as Exhibit 13 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1998 and is incorporated herein by reference.
11
<PAGE> 13
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There have been no material developments in the legal proceedings as
previously reported in Form 10-K for the year ended December 31, 1998.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits pursuant to Item 601 of Regulation S-K.
Exhibit 11 - Statements regarding the computation of earnings per
common share.
Exhibit 12 - Statement regarding the computation of
ratios of earnings to fixed charges.
Exhibit 27 - Financial data schedule.
b) Reports on Form 8-K.
There were no reports filed on Form 8-K during the third quarter of
1999.
12
<PAGE> 14
BESTFOODS AND SUBSIDIARIES
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.
BESTFOODS
DATE: November 12, 1999
/s/ Robert J. Gillespie
-------------------------------------------------
(Robert J. Gillespie)
Executive Vice President, Strategic Business
Development and Finance
DATE: November 12, 1999
/s/ Philip V. Terenzio
-------------------------------------------------
(Philip V. Terenzio)
Vice President and Controller
13
<PAGE> 1
EXHIBIT 11
BESTFOODS AND SUBSIDIARIES
SCHEDULE OF COMPUTATION OF EARNINGS PER SHARE
(In millions, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
BASIC 1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Income from continuing operations $ 183.9 $ 167.9 $ 503.8 $ 473.5
Preferred stock dividends, net of taxes (2.5) (2.5) (7.4) (7.6)
--------- --------- --------- ---------
Income from continuing operations available
to common stockholders 181.4 165.4 496.4 465.9
Gain on disposal of discontinued operations -- .7 -- .7
--------- --------- --------- ---------
Net income available to common stockholders $ 181.4 $ 166.1 $ 496.4 $ 466.6
========= ========= ========= =========
Weighted average shares outstanding 279.0 286.9 279.6 287.8
========= ========= ========= =========
BASIC EARNINGS PER SHARE:
Net Income $ 0.65 $ 0.58 $ 1.78 $ 1.62
========= ========= ========= =========
DILUTED
Income from continuing operations $ 183.9 $ 167.9 $ 503.8 $ 473.5
Adjustments to net income:
Assumed additional cost if ESOP shares
are fully converted net of tax benefits (.5) (0.8) (1.9) (1.8)
--------- --------- --------- ---------
Diluted income from continuing operations 183.4 167.1 501.9 471.7
Income from continuing operations -- .7 -- .7
--------- --------- --------- ---------
Diluted net income $ 183.4 $ 167.8 $ 501.9 $ 472.4
========= ========= ========= =========
Weighted average shares outstanding 279.0 286.9 279.6 287.8
Add incremental shares representing:
Exercise of stock options 1.8 2.6 1.8 2.6
Performance plan shares .1 .3 .1 .3
Conversion of ESOP shares 6.9 7.3 7.1 8.1
--------- --------- --------- ---------
Weighted average number of shares as adjusted 287.8 297.1 288.6 298.8
========= ========= ========= =========
DILUTED EARNINGS PER SHARE:
Net Income $ 0.64 $ 0.56 $ 1.74 $ 1.58
========= ========= ========= =========
</TABLE>
14
<PAGE> 1
EXHIBIT 12
BESTFOODS AND SUBSIDIARIES
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
($ Millions) FOR THE NINE
MONTHS ENDED FOR THE YEARS ENDED DECEMBER 31,
SEPT. 30, 1999 1998 1997 1996 1995 1994
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES: $ 808.2 $ 1,021.1 $ 704.2 $ 880.2 $ 654.9 $ 446.6
---------------------------------------------------------------------------------------
Add (subtract):
Portion of rents representative
of interest 25.5 33.3 32.2 33.4 25.6 24.6
Interest on bonds, mortgages
& similar debt 100.5 125.5 100.9 68.4 52.6 50.1
Other interest 50.1 60.7 72.8 100.0 55.7 33.9
Interest expense included in
cost of plant construction (4.9) (3.5) (3.4) (4.8) (3.7) (4.2)
Income of unconsolidated
venture -- -- -- -- -- 3.9
---------------------------------------------------------------------------------------
Income as adjusted $ 979.4 $ 1,237.1 $ 906.7 $ 1,077.2 $ 785.1 $ 554.9
=======================================================================================
FIXED CHARGES:
Portion of rents representative
of interest $ 25.5 $ 33.3 $ 32.2 $ 33.4 $ 25.6 $ 24.6
Interest on bonds, mortgages
& similar debt 100.5 125.5 100.9 68.4 52.6 50.1
Other interest 50.1 60.7 72.8 100.0 55.7 33.9
=======================================================================================
$ 176.1 $ 219.5 $ 205.9 $ 201.8 $ 133.9 $ 108.6
=======================================================================================
RATIO OF EARNINGS TO FIXED CHARGES 5.6 5.6 4.4 5.3 5.9 5.1
=======================================================================================
</TABLE>
15
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 127
<SECURITIES> 0
<RECEIVABLES> 1,194
<ALLOWANCES> 0
<INVENTORY> 757
<CURRENT-ASSETS> 2,251
<PP&E> 3,410
<DEPRECIATION> 1,515
<TOTAL-ASSETS> 5,975
<CURRENT-LIABILITIES> 2,159
<BONDS> 1,884
0
152
<COMMON> 98
<OTHER-SE> 583
<TOTAL-LIABILITY-AND-EQUITY> 5,975
<SALES> 6,414
<TOTAL-REVENUES> 6,414
<CGS> 3,389
<TOTAL-COSTS> 5,462
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 144
<INCOME-PRETAX> 808
<INCOME-TAX> 271
<INCOME-CONTINUING> 504
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 504
<EPS-BASIC> 1.78
<EPS-DILUTED> 1.74
</TABLE>
