SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
____________________________
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the 26 weeks ended June 29, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-6085
____________________________
IBP, inc.
a Delaware Corporation
I.R.S. Employer Identification No. 42-0838666
IBP Avenue
Post Office Box 515
Dakota City, Nebraska 68731
Telephone 402-494-2061
____________________________
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, and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
As of August 1, 1996, the registrant had outstanding 94,675,843 shares of
its common stock ($.05 par value).
PART I. FINANCIAL INFORMATION
IBP, inc. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands)
June 29, December 30,
1996 1995
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 41,473 $ 116,277
Marketable securities 110,452 63,851
Accounts receivable, less allowance for
doubtful accounts of $9,706 and $9,494 548,699 529,796
Inventories (Note C) 299,249 303,711
Deferred income tax benefits and
prepaid expenses 53,470 55,255
--------- ---------
TOTAL CURRENT ASSETS 1,053,343 1,068,890
Property, plant and equipment,
less accumulated depreciation
of $663,445 and $632,666 772,622 726,859
Goodwill, net of accumulated amortization
of $117,412 and $113,301 210,823 208,434
Other assets 40,117 23,418
--------- ---------
$2,076,905 $2,027,601
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts and notes payable $ 235,266 $ 306,271
Deferred income taxes and other
current liabilities 322,116 335,378
--------- ---------
TOTAL CURRENT LIABILITIES 557,382 641,649
Long-term debt and capital lease
obligations 260,192 260,752
Deferred income taxes and other
liabilities 105,949 102,261
STOCKHOLDERS' EQUITY:
Common stock at par value 4,750 4,750
Additional paid-in capital 428,937 432,726
Retained earnings 725,212 589,936
Currency translation adjustments 152 116
Treasury stock (5,669) (4,589)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 1,153,382 1,022,939
--------- ---------
$2,076,905 $2,027,601
========= =========
See accompanying notes to consolidated condensed financial statements.
-2-
IBP, inc. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(Unaudited)
(Amounts in thousands except per share data)
13 Weeks Ended 26 Weeks Ended
---------------------- ----------------------
June 29, July 1, June 29, July 1,
1996 1995 1996 1995
----------- ---------- ---------- ----------
Net sales $3,260,268 $3,209,140 $6,344,990 $6,215,803
Cost of products sold 3,084,681 3,026,931 6,051,503 5,915,746
--------- --------- --------- ---------
Gross profit 175,587 182,209 293,487 300,057
Selling, general and
administrative expense 34,191 35,275 64,688 61,519
--------- --------- --------- ---------
EARNINGS FROM OPERATIONS 141,396 146,934 228,799 238,538
Interest expense, net 1,308 6,190 3,084 12,779
--------- --------- --------- ---------
Earnings before income
taxes 140,088 140,744 225,715 225,759
Income tax expense 53,100 54,900 85,700 88,100
--------- --------- --------- ---------
NET EARNINGS $ 86,988 $ 85,844 $ 140,015 $ 137,659
========= ========= ========= =========
Earnings per share $ .90 $ .89 $1.45 $1.43
==== ==== ==== ====
Dividends per share $.025 $.025 $ .05 $ .05
==== ==== ==== ====
Average common and common
equivalent shares 96,900 96,547 96,843 96,320
====== ====== ====== ======
See accompanying notes to consolidated condensed financial statements.
-3-
IBP, inc. AND SUBSIDIARIES
CONSOLIDATED CONDENSED
STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
26 Weeks Ended
-------------------------
June 29, July 1,
1996 1995
--------- ----------
Inflows(outflows)
NET CASH FLOWS PROVIDED BY OPERATING
ACTIVITIES $ 68,199 $ 42,557
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of marketable securities (384,050) (159,101)
Proceeds from disposals of marketable
securities 324,449 161,101
Capital expenditures (88,926) (70,977)
Other investing activities, net (576) 938
-------- --------
Net cash flows used in investing
activities (149,103) (68,039)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in revolving credit
borrowings (200,000) -
Proceeds from issuance of long-term
debt 197,870 -
Net change in checks in process of
clearance 18,307 36,865
Dividends paid (4,738) (4,744)
Other financing activities, net (5,294) (3,157)
-------- --------
Net cash flows provided by
financing activities 6,145 28,964
Effect of exchange rate on cash
and cash equivalents (45) 230
-------- --------
Net change in cash and
cash equivalents (74,804) 3,712
Cash and cash equivalents at beginning
of period 116,277 84,229
-------- --------
Cash and cash equivalents at end of
period $ 41,473 $ 87,941
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the periods for:
Interest, net of amounts capitalized $ 5,879 $ 12,930
Income taxes, net of refunds received 68,399 102,497
Depreciation and amortization expense 40,246 52,468
See accompanying notes to consolidated condensed financial statements.
-4-
IBP, inc. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
A. GENERAL
The consolidated condensed balance sheet of IBP, inc. and subsidiaries
("IBP") at December 30, 1995 has been taken from audited financial statements
at that date and condensed. All other consolidated condensed financial
statements contained herein have been prepared by IBP and are unaudited. The
consolidated condensed financial statements should be read in conjunction
with the consolidated financial statements and the notes thereto included in
IBP's Annual Report on Form 10-K for the year ended December 30, 1995.
In the opinion of management, the accompanying unaudited consolidated
condensed financial statements contain all adjustments, consisting only of
normal recurring adjustments, necessary to present fairly the financial
position of IBP, inc. and its subsidiaries at June 29, 1996 and the results
of their operations and their cash flows for the periods presented herein.
Certain reclassifications have been made to prior financial
statements to conform to the current year presentation.
B. OTHER
IBP's interim operating results may be subject to substantial
fluctuations which do not necessarily occur or recur on a regular basis.
Such fluctuations are normally caused by competitive and other conditions in
the cattle and hog markets over which IBP has little or no control.
Therefore, the results of operations for the interim periods presented are
not necessarily indicative of the results to be attained for the full fiscal
year.
C. INVENTORIES
Inventories, valued at the lower of first-in, first-out cost or market,
are comprised of the following:
June 29, December 30,
1996 1995
(In thousands)
Held for sale:
Beef products $178,070 $185,500
Pork products 30,677 34,788
Other 7,540 8,478
------- -------
216,287 228,766
Livestock 30,562 25,355
Supplies 52,400 49,590
------- -------
$299,249 $303,711
======= =======
-5-
IBP, inc. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - CONTINUED
D. COMMITMENTS AND CONTINGENCIES
IBP is involved in various disputes incident to the ordinary course of
its business. In the opinion of management, any liability for which
provision has not been made relative to the various lawsuits, claims and
administrative proceedings pending against IBP, including those described
below, will not have a material adverse effect on its consolidated results of
operations, financial position or liquidity.
A complaint filed against IBP in April 1988 by the Department of Labor,
Wage and Hour Division, in the United States District Court in Kansas seeks
injunctive relief and back wages, plus interest, for certain hourly employees
of the company. The case relates to compensation allegedly due for
incidental activities of hourly employees before and after regular working
hours. On March 21, 1996, the United States District Court in Kansas entered
an order finding that certain pre-shift and post-shift activities were
compensable. This order may result in payments to certain past hourly
employees totaling approximately $7 million, including interest, all of which
had been previously provided for. The order also enjoins IBP from further
violations. IBP has filed motions with the trial court to stay the
injunction and to request further relief.
A $15,004,000 jury verdict was returned against IBP in November 1994 in
an Iowa State District Court. The plaintiff, a former IBP employee, sued the
company and another former employee in February 1993 for slander and breach
of fiduciary duty regarding his treatment as a workers' compensation
claimant. The jury determined that the plaintiff sustained $4,000 in actual
damages, and further returned a punitive damage award against IBP and the
other defendant in the amount of $15,000,000, all of which was provided for
by the company in 1994. On March 2, 1995, the Iowa State District Court
entered an order reducing the punitive damages to $100,000. Both IBP and the
plaintiff have appealed the Court's March 2, 1995 post-trial order.
-6-
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
Continued production efficiency improvement and export sales growth
contributed to improved second quarter 1996 earnings. Six-month totals in
1996 for net sales and net earnings were record highs for IBP, exceeding the
previous record half-year totals established in 1995.
Gross profit, measured as a percentage of net sales, fell slightly to
5.4% in the second quarter 1996 from 5.7% in the same 1995 period. For the
six months ended June, 1996 gross profit measured 4.6% versus 4.8% in the
first half of 1995. The lower 1996 figures were due primarily to reduced
pork margins caused by tight hog supplies and startup expenses at the
Logansport, Indiana, plant.
IBP's selling prices and the prices it pays for live cattle and hogs are
determined by constantly changing market forces of supply and demand, over
which IBP has little or no control. Therefore, past results will not
necessarily be indicative of future performance.
SALES
Second quarter 1996 net sales rose 2% over the same 1995 period. An
increase in the average price of pork products sold and increased amounts of
beef and pork products sold combined to offset a lower average price of beef
products sold.
For the six months ended June, 1996 net sales also rose 2% from the
first half of 1995. A higher average price of pork products sold, a full six
months of cow boning plant operations (only three months in 1995 for the
three plants purchased in 1995 - a fourth plant in Palestine, Texas, was
acquired in April 1996) and an increase in pounds of beef and pork products
sold were the chief positive factors, overriding the effect of a lower
average price of beef products sold.
Year-to-date 1996 net export sales increased 14% from the first half of
1995 as pounds shipped and sales dollars have increased to all three major
IBP export regions - Asia, the Americas and Europe. The company recently
opened sales offices in Korea and Taiwan and plans to open an office in
Mexico later this year to complement existing international sales centers in
Tokyo, London and the corporate home office. Exports accounted for almost
16% of consolidated net sales in the first six months of 1996 versus 14% in
the same 1995 period.
COST OF PRODUCTS SOLD
The second quarter 1996 increase in cost of products sold over 1995 was
primarily attributable to a higher average cost of live hog purchases reduced
partially by a lower average cost of live cattle purchases. Lower plant
costs in the second quarter 1996 from the comparable 1995 quarter resulted
mainly from a second quarter 1995 reduction in estimated salvage value for
most corporate assets to better reflect actual experience. This salvage
value adjustment increased second quarter and year-to-date 1995 costs by
$17.1 million.
-7-
For the six months ended June, the increase in 1996 cost of products
sold versus 1995 was mostly the result of six months of cow boning operations
in 1996 compared to three months in 1995. Meanwhile, the combination of a
higher average price paid for hogs and an increase in pounds of beef and pork
products sold more than offset the effect of a lower average price paid for
cattle. Year-to-date 1996 plant costs rose over 1995 due to new operations
(cow boning plants and the Logansport, Indiana, pork plant) and higher
production volume-related costs at existing facilities.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
Second quarter 1996 expense was 3% lower than in the second quarter 1995
due largely to reduced incentive compensation based upon operating earnings.
Year-to-date 1996 expense increased 5% from 1995 due to growth in several
corporate administrative areas to support new or expanding operations and
higher export-related selling expense.
INTEREST EXPENSE
Net interest expense was reduced 79% in the second quarter and 76% in
the year-to-date period ended June 29, 1996 versus the comparable 1995
periods. These reductions resulted in part from a lower effective interest
rate due to the refinancing of substantially all of IBP's long-term
obligations at lower rates early in 1996. Also, year-to-date 1996 borrowings
averaged $100 million less than in the same 1995 period due to continued
strong operating cash flows.
INCOME TAXES
The lower effective income tax rate of 38% in the first half of 1996
versus 39% in the same 1995 period reflects primarily the effect of increased
export sales and their favorable treatment under IBP's Foreign Sales
Corporation.
FINANCIAL CONDITION
Total outstanding borrowings averaged $269 million in the first six
months of 1996 compared to $369 million in the comparable 1995 period. There
were no short-term borrowings outstanding at June 29, 1996, and available
unused credit capacity under committed facilities of $450 million.
In January 1996, IBP completed its public offerings of $100 million
principal amount of 6 1/8% Senior Notes due 2006 and $100 million principal
amount of 7 1/8% Senior Notes due 2026. These offerings were part of a total
shelf registration of $500 million. Proceeds from the offerings were used to
reduce borrowings under IBP's revolving credit facility, which amounts were
classified as long-term obligations at December 30, 1995.
Year-to-date capital expenditures through June 29, 1996 totaled $89
million compared to $71 million in the first six months of 1995. Current
year spending included the addition of rendering and processing facilities at
the company's Brooks, Alberta, Canada, beef plant, purchase of a cow
processing facility in Palestine, Texas, and conversion of a facility in
Columbia, South Carolina, for cooked meats production.
-8-
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
See Note D to the consolidated condensed financial statements.
Item 4. Submission of Matters to a Vote of Security Holders
(a) The annual meeting of stockholders of IBP, inc. was held on April
18, 1996, in Dakota City, Nebraska.
(b) The following matters were voted upon at the annual meeting:
(i) The election of the members of the Board of Directors:
Richard L. Bond
Votes for: 77,209,313
Votes withheld: 1,580,038
John S. Chalsty
Votes for: 78,767,881
Votes withheld: 21,470
Dr. Wendy L. Gramm
Votes for: 78,765,314
Votes withheld: 24,037
David C. Layhee
Votes for: 77,320,333
Votes withheld 1,467,018
Eugene D. Leman
Votes for: 77,204,430
Votes withheld: 1,584,921
Robert L. Peterson
Votes for: 77,210,034
Votes withheld: 1,579,317
JoAnn R. Smith
Votes for: 78,769,376
Votes withheld: 19,975
Dale C. Tinstman
Votes for: 77,355,785
Votes withheld: 1,433,566
(ii) Amendment to the Articles of Incorporation - Amendment to the
Articles of Incorporation increasing the authorized shares of IBP Common
Stock from 100,000,000 shares to 200,000,000 shares.
Votes for: 73,994,720
Votes against: 4,597,779
Votes abstained: 197,252
-9-
PART II. OTHER INFORMATION - CONTINUED
(iii) 1996 Stock Option Plan - A stock option plan for management
personnel of IBP.
Votes for: 55,423,495
Votes against: 22,471,673
Votes abstained: 639,433
(iv) 1996 Officer Long-Term Stock Plan - A stock grant plan for the
officers of IBP.
Votes for: 57,730,286
Votes against: 20,380,874
Votes abstained: 671,171
Item 6. Exhibits and Reports on Form 8-K
(a) See Exhibit 11, statement regarding computation of earnings per
share.
(b) No reports on Form 8-K were filed by the company during the quarter
ended June 29, 1996.
-10-
EXHIBIT 11
IBP, inc. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(Amounts in thousands except per share data)
13 Weeks Ended 26 Weeks Ended
------------------ ------------------
June 29, July 1, June 29, July 1,
1996 1995 1996 1995
-------- ------- -------- --------
Net earnings $86,988 $85,844 $140,015 $137,659
====== ====== ======= =======
PRIMARY EARNINGS PER SHARE
Shares used in this computation:
Weighted average shares
outstanding 94,712 94,757 94,722 94,774
Dilutive effect of shares under
employee stock plans 2,188 1,790 2,121 1,546
------ ------ ------ ------
Common and common equivalent shares 96,900 96,547 96,843 96,320
====== ====== ====== ======
Primary earnings per share $ .90 $ .89 $1.45 $1.43
==== ==== ==== ====
FULLY-DILUTED EARNINGS PER SHARE
Shares used in this computation:
Weighted average shares
outstanding per above 94,712 94,757 94,722 94,774
Dilutive effect of shares under
employee stock plans 2,310 2,152 2,323 2,196
------ ------ ------ ------
Common and common equivalent shares 97,022 96,909 97,045 96,970
====== ====== ====== ======
Fully-diluted earnings per share $ .90 $ .89 $1.44 $1.42
==== ==== ==== ====
-11-
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the
registrant has caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
IBP, inc.
(Registrant)
Date August 5, 1996 /s/ Robert L. Peterson
------------------- -------------------------
Robert L. Peterson
Chairman of the Board and
Chief Executive Officer
/s/ Larry Shipley
-------------------------
Larry Shipley
Executive Vice President
/s/ Craig J. Hart
-------------------------
Craig J. Hart
Vice President and Controller
-12-
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<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-END> JUN-29-1996
<CASH> 41,473
<SECURITIES> 110,452
<RECEIVABLES> 558,405
<ALLOWANCES> 9,706
<INVENTORY> 299,249
<CURRENT-ASSETS> 1,053,343
<PP&E> 1,436,067
<DEPRECIATION> 663,445
<TOTAL-ASSETS> 2,076,905
<CURRENT-LIABILITIES> 557,382
<BONDS> 260,192
0
0
<COMMON> 4,750
<OTHER-SE> 1,148,632
<TOTAL-LIABILITY-AND-EQUITY> 2,076,905
<SALES> 6,344,990
<TOTAL-REVENUES> 6,344,990
<CGS> 6,051,503
<TOTAL-COSTS> 6,051,503
<OTHER-EXPENSES> 64,688
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,084
<INCOME-PRETAX> 225,715
<INCOME-TAX> 85,700
<INCOME-CONTINUING> 140,015
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 140,015
<EPS-PRIMARY> 1.45
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</TABLE>
