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 39 weeks ended September 28, 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 November 1, 1996, the registrant had outstanding
96,657,986 shares of its common stock ($.05 par value).
PART I. FINANCIAL INFORMATION
IBP, inc. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands)
September 28, December 30,
1996 1995
------------ -----------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and temporary investments $ 25,299 $ 116,277
Marketable securities 142,388 63,851
Accounts receivable, less allowance for
doubtful accounts of $9,785 and $9,494 510,544 529,796
Inventories (Note C) 299,556 303,711
Deferred income tax benefits and
prepaid expenses 53,673 55,255
--------- ---------
TOTAL CURRENT ASSETS 1,031,460 1,068,890
Property, plant and equipment,
less accumulated depreciation
of $680,863 and $632,666 800,075 726,859
Goodwill, net of accumulated amortization
of $119,526 and $113,301 208,710 208,434
Other assets 51,675 23,418
--------- ---------
$2,091,920 $2,027,601
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts and notes payable $ 228,693 $ 306,271
Deferred income taxes and other
current liabilities 307,533 335,378
--------- ---------
TOTAL CURRENT LIABILITIES 536,226 641,649
Long-term debt and capital lease
obligations 260,127 260,752
Deferred income taxes and other
liabilities 106,239 102,261
STOCKHOLDERS' EQUITY:
Common stock at par value 4,750 4,750
Additional paid-in capital 428,138 432,726
Retained earnings 763,312 589,936
Currency translation adjustments 189 116
Treasury stock (7,061) (4,589)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 1,189,328 1,022,939
--------- ---------
$2,091,920 $2,027,601
========= =========
See accompanying notes to consolidated condensed financial statements.
-2-
IBP, inc. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(Unaudited)
(In thousands except per share data)
13 Weeks Ended 39 Weeks Ended
-------------------------- -------------------------
September 28, September 30, September 28, September 30,
1996 1995 1996 1995
------------ ------------ ------------ ------------
Net sales $3,175,940 $3,290,643 $9,520,930 $9,506,447
Cost of products sold 3,081,468 3,112,479 9,132,971 9,028,225
--------- --------- --------- ---------
Gross profit 94,472 178,164 387,959 478,222
Selling, general and
administrative
expense 28,523 33,603 93,211 95,123
--------- --------- --------- ---------
EARNINGS FROM OPERATIONS 65,949 144,561 294,748 383,099
Interest expense, net 482 4,649 3,566 17,428
--------- --------- --------- ---------
Earnings before income
taxes 65,467 139,912 291,182 365,671
Income tax expense 25,000 54,500 110,700 142,600
--------- --------- --------- ---------
NET EARNINGS $ 40,467 $ 85,412 $ 180,482 $ 223,071
========= ========= ========= =========
Earnings per share $ .42 $ .88 $1.87 $2.31
==== ==== ==== ====
Dividends per share $.025 $.025 $.075 $.075
==== ==== ==== ====
Average common and common
equivalent shares 96,652 96,910 96,734 96,508
====== ====== ====== ======
See accompanying notes to consolidated condensed financial statements.
-3-
IBP, inc. AND SUBSIDIARIES
CONSOLIDATED CONDENSED
STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
39 Weeks Ended
----------------------------
September 28, September 30,
1996 1995
------------ ------------
Inflows (outflows)
NET CASH FLOWS PROVIDED BY OPERATING
ACTIVITIES $ 155,240 $ 100,537
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of marketable securities (700,155) (367,480)
Proceeds from sales of marketable
securities 595,624 343,722
Capital expenditures (134,153) (116,998)
Other investing activities, net 1,209 2,018
-------- --------
Net cash flows used in investing
activities (237,475) (138,738)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in revolving credit
borrowings (200,000) -
Proceeds from issuance of long-term
debt 197,871 -
Net change in checks in process of
clearance 7,475 17,375
Dividends paid (7,106) (7,115)
-------- --------
Other financing activities, net (7,555) (6,132)
Net cash flows (used in) provided by
financing activities (9,315) 4,128
-------- --------
Effect of exchange rate on cash
and cash equivalents 572 664
-------- --------
Net change in cash and cash equivalents (90,978) (33,409)
Cash and cash equivalents at beginning
of period 116,277 84,229
-------- --------
Cash and cash equivalents at end of
period $ 25,299 $ 50,820
======== =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the periods for:
Interest, net of amounts capitalized $ 11,422 $ 27,212
Income taxes 107,017 158,121
Depreciation and amortization expense 60,731 72,640
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 September 28, 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 fluctuations
which do not necessarily occur or recur on a seasonal 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:
September 28, December 30,
1996 1995
------------ -----------
(In thousands)
Held for sale:
Beef products $171,910 $185,500
Pork products 38,048 34,788
Other 8,946 8,478
------- -------
218,904 228,766
Livestock 28,255 25,355
Supplies 52,397 49,590
------- -------
$299,556 $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. In the liability phase of the case,
the District Court ruled that certain incidental activities
may be compensable time. The Tenth Circuit Court of Appeals
affirmed the District Court's ruling. At a trial on the issue
of the extent of damages, the trial court entered a judgment
against IBP in July 1996, assessing damages in the amount of
$6.7 million, interest included, all of which had been
previously provided for, and injunctive relief. IBP has
appealed the case back to the Tenth Circuit Court of Appeals
for further review.
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 to the Iowa Supreme Court and are
awaiting a decision.
-6-
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
IBP produced solid results in the third quarter 1996 despite
challenging market conditions. A combination of tight livestock
supplies and reduced export sales put significant pressure on
operating margins, creating a difficult comparison to the strong
third quarter 1995.
Earnings from operations as a percentage of net sales measured
2.1% in the third quarter 1996 versus 4.4% in the third quarter
1995. For the nine months ended September, 1996 earnings from
operations were 3.1% of net sales compared to 4.0% in 1995. The
Fresh Meats division, with the exception of cow boning operations,
and the Consumer Products division experienced less favorable
results in the 1996 third quarter and year-to-date periods compared
to 1995.
Tighter live fed cattle and hog supplies in the third quarter
1996 versus 1995 had a negative effect on plant operating
utilization. However, recent favorable industry reports on cattle
placements into feedlots should have a positive effect on the
availability of market-ready fed cattle later this year and into
1997. In addition, management believes that the effect of
moderating grain prices from a good 1996 harvest and strong hog
prices should encourage expanded production by hog producers.
The matters discussed in this Form 10-Q contain forward-
looking statements that involve risks and uncertainties including
risk of changing market conditions with regard to livestock
supplies and demand for the company's products, domestic and
international regulatory risks, competitive and other risks over
which IBP has little or no control. Consequently, future results
may differ from management's expectations. Moreover, past
financial performance should not be considered a reliable indicator
of future performance.
SALES
Third quarter 1996 net sales slipped 3.5% from the third
quarter 1995 due to a decrease in pounds of beef and pork products
sold in IBP's core operations. The effect of this volume decrease
was partially offset by an increase in the average price of beef
and pork products sold and the addition of a fourth cow boning
plant in Palestine, Texas, in the second quarter 1996.
Net sales in the year-to-date period ended September 1996 were
slightly higher than in the first nine months of 1995. A higher
average price of pork products sold and a full nine months of cow
boning operations (only six months in 1995 for the three plants
purchased in 1995 and no prior year sales for the Palestine plant)
were the principal positive factors. Offsetting negating factors
-7-
included a lower average price of fed beef products sold and fewer
pounds of fed beef and pork products sold.
IBP's net export sales for the first nine months of 1996 were
comparable to 1995 levels. The outbreak of a bacterial illness in
Japan, the company's most significant export market, has resulted
in food safety concerns by Far East retailers and consumers. These
concerns significantly reduced IBP exports to the Pacific Rim
during the third quarter 1996, even though the source of the
illnesses remains unknown. Officials are looking into several
possible sources, including such non-meat items as salads and
seafood. Management expects that shipments to Japan will return to
more normal levels as the outbreak ends and these concerns subside.
Exports accounted for 12% of consolidated net sales in the third
quarter 1996 and 14% in the first nine months of 1996 versus 15%
and 14% in the comparative 1995 periods.
COST OF PRODUCTS SOLD
The 1% decrease in third quarter 1996 cost of products sold
from 1995 was primarily attributable to a reduction in pounds of
beef and pork products sold, offset somewhat by higher average
prices paid for live cattle and hogs and costs added from
production of the newly-acquired cow boning plant in Palestine,
Texas.
Year-to-date 1996 costs through September increased 1% from
1995 due in part to nine months of operations in 1996 for three cow
boning plants purchased in 1995 versus six months in the prior
year. Meanwhile, 1996 year-to-date livestock costs in the
company's core fresh meats operations decreased from 1995 as
reductions in the average price paid for live fed cattle and pounds
of fed beef products sold were greater than the effect of an
increase in the average price paid for live hogs.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
Third quarter 1996 expense was 15% lower than the year earlier
period as a result of lower incentive compensation based upon
operating earnings. Through nine months, 1996 expense decreased 2%
from 1995 due to lower earnings-based incentive compensation offset
somewhat by higher selling and administrative expense caused by
expanding operations.
INTEREST EXPENSE
Net interest expense was reduced 90% in the third quarter and
80% in the year-to-date period ended September 28, 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, third quarter and year-to-date 1996
borrowings averaged over $100 million less than in the same 1995
periods due to continued strong operating cash flows.
-8-
INCOME TAXES
The lower quarterly and year-to-date 1996 income tax
provisions compared to the same 1995 periods resulted primarily
from the decreases in pre-tax earnings.
FINANCIAL CONDITION
Total outstanding borrowings averaged $267 million in the
first nine months of 1996 compared to $370 million in the
comparable 1995 period. There were no short-term borrowings
outstanding at September 28, 1996, and available unused credit
capacity under committed facilities was $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 were classified as long-term
obligations at December 30, 1995.
Year-to-date capital expenditures through September 28, 1996
totaled $134 million compared to $117 million in the first nine
months of 1995. Current year additions included construction of a
processing facility at the company's Brooks, Alberta, Canada, beef
plant, which is set to open in early 1997, purchase of a cow
processing facility in Palestine, Texas, conversion of a facility
in Columbia, South Carolina, for cooked meats production (scheduled
for a fourth quarter 1996 start up) and expansions and/or
improvements of box handling facilities at some of the company's
major beef complexes.
-9-
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
See Note D to the consolidated condensed financial statements.
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 September 28, 1996.
-10-
Exhibit 11
IBP, inc. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(Amounts in thousands except per share data)
13 Weeks Ended 39 Weeks Ended
-------------------- --------------------
September September September September
28, 30, 28, 30,
1996 1995 1996 1995
--------- --------- --------- ---------
Net earnings $40,467 $85,412 $180,482 $223,071
====== ====== ======= =======
PRIMARY EARNINGS PER SHARE
Shares used in this computation:
Weighted average shares
outstanding 94,666 94,727 94,704 94,758
Dilutive effect of shares under
employee stock plans 1,986 2,183 2,030 1,750
------ ------ ------ ------
Common and common equivalent shares 96,652 96,910 96,734 96,508
====== ====== ====== ======
Primary earnings per share $ .42 $ .88 $1.87 $2.31
==== ==== ==== ====
FULLY-DILUTED EARNINGS PER SHARE
Shares used in this computation:
Weighted average shares
outstanding per above 94,666 94,727 94,704 94,758
Dilutive effect of shares under
employee stock plans 2,002 2,371 2,074 2,464
------ ------ ------ ------
Common and common equivalent shares 96,668 97,098 96,778 97,222
====== ====== ====== ======
Fully-diluted earnings per share $ .42 $ .88 $1.86 $2.29
==== ==== ==== ====
-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 November 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> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-END> SEP-28-1996
<CASH> 25,299
<SECURITIES> 142,388
<RECEIVABLES> 520,329
<ALLOWANCES> 9,785
<INVENTORY> 299,556
<CURRENT-ASSETS> 1,031,460
<PP&E> 1,480,938
<DEPRECIATION> 680,863
<TOTAL-ASSETS> 2,091,920
<CURRENT-LIABILITIES> 536,226
<BONDS> 260,127
0
0
<COMMON> 4,750
<OTHER-SE> 1,184,578
<TOTAL-LIABILITY-AND-EQUITY> 2,091,920
<SALES> 9,520,930
<TOTAL-REVENUES> 9,520,930
<CGS> 9,132,971
<TOTAL-COSTS> 9,132,971
<OTHER-EXPENSES> 93,211
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,566
<INCOME-PRETAX> 291,182
<INCOME-TAX> 110,700
<INCOME-CONTINUING> 180,482
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 180,482
<EPS-PRIMARY> 1.87
<EPS-DILUTED> 1.86
</TABLE>
