FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the 13 weeks ended March 29, 1997
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 May 1, 1997, the registrant had outstanding
92,067,635 shares of its common stock ($.05 par value).
PART I. FINANCIAL INFORMATION
IBP, inc. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands)
March 29, December 28,
1997 1996
---------- ------------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 44,892 $ 94,164
Marketable securities 57,322 169,476
Accounts receivable, less allowance for
doubtful accounts of $9,972 and $9,873 510,127 500,781
Inventories (Note C) 311,240 299,700
Deferred income tax benefits
and prepaid expenses 47,174 46,464
--------- ---------
TOTAL CURRENT ASSETS 970,755 1,110,585
Property, plant and equipment,
less accumulated depreciation
of $714,679 and $697,510 827,456 816,206
Goodwill, net of accumulated amortization
of $123,744 and $121,644 204,487 206,587
Other assets 49,426 41,117
--------- ---------
$2,052,124 $2,174,495
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 228,699 $ 299,785
Deferred income taxes and other
current liabilities 289,024 304,346
--------- ---------
TOTAL CURRENT LIABILITIES 517,723 604,131
Long-term debt and capital lease
obligations 259,688 260,008
Deferred income taxes and other
liabilities 103,798 106,701
STOCKHOLDERS' EQUITY:
Common stock at par value 4,750 4,750
Additional paid-in capital 425,232 427,456
Retained earnings 809,181 779,199
Currency translation adjustments (923) (32)
Treasury stock (67,325) (7,718)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 1,170,915 1,203,655
--------- ---------
$2,052,124 $2,174,495
========= =========
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
March 29, March 30,
1997 1996
---------- ----------
Net sales $3,134,590 $3,084,722
Cost of products sold 3,051,478 2,966,822
--------- ---------
Gross profit 83,112 117,900
Selling, general and
administrative expense 31,252 30,497
--------- ---------
EARNINGS FROM OPERATIONS 51,860 87,403
Interest expense, net 550 1,776
--------- ---------
Earnings before income taxes 51,310 85,627
Income tax expense 19,000 32,600
--------- ---------
NET EARNINGS $ 32,310 $ 53,027
========= =========
Earnings per share $ .34 $ .55
==== ====
Dividends per share $.025 $.025
==== ====
Average common and common
equivalent shares 95,731 96,865
====== ======
See accompanying notes to consolidated condensed financial statements.
-3-
IBP, inc. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
13 Weeks Ended
March 29, March 30,
1997 1996
-------- ---------
Inflows (outflows)
NET CASH FLOWS USED IN OPERATING
ACTIVITIES $ (67,584) $ (49,316)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from disposals of marketable
securities 303,974 130,970
Purchases of marketable securities (200,078) (117,334)
Capital expenditures (31,226) (33,806)
Other investing activities, net (45) (649)
Net cash flows provided by -------- --------
(used in) investing activities 72,625 (20,819)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchases of treasury stock (59,607) (485)
Net change in checks in process
of clearance 10,086 32,418
Payment of dividends (2,366) (2,369)
Proceeds from issuance of long-term
debt 67 197,862
Net change in revolving credit
borrowings - (200,000)
Other financing activities, net (2,577) (2,157)
Net cash flows (used in) provided by -------- --------
financing activities (54,397) 25,269
-------- --------
Effect of exchange rate on cash and
cash equivalents 84 (962)
-------- --------
Net decrease in cash and
cash equivalents (49,272) (45,828)
Cash and cash equivalents at beginning
of period 94,164 116,277
-------- --------
Cash and cash equivalents at end of
period $ 44,892 $ 70,449
======== ========
SUPPLEMENTAL INFORMATION:
Cash payments during the periods for:
Interest, net of amounts capitalized $ 4,638 $ 529
Income taxes, net of refunds received (983) 6,062
Depreciation and amortization expense 20,919 19,939
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 28, 1996 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 28, 1996.
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 as of March 29, 1997, 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 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:
March 29, December 28,
1997 1996
--------- -----------
(In thousands)
Held for sale:
Beef products $173,767 $169,068
Pork products 43,622 39,913
Other 7,314 8,460
------- -------
224,703 217,441
Livestock 30,075 28,345
Supplies 56,462 53,914
------- -------
$311,240 $299,700
======= =======
-5-
IBP, inc. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - CONTINUED
D. COMMITMENTS AND CONTINGENCIES
IBP is involved in numerous 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 $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. Although the
District Court reduced punitive damages to $100,000, on
appeal the Iowa Supreme Court ordered IBP to pay $2,000,000
in punitive damages. The company reduced its $15,000,000
reserve for this case to $100,000 in the fourth quarter 1996,
with expected insurance coverage for the remaining
$1,900,000. In the first quarter 1997, the Iowa Supreme
Court denied IBP's request for a rehearing and judgment was
entered accordingly by the District Court. IBP intends to
petition the United States Supreme Court for further review.
In January 1997, the State of Illinois filed a civil
enforcement action against IBP in Illinois District Court
alleging violations of odor nuisance laws occurring at IBP's
Joslin, Illinois, facility. The State of Illinois is suing
for odor violations occurring from September 1994 to date,
and for abatement of the odor nuisance. The odor violations
are subject to daily penalties that could, in total, exceed
$100,000. The company denies liability and is contesting the
litigation.
E. ACQUISITION OF FOODBRANDS AMERICA, INC.
On May 5, 1997, IBP Sub, Inc., a Delaware corporation (the
"Offeror") and a wholly-owned subsidiary of IBP Foodservice,
L.L.C., a Delaware limited liability company whose sole
members are IBP, inc., a Delaware corporation ("IBP");
Prepared Foods, Inc., a Texas corporation and a wholly-owned
subsidiary of IBP; and IBP Caribbean, Inc., a Cayman Islands
company and a wholly-owned subsidiary of IBP, completed its
-6-
IBP, inc. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - CONTINUED
offer to purchase all outstanding shares of common stock, par
value $.01 per share, of Foodbrands America, Inc., a Dela-
ware corporation ("Foodbrands"), at a purchase price of
$23.40 per share, net to the seller in cash, without inte-
rest, upon the terms and subject to the conditions set forth
in the offer to purchase ("Offer"). Pursuant to the Offer,
11,581,740 shares, or 92.9%, of the shares were tendered to
the Offeror. These shares, combined with 497,800 shares pre-
viously held, gave the Offeror control of approximately 97% of
Foodbrands' shares.
On May 7, 1997, the Offeror was merged with Foodbrands and
Foodbrands became the surviving corporation and wholly-owned
by IBP Foodservice, L.L.C. Shares not tendered pursuant to
the Offer were canceled and the holders of such shares are
entitled to receive $23.40 per Share unless the shareholder
properly perfects his dissenter's rights under the Delaware
General Corporation Law.
The total funds required by the Offeror to consummate the
Offer and the Merger and to pay related fees and expenses
were approximately $288 million, excluding Foodbrands' debt
and approximately $50 million of merger-related fees, expe-
nses and contingent change of control obligations. Food-
brands' obligations were funded in part with its own working
capital and credit facilities and in part by IBP. The source
of IBP funds for the Offer included available cash and bor-
rowing from a syndicate of banks pursuant to the Amended and
Restated Multi-Year Credit Agreement (the "Credit Facility")
dated December 21, 1995, among IBP, Bank of America National
Trust and Savings Association, as Co-Agent, and First Bank
National Association, as Administrative Agent, which provides
for borrowings up to an aggregate principal amount of $500
million. The Credit Facility is a revolving facility with
a maturity date of December 20, 2000, which may be extended
for one year increments annually with the consent of the
banks involved.
Pro forma financial statements have not been included with
this report. The pro forma information will be available as
soon as is practicable but, in any event, not later than 75
days from the merger date (May 7, 1997).
-7-
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
IBP registered solid financial results in the first quarter
1997 amid continued difficult market conditions for IBP's fresh
meats operations. These results were lower than the record first
quarter 1996 net earnings primarily because of lower 1997 beef and
pork export sales and lower pork processing capacity utilization.
Fluctuations in export sales and processing capacity utilization
have a significant impact upon profit margins for IBP's
products.
Earnings from operations as a percentage of net sales measured
1.7% in the first quarter 1997 versus 2.8% in the first quarter
1996. All major divisions experienced less favorable results in
the first three months of 1997 compared to the year-earlier period.
The company increased pork production and capacity utilization
in the eastern Corn Belt by adding a second shift at its
Logansport, Indiana, facility in April 1997. Meanwhile, tight hog
supplies and excess industry processing capacity in the western
Corn Belt have prompted several pork processors, including IBP, to
scale back their processing operations. The company announced in
February 1997 that it would indefinitely curtail second-shift
carcass production and most processing activities at its Louisa
County, Iowa, plant. In addition, IBP's Council Bluffs, Iowa,
facility ceased carcass production and most processing activities
in late April 1997.
Management believes that the effective transfer of production
to its Logansport plant (due to more abundant supplies of quality
hogs) from Louisa County and Council Bluffs, the effect of industry
production cutbacks, and expected increasing numbers of market-
ready hogs later this year will have a positive impact on the
performance of IBP's pork operations.
Management expects that fed beef production in the second half
of 1997 should be equal to or better than in the last six months of
1996. This expectation is based upon higher reported April 1, 1997
cattle on feed numbers and first quarter 1997 placements of cattle
into feedlots compared to a year ago.
The matters discussed herein 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.
-8-
FOODBRANDS ACQUISITION
On May 7, 1997, the company, through certain subsidiaries,
acquired 100% ownership of Foodbrands America, Inc. (see Note E to
the consolidated condensed financial statements for a more detailed
description of this transaction). The company paid approximately
$288 million in cash for the outstanding shares and related fees
and expenses. The company also assumed Foodbrands' outstanding
debt of $341 million. Additional fees, expenses and obligations of
Foodbrands accelerated by or contingent upon a change of control of
Foodbrands totaled approximately $50 million, $7 million of which
had been previously provided for by Foodbrands.
Management believes the Foodbrands acquisition represents a
significant advancement in its strategy to diversify beyond the
core fresh meat processing business and extend its product base
with value-added, branded products. Foodbrands is a leading U.S.
producer, marketer and distributor of frozen and refrigerated
products to the "away from home" food preparation market, the
fastest-growing segment of the food industry. The leader in the
pizza toppings industry, Foodbrands is also a major provider of
value-added, pork-based products to the food service industry.
Foodbrands produces over 1,600 branded and custom products,
including pizza toppings and crusts, burritos, frozen stuffed
pastas, breaded appetizers, soups, sauces and side dishes as well
as deli meats and processed beef, poultry and pork products.
SALES
The 1.6% increase in 1997 net sales over the first quarter
1996 was chiefly attributable to increases in the average selling
price of fresh pork products and beef hides. These positive
factors were partially offset by reductions in pounds of fresh beef
and pork products sold.
IBP's net export sales for the first three months of 1997 were
21% lower than the record-high exports in the first quarter 1996.
A mid-1996 food safety scare in Japan depressed exports to IBP's
highest-volume export destination. However, export sales to Japan
have increased since the fourth quarter 1996 and management expects
that IBP will experience continued sales growth to this country.
A ban by Taiwan on exports of pork from their country should
result in increased U.S. and, correspondingly, IBP pork exports to
Japan. The ban is due to disease problems in Taiwan's swine herd
and could possibly be in effect for several years. Taiwan was
previously the top supplier of pork to Japan.
COST OF PRODUCTS SOLD
The cost of products sold in the first quarter 1997 rose
almost 3% from the first quarter 1996. Increases in the average
price paid for live cattle and hogs were partially offset by
decreases in pounds of beef and pork products sold. Livestock
costs comprised approximately 87% of cost of products sold for both
the 1997 and 1996 first quarters.
-9-
Plant costs were higher in the first three months of 1997
versus 1996 due in large part to new operations. The company
commenced beef fabrication activities at the Lakeside facility in
Brooks, Alberta, Canada, in the first quarter 1997. In addition,
the company's Palestine, Texas, cow boning plant was purchased
subsequent to the first quarter 1996.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
Selling expense increased in the first quarter 1997 versus a
year ago due to efforts to build market share in consumer products
and international sales. General and administrative expense was
slightly lower in the first quarter 1997 compared to the same 1996
period as reduced earnings-based incentive compensation offset
higher personnel and professional services costs.
INTEREST EXPENSE
First quarter 1997 net interest expense was 69% lower than
that incurred in the first quarter 1996. An increase in interest
capitalized on construction projects and 4% lower average
borrowings were the principal reasons for the lower 1997 net
expense.
INCOME TAXES
The lower 1997 income tax provision compared to the first
quarter 1996 resulted primarily from the decrease in pre-tax
earnings.
FINANCIAL CONDITION
Total outstanding borrowings averaged $265 million in the
first three months of 1997 compared to $277 million in the
comparable 1996 period. There were no short-term borrowings
outstanding at March 29, 1997, and available unused credit capacity
under committed facilities was $450 million.
Year-to-date capital expenditures through March 29, 1997
totaled $31 million compared to $34 million in the first three
months of 1996. Current year spending went primarily toward the
Lakeside beef processing facility and toward equipment replacements
and modifications to existing facilities.
The company purchased almost 2.6 million shares of its own
stock in the first quarter 1997 for approximately $60 million
(average $23.29 per share). These shares will be used to meet the
future needs of the company's stock-based employee benefit
programs. The company chose to repurchase outstanding shares
rather than issue new shares to avoid diluting the ownership of
current shareholders.
-10-
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.
-11-
Exhibit 11
IBP, inc. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(In thousands except per share data)
13 Weeks Ended
March 29, March 30,
1997 1996
-------- --------
NET EARNINGS $32,310 $53,027
====== ======
PRIMARY EARNINGS PER SHARE
Shares used in this computation:
Weighted average shares outstanding 93,893 94,733
Dilutive effect of shares under
employee stock plans 1,838 2,132
------ ------
Common and common equivalent shares 95,731 96,865
====== ======
Primary earnings per share $ .34 $ .55
==== ====
FULLY-DILUTED EARNINGS PER SHARE
Shares used in this computation:
Weighted average shares outstanding 93,893 94,733
Dilutive effect of shares under
employee stock plans 1,971 2,187
------ ------
Common and common equivalent shares 95,864 96,920
====== ======
Fully-diluted earnings per share $ .34 $ .55
==== ====
-12-
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)
May 9, 1997 /s/ Robert L. Peterson
-------------------- --------------------------
Date 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
-13-
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<FISCAL-YEAR-END> DEC-27-1997
<PERIOD-END> MAR-29-1997
<CASH> 44,892
<SECURITIES> 57,322
<RECEIVABLES> 520,099
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0
0
<COMMON> 4,750
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