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 quarterly period ended June 28, 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 August 1, 1997, the registrant had outstanding 92,050,069 shares of
its common stock ($.05 par value).
PART I. FINANCIAL INFORMATION
IBP, inc. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
June 28, December 28,
1997 1996
----------- ------------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 27,170 $ 94,164
Marketable securities 11,317 169,476
Accounts receivable, less allowance for
doubtful accounts of $10,743 and $9,873 626,843 500,781
Inventories 399,414 299,700
Deferred income tax benefits and
prepaid expenses 72,733 46,464
--------- ---------
TOTAL CURRENT ASSETS 1,137,477 1,110,585
Property, plant and equipment,
less accumulated depreciation
of $735,822 and $697,510 998,474 816,206
Goodwill, net of accumulated amortization
of $127,854 and $121,644 663,424 206,587
Other assets 70,488 41,117
--------- ---------
$2,869,863 $2,174,495
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable to banks $ 336,725 $ -
Accounts payable 287,138 299,785
Deferred income taxes and other
current liabilities 351,005 304,346
--------- ---------
TOTAL CURRENT LIABILITIES 974,868 604,131
Long-term debt and capital lease
obligations 568,633 260,008
Deferred income taxes and other
liabilities 125,369 106,701
STOCKHOLDERS' EQUITY:
Common stock at par value 4,750 4,750
Additional paid-in capital 423,869 427,456
Retained earnings 840,744 779,199
Currency translation adjustments (751) (32)
Treasury stock (67,619) (7,718)
TOTAL STOCKHOLDERS' EQUITY 1,200,993 1,203,655
--------- ---------
$2,869,863 $2,174,495
========= =========
See accompanying notes to condensed consolidated financial statements.
-2-
IBP, inc. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(In thousands except per share data)
13 Weeks Ended 26 Weeks Ended
----------------------- -----------------------
June 28, June 29, June 28, June 29,
1997 1996 1997 1996
---------- ---------- ---------- ----------
Net sales $3,448,337 $3,260,268 $6,582,927 $6,344,990
Cost of products sold 3,328,841 3,084,681 6,380,308 6,051,503
--------- --------- --------- ---------
Gross profit 119,496 175,587 202,619 293,487
Selling, general and
administrative expense 54,240 34,191 85,503 64,688
--------- --------- --------- ---------
EARNINGS FROM OPERATIONS 65,256 141,396 117,116 228,799
Interest expense, net 9,892 1,308 10,442 3,084
Earnings before income --------- --------- --------- ---------
taxes 55,364 140,088 106,674 225,715
Income tax expense 21,500 53,100 40,500 85,700
--------- --------- --------- ---------
NET EARNINGS $ 33,864 $ 86,988 $ 66,174 $ 140,015
========= ========= ========= =========
Earnings per share $ .36 $ .90 $ .70 $1.45
==== ==== ==== ====
Dividends per share $.025 $.025 $ .05 $ .05
==== ==== ==== ====
Average common and common
equivalent shares 93,866 96,900 94,764 96,843
====== ====== ====== ======
See accompanying notes to condensed consolidated financial statements.
-3-
IBP, inc. AND SUBSIDIARIES
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
26 Weeks Ended
--------------------------
June 28, June 29,
1997 1996
---------- -----------
Inflows(outflows)
NET CASH FLOWS (USED IN) PROVIDED BY
OPERATING ACTIVITIES $(106,046) $ 68,199
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from disposals of marketable
securities 373,346 324,449
Payments for acquisitions of subsidiaries,
net of cash acquired (307,676) -
Purchases of marketable securities (215,073) (384,050)
Capital expenditures (62,757) (88,926)
Other investing activities, net (2,459) (576)
Net cash flows used in investing -------- --------
activities (214,619) (149,103)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in revolving credit
borrowings 378,500 (200,000)
Principal payments on long-term (195,816) (425)
obligations
Proceeds from issuance of long-term
debt 123,887 197,870
Purchases of treasury stock (59,901) (1,080)
Net change in checks in process of
clearance 16,262 18,307
Other financing activities, net (9,287) (8,527)
Net cash flows provided by -------- --------
financing activities 253,645 6,145
Effect of exchange rate on cash -------- --------
and cash equivalents 26 (45)
Net change in cash and -------- --------
cash equivalents (66,994) (74,804)
Cash and cash equivalents at beginning
of period 94,164 116,277
Cash and cash equivalents at end of -------- --------
period $ 27,170 $ 41,473
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the periods for:
Interest, net of amounts capitalized $ 21,186 $ 5,879
Income taxes, net of refunds received 38,236 68,399
Depreciation and amortization expense 48,237 40,246
See accompanying notes to condensed consolidated financial statements.
-4-
IBP, inc. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
A. GENERAL
The condensed consolidated balance sheet of IBP, inc. and subsidiaries
("IBP" or "the company") at December 28, 1996 has been taken from audited
financial statements at that date and condensed. All other condensed
consolidated financial statements contained herein have been prepared by IBP and
are unaudited. The condensed consolidated 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 condensed
consolidated 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 28, 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:
June 28, December 28,
1997 1996
-------- ------------
(In thousands)
Product inventories:
Raw materials $ 32,164 $ 15,285
Work in process 97,408 76,880
Finished goods 172,713 124,868
------- -------
302,285 217,033
Livestock 32,991 28,756
Supplies 64,138 53,911
------- -------
$399,414 $299,700
======= =======
-5-
IBP, inc. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE D ACQUISITION
On May 7, 1997, the company, through a wholly-owned subsidiary,
completed a merger with Foodbrands America, Inc. ("Foodbrands") for
approximately $287 million, excluding transaction costs. Foodbrands is a
leading U.S. producer, marketer and distributor of frozen and refrigerated
products to the "away from home" food preparation market, which is the
fastest-growing segment of the food industry. The acquisition has been
accounted for by the purchase method of accounting. The excess of the
aggregate purchase price over fair value of net assets acquired of
approximately $271 million was recognized as goodwill and is being amortized
over 40 years.
The operating results of Foodbrands are included in IBP's consolidated
results of operations from the date of acquisition. The following pro forma
financial information assumes the acquisition occurred at the beginning of
1996. These results have been prepared for comparative purposes only and do
not purport to be indicative of what would have occurred had the acquisition
been made at the beginning of 1996, or of the results which may occur in the
future (in thousands except per share data).
26 Weeks Ended
------------------------
June 28, June 29,
1997 1996
---------- ----------
Net sales $6,810,922 $6,689,445
Earnings from operations 131,020 247,668
Earnings before
extraordinary item 65,490 144,997
Net earnings 65,490 139,946
Earnings per share:
Earnings before
extraordinary item $ .69 $1.50
Net earnings .69 1.45
The company made another acquisition in 1997 which did not have a
material impact.
NOTE E LONG-TERM OBLIGATIONS
Long-term obligations are summarized as follows (in thousands):
June 28, December 28,
1997 1996
--------- ------------
7.45% Senior Notes due 2007 $125,000 $ -
10.75% Senior Subordinated
Notes due 2006 117,000 -
6.125% Senior Notes due 2006 100,000 100,000
7.125% Senior Notes due 2026 100,000 100,000
Multi-Year Facility 108,000 50,000
Present value of minimum
capital lease obligations 19,673 9,610
Other 1,583 1,044
------- -------
571,256 260,654
Less amounts due within one year 2,623 646
------- -------
$568,633 $260,008
======= =======
-6-
IBC, inc. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
In June 1997, the company, through a wholly-owned subsidiary, completed
its public offering of $125 million principal amount of 7.45% Senior Notes due
2007. The net proceeds from the offering were used to reduce borrowings under
IBP's revolving credit facilities.
The 10.75% Senior Subordinated Notes are Foodbrands' obligations which
are guaranteed by all of Foodbrands' direct and indirect subsidiaries, all of
which are wholly-owned. There are $120 million of Foodbrands' Senior
Subordinated Notes outstanding; however, IBP purchased $3 million subsequent
to acquiring Foodbrands.
NOTE F CREDIT ARRANGEMENTS
On May 1, 1997, IBP entered into a new one-year revolving credit
agreement with Bank of America for up to $100 million in potential borrowings.
This agreement expands the company's borrowing capacity to $600 million under
committed facilities. Borrowings of $430 million were outstanding under these
facilities as of June 28, 1997, $108 million of which was classified as long-
term in the condensed consolidated balance sheet.
NOTE G 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 will not have a material adverse effect on its
consolidated results of operations, financial position of liquidity.
-7-
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
The company faced difficult year-over-year comparisons in the second
quarter and first six months of 1997 versus 1996, as market conditions in 1997
were much less favorable than those which led to record-high quarterly and
first six months net earnings in 1996.
Gross profit, measured as a percentage of net sales, decreased to 3.5%
in the second quarter 1997 from 5.4% in the same 1996 period. For the six
months ended June, 1997 gross profit measured 3.1% versus 4.6% in the first
half of 1996. The lower 1997 figures reflected reduced beef and pork margins
caused by higher livestock prices and weaker domestic and export demand.
However, the year-to-date 1997 gross profit percentage of 3.1% compared
favorably with the 2.4% gross profit generated in the second half of 1996 as
fed beef supplies and export sales in 1997 were stronger than in the last six
months of 1996.
The acquisitions of Foodbrands America, Inc. ("Foodbrands") and The
Bruss Company ("Bruss") were completed in the second quarter 1997. The
Foodbrands purchase, completed as of May 7, 1997, extends the company's
product base into value-added, branded food products. Foodbrands is a leading
U.S. producer, marketer and distributor of frozen and refrigerated products to
the "away from home" food preparation market, which is the fastest-growing
segment of the food industry. The industry leader in pizza toppings sales,
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, ethnic specialty foods, breaded
appetizers, soups, sauces and side dishes as well as deli meats and processed
beef, pork and poultry products. The Bruss purchase, effected as of May 30,
1997, brings to IBP a processor of individual cuts of premium quality beef and
pork for sale to restaurants in the domestic and international markets.
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 risks 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
Second quarter 1997 net sales rose 6% over the same 1996 period, most of
which was attributable to Foodbrands and Bruss operations. For previously
existing IBP operations, an increase in the average price of products sold was
slightly higher than a decrease in amounts of beef and pork products sold.
For the six months ended June, 1997 net sales rose 4% over the first
half of 1996, with Foodbrands and Bruss accounting for approximately 60% of
the increase. Again, a higher average price of beef and pork products sold
offset a lower volume of pounds of beef and pork products sold in IBP's core
operations.
-8-
Excluding newly-acquired operations, second quarter and year-to-date 1997
net export sales decreased 13% and 17%, respectively, from the comparable 1996
periods. However, food safety scares in the second half of 1996 that
significantly reduced export sales to Japan continue to subside. Exports to
Japan in the first six months of 1997 improved 6% over the second half of
1996.
Exports to Korea, Mexico and Canada were higher in the second quarter
and six-month periods of 1997 versus 1996. Total net exports accounted for
12.5% and 12.6% of consolidated net sales in the second quarter and first six
months of 1997 versus 14.7% and 15.5% in the comparable 1996 periods.
COST OF PRODUCTS SOLD
Second quarter and year-to-date 1997 cost of products sold rose 8% and
5% over the same 1996 periods. Almost 50% of the second quarter increase and
40% of the six months increase was attributable to Foodbrands and Bruss
operations. IBP's core fresh meats operations were impacted by higher live
cattle and hog prices offset somewhat by decreases in amounts of beef and
pork products sold. Plant costs in 1997 increased over the second quarter and
year-to-date 1996 primarily as a result of new beef processing activities at
the company's plant in Alberta, Canada, and a cooked meats facility in
Columbia, South Carolina, both of which initiated operations in 1997.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
Second quarter 1997 expense was 59% higher than in the second quarter
1996 due largely to expenses incurred at Foodbrands and Bruss. Year-to-date
1997 expense through June was 32% higher than in the comparable year-earlier
period for much the same reason. Selling expense for new subsidiaries,
especially for Foodbrands, is much higher as a percentage of net sales
compared to IBP's fresh meats operations due to differences in the nature of
the respective product and customer bases.
Excluding the impact of the acquisitions, second quarter and year-to-
date 1997 expenses compared favorably to the prior year comparison periods due
primarily to reduced incentive compensation based upon operating earnings.
The reduced incentive compensation was partially offset by higher personnel-
related costs, contract services expense and selling expense.
INTEREST EXPENSE
Net interest expense rose significantly in the second quarter and in the
year-to-date periods ended June 28, 1997 versus the comparable 1996 periods.
These increases resulted from additional borrowings necessary in the
acquisitions of Foodbrands and Bruss as well as from existing Foodbrands debt
acquired as part of that stock purchase. Management expects that net interest
expense in the foreseeable future will continue to be significantly higher
than in 1996 and the first quarter of 1997.
-9-
INCOME TAXES
The lower income tax expense in the second quarter and first half of
1997 versus the same 1996 periods was almost solely a function of reduced pre-
tax earnings.
LIQUIDITY AND CAPITAL RESOURCES
Total consolidated outstanding borrowings averaged $466 million in the
first six months of 1997 compared to $269 million in the comparable 1996
period. Borrowings outstanding at June 28, 1997 under committed facilities
totaled $430 million, $108 million of which was classified as long-term in the
consolidated balance sheet, and available unused credit capacity under
committed facilities was $170 million. The increase in average borrowings was
attributable to payments for the Foodbrands and Bruss subsidiary purchases as
well as the addition of Foodbrands' existing debt.
Immediately after acquiring Foodbrands, IBP borrowed against its $500
million revolving credit facility to pay off Foodbrands' higher interest rate
bank debt totaling $211 million. As of June 28, 1997, Foodbrands had $120
million of 10.75% Subordinated Notes still outstanding, $3 million of which
had been purchased by IBP.
In May 1997, the company entered into a $100 million credit agreement
with Bank of America which expires in one year. This credit agreement gives
the company additional borrowing capacity and flexibility given the increased
borrowings against the existing $500 million revolving credit facility.
In June 1997, the company completed its public offering of $125 million
principal amount of 7.45% Senior Notes due 2007. Proceeds from the offering
were used to reduce borrowings under IBP's revolving credit facilities.
The company intends to maintain an aggregate total of long-term debt of
approximately $550 million, excluding capital leases and including, at June
28, 1997, $108 million borrowed against the $500 million revolving credit
facility.
Year-to-date capital expenditures through June 28, 1997 totaled $63
million compared to $89 million in the first six months of 1996. Current year
spending was primarily for equipment replacements and modifications to
existing facilities as well as the addition of processing facilities at the
company's Brooks, Alberta, Canada, beef plant.
-10-
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) The annual meeting of stockholders of IBP, inc. was held on April
30, 1997, in Dakota City, Nebraska.
(c) 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: 79,791,074
Votes withheld: 1,297,137
John S. Chalsty
Votes for: 80,285,107
Votes withheld: 803,104
Dr. Wendy L. Gramm
Votes for: 80,270,761
Votes withheld: 817,450
David C. Layhee
Votes for: 79,799,018
Votes withheld: 1,289,193
Eugene D. Leman
Votes for: 79,794,919
Votes withheld: 1,293,292
Martin A Massengale
Votes for: 80,255,350
Votes withheld: 832,861
Robert L. Peterson
Votes for: 79,782,539
Votes withheld: 1,305,672
JoAnn R. Smith
Votes for: 80,280,096
Votes withheld: 808,115
Dale C. Tinstman
Votes for: 79,721,645
Votes withheld: 1,366,566
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 28, 1997.
-11-
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 28, June 29, June 28, June 29,
1997 1996 1997 1996
-------- -------- -------- --------
Net earnings $33,864 $86,988 $66,174 $140,015
====== ====== ====== =======
PRIMARY EARNINGS PER SHARE
Shares used in this computation:
Weighted average shares
outstanding 92,061 94,712 92,977 94,722
Dilutive effect of shares under
employee stock plans 1,805 2,188 1,787 2,121
------ ------ ------ ------
Common and common equivalent shares 93,866 96,900 94,764 96,843
====== ====== ====== ======
Primary earnings per share $ .36 $ .90 $ .70 $1.45
==== ==== ==== ====
FULLY-DILUTED EARNINGS PER SHARE
Shares used in this computation:
Weighted average shares
outstanding per above 92,061 94,712 92,977 94,722
Dilutive effect of shares under
employee stock plans 1,821 2,310 1,822 2,323
------ ------ ------ ------
Common and common equivalent shares 93,882 97,022 94,799 97,045
====== ====== ====== ======
Fully-diluted earnings per share $ .36 $ .90 $ .70 $1.44
==== ==== ==== ====
-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)
/s/ Robert L. Peterson
Date August 6, 1997 ---------------------------
------------------ 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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<PERIOD-END> JUN-28-1997
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0
0
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