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 13 weeks ended March 28, 1998
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, 1998, the registrant had outstanding 92,559,018 shares of its
common stock ($.05 par value).
PART I. FINANCIAL INFORMATION
IBP, inc. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
March 28, December 27,
1998 1997
----------- ------------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 24,437 $ 69,022
Marketable securities 28,121 3,120
Accounts receivable, less allowance for
doubtful accounts of $10,400 and $10,063 591,599 564,125
Inventories 399,815 389,753
Deferred income tax benefits and
prepaid expenses 59,197 57,907
--------- ---------
TOTAL CURRENT ASSETS 1,103,169 1,083,927
Property, plant and equipment,
less accumulated depreciation
of $796,295 and $774,694 1,020,312 1,017,082
Goodwill, net of accumulated
amortization of $144,433 and $137,996 665,136 671,557
Other assets 87,791 66,375
--------- ---------
$2,876,408 $2,838,941
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable to banks $ 300,000 $ 192,010
Accounts payable 310,314 345,728
Deferred income taxes and other
current liabilities 306,116 339,080
------- -------
TOTAL CURRENT LIABILITIES 916,430 876,818
Long-term debt and capital lease
obligations 567,516 568,281
Deferred income taxes and other
liabilities 158,697 156,773
STOCKHOLDERS' EQUITY:
Common stock at par value 4,750 4,750
Additional paid-in capital 405,989 406,952
Retained earnings 883,433 886,964
Accumulated other comprehensive income (4,501) (6,114)
Treasury stock (55,906) (55,483)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 1,233,765 1,237,069
--------- ---------
$2,876,408 $2,838,941
========= =========
See accompanying notes to condensed consolidated financial statements.
-2-
IBP, inc. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share data)
13 Weeks Ended
-------------------------
March 28, March 29,
1998 1997
--------- ---------
Net sales $3,224,944 $3,134,590
Cost of products sold 3,121,115 3,051,734
--------- ---------
Gross profit 103,829 82,856
Selling, general and
administrative expense 69,185 30,996
--------- ---------
EARNINGS FROM OPERATIONS 34,644 51,860
Interest expense, net 12,745 550
--------- ---------
Earnings before income
taxes and extraordinary item 21,899 51,310
Income tax expense 8,300 19,000
--------- ---------
Earnings before extraordinary item 13,599 32,310
Extraordinary loss on early extinguishment
of debt, less applicable taxes (Note D) 14,815 -
--------- ---------
NET EARNINGS (LOSS) $ (1,216) $ 32,310
========= =========
Earnings (loss) per share:
Earnings before extraordinary item $ .15 $ .34
Extraordinary item (.16) -
---- ----
Net earnings (loss) $(.01) $ .34
==== ====
Earnings (loss) per share - assuming dilution:
Earnings before extraordinary item $ .15 $ .34
Extraordinary item (.16) -
---- ----
Net earnings (loss) $(.01) $ .34
==== ====
Dividends per share $.025 $.025
==== ====
See accompanying notes to condensed consolidated financial statements.
-3-
IBP, inc. AND SUBSIDIARIES
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
13 Weeks Ended
-----------------------------
March 28, March 29,
1998 1997
-------- ---------
Inflows(outflows)
NET CASH FLOWS USED IN OPERATING ACTIVITIES $ (82,392) $ (67,584)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of marketable securities (101,174) (200,078)
Proceeds from disposals of marketable
securities 83,669 303,974
Capital expenditures (31,721) (31,226)
Investment in life insurance contracts (33,000) -
Other investing activities, net 102 (45)
-------- ---------
Net cash flows (used in) provided
by investing activities (82,124) 72,625
-------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in borrowings under revolving
credit agreements 170,000 -
Principal payments on long-term
obligations (112,742) (352)
Proceeds from issuance of long-term debt 49,793 67
Net change in checks in process of
clearance 37,053 10,086
Premiums paid on early retirement
of debt (20,636) -
Purchases of treasury stock (1,325) (59,607)
Other financing activities, net (2,298) (4,591)
-------- --------
Net cash flows provided by (used in)
financing activities 119,845 (54,397)
-------- --------
Effect of exchange rate on cash
and cash equivalents 86 84
-------- --------
Net change in cash and cash equivalents (44,585) (49,272)
Cash and cash equivalents at beginning
of period 69,022 94,164
-------- --------
Cash and cash equivalents at end of
period $ 24,437 $ 44,892
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the periods for:
Interest, net of amounts capitalized $ 12,258 $ 4,638
Income taxes, net of refunds received (870) (983)
Depreciation and amortization expense 25,285 18,714
Amortization of intangible assets 6,820 2,205
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 27, 1997
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 27, 1997.
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 at
March 28, 1998 and the results of its operations and its 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 28, December 27,
1998 1997
--------- ------------
(In thousands)
Product inventories:
Raw materials $ 20,096 $ 22,952
Work in process 80,349 82,679
Finished goods 172,519 165,970
------- -------
272,964 271,601
Livestock 53,283 45,908
Supplies 73,568 72,244
------- -------
$399,815 $389,753
======= =======
-5-
IBP, inc. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
D. LONG-TERM OBLIGATIONS
Long-term obligations are summarized as follows:
March 28, December 28,
(in thousands) 1998 1997
-------------------------------------------------------------
7.45% Senior Notes due 2007 $125,000 $125,000
6.125% Senior Notes due 2006 100,000 100,000
7.125% Senior Notes due 2026 100,000 100,000
6.00% Securities due 2011 50,000 -
10.75% Senior Subordinated
Notes due 2006 - 112,050
Revolving credit facilities 175,000 112,950
Present value of minimum
capital lease obligations 18,499 19,093
Other 1,263 1,400
------- -------
569,762 570,493
Less amounts due within
one year 2,246 2,212
------- -------
$567,516 $568,281
======= =======
During the first quarter 1998, the company completed its
purchase of all of the $112 million outstanding 10.75%
Senior Subordinated Notes of its wholly-owned subsidiary,
Foodbrands America, Inc. Net prepayment premiums,
accelerated amortization of unamortized deferred financing
costs, and transaction expenses totaled $23.9 million,
before applicable income tax benefit of $9.1 million, and
was accounted for as an extraordinary loss.
The purchase of these obligations by IBP was funded with
available credit facilities and will likely be refinanced
later in 1998 under the company's $300 million Medium-Term
Notes program registered with the Securities and Exchange
Commission. The portion of borrowings under IBP's
revolving credit facilities considered long-term increased
to $175 million at March 28, 1998 from $113 million at
December 27, 1997.
In January 1998, the company settled and closed its public
offering of $50 million aggregate principal amount of
6.00% Remarketable or Redeemable Securities, due January
15, 2011 (the "6.00% Securities"). The net proceeds from
the 6.00% Securities were added to the company's working
capital. The 6.00% Securities were the first series of
notes issued under the company's Medium-Term Notes
program.
- -6-
E. EARNINGS PER SHARE
(in thousands, except per share amounts)
For the Thirteen Weeks Ended March 28, 1998
-------------------------------------------
Earnings Shares Per Share
(Numerator) (Denominator) Amount
---------- ------------ ---------
Basic EPS:
Earnings before
extraordinary item $13,599 92,567 $ .15
====
Effect of dilutive
securities:
Employee stock plans 954
------ ------
Diluted EPS $13,599 93,521 $ .15
====== ====== ====
For the Thirteen Weeks Ended March 29, 1997
-------------------------------------------
Earnings Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
Basic EPS:
Net earnings $32,310 93,894 $ .34
====
Effect of dilutive
securities:
Employee stock plans 1,246
------ ------
Diluted EPS $32,310 95,140 $ .34
====== ====== ====
The summary below lists stock options outstanding at the
end of the fiscal quarters which were not included in the
computations of diluted EPS because the options' exercise
price was greater than the average market price of the
common shares. These options had varying expiration dates.
1998 1997
---- ----
Stock options excluded from
diluted EPS computation 1,556 1,458
Average option price per share $24.72 $25.05
F. 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
that described below, will not have a material adverse
effect on its consolidated results of operations, financial
position or liquidity.
In July 1996, a lawsuit was filed against IBP by certain
cattle producers in the U.S. District Court, Middle
District of Alabama, seeking certification of a class of
all cattle producers. The complaint alleges, inter alia,
that IBP has used its market power and alleged "captive
supply" agreements to reduce the prices paid to producers
for cattle. Plaintiffs have disclosed that, in addition to
declaratory relief and punitive damages, they seek
disgorgement of all profits earned in 1994, 1995 and 1996
in excess of what they deem a "fair" return. Management
believes that class certification is unlikely and that, in
any event, it has acted properly and lawfully in its
dealings with cattle producers.
- -7-
G. COMPREHENSIVE INCOME
In the first quarter of 1998, the company adopted Statement
of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income." The standard requires the display
and reporting of comprehensive income, which includes all
changes in stockholders' equity with the exception of
additional investments by stockholders or distributions to
stockholders. Comprehensive income for the company
includes net income and foreign currency translation
adjustments which are charged or credited to the cumulative
translation account within stockholders' equity.
Comprehensive income for the quarters ended March 28, 1998
and March 29, 1997 was as follows (unaudited):
13 Weeks Ended
----------------------
March 28, March 29,
1998 1997
--------- ---------
NET EARNINGS (LOSS) $(1,216) $32,310
Other comprehensive income,
before tax:
Foreign currency translation
adjustments 2,602 (1,437)
Income tax expense related
to items of other
comprehensive income (989) 546
------- -----
Other comprehensive income,
net of tax 1,613 (891)
------- ------
COMPREHENSIVE INCOME $ 397 $31,419
======= ======
-8-
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
Continued weakness in Asian markets and significant supplies of competing
proteins in the U.S. in the first quarter 1998 put pressure on fresh meats
margins and reduced IBP's earnings in comparison to the first quarter 1997.
Consolidated gross profit increased to 3.2% of net sales in the first
quarter 1998 from 2.6% in the same 1997 period. However, excluding the 1998
results of two companies acquired in the second quarter 1997, Foodbrands
America, Inc. ("Foodbrands") and The Bruss Company ("Bruss"), 1998 first
quarter gross profit decreased to 1.8% of net sales.
While net export sales dollars were slightly higher in the first quarter
1998 versus a year ago, it took a 30% increase in pounds of products sold to
achieve the increase. Financial woes in Korea and other Asian countries have
caused some of IBP's major customers, especially in the hide and leather
market, to reduce their purchases. The relatively strong U.S. dollar versus
foreign currencies has also adversely impacted the competitiveness of U.S.
exports.
IBP's beef operating earnings were positive in the first quarter 1998 but
were significantly below the results of a year ago. Higher than expected
industry beef production as well as that of competing meats, lower hide
values, and start up losses at IBP's Canadian beef processing complex were all
negative factors that reduced earnings.
Pork operating earnings were up over $20 million in the first quarter 1998
from the same three months of 1997. Improved capacity utilization resulting
from an increase in hog supplies, increased IBP market share, and favorable
effects of last year's restructuring of IBP's production capacity were the
principal positive factors.
During the first quarter 1998, the company completed its purchase of all of
the $112 million outstanding 10.75% Senior Subordinated Notes (the "10.75%
Notes") of its wholly-owned subsidiary, Foodbrands America, Inc. Net
prepayment premiums, accelerated amortization of unamortized deferred
financing costs, and transaction expenses totaled $23.9 million, before
applicable income tax benefit of $9.1 million, and was accounted for as an
extraordinary loss in the condensed consolidated statement of operations.
The matters discussed herein may 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.
- -9-
SALES
Net sales in the first quarter 1998 increased 3% over the first quarter
1997. Excluding Foodbrands and Bruss, net sales were 5% lower in 1998 versus
the first three months of 1997. This decrease was the result of a lower
average price received for beef and pork products sold due to the relatively
soft export market and significant competing meat supplies. In addition, hide
prices were adversely impacted by the aforementioned financial woes in Asia,
particularly in Korea.
Net export sales accounted for 12.5% of total net sales in the first
quarter 1998 compared to 12.6% in the first three months of 1997. Increased
sales of variety meats and rendered products offset the lower hide sales. On
a regional basis, increased export sales to destinations in the Americas and
Europe offset decreased export sales to the Pacific Rim, although the Pacific
Rim still accounted for over 60% of net export sales in the first quarter
1998.
COST OF PRODUCTS SOLD
The cost of products sold in the first quarter 1998 increased 2% over the
first quarter 1997. Excluding the effect of the Foodbrands and Bruss
acquisitions, the cost of products sold decreased 4% from the first quarter
1997.
In the fresh meats division, live hog prices were almost 30% lower in the
first quarter 1998 compared to 1997 and 1998 live cattle prices were lower as
well. The effect of the lower livestock prices were partially offset by an
increase in the number of pounds of fresh beef and pork products sold.
Plant costs were higher in the first quarter 1998 primarily because of the
increases in pounds of pork and beef products sold. First quarter 1998
results included an impairment write-down for the Luverne, Minnesota, carcass
production facility which ceased operations in March 1998. This write-down of
fixed assets and goodwill reduced first quarter 1998 net earnings by $0.03 per
share.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
Expenses in the first quarter 1998 increased 123% over the first quarter
1997. However, excluding the effect of Foodbrands and Bruss, 1998 expenses
were flat relative to the first three months of 1997.
INTEREST EXPENSE
The significant increase in 1998 net interest expense versus the first
quarter 1997 was mostly the result of higher 1998 average borrowings resulting
from the Foodbrands and Bruss acquisitions which occurred in the second
quarter 1997. The average effective interest rate was also slightly higher in
1998 due to the impact of the Foodbrands 10.75% Notes for substantially all of
the first quarter 1998.
- -10-
LIQUIDITY AND CAPITAL RESOURCES
The purchase of the Foodbrands 10.75% Notes in the first quarter 1998 by
IBP, inc. was funded with available credit facilities and will likely be
refinanced later in 1998 under the company's $300 million Medium-Term Notes
program registered with the Securities and Exchange Commission. The portion
of borrowings under IBP's revolving credit facilities considered long-term
increased to $175 million at March 28, 1998 from $113 million at December 27,
1997.
In January 1998, the company settled and closed its public offering of $50
million aggregate principal amount of 6.00% Remarketable or Redeemable
Securities, due January 15, 2011 (the "6.00% Securities"). The net proceeds
from the 6.00% Securities were added to the company's working capital. The
6.00% Securities were the first series of notes issued under the company's
$300 million Medium-Term Notes program.
Total outstanding borrowings averaged $835 million in the first three
months of 1998 compared to $265 million in the comparable 1997 period. The
higher 1998 average outstanding borrowings versus the first quarter 1997 were
due primarily to funds required for the Foodbrands and Bruss acquisitions in
the second quarter 1997. Borrowings outstanding under committed and
uncommitted credit facilities at March 28, 1998 totaled $475 million compared
to $305 million at December 27, 1997, and available unused credit capacity
under committed facilities was $175 million at March 28, 1998.
The company invested $37 million during the fourth quarter 1997 and the
first quarter 1998 in life insurance contracts for on employees. Among other
advantages, expected changes in the cash value of these contracts are intended
to effectively act as a hedge against changes in the company's deferred
compensation liabilities.
Year-to-date capital expenditures through March 28, 1998 totaled $32
million compared to $31 million in the first three months of 1997. Current
year spending was primarily for pork plant expansions and ongoing replacements
and modifications to existing facilities.
- -11-
PART II. OTHER INFORMATION
Item 5. Other Information
In connection with its Medium-Term Notes program, the company
hereby reports the following computations:
13 Weeks Ended
---------------------
March 28, March 29,
1998 1997
--------- ----------
Earnings before income taxes
and extraordinary item $ 21,899 $ 51,310
Total fixed charges 17,069 5,787
Capitalized interest (1,575) (2,031)
------- -------
Earnings before fixed charges,
income taxes and extraordinary
item $ 37,393 $ 55,066
======= =======
Ratio of earnings to fixed charges 2.2 9.5
=== ===
Item 6. Exhibits and Reports on Form 8-K
(b) Reports on Form 8-K
A report on Form 8-K was filed by the company on February 2,
1998 in connection with its Medium-Term Notes program.
- -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 5, 1998 s/ Robert L. Peterson
- ----------------------- --------------------------
(date) Robert L. Peterson
Chairman of the Board and
Chief Executive Officer
/s/ Larry Shipley
-------------------------
Larry Shipley
Chief Financial Officer
/s/ Craig J. Hart
--------------------------
Craig J. Hart
Vice President
and Controller
- -13-
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<PERIOD-END> MAR-28-1998
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0
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<COMMON> 4,750
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