UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 27, 1997
______________________________
IBP, inc.
DELAWARE CORPORATION 42-0838666
(State of Incorporation) (Employer Identification Number)
IBP AVENUE
POST OFFICE BOX 515
DAKOTA CITY, NE 68731
(Address) (Zip Code)
Telephone Number: (402) 494-2061
_________________________________________________
Securities registered pursuant to section 12(b) of Act:
Common Stock Registered with the New York
Stock Exchange and the Pacific
Stock Exchange.
Registrant has filed all reports required to be filed by
Section 13 or 15(d) of the Security Exchange Act of 1934 during
the preceding 12 months, and has been subject to such filing
requirements for the past 90 days.
Disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is contained in definitive Proxy Statement
incorporated by reference in Part III of this Form 10-K.
The aggregate market value of the registrant's common
stock held by non-affiliates (91,974,553 shares) based on the New
York Stock Exchange average bid and ask price on March 24, 1998,
was approximately $2.14 billion.
As of March 24, 1998, the registrant had outstanding
92,565,108 shares of its common stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's 1997 Annual Report to
Stockholders (the "Annual Report") are incorporated by reference
in Parts I, II and IV of this Report. Portions of the
registrant's definitive Proxy Statement dated March 18, 1998,
(the "Proxy Statement") are incorporated by reference in Part III
of this Report. Other documents incorporated by reference in
this Report are listed in the Exhibit Index on pages 16 and 17.
PART I
ITEMS 1 AND 2. BUSINESS AND PROPERTIES
General
IBP, inc., ("IBP") a Delaware corporation, principally
produces fresh and processed beef and pork products. IBP's
primary products include boxed beef and fresh pork which are
marketed mainly in the United States to grocery chains, meat
distributors, wholesalers, retailers, restaurant and hotel
chains, and processors who produce cured and smoked products,
such as bacon, ham, luncheon meats and sausage items. In
addition, IBP produces frozen and refrigerated food products for
the foodservice industry. IBP also produces inedible allied
products, such as hides and other items used to manufacture
products such as leather, animal feed and pharmaceuticals, and
edible allied products, which include variety meat items.
IBP operates an extensive sales network to service its
customers with regional sales/service centers in the United
States (including an independently-owned contractor in Los
Angeles that is licensed to use IBP trademarks) as well as
sales/service centers in foreign countries. The mailing address
of IBP's corporate headquarters is IBP Avenue, Post Office Box
515, Dakota City, Nebraska 68731-0515; its telephone number is
(402) 494-2061. All references to "IBP" include IBP, inc. and
its subsidiaries.
IBP operates 10 fed beef carcass production facilities in
seven cattle-producing states and one in Canada, which reduce
live cattle to dressed carcass form. Eight of these locations
include processing facilities which conduct fabricating
operations to produce boxed beef. IBP operates four cow boning
facilities in Iowa, Nebraska and Texas, which reduce cows and
bulls to dressed carcass form and boneless meat product. IBP
also operates one ground beef facility in Nebraska. Fed beef
consists primarily of young steers and heifers specifically
raised for beef consumption. Cows and bulls processed by IBP are
primarily breeding or dairy stock which have been culled for
various reasons.
IBP operates six pork carcass facilities in Indiana, Iowa
and Nebraska which reduce live hogs to dressed carcass form. IBP
operates seven processing facilities which conduct fabricating
operations to produce boxed pork. The production process for pork
is similar to that employed in the beef operation.
In 1997, IBP completed the acquisitions of Foodbrands
America, Inc. ("Foodbrands") and The Bruss Company ("Bruss")
which are now held as subsidiaries of IBP. Foodbrands and Bruss
each are extensions of IBP's fresh beef and pork business,
offering a wide range of value-added food products to IBP's
customers. Foodbrands manufactures and markets frozen and
refrigerated food products such as pepperoni, beef and pork
toppings, pizza crusts, appetizers, Mexican and Italian foods,
soups, sauces, side dishes, and branded and processed meats.
Bruss manufactures and markets high quality, portion-controlled
steaks, pork chops and other products.
The following table reflects the approximate percentages
of revenues during the last three fiscal years from IBP's
principal product categories, all of which are within one
industry segment:
1997 1996 1995
---- ---- ----
Processed Beef Products 61% 62% 64%
Beef Carcasses (1) 4 4 5
Processed Pork Products 21 20 17
Beef And Pork Allied Products 14 14 14
--- --- ---
100% 100% 100%
=== === ===
(1) Represents beef carcasses sold to third parties that are not
further processed by IBP.
History of IBP's Business
IBP was first incorporated in 1960. It began operations
in 1961 with a single fed beef carcass production facility
located near Denison, Iowa, in what was then the nation's major
cattle-producing region. IBP grew in the Northern and Central
Plains states over the following nine years and added beef plants
in Dakota City, Nebraska; Emporia, Kansas; Luverne, Minnesota;
and West Point, Nebraska. IBP expanded into the Southern Plains
in 1975, when it built its Amarillo, Texas, facility near the
large commercial feedlot operations of that region. In 1976, it
moved into the Pacific Northwest through the acquisition and
expansion of plants in Pasco, Washington, and Boise, Idaho.
Company expansion continued in 1980 with construction of a
facility in Finney County, Kansas, and in 1983 with the purchase
and expansion of a plant in Joslin, Illinois. In 1990, IBP opened
its Lexington, Nebraska, fed beef plant and in 1994 IBP
purchased Lakeside Farm Industries, Ltd. ("Lakeside"), an
agribusiness company with a fed beef plant in Brooks, Alberta,
Canada. Lakeside is IBP's first plant outside of the United
States. In March of 1998, IBP discontinued operations at its
Luverne, Minnesota, facility.
IBP began its cow boning operations in 1995 by acquiring
facilities in Tama, Iowa; Gibbon, Nebraska; and Sealy, Texas. In
1996, IBP acquired its fourth cow boning facility in Palestine,
Texas. These plants supplement IBP's expansion into hamburger
patty production. IBP increased its hamburger patty production
capabilities in 1997 with the acquisition of the Columbus,
Nebraska, ground beef facility from Hudson Foods, Inc.
IBP began pork operations in 1982 when it purchased,
expanded and commenced operation of a pork facility in Storm
Lake, Iowa. Additional pork facilities were added in 1986 in
Louisa County, and Council Bluffs, Iowa; in 1987 in Madison,
Nebraska; in 1989 in Perry, Iowa; in 1990 in Waterloo, Iowa; and
in 1993 in Logansport, Indiana. In 1994, IBP constructed ham
processing facilities at its Council Bluffs, Iowa, and Madison,
Nebraska, locations. In 1997, IBP discontinued operations at the
carcass production facility and the ham processing facility in
Council Bluffs, Iowa.
In 1990, IBP added its first value-added operation when a
cooked meats facility was added to the Waterloo, Iowa pork
facility. This operation processed fresh meat into value-added,
consumer-ready items such as pork and beef pizza toppings. In
1994, IBP purchased Prepared Foods, Inc. from International
Multifoods, Inc. with a plant in Santa Teresa, New Mexico. In
1995, IBP purchased and renovated a facility in Columbia, South
Carolina. The Santa Teresa and Columbia facilities process fresh
meat into value-added, consumer-ready items. In 1997, IBP
increased its presence in the value-added marketplace with the
Foodbrands and Bruss acquisitions. In addition to the three IBP
value-added facilities listed above which have been put under
Foodbrands' management, Foodbrands operates facilities in Rialto,
California; Riverside, California; Cherokee, Iowa; Edwardsville,
Kansas; South Hutchinson, Kansas; Hutchinson, Kansas; Carthage,
Missouri; Concordia, Missouri; Piedmont, Missouri; Albuquerque,
New Mexico; New Rochelle, New York; Oklahoma City, Oklahoma;
Dallas, Texas; Fort Worth, Texas; Jefferson, Wisconsin; and Green
Bay, Wisconsin. The Bruss Company operates one processing
facility in Chicago, Illinois.
Prior to August 1981, when it was acquired by Occidental
Petroleum Corporation ("Occidental"), IBP was a publicly-held
corporation that was listed on the New York Stock Exchange (the
"NYSE"). From August 1981 to October 1987, IBP was a wholly-
owned subsidiary of Occidental. In October 1987, IBP sold 49.5%
of its common stock and was again listed on the NYSE.
On September 4, 1991, Occidental offered all of its shares
of IBP Common Stock to Occidental's stockholders and certain
standby underwriters in an underwritten rights offering. As a
result of this transaction, Occidental no longer owns any shares
of IBP Common Stock.
Operations
Cattle and Hog Supplies
IBP does not currently have facilities of its own to raise
cattle or hogs in the United States. However, in 1997, in order
to provide a secure supply of cattle to its Washington and Idaho
facilities, IBP entered into a risk-sharing arrangement with a
cattle producer in the Northwest for the production of cattle.
IBP's Canadian subsidiary, Lakeside, has cattle feeding
facilities, other agricultural divisions and a beef carcass
production and boxed beef processing facility. In 1997,
Lakeside's feedlots provided approximately 18% of that facility's
live cattle needs. IBP's main supply of live cattle and hogs is
purchased by IBP buyers who are trained to select high quality
animals that are candidates for higher yields. IBP's buyers
purchase cattle and hogs on a daily basis, generally a few days
before the animals are required for processing. Live animals are
generally held in IBP's holding pens for only a few hours.
Production Process-Beef and Pork
IBP's fed beef carcass production facilities reduce live
fed cattle to dressed carcass form and process allied products.
IBP's beef processing facilities conduct fabricating operations
to produce boxed beef. IBP's fed carcass and beef processing
facilities operated in 1997 at approximately 85% and 83%,
respectively, of their production capacities.
IBP's cow boning facilities produce beef trimmings and
boneless cuts of beef that are further processed by IBP and which
are sold to customers who produce hamburger, sausage and deli
meats. IBP's cow boning facilities operated in 1997 at
approximately 57% of their production capacity. IBP's Columbus,
Nebraska ground beef facility was acquired in the fall of 1997
and is still in its start-up phase.
IBP's pork facilities produce fresh boxed pork for
shipment to customers, as well as pork bellies, hams and boneless
picnic meat for shipment to customers who further process the
pork into bacon, cooked hams, luncheon meats and sausage items.
In 1997, IBP's pork facilities operated at approximately 71% of
their production capacities.
Throughout production, edible beef, cow boning and pork
allied products, such as variety meat items, are segregated and
prepared for shipment or further refinement. Inedible beef, cow
boning and pork products derived from processing operations are
used in the manufacture of leather, animal feed, gelatin,
pharmaceuticals and cosmetics.
Eight of IBP's fed beef and cow boning plants include hide
treatment facilities. The majority of the hides from IBP's other
fed beef and cow boning plants are transported to these
facilities, which include brine curing operations and, in four
locations, chrome hide tanneries. The chrome tanning process
produces a semifinished product that is shipped to leather good
manufacturers worldwide. Brine-cured hides are sold to other
tanneries. IBP is the largest chrome tanner of cattle hides in
the United States.
Production Process-Value-Added Products
IBP's value-added production facilities process fresh
beef, fresh pork, and other raw materials into pizza toppings,
portion-controlled steaks and pork chops, branded and processed
meats, appetizers, ethnic foods, soups, sauces, side dishes and
pizza crusts. Due to variances in product mix that may be
processed at a value-added facility, it is difficult to estimate
a facility's capacity. However, in 1997, IBP estimates the
value-added facilities operated at approximately 70% to 75% of
their production capacity.
Facilities
The corporate headquarters of IBP are located primarily in
Dakota City, Nebraska. IBP is constructing a new corporate
headquarters in Dakota Dunes, South Dakota, that is expected to
be completed in the summer of 1998. IBP believes that its plants
are among the most modern in the world and strives to maintain
and enhance its facilities. Generally, plants and additions are
designed and constructed by IBP's personnel. IBP generally
considers its existing plants and equipment to be in excellent
condition. IBP's capital spending for 1998 is expected to be in
the range of $175 million, which includes expenditures for
environmental compliance activities. Its principal plants as of
December 27, 1997, are described below.
Beef
IBP's eleven fed beef carcass production facilities are
located in the states of Idaho, Illinois, Iowa, Kansas,
Minnesota, Nebraska, Texas and Washington. IBP's twelfth fed
beef carcass production facility is in Alberta, Canada. At these
locations, eight have processing facilities, eight have hide
treatment or tanning operations, five have cold storage freezer
operations and one has a tallow refining plant. IBP's four cow
boning facilities are located in Iowa, Nebraska and Texas. IBP
also has a ground beef processing facility in Nebraska.
Pork
IBP's six pork carcass production and seven processing
facilities are located in the states of Indiana, Iowa and
Nebraska. At these locations, four have cold storage freezer
operations and two have skinning operations.
Value-Added
IBP's twenty-one value-added facilities are located in
California, Iowa, Kansas, Missouri, Nebraska, New Mexico, New
York, Oklahoma, South Carolina, Texas, and Wisconsin.
Sales
IBP's customers for beef, pork and value-added products
include domestic and international grocery chains, meat
distributors, wholesalers, retailers, warehouse clubs,
foodservice distributors, restaurant and hotel chains, and meat
processors who produce cured and smoked products, such as bacon,
ham, luncheon meat and sausage items. Most sales are made
pursuant to daily orders as opposed to long-term supply
contracts. In each of the past three years, IBP's largest beef
customer accounted for less than 4% of its annual beef net sales,
and its largest pork customer accounted for less than 7% of its
net pork gross sales. For the same periods, IBP's largest
customer for all products combined accounted for less than 4% of
its annual net sales.
IBP sells to international customers through foreign and
domestic sales offices. In fiscal 1997, export sales accounted
for approximately 13% of IBP's net sales, which compares to
approximately 13% in fiscal 1996 and 14% in fiscal 1995.
Some allied products are sold as commodities in bulk,
while other items are trimmed, boxed and frozen by IBP. Cattle
hides are sold for both domestic and international use. Uncured
and brine-cured hides are sold to tanneries for further
processing. Chrome-tanned hides are sold to tanneries and
directly to further processors of leather.
Distribution
Beef and Pork
Most IBP beef and pork products are shipped by trucks,
generally from plants located closest to the purchaser, although
other plants may supplement such deliveries, depending upon
prevailing supplies and product demand.
Value-Added
IBP's value-added products are transported by independent
carriers from its distribution/customer service centers in
Edwardsville, Kansas and Rialto, California, or are shipped
directly from the production facility with a view toward
achieving an efficient, cost-effective method of distribution.
Customer requirements vary from the need for large quantities of
a limited number of products to small quantities of a number of
items, each requiring a different distribution method. From the
distribution centers, orders for customers of the different
divisions can be filled and delivered in a single shipment
regardless of the variety of products ordered or the location of
the manufacturing facility at which they are produced. The
company also can combine for shipment the orders of many smaller
customers in the same geographic region. Management believes
this flexible distribution system allows the company to provide
superior service to its customers by reducing the time between
the placement of customer orders and delivery of the company's
products. This also lowers the customer's shipping costs through
the elimination of higher-cost, fragmented deliveries.
Competition
Beef and Pork
The primary industry in which IBP operates is highly
competitive and characterized by very small margins. IBP
considers its principal competition to come from domestic
producers of fresh beef and pork products, although IBP also
competes with other suppliers of protein, including other red
meats, poultry, seafood, grain, dairy products, eggs, soya and
other protein products. Competition exists both in the purchase
of live cattle and hogs, as well as in the sale of beef and pork
products. The principal competitive element in both buying and
selling is price.
Failure to accurately assess the quality of cattle and
hogs can result in (i) the payment of an excessive price if the
livestock yields less than expected, or (ii) the failure to bid a
price sufficiently high to purchase high quality livestock. To
effectively compete in the purchase of cattle, a cattle buyer
must be able to accurately judge the yield and quality of the
cattle to establish price. As part of IBP's cattle buying
process, each cattle buyer prepares an estimate by lot of the
yield and quality of the cattle purchased. IBP's information
systems prepare a report on each lot that compares the actual
yield and quality to the buyer's initial estimate. This enables
IBP to monitor the quality of various cattle producers and to
measure the skill of its cattle buyers, both of which are
critical factors in determining IBP's success and
competitiveness.
IBP's hog buyers generally purchase hogs based upon an
average daily bid price. The average daily bid price is adjusted
for each producer by tracking the producer's yield and quality
results. From the results of the producer's prior sales, IBP is
able to generate a discount or a premium which adjusts the
average daily bid for that individual producer. IBP believes
this purchasing system is one of the most advanced and accurate
methods for establishing fair prices in the industry.
In addition to price, product quality, product mix,
location and service are important competitive elements in the
sale of fresh beef and pork products.
IBP is the largest producer of fresh beef and one of the
largest producers of pork products in the United States. IBP
believes that its two largest beef competitors in 1997 were
Monfort, a subsidiary of ConAgra, Inc. ("ConAgra") and Excel
Corporation, a subsidiary of Cargill, Incorporated. It believes
that its largest pork competitors in 1997 were Smithfield Foods
Inc.; ConAgra; and Hormel Foods Corp.
Value-Added
IBP's value-added products are sold in highly competitive
markets competing with a significant number of companies of
various sizes. The principal competitive factors in these
markets are price, service, innovative products, and quality.
Employees
As of December 27, 1997, IBP had approximately 38,000
employees. Whenever possible, production employees are recruited
locally and trained by IBP for specific tasks.
IBP considers its relations with its employees at its
plants to be good. Approximately 14,700 hourly employees at
fourteen of IBP's 44 production facilities are represented by
labor organizations. The labor contracts applicable to these
plants expire as follows:
Contract Expiration
Plant Union Date
- ------------------------- ------------------------------ ------------------
Amarillo, Texas Teamsters (1) November 2002
Chicago, Illinois (3) Teamsters (1) April 1998
Pasco, Washington Teamsters (1) May 1999
Rialto, California Teamsters (1) September 1998
Tama, Iowa Teamsters (1) January 2001
Albuquerque, New Mexico UFCW (2) November 2000
Cherokee, Iowa UFCW (2) March 1999
Chicago, Illinois UFCW (2) July 1999
Concordia, Missouri UFCW (2) June 2001
Dakota City, Nebraska UFCW (2) August 1999
Jefferson, Wisconsin UFCW (2) June 1998
Joslin, Illinois UFCW (2) December 2000
Perry, Iowa UFCW (2) April 1999
Riverside, California UFCW (2) May 2001
Rialto, California (4) UFCW (2) May 2001
Waterloo, Iowa UFCW (2) September 1998
_________________
(1) Teamsters local unions affiliated with The International
Brotherhood of Teamsters, Chauffeurs, Warehousemen, and
Helpers of America.
(2) United Food and Commercial Workers, International Union,
AFL-CIO.
(3) The Teamsters contract at the Chicago, Illinois, facility
covers only those employees working in distribution.
(4) The UFCW labor contract at the Rialto, California,
facility covers only those employees working in distribution.
Regulatory Matters
IBP's operations are subject to the constant inspection
and regulation of the United States Department of Agriculture
(the "USDA"), including (i) regulations of the USDA's Packers and
Stockyards Administration, (ii) continuous in-plant inspection of
IBP's production facilities (along with each live animal, each
carcass and all edible products) by USDA employees to ensure
compliance with USDA standards and (iii) grading of beef
carcasses by USDA employees.
IBP is subject to federal, state and local laws and
regulations governing environmental protection. In 1997,
expenditures to maintain compliance with such regulations cost
the company approximately $15 million. IBP believes that it is
in substantial compliance with such applicable laws and
regulations. IBP is not aware of any violations of, or pending
changes in, such laws and regulations that are likely to result
in material penalties or material increases in compliance costs.
IBP incurred $8 million in capital expenditures for
environmental control facilities in fiscal 1997 and anticipates
capital expenditures of approximately $23 million in fiscal 1998.
EXECUTIVE OFFICERS OF THE REGISTRANT
Age at Positions With IBP and
January 27, Five-Year Employment
Name 1998 History
- ------------------ ---------- -----------------------------
Richard L. Bond 50 President and Chief
Operating Officer since
1997; Director since 1995;
1995 - 1997 President,
Fresh Meats; 1994-1995
Executive Vice President,
Beef; 1989-1994 Group Vice
President, Beef Sales and
Marketing; 1982-1989 Vice
President, Boxed Beef Sales
and Marketing
Kenneth W. Browning, Jr. 48 Executive Vice President
since 1996; 1989-1996
Senior Vice President, Hide
Division; 1982-1989 Vice
President, Hides
R. Randolph Devening 55 Chief Executive Officer and
President, Foodbrands
America, Inc. since 1994;
Chairman of the Board,
Foodbrands America, Inc.
1994 to 1997.
Craig J. Hart 42 Vice President and
Controller since 1995;
1993-1995 Assistant Vice
President and Controller;
1990-1993 Controller
David C. Layhee 53 President, Value-Added
Ground Meats since 1997;
1995 - 1997 President,
Consumer Products; 1994-
1995 Executive Vice
President, Design Products;
1989-1994 Group Vice
President, Design Products;
1983-1989 Group Vice
President, Sales &
Marketing
Eugene D. Leman 55 President, Fresh Meats
since 1997; Director since
1989; 1995 - 1997
President, Allied Group;
1986-1995 Executive Vice
President, Pork Division;
1981-1986 Group Vice
President, Pork Division
James V. Lochner 45 Executive Vice President
since 1995; 1993-1995
Senior Vice President,
Technical Services; 1989-
1993 Vice President,
Technical Services; 1986-
1989 Assistant Vice
President Quality Control,
Beef; 1984-1986 Director,
Quality Control
Charles F. Mostek 50 Executive Vice President
since 1995; 1989-1995 Vice
President, Beef Sales;
1985-1989 Vice President,
Slaughter Division Sales;
1981-1985 Assistant Vice
President, Carcass Grading
and Administration
Robert L. Peterson 65 Chairman of the Board of
Directors since 1981; Chief
Executive Officer since
1980; Director since 1976;
1979-1995 President
Kenneth L. Rose 53 Executive Vice President
since 1995; 1989-1995
Senior Vice President,
Logistics Services; 1982-
1989 Vice President,
Transportation
Jerry S. Scott 52 Executive Vice President since 1995;
1986-1995 Vice President, Pork
Operations
Larry Shipley 42 President, IBP Enterprises since
1997; 1995 - 1997 Executive Vice
President, Corporate Development;
1995 Senior Vice President, Corporate
Development; 1994-1995 Assistant to
the Chairman; 1989-1994 Assistant to
the President.
ITEM 3. LEGAL PROCEEDINGS
Incorporated by reference from the Annual Report, page 41, section
entitled "Notes to Consolidated Financial Statements," at note "N.
Commitments and Contingencies." The Annual Report is an exhibit to this
Form 10-K.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of IBP's security holders
during the fourth quarter of 1997.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Incorporated by reference from Annual Report, page 35, section
entitled "Consolidated Statements of Changes in Stockholders' Equity"; and
from page 42, section entitled "Notes to Consolidated Financial
Statements," at note "O. Quarterly Financial Data (Unaudited)".
IBP's Common Shares were held by approximately 6,600 stockholders
of record at year-end 1997. The Common Stock is listed on the New York and
Pacific Stock Exchanges.
ITEM 6. SELECTED FINANCIAL DATA
Selected Financial Data
(in thousands, except net sales and per share data)
Fiscal Year Ended
-----------------------------------------------------
Dec. 27, Dec. 28, Dec. 30, Dec. 31, Dec. 25,
1997 1996 1995 1994 (1) 1993
--------- ---------- --------- --------- ---------
OPERATIONS:
Net sales (in millions) $13,258.8 $12,538.8 $12,667.6 $12,075.4 $11,671.4
Gross profit 442,892 443,582 604,068 460,109 258,666
Selling, general and
administrative
expense 216,176 120,674 123,972 112,772 84,197
Earnings from
operations 226,716 322,908 480,096 347,337 174,469
Interest expense, net (38,002) (3,373) (20,784) (38,448) (43,212)
Income taxes 71,700 120,800 179,200 126,600 53,800
Extraordinary loss (2) - - (22,189) - -
Accounting change (3) - - - - 12,626
Net earnings 117,014 198,735 257,923 182,289 90,083
PER SHARE DATA:
Earnings per share:
Earnings before
extra. item,
accounting change $1.26 $2.10 $2.96 $1.92 $ .82
Extraordinary loss (2) - - (.23) - -
Accounting change (3) - - - - .13
Net earnings 1.26 2.10 2.73 1.92 .95
Earnings per share -
assuming dilution:
Earnings before
extra. item,
accounting change $1.25 $2.07 $2.92 $1.90 $ .81
Extraordinary loss (2) - - (.23) - -
Accounting change (3) - - - - .13
Net earnings 1.25 2.07 2.69 1.90 .94
Dividends per share .10 .10 .10 .10 .10
FINANCIAL CONDITION:
Working capital $ 207,109 $ 540,903 $ 427,241 $ 359,238 $ 336,668
Total assets 2,838,941 2,174,495 2,027,601 1,865,463 1,538,907
Long-term obligations 568,281 260,008 260,752 361,760 460,723
Stockholders' equity 1,237,069 1,203,655 1,022,939 780,494 612,796
(1) 53-week year.
(2) Extraordinary loss on early extinguishment of debt.
(3) Cumulative effect of change in accounting for income taxes.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Incorporated by reference from the Annual Report, pages 43-
44, section entitled "Management's Discussion and Analysis."
In the first quarter 1998, IBP, inc. purchased substantially
all of the $112 million of 10.75% Senior Subordinated Notes due
2006, which were obligations of its wholly-owned subsidiary,
Foodbrands America, Inc. The purchase of these obligations 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.
Net prepayment premiums, accelerated amortization of
unamortized deferred financing costs, and transaction expenses,
totaled $23.6 million, before applicable income tax benefit of
$9.0 million, and will be accounted for as an extraordinary loss
in the first quarter 1998.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Incorporated by reference from the Annual Report, pages 30-
45, sections entitled "Consolidated Financial Statements,"
"Notes to Consolidated Financial Statements" and "Report of
Independent Accountants." See reference to purchase of
Foodbrands America, Inc. bonds in Item 7.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Incorporated by reference from the Proxy Statement, page 11,
section entitled "INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS."
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Incorporated by reference from the Proxy Statement, pages 2-
4, section entitled "ELECTION OF DIRECTORS" and reference is
also made to the information regarding executive officers set
forth in "EXECUTIVE OFFICERS OF THE REGISTRANT" in Part I of this
report.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference from the Proxy Statement, pages 7-
10, section entitled "SUMMARY COMPENSATION TABLE"; "OPTION GRANTS
TABLE," "AGGREGATED OPTION EXERCISES AND YEAR-END OPTION VALUE
TABLE," "PERFORMANCE GRAPH," and from page 5, section entitled
"ELECTION OF DIRECTORS," subsection "Information Regarding
Directors' Compensation."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Incorporated by reference from the Proxy Statement, page 2
and pages 5-6, sections entitled "SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS" and "SECURITY OWNERSHIP OF MANAGEMENT."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference from the Proxy Statement, pages 4-
5, sections entitled "ELECTION OF DIRECTORS," subsection
"Information Regarding the Board of Directors and its Committees"
and from page 7, section entitled "COMPENSATION COMMITTEE
INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION DECISIONS."
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a) Documents filed as part of this report.
The following financial information is
incorporated by reference from the Annual
Report, as identified below, or is found in
this report.
1. Consolidated Financial Location
Statements --------------------------
Report of Independent Accountants Annual Report, page
30 and page 19 of this report
Consolidated Statements of Earnings Annual Report, page 31
Consolidated Balance Sheets Annual Report, pages 32-33
Consolidated Statements of Cash Flows Annual Report, page 34
Consolidated Statements of Changes Annual Report, page 35
in Stockholders' Equity
Notes to Consolidated Financial Annual Report, pages
Statements 36-42
2. Financial Statement Schedule
Reports of Independent Accountants on Financial
Statement Schedules
Schedule II Valuation and Qualifying Accounts and
Reserves
All other schedules are omitted because they are not
applicable or not required.
3. Exhibits
3.1* Restated Certificate of Incorporation of IBP
(filed as Exhibit No. 3.1. to the Annual Report on
Form 10-K of IBP for the fiscal year ended
December 28, 1996, File No. 1-6085).
3.2* Restated By-laws of IBP (filed as Exhibit No. 3.2
to the Annual Report on Form 10-K of IBP for the
fiscal year ended December 28, 1996, File No. 1-
6085).
10.5* IBP's 1987 Stock Option Plan (filed as Exhibit No.
28(a) to IBP's Registration Statement on Form S-8,
dated January 5, 1988, File No. 33-19441)
(Executive Compensation Plan).
10.5.1* Form of Stock Option Agreement (10/1/87) (filed as
Exhibit No. 28(b) to IBP's Registration Statement
on Form S-8, dated January 5, 1988, File No. 33-
19441).
10.5.2* Form of Stock Option Agreement (12/31/87) (filed
as Exhibit No. 28(c) to IBP's Registration
Statement on Form S-8, dated January 5, 1988, File
No. 33-19441).
10.5.3* IBP Officer Long-Term Stock Plan (filed as Exhibit
No. 10.5.3 to the Annual Report on Form 10-K of
IBP for the fiscal year ended December 25, 1993,
File No. 1-6085).
10.5.4* IBP Directors Stock Option Plan (filed as Exhibit
No. 10.5.4 to the Annual Report on Form 10-K of
IBP for the fiscal year ended December 25, 1993,
File No. 1-6085).
10.5.5* IBP 1993 Stock Option Plan (filed as Exhibit No.
10.5.5 to the Annual Report on Form 10-K of IBP
for the fiscal year ended December 25, 1993, File
No. 1-6085).
10.5.6* 1996 Officer Long-Term Stock Plan (filed as
Exhibit No. 10.5.6 to the Annual Report on Form
10-K of IBP for the fiscal year ended December 28,
1996, File No. 1-6085).
10.5.7* 1996 Stock Option Plan (filed as Exhibit 10.5.7 to
the Annual Report on Form 10-K of IBP for the
fiscal year ended December 28, 1996. File No. 1-
6085).
10.14* Form of IBP's Indemnification Agreement with
officers and directors (filed as Exhibit No. 10.18
to IBP's Registration Statement on Form S-1, dated
August 19, 1987, File No. 1-6085).
10.21* Credit Agreement (Revolving/Term Credit Facility)
dated as of December 21, 1995, between IBP, inc.
and various lenders with First Bank National
Association as Administrative Agent and Bank of
America National Trust and Savings Association as
Co-Agent.
10.23* Intercompany Agreement, dated as of September 4,
1991, between IBP and Occidental Petroleum
Corporation (filed as Exhibit No. 10.23 to the
Annual Report on Form 10-K of IBP for the fiscal
year ended December 28, 1991, File No. 1-6085).
10.24 Employment Agreement, effective as of August 18,
1997, between IBP and Larry Shipley.
10.25 Employment Agreement, effective as of March 1,
1997, between IBP and Richard L. Bond.
10.26 Employment Agreement, effective as of March 1,
1997, between IBP and Eugene D. Leman.
10.28* Text of Retirement Income Plan of IBP, inc. (As
Amended and Restated Effective as of January 1,
1992), as amended. (Executive Compensation Plan)
(filed as Exhibit No. 10.28 to the Annual Report
on Form 10-K of IBP for the fiscal year ended
December 26, 1992, File No. 1-6085).
10.29* Employment Agreement, effective January 1, 1993,
between IBP and Dale Tinstman (filed as Exhibit
No. 10.29 to the Annual Report on Form 10-K of IBP
for the fiscal year ended December 25, 1993, File
No. 1-6085).
13. 1997 Annual Report to Stockholders.
21. Subsidiaries of IBP, inc. as of December 26, 1997.
22.* Matters submitted to vote of security holders
(filed as Item 4 to the Quarterly Report on Form
10-Q for the 26 weeks ended June 28, 1997, File
No. 1-6085).
23.1 Consent of Independent Public Accountants (Coopers
& Lybrand L.L.P.).
27. Financial Data Schedule.
__________________
* Incorporated herein by reference
(b) Reports on Form 8-K
The company filed a report on Form 8-K, dated November 25,
1997, with the Securities and Exchange Commission, File No. 1-
6085. The 8-K reported Items 2 and 7, and historical and pro
forma financial statements relating to the Foodbrands acquisition
were filed with the 8-K.
(c) Other Matters
With the exception of the information expressly referenced
and thereby incorporated in ITEMS 3, 5, 6, 7 and 8, the Annual
Report is not to be deemed "filed" with the Securities and
Exchange Commission or otherwise subject to the liabilities of
Section 18 of the Securities and Exchange Act of 1934.
For the purpose of complying with the amendments to the
rules governing Form S-8 (effective July 13, 1990) under the
Securities Act of 1933, IBP hereby undertakes as follows, which
undertaking shall be incorporated by reference into IBP's
Registration Statement on Form S-8 No. 33-19441 (filed January 5,
1988):
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers
and controlling persons of IBP pursuant to the foregoing
provisions, or otherwise, IBP has been advised that, in the
opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities
(other than the payment by IBP of expenses incurred or paid by a
director, officer or controlling person of IBP in the successful
defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the
securities being registered, IBP will, unless in the opinion of
its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final
adjudication of such issue.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of IBP, inc.
Our report on the consolidated financial statements of IBP, inc.
has been incorporated by reference in this Form 10-K from page 30
of the 1997 Annual Report to Stockholders of IBP, inc. In
connection with our audits of such financial statements, we have
also audited the related financial statement schedule as of
December 27, 1997, December 28, 1996 and December 30, 1995 and
for the years then ended listed in Item 14(a) 2 of this Form 10-K.
In our opinion, the financial statement schedule referred to
above, when considered in relation to the basic financial
statements taken as a whole, presents fairly, in all material
respects, the information required to be included therein.
COOPERS & LYBRAND L.L.P.
Omaha, Nebraska
January 23, 1998
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
AND RESERVES
Fiscal Years 1995, 1996, and 1997
(In thousands)
Allowance
for Doubtful
Accounts
------------
Balance, December 31, 1994 $ 9,397
Amounts charged to costs and expenses 478
Recoveries of amounts previously
written off 106
Write-off of uncollectible accounts (508)
Other 21
------
Balance, December 30, 1995 9,494
Amounts charged to costs and expenses 379
Recoveries of amounts previously
written off 115
Write-off of uncollectible accounts (112)
Other (3)
------
Balance, December 28, 1996 9,873
Amounts charged to costs and expenses 514
Recoveries of amounts previously
written off 39
Write-off of uncollectible accounts (829)
Other 466
------
Balance, December 27, 1997 $10,063
======
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereto duly authorized.
IBP, inc.
By: /s/ Robert L. Peterson
---------------------------
Robert L. Peterson
Chairman of the Board
and Chief Executive Officer
Date: 3/24/98
-----------
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on
the date indicated.
Signature Title Date
/s/ Robert L. Peterson Chairman of the Board 3/24/98
- --------------------------
Robert L. Peterson and Chief Executive
Officer (principal
executive officer)
/s/ Larry Shipley
- -------------------------- President, IBP 3/24/98
Larry Shipley Enterprises (principal
financial officer)
/s/ Craig J. Hart
- -------------------------- Vice President and 3/24/98
Craig J. Hart Controller
/s/ Richard L. Bond
- --------------------------- Director 3/24/98
Richard L. Bond
/s/ John S. Chalsty
- --------------------------- Director 3/24/98
John S. Chalsty
/s/ Wendy L. Gramm
- --------------------------- Director 3/23/98
Wendy L. Gramm
/s/ John J. Jacobson Jr.
- --------------------------- Director 3/20/98
John J. Jacobson, Jr.
/s/ Eugene D. Leman
- --------------------------- Director 3/24/98
Eugene D. Leman
/s/ Martin A. Massengale
- --------------------------- Director 3/24/98
Martin A. Massengale
/s/ Michael L. Sanem
- --------------------------- Director 3/21/98
Michael L. Sanem
/s/ JoAnn R. Smith
- --------------------------- Director 3/23/98
JoAnn R. Smith
- --------------------------- Director
Dale C. Tinstman
Exhibit 10.24
EMPLOYMENT AGREEMENT
This Agreement, effective the 18th day of August, 1998 (the
"Effective Date"), by and between IBP, inc., a Delaware corporation
(hereinafter referred to as "Employer"), and Larry Shipley (hereinafter
referred to as "Employee").
WITNESSETH:
WHEREAS, Employer is engaged in a very competitive business, where
the development and retention of extensive trade secrets and proprietary
information is critical to future business success; and
WHEREAS, Employee, by virtue of its employment with Employer, is
involved in the development of, and has access to, this critical
business information which information, if it were to get into the hands
of competitors of Employer, could do substantial business harm to
Employer; and
WHEREAS, Employer has advised Employee that agreement to the terms
of this Agreement, and specifically the non-compete and non-solicitation
paragraphs, is an integral part of this Agreement, and Employee
acknowledges the importance of the non-compete and non-solicitation
paragraphs, and having reviewed the agreement as a whole, is willing to
commit to the restrictions as set forth herein;
NOW, THEREFORE, Employer and Employee, in consideration of the
above and the terms and conditions contained herein, hereby mutually
agree upon the following terms and conditions.
1. Duties. Employee shall perform the duties of President, IBP
Enterprises or shall serve in such other capacity and with such other
duties for Employer as Employer shall hereafter from time to time
prescribe. Employee shall perform all such duties with diligence and
thoroughness. Employee shall be subject to and comply with all rules,
policies, procedures, supervision and direction of Employer in all
matters related to the performance of Employee's duties.
2. Term of Employment. The term of employment shall be for a
period of five (5) years, commencing on the Effective Date of this
Agreement (the "Term"), unless terminated prior thereto in accordance
with the provisions of this Agreement. The obligations of Employee
under Paragraphs 8 b), c), d), e), f), g), h), and i) shall continue to
apply after the expiration of the Term for the time periods specified in
these sections.
3. Compensation. For the services to be performed hereunder,
Employee shall be compensated by Employer at the rate of not less than
two hundred and fifty thousand dollars ($250,000) per year payable
monthly, and in addition may receive awards under Employer's Cash Bonus
Plan subject to the discretion of the senior management of Employer.
Such compensation will be subject to review from time to time when
salaries of other officers and managers of Employer are reviewed for
consideration of increases therein.
4. Participation in Benefit Programs. Employee shall be
entitled to participate in any benefit programs generally applicable to
officers of Employer adopted by Employer from time to time.
5. Limitation on Outside Activities. Employee shall devote full
employment energies, interest, abilities and time (except for personal
investments) to the performance of obligations hereunder and shall not,
without the written consent of the Chief Executive Officer of the
Company, render to others any service of any kind or engage in any
activity which conflicts or interferes with the performance of duties
hereunder.
6. Ownership of Employee's Inventions. All ideas, inventions,
and other developments or improvements conceived by Employee, alone or
with others, during the term of his employment, whether or not during
working hours, that are within the scope of Employer's business
operations or that relate to any of Employer's work or projects, are the
exclusive property of Employer. Employee agrees to assist Employer, at
its expense, to obtain patents on any such patentable ideas, inventions,
and other developments, and agrees to execute all documents necessary to
obtain such patents in the name of Employer.
7. Termination.
(a) Voluntary Termination. Employee may terminate this
Agreement at any time by not less than one year's prior written notice
to Employer. Employee shall not be entitled to any compensation from
Employer for any period beyond Employee's actual date of termination.
(b) Employer Right to Voluntary Termination. Employer shall
be entitled, at its election and with or without cause, to terminate
Employee's employment upon written notice to Employee. Employer shall
continue to pay Employee at the rate and in the manner provided in
Paragraph 3 above for a period after such notice of termination
equivalent to three (3) months. During the time Employee is being
compensated in lieu of continued employment, the Employer shall have the
right, at its election, to a) relieve the Employee's duties effective
the date of notice of termination, or b) to require the Employee to
perform services from time to time on behalf of the Employer during such
three (3) month period.
(c) Incapacity. If Employee is materially incapacitated
from fully performing his duties pursuant to this Agreement by reason of
illness or other incapacity or by reason of any statute, law, ordinance,
regulation, order, judgment or decree, Employer may terminate this
Agreement by 30 days written notice to Employee, but only in the event
that such incapacity shall aggregate not less than one hundred twenty
(120) days during any one year.
8. Confidential Information, Trade Secrets, Limitation on
Solicitation and Non-Compete Clause.
(a) Employee shall receive, in addition to all regular
compensation for services as described in Section 3 of this Employment
Agreement, as additional consideration for signing this Employment
Agreement and for agreeing to abide and be bound by the terms,
provisions and restrictions of this Section 8, the following:
(i) an award of such number of shares of Common Stock
of Employer under the terms and conditions of the Employer's IBP
Officer Long-Term Stock Plan and/or 1996 Officer Long-Term Stock
Plan as shall be equal to an aggregate value of $550,000, less
$350,000 previously awarded;
(ii) a grant of options to purchase an aggregate of
ten thousand (10,000) shares of Common Stock of Employer under the
terms and conditions of the Employer's IBP Stock Option Plans and
each year on the annual grant date for stock options an annual
option grant of options to purchase shares of Common Stock of the
Employer under the terms and conditions of the Employer's Stock
Option Plans which is equal to three times (3x) the annual option
level of the Employee's officer-position band option level,
provided that the Employee has been on the payroll, whether as an
officer or otherwise, at least six months prior to the annual
grant date; and
(iii) the right to receive bonus option grants,
pursuant to the terms and conditions made available by the Plans
Administration Committee of Employer's Board of Directors, from
the employer's stock option plans, upon the Employee's exercise of
any options granted to the Employee.
(b) Employee recognizes that, as a result of his employment
hereunder (and his employment, if any, with Employer for periods prior
to the Effective Date), he has had and will continue to have access to
confidential information, trade secrets, proprietary information,
intellectual property, and other documents, data, and information
concerning methods, processes, controls, techniques, formula,
production, distribution, purchasing, financial analysis, returns and
reports (in addition if Employee is involved with marketing, sales or
procurement he has had and will continue to have access to lists of
customers, suppliers, livestock vendors, and accounts, other sensitive
information and data regarding the Employer's customers, suppliers,
vendors, services, sales, pricing, and costs which are highly
confidential and constitute trade secrets or confidential business
information) which is the property of and integral to the operations and
success of Employer, and therefore agrees to be bound by the provisions
of this Section 8, which Employee agrees and acknowledges to be
reasonable and to be necessary to protect legitimate and important
business interests and concerns of Employer.
(c) Employee agrees that he will not divulge to any person,
nor use to the detriment of Employer or any of its subsidiaries, nor use
in any business or process of manufacture competitive with or similar to
any business or process of manufacture of Employer or any of its
subsidiaries, at any time during the term of this Agreement or
thereafter, any of the Employer's trade secrets, without first obtaining
the express written permission of Employer. A trade secret shall
include any formula, pattern, device or compilation of information used
by Employer in its business. For purposes of this Section 8, the
compilation of information shall include, without limitation, the
identity of customers and suppliers and information reflecting their
interests, preferences, credit-worthiness, likely receptivity to
solicitation for participation in various transactions and related
information obtained during the course of his employment with Employer.
(d) Employee agrees that at the time of leaving the employ
of Employer he will deliver to Employer, and not keep or deliver to
anyone else, any and all notebooks, memoranda, documents and, in
general, any and all materials relating to Employer's business, or
constituting Employer's property. Employee further agrees that he will
not, directly or indirectly, request or advise any customers or
suppliers of Employer or any of its subsidiaries to withdraw, curtail or
cancel its business with Employer or any of its subsidiaries.
(e) During the term of Employee's employment with the
Employer and for a period of one (1) year from the earlier of 1) the
termination of Employee's employment for any reason whatsoever, or 2)
the expiration of the Term (it is expressly acknowledged that this
clause is intended to survive the expiration of the "Term"), Employee
will not directly or indirectly, in the United States, participate in
any Position, in any business in direct competition with the business of
the Employer. The term "Position" as used in this section shall
include, without limitation, a partner, director, holder of more than 5%
of the outstanding voting shares, principal, executive, officer, manager
or any employment or consulting position. It is acknowledged and agreed
that the scope of the clause as set forth above is essential, because 1)
a more restrictive definition of "Position" (e.g. limiting it to the
"same" position within a competitor) will subject the Employer to
serious, irreparable harm by allowing competitors to describe positions
in ways to evade the operation of this clause, and substantially
restrict the protection sought by Employer, and 2) by allowing the
Employee to escape the application of this clause by accepting a
position designated as a "lesser" or "different" position with a
competitor, the Employer is unable to restrict the Employee from
providing valuable information to such competing company to the harm of
the Employer.
(f) Employee recognizes that he possesses confidential
information and trade secrets about other employees of Employer and its
subsidiaries relating to their education, experience, skills, abilities,
salary and benefits, and interpersonal relationships with customers and
suppliers of Employer and its subsidiaries. Employee recognizes that
the information he possesses about these other employees is not
generally known, is of substantial value to Employer in securing and
retaining customers and suppliers, and was acquired by Employee because
of his business position with Employer. Employee agrees that during his
employment hereunder, and for a period of three (3) years from the
earlier of 1) the termination of Employee's employment for any reason
whatsoever, or 2) the expiration of the Term, Employee shall not,
directly or indirectly, solicit or contact any employee or agent of
Employer or any of its subsidiaries, with a view to inducing or
encouraging such employee or agent to leave the employ of Employer or
any of its subsidiaries, for the purpose of being hired by Employee, an
employer affiliated with Employee, or any competitor of Employer or any
of its subsidiaries. Employee agrees that he will not convey any such
confidential information or trade secrets about other employees to
anyone affiliated with Employee or to any competitor of Employer or any
of its subsidiaries.
(g) Employee acknowledges that the restrictions contained
in this Section 8 are reasonable and necessary to protect Employer's
interest in this agreement and that any breach thereof will result in an
irreparable injury to Employer for which Employer has no adequate remedy
at law. Employee therefore agrees that, in the event that Employee
breaches any of the provisions contained in this Section 8, Employer
shall be authorized and entitled to seek from any court of competent
jurisdiction (i) a temporary restraining order, (ii) preliminary and
permanent injunctive relief, (iii) an equitable accounting of all
profits or benefits arising out of such breach, and (iv) direct,
incidental and consequential damages arising from such breach. Employee
agrees to reimburse Employer for all reasonable legal fees, as well as
costs of defense related to any actions taken by Employer to enforce
Section 8.
(h) Employer and Employee have attempted to specify a
reasonable period of time, a reasonable area and reasonable restrictions
to which this Section 8 shall apply. Employer and Employee agree that
if a court or administrative body should subsequently determine that the
terms of this Section 8 are greater than reasonably necessary to protect
Employer's interest, Employer agrees to waive those terms which are
found by a court or administrative body to be greater than reasonably
necessary to protect Employer's interest and to request that the court
or administrative body reform this Agreement specifying a reasonable
period of time and such other reasonable restrictions as the court or
administrative body deems necessary.
(i) Employee further agrees that this Section 8 is an
integral part of this agreement, and that should a court fail or refuse
to enforce the restrictions contained herein in the manner expressly
provided in Sections 8(a) through 8(g) above, the Employer shall recover
from Employee, and the court shall award as damages to the Employer, the
consideration (or a pro-rata portion thereof to the extent these
provisions are enforced but the time frame is reduced beyond that
specified above) provided to and elected by Employee under the terms of
Section 8(a) above (or the monetary equivalent thereof), its costs and
its reasonable attorney's fees.
9. Modification. This Agreement contains all the terms and
conditions agreed upon by the parties hereto, and no other agreements,
oral or otherwise, regarding the subject matter of this Agreement shall
be deemed to exist or bind either of the parties hereto, except for a
confidentiality agreement between the parties dated August 16, 1989.
This Agreement cannot be modified except by a writing signed by both
parties.
10. Assignment. This Agreement shall be binding upon Employee,
his heirs, executors and assigns and upon Employer, its successors and
assigns.
11. Applicable Law. This agreement is made and entered into in
the State of South Dakota. The validity, interpretation, performance
and enforcement of this agreement shall be governed by the internal laws
of said State of South Dakota, without giving effect to the conflict of
laws provisions thereof.
12. Jurisdiction and Venue of Disputes. The South Dakota First
Judicial Circuit shall have jurisdiction and be the venue of all
disputes between the Company and Employee, whether such disputes arise
from this Agreement or otherwise.
13. Severability. If, for any reason, any one or more of the
provisions contained in this Agreement are held to be invalid, illegal
or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision hereof, and this
Agreement shall be construed as if such invalid, illegal or
unenforceable provision had never been contained herein.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement effective as of the day and year first above written.
IBP, inc.
By /s/ Robert L. Peterson
-------------------------
EMPLOYEE ACKNOWLEDGES THAT HE/SHE HAS READ THE ABOVE, AND HAS BEEN
ADVISED TO CONSULT WITH AN ATTORNEY PRIOR TO SIGNING. EMPLOYEE AGREES
TO THE TERMS AND CONDITIONS OF THIS EMPLOYEE AGREEMENT AS WRITTEN ABOVE.
/s/ Larry Shipley
----------------------
(Employee)
Exhibit 10.25
EMPLOYMENT AGREEMENT
PRODUCTION AND ADMINISTRATIVE
This Agreement, effective the 1st day of March, 1997(the
"Effective Date"), by and between IBP, inc., a Delaware corporation
(hereinafter referred to as "Employer"), and Richard L. Bond
(hereinafter referred to as "Employee").
WITNESSETH:
Employer hereby agrees to employ, or agrees to continue to
employ Employee, and Employee agrees to be employed upon the
following terms and conditions.
1. Duties. Employee shall perform the duties of President
& COO or shall serve in such other capacity and with such other
duties for Employer as Employer shall hereafter from time to time
prescribe.
2. Term of Employment. The term of employment shall be for
a period of five (5) years, commencing on the Effective Date of
this Agreement, unless terminated prior thereto in accordance with
the provisions of this Agreement.
3. Compensation. For the services to be performed
hereunder, Employee shall be compensated by Employer at the rate of
not less than Five Hundred Thousand Dollars ($500,000.00) per year
payable monthly, and in addition may receive awards under
Employer's Cash Bonus Plan subject to the discretion of the senior
management of Employer. Such compensation will be subject to
review from time to time when salaries of other officers and
managers of Employer are reviewed for consideration of increases
therein.
4. Participation in Benefit Programs. Employee shall be
entitled to participate in any benefit programs generally
applicable to officers of Employer adopted by Employer from time to
time.
5. Limitation on Outside Activities. Employee shall devote
full employment energies, interest, abilities and time (except for
personal investments) to the performance of obligations hereunder
and shall not, without the written consent of the Chief Executive
Officer of the Company, render to others any service of any kind or
engage in any activity which conflicts or interferes with the
performance of duties hereunder.
6. Ownership of Employee's Inventions. All ideas,
inventions, and other developments or improvements conceived by
Employee, alone or with others, during the term of his employment,
whether or not during working hours, that are within the scope of
Employer's business operations or that relate to any of Employer's
work or projects, are the exclusive property of Employer. Employee
agrees to assist Employer, at its expense, to obtain patents on any
such patentable ideas, inventions, and other developments, and
agrees to execute all documents necessary to obtain such patents in
the name of Employer.
7. Termination.
(a) Voluntary Termination. Employee may terminate this
Agreement at any time by not less than one year's prior written
notice to Employer. Employee shall not be entitled to any
compensation from Employer for any period beyond Employee's actual
date of termination.
(b) Resignation. In the event Employee shall resign
from employment at the request of Employer, Employer shall
compensate Employee at the rate and in the manner provided in
Paragraph 3 above for a period after termination equivalent to the
lesser of (i) one year, or (ii) the remainder of the term of this
Agreement. During the time Employee is being compensated in lieu
of continued employment, the Employer shall have the right to
require the Employee to perform consulting services from time to
time on behalf of the Employer. Any out-of-pocket expenses
associated with any such assignment shall be, upon proper
documentation, reimbursed by Employer to Employee. In the event
Employer compensates Employee in lieu of continued employment, all
remuneration or wages earned by Employee during such period, either
as an employee, independent contractor or consultant to any person,
firm, or corporation other than Employer, shall be a set-off to
Employer's duty of compensation to Employee.
(c) Company Termination. In the event Employer shall
conclude, in its sole discretion, that it is no longer in the
interest of the Company to continue the employment of Employee, the
Employer may terminate this Agreement, and Employer shall have no
further obligation to pay compensation to Employee after the
effective date of termination.
(d) Incapacity. If Employee is materially
incapacitated from fully performing his or her duties pursuant to
this Agreement by reason of illness or other incapacity or by
reason of any statute, law, ordinance, regulation, order, judgment
or decree, Employer may terminate this Agreement by 30 days written
notice to Employee, but only in the event that such incapacity
shall aggregate not less than one hundred twenty (120) days during
any one year.
8. Confidential Information, Trade Secrets, Limitation on
Solicitation and Non-Compete Clause.
(a) Employee shall receive, in addition to all regular
compensation for services as described in Section 3 of this
Employment Agreement, as additional consideration for signing this
Employment Agreement and for agreeing to abide and be bound by the
terms, provisions and restrictions of this Section 8, the
following:
(i) an award of such number of shares of Common
Stock of Employer under the terms and conditions of the
Employer's IBP Officer Long-Term Stock Plan and/or 1996
Officer Long-Term Stock Plan as shall be equal to an
aggregate value of $650,000 less amounts due to
restrictions on promotional grants (see Employee Award
Letter);
(ii) a grant of options to purchase an aggregate of
Fourteen Thousand Nine Hundred (14,900) shares of Common
Stock of Employer under the terms and conditions of the
Employer's IBP Stock Option Plans and each year on the
annual grant date for stock options an annual option
grant of options to purchase shares of Common Stock of
the Employer which is equal to three times (3x) the
annual option level of the Employee's officer-position
band option level, provided that the Employee has been
on the payroll, whether as an officer or otherwise, at
least six months prior to the annual grant date; and
(iii) the right to receive bonus option grants,
pursuant to the terms and conditions made available by
the Plans Administration Committee of Employer's Board
of Directors, from the Employer's Stock Option Plans,
upon the Employee's exercise of any options granted to
the Employee.
(b) Employee recognizes that, as a result of his
employment hereunder (and his employment, if any, with Employer for
periods prior to the Effective Date), he has had and will continue
to have access to confidential information, trade secrets,
proprietary information, intellectual property, and other
documents, data, and information concerning methods, processes,
controls, techniques, formulae, production, distribution,
purchasing, financial analysis, returns and reports which is the
property of and integral to the operations and success of Employer,
and therefore agrees to be bound by the provisions of this Section
8, which Employee agrees and acknowledges to be reasonable and to
be necessary to protect legitimate and important business interests
and concerns of Employer.
(c) Employee agrees that he will not divulge to any
person, nor use to the detriment of Employer or any of its
subsidiaries, nor use in any business or process of manufacture
competitive with or similar to any business or process of
manufacture of Employer or any of its subsidiaries, at any time
during the term of this Agreement or thereafter, any of the
Employer's trade secrets, without first obtaining the express
written permission of Employer. A trade secret shall include any
formula, pattern, device or compilation of information used by
Employer in its business. For purposes of this Section 8, the
compilation of information shall include, without limitation, the
identity of customers and suppliers and information reflecting
their interests, preferences, credit-worthiness, likely receptivity
to solicitation for participation in various transactions and
related information obtained during the course of his employment
with Employer.
(d) Employee agrees that at the time of leaving the
employ of Employer he will deliver to Employer, and not keep or
deliver to anyone else, any and all notebooks, memoranda, documents
and, in general, any and all materials relating to Employer's
business, or constituting Employer's property. Employee further
agrees that he will not, directly or indirectly, request or advise
any customers or suppliers of Employer or any of its subsidiaries
to withdraw, curtail or cancel its business with Employer or any of
its subsidiaries.
(e) During the term of Employee's employment with the
Employer and for a period of one (1) year from the termination of
Employee's employment for any reason whatsoever, Employee (i) will
not directly or indirectly, in the United States, own, manage,
operate, control, or participate in as a partner, director, holder
of more than 5% of the outstanding voting shares, principal or
officer, any business in direct competition with the business of
the Employer and (ii) will not accept employment or be employed by
any such firm or corporation in any position where he would perform
services materially similar to those which he has provided for
Employer during the term hereof.
(f) Employee recognizes that he possesses confidential
information and trade secrets about other employees of Employer and
its subsidiaries relating to their education, experience, skills,
abilities, salary and benefits, and interpersonal relationships
with customers and suppliers of Employer and its subsidiaries.
Employee recognizes that the information he possesses about these
other employees is not generally known, is of substantial value to
Employer in securing and retaining customers and suppliers, and was
acquired by Employee because of his business position with
Employer. Employee agrees that during his employment hereunder,
and for a period of three (3) years thereafter, Employee shall not,
directly or indirectly, solicit or contact any employee or agent of
Employer or any of its subsidiaries, with a view to inducing or
encouraging such employee or agent to leave the employ of Employer
or any of its subsidiaries, for the purpose of being hired by
Employee, an employer affiliated with Employee, or any competitor
of Employer or any of its subsidiaries. Employee agrees that he
will not convey any such confidential information or trade secrets
about other employees to anyone affiliated with Employee or to any
competitor of Employer or any of its subsidiaries.
(g) Employee acknowledges that the restrictions
contained in this Section 8 are reasonable and necessary to protect
Employer's interest in this agreement and that any breach thereof
will result in an irreparable injury to Employer for which Employer
has no adequate remedy at law. Employee therefore agrees that, in
the event that Employee breaches any of the provisions contained in
this Section 8, Employer shall be authorized and entitled to seek
from any court of competent jurisdiction (i) a temporary
restraining order, (ii) preliminary and permanent injunctive
relief, (iii) an equitable accounting of all profits or benefits
arising out of such breach, and (iv) direct, incidental and
consequential damages arising from such breach.
(h) Employer and Employee have attempted to specify a
reasonable period of time, a reasonable area and reasonable
restrictions to which this Section 8 shall apply. Employer and
Employee agree that if a court or administrative body should
subsequently determine that the terms of this Section 8 are greater
than reasonably necessary to protect Employer's interest, Employer
agrees to waive those terms which are found by a court or
administrative body to be greater than reasonably necessary to
protect Employer's interest and to request that the court or
administrative body reform this Agreement specifying a reasonable
period of time and such other reasonable restrictions as the court
or administrative body deems necessary.
(i) Employee further agrees that this Section 8 is an
integral part of this agreement, and that should a court fail or
refuse to enforce the restrictions contained herein in such a
manner as to effectively enjoin competitive activity, the Employer
shall recover from Employee, and the court shall award as damages
to the Employer, the consideration provided to and elected by
Employee under the terms of Section 8(a) above (or the monetary
equivalent thereof), its costs and its reasonable attorney's fees.
9. Modification. This Agreement contains all the terms and
conditions agreed upon by the parties hereto, and no other
agreements, oral or otherwise, regarding the subject matter of this
Agreement shall be deemed to exist or bind either of the parties
hereto, except for a confidentiality agreement between the parties
dated February 1, 1980. This Agreement cannot be modified except
by a writing signed by both parties.
10. Assignment. This Agreement shall be binding upon
Employee, his heirs, executors and assigns and upon Employer, its
successors and assigns.
11. Applicable Law. This agreement is made and entered into
in the State of South Dakota. The validity, interpretation,
performance and enforcement of this agreement shall be governed by
the internal laws of said State of South, without giving effect to
the conflict of laws provisions thereof.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement effective as of the day and year first above written.
IBP, inc.
By /s/ Robert L. Peterson
-------------------------
/s/ Richard L. Bond
-------------------------
(Employee)
Exhibit 10.26
EMPLOYMENT AGREEMENT
PRODUCTION AND ADMINISTRATIVE
This Agreement, effective the 1st day of March, 1997(the
"Effective Date"), by and between IBP, inc., a Delaware corporation
(hereinafter referred to as "Employer"), and Eugene D. Leman
(hereinafter referred to as "Employee").
WITNESSETH:
Employer hereby agrees to employ, or agrees to continue to
employ Employee, and Employee agrees to be employed upon the
following terms and conditions.
1. Duties. Employee shall perform the duties of President -
Fresh Meats or shall serve in such other capacity and with such
other duties for Employer as Employer shall hereafter from time to
time prescribe.
2. Term of Employment. The term of employment shall be for
a period of five (5) years, commencing on the Effective Date of
this Agreement, unless terminated prior thereto in accordance with
the provisions of this Agreement.
3. Compensation. For the services to be performed
hereunder, Employee shall be compensated by Employer at the rate of
not less than Three Hundred Fifteen Thousand Dollars ($315,000.00)
per year payable monthly, and in addition may receive awards under
Employer's Cash Bonus Plan subject to the discretion of the senior
management of Employer. Such compensation will be subject to
review from time to time when salaries of other officers and
managers of Employer are reviewed for consideration of increases
therein.
4. Participation in Benefit Programs. Employee shall be
entitled to participate in any benefit programs generally
applicable to officers of Employer adopted by Employer from time to
time.
5. Limitation on Outside Activities. Employee shall devote
full employment energies, interest, abilities and time (except for
personal investments) to the performance of obligations hereunder
and shall not, without the written consent of the Chief Executive
Officer of the Company, render to others any service of any kind or
engage in any activity which conflicts or interferes with the
performance of duties hereunder.
6. Ownership of Employee's Inventions. All ideas,
inventions, and other developments or improvements conceived by
Employee, alone or with others, during the term of his employment,
whether or not during working hours, that are within the scope of
Employer's business operations or that relate to any of Employer's
work or projects, are the exclusive property of Employer. Employee
agrees to assist Employer, at its expense, to obtain patents on any
such patentable ideas, inventions, and other developments, and
agrees to execute all documents necessary to obtain such patents in
the name of Employer.
7. Termination.
(a) Voluntary Termination. Employee may terminate this
Agreement at any time by not less than one year's prior written
notice to Employer. Employee shall not be entitled to any
compensation from Employer for any period beyond Employee's actual
date of termination.
(b) Resignation. In the event Employee shall resign
from employment at the request of Employer, Employer shall
compensate Employee at the rate and in the manner provided in
Paragraph 3 above for a period after termination equivalent to the
lesser of (i) one year, or (ii) the remainder of the term of this
Agreement. During the time Employee is being compensated in lieu
of continued employment, the Employer shall have the right to
require the Employee to perform consulting services from time to
time on behalf of the Employer. Any out-of-pocket expenses
associated with any such assignment shall be, upon proper
documentation, reimbursed by Employer to Employee. In the event
Employer compensates Employee in lieu of continued employment, all
remuneration or wages earned by Employee during such period, either
as an employee, independent contractor or consultant to any person,
firm, or corporation other than Employer, shall be a set-off to
Employer's duty of compensation to Employee.
(c) Company Termination. In the event Employer shall
conclude, in its sole discretion, that it is no longer in the
interest of the Company to continue the employment of Employee, the
Employer may terminate this Agreement, and Employer shall have no
further obligation to pay compensation to Employee after the
effective date of termination.
(d) Incapacity. If Employee is materially
incapacitated from fully performing his or her duties pursuant to
this Agreement by reason of illness or other incapacity or by
reason of any statute, law, ordinance, regulation, order, judgment
or decree, Employer may terminate this Agreement by 30 days written
notice to Employee, but only in the event that such incapacity
shall aggregate not less than one hundred twenty (120) days during
any one year.
8. Confidential Information, Trade Secrets, Limitation on
Solicitation and Non-Compete Clause.
(a) Employee shall receive, in addition to all regular
compensation for services as described in Section 3 of this
Employment Agreement, as additional consideration for signing this
Employment Agreement and for agreeing to abide and be bound by the
terms, provisions and restrictions of this Section 8, the
following:
(i) an award of such number of shares of Common
Stock of Employer under the terms and conditions of the
Employer's IBP Officer Long-Term Stock Plan and/or 1996
Officer Long-Term Stock Plan as shall be equal to an
aggregate value of $550,000 less amounts due to
restrictions on promotional grants (see Employee Award
Letter);
(ii) a grant of options to purchase an aggregate of
Five Thousand (5,000) shares of Common Stock of Employer
under the terms and conditions of the Employer's IBP
Stock Option Plans and each year on the annual grant
date for stock options an annual option grant of options
to purchase shares of Common Stock of the Employer which
is equal to three times (3x) the annual option level of
the Employee's officer-position band option level,
provided that the Employee has been on the payroll,
whether as an officer or otherwise, at least six months
prior to the annual grant date; and
(iii) the right to receive bonus option grants,
pursuant to the terms and conditions made available by
the Plans Administration Committee of Employer's Board
of Directors, from the Employer's Stock Option Plans,
upon the Employee's exercise of any options granted to
the Employee.
(b) Employee recognizes that, as a result of his
employment hereunder (and his employment, if any, with Employer for
periods prior to the Effective Date), he has had and will continue
to have access to confidential information, trade secrets,
proprietary information, intellectual property, and other
documents, data, and information concerning methods, processes,
controls, techniques, formulae, production, distribution,
purchasing, financial analysis, returns and reports which is the
property of and integral to the operations and success of Employer,
and therefore agrees to be bound by the provisions of this Section
8, which Employee agrees and acknowledges to be reasonable and to
be necessary to protect legitimate and important business interests
and concerns of Employer.
(c) Employee agrees that he will not divulge to any
person, nor use to the detriment of Employer or any of its
subsidiaries, nor use in any business or process of manufacture
competitive with or similar to any business or process of
manufacture of Employer or any of its subsidiaries, at any time
during the term of this Agreement or thereafter, any of the
Employer's trade secrets, without first obtaining the express
written permission of Employer. A trade secret shall include any
formula, pattern, device or compilation of information used by
Employer in its business. For purposes of this Section 8, the
compilation of information shall include, without limitation, the
identity of customers and suppliers and information reflecting
their interests, preferences, credit-worthiness, likely receptivity
to solicitation for participation in various transactions and
related information obtained during the course of his employment
with Employer.
(d) Employee agrees that at the time of leaving the
employ of Employer he will deliver to Employer, and not keep or
deliver to anyone else, any and all notebooks, memoranda, documents
and, in general, any and all materials relating to Employer's
business, or constituting Employer's property. Employee further
agrees that he will not, directly or indirectly, request or advise
any customers or suppliers of Employer or any of its subsidiaries
to withdraw, curtail or cancel its business with Employer or any of
its subsidiaries.
(e) During the term of Employee's employment with the
Employer and for a period of one (1) year from the termination of
Employee's employment for any reason whatsoever, Employee (i) will
not directly or indirectly, in the United States, own, manage,
operate, control, or participate in as a partner, director, holder
of more than 5% of the outstanding voting shares, principal or
officer, any business in direct competition with the business of
the Employer and (ii) will not accept employment or be employed by
any such firm or corporation in any position where he would perform
services materially similar to those which he has provided for
Employer during the term hereof.
(f) Employee recognizes that he possesses confidential
information and trade secrets about other employees of Employer and
its subsidiaries relating to their education, experience, skills,
abilities, salary and benefits, and interpersonal relationships
with customers and suppliers of Employer and its subsidiaries.
Employee recognizes that the information he possesses about these
other employees is not generally known, is of substantial value to
Employer in securing and retaining customers and suppliers, and was
acquired by Employee because of his business position with
Employer. Employee agrees that during his employment hereunder,
and for a period of three (3) years thereafter, Employee shall not,
directly or indirectly, solicit or contact any employee or agent of
Employer or any of its subsidiaries, with a view to inducing or
encouraging such employee or agent to leave the employ of Employer
or any of its subsidiaries, for the purpose of being hired by
Employee, an employer affiliated with Employee, or any competitor
of Employer or any of its subsidiaries. Employee agrees that he
will not convey any such confidential information or trade secrets
about other employees to anyone affiliated with Employee or to any
competitor of Employer or any of its subsidiaries.
(g) Employee acknowledges that the restrictions
contained in this Section 8 are reasonable and necessary to protect
Employer's interest in this agreement and that any breach thereof
will result in an irreparable injury to Employer for which Employer
has no adequate remedy at law. Employee therefore agrees that, in
the event that Employee breaches any of the provisions contained in
this Section 8, Employer shall be authorized and entitled to seek
from any court of competent jurisdiction (i) a temporary
restraining order, (ii) preliminary and permanent injunctive
relief, (iii) an equitable accounting of all profits or benefits
arising out of such breach, and (iv) direct, incidental and
consequential damages arising from such breach.
(h) Employer and Employee have attempted to specify a
reasonable period of time, a reasonable area and reasonable
restrictions to which this Section 8 shall apply. Employer and
Employee agree that if a court or administrative body should
subsequently determine that the terms of this Section 8 are greater
than reasonably necessary to protect Employer's interest, Employer
agrees to waive those terms which are found by a court or
administrative body to be greater than reasonably necessary to
protect Employer's interest and to request that the court or
administrative body reform this Agreement specifying a reasonable
period of time and such other reasonable restrictions as the court
or administrative body deems necessary.
(i) Employee further agrees that this Section 8 is an
integral part of this agreement, and that should a court fail or
refuse to enforce the restrictions contained herein in such a
manner as to effectively enjoin competitive activity, the Employer
shall recover from Employee, and the court shall award as damages
to the Employer, the consideration provided to and elected by
Employee under the terms of Section 8(a) above (or the monetary
equivalent thereof), its costs and its reasonable attorney's fees.
9. Modification. This Agreement contains all the terms and
conditions agreed upon by the parties hereto, and no other
agreements, oral or otherwise, regarding the subject matter of this
Agreement shall be deemed to exist or bind either of the parties
hereto, except for a confidentiality agreement between the parties
dated October 29, 1981. This Agreement cannot be modified except
by a writing signed by both parties.
10. Assignment. This Agreement shall be binding upon
Employee, his heirs, executors and assigns and upon Employer, its
successors and assigns.
11. Applicable Law. This agreement is made and entered into
in the State of South Dakota. The validity, interpretation,
performance and enforcement of this agreement shall be governed by
the internal laws of said State of South, without giving effect to
the conflict of laws provisions thereof.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement effective as of the day and year first above written.
IBP, inc.
By /s/ Robert L. Peterson
-------------------------
/s/ Eugene D. Leman
-------------------------
(Employee)
IBP, inc. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands except share and per share data)
December 27, December 28,
1997 1996
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 69,022 $ 94,164
Marketable securities 3,120 169,476
Accounts receivable, less allowance for
doubtful accounts of $10,063 and $9,873 564,125 500,781
Inventories (Note B) 389,753 299,700
Deferred income tax benefits (Note E) 48,602 42,364
Prepaid expenses 9,305 4,100
--------- ---------
TOTAL CURRENT ASSETS 1,083,927 1,110,585
PROPERTY, PLANT AND EQUIPMENT, at cost:
Land and land improvements 108,055 99,765
Buildings and stockyards 501,166 385,328
Equipment 1,053,983 860,712
1,663,204 1,345,805
--------- ---------
Accumulated depreciation and amortization (774,694) (697,510)
888,510 648,295
Construction in progress 128,572 167,911
--------- ---------
1,017,082 816,206
OTHER ASSETS:
Goodwill, net of accumulated amortization
of $137,996 and $121,644 671,557 206,587
Other 66,375 41,117
--------- ---------
737,932 247,704
--------- ---------
$2,838,941 $2,174,495
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses (Note D) $ 569,641 $ 475,071
Notes payable to banks (Note C) 192,010 -
Federal and state income taxes 106,375 83,484
Deferred income taxes (Note E) 4,266 8,115
Other 4,526 3,012
------- -------
TOTAL CURRENT LIABILITIES 876,818 569,682
LONG-TERM OBLIGATIONS (Notes C and F) 568,281 260,008
DEFERRED CREDITS AND OTHER LIABILITIES:
Deferred income taxes (Note E) 15,446 68,026
Other 141,327 73,124
------- -------
156,773 141,150
------- -------
COMMITMENTS AND CONTINGENCIES (Note N)
STOCKHOLDERS' EQUITY (Note G):
Preferred stock, 25,000,000 shares
authorized; none issued
Common stock, $.05 par value per share;
authorized 200,000,000 shares;
issued 95,000,000 shares 4,750 4,750
Additional paid-in capital 406,952 427,456
Retained earnings 886,964 779,199
Other (6,114) (32)
Treasury stock, at cost, 2,414,349
and 372,780 shares (55,483) (7,718)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 1,237,069 1,203,655
--------- ---------
$2,838,941 $2,174,495
========= =========
See notes to consolidated financial statements.
- -1-
IBP, inc. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands except per share data)
52 Weeks Ended
-------------------------------------------
December 27, December 28, December 30,
1997 1996 1995
------------ ------------ ------------
Net sales (Note A) $13,258,784 $12,538,753 $12,667,562
Cost of products sold 12,815,892 12,095,171 12,063,494
---------- ---------- ----------
Gross profit 442,892 443,582 604,068
Selling, general and
administrative expense 216,176 120,674 123,972
---------- ---------- ----------
Earnings from operations 226,716 322,908 480,096
Interest:
Incurred (50,001) (19,536) (38,551)
Capitalized 6,933 6,813 9,039
Income 5,066 9,350 8,728
---------- ---------- ----------
(38,002) (3,373) (20,784)
---------- ---------- ----------
Earnings before income taxes
and extraordinary item 188,714 319,535 459,312
Income taxes (Note E) 71,700 120,800 179,200
---------- ---------- ----------
Earnings before extraordinary
item 117,014 198,735 280,112
Extraordinary loss on early
extinguishment of debt,
less applicable taxes
(Note F) - - (22,189)
---------- ---------- ----------
Net earnings $ 117,014 $ 198,735 $ 257,923
========== ========== ==========
Earnings per share (Notes A and M)
Earnings before extraordinary
item $1.26 $2.10 $2.96
Extraordinary item - - (.24)
---- ---- ----
Net earnings $1.26 $2.10 $2.72
==== ==== ====
Earnings per share - assuming dilution:
Earnings before extraordinary
item $1.25 $2.07 $2.92
Extraordinary item - - (.23)
---- ---- ----
Net earnings $1.25 $2.07 $2.69
==== ==== ====
See notes to consolidated financial statements.
- -2-
IBP, inc. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(In thousands except per share data)
Common Stock Additional
Par Paid-In Retained Treasury
Shares Value Capital Earnings Other Stock
Balances,
December 31, 1994 47,500 $2,375 $439,567 $341,492 $(1,074) $ (1,866)
Net earnings 257,923
Dividends declared,
$.10 per share (9,479)
Additional shares issued
in two-for-one
stock split effected
in the form of a
stock dividend 47,500 2,375 (2,375)
Treasury shares purchased (13,441)
Treasury shares delivered
under employee stock
plans (4,466) 10,718
Foreign currency
translation adjustments 1,190
Balances, ------ ----- ------- ------- ----- ------
December 30, 1995 95,000 4,750 432,726 589,936 116 (4,589)
Net earnings 198,735
Dividends declared,
$.10 per share (9,472)
Treasury shares
purchased (15,405)
Treasury shares
delivered under
employee stock plans (5,270) 12,276
Foreign currency
translation adjustments (148)
Balances, ------ ----- ------- ------- ---- ------
December 28, 1996 95,000 4,750 427,456 779,199 (32) (7,718)
Net earnings 117,014
Dividends declared,
$.10 per share (9,249)
Treasury shares (73,915)
purchased
Treasury shares
delivered under
employee stock plans (20,504) 26,150
Foreign currency
translation adjustments (5,752)
Minimum pension
liability adjustment (330)
Balances, ------ ----- ------- ------- ------ -------
December 27, 1997 95,000 $4,750 $406,952 $886,964 $(6,114) $(55,483)
====== ===== ======= ======= ====== =======
See notes to consolidated financial statements.
- -3-
IBP, inc. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
52 Weeks Ended
----------------------------------------
December 27, December 28, December 30,
1997 1996 1995
------------ ------------ ------------
Inflows (outflows)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $117,014 $ 198,735 $ 257,923
------- -------- --------
Adjustments to reconcile net earnings
to cash flows from operations:
Depreciation and amortizaon 109,930 82,690 92,539
Deferred income tax provision (benefit) 1,175 7,500 (11,600)
Extraordinary loss on
extinguishment of debt - - 22,189
Working capital changes, net of
effects of acquisitions:
Accounts payable and accrued
liabilities (21,901) (57,976) 60,943
Accounts receivable (16,069) 28,950 (14,336)
Inventories (11,761) 3,912 (58,705)
Other adjustments, net 5,529 4,167 2,127
------- -------- --------
66,903 69,243 93,157
------- -------- --------
Net cash flows provided by
operating activities 183,917 267,978 351,080
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from disposals of marketable
securities 403,723 922,051 588,591
Payments for stock of new subsidiaries,
net of cash acquired (324,891) - -
Purchases of marketable securities (237,243) (1,043,180) (576,167)
Capital expenditures (133,925) (170,664) (160,626)
Other investing activities, net 9,855 1,944 2,188
-------- ---------- --------
Net cash flows used in investing
activities (282,481) (289,849) (146,014)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in short-term debt 238,500 (200,000) 250,000
Principal payments on long-term
obligations (212,054) (615) (350,761)
Proceeds from issuance of long-term debt 132,187 197,878 -
Purchases of treasury stock (73,915) (3,129) (2,723)
Dividends paid (9,300) (9,473) (9,484)
Net change in checks in process of
clearance (7,715) 22,520 (18,135)
Premiums paid on early retirement of debt - - (35,420)
Other financing activities, net 6,465 ( 7,497) (7,044)
------- --------- --------
Net cash flows provided by (used in)
financing activities 74,168 (316) (173,567)
------- --------- --------
Effect of exchange rate on cash and
cash equivalents (746) 74 549
------- --------- --------
Net change in cash and cash equivalents (25,142) (22,113) 32,048
Cash and cash equivalents at beginning
of year 94,164 116,277 84,229
------- --------- --------
Cash and cash equivalents at end of year $ 69,022 $ 94,164 $ 116,277
======= ========= ========
See notes to consolidated financial statements.
- -4-
IBP, inc. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS ENDED DECEMBER 27, 1997, DECEMBER 28, 1996 AND DECEMBER 30, 1995
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
NATURE OF OPERATIONS AND INDUSTRY SEGMENT INFORMATION - IBP's operations
relate principally to the meat processing industry and primarily involve cattle
and hog slaughter, beef and pork fabrication and related allied product
processing activities. The company also produces precooked meats for the
retail and food service industries. IBP's customers include food retailers,
distributors, wholesalers, restaurant and hotel chains, other food processors
and leather makers, as well as manufacturers of pharmaceuticals and animal
feeds. Management considers its operations to comprise one industry segment.
PRINCIPLES OF CONSOLIDATION - All subsidiaries are wholly-owned and are
consolidated in the accompanying financial statements. All material inter-
company balances, transactions and profits have been eliminated.
MANAGEMENT'S USE OF ESTIMATES - The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the dates of
the financial statements and the reported amounts of revenues and expenses
during the reporting periods. Actual results could differ from those estimates.
FISCAL YEAR - IBP's fiscal year ends on the last Saturday of the calendar
year. Fiscal years 1997, 1996 and 1995 all consisted of 52 weeks.
EXPORT SALES - In 1997, 1996 and 1995, net export sales, principally to
customers in Asia and also to destinations in Canada, Mexico and Europe,
amounted to $1.7 billion, $1.7 billion and $1.8 billion, respectively.
STATEMENT OF CASH FLOWS - For purposes of the statement of cash flows,
management considers all highly liquid debt instruments purchased with original
maturities of three months or less to be cash equivalents. Such investments
are carried at cost, which approximates fair value.
DERIVATIVE FINANCIAL INSTRUMENTS - To manage interest rate and currency
exposures, the company uses interest rate swaps and currency forward contracts.
IBP specifically designates interest rate swaps as hedges of debt instruments
and recognizes interest differentials as adjustments to interest expense in the
period they occur. Gains and losses related to foreign currency hedges of
firmly committed transactions are deferred and are recognized in income when
the hedged transaction occurs.
- -5-
MARKETABLE SECURITIES - Marketable securities are classified as available
for sale, are highly liquid and are purchased and sold on a short-term basis as
part of IBP's management of working capital. Such securities consist of
auction market preferred stock, which management does not intend to hold more
than one year, and tax-exempt securities and commercial paper with maturities
of less than one year. Marketable securities are carried at cost, which
approximates fair value.
INVENTORIES - Inventories are valued on the basis of the lower of first-in,
first-out cost or market.
PROPERTY, PLANT AND EQUIPMENT - Depreciation is provided for property, plant
and equipment on the straight-line method over the estimated useful lives of
the respective classes of assets as follows:
Land improvements..................8 to 20 years
Buildings and stockyards..........10 to 40 years
Equipment..........................3 to 12 years
Management adjusted its estimate of salvage value for most fixed assets
during 1995 to better reflect actual experience. This adjustment increased
1995 cost of products sold by approximately $18 million.
Leasehold improvements, included in the equipment class, are amortized over
the life of the lease or the life of the asset, whichever is shorter.
GOODWILL - Goodwill is amortized on a straight-line basis over periods
ranging from 15 years to 40 years. Management reviews goodwill as well as
other long-lived assets for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable.
FOREIGN CURRENCY TRANSLATION - The translation of foreign currency into U.S.
dollars is performed for balance sheet accounts using the current exchange rate
in effect at the balance sheet date and for revenue and expense accounts using
the average exchange rate during the period. The gains or losses resulting
from translation are included in stockholders' equity. Exchange adjustments
resulting from foreign currency transactions, which were not material in any
of the years presented, are generally recognized in net earnings.
- -6-
EARNINGS PER SHARE - The company has adopted Statement of Financial
Accounting Standards No. 128, Earnings per Share (the "Statement"), effective
as of December 27, 1997. The Statement requires a basic calculation of
earnings per share (EPS), based upon the weighted average number of common
shares outstanding during the period. The Statement also requires a diluted EPS
calculation that reflects the potential dilution from common stock equivalents
such as stock options and other stock-based compensation. All current and
prior years' EPS calculations included herein have been restated under the
provisions of the Statement.
RECLASSIFICATIONS - Certain reclassifications have been made to prior
financial statements to conform to the current year presentation.
B. INVENTORIES:
Inventories are comprised of the following:
December 27, December 28,
1997 1996
------------ ------------
(In thousands)
Product inventories:
Raw materials $ 22,952 $ 15,285
Work in process 82,679 76,880
Finished goods 165,970 124,868
------- -------
271,601 217,033
Livestock 45,908 28,756
Supplies 72,244 53,911
------- -------
$389,753 $299,700
======= =======
C. CREDIT ARRANGEMENTS:
At December 27, 1997, IBP had in place two committed revolving credit
facilities totaling $600,000,000 in potential borrowings. These facilities
include a $500,000,000 multi-year credit facility (the "Multi-Year Facility")
and a $100,000,000 revolving promissory note (the "Promissory Note"). From
time to time, IBP also may use uncommitted lines of credit for some or all of
its short-term borrowing needs.
The Multi-Year Facility is a revolving facility with a maturity date of
December 20, 2000, which may be extended for one-year increments annually
during the revolving period with consent of the banks involved. Facility fees
can vary from .085 to .200 of 1% on the total amount of the facility.
The Promissory Note was entered into with Bank of America on May 1, 1997
and matures on April 30, 1998.
Total borrowings of $304,960,0000 under the revolving facilities at
December 27, 1997 are classified as current liabilities with the exception of
$112,950,000 which IBP does not intend to repay within one year. This amount
is classified as non-current in the consolidated balance sheet. The interest
rate at December 27, 1997 on these borrowings was 6.1%.
During fiscal 1997, the maximum amount of borrowings under all of IBP's
credit arrangements, including any amounts considered non-current, was
$540,000,000. Average borrowings under IBP's credit arrangements and the
weighted average interest rate during fiscal 1997 were $281,217,000 and 5.9%.
The comparable 1996 figures were average borrowings of $68,288,000 and an
average interest rate of 5.7%.
-7-
IBP's credit facility agreements contain certain restrictive covenants
which, among other things, (1) require the maintenance of a minimum debt
service coverage ratio; and (2) provide for a maximum funded debt ratio.
D. ACCOUNTS PAYABLE AND ACCRUED EXPENSES:
Accounts payable and accrued expenses are comprised of the following:
December 27, December 28,
1997 1996
------------ ------------
(In thousands)
Accounts payable, principally
trade creditors $219,449 $181,161
------- -------
Checks in process of clearance 126,279 118,624
------- -------
Accrued expenses:
Employee compensation 73,724 76,034
Employee benefits 34,733 21,060
Property and other taxes 25,886 20,267
Marketing costs 13,808 752
Other 75,762 57,173
------- -------
223,913 175,286
------- -------
$569,641 $475,071
======= =======
E. INCOME TAXES:
Income tax expense consists of the following:
1997 1996 1995
--------- --------- ----------
(In thousands)
Current:
Federal $ 72,000 $100,775 $173,600
State 3,825 8,275 12,100
Foreign (5,300) 4,250 5,100
------- ------- -------
70,525 113,300 190,800
------- ------- -------
Deferred:
Federal 3,100 6,575 (10,375)
State 300 550 (850)
Foreign (2,225) 375 (375)
------- ------- -------
1,175 7,500 (11,600)
------- ------- -------
$ 71,700 $120,800 $179,200
======= ======= =======
Total income tax expense varies from the amount which would be provided by
applying the U.S. federal income tax rate to earnings before income taxes. The
major reasons for this difference (expressed as a percentage of pre-tax
earnings) are as follows:
1997 1996 1995
---- ---- ----
Federal income tax rate 35.0% 35.0% 35.0%
Goodwill amortization 2.5 0.8 0.7
State income taxes, net
of federal benefit 1.7 1.7 1.8
Foreign Sales Corporation
benefits (0.8) (0.5) (0.4)
Other, net (0.4) .8 1.9
---- ---- ----
38.0% 37.8% 39.0%
==== ==== ====
- -8-
The Internal Revenue Service (IRS) has proposed certain income tax
adjustments which are being contested by the company involving the years 1989,
1990, and 1991. The IRS is currently examining the years 1992 and 1993. In
management's opinion, adequate provisions for income taxes have been made for
all years.
Deferred income tax liabilities and assets were comprised of the following:
December 27, December 28,
1997 1996
------------ ------------
(In thousands)
Deferred tax assets:
Nondeductible accrued liabilities $ 90,281 $ 50,796
State tax credit carryforwards 9,996 9,033
Bad debt and claims reserves 3,598 3,890
Acquired federal and state operating
loss carryforwards 27,404 7
Other 2,829 1,080
------- ------
Gross deferred tax assets 134,108 64,806
Valuation allowance (9,996) (9,040)
------- ------
Net deferred tax assets 124,112 55,766
------- ------
Deferred tax liabilities:
Fixed assets (82,746) (81,428)
Intangible assets (8,210) -
Farm accounting (4,266) (8,115)
------- -------
(95,222) (89,543)
------- -------
$ 28,890 $(33,777)
======= =======
The net $1.0 million increase in the valuation allowance for deferred tax
assets is the result of a net increase in state tax credit carryforwards. No
benefit has been recognized for these state tax credit carryforwards, which
expire primarily in the years 2004 through 2008.
At December 27, 1997, after considering utilization restrictions, the
company's acquired tax loss carryforwards approximated $82.4 million. The net
operating loss carryforwards, which are subject to utilization limitations
due to ownership changes, may be utilized to offset future taxable income as
follows: $16.9 million in 1998, $16.0 million in 1999 and 2000, $16.1
million in 2001 and 2002 and $1.3 million in 2003. Loss carryforwards not
utilized in the first year that they are available may be carried over and
utilized in subsequent years, subject to their expiration provisions. These
carryforwards expire as follows: $11.5 million in 1998, $6.0 million in 1999,
$0.9 million in 2000, $4.2 million in 2001, $17.3 million in 2002 and
$42.5 million during the years 2003 through 2009.
-9-
F. LONG-TERM OBLIGATIONS:
Long-term obligations are summarized as follows:
December 27, December 28,
1997 1996
------------ ------------
(In thousands)
7.45% Senior Notes due 2007 $125,000 $ -
10.75% Senior Subordinated
Notes due 2006 112,050 -
6.125% Senior Notes due 2006 100,000 100,000
7.125% Senior Notes due 2026 100,000 100,000
Revolving credit facilities 112,950 50,000
Present value of minimum
capital lease obligations 19,093 9,610
Other 1,400 1,044
------- -------
570,493 260,654
Less amounts due within one
year 2,212 646
------- -------
$568,281 $260,008
======= =======
In the fourth quarter of 1995, IBP began a process of refinancing its
long-term debt. On December 15, 1995, IBP prepaid its $275 million principal
amount of 9.82% Senior Notes due 2000 and its $75 million principal amount of
10.39% Senior Subordinated Debentures due 2002. The prepayments were funded
with available cash and $250 million borrowed under available credit
facilities. Net prepayment premiums and the accelerated amortization of
unamortized deferred financing costs totaled $36.4 million, before applicable
income tax benefit of $14.2 million, which was accounted for as a net
extraordinary loss of $22.2 million in 1995.
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
$500,000,000 aggregate principal amount, debt securities program registered
with the Securities and Exchange Commission (the "Shelf Registration").
Proceeds from the offerings were used to reduce borrowings under the Multi-
Year Facility to $50 million, which was classified as long-term debt at
December 28, 1996, due to IBP's ability and intent to refinance this amount on
a long-term basis.
In June 1997, the company completed its public offering of $125 million
principal amount of 7.45% Senior Notes due 2007. Net proceeds from the
offering were ultimately used to reduce borrowings under IBP's revolving
credit facilities.
On January 15, 1998, the company settled and closed its public offering
of $50,000,000 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 a series of notes issued under the company's
$300,000,000 aggregate principal amount, Medium-Term Notes program which
commenced on December 12, 1997, and which in turn is part of the Shelf
Registration described above, as amended.
- -10-
The 10.75% Senior Subordinated Notes are obligations of IBP's newly-
acquired subsidiary, Foodbrands America, Inc. ("Foodbrands") (see Note J),
which are guaranteed by all of Foodbrands' direct and indirect subsidiaries,
all of which are wholly-owned.
Substantially all of the leased assets under capital leases can be
purchased by IBP at the end of the respective lease terms. Leased assets,
which are included with owned property in the consolidated balance sheets, at
cost totaled $21.1 million; accumulated amortization on these assets totaled
$6.5 million.
Aggregate maturities of long-term obligations for each of the five fiscal
years subsequent to 1997 are (in millions) $2.2; $2.5; $115.0; $3.1 and $1.4.
The company leases various facilities and equipment under noncancelable
operating lease arrangements. Future minimum payments under noncancelable
operating leases with lease terms in excess of one year at December 27, 1997
totaled $83 million. These operating leases expire at various dates through
the year 2015. Aggregate maturities for each of the five fiscal years
subsequent to 1997 are (in millions) $16.1; $13.9; $12.6; $7.8 and $5.5. The
company's rental expense was (in millions) $15.9; $11.0 and $12.0 for fiscal
years 1997, 1996 and 1995.
G. STOCK PLANS
Officer Long-Term Stock Plans:
IBP has officer long-term stock plans which provide for awards to key
officers of IBP which, subject to certain restrictions, will vest generally
after five years resulting in the delivery of shares of common stock over the
one-year period following such vesting. The plans allow for a maximum of
approximately 1,310,000 shares of common stock to be delivered; at December
27, 1997, there were approximately 760,000 shares available for future awards.
For approximately 125,000 shares (average grant price of $18.56) granted
under the plans, the company is obligated to pay the mandatory federal
withholding and Medicare taxes upon delivery of the shares. The company
recognized compensation expense for these plans totaling $3.3 million, $3.0
million and $2.2 million, respectively, in 1997, 1996 and 1995.
- -11-
The status of shares under the officer long-term stock plans is summarized as
follows:
Number of Weighted Average
Shares Price per Share
-----------------------------------
Balance, December 31, 1994 1,119,159 $ 8.53
Granted 177,730 21.75
Delivered 0 -
Forfeited (22,069) 8.55
------------------------------
Balance, December 30, 1995 1,274,820 10.57
Granted 55,585 25.10
Delivered (9,504) 8.28
Forfeited 0 -
------------------------------
Balance, December 28, 1996 1,320,901 11.07
Granted 260,080 21.14
Delivered (1,019,999) 8.41
Forfeited (10,186) 18.36
------------------------------
Balance, December 27, 1997 550,796 $20.48
========== =====
Stock Option Plans:
IBP has stock option plans under which incentive and non-qualified stock
options may be granted to key employees and directors of IBP and its
subsidiaries. As of December 27, 1997, the plans provide for the delivery
of up to 7,740,000 shares of common stock upon exercise of options granted
at no less than the fair market value of the shares on the date of grant.
The options may be granted for terms up to but not exceeding ten years and
are generally fully vested after five years from the date granted. At
December 27, 1997 and December 28, 1996, there were 3,615,000 and 3,926,000
options, respectively, reserved for future grants.
The company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation." Accordingly, no compensation cost has been recognized for the
stock option plans. Had compensation cost for IBP's stock option plans been
determined based on the fair value at the grant date for awards in 1997, 1996,
and 1995 consistent with the provisions of SFAS No. 123, IBP's net earnings and
earnings per share would have been reduced to the pro forma amounts indicated
below (net earnings in thousands):
1997 1996 1995
------- ------- -------
Net earnings - as reported $117,014 $198,735 $257,923
Net earnings - pro forma 114,236 196,518 256,407
Earnings per share - as reported 1.26 2.10 2.72
Earnings per share - pro forma 1.23 2.08 2.70
Diluted earnings per share -
as reported 1.25 2.07 2.69
Diluted earnings per share -
pro forma 1.22 2.05 2.67
-12-
The weighted average fair values at date of grant for options granted during
1997, 1996 and 1995 were $7.91, $9.89 and $9.50, respectively. The fair
value of each option is estimated on the date of grant using the Black-
Scholes option-pricing model with the following weighted-average assumptions
for options granted in 1997, 1996 and 1995:
1997 1996 1995
--------- --------- ---------
Expected option life 6.0 years 6.0 years 6.0 years
Expected annual
volatility 26.0% 29.7% 29.7%
Risk-free interest
rate 5.75% 6.51% 5.56%
Dividend yield .44% .44% .44%
The status of stock options under the plans is summarized as follows:
Number of Weighted Average Options
Shares Price Per Share Exercisable
--------- ---------------- -----------
Balance at
December 31, 1994 3,854,076 $11.47 1,489,924
Granted 1,526,097 24.55
Exercised (466,626) 8.49
Forfeited (329,952) 13.88
- ---------------------------------------------------------------
Balance at
December 30, 1995 4,583,595 14.93 1,256,358
Granted 675,388 24.25
Exercised (464,362) 10.04
Forfeited (244,693) 19.88
- ---------------------------------------------------------------
Balance at
December 28, 1996 4,549,928 16.09 1,721,044
Granted 658,249 21.63
Exercised (738,498) 8.78
Forfeited (344,451) 21.25
- ---------------------------------------------------------------
Balance at
December 27, 1997 4,125,228 $17.85 1,846,317
- ---------------------------------------------------------------
The following table summarizes information about stock options outstanding
at December 27, 1997:
Number Weighted Average
Range of Outstanding Remaining Weighted Average
Exercisable prices At 12/27/97 Contractual Life Exercise Price
- ------------------ ----------- ---------------- ---------------
$ 6 to 15 1,510,871 5.8 Years $10.39
16 to 25 2,536,185 8.2 Years 21.98
26 to 35 78,172 7.8 Years 28.09
- ---------------------------------------------------------------------
$ 6 to 35 4,125,228 7.0 Years $17.85
Number
Range of Exercisable Weighted Average
Exercisable prices At 12/27/97 Exercise Price
- ------------------ ----------- ----------------
$ 6 to 15 1,196,151 $ 9.81
16 to 25 631,431 20.89
26 to 35 18,735 28.77
- ---------------------------------------------------
$ 6 to 35 1,846,317 $13.79
- -13-
Share Delivery Restrictions:
Shares of common stock to be delivered for approximately 975,000 options
under the stock option plans must come from previously issued shares. All other
shares of stock to be delivered pursuant to the stock option plans andthe
officer long-term stock plans may alternatively come from previously
authorized but unissued common stock.
H. SUPPLEMENTAL CASH FLOW INFORMATION:
Supplemental information on cash payments is presented as follows:
1997 1996 1995
---------- ----------- -----------
(In thousands)
Interest, net of amounts
capitalized $37,670 $ 2,045 $ 34,040
Income taxes 39,017 108,625 192,028
I. FINANCIAL INSTRUMENTS:
Interest and Currency Rate Derivatives:
The company's policy is to manage interest cost using a mix of fixed and
variable rate debt. To manage this mix in a cost effective manner, the company
enters into interest rate swaps in which the company agrees to exchange, at
specified intervals, the difference between fixed and variable interest amounts
calculated by reference to an agreed-upon notional principal amount. These
interest rate swaps effectively convert a portion of the company's fixed-rate
debt to variable-rate debt.
The notional amounts of these swap agreements were $75 million at year-end
1997 and $100 million at year-end 1996. The notional amounts of these and
other derivative instruments do not represent assets or liabilities of the
company but, rather, are the basis for the settlements under the contract terms.
The company's Canadian subsidiary enters into currency futures contracts to
hedge its exposure on live cattle purchase commitments in foreign currencies.
At December 27, 1997, the company had outstanding contracts to buy Canadian
dollars totaling CDN$34.0 million at various dates through December 1998.
Comparable outstanding contracts at year-end 1996 totaled CDN$22.6 million.
There were no material realized or unrealized gains or losses for any
derivative financial instruments in any of the fiscal years presented. The
company monitors the risk of default by its financial instrument counter-
parties, all of which are major financial institutions, and does not anticipate
nonperformance.
Fair Value of Financial Instruments:
The following methods and assumptions are used in estimating the fair value
of each class of the company's financial instruments at December 27, 1997:
For cash equivalents, marketable securities, accounts receivable, notes
payable and accounts payable, the carrying amount is a reasonable estimate of
fair value because of the short-term nature of these instruments.
For securities included in other assets, fair value is based upon quoted
market prices for these or similar securities. The carrying amount
approximates fair value for these securities.
- -14-
For long-term debt, fair value was determined using valuation techniques
that considered cash flows discounted at current market rates and management's
best estimate for instruments without quoted market prices. At year-end 1997,
the fair value exceeded the carrying value by $22.1 million. At year-end 1996,
the carrying value exceeded the fair value by $9.3 million. The change in fair
value from 1996 to 1997 was due largely to the addition of Foodbrands' 10.75%
Senior Subordinated Notes. A general decline in market interest rates also
impacted the change.
For derivatives, the fair value was estimated using termination cash
values. At year-end 1997, interest rate swap agreement values would represent
an obligation of $0.1 million. The fair value of foreign currency derivatives
at December 27, 1997 would represent an obligation of $0.4 million and at
December 28, 1996 would represent an obligation of $0.2 million.
J. ACQUISITION
On May 7, 1997, the company, through a wholly-owned subsidiary, completed
a merger with Foodbrands America, Inc. for approximately $287 million,
excluding transaction costs, and assumed liabilities of approximately $528
million. Foodbrands is a leading U.S. producer, marketer and distributor of
frozen and refrigerated products to the "away from home" food preparation
market. The acquisition was accounted for by the purchase method of
accounting. The excess of the aggregate purchase price over fair value of
identifiable assets and liabilities acquired of approximately $463 million
was recognized as goodwill and is being amortized over 40 years. Foodbrands'
historical goodwill of approximately $182 million was eliminated.
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).
52 Weeks Ended
---------------------------
Dec. 27, Dec. 28,
1997 1996
----------- -----------
Net sales $13,508,370 $13,283,587
Earnings from operations 240,080 364,379
Earnings before
extraordinary item 116,035 202,756
Net earnings 116,035 197,705
Earning per share:
Earnings before
extraordinary item $1.25 $2.14
Net earnings 1.25 2.09
Earnings per share -
assuming dilution:
Earnings before
extraordinary item 1.24 2.11
Net earnings 1.24 2.06
The company made other acquisitions in 1997 for which pro forma
results were not included above because the impact was not material.
-15-
K. PENSION PLANS:
IBP's subsidiary, Foodbrands America, Inc., has defined benefit pension plans
at three of its facilities. The funded status of these defined benefit plans
at December 27, 1997 is as follows (in thousands):
1997
-------
Actuarial present value of benefit
obligations:
Vested benefit obligation $66,752
======
Accumulated benefit obligation $68,933
======
Projected benefit obligation $68,933
Plan assets at fair value 65,110
------
Projected benefit obligation
in excess of plan assets 3,823
Unrecognized net actuarial loss -
difference in assumptions and actual
experience (317)
Adjustment required to recognize
additional minimum liabilty 551
------
Accrued pension cost $ 4,057
======
Plan assets are comprised of cash and cash equivalents and mutual funds
investing primarily in interest bearing and equity securities. The funding
policy for the plan at one facility is to contribute amounts sufficient to meet
the minimum funding requirements of the Employee Retirement Income Security Act
of 1974, and the plans at the other two facilities are funded based upon a
recommendation from the company's actuary. Such contributions for the plans at
these two facilities have, in prior years, exceeded the minimum funding
requirements.
Pension cost of the defined benefit plans for the full fiscal year 1997 was
composed of the following (in thousands):
1997
------
Service cost for benefits
earned during the year $ 411
Interest cost on projected
benefit obligation 4,956
Return on plan assets (4,993)
------
Total pension cost $ 374
======
Actuarial assumptions used in determining the pension cost for fiscal 1997
included an expected long-term return on plan assets of 8.5% and a discount
rate of 7.25%.
- -16-
L. POSTRETIREMENT MEDICAL BENEFITS
IBP's subsidiary, Foodbrands America, Inc., provides life insurance and
medical benefits ("Postretirement Medical Benefits") for substantially all
retired hourly and salaried employees of one of its subsidiaries under various
defined benefit plans. Contributions are made by certain retired participants
toward their Postretirement Medical Benefits.
The components of net periodic postretirement benefit cost for the full
fiscal year ended December 27, 1997, were as follows (in thousands):
1997
------
Service cost $ 197
Interest on accumulated benefit obligation 5,213
Other (2)
-----
Net periodic postretirement benefit cost $5,213
=====
The actuarial and recorded liabilities for these Postretirement Medical
Benefits at December 27, 1997, was as follows (in thousands):
1997
-------
Accumulated postretirement benefit obligation:
Retirees and dependents $62,624
Actives mot fully eligible 5,070
Actives fully eligble 1,716
------
69,410
Assets at fair value 9
------
Accumulated postretirement benefit obligation
in excess of plan assets 69,401
Unrecognized net gain (loss) (1,259)
Unrecognized prior service cost 355
------
Liability recognized on the balance sheet 68,497
Less current portion 6,426
------
Noncurrent liability for postretirement
medical benefits $62,071
======
For measuring the accumulated postretirement medical benefit obligation, a
9.9% annual rate of increase in the per capita claims cost was assumed for
1997. This rate was assumed to decrease gradually to 8.9% by 2000, 7.7% by
2005, and 6.5% by 2010 and remain at that level thereafter. The weighted
average discount rate used in determining the accumlated obligation was
7.25% for fiscal 1997. The expected long-term rate of return on plan assets
was 6.0% for fiscal 1997.
If the health care cost trend rate were increased 1.0%, the accumulated
benefit obligation as of December 27, 1997 would have increased by $2.4
million. The effect of this change on the aggregate of service and interest
cost for the year ended December 27, 1997 would be an increase of $0.2 million.
-17-
M. EARNINGS PER SHARE
For the Year Ended December 27, 1997
-------------------------------------
Earnings Shares Per Share
(in thousands, except per share (Numerator) (Denominator) Amount
amounts) ----------- ------------- ----------
Basic EPS
Net earnings $117,014 92,651 $1.26
====
Effect of Dilutive Securities
Stock options 957
Officer long-term stock plans 184
------- ------
Diluted EPS $117,014 93,792 $1.25
======= ====== ====
For the Year Ended December 28, 1996
--------------------------------------
Earnings Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- -----------
Basic EPS
Net earnings $198,735 94,688 $2.10
====
Effect of Dilutive Securities
Stock options 1,375
Officer long-term stock plans 27
------- -------
Diluted EPS $198,735 96,090 $2.07
======= ======= ====
For the Year Ended December 30, 1995
--------------------------------------
Earnings Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- -----------
Basic EPS
Earnings before extraordinary item $280,112 94,745 $2.96
====
Effect of Dilutive Securities
Stock options 1,323
------- -----
Diluted EPS $280,112 96,068 $2.92
======= ====== ====
The summary below lists stock options outstanding at the end of the
fiscal years which were not included in the computations of diluted EPS
because the option's exercise price was greater than the average market price
of the common shares. These options had varying expiration dates.
1997 1996 1995
----- ----- -----
Stock options excluded from Diluted
EPS computation 1,406 978 237
Average option price per share $24.95 $25.70 $25.89
N. 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.
-18-
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 recently
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.
A former employee sued the company for slander and breach of fiduciary duty
and was awarded $15,004,000, all of which was provided for in 1994. On
appeal, the Iowa Supreme Court reduced the amount to $2,000,000. The company
reduced its $15,000,000 reserve to $100,000 in the fourth quarter of 1996 and
expects coverage for the remaining amount under its general liability insurance.
O. QUARTERLY FINANCIAL DATA (UNAUDITED):
Quarterly results are summarized as follows: (In thousands except per
share data)
First Second Third Fourth
1997 Quarter Quarter Quarter Quarter Annual
- ---- ------- ------- ------- ------- ------
Net sales $3,134,591 $3,448,337 $3,416,706 $3,259,150 $13,258,784
Gross profit 83,319 119,496 125,441 114,636 442,892
Net earnings 32,310 33,864 29,121 21,719 117,014
Earnings per share .34 .37 .32 .23 1.26
Earnings per share -
assuming dilution .34 .36 .31 .23 1.25
Dividends per share .025 .025 .025 .025 .10
Market price:
High 25 1/2 25 1/2 24 1/4 25
Low 23 22 3/4 22 9/16 20 11/16
1996
- ----
Net sales $3,084,722 $3,260,268 $3,175,940 $3,017,823 $12,538,753
Gross profit 117,900 175,587 94,472 55,623 443,582
Net earnings 53,027 86,988 40,467 18,253 198,735
Earnings per share .56 .92 .43 .19 2.10
Earning per share -
assuming dilution .55 .90 .42 .19 2.07
Dividends per share .025 .025 .025 .025 .10
Market price:
High 27 1/8 28 7/8 27 5/8 26 1/2
Low 23 1/4 23 3/8 22 3/4 23 1/8
-19-
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
Gross profit, measured as a percentage of net sales, decreased to 3.3% in
1997 from 3.5% in 1996. Excluding results of new acquisitions Foodbrands
America, Inc. and The Bruss Company (see descriptions of acquisitions below),
gross profit fell to 2.5% in 1997. IBP's fresh meats margins were reduced by
increasing supplies of competing meats and new plant start up losses at the
company's beef processing facility in Canada, pork complex in Logansport,
Indiana, and cooked meats plant in Columbia, South Carolina. In addition,
export demand in important Asian markets was slowed in the latter part of 1997
by food safety scares and a stronger U.S. dollar versus Asian currencies.
Livestock Supplies
IBP's fed beef carcass production and plant capacity utilization were
virtually the same in 1997 as in 1996, although higher average live animal
weights produced an increase in pounds of beef products sold. Meanwhile, cow
division production decreased 13% versus 1996 and the company processed 2.5%
fewer hogs in 1997 from the previous year.
According to the U.S. Department of Agriculture ("USDA") and industry
sources, fed cattle supplies for the first few months of 1998 will be above
1997 levels, followed by a period of declining supplies over the remainder of
the year. Overall, 1998 cattle supplies are expected to be down 1% to 2%
from the previous year. Cow slaughter is also expected to be lower in 1998
than in 1997. On the other hand, industry sources expect that live hog
supplies will be approximately 6% higher in 1998 compared to a year earlier.
Strategic Growth
The company made several strategic moves in 1997 to expand its presence in
higher growth and margin businesses and to realign its available fresh meats
production base to capitalize on shifting concentrations of livestock supplies.
These moves included business acquisitions and plant expansions and shutdowns.
Acquisitions of Foodbrands America, Inc. ("Foodbrands") and the Bruss
Company ("Bruss") were completed in the second quarter 1997. The Foodbrands
purchase, effective as of May 7, 1997, has extended 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 a fast-growing segment of
the food industry. An industry leader in pizza toppings sales, Foodbrands is
also a major provider of value-added, pork-based products to the foodservice
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, has brought to IBP a processor of individual cuts of premium quality
beef and pork for sale to restaurants both domestically and internationally.
Both companies contributed positively to net earnings in 1997.
- -20-
IBP's fresh meats division introduced a new line of "Consumer Friendly"
beef and pork cuts in 1997 that are packaged for immediate sale in the retail
meat case. The product line offers advantages to the retailer in increased
food safety, a longer product shelf life and reduced handling costs. For the
consumer, the cuts are closely trimmed and include cooking instructions and/or
seasonings for ease of use.
Foodbrands purchased a bacon topping manufacturer, Winchester Food
Processing, Inc., in Hutchinson, Kansas, in the third quarter 1997. This
company, with projected net sales of approximately $25 million annually,
produces bacon toppings and bacon bits for the foodservice industry.
The company acquired a major ground beef manufacturing plant in Columbus,
Nebraska, in August 1997. The plant is building its production and customer
bases and will enhance IBP's presence in a growing segment of retail and
foodservice markets.
Production Realignment
In the fresh meats division, boxed beef production at the company's
Alberta, Canada, facility commenced in early 1997. In early 1998, management
announced plans to permanently close its Luverne, Minnesota, carcass beef plant
in March 1998. Available production capacity at other IBP beef plants is
sufficient to offset lost production from the Luverne facility.
Fresh pork production capacity was increased at some IBP plants and reduced
or discontinued at others. The company's Logansport, Indiana, pork complex
began a second production shift in 1997 while activities at the Louisa County,
Iowa, facility were reduced to one shift from two shifts and carcass production
ceased at the Council Bluffs, Iowa, complex.
The company also transferred the management responsibility of three of its
Consumer Products foodservice plants to Foodbrands. This move brings
Foodbrands' production, marketing and distribution expertise to those
facilities and gives Foodbrands added capacity and flexibility in growing its
related businesses.
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.
COMPARISON OF 1997 TO 1996
SALES
Net sales in 1997 rose 6% compared to 1996, with Foodbrands and Bruss
accounting for most of the increase. In IBP's comparative core operations,
1997 net sales were up slightly from 1996 due primarily to increased pounds
of beef products sold.
-21-
Net export sales in 1997 were also slightly higher in comparison to 1996.
Except for Japan, the company achieved positive year-over-year comparisons in
all significant export markets. Exports to Japan improved throughout most of
1997 from the second half of 1996. A food safety scare had sharply curtailed
U.S. red meat sales into Japan in 1996. The Asian financial crisis began to
adversely impact exports late in 1997 as the strengthening U.S. dollar made
American products more expensive for Japanese customers. Total net exports
accounted for 12.7% of consolidated net sales in 1997 versus 13.4% in 1996.
The USDA has predicted that U.S. red meat exports will decline in 1998.
They foresee improved sales to Mexico and other Central and South American
destinations being more than offset by lower sales to Pacific Rim countries.
The stronger U.S. dollar in relation to Asian currencies as well as
currencies of competing exporters to Asia (e.g., Australia) will make exports
to the Pacific Rim more difficult for U.S. companies.
COST OF PRODUCTS SOLD
The 6% increase in cost of products sold from 1996 to 1997 was due largely
to the impact of Foodbrands and Bruss. Excluding the impact of these entities,
IBP's core fresh meats costs in 1997 compared to 1996 increased due primarily
to the new plant start ups in Alberta, Canada, Logansport, Indiana, and
Columbia, South Carolina. A higher average price paid for live cattle also
contributed to higher cost of products sold. Plant costs in 1997 for
comparable operations increased over 1996 primarily as a result of higher
labor costs. Additionally, 1996 cost of products sold was reduced $13
million (after bonus impact) by reduction of a workers' compensation lawsuit
reserve.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
Selling, general and administrative expense in 1997 was 79% higher than in
1996 due primarily to expenses incurred at Foodbrands. Foodbrands' selling
expense is much higher as a percentage of net sales compared to IBP's fresh
meats operations due to the value-added nature of their respective product
lines which require higher levels of customer contact, broker relationships,
brand name development and promotional costs. The company expects that selling
expense will continue to be significantly higher than in periods prior to the
Foodbrands acquisition.
Excluding the impact of the Foodbrands and Bruss acquisitions, 1997
expenses were slightly higher than in the prior year due in part to higher
personnel-related costs, outside contract services and international selling
expense. These higher costs were partially offset by reduced incentive
compensation resulting from lower operating earnings.
INTEREST EXPENSE
Net interest expense rose significantly in 1997 versus 1996 due mainly to
the Foodbrands and Bruss acquisitions. Incremental borrowings were necessary
to acquire these companies and Foodbrands had existing debt of $341 million
at the purchase date. Total consolidated outstanding borrowings averaged
$654 million in 1997 compared to $265 million in 1996. The company's
effective average interest rate increased also, due primarily to the addition
of Foodbrands' $112 million of 10.75% Senior Subordinated Notes. Management
expects that net interest expense in the foreseeable future will continue to
be significantly higher than in 1996.
- -22-
COMPARISON OF 1996 to 1995
SALES
Net sales in 1996 were 1.0% below the record level achieved in 1995. A
decrease in pounds of beef and pork products sold in IBP's core fresh meats
operations in 1996 versus 1995 as well as a decrease in the average price of
beef products sold were the primary factors in the lower 1996 net sales.
These factors were partially offset by an increase in the average price of
pork products sold and a full year of cow boning operations in 1996 (nine
months in 1995 for the three plants purchased in 1995 and no prior year sales
for the Palestine plant purchased in the second quarter 1996).
IBP's net export sales in 1996 were 8% lower than in 1995. An outbreak
of E. Coli, a bacterial illness, in Japan, the company's most significant
export market, caused a food safety scare among Japanese consumers. This
problem significantly reduced IBP exports to the Pacific Rim during the
second half of 1996, even though the source of the illnesses appeared to be
non-meat related. Exports accounted for 13.4% of consolidated net sales in
1996 compared to 14.4% in 1995.
COST OF PRODUCTS SOLD
A 1% increase in 1996 cost of products sold from 1995 was due primarily
to a full year of operations in 1996 for three cow boning plants purchased in
1995 versus nine months in the prior year. Meanwhile, 1996 livestock costs
in the company's core beef and pork operations decreased from 1995. A lower
average price paid for live cattle and fewer pounds of beef products sold
were partially offset by the effect of a higher average price paid for live
hogs. Livestock costs comprised 88% of total cost of products sold in 1996
and 1995.
The cost of products sold in 1996 was reduced $13 million (after bonus
impact) by reduction of a workers' compensation lawsuit reserve due to
favorable developments in the fourth quarter 1996. In addition, 1995 cost of
products sold included $18 million (after bonus impact) for a second quarter
adjustment to salvage value for most fixed assets to better reflect actual
experience.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
Reduced incentive compensation based upon lower 1996 operating earnings
was the most significant factor in the 3% decrease in 1996 expense from 1995.
Administrative costs were higher in 1996 as a result of higher personnel
- -related costs to support the company's expanding operations. Selling
expense also increased in 1996 over 1995 due principally to higher
international selling costs as the company added foreign service centers in
Korea and Taiwan.
INTEREST EXPENSE
Net interest expense in 1996 fell 84% from the year earlier. 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. Additionally, 1996 borrowings averaged almost $100
million less than in 1995 due to continued strong operating cash flows.
- -23-
LIQUIDITY AND CAPITAL RESOURCES
The meat processing industry is characterized by significant working
capital requirements. This is due largely to statutory provisions that
generally provide for immediate payment for livestock, while it takes IBP on
average about ten days to turn its product inventories and fifteen days to
convert its trade receivables to cash. These factors, combined with
fluctuations in production levels, selling prices and prices paid for
livestock, can impact cash requirements substantially on a day-to-day basis.
To provide cash for its working capital requirements, the company's credit
facilities (more fully described in Note C to the consolidated financial
statements) provide IBP with same-day access to an aggregate of $600 million
in potential committed borrowings. The unused portion of the credit lines was
$295 million at December 27, 1997 and was $300 million at the end of fiscal
January 1998.
Although IBP has significant working capital requirements, its accounts
receivable and inventories are highly liquid, characterized by rapid turnover.
The following are key indicators relating to IBP's working capital, asset-based
liquidity, and leverage ratios:
December 27, December 28,
1997 1996
------------ ------------
Working capital (in millions) $207 $541
Current ratio 1.2:1 1.9:1
Quick ratio 0.7:1 1.3:1
Number of days' sales in
accounts receivable 15.3 14.0
Inventory turnover 35.2 40.3
Earnings to fixed charges 4.3 14.5
The acquisitions of Foodbrands and Bruss necessitated an increase in short-
term borrowings ($192 million as of December 27, 1997 versus $0 as of December
28, 1996), thus reducing the company's working capital and associated ratios.
Also, the company liquidated most of its short-term investments which were
classified as cash equivalents and marketable securities to help fund the
acquisitions and other cash requirements. Additionally, the nature of the new
subsidiaries' businesses (e.g., product lines, distribution channels, customers
and credit terms) is closer to the final consumer than is IBP's fresh meats
business. Correspondingly, receivables and inventory turnover rates are
typically slower for such businesses with value-added products. For
comparative IBP operations, receivables and inventory turnover rates for the
company's fresh meats operations in 1997 were comparable with 1996 rates.
Immediately after acquiring Foodbrands in early May 1997, IBP borrowed
against its $500 million revolving credit facility to pay off Foodbrands'
higher interest-rate bank debt totaling $211 million. As of December 27, 1997,
Foodbrands had $115 million of 10.75% Senior Subordinated Notes still
outstanding, $3 million of which was held by IBP.
- -24-
In May 1997, the company entered into a one-year, $100 million credit
agreement with Bank of America. This credit agreement gives the company
additional short-term borrowing capacity and flexibility given the increased
borrowings against the existing $500 million revolving credit facility.
In June 1997, the company completed its offering of $125 million principal
amount of 7.45% Senior Notes due 2007. Proceeds from the offering were used
ultimately to reduce borrowings under IBP's revolving credit facilities.
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 a series of notes issued under the company's $300 million
aggregate principal amount, Medium-Term Notes program which commenced in
December 1997, and which in turn is part of the $500 million aggregate
principal amount, Debt Securities program registered with the Securities and
Exchange Commission.
Capital expenditures in 1997 totaled $134 million compared to $171 million
in 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.
Management's estimate of 1998 capital spending is in the range of $175
million, which the company intends to fund from operating cash flows and
available debt facilities.
YEAR 2000
Management has assessed the capability of its computer-based systems to
properly handle dates of January 1, 2000 and beyond. Necessary modifications
to systems have been identified and have either been implemented or are in the
process of being implemented. Management believes these issues are being
addressed appropriately and expects that costs incurred to complete the
modifications will not be material.
- -25-
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of IBP, inc.
We have audited the accompanying consolidated balance sheets of IBP, inc.
and subsidiaries as of December 27, 1997 and December 28, 1996, and the related
consolidated statements of earnings, changes in stockholders' equity, and cash
flows for each of the three years in the period ended December 27, 1997. These
financial statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit also includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of IBP, inc. and
subsidiaries as of December 27, 1997 and December 28, 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 27, 1997, in conformity with
generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Omaha, Nebraska
January 23, 1998
REPORT ON FINANCIAL STATEMENT INTEGRITY BY MANAGEMENT
To our stockholders:
IBP's consolidated financial statements have been prepared by management
and we are responsible for their integrity and objectivity. The accompanying
consolidated financial statements have been prepared in accordance with
generally accepted accounting principles (GAAP). We believe these statements
present fairly the company's financial position and results of operations.
Our independent auditors, Coopers & Lybrand L.L.P., have audited these
consolidated financial statements. Their audit was conducted using generally
accepted auditing standards, which included consideration of our internal
controls in order to form an independent opinion on the financial statements.
We have made available to Coopers & Lybrand L.L.P. all the company's
financial records, as well as the minutes of meetings of stockholders and
directors.
IBP relies on a system of internal accounting controls to provide assurance
that assets are safeguarded and transactions are properly authorized and
recorded. We continually monitor these controls, modifying and improving them
as business operations change. IBP maintains a strong internal auditing
department that independently reviews and evaluates these controls as well.
- -26-
The Audit Committee of the Board of Directors provides oversight to ensure
the integrity and objectivity of the company's financial reporting process and
the independence of our internal and external auditors. Both internal audit
and Coopers & Lybrand L.L.P. have complete access to the Board's Audit Committee
with or without the presence of management personnel.
Our management team is responsible for proactively fostering a strong
climate of ethical conduct so that the company's affairs are carried out
according to the highest standards of personal and corporate behavior. This
responsibility is specifically demonstrated in IBP's conflict of interest
policy which requires annual written acknowledgment by each and every officer
and those management personnel so designated.
We are pleased to present this annual report and the accompanying
consolidated financial statements for your review and consideration.
Most sincerely,
/s/ Robert L. Peterson /s/ Larry Shipley
- ------------------------- --------------------
Robert L. Peterson Larry Shipley
Chairman and Chief Executive Officer President, IBP Enterprises
IBP, inc. & Chief Financial Officer
IBP, inc.
- -27-
EXHIBIT 21
SUBSIDIARIES OF IBP, inc.
December 27, 1997
The Bruss Company
Foodbrands America, Inc. (1)
IBP Caribbean Inc.
IBP Finance Company of Canada
IBP Foodservice, LLC (2)
IBP Foreign Sales Corporation
IBP Hog Markets, Inc.(3)
IBP International, Inc.
IBP International, Inc. Asia(4)
IBP International, Inc. Europe(4)
IBP of Wisconsin, inc.
IBP Service Center Corp.
Lakeside Farm Industries Ltd.
Lakeside Feeders Ltd.(5)
PBX, inc.
Prepared Foods, Inc.
Rural Energy Systems, Inc.
Supreme Processed Foods, Inc.
Texas Transfer, Inc.
(1) Stock is 100% owned by IBP Foodservice, LLC
(2) Membership consists of IBP, inc.; IBP Caribbean, Inc.; and
Prepared Foods, Inc.
(3) Also doing business as Heinold Hog Market
(4) Stock is 100% owned by IBP International, Inc.
(5) Stock is 100% owned by Lakeside Farm Industries Ltd.
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We consent to the incorporation by reference in the
registration statements of IBP, inc. on Form S-3 (File No.
33-64459) and on Form S-8 (File No. 33-19441) of our report
dated January 23, 1998, on our audits of the consolidated
financial statements and financial statement schedule of IBP,
inc. as of December 27, 1997 and December 28, 1996 and for each
of the three years in the period ended December 27, 1997, which
report is incorporated by reference in this Annual Report on
Form 10-K.
COOPERS & LYBRAND L.L.P.
Omaha, Nebraska
March 25, 1998
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<FISCAL-YEAR-END> DEC-27-1997
<PERIOD-END> DEC-27-1997
<CASH> 69,022
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