SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
____________________________
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the 26 weeks ended June 24, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-6085
____________________________
IBP, inc.
a Delaware Corporation
I.R.S. Employer Identification No. 42-0838666
800 Stevens Port Drive
Dakota Dunes, South Dakota 57049
Telephone 605-235-2061
____________________________
Indicate by check mark whether the registrant(1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months,
and (2) has been subject to such filing requirements for the past
90 days.
YES [X] NO [ ]
As of August 1, 2000, the registrant had outstanding
105,578,277 shares of its common stock ($.05 par value).
PART I. FINANCIAL INFORMATION
IBP, inc. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
June 24, December 25,
2000 1999
-------- ------------
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents $ 32,415 $ 33,294
Marketable securities 10,000 -
Accounts receivable, less allowance for
doubtful accounts of $22,643 and $17,797
843,370 853,234
Inventories 749,403 619,977
Deferred income tax benefits and
prepaid expenses 97,963 84,930
--------- ---------
TOTAL CURRENT ASSETS 1,733,151 1,591,435
========= =========
Property, plant and equipment
less accumulated depreciation
of $1,023,934 and $960,390 1,468,290 1,362,765
Goodwill, net of accumulated
amortization of $204,930 and $189,395 1,058,486 1,054,839
Other assets 148,441 145,225
--------- ---------
$4,408,368 $4,154,264
========= =========
LIABILITIES, REDEEMABLE STOCK, AND
STOCKHOLDERS' EQUITY
----------------------------------
CURRENT LIABILITIES:
Notes payable to banks 781,755 447,960
Accounts payable 444,957 422,942
Deferred income taxes and other
current liabilities 483,726 455,676
Current portion of long-term debt 54,226 107,225
--------- ---------
TOTAL CURRENT LIABILITIES 1,764,664 1,433,803
Long-term debt and capital lease
Obligations 659,621 789,861
Deferred income taxes and other
Liabilities 168,914 168,934
--------- ---------
TOTAL LIABILITIES 2,593,199 2,392,598
--------- ---------
REDEEMABLE STOCK 28,537 44,564
--------- ---------
STOCKHOLDERS' EQUITY:
Common stock at par value 5,450 4,964
Additional paid-in capital 417,174 404,463
Retained earnings 1,444,921 1,375,590
Accumulated other comprehensive income (9,656) (8,600)
Treasury stock (71,257) (59,315)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 1,786,632 1,717,102
--------- ---------
$4,408,368 $4,154,264
========= =========
See accompanying notes to condensed consolidated financial statements.
IBP, inc. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share data)
13 Weeks Ended 26 Weeks Ended
-------------------- --------------------
June 24, June 26, June 24, June 26,
2000 1999 2000 1999
-------- -------- -------- --------
Net sales $4,165,530 $3,616,112 $8,047,567 $6,827,286
Cost of products sold 3,907,529 3,385,975 7,549,587 6,392,131
--------- --------- --------- ---------
Gross profit 258,001 230,137 497,980 435,155
Selling, general and
administrative expense 142,048 102,555 273,398 201,908
Nonrecurring merger-related
expense - - 31,299 -
--------- --------- --------- ---------
EARNINGS FROM OPERATIONS 115,953 127,582 193,283 233,247
Interest expense, net 21,635 17,423 42,950 31,167
--------- --------- --------- --------
Earnings before income
taxes and extraordinary item 94,318 110,159 150,333 202,080
Income tax expense 35,800 42,386 57,100 77,705
--------- --------- --------- ---------
Earnings before extraordinary
item 58,518 67,773 93,233 124,375
Extraordinary loss on early
extinguishment of debt, less
applicable taxes - - (15,037) -
--------- --------- --------- ----------
NET EARNINGS $ 58,518 $ 67,773 $ 78,196 $ 124,375
========= ========= ========= =========
Earnings per common share:
Earnings before extraordinary
item $ .55 $ .70 $ .85 $1.28
Extraordinary item - - (.14) -
---- ---- ---- ----
Net earnings $ .55 $ .70 $ .71 $1.28
==== ==== ==== ====
Earnings per common share -
assuming dilution:
Earnings before extraordinary
item $ .55 $ .63 $ .84 $1.16
Extraordinary item - - (.14) -
---- ---- ---- ----
Net earnings $ .55 $ .63 $ .70 $1.16
==== ==== ==== ====
Dividends per share $.025 $.025 $ .05 $ .05
==== ==== ==== ====
Weighted average common shares
Outstanding 106,019 96,561 106,030 96,573
======= ======= ======= =======
Diluted EPS denominator 107,206 106,548 107,351 106,399
======= ======= ======= =======
Preferred stock dividends
and accretion $ - $ 451 $ 2,566 $ 1,107
======= ======= ======= =======
See accompanying notes to condensed consolidated financial statements.
IBP, inc. AND SUBSIDIARIES
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
(In thousands)
26 Weeks Ended
-----------------------
June 24, June 26,
2000 1999
-------- --------
Inflows (outflows)
NET CASH FLOWS PROVIDED (USED BY) OPERATING
ACTIVITIES $ 50,143 $ (46,177)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (181,501) (104,026)
Purchases of marketable securities (25,000) (19,400)
Proceeds from disposals of marketable
securities 15,000 19,400
Acquisitions, net of cash acquired - (270,024)
Other investing activities, net (17,112) 4,577
--------- ---------
Net cash flows used by
investing activities (208,613) (369,473)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term
obligations (483,644) (5,057)
Increase in short-term debt 333,796 388,934
Proceeds from issuance of long-term debt 295,482 3,000
Net change in checks in process of
clearance 58,077 38,484
Redemption of preferred stock (28,512) -
Other financing activities, net (17,673) (8,401)
--------- ---------
Net cash flows provided by
financing activities 157,526 416,960
--------- ---------
Effect of exchange rate on cash
and cash equivalents 65 (303)
--------- ---------
Net change in cash and cash equivalents (879) 1,007
Cash and cash equivalents at beginning
of period 33,294 29,295
--------- ---------
Cash and cash equivalents at end of
period $ 32,415 $ 30,302
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the periods for:
Interest, net of amounts capitalized $ 36,653 $ 28,830
Income taxes, net of refunds received 40,042 88,967
Depreciation and amortization expense 69,288 58,766
Amortization of intangible assets 17,421 14,179
See accompanying notes to condensed consolidated financial statements.
IBP, inc. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Columnar amounts in thousands, except per share amounts
A. GENERAL
The condensed consolidated balance sheet of IBP, inc. and
subsidiaries ("IBP" or "the company") at December 25, 1999
has been taken from audited financial statements at that date
and condensed. All other condensed consolidated financial
statements contained herein have been prepared by IBP and are
unaudited. The condensed consolidated financial statements
should be read in conjunction with the consolidated financial
statements and the notes thereto included in IBP's Annual
Report on Form 10-K for the year ended December 25, 1999.
On February 7, 2000, the company completed a merger with
Corporate Brand Foods America, Inc. ("CBFA") (see Note F).
The merger has been accounted for as a pooling of interests
and, accordingly, all prior period consolidated financial
statements have been restated to include the combined results
of operations, financial position and cash flows of CBFA.
In the opinion of management, the accompanying unaudited
condensed consolidated financial statements contain all
adjustments necessary to present fairly the financial
position of IBP at June 24, 2000 and the results of its
operations and its cash flows for the periods presented
herein.
Certain reclassifications have been made to prior
financial statements to conform to the current year
presentation.
B. OTHER
IBP's interim operating results may be subject to
substantial fluctuations which do not necessarily occur or
recur on a seasonal basis. Such fluctuations are normally
caused by competitive and other conditions in the cattle and
hog markets over which IBP has little or no control.
Therefore, the results of operations for the interim periods
presented are not necessarily indicative of the results to be
attained for the full fiscal year.
C. INVENTORIES
Inventories, valued at the lower of first-in, first-out
cost or market, are comprised of the following:
June 24, December 25,
2000 1999
-------- -----------
Product inventories:
Raw materials $ 86,274 $ 37,846
Work in process 93,183 83,638
Finished goods 304,873 274,624
------- -------
484,330 396,108
Livestock 174,310 137,300
Supplies 90,763 86,569
------- -------
$749,403 $619,977
======= =======
D. EARNINGS PER SHARE
13 Weeks Ended
----------------------
June 24, June 26,
2000 1999
-------- --------
Numerator:
Net earnings $ 58,518 $ 67,773
Preferred stock dividends and - (451)
accretion ------- -------
Earnings available for common shares $ 58,518 $ 67,322
======= =======
Denominator:
Weighted average common shares
outstanding 106,019 96,561
Dilutive effect of employee stock plans 1,187 9,987
------- -------
Diluted average common shares
outstanding 107,206 106,548
======= =======
Basic earnings per common share $ .55 $ .70
==== ====
Diluted earnings per common share $ .55 $ .63
==== ====
26 Weeks Ended
----------------------
June 24, June 26,
2000 1999
-------- --------
Numerator:
Earnings before extraordinary item $ 93,233 $124,375
Preferred stock dividends and accretion (2,566) (1,107)
------- -------
Earnings available for common shares $ 90,667 $123,268
======= =======
Denominator:
Weighted average common shares
outstanding 106,030 96,573
Dilutive effect of employee stock plans 1,321 9,826
------- -------
Diluted average common shares
outstanding 107,351 106,399
======= =======
Basic earnings before extraordinary
item per common share $ .85 $1.28
==== ====
Diluted earnings before extraordinary
item per common share $ .84 $1.16
==== ====
The summary below lists stock options outstanding at the
end of the fiscal quarters which were not included in the
computations of diluted EPS because the options' exercise
price was greater than the average market price of the common
shares. These options had varying expiration dates.
2000 1999
------ ------
Stock options excluded from
diluted EPS computation 3,287 1,538
Average option price per share $21.19 $24.69
E. COMPREHENSIVE INCOME
Comprehensive income consists of net earnings and foreign
currency translation adjustments. Management considers its
foreign investments to be permanent in nature and does not
provide for taxes on currency translation adjustments
arising from converting the investment in a foreign currency
to U.S. dollars. Comprehensive income for the 26 weeks
ended June 24, 2000 and June 26, 1999 was as follows:
26 Weeks Ended
----------------------
June 24, June 26,
2000 1999
-------- --------
NET EARNINGS $78,196 $124,375
Other comprehensive income:
Foreign currency translation
adjustments (1,056) 6,409
------ -------
COMPREHENSIVE INCOME $77,140 $130,784
====== =======
F. ACQUISITION
On February 7, 2000, the company acquired the outstanding
common stock of Corporate Brand Foods America, Inc. ("CBFA"),
a privately held processor and marketer of meat and poultry
products for the retail and foodservice markets. In the
transaction, which was accounted for as a pooling of
interests, IBP issued approximately 14.4 million common
shares for all of the outstanding common stock of CBFA. The
company also assumed $344 million of CBFA's debt and
preferred stock obligations. At the acquisition date, all of
the debt obligations were refinanced (see Note G) and the
preferred stock was redeemed. The companies incurred $31
million of nonrecurring merger-related expenses, related
primarily to an increase in the valuation of CBFA's
restricted redeemable stock, a non-cash charge of $21
million, and transaction-related fees.
The company, by virtue of its acquisition of CBFA, has a
restricted stock plan for which, upon termination of
employment with the company, grantees have the right to
require the company to purchase the vested portion of shares
issued under the plan at fair market value. As a result of
this mandatory redemption feature (the "Put Features"),
shares issued under the plan are classified as redeemable
stock in the accompanying consolidated balance sheet, and the
plan is accounted for as a "variable plan" in accordance with
APB Opinion #25. Since the inception of the plan, no
grantees have exercised their Put Features, and management
considers the likelihood of significant Put Features being
exercised in the future to be remote.
Prior to the merger, CBFA's fiscal year ended on the Sunday
closest to the last day of February. The following information
presents certain statement of earnings data for the separate
companies corresponding to IBP's fiscal quarter and six
months ended June 26, 1999:
13 Weeks Ended 26 Weeks Ended
June 26, June 26,
1999 1999
-------------- --------------
Net sales:
IBP, as previously
reported $3,478,467 $6,576,119
Intercompany sales to CBFA (14,542) (28,877)
--------- ---------
Net IBP sales 3,463,925 6,547,242
CBFA 152,187 280,044
--------- ---------
$3,616,112 $6,827,286
========= =========
Net earnings (loss):
IBP $ 66,243 $ 123,141
CBFA 1,530 1,234
--------- ---------
$ 67,773 $ 124,375
========= =========
G. LONG-TERM OBLIGATIONS:
Long-term obligations are summarized as follows:
June 24, December 25,
2000 1999
-------- ------------
7.95% Senior Notes due 2010 $300,000 $ -
7.45% Senior Notes due 2007 125,000 125,000
6.125% Senior Notes due 2006 100,000 100,000
7.125% Senior Notes due 2026 100,000 100,000
6.0% Securities due 2001 50,000 50,000
CBFA long-term obligations - 306,633
Revolving credit facilities - 175,000
Present value of minimum
capital lease obligations 22,511 26,728
Other 16,336 13,725
------- -------
713,847 97,086
Less amounts due within one year 54,226 107,225
------- -------
$659,621 $789,861
======= =======
On January 31, 2000, the company issued $300 million of
7.95% 10-year notes under its $550 million Debt Securities
program originally registered with the Securities and
Exchange Commission ("SEC") in 1996. This Debt Securities
program was subsequently amended and filed with the SEC on
January 27, 2000. The net proceeds, issued at a slight
discount to par, were used to reduce IBP's revolving credit
facilities, $175 million of which had been classified as non-
current at December 25, 1999. Interest is payable
semiannually.
On February 7, 2000, the company completed its merger
with CBFA and, at the same time, refinanced all of CBFA's
various existing debt obligations, using available IBP credit
facilities which were at more favorable terms. Prepayment
premiums, accelerated amortization of unamortized deferred
financing costs, and transaction expenses totaled $22
million, before applicable income tax benefit of $7 million,
and was accounted for as an extraordinary loss in the
condensed consolidated statement of earnings.
H. CONTINGENCIES:
IBP is involved in numerous disputes incident to the
ordinary course of its business. While the outcome of any
litigation is not predictable, or subject to the Company's
control, and the impact on future financial results is not
subject to reasonable estimation because considerable
uncertainty exists both as to such outcome and as to the
future financial results, management believes that 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, is not
likely to have a material adverse effect on its future
consolidated results, financial position or liquidity.
In July 1996, a lawsuit was filed against IBP by certain
cattle producers in the U.S. District Court, Middle District
of Alabama, seeking certification of a class of all cattle
producers. The complaint alleges that IBP has used its
market power and alleged "captive supply" agreements to
reduce the prices paid to producers for cattle. Plaintiffs
have disclosed that, in addition to declaratory relief, they
seek actual and punitive damages. The original motion for
class certification was denied by the District Court;
plaintiffs then amended their motion, defining a narrower
class consisting of only those cattle producers who sold
cattle directly to IBP from 1994 through the date of
certification. The District Court approved this narrower
class in April 1999. The 11th Circuit Court of Appeals
reversed the District Court decision to certify a class, on
the basis that there were inherent conflicts amongst class
members preventing the named plaintiffs from providing
adequate representation to the class. The District Court has
set a schedule for the plaintiffs for pleadings if they
intend to seek to certify an amended class. In plaintiff's
revised expert reports filed after the 11th Circuit decision
reversing the class certification decision, plaintiffs
indicate they will seek up to $1 billion in damages on behalf
of a proposed new class. Management continues to believe
that the company has acted properly and lawfully in its
dealings with cattle producers.
On January 12, 2000, The United States Department of
Justice, on behalf of the Environmental Protection Agency
("EPA"), filed a lawsuit against IBP in U. S. District Court
for the District of Nebraska, alleging violations of various
environmental laws at IBP's Dakota City facility. This
action alleges, among other things, violations of: (1) the
Clean Air Act; (2) the Clean Water Act; (3) the Resource,
Conservation and Recovery Act; (4) the Comprehensive
Environmental Response Compensation and Liability Act
("CERCLA"); and (5) the Emergency Planning and Community
Right to Know Act ("EPCRA"). The action seeks injunctive
relief to remedy alleged violations and damages of $25,000
per violation per day for alleged violations which occurred
prior to January 30, 1997, and $27,500 per violation per day
for alleged violations after that date. The Complaint alleges
that some violations began to occur as early as 1989,
although the great majority of the violations are alleged to
have occurred much later, and allegedly continue into the
present. IBP believes that the company has meritorious
defenses on each of these allegations and intends to
aggressively defend these claims.
On May 19, 2000, IBP signed a Partial Consent Decree with
the EPA which makes environmental improvements that were
already underway at IBP's Dakota City, Nebraska facility
federally enforceable. Although this Partial Consent Decree
does not purport to resolve all of the allegations in the
Complaint, if EPA were to prevail in court on certain of
its factual allegations, these improvements may satisfy part
of the injunctive relief sought by EPA under the Complaint.
EPA has acknowledged that final injunctive relief under CAA
claims may incorporate some or all of the work agreed to
under the Partial Consent Decree.
In February 2000, several lawsuits were filed against IBP
by certain shareholders in the United States District Court
for the District of Nebraska seeking to certify a class of
all persons who purchased IBP stock between March 25, 1999 to
January 12, 2000. The complaints, seeking unspecified
damages, allege that IBP violated Sections 10(b) and 20(a) of
the Securities Exchange Act of 1934, and Rule 10b-5
thereunder, and claims IBP issued materially false statements
about the company's compliance with environmental laws in
order to inflate the company's stock price. The lawsuits
have been consolidated and the Court has appointed three lead
plaintiffs. The Court denied the motion for approval of lead
and liaison counsel, and has required plaintiffs to submit an
amended motion for appointment of lead counsel. Once lead
counsel has been appointed, an amended consolidated complaint
with respect to all the actions will be filed, and the
Company will respond at that time. Management believes it
has accurately reported the company's compliance with
environmental laws, and the company intends to vigorously
contest these claims.
On January 15, 1997, the Illinois EPA brought suit
against IBP at its Joslin, Illinois facility alleging that
IBP's operations at its Joslin, Illinois facility are
violating the "odor nuisance" regulations enacted in the
State of Illinois. IBP has already commenced additional
improvements at its Joslin facility to further reduce odors
from this operation, but denies Illinois EPA's contention
that such conditions amount to a "nuisance". IBP is in the
midst of discussions aimed at a complete resolution of these
issues, and reports this issue solely because of a recent
determination that the penalties have the potential to exceed
$100,000.
I. BUSINESS SEGMENTS
The company is managed and operated as two divisions,
Fresh Meats and Foodbrands America, and, accordingly, has two
business segments. IBP's Fresh Meats operation relates
principally to the meat processing industry and primarily
involves cattle and hog carcass production, beef and pork
fabrication and related allied product processing activities.
This segment markets its products to food retailers,
distributors, wholesalers, restaurant and hotel chains, other
food processors and leather makers, as well as manufacturers
of pharmaceuticals and animal feeds. The Foodbrands America
segment consists of several IBP subsidiaries, principally
Foodbrands America, Inc. ("Foodbrands"), The Bruss Company,
IBP Foods, Inc., and CBFA. The Foodbrands America group
produces, markets and distributes a variety of frozen and
refrigerated products to the "away from home" food
preparation market, other food processors and to the retail
grocery market. Products include pizza toppings and crusts,
value-added beef and pork-based products, ethnic specialty
foods, appetizers, soups, sauces and side dishes as well as
deli meats and processed beef, pork and poultry products.
Foodbrands America also produces portion-controlled premium
beef and pork products for sale to restaurants and
foodservice customers in domestic and international markets.
The company operates principally in the United States.
Intersegment sales have been recorded at amounts
approximating market. Earnings from operations are comprised
of net sales less all identifiable operating expenses,
allocated corporate selling, general and administrative
expenses, and goodwill amortization. Net interest expense
and income taxes have been excluded from segment operations.
13 Weeks Ended 26 Weeks Ended
------------------- --------------------
June 24, June 26, June 24, June, 26,
2000 1999 2000 1999
-------- -------- -------- ---------
NET SALES
Sales to unaffiliated customers:
Fresh Meats $3,371,843 $3,048,874 $6,566,280 $5,823,844
Foodbrands America 793,687 567,238 1,481,287 1,003,442
--------- --------- --------- ---------
$4,165,530 $3,616,112 $8,047,567 $6,827,286
========= ========= ========= =========
Intersegment sales:
Fresh Meats $ 145,621 $ 95,313 $ 286,898 $ 180,722
Intersegment elimination (145,621) (95,313) (286,898) (180,722)
--------- --------- --------- ---------
- - - -
========= ========= ========= =========
Net sales:
Fresh Meats $3,517,464 $3,144,187 $6,853,178 $6,004,566
Foodbrands America 793,687 567,238 1,481,287 1,003,442
Intersegment elimination (145,621) (95,313) (286,898) (180,722)
--------- --------- --------- ---------
$4,165,530 $3,616,112 $8,047,567 $6,827,286
========= ========= ========= =========
EARNINGS FROM OPERATIONS
Fresh Meats $ 97,307 $ 91,407 $ 200,642 $ 176,398
Foodbrands America 18,646 36,175 (7,359) 56,849
--------- --------- --------- ---------
Total earnings from
operations 115,953 127,582 193,283 233,247
Net interest expense (21,635) (17,423) (42,950) (31,167)
--------- --------- --------- ---------
Pre-tax earnings $ 94,318 $ 110,159 $ 150,333 $ 202,080
========= ========= ========= =========
NET SALES BY LOCATION
OF CUSTOMERS
---------------------
United States $3,547,439 $3,092,949 $6,829,992 $5,823,161
Japan 243,939 207,711 488,113 409,146
Canada 155,174 140,159 285,945 248,362
Korea 68,374 47,228 144,183 89,809
Mexico 59,490 42,937 113,569 83,667
Other foreign countries 91,114 85,128 185,765 173,141
--------- --------- --------- ---------
$4,165,530 $3,616,112 $8,047,567 $6,827,286
========= ========= ========= =========
MANAGEMENT'S DISCUSSION AND ANALYSIS
------------------------------------
This quarterly report on Form 10-Q contains forward-
looking statements which reflect management's current view
with respect to future events and financial performance.
Specifically, these forward-looking statements include risks
and uncertainties. Thus, actual results may differ
materially from those expressed or implied in those
statements. Those risks and uncertainties include, without
limitation, risks of changing market conditions with regard
to livestock supplies and demand for the company's products,
domestic and international legal and regulatory risks, the
costs of environmental compliance, the impact of governmental
regulations, operating efficiencies, as well as competitive
and other risks over which IBP has little or no control.
Moreover, past financial performance should not be considered
a reliable indicator of future performance. The company
makes no commitment to update any forward-looking statement,
or to disclose any facts, events or circumstances after the
date hereof that may affect the accuracy of any forward-
looking statement.
ACQUISITION
-----------
On February 7, 2000, the company acquired Corporate Brand
Foods America, Inc. ("CBFA"), a privately held processor and
marketer of meat and poultry products for the retail and
foodservice markets. In the transaction, which was accounted
for as a pooling of interests, IBP issued 14.4 million common
shares for all of the outstanding stock of CBFA. The company
also assumed $344 million of CBFA's debt and preferred stock
obligations. At the acquisition date, all of the debt
obligations were refinanced (see Note G) and the preferred
stock was redeemed. The companies incurred $31 million of
nonrecurring merger-related expenses, related primarily to an
increase in the valuation of CBFA's restricted redeemable
stock and to transaction-related fees.
RESULTS OF OPERATIONS
---------------------
Fresh Meats' operating earnings decreased to 2.9% of net
sales in the second quarter 2000 versus 3.5% in the second
quarter 1999, before a nonrecurring 1999 pre-tax charge for
cow facility asset write-downs of $17 million. Through six
months, operating earnings as a percentage of net sales in
2000 measured 3.1% versus 3.3% in 1999, before nonrecurring
charges. Beef operations performed well on strong demand and
higher capacity utilization. However, pork division
performance was hampered by higher live hog costs and lower
capacity utilization.
In the Foodbrands America segment, second quarter 2000
operating earnings decreased to 2.3% of net sales compared to
6.4% in the second quarter 1999. Year-to-date 2000 operating
earnings, before nonrecurring and unusual items, measured
2.4% of net sales versus 5.7% in 1999. The lower 2000
results reflected margin pressure from increased raw material
costs, especially fresh pork. Additionally, the IBP Foods,
Inc. operation, consisting of former Thorn Apple Valley, Inc.
facilities purchased in the third quarter 1999, lost $7
million in the second quarter and $18 million in the first
six months of 2000.
Foodbrands America's year-to-date 2000 operating earnings
were reduced by two unusual items. The most significant item
was $31 million in pre-tax, nonrecurring CBFA merger-related
expense described above. The second unusual item was an $11
million pre-tax bad debt provision increase due to a
significant customer's bankruptcy. Excluding the unusual
items and the IBP Foods, Inc. loss, the Foodbrands America
segment earned $53 million from operations through June 2000
compared to $57 million in the first half of 1999.
The latest estimates by livestock industry analysts
predict that beef production in 2000 will be slightly higher
than 1999 levels and higher than earlier expected. Thus, it
appears that live cattle supplies will be abundant for most
of this year. Meanwhile, pork production in 2000 is
forecasted to be down 2% to 3% from the record production in
1999.
COMPARATIVE SEGMENT RESULTS
---------------------------
(in thousands)
13 Weeks Ended 26 Weeks Ended
-------------------- -------------------
June 24, June 26, June 24, June 26,
2000 1999 2000 1999
-------- -------- -------- --------
Net sales:
Fresh Meats $3,371,843 $3,048,874 $6,566,280 $5,823,844
Foodbrands America 793,687 567,238 1,481,287 1,003,442
--------- --------- --------- ---------
$4,165,530 $3,616,112 $8,047,567 $6,827,286
========= ========= ========= =========
Earnings from operations:
Before nonrecurring
and unusual items:
Fresh Meats $ 97,307 $ 108,102 $ 201,325 $ 193,093
Foodbrands America 18,646 36,175 34,475 56,849
--------- --------- --------- ---------
$ 115,953 $ 144,277 $ 235,800 $ 249,942
========= ========= ========= =========
After nonrecurring
and unusual items:
Fresh Meats $ 97,307 $ 91,407 $ 200,642 $ 176,398
Foodbrands America 18,646 36,175 (7,359) 56,849
--------- --------- --------- ---------
$ 115,953 $ 127,582 $ 193,283 $ 233,247
========= ========= ========= =========
SALES
Fresh Meats' net sales increased 11% and 13% in the 13-
week and 26-week periods ended June 2000 from the comparable
prior year periods. The increases were due primarily to
higher average selling prices of beef and pork offset by a
slight decrease in total pounds of beef and pork products
sold. The higher selling prices were reflective of continued
strong demand for red meat in the United States and
international markets, and to lower available supplies of
fresh pork.
Foodbrands America's net sales for the second quarter of
2000 increased 40% over the second quarter of 1999, primarily
due to acquisitions in 1999 subsequent to the second quarter.
The 1999 additions (IBP Foods and Wilton Foods in the third
quarter and Wright Brand Foods, Inc. (by CBFA) in the fourth
quarter) increased net sales by approximately $141 million,
or 25%, for the quarter. Excluding the effect of
acquisitions, net sales for existing operations increased
approximately 15% due to higher sales volume and increased
prices driven by higher raw material costs.
Foodbrands America's year to date net sales for 2000
increased 48% over 1999. The 1999 additions (Russer Foods and
H&M Foods in the second quarter, IBP Foods and Wilton Foods
in the third quarter and Wright Brand Foods, Inc. (by CBFA)
in the fourth quarter) increased year-to-date net sales by
approximately $335 million, or 33%. Excluding the effect of
acquisitions, year to date net sales for existing operations
increased approximately 14% due to higher sales volume and
increased prices driven by higher raw material costs.
Net export sales increased 20% in the second quarter 2000
from the year earlier and 22% for the six months ended June
2000 versus a year ago. While the volume of pounds sold
increased 3% from the prior year in both the quarterly and
six-month comparison periods, improved pricing and product
mix factors contributed most to the sales increases. As the
Far East economies have stabilized, the product mix sold to
the region has shifted more toward higher-end products. Net
sales into Asia, which accounted for 75% of total exports,
increased 27% on a year-to-date basis from the prior year.
Sales into Mexico also improved 36% year-to-date through June
on a volume increase of 26%. Net export sales accounted for
12% of total net sales in the first six months of 2000 and in
1999.
COST OF PRODUCTS SOLD
In the Fresh Meats segment, the cost of products sold in
the second quarter and six months ended June 2000 increased
11% and 13% from the comparable 1999 periods. Higher average
live cattle and hog prices were the principal reasons for the
higher 2000 costs. Plant costs in 2000 were relatively flat
in comparison to 1999 as higher labor costs were mostly
offset by cessation of cow processing in 2000.
Foodbrands America's second quarter 2000 cost of products
sold increased 45% from the second quarter 1999, of which 27%
is the result of acquisitions mentioned previously. Year-to-
date cost of products sold in 2000 increased 55% over 1999,
of which 38% is the result of acquisitions. Excluding the
effect of acquisitions, higher costs resulted from increased
sales volume coupled with higher raw material costs.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
Fresh Meats' second quarter and year-to-date 2000 expense
increased 10% and 11% over the comparable 1999 periods.
Higher personnel-related expenses, computer-related expense
and international selling expense were major factors in the
increases.
In the Foodbrands America segment, second quarter 2000
expense increased 55% over the second quarter 1999, while
year-to-date expenses in 2000 increased 74% over year-to-date
expenses in 1999. Excluding the effect of acquisitions,
second quarter 2000 expense increased 33% and year-to-date
2000 expense increased 47% over the respective 1999
comparable periods. Higher bad debt expense ($11.2 million
in the first quarter) related to a customer bankruptcy,
higher volume-related selling expenses and increased
personnel-related expenses were the principal reasons for the
increases.
INTEREST EXPENSE
The 38% increase in net interest expense in 2000 versus
the six months ended June 1999 was due primarily to a 33%
increase in average borrowings in 2000.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
Total outstanding borrowings averaged $1,456 million in
the first six months of 2000 compared to $1,092 million in
the comparable 1999 period. The higher 2000 average
outstanding borrowings versus 1999 reflected almost $400
million of cash spent on acquisitions in the last three
quarters of 1999, and increased capital expenditures.
Borrowings outstanding under committed and uncommitted credit
facilities at June 24, 2000 totaled $782 million compared to
$623 million (excluding CBFA) at December 25, 1999, and
available unused credit capacity under committed facilities
at June 24, 2000 was $255 million.
On January 31, 2000, the company issued $300 million of
7.95% 10-year notes under its $550 million Debt Securities
program originally registered with the Securities and
Exchange Commission ("SEC") in 1996. This Debt Securities
program was subsequently amended and filed with the SEC on
January 27, 2000. The net proceeds, issued at a slight
discount to par, were used to reduce IBP's revolving credit
facilities, $175 million of which had been classified as non-
current at December 25, 1999. Interest on the 7.95% notes is
payable semiannually.
In January 2000, the company put in place $300 million of
additional revolving credit capacity via a 364-day facility
with two major financial institutions. Credit terms were
similar to those in existing credit facilities. Meanwhile,
IBP's $100 million Promissory Note expired in February 2000
and was replaced by a $100 million short-term facility
maturing in December 2000, giving the company $900 million in
borrowing capacity under committed facilities.
On February 7, 2000, the company completed its merger
with CBFA and, at the same time, refinanced all of CBFA's
various existing debt obligations, using available IBP credit
facilities that were at more favorable terms.
Year-to-date capital expenditures through June 24, 2000
totaled $182 million compared to $104 million in the first
six months of 1999. Major projects included acquisitions of
forward warehousing and case-ready facilities, renovations of
the Norfolk, Nebraska, beef processing plant, and various
plant and distribution facility expansions. Approximately
75% of the 2000 spending was for revenue enhancement or cost-
saving projects, while the remainder went toward upgrades and
replacements of existing equipment and facilities.
PART II. OTHER INFORMATION
Item 5. Other Information
--------------------------
In connection with its Medium-Term Notes program, the company
hereby reports the following computations:
26 Weeks Ended
---------------------
June 24, June 26,
2000 1999
-------- --------
Earnings before income taxes
and extraordinary item $150,333 $202,080
Total fixed charges 57,437 42,282
Capitalized interest (3,101) (4,645)
------- -------
Earnings before fixed charges,
income taxes and extraordinary
item $204,669 $239,717
======= =======
Ratio of earnings to fixed charges 3.6 5.7
=== ===
Item 6. Exhibits and Reports on Form 8-K
-----------------------------------------
(b) Reports on Form 8-K
-------------------
No reports on Form 8-K were filed by the company during the
quarter ended June 24, 2000.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the
registrant has caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
IBP, inc.
---------------------------
(Registrant)
August 7, 2000 /s/ Robert L. Peterson
------------------------- ---------------------------
(date) Robert L. Peterson
Chairman of the Board and
Chief Executive Officer
/s/ Larry Shipley
----------------------------
Larry Shipley
Chief Financial Officer
/s/ Craig J. Hart
----------------------------
Craig J. Hart
Vice President
and Controller
