SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 8-K
CURRENT REPORT
____________________________
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-6085
November 3, 2000
Date of Report (Date of earliest event reported)
____________________________
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
____________________________
page 1 of 41 pages
ITEM 5. OTHER EVENTS
As previously reported in the registrant's Form 10-K for the year
ended December 25, 1999, 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 is filing certain financial
information, including the restated audited consolidated balance
sheets of the Company as of December 25, 1999 and December 26,
1998 and the restated audited consolidated statements of
earnings, changes in redeemable stock, stockholders' equity and
comprehensive income, and cash flows for each of the three years
in the period ended December 25, 1999, together with the related
Management's Discussion and Analysis of Financial Condition and
Results of Operations of the Company, which give retroactive
effect to the merger of CBFA. The company is filing certain financial
information, including the restated audited consolidated balance
sheets of the Company as of December 25, 1999 and December 26, 1998
and the restated audited consolidated statements of earnings, changes
in redeemable stock, stockholders' equity and comprehensive income,
and cash flows for each of the three years in the period ended
December 25, 1999, together with the related Management's Discussion
and Analysis of Financial Condition and Results of Operations of the
Company, which give retroactive effect to the merger of CBFA.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
a) Supplemental Consolidated Selected Financial Data, Supplemental
Consolidated Financial Statements and noted thereto, Supplemental
Consolidated Management's Discussion and Analysis of Financial
Condition and Results of Operations, and Supplemental Financial
Statement Schedules (restated to give effect to merger accounted
for as pooling of interests).
Supplemental Selected Financial Data
Supplemental Financial Statements
Consolidated Balance Sheets - December 25, 1999 and
December 26, 1998
Consolidated Statements of Earnings - Years ended December
25, 1999, December 26, 1998, and December 28, 1997
Consolidated Statements of Changes in Redeemable Stock,
Common Stockholders' Equity and Comprehensive Income -
Years ended December 25, 1999, December 26, 1998, and
December 28, 1997
Consolidated Statements of Cash Flows - Years ended
December 25, 1999, December 26, 1998, and December 28,
1997
Notes to Consolidated Financial Statements
The supplementary data regarding quarterly results of
operations set forth in Note P. "Quarterly Results
(Unaudited)"
Supplemental Management's Discussion and Analysis of
Financial Condition and Results of Operations
Independent Auditors' Report
Schedule II - Supplemental Valuation and Qualifying Accounts
b) Exhibits
Consent of PricewaterhouseCoopers LLP
Exhibit 27.1 Restated Financial Data Schedule
Exhibit 27.2 Restated Financial Data Schedule
Exhibit 27.3 Restated Financial Data Schedule
IBP, INC.
November 3, 2000 By:
/s/ Larry Shipley
-----------------------
Chief Financial Officer
Selected Financial Data
-----------------------
(in thousands, except net sales and per share data)
<TABLE>
52 Weeks Ended
----------------------------------------------------------
Dec. 25, Dec. 26, Dec. 27, Dec. 28, Dec. 30,
1999 1998 1997 1996 1995
----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATIONS:
Net sales (in millions) $ 14,635 $ 13,277 $ 13,446 $ 12,539 $ 12,668
Gross profit 1,003,728 737,534 471,427 443,582 604,068
Selling, general
and administrative
Expenses 445,606 344,596 233,541 120,674 123,972
Earnings from
Operations 558,122 392,938 237,886 322,908 480,096
Interest expense, net 67,816 57,571 44,173 3,373 20,784
Income taxes 173,642 127,577 73,739 120,800 179,200
Extraordinary loss (1) - (14,815) - - (22,189)
(1)
Net earnings 316,664 192,975 119,974 198,735 257,923
PER SHARE DATA:
Earnings per diluted
share -
Earnings before
extraordinary item $2.94 $1.95 $1.18 $2.07 $2.92
Extraordinary loss (1) - (.14) - - (.23)
Net earnings 2.94 1.81 1.18 2.07 2.69
Dividends per share
share .10 .10 .10 .10 .10
FINANCIAL CONDITION:
Working capital $ 157,632 $ 251,254 $ 218,400 $ 540,903 $ 427,241
Total assets 4,151,292 3,313,019 2,971,512 2,174,495 2,027,601
Long-term obligations 789,861 761,182 635,006 260,008 260,752
Stockholders' equity 1,717,102 1,408,619 1,243,847 1,203,655 1,022,939
(1) Extraordinary loss on early extinguishment of debt, net of applicable
income taxes.
</TABLE>
IBP, inc. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
December December
25, 26,
1999 1998
-------- --------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 33,294 $ 28,829
Marketable securities - 1,400
Accounts receivable, less allowance for
doubtful accounts of $17,797 and $13,110 853,234 635,215
Inventories (Note B) 619,977 454,897
Deferred income tax benefits (Note E) 60,820 55,110
Prepaid expenses 21,138 14,513
--------- ---------
TOTAL CURRENT ASSETS 1,588,463 1,189,964
--------- ---------
PROPERTY, PLANT AND EQUIPMENT, at cost:
Land and land improvements 124,053 109,600
Buildings and stockyards 694,212 581,129
Equipment 1,373,054 1,156,793
--------- ---------
2,191,319 1,847,522
Accumulated depreciation and amortization (960,391) (857,606)
--------- ---------
1,230,928 989,916
Construction in progress 131,837 168,256
--------- ---------
1,362,765 1,158,172
--------- ---------
OTHER ASSETS:
Goodwill, net of accumulated amortization
of $189,395 and $160,908 1,054,839 826,866
Other 145,225 138,017
--------- ---------
1,200,064 964,883
--------- ---------
$4,151,292 $3,313,019
========= =========
LIABILITIES, REDEEMABLE STOCK AND
STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses (Note D) $ 731,066 $ 629,836
Notes payable to banks (Note C) 542,060 140,967
Federal and state income taxes 138,910 152,122
Deferred income taxes (Note E) 3,361 1,818
Other 15,434 13,967
--------- ---------
TOTAL CURRENT LIABILITIES 1,430,831 938,710
LONG-TERM OBLIGATIONS (Notes C and F) 789,861 761,182
DEFERRED CREDITS AND OTHER LIABILITIES:
Deferred income taxes (Note E) 8,762 25,057
Other 160,172 149,559
--------- ---------
168,934 174,616
--------- ---------
REDEEMABLE STOCK 44,564 29,892
--------- ---------
STOCKHOLDERS' EQUITY:
Common stock 4,964 4,964
Additional paid-in capital 404,463 409,564
Retained earnings 1,375,590 1,070,930
Accumulated other comprehensive income (8,600) (16,456)
Treasury stock, at cost (59,315) (60,383)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 1,717,102 1,408,619
--------- ---------
$4,151,292 $3,313,019
========= =========
See notes to consolidated financial statements.
IBP, inc. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share data)
52 Weeks Ended
--------------------------------------------
December 25, December 26, December 27,
1999 1998 1997
------------ ------------ ------------
Net sales (Note A) $14,635,036 $13,276,708 $13,446,498
Cost of products sold 13,631,308 12,539,174 12,975,071
---------- ---------- ----------
Gross profit 1,003,728 737,534 471,427
Selling, general and
administrative expenses 445,606 344,596 233,541
---------- ---------- ----------
Earnings from operations 558,122 392,938 237,886
Interest:
Incurred (81,989) (70,011) (56,172)
Capitalized 8,589 7,976 6,933
Income 5,584 4,464 5,066
---------- ---------- ----------
(67,816) (57,571) (44,173)
---------- ---------- ----------
Earnings before income taxes
and extraordinary item 490,306 335,367 193,713
Income taxes (Note E) 173,642 127,577 73,739
---------- ---------- ----------
Earnings before extraordinary
Item 316,664 207,790 119,974
Extraordinary loss on early
extinguishment of debt,
less applicable taxes
(Note F) - (14,815) -
---------- ---------- ----------
Net earnings $ 316,664 $ 192,975 $ 119,974
========== ========== ==========
Earnings per share (Note K):
Earnings before
extraordinary item $3.25 $2.13 $1.25
Extraordinary item - (.16) -
---- ---- ----
Net earnings $3.25 $1.97 $1.25
==== ==== ====
Earnings per share - assuming dilution:
Earnings before extraordinary
item $2.94 $1.95 $1.18
Extraordinary item - (.14) -
---- ---- ----
Net earnings $2.94 $1.81 $1.18
==== ==== ====
See notes to consolidated financial statements.
IBP, inc. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
AND COMPREHENSIVE INCOME
(in thousands, except per share data)
<TABLE>
Total Accumulated
Redeem- Stock- Additional Other
able holders' Common Paid-in Retained Comprehensive Treasury
Stock Equity Stock Capital Earnings Income Stock
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balances, December 28, 1996 $ - $1,203,655 $ 4,750 $ 427,456 $ 779,199 $ (32) $ (7,718)
---------
Comprehensive income:
Net earnings 119,974 119,974
Other comprehensive income:
Foreign currency
translation adjustments (6,082) (6,082)
---------
Comprehensive income 113,892
---------
Dividends declared on common
stock, $.10 per share (9,249) (9,249)
Shares issued 16,695 4,500 214 4,286
Restricted stock expense 250
Dividends on preferred stock 652 (652) (652)
Accretion of preferred stock 30 (30) (30)
Treasury shares purchased (73,915) (73,915)
Treasury shares delivered under
employee stock plans 5,646 (20,504) 26,150
-------- --------- ------ -------- --------- ---------
Balances, December 27, 1997 $ 17,627 $1,243,847 $ 4,964 $ 411,238 $ 889,242 $ (6,114) $(55,483)
---------
Comprehensive income:
Net earnings 192,975 192,975
Other comprehensive income:
Foreign currency
translation adjustments (10,342) (10,342)
---------
Comprehensive income 182,633
---------
Dividends declared on common
stock, $.10 per share (9,246) (9,246)
Dividends on preferred stock 1,719 (1,719) (1,719)
Restricted stock expense 700
Accretion of redeemable stock 322 (322) (322)
Redeemable shares issued 9,524
Treasury shares purchased (12,370) (12,370)
Treasury shares delivered under
employee stock plans 5,796 (1,674) 7,470
-------- --------- ------ -------- --------- --------- -------
Balances, December 26, 1998 $ 29,892 $1,408,619 $ 4,964 $ 409,564 $1,070,930 $ (16,456) $(60,383)
---------
Comprehensive income:
Net earnings 316,664 316,664
Other comprehensive income:
Foreign currency
translation adjustments 7,856 7,856
---------
Comprehensive income 324,520
---------
Dividends declared on common
stock, $.10 per share (9,230) (9,230)
Accretion of redeemable stock 356 (356) (356)
Restricted stock expense 2,316
Dividends on preferred stock 2,418 (2,418) (2,418)
Redeemable stock issued 10,000
Redeemable stock repurchased (418)
Treasury shares purchased (6,170) (6,170)
Treasury shares delivered under
employee stock plans 2,137 (5,101) 7,238
-------- --------- ------ -------- --------- ---------- -------
Balances, December 25, 1999 $ 44,564 $1,717,102 $ 4,964 $ 404,463 $1,375,590 $ (8,600) $(59,315)
======== ========= ====== ======== ========= ========== =======
</TABLE>
See notes to consolidated financial statements.
IBP, inc. AND SUBSIDIARIES
CONOSLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
52 Weeks Ended
----------------------------------------------
December 25, December 26, December 27,
1999 1998 1997
------------ ------------ ------------
Inflows (outflows)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 316,664 $ 192,975 $ 119,974
--------- --------- ---------
Adjustments to reconcile net earnings
to cash flows from operations:
Depreciation and amortization 125,515 110,249 97,890
Amortization of intangible assets 31,163 28,924 18,562
Restricted stock compensation 2,316 700 250
Fixed assets impairment write-downs 29,351 - -
Deferred income tax (benefit) provision (2,497) (5,169) 726
Extraordinary loss on extinguishment
of debt - 14,815 -
Working capital changes, net of
effects of acquisitions:
Accounts receivable (164,704) (28,399) (21,786)
Inventories (111,835) (22,967) (9,358)
Accounts payable and accrued
Liabilities 49,212 70,099 (14,018)
Other adjustments, net 22,607 10,206 14,511
--------- --------- ---------
(18,872) 178,458 86,777
--------- --------- ---------
Net cash flows provided by
operating activities 297,792 371,433 206,751
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions, net of cash acquired (504,420) (181,887) (389,369)
Capital expenditures (208,781) (183,040) (137,539)
Proceeds from disposals of marketable
securities 20,800 257,721 403,723
Purchases of marketable securities (19,400) (250,954) (237,243)
Investment in life insurance contracts (7,759) (38,000) (4,000)
Other investing activities, net (148) (875) 10,830
--------- --------- ---------
Net cash flows used in investing
activities (719,708) (397,035) (353,598)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in short-term debt 317,964 121,210 279,995
Net change in checks in process of
clearance 20,576 (29,464) (7,715)
Purchase of treasury stock (6,170) (12,370) (73,915)
Principal payments on long-term
obligations (10,977) (118,360) (216,894)
Proceeds from issuance of long-term debt 100,800 49,773 132,187
Proceeds from sale of stock and warrants 9,582 7,944 15,195
Premiums paid on early retirement of
debt - (20,636) -
Other financing activities, net (7,092) (12,994) (4,548)
--------- --------- ---------
Net cash flows provided by (used in)
financing activities 424,683 (14,897) 124,305
--------- --------- ---------
Effect of exchange rate on cash and
cash equivalents 1,698 (1,548) (746)
--------- --------- ---------
Net change in cash and cash equivalents 4,465 (42,047) (23,288)
Cash and cash equivalents at beginning
of year 28,829 70,876 94,164
--------- --------- ---------
Cash and cash equivalents at end of year $ 33,294 $ 28,829 $ 70,876
========= ========= =========
</TABLE>
See notes to consolidated financial statements.
IBP, inc. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS ENDED DECEMBER 25, 1999, DECEMBER 26, 1998
-------------------------------------------------------
AND DECEMBER 27, 1997
---------------------
Columnar amounts in thousands, except share and per share amounts
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
-------------------------------------------
PRINCIPLES OF CONSOLIDATION - All subsidiaries are wholly-
owned and are consolidated in the accompanying financial
statements. All material intercompany balances, transactions and
profits have been eliminated.
On February 7, 2000, the company acquired Corporate Brand
Foods America, Inc. ("CBFA") through an exchange of shares. The
business combination was accounted for as a pooling of interests.
These historical financial statements of the company have been
restated to give effect to the above acquisition as though the
companies had operated together from the beginning of the earliest
period presented.
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 1999, 1998 and 1997 all consisted
of 52 weeks.
EXPORT SALES - In 1999, 1998 and 1997, net export sales,
principally to customers in Asia and also to destinations in the
Americas and Europe, amounted to $1.7 billion, $1.6 billion and
$1.7 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 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.
To manage its commodity exposures, the company uses commodity
futures, options and forward contracts. These instruments are
used primarily in forward purchases of livestock and, to a lesser
extent, forward sales of products. The company accounts for these
instruments as hedges of specific lots of livestock or sales and
any gain or loss is not recognized until the hedged transaction
occurs.
Livestock hedging gains or losses are included in cost of
products sold while forward sales hedging transactions are
recorded in net sales. Cash flows related to derivative financial
instruments are classified in the statement of cash flows in a
manner consistent with those of transactions being hedged.
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
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
generally over 40 years.
IMPAIRMENT OF LONG-LIVED ASSETS - The company reviews the
carrying value of its long-lived assets (including goodwill) for
impairment whenever events or changes in circumstances indicate
that the carrying amount may not be recoverable. Measurement of
any impairment is based on estimated future undiscounted cash
flows attributable to the assets. In the event such cash flows
are not expected to be sufficient to recover the carrying value of
the assets, the assets are written down to their estimated fair
values. During 1999, the company wrote down $30 million of
impaired long-lived assets, including $15 million in the fourth
quarter 1999. These write-downs, which were classified in cost of
products sold, were primarily attributable to the company's
decision to exit its cow boning business.
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.
ACCOUNTING CHANGES - In June 1999, Statement of Financial
Accounting Standard ("SFAS") No. 137 was issued, which deferred
the effective date for SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" and is effective no later than
the first quarter of fiscal 2001. Based upon the company's
current level of derivatives activity, management expects that
this standard will not materially affect the company's financial
position or results of operations.
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. There were no reclassification adjustments to be
reported in the periods presented.
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 25, December 26,
1999 1998
------------ ------------
Product inventories:
Raw materials $ 57,385 $ 40,754
Work in process 84,505 70,643
Finished goods 243,495 171,878
------- -------
385,385 283,275
Livestock 137,300 89,321
Supplies 97,292 82,301
------- -------
$619,977 $454,897
======= =======
C. CREDIT ARRANGEMENTS:
--------------------
At December 25, 1999, IBP had in place four committed
revolving credit facilities totaling $659 million in potential
borrowings. The primary facilities were a $500 million multi-year
credit facility (the "Multi-Year Facility") and a $100 million
revolving promissory note (the "Promissory Note"). Two revolvers
in place at CBFA at December 25, 1999 with $59 million in
borrowing capacity were terminated on February 7, 2000. From time
to time, IBP also used 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. Facility fees can vary from
.085 to .200 of 1% on the total amount of the facility. The
Promissory Note was extended on May 1, 1999 and matures on April
30, 2000.
In January 2000, the company increased its revolving credit
capacity by $300 million via a one-year facility with two major
financial institutions. Credit terms were similar to those in
existing credit facilities.
There were total borrowings of $538 million outstanding under
the revolving facilities at December 25, 1999, $320 million of
which was classified as current liabilities. IBP also had $133
million of short-term borrowings outstanding at year-end 1999
under uncommitted credit lines. The remaining $218 million under
revolving facilities was classified as non-current in the
consolidated balance sheet. The interest rate at December 25,
1999 on the non-current portion was 6.9%.
During fiscal 1999, the maximum amount of borrowings under
all of IBP's credit arrangements, including any amounts considered
non-current, was $786 million. Average borrowings under IBP's
credit arrangements and the weighted average interest rate during
fiscal 1999 were $606 million and 5.5%. The comparable 1998
figures were average borrowings of $437 million and an average
interest rate of 5.8%.
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 25, December 26,
1999 1998
------------ ------------
Accounts payable, principally
trade creditors $300,189 $247,605
------- -------
Checks in process of clearance 122,754 101,888
------- -------
Accrued expenses:
Employee compensation 98,586 87,725
Employee benefits 47,274 37,139
Property and other taxes 25,587 24,809
Marketing costs 23,541 18,663
Other 113,135 112,007
------- -------
308,123 280,343
------- -------
$731,066 $629,836
======= =======
E. INCOME TAXES:
-------------
Income tax expense consists of the following:
1999 1998 1997
-------- -------- --------
Current:
Federal $151,845 $119,831 $ 74,364
State 21,194 13,555 3,949
Foreign 3,100 (640) (5,300)
------- ------- -------
176,139 132,746 73,013
------- ------- -------
Deferred:
Federal (5,015) (5,550) 2,700
State (107) 531 251
Foreign 2,625 (150) (2,225)
------- ------- -------
(2,497) (5,169) 726
------- ------- -------
$173,642 $127,577 $ 73,739
======= ======= =======
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:
1999 1998 1997
-------- -------- --------
Federal income tax rate 35.0% 35.0% 35.0%
State income taxes, net
of federal benefit 2.8 2.9 1.8
Settlement of federal
audit issues (2.8) - -
Foreign tax items (1.6) (1.3) (1.9)
Goodwill amortization 1.5 1.8 2.5
Other, net 0.5 (0.4) 0.7
---- ---- ----
35.4% 38.0% 38.1%
==== ==== ====
Management reached a settlement with the U.S. Internal
Revenue Service ("IRS") on audit issues related to fiscal years
1989, 1990 and 1991. The IRS is currently examining the years
1992 through 1996. 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 25, December 26,
1999 1998
------------ ------------
Deferred tax assets:
Nondeductible accrued liabilities $ 104,938 $ 97,670
State tax credit carryforwards 9,140 8,543
Bad debt and claims reserves 5,908 4,579
Federal and state operating
loss carryforwards 31,969 20,874
Other 4,213 3,813
--------- ---------
Gross deferred tax assets 156,168 135,479
Valuation allowance (9,140) (8,543)
--------- ---------
Net deferred tax assets 147,028 126,936
--------- ---------
Deferred tax liabilities:
Fixed assets (76,280) (81,229)
Intangible assets (17,901) (13,339)
Other (4,150) (4,133)
--------- ---------
(98,331) (98,701)
--------- ---------
$ 48,697 $ 28,235
========= =========
The net $0.6 million increase in the valuation allowance for
deferred tax assets was the result of net state tax credits
earned. No benefit has been recognized for these state tax
credit carryforwards, most of which expire in the years 2004
through 2008.
At December 25, 1999, after considering utilization
restrictions, the company's acquired tax loss carryforwards
approximated $94 million, including $48 million acquired in the
purchase of H&M Food Systems Company, Inc. (see note L). 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: approximately $21 million each
in 2000, 2001, 2002 and 2003 and $11 million in 2004. 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 during the years 2005 through 2019.
F. LONG-TERM OBLIGATIONS:
----------------------
Long-term obligations are summarized as follows:
December 25, December 26,
1999 1998
------------ ------------
Revolving credit facilities $ 218,327 $ 196,764
CBFA Term Loans 138,125 143,650
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 Subordinated Notes 33,464 31,000
Present value of capital
lease obligations 26,878 27,676
Other 11,192 (2,033)
--------- ---------
802,986 772,057
Less amounts due within one year 13,125 10,875
--------- ---------
$ 789,861 $ 761,182
========= =========
On February 7, 2000, the company completed its merger with
CBFA and refinanced all of CBFA's various existing debt
obligations. The company used available IBP credit facilities
which were at more favorable terms.
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 repay existing borrowings under revolving credit facilities.
Interest is payable semiannually.
During the first quarter 1998, the company completed its
purchase of all of the $112 million outstanding 10.75% Senior
Subordinated Notes of its wholly-owned subsidiary, Foodbrands
America, Inc. ("Foodbrands"). Net prepayment premiums,
accelerated amortization of unamortized deferred financing costs,
and transaction expenses totaled $24 million, before applicable
income tax benefit of $9 million, and was accounted for as an
extraordinary loss.
The purchase of the Foodbrands obligations by IBP was funded
with available credit facilities. The portion of borrowings under
IBP's revolving credit facilities considered long-term was $218
million at December 25, 1999 and $197 million at December 26,
1998.
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 $32 million;
accumulated amortization on these assets totaled $12 million.
Aggregate maturities of long-term obligations, excluding the
CBFA obligations retired in February 2000, for each of the five
fiscal years subsequent to 1999 are (in millions): $179.0; $55.0;
$3.2; $2.3 and $3.8.
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. At December 25, 1999, there were
approximately 607,000 shares available for future awards under
the plans. The company recognized compensation expense for these
plans totaling $3.1 million, $2.3 million and $3.3 million,
respectively, in 1999, 1998 and 1997.
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 28, 1996 1,342.2 $11.13
Granted 290.6 21.11
Delivered (1,020.0) 8.41
Forfeited (10.2) 18.36
-------------------------------
Balance, December 27, 1997 602.6 20.48
Granted 48.8 23.94
Delivered - -
Forfeited (9.3) 21.48
-------------------------------
Balance, December 26, 1998 642.1 20.54
Granted 61.7 22.49
Delivered (86.9) 15.12
Forfeited (6.9) 25.38
-------------------------------
Balance, December 25, 1999 610.0 $21.84
-------------------------------
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 25, 1999,
the plans provided for the delivery of up to 7.1 million shares of
common stock upon exercise of options granted at no less than the
market value of the shares on the effective date of grant. An
additional 0.4 million options granted in 1998 were non-qualified
("non-qualifying options") based upon differences in market price
on the effective date and issuance date. The expense recorded for
the non-qualifying options was not material in 1999 or 1998.
All 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 25, 1999 and December 26, 1998, there
were 2.7 million and 3.2 million options, respectively, reserved
for future grants.
The company follows the disclosure-only provisions of
Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" ("SFAS No. 123"). Accordingly, no
compensation cost has been recognized for the stock option
plans under that standard. Had compensation cost for IBP's stock
option plans been determined based on the fair value at the grant
date for awards in 1999, 1998, and 1997 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 :
1999 1998 1997
-------- -------- --------
Net earnings - as reported $316,664 $192,975 $119,974
Net earnings - pro forma 313,120 190,056 117,196
Earnings per share - as reported 3.25 1.97 1.25
Earnings per share - pro forma 3.21 1.94 1.22
Earnings per diluted share -
as reported 2.94 1.81 1.18
Earnings per diluted share -
pro forma 2.91 1.79 1.16
The weighted average fair values at date of grant for options
granted at market value during 1999, 1998 and 1997 were $7.53,
$7.29 and $7.91 per option respectively. The weighted-average fair
value for the non-qualifying options granted in 1998 was $13.15
per option. The fair value of each option was estimated on the
date of grant using the Black-Scholes option-pricing model with
the following weighted-average assumptions for options granted in
1999, 1998 and 1997:
1999 1998 1997
-------- -------- --------
Expected option life 6 years 6 years 6 years
Expected annual volatility 26% 26% 26%
Risk-free interest rate 5.8% 4.7% 5.8%
Dividend yield 0.4% 0.4% 0.4%
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 28, 1996 4,549.9 $16.09 1,721.0
Granted 658.2 21.63
Exercised (738.5) 8.78
Canceled (344.4) 21.25
------------------------------------------------------------------
Balance at
December 27, 1997 4,125.2 17.85 1,846.3
Granted at market
value 208.7 21.37
Granted at a price
below market 434.2 16.56
value
Exercised (320.1) 11.44
Canceled (199.4) 21.64
------------------------------------------------------------------
Balance at
December 26, 1998 4,248.6 18.20 2,230.9
Granted 651.0 20.63
Exercised (290.9) 10.64
Canceled (179.0) 21.65
------------------------------------------------------------------
Balance at
December 25, 1999 4,429.7 $18.92 2,543.7
The following table summarizes information about stock options
outstanding at December 25, 1999:
Number Weighted Average
Range of Outstanding Remaining Weighted Average
Exercisable Prices At 12/25/99 Contractual Life Exercise Price
-------------------- ------------- ------------------- -------------------
$ 6.75 to 15.99 994.2 2.9 years $10.84
16.00 to 25.99 3,335.7 6.9 years 21.06
26.00 to 33.00 99.8 7.0 years 28.11
--------------------------------------------------------------------------
$ 6.75 to 33.00 4,429.7 6.3 years $18.92
Number
Range of Exercisable Weighted Average
Exercisable Prices At 12/25/99 Exercise Price
-------------------- ------------- ------------------
$ 6.75 to 15.99 971.1 $10.73
16.00 to 25.99 1,529.2 21.77
26.00 to 33.00 43.4 28.33
------------------------------------------------------------
$ 6.75 to 33.00 2,543.7 $17.65
Shares of common stock to be delivered for approximately 0.6
million 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 and the officer long-
term stock plans may alternatively come from previously authorized
but unissued common stock.
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. The company recorded
compensation expense of $2.3 million, $0.7 million and $0.3
million related to these grants in fiscal 1999, 1998 and 1997,
respectively. Approximately 1.2 million shares were granted in
fiscal 1997 and 0.8 million shares were granted in fiscal 1999.
At December 25, 1999, there were approximately 2 million shares
outstanding under the restricted stock plan. Approximately 1.3 million
shares outstanding under the restricted stock plan were vested at
the merger date (February 7, 2000) and delivered. The remaining 0.7
million shares outstanding at that date will vest no later than 8
years following the grant date, based on a combination of performance-
based and time-based criteria.
Preferred Stock:
----------------
CBFA had three series of preferred stock outstanding at December 25,
1999. All preferred stock and dividends in arrears were redeemed at
the merger date (February 7, 2000) for $28.5 million.
H. SUPPLEMENTAL CASH FLOW INFORMATION:
-----------------------------------
Supplemental information on cash payments is presented as
follows:
1999 1998 1997
---------- ---------- ----------
Interest, net of amounts
capitalized $ 65,137 $ 62,598 $ 42,885
Income taxes 197,235 76,364 41,345
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 may enter 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, or vice
versa.
The notional amounts of these swap agreements were $50
million at year-end 1999 and $99 million at year-end 1998. 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 exposures on receivables, live
cattle and purchase commitments in foreign currencies. At
December 25, 1999, the company had outstanding contracts to buy
Canadian dollars totaling CDN$96 million at various dates through
2000. Comparable outstanding contracts at year-end 1998 totaled
CDN$130 million. The company also had outstanding contracts at
year-end 1999 to sell $20 million U.S. dollars at various dates.
There were no such contracts outstanding at year-end 1998.
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 counterparties, 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 25, 1999:
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.
Life insurance contracts are carried at fair value.
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 1999, the carrying value
exceeded the fair value by $14 million. At year-end 1998, the
fair value exceeded the carrying value by $6 million. The
company's long-term debt is generally not callable until maturity,
except for the 7.125% Senior Notes due 2026 and all of CBFA's debt
obligations, subject to prepayment premiums.
For derivatives, the fair value was estimated using
termination cash values. The fair values of IBP's derivatives at
year-ends 1999 and 1998 were not material.
J. PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS:
-----------------------------------------------
IBP's subsidiary, Foodbrands America, Inc. ("Foodbrands"),
has defined benefit pension plans at three of its facilities.
Foodbrands also provides life insurance and medical benefits for
substantially all retired hourly and salaried employees of one of
its subsidiaries under various defined benefit plans.
Pension Benefits Other Benefits
-------------------- ------------------
1999 1998 1999 1998
---------- --------- -------- ---------
Change in benefit obligation:
Benefit obligation at beginning
of year $ 70,921 $ 68,933 $ 68,851 $ 69,410
Service cost 568 473 221 229
Interest cost 4,690 4,787 4,452 4,799
Actuarial (gain) loss (3,979) 3,117 (4,634) 666
Benefits paid (6,284) (6,389) (5,938) (6,253)
------- ------- ------- -------
Benefit obligation at end of year 65,916 70,921 62,952 68,851
------- ------- ------- -------
Change in plan assets:
Fair value of plan assets at
beginning of year 66,737 65,110 5 9
Actual return on plan assets 9,378 5,165 1 -
Employer contribution 188 2,851 5,954 6,249
Benefits paid (6,284) (6,389) (5,938) (6,253)
------- ------- ------- -------
Fair value of plan assets at end
of year 70,019 66,737 22 5
------- ------- ------- -------
Funded status 4,103 (4,184) (62,930) (68,846)
Unrecognized net actuarial (gain)
loss (3,967) 3,812 (3,064) 1,587
------- ------- ------- -------
Net amount recognized $ 136 $ (372) $(65,994) $(67,259)
======= ======= ======= =======
Amounts recognized in the statement
of financial position consist of:
Prepaid benefit cost $ 1,040 $ 1,046 $ - $ -
Accrued benefit liability (904) (1,418) (65,994) (67,259)
------- ------- ------- -------
Net amount recognized $ 136 $ (372) $(65,994) $(67,259)
======= ======= ======= =======
Weighted-average assumptions as
of year end:
Discount rate 7.75% 6.75% 7.75% 6.75%
Expected return on plan assets 8.50% 8.50% n/a n/a
For measurement purposes, a 9.2% annual rate of increase in
the per capita claims cost of covered health care benefits was
assumed for 1999. The rate was assumed to decrease gradually to
8.7% by 2001, 7.5% by 2006, and 6.5% by 2011 and remain at that
level thereafter.
Components of net periodic benefit cost:
Pension benefits
1999 1998 1997
-------- -------- --------
Service cost $ 568 $ 473 $ 411
Interest cost 4,690 4,787 4,956
Expected return on plan assets (5,578) (5,501) (4,993)
------- ------- -------
Net periodic (benefit) cost $ (320) $ (241) $ 374
======= ======= =======
Other benefits
1999 1998 1997
-------- -------- --------
Service cost $ 221 $ 229 $ 197
Interest cost 4,452 4,799 5,018
Expected return on plan assets - (1) (2)
------- ------- -------
Net periodic cost $ 4,673 $ 5,027 $ 5,213
======= ======= =======
Assumed health care cost trend rates have a significant
effect on the amounts reported for the health care plan. A one-
percentage-point change in assumed health care cost trend rates
would have the following effects:
1-percentage- 1-percentage-
Point Increase Point Decrease
---------------- ----------------
Effect on total of service and
interest cost components for 1999 $ 117 $ (45)
Effect on year-end postretirement
benefit obligation $ 923 $ (898)
K. EARNINGS PER SHARE:
Fiscal Year
----------------------------------
1999 1998 1997
---------- ---------- ----------
Numerator:
Earnings before extraordinary item $316,664 $207,790 $119,974
Preferred stock dividends and accreation (2,774) (2,041) (682)
------- ------- -------
Earnings available for common shares $313,890 $205,749 $119,292
======= ======= =======
Denominator:
Weighted average common shares
outstanding 96,586 96,774 95,811
Dilutive effect of employee stock plans 10,016 8,554 5,014
------- ------- -------
Diluted average common shares 106,602 105,328 100,825
======= ======= =======
Basic earnings before extraordinary
item per common share $3.25 $2.13 $1.25
==== ==== ====
Diluted earnings before extraordinary
item per common share $2.94 $1.95 $1.18
==== ==== ====
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 options' exercise price was greater than
the average market price of the common shares. These options had
varying expiration dates.
1999 1998 1997
---------- ---------- ----------
Stock options excluded from
Diluted EPS computation 1,552 120 1,406
Average option price per share $24.72 $27.28 $24.95
L. ACQUISITIONS:
-------------
1999 Acquisitions
-----------------
Early in the second quarter 1999, the company acquired the
outstanding stock of two companies, H&M Food Systems Company, Inc.
("H&M") and Zemco Industries, Inc., the owner of Russer Foods.
H&M is a producer of custom-formulated pre-cooked meat products
and prepared foods with two plants in Texas. Russer Foods, based
in Buffalo, New York, produces and markets a variety of premium
deli meats. Both operations will operate as part of IBP's
Foodbrands subsidiary.
Early in the third quarter 1999, Foodbrands acquired Wilton
Foods, Inc., ("Wilton Foods") a leading producer of premium kosher
meals and prepared foods for airlines and institutions. Wilton
Foods, based in Goshen, New York, also produces premium kosher
hors d'oeuvres and appetizers.
In the third quarter 1999, IBP, through its IBP Foods, Inc.
subsidiary, purchased substantially all of the operating assets of
Thorn Apple Valley, Inc. ("TAVI"), a further processor of pork and
poultry products, which had been involved in bankruptcy
proceedings. The purchase of the TAVI assets included five
processing plants, most of its current assets and a number of
product brand names.
In the fourth quarter 1999, the company, via its Corporate
Brand Foods America, Inc. subsidiary, acquired substantially all
of the operating assets of Wright Brand Foods, Inc., and two of
its affiliates (collectively, "WBF"). WBF is a Vernon, Texas-
based processor of quality bacon and other processed pork
products.
All of the acquisitions above were accounted for as purchase
business combinations. Approximately $254 million of goodwill was
recorded with these acquisitions and is being amortized on a
straight-line basis over 40 years.
The following pro forma financial information assumes the
above businesses were acquired at the beginning of 1998. These
results have been prepared for comparative purposes only and do
not purport to be indicative of what would have occurred had the
assets been acquired at the beginning of 1998, or of the results
which may occur in the future. The pro forma results do not
include TAVI's discontinued fresh pork operation which IBP did not
purchase. However, the pro forma results do include significant
TAVI nonrecurring charges related to goodwill and asset
impairments, Russian credit losses, product recalls and bankruptcy-
related legal and financing expenses.
52 Weeks Ended
-----------------------------
Dec. 25, Dec. 26,
1999 1998
-------------- --------------
(unaudited)
Net sales $15,078,944 $14,178,208
Earnings from operations 513,931 435,639
Earnings before extraordinary item 250,839 221,738
Net earnings 250,839 206,923
Earnings per diluted share:
Earnings before extraordinary item $2.33 $2.09
Net earnings 2.33 1.95
Corporate Brand Foods America
-----------------------------
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, 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.
IBP had product sales to CBFA in IBP's fiscal years ended
December 25, 1999 and December 26, 1998, totaling $65 million and
$53 million, respectively. The effects of conforming CBFA's
accounting policies to those of IBP were not material.
The following information presents certain statement of
earnings data of CBFA for the periods preceding the merger:
Period from
Inception
Twelve Months Twelve Months (Jan. 28, 1997)
Ended Ended through
December 25, 1999 December 26, 1998 December 27, 1997
----------------- ----------------- -----------------
(unaudited)
Net sales $624,632 $480,855 $236,712
EBITDA(1) 46,275 32,150 17,692
Net earnings 3,403 2,968 2,960
(1)Earnings before interest, taxes, depreciation and amortization
M. BUSINESS SEGMENTS:
------------------
The company has two principal business units, Fresh Meats
and Foodbrands America (formerly described as Enterprises), and,
accordingly, has two business segments. IBP's Fresh Meats
operation relates principally to the meat processing industry and
primarily involves cattle and hog slaughter, 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., The Bruss Company, IBP Branded Foods, Inc. and IBP
Foods, Inc. The Foodbrands America group produces, markets and
distributes a variety of frozen and refrigerated products to the
"away from home" food preparation market, including pizza
toppings and crusts, value-added 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.
NET SALES 1999 1998 1997
--------- ------------ ------------ ------------
Sales to unaffiliated customers:
Fresh Meats $ 12,191,049 $ 11,566,452 $ 12,351,843
Foodbrands America 2,443,987 1,710,256 1,094,655
----------- ----------- -----------
$ 14,635,036 $ 13,276,708 $ 13,446,498
=========== =========== ===========
Intersegment sales:
Fresh Meats $ 431,546 $ 294,339 $ 226,280
Intersegment elimination (431,546) (294,339) (226,280)
----------- ----------- -----------
$ - $ - $ -
=========== =========== ===========
Net sales:
Fresh Meats $ 12,622,595 $ 11,855,482 $ 12,555,620
Foodbrands America 2,443,987 1,715,565 1,117,158
Intersegment elimination (431,546) (294,339) (226,280)
----------- ----------- -----------
$ 14,635,036 $ 13,276,708 $ 13,446,498
=========== =========== ===========
EARNINGS FROM OPERATIONS
------------------------
Fresh Meats $ 440,235 $ 294,230 $197,584
Foodbrands America 117,887 98,708 40,302
----------- ----------- -----------
Total earnings from operations 558,122 392,938 237,886
Net interest expense (67,816) (57,571) (44,173)
----------- ----------- -----------
Earnings before income taxes and
and extraordinary item $ 490,306 $ 335,367 $ 193,713
=========== =========== ===========
TOTAL ASSETS
------------
Fresh Meats $ 2,157,087 $ 1,965,221 $ 1,899,842
Foodbrands America 1,994,205 1,347,798 1,071,670
----------- ----------- -----------
$ 4,151,292 $ 3,313,019 $ 2,971,512
=========== =========== ===========
ADDITIONS TO PROPERTY, PLANT
AND EQUIPMENT, INCLUDING
ACQUISITIONS 1999 1998 1997
---------------------------- ------------ ------------ ------------
Fresh Meats $ 108,931 $ 121,328 $ 96,575
Foodbrands America 604,270 243,599 430,333
----------- ----------- -----------
$ 713,201 $ 364,927 $ 526,908
=========== =========== ===========
DEPRECIATION AND AMORTIZATION
-----------------------------
Of fixed assets:
Fresh Meats $ 74,224 $ 72,705 $ 73,367
Foodbrands America 51,291 37,544 24,523
----------- ----------- -----------
$ 125,515 $ 110,249 $ 97,890
=========== =========== ===========
Of intangible assets:
Fresh Meats $ 8,557 $ 12,295 $ 8,944
Foodbrands America 22,606 16,629 9,618
----------- ----------- -----------
$ 31,163 $ 28,924 $ 18,562
=========== =========== ===========
NET SALES BY GEOGRAPHIC LOCATION OF CUSTOMERS
---------------------------------------------
1999 1998 1997
------------ ------------ ------------
United States
$12,472,491 $11,376,453 $11,355,422
Japan 845,150 784,624 909,855
Canada 510,801 421,701 508,568
Korea 224,131 134,271 224,272
Mexico 194,627 177,474 125,533
Other foreign countries 387,836 382,185 322,848
----------- ----------- -----------
$14,635,036 $13,276,708 $13,446,498
=========== =========== ===========
N. COMMITMENTS:
------------
The company leases various facilities and equipment under
noncancelable operating lease arrangements which expire at various
dates through the year 2012. Future minimum payments under
noncancelable operating leases with lease terms in excess of one
year at December 25, 1999 totaled approximately $73 million.
Aggregate maturities for each of the five fiscal years subsequent
to 1999 are (in millions) $18.8; $10.9; $7.7; $5.6; and $4.6. The
company's rental expense for all operating leases was (in
millions) $27.0; $23.9; and $16.4 for fiscal years 1999, 1998 and
1997.
The company had livestock and other purchase commitments,
letters of credit, and other commitments and guarantees at
December 25, 1999 aggregating approximately $302 million.
Livestock purchase commitments were at a market or market-derived
price at the time of delivery or were fully hedged if the price
was determined at an earlier date.
In addition to the livestock purchase commitments above, the
company is committed to purchase approximately 24 million market
hogs between 2000 and 2009 at market-derived prices under various
contracts with producers. Contractual commitments for the next
five years average approximately 4.6 million hogs annually, which
represents approximately 21% of IBP's current annual production
capacity.
O. 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 future consolidated results of
operations, financial position or liquidity.
In July 1996, a lawsuit was filed against IBP by certain
cattle producers in the U.S. District Court, Middle District of
Alabama, seeking certification of a class of all cattle producers.
The complaint alleges 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,
although plaintiffs have not specified the amounts they seek. 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.
While the District Court approved this narrower class in April
1999, the Court noted that it could decertify the class as
discovery proceeds. The 11th Circuit granted IBP's request for a
review of the class certification decision, and is expected to
issue an opinion in early 2000. 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 continue
into the present. IBP believes that the company has meritorious
defenses on each of these allegations and intends to aggressively
defend these claims.
The EPA has also sent IBP an information request under the
Clean Air Act and CERCLA seeking additional information regarding
hydrogen sulfide emissions from the company's Dakota City
facility. The EPA claims it seeks information to determine
whether the emissions pose an imminent and substantial
endangerment to human health or the environment. If the EPA makes
this finding, it could trigger further action including an
administrative order for compliance concerning the facility. IBP
disputes and would vigorously contest any claim that the emissions
pose any such threat.
P. QUARTERLY FINANCIAL DATA (UNAUDITED):
-------------------------------------
Quarterly results are summarized as follows:
First Second Third Fourth
1999 Quarter Quarter Quarter Quarter Annual
---- ----------- ----------- ----------- ----------- -----------
Net sales $3,211,174 $3,616,112 $3,798,687 $4,009,063 $14,635,036
Gross profit 205,018 230,137 290,029 278,544 1,003,728
Net earnings 56,602 67,773 110,395 81,894 316,664
Earnings per share .58 .70 1.14 .84 3.25
Earnings per diluted
share .53 .63 1.03 .76 2.94
Dividends per share .025 .025 .025 .025 .10
Market price:
High 29 3/16 23 1/8 25 3/4 25
Low 19 3/8 16 3/4 22 17 3/4
1998
----
Net sales $3,300,443 $3,426,023 $3,343,292 $3,206,950 $13,276,708
Gross profit 115,695 141,323 215,473 265,043 737,534
Earnings before
extraordinary item 14,287 34,695 66,424 92,384 207,790
Net earnings (loss) (528) 34,695 66,424 92,384 192,975
Earnings per share:
Earnings before
extraordinary item .14 .35 .68 .95 2.13
Net earnings (loss) (.01) .35 .68 .95 1.97
Earnings per diluted
share:
Earnings before
extraordinary item .13 .33 .62 .87 1.95
Net earnings (loss) (.01) .33 .62 .87 1.81
Dividends per share .025 .025 .025 .025 .10
Market price:
High 24 1/2 23 1/8 21 1/8 29 7/16
Low 19 15/16 18 3/8 19 9/16 20
MANAGEMENT'S DISCUSSION AND ANALYSIS
The matters discussed herein contain forward-looking
statements. 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.
RESULTS OF OPERATIONS
---------------------
This section presents analysis of IBP's consolidated
operating results displayed in the Consolidated Statements of
Earnings and should be read together with the business segments
information in Note M to the consolidated financial statements.
ACQUISITIONS
Early in the second quarter 1999, the company, through its
subsidiary Foodbrands America, Inc. ("Foodbrands"), acquired the
outstanding stock of two companies, H&M Food Systems Company,
Inc. ("H&M") and Zemco Industries, Inc., the owner of Russer
Foods. H&M is a producer of custom-formulated pre-cooked meat
products and prepared foods with two plants in Texas. Russer
Foods produces and markets a variety of premium deli meats, with
production facilities in New York and Massachusetts.
In fiscal July 1999, Foodbrands acquired Wilton Foods, Inc.,
("Wilton Foods") a leading producer of premium kosher meals and
prepared foods for airlines and institutions. Wilton Foods also
produces premium kosher hors d'oeuvres and appetizers.
In late August 1999, IBP, through its IBP Foods, Inc.
subsidiary, purchased substantially all of the operating assets
of Thorn Apple Valley, Inc. ("TAVI"), a further processor of pork
and poultry products, which had been involved in bankruptcy
proceedings. The purchase of the TAVI assets included five
processing plants, most of its current assets, and a number of
product brand names.
A corporate realignment effected in early 2000 brought all
former Enterprises operations, including the acquisitions
described above, under the Foodbrands America, Inc. umbrella.
Consequently, the Enterprises segment will be referred to in this
report and subsequently as the Foodbrands America segment.
Additionally, as part of the realignment, selected value-added
operations previously included in the Fresh Meats segment will
now operate under the Foodbrands umbrella. Prior periods were
restated for these changes.
On February 7, 2000, the company acquired Corporate Brand
Foods America ("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
and the preferred stock was redeemed. Financial information for
all periods included herein have been restated to include the
results of CBFA. CBFA's financial information is included in the
Foodbrands America segment.
COMPARISON OF 1999 TO 1998
Fresh Meats' 1999 operating margin as a percentage of net
sales, before non-recurring charges, was 3.9% compared to 2.5% in
the prior year. Both beef and pork operations performed above
prior year levels due to relatively stable livestock prices,
effective levels of plant capacity utilization, and improved
domestic and export demand.
Foodbrands America's 1999 operating earnings decreased to
4.8% of net sales compared to 5.8% in 1998. Excluding the
negative impact of IBP Foods, the 1999 operating margin measured
5.7%. Higher 1999 raw material and selling costs were the
primary factors that reduced margins at existing operations.
COMPARATIVE SEGMENT RESULTS
---------------------------
Net Sales: 1999 1998 % Change
------------ ------------ ----------------
Fresh Meats $12,191,049 $11,566,452 5%
Foodbrands America 2,443,987 1,710,256 43%
---------- ----------
Total $14,635,036 $13,276,708 10%
========== ==========
Earnings from Operations:
Fresh Meats $ 440,235 $ 294,230 50%
Foodbrands America 117,887 98,708 19%
---------- ----------
Total $ 558,122 $ 392,938 42%
========== ==========
SALES
The 5% increase in Fresh Meats' 1999 net sales from 1998 was
primarily the result of increased pounds of beef products sold as
well as higher average beef selling prices. Meanwhile,
Foodbrands America's 1999 net sales increased 43% over 1998.
Excluding acquisitions, Foodbrands America's net sales increased
9% due primarily to sales volume increases.
Export sales and pounds sold increased 9% and 6% in 1999
compared to 1998. The improvement was attributable to a 25%
increase in export sales in the second half of 1999, including
40% higher sales of chilled and frozen beef and pork. Net
export sales accounted for 12% of 1999 and 1998 net sales.
Japan continues to be IBP's most significant export
destination, and 1999 export dollars were up 8% over 1998 due to
a strong second half of 1999. Although volumes were 8% below the
prior year, the sales mix has shifted to products of higher
value, showing signs of a stronger economy in the Far East.
Additionally, sales to Korea and Taiwan were up significantly
over 1998. Closer to home, export sales to Mexico were up 10% in
1999 versus 1998.
The U.S. Meat Export Federation predicts that U.S. red meat
exports in 2000 will increase 8% over 1999, primarily to markets
in the Far East.
COST OF PRODUCTS SOLD
Fresh Meats' cost of products sold in 1999 increased 4% over
1998. Higher live cattle prices and increased volume of Fresh
Meats products sold were the most significant factors. Plant
costs were also higher, due in part to nonrecurring charges of
$35 million, primarily cow plant asset write-downs, as mentioned
earlier.
Foodbrands America's cost of products sold in 1999 versus
1998 increased 45% from 1998. The higher costs were primarily
due to acquisitions, although higher sales volume-related
increases in existing businesses were also a contributing factor.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
1999 expenses increased 29% over 1998. The increases were
chiefly a result of acquisitions, higher sales volume-related
selling costs, corporate salaries, consulting expense, and a $7
million second quarter 1998 credit for export-related harbor
maintenance tax refunds.
INTEREST EXPENSE
The 18% increase in 1999 net interest expense versus 1998
was due primarily to 24% higher average borrowings in 1999 offset
somewhat by a lower average effective interest rate. Average
borrowings and net interest expense will continue at higher
levels in the foreseeable future because of additional borrowings
required for the recent acquisitions and increased capital
expenditures.
INCOME TAXES
IBP's effective income tax rate in 1999 decreased to 35%
compared to 38% in 1998. The 1999 rate reduction resulted from
an IBP, inc. settlement with the Internal Revenue Service on all
audit issues related to fiscal years 1989, 1990 and 1991. The
settlement decreased 1999 income tax expense by $14 million or
$0.15 per diluted share. Management expects that its ongoing
effective tax rate will be in the 38% range.
COMPARISON OF 1998 TO 1997
Operating earnings in 1998 measured 3.0% of net sales versus
1.8% in 1997. The Fresh Meats 1998 operating margin measured
2.5% of net sales compared to 1.6% in 1997. The higher 1998
figure reflected much-improved pork margins offset by lower beef
margins caused by competing domestic meat supplies and weaker
export demand resulting from economic problems in the Far East.
Meanwhile, Foodbrands America's operations performed above
expectations as product demand increased and raw material prices
decreased.
COMPARATIVE SEGMENT RESULTS
---------------------------
Net Sales: 1998 1997 % Change
------------ ------------ ----------------
Fresh Meats $11,566,452 $12,351,843 -6%
Foodbrands America 1,710,256 1,094,655 56%
---------- ----------
Total $13,276,708 $13,446,498 -1%
========== ==========
Earnings from Operations:
Fresh Meats $ 294,230 $ 197,584 49%
Foodbrands America 98,708 40,302 145%
---------- ----------
Total $ 392,938 $ 237,886 65%
========== ==========
SALES
The 6% decrease in Fresh Meats' net sales was due primarily
to lower average prices of beef and pork products sold. In
particular, average 1998 pork prices fell 26% from 1997. These
lower average prices were partially offset by increases in pounds
of beef and pork products sold. Foodbrands America's net sales
in 1997 included only 35 weeks for Foodbrands America, Inc., 31
weeks for The Bruss Company, and partial years for two CBFA
subsidiaries. Meanwhile, Foodbrands America's comparable period
sales also decreased in 1998 from 1997 due to lower selling
prices resulting from lower raw material costs passed through to
customers, which offset an increase in pounds sold.
Net export sales in 1998 decreased 6% from 1997. Export
tonnage in 1998 increased 21% over 1997 but was offset by overall
lower prices and a sales mix with a higher percentage of lower
valued products. Exports accounted for approximately 12% of
consolidated net sales in 1998 versus 13% in 1997.
The Asian region accounted for 67% of total export dollars
in 1998 compared to 73% in 1997. The decline was due to much-
publicized economic difficulties. The Far East shortfall was
partially offset by increased exports to Mexico and South America
destinations.
COST OF PRODUCTS SOLD
The cost of products sold in 1998 decreased 3% from the same
1997 period. Fresh Meats experienced an 8% decrease in 1998
costs versus the prior year. This decrease was primarily due to
reduced average prices paid for live hogs and cattle, which
overrode the effect of increases in pounds of pork and beef
products sold. Fresh Meats' plant costs increased due primarily
to higher labor costs and increased pork volume. Foodbrands
America also experienced lower costs, on a comparable basis, due
primarily to the lower pork raw material prices.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
1998 expenses were 48% higher than in 1997, due primarily to
acquisitions. Additionally, higher incentive compensation and
amortization of intangibles was partially offset by accrual of
refunds of U.S. harbor maintenance taxes paid in prior years,
based upon a U.S. Supreme Court decision which ruled their
collection unconstitutional, as well as cessation of current year
harbor tax expense.
Foodbrands America's selling expense is much higher as a
percentage of net sales compared to Fresh Meats due to the value-
added nature of their respective product lines which require
increased levels of customer contact, brand name development and
promotional costs. Management expects that selling expense will
continue to be significantly higher than in periods prior to the
Foodbrands and Bruss acquisitions.
INTEREST EXPENSE
The 30% higher net interest expense in 1998 versus 1997 was
primarily attributable to higher average borrowings brought about
by several acquisitions in 1997 and 1998. IBP's effective
interest rate in 1998 was lower than in 1997, which somewhat
offset the higher average borrowings. The lower effective
interest rate was attributable in part to lower short-term market
rates in 1998, the retirement of Foodbrands' 10.75% Senior
Subordinated Notes in the first quarter 1998, and a favorable
market position with IBP's interest rate swap contract.
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 eight days to turn
its product inventories and eighteen 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 $659 million in potential committed
borrowings. The unused portion of the committed credit lines was
$121 million at December 25, 1999.
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 25, December 26,
1999 1998
------------ ------------
Working capital (in millions) $158 $251
Current ratio 1.1:1 1.3:1
Quick ratio 0.6:1 0.7:1
Number of days' sales in
Accounts receivable 18.0 16.2
Inventory turnover 24.2 28.2
Earnings to fixed charges 6.3 5.2
Working capital and associated liquidity ratios at year-end
1999 slipped relative to the prior year primarily because of
increased short-term borrowings needed to fund acquisitions.
Those ratios improved in the first quarter 2000 upon issuance of
the $300 million of 7.95% 10-year notes discussed below, which
reduced short-term debt by $125 million.
Fresh Meats' accounts receivable and inventories were higher
at year-end 1999 than at year-end 1998 due primarily to higher
selling prices and livestock prices, especially on the pork side.
These higher balances, along with the effect of customarily
slower rates in the company's expanding foodservice business,
contributed to slower consolidated receivables and inventory
turnover rates.
Total consolidated outstanding borrowings averaged $1.200
billion in 1999 compared to $968 million in 1998. Borrowings
outstanding at December 25, 1999 under committed facilities
totaled $540 million.
On January 31, 2000, the company issued $300 million of
7.95% 10-year notes under its $500 million Debt Securities
program registered with the Securities and Exchange Commission in
1996. As discussed above, the net proceeds were used to repay
existing borrowings under credit facilities.
In the acquisition of CBFA on February 7, 2000, 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. The debt was refinanced and the
preferred stock was liquidated immediately upon completion of the
transaction, utilizing existing IBP debt facilities.
The purchase of the Foodbrands America, Inc. 10.75% Notes in
the first quarter 1998 by IBP, inc. was funded with available
credit facilities. The portion of borrowings under IBP's
revolving credit facilities considered long-term was $218 million
at year-end 1999 and $197 million at year-end 1998.
The company invested $8 million in 1999 and $38 million in
1998 in life insurance contracts for key employees. Among other
advantages, expected changes in the cash value of these contracts
are intended to effectively act as a hedge against changes in the
company's deferred compensation liabilities.
Capital expenditures in 1999 totaled $209 million compared
to $182 million in 1998. Significant projects with 1999 spending
included various beef plant food safety projects, several plant
expansions, and completion of the company's world headquarters
complex. Over half of the 1999 spending was for revenue
enhancement or cost-saving projects, while the remainder
generally went toward upgrades and replacements of existing
equipment and facilities.
Management's estimate of capital spending in 2000 is in the
range of $400 million, the majority of which has been designated
for revenue enhancement and capacity expansion. The company
intends to fund these expenditures with operating cash flows and
available debt facilities.
MARKET RISK
-----------
Interest Rates - The company manages interest cost using a
mix of fixed and variable rate debt. To manage this mix in a
cost-effective manner, the company may enter 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 or vice
versa. A sensitivity analysis indicates that, with respect to
interest rate derivative instruments in place at December 25,
1999 and December 26, 1998, a 100-basis point increase in the
applicable market interest rate would not have had a material
impact on the company's financial position, results of
operations, or liquidity.
Foreign Operations - Transactions denominated in a currency
other than the entity's functional currency are generally hedged
using currency forward contracts to reduce this market risk.
These transactions primarily involve the company's Canadian subsidiary,
which enters into currency forward and futures contracts to hedge
its exposures on receivables, live cattle, and purchase
commitments in foreign currencies. A sensitivity analysis
indicates that, with respect to currency-based derivatives in
place at December 25, 1999 and December 26, 1998, a 10% change in
currency exchange rates would not have had a material impact on
the company's financial position, results of operations, or
liquidity.
Commodities - The company uses commodity futures contracts
to hedge its forward livestock purchases which, in 1999,
accounted for approximately 7% of its livestock purchases. The
contract lives ranged from one to twelve months. A sensitivity
analysis indicates that, for futures contracts open at December
25, 1999, a 10% increase in futures contract prices would
increase hedging losses by $15 million. The comparable prior
year figure was $13 million. Any change in the value of the
futures contracts is generally balanced by an offsetting position
in the cash market price of the delivered livestock. Neither the
company's financial position nor its liquidity would have been
materially impacted by the above increase in futures contract
prices.
YEAR 2000
---------
The company has an internal team responsible for assessing
the impact of Year 2000 and leading and monitoring the company's
state of readiness with respect to this issue. All planning,
implementation and testing was successfully completed before the
end of 1999. The team has continued to monitor the company's
systems.
As part of the Year 2000 readiness program, significant
service providers, vendors, suppliers, customers, and
governmental entities ("Key Business Partners") that were
considered critical to business operations around January 1,
2000, were identified. Steps were initiated to reasonably
ascertain their stage of Year 2000 readiness as it related
directly or indirectly to the company.
The possible consequences of the company or its Key Business
Partners not being fully Year 2000 compliant by January 1, 2000
included, among other things, temporary plant closings, delays in
the delivery of products and/or receipt of supplies, invoice and
collection errors and inventory and supply obsolescence.
However, with some very minor exceptions, the company has not
suffered any financial losses or operational inefficiencies
resulting from the calendar advancing past January 1, 2000.
The company also had in place a formal contingency plan to
address risks considered critical to operations. This
contingency plan will remain in place to ensure that any
unforeseen Year 2000 or other critical issues can be addressed
appropriately.
The aggregate cost of the company's Year 2000 efforts was
approximately $14 million, virtually all of which has been spent
or committed. The spending included approximately $9 million for
computer hardware, most of which was capitalized. The remaining
$5 million was primarily for changes in computer software, all of
which was expensed as incurred and funded with operating cash
flows.
The company's Year 2000 readiness program has been a very
successful effort and, although continued monitoring of Business
Systems is an ongoing process, the effort is essentially complete.
The company does not anticipate any material adverse impact
resulting from unforeseen Year 2000 issues.
Report of Independent Accountants
---------------------------------
To the Board of Directors and Stockholders of IBP, inc.:
In our opinion, based upon our audits and the reports of other
auditors, the accompanying consolidated balance sheets and the
related consolidated statements of earnings, changes in redeemable
stock, stockholders' equity and comprehensive income, and of cash
flows present fairly, in all material respects, the financial
position of IBP, inc. and its subsidiaries at December 25, 1999
and December 26, 1998, and the results of their operations and
their cash flows for each of the three years in the period ended
December 25, 1999, in conformity with accounting principles
generally accepted in the United States of America. In
addition, in our opinion, the financial statement schedule presents
fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial
statements. These financial statements and financial statement schedule
are the responsibility of the Company's management; our responsibility
is to express an opinion on these financial statements and financial
statement schedule based on our audits. The consolidated financial
statements give retroactive effect to the merger of Corporate Brand
Foods America, Inc. ("CBFA") on February 7, 2000 in a transaction
accounted for as a pooling of interests, as described in Note L to
the consolidated financial statements. We conducted our audits of
these statements in accordance with auditing standards generally
accepted in the United States of America, which require that we plan
and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Omaha, Nebraska
February 7, 2000 except for the pooling described
in Notes A and L, for which the date is March 20, 2000
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 accounting principles
generally accepted in the United States. We believe these
statements present fairly the company's financial position and
results of operations.
Our independent auditors, PricewaterhouseCoopers LLP, have
audited these consolidated financial statements. Their audit was
conducted using auditing standards generally accepted in the
United States, which included consideration of our internal
controls in order to form an independent opinion on the financial
statements. We have made available to PricewaterhouseCoopers LLP,
all the company's financial records, as well as the minutes of all
meetings of stockholders, directors and committees of 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.
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 PricewaterhouseCoopers
LLP, 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 Chief Financial Officer
IBP, inc. IBP, inc.
IBP, inc. AND SUBSIDIARIES
SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS
AND RESERVES
Fiscal Years 1997, 1998, and 1999
(In thousands)
Allowance
for Doubtful
Accounts
------------
Balance, December 28, 1996 $ 9,873
Amounts charged to costs and expenses 618
Recoveries of amounts previously
written off 39
Write-off of uncollectible accounts (850)
Other 742
------
Balance, December 27, 1997 10,422
Amounts charged to costs and expenses 2,161
Recoveries of amounts previously
written off 231
Write-off of uncollectible accounts (290)
Other 586
------
Balance, December 26, 1998 13,110
Amounts charged to cost and expenses 12,352
Recoveries of amounts previously
written off 100
Write-off of uncollectible accounts (8,344)
Other 579
------
Balance, December 25, 1999 $17,797
======
