EXHIBIT 99.1
IBP, inc. and SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
IBP, Inc. and Subsidiaries:
Independent Auditors' Reports and Managements'
Report on Financial Statement Integrity F-2 to F-3
Consolidated Balance Sheets as of December 30, 2000
and December 25, 1999 F-4
Consolidated Statement of Earnings for the Years
ended 2000, 1999, and 1998 F-5 to F-6
Consolidated Statements Of Changes In Stockholders'
Equity And Comprehensive Income for the Years
ended 2000, 1999, and 1998 F-7 to F-8
Consolidated Statements of Cash Flows for the Years
ended 2000, 1999, and 1998 F-9
Notes to Consolidated Financial Statements F-10 to F-44
F-1
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
To the Board of Directors and Stockholders of IBP, inc.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of earnings, changes in 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
30, 2000 and December 25, 1999, and the results of their operations and their
cash flows for each of the three years in the period ended December 30, 2000, 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 the financial statement schedule are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements and the 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.
As indicated in Note R, the Company has restated its 1999 and 1998
financial statements with respect to certain matters involving its subsidiary,
DFG, to apply variable plan accounting to certain stock options and to provide
expanded segment disclosures.
As discussed in Note S to the consolidated financial statements, the
Company changed its method of revenue recognition in fiscal 2000.
PricewaterhouseCoopers LLP
Omaha, Nebraska
March 19, 2001, except as to
Note U, for which the date
is March 29, 2001
F-2
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.
F-3
IBP, inc. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
Restated
December 30, December 25,
2000 1999
----------- -----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 29,970 $ 32,865
Accounts receivable, less allowance for
doubtful accounts of $19,898 and $21,352 673,485 849,679
Inventories (Note B) 873,544 615,192
Deferred income tax benefits (Note E) 67,343 63,426
Prepaid expenses 21,252 19,566
----------- -----------
TOTAL CURRENT ASSETS 1,665,594 1,580,728
----------- -----------
PROPERTY, PLANT AND EQUIPMENT, at cost:
Land and land improvements 127,884 124,053
Buildings and stockyards 760,211 694,212
Equipment 1,538,120 1,373,054
----------- -----------
2,426,215 2,191,319
Accumulated depreciation and amortization (1,089,775) (960,391)
----------- -----------
1,336,440 1,230,928
Construction in progress 294,334 131,837
----------- -----------
1,630,774 1,362,765
----------- -----------
OTHER ASSETS:
Goodwill, net of accumulated amortization
of $221,160 and $189,395 (Note T) 961,340 1,054,839
Other 168,548 145,225
----------- -----------
1,129,888 1,200,064
----------- -----------
$ 4,426,256 $ 4,143,557
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses (Note D) $ 807,177 $ 736,242
Notes payable to banks (Note C) 775,000 542,060
Federal and state income taxes 78,016 135,620
Deferred income taxes (Note E) 1,216 3,361
Other 57,991 15,434
----------- -----------
TOTAL CURRENT LIABILITIES 1,719,400 1,432,717
LONG-TERM OBLIGATIONS (Notes C and F) 658,719 789,861
DEFERRED CREDITS AND OTHER LIABILITIES:
Deferred income taxes (Note E) 7,491 8,366
Other 191,135 167,566
----------- -----------
198,626 175,932
----------- -----------
REDEEMABLE STOCK (Note Q): -- 44,564
----------- -----------
STOCKHOLDERS' EQUITY (Note Q):
Common stock 5,450 4,964
Additional paid-in capital 443,388 404,463
Retained earnings 1,481,004 1,358,971
Accumulated other comprehensive income (11,261) (8,600)
Treasury stock, at cost (69,070) (59,315)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 1,849,511 1,700,483
----------- -----------
$ 4,426,256 $ 4,143,557
=========== ===========
See notes to consolidated financial statements.
F-4
IBP, inc. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share data)
52 Weeks Ended
---------------------------------
53 Weeks Ended Restated Restated
December 30, December 25, December 26,
2000 1999 1998
-------------- -------------- --------------
Net sales (Notes A and S) $16,949,608 $15,121,689 $13,734,773
Cost of products sold 15,913,264 14,126,619 12,997,239
----------- ----------- -----------
Gross profit 1,036,344 995,070 737,534
Selling, general and
administrative expenses 658,163 440,474 355,564
Non-recurring merger-related
expense 31,299 - -
----------- ----------- -----------
Earnings from operations 346,882 554,596 381,970
Interest:
Incurred (104,204) (81,989) (70,011)
Capitalized 9,851 8,589 7,976
Income 6,095 5,584 4,464
----------- ----------- -----------
(88,258) (67,816) (57,571)
----------- ----------- -----------
Earnings before income taxes,
accounting change
and extraordinary item 258,624 486,780 324,399
Income taxes (Note E) 105,971 168,913 126,432
----------- ----------- -----------
Earnings before accounting change
and extraordinary item 152,653 317,867 197,967
Cumulative effect of change in
accounting principle (Note R) (2,429) - -
Extraordinary loss on early
extinguishment of debt,
less applicable taxes
(Note F) (15,037) - (14,815)
----------- ----------- -----------
Net earnings $ 135,187 $ 317,867 $ 183,152
=========== =========== ===========
Earnings per share (Note K):
- ---------------------------
Earnings before accounting
change and extraordinary item $ 1.41 $ 3.26 $ 2.02
Cumulative effect of change
in accounting principle (.02) - -
Extraordinary item (.14) - (.15)
----------- ----------- -----------
Net earnings $ 1.25 $ 3.26 $ 1.87
=========== =========== ===========
Earnings per share - assuming dilution:
- --------------------------------------
Earnings before accounting
change and extraordinary item $ 1.40 $ 2.96 $ 1.86
Cumulative effect of change
in accounting principle (.02) - -
Extraordinary item (.14) - (.14)
----------- ----------- -----------
Net earnings $ 1.24 $ 2.96 $ 1.72
=========== =========== ===========
See notes to consolidated financial statements.
F-5
IBP, inc. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(continued)
(In thousands, except per share data)
52 Weeks Ended
------------------------------------
53 Weeks Ended Restated Restated
December 30, December 25, December 26,
2000 1999 1998
---------------- ---------------- --------------
Pro forma amounts assuming the
accounting change is applied
retroactively:
Earnings before extraordinary item $ 152,653 $ 317,122 $ 199,432
Net earnings 137,616 317,122 184,617
Earnings per common share:
Earnings before extraordinary item $ 1.41 $ 3.25 $ 2.04
Net earnings 1.27 3.25 1.89
Earnings per common share-
assuming dilution:
Earnings before extraordinary item $ 1.40 $ 2.95 $ 1.87
Net earnings 1.26 2.95 1.73
See notes to consolidated financial statements.
F-6
IBP, inc. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
(in thousands, except per share data)
Accumulated
Common Additional Other Total
Shares Common Paid-in Retained Comprehensive Treasury Stockholders'
Outstanding Stock Capital Earnings Income Stock Equity
---------------------------------------------------------------------------------------------------
Restated balances,
December 27, 1997 96,866 $ 4,964 $ 411,238 $ 881,243 $ (6,114) $ (55,483) $ 1,235,848
---------
Comprehensive income:
Net earnings - restated 183,152 183,152
Other comprehensive income:
Foreign currency translation
adjustments (10,342) (10,342)
--------
Comprehensive income - restated 172,810
--------
Dividends declared on common
stock, $.10 per share (9,246) (9,246)
Dividends on preferred stock (1,719) (1,719)
Accretion of redeemable stock (322) (322)
Treasury shares purchased (592) (12,370) (12,370)
Treasury shares delivered under
employee stock plans 320 (1,674) 7,470 5,796
Restated balances,
---------------------------------------------------------------------------------------------------
December 26, 1998 96,594 $ 4,964 $ 409,564 $ 1,053,108 $ (16,456) $ (60,383) $ 1,390,797
---------
Comprehensive income:
Net earnings - restated 317,867 317,867
Other comprehensive income:
Foreign currency translation
adjustments 7,856 7,856
---------
Comprehensive income - restated 325,723
---------
Dividends declared on common
stock, $.10 per share (9,230) (9,230)
Accretion of redeemable stock (356) (356)
Dividends on preferred stock (2,418) (2,418)
Treasury shares purchased (326) (6,170) (6,170)
Treasury shares delivered under
employee stock plans 378 (5,101) 7,238 2,137
Restated balances,
---------------------------------------------------------------------------------------------------
December 25, 1999 96,646 $ 4,964 $ 404,463 $ 1,358,971 $ (8,600) $ (59,315) $ 1,700,483
See notes to consolidated financial statements.
F-7
IBP, inc. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
(continued)
(in thousands, except per share data)
Accumulated
Common Additional Other Total
Shares Common Paid-in Retained Comprehensive Treasury Stockholders'
Outstanding Stock Capital Earnings Income Stock Equity
--------------------------------------------------------------------------------------------------
Restated balances,
December 25, 1999 96,646 $ 4,964 $ 404,463 $ 1,358,971 $ (8,600) $ (59,315) $ 1,700,483
Comprehensive income:
Net earnings 135,187 135,187
Other comprehensive income:
Foreign currency
translation adjustments (2,661) (2,661)
-----------
Comprehensive income 132,526
-----------
Dividends declared on common
stock, $.10 per share (10,588) (10,588)
Accretion of redeemable stock (2,214) (2,214)
Dividends on preferred stock (352) (352)
Transfer of redeemable stock
to additional paid in capital 25,822 25,822
Common shares issued in
exchange for redeemable
stock 9,729 486 14,391 14,877
Treasury shares purchased (957) (15,300) (15,300)
Treasury shares delivered under
employee stock plans 250 (1,288) 5,545 4,257
--------------------------------------------------------------------------------------------------
Balances, December 30, 2000 105,668 $ 5,450 $ 443,388 $ 1,481,004 $ (11,261) $ (69,070) $ 1,849,511
==================================================================================================
See notes to consolidated financial statements.
F-8
IBP, inc. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
52 Weeks Ended
----------------------------------------
53 Weeks Ended Restated Restated
December 30, December 25, December 26,
2000 1999 1998
---------------- ----------------- ---------------
Inflows (outflows)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 135,187 $ 317,867 $ 183,152
--------- --------- ---------
Adjustments to reconcile net earnings
to cash flows from operations:
Depreciation and amortization 146,716 125,515 110,249
Amortization of intangible assets 35,444 31,163 28,924
Non-cash restricted and variable stock compensation 38,038 (9,675) 11,668
Long-lived asset impairment write-downs 66,115 29,351 -
Deferred income tax (benefit) provision 7,199 (3,936) (6,314)
Change in customer advances - 12,000 (14,100)
Extraordinary loss on extinguishment of debt 15,037 - 14,815
Provision for bad debts 10,455 15,907 2,161
Net loss on disposal of fixed assets 1,112 1,710 16,996
Other operating cash inflows 14,332 15,072 15,609
Other operating cash outflows (18,739) (6,359) (8,299)
Working capital changes, net of
effects of acquisitions:
Accounts receivable 164,834 (177,301) (30,560)
Inventories (260,294) (107,050) (22,967)
Accounts payable and accrued liabilities (8,825) 53,099 70,099
Change in checks in process of clearance 31,604 20,576 (29,464)
--------- --------- ---------
243,028 72 158,817
--------- --------- ---------
Net cash flows provided by
operating activities 378,215 317,939 341,969
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions, net of cash acquired (11,790) (504,420) (186,639)
Capital expenditures (428,217) (208,781) (183,040)
Proceeds from disposals of marketable
securities 25,000 20,800 257,721
Purchases of marketable securities (25,000) (19,400) (250,954)
Investment in life insurance contracts (8,287) (7,759) (38,000)
Proceeds from sale of fixed assets 4,082 4,523 3,687
Investments in equity ventures (12,650) - -
Insurance proceeds - 3,010 190
Investments in notes receivable - (8,000) -
Other investing cash inflows 981 319 -
--------- --------- ----------
Net cash flows used in investing
activities (455,881) (719,708) (397,035)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in short-term debt 232,940 317,964 121,210
Purchase of treasury stock (15,300) (6,170) (12,370)
Dividends paid on common stock (10,256) (9,229) (9,252)
Exercise of stock options 4,108 2,137 3,238
Principal payments on long-term obligations (391,632) (10,977) (118,360)
Proceeds from issuance of long-term debt 297,664 100,800 49,773
Redemption of preferred stock (28,512) - -
Proceeds from sale of stock and warrants - 9,582 7,944
Premiums paid on early retirement of debt (7,629) - (20,636)
Payment of loan acquisition costs (6,866) - (6,824)
Other financing cash outflows - - (156)
--------- --------- ---------
Net cash flows provided by financing activities 74,517 404,107 14,567
--------- --------- ---------
Effect of exchange rate on cash and
cash equivalents 254 1,698 (1,548)
--------- --------- ---------
Net change in cash and cash equivalents (2,895) 4,036 (42,047)
Cash and cash equivalents at beginning of year 32,865 28,829 70,876
--------- --------- ---------
Cash and cash equivalents at end of year $ 29,970 $ 32,865 $ 28,829
========= ========= =========
See notes to consolidated financial statements.
F-9
IBP, inc. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS ENDED DECEMBER 30, 2000, DECEMBER 25, 1999
AND DECEMBER 26, 1998
Columnar amounts in thousands, except share and per share amounts
A. GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
------------------------------------------------------
RESTATEMENTS - The accompanying financial statements for 1999 and 1998 have
------------
been restated to reflect adjustments for irregularities and misstatements at one
of the company's subsidiaries, the application of variable plan accounting for
certain stock options, and expanded disclosures related to segment information,
acquisitions, long-term debt and capital lease obligations, contingencies,
redeemable stock and capital stock. See Notes M, P and R for more detail
relating to the effects of these restatements.
The statements of cash flows have also been restated to provide more detail
of certain cash transactions that were previously reported on a combined basis
and to reclassify the change in the company's checks in process of clearing to
cash flows from operations as a change in accounts payable, consistent with the
balance sheet classification. The change in this balance previously was included
in financing activities.
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.
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.
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 2000 was a 53-week year and fiscal years 1999 and 1998 each totaled
52 weeks.
REVENUE RECOGNITION - Revenue from product sales are recognized upon
-------------------
delivery to customers. See Note S for information regarding changes in
accounting for revenue recognition in 2000.
FREIGHT EXPENSE - Freight expense associated with products shipped to
---------------
customers is recognized in cost of products sold. Prior to the fourth quarter
2000, this freight expense had been classified as a reduction of net sales. All
prior periods have been reclassified to conform to the current year
presentation.
F-10
EXPORT SALES - In 2000, 1999 and 1998, net export sales, principally to
------------
customers in Asia and also to destinations in the Americas and Europe, totaled
$2.1 billion, $1.8 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.
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. Assessment of any impairment is based on
F-11
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.
See Note T for asset impairments recorded in 2000 and 1999.
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 - Statement of Financial Accounting Standards No. 133,
------------------
Accounting for Derivative Instruments and Hedging Activities (FAS 133), is
effective the first quarter of 2001, on December 31, 2000. FAS 133 requires that
all derivative instruments be recorded on the balance sheet at fair value.
Changes in the fair value of derivatives are recorded each period in current
earnings or other comprehensive income, depending on whether a derivative is
designated as part of a hedge transaction and, if it is, depending on the type
of hedge transaction. For fair-value hedge transactions in which the company is
hedging changes in an asset's, liability's, or firm commitment's fair value,
changes in the fair value of the derivative instrument will generally be offset
in the earnings statement by changes in the hedged item's fair value. For
cash-flow hedge transactions in which the company is hedging the variability of
cash flows related to a variable-rate asset, liability, or a forecasted
transaction, changes in the fair value of the derivative instrument will be
reported in other comprehensive income. The gains and losses on the derivative
instrument that are reported in other comprehensive income will be reclassified
as earnings in the periods in which earnings are impacted by the variability of
the cash flows of the hedged item. The ineffective portion of all hedges will be
recognized in current-period earnings.
The company estimated that, on December 31, 2000, it will record a
net-of-tax cumulative-effect-type adjustment of $13,106 gain in earnings to
recognize at fair value all derivative instruments that will be designated as
fair-value hedging instruments. The company expects to record an offsetting
net-of-tax cumulative-effect-type adjustment of $13,143 loss in earnings to
recognize the difference (attributable to the hedged risks) between the carrying
values and fair values of related hedged assets, liabilities, and firm
commitments. Additionally, the Company expects to record $78 net-of-tax loss in
earnings to reflect the fair value of derivatives that will not qualify as
hedges under FAS 133.
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.
F-12
B. INVENTORIES:
-----------
Inventories are comprised of the following:
Restated
December 30, December 25,
2000 1999
---------------- ----------------
Product inventories:
Raw materials $ 78,004 $ 57,385
Work in process 101,973 84,505
Finished goods 412,211 238,710
---------- ----------
592,188 380,600
Livestock 185,413 137,300
Supplies 95,943 97,292
---------- ----------
$ 873,544 $ 615,192
========== ==========
C. CREDIT ARRANGEMENTS:
-------------------
At December 30, 2000, IBP had in place a $950 million
nine-month revolving credit facility (the "Nine-Month Facility"). From
time to time, IBP also used uncommitted lines of credit for some or all
of its short-term borrowing needs.
The Nine-Month Facility has a maturity date of September 20,
2001. Facility fees can vary from .150 to .200 of 1% on the total
amount of the facility. The company incurred financing fees and costs
associated with this credit facility of $7 million that will be
amortized over the nine-month term.
Borrowings outstanding under the revolving facility at
December 30, 2000, totaled $775 million, all of which was classified as
current liabilities. The interest rate at December 30, 2000 on this
debt was 7.64%.
During fiscal 2000, the maximum amount of borrowings under all
of IBP's credit arrangements, including any amounts considered
non-current, was $853 million. Average borrowings under IBP's credit
arrangements and the weighted average interest rate during fiscal 2000
were $732 million and 6.7%. The comparable 1999 figures were average
borrowings of $606 million and an average interest rate of 5.5%.
IBP's Nine-Month Facility agreement contains certain
restrictive covenants that, among other things, (1) require the
maintenance of a minimum debt service coverage ratio; and (2) provide
for a maximum funded debt ratio.
F-13
D. ACCOUNTS PAYABLE AND ACCRUED EXPENSES:
-------------------------------------
Accounts payable and accrued expenses are comprised of the following:
Restated
December 30, December 25,
2000 1999
----------------- -----------------
Accounts payable, principally
trade creditors $361,839 $302,101
------- -------
Checks in process of clearance 154,191 122,754
------- -------
Accrued expenses:
Employee compensation 86,340 98,999
Employee benefits 48,297 47,274
Property and other taxes 27,608 25,587
Marketing costs 26,728 25,273
Other 102,174 114,254
------- -------
291,147 311,387
------- -------
$807,177 $736,242
======= =======
E. INCOME TAXES:
------------
Income tax expense consists of the following:
Restated Restated
---------------- ---------------- ----------------
2000 1999 1998
---------------- ---------------- ----------------
Current:
Federal $ 75,852 $148,955 $119,831
State 11,772 20,794 13,555
Foreign 11,148 3,100 (640)
-------- -------- --------
98,772 172,849 132,746
-------- -------- --------
Deferred:
Federal 7,881 (6,148) (6,695)
State 511 (413) 531
Foreign (1,193) 2,625 (150)
-------- -------- --------
7,199 (3,936) (6,314)
-------- -------- --------
$105,971 $168,913 $126,432
======== ======== ========
Total income tax expense varies from the amount that 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:
F-14
Restated Restated
2000 1999 1998
------------------------------
Federal income tax rate 35.0% 35.0% 35.0%
State income taxes, net
of federal benefit 3.2 2.8 3.0
Settlement of federal
audit issues - (2.8) -
Foreign tax items (5.1) (1.6) (1.3)
Goodwill impairment
and amortization 4.7 1.4 1.9
Variable stock options and
restricted stock expense 3.6 (0.6) 0.8
Fair value of asset
contributions in excess
of tax basis (1.0) - -
Other, net 0.6 0.5 (0.4)
---- ---- ----
41.0% 34.7% 39.0%
==== ==== ====
Management reached a settlement in 1999, with the U.S. Internal Revenue
Service ("IRS") on audit issues related to fiscal years 1989, 1990 and 1991. As
a result of that settlement, the company reduced income taxes payable and income
tax expense by $14 million or $.15 per diluted share. 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:
Restated
December 30, December 25,
2000 1999
--------------------- ---------------------
Deferred tax assets:
Nondeductible accrued liabilities $ 112,792 $ 106,589
State tax credit carryforwards 7,757 9,140
Bad debt and claims reserves 5,321 7,259
Federal and state operating
loss carryforwards 42,885 31,969
Other 5,989 4,213
---------- ----------
Gross deferred tax assets 174,744 159,170
Valuation allowance (7,757) (9,140)
---------- ----------
Net deferred tax assets 166,987 150,030
---------- ----------
Deferred tax liabilities:
Fixed assets (102,719) (76,280)
Intangible assets (3,929) (17,901)
Other (1,703) (4,150)
---------- ----------
(108,351) (98,331)
---------- ----------
$ 58,636 $ 51,699
========== ==========
The net $1.4 million decrease in the valuation allowance for deferred tax
assets was the result of net state tax credits utilized. No benefit has been
recognized for these state tax credit carryforwards, most of which expire in the
years 2004 through 2008.
F-15
At December 30, 2000, after considering utilization restrictions, the
company's acquired tax loss carryforwards approximated $102 million. The net
operating loss carryforwards, which are subject to utilization limitations due
to ownership changes, may be utilized to offset future taxable income as
follows: $57.2 million in 2001, $11.7 million in 2002 and $4.6 million each in
2003 through 2009 and the remainder in 2010. 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 2004 through 2019.
During the third quarter 2000, the company filed amended tax returns for
the years 1992 through 1997, claiming additional deductions plus interest. The
IRS has challenged and continues to challenge certain tax credits claimed by the
company on tax returns filed for fiscal years 1992 to date, aggregating
approximately $100 million. While the company believes it has a basis for
claiming such credits, no benefit has been reflected for financial reporting
purposes given the uncertainty of ultimate sustainability. The outcome of this
matter remains uncertain.
F. LONG-TERM OBLIGATIONS:
---------------------
Long-term obligations are summarized as follows:
Restated
December 30, December 25,
2000 1999
--------------------- ---------------------
7.95% Senior Notes due 2010 $ 300,000 $ -
Revolving credit facilities - 218,327
CBFA Term Loans - 138,125
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
12.5% CBFA Subordinated Notes due 2007 - 33,464
Discount on subordinated notes - (2,655)
Present value of capital
lease obligations 24,101 26,878
Other 14,969 13,847
---------- ----------
714,070 802,986
Less amounts due within one year 55,351 13,125
---------- ----------
$ 658,719 $ 789,861
========== ==========
CBFA had three term loans in original principal amounts of $65 million
("Term Loan A"), $70 million ("Term Loan B"), and $12 million ("Term Loan C").
Term Loans A and B were repayable in graduated quarterly installments through
2004 and 2006, respectively. Term Loan C was due in 2006. The Term Loans were at
variable interest rates based upon two options. At year-end 1999, the weighted
average interest rate on borrowings under Term Loans A, B and C was 9.6%. These
Term Loans were paid off upon IBP's acquisition of CBFA on February 7, 2000,
using available IBP debt facilities.
CBFA had senior subordinated promissory notes (the "Subordinated Notes")
with a financial institution, which was also a CBFA stockholder. The principal
amount of the Subordinated Notes was due
F-16
June 30, 2007 and interest accrued at a blended rate of 12.2%. The Subordinated
Notes contained detachable warrants to purchase a total of 2.2 million shares of
Class B Common Stock. The allocation of fair values of these debt and equity
instruments resulted in debt discounts, which were being amortized to interest
expense over the term of the Subordinated Notes. These Subordinated Notes were
paid off upon IBP's acquisition of CBFA on February 7, 2000, using available IBP
debt 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. 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
consolidated statement of earnings.
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.
Substantially all of the leased assets under capital leases can be
purchased by IBP at the end of the respective lease terms. Leased assets at
December 30, 2000 were comprised of $19.4 million in buildings and $12.1 million
in equipment in the consolidated balance sheets, with accumulated amortization
of approximately $12 million. Minimum lease payments under capital lease
obligations for each of the five fiscal years subsequent to 2000 are (in
millions); $5.4; $3.4; $2.2; $2.2; and $2.1. Amounts representing interest in
the above payments total $4.9.
Aggregate maturities of long-term obligations, excluding capital leases,
for each of the five fiscal years subsequent to 2000 are (in millions): $51.0;
$1.2; $1.2; $2.7 and $1.0.
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 30,
F-17
2000, there were approximately 252,500 shares available for future awards under
the plans. The company recognized compensation expense for these plans totaling
$2.9 million, $3.1 million and $2.3 million, respectively, in 2000, 1999 and
1998.
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 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
Granted 342.1 17.03
Delivered (192.6) 21.70
Forfeited (12.0) 25.48
--------------------------------------
Balance, December 30, 2000 747.5 $19.89
--------------------------------------
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 30, 2000, the plans provided for the delivery of up
to 6.9 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 less than $1 million in each of the years 2000, 1999 and 1998.
The company's stock option plan grants officers additional bonus
options if the original options are exercised. The original officer options are
generally issued at market price at the date of the grant, vest over a five-year
period and have a ten-year term. The bonus options are issued at market price at
the date the bonus options are granted and are exercisable after two years,
provided the shares acquired with the original options are still owned by the
officer. As a result of the bonus options feature, variable plan accounting is
appropriate for the options granted under these provisions. Compensation expense
for the original options is recorded over the vesting period based on the
difference between the market value and the exercise price at the end of each
period. Compensation expense related to the bonus options is recorded based on
the market value and the exercise prices over the vesting period from the date
vesting becomes probable, to the date the bonus options are vested and
exercisable. Compensation charges (credits) related to these options under
variable plan accounting were $11,336, $(11,991) and $10,968 in 2000, 1999, and
1998 respectively.
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
F-18
granted. At December 30, 2000 and December 25, 1999, there were 2.0 million and
2.7 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 2000, 1999 and 1998 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:
Restated Restated
2000 1999 1998
---------- ------------- -------------
Net earnings - as reported $135,187 $317,867 $183,152
Net earnings - pro forma 142,582 303,725 190,056
Earnings per share - as reported 1.25 3.26 1.87
Earnings per share - pro forma 1.32 3.12 1.94
Earnings per diluted share - as reported 1.24 2.96 1.72
Earnings per diluted share - pro forma 1.31 2.82 1.78
The weighted average fair values at date of grant for options granted at
market value during 2000, 1999 and 1998 were $5.19, $7.53 and $7.29 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 2000, 1999 and
1998:
2000 1999 1998
---------- ------------ ------------
Expected option life 6 years 6 years 6 years
Expected annual volatility 28% 26% 26%
Risk-free interest rate 5.9% 5.8% 4.7%
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 27, 1997 4,125.2 $17.85 1,846.3
Granted at market value 208.7 21.37
Granted at a price below market value 434.2 16.56
Exercised (320.1) 11.44
Canceled (199.4) 21.64
- -------------------------------------------------------------------------------------------------------------------
F-19
Number of Weighted Average Options
Shares Price Per Share Exercisable
------------- ------------------------ --------------------
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
Granted 1,028.9 13.96
Exercised (199.0) 11.42
Canceled (368.0) 19.83
- -------------------------------------------------------------------------------------------------------------------
Balance at
December 30, 2000 4,891.6 $18.13 2,687.2
The following table summarizes information about stock options outstanding
at December 30, 2000:
Number Weighted Average
Range of Outstanding Remaining Weighted Average
Exercisable Prices At 12/30/2000 Contractual Life Exercise Price
- ------------------------- -------------------------- ------------------------------ ------------------------------
$ 6.75 to 15.99 1,649.2 5.9 years $12.23
16.00 to 25.99 3,154.4 6.3 years 20.94
26.00 to 33.00 88.0 6.2 years 28.07
-------------------------------------------------------------------------------------------------------------------------
$ 6.75 to 33.00 4,891.6 6.3 years $18.13
Number
Range of Exercisable Weighted Average
Exercisable Prices At 12/30/2000 Exercise Price
- --------------------------------- ------------------------------- -------------------------------
$ 6.75 to 15.99 808.1 $11.07
16.00 to 25.99 1,819.4 21.68
26.00 to 33.00 59.7 28.16
- ---------------------------------------------------------------------------------------------------
$ 6.75 to 33.00 2,687.2 $18.64
Shares of common stock to be delivered for approximately 0.4 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. During the third quarter 2000, the participants of this plan voluntarily
relinquished their rights to put the stock back to the company. Prior to the
relinquishments, the plan was accounted for as a "variable plan" in accordance
with APB Opinion #25 and classified as redeemable stock in the accompanying
consolidated balance sheet. Following the relinquishments, the plan became a
"fixed plan" and the redeemable stock was reclassified to equity and deferred
compensation liability in the accompanying balance sheet. The company recorded
compensation expense of $26.7 million, $2.3 million and $0.7 million related to
these grants in fiscal 2000, 1999 and 1998, respectively. Approximately 1.2
million shares were granted in 1997 and 0.8 million shares were granted in
fiscal 1999. Approximately 1.6 million shares outstanding under the restricted
stock plan were vested during 2000 and delivered. At December 30, 2000, there
were approximately 0.4 million shares unvested under the restricted stock plan.
The remaining 0.4 million unvested shares will vest no later than 8 years
following the
F-20
grant date, based on a combination of performance-based and time-based criteria.
H. SUPPLEMENTAL CASH FLOW INFORMATION:
----------------------------------
Supplemental information on cash payments is presented as follows:
2000 1999 1998
------------- -------------- --------
Interest, net of amounts capitalized $ 82,566 $ 65,137 $ 62,598
Income taxes 154,194 197,235 76,364
I. FINANCIAL INSTRUMENTS:
---------------------
The company monitors the risk of default by its financial instrument
counterparties, all of which are major financial institutions, and does not
anticipate nonperformance.
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 $350 million at year-end
2000 and $50 million at year-end 1999. 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
swaps were completely liquidated in early January 2001 for cash proceeds of $31
million. Under FAS 133, the offsetting adjustment previously recorded to the
hedged debt will be amortized as a credit to interest expense over the debt
lives through 2010.
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 30, 2000, the company had outstanding contracts
to buy Canadian dollars totaling CDN$136 million at various dates through 2001.
Comparable outstanding contracts at year-end 1999 totaled CDN$96 million. The
company also had outstanding contracts at year-ends 2000 and 1999 to sell $20
million U.S. dollars at various dates, to hedge its receivables denominated in
U.S. dollars.
Commodity Derivatives:
---------------------
The company uses commodity futures contracts to hedge its forward livestock
purchases, which, in 2000, accounted for approximately 8% of its livestock
purchases. At December 30, 2000, the company had outstanding approximately 3,800
contracts to buy fed cattle and hogs and 8,200 contracts to sell fed cattle and
hogs. Total commodity hedging gains/(losses) totaled $(19,544), $11,047 and
$23,108 in 2000, 1999 and 1998, respectively. Hedging losses deferred on the
balance sheet at December 30, 2000 totaled $(3,777).
Fair Value of Financial Instruments:
-----------------------------------
The following methods and assumptions are used in estimating the
F-21
fair value of each class of the company's financial instruments at December 30,
2000:
For cash equivalents, 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 2000,
the carrying value exceeded the fair value by $65 million. At year-end 1999, the
fair value exceeded the carrying value by $14 million. The company's long-term
debt is generally not callable until maturity, except for the 7.125% Senior
Notes due 2026, subject to prepayment premiums.
For derivatives, the fair value was estimated using termination cash
values. The fair value of interest rate swap agreements at December 30, 2000,
was $26 million and of currency rate derivatives was $2 million. For commodity
derivatives, the fair value at year-end 2000 included positive values of $4
million and negative values of $10 million.
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
---------------------------------- ---------------------------------
2000 1999 2000 1999
---------------- ---------------- --------------- ----------------
Change in benefit obligation:
Benefit obligation at beginning of year $ 65,916 $ 70,921 $ 63,652 $ 68,851
Service cost 566 568 222 221
Interest cost 4,858 4,690 4,694 4,452
Actuarial (gain) loss 768 (3,979) 1,848 (4,634)
Benefits paid (6,195) (6,284) (6,685) (5,938)
-------- -------- -------- --------
Benefit obligation at end of year 65,913 65,916 63,731 62,952
-------- -------- -------- --------
Change in plan assets:
Fair value of plan assets at beginning of year 70,019 66,737 22 5
Actual return on plan assets (1,065) 9,378 1 1
Employer contribution 626 188 6,692 5,954
Benefits paid (6,195) (6,284) (6,685) (5,938)
-------- -------- -------- --------
Fair value of plan assets at end of year 63,385 70,019 30 22
-------- -------- -------- --------
F-22
Pension Benefits Other Benefits
-------------------- ---------------------
2000 1999 2000 1999
-------- -------- -------- --------
Funded status (2,528) 4,103 (63,701) (62,930)
Unrecognized net actuarial (gain)
loss 3,569 (3,967) (1,791) (3,775)
Unrecognized prior service cost -- -- 663 711
-------- -------- -------- --------
Net amount recognized $ 1,041 $ 136 $(64,829) $(65,994)
======== ======== ======== ========
Amounts recognized in the statement
of financial position consist of:
Prepaid benefit cost $ 1,434 $ 1,040 $ -- $ --
Accrued benefit liability (393) (904) (64,829) (65,994)
-------- -------- -------- --------
Net amount recognized $ 1,041 $ 136 $(64,829) $(65,994)
======== ======== ======== ========
Weighted-average assumptions as of year end:
Discount rate 7.50% 7.75% 7.50% 7.75%
Expected return on plan assets 8.50% 8.50% n/a n/a
For measurement purposes, an 8.0% annual rate of increase in the per
capita claims cost of covered health care benefits and a 6.0% annual rate of
increase in the per capita claims costs of covered dental benefits were assumed
for 2000. Health care rates were assumed to decrease gradually to 5.5% by 2005
and dental rates were assumed to decrease gradually to 4.0% by 2002.
Components of net periodic benefit cost:
Pension benefits
2000 1999 1998
------- ------- -------
Service cost $ 566 $ 568 $ 473
Interest cost 4,858 4,690 4,787
Expected return on plan assets (5,704) (5,578) (5,501)
------- ------- -------
Net periodic (benefit) cost $ (280) $ (320) $ (241)
======= ======= =======
Other benefits
2000 1999 1998
------ ------ ------
Service cost $ 222 $ 236 $ 253
Interest cost 4,694 4,499 4,853
Expected return on plan assets -- -- 7
------ ------ ------
Net periodic cost $4,916 $4,735 $5,113
====== ====== ======
The projected benefit obligation, accumulated benefit obligation, and
fair value of plan assets for the pension plans with accumulated benefit
obligations in excess of plan assets were $59,697, $59,697 and $56,132,
respectively, as of December 30, 2000 and $518, $518, and $489, respectively, as
of December 25, 1999.
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:
F-23
1-percentage- 1-percentage-
Point Increase Point Decrease
------------------ ------------------
Effect on total of service and
interest cost components for 2000 $ 87 $ (83)
Effect on year-end postretirement
benefit obligation $ 959 $(918)
K. EARNINGS PER SHARE:
------------------
Fiscal Year
-----------------------------------
Restated Restated
2000 1999 1998
--------- --------- ---------
Numerator:
Earnings before accounting change
and extraordinary item $ 152,653 $ 317,867 $ 197,967
Preferred stock dividends and accretion (2,566) (2,774) (2,041)
--------- --------- ---------
Earnings before accounting change and
extraordinary item available for
common shares 150,087 315,093 195,926
Accounting change (2,429) -- --
Extraordinary item (15,037) -- (14,815)
--------- --------- ---------
Earnings available for common shares $ 132,621 $ 315,093 $ 181,111
========= ========= =========
Denominator:
Weighted average common shares
outstanding 105,806 96,586 96,774
Dilutive effect of employee stock plans 1,270 10,015 8,518
--------- --------- ---------
Diluted average common shares 107,076 106,601 105,292
========= ========= =========
Basic earnings before accounting change
and extraordinary item per common
share $ 1.41 $ 3.26 $ 2.02
========= ========= =========
Diluted earnings before accounting
change and extraordinary item per
common share $ 1.40 $ 2.96 $ 1.86
========= ========= =========
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.
Restated Restated
2000 1999 1998
-------- -------- --------
Stock options excluded from
Diluted EPS computation 1,391 1,552 120
Average option price per share $24.71 $24.72 $27.28
L. ACQUISITIONS:
-------------
On May 8, 1998, the company acquired substantially all of the operating
assets of Jac Pac Foods, Ltd ("Jac Pac"). Jac Pac, with facilities in New
Hampshire and Nebraska, produces and sells high quality, value-added beef
products to a broad base of food service companies, restaurants and
supermarkets. The purchase price consisted of $58.6 million, including
liabilities assumed of $23.8 million. The excess of the purchase price over the
fair value of net assets acquired resulted in goodwill of $16.8 million.
F-24
On July 17, 1998, the company acquired the stock of Jordan's Meats.
Jordan's Meats manufactures and sells a complete line of processed meat
products to leading retailers and food service distributors primarily in New
England but also throughout the United States. The purchase price totaled $84.6
million, including $11.1 million of liabilities assumed. The excess of the
purchase price over the fair value of net assets acquired resulted in goodwill
of $63.7 million.
The company, through a special acquisition subsidiary, purchased the
assets of the appetizer division of Diversified Foods Group, L.L.C. ("DFG"), on
October 18, 1998. The Chicago, Illinois-based division, which includes a
production plant in Chicago and another in Newark, New Jersey, was acquired for
a purchase price of $91.6 million, which included liabilities assumed of $15.2
million. Goodwill recorded for the excess of the purchase price over the value
of net assets acquired totaled $65.5 million. Additional consideration of up to
$40 million is provided under the amended DFG purchase agreement contingent on
meeting specified earnings targets through 2001. The company made a $7.8 million
contingent payment in the second quarter 2000 which was initially recorded as a
purchase price adjustment based on incorrect 1999 fiscal earnings for DFG. See
Note T for details regarding impairment charges related to DFG.
The company acquired Zemco Industries, Inc., the owner of Russer Foods
on April 8, 1999. Russer Foods, based in Buffalo, New York, produces and markets
a variety of premium deli meats. The purchase price totaled $170.5 million,
including assumed liabilities of $19.2 million. The allocation of the purchase
price over the fair value of assets acquired resulted in goodwill of $110.3
million.
On April 12, 1999, the company acquired the outstanding stock of H&M
Food Systems Company, Inc. ("H&M"), a producer of custom-formulated pre-cooked
meat products and prepared foods with two plants in Texas. The purchase price
was $134.5 million, including assumed liabilities of $12.6 million. The excess
of the purchase price over the fair value of the net assets acquired resulted in
goodwill of $75.7 million.
On June 28, 1999, the company purchased Wilton Foods, Inc. (Wilton) for
$19.1 million, including assumed liabilities of $5.2 million. Wilton, a leading
producer of hors d'oeuvres, appetizer, premium kosher meals and prepared foods,
is operated under DFG. The excess of the aggregate purchase price over fair
value of identifiable assets and liabilities acquired of approximately $13.1
million was recognized as goodwill. The DFG purchase agreement was amended upon
the acquisition of Wilton to include Wilton's results in the contingent
consideration calculation provided by the DFG purchase agreement, as described
above.
On August 23, 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 price for the TAVI net assets
totaled $109.9 million, which included liabilities assumed of $2.3 million.
There were no intangible assets or goodwill recorded in connection with this
acquisition.
On December 1, 1999, the company acquired substantially all of the
operating assets of Wright Brand Foods, Inc. ("WBF"), a Vernon, Texas based
processor of high quality bacon products, for $116.5 million, which
F-25
included liabilities assumed of $8.7 million. The excess of the purchase price
over the fair value of the net assets acquired of $59.9 million was recognized
as goodwill.
All of the consideration for the above acquisitions was in cash and all
were accounted for by the purchase method of accounting. Accordingly, the
accompanying consolidated statements of operations include the results from the
respective dates of each acquisition. Goodwill under these acquisitions is being
amortized on a straight-line basis over forty years. In addition, the company
identified and recorded $25 million in other intangible assets, primarily
registered trademarks, associated with the acquisitions. These other intangible
assets are being amortized over their useful lives, generally ten to twenty
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.
Fiscal Year Ended
-------------------------------------
Restated Restated
Dec. 25, Dec. 26,
1999 1998
-------------------------------------
(unaudited)
Net sales $15,565,597 $14,636,273
Earnings from operations 525,922 424,671
Earnings before extraordinary item 261,663 211,915
Net earnings 261,663 197,100
Earnings per diluted share:
Earnings before extraordinary item $ 2.43 $ 1.99
Net earnings 2.43 1.85
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 $316 million
of CBFA's debt and $28 million of 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.
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 preceding the merger, based on
fiscal year periods that coincide with the company's fiscal years:
F-26
Fiscal Year
------------------------------
Restated Restated
1999 1998
------------------------------
Net sales:
IBP, as previously reported $14,551,549 $12,848,635
Intercompany sales to CBFA (64,804) (52,782)
---------- ----------
Net IBP sales $14,486,745 $12,795,853
CBFA 634,944 480,855
---------- ----------
$15,121,689 $13,734,773
========== ==========
Net earnings:
IBP $ 314,464 $ 180,184
CBFA 3,403 2,968
---------- ----------
$ 317,867 $ 183,152
========== ==========
M. BUSINESS SEGMENTS:
------------------
Segment information has been prepared in accordance with FASB
Statement of Financial Accounting Standards (SFAS) No. 131, "Disclosures about
Segments of an Enterprise and Related Information." Performance of the segments
is evaluated on earnings from operations.
The Beef Carcass segment is involved in the slaughter of live fed
cattle, reducing them to dressed carcasses and allied products for sales to
further processors. At least 87% of Beef Carcass sales were to other IBP
segments, chiefly to Beef Processing in 2000, 1999 and 1998. The Beef Carcass
segment also markets its allied products to manufacturers of pharmaceuticals and
animal feeds.
The Beef Processing segment is primarily involved in fabrication of
dressed beef carcasses into primals and sub-primal meat cuts.
The Pork segment is involved in hog slaughter and fabrication and
related allied product processing activities.
The Beef Processing and Pork segments market their products to food
retailers, distributors, wholesalers, restaurants and hotel chains and other
food processors in domestic and international markets. The Pork segment also
sells allied products to pharmaceutical and animal feeds manufacturers.
The Foodbrands America segment consists of several IBP subsidiaries,
principally Foodbrands America, Inc., The Bruss Company, 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. The Foodbrands America segment
also produces portion-controlled premium beef and pork products for sale to
restaurants and foodservice customers in domestic and international markets.
The All Other segment includes several businesses that do not
constitute reportable business segments. These businesses primarily include the
company's logistics operations, its Lakeside Farm Industries, Ltd. subsidiary
(Canadian beef slaughter and fabrication operation and
F-27
cattle feedlot), its cow boning operations, its hide curing and tanning
operations, and its newly formed Fresh Meats Case Ready operations.
Corporate includes various unallocated corporate items not attributable
to the company's operating segments. The principal items in this caption are
unallocated goodwill amortization and variable stock options expense (credits).
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. Allocable corporate costs are allocated
generally based on sales. Net interest expense and income taxes have been
excluded from segment operations.
The Foodbrands America segment's earnings from operations for 2000 were
impacted by $108 million in non-recurring charges: $31 million in merger-related
expenses; an $11 million bad debt expense; and $66 million in asset impairment
charges.
F-28
Restated Restated
NET SALES 2000 1999 1998
------------ ------------ ------------
Sales to unaffiliated customers:
Beef Carcass $ 1,146,790 $ 1,000,728 $ 1,017,470
Beef Processing 8,157,245 7,641,552 7,133,083
Pork 2,371,725 2,177,513 2,208,473
Foodbrands America 3,264,326 2,503,942 1,742,158
All Other 2,009,522 1,797,954 1,633,589
------------ ------------ ------------
$ 16,949,608 $ 15,121,689 $ 13,734,773
============ ============ ============
Intersegment sales:
Beef Carcass $ 7,986,737 $ 7,293,431 $ 6,942,784
Beef Processing 297,112 266,348 249,635
Pork 540,100 360,030 248,884
All Other 468,283 472,961 474,270
Intersegment elimination (9,292,232) (8,392,770) (7,915,573)
------------ ------------ ------------
$ - $ - $ -
============ ============ ============
Net sales:
Beef Carcass $ 9,133,527 $ 8,294,159 $ 7,960,254
Beef Processing 8,454,357 7,907,900 7,382,718
Pork 2,911,825 2,537,543 2,457,357
Foodbrands America 3,264,326 2,503,942 1,742,158
All Other 2,477,805 2,270,914 2,107,859
Intersegment elimination (9,292,232) (8,392,769) (7,915,573)
------------ ------------ ------------
$ 16,949,608 $ 15,121,689 $ 13,734,773
============ ============ ============
EARNINGS FROM OPERATIONS
Beef Carcass $ 142,283 $ 91,513 $ 124,322
Beef Processing 108,150 163,656 1,651
Pork 69,603 151,689 119,838
Foodbrands America (60,169) 102,370 98,708
All Other 112,639 46,730 72,536
------------ ------------ ------------
Earnings from segments 372,506 555,958 417,055
Corporate (25,624) (1,362) (35,085)
------------ ------------ ------------
Total earnings from operations 346,882 554,596 381,970
Net interest expense (88,258) (67,816) (57,571)
------------ ------------ ------------
Earnings before income taxes
and extraordinary item $ 258,624 $ 486,780 $ 324,399
============ ============ ============
ACCOUNTS RECEIVABLE
Beef Carcass $ 50,075 $ 53,958 $ 44,554
Beef Processing 174,865 267,216 224,409
Pork 114,933 178,640 115,150
Foodbrands America 192,191 203,089 120,150
All Other 99,791 101,272 103,373
------------ ------------ ------------
Accounts receivable from 631,855 804,175 607,636
segments
Corporate 41,630 45,504 27,579
------------ ------------ ------------
$ 673,485 $ 849,679 $ 635,215
============ ============ ============
F-29
GEOGRAPHIC LOCATION OF PROPERTY,
PLANT AND LONG-LIVED EQUIPMENT, NET Restated Restated
2000 1999 1998
----------- ----------- -----------
United States $ 1,552,427 $ 1,280,386 $ 1,081,234
Canada 78,347 82,379 76,938
----------- ----------- -----------
$ 1,630,774 $ 1,362,765 $ 1,158,172
=========== =========== ===========
ADDITIONS TO PROPERTY, PLANT
AND EQUIPMENT, INCLUDING
ACQUISITIONS
Beef Carcass $ 24,832 $ 28,110 $ 18,290
Beef Processing 54,923 18,254 6,990
Pork 16,060 16,199 30,676
Foodbrands America 184,015 604,270 248,351
All Other 160,177 46,368 65,372
----------- ----------- -----------
$ 440,007 $ 713,201 $ 369,679
=========== =========== ===========
DEPRECIATION AND AMORTIZATION
Of fixed assets:
Beef Carcass $ 18,549 $ 17,157 $ 16,846
Beef Processing 16,576 14,399 14,084
Pork 18,676 19,551 18,779
Foodbrands America 65,703 51,291 37,544
All Other 25,872 21,831 21,706
----------- ----------- -----------
Total of segments 145,376 124,229 108,959
Corporate 1,340 1,286 1,290
----------- ----------- -----------
Total $ 146,716 $ 125,515 $ 110,249
=========== =========== ===========
Of intangible assets:
Foodbrands America $ 26,798 $ 22,606 $ 16,629
All Other 1,086 997 3,362
----------- ----------- -----------
Total of segments 27,884 23,603 19,991
Corporate 7,560 7,560 8,933
----------- ----------- -----------
Total $ 35,444 $ 31,163 $ 28,924
=========== =========== ===========
NET SALES BY GEOGRAPHIC LOCATION OF CUSTOMERS
United States $14,345,182 $12,846,936 $11,724,073
Japan 1,028,222 898,464 840,219
Canada 566,792 512,685 424,057
Korea 295,660 237,492 142,863
Mexico 266,804 206,994 187,048
Other foreign countries 446,948 419,118 416,513
----------- ----------- -----------
$16,949,608 $15,121,689 $13,734,773
=========== =========== ===========
N. COMMITMENTS:
-----------
The company leases various facilities and equipment under noncancelable
operating lease arrangements that expire at various dates through the year 2014.
The company's rental expense for all operating leases was (in millions) $39.4;
$27.0; and $23.9 for fiscal years 2000, 1999 and 1998. Future minimum lease
payments under noncancelable operating leases with lease terms in excess of one
year at December 30, 2000 are as follows:
F-30
Minimum
Lease Sublease
Payments Rentals Net
----------- ---------- ------------
2001 $20,733 $ 862 $19,871
2002 14,081 863 13,218
2003 11,465 862 10,603
2004 7,462 863 6,599
2005 5,994 862 5,132
Thereafter 31,962 1,437 30,525
------- ------- -------
Total $91,697 $ 5,749 $85,948
======= ======= =======
The company had livestock and other purchase commitments, letters of
credit, and other commitments and guarantees at December 30, 2000 aggregating
approximately $460 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 25 million market hogs between 2001 and 2009
at market-derived prices under various contracts with producers. Contractual
commitments for the next five years average approximately 5 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. While the outcome of any litigation is not predictable with
certainty, or subject to the company's control, 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 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. 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 plaintiffs then filed pleadings seeking to certify an amended
class. The Court denied the plaintiffs' motion on October 17, 2000. Plaintiffs
have sought reconsideration of the judge's denial or, in the alternative, to
certify a new class. This motion, as well as the company's motions for summary
judgment on both liabilities and damages, is now pending. Management continues
to believe that the company has acted properly and lawfully in its dealings with
cattle producers.
F-31
On January 12, 2000, The United States Department of Justice ("DOJ"), 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"). This 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. The company determined to reserve $3.5
million during 1999 for the claims raised in this lawsuit based upon the
evaluation of a confidential settlement demand received from the DOJ, and review
and evaluation of the resolution of comparable claims, in light of the company's
assessment of the facts as known to the company in light of the legal theories
advanced by the DOJ. On the same basis, the company believes the range of
exposure is between $3.5 million and $15.9 million, though is unable to predict
with accuracy the ultimate resolution in this matter due to risks and
uncertainties that make such an evaluation difficult at this time. The company
believes it 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 that
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 and 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 and has appointed lead and liaison
counsel. An amended consolidated complaint with respect to all the actions was
filed, and the company prepared and filed a motion to dismiss this complaint. On
February 14, 2001, lead plaintiffs filed a motion for leave to amend the amended
consolidated complaint to add additional claims on behalf of all persons who
purchased IBP stock between March 25, 1999 to January 25, 2001. The proposed new
claims 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 financial results in order to
inflate the company's stock price. The company has filed its opposition to
plaintiffs' motion for leave to amend. Management believes it has accurately
reported the company's compliance
F-32
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.
In October 2000, fourteen lawsuits were filed against IBP by certain
shareholders in Delaware, seeking to certify a class of all IBP shareholders
(the "Delaware Litigation"). The complaints allege IBP's directors breached
their fiduciary duties to IBP shareholders by approving the January 1, 2001
merger agreement with Tyson, which, plaintiffs alleged, would result in a
coercive front-end loaded, two-tier acquisition of IBP by Tyson. The plaintiffs
further alleged IBP viewed Tyson as the preferred suitor to Smithfield given the
alleged antagonism between Mr. Peterson and Smithfield's CEO, Joseph Luter.
Plaintiffs seek to certify a class action, injunctive relief against
consummation of the Tyson transaction, and in the event the Tyson acquisition is
consummated, damages and costs and disbursements, including reasonable attorneys
fees. A motion to dismiss this complaint was filed on February 21, 2001. In
addition, two separate suits, containing the same general allegations, were
filed in the District Court for South Dakota. The first of these suits, filed
November 8, 2000, alleged that IBP's directors breached their fiduciary duties
by entering into the Rawhide Agreement, in their own personal interests, and
that the Rawhide Agreement created barriers to competing bidders. This case was
stayed pending resolution of the Delaware Litigation. A second suit, filed
January 11, 2001, alleged IBP's directors caused IBP to file a false and
misleading 14D-9 in response to Tyson's cash tender offer. The suit seeks a
declaration that IBP's 14D-9 is false and misleading, an order directing IBP's
directors to exercise their fiduciary duties to obtain a transaction in IBP's
best interests, and compensatory damages of not less than $442 million and
punitive actions. A motion to stay pending resolution of the Delaware Litigation
has been filed and is pending.
Between January and March 2001, a number of lawsuits were filed by certain
shareholders in the United States District Court for the District of South
Dakota seeking to certify a class of all persons who purchased IBP stock between
February 7, 2000 and January 25, 2001. 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 financial results in order to
inflate the company's stock price. The company is currently preparing its
responses to these lawsuits. Management believes that these claims are without
merit and the company intends to vigorously contest these claims.
F-33
P. QUARTERLY FINANCIAL DATA (UNAUDITED):
------------------------------------
Quarterly results are summarized as follows:
Restated Restated Restated
First Second Third Fourth
2000 Quarter Quarter Quarter Quarter Annual
-------------- -------------- ------------ ----------- -----------
Net sales $ 3,955,391 $4,268,866 $4,314,435 $4,410,916 $16,949,608
Gross profit 235,312 248,104 290,767 262,161 1,036,344
Earnings before accounting
change and extraordinary item 33,736 46,442 78,728 (6,253) 152,653
Net earnings/(loss) 16,270 46,442 78,728 (6,253) 135,187
Earnings per share:
Earnings before accounting
change and extraordinary item .29 .44 .75 (.06) 1.41
Net earnings/(loss) .13 .44 .75 (.06) 1.25
Earnings per diluted share:
Earnings before accounting
change and extraordinary item .29 .43 .74 (.06) 1.40
Net earnings/(loss) .13 .43 .74 (.06) 1.24
Dividends per share .025 .025 .025 .025 .10
Market price:
High 18 3/8 18 7/8 17 15/16 26 15/16 26 15/16
Low 11 13 3/16 14 17 1/4 11
The pro forma net earnings for the first quarter, assuming retroactive
adoption of SAB 101 accounting change would be $18,699 or $0.15 per share and
$0.15 per diluted share.
The above quarterly data for the first three quarters of 2000 has been
restated to reflect adjustments described in Note R and includes adoption of the
guidance in SAB 101 for the change in accounting for revenue recognition as
described in Note S and for the reclassification of freight expense as described
in Note A. The following quantifies the adjustments made to increase (decrease)
the amounts originally reported to those presented above.
F-34
Restated Restated Restated
First Second Third
2000 Quarter Quarter Quarter
---------- ---------- ----------
DFG
Gross profit $ (2,344) $ (8,399) $ 345
Net earnings (2,111) (10,023) 1,312
Earnings per share (.02) (.09) .01
Earnings per diluted
share (.02) (.10) .01
STOCK OPTIONS
Net earnings $ 2,595 $ (1,174) $ (1,693)
Earnings per share .02 (.01) (.01)
Earnings per diluted
share .02 (.01) (.01)
REVENUE RECOGNITION
Net sales $ (52,853) $ (25,763) $ 23,183
Gross profit (2,323) (1,498) 1,008
Net earnings/(loss) (3,892) (879) 676
Earnings per share (.03) (.01) (.01)
Earnings per diluted (.03) (.01) (.01)
share
FREIGHT RECLASSIFICATION
Net sales 126,207 129,099 136,989
Restated Restated Restated Restated
First Second Third Fourth Restated
1999 Quarter Quarter Quarter Quarter Annual
---------- ---------- ---------- ---------- -----------
Net sales $3,325,183 $3,738,539 $3,922,042 $4,135,925 $15,121,689
Gross profit 205,018 230,137 290,029 269,886 995,070
Net earnings 66,021 65,241 110,017 76,588 317,867
Earnings per share .68 .67 1.13 .79 3.26
Earnings per diluted
share .62 .61 1.03 .71 2.96
Dividends per share .025 .025 .025 .025 .10
Market price:
High 29 3/16 23 1/8 25 3/4 25 29 3/16
Low 19 3/8 16 3/4 22 17 3/4 16 3/4
Pro forma net
earnings assuming
retroactive
adoption of SAB 101
accounting change 64,960 64,562 109,891 77,709 317,122
Pro forma earnings
per share 0.67 0.66 1.13 0.80 3.25
Pro forma earnings
per diluted share 0.61 0.60 1.03 0.72 2.95
The above quarterly data has been restated to reflect adjustments
described in Note R and for the reclassification of freight expense as
described in Note A. The following quantifies the adjustments made to
increase (decrease) the amounts originally reported to those presented
above.
F-35
Restated Restated Restated Restated
First Second Third Fourth Restated
1999 Quarter Quarter Quarter Quarter Annual
DFG ----------------------------------------------------------------------
Gross profit -- -- -- $ (8,658) $ (8,658)
Net earnings -- -- -- (9,621) (9,621)
Earnings per share -- -- -- (.10) (.10)
Earnings per diluted
share -- -- -- (.09) (.09)
STOCK OPTIONS
Net earnings $ 9,419 $ (2,532) $ (377) $ 4,316 $ 10,824
Earnings per share .10 (.03) (0.01) .04 .11
Earnings per diluted
Share .09 (.02) 0.00 .04 .11
FREIGHT RECLASSIFICATION
Net sales $ 114,010 $ 122,427 $ 123,356 $ 133,326 $ 493,119
Q. CAPITAL STOCK:
-------------
REDEEMABLE STOCK:
All redeemable stock was related to issuances by CBFA prior to the merger
in 2000, which was accounted for as a pooling of interests.
December 30, December 25,
2000 1999
-------- --------
REDEEMABLE STOCK:
Series A Preferred Stock, $0.001 par value, 25,000
shares authorized, -0- and 5,053 shares
outstanding, redemption amount: $-0- and $5.1 million $ -- $ 4,820
Series B Preferred Stock, $0.001 par value, 25,000
shares authorized, -0- and 18,243 shares
outstanding, redemption amount: $-0- and $18.5 million -- 16,964
Series C Preferred Stock, $0.001 par value, 25,000
shares authorized, -0- and 4,891 shares
outstanding, redemption amount: $-0- and $5.0 million -- 4,161
Class B Common Stock, $0.001 par value, 12.2
million shares authorized, -0- and 6.5
million shares outstanding -- 12,542
Class B Common Stock Warrants, -0- and 3.3
million warrants outstanding -- 6,077
------- -------
$ -- $44,564
------- -------
Preferred Stock. The three series of preferred stock were designated as
Series A Cumulative Mandatorily Redeemable Pay-In-Kind Preferred Stock (the
"Series A Preferred Stock"), Series B Participating Preferred Stock (the
"Series B Preferred Stock") and Series C cumulative Mandatorily Redeemable
Stock (the "Series C Preferred Stock"). The holders of Series A and Series
B Preferred Stock were entitled to receive annual dividends of
F-36
12% payable quarterly in arrears in additional shares of the applicable series
of preferred stock. Such dividends were cumulative and accrued whether or not
declared or earned. The holders of Series C Preferred Stock were entitled to
receive annual dividends of 14% payable quarterly in arrears in additional
shares of Series C Preferred Stock. Such dividends were cumulative and accrued
whether or not declared or earned. There were no dividends in arrears for Series
A, B or C preferred stock at year-end 1999. All three series of redeemable
preferred stock were fully redeemed upon IBP's acquisition of CBFA on February
7, 2000, for $28.5 million.
Class B Common Stock and Warrants. From time to time, the company issued
Class B Common Stock and warrants to purchase shares of Class B Common Stock at
$0.01 per share (the "Warrants"). In instances in which Warrants were issued in
connection with other securities, proceeds from the issuance were allocated
based on the respective fair values of the Warrants and the related securities.
Warrants generally expired ten years from the date of grant. Upon a change of
control (as defined in the Subordinated Note Agreements) or at any time on or
after June 30, 2005, the holder of the Subordinated Notes has the right to
require the Company to mandatorily redeem its Class B Common Stock and Warrants
at an appraised value. Finally, upon termination of employment with the Company,
holders of Class B Common Stock under the Company's 1997 Restricted Stock Plan
(the "Restricted Stock Plan") (see additional discussion in Note G) have the
right to require the Company to purchase such holders' Class B Common Stock at
an appraised value. As a result of these mandatory redemption features (the "Put
Features"), the Class B Common Stock and Warrants were classified in the
accompanying consolidated balance sheets as redeemable stock.
During the third quarter 2000, the participants of the Restriced Stock Plan
voluntarily relinquished their rights to put the stock back to the company.
Prior to the relinquishments, the plan was accounted for as a "variable plan" in
accordance with APB Opinion #25 and classified as redeemable stock in the
accompanying consolidated balance sheet. Following the relinquishments, the plan
became a "fixed plan" and the redeemable stock was reclassified to equity and
deferred compensation liability in the accompanying balance sheet.
Redeemable
Stock
---------
Balances, December 27, 1997 $ 17,627
Dividends on preferred stock 1,719
Restricted stock expense 700
Accretion of redeemable stock 322
Redeemable stock issued 9,524
---------
Balances, December 26, 1998 29,892
Accretion of redeemable stock 356
Restricted stock expense 2,316
Dividends on preferred stock 2,418
Redeemable stock issued 10,000
Redeemable stock repurchased (418)
---------
Balances, December 25, 1999 44,564
F-37
Redeemable
Stock
(continued)
-----------
Accretion of redeemable stock 2,214
Restricted stock expense 26,082
Dividends on preferred stock 352
Preferred stock redeemed (28,512)
Redeemed in exchange for
common shares (14,877)
Transferred to Additional
paid-in capital (25,822)
Transferred to Non-current
deferred compensation (4,001)
---------
Balances, December 30, 2000 $ -
=========
PREFERRED STOCK
The Board of Directors is authorized to issue up to 25,000,000 shares of
preferred stock at such time or times, in such series, with such designations,
preferences, or other special rights, as it may determine.
R. RESTATEMENTS:
-------------
DFG RESTATEMENTS:
Following the third quarter 2000, the company identified $9.0 million in
adjustments that were necessary related to inaccuracies at its DFG subsidiary,
which were reflected in the company's reported results in its Quarterly Report
on Form 10-Q for the period ended September 23, 2000. As a result of these
inaccuracies, which were identified during the fourth quarter 2000, the company
initiated a comprehensive internal review of operations, systems, processes and
controls related to its DFG subsidiary. These reviews and other issues raised
during the fourth quarter 2000 resulted in recording certain charges and
adjustments, as discussed below, which resulted from irregularities and
misstatements and impacted previously reported results for the year ended
December 25, 1999 and each of the interim periods of 2000.
The accompanying financial statements for 1999 have been restated to
reflect $15.5 million of pre-tax adjustments, related principally to overstated
prepaid expenses; inventory valued above net realizable value; uncollectible
accounts receivable due to customer short payments, unauthorized deductions and
subsequent allowances; and underaccrual of liabilities for inventory purchases,
temporary labor costs, marketing, rebates and commissions at December 25, 1999.
These adjustments resulted in an $8.7 million increase in previously reported
cost of products sold and a $6.8 million increase in selling, general and
administrative expenses. The related tax impact of these adjustments of $5.9
million has also been reflected. The impact of these adjustments reduced net
earnings by $9.6 million and related basic and diluted earnings per share by
$0.10 and $0.09, respectively, from amounts previously reported for fiscal 1999.
STOCK OPTIONS:
The company's stock option plan grants officers additional bonus options if
the original options are exercised. The original officer options are generally
issued at market price at the date of the grant, vest over a five-year period
and have a ten-year term. The bonus options are
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issued at market price at the date the bonus options are granted and are
exercisable after two years, provided the shares acquired with the original
options are still owned by the officer. As a result of the bonus options
feature, variable plan accounting is appropriate for the options granted under
these provisions. Compensation expense for the original options has been revised
and is now recorded over the vesting period based on the difference between the
market value and the exercise price at the end of each period. Compensation
expense related to the bonus options is recorded based on the market value and
the exercise prices over the vesting period from the date vesting becomes
probable, to the date the bonus options are vested and exercisable. Prior to the
restatement, the company followed fixed accounting for these options, treating
the original grants and the bonus option grants as two separate grants. The
restatement records the period and cumulative accrued compensation and related
deferred tax impact, which increased (decreased) compensation expense by
($11,991) and $10,968 in 1999 and 1998, respectively, and adjusted income tax
expense for the tax benefit associated with the expense. The change increased
(decreased) net earnings by $10,824 and ($9,823) and net earnings per diluted
share by $0.11 and ($0.09) in 1999 and 1998, respectively.
SEGMENTS:
Note M has been restated for 1999 and 1998 to reflect a change in the
segments from those previously reported. The company previously reported two
segments, Fresh Meats and Foodbrands America. As a result of reconsidering the
requirements of Statement of Financial Accounting Standards No. 131, Disclosures
about Segments of an Enterprise and Related Information, the company has
expanded the number of segments disclosed.
CASH FLOW STATEMENTS:
The statements of cash flows have also been restated for 1999 and 1998 to
reflect the impact of the DFG misstatements and to reclassify the change in the
company's checks in process of clearance to cash flows from operations rather
than from financing activities. The restated cash flows also provide more detail
of certain cash transactions that were previously reported on a combined basis.
The following tables present the impact of the above restatements related
to the balance sheets, statements of earnings, and statements of cash flows:
CONSOLIDATED BALANCE SHEET
December 25, 1999 As
Previously Stock As
Reported DFG Options Restated
-------------------------------------------------------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 33,294 $ (429) $ - $ 32,865
Accounts receivable 853,234 (3,555) - 849,679
Inventories 619,977 (4,785) - 615,192
Deferred income tax benefits 60,820 2,606 - 63,426
Prepaid expenses 21,138 (1,572) - 19,566
TOTAL CURRENT ASSETS 1,588,463 (7,735) - 1,580,728
TOTAL ASSETS 4,151,292 (7,735) - 4,143,557
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CONSOLIDATED BALANCE SHEET
December 25, 1999 As
(continued) Previously Stock As
Reported DFG Options Restated
-------------------------------------------------------
LIABILITIES, REDEEMABLE
STOCK AND
STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued
expenses $ 731,066 $ 5,176 $ -- $ 736,242
Federal and state
income taxes 138,910 (3,290) -- 135,620
TOTAL CURRENT LIABILITIES 1,430,831 1,886 -- 1,432,717
Deferred income taxes 8,762 -- (396) 8,366
Other 160,172 -- 7,394 167,566
168,934 -- 6,998 175,932
STOCKHOLDERS' EQUITY:
Retained earnings 1,375,590 (9,621) (6,998) 1,358,971
TOTAL LIABILITIES,
REDEEMABLE STOCK and
STOCKHOLDERS' EQUITY 4,151,292 (7,735) -- 4,143,557
CONSOLIDATED STATEMENT OF EARNINGS
52 Weeks Ended December 25, 1999
As
Previously Stock As
Reported DFG Options Restated
-------------------------------------------------------------
Cost of products sold $14,117,961 (1) $ 8,658 $ - $14,126,619
Selling, general and
administrative expenses 445,606 6,859 (11,991) 440,474
Earnings from operations 558,122 (15,517) 11,991 554,596
Income taxes 173,642 (5,896) 1,167 168,913
Net earnings 316,664 (9,621) 10,824 317,867
Earnings per share - Basic $ 3.25 $ (0.10) $ 0.11 $ 3.26
Earnings per share - Diluted 2.94 (0.09) 0.11 2.96
(1) Includes reclassification of $486,653 of freight charges that were
previously classified as a reduction of net sales
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CONSOLIDATED STATEMENT OF EARNINGS
52 Weeks Ended December 26, 1998
As
Previously Stock As
Reported DFG Options Restated
---------------------------------------------------------------------
Selling, general and
administrative expenses $ 344,596 $ - $ 10,968 $ 355,564
Earnings from operations 392,938 - (10,968) 381,970
Income taxes 127,577 - (1,145) 126,432
Net earnings 192,975 - (9,823) 183,152
PER SHARE DATA:
Earnings per share:
Earnings before
extraordinary item $ 2.13 $ - $ (0.11) $ 2.02
Extraordinary loss (0.16) - 0.01 (0.15)
Net earnings 1.97 - (0.10) 1.87
Earnings per share - assuming dilution:
Earnings before
extraordinary item $ 1.95 $ - $ (0.09) $ 1.86
Extraordinary loss (0.14) - - (0.14)
Net earnings 1.81 - (0.09) 1.72
CONSOLIDATED STATEMENT OF CASH FLOWS
52 Weeks Ended
December 25, 1999
Reclass
As Checks in
Previously Process of As
Reported DFG Clearance Restated
----------------------------------------------------------------------
Inflows (outflows)
Net cash flows provided by
operating activities $ 297,792 $ (429) $ 20,576 $ 317,93
Net cash flows provided by
(used in) financing
activities 424,683 - (20,576) 404,107
Net change in cash and cash
equivalents 4,465 (429) - 4,036
Cash at end of year 33,294 (429) - 32,865
52 Weeks Ended December 26, 1998
Net cash flows provided by
operating activities $ 371,433 $ - $ (29,464) $ 341,969
Net cash flows provided by
(used in) financing
activities (14,897) - 29,464 14,567
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S. REVENUE RECOGNITION:
-------------------
Beginning in the first quarter 2000, the company changed its method of
accounting for revenue recognition in accordance with Staff Accounting Bulletin
(SAB) No. 101, Revenue Recognition in Financial Statements. As a result of the
guidance in SAB No. 101, the company will recognize revenue upon delivery to
customers. Previously, the company had recognized revenue upon shipment to
customers, in accordance with its interpretation of Statement of Financial
Accounting Concepts No. 5, Revenue and Recognition in Measurement in Financial
Statements of Business Enterprises. The cumulative effect of the change on prior
years resulted in a charge to earnings of $2,429 (net of income taxes of $1,489)
or $.02 per share, which is included in earnings for the year ended December 30,
2000. The effect of the change on the year ended December 30, 2000 was to
decrease income before the cumulative effect of the accounting change by $2,035
or $0.02 per share. The pro forma amounts presented in the earnings statement
were calculated assuming the accounting change was made retroactively to prior
periods.
For the 53 weeks ended December 30, 2000, the company recognized $63,311
in revenue that was included in the cumulative effect adjustment in the first
quarter. The effect of that revenue in the twelve months ended December 30, 2000
was to increase net earnings by $2,429 (after reduction for income taxes of
$1,489) during that period.
T. ASSET IMPAIRMENTS:
------------------
During the fourth quarter of 2000, the company recorded an additional
pre-tax impairment charge to SG&A expense of $60,352 in the Foodbrands segment
to reduce intangibles from $80,431 to $20,079 and thus, the carrying value of
the investment in DFG Foods LLC. ("DFG"). Previously, the company recorded a
pre-tax impairment charge of $5,763 in the second quarter of 2000 related to an
earn-out payment to the previous owners that was made on the basis of what the
company later concluded were misstated financial results.
DFG represents the fully integrated operations of two separate
acquisitions; one in October 1998 and one in June 1999 that produce prepared
hors d'oeuvres, kosher foods, and food for airlines. Although DFG experienced
increasing sales since acquisition through September 2000, the operating results
reflect significant losses and negative cash flow (as restated) that are
substantially attributable to irregularities, as well as mismanagement, at the
DFG level. During the fourth quarter of 2000, DFG experienced an unexpected and
precipitous decline in sales relative to both the prior year period and budget.
These declines resulted from a decrease in orders from major customers combined
with a substantial increase in sales and promotional discounts and demand for
new product lines not materializing, which management does not believe is
temporary. In addition, as part of the integration process, manufacturing
operations were further automated to increase product safety, to generate
economies of scale and to support substantially greater sales levels. Due to the
sales shortfalls, these upgrades have contributed to an uncompetitive cost
structure. As a result of declining demand and reduced market pricing for its
products, combined with the current cost structure, operating losses and
negative cash flow, management initiated an impairment review of the carrying
value of the investment in DFG. Since these acquired entities have been
integrated into one operational, managerial, sales and marketing and accounting
platform, it is not possible to separately identify cash
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flows of each of the acquired operations. Therefore, for impairment test
purposes, DFG as a whole is considered the lowest level for which there are
identifiable cash flows that are largely independent of the cash flows of other
groups of assets.
The company intends to evaluate DFG's prospective operating performance
over a two-year period. Unless the projected return on investment generated by
DFG during this period can be improved beyond current projections, it is likely
that DFG would be a divestiture candidate. Accordingly, management prepared an
analysis of its best estimate of expected undiscounted cash flows. The estimated
cash flows were based on management's evaluation of DFG's operations as well as
the market niche it competes in for a two-year period with a termination value
at the end of the second year. These estimated undiscounted cash flows were
determined not to be adequate to support the carrying value of the investment;
therefore, an impairment charge was warranted. The impairment charge was based
on a third-party appraisal of the current fair value of the DFG business as an
ongoing, stand-alone entity.
The company is working diligently to turn around the DFG operation. New
management has been recruited to operate DFG and appropriate infrastructure is
being put in place to support the business. Senior management and DFG management
are reviewing the operations to determine how to lower costs and develop a
profitable sales volume and mix. However, if this operation does not show
significant improvement, IBP will exit from this business.
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.
U. SUBSEQUENT EVENT:
-----------------
On January 1, 2001, the IBP board of directors authorized IBP to terminate
the merger agreement with Rawhide Holdings Corporation ("Rawhide") and Rawhide
Acquisition Corporation and enter into an Agreement and Plan of Merger, dated as
of January 1, 2001 (the "Tyson Agreement") with Tyson Foods, Inc. ("Tyson"). On
March 29, 2001, Tyson announced that it was "discontinuing" the Tyson Agreement.
Tyson alleges they were inappropriately induced to enter the Tyson Agreement,
due to the alleged failure to disclose comments received from the Securities and
Exchange Commission ("SEC") contained in a December 29, 2000 letter from the
SEC. This SEC letter, they claim, resulted in restatements of IBP's financials
and filings. They further claim that based upon these facts, Tyson has a right
to rescind the Tyson Agreement and seek compensation from IBP. In the event they
are unable to rescind the Tyson Agreement, Tyson claims a right to terminate the
Tyson Agreement pursuant to sections 11.01(f) and 12.01 of the Tyson Agreement.
Tyson has filed a lawsuit against IBP with allegations consistent with the
foregoing, seeking reimbursement of amounts advanced under the Tyson Agreement
and other merger related expenses.
Under the terms of the Agreement and Plan of Merger, dated as of October 1,
2000 (the "Rawhide Agreement"), by and among IBP, Rawhide and Rawhide
Acquisition Corporation, IBP agreed to pay Rawhide a $59 million termination fee
and reimburse Rawhide for up to $7.5 million of its documented out-of-pocket
fees and expenses if the Rawhide Agreement were terminated under certain
circumstances. IBP became obligated to pay such amounts to Rawhide when the IBP
board of directors authorized IBP to
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terminate the Rawhide Agreement and enter into a merger agreement with Tyson.
Pursuant to a letter from Tyson to IBP dated January 1, 2001, Tyson agreed
to make the $66.5 million payment to Rawhide on IBP's behalf on January 2, 2001.
Under the Tyson Agreement, by and among IBP, Tyson and Lasso Acquisition
Corporation, IBP is obligated to reimburse Tyson for its $66.5 million payment
(as well as pay Tyson a $15 million termination fee and reimburse it for $7.5
million of fees and expenses) only if one of the following occurs: (1) Tyson
terminates the Tyson Agreement because (a) IBP's board of directors withdraws
its recommendation of the merger with Tyson or recommends an alternative
transaction or (b) IBP fails to call a shareholder meeting or mail a proxy
statement to its shareholders within 20 days after the SEC declares effective
the prospectus associated with the transaction; (2) IBP terminates the Tyson
Agreement because the IBP board of directors authorized IBP to enter into a
binding written agreement with another party concerning a transaction that is
superior to the transaction with Tyson; or (3) the Tyson Agreement is
terminated, i) by(a) Tyson, because of a material breach of the Tyson Agreement
by IBP or (b) either Tyson or IBP, because either the merger is not consummated
by May 31, 2001 or the IBP stockholders do not approve the Tyson Agreement at a
duly held stockholders meeting, and ii) at the time of such termination with
respect to either 3(i)(a) or (b), there is outstanding an offer by another party
to enter into a transaction with IBP in which IBP shareholders would receive
value in excess of $30.00 per share, and, iii) within six months of the
termination of the Tyson Agreement described in 3(i)(a) or (b), IBP enters into
an agreement for an alternative transaction.
Management believes that Tyson does not have a valid basis to discontinue
or terminate the Tyson Agreement between the two companies. However, management
and its outside counsel have not had the opportunity to review and study in
detail the allegations in this lawsuit. Therefore, it is not possible to predict
the ultimate outcome of this dispute at this time.
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