000228 IBP Reports Record Sales & Earnings

Dakota Dunes, SD - Improved consumer demand for beef and pork, coupled with the success of IBP's prepared foods business, contributed to record earnings in 1999, company officials reported. They also announced plans for a new corporate structure designed to foster further growth.

Before nonrecurring items, net earnings in 1999 were the best in company history totaling $321 million or $3.44 per diluted share. These totals exceeded comparable 1998 earnings, before extraordinary items, of $205 million or $2.19 per diluted share. IBP's previous high was $280 million or $2.92 per diluted share recorded in 1995. After such items, 1999 net earnings were $313 million or $3.36 per diluted share versus 1998 net earnings of $190 million or $2.03 per diluted share. Net sales in 1999 totaled $14.1 billion, up 10% from the $12.8 billion recorded in 1998.

In the fourth quarter, net earnings before nonrecurring charges in 1999 totaled $93 million or $1.00 per diluted share compared to $92 million or $.98 per diluted share in 1998. After nonrecurring charges, primarily related to cow division asset impairment write-downs, fourth quarter 1999 net earnings totaled $82 million or $.87 per diluted share. Fourth quarter 1999 net sales totaled $3.9 billion versus $3.1 billion in the comparable 1998 period.

“Virtually all major areas of our business had outstanding results in 1999,” Robert L. Peterson, IBP chairman and chief executive officer, said. “Strong domestic and international demand, along with our focus on meeting customer needs and maintaining manufacturing efficiencies, were key factors in our success. Our value-added companies, including Foodbrands America, The Bruss Company and other recent acquisitions, have also tremendously enhanced results.”

New Structure

Because of the ongoing diversification of IBP, Peterson also announced plans to realign the corporate organization. IBP's primary businesses will be grouped into three operating companies: IBP Fresh Meat Company, Foodbrands America, Inc., and IBP International Sales Company. Each of these companies will report to Richard L. Bond, IBP president and chief operating officer.

“We are strategically realigning our organization to better meet our key objectives of adding higher margin products, building our core fresh meat operations and increasing our global presence,” Peterson said.

The IBP Fresh Meat Company will include existing fresh beef and pork operations, as well as the company's Leather, Hides and Skins division. Eugene D. Leman, president of fresh meats, has been selected as this new company's chief executive officer. James V. Lochner, executive vice president manufacturing will be president, overseeing livestock procurement and operations, as well as sales and marketing.

Foodbrands America will replace IBP Enterprises as the parent organization of IBP's rapidly growing value added product operations. The company will be expanded and restructured to include several recently acquired companies, as well as some existing IBP further processing facilities. The former Thorn Apple Valley plants, as well as the operations being acquired through the pending merger with Corporate Brand Foods America (CBFA), will become part of the Foodbrands family. The Bruss Company and IBP's Value Added Products Group, which is developing a line of brand name beef and pork products, will also be added. R. Randolph Devening, Foodbrands president and CEO, will be chief executive officer of the newly expanded company.

The third part of IBP's new structure is an expanded IBP International Sales Company. This organization will continue to coordinate IBP's growing export of fresh meat products, and will also be responsible for the international marketing of products produced by Foodbrands. Roel Andriessen, an IBP senior vice president and also president of IBP International, will continue as the leader of this organization.

Fresh Meat Performance

Fresh Meat operating earnings in 1999 were up more than 50% over 1998, while sales increased 6%.

“The strong economy gets a lot of credit for the upswing,” according to a recent national news report on improved beef demand. “When Americans have money in their pocket, they like to eat steak.” Other factors include new product development, exports and the trend toward protein diets. Another positive influence has been abundant supplies of cattle and hogs, which should remain ample into the early part of 2000. While livestock numbers are expected to decline slightly later in 2000, company officials believe supply levels will be sufficient.

In order to remain successful, IBP's Fresh Meat operations are currently involved in numerous initiatives. They include some of the following:

Due to customer demand for more, further processed fresh meats, IBP is expanding its beef processing capacity. The company is developing a processing operation in the idle portion of the Norfolk, Nebraska, plant the company purchased in 1998. It is expected to be operational in the spring of 2000. Production of deeply basted, tender-enhanced pork is being increased. Existing production is being expanded at Council Bluffs, Iowa, while a new operation will be added at Logansport in 2000. The production of retail-ready beef and pork at Council Bluffs will be substantially expanded to meet growing customer demand. Lack of profitability has prompted IBP to continue plans to exit the beef cow boning business. The Palestine, Texas plant closed in April and was sold in early 2000, while the Tama, Iowa, facility discontinued operations in December 1999.

International Sales Growth

IBP International in 1999 exported more product than ever before, generating near record export revenues. The company also made some strategic moves designed to ensure additional international growth in the years ahead.

Export sales were up 9% for the year and 30% for the fourth quarter, while export volumes increased 6% for the year and 4% for the quarter.

Business to Asia in 1999 experienced substantial recovery from the Asian financial crisis. For example, sales to Korea, which was severely affected by the economic situation, grew by 67% in 1999 over the previous year.

Japan remains our largest overseas market, and should retain that status since further liberalization of meat import regulations is expected in 2001. Business there in 1999 was solid, with customers demanding more extensively trimmed cuts of fresh and frozen meat. The development of the new beef processing facility at Norfolk will help meet that growing need and give IBP the potential to increase overall chilled beef sales to Japan.

Continued political conflicts between the U.S. and European Union (EU) have hurt exports to EU member countries. However, sales to Russia were up 117% in 1999, while business in Mexico grew by 10%. In both cases, we believe our new sales offices in Moscow, Russia, and Monterrey, Mexico, were instrumental in fostering the improvements in business.

We have expanded our presence in Eastern Europe by acquiring part ownership of a meat processing plant in Russia. IBP has entered a joint venture with the Hudson Group, Ltd., which operates a sausage plant in Tushinsky, a suburb of Moscow. The two companies plan to invest additional funds over the next two years to upgrade and remodel the 11- year-old facility. It will eventually produce a variety of products for the food service and fast food industries including ground beef, portion-controlled steaks, bacon, smoked pork and beef items, and deli meats.

Foodbrands Expansion

IBP continues to expand its prepared foods business through existing operations and acquisition. This growth is enabling the company to capitalize on changes in consumer trends, with more people buying food prepared away from home.

Foodbrands America and related value-added operations, experienced a 9% increase in operating earnings in 1999, and a 47% increase in sales. These results include the performances of newly acquired companies that are now part of Foodbrands, such as H&M Food Systems, Russer Foods and Wilton Foods. They also include the former Thorn Apple Valley (TAV) operations, which were dilutive to the division's earnings.

An area of major growth potential involves Foodbrands new Consumer Foods Group. This new division, which includes the IBP's former Value Added Products team, will unveil a new line of high quality, branded meat products later this year. After extensive research, several new product concepts have been developed and will soon be test marketed. Existing Foodbrands facilities will be involved in initial production.

IBP's pending merger with Houston-based Corporate Brand Foods America (CBFA) will also add to the company's value-added product base. The transaction will increase the presence of value-added products to approximately 40% of the consolidated companies' annualized sales and more than 50% of earnings before interest, taxes, depreciation and amortization (EBITDA) on a pro forma basis.

CBFA is a leader in the production of private label products, one of the fastest growing segments in the food industry. In addition, the company has a number of very strong regional brand names, including Jordan's, Wright and Jac Pac. The company's primary products include sliced luncheon meat, bacon, bulk ham, deli meats, ground beef, roast beef and hot dogs, which are sold to supermarket chains, club stores, food service distributors and processors.

The merger increases IBP's presence in a business with a more predictable earnings base. It also puts the company in an excellent position to benefit from consumer trends, such as increasing demand for convenient, ready-to-eat, ready-to-cook foods.

In addition, there is a complementary fit between CBFA production lines and distribution channels and those of our existing businesses. For example, demand CBFA cannot currently accommodate can be shifted to former TAV plants not running at full capacity.

Since mid-1999, IBP has dedicated substantial resources toward modernization of the former TAV facilities and systems. The focus is to enhance profitability by putting more emphasis on being a “service- oriented, innovative supplier of quality processed meats.” A new management team is implementing systems and controls to improve product quality and speed response time in the year ahead, while working to rebuild trade, consumer and employee relationships.

“We must grow volume, increase efficiency, maximize capacity, enhance service, upgrade product quality and strengthen food safety,” Peterson said. “These efforts will help improve the bottom line of the former TAV operations.”

IBP is the world's leading producer of high quality fresh beef and pork, and supplies premium, fully prepared meats and other consumer- ready foods for the retail and foodservice industries. The company employs more than 45,000 people.

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