SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarter Ended June 18, 1996
Commission file number 1-7554
THE EARTHGRAINS COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE 36-3201045
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
314-259-7000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes [X] No [_]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
$.01 Par Value Common Stock - 10,092,133 shares as of July 16, 1996
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THE EARTHGRAINS COMPANY
Index
Page No.
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Part I. FINANCIAL INFORMATION
Condensed Consolidated Balance Sheet as of June 18, 1996
and March 26, 1996 2
Condensed Consolidated Statements of Earnings for the twelve
week periods ended June 18, 1996 and June 20, 1995 3
Condensed Consolidated Statements of Cash Flows for the
twelve week periods ended June 18, 1996 and June 20, 1995 4
Notes to Condensed Consolidated Financial Statements 5
Management's Discussion and Analysis of Financial Condition
and Results of Operations 7
Unaudited Pro Forma Financial Information 9
Part II. OTHER INFORMATION
Other Information 11
Exhibits and Reports on Form 8-K 12
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THE EARTHGRAINS COMPANY
Condensed Consolidated Balance Sheet
(In millions)
(Unaudited)
June 18, March 26,
1996 1996
------ -------
Assets
Current assets:
Cash and cash equivalents $ 37.0 $ 38.9
Accounts receivable, net of allowance for
doubtful accounts of $6.7 and $6.8, respectively 144.2 138.9
Inventories 67.5 68.0
Deferred income taxes and other 27.4 24.0
------ ------
Total current assets 276.1 269.8
Other assets 44.4 38.6
Goodwill, net 129.2 130.3
Plant and equipment, net 719.8 727.0
----- -----
Total assets $1,169.5 $1,165.7
======== ========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 107.6 $ 98.1
Accrued salaries, wages and benefits 48.4 48.6
Accrued taxes, other than income taxes 10.6 11.4
Accrual for restructuring and consolidation 11.4 15.4
Other current liabilities 35.5 36.3
----- -----
Total current liabilities 213.5 209.8
Postretirement benefits 122.6 123.1
Long-term debt 95.3 92.6
Deferred income taxes 86.3 87.2
Other noncurrent liabilities 73.1 72.2
Commitments and contingencies -- --
Shareholders' equity 578.7 580.8
----- -----
Total liabilities and equity $1,169.5 $1,165.7
======== ========
See accompanying Notes to Condensed Consolidated Financial Statements.
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THE EARTHGRAINS COMPANY
Condensed Consolidated Statements of Earnings
(In millions except per share data)
(Unaudited)
For the twelve week period ended
--------------------------------
June 18, June 20,
1996 1995
-------- --------
Net sales $ 370.5 $ 384.8
Cost of products sold 225.3 234.7
-------- --------
Gross profit 145.2 150.1
Marketing, distribution and administrative expenses 142.3 144.8
Provision for restructuring and consolidation, net -- 1.5
----- -----
Operating income 2.9 3.8
Other income and expenses:
Interest expense (1.4) (0.3)
Other income, net 0.8 1.3
----- -----
Income before income taxes 2.3 4.8
Provision for income taxes 1.6 3.0
----- -----
Net income $ 0.7 $ 1.8
======= ======
Earnings per share $ .07 $ .17
======== =======
Weighted average shares outstanding 10.1 10.4
======== =======
(Pro forma for prior year period)
See accompanying Notes to Condensed Consolidated Financial Statements.
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THE EARTHGRAINS COMPANY
Condensed Consolidated Statements of Cashflows
(In millions)
(Unaudited)
For the twelve week period ended
--------------------------------
June 18, June 20,
1996 1995
-------- --------
Cash flow from operating activities:
Net (loss) income $ 0.7 $ 1.8
Adjustments to reconcile earnings to net
cash flow provided by operations:
Depreciation and amortization 18.0 20.8
Deferred income taxes (0.9) (6.3)
Provision for restructuring and consolidation -- 1.5
Loss on disposal of fixed assets 0.1 --
Changes in noncash working capital (3.1) (3.5)
Other, net 1.8 (15.1)
----- ------
Net cash flow from operations 16.6 (0.8)
----- -----
Cash flows from investing activities:
Capital expenditures (21.8) (17.1)
Other, net 0.6 0.2
------ ------
Net cash used by investing activities (21.2) (16.9)
------ ------
Cash flows from financing activities:
Proceeds from (payments on) borrowings, net 2.7 --
Net transactions with Anheuser-Busch -- 8.7
----- -----
Net cash provided by (used by) financing
activities 2.7 8.7
----- -----
Net decrease in cash and cash equivalents (1.9) (9.0)
Cash and cash equivalents, beginning of period 38.9 38.7
----- ------
Cash and cash equivalents, end of period $ 37.0 $ 29.7
========== ==========
See accompanying Notes to Condensed Consolidated Financial Statements.
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Notes to Condensed Consolidated Financial Statements
For the Twelve Week Period ended June 18, 1996
- --------------------------------------------------------------------------
Note 1 - Effective March 26, 1996, one share of The Earthgrains
Company (the Company or Earthgrains) $.01 par value common stock was
distributed to holders of Anheuser-Busch Companies, Inc. (Anheuser-Busch)
common stock for every 25 shares of Anheuser-Busch common stock owned at
the established record date (the Distribution). At the time of the
Distribution, the Company began operations as a separate, publicly owned
company.
Note 2 - The Company has changed its fiscal year end from the Tuesday
closest to December 31 to the last Tuesday in March. This report reflects
the Company's first quarter of its new fiscal year for the twelve week
period ended June 18, 1996.
In the opinion of the Company, the accompanying unaudited
condensed consolidated financial statements contain all adjustments
(consisting of only normal recurring adjustments) necessary for a fair
presentation of the financial statements pursuant to the applicable SEC
rules and guidelines pertaining to interim financial information.
Operating results for any quarter are not necessarily indicative of the
results for any other quarter or for the full year. These condensed
consolidated financial statements should be read in conjunction with the
combined financial statements and notes thereto included in the Company's
registration filing on Form 10.
Note 3 - Inventories are carried at the lower of cost or market.
Cost is determined under the first-in, first-out method.
Total inventories consisted of the following:
June 18, March 26,
1996 1996
------- --------
Raw materials $ 54.5 $ 53.6
Finished goods 13.0 14.4
----- -----
$ 67.5 $ 68.0
========== =========
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Note 4 - Earnings per share for the current period are based on the
weighted average number of shares of common stock outstanding during the
period. For the year ago period presented, earnings per share were
computed using the weighted average shares of Anheuser-Busch common stock
outstanding during the respective period, adjusted for a 1 to 25 stock
distribution ratio.
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Management's Discussion and Analysis of Financial Condition and
Results of Operations
INTRODUCTION
- ------------
Effective at the close of business on March 26, 1996 (the Distribution
Date), shares of the Company were distributed to shareholders of
Anheuser-Busch Common Stock, based upon a ratio of 1 to 25. Following the
distribution, the Company began operations as an independent, publicly held
company. This discussion summarizes the significant factors affecting the
combined operating results, financial condition and liquidity of The
Earthgrains Company for the twelve week period ended June 18, 1996 compared
to the twelve week period ended June 20, 1995. This discussion should be
read in conjunction with the combined financial statements and notes
thereto for the fiscal year ended January 2, 1996 included in the Company's
registration statement on Form 10.
RESULTS OF OPERATIONS
- ---------------------
For the twelve week period ended June 18, 1996, sales declined $14.3
million or 3.7% from the comparable prior year period. The decrease can be
attributed to the planned consolidation and restructuring that resulted in
the closing or sale of underperforming and non-core businesses. This
decrease in sales volume was partially offset by price increases taken in
effort to offset escalating flour costs and a $3.5 million increase in
international sales. After adjusting sales for the closed or sold
facilities in both periods presented, sales increased by $11.5 million or
3.2%.
Gross margins for the current period of 39.2% held constant with last
year's 39.0%. Margins were sustained through the achieved price increases
to offset higher flour costs, which reached record levels during the
quarter.
The decrease in marketing, distribution and administrative expenses is
reflective of costs eliminated through the closing or sale of facilities
partially offset by costs associated with being an independent company
incurred during the current period.
In the prior year period, $1.5 million of the fiscal 1995 provision for
restructuring and consolidation was recorded to cover estimated expenses
arising from the consolidation of certain domestic bakery operations
identified at that date. The domestic restructuring and consolidation
program has been completed and no such charges have been recorded in the
current period.
The increase in interest expense is directly related to the increased debt
for the distribution payment to Anheuser-Busch in conjunction with the
spin-off.
The variance in the effective income tax rate reflects the relative impact
of the nondeductible fixed goodwill amortization on the respective earnings
levels.
-7-
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As a result of the costs incurred associated with being an independent
company which are not reflected in the year ago period and other factors
discussed above, the Company earned, $700,000 or $.07 per share, compared
to $1.8 million, or $.17 per share, computed on the basis of pro forma
average shares outstanding in the prior year's comparable period.
The historical statement of earnings for the year ago period does not
reflect interest expense related to long-term debt assumed by the Company
upon the distribution at March 26, 1996 and certain administrative expenses
associated with operating as an independent, stand-alone company. For a
presentation of the potential effect these items and events may have had on
the Company's results for the year ago period see the Unaudited Pro Forma
Financial Information elsewhere in this document.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Concurrent with the Distribution, the Company used borrowings under a $215
million unsecured revolving credit facility with several financial
institutions to pay $80 million to Anheuser-Busch as a partial payment of
its intercompany payable and to fund working capital needs and general
corporate purposes. Upon the effective date of the distribution, the
remaining intercompany payables and receivables between the Company and
Anheuser-Busch was contributed to the capital of the Company.
The Company's primary source of liquidity is cash flow from operations,
which increased to $16.6 million for the twelve weeks ended June 18, 1996.
Net working capital, excluding cash and cash equivalents and short-term
borrowings, was $25.6 million at June 18, 1996 compared to $21.1 million at
March 26, 1996.
The Company's current primary cash requirements will consist of funding
capital expenditures and interest payments pursuant to the credit facility.
The Company has invested $21.8 in capital expenditures during the current
period. During the quarter, the Company declared its first quarterly cash
dividend payable August 31, 1996.
Cash provided by operations and borrowings available under the credit
agreement should continue to provide the funding for ongoing cash
requirements.
ENVIRONMENTAL MATTERS
- ---------------------
The Company is subject to Federal, state and local environmental protection
laws and regulations and is operating within such laws or is taking action
aimed at assuring compliance with such laws and regulations. Earthgrains
has been identified as a potentially responsible party ("PRP") at certain
locations by the EPA and may be required to share in the cost of cleanup
with respect to two sites. While it is difficult to quantify with
certainty the financial impact of actions related to environmental matters,
based on the information currently available it is management's opinion
that the ultimate liability arising from such matters, taking into
consideration established reserves, should not have a material effect on
the Company's results of operations or financial position.
-8-
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THE EARTHGRAINS COMPANY
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The condensed consolidated statement of earnings of the Company
presented for the year ago period reflects a period during which the
Company operated as a subsidiary of Anheuser-Busch. This historical
financial statement of the Company may not necessarily reflect the
consolidated results of operations of the Company or what the results of
operations would have been if the Company had been an independent, public
company during such period.
The unaudited pro forma condensed consolidated statement of earnings
for the twelve week period ended June 20, 1995 presents the consolidated
results of Earthgrains' operations assuming that the Distribution had
occurred as of March 29, 1995. Such statement of earnings has been
prepared by adjusting the historical statement of earnings for the effect
of costs and expenses and the recapitalization to reflect the Distribution
as if it had been effected on March 29, 1995.
The consolidated financial statements as of and for the period ended
June 18, 1996 and the consolidated balance sheet of the Company as of March
26, 1996 reflect the effects of the Distribution.
-9-
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The Earthgrains Company
Unaudited Pro Forma Condensed Combined Statement of Earnings
For the Twelve Week Period Ended June 20, 1995
(In millions, except per share data)
Pro Forma Pro
Historical Adjustments Forma
---------- ----------- -----
Net sales $ 384.8 $ - $ 384.8
Cost of products sold 234.7 .8(a) 235.5
-------- ----------- ------
Gross profit 150.1 (.8) 149.3
Marketing, distribution and administrative
expenses 144.8 4.9(a) 149.7
Provision for restructuring and consolidated,
net 1.5 -- 1.5
------ ------- -----
Operating income (loss) 3.8 (5.7) (1.9)
Other income and expenses:
Interest expense (0.3) (1.2)(b) (1.5)
Other income, net 1.3 - 1.3
----- -------- ----
Income (loss) before income taxes 4.8 (6.9) (2.1)
----- ------- -----
Provision (benefit) for income taxes 3.0 (2.5)(c) 0.5
---- -------- ----
Net income (loss) $ 1.8 $ (4.4) $(2.6)
========= ======= ======
(Loss) per share(d) $(.25)(d)
=========
Weighted average shares outstanding(d) $10.4(d)
=========
_______________________
(a) To reflect the estimated incremental costs associated with
being an independent, public company.
(b) To reflect interest expense on incremental debt and working
capital requirements.
(c) To reflect tax effect of the proforma adjustments.
(d) The number of shares used to compute earnings (loss) per share
is based on the weighted average number of shares of Anheuser-Busch common
stock outstanding during the period adjusted for the 1 for 25 stock
distribution ratio.
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PART II. OTHER INFORMATION
---------------------------
Item 1. Legal Proceedings. The Company has no legal proceedings
which have become a reportable event in the current period.
Item 2. Changes in Securities. None.
Item 3. Defaults Upon Senior Securities. None.
Item 4. Submission of Matters to a Vote of Security-Holders. No
matters were submitted to a vote of security-holders during the current
period.
Item 5. Other Information. None.
Item 6. Exhibits.
(a) 27 - Financial Data Schedule
(b) No Form 8-Ks were filed during the current period
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
THE EARTHGRAINS COMPANY
(Registrant)
Date: August 1, 1996 By: MARK H. KRIEGER
Mark H. Krieger
Vice President and
Chief Financial Officer
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the Company's
consolidated financial statements for the twelve weeks ended June 18, 1996
included in this report on Form 10-Q and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-02-1996
<PERIOD-END> JUN-18-1996
<CASH> 37,000
<SECURITIES> 0
<RECEIVABLES> 150,900
<ALLOWANCES> 6,700
<INVENTORY> 67,500
<CURRENT-ASSETS> 276,100
<PP&E> 1,246,500
<DEPRECIATION> 526,600
<TOTAL-ASSETS> 1,169,500
<CURRENT-LIABILITIES> 213,500
<BONDS> 1,500
0
0
<COMMON> 0
<OTHER-SE> 578,700
<TOTAL-LIABILITY-AND-EQUITY> 1,169,500
<SALES> 370,500
<TOTAL-REVENUES> 370,500
<CGS> 225,300
<TOTAL-COSTS> 225,300
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 400
<INTEREST-EXPENSE> 1,400
<INCOME-PRETAX> 2,300
<INCOME-TAX> 1,600
<INCOME-CONTINUING> 700
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 700
<EPS-PRIMARY> .07
<EPS-DILUTED> 0
</TABLE>
