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 September 9, 1997
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.)
8400 Maryland Avenue, St. Louis, Missouri 63105
(Address of Principal Executive Offices) (Zip)
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 - 21,582,655 shares as of October 7, 1997
<PAGE>
THE EARTHGRAINS COMPANY
Index
Page No.
Part I. FINANCIAL INFORMATION
Condensed Consolidated Balance Sheets 2
Condensed Consolidated Statements of Earnings 3
Condensed Consolidated Statements of Cash Flows 4
Notes to Condensed Consolidated Financial Statements 5
Management's Discussion and Analysis of Financial Condition
and Results of Operations 6
Part II. OTHER INFORMATION
Other Information 8
Exhibits and Reports on Form 8-K 8
<PAGE>
THE EARTHGRAINS COMPANY
Condensed Consolidated Balance Sheets
(In millions)
(Unaudited)
September 9, March 25,
1997 1997
------------- -------------
Assets
Current assets:
Cash and cash equivalents $ 46.6 $ 43.1
Accounts receivable, net of allowance for
doubtful accounts of $5.8 and $6.0,
respectively 141.1 141.5
Inventories 65.2 66.4
Deferred income taxes and other 48.8 45.6
_________ __________
Total current assets 301.7 296.6
Other assets 29.6 28.8
Goodwill, net 142.1 140.0
Plant and equipment, net 674.8 706.7
________ _________
Total assets $1,148.2 $1,172.1
======== =========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 104.3 $ 121.4
Accrued salaries, wages and benefits 48.6 46.6
Accrual for restructuring and consolidation 4.7 15.4
Other current liabilities 40.1 32.6
_________ ________
Total current liabilities 197.7 216.0
Postretirement benefits 118.0 118.8
Long-term debt 88.1 103.0
Deferred income taxes 106.3 103.8
Other noncurrent liabilities 49.4 48.1
Commitments and contingencies -- --
Shareholders' equity
Common stock 0.2 0.1
Additional paid-in capital 604.7 604.4
Retained earnings 29.3 14.7
Unearned ESOP shares (14.1) (15.1)
Unearned portion of restricted stock (3.9) (4.2)
Cumulative translation adjustment (27.5) (17.5)
_______ _______
Shareholders' equity 588.7 582.4
_______ _______
Total liabilities and shareholders'
equity $1,148.2 $1,172.1
======== ========
See accompanying Notes to Condensed Consolidated Financial Statements.
2
<PAGE>
<TABLE>
<CAPTION>
THE EARTHGRAINS COMPANY
Condensed Consolidated Statements of Earnings
(In millions except per share data)
(Unaudited)
For the twelve week For the twenty four week
period ended period ended
-------------------------- ----------------------------
September 9, September 10, September 9, September 10,
1997 1996 1997 1996
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Net sales $382.5 $381.8 $759.9 $752.3
Cost of products sold 218.5 225.2 433.2 450.5
______ ______ ______ ______
Gross profit 164.0 156.6 326.7 301.8
Marketing, distribution
and administrative expenses 147.9 146.2 297.3 288.5
Provision for restructuring
and consolidation, net -- 1.0 -- 1.0
______ ______ ______ ______
Operating income 16.1 9.4 29.4 12.3
Other income and expenses:
Interest expense (1.5) (1.4) (3.0) (2.8)
Other income, net 0.8 -- 0.6 0.8
______ ______ ______ ______
Income before income taxes 15.4 8.0 27.0 10.3
Provision for income taxes 6.1 3.5 10.8 5.1
______ _____ _____ _____
Net income $9.3 $4.5 $16.2 $5.2
====== ====== ====== =====
Earnings per share* $0.46 $0.22 $0.80 $0.26
====== ====== ====== ======
Weighted average shares
outstanding* 20.3 20.2 20.3 20.2
====== ====== ====== ======
<FN>
*Prior year shares and per share
amounts have been restated to
reflect the two-for-one stock split
effective July 28, 1997.
</FN>
See accompanying Notes to Condensed Consolidated Financial Statements.
</TABLE>
3
<PAGE>
THE EARTHGRAINS COMPANY
Condensed Consolidated Statements of Cashflows
(In millions)
(Unaudited)
For the twenty four week
period ended
_______________________________
September 9, September 10,
1997 1996
____________ _____________
Cash flow from operating activities:
Net income $ 16.2 $ 5.2
Adjustments to reconcile earnings
to net cash flow provided by
operations:
Depreciation and amortization 37.3 36.6
Deferred income taxes 1.5 0.5
Provision for restructuring and
consolidation - 1.0
Gain on disposal of fixed assets (0.6) (0.7)
Changes in noncash working capital (8.2) (13.0)
Other, net (4.3) 8.9
______ ______
Net cash flow from operations 41.9 38.5
______ ______
Cash flows from investing activities:
Capital expenditures (21.8) (39.6)
Other, net (0.1) 1.1
______ ______
Net cash used by investing activities (21.9) (38.5)
______ ______
Cash flows from financing activities:
(Payments on) proceeds from borrowings,
net (14.9) 3.5
Dividends to shareholders (1.6) (0.5)
______ ______
Net cash (used) provided by financing
activities (16.5) 3.0
______ ______
Net increase in cash and cash equivalents 3.5 3.0
Cash and cash equivalents, beginning of period 43.1 38.9
______ ______
Cash and cash equivalents, end of period $ 46.6 $ 41.9
======= =======
See accompanying Notes to Condensed Consolidated Financial Statements.
4
<PAGE>
Notes to Condensed Consolidated Financial Statements
- --------------------------------------------------------
Note 1 - 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 consolidated financial
statements and notes thereto included in the Annual Report to Shareholders
for the year ended March 25, 1997.
Note 2 - 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:
September 9, March 25,
1997 1997
____________ _________
Raw materials $ 50.1 $ 51.6
Finished goods 15.1 14.8
__________ _________
$ 65.2 $ 66.4
========== =========
Note 3 - Earnings per share are based on the weighted average number of
shares of Earthgrains common stock outstanding for the periods presented.
The two-for-one stock split declared by the Earthgrains Board of Directors
was effective July 28, 1997. Prior year shares and per share amounts have
been restated to reflect the split.
5
<PAGE>
Management's Discussion and Analysis of Financial Condition and
Results of Operations
INTRODUCTION
This discussion summarizes the significant factors affecting the consolidated
operating results, financial condition and liquidity of The Earthgrains
Company for the twelve and twenty four week periods ended September 9, 1997
compared to the twelve and twenty four week periods ended September 10, 1996.
This discussion should be read in conjunction with the consolidated financial
statements and notes thereto for the fiscal year ended March 25, 1997
included in the Company's Annual Report to Shareholders.
RESULTS OF OPERATIONS
Net sales for the twelve week period ended September 9, 1997, of $382.5
million were comparable with $381.8 million reported for the prior year
period, despite an $11.4 million unfavorable impact from foreign exchange
rates. Net sales for the twenty four week period ended September 9, 1997
were $759.9 million compared to $752.3 million a year ago. Excluding the
impact of foreign exchange rates, sales increased 3.2% for the twelve week
period and 3.9% on a year-to-date basis. Improved brand and product mix and
increased pricing in domestic operations along with sales related to last
year's acquisition of Heiner's contributed to the increase in sales.
Gross margins increased to 42.9% in the current twelve week period from 41.0%
a year ago and to 43.0% from 40.1% year-to-date. The margin improvements can
be attributed to the continued effect of achieved price increases, lower
ingredient and manufacturing costs, and improved operating efficiencies.
A significant portion of the increase in marketing, distribution and
administrative expenses can be attributed to the increase in advertising
expenditures and a shift in spending away from price promotions. The
increase in advertising is in line with the Company's strategy to build brand
awareness in its premium core brands.
The $1.0 million pre-tax restructuring charge recorded in the year-ago
quarter related to the closure of the bakery production facility in Augusta,
Georgia. Production and distribution was transferred to the existing Atlanta
bakery.
The variance in the effective income tax rate reflects the relative impact of
the nondeductible fixed goodwill amortization on the respective earnings
levels.
Net earnings for the twelve week period were $9.3 million or $0.46 per share,
compared to $4.5 million, or $0.22 per share in the prior year's comparable
period. Year-to-date earnings were $16.2 million or $0.80 per share
compared to $5.2 million or $0.26 per share in fiscal 1997. The significant
improvement in earnings is reflective of continued benefits and efficiencies
achieved as discussed above.
6
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary source of liquidity continues to be cash flow from
operations. Cash flows from operations for the year-to-date period increased
from the year-ago period reflective primarily of the increased earnings
level. Net working capital, excluding cash and cash equivalents, was $57.4
million at September 9, 1997 compared to $37.5 million at March 25, 1997.
The increase can be primarily attributed to the timing of disbursements at
each period end, reduction of the accrual for restructuring and seasonality
of the business.
The Company's primary routine cash requirements will consist of funding
capital expenditures, interest payments pursuant to the credit facility and
dividends to shareholders. While only $21.8 million has been invested in
capital expenditures to date, spending for the fiscal year is still as
planned for a level of $80-90 million. Due to the timing of certain
projects, in particular the new bakery in Portugal, capital investments are
expected to be heavier in the second half of the year.
Cash provided by operations and borrowings available under the $225 million
credit facility 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.
7
<PAGE>
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 and Reports on Form 8-K.
(a) Exhibits - 27 - Financial Data Schedule.
(b) Reports on Form 8-K - None.
8
<PAGE>
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: October 22, 1997 By: Mark H. Krieger
/s/ MARK H. KRIEGER
Mark H. Krieger
Vice President and
Chief Financial Officer
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the Company's
consolidated financial statements for the twenty four weeks ended September 9,
l997 included in this report on Form 10-Q and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000 <F1>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-25-1997
<PERIOD-END> SEP-09-1997
<CASH> 46,600
<SECURITIES> 0
<RECEIVABLES> 146,900
<ALLOWANCES> 5,800
<INVENTORY> 65,200
<CURRENT-ASSETS> 301,700
<PP&E> 1,261,100
<DEPRECIATION> 586,300
<TOTAL-ASSETS> 1,148,200
<CURRENT-LIABILITIES> 197,700
<BONDS> 1,500
0
0
<COMMON> 200
<OTHER-SE> 588,500
<TOTAL-LIABILITY-AND-EQUITY> 1,148,200
<SALES> 759,900
<TOTAL-REVENUES> 759,900
<CGS> 433,200
<TOTAL-COSTS> 433,200
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 500
<INTEREST-EXPENSE> 3,000
<INCOME-PRETAX> 27,000
<INCOME-TAX> 10,800
<INCOME-CONTINUING> 16,200
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,200
<EPS-PRIMARY> 0.80
<EPS-DILUTED> 0
<FN>
<F1>Footnote to electronic filing only: as presented,
data is rounded to the nearest $100 except for per
share data.
</FN>
</TABLE>
