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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED MARCH 30, 1999
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______________ TO ______________
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 (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
8400 MARYLAND AVENUE, ST. LOUIS, MISSOURI 63105
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER INCLUDING AREA CODE: (314) 259-7000
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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COMMON STOCK -- $.01 PAR VALUE NEW YORK STOCK EXCHANGE
PREFERRED STOCK PURCHASE RIGHTS NEW YORK STOCK EXCHANGE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE
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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 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 by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of the registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K. [ ]
State the aggregate market value of the voting stock held by non-affiliates
of the registrant.
$962,351,369 AS OF MAY 25, 1999
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
$.01 PAR VALUE COMMON STOCK: 42,680,017 SHARES AS OF MAY 25, 1999
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DOCUMENTS INCORPORATED BY REFERENCE
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Portions of Annual Report to Shareholders for the
Fiscal Year Ended March 30, 1999 PART I, PART II, and PART IV
Portions of Definitive Proxy Statement for the Annual
Meeting of Shareholders on July 16, 1999 PART II and PART III
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CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS
Matters discussed in this Report (particularly Item 7) contain
forward-looking information, as defined in the Private Securities
Litigation Reform Act of 1995. All forward-looking statements discussed
in this report involve risks and uncertainties, including, but not
limited to, variations in income levels of consumers, fluctuations in
currency exchange rates for the Spanish peseta and French franc versus
the U.S. dollar, the costs of raw materials, the ability of the Company
to realize projected savings from productivity and product quality
improvements, the ability of the Company to continue to participate in
industry consolidation and to successfully integrate acquired
businesses, legal proceedings to which the Company may become a party,
competitive pricing, economic conditions in the Company's countries of
operations, the impact of the year 2000 date on the Company's
information systems, or of those of its customers or suppliers, the
impact of the European currency conversion, and other risks indicated in
filings by the Company with the Securities and Exchange Commission.
PART I
ITEM 1. BUSINESS.
Earthgrains Overview
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The Earthgrains Company (the "Company") is an international
manufacturer, distributor and consumer marketer of packaged fresh bread
and baked goods and refrigerated dough products.
The Company began operations in 1925 with one bakery. In 1982,
Anheuser-Busch Companies, Inc. ("AB") acquired the Company (then a
publicly-traded company known as Campbell-Taggart, Inc.). The Company
again became an independent, publicly-traded company on March 26, 1996
when Anheuser-Busch distributed 100% of the shares of the Company to its
shareholders in a spin-off. The Company's common stock began trading on
the New York Stock Exchange on March 27, 1996 under its present name and
the symbol "EGR."
The Company's operations are divided into two principal
businesses: Bakery Products and Refrigerated Dough Products. The
Company's Bakery Products business manufactures and distributes fresh-
baked goods such as baked breads, buns, rolls, bagels, cookies, snack
cakes and other sweet goods in the United States and fresh-baked sliced
bread, buns, rolls, bagels, snack cakes and other sweet goods in Spain
and Portugal. The Company's Refrigerated Dough Products business
manufactures many different refrigerated dough products in the United
States including biscuits, dinner rolls, sweet rolls, danishes, cookie
dough, crescent rolls, breadsticks, cinnamon rolls, pizza crust and pie
crusts, as well as shelf-stable toaster pastries. The Company's
Refrigerated Dough Products business also manufactures and sells
refrigerated dough products in Europe, primarily in France and Germany,
and makes packaged rolled dough, which is used to prepare foods such as
quiches, tarts and pies.
BAKERY PRODUCTS
Overview
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The Company operates fresh packaged-bread and bakery-products
businesses in the United States and Europe. The Company offers a wide
range of products in the popular, premium and superpremium segments of
the market. It sells primarily to retail grocers and other food
outlets, and also serves leading food service and fast food customers
with products. The products are delivered to customers' outlets
primarily by way of a Company owned direct store delivery route system.
In accordance with the fresh-baked goods industry practice, the Company
accepts fresh-baked goods that have not been sold by retailers by a
prescribed freshness date, and operates retail thrift stores that sell
certain returned products.
U.S. Bakery Products
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The Company's U.S. Bakery Products division operates 39 direct
store-delivery bakeries and 4 Diversified Products bakeries that supply
the entire system with specialized products. U.S. Bakery Products
division markets its white and wheat breads, buns, rolls and other
bakery products under leading brand names in 7 regions across 28 states,
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primarily in the southern half of the United States, and across the
country to food-service and fast-food customers such as Burger King(R),
Pizza Hut(R), Waffle House(R) and Jack in the Box(R). The markets
serving these 7 regions include 39 bakeries and 21 sales zones. The
Company's 4 Diversified Products bakeries make products including hearth
breads, shelf-stable bagels, croissants, breadsticks, frozen dough
products and snack cakes, which are distributed to all 7 regions and
nationally to food service customers.
The fresh-baked goods are sold primarily on a wholesale basis
through a variety of distribution systems, including approximately 3500
Company-owned direct store delivery routes, to grocers, restaurants, and
institutions in areas generally within a 300 mile radius of the
producing bakery. The Company operates approximately 275 retail thrift
stores that sell certain returned products.
U.S. Bakery Products is an industry leader in the use of information
technology for category management and scan based trading. The division
is also active in industry consolidation, making six acquisitions and
entering into three major retailer supply agreements in the last three years.
European Bakery Products
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The Company's European Bakery Products division markets more than
240 branded products through almost 1,100 direct store delivery routes
in Spain, the Canary Islands and Portugal. The European Bakery Products
subsidiary, Bimbo, S.A., operates 10 bakeries in Spain and one in
northern Portugal. The division is the leading producer of fresh-baked
sliced bread, buns and rolls in Spain and the second largest producer of
sliced bread in Portugal. European Bakery Products also produces and
markets snack cakes and other sweet goods. In March 1999, the Company
acquired Reposteria Martinez Group, the branded market leader in the
retail sweet-good segments of cake and morning goods. Bimbo, S.A. also
operates a separate store-brand bread and bun business, Pimad, S.A., a
subsidiary that uses a separate manufacturing and distribution system.
REFRIGERATED DOUGH PRODUCTS
Overview
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The Company operates refrigerated dough businesses in the United
States and Europe, and offers a wide variety of dough products that are
convenienced packaged for in-home preparation and bake-off by the
ultimate consumer. These products are sold primarily to retail grocers
by both Company salespeople and food brokers, and are delivered to
retailers' central warehouses. The Company also co-packs product for
other branded food manufacturers.
U.S. Refrigerated Dough Products
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The Company's U.S. Refrigerated Dough Products division is one of
only two manufacturers of canned refrigerated dough in the United
States. The Company is the only manufacturer of store-brand (private
label) canned refrigerated dough and one of the largest store-brand
toaster pastry producers in the United States. The Company's
Refrigerated Dough Products include biscuits, specialty biscuits, dinner
rolls, crescent rolls, cinnamon rolls, cookie dough, breadsticks, pizza
crust and pie crusts. U.S. Refrigerated Dough Products markets its
products nationwide under more than 100 store brands. The division also
sells products under the Company's brand name, Merico, and under a
licensed brand name. The products are sold in grocery retailers'
refrigerated sections.
European Refrigerated Dough Products
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The Company's European Refrigerated Dough Products subsidiary,
EuroDough, S.A.R.L., is based in France, operates 3 plants, and produces
branded products under the Croustipate and HappyRoll brand names, as
well as store-brand products. The Company also has a contract-packaging
arrangement to manufacture products for The Pillsbury Company. The
product lines include canned, rolled, block and frozen dough in France
and much of western Europe. The Company is the only manufacturer of
canned refrigerated dough in Europe. European Refrigerated Dough
Products has recently expanded distribution of its products to Spain and
Portugal. Last year's acquisition of Chevalier Servant, S.A. increased
the Company's production capacity and added new production capabilities
including packaged yeast-leavened pizza dough.
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Competition
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GENERALLY
The Company's ability to sell its products depends on its ability
to attain store shelf space in relation to competing brands and other
food products. Future growth for the Company will depend on the
Company's ability to continue streamlining and reducing operating costs,
maintaining effective cost control programs, improving branded product
mix, taking advantage of industry consolidation opportunities,
developing successful new products, maintaining effective pricing and
promotion of its products, and providing superior customer service.
Effective investment in capital and technology will play an important
role in achieving these goals.
The fresh-baked, refrigerated, and frozen dough product lines also
compete with other alternative foods.
BAKERY PRODUCTS
The packaged bakery products business is highly competitive.
There is intense price, product, and service competition with respect to
all of the Company's products. Competition is based on product quality,
price, brand loyalty, effective promotional activities, and the ability
to identify and satisfy emerging consumer preferences. Customer
service, including frequency of deliveries and maintenance of fully
stocked shelves, also is an important competitive factor and is central
to the competition for retail shelf space among fresh-baked goods
manufacturers. Certain market areas of the fresh baked-goods business
continue to exhibit lower margins due to regional differences in price
levels, product mix, and input costs.
The Company competes with other national and regional wholesale
bakeries, large grocery chains that have vertically integrated or in-
store bakeries, small retail bakeries, and many producers of alternative
foods. The identities and number of competitors vary from market to
market. The Company's leading competitors in the fresh-baked goods
business include Interstate Bakeries Corporation, Flowers Industries
Inc., Bestfoods, and Specialty Foods Corporation.
The Company's leading competitor in Spain manufactures products
under the brand name PANRICO, but the Company experiences competition
from small regional bakeries in Spain as well.
REFRIGERATED DOUGH PRODUCTS
In the refrigerated dough product business in the U.S., the
Company competes primarily with The Pillsbury Company, which produces
branded products with which the Company's store brand products compete.
In addition, the Company's other major competitors in the refrigerated
and toaster pastry business include the Kellogg Company and Nabisco,
Inc.
In Europe, the Company is the only manufacturer of canned
refrigerated dough in Europe. However, the Company competes with Nestle
Inc., Danone and some small regional manufacturers of rolled, block and
frozen dough products.
Raw Materials
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The products manufactured by both of the Company's business
segments require a large volume of various agricultural products,
including wheat for flours, soybean oil for shortening, and corn for
high fructose corn syrup. Agricultural commodities represented 22-25%
of the Company's cost of products sold for the 1999 fiscal year. The
Company fulfills its commodities requirements through purchases from
various sources, including futures contracts, options, contractual
arrangements, and spot purchases on the open market. The commodity
markets have experienced, and may continue to experience, significant
price volatility. The price and supply of raw materials will be
determined by, among other factors, the level of crop production,
weather conditions, export demand, government regulations, and
legislation affecting agriculture. The Company believes that adequate
supplies of agricultural products are available at the present time, but
cannot predict future availability or prices of such products and
materials.
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Brand Names and Trademarks
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GENERALLY
The Company regards consumer recognition of and loyalty to its
brand names and trademarks as being extremely important to its long-term
success. The Company believes that its registered and common law
trademarks are instrumental to its ability to create demand for and to
market its products. There are currently no pending challenges to the
use or registration of any of the Company's significant trademarks.
BAKERY PRODUCTS
The Company sells bakery products in the popular, premium and
superpremium segments. The U.S. Bakery Products division's brand names
in the popular segment for breads, buns and rolls are Colonial, Rainbo,
Heiner's, Kern's, Sunbeam(R), Waldensian Heritage and Bost's. IronKids
is a brand of special-recipe white bread for chidren. In the premium
segment, products include premium wheat and variety breads under the
Grant's Farm(R), Smith's, and Country Recipe brand names. Superpremium
specialty breads, bagels and other bakery products are sold under the
brand names Earth Grains, San Luis Sourdough and Cooper's Mill. Break
Cake is the brand name for snack cakes and other sweet goods. The
division sells products in the United States under the licensed brands
Sunbeam(R), Roman Meal(R), Country Hearth(R) and Sun Maid(R). The
Company owns several federally registered trademarks, including Rainbo,
IronKids, and Earth Grains. In addition, pursuant to a license
agreement with Anheuser Busch Companies Inc., the Company has the right
to use the federally registered trademark Grant's Farm.
The European Bakery Products division's popular segment products
include white breads, buns and rolls under the Bimbo brand name. Silueta
is the brand name for premium wheat and variety breads. Superpremium
specialty breads and bagels are sold under the Semilla de Oro and Mr.
Bagel brand names respectively, and snack cakes and sweet goods are
manufactured and sold under brand names including Martinez, Madame
Brioche and Bimbo Cao.
REFRIGERATED DOUGH PRODUCTS
In addition to manufacturing and selling refrigerated dough
products under many different store brands, the U.S. Refrigerated Dough
Products division sells its products under the Company's Merico brand
name and the licensed Sun Maid(R) brand name. The European Refrigerated
Dough Products division sells canned and rolled dough under various
store brands as well as under the CroustiPate and HappyRoll brand names.
Seasonality
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The Company does experience minimal seasonal fluctuation in
demand. Typically, sales of bakery products are seasonally stronger in
the first and second quarters of the Company's fiscal year and sales of
refrigerated dough products are seasonally stronger in the third quarter
of the Company's fiscal year.
Backlog
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The Company's relationship with its customers and its manufacturing and
inventory practices do not provide for the traditional backlog associated
with some manufacturing entities and no backlog data is regularly prepared
or used by management.
Research and Development
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The Company actively works to develop new products and to improve
existing products. The dollar amounts expended by the Company during
each of the past three fiscal years on such development activities are
not considered to be material relative to the Company's overall business
and operations.
Environmental Matters
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The operations of the Company are subject to various Federal,
state, and local laws and regulations with respect to environmental
matters. Additional information regarding such matters is provided in
Item 3 of this report.
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Employees
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As of March 30, 1999, the Company employed approximately 19,400
persons, of which approximately 15,500 were based in the U.S.
Approximately 60% of the Company's domestic employees are subject to
approximately 200 union contracts. The Company believes its labor
relations to be satisfactory.
Business Segment and Geographic Information
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The percentage of net sales attributable to the Company's business
segments for fiscal year 1999 was 84.8% for Bakery Products and 15.2%
for Refrigerated Dough Products. In addition to the information provided
in Items 1 and 2 in this Form 10-K, further information regarding the
Company's business segments and geographic information is contained in
Notes 14 and 15 on pages 37 and 38 of the Company's Annual Report to
Shareholders for fiscal year 1999, and is hereby incorporated by
reference.
Year 2000
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Information regarding the Year 2000's possible effects on the
Company is hereby incorporated by reference to pages 22 and 23 of the
Company's Annual Report to Shareholders for fiscal year 1999.
ITEM 2. PROPERTIES.
Domestically, the Company operates 45 manufacturing facilities in
17 states. The Company's European subsidiaries own and operate 10
bakeries in Spain, 1 bakery in Portugal and 3 refrigerated dough
manufacturing plants in France. The Company's domestic bakeries operate
at approximately 80% of capacity. The Company owns all of its
manufacturing facilities, except for the facility in Ft. Payne, Alabama
and both manufacturing facilities in San Luis Obispo, California, which
are subject to leases. The Ft. Payne facility is subject to two leases
which expire in 2010 and 2016; both leases give the Company an option to
purchase the property. The leases for the San Luis Obispo facilities
expire in 2000 (with an option to renew the lease for 5 more years) and
2008 and both leases give the Company an option to purchase the
property. The Company also operates approximately 275 retail thrift
stores and maintains approximately 475 distribution centers, the
majority of which are leased. In addition, the Company owns its
corporate headquarters and a research and development facility in St.
Louis, Missouri. The Company leases space in St. Louis, Missouri for its
Financial Shared Services Center under a lease that will expire in 2004
(with an option to renew for 5 more years). The Company leases its
Spanish corporate headquarters in Barcelona, Spain. The Company
maintains approximately 7,000 motor vehicles used principally in the
sales and distribution of its products.
The Company's Worldwide Bakery Products facilities and the
products produced at each are as follows:
U.S. BAKERY PRODUCTS
PLANTS PRODUCTS
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Albuquerque, New Mexico Bread & Buns
Atlanta, Georgia Bread & Buns
Birmingham, Alabama Bread & Buns
Chattanooga, Tennessee Bread & Buns
Dallas, Texas Bread & Buns
Denver, Colorado Bread & Buns
Des Moines, Iowa Bread & Buns
Dothan, Alabama Bread & Buns
El Paso, Texas Bread & Buns
Fresno, California Bread & Buns
Grand Junction, Colorado Bread & Buns
Harlingen, Texas Bread & Buns
Houston, Texas Bread & Buns
Huntington, West Virginia Bread & Buns
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Huntsville, Alabama Bread & Buns
Hutchinson, Kansas Buns
Johnson City, Tennessee Bread & Buns
Knoxville, Tennessee Buns
London, Kentucky Bread & Buns
Louisville, Kentucky Bread & Buns
Lubbock, Texas Bread & Buns
Memphis, Tennessee Bread & Buns
Meridian, Mississippi Bread & Buns
Mobile, Alabama Bread & Buns
Nashville, Tennessee Bread & Buns
Oakland, California Bread, Buns & English Muffins
Oklahoma City, Oklahoma Bread & Buns
Orangeburg, South Carolina Bread & Buns
Owensboro, Kentucky Bread & Buns
Phoenix, Arizona Bread & Buns
Sacramento, California Bread & Buns
San Antonio, Texas Bread & Buns
San Luis Obispo, California (2) Bread & Buns
Springfield, Missouri Bread & Buns
Stockton, California Bread, Buns & Sweet Goods
Tucson, Arizona Bread & Buns
Valdese, North Carolina Bread, Buns & Sweet Goods
Wichita, Kansas Bread & Buns
DIVERSIFIED PRODUCTS
PLANTS PRODUCTS
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Albuquerque, New Mexico Bagels
Ft. Payne, Alabama Bread, Buns, Sweet Goods & Bagels
Paris, Texas Bread, Buns, Sweet Goods & Frozen Dough
Rome, Georgia Cookies
EUROPEAN BAKERY PRODUCTS
PLANTS PRODUCTS
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Albergaria-a-Velha, Portugal Bread
Almansa, Spain Bread & Buns
Antequera, Spain Bread & Buns
Azuqueca, Spain Bread
Briviesca, Spain Sweet Goods
Canary Islands, Spain Bread & Buns
El Espinar, Spain Sweet Goods
Granollers, Spain Bread, Buns & Sweet Goods
Madrid (Las Mercedes), Spain Bread, Buns & Sweet Goods
Palma, Spain Bread & Buns
Solares, Spain Bread & Buns
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The Company's Worldwide Refrigerated Dough Products facilities and
the products produced at each are as follows:
U.S. REFRIGERATED DOUGH PRODUCTS
PLANTS PRODUCTS
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Carrollton, Texas Refrigerated Dough
Forest Park, Georgia Refrigerated Dough & Toaster Pastries
EUROPEAN REFRIGERATED DOUGH PRODUCTS
PLANTS PRODUCTS
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Lievin, France Refrigerated & Frozen Dough
Valence, France Refrigerated Dough
Vittel, France Refrigerated Dough
The Company believes that its facilities are well maintained,
suitable, and adequate for its immediate needs. Additional space is
available if needed to accommodate expansion.
ITEM 3. LEGAL PROCEEDINGS.
As a manufacturer and marketer of food items, the Company's
operations are subject to regulation by various government agencies,
including the United States Food and Drug Administration. Under various
statutes and regulations, such agencies prescribe requirements and
establish standards for quality, purity, and labeling. Under the
Nutrition and Labeling Act of 1990, as amended, food manufacturers are
required to disclose nutritional information on their labels in a
uniform manner. The finding of a failure to comply with one or more
regulatory requirements can result in a variety of sanctions, including
monetary fines or compulsory withdrawal of products from store shelves.
The Company may also be required to comply with state and local laws
regulating food handling and storage.
The operations of Earthgrains, like those of similar businesses,
are subject to various Federal, state, and local laws and regulations
with respect to environmental matters, including air and water quality,
underground fuel storage tanks, and other regulations intended to
protect public health and the environment. Earthgrains has received
notices from the U.S. Environmental Protection Agency that it has been
identified as a potentially responsible party ("PRP") with respect to
certain locations under the Comprehensive Environmental Response,
Compensation and Liability Act 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 account established liability accruals, should not
have a material effect on Earthgrains' financial results, financial
position, or cash flows from operations.
The Company is involved in certain legal proceedings arising in
the normal course of business. Although it is impossible to predict the
outcome of any legal proceeding and the Company cannot estimate the
range of the ultimate liability, if any, relating to these proceedings,
the Company believes that it has meritorious defenses to the claims
pending against it in such proceedings and that the outcome of such
proceedings should not, individually or in the aggregate, have a
material adverse effect on the results of operations or financial
condition of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no matters submitted to a vote of the security holders,
through the solicitation of proxies or otherwise, during the fourth
quarter of the 1999 fiscal year.
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EXECUTIVE OFFICERS OF THE REGISTRANT
BARRY H. BERACHA (age 57) presently is Chief Executive Officer and
Chairman of the Board of Directors of the Company, positions he has held
since September 1993. From 1976 through March 1996, he was a Vice
President and Group Executive of Anheuser-Busch Companies, Inc. ("AB"),
and during that time served in various positions for various AB
subsidiaries. In addition, he currently serves as a member of the board
of directors of the Pepsi Bottling Group, a position he has held since
April 1999.
JOHN W. ISELIN, JR. (age 46) presently is the Company's President,
Worldwide Bakery Products, a position he has held since March 1999. He
served as Executive Vice President (U.S. Bakery Products) of the
Company, from May 1994 through February 1999. From January 1994 through
April 1994, he served as President and Chief Operating Officer of the
Company's refrigerated dough operations. Mr. Iselin served as Executive
Vice President and Chief Financial Officer for Eagle Snacks, Inc. (a
subsidiary of AB) from January 1992 through December 1993.
XAVIER ARGENTE (age 39) presently is the Company's Executive Vice
President--European Bakery Operations, a position he has held since
March 1999. He served as Executive Vice President (Bimbo) from December
1995 through February 1999. From June 1995 through December 1995, he
was Vice General Manager of Operations. From 1990 through June 1995, he
was the Commercial Director of Marketing, Sales and Distribution of
Bimbo Operations.
WILLIAM H. OPDYKE (age 55) presently is the Company's President,
Worldwide Refrigerated Dough Products, Technology and Purchasing, a
position he has held since March 1999. He served as Executive Vice
President (Refrigerated Dough Products), from June 1995 through February
1999. He previously served as Executive Vice President--Operations
(U.S. Bakery Products) of the Company from May 1994 to June 1995. From
November 1993 until May 1994, Mr. Opdyke served as Executive Vice
President--Corporate Quality for Eagle Snacks, Inc., and between
November 1990 and November 1993 he was Executive Vice President--Sales
and Marketing for Eagle Snacks, Inc.
LARRY G. BERGNER (age 47) presently is the Vice President--Technology
and Purchasing of the Company. He has held the Vice-President--Technology
position since December 1995 and has held the Purchasing position since
December 1997. He served as Vice President of Engineering and Management
Information Systems of the Company from September 1995 until December 1995.
He served as Vice President of Engineering of the Company from February 1994
until September 1995. Prior to that appointment, he served as Manager of
Project Management and Construction for AB from 1984 through February 1994.
TODD A. BROWN (age 51) presently is the Company's Vice President--
Operations & Administration (U.S. Refrigerated Dough Products), a position
he has held since September 1995. From January 1995 through September 1995,
Mr. Brown was the Company's Vice President of Quality & Technology. From
April 1993 through December 1993 he was the Company's Vice President of
Quality. He was Vice President of Quality of Metal Container Corporation
(a subsidiary of AB).
BARRY M. HORNER (age 50) presently is the Company's President,
U.S. Bakery Products, a position he has held since March 1999. He served
as Vice President (Bakery Operations) from June 1996 through February
1999. Mr. Horner served as Executive Vice President of Sales and
Distribution of the Company's domestic baking operations from May 1994 until
June 1996. From December 1993 until May 1994 he served as Executive Vice
President of the Western Region (U.S. Bakery Products), and from May 1989
to December 1993 he served as Vice President and General Manager of the
Company's Earth Grains (Diversified Products - U.S. Bakery Products)
division.
MARK H. KRIEGER (age 45) presently is the Company's Vice President
and Chief Financial Officer, positions he has held since January 1994.
He was Vice President of Corporate Planning from 1986 to December 1993.
TIMOTHY J. MITCHELL (age 39) presently is the Company's Vice
President--Sales and Customer Service (U.S. Refrigerated Dough
Products), a position he has held since March 1996. From December 1994
until March 1996 he served as Regional Vice President of Eagle Snacks,
Inc., a subsidiary of AB. From January 1994 until December 1994 he
served as President of Screaming Eagle, Inc., a Chicago-based
distributor of Eagle Snacks. He served as Director, Sales
Administration of Eagle Snacks, Inc. from September 1982 until January
1994.
JOSEPH M. NOELKER (age 50) presently is the Vice President,
General Counsel, and Corporate Secretary of the Company, positions he
has held since March 1996. Mr. Noelker served as Associate General
Counsel of AB from January 1987 until March 1996.
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LARRY PEARSON (age 53) presently is the Company's Vice President--
Diversified Products (U.S. Bakery Products), a position he has held
since July 1994. He served as Vice President--Marketing of Earthgrains
Baking Companies, Inc. from 1986 until 1994.
BRYAN A. TORCIVIA (age 39) presently is the Company's Vice
President--Corporate Planning and Development, a position he has held
since January 1994. From January 1992 to December 1993, he served as
Executive Assistant to the Chief Executive Officer of the Company.
Prior to that he served in the Planning and Finance Department of Metal
Container Corporation (a subsidiary of AB) from 1989 to January 1992.
MARTHA S. UHLHORN (age 44) presently is the Company's Vice
President--Electronic Commerce and Category Management (U.S. Bakery
Products), a position she has held since March 1999. She was Vice
President--ECR and Sales Technology (U.S. Bakery Products) from 1999
through February 1999. Prior to that, Ms. Uhlhorn spent 16 years in the
packaging industry with Metal Container Corporation and Continental Can
Companies.
EDWARD J. WIZEMAN (age 57) presently is the Company's Vice
President--Human Resources, a position he has held since January 1994.
Mr. Wizeman also served as Director of Human Resources (Operations) of
AB from May 1991 to December 1993 and as Director of Human Resources of
Metal Container Corporation (a subsidiary of AB) from 1986 to May 1991.
OTHER SIGNIFICANT OFFICERS
VIRGIL REHKEMPER (age 40) presently is Vice President and
Controller of the Company, positions he has held since April 1997.
Prior to that he served as Controller of the Company from April 1995
until 1997 and from 1990 to March 1995 he was Manager, Financial and
Operational Audit of AB.
MICHAEL SALAMONE (age 40) presently is Vice President and
Treasurer of the Company, positions he has held since September 1996.
From 1991 until 1993 he served as Assistant Treasurer of Pet
Incorporated and as Vice President and Treasurer from 1993 until 1995.
Prior to that, he held several positions in Corporate Finance at AB from
1983 until 1991.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The information required by this Item is hereby incorporated by
reference to a portion of page 43 of the Company's Annual Report to
Shareholders for fiscal year 1999 and page 6 of the Company's Proxy
Statement for the Annual Meeting of Shareholders on July 16, 1999. The
issuance of shares to non-employee directors discussed on page 6 in the
Company's Proxy Statement was exempt from registration and constituted a
private placement under the Securities Act of 1933. As of May 28, 1999,
the Company had approximately 17,600 shareholders of record.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this Item is hereby incorporated by
reference to page 40 of the Company's Annual Report to Shareholders for
fiscal year 1999.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULT OF OPERATIONS
The information required by this Item is hereby incorporated by
reference to pages 18-23 of the Company's Annual Report to Shareholders
for fiscal year 1999.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item is hereby incorporated by
reference to pages 24-39 of the Company's Annual Report to Shareholders
for fiscal year 1999.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
There have been no disagreements with PricewaterhouseCoopers LLP,
the Company's independent accountants, on accounting principles or
practices or financial statement disclosures. The Company has not
changed its independent accountants during the two most recent fiscal
years, nor since the end of the most recent fiscal year.
9
<PAGE>
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item with respect to Directors is
hereby incorporated by reference to pages 3-5 and 20 of the Company's
Proxy Statement for the Annual Meeting of Shareholders on July 16, 1999.
The information required by this Item with respect to Executive Officers
is presented in this Form 10-K immediately following the response to
Item 4.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is hereby incorporated by
reference to page 5 and pages 12 through 18 of the Company's Proxy
Statement for the Annual Meeting of Shareholders on July 16, 1999.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required by this Item is hereby incorporated by
reference to pages 2 and 7 of the Company's Proxy Statement for the
Annual Meeting of Shareholders on July 16, 1999.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There are no reportable relationships or related transactions
under Item 13.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
8-K.
(a) THE FOLLOWING DOCUMENTS ARE FILED AS PART OF THIS REPORT:
<TABLE>
<CAPTION>
1. FINANCIAL STATEMENTS:<F*> Page
----
<S> <C>
Consolidated Balance Sheets as of March 30, 1999 and March 31, 1998 24<F*>
Consolidated Statements of Earnings for the year ended March 30,
1999; the year ended March 31, 1998; and the year ended March 25,
1997 25<F*>
Consolidated Statements of Cash Flows for the year ended March 30,
1999; the year ended March 31, 1998; and the year ended March 25,
1997 26<F*>
Consolidated Statements of Shareholders' Equity for the year ended
March 30, 1999; the year ended March 31, 1998; and the year ended
March 25, 1997 27<F*>
Notes to Consolidated Financial Statements 28-39<F*>
Report of Independent Accountants 41<F*>
<FN>
<F*> Incorporated herein by reference to the indicated pages of the
Annual Report to Shareholders for fiscal 1999.
</TABLE>
2. FINANCIAL STATEMENT SCHEDULES
Financial Statement Schedules are omitted because they are
not applicable or the required information is shown in the
Consolidated Financial Statements or Notes thereto.
3. EXHIBITS
3.1 -- Amended and Restated Certificate of Incorporation
of The Earthgrains Company (dated February 26,
1996) (incorporated by reference to Exhibit 3.1 to
Form 10-K for the fiscal year ended March 25,
1997).
3.2 -- Certificate of Amendment of the Amended and
Restated Certificate of Incorporation of The
Earthgrains Company (filed November 17, 1998).
3.3 -- By-Laws of The Earthgrains Company (amended and
restated as of February 22, 1996) (incorporated by
reference to Exhibit 3.2 to Form 10-K for the
fiscal year ended March 25, 1997).
4.1 -- Form of Rights Agreement dated as of February 22,
1996 between the Company and Boatmen's
10
<PAGE>
<PAGE>
Trust Company, as Rights Agent (incorporated by
reference to Exhibit 4.1 to Form 10-K for the fiscal
year ended March 25, 1997).
10.1 -- The Earthgrains Company 1996 Stock Incentive Plan
(As Amended April 11, 1996, March 21, 1997, May
30, 1997 and April 29, 1999; Restated to reflect
two 2-for-1 Stock Splits on July 28, 1997and July
20, 1998).<F*>
10.2 -- The Earthgrains Company Non-Employee Directors
Deferred Fee Plan effective October 6, 1998.<F*>
10.3 -- Amendment No. 1 to The Earthgrains Company Employee
Stock Ownership Plan dated June 30, 1996 (amendment
no. 1 also restated the Plan) (incorporated by
reference to Exhibit 10.3 to Form 10-K for the
fiscal year ended March 25, 1997).
10.4 -- Amendment No. 2 to The Earthgrains Company Employee
Stock Ownership/401(k) Plan dated July 1, 1996
(incorporated by reference to Exhibit 10.4 to Form
10-K for the fiscal year ended March 31, 1998).
10.5 -- The Earthgrains Company Employee Stock Ownership/
401(k) Plan Trust Agreement (Dated July 1, 1996)
(incorporated by reference to Exhibit 10.4 to Form
10-K for the fiscal year ended March 25, 1997).
10.6 -- The Earthgrains Company Exceptional Performance
Plan (Effective as of March 26, 1997) (incorporated
by reference to Exhibit 10.5 to Form 10-K for the
fiscal year ended March 25, 1997).<F*>
10.7 -- The Earthgrains Company Excess Benefit Plan
(Effective October 1, 1993) (incorporated by
reference to Exhibit 10.6 to Form 10 filed February
28, 1996).<F*>
10.8 -- The Earthgrains Company Supplemental Executive
Retirement Plan (Effective April 1, 1996)
(incorporated by reference to Exhibit 10.7 to Form
10 filed February 28, 1996).<F*>
10.9 -- The Earthgrains Company 401(k) Restoration Plan
(Effective April 1, 1996) (incorporated by reference
to Exhibit 10.8 to Form 10 filed February 28,
1996).<F*>
10.10 -- The Earthgrains Company Executive Deferred
Compensation Plan (Effective March 27, 1996)
(incorporated by reference to Exhibit 10.9 to Form
10 filed February 28, 1996).<F*>
10.11 -- License Agreement with Anheuser-Busch Companies,
Inc. (incorporated by reference to Exhibit 10.1 to
Form 10-Q for the period ended March 26, 1996).
10.12 -- Form of Second Amended and Restated Credit
Agreement (Effective as of October 3, 1997) among
the Registrant, the Bank of America National Trust
and Savings Association, as Administrative Agent
and Letter of Credit Issuing Lender, and the other
financial institutions party thereto (incorporated
by reference to Exhibit 10.12 to Form 10-K for the
fiscal year ended March 31, 1998).
10.13 -- Form of First Amendment to the Second Amended and
Restated Credit Agreement (dated as of February 2,
1999) among the Registrant, various financial
institutions, and Bank of America National Trust
and Savings Association, as Administrative Agent.
10.14 -- Employment Agreement between the Company and Barry
H. Beracha (incorporated by reference to Exhibit
10.14 to Form 10-K for the fiscal year ended March
25, 1997). <F*>
10.15 -- Senior Executive Agreement between the Company and
Mr. Argente (Dated October 23, 1996)(incorporated
by reference to Exhibit 10.16 to Form 10-K for the
fiscal year ended March 25, 1997). <F*>
13. -- Pages 17 through 41 and a portion of page 43 of the
Company's Annual Report to Shareholders for fiscal
year 1999, a copy of which is furnished for the
information of the Commission. Portions of the
Annual Report not incorporated herein by reference
are not deemed "filed" with the Commission.
11
<PAGE>
<PAGE>
21. -- Subsidiaries of the Company.
23.1 -- Consent of independent accountants.
23.2 -- Consent of independent accountants.
27. -- Financial Data Schedules.
[FN]
_____________________
<F*> Management contract or compensatory plan or arrangement
required to be filed pursuant to Item 14(a)(3) of Form 10-K.
(b) REPORTS ON FORM 8-K
There were no reports filed on Form 8-K during the fourth quarter of
fiscal year 1999.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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)
By: BARRY H. BERACHA
------------------------------------
Barry H. Beracha
Chairman of the Board and
Chief Executive Officer
Date: June 25, 1999
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates
indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
BARRY H. BERACHA Chairman of the Board, June 25, 1999
- ------------------------ Chief Executive
(Barry H. Beracha) Officer, and Director
(Principal Executive
Officer)
MARK H. KRIEGER Vice President and Chief June 25, 1999
- ------------------------ Financial Officer
(Mark H. Krieger) (Principal Financial
Officer)
VIRGIL REHKEMPER Vice President and June 25, 1999
- ------------------------ Controller (Principal
(Virgil Rehkemper) Accounting Officer)
12
<PAGE>
<PAGE>
J. JOE ADORJAN Director June 25, 1999
- ------------------------
(J. Joe Adorjan)
PETER F. BENOIST Director June 25, 1999
- ------------------------
(Peter F. Benoist)
MAXINE K. CLARK Director June 25, 1999
- ------------------------
(Maxine K. Clark)
JAIME IGLESIAS Director June 25, 1999
- ------------------------
(Jaime Iglesias)
JERRY E. RITTER Director June 25, 1999
- ------------------------
(Jerry E. Ritter)
WILLIAM E. STEVENS Director June 25, 1999
- ------------------------
(William E. Stevens)
</TABLE>
13
<PAGE>
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 11/17/1998
981444749 - 0942744
STATE of DELAWARE
CERTIFICATE of AMENDMENT of
CERTIFICATE of INCORPORATION
* FIRST: That at a meeting of the Board of Directors of The Earthgrains
---------------------
Company
---------------------------------------------------------------------------
resolutions were duly adopted setting forth a proposed amendment of the
Certificate of Incorporation of said corporation, declaring said amendment
to be advisable and calling a meeting of the stockholders of said
corporation for consideration thereof. The resolution setting forth the
proposed amendment is as follows:
RESOLVED, that the Certificate of Incorporation of this corporation be
amended by changing the Article thereof numbered "Fourth" so that, as
------
amended, said Article shall be and read as follows:
"See Attached Exhibit A
----------------------------------------------------------------------------
----------------------------------------------------------------------------
---------------------------------------------------------------------------"
* SECOND: That thereafter, pursuant to resolution of its Board of Directors,
a special meeting of the stockholders of said corporation was duly called
and held, upon notice in accordance with Section 222 of the General
Corporation Law of the State of Delaware at which meeting the necessary
number of shares as required by statute were voted in favor of the
amendment.
* THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
* FOURTH: That the capital of said corporation shall not be reduced under or
by reason of said amendment.
* IN WITNESS WHEREOF, said The Earthgrains Company
---------------------------------------------------
has caused this certificate to be signed by
Joseph Noelker , an Authorized Officer,
----------------------------------------------------
this day of November , A.D. 19 98 .
------------------- ----------------------- ----
By: /s/ Joseph Noelker
-------------------------------
Authorized Officer
<PAGE>
<PAGE>
EXHIBIT A
THE EARTHGRAINS COMPANY
AMENDMENT TO ARTICLES OF INCORPORATION
The following Articles are hereby amended to read as follows:
FOURTH: The aggregate number of shares which the Corporation shall have
authority to issue is 160,000,000. 150,000,000 of which shares shall be
Common Stock having a par value of $.01 per share and 10,000,000 of which
shares shall be Preferred Stock having a par value of $.01 per share. A
description of each of such classes of stock and the designations and
the powers, preferences and rights, and the qualifications, limitations
or restrictions thereof, of each class of stock of the Corporation which
are fixed by the Certificate of Incorporation of the Corporation, and
the express grant of authority to the Board of Directors of the
Corporation (the "Board") to fix by resolution the designations and the
powers, preferences and rights of each other class, and the qualifications,
limitations or restrictions thereof, are as follows:
1. The Board shall have authority, by resolution or resolutions, at
any time and from time to time to divide and establish any or all of the
unissued shares of Preferred Stock not then allocated to any series of
Preferred stock into one or more series, and, without limiting the
generality of the foregoing, to fix and determine the designation of each
such series, the number of shares which shall constitute such series and
the following relative rights and preferences of the shares of each series
so established:
(a) the annual dividend rate payable on shares of such series,
the time of payment thereof, whether such dividends shall be cumulative
or non-cumulative, and the date or dates from which any cumulative
dividends shall commence to accrue;
(b) the price or prices at which and the terms and conditions,
if any, on which shares of such series may be redeemed;
(c) the amounts payable upon shares of such series in the
event of the voluntary or involuntary dissolution, liquidation or
winding-up of the affairs of the Corporation;
(d) the sinking fund provisions, if any, for the redemption or
purchase of shares of such series;
(e) the extent of the voting powers, if any, of the shares of
such series;
(f) the terms and conditions, if any, on which shares of such
series may be converted into shares of stock of the Corporation of any
other class or classes or into shares of any other series of the same or
any other class or classes;
(g) whether, and if so the extent to which, shares of such
series may participate with the Common Stock in any dividends in excess
of the preferential dividend fixed for shares of such series or in any
distribution of the assets of the Corporation, upon a liquidation,
<PAGE>
<PAGE>
dissolution or winding-up thereof, if excess of the preferential amount
fixed for shares of such series; and
(h) any other designations, preferences and relative,
participating, optional or other special rights, and qualifications,
limitations or restrictions thereof, of shares of such series not fixed
and determined by law or in the Certificate of Incorporation of the
Corporation.
<PAGE>
THE EARTHGRAINS COMPANY
1996 STOCK INCENTIVE PLAN
(AS AMENDED APRIL 11, 1996, MARCH 21, 1997, MAY 30, 1997,
AND APRIL 29, 1999;
RESTATED TO REFLECT 2-FOR-1 STOCK SPLITS ON
JULY 28, 1997 AND JULY 20, 1998)
SECTION 1. PURPOSE.
The purpose of the Plan is to attract, retain, motivate and reward
employees of the Company and its Subsidiaries and Affiliates with stock-
related compensation arrangements.
SECTION 2. MAXIMUM NUMBER OF SHARES.
(a) The maximum number of shares of Stock which may be issued
pursuant to Awards under the Plan, and the maximum number of shares for
which ISOs may be granted under the Plan, shall be 5,720,000 shares,
subject to adjustment as provided in Section 11. For this purpose:
(i) The number of shares underlying an Award shall
be counted against the Plan maximum ("used") at the time of
grant; shares underlying alternative Awards shall be counted
only once.
(ii) When an Award is payable in cash and the
amount of such cash is based on the value of a number of
shares of Stock which is determinable at the time of grant,
that determinable number of shares shall be deemed to
underlie that Award for purposes of the Plan. If the amount
of such cash, including any cash provided pursuant to
Section 15 below, in effect is calculated by applying a
percentage to the Fair Market Value of a certain number of
shares of Stock, if such percentage is determinable at the
date of grant, and if such determinable percentage in effect
exceeds 100%, the Committee shall determine at the time of
grant the number of shares which is deemed to underlie such
Award.
(iii) If the number of shares underlying an Award is
not determinable at the time of grant, the Committee shall
determine at the time of grant a number of shares which is
deemed to underlie such Award; that number may be adjusted
after grant as the Committee deems appropriate.
(iv) Shares which underlie Awards that (in whole or
part) expire, terminate, are forfeited, or otherwise become
non-payable, or which are recaptured by the Company in
connection with a forfeiture event, may be re-used in new
grants to the extent of such expiration, termination,
forfeiture, non-payability, or recapture.
(b) Notwithstanding any other provisions of the Plan, the
maximum number of shares underlying Awards that may be granted to any
Eligible Employee during any calendar year shall be 1,300,000, subject
to adjustment as provided in Section 11.
(c) No more than 666,204 shares of Restricted Stock shall be
granted under the Plan (not counting, for this purpose, Restricted Stock
issuable upon exercise of Options or SARs), subject to adjustment as
provided in Section 11.
(d) In its discretion, the Company may issue treasury shares or
authorized but previously unissued shares.
<PAGE>
<PAGE>
SECTION 3. ELIGIBILITY.
Officers and management employees of the Company, Subsidiaries or
Affiliates shall be eligible to receive Awards under the Plan. A
Director of the Company or a Subsidiary or an Affiliate shall be
eligible only if he or she also is an officer or employee of the
Company, a Subsidiary or an Affiliate. Notwithstanding the foregoing,
persons employed only by Affiliates shall not be eligible to receive
ISOs.
SECTION 4. GENERAL PROVISIONS RELATING TO AWARDS.
(a) Subject to the limitations in the Plan, the Committee may
cause the Company to grant Awards to such Eligible Employees, at such
times, of such types, in such amounts, for such periods, becoming
exercisable at such times, with such features, with such option prices,
purchase prices or base prices, and subject to such other terms,
conditions, and restrictions as the Committee deems appropriate. Each
Award shall be evidenced by a written Award Agreement between the
Company and the Recipient. In granting an Award, the Committee may take
into account any factor it deems appropriate and consistent with the
purpose of the Plan.
(b) Except as otherwise provided in the Plan, one or more Awards
may be granted separately or as alternatives to each other. If Awards
are alternatives to each other:
(i) the exercise of all or part of one automatically shall
cause an immediate equal and corresponding termination of the
other; and
(ii) unless the Award Agreement or the Committee expressly
permit otherwise, alternative Awards which are transferable may
be transferred only as a unit, and alternative Awards which are
exercisable must be exercisable by the same person or persons.
(c) All or any portion of any payment to a Recipient, whether in
cash or shares of Stock, may be deferred to a later date if and as
provided in the Award Agreement. Deferrals may be for such periods and
upon such terms and conditions (including the provision of interest,
dividend equivalents, or other return on such amounts) as the Committee
may determine. The Committee may structure Award Agreements so that the
imposition of income and other taxes on Recipients is deferred in whole
or part.
(d) Award Agreements may contain any provision approved by the
Committee relating to the period for exercise or vesting after
termination of employment. Except to the extent otherwise expressly
provided in the Award Agreement, termination of employment includes
separation from the group of companies comprised of the Company and its
Subsidiaries and Affiliates for any reason, including death, Disability,
retirement, resignation, dismissal, disposition of a Subsidiary or
operation (whether by stock or asset sale or otherwise), disposition of
an interest in an Affiliate, spin-off, shutdown, or any other event.
(e) Award Agreements may, in the discretion of the Committee,
contain a provision permitting a Recipient to designate the person who
may exercise or receive an Award upon the Recipient's death, either by
will or by appropriate notice to the Company.
(f) A Recipient shall have none of the rights of a shareholder
with respect to shares of Stock covered by his or her Award until shares
are issued in his or her name.
(g) The Committee may provide in Award Agreements that Awards,
except for ISOs and SARs which are alternatives to ISOs, are
transferable. Transferability may be subject to such conditions
- 2 -
<PAGE>
<PAGE>
and limitations as the Committee deems appropriate. Except to the
extent otherwise expressly set forth in the Award Agreement, Awards
shall not be transferable other than by will or the laws of descent and
distribution, and (if exercise is required) shall be exercisable during
the Recipient's lifetime only by the Recipient or his or her guardian or
legal representative. This paragraph shall not apply to Restricted
Stock after it vests.
SECTION 5. OPTIONS AND SARS.
(a) Except as provided in Section 11(b), the option price per
share of Options or the base price of SARs shall not be less than Fair
Market Value per share of Stock on the Options' or the SARs' grant date,
nor less than the par value of a share of Stock, except that SARs which
are alternatives to Options but which are granted at a later time may
have a base price equal to the option price even though the base price
is less than Fair Market Value on the date the SARs are granted.
(b) The grant of Options and their related Option Agreement must
clearly identify the Options as either ISOs or as NQSOs.
(c) If Options, SARs, and/or Limited Rights are granted as
alternatives to each other: (i) the option prices and the base prices
(as applicable) shall be equal, (ii) SARs and/or Limited Rights which
are alternatives to ISOs may be granted only at the same time the ISOs
are granted, and (iii) SARs which are alternatives to Options, and
Limited Rights which are alternatives to Options or SARs, shall expire
or terminate at the same time as the Options or SARs to which they are
alternatives.
(d) In the case of SARs, the Award Agreement may specify the
form of payment or may provide that the form is to be determined at a
later date, and may require the satisfaction of any rules or conditions
in connection with receiving payment in any particular form. If the
Recipient is a Reporting Person at the time of grant or during the SARs'
term and is given an election to receive cash in full or partial
settlement of SARs, the Committee shall have sole discretion to approve
or disapprove such election at any time after it is made.
(e) Notwithstanding any other provision of the Plan, no Options
or SARs shall contain a so-called "reload" feature under which Options
or SARs are automatically granted to Recipients upon exercise of Options
or SARs.
SECTION 6. LIMITED RIGHTS.
(a) The Committee shall have authority to grant limited stock
appreciation rights ("Limited Rights") to any Recipient of any Options
or SARs granted under the Plan (the "Related Award") with respect to all
or some of the shares of Stock which underlie such Related Award.
Limited Rights shall not be granted separately, but shall be granted
only as alternatives to their Related Award. Limited Rights may be
granted either at the time of grant of the Related Award or (except in
the case of ISOs) at any time thereafter during its term. Limited
Rights shall be exercisable or payable at such times, payable in such
amounts, and subject to such other terms, conditions, and restrictions
as the Committee deems appropriate.
(b) The Committee shall place on any Limited Rights granted to a
Reporting Person such restrictions as may be required by Rule 16b-3 at
the time of grant, and shall amend the Plan accordingly to the extent
required by Rule 16b-3. The Committee shall place on any Limited Rights
for which the Related Award is ISOs such restrictions as may be required
by the Code at the time of grant, and shall amend the Plan accordingly
to the extent required by the Code.
- 3 -
<PAGE>
<PAGE>
SECTION 7. RESTRICTED STOCK.
(a) "Restricted Stock" means Stock issued to a Recipient which
is subject to transfer restrictions prior to vesting and is subject to
forfeiture upon the happening of such events or such conditions or upon
the failure to satisfy such rules, requirements and conditions as the
Committee specifies in the Award Agreement. Stock issued in connection
with an Award Agreement is not Restricted Stock unless so designated in
the Award Agreement or in a rule or resolution of the Committee. When
Restricted Stock vests, it ceases to be Restricted Stock for purposes of
the Plan.
(b) The certificate representing the shares of Restricted Stock
issued in the name of the Recipient may be held by the Company and/or
may have a legend placed upon it to the effect that the shares
represented by it are subject to, and may not be transferred except in
accordance with the Plan and the Award Agreement relating to such
shares. Dividends relating to shares of Restricted Stock may be paid to
the Recipient or held by the Company for the Recipient's benefit, as the
Committee may provide in the Award Agreement; if held by the Company,
the Committee may require that the Company pay interest or other return
to the Recipient on any cash dividends at such rate(s) and time(s) as
the Committee provides in the Award Agreement.
(c) If the Recipient of Restricted Stock is a Reporting Person
on the grant date, at least one of the following requirements shall be
satisfied:
(i) the Award is a stock bonus granted for no consideration
(other than services rendered or to be rendered);
(ii) the Award is a stock bonus granted for the minimum
amount of consideration (other then services) required by
applicable corporate law, which amount in no event exceeds
10% of the Fair Market Value of a share of Stock on the
payment date, and which amount is paid to the Company within
60 days after the grant date:
(iii) the Award consists of Options which are payable in
Restricted Stock; or
(iv) the Award is an Other Stock Interest which is
payable in Restricted Stock and which either is granted in
conformity with (i) or (ii) above, or constitutes an option
or similar right (including a stock appreciation right) or
any other type of derivative security for the purposes of
Rule 16b-3.
This paragraph (c) shall apply to a grant only when required by Rule
16b-3 at the time and under the circumstances of the grant.
SECTION 8. OTHER STOCK INTERESTS.
"Other Stock Interest" means any compensatory arrangement not
inconsistent with the Plan which is established by the Committee and
which might (a) involve the issuance of Stock to an Eligible Employee or
(b) involve or be treated as involving the acquisition or disposition of
an equity security of the Company for purposes of Section 16 of the Act.
Other Stock Interests are not limited to any specific form or structure.
Without limiting the above, Other Stock Interests may include stock
bonuses, deferred stock, variable priced stock options, performance
shares, phantom stock, and convertible securities, and may be granted in
connection with or apart from other compensation programs or plans or
other types of Awards under the Plan. In connection with the grant of
Other Stock Interests, the Committee may provide for payment to the
Recipient of amounts equal to dividends which would have been paid had
Stock actually been issued to the Recipient. In addition,
- 4 -
<PAGE>
<PAGE>
Other Stock Interests may provide for payment of cash or other property
in lieu of Stock or other securities of the Company. The Committee
shall place on any Other Stock Interest granted to a Reporting Person
such restrictions as may be required by Rule 16b-3 at the time of grant,
and shall amend the Plan accordingly to the extent required by Rule
16b-3.
SECTION 9. STOCK ISSUANCE, PAYMENT, AND WITHHOLDING.
(a) If an Award contemplates the payment of a purchase price
(including the option price of Options), the Recipient may pay the
purchase price in cash, Stock (including shares of previously-owned
Stock, or Stock issuable in connection with the Award), or other
property, to the extent permitted or required by the Award Agreement or
the Committee from time to time. The Committee may permit deemed or
constructive transfers of shares in lieu of actual transfer and physical
delivery of certificates. Except to the extent prohibited by applicable
law, the Committee or its delegate may take any necessary or appropriate
steps in order to facilitate the payment of any such purchase price.
Without limiting the foregoing, the Committee may allow the Recipient to
defer payment of such purchase price, or may cause the Company to loan
the purchase price to the Recipient or to guaranty that any shares to be
issued will be delivered to a broker or lender in order to allow the
Recipient to borrow the purchase price. The Committee may require
satisfaction of any rules or conditions in connection with paying the
purchase price at any particular time, in any particular form, or with
the Company's assistance.
(b) If shares used to pay any such purchase price are subject to
any prior restrictions imposed in connection with any plan of the
Company (including the Plan), an equal number of the shares of Stock
purchased shall be made subject to such prior restrictions in addition
to any further restrictions imposed on such purchased shares by the
terms of the Award Agreement or Plan.
(c) When the obligation arises to collect and pay Required
Withholding Taxes, the Recipient shall promptly reimburse the Company or
Employer (as required by the Committee or Company) for the amount of
such Required Withholding Taxes in cash, unless the Award Agreement or
the Committee permits or requires payment in another form. In the
discretion of the Committee or its delegate and at the Recipient's
request, the Committee or its delegate may cause the Company or Employer
to pay to the appropriate taxing authority Withholding Taxes in excess
of Required Withholding Taxes on behalf of a Recipient, which shall be
reimbursed by the Recipient. In the Award Agreement or otherwise, the
Committee may allow a Recipient to reimburse the Company or Employer for
payment of Withholding Taxes with shares of Stock or other property.
The Committee may require the satisfaction of any rules or conditions in
connection with any non-cash payment of Withholding Taxes. If a
Recipient is a Reporting Person at the time of grant or during the
Award's term and is given an election to pay any Withholding Taxes with
Stock, the Committee shall have sole discretion to approve or disapprove
such election at any time after the election is made.
(d) If provided in the Award Agreement relating to an ISO, the
Committee may prohibit the transfer by a Recipient of shares of Stock
issued to him or her upon exercise of an ISO into the name of a nominee,
and the Committee may require the placement of a legend on certificates
for such shares reflecting such prohibition.
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<PAGE>
SECTION 10. FORFEITURES.
(a) The Committee may include in any Award Agreement any
provisions relating to forfeitures of Awards that it deems appropriate.
Such forfeiture provisions may include, among others, prohibitions on
competing with the Company and its Subsidiaries and Affiliates and other
detrimental conduct. Forfeiture provisions for one Award type may
differ from those for another type, and also may differ among Awards of
the same type. As used in the Plan, a "forfeiture" of an Award includes
the recapture of economic benefits derived from an Award, as well as the
forfeiture of an Award itself; however, the Committee may define the
term more narrowly in specific Award Agreements or contexts.
(b) Award Agreements may provide for any forfeiture provision to
terminate or be waived upon an Acceleration Date. In its discretion,
the Committee may provide in any Award Agreement for the termination of
any forfeiture provision upon the happening of any specified event, and
may terminate or waive any forfeiture provision by action taken after
grant.
SECTION 11. ADJUSTMENTS AND ACQUISITIONS.
(a) In the event of (i) any change in the outstanding shares of
Stock by reason of any stock split, combination of shares, stock
dividend, reorganization, merger, consolidation, or other corporate
change having a similar effect, (ii) any separation of the Company
including a spin-off or other distribution of stock or property by the
Company, or (iii) any distribution to shareholders generally other than
a normal dividend, the Committee shall make such equitable adjustments
to the Plan and to outstanding Awards as it shall deem appropriate in
order to prevent the dilution or enlargement of (A) the Awards which may
be granted, the shares of Stock which may be issued, or the shares for
which ISOs may be granted under the Plan, (B) the economic value of
outstanding Awards or (C) the limitations imposed by Section 2(b) of the
Plan, provided, however, that the Committee shall not make any
adjustment which would constitute or result in an increase in the
aggregate number of Shares available under the Plan, or the annual limit
on the number of Awards which may be granted to an Eligible Employee
under Section 2(b) of the Plan, requiring shareholder approval under
Section 422 or Section 162(m) of the Code. Any such determination by
the Committee shall be conclusive and binding on all concerned.
(b) In the event the Company or a Subsidiary enters into a
transaction described in Section 424(a) of the Code with any other
corporation, the Committee may grant Options, SARs or Limited Rights to
employees or former employees of such corporation in substitution of
stock awards, stock appreciation rights or limited stock appreciation
rights (respectively) previously granted to them by such corporation
upon such terms and conditions as shall be necessary to qualify such
grant as a substitution described in Section 424(a) of the Code.
SECTION 12. ACCELERATION.
(a) An "Acceleration Date" occurs when any of the following
events occur:
(i) any Person (as defined herein) becomes the
beneficial owner directly or indirectly (within the meaning
of Rule 13d-3 under the Act) of more than 30% of the
Company's then outstanding voting securities (measured on
the basis of voting power), provided, however, that shares
issued or distributed by the Company in connection with the
acquisition of another company or business from such Person
shall be counted as being
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<PAGE>
outstanding, but otherwise shall be ignored in determining the
percentage beneficially owned by such Person;
(ii) the shareholders of the Company approve a
definitive agreement of merger or consolidation with any
other corporation or business entity, other than (x) a
merger or consolidation which would result in the voting
securities of the Company outstanding immediately prior
thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of
the surviving entity), in combination with the ownership of
any trustee or other fiduciary holding securities under an
employee benefit plan of the Company, at least 50% of the
combined voting power of the voting securities of the
Company or such surviving entity outstanding immediately
after such merger or consolidation, or (y) a merger or
consolidation effected to implement a recapitalization of
the Company (or similar transaction) in which no Person
acquires more than 50% of the combined voting power of the
Company's then outstanding securities;
(iii) a change occurs in the composition of the
Board of Directors during any period of twenty-four
consecutive months such that individuals who at the
beginning of such period were members of the Board of
Directors cease for any reason to constitute at least a
majority thereof, unless the election, or the nomination for
election by the Company's shareholders, of each new director
was approved by a vote of at least two-thirds of the
directors still in office who either were directors at the
beginning of the period or whose election or nomination for
election was previously so approved; or
(iv) the shareholders of the Company approve a plan
of complete liquidation or dissolution of the Company or an
agreement for the sale or disposition by the Company of all
or substantially all the Company's assets.
For purposes of this paragraph, "Person" shall have the meaning given in
Section 3(a)(9) of the Exchange Act, as modified and used in Sections
13(d) and 14(d) thereof; however, a Person shall not include (aa) the
Company or any of its subsidiaries, (bb) a trustee or other fiduciary
holding securities under an employee benefit plan of the Company or any
of its subsidiaries, (cc) an underwriter temporarily holding securities
pursuant to an offering of such securities, or (dd) a corporation owned,
directly or indirectly, by the shareholders of the Company in
substantially the same proportions as their ownership of Stock.
(b) If an Acceleration Date occurs while Awards remain
outstanding under the Plan, then all Awards shall "vest," which means:
(i) all Options and SARs shall become fully
exercisable; and
(ii) all shares of Restricted Stock shall become
nonforfeitable and freely transferable (except for such
restrictions as may be imposed by the Securities Act of
1933, as amended, or applicable state securities laws), and
all conditions to unrestricted ownership provided in their
Award Agreements which have not previously been satisfied
shall lapse.
In the case of Other Stock Interests, the term "vest" shall have that
meaning given it by the Committee at the time of grant.
(c) Except to the extent prohibited by Rule 16b-3 in the case of
Reporting Persons, the Committee may accelerate the date on which any
Award or Stock or property issued pursuant to an Award shall vest and
may remove any restrictions on such Award at any time after grant and
for any reason the Committee deems appropriate.
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<PAGE>
(d) All Awards, and all shares of Stock or property issued
pursuant to an Award, shall automatically vest upon a termination of
employment caused by the death, Disability, or (except for Restricted
Stock and Other Stock Interests) retirement of the Recipient. The
Committee may determine the circumstances under which a Recipient is
deemed to have retired.
SECTION 13. ADMINISTRATION.
(a) The Plan shall be administered by the Compensation and Human
Resources Committee of the Board, or another committee appointed by the
Board from time to time, consisting of three or more persons, each of
whom at all times shall be a member of the Board and none of whom shall
be an officer or employee of the Company or any of its subsidiaries at
the time of service. Committee members shall not be eligible for
selection to receive Awards under the Plan.
(b) During any time when one or more Committee members may not
be qualified to serve under Rule 16b-3 or Section 162(m) of the Code,
the Committee may form a sub-Committee from among its qualifying members
to act, in lieu of the full Committee, with respect to all or any
specified category of Awards granted to all or any specified group of
Recipients, and may take other actions deemed appropriate and convenient
to prevent, control, minimize, or eliminate any adverse effects of such
potential disqualification. At the Committee's request or on its own
motion, the Board may ratify or approve grants, or any terms of any
grants, made by the Committee or a sub-Committee during any time that
any member of the Committee may not be qualified to approve such grants
or terms under Rule 16b-3.
(c) A majority of the members of the Committee shall constitute
a quorum. The acts of a majority of the members present at any meeting
at which a quorum is present, or acts approved in writing by a majority
of the members of the Committee, shall be the acts of the Committee.
The Committee may meet in person, by telephone or television conference,
or in any other manner permitted by applicable law. From time to time
the Committee may adopt, amend, and rescind such rules and regulations
for carrying out the Plan and implementing Award Agreements, and the
Committee may take such action in the administration of the Plan, as it
deems proper. The interpretation of any provisions of the Plan by the
Committee shall be final and conclusive unless otherwise determined by
the Board.
(d) To the extent the Committee deems it convenient and
appropriate, the Committee may delegate such of its powers and duties,
including (among other things) its power to grant Awards, to one or more
members of the Committee or to one or more officers of the Company. Any
such delegation shall be subject to such limitations and conditions as
the Committee deems appropriate. However, notwithstanding the
foregoing: (i) the power to grant Awards may not be delegated to an
officer who is not also a director of the Company except in conformity
with applicable Delaware law; and, (ii) no officer may grant Awards to
him- or herself or to his or her superiors unless such grants are
ratified by the Committee or the Board.
SECTION 14. AMENDMENT, TERMINATION, SHAREHOLDER APPROVAL.
(a) The Board may amend or terminate the Plan at any time,
except that without the approval of the Company's shareholders, no
amendment shall (i) increase the maximum number of shares issuable, or
the maximum number of shares for which ISOs may be granted, under the
Plan, (ii) change the class of persons eligible to be Recipients, (iii)
change the annual limit on Awards which
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<PAGE>
may be granted to an Eligible Employee provided in Section 2(b), (iv)
withdraw the authority of the Committee to administer the Plan, or (v)
change the provisions of this Section 14(a).
(b) The Committee may amend the Plan from time to time to the
extent necessary to (i) comply with Rule 16b-3 and, to the extent it
deems appropriate, (ii) prevent benefits under the Plan from
constituting "applicable employee remuneration" within the meaning of
Section 162(m) of the Code.
(c) No Awards may be granted under the Plan after February 21,
2006.
(d) The approval by shareholders described in this Section shall
consist of the approving vote of the holders of a majority of the
outstanding shares of Stock present (in person or by proxy) at a meeting
of the shareholders at which a quorum is present, unless a greater vote
is required by the Company's charter or by-laws, by the Board, by the
Company's principal stock exchange, or by applicable law (including Rule
16b-3 or Section 162(m) of the Code).
SECTION 15. ADDITIONAL PAYMENTS.
The Committee may grant a Recipient the right to receive
additional compensation in cash or other property (in addition to any
cash or other property payable under the terms of the Award itself) upon
the exercise of Options, SARs, or exercisable Other Stock Interests, or
the vesting of Restricted Stock or non-exercisable Other Stock
Interests, provided that (i) in the case of ISOs such compensation is
includible in income under Sections 61 and 83 of the Code at the time of
such exercise or vesting and (ii) no such right may be granted in
connection with any SARs or Limited Rights which are alternatives to
ISOs.
SECTION 16. DEFINITIONS.
(a) "Acceleration Date" has the meaning given in Section 12(a).
(b) "Act" means the Securities Exchange Act of 1934, as amended
from time to time.
(c) "Affiliate" means any entity in which the Company has a
substantial direct or indirect equity interest (other than a
Subsidiary), as determined by the Committee.
(d) "Award" means a grant of ISOs, NQSOs, SARs, Limited Rights,
Restricted Stock or Other Stock Interests.
(e) "Award Agreement" means the written agreement referred to in
Section 4(a) between the Company and the Recipient evidencing an Award.
(f) "Board" means the Board of Directors of the Company.
(g) Options "cease to qualify as ISOs" when they fail or cease
to qualify for the exclusion from income provided in Section 421 (or any
successor provision) of the Code.
(h) "Code" means the U.S. Internal Revenue Code as in effect
from time to time.
(i) "Committee" means the Compensation and Human Resources
Committee described in Section 13 hereof.
(j) "Company" means The Earthgrains Company and its successors.
(k) "Disability" means the condition of being "disabled" within
the meaning of Section 422(c)(6) of the Code or any successor provision.
- 9 -
<PAGE>
<PAGE>
(l) "Eligible Employee" means a person who is eligible to
receive an Award under Section 3 of the Plan.
(m) "Employer" means the Company, the Subsidiary, or the
Affiliate which employs the Recipient.
(n) "Fair Market Value" of Stock on a given date means (i) the
average of the highest and lowest selling prices per share of Stock
reported on the New York Stock Exchange Composite Tape or similar
quotation service for such date, (ii) if Stock is not listed on the New
York Stock Exchange, the average of the highest and lowest selling
prices per share of Stock as reported for such date on the principal
stock exchange or quotation system in the U.S. on which Stock is listed
or quoted (as determined by the Committee), or (iii) if neither of the
preceding clauses is applicable, the value per share determined by the
Committee in a manner consistent with the Treasury Regulations under
Section 2031 of the Internal Revenue Code. If no sale of Stock occurs
on such date, but there were sales reported within a reasonable period
both before and after such date, the weighted average of the means
between the highest and lowest selling prices on the nearest date before
and the nearest date after such date shall be used, with the average to
be weighted inversely by the respective numbers of trading days between
the selling dates and such date. "Fair Market Value" of Restricted
Stock is the same as the Fair Market Value of any other Stock.
(o) "Forfeiture" has the meaning given in Section 10(a).
(p) "ISO" or "Incentive Stock Option" means an option to
purchase one share of Stock for a specified option price which is
designated by the Committee as an "Incentive Stock Option" and which
qualifies as an "incentive stock option" under Section 422 (or any
successor provision) of the Code.
(q) "Limited Right" has the meaning given in Section 6.
(r) "NQSO" or "Non-Qualified Stock Option" means an option to
purchase one share of Stock for a specified option price which is
designated by the Committee as a "Non-Qualified Stock Option," or which
is designated by the Committee as an ISO but which ceases to qualify as
an ISO.
(s) "Option" means an ISO or an NQSO.
(t) "Option Agreement" means an Award Agreement which evidences
a grant of Options.
(u) "Optionee" means a person to whom Options are granted
pursuant to the Plan.
(v) "Other Stock Interest" has the meaning given in Section 8.
(w) "Plan" means The Earthgrains Company 1996 Stock Incentive
Plan, as amended from time to time.
(x) "Recipient" means an Eligible Employee to whom an Award is
granted pursuant to the Plan.
(y) "Reporting Person," as of a given date, means a Recipient
who would be required to report a purchase or sale of Stock occurring on
such date to the Securities and Exchange Commission pursuant to Section
16(a) of the Act and the rules and regulations thereunder.
(z) "Restricted Stock" has the meaning given in Section 7.
(aa) "Rule 16b-3" means Rule 16b-3 (as amended from time to time)
promulgated by the Securities and Exchange Commission under the Act, and
any successor thereto.
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<PAGE>
(bb) "SAR" means a stock appreciation right, which is a right to
receive cash, Stock, or other property having a value on the date the
SAR is exercised equal to (i) the excess of the Fair Market Value of one
share of Stock on the exercise date over (ii) the base price of the SAR.
The term "SAR" does not include a Limited Right.
(cc) "Stock" means shares of the common stock of the Company, par
value $0.01 per share, or such other class or kind of shares or other
securities as may be applicable under Section 11. The term "Stock"
shall include shares of Restricted Stock unless expressly provided
otherwise in the Plan or an Award Agreement.
(dd) "Subsidiary" means a "subsidiary corporation" of the Company
as defined in Section 424(f) (or any successor provision) of the Code.
(ee) "Vest" has the meaning given in Section 12(b).
(ff) "Withholding Taxes" means, in connection with an Award, (i)
the total amount of Federal and state income taxes, social security
taxes, and other taxes which the Employer of the Recipient is required
to withhold ("Required Withholding Taxes") plus (ii) any other such
taxes which the Employer, in its sole discretion, withholds at the
request of the Recipient.
SECTION 17. MISCELLANEOUS.
(a) Each provision of the Plan and Option Agreement relating to
ISOs shall be construed so that all ISOs shall be "incentive stock
options" as defined in Section 422 of the Code or any statutory
provision that may replace Section 422, and any provisions thereof which
cannot be so construed shall be disregarded. Except as provided in
Section 10, no discretion granted or allowed to the Committee under the
Plan shall apply to ISOs after their grant except to the extent the
related Option Agreement shall so provide. Notwithstanding the
foregoing, nothing shall prohibit an amendment to or action regarding
outstanding ISOs which would cause them to cease to qualify as ISOs, so
long as the Company and the Optionee shall consent to such amendment or
action.
(b) Without amending the Plan, Awards may be granted to Eligible
Employees who are foreign nationals or who are employed outside the
United States or both, on such terms and conditions different from those
specified in the Plan as may, in the judgment of the Committee, be
necessary or desirable to further the purposes of the Plan. Such
different terms and conditions may be reflected in Addenda to the Plan.
However, in the case of ISOs, no such different terms or conditions
shall be employed if such term or condition constitutes, or in effect
results in, an increase in the aggregate number of shares which may be
issued under the Plan or a change in the definition of Eligible
Employee.
(c) Notwithstanding any other provision in the Plan, the
Committee shall not act with respect to any Reporting Person in a manner
which would contravene any requirement of Rule 16b-3 as in effect at the
time of such action, without the knowing consent of such Reporting
Person.
(d) Nothing in the Plan or any Award Agreement shall confer on
any person or expectation to continue in the employ of his or her
Employer, or shall interfere in any manner with the absolute right of
the Employer to change or terminate such person's employment at any time
for any reason or for no reason.
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<PAGE>
THE EARTHGRAINS COMPANY
DIRECTORS DEFERRED FEE PLAN
Effective October 6, 1998
<PAGE>
<PAGE>
THE EARTHGRAINS COMPANY
DIRECTORS DEFERRED FEE PLAN
ARTICLE I
DEFINITIONS
1.01. Account Balance: For each Participant, the from
---- ---------------
time-to-time aggregate amount of the Cash Account balance, the Mandatory
Share Account balance and the Elective Share Account balance.
1.02. Board: The Board of Directors of the Company.
---- -----
1.03. Borrowing Rate: For a month, the rate of interest
---- --------------
at which the Company may borrow money for the term corresponding with
the Participant's Deferral Period, as determined by the Chief Financial
Officer of the Company.
1.04. Cash Account: An account administered for the
---- ------------
benefit of a Participant pursuant to Section 4.01.
1.05. Company: The Earthgrains Company.
---- -------
1.06. Credited Shares. The shares of the Company's common
---- ---------------
stock which, for accounting purposes only, are credited to a
Participant's Mandatory Share Account and/or Elective Share Account from
time to time in accordance with Section 4.04.
1.07. Deferral Period: For each month, the length of time
---- ---------------
until the Payment Start Date (rounded to the nearest whole year but not
less than one year); provided, however, that for a Participant whose
Payment Start Date relates to his or her retirement date, the Normal
Retirement Age shall be treated as the Payment Start Date for purposes
of computing the Deferral Period and for a Participant who has already
reached Normal Retirement Age and whose Payment Start Date has not yet
occurred the Deferral Period shall be deemed to be one year.
1.08. Director: Any duly elected or appointed member of
---- --------
the Board as determined from time to time.
1.09. Director's Fees: The total amount of any retainer,
---- ---------------
annual fee, fees for attending meeting of the Board or committees
thereof, committee chair fees and other similar fees payable to a
Director by the Company for services rendered to the Company as a
Director.
1.10. Effective Date: October 6, 1998.
---- --------------
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1.11. Elective Deferred Fees. The amount of a
---- ----------------------
Participant's Eligible Fees deferred under Section 3.01.
1.12. Elective Share Account: An account administered for
---- ----------------------
the benefit of a Participant pursuant to Section 4.03.
1.13. Eligible Fees: All Director's Fees other than those
---- -------------
required to be deferred and maintained in the Mandatory Share Account.
1.14. Form of Payment: The form in which a Participant is
---- ---------------
to receive payment of his or her Account Balance, which may be in a
single lump sum or in two or more annual installments for a period of up
to ten years, as changed from time to time pursuant to Section 3.02,
subject to acceleration as provided for in Sections 5.03, 5.04, and
5.05.
1.15. Mandatory Deferred Fees. The amount of a Director's
---- -----------------------
Fees required to be deferred and maintained in his or her Mandatory
Share Account pursuant to Article II.
1.16. Mandatory Share Account: An account administered
---- -----------------------
for the benefit of a Participant pursuant to Section 4.02.
1.17. Market Value: For any day, the mean between the
---- ------------
high and low price per share of the Company's common stock on such day,
as reported on the New York Stock Exchange.
1.18. Normal Retirement Age: Age 70.
---- ---------------------
1.19. Participant: Any Director or former Director who
----- -----------
has an Account Balance.
1.20. Payment Start Date: The date on which a Participant
---- ------------------
is to receive either a lump sum distribution of his or her Account
Balance or the first of two or more annual installments pursuant to an
election under Section 3.01(d) as changed from time to time under
Section 3.02; provided, however, that the Payment Start Date shall in
all events be no later than the first day of the month following the
Participant's actual termination of service as a Director for any
reason, including death or disability.
1.21. Plan: The Earthgrains Company Directors Deferred
---- ----
Fee Plan, as set forth herein, and as duly amended from time to time.
1.22. Year: Each calendar year commencing on or after
---- ----
January 1, 1998, provided, however, that the initial plan Year shall be
a short year commencing on the Effective Date and ending December 31,
1998.
2
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<PAGE>
ARTICLE II
MANDATORY DEFERRALS
Mandatory Deferred Fees. Each Director shall be required to defer 25%
- -----------------------
of his or her Director's Fees and to maintain such amounts in his or her
Mandatory Share Account. In addition, each year on the date of the
Annual Meeting of the Company's shareholders, each person who is a Non-
Employee Director shall, automatically and without necessity of any
action by such Director or the Company, be credited with 400 shares (the
"Annual Grant") in his or her Mandatory Share Account, adjusted in the
manner described in Section 4.04(d) for all events occurring prior to
such date of distribution. Further, any initial grant of the Company's
Common Stock that a new Non-Employee Director receives upon becoming a
Director, after the effective date of the Plan, shall be shares in his
or her Mandatory Share Account, adjusted in the manner described in
Section 4.04(d) for all events occurring prior to such date of
distribution.
ARTICLE III
DEFERRAL ELECTIONS
3.01. Types of Election; Time of Election. Any Director
---- -----------------------------------
may make the following elections for a Year in writing on a form
provided by the Company and delivered to the Company not later than the
Company may direct, but in any event before the first day of the Year:
(a) The portion of the Participant's Eligible Fees that
shall be deferred, if any (the "Elective Deferred Fees");
(b) The proportion of the Participant's Elective Deferred
Fees which shall be deferred into each of the Cash Account and
the Elective Share Account;
(c) The Payment Start Date; and
(d) The Form of Payment.
The elections made pursuant to this Section 3.01 shall remain in effect
for subsequent Years until such time as the Participant changes his or
her elections as permitted by the terms of this Plan.
3.02. Change in Payment Start Date and/or Form of Payment.
---- ---------------------------------------------------
A Participant may change his or her Payment Start Date and/or Form of
Payment in writing on a form provided by and delivered to the Company at
any time which is at least one year in advance of the previously elected
Payment Start Date. No such change shall be effective if the
Participant terminates service as a Director less than one year after
the date of the election change.
3
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3.03. Special Rule for Newly Eligible Participants.
---- --------------------------------------------
Notwithstanding the foregoing, an individual who becomes a Director
after the beginning of a Year may make his or her elections pursuant to
Section 3.01 after the first day of the Year, but not later than thirty
(30) days after the first day on which he or she becomes a Director;
provided that any election made by such a Director after the first day
of the Year shall be effective only with respect to Director's Fees
attributable to services rendered subsequent to the election.
3.04. Special Rule for Initial Plan Year. Notwithstanding
---- ----------------------------------
Section 3.01 above, any Director as of the Effective Date of the Plan
may make his or her elections pursuant to Section 3.01 above within 30
days after the Effective Date; provided that any election so made shall
be effective only with respect to Director's Fees attributable to
services rendered subsequent to the election.
ARTICLE IV
DETERMINATION OF ACCOUNT BALANCES
4.01. Cash Account.
---- ------------
(a) Cash Account Balance. Each Participant's Cash Account
--------------------
shall consist of all Elective Deferred Fees credited to his or her
Cash Account pursuant to his or her elections under Section 3.01,
all amounts transferred from his or her Elective Share Account to
his or her Cash Account pursuant to Section 4.05, and interest
credited to the Cash Account in accordance with Section 4.01(b),
less any transfers to his or her Elective Share Account from his
or her Cash Account pursuant to Section 4.05 and any payments from
the Cash Account pursuant to Section 4.06.
(b) Accrual of Interest.
-------------------
(i) Interest Prior to Termination and During Deferral
-------------------------------------------------
Period. Interest at the applicable Borrowing Rate shall
------
accrue and be credited to each Participant's Cash Account
balance monthly.
(ii) Accrual of Interest on Installment Payments. If
-------------------------------------------
any amount is paid in installments pursuant to a Participant's
election in accordance with Section 3.01(d), interest shall
accrue on any balance thereof remaining to be paid in
installments from time to time at the Borrowing Rate then
in effect with respect to such amount on the day prior to the
due date of the first installment.
(iii) If Payment is Delayed. In the event payment of
---------------------
an amount due a Participant occurs thirty (30) or fewer days
after its due date, no interest shall accrue during the
period between the due date and the date of payment. In the
event payment of any amount due a Participant occurs more
than thirty (30)
4
<PAGE>
<PAGE>
days after its due date, interest shall accrue during the
period between the due date and the date of payment at the
then applicable Borrowing Rate.
4.02. Mandatory Share Account.
---- -----------------------
(a) Mandatory Share Account Balance. Each Participant's
-------------------------------
Mandatory Share Account balance shall equal the number of
Credited Shares in such Mandatory Share Account, as determined
pursuant to Section 4.04 below, times the then Market Value of the
Company's common stock.
(b) Components of Mandatory Share Account. Each
-------------------------------------
Participant's Mandatory Share Account shall consist of all
Mandatory Deferred Fees credited to his or her Share Account as
required under Article II, plus any amounts credited under
Sections 4.04(b)-(d), less any payments from the Mandatory Share
Account pursuant to Section 4.06.
4.03. Elective Share Account.
---- ----------------------
(a) Elective Share Account Balance. Each Participant's
------------------------------
Elective Share Account balance shall equal the number of Credited
Shares in such Elective Share Account times the then Market Value
of the Company's common stock.
(b) Components of Elective Share Account. Each
------------------------------------
Participant's Elective Share Account shall consist of all Elective
Deferred Fees credited to his or her Elective Share Account
pursuant to his or her election under Section 3.01, all amounts
transferred from his or her Cash Account to his or her Elective
Share Account pursuant to Section 4.05, plus any amounts credited
under Sections 4.04(b)-(d), less any transfers to his or her Cash
Account from his or her Elective Share Account pursuant to Section
4.05 and any payments from the Elective Share Account pursuant to
Section 4.06.
4.04. Credited Shares. The number of Credited Shares
---- ---------------
credited to each of the Mandatory Share Account and the Elective Share
Account shall be determined as follows.
(a) On each date on which a Participant would otherwise
receive a payment of Director's Fees as determined in accordance
with Section 6.04 or an Annual Grant pursuant to Article II, (i)
his or her Mandatory Share Account shall be credited with the
amount of Director's Fees required to be credited to such
Mandatory Share Account in accordance with Article II above, and
(ii) his or her Elective Share Account shall be credited with the
amount of Eligible Fees elected to be deferred into such Elective
Share Account in accordance with Section 3.01. The amounts so
credited shall be converted into the maximum whole number of
shares of common stock of the Company which could be purchased at
the then Market Value of such stock with the amount so credited.
(b) On each date on which the Company pays a cash dividend
or other distribution on its common stock, each Participant's
Mandatory Share Account and each Participant's Elective Share
Account shall be credited with an amount equal to the amount
5
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<PAGE>
of the cash dividend or other distribution per share times the
number of Credited Shares in each such Account on the dividend or
distribution record date. The amount so credited to each account
shall be converted into the maximum whole number of shares of
common stock of the Company which could be purchased at the then
Market Value of such stock with the amount so credited.
(c) On each date on which the Company pays a stock
dividend on its common stock, each Participant's Mandatory Share
Account and each Participant's Elective Share Account shall be
credited with a number of shares equal to the stock dividend per
share times the Credited Shares in such Account on the record
date.
(d) In the event of (i) any change in the outstanding
shares of Company stock by reason of a stock split, combination
of shares, reorganization, merger, consolidation or other
corporate change having a similar effect, or (ii) any separation
of the Company including a spin-off or other distribution of stock
or property by the Company, the Company shall make such equitable
adjustments to the number of Credited Shares in each Participant's
Mandatory Share Account and Elective Share Account as it shall
deem appropriate to prevent the dilution or enlargement of each
such Account. The Company's determination as to the
appropriateness of any such adjustment, including, but not limited
to, values and exchange ratios, shall be binding and conclusive.
(e) All conversions into Credited Shares under this
Section 4.04 shall be made in full shares. Amounts not so
converted shall be carried as excess cash in each such Account and
shall be added to any additional amounts subsequently credited to
each such Account.
4.05. Transfers Between Accounts. Subject to Section 6.01(g),
---- --------------------------
a Participant may elect to transfer amounts between the Cash Account
and the Elective Share Account at any time provided such election is
made in writing in the form and manner required by the Company.
Amounts transferred to and from the Elective Share Account shall be
converted from or into the maximum whole number of shares of common
stock of the Company which could be purchased at the then Market
Value of such stock with the amount so transferred.
4.06. Payment From Accounts. Subject to Section 6.01(g), any
---- ---------------------
payment made to a Participant under the Plan shall be in cash and shall
be debited from the Cash Account, the Mandatory Share Account and the
Elective Share Account in proportion to the percentage each such Account
comprises of the total Account Balance on the date of payment. Payments
from the Mandatory Share Account or Elective Share Account shall be
debited from such account by subtracting the number of shares of common
stock of the Company which could be purchased at the then Market Value
with the amount of such payment.
4.07. Vesting. Any Credited Shares accrued in a Participant's
---- -------
Elective Share Account or accrued in a Participant's Mandatory Share
Account other than by virtue of an Annual Grant shall be fully vested
on the date of accrual. Credited Shares accrued in a Participant's
Mandatory Share Account by virtue of an Annual Grant shall vest on
the earlier of the tenth anniversary of the date
6
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<PAGE>
of grant or the Participant's cessation as a director of the Company for
any reason other than removal by the vote of the stockholders of the
Company, in which case such Credited Shares shall be forfeited.
Notwithstanding the foregoing, Credited Shares accrued for the account
of a Participant as an Annual Grant shall vest and shall not be
forfeited upon such Participant's removal as a director by the vote of
the stockholders of the Company if such vote occurs after a Change of
Control.
ARTICLE V
PAYMENTS TO PARTICIPANTS
5.01. General Rule Respecting Payment Start Date. Subject
---- ------------------------------------------
to the remaining provisions of this Article, each Participant's lump sum
payment or the first of the elected number of equal annual installments,
as applicable pursuant to his or her election under Section 3.01(d)
above, shall be made on his or her Payment Start Date.
5.02. Installment Payments. If payment of a Participant's
---- --------------------
Account Balance is to be made in two or more annual installments
pursuant to an election under Section 3.01(d):
(a) Each installment after the first installment made on
the Payment Start Date shall be due and payable as of the first
day of the same month of the next succeeding Year until all annual
installments have been paid; and
(b) The amount of each installment shall be equal to the
Account Balance on the date of the installment divided by the
number of installments remaining to be paid.
7
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5.03. Acceleration of Payment for Unforeseeable Emergency.
---- ---------------------------------------------------
(a) Notwithstanding any other provision of the Plan, the
Company may decide that payment of any portion of a Participant's
Account Balance shall be accelerated on application of the
Participant or beneficiary on account of and subject to reasonable
proof of unforeseeable emergency.
(b) For purposes of this Section 5.03, an unforeseeable
emergency is severe financial hardship to the Participant or
beneficiary resulting from a sudden and unexpected illness or
accident of the Participant or beneficiary or of a dependent (as
defined in section 152(a) of the Internal Revenue Code) of the
Participant or beneficiary, loss of the Participant's or
beneficiary's property due to casualty, or other similar
extraordinary and unforeseeable circumstances arising as a result
of events beyond the control of the Participant or beneficiary.
The circumstances that will constitute an unforeseeable emergency
will depend upon the facts of each case, but, in any case, payment
may not be made to the extent that such hardship is or may be
relieved--
(i) Through reimbursement or compensation by
insurance or otherwise,
(ii) By liquidation of the Participant's or
beneficiary's assets, to the extent the liquidation of such
assets would not itself cause severe financial hardship, or
(iii) By cessation of deferrals under the Plan if and
when possible under the remaining provisions of the Plan, or
by cessation of elective deferrals if and when possible
under any other deferred compensation plan for which the
Participant or beneficiary is eligible.
Examples of what are not considered to be unforeseeable
emergencies include the need to send a Participant or
beneficiary's child to college or the desire to purchase a home.
(c) Withdrawal of amounts because of an unforeseeable
emergency shall be permitted only to the extent reasonably needed
to satisfy the emergency need.
(d) All determinations under this Section 4.03 shall be
made by the Board of Directors of the Company, with the
Participant requesting such a determination to be excluded from
voting with respect thereto, and (with respect to certain legal
restrictions) by the General Counsel pursuant to Section 6.01(g).
8
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5.04. Change in Control.
---- -----------------
(a) Upon a Change in Control, as defined in The
Earthgrains Company Executive Deferred Compensation Plan from time
to time, the Company shall pay each Participant (or beneficiary)
his or her entire Account Balance.
(b) If, by reason of this Section 5.04, an excise or other
special tax ("Excise Tax") is imposed on any payment under the
Plan (a "Required Payment"), the amount of each Required Payment
shall be increased by an amount which, after payment of income
taxes, payroll taxes and Excise Tax on such additional amount,
will equal such Excise Tax on the Required Payment.
(c) This Section 5.04 may be amended in any way before a
Change in Control as the Board may determine in its sole
discretion. Notwithstanding any other provision of the Plan, this
Section 5.04 may not be amended following any Change in Control.
(d) This Section 5.04 shall survive termination of the
Plan.
5.05. Acceleration of Payment. Notwithstanding Section
---- -----------------------
5.01, the Company in its sole discretion may direct current payment of
any or all of a Participant's Account Balance. No Participant or
beneficiary shall have any right to demand acceleration of payment of
any portion of his or her Account Balance.
5.06. Payments After Death.
---- --------------------
(a) Except as otherwise provided in this Section 5.06, any
amount payable under this Plan as a result of or following the
death of a Participant shall be applied only for the benefit of
the beneficiary or beneficiaries designated by the Participant
pursuant to this Section 5.06. Each Participant shall
specifically designate, by name, on forms provided by the Company,
the beneficiary(ies) to whom any such amounts shall be paid. A
Participant may change or revoke a beneficiary designation without
the consent of the beneficiary(ies) at any time by filing a new
beneficiary designation form with the Company. The filing of a
new form shall automatically revoke any forms previously filed
with the Company. A beneficiary designation form not properly
filed with the Company prior to the death of the Participant shall
have no validity under the Plan.
(b) More than one beneficiary, and alternative or
contingent beneficiaries, may be designated, in which case the
Participant shall specify the shares, terms and conditions upon
which amounts shall be paid to such multiple or alternative or
contingent beneficiaries, all of which must be satisfactory to the
Company.
(c) If, at the time of the Participant's death, (i) no
beneficiary designation is on file with the Company, (ii) no
beneficiary designated by the Participant has survived the
Participant, or (iii) there are other circumstances which are not
covered by the beneficiary designation form on file with the
Company, then the Participant's estate shall be conclusively
9
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<PAGE>
deemed to be the beneficiary designated to receive any amounts
then remaining payable under this Plan.
(d) In answering any question concerning a Participant's
beneficiary, the latest designation filed with the Company shall
control and intervening changes in circumstances shall be ignored;
provided, however, that if a Participant's spouse is designated as
beneficiary but thereafter is divorced from the Participant, such
designation shall be invalid and the Participant's estate shall be
deemed to be the Participant's beneficiary unless and until a
replacement beneficiary designation form has been filed with the
Company.
(e) Any check issued on or before the date of a
Participant's death shall remain payable to the Participant,
whether or not the check is received by the Participant prior to
death. Any check issued after the date of the Participant's death
shall be the property of the Participant's beneficiaries
determined in accordance with this Section 5.06.
(f) Payment of any installments due a Participant under
the Plan shall not be automatically accelerated by reason of the
Participant's death; provided, however, that the Company may
exercise its power to accelerate at any time as set forth in
Section 5.05 without regard to the timing of a Participant's
death.
ARTICLE VI
ADMINISTRATION
6.01. Administrative Duties of the Company.
---- ------------------------------------
(a) The Board shall have responsibility for the
administration of the Plan.
(b) The Board shall administer the Plan in accordance with
its terms and shall have all powers necessary to carry out the
provisions of the Plan. The Board shall interpret the Plan; shall
make all factual determinations arising in the administration,
interpretation, and application of the Plan; and shall construe
any ambiguity, supply any omission, and reconcile any
inconsistency in such manner and to such extent as the Board deems
proper. Any interpretation or construction placed upon any term
or provision of the Plan by the Board, any decisions and
determinations of the Board arising under the Plan, including
without limiting the generality of the foregoing: (i) the
eligibility of any individual to become or remain a Participant
and a Participant's status as such; (ii) the time, method and
amounts of payments payable under the Plan; (iii) the rights of
Participants and beneficiaries; and any other action or
determination or decision whatsoever taken or made by the Board in
good faith shall be final, conclusive, and binding upon all
persons concerned, including, but not limited to, all Participants
and beneficiaries.
10
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<PAGE>
(c) The Board may adopt such rules as it deems necessary,
desirable, or appropriate to carry out its duties under the Plan.
All rules, decisions and determinations of the Board shall be
uniformly and consistently applied.
(d) The Board may appoint any officer or employee of the
Company to carry out its duties hereunder.
(e) The Board may employ accountants, counsel, specialists,
and other persons necessary to help carry out its duties and
responsibilities as fiduciary under the Plan. The Board shall be
entitled to rely conclusively upon any opinions or reports which
shall be furnished to it by such accountants, counsel, specialists,
and other persons.
(f) No Director shall participate in determining his or
her own entitlement under the Plan.
(g) The General Counsel of the Company shall have complete
power from time to time to adopt, amend, and rescind such rules
as the General Counsel shall deem necessary, appropriate, or
prudent in order to comply with or avoid liability under Section
16 of the Securities Exchange Act of 1934, as amended, or the
rules promulgated thereunder from time to time. Without limiting
the generality of such authority, the General Counsel may adopt,
amend, and rescind rules which may have the effect of adding to,
deleting from, or otherwise modifying the terms of the Plan in any
respect, provided only that the General Counsel in good faith
determines that such rules are reasonably likely to further the
objective of complying with or lawfully avoiding liability under
Section 16 or the rules thereunder. In addition, from time to
time the General Counsel may (but need not) adopt, amend, and
rescind rules which relax Plan restrictions if and to the extent
the General Counsel determines that such restrictions no longer
are necessary to conform the Plan to any applicable legal
requirements and no longer are appropriate to the prudent and
convenient administration of the Plan. Any rules adopted,
amended, or rescinded by the General Counsel hereunder shall
become effective at such times as the General Counsel may
determine, without approval or other action by the Board of
Directors of the Company. The General Counsel shall notify the
Board promptly of any rules adopted, amended, or rescinded
hereunder. The Board at all times shall retain the power to annul
in whole or part any action taken by the General Counsel
hereunder.
6.02. Books and Records.
---- -----------------
(a) The Board shall keep such books, records, and other
data as it deems necessary for proper administration of the Plan,
including but not limited to records of each Participant's
Director's Fees, Eligible Compensation elections, and Account
Balances.
(b) The records of the Company shall be conclusive as to
all persons unless proved incorrect to the satisfaction of the
Company.
11
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(c) The Company shall comply with all reporting and
disclosure requirements of the law and shall maintain all records
required by law.
6.03. Notices.
---- -------
(a) Any notice from the Company to any Participant or
beneficiary shall be in writing and shall be given by delivery to
the Participant or beneficiary, or by mailing to the last known
residence address of the Participant or beneficiary. Any notice
from a Participant or beneficiary to the Company shall be in
writing and shall be given by delivery to the Board, or by mailing
to the Board at the Company's headquarters. Notices which are
given by delivery shall be effective on the date of delivery.
Notices given by mailing shall be effective on the date of
postmark.
(b) Each Participant or beneficiary shall furnish all
information, including, without limitation, post office address
and each change of post office address, proofs, receipts and
releases, as may be required by the Company.
(c) Any communication, statement or notice addressed to
any individual at the last post office address filed with the
Company shall be binding for all purposes of the Plan, and the
Company shall not be obligated to search for or ascertain the
whereabouts of any such individual.
(d) Except as provided in Article III, any notice required
by the Plan may be waived by the person entitled thereto.
6.04. Payment/Accrual of Director's Fees. Market Value for
---- ----------------------------------
each accrual of Credited Shares shall be computed and such Credited
Shares and cash payments (if any) shall be payable or accruable pursuant
to the following:
(a) For any annual fee and any committee chair fee payable
and/or accruable to any Participant, the Market Value of shares
to be credited in the Participant's Share Accounts shall be
calculated and such Credited Shares shall be accruable and cash
payments (if any) shall be payable as of the date of the first
Board meeting of each fiscal year.
(b) For any fee for attendance at a Board or committee
meeting, the Market Value of shares to be credited in the
Participant's Share Accounts shall be calculated as of the date of
such Board or committee meeting.
ARTICLE VII
AMENDMENT AND TERMINATION
7.01. Amendment. Except as provided in Section 5.04(c),
---- ---------
the Company may amend the Plan on a prospective basis at any time.
Except as provided in Section 5.04(c), the Company
12
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<PAGE>
shall have no authority to amend the Plan retroactively in any manner
which is or may be detrimental to any Participant or beneficiary without
the prior written consent of all affected Participants or beneficiaries,
except to the extent that a failure to amend the Plan would result in
required inclusion in taxable income by Participants or beneficiaries of
amounts not yet received.
7.02. Termination. The Company may terminate the Plan on
---- -----------
a prospective basis at any time by paying each Participant his or her
Account Balance.
ARTICLE VIII
MISCELLANEOUS
8.01. Company's Obligations Unsecured. Participants and
---- -------------------------------
beneficiaries have only the status of general unsecured creditors of the
Company. The Plan constitutes a mere promise by the Company to make
payments in the future. It is the intention of the Company and all
Participants that the Plan shall be unfunded for tax purposes and, to
the extent applicable, for purpose of Title I of Employee Retirement
Income Security Act of 1974, as amended from time to time.
8.02. No Alienation. Amounts payable under this Plan
---- -------------
shall not be subject in any manner to anticipation, alienation, sale,
transfer, assignment, pledge, encumbrance, attachment, or garnishment by
any Participant or beneficiary.
8.03. No Waiver of Rights. No failure or delay by the
---- -------------------
Company or any Participant or beneficiary to exercise any right, power
or privilege hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise thereof preclude any other or further
exercise thereof or the exercise of any other right, remedy, power or
privilege.
8.04. Severability. The invalidity of any particular
---- ------------
clause, provision or covenant herein shall not invalidate all or any
part of the remainder of this Plan, but such remainder shall be and
remain valid in all respects as fully as the law will permit.
8.05. Presumption of Competence. Every person receiving
---- -------------------------
or claiming amounts payable under this Plan shall be conclusively
presumed to be mentally competent and of legal age unless the Company
receives proof satisfactory to the Company that the person is
incompetent or is a minor or that a guardian or other person legally
vested with the care of the person's estate has been appointed.
8.06. Facility of Payment. If any amount is payable
---- -------------------
hereunder to a minor or other person under legal disability or otherwise
incapable of managing his or her own affairs, as determined by the
Company in its sole discretion, payment thereof shall be made in one (or
any combination) of the following ways, as the Company shall determine
in its sole discretion:
(a) directly to said minor or other person;
13
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<PAGE>
(b) to the legal representatives of said minor or other
person; or
(c) to some relative or friend of such minor or other
person for the support, welfare or education of such minor.
The Company shall not be required to see to the application of any
payment so made, and the receipt of the person to whom such payment is
actually made shall fully discharge the Company from any further
accountability or responsibility with respect to the amount so paid.
8.07. No Guarantee of Position or Directors Fees. No
---- ------------------------------------------
provision of this Plan shall restrict the Company from removing a
Participant from his or her position as a Director or restrict any
Participant from resigning from his or her position as a Director. No
provision of this Plan shall restrict the Company from increasing or
decreasing the Director's Fees payable to any Participant or other
Director.
8.08. Plan Provisions Binding. The provisions of the Plan
---- -----------------------
shall be binding upon the Company and all persons entitled to benefits
under the Plan and their respective successors, heirs and legal
representatives.
8.09. Missouri Law Controls. Subject to any applicable
----- ---------------------
provisions of the Employee Retirement Income Security Act of 1974 which
provide to the contrary, this Plan shall be administered, construed, and
enforced according to the laws of the State of Missouri and in Courts
situated in that State.
14
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FIRST AMENDMENT
---------------
This FIRST AMENDMENT dated as of February 22, 1999 (this
"Amendment") amends the Second Amended and Restated Credit Agreement
---------
dated as of October 3, 1997 (the "Credit Agreement") among The
----------------
Earthgrains Company (the "Company"), various financial institutions
-------
(the "Lenders") and Bank Of America National Trust and and Savings
-------
Association, as Administrative Agent (in such capacity, the
"Administrative Agent"). Terms defined in the Credit Agreement are,
--------------------
unless otherwise defined herein or the context otherwise requires, used
herein as defined therein.
WHEREAS, the Company, the Lenders and the Administrative Agent
have entered into the Credit Agreement; and
WHEREAS, the parties hereto desire to amend the Credit Agreement
in certain respects as more fully set forth herein;
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1 Amendments. Effective on (and subject to the
----------
occurrence of) the Amendment Effective Date (as defined below), the
Credit Agreement shall be amended as set forth below:
1.1 Addition of Definition. Section 1.1 is amended by adding
----------------------
the following definition in proper sequence:
Restructuring Charges means the first $18,600,000 of
---------------------
restructuring charges taken by the Company after January 5, 1999
in connection with the restructuring of its manufacturing and
distribution operations in Spain.
1.2 Amendments to Definitions. The definitions of "EBITA" and
-------------------------
"Loan Documents" in Section 1.1 are amended in their entirety to read as
follows:
EBITA means, for any Computation Period, the Company's
-----
consolidated earnings from continuing operations for such period
plus, to the extent deducted in determining such earnings,
Interest Expense, income taxes, any amortization of the goodwill
on the Company's balance sheet as of January 2, 1996, any non-cash
special charge and, without duplication, all Restructuring
Charges.
Loan Documents means this Agreement, any Notes, the
--------------
L/C-Related Documents and all other documents delivered to the
Administrative Agent or any Lender in connection herewith.
1.3 Deletion of Definitions. Section 1.1 is amended by
-----------------------
deleting the definitions of "Guarantor" and "Guaranty".
<PAGE>
<PAGE>
1.4 Amendments to Representations and Warranties. Sections
---------------------------------------------
6.2, 6.3 and 6.4 are amended in their entirety to read as follows:
6.2 Corporate Authorization; No Contravention. The execution,
--------------------------------------
delivery and performance by the Company of each Loan Document have
been duly authorized by all necessary corporate action, and do not
and will not:
(a) contravene the terms of the Company's Organization
Documents;
(b) conflict with or result in any breach or
contravention of, or the creation of any Lien under, any
document evidencing any Contractual Obligation to which the
Company or any of its Subsidiaries is a party or any order,
injunction, writ or decree of any Governmental Authority to
which the Company or any of its Subsidiaries or any of its
or their property is subject; or
(c) violate any Requirement of Law.
6.3 Governmental Authorization. No approval, consent,
--------------------------
exemption, authorization or other action by, or notice to, or
filing with, any Governmental Authority is necessary or required
in connection with the execution, delivery or performance by, or
enforcement against, the Company of this Agreement or any other
Loan Document.
6.4 Binding Effect. This Agreement and the other Loan
--------------
Documents constitute legal, valid and binding obligations of the
Company, enforceable against the Company in accordance with their
respective terms, except as enforceability may be limited by
applicable bankruptcy, insolvency or similar laws affecting the
enforcement of creditors' rights generally or by equitable
principles relating to enforceability.
1.5 Deletion of Further Assurances. Section 7.13 is deleted in
------------------------------
its entirety.
1.6 Amendment to Investment Covenant. Each of subsection (c)
--------------------------------
and subsection (e) of Section 8.5 is amended by deleting the percentage
12.5% thereon and substituting "20%" therefor.
1.7 Amendments of Certain Negative Covenants. Sections 8.6 and
----------------------------------------
8.10 are amended in their entirety to read as follows, respectively:
8.6 Limitation on Superior Indebtedness. The Company shall
-----------------------------------
not permit the aggregate amount, without duplication,
2
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<PAGE>
of (a) all Indebtedness of the Company and its Subsidiaries which
is secured by Liens described in subsection (a), (i), (j) or
------------------------
(l) of Section 8.2 plus (b) all Indebtedness of Subsidiaries
--- -----------
(excluding Indebtedness owed to the Company or a Wholly-Owned
Subsidiary) at any time to exceed 20% of Consolidated Total
Assets.
8.10 [Intentionally Deleted].
1.8 Amendments to Events of Default. (i) Subsection 9.1 (d)
-------------------------------
is amended by deleting the phrase "or any Guarantor" therein and (ii)
subsection 9.1(k) is deleted in its entirety.
SECTION 2 Representations and Warranties. The Company
------------------------------
represents and warrants to the Lenders that (a) each warranty set forth
in Article VI of the Credit Agreement, as amended hereby (as so amended,
the "Amended Credit Agreement"), is true and correct as of the date of
------------------------
the execution and delivery of this Amendment by the Company, with the
same effect as if made on such date (except to the extent such
representations and warranties expressly refer to any earlier date, in
which case they were true and correct as of such earlier date), (b) the
execution and delivery by the Company of this Amendment, and the
performance by the Company of its obligations under the Amended Credit
Agreement, (i) are within the powers of the Company, (ii) have been duly
authorized by all necessary action on the part of the Company, (iii)
have received all necessary governmental approval and (iv) do not and
will not contravene or conflict with any Requirement of Law or any
provision of the Organization Documents of the Company or of any
document evidencing any Contractual Obligation to which the Company or
any Subsidiary is a party or any order, injunction, writ or decree of
any Governmental Authority to which the Company or any Subsidiary or
any of its or their property is subject and (c) the Amended Credit
Agreement is the legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, except
as enforceability may be limited by bankruptcy, insolvency or other
similar laws of general application affecting the enforcement of
creditors' rights or by general principles of equity limiting the
availability of equitable remedies.
SECTION 3 Effectiveness. The amendments set forth in Section 1
------------- ---------
above shall become effective on the date (the "Amendment Effective
-------------------
Date") when the Administrative Agent shall have received each of the
- ----
following documents, each in form and substance satisfactory to the
Administrative Agent:
(a) counterparts of this Amendment executed by the Company and
the Required Lenders;
3
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<PAGE>
(b) copies, certified by the Secretary or Assistant Secretary of
the Company, of resolutions of the Board of Directors of the
Company authorizing or ratifying the execution, delivery and
performance by the Company of this Amendment;
(c) a certificate, certified by the Secretary or Assistant
Secretary of the Company, certifying the names and true
signatures of the officers of the Company authorized to sign
this Amendment;
(d) an opinion of Bryan Cave LLP, counsel to the Company; and
(e) such other documents as the Administrative Agent or any
Lender may reasonably request in connection with the
Company's authorization, execution and delivery of this
Amendment.
SECTION 4 Miscellaneous.
-------------
4.1 Continuing Effectiveness, etc. As herein amended, the
-----------------------------
Credit Agreement shall remain in full force and effect and is hereby
ratified and confirmed in all respects. After the Amendment Effective
Date, all references in the Credit Agreement and the Notes to "Credit
Agreement", "Agreement" or similar terms shall refer to the Amended
Credit Agreement.
4.2 Counterparts. This amendment may be executed in any number
------------
of counterparts and by the different parties on separate counterparts,
and each such counterpart shall be deemed to be an original but all such
counterparts shall together constitute one and the same Amendment.
4.3 Governing Law. This Amendment shall be a contract made
-------------
under and governed by the laws of the State of Illinois applicable to
contracts made and to be fully performed within such state.
4.4 Successors and Assigns. This Amendment shall be binding
----------------------
upon the Company, the Lenders and the Administrative Agent and their
respective successors and assigns, and shall inure to the benefit of the
Company, the Lenders and the Administrative Agent and the respective
successors and assigns of the Lenders and the Administrative Agent.
4.5 Release of Guarantors. The Required Banks hereby agree
---------------------
that, on the Amendment Effective Date (and without any further action by
any Person), (i) all Guarantors shall be released from their obligations
under the Guaranty and (ii) the Guaranty shall terminate and be of no
further force or effect. The Required
4
<PAGE>
<PAGE>
Banks hereby authorize the Administrative Agent to execute and deliver
such documents as the Company may reasonably request to evidence such
release and termination.
Delivered at Chicago, Illinois, as of the day and year first above
written.
THE EARTHGRAINS COMPANY
By: /s/
-----------------------------------
Vice President and
Treasurer
<PAGE>
<PAGE>
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
as Administrative Agent
By: /s/
-----------------------------------
Title: Managing Director
--------------------------------
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as Swing Line
Lender, as an Issuing Lender and as
a Lender
By: /s/
-----------------------------------
Title: Managing Director
--------------------------------
<PAGE>
<PAGE>
THE CHASE MANHATTAN BANK,
as Co-Agent and as a Lender
By: /s/
-----------------------------------
Title: Vice President
--------------------------------
<PAGE>
<PAGE>
THE FIRST NATIONAL BANK OF CHICAGO,
as Co-Agent and as a Lender
By: /s/
-----------------------------------
Title: Vice President
--------------------------------
<PAGE>
<PAGE>
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, as Co-Agent
and as a Lender
By: /s/
-----------------------------------
Title: Vice President
--------------------------------
<PAGE>
<PAGE>
NATIONSBANK, N.A.,
as Co-Agent and as a Lender
By: /s/
-----------------------------------
Title: Managing Director
--------------------------------
<PAGE>
<PAGE>
BANCO BILBAO VIZCAYA
By: /s/
-----------------------------------
Title: Vice President
--------------------------------
By: /s/
-----------------------------------
Title: Vice President
--------------------------------
<PAGE>
<PAGE>
WACHOVIA BANK, N.A.
By: /s/
-----------------------------------
Title: Senior Vice President
--------------------------------
<PAGE>
<PAGE>
WELLS FARGO BANK, N.A.
By: /s/
-----------------------------------
Title: Vice President
--------------------------------
<PAGE>
<PAGE>
THE BANK OF NEW YORK
By: /s/
-----------------------------------
Title: Vice President
--------------------------------
<PAGE>
<PAGE>
UBS AG, STAMFORD BRANCH
(successor in interest to
Swiss Bank Corporation)
By: /s/
-----------------------------------
Title: Director
--------------------------------
By: /s/
-----------------------------------
Title: Executive Director
--------------------------------
<PAGE>
17
FINANCIAL CONTENTS
- ---------------------------------------------------------
Management's Discussion and Analysis of
Results of Operations and Financial Condition 18
- ---------------------------------------------------------
Consolidated Financial Statements 24
- ---------------------------------------------------------
Notes to Consolidated Financial Statements 28
- ---------------------------------------------------------
Five-Year Financial Highlights 40
- ---------------------------------------------------------
Responsibility for Financial Statements
and Report of Independent Accountants 41
- ---------------------------------------------------------
FORWARD-LOOKING STATEMENTS
Matters discussed in this Annual Report (particularly in this
section and the Letter to Shareholders), contain forward-looking
information, as defined in the Private Securities Litigation
Reform Act of 1995. All such forward-looking information in
this report involves risk and uncertainties, including, but not
limited to, variations in income levels of consumers, fluctuations
in currency exchange rates for the Spanish peseta and French
franc versus the U.S. dollar, the costs of raw materials, the ability
of the Company to realize projected savings from productivity
and product quality improvements, the ability of the Company
to continue to participate in industry consolidation and to
successfully integrate acquired businesses, legal proceedings to
which the Company may become a party, competitive pricing,
economic conditions in the Company's countries of operations,
the impact of the Year 2000 date on the Company's information
systems, operating systems, or those of its customers or suppliers,
the impact of the European currency conversion, and other risks
indicated in filings by the Company with the Securities and
Exchange Commission.
<PAGE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
18
INTRODUCTION
A number of significant factors, which are discussed below, affected the
consolidated results of operations, financial condition, and liquidity
of Earthgrains during the current fiscal year ended March 30, 1999, and
the prior fiscal years ended March 31, 1998, and March 25, 1997. This
discussion should be read in conjunction with the Consolidated Financial
Statements and notes thereto for such periods, which are included
elsewhere in this report. Effective at the close of business on March
26, 1996 (the Distribution Date), shares of the Company were distributed
to shareholders of Anheuser-Busch Companies, Inc. (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.
Accordingly, since the Company was a wholly-owned subsidiary of
Anheuser-Busch during the periods presented prior to fiscal 1997,
financial highlights presented for these prior periods may not
necessarily reflect the consolidated results of operations or the
financial position of the Company or what the results of operations
would have been if the Company had been an independent public company
during those periods.
OVERVIEW AND OUTLOOK
For the third consecutive year since its spinoff as an independent
company, Earthgrains delivered significantly improved operating results.
The Company's multidisciplined strategy of enhancing cost-effectiveness,
gaining volume and efficiencies through acquisitions, and focusing on
higher margin products is paying off. Customer partnering is proving a
valuable means of effective category management. Driving growth of
value-added superpremium and specialty product lines, as part of the
fundamental strategy to build branded and value-added specialty store-
brand business, has produced positive margin effects for both business
segments -- Bakery Products and Refrigerated Dough Products.
During fiscal 1999, Earthgrains continued its active role in the
consolidation of the bakery products industry. Added volume from
retailer supply agreements and manufacturing synergies from acquisition-
related capacity and delivery route rationalization have contributed
significantly to improved operating results. Earthgrains' investment in
information systems has provided a platform to enable successful and
swift integration to achieve efficiency gains. Benefits have continued
during the current year from integrating the fourth quarter fiscal 1998
acquisition of CooperSmith, Inc. Initiatives are under way involving the
integration of supply agreements entered into with Kroger Co. in Texas
and Lucky Stores, Inc. in California, as well as the recent acquisition
of Reposteria Martinez Group of Santander, Spain. Resposteria Martinez's
high-profile brands in sweet goods will make a strong complement to the
existing product lines and provide a good opportunity to capture
manufacturing and distribution synergies with the Company's bakery
operations in Spain. As a result of significant integration costs, it is
expected to be slightly dilutive through fiscal 2000 and additive to
earnings thereafter. Acquisitions continue to be an important component
of Earthgrains' growth and increased profitability, both in the United
States and Europe. The Company will continue to evaluate opportunities
for industry consolidation in all of its businesses in line with its
strategy to enhance revenues, profitability and return on capital.
Additionally, the Company has maintained a focus on optimizing
efficiencies and enhancing cost-effectiveness throughout its operations
in manufacturing, sales and distribution, and administration. Further
operating improvements have resulted from the Company's restructuring
and consolidation program aimed at reducing excess capacity and
rationalizing business mix. Creation of the Financial Shared Services
Center in St. Louis to streamline and centralize accounting and
administrative functions, is also expected to generate significant
operating efficiencies, while further facilitating the ability to
integrate acquisitions. This year's results have also benefited from
lower raw material costs.
Since the spinoff, Earthgrains has demonstrated the ability to
successfully implement its strategies to drive shareholder value. These
same initiatives are expected to continue delivering benefits going
forward. The Company is poised to capitalize on opportunities for
further industry consolidation and to continue making progress in
fundamental improvements in its existing operations. Earthgrains will
continue to focus on driving sustainable growth in profits and cash flow
by partnering with key customers, to improve service by understanding
consumers, to bring ever-improving quality, value and variety of
products and services to the market, and by using quality-driven cost
reduction to maximize manufacturing, distribution and administrative
efficiencies.
RESTRUCTURING AND CONSOLIDATION PROVISIONS
The Company recorded the following provisions during the periods
presented:
* A $28.0 million charge in fiscal 1999 for restructuring of
existing operations in Spain related to the
The Earthgrains Company 1999 Annual Report
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<PAGE>
19
Reposteria Martinez acquisition, for estimated expenses to close
three bakeries, and for severance costs related to creation of the
centralized Financial Shared Services Center in St. Louis
* A $12.7 million charge in fiscal 1997 primarily for estimated
expenses in conjunction with closing one bakery and one
refrigerated dough plant
The Company believes that notable improvements in the current
fiscal year's operating results reflect further benefits achieved
through the restructuring and consolidation program. Continued benefits
are expected to be achieved in the upcoming fiscal year. The Company
will continue to review its operations to balance capacity and to seek
additional opportunities to improve efficiencies. See Note 5 in the
Notes to the Consolidated Financial Statements for additional
information concerning the details of the Company's restructuring
charges, including a reconciliation of the balance sheet reserve
relating thereto.
RESULTS OF OPERATIONS
The following discussion addresses the operating results and financial
condition of the Company for the current year ended March 30, 1999, and
the prior years ended March 31, 1998, and March 25, 1997. This
discussion has been modified to reflect business results by operating
segment, as reported consistently with how management assesses operating
segment performance. See Note 14 for comparative presentation of
business segment data.
FISCAL YEAR 1999 COMPARED WITH FISCAL YEAR 1998
Net sales for the 52-week fiscal year ended March 30, 1999, of
$1,925.2 million increased from sales of $1,719.0 million for the 53-
week fiscal year ended March 31, 1998. Both operating segments, Bakery
Products and Refrigerated Dough Products, posted increased sales, but
the majority of the increase can be attributed to acquisitions and
supply agreements in Bakery Products, most notably CooperSmith. Foreign
exchange rates for the current year had a $2.9 million favorable impact.
Adjusting for the additional week a year ago and the foreign exchange
impact, sales increased 13.8%.
Gross margin increased to 43.3% in the current year from 42.9% in
fiscal 1998. Despite weaker performance from the European Bakery
Products operations, profit-margin improvements were experienced by both
business segments through a continued focus on mix-shift improvement to
branded products and to premium and superpremium categories for Bakery
Products and to specialty dough products for Refrigerated Dough
Products. Added volume from supply agreements and manufacturing
synergies related to acquisitions along with lower raw material costs
continued to drive margin improvements.
Agricultural commodity costs represented 22-25% of cost of
products sold during the 1999 fiscal year, which is consistent with the
prior year. Costs of products sold include agricultural commodities
whose prices are influenced by weather conditions, government
regulations and economic conditions. The Company utilized futures
contracts or options to hedge approximately 55-65% of such agricultural
commodity costs or 12-16% of cost of products sold during the 1999
fiscal year. As of March 30, 1999, the amount of the Company's aggregate
obligation to purchase commodities under such contracts was $23.0
million.
Marketing, distribution and administrative expenses decreased
significantly in 1999 to 38.0% from 39.0% on a percentage-of-sales
basis. This decrease can be primarily attributed to further benefits in
the consolidation of selling, distribution and administrative expenses
from capacity and delivery route rationalization as a result of
integrating the CooperSmith and Southern Bakeries, Inc. acquisitions
into the Bakery Products operations in the southeast United States.
The charge of $28.0 million for restructuring and consolidation
during the current year is for expenses in conjunction with closing
bakeries in Pueblo, Colo., Macon, Ga., and Montgomery, Ala., for
severance costs related to creation of the centralized Financial Shared
Services Center in St. Louis, and for the restructuring of existing
operations in Spain related to the Reposteria Martinez acquisition.
Excluding the charge, operating income for fiscal 1999 increased by
$34.0 million.
The increase in other income is related substantially to gains on
the sales of property.
The lower effective tax rate for fiscal 1999 is a direct result of
a $2.0 million one-time tax benefit from a structure put into place
during the fourth quarter to improve management of the Company's benefit
programs. This benefit is offset slightly with the effect of increased
nondeductible goodwill amortization from current-year and prior-year
acquisitions.
In the prior year, the $1.8 million net-of-tax charge for the
change in accounting principle represents the effect of compliance with
a new accounting interpretation related to the recognition of costs
associated with business process re-engineering. See Note 3 for
additional information.
Net earnings for fiscal 1999 were $38.0 million or $0.89 per
diluted share, compared with $36.0 million,
The Earthgrains Company 1999 Annual Report
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<PAGE>
20
or $0.85 per diluted share for fiscal 1998. The increase in net earnings
for the current year is a result of the factors noted above.
FISCAL YEAR 1998 COMPARED WITH FISCAL YEAR 1997
Net sales for the 53-week fiscal year ended March 31, 1998, of
$1,719.0 million increased from sales of $1,662.6 million for the
comparable 52-week fiscal year ended March 25, 1997. Sales increases in
Bakery Products added through the acquisition of CooperSmith since
January 17, 1998, and a full year of Heiner's, acquired in November
1996, combined with the additional week were partially offset by the
unfavorable impact of foreign exchange rates during the year. Improved
pricing and favorable product-mix shift across both business segments
also contributed to the increase in sales. After adjustment for the
additional week and effect of foreign exchange rates, sales for fiscal
1998 increased by $79.7 million or 4.8%.
Gross margin increased significantly to 42.9% in 1998 from 40.5%
in fiscal 1997. Profit margin improvements were experienced across both
Bakery Products and Refrigerated Dough Products segments. These solid
margin improvements can be attributed to focus on branded and
superpremium product categories, favorable pricing, and improved
manufacturing efficiencies. Refrigerated Dough operations demonstrated
the strongest margin-performance improvement, through efficiencies
gained from closing the Indianapolis, Ind., plant in March 1997 and a
positive mix shift toward value-added specialty dough products.
Additionally, flour costs continued to decrease since the first half of
fiscal 1997 after reaching record highs thereby resulting in margin
improvements.
Agricultural commodity costs represented 22-25% of cost of
products sold during the 1998 fiscal year, which was down from prior
years. Costs of products sold include agricultural commodities whose
prices are influenced by weather conditions, government regulations and
economic conditions. The Company utilized futures contracts or options
to hedge approximately 55-65% of such agricultural commodity costs or
12-16% of cost of products sold during the 1998 fiscal year. As of March
31, 1998, the amount of the Company's aggregate obligation to purchase
commodities under such contracts was $20.4 million.
Marketing, distribution and administrative expenses increased in
1998 from 38.1% to 39.0% on a percentage-of-sales basis. A primary
factor is the increased spending in marketing and advertising to focus
on building core brands as well as supporting new premium product
introductions.
The prior-year charge of $12.7 million for restructuring and
consolidation covered expenses in conjunction with closing one bakery
and one refrigerated dough plant. Excluding the prior-year charge,
operating income for fiscal 1998 increased $26.9 million. This
significant increase in operating results reflects a strong contribution
from Heiner's, the benefits of lower ingredient costs, and the continued
focus on cost-effectiveness combined with an improvement in product mix.
The effective tax rate for fiscal 1998 represents a more typical
tax rate expected for the Company on an on-going basis but may increase
slightly with the effect of nondeductible goodwill amortization from
acquisitions. The lower effective tax rate for fiscal 1997 is a direct
result of $5.3 million in one-time Spanish tax incentives and credits
associated principally with investments made in the Canary Islands. The
Company substantially completed the expansion of its Canary Islands
bakery in that year.
The $1.8 million net-of-tax charge for the change in accounting
principle in fiscal 1998 represents the effect of compliance with a new
accounting interpretation related to the recognition of costs associated
with business process re-engineering. See Note 3 for additional
information.
Net earnings for fiscal 1998 were $36.0 million or $0.85 per
diluted share, compared to $16.2 million, or $0.39 per diluted share for
fiscal 1997. The marked increase in net earnings for the current year is
a result of the factors noted above.
FISCAL YEAR 1997 COMPARED WITH FISCAL YEAR 1995
Net sales for the fiscal year ended March 25, 1997, of $1,662.6
million were consistent with sales of $1,664.6 million for the
comparable 52-week period ended January 2, 1996 (fiscal 1995). The
decrease in sales attributed to the closing or sale of underperforming
and noncore businesses as part of the planned consolidation and
restructuring was partially offset by the effect of price increases
taken early in the year and favorable product-mix shift. Sales
contributed through the acquisition of Heiner's, as of November 30,
1996, were more than offset by the unfavorable impact of foreign
exchange rates near the end of the year. After adjustment for the closed
or sold facilities in both periods presented, sales for fiscal 1997
increased by $88.8 million or 5.6% represented across both Bakery
Products and Refrigerated Dough Products segments.
Gross margin increased to 40.5% in 1997 from 37.8% in fiscal 1995.
Profit margin improvements were experienced by Bakery Products while
margins for the Refrigerated Dough Products operations were down
The Earthgrains Company 1999 Annual Report
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21
slightly from fiscal 1995. The margin improvements can be attributed to
price increases, benefits of the restructuring and consolidation
process, and improved operating efficiencies. Additionally, flour costs
which began to increase dramatically in the last half of fiscal 1995
decreased, thereby resulting in improved margins from 1995.
Agricultural commodity costs represented 25-30% of cost of
products sold during the 1997 fiscal year, which is consistent with the
prior year. The Company utilized futures contracts or options to hedge
approximately 45-55% of such agricultural commodity costs or 11-17% of
cost of products sold during the 1997 fiscal year. As of March 25, 1997,
the amount of the Company's aggregate obligation to purchase commodities
under such contracts was $11.4 million.
Marketing, distribution and administrative expenses increased by
$6.0 million in 1997 and from 37.7% to 38.1% on a percentage-of-sales
basis. The elimination of costs through the closing or sale of
facilities and the effect of the charge for the Spanish work force
reduction program reflected in 1995 were more than offset by the costs
of operating as a stand-alone public company.
The prior-year charge of $27.5 million for restructuring and
consolidation was netted with an $18.4 million gain on the sale of
businesses, resulting in the net charge of $9.1 million. Excluding the
fiscal 1997 charge of $12.7 million and the 1995 net charge of $9.1
million to consolidate certain inefficient facilities, operating income
for fiscal 1997 increased $37.9 million compared to the prior year. This
significant increase in operating results reflects benefits from our
consolidation and restructuring program and our continued focus on cost-
effectiveness combined with an improvement in product mix and lower raw
material costs.
The lower effective tax rate for fiscal 1997 is a direct result of
$5.3 million in one-time Spanish tax incentives and credits associated
principally with investments made in the Canary Islands. The Company
substantially completed the expansion of its Canary Islands bakery
during 1997. Typically, the Company's effective income tax rate is
higher primarily due to the relative impact of the nondeductible fixed
goodwill amortization on the respective earnings level.
Net earnings for fiscal 1997 were $16.2 million or $0.39 per
diluted share, compared with a loss of $6.6 million, or a $0.16 loss per
diluted share, computed on the basis of pro forma average shares
outstanding for fiscal 1995.
The historical statement of earnings for fiscal 1995 does not
reflect interest expense related to long-term debt assumed by the
Company upon the distribution on March 26, 1996, and certain
administrative expenses associated with operating as an independent,
stand-alone company.
LIQUIDITY AND CAPITAL RESOURCES
Concurrent with the Distribution on March 26, 1996, the Company used
borrowings under a $215 million unsecured revolving credit facility with
several financial institutions to pay Anheuser-Busch as a partial
payment of its net intercompany payable, to fund working capital needs
and for general corporate purposes. In conjunction with the acquisition
of CooperSmith in the fourth quarter of fiscal 1998, the existing credit
facility was renegotiated to $450 million with a maturity date of
September 2002. During the current year, three separate lines of credit
for $25 million each, due in 1999, and a 27 million Euro Revolving
Credit Facility, due in 2004, were added to increase the Company's
borrowing flexibility.
The Company's primary source of liquidity is cash flow from
operations, which was $131.9 million for the current fiscal year ended
March 30, 1999. Improved operating efficiencies, favorable product-mix
shift, results from acquisitions and continued lower ingredient costs
have contributed to the strong cash flows from operations for the
current year. Net working capital, excluding cash and cash equivalents,
was $49.0 million at March 30, 1999, consistent with $48.6 million a
year ago.
The Company's primary routine cash requirements will continue to
consist of funding capital expenditures, interest payments pursuant to
the credit facility, and dividends to shareholders. The Company invested
$86.5 million in capital expenditures during the current fiscal year and
expects to fund capital investments of approximately $90 million in the
upcoming year.
The consolidated capital expenditure plan for fiscal 2000 includes
expansion of one of the CooperSmith plants, information systems, new
hand held computers and equipment related to the Reposteria Martinez
acquisition, and a project in the southeast United States to convert
delivery racks and trays to a more efficient basket process. The Company
will also continue ongoing investments in systems technology along with
modernization plans for various domestic and international bakeries and
refrigerated dough plants.
The Company's stock repurchase program authorizes the repurchase
of up to 2 million shares of common stock through open market
transactions as the Company determines. In fiscal 1999, Earthgrains
purchased 557,700 shares of the Company's common stock on the open
market at a cost of $13.4 million. During the two years of the program,
894,900 shares, adjusted to
The Earthgrains Company 1999 Annual Report
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22
reflect the two stock splits, have been purchased to date for the
treasury at a cost of $20.4 million.
Additionally, Earthgrains filed a shelf registration statement
with the Securities and Exchange Commission to issue up to $250 million
in debt securities, which became effective in April 1999. These debt
securities may be offered by the Company from time to time at prices and
on terms to be determined at the time of any such offering. On April 20,
1999, Earthgrains issued $150 million in 10-year, 6.5% fixed-rate senior
debentures. Proceeds from the offering will be used to fund capital
expenditures, acquisition opportunities, and for general corporate
purposes.
On both a short-term and long-term basis, management believes that
its cash flows from operations, together with its available borrowings
under the existing credit facilities and the new shelf registration,
will provide it with sufficient resources to meet its seasonal working
capital needs, to finance its projected capital expenditures, to fund
acquisition opportunities, and to meet its foreseeable liquidity
requirements.
MARKET RISK
The Company actively monitors its exposure to commodity price, foreign
currency exchange rate and interest rate risks and uses derivative
financial and commodity instruments to manage the impact of certain of
these risks. The Company uses derivatives only for purposes of managing
risk associated with underlying exposures. The Company does not trade or
use instruments with the objective of earning financial gains on the
instruments themselves or on a speculative basis, nor does it use
instruments where there are not underlying exposures.
The Company has estimated its market risk exposures using
sensitivity analyses. Market risk exposure has been defined as the
change in fair value of a derivative commodity or financial instrument
assuming a hypothetical 10 percent adverse change in market prices or
rates. Fair value was determined using quoted market prices, if
available. Actual changes in market prices or rates may differ from
hypothetical changes.
* COMMODITIES - Earthgrains uses commodity futures and options to
manage price risk on commodity inventories or anticipated
commodity purchases. The Company typically purchases certain
commodities such as wheat, corn and soy oil. Based on the results
of the sensitivity analysis, the estimated market risk exposure on
such instruments was approximately $2.6 million and $1.4 million
as of March 30, 1999 and March 31, 1998, respectively.
* FOREIGN EXCHANGE - For the Company's international operations, the
functional currency is the local currency and any transactions
denominated in a currency other than the respective functional
currency are immaterial. The Company does not use derivative
instruments to manage exchange risk of net investments in or
earnings of its foreign operations.
* INTEREST RATES - The Company manages its interest rate exposures
to reduce its borrowing costs and risks through the use of a mix
of floating and fixed rate debt, as well as interest rate swap
agreements and other appropriate hedging instruments. The
Company's interest-rate related financial instruments consist of
outstanding debt and a $100 million interest rate swap agreement
which was terminated on April 20, 1999 in conjunction with the
issuance of $150 million of debentures due April 15, 2009. Based
on the Company's outstanding floating rate debt at fiscal year-
end, an assumed adverse 10% increase in interest rates would have
increased annual interest expense by $1.9 million and $1.5 million
during fiscal 1999 and fiscal 1998, respectively. A similar 10%
decline in interest rates would have the potential to reduce the
fair market value of the $100 million ten-year swap by $4.6
million and $4.5 million as of March 30, 1999, and March 31, 1998,
respectively. This sensitivity analysis for the interest rate swap
does not take into account changes in the fair market value of the
underlying exposures being hedged.
YEAR 2000
Many computer systems process dates in application software and data
files based upon two digits for the year of a transaction rather than a
full four digits. As a result, these systems may not be able to properly
process dates in the year 2000. Consequently, businesses and
governmental entities are at risk for possible miscalculations or
systems failures causing disruptions in their business operations.
In 1994, in order to improve access to business information
through integrated systems across the company, and accordingly gain
efficiencies and cost improvements, Earthgrains embarked on a
companywide systems integration project using SAP software.
Additionally, in the past two years, the Company has purchased a new
mainframe computer to increase capacity in support of its acquisition
growth strategy and has replaced all handheld computers, upgrading to
the latest technology to enhance route distribution efficiency. These
new components, which comprise the majority of the Company's core
business computer systems, are Year 2000 compliant. The purchase of new
systems and hardware as a
The Earthgrains Company 1999 Annual Report
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23
part of the companywide business systems improvement program are being
capitalized. This improvement program is proceeding as planned in
support of the Company's ongoing business strategy.
The Company is also in the process of executing a plan to address
the Year 2000 issue with the objective to have all significant business
systems and software applications that are date-sensitive, including
those related to facilities and manufacturing activities, operating
effectively before January 1, 2000. A project team is in place and is
supervising the Company's activity regarding this issue, monitoring
progress, and reporting such findings regularly to management and the
Board of Directors.
The project is structured into three major categories -- Internal
Information Systems; Property, Plant and Equipment Systems; and Third
Party Suppliers and Trading Partners. The six phases of the project
common to each of the categories are: (1) establishing an inventory of
Year 2000 affected items; (2) assessing the risk of these identified
items; (3) assessing the compliance of items considered to have a
potential for material impact; (4) remediating items determined not to
be in compliance; (5) testing such items; and (6) formulating
contingency and business continuation plans for any areas as deemed
necessary.
Inventory, assessment, and remediation of internal information
systems began in 1997. All critical internal information systems, within
the U.S. operations and European Refrigerated Dough Products operations,
were remediated by March 1999 and will be tested by mid-1999. Property,
plant and equipment systems, for these operations, have been inventoried
and assessed with remediation scheduled to be completed by June 1999,
and testing to be completed by July 1999.
Within the European Bakery Products operations, inventory and
assessment of critical internal information systems are scheduled to be
completed by May 1999, while a schedule for remediation and testing is
under review due to the recent Reposteria Martinez acquisition. For
property, plant and equipment systems, inventory, assessment, and
remediation are scheduled to be completed by September 1999, and testing
to be completed by October 1999.
The Company is in the process of communicating with Third Party
Suppliers and Trading Partners to coordinate Year 2000 conversion and
obtain assurances that their systems are Year 2000 compliant.
Contingency plans are being developed, as considered necessary, for each
of the three project categories with completion targeted for July 1999.
Contingency plans will be reviewed and updated throughout 1999.
Incremental project costs associated with Year 2000 compliance
will be expensed or capitalized where appropriate as incurred and are
expected to total approximately $5 million, based upon current
estimates. Such costs are not anticipated to be material to the
Company's financial position or results of operations.
Although the Company believes that the cost of Year 2000
modification efforts for internal-use software and systems are not
material, due to the inherent uncertainties surrounding Year 2000
compliance issues, there can be no assurances that Year 2000 failures or
implications, including litigation, will not have a material adverse
effect on the Company's business, operating results or financial
position, particularly in the event any significant third parties cannot
in a timely manner provide the Company with products, services or
systems that meet Year 2000 requirements. The Year 2000 project is
designed to reduce risks surrounding Year 2000 issues and, coupled with
the ongoing business systems improvement effort, the possibility of
significant interruptions of routine business operations should be
reduced.
The conclusions and estimates in this Year 2000 information
include forward-looking statements and are based upon management's
current best estimates of future events. Risks to achieving this plan
include the availability of resources, the ability to discover and
correct the potential Year 2000 sensitive problems, and the ability of
suppliers and trading partners to bring their systems into Year 2000
compliance.
ENVIRONMENTAL MATTERS
The operations of Earthgrains, like those of similar businesses, are
subject to various federal, state and local laws and regulations with
respect to environmental matters, including air and water quality,
underground fuel-storage tanks, and other regulations intended to
protect public health and the environment. Earthgrains has been
identified as a potentially responsible party ("PRP") at certain
locations under the Comprehensive Environmental Responses, Compensation
and Liability Act, 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 Earthgrains' results of operations or financial position.
The Earthgrains Company 1999 Annual Report
<PAGE>
<PAGE>
24
<TABLE>
CONSOLIDATED BALANCE SHEETS
<CAPTION>
- --------------------------------------------------------------------------
March 30, March 31,
(In millions, except share data) 1999 1998
- --------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 53.1 $ 43.7
Accounts receivable, net 184.5 156.5
Inventories, net 77.7 68.9
Deferred income taxes 39.8 30.4
Other current assets 29.6 26.8
- --------------------------------------------------------------------------
Total current assets 384.7 326.3
Other assets, net 46.0 35.0
Goodwill, net 399.8 311.0
Plant and equipment, net 761.1 722.0
- --------------------------------------------------------------------------
Total assets $1,591.6 $1,394.3
==========================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 125.5 $ 132.1
Accrued salaries, wages and benefits 56.9 56.5
Accrual for restructuring and consolidation 32.4 6.1
Other current liabilities 67.8 39.3
- --------------------------------------------------------------------------
Total current liabilities 282.6 234.0
Postretirement benefits 114.0 115.3
Long-term debt 369.3 266.7
Deferred income taxes 102.7 99.5
Other noncurrent liabilities 73.6 72.2
Commitments and contingencies -- --
Minority interest -- mandatorily redeemable
preferred stock of subsidiary 10.0 --
Shareholders' equity:
Common stock, $.01 par value, 150,000,000
authorized, 42,851,851 and 21,498,864
(pre-split) shares issued in 1999 and 1998,
respectively 0.4 0.2
Additional paid-in capital 616.6 608.1
Retained earnings 79.1 47.1
Unearned ESOP shares (13.0) (14.1)
Treasury stock (20.4) (7.0)
Unearned portion of restricted stock (2.5) (3.3)
Accumulated other comprehensive income (20.8) (24.4)
- --------------------------------------------------------------------------
Total shareholders' equity 639.4 606.6
- --------------------------------------------------------------------------
Total liabilities and shareholders' equity $1,591.6 $1,394.3
==========================================================================
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
The Earthgrains Company 1999 Annual Report
<PAGE>
<PAGE>
25
<TABLE>
CONSOLIDATED STATEMENTS OF EARNINGS
<CAPTION>
- ----------------------------------------------------------------------------------------------
For the years ended
-------------------------------------
March 30, March 31, March 25,
(In millions, except per-share data) 1999 1998<Fa> 1997
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $1,925.2 $1,719.0 $1,662.6
Cost of products sold 1,092.4 981.6 988.8
- ----------------------------------------------------------------------------------------------
Gross profit 832.8 737.4 673.8
Marketing, distribution and administrative expenses 731.6 670.2 633.5
Provision for restructuring and consolidation 28.0 -- 12.7
- ----------------------------------------------------------------------------------------------
Operating income 73.2 67.2 27.6
Other income and expenses:
Interest (expense) (19.5) (8.2) (6.3)
Other income, net 6.2 3.0 1.4
- ----------------------------------------------------------------------------------------------
Income before income taxes 59.9 62.0 22.7
Provision for income taxes 21.9 24.2 6.5
- ----------------------------------------------------------------------------------------------
Income before cumulative effect of change in accounting
principle 38.0 37.8 16.2
Cumulative effect of change in accounting principle,
net of tax -- 1.8 --
- ----------------------------------------------------------------------------------------------
Net income $ 38.0 $ 36.0 $ 16.2
==============================================================================================
Earnings per share:<Fb>
Basic
Earnings before cumulative effect
of change in accounting principle $ 0.93 $ 0.93 $ 0.40
Cumulative effect of accounting change -- 0.04 --
- ----------------------------------------------------------------------------------------------
Net earnings per share $ 0.93 $ 0.89 $ 0.40
==============================================================================================
Weighted average shares outstanding 40.7 40.7 40.6
==============================================================================================
Diluted
Earnings before cumulative effect
of change in accounting principle $ 0.89 $ 0.89 $ 0.39
Cumulative effect of accounting change -- 0.04 --
- ----------------------------------------------------------------------------------------------
Net earnings per share $ 0.89 $ 0.85 $ 0.39
==============================================================================================
Weighted average shares outstanding 42.7 42.5 41.3
==============================================================================================
<FN>
<Fa> Fiscal year contains 53 weeks.
<Fb> Prior-year shares and per-share amounts have been restated to reflect the two-for-one stock
splits effective July 20, 1998 and July 28, 1997.
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
The Earthgrains Company 1999 Annual Report
<PAGE>
<PAGE>
26
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
- ----------------------------------------------------------------------------------------------
For the years ended
-------------------------------------
March 30, March 31, March 25,
(In millions) 1999 1998<Fa> 1997
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 38.0 $ 36.0 $ 16.2
Adjustments to reconcile earnings to
net cash flow provided by operations:
Depreciation and amortization 102.4 84.6 84.5
Deferred income taxes (2.0) 6.7 1.7
Provision for restructuring and consolidation
($28.0 million, less cash payments of $2.8;
$12.7 million, less cash payments of $0.2) 25.2 -- 12.5
(Gain) on disposal of fixed assets (5.6) (1.3) (0.2)
(Increase) in noncash working capital (18.9) (15.3) (6.9)
Other, net (7.2) 15.2 (6.0)
- ----------------------------------------------------------------------------------------------
Net cash flow from operations 131.9 125.9 101.8
- ----------------------------------------------------------------------------------------------
Cash flows from investing activities:
Capital expenditures (86.5) (79.6) (71.2)
Acquisitions, net of cash acquired (169.7) (206.6) (38.5)
Proceeds from sale of property/business 40.7 7.8 4.5
- ----------------------------------------------------------------------------------------------
Net cash used by investing activities (215.5) (278.4) (105.2)
- ----------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net increase in revolving credit facility 90.1 163.7 10.4
Issuance of long-term debt 9.9 -- --
Principal payments on long-term debt, including current
maturities (0.9) -- (1.3)
Dividends to shareholders (6.0) (3.6) (1.5)
Purchases of treasury stock (13.4) (7.0) --
Proceeds from issuance of preferred stock of subsidiary 10.0 -- --
Other 3.3 -- --
- ----------------------------------------------------------------------------------------------
Net cash provided by financing activities 93.0 153.1 7.6
- ----------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 9.4 0.6 4.2
Cash and cash equivalents, beginning of year 43.7 43.1 38.9
- ----------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 53.1 $ 43.7 $ 43.1
==============================================================================================
<FN>
<Fa> Fiscal year contains 53 weeks.
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
The Earthgrains Company 1999 Annual Report
<PAGE>
<PAGE>
27
<TABLE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Accum.
Other Anheuser-
Common Stock Additional Unearned Unearned Compre- Busch
----------------- Paid-In Retained ESOP Treasury Restricted hensive Equity
(In millions, except share data) Shares Amount Capital Earnings Shares Stock Stock Income Investment Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance March 26, 1996 -- $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ 582.1 $582.1
Comprehensive income:
Net income 16.2 16.2
Other comprehensive income,
translation adjustments (17.5) (17.5)
--------------------------------------------------------------------------------------------------
Comprehensive income 16.2 (17.5) (1.3)
Shares issued upon distribution 10,092,133 0.1 582.0 (582.1) --
Dividends ($.15 per share) (1.5) (1.5)
Shares issued under
stock plan 166,551 5.1 (5.1) --
Amortization of
restricted stock 0.9 0.9
Shares issued to ESOP 513,114 16.8 (16.8) --
Shares allocated under ESOP 0.3 1.7 2.0
Other 6,252 0.2 0.2
- ------------------------------------------------------------------------------------------------------------------------------------
Balance March 25, 1997 10,778,050 0.1 604.4 14.7 (15.1) -- (4.2) (17.5) -- 582.4
Comprehensive income:
Net income 36.0 36.0
Other comprehensive income,
translation adjustments (6.9) (6.9)
--------------------------------------------------------------------------------------------------
Comprehensive income 36.0 (6.9) 29.1
Dividends ($.175 per share) (3.6) (3.6)
Two-for-one stock split 10,778,050 0.1 (0.1) --
Shares issued under
stock plan and
related tax benefits 106,336 2.3 2.3
Amortization of
restricted stock 0.9 0.9
Shares allocated under ESOP 1.3 1.0 2.3
Purchases of treasury stock (168,600) (7.0) (7.0)
Other 5,028 0.2 0.2
- ------------------------------------------------------------------------------------------------------------------------------------
Balance March 31, 1998 21,498,864 0.2 608.1 47.1 (14.1) (7.0) (3.3) (24.4) -- 606.6
Comprehensive income:
Net income 38.0 38.0
Other comprehensive income,
translation adjustments 3.6 3.6
--------------------------------------------------------------------------------------------------
Comprehensive income 38.0 3.6 41.6
Dividends ($.145 per share) (6.0) (6.0)
Two-for-one stock split 21,498,864 0.2 (0.2) --
Shares issued under
stock plan and
related tax benefits 405,086 5.7 5.7
Amortization of
restricted stock 0.9 0.9
Shares allocated under ESOP 2.8 1.1 3.9
Purchases of treasury stock (557,700) (13.4) (13.4)
Other 6,737 0.2 (0.1) 0.1
- ------------------------------------------------------------------------------------------------------------------------------------
Balance March 30, 1999 42,851,851 $0.4 $616.6 $79.1 $(13.0) $(20.4) $(2.5) $(20.8) $ -- $639.4
====================================================================================================================================
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
The Earthgrains Company 1999 Annual Report
<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
28
NOTE 1. BASIS OF PRESENTATION
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, Earthgrains began
operations as a separate publicly owned company.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES AND POLICIES
This summary of the Company's significant accounting principles and
policies is presented to assist in evaluating the Company's financial
statements included in this report. These principles and policies conform
to generally accepted accounting principles and are applied on a consistent
basis among years, except for a change in the Company's method of
accounting for business process re-engineering costs in fiscal year 1998,
as discussed in Note 3.
PRINCIPLES OF CONSOLIDATION
These consolidated financial statements include the Company and all
its subsidiaries. All significant intercompany transactions are eliminated.
FISCAL YEAR END
The Company has a 52- or 53-week year. Concurrent with the
Distribution, the Company changed its fiscal year end from the Tuesday
closest to December 31 to the last Tuesday in March. The following table
summarizes the periods covered in each of the three fiscal years presented
in these financial statements and footnotes thereto unless otherwise
stated:
<TABLE>
<CAPTION>
- ---------------------------------------------------
Fiscal Year Period Covered
- ---------------------------------------------------
<S> <C>
1999 52-week period ended March 30, 1999
1998 53-week period ended March 31, 1998
1997 52-week period ended March 25, 1997
</TABLE>
FOREIGN CURRENCY TRANSLATION
Adjustments resulting from foreign currency transactions are
recognized in income, whereas adjustments resulting from the translation of
financial statements are reflected within accumulated comprehensive income
in shareholders' equity.
GOODWILL
Goodwill is amortized on a straight-line basis over a period of 40
years. Accumulated amortization at March 30, 1999, and March 31, 1998, was
$86.8 million and $76.6 million, respectively. $115.2 million of the
goodwill balance at March 30, 1999, relates to the acquisition of the
Company by Anheuser-Busch in 1982.
SUPPLY AGREEMENTS
Cash payments made in conjunction with long-term supply agreements
with customers are capitalized as other assets and amortized over the term
of the respective agreement.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand and temporary
investments purchased with an initial maturity of three months or less.
INVENTORIES AND PRODUCTION COSTS
Inventories are valued at the lower of cost or market. Cost is
determined under the first-in, first-out method. Inventories include the
cost of materials, direct labor and manufacturing overhead. Obsolete or
unsaleable inventories are reflected at their estimated realizable values.
The Company uses commodity futures and option contracts to hedge certain of
its commodity purchases as considered necessary to reduce the inherent risk
associated with market-price fluctuations. Such contracts are accounted for
as hedges; and accordingly, gains and losses on hedges of future commodity
purchases are recognized as a component of inventory in the same period as
the related purchase transaction. For any contracts that expire or are
terminated, any related gains or losses are recognized in income or expense
during the same period. The effect of any realized or deferred gains or
losses is immaterial to the financial position or results of operations of
the Company.
PLANT AND EQUIPMENT
Plant and equipment is carried at cost and includes expenditures for
new facilities and expenditures that substantially increase the useful
lives of existing facilities. Maintenance, repairs and minor renewals are
expensed as incurred. When plant and equipment is retired or otherwise
disposed, the related cost and accumulated depreciation are eliminated and
any gain or loss on disposition is reflected in income or expense.
Depreciation is provided principally on the straight-line method over the
estimated useful lives of the assets, resulting in depreciation rates on
buildings ranging from 2-10% and on machinery and equipment ranging from
5-25%.
The Earthgrains Company 1999 Annual Report
<PAGE>
<PAGE>
29
In conjunction with the acquisition of the Company by Anheuser-Busch
in 1982, a portion of the purchase price was associated with reflecting the
property, plant and equipment (buildings) at fair value through purchase
accounting. Additionally, the effect of the adoption of Statement of
Financial Accounting Standards No. 109 (SFAS 109) in fiscal 1992 was
applied to these assets. Such amounts are being amortized on a straight-
line basis over 40 years. The remaining unamortized purchase price assigned
to fixed assets amounted to $202.1 million, with related deferred taxes of
$76.8 million, at March 30, 1999.
CAPITALIZATION OF INTEREST
Interest relating to the cost of acquiring certain fixed assets is
capitalized. The capitalized interest is included as part of the cost of
the related asset and is amortized over its estimated useful life.
INCOME TAXES
The provision for income taxes is based on the income and expense
amounts as reported in the Consolidated Statements of Earnings. Deferred
income taxes are recognized for the effect of temporary differences between
financial and tax reporting in accordance with the requirements of SFAS
109.
FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK AND CONCENTRATION OF
CREDIT RISK
The Company is a party to certain financial instruments with off-
balance-sheet risk incurred in the normal course of business. These
financial instruments include forward and option contracts designated as
hedges. Derivative financial instruments are used solely as hedges to
manage existing risks or exposure. The Company's exposure to credit loss in
the event of nonperformance by the counterparties to these financial
instruments (either individually or in the aggregate) is not material to
the financial condition or results of operations of the Company.
Derivative financial instruments, which are used by the Company in
the management of commodity exposures, are accounted for on an accrual
basis. Income and expense are recognized in the same category as that of
the related asset or liability. The fair value of derivative instruments is
monitored based on the estimated amounts the Company would receive or pay
to terminate the contracts.
In fiscal 1998, the Company entered into a forward starting interest
rate swap transaction, in order to lock-in its future borrowing costs for
an anticipated ten-year fixed rate debt issuance. Through this swap
transaction, the Company was obligated at a future date, up to one year, to
make payments based upon a fixed rate while receiving a LIBOR-based
floating rate during a ten-year term. Any gains or losses on the swap
agreement would be recognized as an adjustment to interest expense on the
underlying debt instrument. The impact of the swap transaction on interest
expense was immaterial to the Company's results of operations. The Company
does not have a material concentration of accounts receivable or credit
risk.
FAIR VALUE OF FINANCIAL INSTRUMENTS
As of March 30, 1999, and March 31, 1998, the fair value of long-term
debt was approximately equal to its recorded value of $374.1 million and
$267.6 million, respectively. The fair value of long-term debt was
estimated based on the quoted market values for the same or similar debt
issues, or rates currently available for debt with similar terms. The fair
market value of the Company's $100 million forward starting swap as of
March 30, 1999 was a net payable of $1.2 million. As of March 31, 1998,
this instrument was a net asset of $0.8 million.
RESEARCH AND DEVELOPMENT AND ADVERTISING AND PROMOTIONAL COSTS
Research and development and advertising and promotional costs are
expensed in the year in which these costs are incurred.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company reviews long-lived assets and goodwill for impairment
whenever events or changes in business circumstances indicate that the
carrying amount of the assets may not be fully recoverable. The Company
performs nondiscounted cash-flow analyses to determine whether an
impairment exists. Impairment losses, if any, would be determined based on
the present value of the cash flows using discount rates that reflect the
inherent risk of the underlying business.
SYSTEMS DEVELOPMENT COSTS
The Company capitalizes certain systems development costs as allowed
in accordance with established criteria. Amounts capitalized are amortized
over a five-year period. In March 1998, the American Institute of Certified
Public Accountants (AICPA) issued Statement of Position (SOP) No. 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use." This statement requires that certain internal and external
costs associated with the purchase and/or development of internal use
software be
The Earthgrains Company 1999 Annual Report
<PAGE>
<PAGE>
30
capitalized rather than expensed. The Company adopted this statement as of
the beginning of fiscal year 1999. Such adoption did not have a material
impact on the Company's financial position or results of operations.
EARNINGS PER SHARE
Earnings per share are based on the weighted average number of shares
of common stock outstanding during the year. The difference in the weighted
average shares outstanding used in the basic and dilutive earnings-per-
share calculations represents the assumed conversion of stock options and
restricted stock awards.
STOCK-BASED COMPENSATION
The Company accounts for employee stock options using the intrinsic
value method in accordance with Accounting Principles Board Opinion No. 25
(APB 25), "Accounting for Stock Issued to Employees." Under APB 25, the
Company does not recognize compensation expense for options granted,
because options are only granted at a price equal to market value on the
date of grant. In 1996, Statement of Financial Accounting Standards No. 123
(SFAS 123), "Accounting for Stock Based Compensation" became effective,
which prescribes recognition of compensation expense based upon the fair
value of the options at the date of grant. However, SFAS 123 allows
companies to continue to apply APB 25 and disclose pro forma effects of the
fair value method. See Note 9 for additional discussion and pro forma
disclosures as if the fair value method had been utilized.
COMPREHENSIVE INCOME
Comprehensive income represents net income plus certain items that
are charged directly to stockholders' equity. Other comprehensive income
for the Company relates only to foreign currency translation adjustments.
USE OF ESTIMATES
In conformity with generally accepted accounting principles, the
preparation of financial statements requires management to make estimates
and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Although these estimates are based on
our knowledge of current events and the actions that we may undertake in
the future, they may ultimately differ from actual results.
NEW ACCOUNTING PRONOUNCEMENTS
In fiscal 1999, the Company adopted several statements issued by the
Financial Accounting Standards Board (FASB). In June 1997, the FASB issued
Statement of Financial Accounting Standards No. 130 (SFAS 130), "Reporting
Comprehensive Income" and SFAS No. 131 (SFAS 131), "Disclosures about
Segments of an Enterprise and Related Information." The adoption of SFAS
130 modifies the format the Company uses to report noncash changes in
shareholders' equity. These changes are shown together with net income in a
new category of the statement of shareholders' equity titled "Comprehensive
Income." SFAS 131 requires certain information to be reported about
operating segments consistent with management's internal view of the
Company. See Note 14 for required disclosures. In February 1998, the FASB
issued SFAS No. 132 (SFAS 132), "Employers' Disclosure about Pensions and
Other Postretirement Benefits." SFAS 132 revises the required disclosures
about pension and other postretirement benefit plans.
In June 1998, the FASB issued SFAS No. 133 (SFAS 133), "Accounting
for Derivative Instruments and Hedging Activities." This Statement
establishes accounting and reporting standards for derivative instruments,
requiring recognition of the fair value of all derivatives as assets or
liabilities on the balance sheet. SFAS 133 will become effective for fiscal
2001 financial reporting. Based upon preliminary reviews of the provisions
of this standard, the Company believes that it will not have a significant
impact on its financial position or results of operations or have a
material effect on its financial statement reporting.
NOTE 3. CHANGE IN ACCOUNTING PRINCIPLE
In November 1997, the Emerging Issues Task Force (EITF), a subcommittee of
the FASB, reached a consensus requiring that costs of business process re-
engineering be expensed as those costs are incurred. Any such unamortized
costs that were previously capitalized must be written off as a cumulative
adjustment in the quarter containing November 20, 1997. Accordingly, in the
third quarter of fiscal 1998, the Company recorded a $1.8 million, net of
tax, (or $0.04 per diluted share (post-split)) charge against earnings to
comply with the new required accounting interpretation. The charge is
presented as a separate cumulative effect of accounting change line item in
the Consolidated Statement of Earnings. Most of Earthgrains' system
development costs affected by the accounting change are associated with
implementation of the Company's new integrated SAP systems.
The Earthgrains Company 1999 Annual Report
<PAGE>
<PAGE>
31
NOTE 4. ACQUISITIONS
On August 3, 1998, Earthgrains acquired the assets of Societe De Concept en
Produits Agro-Alimentaires, S.A., which owns Chevalier Servant, S.A., of
Vittel, France. Chevalier Servant, a refrigerated- and frozen-dough
producer, has been combined with the Company's existing French-based
refrigerated dough operations. On August 19, 1998, the Company acquired the
assets of Palmetto Baking Company of Orangeburg, S.C., and Tatum Bakeries
of Birmingham, Ala., from Southern Bakeries, Inc. Palmetto produces
Sunbeam(R) and Country Hearth(R) brand bread, buns and rolls in South
Carolina and eastern Georgia. Tatum produces specialty rolls for sale to
other wholesale bakers. Effective October 5, 1998, Earthgrains completed
the transaction with Interstate Bakeries Corporation to exchange assets of
Earthgrains' My Bread Baking Co. in New Bedford, Mass., for those of IBC's
Holsum Bakery in Grand Junction, Colo., plus a cash payment from IBC. The
exchange, which added new brands and contiguous sales territory in western
Colorado, did not significantly affect financial results. On March 25,
1999, the Company completed the acquisition of Reposteria Martinez Group of
Santander, Spain. Reposteria Martinez Group is a producer of fresh-baked
sweet goods and with this acquisition, the Company becomes the branded
market leader in the retail sweet-good segments of cake and morning goods
in Spain.
All of these acquisitions were purchased for cash and will be
accounted for using the purchase method. Accordingly, the results of
operations are reflected in the Consolidated Statement of Earnings from the
date of acquisition. The purchase price has been preliminarily allocated to
the assets acquired and the liabilities assumed based upon their estimated
fair market value, and the excess costs over net tangible assets are being
amortized over 40 years. Had these purchases taken place on March 26, 1997,
unaudited pro forma consolidated net sales would have been $2,035.0 million
and $2,076.1 million for fiscal years 1999 and 1998, respectively.
Consolidated net earnings and earnings per share would not have been
significantly different from the amounts reflected in the accompanying
financial statements.
On July 22, 1998, the Company entered into a multiyear agreement to
supply store-brand fresh bread and bakery products to Kroger Food Stores in
Texas and Louisiana. Earthgrains will service this contract through its
existing bakeries in Dallas and Houston. On September 21, 1998, the Company
entered into a multiyear agreement to supply store-brand fresh bread, buns
and rolls to Lucky Stores, Inc., in northern California. Earthgrains will
service this contract through its existing bakeries in Oakland and
Sacramento. Cash payments made in conjunction with long-term supply
agreements with customers are capitalized as other assets and amortized
over the term of the respective agreement.
Effective January 17, 1998, the Company completed the acquisition of
all of the stock of CooperSmith, Inc. of Atlanta, Ga., for a purchase price
of $193 million. CooperSmith operated eight bakeries producing bread, buns
and rolls in the South, Southeast and Northeast United States. On March 11,
1998, the Company acquired the assets of San Luis Sourdough, Inc., of San
Luis Obispo, Calif. San Luis Sourdough produces sourdough, French and
specialty hearth breads that are marketed in central and northern
California and parts of Arizona. Both acquisitions were purchased for cash
and were accounted for using the purchase method. Accordingly, the results
of operations are reflected in the Consolidated Statement of Earnings from
the respective dates of acquisition. The estimated purchase price has been
preliminarily allocated to the assets acquired and liabilities assumed
based upon their estimated fair market value, and the excess costs over net
tangible assets are being amortized over 40 years. Had these purchases
taken place on March 27, 1996, unaudited pro forma consolidated net sales
would have been $1,933.2 million and $1,920.3 million for fiscal years 1998
and 1997, respectively. Consolidated net earnings and earnings per share
would not have been significantly different from the amounts reflected in
the accompanying financial statements.
On November 30, 1996, the assets of Heiner's Bakery, Inc., of
Huntington, W.Va., were purchased for cash. Heiner's is a wholesale
manufacturer and distributor of branded bread, buns and rolls with
marketing territory throughout West Virginia and in portions of Ohio and
Kentucky. This acquisition has also been accounted for using the purchase
method. Accordingly, the results of operations are reflected in the
Consolidated Statement of Earnings from the date of acquisition. The
acquisition agreement contains a provision for additional payments over the
two years subsequent to the transaction date if certain minimum earnings
requirements are met. The amounts earned in fiscal 1999 and 1998 under the
terms of the agreement were recorded as an increase in the excess of the
total acquisition cost over the fair value of the net assets acquired. Had
the purchase taken place on March 27, 1996, unaudited pro forma
consolidated net sales, net income and earnings per diluted share for
fiscal 1997 would have been $1,691.1 million, $17.7 million and $0.43,
respectively.
The Earthgrains Company 1999 Annual Report
<PAGE>
<PAGE>
32
Pro forma data do not purport to be indicative of the results that
would have been obtained had these events actually occurred at the
beginning of the periods presented and such data are not intended to be a
projection of future results.
NOTE 5. PROVISIONS FOR RESTRUCTURING AND CONSOLIDATION
During fiscal 1997, the Company recorded a provision of $12.7 million
primarily in conjunction with closing one bakery and one refrigerated dough
plant. During fiscal 1999, provisions totaling $28.0 million were recorded
in conjunction with closing three bakeries, severance costs associated with
the creation of a centralized Financial Shared Services Center in St.
Louis, and for the restructuring of existing operations in Spain related to
the fourth quarter acquisition of Reposteria Martinez Group. These
provisions reflect costs of writing off certain fixed assets, employee
severance benefits, and other related closing costs. In the case of plant
closings, production was transferred to other facilities.
Costs for the respective-year provisions are categorized as follows (in
millions):
<TABLE>
<CAPTION>
- ------------------------------------------------------
Fiscal Year 1999 1997
- ------------------------------------------------------
<S> <C> <C>
Noncash asset write-offs $ 3.0 $ 8.8
Other, primarily severance 25.0 3.9
- ------------------------------------------------------
$28.0 $12.7
======================================================
</TABLE>
Additionally, reserves have been established in conjunction with
certain acquisitions for restructuring related to the acquiree's
operations. During fiscal 1998, a reserve of $4.7 million was established
in conjunction with the CooperSmith acquisition related to closure of
certain of that company's plants. The reserve was primarily for severance
and equipment removal and relocation. During fiscal 1999, reserves totaling
$7.2 million were recorded primarily for severance relative to the
Chevalier Servant and Reposteria Martinez Group acquisitions. In accordance
with generally accepted accounting principles, these reserves were recorded
as an increase to goodwill and no provision was recorded. The reserve
balance at March 30, 1999 is comprised primarily of severance yet to be
paid.
A reconciliation of activity with respect to the Company's restructuring
and consolidation is as follows (in millions):
<TABLE>
- -----------------------------------------------------
<S> <C>
Balance, March 26, 1996 $ 15.4
Provision, 1997 12.7
Noncash asset write-offs (11.5)
Cash payments associated with severance (1.1)
Other miscellaneous items, net (0.1)
- -----------------------------------------------------
Ending balance, March 25, 1997 15.4
Acquisition-related reserve 4.7
Noncash asset write-offs (11.3)
Cash payments associated with severance (1.8)
Other miscellaneous items, net (0.9)
- -----------------------------------------------------
Ending balance, March 31, 1998 6.1
Provision, 1999 28.0
Acquisition-related reserves 7.2
Noncash asset write-offs (2.0)
Cash payments associated with severance (5.8)
Other miscellaneous items, net (1.1)
- -----------------------------------------------------
ENDING BALANCE, MARCH 30, 1999 $ 32.4
=====================================================
</TABLE>
<PAGE>
NOTE 6. LONG-TERM DEBT
Long-term debt is as follows (in millions):
<TABLE>
<CAPTION>
- ----------------------------------------------------------------
March 30, March 31,
1999 1998
- ----------------------------------------------------------------
<S> <C> <C>
Revolving Credit Facility due 2002 $355.3 $265.2
Euro Revolving Credit Facility
3.25%, due 2004 8.6 --
Reposteria Martinez Notes Payable,
3.3% wtd. avg., due 2000-2003 6.0 --
Eurodough Notes Payable,
5.3% wtd. avg., due 2000-2007 2.7 --
Industrial Development Bonds,
9.5%, due 2001 1.5 1.5
Note Payable, 9.375%, due 1998 -- 0.9
- ----------------------------------------------------------------
374.1 267.6
Less current portion 4.8 0.9
- ----------------------------------------------------------------
$369.3 $266.7
================================================================
</TABLE>
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 settlement on its
net intercompany payable, to fund working capital needs and for general
corporate purposes. During fiscal 1998, the credit agreement was increased
to $450 million with a maturity date of September 30, 2002, and interest on
the borrowings is based on the rate for Eurodollar deposits plus a margin.
Including the margin, the one month borrowing rate was 5.15% at March 30,
1999. As of March 30, 1999, $65.8 million in letters of credit were also
outstanding under this credit facility,
The Earthgrains Company 1999 Annual Report
<PAGE>
<PAGE>
33
principally related to self-insurance requirements. During the current
year, three separate lines of credit for $25 million each, due in 1999, and
a 27 million Euro Revolving Credit Facility, due in 2004, were added to
increase the Company's borrowing flexibility. These credit facilities also
contain customary covenants, including maintenance of an interest coverage
ratio and certain other restrictions. The three additional components of
long-term debt included in the table for fiscal 1999 relate to acquisitions
completed during the year.
NOTE 7. RETIREMENT BENEFITS
PENSION PLANS
Net pension expense for single-employer defined benefit plans was
comprised of the following for the three fiscal years (in millions):
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------
Fiscal Year 1999 1998 1997
- -----------------------------------------------------------------------
<S> <C> <C> <C>
Service cost (benefits
earned during the year) $ 4.4 $ 3.2 $ 2.8
Interest cost on projected
benefit obligation 1.4 1.1 0.9
Expected return on assets (1.0) (0.6) (0.2)
Amortization of actuarial
gains, prior service cost,
and the excess of
market value of plan assets
over projected benefit
obligation at January 1, 1986 1.0 1.0 1.1
- -----------------------------------------------------------------------
Net pension expense $ 5.8 $ 4.7 $ 4.6
=======================================================================
</TABLE>
The key actuarial assumptions used in determining pension expense for
single-employer defined benefit plans were as follows for each of the three
fiscal years:
<TABLE>
<CAPTION>
- -------------------------------------------------------------
Fiscal Year 1999 1998 1997
- -------------------------------------------------------------
<S> <C> <C> <C>
Discount rate 7.25% 7.5% 7.5%
Long-term rate of return
on plan assets 10.0% 10.0% 10.0%
Weighted-average rate of
compensation increase 4.5% 4.5% 4.5%
</TABLE>
The actual gain on pension assets was $1.1 million in fiscal 1999,
$0.6 million in fiscal 1998, and $0 in fiscal 1997.
The following tables set forth a reconciliation of funded status to
pension liability of all Company single-employer defined benefit plans for
the two years ended (in millions):
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------
March 30, March 31,
1999 1998
- -----------------------------------------------------------------------
<S> <C> <C>
Funded status -- Plan assets (less than)
projected benefit obligation (PBO) $(12.3) $(10.4)
Unamortized excess of market value
of plan assets over projected benefit
obligation at January 1, 1986,
being amortized over 15 years (0.4) (0.4)
Unrecognized net actuarial gains 2.7 1.1
Unrecognized prior service costs 5.4 6.4
- -----------------------------------------------------------------------
Accrued pension liability $ (4.6) $ (3.3)
=======================================================================
</TABLE>
The assumptions used in determining the funded status of these plans
were as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------
1999 1998
- -------------------------------------------------
<S> <C> <C>
Discount rate 7.0% 7.25%
Weighted-average rate of
compensation increase 4.5% 4.5%
</TABLE>
The following tables summarize the change in the projected benefit
obligation and the change in fair market value of plan assets for all
company single-employer defined benefit pension plans for the years ended
(in millions):
CHANGE IN PROJECTED BENEFIT OBLIGATION (PBO):
<TABLE>
<CAPTION>
- --------------------------------------------------
March 30, March 31,
1999 1998
- --------------------------------------------------
<S> <C> <C>
PBO, beginning of year $19.9 $14.7
Service cost 4.4 3.2
Interest cost 1.4 1.1
Actuarial loss 1.8 1.3
Benefits paid (0.5) (0.4)
- --------------------------------------------------
PBO, end of year $27.0 $19.9
==================================================
</TABLE>
CHANGE IN PLAN ASSETS (CONSISTING PRIMARILY OF CORPORATE EQUITY SECURITIES
AND PUBLICLY TRADED BONDS):
<TABLE>
<CAPTION>
- -----------------------------------------------------------------
March 30, March 31,
1999 1998
- -----------------------------------------------------------------
<S> <C> <C>
Fair market value, beginning of year $ 9.5 $ 6.3
Actual return on plan assets 1.1 0.6
Employer contributions 4.6 3.0
Benefits paid (0.5) (0.4)
- -----------------------------------------------------------------
Fair market value, end of year $14.7 $ 9.5
=================================================================
</TABLE>
The Earthgrains Company 1999 Annual Report
<PAGE>
<PAGE>
34
Contributions to multiple and multi-employer plans in which the
Company participates are determined in accordance with the provisions of
negotiated labor contracts. Contributions to these plans were $24.9
million, $24.4 million, and $23.2 million for fiscal 1999, 1998, and 1997,
respectively.
POSTRETIREMENT BENEFITS
The Company provides certain health care and life insurance benefits
to eligible retired employees. Salaried and bargaining unit employees
generally become eligible for retiree health care benefits after reaching
age 55 with 15 years of service.
The following table sets forth the accumulated postretirement benefit
obligation (APBO) and the total postretirement benefit liability for all
single-employer defined benefit plans in the Company's Consolidated Balance
Sheets as of (in millions):
<TABLE>
<CAPTION>
- -------------------------------------------------------------------
March 30, March 31,
1999 1998
- -------------------------------------------------------------------
<S> <C> <C>
Accumulated postretirement
benefit obligation (APBO) $ 72.0 $ 82.3
Unrecognized prior service benefits 35.2 40.2
Unrecognized net actuarial gains (losses) 13.5 1.0
- -------------------------------------------------------------------
Total postretirement benefit liabilities $120.7 $123.5
===================================================================
</TABLE>
As of March 30, 1999, and March 31, 1998, $114.0 million and $115.3
million of this obligation was classified as a long-term liability,
respectively, and $6.7 million and $8.2 million was classified as a current
liability, respectively.
Net periodic postretirement benefits expense for single-employer
defined benefit plans for the following periods was comprised of the
following (in millions):
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------
Fiscal Year 1999 1998 1997
- -----------------------------------------------------------------------
<S> <C> <C> <C>
Service cost (benefits attributed
to service during the year) $ 3.4 $ 4.2 $ 3.3
Interest cost on accumulated
postretirement benefit obligation 6.1 5.9 6.7
Amortization of prior service benefit (4.9) (4.7) (6.4)
Amortization of actuarial gain (0.8) (1.9) --
- -----------------------------------------------------------------------
Net periodic postretirement
benefits expense $ 3.8 $ 3.5 $ 3.6
=======================================================================
</TABLE>
In measuring the APBO, the medical indemnity costs were assumed to
increase 8.5% in fiscal year 1999, decreasing 0.5% per year to an ultimate
rate of 5.0% in fiscal year 2006. Medicare Risk HMO costs were assumed to
increase at 4.0% annually. The indemnity medical trend rate for fiscal
years 1998 and 1997 were assumed to be 8.8% and 10.0%, respectively; the
Medicare Risk HMO medical trend rate was an assumed 4.0%. The weighted
average discount rate used in determining the APBO was 7.5% at March 30,
1999, and 8.0% at March 31, 1998.
If the assumed health care cost trend rates were changed by 1%, the
APBO as of the end of fiscal year 1999 would change by 9.1%, and the
aggregate impact on the interest cost and service cost components of the
net periodic postretirement benefit cost would also be an increase of 9.1%.
NOTE 8. EMPLOYEE STOCK OWNERSHIP PLAN
Substantially all domestic regular salaried and hourly employees are
eligible for participation in the company-sponsored Employee Stock
Ownership Plan (ESOP) that became effective July 1, 1996. The ESOP borrowed
$16.8 million from the Company for a term of 10 years at an interest rate
of 8.0% and used the proceeds to buy 2,052,456 shares of common stock from
the Company. ESOP shares are being allocated to participants over the 10-
year period, as contributions are made to the plan. At March 30, 1999,
477,856 shares have been allocated to participants.
The ESOP cash contributions and ESOP expense accrued during the plan
year are determined by several factors, including the market price and
number of shares allocated to participants, ESOP debt service, dividends on
unallocated shares and the Company's 401(k) matching contribution. Over the
10-year life of the ESOP, total expense recognized will equal the total
cash contributions made by the Company.
The ESOP is based on a June 30 plan year with cash contributions made
monthly. Cash contributions and dividends on unallocated ESOP shares for
fiscal 1999 and 1998 were $1.4 million and $0.2 million, and $1.7 million
and $0.2 million, respectively.
NOTE 9. STOCK OPTIONS AND RESTRICTED STOCK
In connection with its spinoff from Anheuser-Busch, Earthgrains adopted and
Anheuser-Busch, then the sole shareholder of the Company, approved The
Earthgrains Company 1996 Stock Incentive Plan (the 1996 Incentive Plan).
The 1996 Incentive Plan authorized the issuance of up to 4,520,000 shares
of Earthgrains Common Stock pursuant to the grant of restricted stock and
the exercise of incentive stock options, nonqualified stock options and
stock appreciation rights. Grants under the 1996 Incentive Plan are made at
the market price on the date of the grant. Options granted pursuant to the
1996
The Earthgrains Company 1999 Annual Report
<PAGE>
<PAGE>
35
Incentive Plan vest over a three-year period from the date of grant and,
once vested, are generally exercisable over 10 years from the anniversary
of the grant date. The plan also provides for the granting of stock
appreciation rights (SARs) in tandem with stock options. The exercise of a
SAR cancels the related option and the exercise of an option cancels the
related SAR. At March 30, 1999, there were no SARs outstanding under the
plan.
Under the 1996 Incentive Plan, 666,204 restricted shares of Earthgrains
Common Stock were issued to certain officers of the Company. Restricted
share awards vest one-half each after 54 and 66 months following the date
of the award. Compensation cost is recognized over the vesting period. No
further shares of restricted stock are authorized under the 1996 Incentive
Plan.
The Company applies Accounting Principles Board Opinion No. 25 (APB
25), "Accounting for Stock Issued to Employees," in accounting for its
stock option plans. Accordingly, because the grant price equals the market
price on the date of grant, no compensation expense is recognized for stock
option grants. Had compensation cost for the Company's stock options been
determined based upon the fair value at the grant date consistent with the
methodology prescribed under FAS 123, the Company's net income and earnings
per share for the years ended March 30, 1999 and March 31, 1998 would have
been affected as follows (in millions except shares, per grant and per
share amounts):
<TABLE>
<CAPTION>
- ----------------------------------------------------------------
Fiscal Year 1999 1998
- ----------------------------------------------------------------
<S> <C> <C>
Reported net income $38.0 $36.0
Pro forma net income $35.1 $33.6
Reported earnings per diluted share $0.89 $0.85
Pro forma earnings per diluted share $0.82 $0.80
</TABLE>
The weighted-average fair value of options granted (which is amortized
to expense over the option vesting period in determining the pro forma
impact), is estimated on the date of grant using the Black-Scholes option-
pricing model with the following assumptions:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
1999 1998
- ----------------------------------------------------------------------
<S> <C> <C>
Risk-free interest rate 6.1% 6.3%
Expected life of option 4 Yrs. 4 Yrs.
Expected volatility of Earthgrains stock 34% 25%
Expected dividend yield on Earthgrains stock 0.75% 0.75%
</TABLE>
The weighted-average fair value of options granted during 1999 and
1998 is as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
1999 1998
- ----------------------------------------------------------------------
<S> <C> <C>
Fair value of each option granted $7.19 $6.32
Number of options granted 681,928 514,370
- ----------------------------------------------------------------------
Total fair value of all options granted $4.9 $3.3
</TABLE>
In accordance with FAS 123, the weighted-average fair value of stock
options granted is required to be based on a theoretical statistical model
in accord with assumptions noted above. In actuality, because employee
stock options do not trade on a secondary exchange, employees receive no
benefit and derive no value from holding stock options under these plans
without an increase in the market price of Earthgrains stock. Such an
increase in stock price would benefit all stockholders.
The following table summarizes the stock option transactions under
the Earthgrains 1996 Incentive Plan:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
Wtd. Avg.
Option Exercise Options
Shares Price Exercisable
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Outstanding,
March 26, 1996 0 -- 0
Granted 3,318,580 $ 9.35
Exercised -- --
Cancelled 111,488 $ 7.66
- -------------------------------------------------------------------------
Outstanding,
March 25, 1997 3,207,092 $ 9.40 0
Granted 514,370 $21.74
Exercised 212,672 $ 7.78
Cancelled 61,170 $ 9.98
- -------------------------------------------------------------------------
Outstanding,
March 31, 1998 3,447,620 $11.33 977,750
Granted 681,928 $22.41
Exercised 405,086 $ 8.43
Cancelled 38,608 $15.10
- -------------------------------------------------------------------------
OUTSTANDING,
MARCH 30, 1999 3,685,854 $13.66 1,001,309
=========================================================================
</TABLE>
The following table summarizes information for options currently
outstanding at March 30, 1999:
<TABLE>
- -----------------------------------------------------------------------
Options Outstanding
- -----------------------------------------------------------------------
<CAPTION>
Wtd. Avg. Wtd. Avg.
Range Remaining Exercise
of Prices Number Life Price
- -----------------------------------------------------------------------
<S> <C> <C> <C>
$7-13 2,505,006 8 Yrs. $ 9.67
21 498,920 9 Yrs. 21.74
22 681,928 10 Yrs. 22.41
- -----------------------------------------------------------------------
$7-22 3,685,854 8.5 Yrs. $13.66
</TABLE>
At March 30, 1999, 750,184 shares of Earthgrains Common Stock were
available for future awards under the 1996 Incentive Plan. The plan
provides for acceleration of exercisability of outstanding options and the
vesting of restricted shares upon the occurrence of certain events relating
to a change of control, merger, sale of assets or liquidation of the
Company.
The Earthgrains Company 1999 Annual Report
<PAGE>
<PAGE>
36
NOTE 10. CAPITAL AND PREFERRED STOCK
On February 26, 1996, the Board of Directors of Anheuser-Busch declared a
distribution (the Distribution) of one share of Earthgrains common stock,
$.01 par value, for every 25 shares of Anheuser-Busch common stock
outstanding. On March 26, 1996, Earthgrains was spun off from Anheuser-
Busch, and 40,368,532 shares of Earthgrains Common Stock were distributed
to Anheuser-Busch shareholders. Effective March 29, 1996, 4,520,000 shares
were authorized for the issuance under the 1996 Stock Incentive Plan. Of
those shares, 666,204 were issued as restricted share grants to certain
Earthgrains Officers. Additionally, 2,052,456 shares were authorized for
the Employee Stock Ownership Plan, activated on July 1, 1996, of which
477,856 shares have been allocated to participants. 19,200 shares have been
granted as restricted shares and 22,601 shares issued as compensation to
members of the Board of Directors.
The Company's stock repurchase program authorizes the repurchase of
up to 2 million shares of common stock. 894,900 shares have been
repurchased into the treasury as of March 30, 1999. As of March 30, 1999,
42,851,851 shares of Earthgrains Common Stock were issued and outstanding.
All share and per-share amounts have been adjusted to reflect the
two-for-one common stock splits effective July 20, 1998 and July 28, 1997.
During March 1999, the Company sold $10.0 million of mandatorily
redeemable preferred stock in a wholly-owned subsidiary of Earthgrains.
This preferred stock is presented as a Minority Interest between long-term
debt and shareholders' equity. The Company authorized and issued 10,000
shares of preferred stock, which at any time on or after March 1, 2006, all
(but not less than all) of the shares may be redeemed at the option of the
Company, at the redemption price of $1,000 per share. On March 1, 2019, the
Company shall redeem all of the then outstanding shares at the redemption
price. During fiscal year 2000, the Company will begin paying dividends on
this preferred stock at a LIBOR-based variable interest rate. Such
dividends will be recorded as Minority Interest Expense, net of tax, below
the income tax provision line.
NOTE 11. INCOME TAXES
The provision for income taxes consists of the following amounts for the
periods ended (in millions):
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------
Fiscal Year 1999 1998 1997
- -----------------------------------------------------------------------
<S> <C> <C> <C>
Current tax provision:
Federal $20.1 $13.3 $ 2.0
State and foreign 3.8 4.2 2.8
- -----------------------------------------------------------------------
23.9 17.5 4.8
- -----------------------------------------------------------------------
Deferred tax provision (benefit):
Federal 3.1 2.6 (0.8)
State and foreign (5.1) 4.1 2.5
- -----------------------------------------------------------------------
(2.0) 6.7 1.7
- -----------------------------------------------------------------------
Provision for income taxes $21.9 $24.2 $ 6.5
=======================================================================
</TABLE>
The deferred tax assets and deferred tax liabilities as of the end of each
period are comprised of the following (in millions):
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
March 30, March 31,
1999 1998
- --------------------------------------------------------------------------
<S> <C> <C>
Deferred tax liabilities:
Depreciation and property differences $ 143.5 $142.2
Deferred systems development costs 6.8 7.9
Pension plan 4.3 4.9
Other 16.4 13.2
- --------------------------------------------------------------------------
Deferred tax liabilities 171.0 168.2
- --------------------------------------------------------------------------
Deferred tax assets:
Postretirement benefits other than pensions (44.0) (46.4)
Self-insurance reserves (23.9) (21.7)
Reserve for restructuring and consolidation (12.0) (1.9)
Accrued liabilities (11.2) (11.7)
Deductible goodwill (6.8) (8.7)
Other (10.2) (8.7)
- --------------------------------------------------------------------------
Deferred tax (assets) (108.1) (99.1)
- --------------------------------------------------------------------------
Net deferred tax liabilities $ 62.9 $ 69.1
==========================================================================
</TABLE>
A reconciliation between the statutory rate and the effective rate is
presented below:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
1999 1998 1997
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Tax at statutory rate $21.0 $21.7 $ 7.9
State income taxes,
net of federal benefit 1.0 1.4 --
Amortization of goodwill 3.0 2.0 1.9
Foreign tax credits and other (1.5) (1.6) (4.4)
Benefit management program (2.0) -- --
Other, net 0.4 0.7 1.1
- --------------------------------------------------------------------------
Provision for income taxes $21.9 $24.2 $ 6.5
==========================================================================
</TABLE>
The Earthgrains Company 1999 Annual Report
<PAGE>
<PAGE>
37
NOTE 12. CASH FLOWS
Supplemental information with respect to the Consolidated Statements of
Cash Flows for each of the periods is presented below (in millions):
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
Fiscal Year 1999 1998 1997
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Interest paid, net of
capitalized interest $ 19.2 $ 6.4 $ 5.4
Income taxes paid 34.0 19.4 3.4
- --------------------------------------------------------------------------
Changes in noncash working
capital, net of effect of acquisitions:
Decrease (increase) in
noncash current assets:
Accounts receivable, net (9.2) 4.6 (2.9)
Inventories, net (1.9) 1.9 2.1
Other current assets 8.2 (13.0) (0.3)
Increase (decrease) in
current liabilities:
Accounts payable (21.2) 2.3 23.1
Accrued salaries,
wages and benefits (2.9) (5.4) (2.1)
Accrual for restructuring
and consolidation (3.0) -- (12.5)
Other current liabilities 11.1 (5.7) (14.3)
- --------------------------------------------------------------------------
(Increase) in noncash working capital $(18.9) $(15.3) $ (6.9)
==========================================================================
</TABLE>
NOTE 13. COMMITMENTS AND CONTINGENCIES
The Company and certain of its subsidiaries are involved in certain claims
and legal proceedings in which monetary damages and other relief are
sought. These proceedings, arising in the normal course of business, are in
varying stages and may proceed for protracted periods of time.
Although it is impossible to predict the outcome of any legal
proceeding, the Company believes that it has meritorious defenses or
insurance coverage to meet the proceedings pending against it and that the
outcome of such proceedings should not, individually or in the aggregate,
have a material adverse effect on the results of operations or financial
condition of the Company.
The operations of Earthgrains, like those of similar businesses, are
subject to various Federal, state and local laws and regulations with
respect to environmental matters, including air and water quality,
underground fuel storage tanks, and other regulations intended to protect
public health and the environment. Earthgrains has been identified as a
potentially responsible party ("PRP") at certain locations under the
Comprehensive Environmental Responses, Compensation and Liability Act, and
the Company may be required to share in the cost of cleanup with respect to
two sites. Although 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.
Future rental commitments under noncancelable operating leases in
effect as of the end of fiscal year 1999 were, in millions: 2000 - $12.6;
2001 - $9.8; 2002 - $6.5; 2003 - $4.3; 2004 - $3.1; thereafter - $1.9.
NOTE 14. BUSINESS SEGMENTS
In fiscal 1999, the Company adopted FAS 131, "Disclosures about Segments of
an Enterprise and Related Information." The business segments of the
Company are Bakery Products, which consists of the U.S. Bakery Products
division and the European Bakery Products division, and Refrigerated Dough
Products, which contains the U.S. Refrigerated Dough Products division and
the European Refrigerated Dough Products division. Other amounts included
in the results for fiscal 1998 and 1997 represent an operation disposed of
during 1998. Summarized below is the Company's business segment information
for 1999, 1998 and 1997 (in millions):
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
Fiscal Year 1999 1998 1997
- --------------------------------------------------------------------------
<S> <C> <C> <C>
INCOME STATEMENT INFORMATION
NET SALES
Bakery Products $1,632.7 $1,441.0 $1,382.1
Refrigerated Dough Products 292.5 276.4 278.5
Other -- 1.6 2.0
- --------------------------------------------------------------------------
Total $1,925.2 $1,719.0 $1,662.6
==========================================================================
DEPRECIATION & AMORTIZATION
Bakery Products $ 77.8 $60.7 $59.5
Refrigerated Dough Products 13.0 12.2 13.3
Corporate<Fa> 11.6 11.6 11.6
Other -- 0.1 0.1
- --------------------------------------------------------------------------
Total $102.4 $84.6 $84.5
==========================================================================
OPERATING INCOME<Fb>
Bakery Products $ 48.8 $ 53.1 $ 34.4
Refrigerated Dough Products 36.0 25.5 5.2
Corporate<Fa> (11.6) (11.6) (11.6)
Other -- 0.2 (0.4)
- --------------------------------------------------------------------------
Total $ 73.2 $ 67.2 $ 27.6
==========================================================================
The Earthgrains Company 1999 Annual Report
<PAGE>
<PAGE>
38
<CAPTION>
- --------------------------------------------------------------------------
Fiscal Year 1999 1998 1997
- --------------------------------------------------------------------------
<S> <C> <C> <C>
BALANCE SHEET INFORMATION
TOTAL ASSETS
Bakery Products $1,111.5 $ 918.0 $ 669.0
Refrigerated Dough Products 162.8 147.5 161.2
Corporate<Fa> 317.3 328.8 340.4
Other -- -- 1.5
- --------------------------------------------------------------------------
Total $1,591.6 $1,394.3 $1,172.1
==========================================================================
CAPITAL EXPENDITURES
Bakery Products $71.1 $69.0 $57.4
Refrigerated Dough Products 15.4 10.6 13.8
- --------------------------------------------------------------------------
Total $86.5 $79.6 $71.2
==========================================================================
<FN>
<Fa> Amounts represent purchase accounting valuation in conjunction with
the acquisition of the Company by Anheuser-Busch in 1982 and the
related depreciation and amortization thereon.
<Fb> 1999 operating income was reduced by the $28.0 million pre-tax
provision for restructuring and consolidation. This amount related to
the Bakery Products segment. 1997 operating income was reduced by the
$12.7 million pre-tax provision for restructuring and consolidation.
$1.0 million of this amount related to Bakery Products, $10.9 million
related to Refrigerated Dough Products and $0.8 million related to
Other.
</TABLE>
NOTE 15. GEOGRAPHIC INFORMATION
The Company operates in the United States and Europe. The foreign
information below is comprised primarily of the Company's Spanish
subsidiary.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
(In millions) 1999 1998 1997
- --------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES
Domestic $1,611.1 $1,400.4 $1,297.1
Foreign 314.1 318.6 365.5
- --------------------------------------------------------------------------
Consolidated Total $1,925.2 $1,719.0 $1,662.6
==========================================================================
OPERATING INCOME (LOSS)
Domestic $79.2 $51.7 $ 8.0
Foreign (6.0) 15.5 19.6
- --------------------------------------------------------------------------
Consolidated Total $73.2 <Fa> $67.2 $27.6<Fb>
==========================================================================
IDENTIFIABLE ASSETS
Domestic $ 852.5 $ 829.5 $ 775.1
Foreign 339.3 253.8 257.0
- --------------------------------------------------------------------------
Consolidated Total $1,191.8 $1,083.3 $1,032.1
==========================================================================
<FN>
<Fa> 1999 operating income was reduced by the $28.0 million pre-tax
provision for restructuring and consolidation.
<Fb> 1997 operating income was reduced by the $12.7 million pre-tax
provision for restructuring and consolidation.
</TABLE>
NOTE 16. SUPPLEMENTAL BALANCE SHEET INFORMATION
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------
March 30, March 31,
(In millions) 1999 1998
- -----------------------------------------------------------------------
<S> <C> <C>
Receivables:
Trade $190.1 $162.7
Allowance for doubtful accounts 5.6 6.2
- -----------------------------------------------------------------------
$184.5 $156.5
=======================================================================
Inventories:
Raw materials $59.8 $53.5
Finished goods 17.9 15.4
- -----------------------------------------------------------------------
$77.7 $68.9
=======================================================================
Plant and equipment:
Land $ 66.5 $ 68.9
Buildings 461.3 459.6
Machinery and equipment 860.7 757.7
Construction in progress 31.9 51.8
- -----------------------------------------------------------------------
1,420.4 1,338.0
Less accumulated depreciation (659.3) (616.0)
- -----------------------------------------------------------------------
$ 761.1 $ 722.0
=======================================================================
Accrued salaries, wages and benefits:
Accrued payroll $25.5 $23.0
Accrued vacation 17.8 16.6
Accrued group benefits 13.6 16.9
- -----------------------------------------------------------------------
$56.9 $56.5
=======================================================================
Other current liabilities:
Current portion of self-insurance reserves $14.2 $18.6
Accrued taxes, other than income taxes 11.0 8.1
Other items 42.6 12.6
- -----------------------------------------------------------------------
$67.8 $39.3
=======================================================================
Other noncurrent liabilities:
Self-insurance reserves $40.0 $39.3
Other items 33.6 32.9
- -----------------------------------------------------------------------
$73.6 $72.2
=======================================================================
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------
Fiscal Year 1999 1998 1997
- -----------------------------------------------------------------------
<S> <C> <C> <C>
Allowance for doubtful accounts
Balance, beginning of period $ 6.2 $ 6.0 $ 6.8
Provision charged to expense 0.9 0.8 0.2
Write-offs, less recoveries (1.5) (0.6) (1.0)
- -----------------------------------------------------------------------
Balance, end of period $ 5.6 $ 6.2 $ 6.0
=======================================================================
</TABLE>
The Earthgrains Company 1999 Annual Report
<PAGE>
<PAGE>
39
NOTE 17. QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for each of the fiscal years appear
below (each quarter represents a period of twelve weeks except for the
December quarter, which includes sixteen weeks):
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Selected Quarterly Financial Data (Unaudited)
---------------------------------------------------------------------------------------
June September December March Fiscal
(In millions, except per share data) Quarter Quarter Quarter Quarter Year
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1999
Net sales $433.0 $442.4 $609.2 $440.6 $1,925.2
Gross profit 188.9 192.4 261.3 190.2 832.8
Net income 10.9 10.0<Fa> 17.0<Fb> 0.1<Fc> 38.0
Basic earnings per share:
Net earnings per share $ 0.27 $ 0.25<Fa> $ 0.42<Fb> $ 0.00<Fc> $ 0.93<Fd>
- -----------------------------------------------------------------------------------------------------------------------------------
Diluted earnings per share:
Net earnings per share $ 0.26 $ 0.23<Fa> $ 0.40<Fb> $ 0.00<Fc> $ 0.89
===================================================================================================================================
1998
Net sales $377.4 $382.5 $514.7 $444.4<Fg> $1,719.0<Fh>
Gross profit 162.7 164.0 218.9 191.8<Fg> 737.4<Fh>
Income before cumulative effect
of accounting change 6.9 9.3 14.1 7.5<Fg> 37.8<Fh>
Cumulative effect of accounting change -- -- 1.8<Ff> -- 1.8
- -----------------------------------------------------------------------------------------------------------------------------------
Net income 6.9 9.3 12.3 7.5 36.0
- -----------------------------------------------------------------------------------------------------------------------------------
Basic earnings per share:<Fe>
Earnings before cumulative effect
of accounting change $ 0.17 $ 0.23 $ 0.34 $ 0.19<Fg> $ 0.93<Fh>
Cumulative effect of accounting change -- -- 0.04 -- 0.04
- -----------------------------------------------------------------------------------------------------------------------------------
Net earnings per share $ 0.17 $ 0.23 $ 0.30 $ 0.19 $ 0.89
- -----------------------------------------------------------------------------------------------------------------------------------
Diluted earnings per share:<Fe>
Earnings before cumulative effect
of accounting change $ 0.17 $ 0.22 $ 0.33 $ 0.18<Fg> $ 0.89<Fd><Fh>
Cumulative effect of accounting change -- -- 0.04 -- 0.04
- -----------------------------------------------------------------------------------------------------------------------------------
Net earnings per share $ 0.17 $ 0.22 $ 0.29 $ 0.18 $ 0.85<Fd>
===================================================================================================================================
<FN>
<Fa> Quarter's results include a $5.8 million pre-tax provision for
restructuring and consolidation and severance costs related to
creation of a Financial Shared Services Center.
<Fb> Quarter's results include a $2.6 million pre-tax provision for
restructuring and consolidation.
<Fc> Quarter's results include a $19.6 million pre-tax provision for
restructuring and consolidation and a $2.0 million one-time tax
benefit.
<Fd> Earnings per share is computed independently for each of the
periods presented, therefore, the sum of the earnings per-share
amounts for the quarters may not equal the total for the year.
<Fe> Prior-year earnings per-share amounts have been restated to
reflect the two-for-one stock split effective July 20, 1998.
<Ff> See Note 3 in the Notes to the Consolidated Financial Statements
describing the required change in accounting principle in the
third quarter of fiscal 1998.
<Fg> March 1998 quarter includes 13 weeks.
<Fh> Fiscal 1998 contains 53 weeks.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE 18. SUBSEQUENT EVENT
On April 20, 1999, Earthgrains issued $150 million in 10-year, 6.5%
fixed-rate senior debentures from a shelf registration statement filed
with the Securities and Exchange Commission authorizing issuance of up
to $250 million in debt securities, which became effective in April
1999. Proceeds from this issuance were used to repay a portion of
outstanding indebtedness under the Company's Revolving Credit Facility
due in 2002. The interest rate swap agreement, described in Note 2, was
terminated in conjunction with this issuance.
The Earthgrains Company 1999 Annual Report
<PAGE>
<PAGE>
FIVE-YEAR FINANCIAL HIGHLIGHTS
40
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
For the twelve
Fiscal Years weeks ended Fiscal Years
-------------------------------------- March 26, -------------------------------
(In millions, except per-share data) 1999 1998<Fb> 1997 1996<Fa> 1995<Fa> 1994<Fa><Fb>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS DATA:
Net sales $1,925.2 $1,719.0 $1,662.6 $ 367.7 $1,664.6 $1,720.5
Cost of products sold 1,092.4 981.6 988.8 228.8 1,034.7 1,071.0
- ------------------------------------------------------------------------------------------------------------------------------------
Gross profit 832.8 737.4 673.8 138.9 629.9 649.5
Marketing, distribution and
administrative expenses 731.6 670.2 633.5 146.0 627.5 623.9
Provision for restructuring and
consolidation, net 28.0 -- 12.7 -- 9.1 --
- ------------------------------------------------------------------------------------------------------------------------------------
Operating income (loss) 73.2 67.2 27.6 (7.1) (6.7) 25.6
Other income and expenses:
Interest (expense) (19.5) (8.2) (6.3) (0.1) (1.9) (1.9)
Other income (expense), net 6.2 3.0 1.4 (0.1) 4.7 2.6
- ------------------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes 59.9 62.0 22.7 (7.3) (3.9) 26.3
Provision (benefit) for income taxes 21.9 24.2 6.5 (2.2) 2.7 15.0
- ------------------------------------------------------------------------------------------------------------------------------------
Net income (loss) before cumulative
effect of accounting change 38.0 37.8 16.2 (5.1) (6.6) 11.3
Cumulative effect of change in
accounting principle, net of tax -- 1.8 <Fc> -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 38.0 <Fd> $ 36.0 $ 16.2 <Fe> $ (5.1) $ (6.6)<Ff> $ 11.3
====================================================================================================================================
EARNINGS PER SHARE:<Fg>
Basic
Earnings before cumulative effect
of change in accounting principle $ 0.93 $ 0.93 $ 0.40
Cumulative effect of accounting change -- 0.04 --
- ---------------------------------------------------------------------------------
Net earnings per share $ 0.93 $ 0.89 $ 0.40
=================================================================================
Weighted average shares outstanding 40.7 40.7 40.6
=================================================================================
Diluted
Earnings before cumulative effect
of change in accounting principle $ 0.89 $ 0.89 $ 0.39
Cumulative effect of accounting change -- 0.04 --
- ---------------------------------------------------------------------------------
Net earnings per share $ 0.89 $ 0.85 $ 0.39
=================================================================================
Weighted average shares outstanding 42.7 42.5 41.3
=================================================================================
BALANCE SHEET DATA:
Working capital $ 102.1 $ 92.3 $ 80.6 $ 74.0 $ 63.1 $ 69.3
Current ratio 1.4x 1.4x 1.4x 1.4x 1.3x 1.4x
Plant and equipment, net $ 761.1 $ 722.0 $ 706.7 $ 723.2 $ 713.6 $ 706.2
Long-term debt $ 369.3 $ 266.7 $ 103.0 $ 92.6 $ 1.5 $ 1.6
Deferred income taxes, net $ 62.9 $ 69.1 $ 73.9 $ 72.2 $ 109.4 $ 106.9
Anheuser-Busch equity investment $ -- $ -- $ -- $ 582.1 $ 701.3 $ 684.3
Shareholders' equity $ 639.4 $ 606.6 $ 582.4 $ -- $ -- $ --
Total assets $1,591.6 $1,394.3 $1,172.1 $1,177.6 $1,197.2 $1,177.2
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
<Fa> Earthgrains was a wholly-owned subsidiary of Anheuser-Busch
Companies, Inc., until March 27, 1996. Accordingly, statements for
prior periods do not include costs associated with being an
independent public company.
<Fb> Fiscal years 1998 and 1994 contain 53 weeks.
<Fc> See Footnote 3 in the Notes to the Consolidated Financial Statements
describing the required change in accounting principle in the third
quarter of fiscal 1998.
<Fd> Reflects the effect of the provision for restructuring and
consolidation and a one-time tax benefit. See "Management's
Discussion and Analysis of Results of Operations and Financial
Condition" and Note 5 in the Notes to the Consolidated Financial
Statements.
<Fe> Reflects the effect of the provision for restructuring and
consolidation and one-time Spanish tax incentives and credits. See
"Management's Discussion and Analysis of Results of Operations and
Financial Condition" and Note 5 in the Notes to the Consolidated
Financial Statements.
<Ff> Reflects the effect of the provision for restructuring and
consolidation.
<Fg> Prior-year shares and per-share amounts have been restated to reflect
the two-for-one stock splits effective July 20, 1998 and July 28,
1997.
</TABLE>
The Earthgrains Company 1999 Annual Report
<PAGE>
<PAGE>
41
RESPONSIBILITY FOR FINANCIAL STATEMENTS
The management of The Earthgrains Company is responsible for the
preparation and integrity of the consolidated financial statements
appearing in this annual report. The financial statements were prepared in
conformity with generally accepted accounting principles appropriate in the
circumstances and, accordingly, include certain amounts based on our best
judgments and estimates.
We are responsible for maintaining a system of internal accounting
controls and procedures which we believe are adequate to provide reasonable
assurance, at an appropriate cost/benefit relationship, that assets are
safeguarded against loss from unauthorized use or disposition and financial
records provide a reliable basis for preparation of the financial
statements. The internal accounting control system is augmented by a
program of internal audits and appropriate reviews by management, written
policies and guidelines, careful selection and training of qualified
personnel and a written Code of Business Conduct adopted by our Company's
Board of Directors, applicable to all management employees of our Company.
The Audit and Finance Committee of our Company's Board of Directors,
composed solely of directors who are not officers of our Company, meets
with the independent auditors, management and internal auditors
periodically to discuss internal accounting controls and auditing and
financial reporting matters. The Committee reviews with the independent
auditors the scope and results of the audit effort. The Committee also
meets with the independent auditors and the chief internal auditor without
management present to ensure that the independent auditors and the chief
internal auditor have free access to the Committee.
PricewaterhouseCoopers LLP is engaged to audit the consolidated
financial statements of The Earthgrains Company and conduct such tests and
related procedures as it deems necessary in conformity with generally
accepted auditing standards. The opinion of the independent auditors, based
upon their audits of the consolidated financial statements, is shown below.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of
The Earthgrains Company
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of earnings, of cash flows, and of
shareholders' equity present fairly, in all material respects, the
financial position of The Earthgrains Company at March 30, 1999 and March
31, 1998, and the results of its operations and its cash flows for the
fiscal years ended March 30, 1999, March 31, 1998, and March 25, 1997, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance
with generally accepted auditing standards 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 the opinion expressed above.
As discussed in Note 3 to the financial statements, the Company
changed its method of accounting for business process re-engineering costs
in fiscal year 1998.
/s/ Pricewaterhousecoopers LLP
PricewaterhouseCoopers LLP
St. Louis, Missouri
April 29, 1999
The Earthgrains Company 1999 Annual Report
<PAGE>
<PAGE>
43
QUARTERLY COMMON STOCK PRICE
(UNAUDITED)
RANGES AND DIVIDENDS
The Earthgrains Company common stock
is listed and traded on the New York Stock
Exchange under the ticker symbol "EGR."
The table below presents the high and
low market for the stock and per-share
cash dividend information for each quarter
of fiscal 1999.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------
FISCAL 1999 High Low Dividends
- -----------------------------------------------------------------
<S> <C> <C> <C>
June Quarter $30 1/8 $21 7/16 $.025
September
Quarter $35 9/0 $26 3/4 .04
December
Quarter $37 1/4 $28 11/16 .04
March Quarter $32 1/4 $20 1/2 .04
</TABLE>
The Earthgrains Company 1999 Annual Report
<PAGE>
<TABLE>
SUBSIDIARIES OF
THE EARTHGRAINS COMPANY
<CAPTION>
NAME PLACE OF INCORPORATION
(DOING BUSINESS AS NAME[S]) OR FORMATION
<S> <C>
Earthgrains Baking Companies, Inc. Delaware
Earthgrains International Holdings, Inc. Delaware
EGR Resources, Inc. Delaware
EGR Benefits Management, Inc. Delaware
Earthgrains of West Virginia, L.L.C. Delaware
(Heiner's Bakery)
Cooper Smith, Inc. Georgia
(Specialty Baking Company; Smith's Bakery;
Kern's Bakeries; American Bread Company;
Waldensian Bakeries)
EGR Texas General Partner, Inc. Delaware
EGR Texas Limited Partner, Inc. Delaware
EGR International, Inc. Delaware
Earthgrains Refrigerated Dough Products, L.P. Texas
Bimbo, S.A. Spain
EuroDough, S.A.R.L. France
Earthgrains European Holdings, C.V. Holland
Catdes, S.A. Spain
Pimad, S.A. Spain
Bimbo-Produtos Alimentares, Limitada Portugal
Supan, S.A. Spain
Bimbo France, S.A.R.L. France
EuroVita, S.A.S. France
EuroRol, S.A.S. France
Euro Maintenance et Hygiene, S.A.R.L. France
EuroGourmet, S.A.R.L. France
Earthgrains European Investments, B.V. Holland
<PAGE>
<PAGE>
<CAPTION>
SUBSIDIARIES OF
THE EARTHGRAINS COMPANY, CONTINUED
<S> <C>
Earthgrains Iberian Investments, S.L. Spain
Panaderias Unificadas Santaderinas, S.A. Spain
Reposteria Martinez, S.A. Spain
Bolleria Gusten, S.L. Spain
Recartran, S.L. Spain
Seleccion Reposteria, S.L. Spain
Reposteria Martinez Canarias, S.L. Spain
Patisserie Martinez, S.A.R.L. France
Marticake de Portugal Produtos de Pasteleria e
Confeitaria, S.A. Portugal
</TABLE>
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 333-2858, 333-2636, and 333-37483) of The
Earthgrains Company of our report dated April 29, 1999 relating to the
financial statements, which appears in the Annual Report to
Shareholders, which is incorporated in this Annual Report on Form 10-K.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
St. Louis, Missouri
June 28, 1999
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-3 (No. 333-74267) of The Earthgrains Company of our
report dated April 29, 1999 relating to the financial statements, which
appears in the Annual Report to Shareholders, which is incorporated in
this Annual Report on Form 10-K.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
St. Louis, Missouri
June 28, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted
from the Company's consolidated financial statements for the
fifty-two weeks ended March 30, 1999 included in this report on
Form 10-K and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000 <F1>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-30-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> MAR-30-1999
<CASH> 53,100
<SECURITIES> 0
<RECEIVABLES> 190,100
<ALLOWANCES> 5,600
<INVENTORY> 77,700
<CURRENT-ASSETS> 384,700
<PP&E> 1,420,400
<DEPRECIATION> 659,300
<TOTAL-ASSETS> 1,591,600
<CURRENT-LIABILITIES> 282,600
<BONDS> 1,500
<COMMON> 400
0
0
<OTHER-SE> 639,000
<TOTAL-LIABILITY-AND-EQUITY> 1,591,600
<SALES> 1,925,200
<TOTAL-REVENUES> 1,925,200
<CGS> 1,092,400
<TOTAL-COSTS> 1,092,400
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 900
<INTEREST-EXPENSE> 19,500
<INCOME-PRETAX> 59,900
<INCOME-TAX> 21,900
<INCOME-CONTINUING> 38,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 38,000
<EPS-BASIC> 0.93
<EPS-DILUTED> 0.89
<FN>
<F1>Footnote to electronic filing only: as presented,
data is rounded to the nearest $100 except for per
share data.
</FN>
</TABLE>
