Washington, DC 20549
____________________________
FORM 8-K
Current Report Pursuant
to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of report (Date of earliest event reported):
May 31, 2000
____________________________
THE EARTHGRAINS COMPANY
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE
(State or Other Jurisdiction of Incorporation)
1-7554 36-3201045
(Commission file Number) (I.R.S. Employer
Identification No.)
8400 Maryland Avenue, St. Louis, Missouri 63105
(Address of Principal Executive Offices) (Zip Code)
(314) 259-7000
(Registrant's Telephone Number, Including Area Code)
_________________________________________________________
_________________________________________________________
<PAGE>
ITEM 5. OTHER EVENTS
This Current Report on Form 8-K is being filed voluntarily by The
Earthgrains Company (the "Registrant") in order to make public the Registrant's
consolidated balance sheets as of March 28, 2000 and March 30, 1999 and
consolidated statements of earnings, cash flows and shareholders' equity for
each of the fiscal years in the three-year period ended March 28, 2000, all of
which will also be incorporated into the Registrant's annual report on Form 10-
K.
<PAGE>
<TABLE>
FIVE-YEAR FINANCIAL HIGHLIGHTS
<CAPTION>
Fiscal Years
------------------------------
(In millions, except per-share data) 2000 1999 1998(a)
----------------------------------------------------------------------
<S> <C> <C> <C>
STATEMENT OF EARNINGS DATA:
Net sales . . . . . . . . . . . . . . $2,039.3 $1,925.2 $1,719.0
Cost of products sold . . . . . . . . 1,122.5 1,092.4 981.6
----------------------------------------------------------------------
Gross profit. . . . . . . . . . . . . 916.8 832.8 737.4
Marketing, distribution and
administrative expenses. . . . . . . 804.4 731.6 670.2
Provision for restructuring and
consolidation, net . . . . . . . . . 2.3 28.0 ---
----------------------------------------------------------------------
Operating income (loss) . . . . . . . 110.1 73.2 67.2
Other income and expenses:
Interest (expense). . . . . . . . . (26.5) (19.5) (8.2)
Other income (expense), net . . . . 4.3 6.2 3.0
----------------------------------------------------------------------
Income (loss) before income taxes . . 87.9 59.9 62.0
Provision (benefit) for income
taxes. . . . . . . . . . . . . . . . 32.8 21.9 24.2
Minority interest expense . . . . . . (0.6) --- ---
----------------------------------------------------------------------
Net income (loss) before cumulative
effect of accounting change . . . . $ 54.5 38.0 37.8
Cumulative effect of change in
accounting principle, net of tax . . --- --- 1.8(c)
----------------------------------------------------------------------
Net income (loss) . . . . . . . . . . $ 54.5(d) $ 38.0(e) $ 36.0
----------------------------------------------------------------------
EARNINGS PER SHARE: (h)
Basic
Earnings before cumulative
effect of change in accounting
principle. . . . . . . . . . . . . $ 1.34 $ 0.93 $ 0.93
Cumulative effect of accounting
change . . . . . . . . . . . . . . --- --- 0.04
-----------------------------------------------------------------------
Net earnings per share. . . . . . . $ 1.34 $ 0.93 $ 0.89
-----------------------------------------------------------------------
Weighted average shares
outstanding. . . . . . . . . . . . 40.6 40.7 40.7
-----------------------------------------------------------------------
Diluted
Earnings before cumulative
effect of change in accounting
principle. . . . . . . . . . . . . $ 1.30 $ 0.89 $ 0.89
Cumulative effect of accounting
change . . . . . . . . . . . . . . --- --- 0.04
-----------------------------------------------------------------------
Net earnings per share. . . . . . . $ 1.30 $ 0.89 $ 0.85
-----------------------------------------------------------------------
Weighted average shares
outstanding. . . . . . . . . . . . 41.9 42.7 42.5
-----------------------------------------------------------------------
BALANCE SHEET DATA:
Working capital . . . . . . . . . . . $ (346.7) $ 102.1 $ 92.3
Current ratio . . . . . . . . . . . . 0.6x 1.4x 1.4x
Plant and equipment, net. . . . . . . $ 915.8 $ 761.1 $ 722.0
Long-term debt. . . . . . . . . . . . $ 562.3 $ 369.3 $ 266.7
Deferred income taxes, net. . . . . . $ 50.5 $ 62.9 $ 69.1
Anheuser-Busch equity investment. . . $ --- $ --- $ ---
Shareholders' equity. . . . . . . . . $ 654.9 $ 639.4 $ 606.6
Total assets. . . . . . . . . . . . . $2,339.5 $1,591.6 $1,394.3
-----------------------------------------------------------------------
<FN>
(a) Fiscal year 1998 contains 53 weeks.
(c) 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.
(d) Reflects the effects of a one-time write-off related to a customer bankruptcy filing and the provision for restructuring and
consolidation. See "Management's Discussion and Analysis of Results of Operations and Financial Condition" and Note 5 in the Notes
to the Consolidated Financial Statements.
(e) Reflects the effect of the provision for restructuring and consolidation, a one-time tax benefit, and nonoperating gains on the
sales of property. See "Management's Discussion and Analysis of Results of Operations and Financial Condition" and Note 5 in the
Notes to the Consolidated Financial Statements.
(h) 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.
</FN>
</TABLE>
<TABLE>
<CAPTION>
Fiscal Years For the twelve Fiscal Year
(In millions, except per- ------------ weeks ended -----------
share data) 1997 March 26, 1996(b) 1995(b)
---------------------------------------------------------------------------
<S> <C> <C> <C>
STATEMENT OF EARNINGS DATA:
Net sales . . . . . . . . . . $1,662.6 $ 367.7 $1,664.6
Cost of products sold . . . . 988.8 228.8 1,034.7
---------------------------------------------------------------------------
Gross profit. . . . . . . . . 673.8 138.9 629.9
Marketing, distribution and
administrative expenses. . . 633.5 146.0 627.5
Provision for restructuring
and consolidation, net . . . 12.7 --- 9.1
---------------------------------------------------------------------------
Operating income (loss) . . . 27.6 (7.1) (6.7)
Other income and expenses:
Interest (expense). . . . . (6.3) (0.1) (1.9)
Other income (expense),
net. . . . . . . . . . . . 1.4 (0.1) 4.7
---------------------------------------------------------------------------
Income (loss) before income
taxes. . . . . . . . . . . . 22.7 (7.3) (3.9)
Provision (benefit) for
income taxes . . . . . . . . 6.5 (2.2) 2.7
Minority interest expense . . --- --- ---
---------------------------------------------------------------------------
Net income (loss) before
cumulative effect of
accounting change. . . . . . 16.2 (5.1) (6.6)
Cumulative effect of change
in accounting principle,
net of tax . . . . . . . . . --- --- ---
---------------------------------------------------------------------------
Net income (loss) . . . . . . $ 16.2(f) $ (5.1) $ (6.6)(g)
---------------------------------------------------------------------------
EARNINGS PER SHARE: (h)
Basic
Earnings before cumulative
effect of change in
accounting principle . . . $ 0.40
Cumulative effect of
accounting change. . . . . ---
------------------------------------------
Net earnings per share. . . $ 0.40
------------------------------------------
Weighted average shares
outstanding. . . . . . . . 40.6
------------------------------------------
Diluted
Earnings before cumulative
effect of change in accounting
principle. . . . . . . . . $ 0.39
Cumulative effect of
accounting change. . . . . ---
------------------------------------------
Net earnings per share. . . $ 0.39
------------------------------------------
Weighted average shares
outstanding. . . . . . . . 41.3
------------------------------------------
BALANCE SHEET DATA:
Working capital . . . . . . . $ 80.6 $ 74.0 $ 63.1
Current ratio . . . . . . . . 1.4x 1.4x 1.3x
Plant and equipment, net. . . $ 706.7 $ 723.2 $ 713.6
Long-term debt. . . . . . . . $ 103.0 $ 92.6 $ 1.5
Deferred income taxes, net. . $ 73.9 $ 72.2 $ 109.4
Anheuser-Busch equity
investment . . . . . . . . . $ --- $ 582.1 $ 701.3
Shareholders' equity. . . . . $ 582.4 $ --- $ ---
Total assets. . . . . . . . . $1,172.1 $1,177.6 $1,197.2
-------------------------------------------------------------------------
<FN>
(b) 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.
(f) Reflects the effect of the provision for restructuring and consolidation and one-time Spanish tax incentives and credits.
(g) Reflects the effect of the provision for restructuring and consolidation.
(h) 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.
</FN>
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED BALANCE SHEETS
<CAPTION>
March 28, March 30,
(In millions, except share data) 2000 1999
----------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents . . . . . . $ 19.9 $ 53.1
Accounts receivable, net. . . . . . . 261.3 184.5
Inventories, net. . . . . . . . . . . 91.5 77.7
Deferred income taxes . . . . . . . . 67.1 39.8
Other current assets. . . . . . . . . 41.5 29.6
----------------------------------------------------------------------
Total current assets. . . . . . . . 481.3 384.7
Other assets. . . . . . . . . . . . . . 42.4 46.0
Goodwill, net . . . . . . . . . . . . . 900.0 399.8
Plant and equipment, net. . . . . . . . 915.8 761.1
----------------------------------------------------------------------
Total assets. . . . . . . . . . . . $2,339.5 $1,591.6
----------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term
debt . . . . . . . . . . . . . . . . $ 442.1 $ 4.8
Accounts payable. . . . . . . . . . . 177.9 125.5
Accrued salaries, wages and
benefits . . . . . . . . . . . . . . 83.3 56.9
Accrual for restructuring and
consolidation. . . . . . . . . . . . 17.0 32.4
Other current liabilities . . . . . . 107.7 63.0
----------------------------------------------------------------------
Total current liabilities . . . . . 828.0 282.6
Postretirement benefits . . . . . . . . 104.1 114.0
Long-term debt. . . . . . . . . . . . . 562.3 369.3
Deferred income taxes . . . . . . . . . 117.6 102.7
Other noncurrent liabilities. . . . . . 62.6 73.6
Commitments and contingencies . . . . . --- ---
Minority interest - redeemable
preferred stock of subsidiary. . . . . 10.0 10.0
Shareholders' equity:
Common stock, $.01 par value,
150,000,000 authorized, 42,319,681
and 42,851,851 shares issued in
2000 and 1999, respectively. . . . . 0.4 0.4
Additional paid-in capital. . . . . . 621.6 616.6
Retained earnings . . . . . . . . . . 125.8 79.1
Unearned ESOP shares. . . . . . . . . (11.0) (13.0)
Treasury stock. . . . . . . . . . . . (35.8) (20.4)
Unearned portion of restricted
stock. . . . . . . . . . . . . . . . (1.6) (2.5)
Accumulated other comprehensive
income . . . . . . . . . . . . . . . (44.5) (20.8)
----------------------------------------------------------------------
Total shareholders' equity. . . . . 654.9 639.4
----------------------------------------------------------------------
Total liabilities and
shareholders' equity . . . . . . . $ 2,339.5 $1,591.6
----------------------------------------------------------------------
<FN>
See accompanying Notes to Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF EARNINGS
<CAPTION>
For the years ended
--------------------------------------
March 28, March 30, March 31,
(In millions, except per-share data) 2000 1999 1998(a)
---------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales . . . . . . . . . . . $2,039.3 $1,925.2 $1,719.0
Cost of products sold . . . . . 1,122.5 1,092.4 981.6
---------------------------------------------------------------------------
Gross profit. . . . . . . . . . 916.8 832.8 737.4
Marketing, distribution and
administrative expenses. . . . 804.4 731.6 670.2
Provision for restructuring
and consolidation. . . . . . . 2.3 28.0 ---
---------------------------------------------------------------------------
Operating income. . . . . . . . 110.1 73.2 67.2
Other income and expenses:
Interest (expense). . . . . . (26.5) (19.5) (8.2)
Other income, net . . . . . . 4.3 6.2 3.0
---------------------------------------------------------------------------
Income before income taxes. . . 87.9 59.9 62.0
Provision for income taxes. . . 32.8 21.9 24.2
Minority interest expense . . . (0.6) --- ---
---------------------------------------------------------------------------
Income before cumulative
effect of change in
accounting principle . . . . . 54.5 38.0 37.8
Cumulative effect of change
in accounting principle, net
of tax . . . . . . . . . . . . --- --- 1.8
---------------------------------------------------------------------------
Net income. . . . . . . . . . . $ 54.5 $ 38.0 $ 36.0
---------------------------------------------------------------------------
Earnings per share: (b)
Basic
Earnings before cumulative
effect of change in
accounting principle . . . $ 1.34 $ 0.93 $ 0.93
Cumulative effect of
accounting change. . . . . --- --- 0.04
----------------------------------------------------------------------------
Net earnings per share. . . $ 1.34 $ 0.93 $ 0.89
----------------------------------------------------------------------------
Weighted average shares
outstanding. . . . . . . . 40.6 40.7 40.7
----------------------------------------------------------------------------
Diluted
Earnings before cumulative
effect of change in
accounting principle . . . $ 1.30 $ 0.89 $ 0.89
Cumulative effect of
accounting change. . . . . --- --- 0.04
----------------------------------------------------------------------------
Net earnings per share. . . $ 1.30 $ 0.89 $ 0.85
----------------------------------------------------------------------------
Weighted average shares
outstanding. . . . . . . . 41.9 42.7 42.5
----------------------------------------------------------------------------
<FN>
(a) Fiscal year contains 53 weeks.
(b) Fiscal Year 1998 shares and per-share amounts have been restated to reflect the two-for-one stock split effective July 20, 1998.
See accompanying Notes to Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
For the years ended
-------------------------------------
March 28, March 30, March 31,
(In millions) 2000 1999 1998(a)
--------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income . . . . . . . . . . . $ 54.5 $ 38.0 $ 36.0
Adjustments to reconcile earnings
to net cash flow provided by
operations:
Depreciation . . . . . . . . . 89.9 82.6 73.4
Amortization . . . . . . . . . 26.3 19.8 11.2
Deferred income taxes. . . . . 13.7 (2.0) 6.7
Provision for restructuring
and consolidation ($2.3
million, less cash payments
of $1.0; $28.0 million,
less cash payments of $2.8) . 1.3 25.2 ---
(Gain) on disposal of fixed
assets. . . . . . . . . . . . (0.7) (5.6) (1.3)
(Increase) in noncash working
capital . . . . . . . . . . . (54.0) (18.9) (15.3)
Other, net . . . . . . . . . . (24.1) (8.9) 15.2
--------------------------------------------------------------------------
Net cash flow from
operations. . . . . . . . . . 106.9 130.2 125.9
--------------------------------------------------------------------------
Cash flows from investing activities:
Capital expenditures . . . . . . (94.1) (86.5) (79.6)
Acquisitions, net of cash
acquired. . . . . . . . . . . . (655.2) (169.7) (206.6)
Proceeds from sale of property/
business. . . . . . . . . . . . 7.4 40.7 7.8
--------------------------------------------------------------------------
Net cash used by investing
activities. . . . . . . . . . (741.9) (215.5) (278.4)
--------------------------------------------------------------------------
Cash flows from financing activities:
Net increase in revolving credit
facility. . . . . . . . . . . . 483.2 90.1 163.7
Issuance of long-term debt . . . 150.0 9.9 ---
Principal payments on long-term
debt, including current
maturities. . . . . . . . . . . (4.1) (0.9) ---
Dividends to shareholders. . . . (7.8) (6.0) (3.6)
Purchases of treasury stock. . . (15.4) (13.4) (7.0)
Proceeds from issuance of
preferred stock of subsidiary . --- 10.0 ---
Other. . . . . . . . . . . . . . 1.6 3.3 ---
--------------------------------------------------------------------------
Net cash provided by financing
activities. . . . . . . . . . 607.5 93.0 153.1
--------------------------------------------------------------------------
Effect of exchange rate changes
on cash . . . . . . . . . . . . . (5.7) 1.7 ---
Net (decrease) increase in cash
and cash equivalents. . . . . . . (33.2) 9.4 0.6
Cash and cash equivalents,
beginning of year . . . . . . . . 53.1 43.7 43.1
--------------------------------------------------------------------------
Cash and cash equivalents,
end of year . . . . . . . . . . . $ 19.9 $ 53.1 $ 43.7
--------------------------------------------------------------------------
<FN>
(a) Fiscal year contains 53 weeks.
See accompanying Notes to Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<CAPTION>
Common Stock Additional Unearned
----------------- Paid-In Retained ESOP
(In millions except share data) Shares Amount Capital Earnings Shares
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance March 25, 1997 . . . . . 10,778,050 $0.1 $604.4 $ 14.7 $(15.1)
Comprehensive income:
Net income . . . . . . . . . . 36.0
Other comprehensive income,
translation adjustments . . .
----------------------------------------------------------
Comprehensive income . . . . . 36.0
Dividends ($.175 per share). . . (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
Amortization of restricted
stock . . . . . . . . . . . . .
Shares allocated under ESOP. . . 1.3 1.0
Purchases of treasury stock. . . (168,600)
Other. . . . . . . . . . . . . . 5,028 0.2
----------------------------------------------------------------------------------------------
Balance March 31, 1998 . . . . . 21,498,864 0.2 608.1 47.1 (14.1)
Comprehensive income:
Net income . . . . . . . . . . 38.0
Other comprehensive income,
translation adjustments . . .
----------------------------------------------------------
Comprehensive income . . . . . 38.0
Dividends ($.145 per share). . . (6.0)
Two-for-one stock split. . . . . 21,498,864 0.2 (0.2)
Shares issued under stock plan
and related tax benefits. . . . 405,086 5.7
Amortization of restricted
stock . . . . . . . . . . . . .
Shares allocated under ESOP. . . 2.8 1.1
Purchases of treasury stock. . . (557,700)
Other. . . . . . . . . . . . . . 6,737 0.2
----------------------------------------------------------------------------------------------
Balance March 30, 1999 . . . . . 42,851,851 0.4 616.6 79.1 (13.0)
Comprehensive income:
Net income . . . . . . . . . . 54.5
Other comprehensive income,
translation adjustments . . .
----------------------------------------------------------
Comprehensive income . . . . . . 54.5
Dividends ($.19 per share) . . . (7.8)
Shares issued under stock plan
and related tax benefits. . . . 190,130 2.4
Amortization of restricted
stock . . . . . . . . . . . . .
Purchases of treasury stock. . . (722,300)
Shares allocated under ESOP. . . 2.8 2.0
Other. . . . . . . . . . . . . . (0.2)
----------------------------------------------------------------------------------------------
Balance March 28, 2000 . . . . . 42,319,681 $0.4 $621.6 $125.8 $(11.0)
----------------------------------------------------------------------------------------------
<FN>
See accompanying Notes to Consolidated Financial Statements.
</FN>
</TABLE>
<TABLE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<CAPTION>
Accum.
Unearned Other
Treasury Restricted Comprehensive
(In millions except share data) Stock Stock Income Total
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance March 25, 1997 . . . . . $ --- $(4.2) $(17.5) $582.4
Comprehensive income:
Net income . . . . . . . . . . 36.0
Other comprehensive income,
translation adjustments . . . (6.9) (6.9)
-------------------------------------------------
Comprehensive income . . . . . (6.9) 29.1
Dividends ($.175 per share). . . (3.6)
Two-for-one stock split. . . . . ---
Shares issued under stock plan
and related tax benefits. . . . 2.3
Amortization of restricted
stock . . . . . . . . . . . . . 0.9 0.9
Shares allocated under ESOP. . . 2.3
Purchases of treasury stock. . . (7.0) (7.0)
Other. . . . . . . . . . . . . . 0.2
-------------------------------------------------------------------------------------
Balance March 31, 1998 . . . . . (7.0) (3.3) (24.4) 606.6
Comprehensive income:
Net income . . . . . . . . . . 38.0
Other comprehensive income,
translation adjustments . . . 3.6 3.6
-------------------------------------------------
Comprehensive income . . . . . 3.6 41.6
Dividends ($.145 per share). . . (6.0)
Two-for-one stock split. . . . . ---
Shares issued under stock plan
and related tax benefits. . . . 5.7
Amortization of restricted
stock . . . . . . . . . . . . . 0.9 0.9
Shares allocated under ESOP. . . 3.9
Purchases of treasury stock. . . (13.4) (13.4)
Other. . . . . . . . . . . . . . (0.1) 0.1
-------------------------------------------------------------------------------------
Balance March 30, 1999 . . . . . (20.4) (2.5) (20.8) 639.4
Comprehensive income:
Net income . . . . . . . . . . 54.5
Other comprehensive income,
translation adjustments . . . (23.7) (23.7)
-------------------------------------------------
Comprehensive income . . . . . . (23.7) 30.8
Dividends ($.19 per share) . . . (7.8)
Shares issued under stock plan
and related tax benefits. . . . 2.4
Amortization of restricted
stock . . . . . . . . . . . . . 0.9 0.9
Purchases of treasury stock. . . (15.4) (15.4)
Shares allocated under ESOP. . . 4.8
Other. . . . . . . . . . . . . . (0.2)
-------------------------------------------------------------------------------------
Balance March 28, 2000 . . . . . $(35.8) $(1.6) $(44.5) $654.9
-------------------------------------------------------------------------------------
<FN>
See accompanying Notes to Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
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>
2000 . . . . . . . . . . . . 52-week period ended March 28, 2000
1999 . . . . . . . . . . . . 52-week period ended March 30, 1999
1998 . . . . . . . . . . . . 53-week period ended March 31, 1998
</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.
REVENUE RECOGNITION
Revenue is recognized upon shipment to the customer. Discounts to
customers are netted against sales. Costs and related expenses to manufacture
the products are recorded as costs of sales when the related revenue is
recognized.
GOODWILL
Goodwill is amortized on a straight-line basis over a period of 40 years.
Accumulated amortization at March 28, 2000, and March 30, 1999, was $99.8
million and $86.8 million, respectively. $110.3 million of the goodwill balance
at March 28, 2000, 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 unsalable
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
<PAGE>
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%.
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 $195.4 million, with related deferred tax liabilities of $74.2
million, at March 28, 2000.
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 non-
performance 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 hedge its future borrowing costs for an
anticipated 10-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 10-
year term. This interest rate swap agreement was terminated in conjunction with
the debt issuance on April 20, 1999. The loss of $2.3 million on the
termination of this swap is reflected as a discount on the notes and amortized
to interest expense over their 10-year term.
In May 2000, the Company entered into three separate, similar four-month
forward-starting interest rate swap transactions totalling $400 million, for
anticipated three-year, five-year, and 10-year debt issuances. Under such swap
transactions, the Company is committing to make a fixed-rate payment in exchange
for receiving floating rate payments, on a three-month LIBOR. Concurrent with
the debt issuances, any gain or loss on these swap agreements will be recognized
as an adjustment to interest expense on the underlying debt instruments. The
Company does not have a material concentration of accounts receivable or credit
risk.
FAIR VALUE OF FINANCIAL INSTRUMENTS
As of March 28, 2000, and March 30, 1999, the fair value of long-term debt
was $984.0 million and $374.1 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. This interest rate swap
agreement was terminated in conjunction with the debt issuance in April 1999.
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.
<PAGE>
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 undiscounted
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 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 June 1999, the Financial Accounting Standards Board (FASB) issued SFAS
No. 137, "Accounting for Derivative Instruments and Hedging Activities" Deferral
of the Effective Date of FASB Statement No. 133". This Statement established
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 2002 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.
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 charge (or $0.04
per diluted share (post-split)) 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 integrated SAP systems.
<PAGE>
4. Acquisitions
Effective June 30, 1999, Earthgrains acquired the stock of Patrick Raulet, S.A.,
a leading producer of refrigerated dough products in Dole, France. This
acquisition complements the Company's existing European Refrigerated Dough
Products business, making it the largest refrigerated dough supplier in France.
This acquisition was funded through the cash flows of the local existing
operations. Effective March 18, 2000, the Company acquired the stock of Metz
Baking Company for $625 million. Metz, which operates 21 bread and specialty
bakeries, will add major markets and brands in the upper Midwest. The
acquisition has been initially financed through new and existing committed
credit facilities and commercial paper.
Both acquisitions were purchased for cash and have 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
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. Most of the
increase in excess costs over assets acquired during the current year is related
to the Metz acquisition. Had these purchases taken place on April 1, 1998,
unaudited pro forma consolidated net sales would have been $2,601.3 million and
$2,467.2 million for fiscal years 2000 and 1999, respectively. Consolidated net
earnings and earnings per diluted share would have been $35.7 million and $0.85
per share in fiscal 2000 and $19.7 million and $0.46 per share in fiscal 1999.
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 have 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 purchase price has been 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 multi-year agreement to supply
store-brand fresh bread and bakery products to Kroger Food Stores in Texas and
Louisiana. Earthgrains services 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 services 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 purchase price has been 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 26, 1997, unaudited
<PAGE>
pro forma consolidated net sales would have been $1,933.2 million for fiscal
year 1998. Consolidated net earnings and earnings per share would not have been
significantly different from the amounts reflected in the accompanying financial
statements.
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.
5. Provisions for restructuring and consolidation
During fiscal 2000, the Company recorded a provision of $2.3 million in
conjunction with closing one bakery. During fiscal 1999, provisions totaling
$28.0 million were recorded in conjunction with closing three domestic 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 2000 1999
---------------------------------------------------
<S> <C> <C>
Noncash asset write-offs . . . . $0.8 $ 3.0
Other, primarily severance . . . 1.5 25.0
---------------------------------------------------
$2.3 $28.0
---------------------------------------------------
</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. During fiscal 2000, reserves for severance of $3.8 million were
established in conjunction with the Metz and Patrick Raulet acquisitions. In
accordance with generally accepted accounting principles, these acquisition-
related reserves were recorded as an increase to goodwill and no provision was
recorded. The reserve balance at March 28, 2000 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>
<CAPTION>
--------------------------------------------------------------
<S> <C>
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
Provision, 2000. . . . . . . . . . . . . . . . . . . . 2.3
Acquisition-related reserves . . . . . . . . . . . . . 3.8
Noncash asset write-offs . . . . . . . . . . . . . . . (1.8)
Cash payments associated with severance. . . . . . . . (19.2)
Other miscellaneous items, net . . . . . . . . . . . . (0.5)
--------------------------------------------------------------
Ending balance, March 28, 2000 . . . . . . . . . . . . $ 17.0
</TABLE>
6. Long-term debt
Long-term debt is as follows (in millions):
<TABLE>
<CAPTION>
--------------------------------------------------------------
March 28, March 30,
2000 1999
--------------------------------------------------------------
<S> <C> <C>
Commercial Paper, 6.2% wtd. avg. . . . . $ 259.1 $ ---
Revolving Credit Facility due 2000 . . . 25.0 ---
Revolving Credit Facility due 2001 . . . 568.0 ---
Revolving Credit Facility due 2002 . . . --- 355.3
Notes Payable, 6.5%, due 2009. . . . . . 150.0 ---
Euro Revolving Credit Facility due 2004. --- 8.6
Reposteria Martinez Notes Payable,
3.3% wtd. avg., due 2000-2003 . . . . . --- 6.0
Industrial Development Bonds,
9.5%, due 2001. . . . . . . . . . . . . 1.5 1.5
Other. . . . . . . . . . . . . . . . . . 0.8 2.7
--------------------------------------------------------------
1,004.4 374.1
Less current portion . . . . . . . . . . 442.1 4.8
--------------------------------------------------------------
$ 562.3 $369.3
--------------------------------------------------------------
</TABLE>
During fiscal 1998, the existing credit agreement established in
conjunction with the Distribution was increased to $450 million with a maturity
date of September 30, 2002, and interest on the borrowings was 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. Also during fiscal 1999, two
committed domestic lines of credit for $25 million each, due in 1999, and a 27
million euro revolving credit facility,
<PAGE>
due in 2004, for operations in Spain, were added to increase the Company's
borrowing flexibility.
On April 20, 1999, Earthgrains issued $150 million of 10-year 6.5% fixed-
rate senior debentures under a $250 million shelf registration statement filed
with the Securities and Exchange Commission. Proceeds from the offering were
used to repay a portion of the borrowings under the Company's $450 million
revolving credit facility.
Beginning in July 1999, the Company initiated a $400 million commercial
paper program to refinance the remaining borrowings under the revolving credit
facilities and to provide short-term financing for its working capital and
operating requirements.
In conjunction with the acquisition of Metz Baking Company, the Company has
recently secured a $600 million committed revolving credit facility, due in
March 2001, to initially finance the transaction. Concurrently, the Company
initiated an incremental $600 million commercial paper program which will be
used to refinance any borrowings under the new revolving credit facility.
Borrowings outstanding under both commercial paper programs are supported by the
existing revolving lines of credit. While a significant portion of the debt
outstanding at March 28, 2000 is variable-rate short-term debt, through the use
of the $400 million forwarding-starting swaps initiated in May 2000 and the
related anticipated long-term debt issuances, the Company plans to refinance
most of the recently secured $600 million revolving credit facility. Commercial
paper issued during the year generally had maturities of less than 90 days, with
an average maturity of 33 days at March 28, 2000. During the current fiscal
year, the two committed domestic lines of credit for $25 million each, were
extended to 2000 and a 10 million committed euro revolving credit facility, due
2000, for the Company's French subsidiary, Eurodough, was added to increase the
Company's borrowing capacity.
As of March 28, 2000, $42.2 million in letters of credit were also
outstanding under the revolving credit facility, principally related to self-
insurance requirements. All credit facilities contain customary covenants,
including maintenance of interest coverage and debt-to-total capitalization
ratios plus certain other restrictions.
7. Retirement benefits
PENSION PLANS
During fiscal 2000, the Company adopted a nonunion hourly pension plan to
provide benefit coverage for new nonunion hourly employees from acquired
companies. 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 2000 1999 1998
-----------------------------------------------------------
<S> <C> <C> <C>
Service cost (benefits earned
during the year) . . . . . . . . $ 6.2 $ 4.4 $ 3.2
Interest cost on projected
benefit obligation . . . . . . . 1.9 1.4 1.1
Expected return on assets . . . . (2.0) (1.0) (0.6)
Amortization of actuarial gains,
prior service cost, and the
excess of market value of plan
assets over projected benefit
obligation at January 1, 1986. . 1.2 1.0 1.0
-----------------------------------------------------------
Net pension expense . . . . . . . $ 7.3 $ 5.8 $ 4.7
-----------------------------------------------------------
</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 2000 1999 1998
----------------------------------------------------------
<S> <C> <C> <C>
Discount rate . . . . . . . . . . 7.0% 7.25% 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 $2.6 million in fiscal 2000, $1.1
million in fiscal 1999, and $0.6 million in fiscal 1998.
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 28, March 30,
2000 1999
--------------------------------------------------------------
<S> <C> <C>
Funded status - Plan assets (less than)
projected benefit obligation (PBO) . . $(5.6) $(12.3)
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. . . . 1.0 2.7
Unrecognized prior service costs. . . . 4.9 5.4
--------------------------------------------------------------
Accrued pension liability . . . . . . . $(0.1) $ (4.6)
</TABLE>
<PAGE>
The assumptions used in determining the funded status of these plans were
as follows:
-------------------------------------------
2000 1999
-------------------------------------------
Discount rate . . . . . . 7.5% 7.0%
Weighted-average rate of
compensation increase. . 4.5% 4.5%
-------------------------------------------
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 28, March 30,
2000 1999
---------------------------------------------------------
<S> <C> <C>
PBO, beginning of year . . . . $27.0 $19.9
Service cost . . . . . . . . . 6.2 4.4
Interest cost. . . . . . . . . 1.9 1.4
Acquisitions . . . . . . . . . 32.7 ---
Plan amendments. . . . . . . . 0.7 ---
Actuarial (gain)/loss. . . . . (0.9) 1.8
Benefits paid. . . . . . . . . (0.8) (0.5)
---------------------------------------------------------
PBO, end of year . . . . . . . $66.8 $27.0
---------------------------------------------------------
</TABLE>
CHANGE IN PLAN ASSETS (consisting primarily of corporate equity securities and
publicly traded bonds):
<TABLE>
<CAPTION>
---------------------------------------------------------
March 28, March 30,
2000 1999
---------------------------------------------------------
<S> <C> <C>
Fair market value, beginning
of year . . . . . . . . . . . $14.7 $ 9.5
Actual return on plan assets . 2.6 1.1
Acquisitions . . . . . . . . . 34.3 ---
Employer contributions . . . . 10.1 4.6
Benefits paid. . . . . . . . . (0.8) (0.5)
---------------------------------------------------------
Fair market value, end of
year. . . . . . . . . . . . . $60.9 $14.7
---------------------------------------------------------
</TABLE>
The amounts listed as acquisitions in the preceding tables, reflect the
projected benefit obligation and related pension assets from the Metz
acquisition.
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 $24.3 million, $24.9
million, and $24.4 million for fiscal 2000, 1999, and 1998, 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 post-retirement 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 28, March 30,
2000 1999
---------------------------------------------------------
<S> <C> <C>
Accumulated postretirement
benefit obligation (APBO) . . $ 68.9 $ 72.0
Unrecognized prior service
benefits. . . . . . . . . . . 30.2 35.2
Unrecognized net actuarial
gains . . . . . . . . . . . . 14.3 13.5
---------------------------------------------------------
Total postretirement benefit
liabilities . . . . . . . . . $113.4 $120.7
---------------------------------------------------------
</TABLE>
As of March 28, 2000, and March 30, 1999, $104.1 million and $114.0 million
of this obligation was classified as a long-term liability, respectively, and
$9.3 million and $6.7 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 2000 1999 1998
---------------------------------------------------------
<S> <C> <C> <C>
Service cost (benefits
attributed to service
during the year) . . . . . . . . $ 3.0 $ 3.4 $ 4.2
Interest cost on accumulated
postretirement benefit
obligation . . . . . . . . . . . 5.0 6.1 5.9
Amortization of prior service
benefit. . . . . . . . . . . . . (4.9) (4.9) (4.7)
Amortization of actuarial gain. . (1.0) (0.8) (1.9)
---------------------------------------------------------
Net periodic postretirement
benefits expense . . . . . . . . $ 2.1 $ 3.8 $ 3.5
---------------------------------------------------------
</TABLE>
In measuring the APBO, the pre-Medicare medical indemnity costs were
assumed to increase 8.0% for fiscal year 2000, decreasing by 1/3% per year to an
ultimate rate of 5.0% in fiscal year 2009. The post-Medicare medical indemnity
costs were assumed to increase 10.0% for fiscal year 2000, decreasing by 0.5%
per year to an ultimate rate of 5.0% in fiscal year 2010. The Medicare Risk HMO
medical costs were assumed to increase 6.0% in fiscal year 2000, decreasing by
0.25% per year to an ultimate rate of 4.0% in fiscal year 2008. The indemnity
medical trend rate combining pre-and post-Medicare costs for fiscal years 1999
and 1998 were assumed to be 8.5% and 8.8%, respectively; the Medicare HMO
medical trend rate was at an assumed 4.0%.
The weighted average discount rate used in determining the APBO was 8.0% at
March 28, 2000 and 7.5% at March 30, 1999.
Assumed health care cost trend rates have a significant effect on the
amounts reported for the health care plan. A one-percentage-point change in
assumed health care cost trend rates would have the following effects (in
millions):
<TABLE>
<CAPTION>
---------------------------------------------------------
Trend +1% Trend -1%
---------------------------------------------------------
<S> <C> <C>
Effect on total of service and
interest cost components for
2000 . . . . . . . . . . . . . $0.8 $(0.7)
Effect on year-end 2000
postretirement benefit
obligation . . . . . . . . . . $5.7 $(5.0)
</TABLE>
<PAGE>
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 28, 2000, 705,395 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
2000, 1999, and 1998 were $2.6 million and $0.3 million, $1.4 million and $0.2
million, and $1.7 million and $0.2 million, respectively.
9. Stock options and restricted stock
The 1996 Incentive Plan, adopted at the time of the Distribution, 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 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 28, 2000, 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 28, 2000 and March 30, 1999 would have been affected as follows (in
millions except shares, per grant and per share amounts):
<TABLE>
<CAPTION>
--------------------------------------------------------
Fiscal Year 2000 1999
--------------------------------------------------------
<S> <C> <C>
Reported net income . . . . . . . . . . . $54.5 $38.0
Pro forma net income. . . . . . . . . . . $50.5 $35.1
Reported earnings per diluted share . . . $1.30 $0.89
Pro forma earnings per diluted share. . . $1.21 $0.82
--------------------------------------------------------
</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>
--------------------------------------------------------
2000 1999
--------------------------------------------------------
<S> <C> <C>
Risk-free interest rate . . . . . . . . 6.2% 6.1%
Expected life of option . . . . . . . . 5 Yrs. 4 Yrs.
Expected volatility of Earthgrains
stock. . . . . . . . . . . . . . . . . 36% 34%
Expected dividend yield on
Earthgrains stock. . . . . . . . . . . 1.33% 0.75%
--------------------------------------------------------
</TABLE>
The weighted-average fair value of options granted during 2000 and 1999 is
as follows:
<TABLE>
<CAPTION>
--------------------------------------------------------
2000 1999
--------------------------------------------------------
<S> <C> <C>
Fair value of options granted . . . . $6.07 $7.19
Number of options granted . . . . . . 668,715 681,928
Total fair value of all options
granted. . . . . . . . . . . . . . . $4.1 $4.9
--------------------------------------------------------
</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.
<PAGE>
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 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
Granted. . . . . . . . . . 668,715 $16.14
Exercised. . . . . . . . . 190,130 $ 8.67
Cancelled. . . . . . . . . 94,401 $20.12
------------------------------------------------------------------
Outstanding,
March 28, 2000 . . . . . . . 4,070,038 $14.15 2,833,452
------------------------------------------------------------------
</TABLE>
The following table summarizes information for options currently
outstanding at March 28, 2000:
<TABLE>
------------------------------------------------------------------
Options Outstanding
------------------------------------------------------------------
<CAPTION>
Wtd. Avg. Wtd. Avg.
Range Remaining Exercise
of Prices Number Life Price
------------------------------------------------------------------
<S> <C> <C> <C>
$ 7.65-13.06 . . . . . . . . . 2,303,224 6.4 Yrs. $ 9.76
$15.59-15.70 . . . . . . . . . 627,990 10 Yrs. 15.72
$21.34-21.70 . . . . . . . . . 466,985 8 Yrs. 21.73
$22.41 . . . . . . . . . . . . 648,414 9 Yrs. 22.41
$22.66-25.28 . . . . . . . . . 23,425 9.3 Yrs. 23.47
------------------------------------------------------------------
$ 7.65-25.28 . . . . . . . . . 4,070,038 7.6 Yrs. $14.15
------------------------------------------------------------------
</TABLE>
At March 28, 2000, 174,770 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.
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 705,395 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. 1,617,200 shares have been repurchased into the
treasury as of March 28, 2000. As of March 28, 2000, 42,319,681 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 began paying dividends on this preferred stock at
a LIBOR-based variable interest rate. Such dividends were recorded as Minority
Interest Expense below the income tax provision line.
<PAGE>
11. Income taxes
The provision for income taxes consists of the following amounts for the periods
ended (in millions):
<TABLE>
<CAPTION>
----------------------------------------------------------
Fiscal Year 2000 1999 1998
----------------------------------------------------------
<S> <C> <C> <C>
Current tax provision:
Federal . . . . . . . . . . . . $16.1 $20.1 $13.3
State and foreign . . . . . . . 3.0 3.8 4.2
----------------------------------------------------------
19.1 23.9 17.5
----------------------------------------------------------
Deferred tax provision (benefit):
Federal . . . . . . . . . . . . 8.6 3.1 2.6
State and foreign . . . . . . . 5.1 (5.1) 4.1
----------------------------------------------------------
13.7 (2.0) 6.7
----------------------------------------------------------
Provision for income taxes. . . . $32.8 $21.9 $24.2
----------------------------------------------------------
</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 28, March 30,
2000 1999
----------------------------------------------------------
<S> <C> <C>
Deferred tax liabilities:
Depreciation and property
differences . . . . . . . . . . $ 164.9 $ 143.5
Deferred systems development
costs . . . . . . . . . . . . . 7.0 6.8
Pension plan . . . . . . . . . . 1.4 4.3
Other. . . . . . . . . . . . . . 18.1 16.4
----------------------------------------------------------
Deferred tax liabilities . . . . 191.4 171.0
----------------------------------------------------------
Deferred tax assets:
Postretirement benefits other
than pensions . . . . . . . . . (39.6) (44.0)
Self-insurance reserves. . . . . (23.7) (23.9)
Reserve for restructuring and
consolidation . . . . . . . . . (14.9) (12.0)
Accrued liabilities. . . . . . . (20.9) (11.2)
Deductible goodwill. . . . . . . (4.3) (6.8)
NOLs and tax credit
carryforwards . . . . . . . . . (23.6) ---
Other. . . . . . . . . . . . . . (13.9) (10.2)
----------------------------------------------------------
Deferred tax (assets). . . . . . (140.9) (108.1)
----------------------------------------------------------
Net deferred tax liabilities . . $ 50.5 $62.9
----------------------------------------------------------
</TABLE>
A reconciliation between the statutory rate and the effective rate is
presented below:
<TABLE>
<CAPTION>
----------------------------------------------------------
2000 1999 1998
----------------------------------------------------------
<S> <C> <C> <C>
Tax at statutory rate . . . . . . . $30.5 $21.0 $21.7
State income taxes,
net of federal benefit . . . . . . 0.7 1.0 1.4
Amortization of goodwill. . . . . . 3.4 3.0 2.0
Foreign tax credits and other . . . (2.4) (1.5) (1.6)
Benefit management program. . . . . --- (2.0) ---
Other, net. . . . . . . . . . . . . 0.6 0.4 0.7
----------------------------------------------------------
Provision for income taxes. . . . . $32.8 $21.9 $24.2
----------------------------------------------------------
</TABLE>
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 2000 1999 1998
----------------------------------------------------------
<S> <S> <S> <S>
Interest paid, net of
capitalized interest . . . . . . . $ 23.2 $ 19.2 $ 6.4
Income taxes paid . . . . . . . . . 25.1 34.0 19.4
----------------------------------------------------------
Changes in noncash working
capital, net of effect of
acquisitions:
Decrease (increase) in
noncash current assets:
Accounts receivable, net. . . . (35.5) (9.2) 4.6
Inventories, net. . . . . . . . 3.2 (1.9) 1.9
Other current assets. . . . . . (8.0) 8.2 (13.0)
Increase (decrease) in
current liabilities:
Accounts payable. . . . . . . . 9.1 (21.2) 2.3
Accrued salaries, wages
and benefits . . . . . . . . . 2.7 (2.9) (5.4)
Accrual for restructuring
and consolidation. . . . . . . (18.7) (3.0) ---
Other current liabilities . . . (6.8) 11.1 (5.7)
-----------------------------------------------------------
(Increase) in noncash working
capital. . . . . . . . . . . . . . $(54.0) $(18.9) $(15.3)
-----------------------------------------------------------
</TABLE>
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.
<PAGE>
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 one material site. 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 2000 were, in millions: 2001 - $20.2; 2002 - $15.8;
2003 - $12.2; 2004 - $9.7; 2005 - $7.7; thereafter - $28.3.
Total rental expense for all operating leases was $18.7 million, $16.8
million, and $12.8 million in fiscal 2000, 1999, and 1998, respectively.
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 represent an operation disposed of during that year.
Summarized below is the Company's business segment information for 2000, 1999,
and 1998 (in millions):
<TABLE>
<CAPTION>
-----------------------------------------------------------------
Fiscal Year 2000 1999 1998
-----------------------------------------------------------------
<S> <C> <C> <C>
INCOME STATEMENT INFORMATION
NET SALES
Bakery Products . . . . . . . . $1,745.0 $1,632.7 $1,441.0
Refrigerated Dough Products . . 294.3 292.5 276.4
Other . . . . . . . . . . . . . --- --- 1.6
-----------------------------------------------------------------
Total . . . . . . . . . . . . . $2,039.3 $1,925.2 $1,719.0
-----------------------------------------------------------------
DEPRECIATION & AMORTIZATION
Bakery Products . . . . . . . . $ 88.1 $ 77.8 $ 60.7
Refrigerated Dough Products . . 16.5 13.0 12.2
Corporate (a) . . . . . . . . . 11.6 11.6 11.6
Other . . . . . . . . . . . . . --- --- 0.1
-----------------------------------------------------------------
Total . . . . . . . . . . . . . $ 116.2 $ 102.4 $ 84.6
-----------------------------------------------------------------
OPERATING INCOME (b)
Bakery Products . . . . . . . . $ 80.9 $ 48.8 $ 53.1
Refrigerated Dough Products . . 40.8 36.0 25.5
Corporate (a) . . . . . . . . . (11.6) (11.6) (11.6)
Other . . . . . . . . . . . . . --- --- 0.2
-----------------------------------------------------------------
Total . . . . . . . . . . . . . $ 110.1 $ 73.2 $ 67.2
-----------------------------------------------------------------
BALANCE SHEET INFORMATION
TOTAL ASSETS
Bakery Products . . . . . . . . $1,839.6 $1,111.5 $ 918.0
Refrigerated Dough Products . . 194.2 162.8 147.5
Corporate (a) . . . . . . . . . 305.7 317.3 328.8
-----------------------------------------------------------------
Total . . . . . . . . . . . . . $2,339.5 $1,591.6 $1,394.3
-----------------------------------------------------------------
CAPITAL EXPENDITURES
Bakery Products . . . . . . . . $ 76.7 $ 71.1 $ 69.0
Refrigerated Dough Products . . 17.4 15.4 10.6
-----------------------------------------------------------------
Total . . . . . . . . . . . . . $ 94.1 $ 86.5 $ 79.6
----------------------------------------------------------------
<FN>
(a) 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.
(b) 2000 operating income was reduced by the $5.4 million pretax write-off related to a customer bankruptcy filing and the $2.3
million pretax provision for restructuring and consolidation. 1999 operating income was reduced by the $28.0 million pretax
provision for restructuring and consolidation. Both year amounts related to the Bakery Products segment.
</FN>
</TABLE>
<PAGE>
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) 2000 1999 1998
----------------------------------------------------------------
<S> <C> <C> <C>
NET SALES
Domestic . . . . . . . . . . . . $1,638.9 $1,611.1 $1,400.4
Foreign. . . . . . . . . . . . . 400.4 314.1 318.6
----------------------------------------------------------------
Consolidated Total . . . . . . . $2,039.3 $1,925.2 $1,719.0
----------------------------------------------------------------
OPERATING INCOME (LOSS)
Domestic . . . . . . . . . . . . $ 87.6(a) $ 79.2 $ 51.7
Foreign. . . . . . . . . . . . . 22.5 (6.0) 15.5
----------------------------------------------------------------
Consolidated Total . . . . . . . $ 110.1 $ 73.2(b) $67.2
----------------------------------------------------------------
IDENTIFIABLE ASSETS
Domestic . . . . . . . . . . . . $1,128.4 $ 852.5 $ 829.5
Foreign. . . . . . . . . . . . . 311.1 339.3 253.8
----------------------------------------------------------------
Consolidated Total . . . . . . . $1,439.5 $1,191.8 $1,083.3
----------------------------------------------------------------
<FN>
(a) 2000 operating income was reduced by the $5.4 million pretax write-off related to a customer bankruptcy filing and the $2.3
million pretax provision for restructuring and consolidation.
(b) 1999 operating income was reduced by the $28.0 million pretax provision for restructuring and consolidation, $19.6 million of
which related to foreign operations.
</FN>
</TABLE>
16. Supplemental balance sheet information
<TABLE>
<CAPTION>
--------------------------------------------------------
March 28, March 30,
(In millions) 2000 1999
--------------------------------------------------------
<S> <C> <C>
Receivables:
Trade . . . . . . . . . . . . $ 265.1 $ 190.1
Allowance for doubtful
accounts . . . . . . . . . . 3.8 5.6
--------------------------------------------------------
$ 261.3 $ 184.5
--------------------------------------------------------
Inventories:
Raw materials . . . . . . . . $ 68.3 $ 59.8
Finished goods. . . . . . . . 23.2 17.9
--------------------------------------------------------
$ 91.5 $ 77.7
--------------------------------------------------------
Plant and equipment:
Land. . . . . . . . . . . . . $ 76.0 $ 66.5
Buildings . . . . . . . . . . 508.9 461.3
Machinery and equipment . . . 1,000.2 860.7
Construction in progress. . . 43.5 31.9
--------------------------------------------------------
1,628.6 1,420.4
Less accumulated
depreciation . . . . . . . . (712.8) (659.3)
--------------------------------------------------------
$ 915.8 $ 761.1
--------------------------------------------------------
Accrued salaries, wages and benefits:
Accrued payroll . . . . . . . $ 29.1 $ 25.5
Accrued vacation. . . . . . . 27.1 17.8
Accrued group benefits. . . . 27.1 13.6
--------------------------------------------------------
$ 83.3 $ 56.9
--------------------------------------------------------
Other current liabilities:
Current portion of
self-insurance reserves. . . $ 24.9 $ 14.2
Accrued taxes, other than
income taxes . . . . . . . . 15.2 11.0
Other items . . . . . . . . . 67.6 37.8
--------------------------------------------------------
$ 107.7 $ 63.0
--------------------------------------------------------
Other noncurrent liabilities:
Self-insurance reserves . . . $ 32.6 $ 40.0
Other items . . . . . . . . . 30.0 33.6
--------------------------------------------------------
$ 62.6 $ 73.6
--------------------------------------------------------
--------------------------------------------------------
Fiscal Year 2000 1999 1998
--------------------------------------------------------
Allowance for doubtful accounts
Balance, beginning of period . . $ 5.6 $ 6.2 $ 6.0
Provision charged to expense . . 7.4 0.9 0.8
Acquisition-related additions. . 1.6 --- ---
Write-offs, less recoveries. . . (10.8) (1.5) (0.6)
--------------------------------------------------------
Balance, end of period . . . . . . $ 3.8 $ 5.6 $ 6.2
--------------------------------------------------------
</TABLE>
<PAGE>
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>
2000
Net sales . . . . . . . . . . . . . . . . $449.6 $469.4 $642.8 $477.5 $2,039.3
Gross profit. . . . . . . . . . . . . . . 202.1 208.9 286.8 219.0 916.8
Net income. . . . . . . . . . . . . . . . 12.5 15.7 18.7(a) 7.6(b) 54.5
Basic earnings per share:
Net earnings per share. . . . . . . . . . $ 0.31 $ 0.39 $ 0.46(a) $ 0.19(b) $ 1.34(c)
-----------------------------------------------------------------------------------------------------------------
Diluted earnings per share:
Net earnings per share. . . . . . . . . . $ 0.30 $ 0.37 $ 0.45(a) $ 0.18(b) $ 1.30
-----------------------------------------------------------------------------------------------------------------
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(d) 10.0(e) 17.0(f) 0.1(g) 38.0
Basic earnings per share:
Net earnings per share. . . . . . . . . . $ 0.27(d) $ 0.25(e) $ 0.42(f) $ 0.00(g) $ 0.93(c)
-----------------------------------------------------------------------------------------------------------------
Diluted earnings per share:
Net earnings per share. . . . . . . . . . $ 0.26(d) $ 0.23(e) $ 0.40(f) $ 0.00(g) $ 0.89
-----------------------------------------------------------------------------------------------------------------
<FN>
(a) Quarter's results include a $2.3 million pretax provision for restructuring and consolidation.
(b) Quarter's results include a $5.4 million one-time accounts receivable write-off related to a customer bankruptcy filing.
(c) 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.
(d) Quarter's results include a $1.7 million pretax nonoperating gain on the sale of property.
(e) Quarter's results include a $5.8 million pretax provision for restructuring and consolidation and severance costs related to
creation of a Financial Shared Services Center.
(f) Quarter's results include a $2.6 million pretax provision for restructuring and consolidation.
(g) Quarter's results include a $19.6 million pretax provision for restructuring and consolidation, a $2.0 million one-time tax
benefit, and a $0.9 million pretax nonoperating gain on the sale of property.
</FN>
</TABLE>
18. 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 2000.
<TABLE>
<CAPTION>
-----------------------------------------------------
Fiscal 2000 High Low Dividends
-----------------------------------------------------
<S> <C> <C> <C>
June Quarter . . . . . . $25 3/8 $20 1/8 $.04
September Quarter. . . . 29 23 1/2 .05
December Quarter . . . . 24 7/16 15 5/16 .05
March Quarter. . . . . . 16 7/16 13 5/16 .05
</TABLE>
19. Subsequent events
In April 2000, Earthgrains filed a $750 million shelf registration statement
with the Securities and Exchange Commission authorizing issuance of common or
preferred stock, debt securities, or trust preferred securities. The
registration statement has been declared effective, but no securities have been
issued under this shelf registration to date.
Additionally, in May 2000, the Company entered into three, separate four-month
forward-starting interest rate swap transactions for anticipated three-year,
five-year, and 10-year debt issuances totaling $400 million. See further
description of these swap transactions in Notes 2 and 6.
<PAGE>
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, cash flows and shareholders' equity
present fairly, in all material respects, the financial position of The
Earthgrains Company and its subsidiaries at March 28, 2000 and March 30, 1999,
and the results of their operations and their cash flows for the fiscal years
ended March 28, 2000, March 30, 1999 and March 31, 1998 in conformity with
accounting principles generally accepted in the United States. 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
auditing standards generally accepted in the United States, 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 28, 2000, except as to Note 19,
which is as of May 3, 2000
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
THE EARTHGRAINS COMPANY
(Registrant)
Date: May 31, 2000 BY: /S/ MARK H. KRIEGER
Mark H. Krieger
Vice President and Chief
Financial Officer
<PAGE>
EXHIBIT INDEX
Exhibit No. Description of Index
----------- --------------------
Exhibit 23.1 Consent of Independent
Accountants
Exhibit 23.2 Consent of Independent
Accountants
Exhibit 27.1 Financial Data Schedule
<PAGE>
