<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D C 20549
(Mark One)
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JULY 18, 1998
-------------
( ) 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 1-9787
------
FLOWERS INDUSTRIES, INC.
------------------------
(Exact name of registrant as specified in its charter)
GEORGIA 58-0244940
------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1919 FLOWERS CIRCLE, THOMASVILLE, GEORGIA
-----------------------------------------
(Address of principal executive offices)
31757
-----
(Zip Code)
912/226-9110
------------
(Registrant's telephone number, including area code)
N/A
---
(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days..
Yes ____X______ No __________
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes _________ No __________
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
TITLE OF EACH CLASS OUTSTANDING AT AUGUST 26, 1998
------------------- ------------------------------
COMMON STOCK, $.625 PAR VALUE 99,790,481
<PAGE> 2
FLOWERS INDUSTRIES, INC.
INDEX
<TABLE>
<CAPTION>
Page Number
-----------
<S> <C> <C> <C>
PART I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheet
July 18, 1998 and January 3, 1998 3
Consolidated Statement of Income
Twenty Eight Weeks Ended July 18, 1998
and July 19, 1997 5
Consolidated Statement of Income
Twelve Weeks Ended July 18, 1998
and July 19, 1997 6
Consolidated Statement of Cash Flows
Twenty Eight Weeks Ended July 18, 1998
and July 19, 1997 7
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
PART II. Other Information
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 17
</TABLE>
-2-
<PAGE> 3
FLOWERS INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEET
ASSETS
(Amounts in Thousands, Except Share Data and Per Share Data)
<TABLE>
<CAPTION>
July 18, January 3,
1998 1998
==============================
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 78,902 $ 3,866
Accounts and notes receivable, net 241,766 118,147
Inventories:
Raw materials 71,262 40,459
Finished goods 180,838 44,650
Supplies 24,457 20,322
----------- ---------
276,557 105,431
----------- ---------
Deferred income taxes 62,668 16,024
Other assets 32,223 9,421
----------- ---------
692,116 252,889
----------- ---------
PROPERTY, PLANT and EQUIPMENT:
Land 38,645 20,388
Buildings 343,913 208,179
Machinery and equipment 790,480 443,739
Furniture, fixtures and transportation equipment 91,839 28,095
Construction in progress 119,950 46,262
----------- ---------
1,384,827 746,663
Less: Accumulated depreciation (458,280) (308,342)
----------- ---------
926,547 438,321
----------- ---------
OTHER ASSETS:
Investment in unconsolidated affiliate 100,663
Other 119,298 32,620
----------- ---------
119,298 133,283
----------- ---------
COST IN EXCESS OF NET TANGIBLE
ASSETS, NET 575,012 74,888
----------- ---------
$ 2,312,973 $ 899,381
=========== =========
</TABLE>
(See Accompanying Notes to Consolidated Financial Statements)
-3-
<PAGE> 4
FLOWERS INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEET
LIABILITIES AND STOCKHOLDERS' EQUITY
(Amounts in Thousands, Except Share Data and Per Share Data)
<TABLE>
<CAPTION>
July 18, January 3,
1998 1998
===============================
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Commercial paper $ 74,755 $ 53,506
Current maturities of long-term debt 33,431 4,232
Accounts payable 169,966 72,311
Income taxes 28,597
Other accrued liabilities 339,129 102,563
----------- ---------
645,878 232,612
----------- ---------
LONG TERM DEBT 738,003 276,211
----------- ---------
OTHER LIABILITIES:
Deferred income taxes 107,946 39,686
Postretirement/postemployment obligations 62,457
Other long-term liabilities 49,074 2,305
----------- ---------
219,477 41,991
----------- ---------
MINORITY INTEREST 122,014
----------- ---------
COMMITMENTS AND CONTINGENCIES
----------- ---------
STOCKHOLDERS' EQUITY:
Preferred Stock - $100 par value, authorized
10,467 shares and none issued
Preferred Stock - $100 par value, authorized
249,533 shares and none issued
Common stock - $.625 par value, authorized
350,000,000 shares, issued 99,982,062 and
88,636,089 shares, respectively 62,489 55,398
Capital in excess of par value 272,269 45,200
Retained earnings 278,334 266,734
Less: Common stock in treasury, 172,831
and 207,670 shares, respectively (2,261) (2,452)
Stock compensation related
adjustments (23,230) (16,313)
----------- ---------
587,601 348,567
----------- ---------
$ 2,312,973 $ 899,381
=========== =========
</TABLE>
(See Accompanying Notes to Consolidated Financial Statements)
-4-
<PAGE> 5
FLOWERS INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF INCOME
(Amounts in Thousands, Except Per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
For the 28 Weeks Ended
===============================
July 18, July 19,
1998 1997
===============================
<S> <C> <C>
Sales $ 1,908,531 $ 734,235
Other income 4,927 5,232
----------- ---------
1,913,458 739,467
----------- ---------
Materials, supplies, labor and other production costs 861,342 409,629
Selling, marketing and administrative expenses 872,171 260,911
Depreciation and amortization 63,734 25,379
----------- ---------
Income from operations 116,211 43,548
Interest expense, net 32,493 10,458
----------- ---------
Income before income taxes, income from investment in
unconsolidated affiliate and minority interest 83,718 33,090
Income taxes 35,161 12,614
Income from investment in unconsolidated affiliate 10,691
----------- ---------
Income before minority interest 48,557 31,167
Minority interest (15,062)
----------- ---------
Net income $ 33,495 $ 31,167
=========== =========
Net Income Per Common Share:
Basic -
Net income per common share $ .36 $ .35
=========== =========
Weighted average shares outstanding 93,835 88,151
=========== =========
Diluted -
Net income per common share $ .36 $ .35
=========== =========
Weighted average shares outstanding 94,296 88,569
=========== =========
Cash dividends paid per common share $ 0.2325 $ 0.2108
=========== =========
</TABLE>
(See Accompanying Notes to Consolidated Financial Statements)
-5-
<PAGE> 6
FLOWERS INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF INCOME
(Amounts in Thousands, Except Per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
For the 12 Weeks Ended
=============================
July 18, July 19,
1998 1997
==============================
<S> <C> <C>
Sales $ 833,059 $ 321,014
Other income 3,365 2,674
----------- ---------
836,424 323,688
----------- ---------
Materials, supplies, labor and other production costs 375,052 194,328
Selling, marketing and administrative expenses 371,600 99,461
Depreciation and amortization 29,538 10,943
----------- ---------
Income from operations 60,234 18,956
Interest expense, net 13,348 3,776
----------- ---------
Income before income taxes, income from investment in
unconsolidated affiliate and minority interest 46,886 15,180
Income taxes 19,675 5,844
Income from investment in unconsolidated affiliate 5,351
----------- ---------
Income before minority interest 27,211 14,687
Minority interest (8,744)
----------- ---------
Net income $ 18,467 $ 14,687
=========== =========
Net Income Per Common Share:
Basic -
Net income per common share $ .19 $ 0.17
=========== =========
Weighted average shares outstanding 97,548 88,186
=========== =========
Diluted -
Net income per common share $ .19 $ 0.17
=========== =========
Weighted average shares outstanding 98,002 88,613
=========== =========
Cash dividends paid per common share $ 0.1175 $ 0.1075
=========== =========
</TABLE>
(See Accompanying Notes to Consolidated Financial Statements)
-6-
<PAGE> 7
FLOWERS INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Amounts in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the 28 Weeks Ended
========================
July 18, July 19,
1998 1997
========================
<S> <C> <C>
Cash flows provided by operating activities:
Net income $ 33,495 $ 31,167
Adjustments to reconcile net income to net cash
provided by operating activities:
Minority interest 15,062
Income from investment in unconsolidated affiliate (10,691)
Depreciation and amortization 63,734 25,379
Deferred income taxes (5,555) 1,037
Other 87 2,223
Changes in assets and liabilities, net of acquisitions:
Accounts and notes receivable (21,487) 12,849
Inventories (55,739) (17,611)
Other assets 533 (86)
Accounts payable 10,674 21,299
Accrued taxes and other liabilities 5,801 (17,131)
----------- ---------
Net cash provided by operating activities 46,605 48,435
----------- ---------
Cash flows from investing activities:
Purchase of property, plant and equipment (50,277) (41,022)
Acquisition of majority interest in Keebler (284,436)
Acquisition of other businesses (30,206)
Other (155) 8,676
----------- ---------
Net cash disbursed for investing activities: (365,074) (32,346)
----------- ---------
Cash flows from financing activities:
Common stock offering proceeds, net of
underwriters discount and offering costs 187,930
Dividends paid (21,895) (18,574)
Treasury stock purchases (3,987) (86)
Stock compensation and warrants exercised 20,305 3,428
Debentures proceeds 199,417
Debentures issuance costs (1,750)
Increase (decrease) in commercial paper 21,249 (3,840)
Net debt repayments (7,764) (2,183)
----------- ---------
Net cash provided by (disbursed for) financing activities 393,505 (21,255)
----------- ---------
Net increase (decrease) in cash and cash equivalents 75,036 (5,166)
Cash and cash equivalents at beginning of period 3,866 7,886
----------- ---------
Cash and cash equivalents at end of period $ 78,902 $ 2,720
=========== =========
Schedule of noncash investing and financing activities:
Stock compensation transactions $ 9,049 $ 2,475
=========== =========
Stock issued for acquisition $ 40,000 $
=========== =========
</TABLE>
(See Accompanying Notes to Consolidated Financial Statements)
-7-
<PAGE> 8
FLOWERS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The accompanying consolidated financial statements of Flowers Industries,
Inc. (the "Company") contain all adjustments (consisting of only normal
recurring accruals) necessary to present fairly the financial position as of
July 18, 1998 and January 3, 1998, the results of operations for the twelve
and twenty eight weeks ended July 18, 1998 and July 19, 1997, respectively,
and statement of cash flows for the twenty eight weeks ended July 18, 1998
and July 19, 1997. The results of operations for the twelve and twenty eight
week periods ended July 18, 1998 and July 19, 1997, respectively, are not
necessarily indicative of the results to be expected for a full year.
In prior years, the Company's fiscal year ended on the Saturday nearest June
30. Concurrent with the Company's purchase of the majority interest in
Keebler Foods Company ("Keebler"), as further discussed in Note 4, the
Company changed its fiscal year end to coincide with Keebler's, which
consists of thirteen four week periods (52 or 53 weeks) and ends on the
Saturday nearest December 31. The Company's quarterly reporting periods for
fiscal year 1998 are as follows: first quarter ending April 25, 1998 (sixteen
weeks), second quarter ending July 18, 1998 (twelve weeks), third quarter
ending October 10, 1998 (twelve weeks) and fourth quarter ending January 2,
1999 (twelve weeks). Unaudited condensed combined pro forma results of
operations, which assume the acquisition of the majority interest in Keebler
occurred as of the beginning of each period presented, are included in Note
4.
The Company changed its method of presenting the statement of cash flows from
the direct method to the indirect method, beginning with the second quarter
ending July 18, 1998. This and certain other reclassifications of prior
period information have been made to conform with the current period
reporting.
2. Net Income Per Common Share - Basic net income per share is computed by
dividing net income by weighted average common shares outstanding for the
period. Diluted net income per share is computed by dividing net income by
weighted average common and dilutive common equivalent shares outstanding for
the period. Common stock equivalents consist of the incremental shares
associated with the Company's stock compensation plans, as determined under
the treasury stock method. The following table sets forth the computation of
basic and diluted net income per share (amounts in thousands, except per
share data):
<TABLE>
<CAPTION>
For the 12 Weeks Ended For the 28 Weeks Ended
---------------------- ----------------------
July 18, July 19, July 18, July 19,
1998 1997 1998 1997
======= ======== ======= ========
<S> <C> <C> <C> <C>
Numerator:
Net income $18,467 $ 14,687 $33,495 $ 31,167
======= ======== ======= ========
Denominator:
Basic weighted average shares 97,548 88,186 93,835 88,151
Effect of dilutive securities:
Stock compensation 454 427 461 418
------- -------- ------- --------
Diluted weighted average shares 98,002 88,613 94,296 88,569
======= ======== ======= ========
Net income per common share:
Basic $ .19 $ .17 $ .36 $ .35
======= ======== ======= ========
Diluted $ .19 $ .17 $ .36 $ .35
======= ======== ======= ========
</TABLE>
-8-
<PAGE> 9
3. The Company's primary raw materials are flour, sugar, shortening, fruits and
dairy products. The Company has limited involvement with derivative financial
instruments and does not use them for trading purposes. The Company enters
into forward purchase agreements and derivative financial instruments to
reduce the impact of volatility in raw material prices. Amounts payable or
receivable under the agreements which qualify as hedges are recognized as
deferred gains or losses. These deferred amounts are charged or credited to
cost of sales as the related raw materials are used in production. Gains and
losses on agreements which do not qualify as hedges are recognized
immediately as other income or expense. At July 18, 1998, the Company had no
material commitments outstanding relating to derivative financial
instruments.
During June 1997, the Company entered into an arrangement that allows the
Company to engage in commodity price agreements based on fixed and floating
prices of an agreed type of commodity. At July 18, 1998, the Company had no
material amounts outstanding under this arrangement.
4. Acquisitions - On February 3, 1998, the Company acquired an additional 11.5%
of the common stock of Keebler, concurrent with Keebler's initial public
offering, giving the Company a majority ownership position in Keebler of
approximately 55% (the "Keebler Acquisition"). The aggregate purchase price
of the additional interest in Keebler was approximately $311,624,000,
including transaction expenses. The acquisition was initially financed
through borrowings under the Company's $500,000,000 syndicated loan facility.
Keebler is a major producer and marketer of cookies and crackers in the
United States. The acquisition of the additional interest in Keebler was
accounted for using the purchase method of accounting, and, accordingly,
Keebler's assets and liabilities are included in the consolidated balance
sheet as of July 18, 1998. The acquisition of the majority interest resulted
in the Company consolidating Keebler's operating results effective January 4,
1998. Keebler's operating results for the period January 4, 1998 through
February 3, 1998, the date the Company acquired the majority interest, were
not materially different had they been accounted for under the equity method,
the method by which the Company previously accounted for its investment in
Keebler. The excess of the purchase price over the fair value of the net
assets underlying the additional interest acquired, approximately
$263,391,000, has been recorded as goodwill and is being amortized over 40
years.
The purchase price has been preliminarily allocated to the assets acquired
and liabilities assumed based on the respective fair values at the date of
purchase, as summarized below (amounts in thousands):
<TABLE>
<S> <C>
Cash $ 46,989
Accounts receivable 98,963
Inventory 112,462
Other current assets 63,033
Property, plant and equipment 478,121
Cost in excess of net tangible assets 201,205
Other assets 61,879
Current liabilities 368,185
Long-term debt 272,390
Deferred income taxes 69,417
Postretirement/postemployment obligations 60,605
Other noncurrent liabilities 50,203
Minority interest 108,833
</TABLE>
-9-
<PAGE> 10
The following unaudited condensed combined pro forma results of operations
assume the acquisition occurred as of the beginning of each period (amounts
in thousands, except per share data):
<TABLE>
<CAPTION>
For the 28 Weeks Ended
----------------------------------
July 18, 1998 July 19, 1997
------------- -------------
<S> <C> <C>
Sales $ 1,908,531 $1,793,771
Income before extraordinary loss 33,495 24,555
Net income 33,495 23,074
Net Income Per Common Share:
Income before extraordinary loss - basic .36 .27
Income before extraordinary loss - diluted .36 .27
Net income - basic .36 .25
Net income - diluted .36 .25
</TABLE>
The pro forma financial information is not necessarily indicative of the
operating results that would have occurred had the acquisition been
consummated as of the beginning of the period, nor are they necessarily
indicative of future operating results.
On January 30, 1998, the Company acquired the outstanding common stock of
Franklin Baking Company ("Franklin") in Goldsboro, North Carolina. Franklin
is a producer and marketer of fresh bakery products primarily to
supermarkets. Additionally, on May 1, 1998, the Company acquired the Pet-Ritz
and Oronoque Orchard frozen dessert brands from Van de Kamp's, Inc. Both
business combinations have been accounted for as purchases, and, accordingly,
the results of operations are included in the consolidated statement of
income from the date of acquisition. The Company does not consider the
effects of either of the acquisitions significant for pro forma disclosure
purposes.
5. Other accrued liabilities consist of (amounts in thousands):
<TABLE>
<CAPTION>
July 18, 1998 January 3, 1998
------------- ---------------
<S> <C> <C>
Employee compensation $ 79,889 $ 18,123
Self-insurance 69,026 13,429
Purchase accounting reserves 40,872 34,953
Marketing and consumer promotions 87,649 --
Other 61,693 36,058
----------- ---------
Total $ 339,129 $ 102,563
=========== =========
</TABLE>
-10-
<PAGE> 11
6. The following table summarizes the Company's debt (amounts in thousands):
<TABLE>
<CAPTION>
July 18, 1998 January 3, 1998
------------- ---------------
<S> <C> <C>
7.15% Debentures due 2028 $200,000 $ --
Private placement Senior Notes 125,000 125,000
Senior Subordinated Notes 124,400 --
Borrowings under syndicated loan facility 128,460 122,000
Term A loans 145,000 --
Commercial paper 74,755 53,506
Industrial revenue bonds 12,950 13,170
Other notes payable 35,624 20,273
------- --------
846,189 333,949
Due within one year 108,186 57,738
------- --------
Due after one year 738,003 $276,211
======= ========
</TABLE>
On April 27, 1998, the Company sold $200,000,000 of 7.15% debentures due
April 15, 2028. Net proceeds from the offering were used to reduce borrowings
under the $500,000,000 syndicated loan facility which were primarily incurred
to purchase the majority interest in Keebler.
In July 1998, subsequent to quarter-end, the Company amended its Commercial
Paper Agreement to increase the limit from $75,000,000 to $100,000,000.
Borrowings under this agreement at July 18, 1998 were $74,755,000.
7. New Accounting Pronouncements - As of January 4, 1998, the Company adopted
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" ("SFAS 130"). SFAS 130 establishes new rules for the reporting and
display of comprehensive income and its components. The adoption of this
Statement had no impact on the Company's net earnings or stockholders'
equity. During the second quarter of fiscal 1998 and the comparable period in
the prior year, total comprehensive income substantially equaled net income.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 establishes new
rules for accounting for derivative instruments and hedging activities. This
standard is effective for the Company's fiscal year 2000. The Company is
currently assessing the effects SFAS 133 will have on its financial position
and results of operations.
8. Equity Offering - On April 27, 1998, the Company sold 9,000,000 shares of
its common stock in a public offering at $22 per share. Net proceeds from the
offering were used to reduce borrowings under the $500,000,000 syndicated
loan facility which were primarily incurred to purchase the majority interest
in Keebler.
9. Subsequent Event - On August 24, 1998, Keebler, of which the Company holds a
majority ownership position, reached an agreement to acquire President Baking
Company ("President") headquartered in Atlanta, Georgia. President is a
supplier of Girl Scout Cookies, as well as, Famous Amos and Murray cookies.
The transaction is subject to regulatory review and is expected to close in
September 1998.
-11-
<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Matters Affecting Analysis:
From January 26, 1996, the date of the Company's initial investment in Keebler,
through January 3, 1998, the Company accounted for its investment in Keebler
using the equity method of accounting. For reporting periods beginning after
January 3, 1998, the Company has consolidated Keebler for financial reporting
purposes, due to the Keebler Acquisition.
Liquidity and Capital Resources:
Net cash provided by operating activities for the twenty eight weeks ended July
18, 1998 was $46,605,000. Positive net cash flow of $48,557,000 was provided
from net income for the twenty eight weeks. Net cash flows provided by
operations were negatively impacted by the build-up of frozen inventory by the
Company in anticipation of the upcoming high selling period. Timing of payments
of accrued taxes and other liabilities had a positive impact on cash flows.
Net cash disbursed for investing activities for the twenty eight weeks ended
July 18, 1998 of $365,074,000 was primarily used for the Keebler Acquisition and
capital expenditures. The capital expenditures were made principally to update
and enhance production and distribution facilities.
For the twenty eight weeks ended July 18, 1998, net cash provided by financing
activities of $393,505,000 resulted from the issuance of $200,000,000 of 7.15%
debentures due April 15, 2028 and the issuance of 9,000,000 shares of common
stock in a public offering at $22 per share. These transactions were consummated
on April 27, 1998. The exercise of Keebler warrants by Bermore Ltd., concurrent
with Keebler's initial public offering on February 3, 1998, also contributed to
net cash provided by financing activities.
At July 18, 1998, cash and cash equivalents were $78,902,000. As described in
Note 6 of the consolidated financial statements, long-term debt was $738,003,000
and current maturities of long-term debt were $108,186,000 at July 18, 1998. In
connection with the consolidation of Keebler, the Company has recorded Keebler's
indebtedness of $286,455,000 as of July 18, 1998, however, the Company has not
guaranteed such indebtedness and it is to be repaid solely from the cash flows
of Keebler. Subsequent to quarter-end, the Company amended its Commercial Paper
Agreement to increase the limit to $100,000,000.
For the twelve and twenty eight weeks ended July 18, 1998, dividends paid per
share increased 9% and 10%, respectively, to $.1175 and $.2325, respectively,
from $.1075 and $.2108 paid for the comparable periods in the prior year.
-12-
<PAGE> 13
Results of Operations:
Results of operations expressed as a percentage of net sales for the twelve and
twenty eight weeks ended July 18, 1998, and July 19, 1997 are set forth below:
<TABLE>
<CAPTION>
For the 12 Weeks Ended For the 28 Weeks Ended
--------------------------- ------------------------
July 18, July 19, July 18, July 19,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales 100.00% 100.00% 100.00% 100.00%
Gross Profit 54.98 39.46 54.87 44.21
Selling, marketing and administrative expenses 44.61 30.98 45.70 35.54
Depreciation and amortization 3.55 3.41 3.34 3.46
Interest 1.60 1.18 1.70 1.42
Income before income taxes, income from investment in
unconsolidated affiliate and minority interest 5.63 4.73 4.39 4.51
Income taxes 2.36 1.82 1.84 1.72
Net income 2.22% 4.58% 1.76% 4.24%
</TABLE>
Sales. For the twelve weeks ended July 18, 1998, sales were $833,059,000 or
160% higher than sales for the comparable period in the prior year, which were
$321,014,000. For the twenty eight weeks ended July 18, 1998, sales were
$1,908,531,000, or 160% higher than sales for the comparable period in the prior
year which were $734,235,000. Most of the increase was due to the consolidation
of Keebler's sales, following the Keebler Acquisition, in the amount of
$490,042,000 for the quarter and $1,126,788,000 year to date. Sales increases
for both the twelve and twenty eight weeks were driven primarily by selected
price increases initiated in the first quarter of 1998, an increase in sales
volume, and a more favorable sales mix. Volume gains were a result of sales of
new products and line extensions of existing products. The Company also
experienced increased sales as a result of the acquisition of three other
businesses.
Gross Profit. For the twelve weeks ended July 18, 1998, gross profit was
$458,007,000 or 262% higher than gross profit for the comparable period in the
prior year, which was $126,686,000. For the twenty eight weeks ended July 18,
1998, gross profit was $1,047,189,000 or 223% higher than gross profit for the
comparable period in the prior year, which was $324,606,000. The Company's gross
profit for the twelve and twenty eight weeks includes gross profit of
$281,357,000 and $654,016,000, respectively, attributable to Keebler, a factor
not present in the prior year. Lower ingredient costs, increased volume and
production efficiencies were also factors in the gross profit improvement.
Selling, Marketing and Administrative Expenses. Selling, marketing and
administrative expenses were $371,600,000 for the twelve weeks ended July 18,
1998, or 274% higher than its expenses of $99,461,000 for the comparable period
in the prior year. Selling, marketing and administrative expenses were
$872,171,000 for the twenty eight weeks ended July 18, 1998, or 234% higher than
its expenses of $260,911,000 for the comparable period in the prior year. The
increase is due primarily to the inclusion of $241,261,000 for the quarter and
$579,437,000 year to date of such expenses for Keebler. The increase in these
expenses relative to sales was primarily due to increased marketing expenses,
somewhat offset by reduced delivery expenses.
-13-
<PAGE> 14
Depreciation and Amortization. Depreciation and amortization expense was
$29,538,000 for the twelve weeks ended July 18, 1998, an increase of 170% over
the corresponding period in the prior year, which was $10,943,000. Depreciation
and amortization expense was $63,734,000 for the twenty eight weeks ended July
18, 1998, an increase of 151% over the corresponding period in the prior year,
which was $25,379,000. The increase was primarily a result of the consolidation
of Keebler, increased goodwill amortization relating to the Keebler Acquisition
and increased depreciation attributable to capital improvements.
Interest. For the twelve weeks ended July 18, 1998, interest expense was
$13,348,000 or 254% higher than interest expense for the corresponding period in
the prior year of $3,776,000. For the twenty eight weeks ended July 18, 1998,
interest expense was $32,493,000 or 211% higher than interest expense for the
corresponding period in the prior year of $10,458,000. Approximately $5,725,000
and $13,555,000 in interest expense was attributable to Keebler for the quarter
and year to date, respectively, and the remaining increase in interest expense
was due to borrowings used to fund the Keebler Acquisition.
Income Before Income Taxes, Income from Investment in Unconsolidated Affiliate
and Minority Interest. Income before income taxes, income from investment in
unconsolidated affiliate and minority interest for the twelve weeks ended July
18, 1998 was $46,886,000 an increase of 209% over the comparable period in the
prior year, which was $15,180,000. Income before income taxes, income from
investment in unconsolidated affiliate and minority interest for the twenty
eighty weeks ended July 18, 1998 was $83,718,000 an increase of 153% over the
comparable period in the prior year, which was $33,090,000. Approximately
$33,472,000 and $57,707,000 of the increase for the quarter and year to date,
respectively, were results of the consolidation of Keebler, which was partially
offset by increased goodwill amortization and interest expense, as discussed
above.
Income Taxes. Income taxes for the twelve weeks ended July 18, 1998 were
$19,675,000 an increase of 237% over the comparable period in the prior year,
which were $5,844,000. Income taxes for the twenty eight weeks ended July 18,
1998 were $35,161,000, an increase of 179% over the comparable period in the
prior year, which were $12,614,000. This increase is due primarily to the
inclusion of $14,041,000 and $24,236,000 of income taxes attributable to Keebler
for the quarter and year to date, respectively, as well as an increase in the
effective tax rate to 42% from 38.5%. The tax rate increase is due primarily to
nondeductible goodwill amortization associated with the Keebler Acquisition.
Net Income. Net income for the twelve weeks ended July 18, 1998 was $18,467,000,
an increase of 26%, as compared to $14,687,000 reported in the prior year. Net
income for the twenty eight weeks ended July 18, 1998 was $33,495,000, an
increase of 7%, as compared to $31,167,000 reported in the prior year. This
increase is primarily a result of the Keebler Acquisition, offset by the
increased goodwill amortization and interest expense, as discussed above.
Year 2000 Conversion
Many currently installed computer systems and software products are coded to
accept only two digit entries in the date code field. These date code fields
will need to accept four digit entries to distinguish 21st century dates from
20th century dates. As a result, in less than two years, computer systems and/or
software used by many companies may need to be upgraded to comply with such
"Year 2000" requirements. Significant uncertainty exists concerning the
potential effects associated with such compliance. The Company is currently
analyzing the Year 2000 computer systems issue and has completed the conversion
of certain of its computerized operations. There can be no assurance that the
Company's software contains or will contain all necessary date code changes. The
Company, its customers and its suppliers may be affected by Year 2000 issues.
The Company has plans to communicate with significant customers, vendors and
other third parties with whom it does significant business to determine their
Year 2000 compliance readiness. However, there can be no guarantee that the
systems of other entities will be timely converted, or that their failure to
convert, or a conversion that is incompatible with the Company's system, will
not have an adverse effect on the Company's business, financial condition and
results of operations.
-14-
<PAGE> 15
Forward-Looking Statements
Certain statements made herein are "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995, and are subject
to the safe harbor provisions of that Act. Such forward-looking statements
include, without limitation, the future availability and prices of raw
materials, the availability of capital on acceptable terms, the competitive
conditions in the baked foods industry, potential regulatory obligations, the
Company's strategies and other statements contained herein that are not
historical facts. Because such forward-looking statements involve risks and
uncertainties, there are important factors that could cause actual results to
differ materially from those expressed or implied by such forward-looking
statements, including, but not limited to, changes in general economic and
business conditions (including the baked foods markets), the Company's ability
to recover its raw material costs in the pricing of its products, the
availability of capital on acceptable terms, actions of competitors, the extent
to which the Company is able to develop new products and markets for its
products, the time required for such development, the level of demand for such
products, changes in the Company's business strategies and other factors
discussed herein.
-15-
<PAGE> 16
PART II. OTHER INFORMATION
Item 5. Other Information
The following unaudited condensed combined pro forma results of operations give
effect to the purchase of the majority ownership position in Keebler on February
3, 1998, as if the transaction had occurred as of the beginning of the year
ended January 3, 1998, and the sale of 9,000,000 shares of the Company's common
stock in a public offering at $22 per share and $200,000,000 of 7.15% debentures
on April 27, 1998, as if these transactions had occurred as of the beginning of
the second quarter of the year ended January 3, 1998. The periods presented are
the comparable periods in the prior year based on the Company changing its
fiscal year end from the Saturday nearest June 30 to the Saturday nearest
December 31 (amounts in thousands, except per share data):
<TABLE>
<CAPTION>
For the 16 For the 52
Weeks Ended For the 12 Weeks Ended Weeks Ended
----------- ---------------------- -----------
April 26, July 19, October 11, January 3, January 3,
1997 1997 1997 1998 1998
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales $1,010,255 $783,516 $807,053 $906,842 $3,507,666
Income before extraordinary loss and cumulative effect
of changes in accounting principles 11,135 13,420 19,784 17,437 61,776
Net income 9,654 13,420 19,784 5,397 48,255
Net Income Per Common Share:
Basic -
Income before extraordinary loss and cumulative effect
of changes in accounting principles 0.13 0.14 0.20 0.18 0.65
Net income 0.11 0.14 0.20 0.06 0.51
Diluted -
Income before extraordinary loss and cumulative effect
of changes in accounting principles 0.13 0.14 0.20 0.18 0.65
Net income $ 0.11 $ 0.14 $ 0.20 $ 0.06 $ 0.51
</TABLE>
The pro forma financial information is not necessarily indicative of the
operating results that would have occurred had the transactions been consummated
as of the beginning of the period, nor are they necessarily indicative of future
operating results.
-16-
<PAGE> 17
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 27 - Financial Data Schedule (for SEC use only).
(b) Reports on Form 8-K - No reports on Form 8-K were filed by the
Company for the second quarter ended July 18, 1998 or during the period
from the close of the second quarter to the date of this report.
-17-
<PAGE> 18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FLOWERS INDUSTRIES, INC.
/s/ Amos R. McMullian
---------------------
By: Amos R. McMullian
Chairman of the Board
/s/ Jimmy M. Woodward
---------------------
By: Jimmy M. Woodward
Treasurer and Chief Accounting Officer
August 26, 1998
- ---------------
Date
-18-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FLOWERS
INDUSTRIES, INC. CONSOLIDATED STATEMENT OF INCOME FOR THE TWENTY EIGHT WEEKS
ENDED JULY 18, 1998 AND THE FLOWERS INDUSTRIES, INC. CONSOLIDATED BALANCE SHEET
AT JULY 18, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 7-MOS
<FISCAL-YEAR-END> JAN-02-1999
<PERIOD-START> JAN-04-1998
<PERIOD-END> JUL-18-1998
<CASH> 78,902
<SECURITIES> 0
<RECEIVABLES> 247,131
<ALLOWANCES> 5,365
<INVENTORY> 276,557
<CURRENT-ASSETS> 692,116
<PP&E> 1,384,827
<DEPRECIATION> 458,280
<TOTAL-ASSETS> 2,312,973
<CURRENT-LIABILITIES> 645,878
<BONDS> 0
0
0
<COMMON> 62,489
<OTHER-SE> 525,112
<TOTAL-LIABILITY-AND-EQUITY> 2,312,973
<SALES> 1,908,531
<TOTAL-REVENUES> 1,913,458
<CGS> 861,342
<TOTAL-COSTS> 1,797,247
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 32,493
<INCOME-PRETAX> 83,718
<INCOME-TAX> 35,161
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 33,495
<EPS-PRIMARY> 0.36
<EPS-DILUTED> 0.36
</TABLE>
