<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 APRIL 25, 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)
<TABLE>
<CAPTION>
GEORGIA 58-0244940
------- ----------
<S> <C>
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification Number)
</TABLE>
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.
<TABLE>
<CAPTION>
TITLE OF EACH CLASS OUTSTANDING AT JUNE 1, 1998
------------------- ----------------------------
<S> <C>
COMMON STOCK, $.625 PAR VALUE 99,809,232
</TABLE>
<PAGE> 2
FLOWERS INDUSTRIES, INC.
INDEX
<TABLE>
<CAPTION>
Page Number
-----------
<S> <C>
PART I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheet
April 25, 1998 and January 3, 1998 3
Consolidated Statement of Income
Sixteen Weeks Ended April 25, 1998
and April 26, 1997 5
Consolidated Statement of Cash Flows
Sixteen Weeks Ended April 25, 1998
and April 26, 1997 6
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 15
Item 6. Exhibits and Reports on Form 8-K 16
</TABLE>
-2-
<PAGE> 3
FLOWERS INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEET
ASSETS
(Amounts in Thousands, Except Share Data)
<TABLE>
<CAPTION>
April 25, January 3,
1998 1998
------------------------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 37,806 $ 3,866
Accounts receivable and notes receivable, net 229,669 118,147
Inventories:
Raw materials 78,600 40,459
Finished goods 151,647 44,650
Supplies 22,874 20,322
----------- ---------
253,121 105,431
----------- ---------
Deferred income taxes 60,775 16,024
Prepaid expenses and other assets 32,200 9,421
----------- ---------
613,571 252,889
----------- ---------
PROPERTY, PLANT and EQUIPMENT:
Land 38,813 20,388
Buildings 344,429 208,179
Machinery and equipment 788,965 443,739
Furniture, fixtures and transportation equipment 92,561 28,095
Construction in progress 105,932 46,262
----------- ---------
1,370,700 746,663
----------- ---------
Less: Accumulated depreciation (438,784) (308,342)
----------- ---------
931,916 438,321
----------- ---------
OTHER ASSETS:
Investment in unconsolidated affiliate 100,663
Other long-term assets 114,569 32,620
----------- ---------
114,569 133,283
----------- ---------
COST IN EXCESS OF NET TANGIBLE ASSETS:
Cost in excess of net tangible assets, net 552,148 74,888
----------- ---------
$ 2,212,204 $ 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)
<TABLE>
<CAPTION>
April 25, January 3,
1998 1998
------------------------------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Commercial paper outstanding $ 74,973 $ 53,506
Current portion of long-term debt 33,092 4,232
Accounts payable 196,948 72,311
Accrued taxes other than income taxes 4,327 5,230
Income taxes 9,110
Other accrued liabilities 327,187 97,333
----------- ---------
645,637 232,612
----------- ---------
Long-term debt 839,742 276,211
----------- ---------
Deferred income taxes 108,606 39,686
----------- ---------
Postretirement/postemployment obligations 62,756
----------- ---------
Other long-term liabilities 49,005 2,305
----------- ---------
Minority interest 113,811
----------- ---------
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 90,982,062 and
88,636,089 shares, respectively 56,864 55,398
Capital in excess of par value 90,625 45,200
Retained earnings 271,592 266,734
Less: Common stock in treasury, 172,831
and 207,670 shares, respectively (2,261) (2,452)
Restricted Stock Award and Equity
Incentive Award (24,173) (16,313)
----------- ---------
392,647 348,567
----------- ---------
$ 2,212,204 $ 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 16 Weeks Ended
-----------------------------
April 25, April 26,
1998 1997
-----------------------------
<S> <C> <C>
Sales $ 1,075,472 $ 413,221
Other income 1,562 2,558
----------- ---------
1,077,034 415,779
----------- ---------
Materials, supplies, labor and other production costs 486,290 215,301
Selling, delivery and administrative expenses 500,571 161,450
Depreciation and amortization 34,196 14,436
Interest 19,145 6,682
----------- ---------
1,040,202 397,869
----------- ---------
Income before income taxes and minority interest 36,832 17,910
Federal and state income taxes 15,486 6,770
Income from investment in unconsolidated affiliate 5,340
----------- ---------
Income before minority interest 21,346 16,480
Minority interest (6,318)
----------- ---------
Net income $ 15,028 $ 16,480
=========== =========
Earnings Per Common Share:
Basic --
Net income per common share $ 0.17 $ 0.19
=========== =========
Weighted average shares outstanding 90,259 88,118
=========== =========
Diluted --
Net income per common share $ 0.17 $ 0.19
=========== =========
Weighted average shares outstanding 90,727 88,527
=========== =========
Cash dividends paid per common share $ 0.1150 $ 0.1033
=========== =========
</TABLE>
(See Accompanying Notes to Consolidated Financial Statements)
-5-
<PAGE> 6
FLOWERS INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Amounts in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the 16 Weeks Ended
-----------------------------
April 25, April 26,
1998 1997
-----------------------------
<S> <C> <C>
Cash flows from operating activities:
Cash received from customers $ 1,063,813 $ 422,651
Other 1,985 1,672
----------- ---------
Cash provided by operating activities 1,065,798 424,323
----------- ---------
Cash paid to suppliers and employees 1,030,860 382,460
Interest paid 19,403 9,386
Income taxes paid 9,361
----------- ---------
Cash disbursed from operating activities 1,059,624 391,846
----------- ---------
Net cash flow provided by operating
activities (See Schedule 1) 6,174 32,477
----------- ---------
Cash flows from investing activities:
Purchase of property, plant and equipment (26,880) (24,230)
Acquisition of majority interest in Keebler (263,806)
Other (3,135) 3,944
----------- ---------
Net cash disbursed for investing activities (293,821) (20,286)
----------- ---------
Cash flows from financing activities:
Dividends paid (10,170) (9,088)
Purchases of treasury stock (3,503) (67)
Exercise of options and warrants 20,157
Increase (decrease) in short-term notes payable 21,012 (14,005)
Increase in line of credit borrowings 300,000 10,000
Payments of long-term debt (5,909) (3,964)
----------- ---------
Net cash provided by (disbursed for) financing activities 321,587 (17,124)
----------- ---------
Net increase (decrease) in cash and cash equivalents $ 33,940 $ (4,933)
=========== =========
</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 16 Weeks Ended
-----------------------
April 25, April 26,
1998 1997
-------- --------
<S> <C> <C>
Schedule 1
- -------------------------------------------------------
Schedule reconciling net income to net cash flow provided by operating
activities:
Net income $ 15,028 $ 16,480
-------- --------
Noncash expenses, revenues, losses and gains included in income:
Depreciation and amortization 34,196 14,436
Deferred income taxes (3,002)
Income from majority ownership in Keebler (7,722)
Income from investment in unconsolidated affiliate (5,340)
Changes in assets and liabilities, net of acquisitions and divestitures:
(Increase) decrease in accounts receivable (9,390) 11,701
Increase in inventories (34,396) (12,130)
(Increase) decrease in prepaid expenses and other assets 556 (3,157)
Increase (decrease) in accounts payable (5,469) 19,241
Increase (decrease) in accrued taxes and other liabilities 16,373 (8,754)
-------- --------
$ 6,174 $ 32,477
======== ========
Schedule 2
- -------------------------------------------------------
Schedule of noncash investing and financing activities:
Common stock issued in connection with the
exercise of employee stock options $ 96 $ 1,450
======== ========
Stock issued and held in escrow in connection
with Restricted Stock Awards $ 8,542 $ 467
======== ========
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. In the opinion of Flowers Industries, Inc. (the "Company"), the accompanying
unaudited consolidated financial statements contain all adjustments
(consisting of only normal recurring accruals) necessary to present fairly
the financial position as of April 25, 1998 and January 3, 1998, the results
of operations for the sixteen weeks ended April 25, 1998 and April 26, 1997
and statement of cash flows for the sixteen weeks ended April 25, 1998 and
April 26, 1997. The results of operations for the sixteen week periods ended
April 25, 1998 and April 26, 1997 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 controlling 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 controlling
interest in Keebler had occurred as of the beginning of each period
presented are included in Note 4.
Certain reclassifications of prior period information have been made to
conform with the current period reporting.
2. Net Income Per Common Share - Basic earnings per share is computed by
dividing net income by weighted average common shares outstanding for the
period. Diluted earnings per share is computed by dividing net income by
weighted average common and common equivalent shares outstanding for the
period. Common stock equivalents consist of the incremental shares
associated with the Company's stock option 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 16 Weeks Ended
------------------------------
April 25, April 26,
1998 1997
----------- ---------
<S> <C> <C>
Numerator:
Net income $ 15,028 $ 16,480
=========== =========
Denominator:
Basic weighted average shares 90,259 88,118
Effect of dilutive securities:
Stock options
468 409
----------- ---------
Diluted weighted average shares 90,727 88,527
=========== =========
Earnings per common share:
Basic $ 0.17 $ 0.19
=========== =========
Diluted $ 0.17 $ 0.19
=========== =========
</TABLE>
-8-
<PAGE> 9
3. The Company's primary raw materials are flour, sugar, shortening and fruits.
The Company has only limited involvement with derivative financial
instruments and does not use them for trading purposes. The Company enters
into various forward purchase agreements and derivative financial
instruments to reduce the impact of volatility in raw materials ingredients
prices. Amounts payable or receivable under the agreements which qualify as
hedges are recognized as deferred gains or losses and included in other
assets or other liabilities. 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 April 25, 1998, the Company had
no material commitments outstanding relating to derivative financial
instruments.
During June 1997, the Company entered into an arrangement that allows for
the Company to engage in commodity price agreements based on fixed and
floating prices of an agreed type of commodity. At April 25, 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 Foods Company ("Keebler"), concurrent with
Keebler's initial public offering, giving the Company a controlling
ownership position in Keebler of approximately 55%. 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 April 25, 1998. The acquisition of the controlling 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 controlling
interest, would not have been materially different had they been accounted
for under the equity method, the method by which the Company had previously
accounted for its investment in Keebler. The aggregate excess of the
purchase price over the fair value of the net assets underlying the
additional interest acquired of 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 16 Weeks Ended
---------------------------------
April 25, 1998 April 26, 1997
-------------- --------------
<S> <C> <C>
Sales $ 1,075,472 $1,010,255
Income before extraordinary loss 15,028 11,135
Net income 15,028 9,654
Earnings Per Common Share:
Income before extraordinary loss - basic .17 .13
Income before extraordinary loss - diluted .17 .13
Net income - basic .17 .11
Net income - diluted .17 .11
</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. This business combination has been accounted for as a
purchase, and, accordingly, the results of operations of Franklin are
included in the consolidated statement of income from the date of
acquisition. The Company does not consider the effects of the acquisition
significant for pro forma disclosure purposes.
5. Other accrued liabilities consist of (amounts in thousands):
<TABLE>
<CAPTION>
April 25, 1998 January 3, 1998
-------------- ---------------
<S> <C> <C>
Employee compensation $ 72,033 $ 18,123
Self-insurance 69,169 13,429
Purchase accounting reserves 40,810 34,953
Marketing and consumer promotions 75,365 -
Other 69,810 30,828
----------- ---------
Total $ 327,187 $ 97,333
=========== =========
</TABLE>
6. The following table summarizes the Company's debt (amounts in thousands):
<TABLE>
<CAPTION>
April 25, 1998 January 3, 1998
-------------- ---------------
<S> <C> <C>
Private placement long-term Senior Notes $ 125,000 $ 125,000
Senior Subordinated Notes 124,400 -
Borrowings under syndicated loan facility 422,000 122,000
Term A loans 152,000 -
Commercial paper program 74,973 53,506
Industrial revenue bonds 13,170 13,170
Other notes payable 36,264 20,273
----------- ---------
947,807 333,949
Due within one year 108,065 57,738
----------- ---------
Due after one year $ 839,742 $ 276,211
=========== =========
</TABLE>
-10-
<PAGE> 11
7. Comprehensive Income - 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 first quarter of fiscal 1998 and the comparable period in the
prior year, total comprehensive income substantially equaled net income.
8. Subsequent Events - On April 27, 1998, the Company sold 9,000,000 shares of
its common stock in a public offering at $22 per share and $200,000,000 of
7.15% debentures due April 15, 2028. Net proceeds from the offerings were
used to reduce borrowings under the $500,000,000 syndicated loan facility
which were primarily incurred to purchase the controlling interest in
Keebler.
-11-
<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Matters Affecting Analysis:
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 controlling ownership position in Keebler of approximately 55% (the
"Keebler Acquisition"). 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.
Liquidity and Capital Resources:
Net cash provided by operating activities during the first quarter of fiscal
1998 was $6,174,000. Positive cash flow of $15,028,000 was provided from net
income for the quarter, which includes income from Keebler of $7,722,000, from
which the Company receives no cash benefit. Cash flows provided by operations
were negatively impacted by the build-up of inventory depleted after the high
selling period. Timing of payments of accrued taxes and other liabilities had a
positive impact on cash flows.
Cash disbursed for investing activities for the first quarter of fiscal 1998 of
$293,821,000 was primarily used for the Keebler Acquisition and capital
expenditures throughout the Company.
For the first quarter of fiscal 1998, net cash provided by financing activities
of $321,587,000 was primarily due to borrowings under the Company's syndicated
loan facility and the exercise of warrants by Bermore Ltd., concurrent with
Keebler's initial public offering on February 3, 1998.
At April 25, 1998, cash and cash equivalents were $37,806,000, long-term debt
was $839,742,000 and current maturities were $33,092,000. The Company had a
total of $422,000,000 borrowed under a five-year $500,000,000 syndicated loan
facility at April 25, 1998. Subsequent to quarter-end, the Company repaid
$356,000,000 of the syndicated loan balance, thus reducing the amount currently
outstanding to $66,000,000. Also, currently outstanding are $125,000,000 of
long-term Senior Notes issued through a private placement completed during
fiscal 1996. The Company has in place a $75,000,000 short-term commercial paper
program to finance inventory. Borrowings outstanding under this program at April
25, 1998 were $74,973,000. In connection with the consolidation of Keebler, the
Company has recorded additional indebtedness of $293,455,000 as of April 25,
1998, however, the Company has not guaranteed such indebtedness and it is to be
repaid solely from the cash flows of Keebler.
Dividends paid per share increased 11% to $.1150 in the first quarter of fiscal
1998 from $.1033 paid for the comparable period in the prior year.
-12-
<PAGE> 13
Results of Operations:
Results of operations expressed as a percentage of net sales for the sixteen
weeks ended April 25, 1998 and April 26, 1997 are set forth below:
<TABLE>
<CAPTION>
For the 16 Weeks Ended
April 25, 1998 April 26, 1997
-----------------------------------
<S> <C> <C>
Sales 100.00% 100.00%
Gross profit 54.78 47.90
Selling, delivery and administrative expenses 46.54 39.07
Depreciation and amortization 3.18 3.49
Interest 1.78 1.62
Income before income taxes and minority
interest 3.42 4.33
Federal and state income taxes 1.44 1.64
Net income 1.40% 3.99%
</TABLE>
Sales. For the first quarter of fiscal 1998, sales were $1,075,472,000, or 160%
higher than sales for the comparable period in the prior year, which were
$413,221,000. Most of the increase was due to the consolidation of Keebler's
sales, in the amount of $636,746,000, following the Keebler Acquisition.
Keebler's sales were driven primarily by selected price increases, as well as an
increase in sales volume. The Company also experienced increased sales as a
result of the acquisition of two other businesses, product mix changes and price
increases.
Gross Profit. For the first quarter of fiscal 1998, gross profit was
$589,182,000, or 198% higher than gross profit for the comparable period in the
prior year, which was $197,920,000. The Company's gross profit for the first
quarter includes gross profit of $380,206,000 attributable to Keebler, a factor
not present in the prior year. Lower ingredient costs were also a factor in the
gross profit improvement.
Selling, Delivery and Administrative Expenses. Selling, delivery and
administrative expenses were $500,571,000 for the first quarter of fiscal 1998,
or 210% higher than its expenses of $161,450,000 for the comparable period in
the prior year, due primarily to the inclusion of $332,066,000 of such expenses
for Keebler in the current period. The increase in these expenses relative to
sales was primarily due to increased marketing expenses at Keebler, and were
somewhat offset by shifts in the Company's product mix which reduced delivery
expenses.
Depreciation and Amortization. Depreciation and amortization expense was
$34,196,000 for the first quarter of fiscal 1998, an increase of 137% over the
corresponding period in the prior year, which was $14,436,000. 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 first quarter of fiscal 1998, interest expense was
$19,145,000, or 187% higher than interest expense for the corresponding period
in the prior year of $6,682,000. Approximately $7,441,000 in interest expense
was attributable to Keebler, and the remaining increase in interest expense was
due to borrowings used to fund the Keebler Acquisition.
Income Before Income Taxes and Minority Interest. Income before income taxes and
minority interest for the first quarter of fiscal 1998 was $36,832,000, an
increase of 106% over the comparable period in the prior year, which was
$17,910,000. Approximately $24,235,000 of the increase was a result of the
consolidation of Keebler, which was partially offset by increased goodwill
amortization and interest expense, as discussed above.
-13-
<PAGE> 14
Federal and State Income Taxes. Income taxes for the first quarter of fiscal
1998 were $15,486,000, an increase of 129% over the comparable period in the
prior year, which were $6,770,000. This increase is due primarily to the
inclusion of $10,195,000 of income taxes attributable to Keebler, as well as an
increase in the effective tax rate to 42% from 37.8%. The tax rate increase is
due primarily to nondeductible goodwill amortization associated with the Keebler
Acquisition.
Net Income. Net income for the first quarter of fiscal 1998 was $15,028,000, a
decrease of 9%, as compared to $16,480,000 reported in the prior year. This
decrease is due to goodwill amortization, interest expense and income taxes as a
result of the Keebler Acquisition.
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.
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.
-14-
<PAGE> 15
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 controlling 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
Earnings 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.
-15-
<PAGE> 16
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 2(a) First Amendment to the Stock Purchase Agreement dated March
31, 1998 among the Company, Bermore Ltd., Artal Luxembourg S.A., and
Keebler Foods Company.
(b) Exhibit 27 - Financial Data Schedule (for SEC use only).
(c) Reports on Form 8-K The Company filed a report on Form 8-K on February
18, 1998, as amended by the Form 8-K/A filed on March 13, 1998 to report
the Company's acquisition of a majority interest in Keebler Foods
Company, a Delaware corporation, and the change in the Company's fiscal
year end.
-16-
<PAGE> 17
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
June 1, 1998
- ------------
Date
<PAGE> 1
EXHIBIT 2(a)
FIRST AMENDMENT TO
STOCK PURCHASE AGREEMENT
THIS FIRST AMENDMENT TO STOCK PURCHASE AGREEMENT, made this 31st day
of March, 1998, by and among FLOWERS INDUSTRIES, INC., a Georgia corporation
(hereinafter referred to as "Purchaser"), ARTAL LUXEMBOURG S.A., a Luxembourg
corporation (hereinafter referred to as "Seller") and KEEBLER FOODS COMPANY, a
Delaware corporation (hereinafter referred to as "Keebler").
W I T N E S S E T H:
WHEREAS, Purchaser, Seller and Keebler entered into a Stock Purchase
Agreement, dated January 28, 1998 (the "Stock Purchase Agreement"); and
WHEREAS, Purchaser, Seller and Keebler desire to amend the Stock
Purchase Agreement as set forth herein.
NOW, THEREFORE, for and in consideration of the premises and the mutual
promises, agreements, representations, warranties and covenants hereinafter set
forth, and the sum of ten dollars and other good and valuable consideration, the
receipt and sufficiency of which is hereby specifically agreed to and
acknowledged, the Stock Purchase Agreement is hereby amended as follows:
1. Section 13.2 of the Stock Purchase Agreement is hereby amended by
deleting said Section in its entirety and substituting in lieu thereof a new
Section 13.2 reading as follows:
"13.2 Purchases of Keebler Stock.
13.2.1 From the Closing Date until the earlier of (i) the date on
which Seller (together with its Affiliates) beneficially owns less
than 4,586,000 shares of Keebler Stock or (ii) twenty-four (24)
months after the termination of the Lockup Period (such period, the
"Initial Stock Repurchase Consent Period"), any purchase of shares
of Keebler Stock by Purchaser or Keebler (other than purchases (A)
by Purchaser or Keebler pursuant to put rights contained in
agreements in effect on the Closing Date, (B) by Purchaser or
Keebler from Artal or Management so long as such shares of Keebler
Stock are not part of the Public Float at the time of purchase, (C)
by Keebler from Bermore of Bermore's Shares which are permitted to
be transferred by Bermore as a "Monthly Transfer" pursuant to
Section 4.2(e) of the Bermore Agreement or by Purchaser or Keebler,
as the case may be, pursuant to the tag-along and drag-along
<PAGE> 2
rights contained in Sections 4.3 and 4.4 of the Bermore
Agreement and (D) by Purchaser and Keebler which together, in
the aggregate with any prior such purchases, do not exceed (x)
fifteen percent (15%) of the Public Float in Keebler Stock
immediately after the Closing, (provided that the shares
described in clause (y) hereof shall not in any event be
included in calculating the Public Float) plus (y) the number
of shares of Keebler Stock (i) either (A) issued to Management
prior to February 3, 1998 or (B) issued to Management by the
Company subsequent to February 3, 1998 pursuant to a stock
option or any similar plan and (ii) subsequently sold by
Management in transactions resulting in such shares trading in
the public market, shall not be consummated without the prior
written consent of Seller, and Keebler and Purchaser shall not
take or permit to be taken any such action without such prior
written consent; provided, however, that the Extension Period
shall be added to the twenty-four (24) month period set forth
in (ii) above; and provided, further, that Purchaser will have
the right at any time to purchase the number of shares of
Keebler Stock required to maintain beneficial ownership of at
least fifty-one percent (51%) of Keebler Stock on a fully
diluted basis.
13.2.2. After the expiration of the Initial Stock Repurchase
Consent Period (including any Extension Period added thereto)
and until the earlier of (i) the date on which Seller
(together with its Affiliates) beneficially owns less than
4,586,000 shares of Keebler Stock or (ii) thirty-six (36)
months after the termination of the Lockup Period (the "Second
Stock Repurchase Consent Period"), any purchase of shares of
Keebler Stock by Purchaser or Keebler (other than purchases
(A) by Purchaser or Keebler pursuant to put rights contained
in agreements in effect on the Closing Date, (B) by Purchaser
or Keebler from Artal, Bermore or Management so long as such
shares of Keebler Stock are not part of the Public Float at
the time of purchase, (C) by Keebler from Bermore of Bermore's
Shares which are permitted to be transferred by Bermore as a
"Monthly Transfer" pursuant to Section 4.2(e) of the Bermore
Agreement or by Purchaser or Keebler, as the case may be,
pursuant to the tag-along and drag-along rights contained in
Sections 4.3 and 4.4 of the Bermore Agreement and (D) by
Purchaser and Keebler which together, in the aggregate with
any prior such purchases during the Second Stock Repurchase
Consent Period and purchases made during the Initial Stock
Repurchase Consent Period, do not exceed (x) fifteen percent
(15%) of the Public Float in Keebler Stock on the date
immediately preceding any such purchase, (provided that the
shares described in clause (y) hereof shall not in any event
be included in calculating the Public Float) plus (y) the
number of shares of Keebler Stock (i) either (A) issued to
Management prior to February 3, 1998 or (B) issued to
Management by the Company subsequent to February 3, 1998
pursuant to a stock option or any similar plan and (ii)
subsequently sold by Management in transactions resulting in
such shares trading in the public market, shall not be
consummated without the prior written consent of Seller, and
Keebler and Purchaser shall not take or permit to be taken any
such action without such prior written consent; provided,
however, that the Extension Period
2
<PAGE> 3
shall be added to the thirty-six (36) month period set forth
in (ii) above, and provided, further, that Purchaser will have
the right at any time to purchase the number of shares of
Keebler Stock required to maintain beneficial ownership of at
least fifty-one percent (51%) of Keebler Stock on a fully
diluted basis."
2. Each party hereby represents and warrants to the others
that: (a) it has all necessary power and authority (corporate or other) to enter
into this First Amendment to Stock Purchase Agreement, to perform its
obligations hereunder and to consummate the transactions contemplated hereby;
(b) the execution, delivery and performance of this First Amendment to Stock
Purchase Agreement and the consummation of the transactions contemplated hereby
have been duly authorized by all necessary action (corporate or other); and (c)
this First Amendment to Stock Purchase Agreement has been duly executed and
delivered by such party and assuming due authorization, execution and delivery
by the other parties hereto, constitutes a valid and legally binding obligation
of such party, enforceable against such party in accordance with its terms.
3. This First Amendment to Stock Purchase Agreement shall be
governed by and construed in accordance with the laws of the State of New York
without regard to principles thereof regarding conflict of laws, except for
matters directly within the purview of the General Corporation Law of the State
of Delaware.
4. Except to the extent expressly amended herein, all terms
and conditions of the Stock Purchase Agreement are hereby affirmed and shall
remain in full force and effect.
5. This First Amendment to Stock Purchase Agreement may be
executed in two or more counterparts, each of which shall be deemed an original,
but all of which together shall constitute one and the same instrument.
3
<PAGE> 4
IN WITNESS WHEREOF, each party hereto has executed or caused
this First Amendment to Stock Purchase Agreement to be executed on its behalf,
all on the day and year first above written.
FLOWERS INDUSTRIES, INC.
"Purchaser"
By: /s/ G. Anthony Campbell
-------------------------------------
Name: G. Anthony Campbell
--------------------------------
Title: Secretary and General Counsel
-------------------------------
ARTAL LUXEMBOURG S.A.
"Seller"
By: /s/ Carl R. Kohler
-------------------------------------
Name: Carl R. Kohler
--------------------------------
Title: Managing Director
-------------------------------
KEEBLER FOODS COMPANY
"Keebler"
By: /s/ Thomas E. O'Neill
--------------------------------------
Name: Thomas E. O'Neill
---------------------------------
Title: Vice President, Secretary and
General Counsel
--------------------------------
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FLOWERS
INDUSTRIES, INC. CONSOLIDATED STATEMENT OF INCOME FOR THE SIXTEEN WEEKS ENDED
APRIL 25, 1998 AND THE FLOWERS INDUSTRIES, INC. CONSOLIDATED BALANCE SHEET AT
APRIL 25, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 4-MOS
<FISCAL-YEAR-END> JAN-02-1999
<PERIOD-START> JAN-04-1998
<PERIOD-END> APR-25-1998
<CASH> 37,806
<SECURITIES> 0
<RECEIVABLES> 235,042
<ALLOWANCES> 5,373
<INVENTORY> 253,121
<CURRENT-ASSETS> 613,571
<PP&E> 1,370,700
<DEPRECIATION> 438,784
<TOTAL-ASSETS> 2,212,204
<CURRENT-LIABILITIES> 645,637
<BONDS> 264,140
0
0
<COMMON> 56,864
<OTHER-SE> 335,783
<TOTAL-LIABILITY-AND-EQUITY> 2,212,204
<SALES> 1,075,472
<TOTAL-REVENUES> 1,077,034
<CGS> 486,290
<TOTAL-COSTS> 1,040,202
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 19,145
<INCOME-PRETAX> 36,832
<INCOME-TAX> 15,486
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,028
<EPS-PRIMARY> 0.17
<EPS-DILUTED> 0.17
</TABLE>
