<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act
of 1934
(Mark One)
/ X / QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 5, 1994
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________ to __________
_______________
For the Quarter Ended March 5, 1994 Commission File Number 1-11165
INTERSTATE BAKERIES CORPORATION
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 43-1470322
- ------------------------------- -----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
12 East Armour Boulevard, Kansas City, Missouri 64111
- ----------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (816) 561-6600
--------------
- ------------------------------------------------------------------------------
(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 / /
There were 19,963,248 shares of common stock, $.01 par value per share,
outstanding on April 1, 1994.
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INTERSTATE BAKERIES CORPORATION
FORM 10-Q
QUARTER ENDED MARCH 5, 1994
CONTENTS
--------
Description Page
----------- ----
PART I - FINANCIAL INFORMATION (UNAUDITED)
- ------------------------------------------
Management's Discussion and Analysis of Financial
Condition and Results of Operations 1-2
Consolidated Balance Sheet 3
Consolidated Statement of Operations 4
Consolidated Statement of Cash Flows 5
Notes to Consolidated Financial Statements 6-7
PART II - OTHER INFORMATION
- ---------------------------
Legal Proceedings Not Applicable
Changes in Securities Not Applicable
Defaults Upon Senior Securities Not Applicable
Submission of Matters to a Vote of Security Holders Not Applicable
Other Information Not Applicable
Exhibits and Reports on Form 8-K 8
Signatures 9
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INTERSTATE BAKERIES CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
- ---------------------
Net sales for the third quarter, the sixteen weeks ended March 5, 1994, were
$336,296,000, down $8,331,000, or 2.4%, from net sales of $344,627,000 in
fiscal 1993. Year-to-date net sales were also lower at $874,892,000, a 1.7%
decline from 1993's net sales of $890,214,000. These decreases were
attributable to a decline in cake volume, primarily resulting from the
Company's withdrawal from the California cake market. Net sales from bread
products were stable, with a slight unit volume decline for the quarter offset
by higher selling prices.
Cost of product sold was 51.3% of net sales for the third quarter of fiscal
1994 compared to 51.1% for fiscal 1993, while year-to-date cost of products
sold was still slightly favorable at 50.6% compared to 50.7% in the prior
year. For the quarter, higher flour and other ingredient costs were only
partially offset by production efficiencies and higher selling prices. Year-
to-date ingredient costs were somewhat favorable which, along with
efficiencies and somewhat higher selling prices, produced a slight margin
improvement.
Selling, delivery and administrative expenses were down 1.2% to $142,845,000
for the third quarter, representing 42.5% of net sales, compared to
$144,606,000 and 42.0% of net sales in the prior year. Year-to-date selling,
delivery and administrative expenses were $362,100,000, representing 41.4% of
net sales, up .7% from the prior year's $359,755,000, or 40.4% of net sales.
These unfavorable variances as a percentage of net sales were primarily
attributable to higher labor and labor related costs, with the year-to-date
fiscal 1994 expense also reflecting higher delivery costs associated with a
transport drivers strike from the end of July through the end of September at
one of the bakeries.
Fiscal 1994's third quarter reflects $9,400,000 of other charges, which
includes costs incurred in a plant disposal of $6,700,000 and costs related to
environmental matters of $2,700,000, which reduced both quarterly and year-to-
date earnings by $5,687,000, net of tax, or $.28 per share. Including the
charges, operating income for the third quarter of fiscal 1994 was $1,551,000,
compared to the prior year's $14,080,000. Year-to-date operating income was
$36,041,000 compared to $54,380,000 in fiscal 1993.
Interest expense, which benefitted from somewhat lower interest rates related
to the renegotiation of the Company's bank credit agreement in November 1993,
as well as debt reduction efforts and generally lower market interest rates,
was down $877,000, or 16.4%, to $4,457,000 for the third quarter and
$2,364,000, or 17.4%, to $11,248,000 year-to-date.
The Company's year-to-date effective tax rate of 52.5% reflects the passage of
the Omnibus Budget Reconciliation Act of 1993 during the first quarter of
fiscal 1994. The increase in the corporate tax rate provided for in the Act
raised the year-to-date fiscal 1994 provision for income taxes by $1,057,000,
or $.05 per share. $808,000 of this increase relates to the cumulative
adjustment of the Company's net deferred tax liability at May 29, 1993 and the
additional current taxes that were payable for the fiscal year ended May 29,
1993. Non-deductible goodwill amortization was also responsible for the
higher effective rates in fiscal 1994 and 1993.
1
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INTERSTATE BAKERIES CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Net loss for the third quarter was $2,468,000, or $.12 per share, compared to
net income of $5,002,000, or $.24 per share, for the same period a year ago.
Year-to-date income before the cumulative effect of an accounting change was
$11,810,000, or $.58 per share, in fiscal 1994 compared to $23,276,000, or
$1.10 per share, a year ago. The prior year's net income of $9,155,000, or
$.43 per share, included a one-time, noncash charge of $14,121,000, net of an
income tax benefit of $8,655,000, or $.67 per share, representing the
cumulative effect of adopting Statement of Financial Accounting Standards No.
106, which required a change in accounting for postretirement health care
benefits.
Changes in Financial Condition
- ------------------------------
Cash generated by operating activities for the forty weeks ended March 5, 1994
was $39,135,000 compared to $43,630,000 a year ago, with the decrease
primarily relating to other charges incurred during the third quarter of
fiscal 1994. These charges included cash expenses related to a bakery
disposition, the majority of which were paid by the end of the third quarter,
totalling $4,400,000, a noncash loss on the property disposition of
approximately $2,300,000, as well as an increase in environmental reserves of
$2,700,000, which are expected to be expended over the next several years.
Cash generated by operations during fiscal 1994 was used to fund net capital
purchases of $18,574,000, to pay common stock dividends of $7,527,000 and to
repurchase common stock in the amount of $16,270,000 under the Company's share
repurchase program.
During November 1993, the Company renegotiated its bank credit agreement,
establishing a $210,000,000 bank revolving credit facility (the "new credit
facility") which provides for revolving loans and letters of credit. The new
credit facility matures during fiscal 1999 and contains a graduated interest
rate structure, with slightly more favorable rates than the previous
agreement.
As noted in the Company's Annual Report on Form 10-K for the year ended May
29, 1993, cash flows from ongoing operations should be sufficient to meet all
cash requirements in the current year. Due to the debt renegotiation
discussed above, required principal reductions on debt for the remainder of
the year will be minimal. Additional cash generated by operations will be
used to make voluntary prepayments on long-term debt or to repurchase
additional common shares.
2
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INTERSTATE BAKERIES CORPORATION
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
(000's)
March 5, May 29,
1994 1993
------------ -----------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 2,395 $ 4,603
Accounts receivable, less allowance
for doubtful accounts of $2,149,000
($1,511,000 at May 29) 71,729 71,258
Inventories 19,550 22,330
Other current assets 22,044 20,545
-------- --------
Total current assets 115,718 118,736
-------- --------
Property and equipment:
Land and buildings 87,886 97,024
Machinery and equipment 223,902 232,423
-------- --------
311,788 329,447
Less accumulated depreciation (96,883) (109,062)
-------- --------
Net property and equipment 214,905 220,385
-------- --------
Excess of purchase cost over net assets
acquired 241,810 242,407
Other assets 4,350 5,228
-------- --------
$576,783 $586,756
======== ========
Liabilities and Stockholders' Equity
Current liabilities:
Note payable $ - $ 5,000
Long-term debt payable within one year 1,258 3,979
Accounts payable 41,357 41,871
Accrued expenses 63,513 67,056
-------- --------
Total current liabilities 106,128 117,906
-------- --------
Long-term debt:
Related party 79,000 79,000
Other 120,290 110,238
Other liabilities 39,684 36,993
Deferred income taxes 41,351 40,304
-------- --------
Total long-term liabilities 280,325 266,535
-------- --------
Stockholders' equity:
Preferred stock, par value $.01 per share;
authorized - 1,000,000 shares; issued - none - -
Common stock, par value $.01 per share;
authorized - 40,000,000 shares; issued -
21,050,000 shares 211 210
Additional paid-in capital 261,064 261,063
Accumulated deficit (54,553) (58,836)
Treasury stock at cost - 1,055,000 shares
(7,000 at May 29) (16,392) (122)
-------- --------
Total stockholders' equity 190,330 202,315
-------- --------
$576,783 $586,756
======== ========
</TABLE>
See accompanying notes.
3
<PAGE> 6
INTERSTATE BAKERIES CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
(000'S EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Sixteen Weeks Ended Forty Weeks Ended
------------------------ ---------------------------
March 5, March 6, March 5, March 6,
1994 1993 1994 1993
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $336,296 $344,627 $874,892 $890,214
-------- -------- -------- --------
Cost of products sold 172,666 176,065 442,944 451,636
Selling, delivery and administrative
expenses 142,845 144,606 362,100 359,755
Other charges 9,400 - 9,400 -
Depreciation and amortization 9,834 9,876 24,407 24,443
-------- -------- -------- --------
334,745 330,547 838,851 835,834
-------- -------- -------- --------
Operating income 1,551 14,080 36,041 54,380
-------- -------- -------- --------
Other income (10) (32) (92) (69)
Interest expense 4,457 5,334 11,248 13,612
-------- -------- -------- --------
4,447 5,302 11,156 13,543
-------- -------- -------- --------
Income (loss) before income taxes (2,896) 8,778 24,885 40,837
Provision (benefit) for income taxes (428) 3,776 13,075 17,561
-------- -------- -------- --------
Income (loss) before cumulative effect of
accounting change (2,468) 5,002 11,810 23,276
Cumulative effect of change in accounting
for postretirement benefits other than
pensions - - - 14,121
-------- -------- -------- --------
Net income (loss) $ (2,468) $ 5,002 $ 11,810 $ 9,155
======== ======== ======== ========
Per share:
Income (loss) before cumulative effect of
accounting change $ (.12) $ .24 $ .58 $ 1.10
Cumulative effect of accounting change - - - (.67)
-------- -------- -------- --------
Net income (loss) $ (.12) $ .24 $ .58 $ .43
======== ======== ======== ========
Weighted average common and common
equivalent shares outstanding 20,099 21,174 20,437 21,135
======== ======== ======== ========
</TABLE>
See accompanying notes.
4
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INTERSTATE BAKERIES CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
(000's)
Forty Weeks Ended
--------------------------
March 5, March 6,
1994 1993
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 11,810 $ 9,155
Cumulative effect of accounting change - 14,121
Depreciation and amortization 24,407 24,443
Deferred taxes and other 6,165 4,454
Change in operating assets and liabilities:
Accounts receivable (471) 2,834
Inventories 2,780 2,004
Other current assets (1,499) (177)
Accounts payable and accrued expenses (4,057) (13,204)
------- -------
Cash from operating activities 39,135 43,630
------- -------
Cash flows from investing activities:
Additions to property and equipment (24,745) (24,056)
Sale of assets 6,171 390
Other (1,305) (224)
------- -------
Cash from investing activities (19,879) (23,890)
------- -------
Cash flows from financing activities:
Reduction of note payable (5,000) -
Reduction of long-term debt (6,669) (15,647)
Addition to long-term debt 14,000 5,000
Common stock dividends paid (7,527) (7,337)
Acquisition of treasury stock (16,270) -
Other 2 987
------- -------
Cash from financing activities (21,464) (16,997)
------- -------
Change in cash and cash equivalents (2,208) 2,743
Cash and cash equivalents:
Beginning of period 4,603 2,195
------- -------
End of period $ 2,395 $ 4,938
======= =======
Supplemental disclosures:
Interest paid $12,963 $16,060
Income taxes paid 18,103 14,134
Noncash exchange of property and
equipment for property and
equipment and intangibles 7,006 -
</TABLE>
See accompanying notes.
5
<PAGE> 8
INTERSTATE BAKERIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Accounting Policies and Basis of Presentation
---------------------------------------------
The accompanying unaudited consolidated financial statements include all
adjustments (consisting only of normal recurring accruals except for the
accounting change in fiscal 1993 and other charges in fiscal 1994) which, in
the opinion of management, are necessary for a fair presentation of financial
position, results of operations and cash flows. Results of operations for
interim periods are not necessarily indicative of results to be expected for a
full year.
2. Inventories
-----------
The components of inventories are as follows:
<TABLE>
<CAPTION>
(000's)
--------------------------
March 5, May 29,
1994 1993
---------- -----------
<S> <C> <C>
Ingredients and packaging $12,752 $14,208
Finished goods 5,031 6,497
Other 1,767 1,625
------- -------
$19,550 $22,330
======= =======
</TABLE>
3. Income Taxes
------------
The reconciliation of the provision for income taxes to the statutory federal
rate is as follows:
<TABLE>
<CAPTION>
Forty Weeks Ended
----------------------------
March 5, March 6,
1994 1993
------------ ------------
<S> <C> <C>
Statutory federal tax 35.0% 34.0%
State income tax 5.5 5.1
Cumulative impact of tax law changes 3.2 -
Goodwill amortization 8.2 4.4
Other .6 (.5)
-------- -------
52.5% 43.0%
======== =======
</TABLE>
The provision for income taxes for the current quarter of both fiscal years
includes any adjustments for revisions in the projected annual effective tax
rate, as well as the effect of the cumulative impact of tax law changes.
6
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4. Other Charges
-------------
Included in the $9,400,000 of other charges for the current quarter are costs
incurred in a plant disposal of $6,700,000 and charges related to
environmental matters of $2,700,000.
5. Renegotiation of Bank Credit Agreement
--------------------------------------
During November 1993, the Company renegotiated its bank credit agreement,
resulting in a $210,000,000 bank revolving credit facility (the "new credit
facility") with a slightly more favorable interest rate structure. The new
credit facility, which provides for revolving loans and letters of credit,
matures during fiscal 1999.
7
<PAGE> 10
PART II
ITEM 6 - Exhibits and Reports on Form 8-K
a) 11 - Schedule regarding computation of per share earnings
8
<PAGE> 11
**************
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.
Interstate Bakeries Corporation
-------------------------------
(Registrant)
DATE April 4, 1994 /s/ Charles A. Sullivan
-------------------------------
Charles A. Sullivan, President
and Chief Executive Officer
DATE April 4, 1994 /s/ John F. McKenny
-------------------------------
John F. McKenny, Vice President/
Corporate Controller and
Principal Accounting Officer
9
<PAGE> 1
EXHIBIT 11
INTERSTATE BAKERIES CORPORATION
SCHEDULE REGARDING COMPUTATION OF PER SHARE EARNINGS
(000's EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Sixteen Weeks Ended Forty Weeks Ended
------------------------ ------------------------
March 5, March 6, March 5, March 6,
1994 1993 1994 1993
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Income (loss) before cumulative effect
of accounting change $ (2,468) $ 5,002 $ 11,810 $ 23,276
Cumulative effect of change in
accounting for postretirement benefits
other than pensions - - - 14,121
--------- --------- --------- ---------
Net income (loss) $ (2,468) $ 5,002 $ 11,810 $ 9,155
========= ========= ========= =========
Weighted average common shares
outstanding 20,046 21,016 20,380 20,962
Dilutive stock options 53 158 57 173
--------- --------- --------- ---------
Weighted average common and common
equivalent shares outstanding 20,099 21,174 20,437 21,135
========= ========= ========= =========
Per share:
Income (loss) before cumulative effect
of accounting change $ (.12) $ .24 $ .58 $ 1.10
Cumulative effect of accounting change - - - (.67)
--------- --------- --------- ---------
Net income (loss) $ (.12) $ .24 $ .58 $ .43
========= ========= ========= =========
</TABLE>
