FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended May 28, 1994
-------------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
--------------------- --------------------
Commission File Number 1-11165
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INTERSTATE BAKERIES CORPORATION
- - ---------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 43-1470322
------------------------------- -----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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
--------------
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock,
$.01 par value per share New York Stock Exchange
- - ------------------------ ------------------------------------------------
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value per share
--------------------------------------
(Title of class)
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
------- -------
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K.
[ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant was $124,750,049 as of August 1, 1994. For these purposes only,
the registrant has assumed that shares of Common Stock, $.01 par value per
share, that may be deemed to be beneficially owned by certain members of the
Board of Directors constitute shares held by affiliates of the registrant.
There were 19,640,563 shares of Common Stock, $.01 par value per share,
outstanding as of August 1, 1994.
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
-----------------------------------
Part and Item Document Incorporated
of Form 10-K: By Reference
------------- ---------------------
Part II, Item 5 Annual Report*
Part II, Item 6 Annual Report*
Part II, Item 7 Annual Report*
Part II, Item 8 Annual Report*
Part III, Item 10 Proxy Statement**
Part III, Item 11 Proxy Statement**
Part III, Item 12 Proxy Statement**
Part III, Item 13 Proxy Statement**
- - ----------------------------------------------------------------------------
* Refers to portions of Registrant's annual report to security holders with
respect to the fiscal year ended May 28, 1994.
** Refers to portions of Registrant's definitive proxy statement filed on
August 18, 1994.
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<PAGE>
PART I
Item 1. Business
- - ------- --------
General
- - -------
Interstate Bakeries Corporation (the "Company") was organized in
1987 as a Delaware corporation under the name IBC Holdings Corp. and through
its wholly-owned operating subsidiary, Interstate Brands Corporation, is the
largest independent and third largest baker and distributor of fresh bakery
products in the United States. The Company or its predecessors have baked and
distributed fresh bread and cake products since 1927. The Company has grown
to its present size primarily through acquisitions of other bakery businesses.
In its 1988 fiscal year, the Company underwent a change in control through a
leveraged buyout transaction and acquired 10 bakeries in the Southeastern
United States.
The Company operates 31 bakeries throughout the United States and
employs over 14,000 people. From these geographically dispersed bakeries, the
Company's driver-salesmen deliver baked goods to more than 100,000 food
outlets on more than 4,000 delivery routes. The Company's products are
distributed throughout the United States through its direct route system and
its 790 Company-operated thrift stores, and to some extent through
distributors.
The principal executive offices of the Company are located at 12
East Armour Boulevard, Kansas City, Missouri 64111, and the telephone number
is (816) 561-6600.
Operating Divisions
- - -------------------
Bread Division
The principal products of the Bread Division are white breads,
variety breads, "lite" breads, rolls, buns and English muffins, marketed under
well-known brand names, including "Butternut", "Cotton's Holsum", "Eddy's",
"Holsum", "Merita", "Millbrook", "Mrs. Karl's", "Sweetheart" and "Weber's".
The majority of the Bread Division's sales are generated by white breads and
variety breads, the latter consisting of whole wheat, rye and other whole
grain breads. The Bread Division is the largest licensed baker and
distributor of "Roman Meal" and "Sun Maid" breads. These products include
traditional Roman Meal bread, Roman Meal variety breads, Roman Meal light
breads and Roman Meal buns, rolls and English muffins and also include Sun
Maid's line of raisin bread and English muffins.
In fiscal 1994, the Bread Division had net sales of $779,550,000,
which represented 68.2% of the net sales of the Company. The Bread Division's
sales are generally concentrated in the Southeast, Southern California, the
Midwest and certain Northern Mountain states. Bread Division customers
consist primarily of supermarkets and are served by its separate distribution
system. No single customer accounts for more than 5% of the Company's net
sales. Many of the Bread Division's accounts are also serviced by the Cake
Division.
The Bread Division faces intense competition in all of its markets
from large, national bakeries and smaller regional operators, as well as from
supermarket chains with their own bakeries or private label products. The
Continental Baking Company (majority-owned by Ralston Purina), Campbell
Taggert, Inc. (owned by Anheuser-Busch) and Flowers Industries, Inc. are the
Bread Division's largest competitors, each marketing bread products under
various brand names. The Bread Division from time to time experiences price
pressure in certain of its markets as a result of competitors' promotional
pricing practices. However, management believes that the Company's geographic
diversity helps to limit the effect of regionally-based competition.
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<PAGE>
Competition in the Bread Division's business is based on product quality,
price, brand loyalty, effective promotional activities and the ability to
identify and satisfy emerging consumer preferences. Customer service,
including frequency of deliveries and maintenance of fully stocked shelves, is
also an important competitive factor and is central to the competition for
retail shelf space among bread product distributors.
Cake Division
The Cake Division produces fresh baked sweet goods, including snack
cakes, donuts, sweet rolls, snack pies, breakfast pastries, variety cakes,
large cakes and shortcakes, approximately 90% of which are sold under the
nationally known "Dolly Madison Bakery" brand name.
In fiscal 1994, the Cake Division had net sales of $347,371,000,
representing 30.4% of the net sales of the Company. The Cake Division
distributes its products principally through convenience stores, in markets
representing approximately 75% of the U.S. population, in all areas of the
country except certain Northeast markets.
No single customer represents more than 5% of the Company's net
sales. The Company believes that its credit practices adequately address the
financial condition of its customers, particularly in the convenience store
industry. Cake sales tend to be somewhat seasonal, with a historically weak
winter period, which management believes is attributable to home baking and
consumption patterns during the holiday seasons. Spring and early summer
months are historically stronger due to the sale of shortcake products during
the fresh strawberry season.
The wholesale cake industry is highly competitive with product
quality, retail account service and price being the most significant
competitive factors. The Cake Division from time to time experiences price
pressures in certain of its markets as a result of competitors' promotional
pricing practices. The Cake Division's ability to sell its products depends
on its ability to attain store shelf space in relation to competing cake
brands and other food products. The Company competes primarily with a few
large national bakeries, as well as with certain regional bakeries.
Continental Baking Company (majority-owned by Ralston Purina) and McKee
Baking, marketing cake products under the brand names Hostess and Little
Debbie, respectively, are the largest competitors of the Cake Division.
Dry Products
The Company's line of dry products consists of branded, dry, bread-
based products, including traditional stuffing and salad croutons, principally
under the "Mrs. Cubbison's" brand name. The majority of the Company's dry
product sales (which account for l.4% of the Company's net sales) is generated
during the Thanksgiving and Christmas holiday periods. The "Mrs. Cubbison's"
product line is distributed primarily in 11 western states through a
subsidiary that is 80% owned by the Company. The largest market for the
Company's dry products is Southern California.
Raw Materials
- - -------------
The ingredients of bread and cake products, principally flour, sugar
and edible oils, are readily available from numerous sources. The Company
periodically engages in commodity futures hedging programs, and also attempts
to lock in prices through advance purchase contracts of up to six months in
duration when prices are expected to increase. Through its program of central
purchasing of baking ingredients and packaging materials, the Company is able
to utilize its national presence to obtain competitive prices. The Company
historically has been able to pass through most commodity price increases.
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<PAGE>
Management and Employees
- - ------------------------
The Company employs over 14,000 people. Approximately 75% of the
Company's employees are covered by approximately 250 union contracts.
Unionized workers are generally members of either the International
Brotherhood of Teamsters or the Bakery, Confectionery and Tobacco Workers
International Union. The Company believes it has good relations with all of
its union and nonunion employees.
Governmental Regulation; Environmental Matters
- - ----------------------------------------------
The Company's operations are subject to regulation by various
federal, state and local governmental entities and agencies. As a baker of
goods for human consumption, the Company's operations are subject to stringent
quality and labeling standards. The operations of the Company's bakeries and
its delivery fleet are subject to various federal, state and local
environmental laws and workplace regulations, including the Occupational
Safety and Health Act, the Fair Labor Standards Act, the Clean Air Act and the
Clean Water Act. The Company believes that its current legal and
environmental compliance programs adequately address such concerns and that it
is in substantial compliance with such applicable laws and regulations.
Item 2. Properties
- - ------- ----------
The Company's principal properties are its bakeries, distribution
depots and thrift stores. Shown below are the locations of the Company's
bakeries, all of which are owned with the exception of the Charlotte, North
Carolina, bread bakery, which is operated under a capital lease with an option
to purchase the facility in 1996, and the Dry Products bakery. The Company
owns the building in Kansas City, Missouri in which its principal executive
offices are located. The Company's distribution depots and thrift stores are
located throughout the Company's distribution area and the majority of these
facilities are leased.
Bread Division Bakeries
-----------------------
Alexandria, Louisiana Jacksonville, Florida
Billings, Montana Knoxville, Tennessee
Birmingham, Alabama Los Angeles, California
Boise, Idaho Miami, Florida
Boonville, Missouri Minonk, Illinois
Charlotte, North Carolina Minot, North Dakota
Chicago, Illinois Monroe, Louisiana
Cincinnati, Ohio Orlando, Florida
Decatur, Illinois Peoria, Illinois
Florence, South Carolina Rocky Mount, North Carolina
Fort Pierce, Florida San Diego, California
Glendale, California Springfield, Missouri
Grand Junction, Colorado Tampa, Florida
Grand Rapids, Michigan
Cake Division Bakeries Dry Products Bakery
---------------------- ----------------------
Columbus, Georgia Montebello, California
Columbus, Indiana
Emporia, Kansas
The Company believes that its facilities are well maintained and
does not foresee the need to make significant capital improvements to existing
facilities in the near future.
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<PAGE>
On June 13, 1994, the Company completed the acquisition of the
assets and liabilities of Fuchs Baking Co. of Miami, Florida. Fuchs, which
has annual sales of approximately $50,000,000, distributes bakery products
throughout central and southern Florida from bakeries in Miami and Fort
Pierce, Florida.
The Company operates 790 retail stores which sell its bakery
products not otherwise sold through its primary distribution system.
Generally, each thrift store is between 500 and 1,200 square feet in size.
Approximately 80% of the stores are located at the Company's distribution
depots, while the others are freestanding units located along the Company's
distribution routes.
Item 3. Legal Proceedings
- - ------- -----------------
The Company has been named as a defendant in various claims arising
out of its normal business operations. Based upon the facts available to
date, management believes that the Company has meritorious defenses to these
actions and that their ultimate resolution will not have a material adverse
effect on the Company's financial position.
Item 4. Submission of Matters to a Vote of Security Holders
- - ------- ---------------------------------------------------
Not applicable.
PART II
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Item 5. Market for Registrant's Common Equity and Related Stockholder
- - ------- -------------------------------------------------------------
Matters.
--------
The section entitled "Common Stock Information" appearing on the
inside front cover of the Annual Report is incorporated herein by this
reference. Footnote (a) (iii) to note 2, entitled "Debt", to the consolidated
financial statements appearing on page 20 of the Annual Report is also
incorporated herein by this reference with regard to limitations on cash
dividends and common stock repurchases. The section entitled, "Management's
Discussion and Analysis of Financial Condition and Results of Operations",
specifically the subsection entitled "Capital Resources and Liquidity"
appearing on page 15 of the Annual Report is also incorporated herein by this
reference with regard to planned common stock dividend payments.
Item 6. Selected Financial Data
- - ------- -----------------------
The section entitled "Five-Year Summary of Financial Data",
appearing on page 13 of the Annual Report, is incorporated herein by this
reference.
Item 7. Management's Discussion and Analysis of Financial Condition and
- - ------- ---------------------------------------------------------------
Results of Operations
---------------------
The section entitled "Management's Discussion and Analysis of
Financial Condition and Results of Operations" appearing on pages 14 through
15 of the Annual Report is incorporated herein by this reference.
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<PAGE>
Item 8. Financial Statements and Supplementary Data
- - ------- -------------------------------------------
The consolidated financial statements and accompanying notes and
report of Independent Public Accountants appearing on pages 16 through 25 of
the Annual Report are incorporated herein by this reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
- - ------- ---------------------------------------------------------------
Financial Disclosure
--------------------
Not applicable.
PART III
--------
The information required by Part III (Item 10, 11, 12 and 13) is
incorporated herein by reference to the Company's definitive proxy statement,
involving the election of directors and ratification of independent auditors
filed on August 18, 1994.
PART IV
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Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
- - -------- ---------------------------------------------------------------
(a) Documents Filed as Part of this Report:
1. Financial Statements
The following financial statements and report included in the
Company's Annual Report are incorporated herein by reference:
Consolidated Balance Sheet at May 28, 1994 and May 29,
1993
For the 52 weeks ended May 28, 1994, May 29, 1993 and May
30, 1992:
Consolidated Statement of Income
Consolidated Statement of Cash Flows
Consolidated Statement of Stockholders' Equity
Notes to Consolidated Financial Statements
Report of Independent Public Accountants dated July 8,
1994
-7-
<PAGE>
2. Financial Statement Schedules
The following report and schedules are filed herewith as a part
hereof:
Report of Independent Public Accountants dated July 8,
1994
Schedules for the 52 weeks ended May 28, 1994, May 29,
1993 and May 30, 1992:
II Amounts Receivable from Related Parties and
Underwriters, Promoters and Employees Other Than
Related Parties
V Property, Plant and Equipment
VI Accumulated Depreciation of Property, Plant and
Equipment
VIII Valuation and Qualifying Accounts
IX Short-term Borrowings
X Supplementary Income Statement Information
All other schedules have been omitted since the required
information is not present or not present in amounts sufficient
to require submission of the schedule, or because the
information required is included in the consolidated financial
statements or the notes thereto.
3. Exhibits
The exhibits are listed in the Exhibit Index. Copies of
certain documents have not been filed as exhibits, in reliance
upon paragraph (b) (4) (iii) of Item 601 of Regulation S-K.
Registrant agrees to furnish a copy of any such instrument to
the Securities and Exchange Commission upon request.
(b) Reports on Form 8-K:
--------------------
No reports on Form 8-K have been filed during the last quarter of
the period covered by this report.
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<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized.
INTERSTATE BAKERIES CORPORATION
Dated: August 19, 1994 By: /s/ Charles A. Sullivan
----------------------------
Charles A. Sullivan
President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated and on the dates indicated.
Capacities
Name of Signatory In Which Signing Date
- - ----------------- ---------------- ----
/s/ Charles A. Sullivan Chairman of the Board, August 19, 1994
- - -------------------------- President, Chief
Charles A. Sullivan Executive Officer
and Director (Principal
Executive Officer)
/s/ G. Kenneth Baum Director August 19, 1994
- - --------------------------
G. Kenneth Baum
/s/ Leo Benatar Director August 19, 1994
- - --------------------------
Leo Benatar
/s/ E. Garrett Bewkes, Jr. Director August 19, 1994
- - --------------------------
E. Garrett Bewkes, Jr.
/s/ Philip Briggs Director August 19, 1994
- - --------------------------
Philip Briggs
/s/ Robert B. Calhoun, Jr. Director August 19, 1994
- - --------------------------
Robert B. Calhoun, Jr.
/s/ Frank E. Horton Director August 19, 1994
- - --------------------------
Frank E. Horton
/s/ Paul E. Yarick Vice President August 19, 1994
- - -------------------------- and Treasurer
Paul E. Yarick (Principal
Financial Officer)
/s/ John F. McKenny Vice President August 19, 1994
- - -------------------------- and Corporate
John F. McKenny Controller
(Principal
Accounting Officer)
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<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
Interstate Bakeries Corporation
We have audited the consolidated financial statements of Interstate Bakeries
Corporation and its subsidiaries as of May 28, 1994 and May 29, 1993, and for
each of the three fiscal years in the period ended May 28, 1994, and have
issued our report thereon dated July 8, 1994; such consolidated financial
statements and report are included in your 1994 Annual Report to Stockholders
and are incorporated herein by reference. Our audits also included the
consolidated financial statement schedules of Interstate Bakeries Corporation
and its subsidiaries, listed in Item 14. These consolidated financial
statement schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits. In our opinion,
such consolidated financial statement schedules, when considered in relation
to the basic consolidated financial statements taken as a whole, present
fairly in all material respects the information set forth therein.
/s/ Deloitte & Touche
Kansas City, Missouri
July 8, 1994
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<PAGE>
INTERSTATE BAKERIES CORPORATION
SCHEDULE II
AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS,
PROMOTERS AND EMPLOYEES OTHER THAN RELATED PARTIES
FIFTY-TWO WEEKS ENDED MAY 28, 1994, MAY 29, 1993 AND MAY 30, 1992
(In Thousands)
Deductions Balance at end
Balance at ---------------------- of period
beginning Amounts Amounts ------------------
Name of debtor of period Additions collected written off Current Noncurrent
- - -------------- ---------- --------- --------- ----------- ------- ----------
1994:
None
1993:
Ellingboe $ 134 $ - $ 2 $ - $ - $ 132
Shetler 107 - 107 - - -
---------- --------- --------- ----------- ------- -----------
$ 241 $ - $ 109 $ - $ - $ 132
========== ========= ========= =========== ======= ===========
1992:
Bartoszewski $ 105 $ - $ 61 $ - $ - $ 44
Ellingboe 198 - 64 - - 134
Fiorini 635 - 175 - - 460
McKenny 106 - 39 - - 67
O'Connor 134 - 94 - - 40
Parque 105 - 55 - - 50
Shetler 252 - 145 - - 107
Sullivan 150 - 150 - - -
Sutton 244 - 244 - - -
---------- --------- --------- ----------- ------- ----------
$1,929 $ - $1,027 $ - $ - $ 902
========== ========= ========= =========== ======= ==========
Note: The loans are payable on demand, bear interest at a rate of 3% per
annum and are secured by a pledge of Interstate Bakeries Corporation
common stock.
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<PAGE>
INTERSTATE BAKERIES CORPORATION
SCHEDULE V
PROPERTY, PLANT AND EQUIPMENT
FIFTY-TWO WEEKS ENDED MAY 28, 1994, MAY 29, 1993 AND MAY 30, 1992
(In Thousands)
Reclassifi-
Balance at cations, Balance
beginning sales and Other at end
Classification of period Additions retirements changes of period
- - -------------- ---------- --------- ----------- ------- ---------
1994:
Land $ 24,433 $ 1,252 $ (5,079) $ - $ 20,606
Buildings and
improvements 67,197 8,147 (4,410) - 70,934
Plant equipment 193,287 26,389 (34,123) - 185,553
Delivery equipment 28,377 1,963 (4,218) - 26,122
Construction in
progress 16,153 (2,906) - - 13,247
--------- --------- ----------- ------- ---------
$329,447 $34,845 $(47,830) $ - $316,462
========= ========= =========== ======= =========
1993:
Land $ 24,435 $ 46 $ (48) $ - $ 24,433
Buildings and
improvements 64,182 3,060 (45) - 67,197
Plant equipment 183,072 18,519 (8,304) - 193,287
Delivery equipment 28,049 2,179 (1,851) - 28,377
Construction in
progress 9,367 6,786 - - 16,153
--------- --------- ----------- ------- ---------
$309,105 $30,590 $(10,248) $ - $329,447
========= ========= =========== ======= =========
1992:
Land $ 24,418 $ 119 $ (102) $ - $ 24,435
Buildings and
improvements 62,552 1,738 (108) - 64,182
Plant equipment 170,873 13,624 (1,425) - 183,072
Delivery equipment 25,439 2,784 (174) - 28,049
Construction in
progress 4,155 5,212 - - 9,367
--------- --------- ----------- ------- ---------
$287,437 $23,477 $ (1,809) $ - $309,105
========= ========= =========== ======= =========
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<PAGE>
INTERSTATE BAKERIES CORPORATION
SCHEDULE VI
ACCUMULATED DEPRECIATION OF PROPERTY, PLANT AND EQUIPMENT
FIFTY-TWO WEEKS ENDED MAY 28, 1994, MAY 29, 1993 AND MAY 30, 1992
(In Thousands)
Additions Reclassifi-
Balance at charged to cations, Balance
beginning costs and sales and Other at end
Classification of period expenses retirements changes of period
- - -------------- ---------- ---------- ----------- ------- ----------
1994:
Buildings and
improvements $ 14,448 $ 2,330 $ (2,041) $ - $ 14,737
Plant equipment 78,794 19,197 (26,770) - 71,221
Delivery equipment 15,820 2,697 (3,453) - 15,064
---------- ---------- ----------- ------- ----------
$109,062 $24,224 $(32,264) $ - $101,022
========== ========== =========== ======= ==========
1993:
Buildings and
improvements $ 11,783 $ 2,627 $ 38 $ - $ 14,448
Plant equipment 68,303 18,764 (8,273) - 78,794
Delivery equipment 14,387 3,020 (1,587) - 15,820
---------- ---------- ----------- ------- ----------
$ 94,473 $24,411 $ (9,822) $ - $109,062
========== ========== =========== ======= ==========
1992:
Buildings and
improvements $ 9,084 $ 2,734 $ (35) $ - $ 11,783
Plant equipment 51,736 17,819 (1,252) - 68,303
Delivery equipment 10,770 3,768 (151) - 14,387
---------- ---------- ----------- ------- ----------
$ 71,590 $24,321 $ (1,438) $ - $ 94,473
========== ========== =========== ======= ==========
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<PAGE>
INTERSTATE BAKERIES CORPORATION
SCHEDULE VIII
VALUATION AND QUALIFYING ACCOUNTS
FIFTY-TWO WEEKS ENDED MAY 28, 1994, MAY 29, 1993 AND MAY 30, 1992
(In Thousands)
Balance at Additions Accounts Balance
beginning charged charged at end
Description of period to income off of period
- - ----------- ---------- --------- -------- ---------
1994:
Reserve for discounts
and allowances on
accounts receivable $4,328 $ (50) $ - $4,278
Allowance for doubtful
accounts 1,511 510 376 1,645
---------- --------- -------- ---------
$5,839 $ 460 $ 376 $5,923
========== ========= ======== =========
1993:
Reserve for discounts
and allowances on
accounts receivable $4,297 $ 31 $ - $4,328
Allowance for doubtful
accounts 2,143 1,142 1,774 1,511
---------- --------- -------- ---------
$6,440 $1,173 $1,774 $5,839
========== ========= ======== =========
1992:
Reserve for discounts
and allowances on
accounts receivable $3,770 $ 527 $ - $4,297
Allowance for doubtful
accounts 2,462 364 683 2,143
---------- --------- -------- ---------
$6,232 $ 891 $ 683 $6,440
========== ========= ======== =========
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<PAGE>
INTERSTATE BAKERIES CORPORATION
SCHEDULE IX
SHORT-TERM BORROWINGS
FIFTY-TWO WEEKS ENDED MAY 28, 1994, MAY 29, 1993 AND MAY 30, 1992
Maximum Average Weighted
Weighted amount amount average
Fiscal Balance at average outstanding outstanding interest
year end of interest during during rate during
ended Category period rate the period the period* the period**
- - ------ -------- ---------- -------- ----------- ----------- ------------
1994 Bank
Borrowings $ - - $5,000,000 $126,000 3.96%
1993 Bank
Borrowings $5,000,000 4.00% $5,000,000 $346,000 3.95%
1992 None
* Computed by actual amounts outstanding times the actual number of days
outstanding divided by number of days in the year.
** Computed by actual interest costs incurred divided by average amount
outstanding during the period as computed in "*".
Note: The Company has no short-term borrowing agreements in place at May 28,
1994.
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<PAGE>
INTERSTATE BAKERIES CORPORATION
SCHEDULE X
SUPPLEMENTARY INCOME STATEMENT INFORMATION
FIFTY-TWO WEEKS ENDED MAY 28, 1994, MAY 29, 1993 AND MAY 30, 1992
(In Thousands)
Charged to costs and expenses
-----------------------------
1994 1993 1992
------- ------- --------
Maintenance and repairs $48,620 $48,738 $49,126
======= ======= =======
Advertising $15,959 $15,987 $16,166
======= ======= =======
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<PAGE>
EXHIBIT INDEX
-------------
Exhibit
No. Exhibit
- - ------- -------
3.1 Restated Certificate of Incorporation of
Interstate Bakeries Corporation, as amended.*
3.2 Restated Bylaws of Interstate Bakeries
Corporation (incorporated herein by reference
to Exhibit 3.2 to the Annual Report on Form
10-K of Interstate Bakeries Corporation filed
on August 30, 1991 (the "1991 10-K")).
4.1 Article FOURTH of Restated Certificate of
Incorporation of Interstate Bakeries Corporation
(contained in Exhibit 3.1 hereto and incorporated
herein by reference to Exhibit 3.1 to the 1991
10-K).
10.1 Interstate Bakeries Corporation 1991 Stock Option
Plan (incorporated herein by reference to
Exhibit 10.1 to the Registration Statement on
Form S-1 of Interstate Bakeries Corporation, File
No. 33-40830 (the "Form S-1")).
10.2 Employment Agreement, dated as of March 1, 1989,
by and among Interstate Bakeries Corporation,
Interstate Brands Corporation and Charles A. Sullivan
(incorporated herein by reference to Exhibit 10.2
to the Form S-1).
10.3 Stock Performance Unit Agreement, dated as of
November 1, 1989, by and between Interstate Bakeries
Corporation and Charles A. Sullivan (incorporated
herein by reference to Exhibit 10.3 to the Form S-1).
10.4 Memorandum of Agreement, dated as of May 16,
1991, by and among Interstate Bakeries Corporation,
Interstate Brands Corporation and Charles A. Sullivan
(incorporated herein by reference to Exhibit
10.4 to the Form S-1).
10.5 Restated Memorandum of Agreement dated as of
July 22, 1992 by and among Interstate Bakeries
Corporation, Interstate Brands Corporation and
Charles A. Sullivan (incorporated herein by
reference to Exhibit 10.5 to the Annual Report
on Form 10-K of Interstate Bakeries Corporation
filed on August 20, 1992).
11.1 Statement regarding computation of per share
earnings.*
13.1 The inside front cover and pages 13 through 25
of the Interstate Bakeries Corporation annual
report to security holders for the year ended
May 28, 1994. (Those portions of the annual
report to security holders not listed here shall
not be deemed to be filed as a part of this
Report.)*
21.1 Subsidiaries of Interstate Bakeries Corporation
(incorporated herein by reference to Exhibit 22.1
to the 1991 10-K).
99 Interstate Brands Corporation Retirement Income
Plan (incorporated herein by reference to
Exhibit 28.1 to the Form S-1).
- - ----------------------
* Filed herewith.
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EXHIBIT 3.1
CERTIFICATE OF AMENDMENT
TO
RESTATED CERTIFICATE OF INCORPORATION
OF
INTERSTATE BAKERIES CORPORATION
-------------------------------
Pursuant to Section 242 of the Delaware General Corporation Law
-------------------------------
INTERSTATE BAKERIES CORPORATION, a corporation organized and existing under
and by virtue of the General Corporation Law of the State of Delaware (the
"Corporation"), does hereby certify as follows:
FIRST: That Section 4.01 of Article Fourth of the Restated Certificate of
Incorporation of the Corporation is hereby amended by striking out Section
4.01 in its entirety and substituting in lieu thereof the following:
Section 4.01. Authorized Capital.
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The total number of shares of all classes of stock which the
Corporation shall have the authority to issue is 41,000,000
shares, consisting of 40,000,000 shares of Common Stock of $.01
par value ("Common Stock") and 1,000,000 shares of Preferred
Stock of $.01 par value ("Preferred Stock").
SECOND: That amendment to the Restated Certificate of Incorporation herein
certified has been duly adopted in accordance with the provisions of Section
242 of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, the Corporation has caused this certificate to be signed
by Charles A. Sullivan, its President, and Ray Sandy Sutton, its Secretary,
this 28th day of September, 1993.
By:/s/ Charles A. Sullivan
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Charles A. Sullivan
President
Attest: /s/ Ray Sandy Sutton
--------------------
Ray Sandy Sutton
Secretary
<PAGE>
RESTATED
CERTIFICATE OF INCORPORATION
OF
INTERSTATE BAKERIES CORPORATION
INTERSTATE BAKERIES CORPORATION, a corporation organized and existing under
and by virtue of the General Corporation Law of the State of Delaware, DOES
HEREBY CERTIFY:
1. The name of the Corporation is Interstate Bakeries Corporation and the
name under which the Corporation was originally incorporated is IBC Holdings
Corp.
The date of filing of its original Certificate of Incorporation with the
Secretary of State of the State of Delaware was September 9, 1987, which
certificate was amended on January 27, 1988, December 12, 1988, October 4,
1989 and June 17, 1991.
2. This Restated Certificate of Incorporation was duly adopted by the
Directors and the Stockholders of the Corporation in accordance with the
provisions of Sections 242 and 245 of the General Corporation Law of the State
of Delaware and amends and replaces in its entirety the Certificate of
Incorporation of this Corporation as heretofore amended or supplemented.
3. The text of the Certificate of Incorporation of Interstate Bakeries
Corporation as amended and restated by this Restated Certificate of
Incorporation to read in full as follows:
FIRST: NAME.
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The name of the Corporation is Interstate Bakeries Corporation.
<PAGE>
SECOND: REGISTERED OFFICE; AGENT.
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The Registered Office of the Corporation in the State of Delaware is located
at 1209 Orange Street in the City of Wilmington, County of New Castle. The
name of its Registered Agent at such address is The Corporation Trust Company.
THIRD: PURPOSE.
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The purpose of the Corporation is to engage in any lawful act or activity for
which corporations may be organized under the General Corporation Law of the
State of Delaware as presently in effect or as it may hereafter be amended.
FOURTH: CAPITALIZATION.
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Section 4.01. Authorized Capital.
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The total number of shares of all classes of stock which the Corporation shall
have the authority to issue is 26,000,000 shares, consisting of 25,000,000
shares of common stock of $.01 par value ("Common Stock") and 1,000,000 shares
of preferred stock of $.01 par value ("Preferred Stock").
Section 4.02. Preferred Stock.
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1. Shares of Preferred Stock may be issued from time to time in one or more
classes or series as may from time to time be determined by the Board of
Directors, each of said class or series to be distinctively designated. All
shares of any one class or series of Preferred Stock shall be alike in every
particular, except that there may be different dates from which dividends, if
any, thereon shall be cumulative, if made cumulative. The voting powers and
the preferences and relative, participating, optional and other
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special rights
of each such class or series, and the qualifications, limitations or
restrictions thereof, if any, may differ from those of any and all other class
or series at any time outstanding; and the Board of Directors of the
Corporation is hereby expressly granted authority to fix by resolution or
resolutions adopted prior to the issuance of any shares of a particular class
or series of Preferred Stock, the voting powers and the designations,
preferences and relative, optional and other special rights, and the
qualifications, limitations and restrictions of such class or series,
including, but without limiting the generality of the foregoing, the
following:
(a) The distinctive designation of, and the number of shares of Preferred
Stock which shall constitute such class or series, which number may be
increased (except where otherwise provided by the Board of Directors) or
decreased (but not below the number of shares thereof then outstanding) from
time to time by like action of the Board of Directors;
(b) The rate and times at which, and the terms and conditions on which,
dividends, if any, on Preferred Stock of such class or series shall be paid,
the extent of the preference or relation, if any, of such dividends to the
dividends payable on any other class or classes, or series of the same or
other classes of stock and whether such dividends shall be cumulative or
noncumulative;
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(c) The right, if any, of the holders of Preferred Stock of such class or
series to convert the same into, or exchange the same for, shares of any
other class or classes or of any series of the same or any other class or
classes of stock of the Corporation and the terms and conditions of such
conversion or exchange;
(d) Whether or not Preferred Stock of such class or series shall be subject
to redemption, and the redemption price or prices and the time or times at
which, and the terms and conditions on which, Preferred Stock of such class
or series may be redeemed;
(e) The rights, if any, of the holders of Preferred Stock of such class or
series upon the voluntary or involuntary liquidation, merger, consolidation,
distribution or sale of assets, dissolution or winding-up of the
Corporation;
(f) The terms of the sinking fund or redemption or purchase account, if
any, to be provided for the Preferred Stock of such class or series; and
(g) The voting powers, if any, of the holders of such class or series of
Preferred Stock which may, without limiting the generality of the foregoing,
include the right, voting as a class or series or by itself or together with
other series of Preferred Stock or all series of Preferred Stock as a class,
to elect one or more Directors of the Corporation if there shall have been a
default in the payment
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of dividends on any one or more class or series of
Preferred Stock or under such other circumstances and on such conditions as
the Board of Directors may determine.
2. The relative powers, preferences and rights of each class or series of
Preferred Stock in relation to the powers, preferences and rights of each
other class or series of Preferred Stock shall, in each case, be as fixed from
time to time by the Board of Directors in the resolution or resolutions
adopted pursuant to authority granted in subparagraph 1 of this Section 4.02
and the consent, by class or series vote or otherwise, of the holders of such
of the class or series of Preferred Stock as are from time to time outstanding
shall not be required for the issuance by the Board of Directors of any other
class or series of Preferred Stock whether or not the powers, preferences and
rights of such other class or series shall be fixed by the Board of Directors
as senior to, or on a parity with, the powers, preferences and rights of such
outstanding class or series, or any of them; unless in the resolution or
resolutions as to the outstanding class or series of Preferred Stock adopted
pursuant to subparagraph 1 of this Section 4.02 the Board of Directors
provided that the consent of the holders of a majority (or such greater
proportion as shall be therein fixed) of the outstanding shares of such class
or series voting thereon would be required for the issuance of any or all
other classes or series of Preferred Stock.
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3. Subject to the provisions of subparagraph 2 of this Section 4.02, shares
of any class or series of Preferred Stock may be issued from time to time as
the Board of Directors of the Corporation shall determine and on such terms
and for such consideration as shall be fixed by the Board of Directors.
Section 4.03 Common Stock.
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1. Shares of Common Stock may be issued from time to time as the Board of
Directors of the Corporation shall determine and on such terms and for such
consideration as shall be fixed by the Board of Directors.
2. After the requirements with respect to preferential dividends on the
Preferred Stock (fixed in accordance with the provisions of Section 4.02 of
this Article FOURTH), if any, shall have been met and after the Corporation
shall have complied with all the requirements, if any, with respect to the
setting aside of sums as sinking funds or redemption or purchase accounts in
respect of the Preferred Stock (fixed in accordance with the provisions of
Section 4.02 of this Article FOURTH), and subject further to any other
conditions which may be fixed in accordance with the provisions of Section
4.02 of this Article FOURTH, then and not otherwise the holders of Common
Stock shall be entitled to receive such dividends as may be declared from time
to time by the Board of Directors.
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3. After distribution in full of the preferential amount (fixed in accordance
with the provisions of Section 4.02 of this Article FOURTH), if any, to be
distributed to the holders of Preferred Stock in the event of voluntary or
involuntary liquidation, distribution or sale of assets, dissolution or
winding-up of the Corporation, the holders of the Common Stock shall be
entitled to receive all of the remaining assets of the Corporation tangible
and intangible of whatever kind, available for distribution to Stockholders
ratably in proportion to the number of shares of Common Stock held by them
respectively.
4. Except as may otherwise be required by law and subject to the power of the
Board of Directors to establish voting rights for the Preferred Stock pursuant
to Section 4.02 of this Article FOURTH, each holder of Common Stock shall have
one vote in respect of each share of Common Stock held by him or her on all
matters voted upon by the Stockholders.
5. Upon the Effective Time (as defined in Section 9.01, below), 1.92868
issued and outstanding shares of Common Stock of the Corporation shall
thereupon be combined and converted into one (1) validly issued, fully paid
and nonassessable share of Common Stock of the Corporation. No scrip or
fractional shares will be issued by reason of such combination and conversion
and cash in an amount equal to the fair market value at the time thereof of
any such fractional interest as determined by the Board of Directors shall be
paid in lieu of any fractional interest.
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FIFTH. BOARD OF DIRECTORS.
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Section 5.01. Number, Election and Terms.
--------------------------
The number of Directors which shall constitute the whole Board of Directors of
the Corporation shall be not less than five and not more than nine. The exact
number of Directors within the minimum and maximum limitations specified in
the preceding sentence shall be fixed from time to time by the Board of
Directors pursuant to a resolution adopted by a majority of the entire Board
of Directors. Upon the effectiveness of this Restated Certificate of
Incorporation pursuant to the Delaware General Corporation Law, the Board of
Directors of the Corporation shall be divided into three classes, designated
Class I, Class II and Class III, which at all times shall be as nearly equal
in number as possible, as determined by the Board of Directors. The term of
office of the initial Class I Directors shall expire at the Annual Meeting of
Stockholders next succeeding the date on which this Restated Certificate of
Incorporation becomes effective as provided above, the term of office of the
initial Class II Directors shall expire at the Annual Meeting of Stockholders
next succeeding the Annual Meeting at which the term of office of the initial
Class I Directors expires, and the term of office of the initial Class III
Directors shall expire at the Annual Meeting of Stockholders next succeeding
the Annual Meeting at which the term of office of the initial Class II
Directors expires. The appointment of
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incumbent Directors to Board of
Director Classes I, II and III at the time of the effectiveness of this
Restated Certificate of Incorporation pursuant to the Delaware General
Corporation Law shall be by a resolution adopted by a majority of the
Stockholders entitled to vote in an election of directors. At each Annual
Meeting of Stockholders following such initial classification and election,
Directors elected to succeed those whose terms expire at the time of such
meeting shall be elected to hold office until the third succeeding Annual
Meeting of Stockholders after their election. In the event of any increase in
the number of Directors of the Corporation, the additional Directors shall be
so classified that all classes of Directors shall be increased equally as
nearly as possible, and the additional Directors shall be elected by majority
vote of the Directors then in office. Each Director shall hold office until
his or her successor is elected and qualified, or until his or her earlier
resignation or removal. Election of Directors of the Corporation need not be
by written ballot unless the Bylaws so provide. Directors need not be
Stockholders.
5.02. Removal of Directors.
--------------------
Except as may be provided in any provision of this Restated Certificate of
Incorporation authorizing the issuance of any Preferred Stock or as may be
provided in any Certificate of Designation authorizing the issuance of any
Preferred Stock pursuant to Article FOURTH hereof, any Director, or the entire
Board of Directors, may be removed from office only for cause and only by the
affirmative vote of the
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holders of a majority of the voting power of all of
the shares of the Corporation entitled to vote for the election of Directors,
voting together as a single class. For purposes of this Section 5.02, and
except as otherwise provided by law, cause for removal shall be deemed to
exist only if:
(1) the Director whose removal is proposed has been convicted, or where a
Director was granted immunity to testify where another has been convicted,
of a felony by a court of competent jurisdiction and such conviction is no
longer subject to appeal;
(2) such Director has been adjudicated by a court of competent jurisdiction
to be liable for negligence or misconduct, in the performance of his or her
duty to the Corporation, in a matter of substantial importance to the
Corporation;
(3) such Director has become mentally incompetent, whether or not so
adjudicated, which mental incompetency directly affects his or her ability
as a Director of the Corporation;
(4) such Director becomes disabled and such disability in the opinion of
the Board of Directors renders such Director unable to perform his or her
duties as provided herein or in the Bylaws;
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(5) such Director's actions or failure to act are deemed by the Board of
Directors to be in derogation of the Director's duties; or
(6) such Director is found to be unsuitable to fulfill his or her
obligations as a Director of the Corporation by any regulatory agency
having jurisdiction over the Corporation.
Section 5.03. Newly Created Directorships and Vacancies.
-----------------------------------------
Except as may be provided in any provision of this Certificate of
Incorporation authorizing the issuance of any Preferred Stock or as may be
provided in any Certificate of Designation authorizing the issuance of any
Preferred Stock pursuant to Article FOURTH hereof, the size of the Board of
Directors may be increased only by majority vote of the Directors then in
office. Newly created directorships resulting from any such increase in the
authorized number of Directors and any vacancies in the Board of Directors
resulting from death, resignation, retirement, disqualification, removal from
office or other cause may be filled only by majority vote of the Directors
then in office, even though less than a quorum, or by a sole remaining
Director, and Directors so chosen shall hold office for a term expiring at the
Annual Meeting of Stockholders at which the term of the class or classes to
which they have been elected expires.
Section 5.04. Amendment, Repeal, Etc.
----------------------
Notwithstanding anything contained in this Restated Certificate of
Incorporation
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to the contrary, the affirmative vote of the holders of at least
66 2/3% of the shares of the Corporation then entitled to be voted in an
election of Directors shall be required to amend or repeal, or to adopt, any
provision inconsistent with this Article FIFTH. For purposes of this Section
5.04, shares not voting shall count as votes against any such proposed
amendment, repeal or adoption of such inconsistent provision.
Section 5.05. Preferred Stock Directors.
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The terms upon which any Director elected pursuant to special voting rights of
one or more classes or series of Preferred Stock is elected or removed and the
voting rights of such Director shall be fixed by the resolution or resolutions
adopted pursuant to authority granted under Section 4.02 hereof.
SIXTH: BOARD AUTHORIZED TO AMEND, ETC. BYLAWS.
--------------------------------------
In furtherance and not in limitation of the powers conferred by the laws of
the State of Delaware, the Board of Directors of the Corporation is authorized
and empowered to make, alter, amend and repeal the Bylaws of the Corporation
in any manner not inconsistent with the laws of the State of Delaware.
SEVENTH: INDEMNIFICATION; LITIGATION EXPENSES.
------------------------------------
The Corporation shall, to the fullest extent permitted by Section 145 of the
General Corporation Law of the State of Delaware as presently in effect or as
it may hereafter be amended, indemnify all persons whom it may indemnify
pursuant thereto and shall advance expenses
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of litigation to Directors and
Officers in accordance with the procedures set forth in the Bylaws.
EIGHT: LIMITATION OF LIABILITY FOR BREACH OF FIDUCIARY DUTY.
----------------------------------------------------
To the fullest extent permitted by the General Corporation Law of the State of
Delaware as the same exists or may hereafter be amended, a Director of this
Corporation shall not be liable to the Corporation or its Stockholders for
monetary damages for breach of fiduciary duty as a Director.
NINTH: VOTE REQUIRED FOR CERTAIN BUSINESS COMBINATIONS.
------------------------------------------------
Section 9.01. The affirmative vote of the holders of not less than 66 2/3% of
the outstanding shares of "Voting Stock" (as hereinafter defined) held by
Stockholders other than an "Interested Stockholder" (as hereinafter defined)
shall be required for the approval or authorization of any "Business
Combination" (as hereinafter defined) of the Corporation with any Interested
Stockholder; provided, however, that such 66 2/3% voting requirement shall not
be applicable as to Business Combinations with an Interested Stockholder if:
(1) The Business Combination is solely between the Corporation and another
corporation, 100% of the Voting Stock of which is owned directly or
indirectly by the Corporation;
(2) The Business Combination is a merger or consolidation and the cash or
fair market value of the property, securities or other consideration to be
received
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per share by holders of Common Stock of the Corporation in the
Business Combination is not less than the highest per-share price (with
appropriate adjustments for recapitalizations and for stock splits, stock
dividends and like distributions), paid by such Interested Stockholder in
acquiring any of its holdings of the Corporation's Common Stock; or
(3) The Business Combination is approved by the "Continuing Directors" (as
hereinafter defined).
For the purposes of this Article NINTH:
(i) The term "Business Combination" shall mean (a) any merger or
consolidation of the Corporation or a subsidiary with or into an Interested
Stockholder, (b) any sale, lease, exchange, transfer or other disposition to
an Interested Stockholder, including without limitation a mortgage or any
other security device, of all or any "Substantial Part" (as hereinafter
defined) of the assets either of the Corporation (including without
limitation any voting securities of a subsidiary) or of a subsidiary, (c)
any merger or consolidation of an Interested Stockholder with or into the
Corporation or a subsidiary of the Corporation, (d) any sale, lease,
exchange, transfer or other disposition of all or any Substantial Part of
the assets of an Interested Stockholder to the Corporation or a subsidiary
of the Corporation (unless the assets of the Interested Stockholder being
sold, exchanged, transferred or disposed of consist solely of securities or
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debt instruments of the Corporation owned by the Interested Stockholder at
the time of adoption of this Article NINTH by the Stockholders and the
effectiveness thereof pursuant to the Delaware General Corporation Law),
(e) the issuance of any securities of the Corporation or a subsidiary of the
Corporation to an Interested Stockholder, other than (1) securities issued
in consideration of or exchanged for, or issued in conversion of securities
or debt instruments held by the Interested Stockholder, (2) an issuance of
securities to an Interested Stockholder acting as an underwriter or dealer
in an offering of such securities registered under the Securities Act of
1933, as amended, or any successor legislation thereto, or (3) securities
issued in connection with distributions of securities to all holders of
securities of a class on a PRO RATA basis, (f) any recapitalization that
would have the effect of increasing the voting power of an Interested
Stockholder, and (g) any agreement, contract or other arrangement providing
for any of the transactions described in this definition of Business
Combination.
(ii) The term "Interested Stockholder" shall mean and include any
individual, corporation, partnership or other person or entity which,
together with its "Affiliates" (as hereinafter defined) and "Associates"
(as hereinafter defined), "Beneficially Owns" (as defined on June 1, 1991
in Rule 13d-3 promulgated under the Securities Exchange Act of 1934) in
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the
aggregate 5% or more of the outstanding Voting Stock of the Corporation, and
any Affiliate or Associate of any such individual, corporation, partnership
or other person or entity, except that the term Interested Stockholder does
not include any such entity who becomes the beneficial owner in the
aggregate of 5% or more of the outstanding Voting Stock of the Corporation
as a result of repurchases of Voting Stock by the Corporation; provided,
however, that such entity shall be deemed to be an Interested Stockholder
when it purchases any additional shares of Voting Stock after becoming an
Interested Stockholder as a result of such repurchases by the Corporation.
(iii) The term "Substantial Part" shall mean more than 20% of the fair
market value of the total assets of the corporation in question, as of the
end of its most recent fiscal year ending prior to the time the
determination is being made.
(iv) Without limitation, any shares of Common Stock of the Corporation that
any Interested Stockholder has the right to acquire pursuant to any
agreement, or upon exercise of conversion rights, warrants or options or
otherwise, shall be deemed to be Beneficially Owned by the Interested
Stockholder.
(v) For the purposes of subparagraph (2) of this Section 9.01, the term
"other consideration to be received" shall include, without limitation,
Common Stock of the
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Corporation retained by its existing public stockholders
in the event of a Business Combination in which the Corporation is the
surviving corporation.
(vi) The term "Voting Stock" shall mean all outstanding shares of capital
stock of the Corporation or another corporation entitled to vote generally
in the election of Directors and each reference to the proportion of shares
of Voting Stock shall refer to such proportion of the votes entitled to be
cast by such shares.
(vii) The term "Affiliate" shall mean any person that directly, or
indirectly, through one or more intermediaries, "Controls" (as hereinafter
defined), or is Controlled by, or is under common Control with, a
corporation, person or other entity.
(viii) The term "Associate" shall mean (a) any corporation or organization
(other than the Corporation or a majority-owned subsidiary of the
Corporation) of which such corporation, person or other entity is an officer
or partner or is, directly or indirectly, the Beneficial Owner of 10% or
more of any class of equity securities, (b) any trust or other estate in
which such corporation, person or other entity has a substantial beneficial
interest or as to which such corporation, person or other entity serves as
a trustee or in a similar fiduciary capacity, and (c) any relative or spouse
of such person, or any relative of such spouse, who has the
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same home as
such person or who is a Director or officer of the Corporation or any of its
subsidiaries.
(ix) The term "Control" (including the terms "Controlling", "Controlled by"
and "under common Control with") means the possession, directly or
indirectly, of the power to direct or cause the direction of the management
and policies of a corporation, person or other entity, whether through the
ownership of voting securities, by contract, or otherwise.
(x) The term "Continuing Director" shall mean, as to any Stockholder who is
an Interested Stockholder as of the time of adoption of this Article NINTH
by the Stockholders of the Corporation and the effectiveness thereof
pursuant to the Delaware General Corporation Law (the "Effective Date"), any
Director (other than such Interested Stockholder or an Affiliate, Associate,
nominee, or representative of such Interested Stockholder) who is a member
of the Board of Directors on the Effective Date or whose initial election as
a Director of the Corporation was recommended by the affirmative vote of a
majority of the Directors who are not such Interested Stockholder or an
Affiliate, Associate, nominee or representative of such Interested
Stockholder. The term "Continuing Director" shall mean, as to any
Stockholder who becomes an Interested Stockholder after the Effective Date,
any Director (other than such Interested Stockholder or an Affiliate,
Associate, nominee, or representative of such
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Interested Stockholder) who
is a member of the Board of Directors immediately prior to the time such
Interested Stockholder became an Interested Stockholder or whose initial
election as a Director of the Corporation was recommended by the affirmative
vote of a majority of the Directors who are not such Interested Stockholder
or an Affiliate, Associate, nominee or representative of such Interested
Stockholder; provided that, in either such case, such Continuing Director
shall have continued in office after first becoming a Continuing Director.
Section 9.02. Board of Directors May Exercise Discretion.
-------------------------------------------
Notwithstanding anything contained in this Article NINTH to the contrary, the
Continuing Directors may waive the provisions of this Article NINTH and
approve a Business Combination by majority vote of the Continuing Directors
after evaluating the proposed Business Combination, which evaluation may, but
is not required to include consideration of any or all of the following:
(i) the character, integrity, business philosophy and financial status of
an Interested Stockholder and any other party to the proposed Business
Combination;
(ii) the consideration to be received by the Corporation or its
Stockholders in connection with the proposed Business Combination, as
compared to:
(a) the current market price or value of the Corporation's properties or
securities;
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(b) the estimated future value of the Corporation, its properties or
securities; and
(c) such other measures of the value of the Corporation, its properties
or securities as the Continuing Directors, in their discretion, may deem
appropriate;
(iii) the projected social, legal and economic effects of the proposed
Business Combination upon the Corporation, its employees, suppliers, and
customers and the communities in which the Corporation or its subsidiaries
do business;
(iv) the general desirability of the continuance of the Corporation as an
independent entity; and
(v) such other factors as the Continuing Directors may, in their
discretion, deem relevant.
Section 9.03. Board of Directors has Authority to Interpret, Etc.
-------------------------------------------------
The Board of Directors shall have the power to make any and all determinations
provided for in this Article NINTH and to interpret all provisions thereof.
All such determinations and interpretations by the Board of Directors shall be
final and legally binding.
Section 9.04. Amendment, Repeal, Etc.
----------------------
Notwithstanding anything contained in this Restated Certificate of
Incorporation to the contrary, the affirmative vote of the holders of at least
66 2/3% of the shares of the Corporation then entitled to be voted
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in an
election of Directors shall be required to amend or repeal or to adopt any
provision inconsistent with this Article NINTH. For purposes of this Section
9.02, shares not voting shall count as votes against any such proposed
amendment, repeal or adoption of such inconsistent provision.
TENTH: COMPROMISES OR ARRANGEMENTS WITH CREDITORS OR STOCKHOLDERS.
-----------------------------------------------------------
Whenever a compromise or arrangement is proposed between this Corporation and
its creditors or any class of them and/or between this Corporation and its
Stockholders or any class of them, any court of equitable jurisdiction within
the State of Delaware may, on the application in a summary way of this
Corporation or of any creditor or Stockholder thereof or on the application of
any receiver or receivers appointed for this Corporation under the
provisions of Section 291 of Title 8 of the Delaware Code or on the application
of trustees in dissolution or of any receiver or receivers appointed for this
Corporation under the provisions of Section 279 of Title 8 of the Delaware
Code order a meeting of the creditors or class of creditors, and/or of the
Stockholders or class of Stockholders of this Corporation, as the case may be,
to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the Stockholders or class of Stockholders of this
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this Corporation as consequence of such
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compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
Stockholders or class of Stockholders, of this Corporation, as the case may
be, and also on this Corporation.
ELEVENTH: STOCKHOLDERS.
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Section 11.01. Annual Stockholder Meetings.
---------------------------
Annual Meetings of the Stockholders shall be held at such times and upon such
notice as may be provided in the Bylaws.
Section 11.02. Special Stockholder Meetings Called Only by Board of
Directors. ----------------------------------------------------
- - ----------
Special meetings of the Stockholders of the Corporation may be called only by
the Board of Directors, and the power of the Stockholders or any of them to
call special meetings of the Stockholders is specifically denied.
Section 11.03. No Stockholder Action by Written Consent.
----------------------------------------
No action required to be taken or which may be taken at any Annual or Special
Meeting of the Stockholders of the Corporation may be taken without a meeting,
and the power of Stockholders to consent in writing to the taking of any
action is specifically denied.
Section 11.04. Nominations for Director by Stockholders.
----------------------------------------
Nominations for the election of Directors at a meeting of the Stockholders may
be made by persons other than the Board of Directors only if notice of intent
to make such nomination or nominations, including the name or names of the
nominees, is given
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in writing to the Board of Directors at least 60 days
prior to the date of such meeting in accordance with the procedures set forth
in the Bylaws.
Section 11.05. Amendment, Repeal, Etc.
-----------------------
Notwithstanding anything contained in this Restated Certificate of
Incorporation to the contrary, the affirmative vote of the holders of at least
66 2/3% of the shares of the Corporation then entitled to be voted in an
election of Directors shall be required to amend or repeal or to adopt any
provision inconsistent with this Article ELEVENTH. For purposes of this
Section 11.05, shares not voting shall count as votes against any such
proposed amendment, repeal or adoption of such inconsistent provision.
TWELFTH: RIGHT TO AMEND, ETC.
-------------------
The Corporation reserves the right to amend, alter, change or repeal any
provision contained in this Certificate in the manner now or hereafter
prescribed by law, and all rights and powers conferred herein on Stockholders,
Directors and Officers are subject to this reserved power.
IN WITNESS WHEREOF, I have executed, signed and acknowledged this Restated
Certificate of Incorporation this 20th day of July, 1991.
ATTEST:/s/ Ray Sandy Sutton /s/ Charles A. Sullivan
-------------------- -----------------------
Ray Sandy Sutton Charles A. Sullivan
Secretary President
-23-
<PAGE>
STATE OF KANSAS )
) ss
COUNTY OF JOHNSON )
On this 20th day of July, 1991, before me, Linda L. Thompson, a Notary Public
in and for the County and State aforesaid, personally appeared Charles A.
Sullivan, known to me to be the person who executed the within Restated
Certificate of Incorporation, and acknowledged to me that he executed the same
for the purposes therein stated.
/s/ Linda L. Thompson
---------------------
Notary Public
[NOTARIAL SEAL]
LINDA L. THOMPSON
My Appt. Exp. 4/21/97
STATE OF KANSAS )
) ss
COUNTY OF JOHNSON )
On this 20th day of July, 1991, before me, Linda L. Thompson, a Notary Public
in and for the County and State aforesaid, personally appeared Ray Sandy
Sutton, known to me to be the person who executed the within Restated
Certificate of Incorporation, and acknowledged to me that he executed the same
for the purposes therein stated.
/s/ Linda L. Thompson
---------------------
Notary Public
[NOTARIAL SEAL]
LINDA L. THOMPSON
My Appt. Exp. 4/21/97
-24-
EXHIBIT 11.1
INTERSTATE BAKERIES CORPORATION
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
(In Thousands, Except Per Share Data)
52 Weeks Ended
------------------------------------
May 28, May 29, May 30,
1994 1993 1992
------- ------- -------
Income before extraordinary
charge and cumulative
effect of accounting change $15,754 $30,784 $25,780
Adjustment for accrued dividends
on preferred stock - - 2,075
------- ------- -------
Income before extraordinary
charge and cumulative
effect of accounting change
as adjusted 15,754 30,784 27,855
Extraordinary charge - - 10,176
Cumulative effect of change
in accounting for
postretirement benefits
other than pensions - 14,121 -
------- ------- -------
Net income as adjusted $15,754 $16,663 $17,679
======= ======= =======
Weighted average common shares
outstanding 20,252 20,980 18,593
Dilutive stock options 54 152 142
------- ------- -------
Weighted average common and
equivalent shares outstanding 20,306 21,132 18,735
======= ======= =======
Per share:
Income before extraordinary
charge and cumulative
effect of accounting change $ .78 $1.46 $1.49
Extraordinary charge - - (.55)
Cumulative effect of
accounting change - (.67) -
------- ------- -------
Net income $ .78 $ .79 $ .94
======= ======= =======
EXHIBIT 13.1
PROFILE
- - -------
IBC is the largest independent and third largest baker and distributor of fresh
bakery products in the United States. The Company has two major divisions -
the Bread Division with established regional recognition and the Cake Division
with a national distribution presence. The Company also sells dry products,
primarily in the western United States.
The IBC product line is marketed under a number of well-known brands which
include Dolly Madison, Butternut, Merita, Mickey, Weber's, Millbrook, Eddy's,
Holsum, Sweetheart, Sunbeam, Cotton's Holsum, Mrs. Karl's and Mrs. Cubbison's.
In addition, the Company is the nation's largest franchisee of Roman Meal and
Sun Maid bread.
The Company operates 31 bakeries throughout the United States and employs
over 14,000 people. From these geographically dispersed bakeries, the
Company's driver-salesmen deliver baked goods to more than 100,000 food
outlets on approximately 4,000 delivery routes. The Company's products
are distributed throughout the United States, primarily through its direct
route system and 790 company-operated thrift stores, and to some extent
through distributors.
COMMON STOCK INFORMATION
- - ------------------------
The Company's common stock is listed on the New York Stock Exchange and is
traded under the symbol IBC. The table below presents the high and low sales
prices for the stock and cash dividends paid during fiscal 1994 and 1993:
Stock Price
Fiscal ------------------ Cash
Year Quarter High Low Dividends
------ ------- -------- ------- ---------
1994 1 $17.500 $15.125 $.12
2 16.500 14.125 .125
3 15.250 13.625 .125
4 13.875 11.750 .125
1993 1 18.250 14.375 .11
2 21.125 16.625 .12
3 20.000 16.000 .12
4 18.125 16.000 .12
The Company had approximately 3,500 shareholders at May 28, 1994.
[Inside Front Cover]
<PAGE>
INTERSTATE BAKERIES CORPORATION
FIVE-YEAR SUMMARY OF FINANCIAL DATA
<TABLE>
<CAPTION>
(In Thousands, Except Per Share Data)
52 Weeks Ended 53 Weeks
------------------------------------------------------- Ended
May 28, May 29, May 30, June 1, June 2,
1994 1993 1992 1991 1990
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Statement of Operations
Net sales $1,142,684 $1,165,588 $1,145,875 $1,106,723 $1,093,424
Operating income 46,883<F1> 71,344 73,615 61,830 48,917
% of net sales 4.1% 6.1% 6.4% 5.6% 4.5%
Income (loss) before extraordinary
charge and cumulative effect
of accounting change $ 15,754<F1> $ 30,784 $ 25,780 $ (8,035) $ (17,135)
% of net sales 1.4% 2.6% 2.2% (.7%) (1.6%)
Net income (loss) $ 15,754<F1> $ 16,663<F2> $ 15,604<F3> $ (8,035) $ (17,135)
Per share:
Income (loss) before extraordinary
charge and cumulative effect
of accounting change .78<F1> 1.46 1.49 (1.70) (3.72)
Net income (loss) .78<F1> .79<F2> .94<F3> (1.70) (3.72)
Common stock dividends .495 .47 .33 - -
Weighted average common
shares outstanding 20,306 21,132 18,735 4,822 4,740
Balance Sheet
Total assets $ 574,791 $ 586,756 $ 573,609 $ 584,803 $ 591,125
Long-term debt, excluding
current maturities 201,235 189,238 211,124 350,567 362,508
Minority interest - redeemable
preferred stocks - - - 90,080 82,535
Stockholders' equity (deficit) 187,441 202,315 194,608 (49,865) (41,852)
Debt to total capital 51.8% 48.3% 52.0% 89.5% 89.8%
<FN>
<F1> Fiscal 1994 includes a charge of $9,400,000, $5,687,000 net of tax ($.28 per share), related to a plant
disposal and environmental matters.
<F2> Fiscal 1993 includes a charge of $14,121,000 ($.67 per share) for the cumulative effect of the change
in accounting for postretirement benefits other than pensions, from adopting SFAS No. 106.
<F3> Fiscal 1992 includes an extraordinary charge of $10,176,000 ($.55 per share) related to additional
interest payments and the write-off of unamortized deferred financing charges in connection with the
retirement of debt.
</TABLE>
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
- - --------------------------------------------------------
Fiscal 1994 Compared With Fiscal 1993
Net sales for the fiscal year ended May 28, 1994 were $1,142,684,000, down
$22,904,000 and 2.0% from the prior year's net sales of $1,165,588,000.
The Company's withdrawal from the California cake market through the sale
of its Los Angeles cake operation accounted for the majority of the actual
net sales decline. Bread Division net sales were $779,550,000, an
$11,584,000 and 1.5% increase from net sales of $767,966,000 in fiscal
1993. This increase was attributable to higher selling prices and the
acquisition of the Tampa bread bakery, offset somewhat by a slight unit
volume decline in private label business. Cake Division net sales for
fiscal 1994 were down $38,809,000, or 10.0%, to $347,371,000 from the prior
year's $386,180,000. While the Los Angeles sale was the main factor in
this decline, cake volume related to ongoing business has also decreased
somewhat.
Gross profit for fiscal 1994 was $561,458,000 (49.1% of net sales) compared
to $575,584,000 (49.4% of net sales) for fiscal 1993, a 2.5% decline. This
unfavorable comparison reflects the negative impact of unit volume declines
on overhead absorption. Higher commodity costs during the latter half of
the year were essentially offset by higher selling prices.
Selling, delivery and administrative expenses increased $1,005,000 to
$473,607,000 (41.4% of net sales) for fiscal 1994 compared to $472,602,000
(40.5% of net sales) last year against a lower net sales base in fiscal
1994. These unfavorable variances were attributable to higher labor and
labor related costs, combined with lower unit volume to absorb these and
other costs, and higher delivery costs associated with a two-month
transport drivers strike at one bakery.
Fiscal 1994 reflects $9,400,000 ($5,687,000 after tax, or $.28 per share)
of other charges, which includes costs related to a plant disposal of
$6,700,000 and environmental matters of $2,700,000. After these other
charges, operating income for fiscal 1994 was $46,883,000 (4.1% of net
sales), a decrease of $24,461,000, or 34.3%, from the $71,344,000 (6.1% of
net sales) reported for fiscal 1993.
Interest expense for fiscal 1994 of $14,745,000 was down $2,643,000, or
15.2%, from fiscal 1993's $17,388,000. The Company benefitted from
somewhat lower interest rates related to the renegotiation of its bank
credit agreement in November 1993, as well as generally lower market
interest rates during most of the year.
The Company's effective tax rate of 51.2% for fiscal 1994 reflects the
passage of the Omnibus Budget Reconciliation Act of 1993 during the first
quarter of the year. The increase in the corporate tax rate provided for
in the Act raised the fiscal 1994 provision for income taxes by $1,131,000,
or $.06 per share. Approximately $800,000 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 attributable to the fiscal year
ended May 29, 1993. Non-deductible goodwill amortization was also
responsible for the higher effective rates in fiscal 1994 and 1993.
Income before the cumulative effect of an accounting change was
$15,754,000, or $.78 per share, in fiscal 1994 compared to $30,784,000, or
$1.46 per share, the prior year. During fiscal 1993, the Company incurred
a one-time, noncash charge of $14,121,000 ($.67 per share), net of an
income tax benefit of $8,655,000, representing the cumulative effect of
adopting Statement of Financial Accounting Standards (SFAS) No. 106. Net
income was $15,754,000, or $.78 per share, for fiscal 1994 compared to
$16,663,000, or $.79 per share, for fiscal 1993.
Fiscal 1993 Compared With Fiscal 1992
Net sales for fiscal 1993, which ended May 29, 1993, were $1,165,588,000
representing an increase of $19,713,000, or 1.7%, over net sales of
$1,145,875,000 in fiscal 1992. This increase resulted from modest selling
price increases during the year, offset somewhat by an overall slight unit
volume decline. Bread Division net sales were up $21,873,000, or 2.9%, to
$767,966,000 from $746,093,000 in fiscal 1992. Bread Division unit volume
was steady with the net sales gain reflecting moderate price increases
implemented to cover cost increases. Cake Division net sales, at
$386,180,000, were down 1.1% from fiscal 1992's $390,285,000 due to a unit
volume decline, primarily in the West.
Fiscal 1993's gross profit of $575,584,000 (49.4% of net sales) represented
an increase of 2.1% over fiscal 1992's gross profit of $563,714,000 (49.2%
of net sales). Higher selling prices were utilized to offset moderate
ingredient
14
<PAGE>
and labor cost increases, which, along with production
efficiencies, slightly improved margins.
Selling, delivery and administrative expenses were $472,602,000 (40.5% of
net sales) for fiscal 1993, an increase of 3.1% from $458,544,000 (40.0% of
net sales) for fiscal 1992. This unfavorable variance resulted from higher
labor and labor related costs during fiscal 1993.
Operating income for fiscal 1993 was $71,344,000 (6.1% of net sales), down
$2,271,000, or 3.1%, from fiscal 1992's $73,615,000 (6.4% of net sales).
This decrease reflects the factors noted above, as well as the incremental
noncash charge for the change in accounting for postretirement benefits
required by SFAS No. 106 adopted by the Company during fiscal 1993.
Interest expense decreased $7,644,000, or 30.5%, to $17,388,000. This
reduction reflects lower interest rates and a continued deleveraging
subsequent to the first quarter of fiscal 1992 initial public offering of
common stock. Proceeds from the offering were used to reduce debt and
redeem the minority interest - redeemable preferred stocks.
The fiscal 1993 effective tax rate of 43.0% reflects the non-deductibility
of goodwill amortization, while the fiscal 1992 rate of 37.8% reflects this
amortization, offset by utilization of investment tax credit carryforwards.
The adoption of SFAS No. 109 in fiscal 1993 had no impact on results of
operations.
Income before extraordinary charge and cumulative effect of accounting
change was $30,784,000, or $1.46 per share (including an approximate $.03
per share incremental charge for SFAS No. 106), compared to $25,780,000, or
$1.49 per share, for fiscal 1992. During fiscal 1993, the Company incurred
a one-time, noncash charge of $14,121,000 ($.67 per share), net of an
income tax benefit of $8,655,000, representing the cumulative effect of
adopting SFAS No. 106. In fiscal 1992, the Company incurred an
extraordinary charge of $10,176,000, or $.55 per share, net of an income
tax benefit of $6,184,000, related to additional interest payments and the
write-off of unamortized deferred financing charges in connection with the
retirement of debt.
Net income was $16,663,000, or $.79 per share, for fiscal 1993, compared to
$15,604,000, or $.94 per share, for fiscal 1992.
Capital Resources and Liquidity
The Company's primary source of liquidity is cash provided by operations
which totaled $53,087,000 for fiscal 1994, a decline of $4,055,000 from the
prior year's $57,142,000. This decline primarily reflects lower operating
profits, offset to some extent by more favorable changes in working
capital. Cash generated by operations during fiscal 1994, along with a
net $4,281,000 increase in bank borrowings, was used to fund net capital
purchases of $24,867,000, to pay common stock dividends of $10,009,000 and
to repurchase common stock of $20,621,000 under the Company's share
repurchase program.
For fiscal 1995, the Company anticipates cash needs of approximately
$33,000,000 to fund $22,000,000 of planned capital expenditures, $9,700,000
of common stock dividends and $1,300,000 of required principal reductions
on debt. The Company expects these needs to be funded by ongoing
operations. At May 28, 1994, the Company also had unused borrowing capacity
of $66,000,000 under its bank credit facility. During fiscal 1995, the
Company may use its excess cash from operations and available borrowing
capacity to repurchase up to 600,000 shares of common stock, reduce its
revolving credit borrowings and fund acquisitions. In June 1994, the
Company acquired Fuchs Baking Co. of Miami, Florida. This acquisition,
which has annual sales of approximately $50,000,000, was financed through
borrowings on the revolving credit facility.
Inflation
Inflation is not expected to have a significant impact on the Company's
results of operations. The Company has generally been able to offset
inflationary price increases with production efficiencies and higher
selling prices.
15
<PAGE>
INTERSTATE BAKERIES CORPORATION
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
(In Thousands)
May 28, May 29,
1994 1993
-------- --------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 5,046 $ 4,603
Accounts receivable, less allowance for
doubtful accounts of $1,645,000
($1,511,000 in 1993) 71,734 71,258
Inventories 21,020 22,330
Other current assets 17,106 20,545
-------- --------
Total current assets 114,906 118,736
-------- --------
Property and equipment:
Land and buildings 91,540 97,024
Machinery and equipment 224,922 232,423
-------- --------
316,462 329,447
Less accumulated depreciation (101,022) (109,062)
-------- --------
Net property and equipment 215,440 220,385
-------- --------
Excess of purchase cost over net assets acquired 240,249 242,407
Other assets 4,196 5,228
-------- --------
$574,791 $586,756
======== ========
Liabilities and Stockholders' Equity
Current liabilities:
Note payable $ - $ 5,000
Long-term debt payable within one year 1,263 3,979
Accounts payable 47,848 41,871
Accrued expenses 58,182 67,056
-------- --------
Total current liabilities 107,293 117,906
-------- --------
Long-term debt:
Related party 79,000 79,000
Other 122,235 110,238
Other liabilities 43,409 36,993
Deferred income taxes 35,413 40,304
-------- --------
Total long-term liabilities 280,057 266,535
-------- --------
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 (21,040,000 in 1993) 211 210
Additional paid-in capital 261,064 261,063
Accumulated deficit (53,091) (58,836)
Treasury stock, at cost - 1,400,000 shares
(7,000 in 1993) (20,743) (122)
-------- --------
Total stockholders' equity 187,441 202,315
-------- --------
$574,791 $586,756
======== ========
See accompanying notes.
</TABLE>
16
<PAGE>
INTERSTATE BAKERIES CORPORATION
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
(In Thousands, Except Per Share Data)
52 Weeks Ended
---------------------------------------
May 28, May 29, May 30,
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
Net sales $1,142,684 $1,165,588 $1,145,875
---------- ---------- ----------
Cost of products sold 581,226 590,004 582,161
Selling, delivery and administrative expenses 473,607 472,602 458,544
Other charges 9,400 - -
Depreciation and amortization 31,568 31,638 31,555
---------- ---------- ----------
1,095,801 1,094,244 1,072,260
---------- ---------- ----------
Operating income 46,883 71,344 73,615
---------- ---------- ----------
Other income (144) (53) (522)
Interest expense 14,745 17,388 25,032
---------- ---------- ----------
14,601 17,335 24,510
---------- ---------- ----------
Income before income taxes and
minority interest 32,282 54,009 49,105
Provision for income taxes 16,528 23,225 18,561
Minority interest - - 4,764
---------- ---------- ----------
Income before extraordinary charge
and cumulative effect of accounting change 15,754 30,784 25,780
Extraordinary charge - - (10,176)
Cumulative effect of change in accounting for
postretirement benefits other than pensions - (14,121) -
---------- ---------- ----------
Net income $ 15,754 $ 16,663 $ 15,604
========== ========== ==========
Per share:
Income before extraordinary charge
and cumulative effect of accounting change $ .78 $ 1.46 $ 1.49
Extraordinary charge - - (.55)
Cumulative effect of accounting change - (.67) -
---------- ---------- ----------
Net income $ .78 $ .79 $ .94
========== ========== ==========
See accompanying notes.
</TABLE>
17
<PAGE>
INTERSTATE BAKERIES CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
(In Thousands)
52 Weeks Ended
-------------------------------
May 28, May 29, May 30,
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 15,754 $ 16,663 $ 15,604
Extraordinary charge - - 10,176
Cumulative effect of accounting change - 14,121 -
Depreciation and amortization 31,568 31,638 31,555
Deferred taxes and other 4,389 5,730 2,425
Minority interest - - 4,764
Change in operating assets
and liabilities:
Accounts receivable (476) 1,697 (5,540)
Inventories 1,310 586 (749)
Other current assets 3,439 369 (928)
Accounts payable and accrued expenses (2,897) (13,662) (3,396)
-------- -------- ---------
Cash from operating activities 53,087 57,142 53,911
-------- -------- ---------
Cash flows from investing activities:
Additions to property and equipment (31,163) (30,590) (23,477)
Sale of assets 6,296 416 314
Other (1,430) 101 62
-------- -------- ---------
Cash from investing activities (26,297) (30,073) (23,101)
-------- -------- ---------
Cash flows from financing activities:
Reduction of long-term debt (6,719) (20,705) (310,539)
Addition to long-term debt 16,000 - 155,000
Addition (reduction) of note payable (5,000) 5,000 -
Common stock dividends paid (10,009) (9,861) (6,902)
Acquisition of treasury stock (20,621) (122) -
Issuance of common stock 2 1,027 234,047
Retirement of minority interest -
redeemable preferred stocks - - (98,918)
Other - - (2,392)
-------- -------- ---------
Cash from financing activities (26,347) (24,661) (29,704)
-------- -------- ---------
Change in cash and cash equivalents 443 2,408 1,106
Cash and cash equivalents:
Beginning of period 4,603 2,195 1,089
-------- -------- ---------
End of period $ 5,046 $ 4,603 $ 2,195
======== ======== =========
See accompanying notes.
</TABLE>
18
<PAGE>
INTERSTATE BAKERIES CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
(In Thousands)
Common
Stock Issued Treasury Stock
-------------- ------------------
Number Additional Number
of Par Paid-in Accumulated of
Shares Value Capital Deficit Shares Cost Other
------ ----- ---------- ----------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance June 1, 1991 4,765 $ 48 $ 26,522 $(74,340) - $ - $(2,095)
Net income - - - 15,604 - - -
Shares issued:
Public offering 15,625 156 233,433 - - - -
Employee benefit plans 464 5 7,585 - - - -
Exercise of employee
stock options 8 - 1 - - - -
Dividends paid -
$.33 per share - - - (6,902) - - -
Accretion adjustment
on preferred stock
redemption - - (8,303) - - - -
Reclassification/other 59 - 799 - - - 2,095
------ ---- -------- -------- ------ -------- -------
Balance May 30, 1992 20,921 209 260,037 (65,638) - - -
Net income - - - 16,663 - - -
Shares issued - exercise
of employee stock
options 119 1 1,026 - - - -
Dividends paid -
$.47 per share - - - (9,861) - - -
Treasury stock acquired - - - - (7) (122) -
------ ---- -------- -------- ------ -------- -------
Balance May 29, 1993 21,040 210 261,063 (58,836) (7) (122) -
Net income - - - 15,754 - - -
Shares issued - exercise
of employee stock
options 10 1 1 - - - -
Dividends paid -
$.495 per share - - - (10,009) - - -
Treasury stock acquired - - - - (1,393) (20,621) -
------ ---- -------- -------- ------ -------- -------
Balance May 28, 1994 21,050 $211 $261,064 $(53,091) (1,400) $(20,743) $ -
====== ==== ======== ======== ====== ======== =======
See accompanying notes.
</TABLE>
19
<PAGE>
INTERSTATE BAKERIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Description of Business and Significant Accounting Policies
Description of business - Interstate Bakeries Corporation (the "Company") is
the largest independent and third largest baker and distributor of fresh
bakery products in the United States.
Fiscal year end - The Company has a 52-53 week year that ends on the Saturday
closest to the last day of May.
Principles of consolidation - The consolidated financial statements include
the accounts of the Company and its subsidiaries. All significant
intercompany accounts and transactions have been eliminated.
Inventories - Inventories are stated at the lower of cost or market.
Specific invoiced costs are used with respect to ingredients and average
costs are used for other inventory items.
The components of inventories are as follows:
(In Thousands)
May 28, May 29,
1994 1993
-------- --------
Ingredients and packaging $13,384 $14,208
Finished goods 5,907 6,497
Other 1,729 1,625
------- -------
$21,020 $22,330
======= =======
Property and equipment - Property and equipment are recorded at cost and
depreciated over estimated useful lives of 4 to 35 years, using the
straight-line method for financial reporting purposes and accelerated methods
for tax purposes. Interest cost capitalized as part of the construction
cost of capital assets was $903,000 and $314,000 in fiscal 1994 and 1993,
respectively.
Excess of purchase cost over net assets acquired - Excess of purchase cost
over net assets acquired is amortized over 40 years using the straight-line
method. Accumulated amortization as of May 28, 1994 and May 29, 1993 was
$46,091,000 and $39,017,000, respectively.
Interest rate swap agreements - The differential to be paid or received is
accrued as interest rates change and is recognized over the term of the
agreements.
Statement of cash flows - For purposes of the statement of cash flows, the
Company considers all investments purchased with a maturity of three months
or less to be cash equivalents.
Earnings per share - Per share amounts are calculated on the basis of the
weighted average common shares outstanding and outstanding options to the
extent they are dilutive. The calculation for fiscal 1992 gives effect to
the preferred dividend requirements related to preferred stocks. Weighted
average common and common equivalent shares outstanding were 20,306,000,
21,132,000 and 18,735,000 for fiscal 1994, 1993 and 1992, respectively.
2. Debt
Long-term debt consists of the following:
(In Thousands)
May 28, May 29,
1994 1993
-------- --------
Bank borrowings:
Revolving credit loans (a) $121,000 $ 5,000
Term loans (a) - 105,000
Senior notes (b) 79,000 79,000
Other 2,498 4,217
-------- --------
202,498 193,217
Less amounts payable
within one year (1,263) (3,979)
-------- --------
$201,235 $189,238
======== ========
(a) During fiscal 1994, the Company renegotiated its bank credit agreement,
replacing the previous debt agreement with a $210,000,000 bank revolving
credit facility. The new facility, which consists of a combination of
revolving loans and up to $60,000,000 in letters of credit (with availability
of $37,000,000 at May 28, 1994), matures during fiscal 1999. The outstanding
borrowings, which are unsecured, bear interest at variable rates generally
equal to the London Interbank Offered Rate (LIBOR) plus from .35% to 1.00%
(.50% at May 28, 1994), depending upon certain financial ratios. The Company
also pays a fee of between .15% and .35% (.225% at May 28, 1994) on the
unused portion of the facility.
To offset the variable rate characteristic of a portion of these bank
borrowings, the Company entered into interest rate swap agreements with major
banks resulting in fixed interest rates of 6.84% on $21,000,000 through May
1996, 5.34% on $30,000,000 through July 1995, 5.27% on $30,000,000 through
January 1995 and 4.97% on $25,000,000 through July 1994. The overall weighted
average interest rate on the bank borrowings was 5.73% and 6.16% at May 28,
1994 and May 29, 1993, respectively.
The new credit facility agreement contains covenants which, among other
matters (i) limit the Company's ability to incur indebtedness, merge,
consolidate and acquire or sell assets, (ii) require the Company to satisfy
certain ratios related to net worth, debt-to-capitalization and interest
coverage and (iii) limit the payment of cash dividends on common stock and
common stock repurchases to $25,000,000 for the year following the completion
of the agreement and 75% of aggregate consolidated net income thereafter, with
approximately $13,000,000 available at May 28, 1994.
(b) Represents 10.00% notes issued to an owner of the Company's common stock.
Principal is due in annual installments from July 1998 to July 2000. The note
agreement was modified during fiscal 1994 to include covenants mirroring
those of the new credit agreement.
20
<PAGE>
Interest expense on these notes totaled
$7,878,000, $7,878,000 and $6,569,000 for fiscal 1994, 1993 and 1992,
respectively.
The Company had long-term notes payable to related parties which were repaid
or exchanged in conjunction with the July 1991 public stock offering.
Interest expense on these notes was $5,169,000 during fiscal 1992. In
addition, the prepayment of a portion of these notes with the notes described
in (b) above required an additional $1,264,000 interest payment.
Statement of Financial Accounting Standards (SFAS) No. 107, "Disclosures About
Fair Value of Financial Instruments", requires disclosure of the year end fair
value of significant financial instruments, including long-term debt. The fair
value of the senior notes, described in (b) above, is estimated at $87,400,000
and $91,000,000 as of May 28, 1994 and May 29, 1993, respectively, based upon
rates available for debt with similar terms. The Company believes, based upon
current terms, that the carrying value of all other long-term debt at May 28,
1994 approximates fair value.
The scheduled repayment of long-term debt is as follows:
Fiscal Years Ending (In Thousands)
------------------- --------------
1995 $ 1,263
1996 1,030
1997 205
1998 -
1999 146,000
Thereafter 54,000
--------
$202,498
========
3. Commitments and Contingencies
Leased capital assets included in property and equipment are as
follows:
(In Thousands)
May 28, May 29,
1994 1993
-------- --------
Land and buildings $ 8,983 $ 8,983
Machinery and equipment 1,199 3,088
------- -------
10,182 12,071
Less accumulated
depreciation (2,911) (3,530)
------- -------
$ 7,271 $ 8,541
======= =======
The related capitalized lease obligations were $898,000 and $1,817,000 at
May 28, 1994 and May 29, 1993, respectively. These obligations and the
scheduled annual repayments are included with long-term debt.
Future minimum rental commitments for all noncancelable operating leases,
exclusive of taxes and insurance, are as follows:
Fiscal Years Ending (In Thousands)
------------------- --------------
1995 $22,469
1996 17,542
1997 12,382
1998 6,935
1999 3,666
Thereafter 6,790
-------
$69,784
=======
Net rental expense under operating leases was $27,435,000, $26,137,000
and $24,081,000 for fiscal 1994, 1993 and 1992, respectively. The majority
of the operating leases contain renewal options for varying periods.
Certain capital and operating leases include purchase options during or
at the end of the lease term.
The Company is subject to various routine legal proceedings, environmental
actions and other matters in the ordinary course of business, some of which
may be covered in whole or in part by insurance. In management's opinion,
none of these matters will have a material adverse effect on the Company's
financial position.
4. Income Taxes
The reconciliation of the provision for income taxes to the statutory federal
rate is as follows:
52 Weeks Ended
--------------------------------
May 28, May 29, May 30,
1994 1993 1992
-------- -------- --------
Statutory federal tax 35.0% 34.0% 34.0%
State income tax 5.5 5.1 4.5
Goodwill amortization 7.7 4.4 4.9
Loss and investment credit
carryforwards - - (4.7)
Cumulative impact of
tax law changes 2.5 - -
Other 0.5 (0.5) (0.9)
---- ---- ----
51.2% 43.0% 37.8%
==== ==== ====
The components of the provision for income taxes are as follows:
(In Thousands)
52 Weeks Ended
--------------------------------
May 28, May 29, May 30,
1994 1993 1992
-------- -------- --------
Current:
Federal $14,645 $10,650 $16,629
State 3,416 2,800 2,664
------- ------- -------
18,061 13,450 19,293
------- ------- -------
Deferred:
Federal (838) 8,399 (1,092)
State (695) 1,376 360
------- ------- -------
(1,533) 9,775 (732)
------- ------- -------
$16,528 $23,225 $18,561
======= ======= =======
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<PAGE>
Temporary differences and carryforwards which give rise to the deferred income
tax assets and liabilities at May 28, 1994 and May 29, 1993 are as follows:
(In Thousands)
May 28, May 29,
1994 1993
-------- --------
Deferred tax asset:
Accounts receivable $ 1,231 $ 1,081
Accrued expenses 11,565 12,733
Other 236 1,120
Tax credit carryforwards - 1,456
------- -------
$13,032 $16,390
======= =======
Deferred tax liability:
Property and equipment $41,392 $42,781
Postretirement benefits
liability (9,115) (8,584)
Other 3,136 6,107
------- -------
$35,413 $40,304
======= =======
Valuation allowance $ - $ -
======= =======
During fiscal 1992, deferred income taxes were provided for timing differences
in the recognition of revenue and expense for tax and financial reporting
purposes. In fiscal 1992, the largest component of deferred taxes was a
$1,232,000 deferred tax benefit resulting from fixed asset depreciation, net
of retirement gains/losses.
5. Employee Benefit Plans
The 1991 Employee Stock Purchase Plan, which is noncompensatory, allows all
eligible employees to purchase common stock of the Company. The common stock
can be either issued by the Company at market prices or purchased on the open
market. At May 28, 1994, 116,000 shares were authorized but not issued under
this plan.
The Company sponsors a defined contribution retirement plan for eligible
employees not covered by union plans. Contributions are based upon a
percentage of annual compensation plus a percentage of voluntary employee
contributions. Retirement expense related to this plan was $6,352,000,
$5,955,000 and $5,789,000 for fiscal 1994, 1993 and 1992, respectively.
There are also in effect numerous negotiated pension plans covering employees
participating by reason of union contracts. Expense for these plans was
$27,276,000, $27,289,000 and $26,566,000 for fiscal 1994, 1993 and 1992,
respectively. Information regarding assets and accumulated benefits of these
plans has not been made available to the Company.
In addition to providing retirement pension benefits, the Company provides
health care benefits for eligible retired employees. Effective at the
beginning of fiscal 1993, the Company adopted SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions", whereby the cost
of such postretirement benefits is accrued during the employee's active
service period. The Company elected to immediately recognize the accumulated
postretirement benefit obligation rather than amortize it over future periods.
The cost of providing these benefits was previously recognized on a pay-as-
you-go basis and amounted to $1,049,000 for fiscal 1992.
The cumulative effect of this accounting change as of the beginning of fiscal
1993 was to decrease net income by $14,121,000 ($.67 per share), net of a
deferred income tax benefit of $8,655,000.
Under the Company's plans, all nonunion employees, with 10 years of service
after age 50, are eligible for retiree health care coverage between ages 60
and 65. Grandfathered nonunion employees and certain union employees who have
bargained into the Company-sponsored health care plans are generally eligible
after age 55, with 10 years of service, and have only supplemental benefits
after Medicare eligibility is reached. Certain of the plans require
contributions by retirees and/or spouses.
The components of the net postretirement benefit expense are as follows:
(In Thousands)
52 Weeks Ended
--------------------
May 28, May 29,
1994 1993
-------- --------
Service cost $ 615 $ 441
Interest cost 2,178 1,807
Amortization of unrecognized
net loss 422 -
------ ------
Net postretirement benefit
expense $3,215 $2,248
====== ======
The status of the Company's unfunded postretirement benefit obligation is as
follows:
(In Thousands)
May 28, May 29,
1994 1993
-------- --------
Retirees $15,795 $11,008
Fully eligible active
plan participants 8,395 6,991
Other active plan
participants 8,290 5,732
------- -------
Accumulated postretirement
benefit obligation (APBO) 32,480 23,731
Unrecognized net loss from
assumption changes (7,555) -
------- -------
Accrued postretirement
benefit 24,925 23,731
Less current portion (1,800) (1,400)
------- -------
APBO included in other
liabilities $23,125 $22,331
======= =======
In determining the APBO, the weighted average discount rate for fiscal 1994
was assumed to be 7.0%, a change from the 8.0% used in fiscal 1993. The
assumed health
22
<PAGE>
care cost trend rate for fiscal 1994 was 9.5%, declining
gradually to 6.0% over the next 10 years and to 5.0% after 20 years. A 1.0%
increase in this assumed health care cost trend rate would increase the
service and interest cost components of the net postretirement benefit expense
for fiscal 1994 by approximately $464,000, as well as increase the May 28,
1994 APBO by approximately $4,970,000.
The Company also participates in a number of multi-employer plans which
provide postretirement health care benefits to substantially all union
employees not covered by Company-administered plans. Amounts reflected as
benefit cost and contributed to such plans, including amounts related to
health care benefits for active employees, totaled $40,467,000 and $40,287,000
in fiscal 1994 and 1993, respectively.
6. Stock Option Plans
The 1991 Stock Option Plan allows the Company to grant to employees stock
options to purchase up to 1,032,000 shares of common stock at prices which are
not less than the fair market value at the date of grant. These
options may be granted over a period not to exceed ten years and are currently
exercisable from one to five years after the date of grant. The changes in
outstanding options are as follows:
Shares Price Range
Under Option Per Share
------------ -------------
Balance June 1, 1991 -
Issued 771,000 $15.63-$16.50
Surrendered (51,000) 16.13
------- -------------
Balance May 30, 1992 720,000 15.63- 16.50
Issued 152,000 17.00
Exercised (63,000) 16.13
Surrendered (1,000) 15.63
------- -------------
Balance May 29, 1993 808,000 15.63- 17.00
Issued 163,000 12.25- 14.50
Surrendered (47,000) 15.63- 17.00
------- -------------
Balance May 28, 1994 924,000 $12.25-$17.00
======= =============
Exercisable May 28, 1994 761,000 $15.63-$17.00
======= =============
At May 28, 1994, options to purchase 45,000 shares were authorized but not
granted.
Key personnel were also granted options to purchase shares of common stock in
January 1988. The options are exercisable at $.19 per share for a period of
ten years after the first anniversary of their issuance. The changes in these
outstanding options are as follows:
Balance June 1, 1991 120,000
Exercised (8,000)
-------
Balance May 30, 1992 112,000
Exercised (56,000)
-------
Balance May 29, 1993 56,000
Exercised (10,000)
-------
Balance May 28, 1994 46,000
=======
At May 28, 1994, 1,130,000 total shares of common stock were reserved for
issuance under various employee benefit plans.
7. Accrued Expenses
Included in accrued expenses are the following:
(In Thousands)
May 28, May 29,
1994 1993
-------- --------
Payroll, vacation and other
compensation $22,618 $24,262
Pension and welfare 4,177 10,183
Worker's compensation 9,495 9,980
Taxes other than income 6,506 6,013
8. Other Charges
The Company incurred $9,400,000 of other charges during fiscal 1994 including
costs related to a plant disposal of $6,700,000 and environmental matters of
$2,700,000.
9. Supplemental Cash Flow Information
Noncash investing and financing activities excluded from the consolidated
statement of cash flows and certain cash payments are as follows:
(In Thousands)
52 Weeks Ended
-------------------------------
May 28, May 29, May 30,
1994 1993 1992
-------- -------- --------
Noncash investing and
financing activities:
Exchange of property and
equipment for property,
equipment and intangibles $ 7,006 $ - $ -
Preferred dividends of
subsidiary paid-in-kind - - 4,764
Common stock issued in
exchange for preferred
stock - - 4,229
Stock issued for employee
compensation and benefit
plans - - 2,904
Certain cash payments:
Interest $14,301 $18,097 $31,620
Income taxes 17,937 17,568 9,022
10. Public Offering of Common Stock and Recapitalization
In July 1991, the Company completed an initial public offering of 15,625,000
shares of common stock at $16.00 per share (the "Offering"). The net proceeds
of the Offering, after deducting applicable issuance costs and expenses, were
$233,589,000. The proceeds were used
23
<PAGE>
to repay $134,096,000 of senior
subordinated notes, plus accrued interest, and to redeem, at their liquidation
value of $98,315,000, all three series of minority interest - redeemable
preferred stocks, plus accrued dividends.
Concurrent with the Offering, the Company (i) replaced its existing bank
credit facility, (ii) exchanged $79,000,000 of 12.50% subordinated notes for a
like amount of 10.00% senior notes, (iii) approved an increase in the
authorized common stock to 25,000,000 shares, (iv) declared a 1-for-1.92868
reverse stock split and (v) issued 181,000 shares of common stock in exchange
for certain outstanding stock performance units.
In the first quarter of fiscal 1992, the Company incurred an extraordinary
charge of $10,176,000 (net of an income tax benefit of $6,184,000) related to
additional interest payments and the write-off of unamortized deferred
financing charges in connection with the retirement of debt.
11. Subsequent Event
On June 13, 1994, the Company completed the acquisition of the assets and
liabilities of Fuchs Baking Co. ("Fuchs"), Miami, Florida. Fuchs, which has
annual sales of approximately $50,000,000, produces and distributes bakery
products throughout central and southern Florida. The acquisition, which was
financed through borrowings on the Company's revolving credit agreement, will
be accounted for as a purchase.
12. Quarterly Financial Information (Unaudited)
Summarized quarterly financial information for the fiscal years ended May 28,
1994 and May 29, 1993 is as follows (each quarter represents a period of
twelve weeks except the third quarters, which cover sixteen weeks):
(In Thousands, Except Per Share Data)
First Second Third Fourth
-------- -------- -------- --------
1994
Net sales $269,662 $268,934 $336,296 $267,792
Cost of products sold 135,638 134,640 172,666 138,282
Operating income 17,690 16,800 1,551 10,842
Net income (loss) 6,989 7,289 (2,468) 3,944
Income (loss) per share .33 .36 (.12) .20
1993
Net sales $273,663 $271,924 $344,627 $275,374
Cost of products sold 139,012 136,559 176,065 138,368
Operating income 20,035 20,265 14,080 16,964
Income before
cumulative effect
of accounting change 9,011 9,263 5,002 7,508
Net income (loss) (5,110) 9,263 5,002 7,508
Per share:
Income before
cumulative effect of
accounting change .43 .44 .24 .36
Net income (loss) (.24) .44 .24 .36
The third quarter of fiscal 1994 includes other charges of $9,400,000,
$5,687,000 net of tax ($.28 per share), related to a plant disposal and
environmental matters.
Due to the adoption of SFAS No. 106, the net loss for the first quarter of
1993 includes a charge of $14,121,000 ($.67 per share) for the cumulative
effect of the change in accounting for postretirement benefits other than
pensions.
24
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------
We have audited the accompanying consolidated balance sheets of Interstate
Bakeries Corporation and its subsidiaries as of May 28, 1994 and May 29, 1993,
and the related consolidated statements of income, stockholders' equity
and cash flows for each of the three fiscal years in the period ended May 28,
1994. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Interstate Bakeries Corporation
and its subsidiaries as of May 28, 1994 and May 29, 1993, and the results of
their operations and their cash flows for each of the three fiscal years in
the period ended May 28, 1994 in conformity with generally accepted accounting
principles.
/s/ Deloitte & Touche
Kansas City, Missouri
July 8, 1994
25
