FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act
of 1934
(Mark One)
/ X / QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended November 18, 1995
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________ to __________
_______________
For the Quarter Ended November 18, 1995 Commission File Number 1-11165
INTERSTATE BAKERIES CORPORATION
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 43-1470322
- ------------------------------- -----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
12 East Armour Boulevard, Kansas City, Missouri 64111
- ----------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (816) 561-6600
--------------
- ------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report.)
---------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes / X / No / /
There were 37,030,854 shares of common stock, $.01 par value per share,
outstanding on December 15, 1995.
<PAGE>
INTERSTATE BAKERIES CORPORATION
FORM 10-Q
QUARTER ENDED NOVEMBER 18, 1995
CONTENTS
- --------
Description Page
----------- ----
PART I - FINANCIAL INFORMATION (UNAUDITED)
- ------------------------------------------
Management's Discussion and Analysis of Financial
Condition and Results of Operations 1-2
Consolidated Balance Sheet 3
Consolidated Statement of Income 4
Consolidated Statement of Cash Flows 5
Notes to Consolidated Financial Statements 6-7
PART II - OTHER INFORMATION
- ---------------------------
Legal Proceedings Not Applicable
Changes in Securities Not Applicable
Defaults Upon Senior Securities Not Applicable
Submission of Matters to a Vote of Security Holders Not Applicable
Other Information Not Applicable
Exhibits and Reports on Form 8-K 8
Signatures 9
<PAGE>
INTERSTATE BAKERIES CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
- ---------------------
Net sales for the second quarter of fiscal 1996, the twelve weeks ended
November 18, 1995, were $734,537,000, a $453,811,000 increase over prior year
net sales of $280,726,000. Year-to-date net sales for fiscal 1996 were
$1,205,978,000, an increase of $651,153,000 over net sales of $554,825,000 in
fiscal 1995. These substantial increases were attributable to the acquisition
of the Continental Baking Company on July 22, 1995, with year-to-date net
sales reflecting seventeen weeks of Continental's operations. Excluding the
impact of this acquisition, second quarter net sales increased approximately
4.0% while year-to-date net sales increased approximately 4.5%. These
increases reflect higher selling prices and steady unit volume for bread,
offset somewhat by continued softness in cake volume.
Cost of products sold was 51.2% of net sales for the second quarter of fiscal
1996, the same percentage as in the prior year. Year-to-date cost of products
sold was 51.2%, down slightly from fiscal 1995's 51.3%. Excluding the
acquired operations, cost of products sold was 52.1% of net sales for the
quarter and 52.0% year-to-date, reflecting higher ingredient and packaging
costs, only partially offset by higher selling prices. The unfavorable margin
decline on existing operations was offset by the efficiencies of the acquired
operations.
Selling, delivery and administrative expenses represented 42.3% of net sales
for the quarter compared to 40.5% the prior year, while year-to-date selling,
delivery and administrative expenses increased to 42.1% of net sales from
40.4% in fiscal 1995. These unfavorable variances were attributable to the
acquisition, with the new operations having higher selling and delivery labor
and labor related costs as a percentage of net sales.
Depreciation and amortization was up $19,788,000 to $27,633,000 for the
quarter and increased $28,067,000 to $43,706,000 year-to-date, with these
increases attributable to the acquisition.
As a result of these factors, operating income for the second quarter of
fiscal 1996 was up $5,150,000, or 33.1%, to $20,694,000. Year-to-date
operating income was $37,217,000, a $6,502,000 and 21.2% increase from fiscal
1995.
Interest expense for the second quarter was up $3,485,000 to $7,449,000, while
year-to-date interest expense increased $5,322,000 to $13,232,000. Higher
borrowings to finance the acquisition were the primary reason for these
increases, along with slightly higher market interest rates. The new credit
agreement signed in conjunction with the acquisition provides for interest
rates similar to the previous credit agreement.
Non-deductible intangibles asset amortization was responsible for the
effective tax rates of 51.4% and 47.8% in fiscal 1996 and 1995, respectively.
<PAGE>
Net income for the second quarter was $6,095,000, or $.16 per share, compared
to $6,063,000, or $.31 per share, for the same period a year ago. Year-to-
date net income in fiscal 1996 was $11,821,000, or $.37 per share, versus
$11,949,000, or $.61 per share, in fiscal 1995. The per share earnings
decline reflects the additional shares issued in conjunction with the
acquisition.
Changes in Financial Condition
- ------------------------------
Cash generated by operating activities for the twenty-four weeks ended
November 18, 1995 was $74,422,000 compared to $30,047,000 a year ago, with
this increase reflecting the acquired operations and favorable changes in
working capital components. Cash generated by operations during fiscal 1996,
along with net additional borrowings of $166,888,000 and common stock sales of
$6,083,000, were used to fund capital expenditures of $14,700,000, pay common
stock dividends of $7,059,000 and pay $228,281,000 for the acquisition of
Continental Baking Company.
As noted in the Company's Annual Report on Form 10-K for the year ended June
3, 1995, cash flows from operations and borrowing capacity under the new
credit facility should be sufficient to meet the ongoing cash requirements in
the current year.
2
<PAGE>
INTERSTATE BAKERIES CORPORATION
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
(000's)
November 18, June 3,
1995 1995
------------ -----------
Assets
Current assets:
Cash and cash equivalents $ - $ 3,726
Accounts receivable, less allowance
for doubtful accounts of $5,673,000
($1,792,000 at June 3) 177,111 75,184
Inventories 75,433 24,207
Other current assets 50,118 17,232
---------- --------
Total current assets 302,662 120,349
---------- --------
Property and equipment:
Land and buildings 276,001 99,609
Machinery and equipment 693,152 246,800
---------- --------
969,153 346,409
Less accumulated depreciation (157,476) (123,440)
---------- --------
Net property and equipment 811,677 222,969
---------- --------
Other assets 340,474 255,123
---------- --------
$1,454,813 $598,441
========== ========
<PAGE>
Liabilities and Stockholders' Equity
Current liabilities:
Long-term debt payable within one year $ 11,123 $ 1,030
Accounts payable 104,901 48,979
Accrued expenses 198,907 59,145
---------- --------
Total current liabilities 314,931 109,154
---------- --------
Long-term debt 370,000 212,205
Other liabilities 258,226 45,461
Deferred income taxes 60,024 33,584
---------- --------
Total long-term liabilities 688,250 291,250
---------- --------
Stockholders' equity:
Preferred stock, par value $.01 per share;
authorized - 1,000,000 shares; issued - none - -
Common stock, par value $.01 per share;
authorized - 60,000,000 shares; issued -
38,417,000 shares (21,056,000 at June 3) 384 211
Additional paid-in capital 510,244 261,065
Accumulated deficit (37,451) (42,213)
Treasury stock at cost - 1,449,000 shares
(1,421,000 at June 3) (21,545) (21,026)
---------- --------
Total stockholders' equity 451,632 198,037
---------- --------
$1,454,813 $598,441
========== ========
See accompanying notes.
3
<PAGE>
INTERSTATE BAKERIES CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
(000'S EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Twelve Weeks Ended Twenty-Four Weeks Ended
-------------------------- ---------------------------
November 18, November 12, November 18, November 12,
1995 1994 1995 1994
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $734,537 $280,726 $1,205,978 $554,825
-------- -------- ---------- --------
Cost of products sold 375,791 143,708 617,093 284,557
Selling, delivery and administrative
expenses 310,419 113,629 507,962 223,914
Depreciation and amortization 27,633 7,845 43,706 15,639
-------- -------- ---------- --------
713,843 265,182 1,168,761 524,110
-------- -------- ---------- --------
Operating income 20,694 15,544 37,217 30,715
-------- -------- ---------- --------
Other income (193) (34) (339) (85)
Interest expense 7,449 3,964 13,232 7,910
-------- -------- ---------- --------
7,256 3,930 12,893 7,825
-------- -------- ---------- --------
Income before income taxes 13,438 11,614 24,324 22,890
Provision for income taxes 7,343 5,551 12,503 10,941
-------- -------- ---------- --------
Net income $ 6,095 $ 6,063 $ 11,821 $ 11,949
======== ======== ========== ========
Earnings per share $ .16 $ .31 $ .37 $ .61
======== ======== ========== ========
Weighted average common and common
equivalent shares outstanding 37,227 19,686 31,985 19,687
======== ======== ========== ========
</TABLE>
See accompanying notes.
4
<PAGE>
INTERSTATE BAKERIES CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(000's)
Twenty-Four Weeks Ended
--------------------------
November 18, November 12,
1995 1994
------------ ------------
Cash flows from operating activities:
Net income $ 11,821 $ 11,949
Depreciation and amortization 43,706 15,639
Other 818 749
Change in operating assets and liabilities:
Accounts receivable (5,195) (8,621)
Inventories (4,825) (2,243)
Other current assets (2,171) 474
Accounts payable and accrued expenses 30,268 12,100
-------- --------
Cash from operating activities 74,422 30,047
-------- --------
Cash flows from investing activities:
Acquisition of a business (228,281) -
Additions to property and equipment (14,700) (25,088)
Sale of assets 626 99
Other (1,186) (14,045)
-------- --------
Cash from investing activities (243,541) (39,034)
-------- --------
Cash flows from financing activities:
Reduction of long-term debt (133,112) (354)
Addition to long-term debt 300,000 11,000
Common stock dividends paid (7,059) (4,910)
Issuance of common stock 6,083 1
Acquisition of treasury stock (519) (221)
-------- --------
Cash from financing activities 165,393 5,516
-------- --------
Change in cash and cash equivalents (3,726) (3,471)
Cash and cash equivalents:
Beginning of period 3,726 5,046
-------- --------
End of period $ - $ 1,575
======== ========
Supplemental disclosures:
Interest paid $ 12,010 $ 8,679
Income taxes paid 12,705 12,092
See accompanying notes.
5
<PAGE>
INTERSTATE BAKERIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Acquisition
-----------
During the first quarter, effective July 22, 1995, Interstate Bakeries
Corporation (the "Company") acquired Continental Baking Company ("CBC") from
Ralston Purina Company ("RPC") for a total purchase price of $220,000,000 in
cash and 16,923,077 shares of the Company's common stock. Prior to the
acquisition, CBC was the nation's largest wholesale baking company with annual
sales of approximately $2 billion and 21,000 employees at 36 bakery locations.
As a result of the acquisition, RPC owns approximately 46% of the Company's
common stock. Under terms of a shareholder agreement, RPC's holdings of the
Company's common stock must be less than 15% of the outstanding shares within
five years of the acquisition.
Year-to-date second quarter operating results include CBC's operating results
for seventeen weeks, effective with the date of the acquisition.
In conjunction with the acquisition, the estimated cash and stock portions of
the purchase price, including fees and expenses, for fiscal 1996 were as
follows:
Estimated fair value of net assets acquired $471,550
Common stock issued (243,269)
--------
Cash paid for acquisition of CBC $228,281
========
2. Accounting Policies and Basis of Presentation
---------------------------------------------
The accompanying unaudited consolidated financial statements include all
adjustments, consisting only of normal recurring accruals, which, in the
opinion of management, are necessary for a fair presentation of financial
position, results of operations and cash flows. Results of operations for
interim periods are not necessarily indicative of results to be expected for a
full year.
Certain reclassifications have been made to prior years' amounts to conform to
the current year presentation.
6
<PAGE>
3. Inventories
-----------
The components of inventories are as follows:
(000's)
--------------------------
November 18, June 3,
1995 1995
------------ -----------
Ingredients and packaging $51,630 $15,274
Finished goods 15,750 7,122
Other 8,053 1,811
------- -------
$75,433 $24,207
======= =======
4. Income Taxes
------------
The reconciliation of the provision for income taxes to the statutory federal
rate is as follows:
Twenty-Four Weeks Ended
----------------------------
November 18, November 12,
1995 1994
------------ ------------
Statutory federal tax 35.0% 35.0%
State income tax 4.5 5.4
Amortization of intangibles 11.9 6.5
Other - .9
-------- -------
51.4% 47.8%
======== =======
The provision for income taxes for the current quarter of both fiscal years
includes any adjustments for revisions in the projected annual effective tax
rate.
7
<PAGE>
PART II
ITEM 6 - Exhibits and Reports on Form 8-K
a) 11 - Schedule regarding computation of per share earnings
b) 27 - Financial data schedule
8
<PAGE>
**************
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Interstate Bakeries Corporation
-------------------------------
(Registrant)
DATE December 23, 1995 /s/ Charles A. Sullivan
-------------------------------
Charles A. Sullivan, Chairman
and Chief Executive Officer
DATE December 23, 1995 /s/ John F. McKenny
-------------------------------
John F. McKenny, Vice President/
Corporate Controller and
Principal Accounting Officer
9
EXHIBIT 11
INTERSTATE BAKERIES CORPORATION
SCHEDULE REGARDING COMPUTATION OF PER SHARE EARNINGS
(000's EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Twelve Weeks Ended Twenty-Four Weeks Ended
-------------------------- --------------------------
November 18, November 12, November 18, November 12,
1995 1994 1995 1994
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net income $ 6,095 $ 6,063 $ 11,821 $ 11,949
========= ========= ========= =========
Weighted average common shares
outstanding 36,784 19,639 31,637 19,641
Dilutive stock options 443 47 348 46
--------- --------- --------- ---------
Weighted average common and common
equivalent shares outstanding 37,227 19,686 31,985 19,687
========= ========= ========= =========
Earnings per share $ .16 $ .31 $ .37 $ .61
========= ========= ========= =========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF NOVEMBER 18, 1995 AND THE CONSOLIDATED
STATEMENT OF INCOME FOR THE TWENTY-FOUR WEEKS ENDED NOVEMBER 18, 1995 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-01-1996
<PERIOD-END> NOV-18-1995
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 182,784
<ALLOWANCES> 5,673
<INVENTORY> 75,433
<CURRENT-ASSETS> 302,662
<PP&E> 969,153
<DEPRECIATION> 157,476
<TOTAL-ASSETS> 1,454,813
<CURRENT-LIABILITIES> 314,931
<BONDS> 370,000
<COMMON> 384
0
0
<OTHER-SE> 451,248
<TOTAL-LIABILITY-AND-EQUITY> 1,454,813
<SALES> 1,205,978
<TOTAL-REVENUES> 1,205,978
<CGS> 617,093
<TOTAL-COSTS> 617,093
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,232
<INCOME-PRETAX> 24,324
<INCOME-TAX> 12,503
<INCOME-CONTINUING> 11,821
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,821
<EPS-PRIMARY> .37
<EPS-DILUTED> 0
</TABLE>
