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 August 26, 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 August 26, 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
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- ------------------------------------------------------------------------------
(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 36,799,164 shares of common stock, $.01 par value per share,
outstanding on September 29, 1995.
<PAGE>
INTERSTATE BAKERIES CORPORATION
FORM 10-Q
QUARTER ENDED AUGUST 26, 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 first quarter of fiscal 1996, the twelve weeks ended August
26, 1995, were $471,441,000, up $197,342,000 and 72.0% from prior year net
sales of $274,099,000. First quarter of fiscal 1996 includes five weeks of net
sales generated by the Company's newly acquired Continental Baking Company
operations. Excluding the impact of the 36 new bakeries, net sales increased
approximately 5.0% reflecting higher selling prices, steady unit volume for
bread and continued softness in cake volume.
Cost of products sold was 51.2% of net sales for the first quarter of fiscal
1996, down slightly from 51.4% of net sales in the prior year. This margin
improvement reflects the efficiencies of the acquired operations. Excluding
these operations, cost of products sold was 51.9% of net sales, with the
margin decline attributable to ingredient and packaging cost increases,
partially offset by higher selling prices.
Selling, delivery and administrative expenses represented 41.9% of net sales
for the first quarter of fiscal 1996 compared to 40.2% of net sales in the
prior year. This unfavorable variance was 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 $8,279,000 to $16,073,000 from $7,794,000
in fiscal 1995, with this increase attributable to the acquisition.
As a result of these factors, operating income for the first quarter of fiscal
1996 was $16,523,000, an increase of $1,352,000 and 8.9% over the prior year's
$15,171,000.
Interest expense for the first quarter increased $1,837,000, to $5,783,000.
Higher borrowings to finance the acquisition were the primary reason for this
increase, 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 47.4% and 47.8% in fiscal 1996 and 1995, respectively.
Net income for the first quarter of fiscal 1996 was $5,726,000, or $.21 per
share, compared to $5,886,000, or $.30 per share, for the same period a year
ago. The per share earnings decline reflects the additional shares issued in
conjunction with the acquisition coupled with slightly lower overall earnings.
1
<PAGE>
Changes in Financial Ccondition
- -------------------------------
Cash generated by operating activities for the twelve weeks ended August 26,
1995 was $27,573,000 compared to $21,761,000 a year ago, with this increase
reflecting improved operations, as well as operations of the acquired
business. Cash generated by operations during fiscal 1996, along with net
additional borrowings of $221,938,000, were used to fund capital expenditures
of $5,118,000, pay stock dividends of $2,454,000, pay $226,052,000 for the
acquisition of Continental Baking Company and increase cash on hand by
$15,843,000.
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
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INTERSTATE BAKERIES CORPORATION
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
(000's)
August 26, June 3,
1995 1995
------------ -----------
Assets
Current assets:
Cash and cash equivalents $ 19,569 $ 3,726
Accounts receivable, less allowance
for doubtful accounts of $5,825,000
($1,792,000 at June 3) 179,296 75,184
Inventories 73,934 24,207
Other current assets 48,849 17,232
---------- --------
Total current assets 321,648 120,349
---------- --------
Property and equipment:
Land and buildings 275,712 99,609
Machinery and equipment 684,920 246,800
---------- --------
960,632 346,409
Less accumulated depreciation (133,847) (123,440)
---------- --------
Net property and equipment 826,785 222,969
---------- --------
Other assets 341,043 255,123
---------- --------
$1,489,476 $598,441
========== ========
<PAGE>
Liabilities and Stockholders' Equity
Current liabilities:
Long-term debt payable within one year $ 11,273 $ 1,030
Accounts payable 101,035 48,979
Accrued expenses 187,965 59,145
---------- --------
Total current liabilities 300,273 109,154
---------- --------
Long-term debt 425,213 212,205
Other liabilities 259,478 45,461
Deferred income taxes 60,024 33,584
---------- --------
Total long-term liabilities 744,715 291,250
---------- --------
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 -
36,576,000 shares (21,056,000 at June 3) 380 211
Additional paid-in capital 504,594 261,065
Accumulated deficit (38,941) (42,213)
Treasury stock at cost - 1,449,000 shares
(1,421,000 at June 3) (21,545) (21,026)
---------- --------
Total stockholders' equity 444,488 198,037
---------- --------
$1,489,476 $598,441
========== ========
See accompanying notes.
3
<PAGE>
INTERSTATE BAKERIES CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
(000'S EXCEPT PER SHARE DATA)
Twelve Weeks Ended
------------------------
August 26, August 20,
1995 1994
---------- ----------
Net sales $471,441 $274,099
-------- --------
Cost of products sold 241,302 140,849
Selling, delivery and administrative
expenses 197,543 110,285
Depreciation and amortization 16,073 7,794
-------- --------
454,918 258,928
-------- --------
Operating income 16,523 15,171
-------- --------
Other income (146) (51)
Interest expense 5,783 3,946
-------- --------
5,637 3,895
-------- --------
Income before income taxes 10,886 11,276
Provision for income taxes 5,160 5,390
-------- --------
Net income $ 5,726 $ 5,886
======== ========
Earnings per share $ .21 $ .30
======== ========
Weighted average common and common
equivalent shares outstanding 26,742 19,687
======== ========
See accompanying notes.
4
<PAGE>
INTERSTATE BAKERIES CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(000's)
Twelve Weeks Ended
--------------------------
August 26, August 20,
1995 1994
------------ ------------
Cash flows from operating activities:
Net income $ 5,726 $ 5,886
Depreciation and amortization 16,073 7,794
Other 1,922 1,080
Change in operating assets and liabilities:
Accounts receivable (7,380) (2,279)
Inventories (3,326) (1,767)
Other current assets (902) 1,072
Accounts payable and accrued expenses 15,460 9,975
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Cash from operating activities 27,573 21,761
------- -------
Cash flows from investing activities:
Acquisition of a business (226,052) -
Additions to property and equipment (5,118) (18,919)
Sale of assets 72 51
Other (26) (13,905)
------- -------
Cash from investing activities (231,124) (32,773)
------- -------
Cash flows from financing activities:
Reduction of long-term debt (133,055) (302)
Addition to long-term debt 354,993 12,000
Common stock dividends paid (2,454) (2,455)
Acquisition of treasury stock (519) (155)
Issuance of common stock 429 -
------- -------
Cash from financing activities 219,394 9,088
------- -------
Change in cash and cash equivalents 15,843 (1,924)
Cash and cash equivalents:
Beginning of period 3,726 5,046
------- -------
End of period $ 19,569 $ 3,122
======= =======
Supplemental disclosures:
Interest paid $ 5,791 $ 6,116
Income taxes paid 901 745
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.
First quarter operating results include CBC's operating results for five
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 $469,321
Common stock issued (243,269)
--------
Cash paid for acquisition of CBC $226,052
========
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)
--------------------------
August 26, June 3,
1995 1995
---------- -----------
Ingredients and packaging $48,380 $15,274
Finished goods 16,759 7,122
Other 8,795 1,811
------- -------
$73,934 $24,207
======= =======
4. Income Taxes
------------
The reconciliation of the provision for income taxes to the statutory federal
rate is as follows:
Twelve Weeks Ended
----------------------------
August 26, August 20,
1995 1994
------------ ------------
Statutory federal tax 35.0% 35.0%
State income tax 4.5 5.4
Amortization of intangibles 7.9 6.5
Other - .9
-------- -------
47.4% 47.8%
======== =======
7
<PAGE>
PART II
ITEM 6 - Exhibits and Reports on Form 8-K
a) Exhibits filed with this report:
1) 11 - Schedule regarding computation of per share earnings
2) 27 - Financial data schedule
b) Reports on Form 8-K
1) On June 9, 1995, the registrant filed a Report on Form 8-K with
respect to a definitive credit agreement dated May 31, 1995
entered into by Interstate Brands Corporation ("Brands") a
wholly-owned subsidiary of the registrant. A group of banks,
with Chemical Bank as agent and Issuing Bank, is providing a
credit facility for Brands under the agreement.
2) On July 26, 1995, the registrant filed a Report on Form 8-K with
respect to the completion of the acquisition by the registrant
of Ralston Purina Company's wholly-owned subsidiary, Continental
Baking Company ("CBC") for a purchase price of $220,000,000 in
cash and 16,923,077 shares of common stock of the registrant,
effective July 22, 1995. On July 24, 1995, CBC was merged with
and into Brands. In a related matter, the Report on Form 8-K
also indicated on July 20, 1995, the Company, CBC and the
Antitrust Division of the Department of Justice signed, and filed
with the United States District Court for the Northern District
of Illinois, stipulations for Final Judgement and for holding
separate certain assets following the closing of the acquisition
of CBC. The Final Judgement contemplates the divestiture of one
white pan bread label of the combined Brands/CBC entity in
certain counties in southern California, eastern Wisconsin,
central Illinois and the Chicago area. The hold separate
stipulation contemplates that the combined Brands/CBC entity,
after closing, will operate separately certain parts of the
combined businesses in these areas.
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 September 29, 1995 /s/ Charles A. Sullivan
-------------------------------
Charles A. Sullivan, Chairman
and Chief Executive Officer
DATE September 29, 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)
Twelve Weeks Ended
-----------------------
August 26, August 20,
1995 1994
---------- ----------
Net income $ 5,726 $ 5,886
======= =======
Weighted average common shares
outstanding 26,489 19,642
Dilutive stock options 253 45
------- -------
Weighted average common and common
equivalent shares outstanding 26,742 19,687
======= =======
Earnings per share $ .21 $ .30
======= =======
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF AUGUST 26, 1995 AND THE CONSOLIDATED
STATEMENT OF INCOME FOR THE TWELVE WEEKS ENDED AUGUST 26, 1995 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-01-1996
<PERIOD-END> AUG-26-1995
<CASH> 19,569
<SECURITIES> 0
<RECEIVABLES> 185,121
<ALLOWANCES> 5,825
<INVENTORY> 73,934
<CURRENT-ASSETS> 321,648
<PP&E> 960,632
<DEPRECIATION> 133,847
<TOTAL-ASSETS> 1,489,476
<CURRENT-LIABILITIES> 300,273
<BONDS> 425,213
<COMMON> 380
0
0
<OTHER-SE> 444,108
<TOTAL-LIABILITY-AND-EQUITY> 1,489,476
<SALES> 471,441
<TOTAL-REVENUES> 471,441
<CGS> 241,302
<TOTAL-COSTS> 241,302
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,783
<INCOME-PRETAX> 10,886
<INCOME-TAX> 5,160
<INCOME-CONTINUING> 5,726
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,726
<EPS-PRIMARY> .21
<EPS-DILUTED> 0
</TABLE>
