FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act
of 1934
(Mark One)
/ X / QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 4, 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 March 4, 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 19,636,028 shares of common stock, $.01 par value per share,
outstanding on March 31, 1995.
<PAGE>
INTERSTATE BAKERIES CORPORATION
FORM 10-Q
QUARTER ENDED MARCH 4, 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 Operations 4
Consolidated Statement of Cash Flows 5
Notes to Consolidated Financial Statements 6-7
PART II - OTHER INFORMATION
- ---------------------------
Legal Proceedings Not Applicable
Changes in Securities Not Applicable
Defaults Upon Senior Securities Not Applicable
Submission of Matters to a Vote of Security Holders Not Applicable
Other Information Not Applicable
Exhibits and Reports on Form 8-K 8
Signatures 9
<PAGE>
INTERSTATE BAKERIES CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
- ---------------------
Net sales for the third quarter, the sixteen weeks ended March 4, 1995, were
$358,240,000, up $21,944,000 and 6.5%, from net sales of $336,296,000 in
fiscal 1994. Year-to-date sales were also higher at $913,065,000, a 4.4%
increase over 1994's net sales of $874,892,000. These increases were
attributable to acquisitions, as well as somewhat higher selling prices and
unit volume for bread. Cake volume and pricing remained soft both for the
quarter and year-to-date.
Cost of products sold was 52.1% of net sales for the third quarter of fiscal
1995 compared to 51.3% for fiscal 1994, while year-to-date cost of products
sold was 51.6% compared to 50.6% in the prior year. These margin declines
were primarily attributable to higher labor and overhead costs associated with
recent acquisitions. Year-to-date, somewhat higher commodity costs for
certain key ingredients also contributed to the margin erosion.
Selling, delivery and administrative expenses for the third quarter of 1995
increased 5.0% to $149,947,000 from $142,845,000 the prior year, but improved
to 41.9% of net sales from 42.5% the prior year. Year-to-date selling,
delivery and administrative expenses were $373,861,000, representing 40.9% of
net sales, and a 3.2% increase over the prior year's $362,100,000,
representing 41.4% of net sales. These favorable variances on a percentage of
net sales basis were primarily attributable to lower labor and labor related
costs.
Depreciation and amortization was up $616,000 for the third quarter and
$1,682,000 year-to-date due to the completion of the new Jacksonville, Florida
bakery and acquisitions.
As a result of these factors, operating income for the third quarter of fiscal
1995 was $11,192,000, an increase of $9,641,000 over the prior year's
$1,551,000, while year-to-date operating income was $41,907,000 compared to
$36,041,000 in fiscal 1994, a $5,866,000 increase. Fiscal 1994's third
quarter reflects $9,400,000 of other charges, which includes costs incurred in
a plant disposal of $6,700,000 and costs related to environmental matters of
$2,700,000, which reduced both quarterly and year-to-date earnings by
$5,687,000, net of tax, or $.28 per share.
Interest expense for the third quarter was up $797,000, or 17.9%, to
$5,254,000, while year-to-date interest expense increased $1,916,000, or
17.0%, to $13,164,000. These increases were attributable to higher interest
rates during fiscal 1995, as well as higher debt levels resulting from an
acquisition in the first quarter of fiscal 1995 and treasury stock repurchases
during the latter half of the prior fiscal year.
Non-deductible goodwill amortization was responsible for the effective tax
rate of 47.8% in fiscal 1995. This amortization, along with the passage of
the Omnibus Budget Reconciliation Act of 1994, produced an effective year-to-
date tax rate of 52.5% in fiscal 1994. Fiscal 1994's provision included
$808,000 of expense relating to the cumulative adjustment of the net deferred
tax liability at fiscal 1993 year end and additional taxes payable for fiscal
1993.
1
<PAGE>
INTERSTATE BAKERIES CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Net income for the third quarter was $3,096,000, or $.16 a share, versus a
loss of $2,468,000, or $.12 per share, in fiscal 1994. Year-to-date net
income in fiscal 1995 was $15,045,000, or $.76 per share, compared to
$11,810,000, or $.58 per share, last year. As mentioned previously, fiscal
1994's third quarter and year-to-date net income included after-tax other
charges of $5,687,000, or $.28 per share.
Changes in Financial Condition
- ------------------------------
Cash generated by operating activities for the forty weeks ended March 4, 1995
was $39,359,000, substantially unchanged from $39,135,000 a year ago. Cash
generated from operations during fiscal 1995, along with bank borrowings, was
used to fund capital expenditures of $29,886,000, purchase intangibles of
$13,878,000 and pay common stock dividends of $7,365,000.
As noted in the Company's Annual Report on Form 10-K for the year ended May
28, 1994, cash flows from operations should be sufficient to meet the ongoing
cash requirements in the current year. Excess cash from operations will be
used to reduce the revolving credit borrowings, fund acquisitions or
repurchase common shares under the Company's share repurchase program.
On April 12, 1995, the Company signed a definitive agreement with Ralston
Purina Company ("RPC") to acquire RPC'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 Company. The closing of the sale is
subject to approval of the Company's shareholders and various regulatory
clearances, and is expected to be completed during the summer of 1995. The
Company has obtained bank commitments to provide funding for the proposed
acquisition, as well as the refinancing of existing bank debt, and is in the
process of negotiating a definitive bank agreement.
2
<PAGE>
INTERSTATE BAKERIES CORPORATION
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
(000's)
March 4, May 28,
1995 1994
------------ -------
Assets
Current assets:
Cash and cash equivalents $ 3,562 $ 5,046
Accounts receivable, less allowance
for doubtful accounts of $1,809,000
($1,645,000 at May 28) 74,233 71,734
Inventories 22,892 21,020
Other current assets 18,362 17,106
-------- --------
Total current assets 119,049 114,906
-------- --------
Property and equipment:
Land and buildings 100,540 91,540
Machinery and equipment 242,730 224,922
-------- --------
343,270 316,462
Less accumulated depreciation (118,396) (101,022)
-------- --------
Net property and equipment 224,874 215,440
-------- --------
Excess of purchase cost over net assets
acquired 248,367 240,249
Other assets 4,646 4,196
-------- --------
$596,936 $574,791
======== ========
<PAGE>
Liabilities and Stockholders' Equity
Current liabilities:
Long-term debt payable within one year $ 1,025 $ 1,263
Accounts payable 44,635 47,848
Accrued expenses 64,049 58,182
-------- --------
Total current liabilities 109,709 107,293
-------- --------
Long-term debt:
Related party 79,000 79,000
Other 133,265 122,235
Other liabilities 46,382 43,409
Deferred income taxes 33,713 35,413
-------- --------
Total long-term liabilities 292,360 280,057
-------- --------
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 -
21,056,000 shares (21,050,000 at May 28) 211 211
Additional paid-in capital 261,065 261,064
Accumulated deficit (45,411) (53,091)
Treasury stock at cost - 1,419,000 shares
(1,400,000 at May 28) (20,998) (20,743)
-------- --------
Total stockholders' equity 194,867 187,441
-------- --------
$596,936 $574,791
======== ========
See accompanying notes.
3
<PAGE>
INTERSTATE BAKERIES CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
(000'S EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Sixteen Weeks Ended Forty Weeks Ended
-------------------------- ---------------------------
March 4, March 5, March 4, March 5,
1995 1994 1995 1994
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $358,240 $336,296 $9l3,065 $874,892
-------- -------- -------- --------
Cost of products sold 186,65l 172,666 471,208 442,944
Selling, delivery and administrative
expenses 149,947 142,845 373,861 362,100
Other charges - 9,400 - 9,400
Depreciation and amortization 10,450 9,834 26,089 24,407
-------- -------- -------- --------
347,048 334,745 871,158 838,851
-------- -------- -------- --------
Operating income 11,192 1,551 41,907 36,041
-------- -------- -------- --------
Other expense(income) 7 (10) (78) (92)
Interest expense 5,254 4,457 13,164 11,248
-------- -------- -------- --------
5,261 4,447 13,086 11,156
-------- -------- -------- --------
Income (loss) before income taxes 5,931 (2,896) 28,821 24,885
Provision (benefit) for income taxes 2,835 (428) 13,776 13,075
-------- -------- -------- --------
Net income (loss) $ 3,096 $ (2,468) $ 15,045 $ 11,810
======== ======== ======== ========
Earnings (loss) per share $ .16 $ (.12) $ .76 $ .58
======== ======== ======== ========
Weighted average common and common
equivalent shares outstanding 19,724 20,099 19,699 20,437
======== ======== ======== ========
See accompanying notes.
</TABLE>
4
<PAGE>
INTERSTATE BAKERIES CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(000's)
Forty Weeks Ended
--------------------------
March 4, March 5,
1995 1994
------------ ------------
Cash flows from operating activities:
Net income $15,045 $11,810
Depreciation and amortization 26,089 24,407
Other 1,198 6,165
Change in operating assets and liabilities:
Accounts receivable (2,499) (471)
Inventories (1,872) 2,780
Other current assets (1,256) (1,499)
Accounts payable and accrued expenses 2,654 (4,057)
------- -------
Cash from operating activities 39,359 39,135
------- -------
Cash flows from investing activities:
Additions to property and equipment (29,886) (24,745)
Sale of assets 552 6,171
Other (14,682) (1,305)
------- -------
Cash from investing activities (44,016) (19,879)
------- -------
Cash flows from financing activities:
Reduction of note payable - (5,000)
Reduction of long-term debt (1,208) (6,669)
Addition to long-term debt 12,000 14,000
Common stock dividends paid (7,365) (7,527)
Acquisition of treasury stock (255) (16,270)
Issuance of common stock 1 2
------- -------
Cash from financing activities 3,173 (21,464)
------- -------
Change in cash and cash equivalents (1,484) (2,208)
Cash and cash equivalents:
Beginning of period 5,046 4,603
------- -------
End of period $ 3,562 $ 2,395
======= =======
Supplemental disclosures:
Interest paid $16,213 $12,963
Income taxes paid 21,469 18,103
Noncash exchange of property and
equipment for property and
equipment and intangibles - 7,006
See accompanying notes.
5
<PAGE>
INTERSTATE BAKERIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Accounting Policies and Basis of Presentation
---------------------------------------------
The accompanying unaudited consolidated financial statements include all
adjustments, consisting only of normal recurring accruals, which, in the
opinion of management, are necessary for a fair presentation of financial
position, results of operations and cash flows. Results of operations for
interim periods are not necessarily indicative of results to be expected for a
full year.
2. Inventories
-----------
The components of inventories are as follows:
(000's)
------------------------
March 4, May 28,
1995 1994
------------ -------
Ingredients and packaging $14,711 $13,384
Finished goods 6,418 5,907
Other 1,763 1,729
------- -------
$22,892 $21,020
======= =======
3. Income Taxes
------------
The reconciliation of the provision for income taxes to the statutory federal
rate is as follows:
Forty Weeks Ended
--------------------------
March 4, March 5,
1995 1994
------------ ------------
Statutory federal tax 35.0% 35.0%
State income tax 5.4 5.5
Cumulative impact of tax law changes - 3.2
Goodwill amortization 6.5 8.2
Other .9 .6
---- ----
47.8% 52.5%
==== ====
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.
6
<PAGE>
4. Proposed Acquisition
- ------------------------
On April 12, 1995, the Company signed a definitive agreement with Ralston
Purina Company ("RPC") to acquire RPC'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 Company. CBC is the nation's largest
wholesale baking company with annual sales of approximately $2 billion and
21,000 employees at 36 bakery locations. The closing of the sale is subject
to approval of the Company's shareholders and various regulatory clearances.
The transaction, which will be accounted for as a purchase, is expected to be
completed during the summer of 1995.
5. Acquisition
- ---------------
On June 13, 1994, the Company acquired 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, was recorded as a
purchase during the first quarter of fiscal 1995. The effect of the
transaction on results of operations is not material.
6. Other Charges
- -----------------
Included in the $9,400,000 of other charges for the third quarter of fiscal
1994 are costs incurred in a plant disposal of $6,700,000 and charges related
to environmental matters of $2,700,000.
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 January 11, 1995, the registrant filed a Report on Form 8-K
with respect to a letter of intent signed by the registrant and
Ralston Purina Company ("RPC") on January 6, 1995, allowing the
registrant to acquire RPC's wholly-owned subsidiary, Continental
Baking Company, for a purchase price of $330,000,000 in cash and
16,923,077 shares of common stock of the registrant.
2) On April 14, 1995, the registrant filed a Report on Form 8-K with
respect to a definitive agreement signed by the registrant and
Ralston Purina Company ("RPC") on April 12, 1995, relating to the
acquisition by the registrant of RPC's wholly-owned subsidiary,
Continental Baking Company. The agreement provides for a
purchase price of $220,000,000 in cash and 16,923,077 shares of
the registrant's common stock to be issued to RPC. The cash
price represents a $110,000,000 reduction from the original terms
announced on January 6, 1995. The proposed acquisition is
subject to approval by the registrant's shareholders and
various regulatory clearances and is expected to be completed
during the summer of 1995.
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 April 14, 1995 /s/ Charles A. Sullivan
-------------------------------
Charles A. Sullivan, Chairman
and Chief Executive Officer
DATE Apri1 14, 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 (LOSS)
(000's EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Sixteen Weeks Ended Forty Weeks Ended
-------------------------- --------------------------
March 4, March 5, March 4, March 5,
1995 1994 1995 1994
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net income (loss) $ 3,096 $ (2,468) $ 15,045 $ 11,810
========= ========= ========= =========
Weighted average common shares
outstanding 19,639 20,046 19,640 20,380
Dilutive stock options 85 53 59 57
--------- --------- --------- ---------
Weighted average common and common
equivalent shares outstanding 19,724 20,099 19,699 20,437
========= ========= ========= =========
Earnings (loss) per share $ .16 $ (.12) $ .76 $ .58
========= ========= ========= =========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF MARCH 4, 1995 AND THE CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE FORTY WEEKS ENDED MARCH 4, 1995 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-03-1995
<PERIOD-END> MAR-04-1995
<CASH> 3562
<SECURITIES> 0
<RECEIVABLES> 76042
<ALLOWANCES> 1809
<INVENTORY> 22892
<CURRENT-ASSETS> 119049
<PP&E> 343270
<DEPRECIATION> 118396
<TOTAL-ASSETS> 596936
<CURRENT-LIABILITIES> 109709
<BONDS> 133265
<COMMON> 211
0
0
<OTHER-SE> 194656
<TOTAL-LIABILITY-AND-EQUITY> 596936
<SALES> 913065
<TOTAL-REVENUES> 913065
<CGS> 471208
<TOTAL-COSTS> 471208
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13164
<INCOME-PRETAX> 28821
<INCOME-TAX> 13776
<INCOME-CONTINUING> 15045
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15045
<EPS-PRIMARY> .76
<EPS-DILUTED> 0
</TABLE>
