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 June 3, 1995
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 1-11165
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INTERSTATE BAKERIES CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 43-1470322
-------------------------------- --------------------------
(State or other jurisdiction (I.R.S. Employer
of 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
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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
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value per share
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(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
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<PAGE>
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 $358,677,632 as of August 1, 1995. 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 36,582,667 shares of Common Stock, $.01 par value per share,
outstanding as of August 1, 1995.
DOCUMENTS INCORPORATED BY REFERENCE
-----------------------------------
Part and Item Document Incorporated
of Form 10-K: By Reference
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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**
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* Refers to portions of Registrant's annual report to security holders
with respect to the fiscal year ended June 3, 1995.
** Refers to portions of Registrant's definitive proxy statement filed on
August 21, 1995.
<PAGE>
PART I
Item 1. Business
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General
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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 now the
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. On July 22, 1995,
the Company acquired Continental Baking Company ("CBC") from Ralston Purina
Company for $220,000,000 in cash and 16,923,077 shares of the Company's Common
Stock. On July 24, 1995, CBC was merged with and into the Company's wholly-
owned subsidiary, Interstate Brands Corporation ("Brands").
The Company, including CBC, operates 66 bakeries throughout the United
States and employs over 35,000 people. From these geographically dispersed
bakeries, the Company's driver-salesmen deliver baked goods to more than
250,000 food outlets on more than 10,000 delivery routes. The Company's
products are distributed throughout the United States through its direct route
system and its approximately 1,400 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
- -------------------
The recent acquisition of CBC will result in the future integration of
CBC's bread and cake operations into those of the Company's wholly-owned
subsidiary Brands. Because the acquisition of CBC was just recently
consummated, the operations of CBC are substantially separate from Brands'
Bread Division and Brands' Cake Division.
Brands' Bread Division
The principal products of Brands' 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.
<PAGE>
In fiscal 1995, the Bread Division had net sales of $883,616,000, which
represented 72.3% 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.
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. 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.
Brands' Cake Division
Brands' 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 1995, the Cake Division had net sales of $319,478,000,
representing 26.1% 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. McKee Baking, marketing
cake products under the brand name "Little Debbie", is the largest competitor
of the Cake Division.
<PAGE>
Brands' 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 1.6% 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.
CBC Bread Products
The principal bread products produced by the Company's CBC operations
are white breads, variety breads, reduced calorie breads, rolls, buns and
English muffins, marketed under the brand names "Wonder", "Home Pride", "Bread
Du Jour" and "Beefsteak". The Company's CBC operation also produces bread for
sale under private labels. The majority of the Company's CBC related bread
sales are generated by white breads and variety breads, the latter consisting
of wheat, whole wheat, rye and other whole grain breads. The CBC operation
distributes bread products in areas comprising approximately 77% of the United
States population. The principal marketing areas for CBC produced bread
include the Northeast, the Midwest and the West Coast. The majority of CBC
bread sales volume is to supermarkets. For each of the last three fiscal
years of CBC, bread sales have accounted for approximately 55% of sales.
CBC Cake Products
The Company's CBC operation produces sweet baked goods including snack
cakes, donuts, snack pies, muffins and other sweet baked items, and are
consumed as snacks, meal-time desserts and breakfast items. These products
are sold under the "Hostess" brand name and include product names "Twinkies"
as well as "Ding Dongs", "Ho Ho's" and "Suzy Q's". For each of the last three
fiscal years of CBC, sweet baked goods have accounted for approximately 45% of
sales and were comprised of approximately 60% snack cakes and 40% breakfast
products. The Company distributes its CBC produced sweet baked goods in areas
representing approximately 85% of the United States population. The Company's
principal marketing areas for CBC produced sweet baked goods include the
Northeast, the Midwest and the West Coast. Multiple packs are sold primarily
through supermarkets and snack-pack products are sold both in supermarkets and
convenience stores. Cake sales tend to be somewhat seasonal with historically
weak winter and summer periods.
Raw Materials
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The ingredients of bread and cake products, principally flour, sugar and
edible oils, are readily available from numerous sources. The Company
attempts to lock in prices for raw materials 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 recover
commodity cost increases through price increases and additional operating
efficiencies.
<PAGE>
Management and Employees
- ------------------------
The Company, with the acquisition of CBC, employs over 35,000 people.
Approximately 80% of the Company's employees are covered by approximately 600
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
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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.
The Company has underground fuel storage tanks at various locations
throughout the United States which are subject to federal and state
regulations establishing minimum standards for such tanks and where necessary,
remediation of associated contamination. The Company is presently in the
process of testing and evaluating, and, if necessary, removing, replacing or
upgrading such tanks in order to comply with such laws. In addition, the
Company has received notices from the United States Environmental Protection
Agency, state agencies, and/or private parties seeking contribution, that it
has been identified as a "potentially responsible party" (PRP), under the
"Comprehensive Environmental Response, Compensation and Liability Act", as
amended. Because of these activities, the Company may be required to share in
the cost of cleanup with respect to approximately three "Superfund" sites.
The Company's ultimate liability in connection with these sites may depend on
many factors including the volume of material contributed to the site, the
number of other PRP's and their financial viability and the remediation
methods and technology to be used. While it is difficult to quantify the
potential financial impact of actions involving environmental matters,
particularly remediation costs at waste disposal sites and future capital
expenditures for environmental control equipment, in the opinion of the
Company's management, the ultimate liability arising from such environmental
matters, taking into account established accruals for estimated liabilities,
should not be material to the overall financial position of the Company, but
could be material to results of operations or cash flows for a particular
quarter or annual period.
<PAGE>
Item 2. Properties
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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,
Phoenix, Arizona and Montebello, California bakeries which are leased. 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 Bakeries
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Alexandria, Louisiana Milwaukee, Wisconsin
Akron, Ohio Minonk, Illinois
Anchorage, Alaska Minot, North Dakota
Birmingham, Alabama Monroe, Louisiana
Boise, Idaho Peoria, Illinois
Boonville, Missouri Phoenix, Arizona
Buffalo, New York Pomona, California
Chicago, Illinois Portland, Oregon
Cincinnati, Ohio Richmond, Virginia
Columbus, Ohio Rocky Mount, North Carolina
Decatur, Illinois Sacramento, California
Florence, South Carolina Salt Lake City, Utah
Glendale, California San Diego, California
Grand Junction, Colorado San Pedro, California
Grand Rapids, Michigan Seattle, Washington
Hodgkins, Illinois Spokane, Washington
Jacksonville, Florida Springfield, Missouri
Jamaica, New York Tampa, Florida
Knoxville, Tennessee Tulsa, Oklahoma
Los Angeles, California Utica, New York
Miami, Florida Waterloo, Iowa
Cake Bakeries
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Columbus, Georgia Glendale, California
Columbus, Indiana Los Angeles, California
Detroit, Michigan Schiller Park, Illinois
Emporia, Kansas Seattle, Washington
Bread and Cake Bakeries
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Billings, Montana Memphis, Tennessee
Charlotte, North Carolina Natick, Massachusetts
Dallas, Texas Philadelphia, Pennsylvania
Davenport, Iowa Ogden, Utah
Denver, Colorado Orlando, Florida
East Brunswick, New Jersey San Francisco, California
Indianapolis, Indiana St. Louis, Missouri
Kansas City, Missouri
<PAGE>
Dry Products Bakery
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Montebello, California
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.
The Company operates approximately 1,400 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 70% of the stores are located at the Company's distribution
depots, while all of the remaining thrift stores are freestanding units
located along the Company's distribution routes.
Item 3. Legal Proceedings
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On July 20, 1995, the Company, CBC and the Antitrust Division of the
U.S. Department of Justice signed, and filed with the United States District
Court for the Northern District of Illinois, stipulations for Final Judgment
and for holding separate certain assets following the closing of the
acquisition of CBC. The Final Judgment 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. The hold separate stipulation was signed and
ordered by the court. The Final Judgment will be published in the Federal
Register and is not expected to be considered by the Court until after
expiration of a sixty-day public comment period.
On September 27, 1994, CBC was served with a subpoena by the Dallas,
Texas office of the Antitrust Division of the U.S. Department of Justice
requiring it to produce records to a Federal Grand Jury. The subpoena sought
information regarding the sale of bread and bread products (including snack
cakes), principally in the State of Texas, during the period from January 1,
1986 to the present. On April 3, 1995, CBC was advised that it was one of the
"targets" of the Grand Jury's investigation. CBC has furnished the
information called for by subpoena, and does not believe that it (or its
employees) has engaged in any unlawful activity relating to this
investigation. The Company is currently reviewing this situation.
The Company has been named as a defendant in various other 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
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Not applicable.
<PAGE>
PART II
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.
Note 1, entitled "Subsequent Events", 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
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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 and 15 of the
Annual Report is incorporated herein by this reference.
Item 8. Financial Statements and Supplementary Data
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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.
<PAGE>
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 21, 1995.
PART IV
Item 14. Exhibits, Financial Statement Schedule 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 June 3, 1995
and May 28, 1994
For the 53 weeks ended June 3, 1995 and the 52
weeks ended May 28, 1994 and May 29, 1993:
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 14, 1995 (except as to Note 1 for which the date is
July 24, 1995)
2. Financial Statement Schedule
The following report and schedule are filed herewith as a
part hereof:
Report of Independent Public Accountants dated
July 14, 1995
Schedule for the 53 weeks ended June 3,
1995 and the 52 weeks ended May 28, 1994 and
May 29, 1993:
II Valuation and Qualifying Accounts
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.
<PAGE>
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:
-------------------
Form 8-K, dated April 12, 1995 relating to the execution of a
definitive agreement with Ralston Purina Company ("RPC") for
Interstate Bakeries Corporation to acquire RPC's wholly-owned
subsidiary, Continental Baking Company.
<PAGE>
SIGNATURES
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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 29, 1995 By: /s/ Charles A. Sullivan
-----------------------
Charles A. Sullivan
Chairman of the Board 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 29, 1995
- -------------------------- Chief Executive Officer
Charles A. Sullivan and Director (Principal
Executive Officer)
/s/ G. Kenneth Baum Director August 29, 1995
- --------------------------
G. Kenneth Baum
/s/ Leo Benatar Director August 29, 1995
- --------------------------
Leo Benatar
/s/ E. Garrett Bewkes, Jr. Director August 29, 1995
- --------------------------
E. Garrett Bewkes, Jr.
/s/ Philip Briggs Director August 29, 1995
- --------------------------
Philip Briggs
/s/ Robert B. Calhoun, Jr. Director August 29, 1995
- --------------------------
Robert B. Calhoun, Jr.
/s/ Frank E. Horton Director August 29, 1995
- --------------------------
Frank E. Horton
/s/ William P. Stiritz Director August 29, 1995
- --------------------------
William P. Stiritz
/s/ James R. Elsesser Director August 29, 1995
- --------------------------
James R. Elsesser
<PAGE>
/s/ Paul E. Yarick Vice President August 29, 1995
- -------------------------- and Treasurer
Paul E. Yarick (Principal
Financial Officer)
/s/ John F. McKenny Vice President and August 29, 1995
- -------------------------- Corporate Controller
John F. McKenny (Principal Accounting
Officer)
<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 June 3, 1995 and May 28, 1994,
and for each of the three fiscal years in the period ended June 3, 1995, and
have issued our report thereon dated July 14, 1995 (except as to Note 1 for
which the date is July 24, 1995); such consolidated financial statements and
report are included in your 1995 Annual Report to Stockholders and are
incorporated herein by reference. Our audits also included the consolidated
financial statement schedule of Interstate Bakeries Corporation and its
subsidiaries, listed in Item 14. This consolidated financial statement
schedule is 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 schedule, when considered in relation to
the basic consolidated financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
/s/ Deloitte & Touche LLP
Kansas City, Missouri
July 14, 1995
<PAGE>
INTERSTATE BAKERIES CORPORATION
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
FIFTY-THREE WEEKS ENDED JUNE 3, 1995 AND
FIFTY-TWO WEEKS ENDED MAY 28, 1994
AND MAY 29, 1993
(In Thousands)
Balance at Additions Accounts Balance
beginning charged charged at end
Description of period to income off of period
- ----------- --------- --------- -------- ---------
1995:
Reserve for
discounts
and allow-
ances on
accounts
receivable $ 4,278 $ 143 $ - $ 4,421
Allowance for
doubtful
accounts 1,645 652 505 1,792
--------- --------- -------- ---------
$ 5,923 $ 795 $ 505 $ 6,213
========= ========= ======== =========
1994:
Reserve for
discounts
and allow-
ances 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 allow-
ances
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
========= ========= ======== =========
<PAGE>
EXHIBIT INDEX
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Exhibit
No. Exhibit
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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).*
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).
10.4 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).
10.6 Credit Agreement, dated May 31, 1995, signed by Interstate Brands
Corporation, Chemical Bank, the Lenders and Issuing Bank (as
defined therein) (incorporated by reference to Exhibit 1 to the
Form 8-K filed on June 9, 1995).
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 June 3, 1995. (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).
- --------------------
* Filed herewith.
Exhibit 3.1
CERTIFICATE OF AMENDMENT
TO THE
RESTATED CERTIFICATE OF INCORPORATION
Interstate Bakeries Corporation, a Delaware corporation (the "Corporation"),
does hereby certify as follows:
FIRST: That the Board of Directors of the Corporation adopted resolutions by
the Directors pursuant to Section 242(b)(1) of the Delaware General
Corporation ("DGCL"), setting forth a proposed amendment to the Restated
Certificate of Incorporation of the Corporation, as follows:
BE IT RESOLVED, that, subject to the approval of the stockholders, ARTICLE
FOURTH of the Restated Certificate of Incorporation of the Company be amended
to read as follows:
Section 4.01. Authorized Capital. The total number of shares of all
classes of stock which the Corporation shall have the authority to issue is
61,000,000 shares, consisting of 60,000,000 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 the stockholders of the Corporation, at a Special Meeting held
on July 21, 1995 in accordance with Section 211(d) of DGCL, has approved this
Certificate of Amendment.
THIRD: That Notice of the Special Meeting at which this Certificate of
Amendment was approved was given to the stockholders of the Corporation
pursuant to Section 222(b) of the DGCL on June 22, 1995.
FOURTH: That this Certificate of Amendment was duly adopted in accordance
with the provisions of Section 242 of the DGCL.
IN WITNESS WHEREOF, this Certificate of Amendment to the Restated Certificate
of Incorporation has been executed by Charles A. Sullivan, Chairman and Chief
Executive Officer of the Corporation and attested by Ray Sandy Sutton,
Secretary of the Corporation, on July 21, 1995.
INTERSTATE BAKERIES CORPORATION
By: /s/ Charles A. Sullivan
---------------------------------
Name: Charles A. Sullivan
Title: Chairman of the Board and
Chief Executive Officer
ATTEST:
By: /s/ Ray Sandy Sutton
--------------------------
Name: Ray Sandy Sutton
Title: Corporate 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.
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.
<PAGE>
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 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;
(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;
<PAGE>
(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 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 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.
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.
<PAGE>
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.
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 qual 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.
<PAGE>
FIFTH. BOARD OF DIRECTORS.
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Section 5.01. Number, Election and Terms.
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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 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 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:
<PAGE>
(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;
(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.
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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 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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<PAGE>
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 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.
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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.
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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 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).
<PAGE>
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 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 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.
<PAGE>
(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 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 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 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.
<PAGE>
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;
(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 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.
<PAGE>
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 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.
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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.
<PAGE>
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 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 Chairman of the Broad and
Chief Executive Officer
<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
EXHIBIT 11.1
INTERSTATE BAKERIES CORPORATION
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
(In Thousands, Except Per Share Data)
53 Weeks 52 Weeks 52 Weeks
Ended Ended Ended
June 3, May 28, May 29,
1995 1994 1993
-------- -------- --------
Income before cumulative
effect of accounting change $20,697 $15,754 $ 30,784
Cumulative effect of change
in accounting for
postretirement benefits
other than pensions - - (14,121)
------- ------- --------
Net income $20,697 $15,754 $ 16,663
======= ======= ========
Weighted average common shares
outstanding 19,639 20,252 20,980
Dilutive stock options 68 54 152
------- ------- --------
Weighted average common and
equivalent shares outstanding 19,707 20,306 21,132
======= ======= ========
Per share:
Income before cumulative
effect of accounting change $1.05 $ .78 $1.46
Cumulative effect of
accounting change - - (.67)
------- ------- --------
Net income $1.05 $ .78 $ .79
======= ======= ========
PROFILE
- -------
During fiscal year 1995, IBC was 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 30 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 800 company-operated thrift stores, and to some extent
through distributors.
On July 24, 1995, the Company completed the acquisition of Continental Baking
Company which added 36 bakeries, 21,000 employees and some of the strongest
brands in the industry - Wonder and Hostess - making IBC the largest wholesale
baker of fresh delivered bread and cake in the United States.
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 1995 and 1994:
Stock Price
Fiscal -------------------- Cash
Year Quarter High Low Dividends
------ ------- ------- ------- ---------
1995 1 $12.875 $11.875 $.125
2 13.500 12.500 .125
3 15.375 12.375 .125
4 14.875 14.125 .125
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
The Company had approximately 3,400 shareholders at June 3, 1995.
[Inside Front Cover]
<PAGE>
INTERSTATE BAKERIES CORPORATION
FIVE-YEAR SUMMARY OF FINANCIAL DATA
<TABLE>
<CAPTION>
(In Thousands, Except Per Share Data)
53 Weeks 52 Weeks Ended
Ended -----------------------------------------------------------
June 3, May 28, May 29, May 30, June 1,
1995 1994 1993 1992 1991
---------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Statement of Operations
Net sales $1,222,779 $1,142,684 $1,165,588 $1,145,875 $1,106,723
Operating income 57,293 46,883<F1> 71,344 73,615 61,830
% of net sales 4.7% 4.1% 6.1% 6.4% 5.6%
Income (loss) before
extraordinary
charge and
cumulative effect
of accounting change $ 20,697 $ 15,754<F1> $ 30,784 $ 25,780 $ (8,035)
% of net sales 1.7% 1.4% 2.6% 2.2% (.7%)
Net income (loss) $ 20,697 $ 15,754<F1> $ 16,663<F2> $ 15,604<F3> $ (8,035)
Per share data:
Income (loss) before
extraordinary
charge and
cumulative effect
of accounting change 1.05 .78<F1> 1.46 1.49 (1.70)
Net income (loss) 1.05 .78<F1> .79<F2> .94<F3> (1.70)
Common stock dividends .50 .495 .47 .33 -
Weighted average common
shares outstanding 19,707 20,306 21,132 18,735 4,822
Balance Sheet
Total assets $ 598,441 $ 574,791 $ 586,756 $ 573,609 $ 584,803
Long-term debt, excluding
current maturities 212,205 201,235 189,238 211,124 350,567
Minority interest - redeemable
preferred stocks - - - - 90,080
Stockholders'
equity (deficit) 198,037 187,441 202,315 194,608 (49,865)
Debt to total capital 51.7% 51.8% 48.3% 52.0% 89.5%
<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 1995 Compared With Fiscal 1994
Net sales for the fifty-three weeks ended June 3, 1995 were $1,222,779,000,
representing an increase of $80,095,000, or 7.0%, over net sales of
$1,142,684,000 for the fifty-two weeks ended May 28, 1994. This increase
primarily reflects the impact of acquisitions, unit volume gains for bread and
the additional week included in fiscal 1995. Bread Division net sales were up
$104,066,000, or 13.3% to $883,616,000 from $779,550,000 in the prior year,
related to the acquisitions of the Tampa and Miami bakeries, unit volume
gains, somewhat higher selling prices and the additional week. Cake Division
net sales, at $319,478,000, were down 8.0% from the prior year's $347,371,000
due to the sale of the Los Angles bakery in fiscal 1994 and continued
softness in cake volume and pricing, offset somewhat by the additional week.
Fiscal 1995's gross profit was $591,895,000 (48.4% of net sales) compared to
the prior year's gross profit of $561,458,000 (49.1% of net sales), a
$30,437,000 increase but representing a lower percentage of net sales. This
margin decline was primarily attributable to higher labor and overhead costs
associated with recent acquisitions, as well as slightly higher commodity
costs for certain key ingredients.
Selling, delivery and administrative expenses were up $27,401,000 to
$501,008,000 (41.0% of net sales) for fiscal 1995 from $473,607,000 (41.4% of
net sales) the prior year. This favorable variance on a percentage of net
sales basis resulted from labor and labor related efficiencies gained during
fiscal 1995. Fiscal 1994 also included 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.
Depreciation and amortization increased $2,026,000 in fiscal 1995 related to
the completion of the new Jacksonville, Florida bakery and recent
acquisitions. As a result of the noted factors, operating income for fiscal
1995 was $57,293,000 (4.7% of net sales), an increase of $10,410,000 and 22.2%
from fiscal 1994's $46,883,000 (4.1% of net sales).
Interest expense increased $3,000,000 to $17,745,000 from $14,745,000 the
prior year. This increase was principally attributable to higher interest
rates during fiscal 1995, as well as higher debt levels resulting from an
acquisition in the first quarter of the current year.
The fiscal 1995 effective tax rate of 47.8% primarily reflects the
nondeductibility of goodwill amortization. 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 fiscal quarter. The increase in
the corporate tax rate provided for in the Act raised the fiscal 1994
provision for income taxes by approximately $800,000, or $.04 per share, due
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 also contributed to
the higher effective rate in fiscal 1994.
<PAGE>
Net income for fiscal 1995 was $20,697,000, or $1.05 per share, up $4,943,000,
or 31.4%, from fiscal 1994's $15,754,000, or $.78 per share.
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 fiscal 1993'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 fiscal
1993's $386,180,000. While the Los Angeles sale was the main factor in
this decline, cake volume related to ongoing business 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
fiscal 1994 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) in fiscal 1993 against a lower net sales base in fiscal
1994. These unfavorable variances were attributable to higher labor and
14
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 that 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.
<PAGE>
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, in fiscal 1993. 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.
CAPITAL RESOURCES AND LIQUIDITY
The Company's primary source of liquidity is cash provided by operations which
totaled $49,666,000 for fiscal 1995, a decline of $3,421,000 from the prior
year's $53,087,000. This decline primarily reflects additional investments in
working capital. Cash generated by operations during fiscal 1995, along with
a net $10,737,000 increase in bank borrowings, was used to fund net capital
expenditures of $33,105,000, purchase intangibles of $15,355,000 and pay
common stock dividends of $9,819,000.
On July 24, 1995, the Company completed the acquisition of 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.
CBC is 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.
To finance the acquisition, the Company entered into a new $650,000,000 credit
agreement. The agreement, which consists of $225,000,000 in term loans and a
$425,000,000 revolving credit facility, provides for terms and interest rates
similar to the previous credit agreement.
As a result of the acquisition of CBC, the Company anticipates cash needs of
approximately $112,200,000 to fund $85,000,000 of planed capital expenditures,
$16,200,000 of common stock dividends and $11,000,000 of required principal
reductions on debt. The Company expects these needs to be funded by ongoing
operations, as well as borrowing capacity under the new revolving credit
facility.
INFLATION
General inflation is not expected to have a significant impact on the
Company's results of operations. However, the Company is currently
experiencing sharp escalations in certain commodity costs due to lower than
normal supplies and increased demand. The Company plans to offset these
higher costs through price increases and additional operational efficiencies.
15
<PAGE>
INTERSTATE BAKERIES CORPORATION
CONSOLIDATED BALANCE SHEET
(In Thousands)
June 3, May 28,
1995 1994
--------- ---------
Assets
Current assets:
Cash and cash equivalents $ 3,726 $ 5,046
Accounts receivable, less allowance for
doubtful accounts of $1,792,000
($1,645,000 in 1994) 75,184 71,734
Inventories 24,207 21,020
Other current assets 17,232 17,106
--------- ---------
Total current assets 120,349 114,906
--------- ---------
Property and equipment:
Land and buildings 99,609 91,540
Machinery and equipment 246,800 224,922
--------- ---------
346,409 316,462
Less accumulated depreciation (123,440) (101,022)
--------- ---------
Net property and equipment 222,969 215,440
--------- ---------
Excess of purchase cost over net
assets acquired 248,076 240,249
Other assets 7,047 4,196
--------- ---------
$598,441 $574,791
========= =========
<PAGE>
Liabilities and Stockholders' Equity
Current liabilities:
Long-term debt payable within one year $ 1,030 $ 1,263
Accounts payable 48,979 47,848
Accrued expenses 59,145 58,182
--------- ---------
Total current liabilities 109,154 107,293
--------- ---------
Long-term debt:
Related party 79,000 79,000
Other 133,205 122,235
Other liabilities 45,461 43,409
Deferred income taxes 33,584 35,413
--------- ---------
Total long-term liabilities 291,250 280,057
--------- ---------
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 in 1994) 211 211
Additional paid-in capital 261,065 261,064
Accumulated deficit (42,213) (53,091)
Treasury stock, at cost - 1,421,000 shares
(1,400,000 in 1994) (21,026) (20,743)
--------- ---------
Total stockholders' equity 198,037 187,441
--------- ---------
$598,441 $574,791
========= =========
See accompanying notes.
16
<PAGE>
INTERSTATE BAKERIES CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(In Thousands, Except Per Share Data)
53 Weeks 52 Weeks 52 Weeks
Ended Ended Ended
June 3, May 28, May 29,
1995 1994 1993
---------- ---------- ----------
Net sales $1,222,779 $1,142,684 $1,165,588
---------- ---------- ----------
Cost of products sold 630,884 581,226 590,004
Selling, delivery and
administrative expenses 501,008 473,607 472,602
Other charges - 9,400 -
Depreciation and amortization 33,594 31,568 31,638
---------- ---------- ----------
1,165,486 1,095,801 1,094,244
---------- ---------- ----------
Operating income 57,293 46,883 71,344
---------- ---------- ----------
Other income (104) (144) (53)
Interest expense 17,745 14,745 17,388
---------- ---------- ----------
17,641 14,601 17,335
---------- ---------- ----------
Income before income taxes 39,652 32,282 54,009
Provision for income taxes 18,955 16,528 23,225
---------- ---------- ----------
Income before cumulative effect
of accounting change 20,697 15,754 30,784
Cumulative effect of change in
accounting for postretirement
benefits other than pensions - - (14,121)
---------- ---------- ----------
Net income $ 20,697 $ 15,754 $ 16,663
========== ========== ==========
Per share:
Income before cumulative effect
of accounting change $ 1.05 $ .78 $ 1.46
Cumulative effect of
accounting change - - (.67)
---------- ---------- ----------
Net income $ 1.05 $ .78 $ .79
========== ========== ==========
See accompanying notes.
17
<PAGE>
INTERSTATE BAKERIES CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(In Thousands)
53 Weeks 52 Weeks 52 Weeks
Ended Ended Ended
June 3, May 28, May 29,
1995 1994 1993
-------- -------- --------
Cash flows from operating activities:
Net income $ 20,697 $ 15,754 $ 16,663
Cumulative effect of accounting change - - 14,121
Depreciation and amortization 33,594 31,568 31,638
Other 44 4,389 5,730
Change in operating assets
and liabilities:
Accounts receivable (3,450) (476) 1,697
Inventories (3,187) 1,310 586
Other current assets (126) 3,439 369
Accounts payable and accrued expenses 2,094 (2,897) (13,662)
-------- -------- --------
Cash from operating activities 49,666 53,087 57,142
-------- -------- --------
Cash flows from investing activities:
Additions to property and equipment (34,272) (31,163) (30,590)
Sale of assets 1,167 6,296 416
Other (18,517) (1,430) 101
-------- -------- --------
Cash from investing activities (51,622) (26,297) (30,073)
-------- -------- --------
Cash flows from financing activities:
Reduction of long-term debt (1,263) (6,719) (20,705)
Addition to long-term debt 12,000 16,000 -
Addition (reduction) of note payable - (5,000) 5,000
Common stock dividends paid (9,819) (10,009) (9,861)
Acquisition of treasury stock (283) (20,621) (122)
Issuance of common stock 1 2 1,027
-------- -------- --------
Cash from financing activities 636 (26,347) (24,661)
-------- -------- --------
Change in cash and cash equivalents (1,320) 443 2,408
Cash and cash equivalents:
Beginning of period 5,046 4,603 2,195
-------- -------- --------
End of period $ 3,726 $ 5,046 $ 4,603
======== ======== ========
Cash payments made:
Interest $ 18,852 $ 14,301 $ 18,097
Income taxes 23,533 17,937 17,568
See accompanying notes.
18
<PAGE>
INTERSTATE BAKERIES CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(In Thousands)
Common
Stock Issued Treasury Stock
-------------- ----------------
Number Additional Number
of Par Paid-in Accumulated of
Shares Value Capital Deficit Shares Cost
------ ----- ---------- -------- ------ --------
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)
Net income - - - 20,697 - -
Shares issued -
exercise of employee
stock options 6 - 1 - - -
Dividends paid -
$.50 per share - - - (9,819) - -
Treasury stock
acquired - - - - (21) (283)
------ ---- -------- -------- ------ --------
Balance June 3, 1995 21,056 $211 $261,065 $(42,213) (1,421) $(21,026)
====== ==== ======== ======== ====== ========
See accompanying notes.
19
<PAGE>
INTERSTATE BAKERIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Subsequent Events
On July 24, 1995, the Company completed the acquisition of 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.
CBC is 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.
The acquisition will be accounted for as a purchase. The pro forma unaudited
results of operations, including the results of operations of the Company for
the 53 weeks ended June 3, 1995 and CBC for the 52 weeks ended March 25, 1995,
CBC's most recent available results, are as follows:
Net sales $3,153,300,000
Net loss (7,000,000)
Net loss per share (.19)
Pro forma data does not purport to be indicative of the results that would
have been obtained had these events actually occurred at the beginning of the
period presented and is not intended to be a projection of future results.
The divestiture of certain white bread brands in selected markets required by
the consent order between the Company and the U.S. Department of Justice
should represent less than 5% of the consolidated pro forma net sales.
To finance the acquisition, the Company entered into a new bank agreement on
May 31, 1995. This unsecured $650,000,000 credit agreement, which replaced
the bank agreement described in Note 3 on the closing of the transaction,
consists of $225,000,000 in term loans and a $425,000,000 revolving credit
facility, including up to $150,000,000 availability for letters of credit.
The term loans mature semi-annually from May 1996 to May 2000, while the
revolving credit facility matures in May 2000. The outstanding borrowings
will bear interest at variable rates generally equal to the London Interbank
Offered Rate (LIBOR) plus from .35% to 1.25% (.75% at inception), depending on
certain financial ratios. The Company also will pay a fee of between .15% and
.50% (.25% at inception) on the unused portion of the revolving credit
facility.
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 a total of $20,000,000 plus 75% of aggregate
consolidated net income after June 3, 1995.
The Senior Notes described in Note 3 were modified to include covenants
mirroring those of the new credit agreement effective with the closing of the
transaction.
<PAGE>
In conjunction with the approval of the acquisition on July 21, 1995, the
stockholders of the Company also approved increasing the number of shares of
common stock authorized to be issued from 40,000,000 to 60,000,000 and
increasing the number of shares of common stock reserved for issuance under
the Company's 1991 Stock Option Plan from 2,032,000 to 4,000,000.
2. Description of Business and Significant Accounting Policies
Description of business - Interstate Bakeries Corporation (the "Company") is
now the 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)
June 3, May 28,
1995 1994
-------- --------
Ingredients and packaging $15,274 $13,384
Finished goods 7,122 5,907
Other 1,811 1,729
------- -------
$24,207 $21,020
======= =======
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 ("goodwill") is amortized over 40 years using the
straight-line method. Accumulated amortization as of June 3, 1995 and May 28,
1994 was $53,619,000 and $46,091,000, respectively. The Company assesses
whether any impairment of its goodwill has occurred at each balance sheet date
based upon a review of expected undiscounted cash flows of the Company.
Interest rate swap agreements - The Company enters into interest rate swaps
with major banks to manage the balance of variable versus fixed rate debt
20
<PAGE>
based upon current and anticipated future market conditions. The differential
to be paid or received is recognized over the term of the swap agreements as a
component of interest expense. The risk of loss associated with these
agreements is limited to the cost of replacing these agreements at current
market rates.
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. In fiscal 1994, the Company entered into an
exchange of production facilities with a $7,006,000 noncash portion.
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. Weighted average common and common equivalent
shares outstanding were 19,707,000, 20,306,000 and 21,132,000 for fiscal 1995,
1994 and 1993, respectively.
3. Debt
Long-term debt consists of the following:
(In Thousands)
June 3, May 28,
1995 1994
-------- --------
Revolving bank credit loans(a) $133,000 $121,000
Senior notes(b) 79,000 79,000
Other 1,235 2,498
-------- --------
213,235 202,498
Less amounts payable
within one year (1,030) (1,263)
-------- --------
$212,205 $201,235
======== ========
(a) Represents borrowings under a $210,000,000 bank revolving credit
facility, which consists of a combination of revolving loans and up to
$60,000,000 in letters of credit (with availability of $27,000,000 at June 3,
1995) and matures during fiscal 1999. The outstanding borrowings, which are
unsecured, bear interest at variable rates generally equal to LIBOR plus from
.35% to 1.00% (.50% at June 3, 1995), depending upon certain financial ratios.
The Company also pays a fee of between .15% and .35% (.225% at June 3, 1995)
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 resulting
in fixed interest rates of 6.84% on $21,000,000 through May 1996, 7.28% on
$10,000,000 through January 1996 and 5.34% on $30,000,000 through July 1995.
Also, beginning in July 1995, the Company has in place forward swap agreements
which fix the rate at 6.85% on $41,000,000 through July 1997. The overall
weighted average interest rate on the bank borrowings was 6.24% and 5.73% at
June 3, 1995 and May 28, 1994, respectively.
<PAGE>
The 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 a total of $10,000,000 plus 75% of aggregate
consolidated net income, with approximately $9,000,000 available at
June 3, 1995.
(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 includes covenants mirroring those of the bank credit agreement.
Interest expense on these notes totaled $8,030,000, $7,878,000 and $7,878,000
for fiscal 1995, 1994 and 1993, respectively.
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 $88,600,000
and $87,400,000 as of June 3, 1995 and May 28, 1994, 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
approximates fair value. Additionally, the termination value of all swap
agreements at June 3, 1995 is not material.
The scheduled repayment of long-term debt is as follows:
Fiscal Years Ending (In Thousands)
------------------- --------------
1996 $ 1,030
1997 205
1998 -
1999 158,000
2000 25,000
Thereafter 29,000
--------
$213,235
========
4. Commitments and Contingencies
Future minimum rental commitments for all noncancelable operating leases,
exclusive of taxes and insurance, are as follows:
Fiscal Years Ending (In Thousands)
------------------- --------------
1996 $23,119
1997 16,359
1998 10,975
1999 7,031
2000 4,044
Thereafter 6,793
-------
$68,321
=======
21
<PAGE>
Net rental expense under operating leases was $28,145,000, $27,435,000 and
$26,137,000 for fiscal 1995, 1994 and 1993, 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, but could be material to the results of operations or
cash flows for a particular quarter or annual period.
5. Income Taxes
The reconciliation of the provision for income taxes to the statutory federal
rate is as follows:
53 Weeks 52 Weeks 52 Weeks
Ended Ended Ended
June 3, May 28, May 29,
1995 1994 1993
-------- -------- --------
Statutory federal tax 35.0% 35.0% 34.0%
State income tax 5.4 5.5 5.1
Goodwill amortization 6.2 7.7 4.4
Cumulative impact of
tax law changes - 2.5 -
Other 1.2 0.5 (0.5)
---- ---- ----
47.8% 51.2% 43.0%
==== ==== ====
The components of the provision for income taxes are as follows:
(In Thousands)
53 Weeks 52 Weeks 52 Weeks
Ended Ended Ended
June 3, May 28, May 29,
1995 1994 1993
-------- -------- --------
Current:
Federal $18,063 $14,645 $10,650
State 3,025 3,416 2,800
------- ------- -------
21,088 18,061 13,450
------- ------- -------
Deferred:
Federal (2,446) (838) 8,399
State 313 (695) 1,376
------- ------- -------
(2,133) (1,533) 9,775
------- ------- -------
$18,955 $16,528 $23,225
======= ======= =======
<PAGE>
Temporary differences and carryforwards which give rise to the deferred income
tax assets and liabilities are as follows:
(In Thousands)
June 3, May 28,
1995 1994
-------- --------
Deferred tax asset:
Accounts receivable $ 1,181 $ 1,231
Accrued expenses 12,007 11,565
Other 148 236
Valuation allowance - -
-------- --------
$13,336 $13,032
======== ========
Deferred tax liability:
Property and equipment $39,771 $41,392
Postretirement benefits
liability (9,712) (9,115)
Other 3,525 3,136
-------- --------
$33,584 $35,413
======== ========
6. 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 June 3, 1995, 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 $6,528,000,
$6,352,000 and $5,955,000 for fiscal 1995, 1994 and 1993, respectively.
There are also in effect numerous negotiated pension plans covering employees
participating by reason of union contracts. Expense for these plans was
$28,219,000, $27,276,000 and $27,289,000 for fiscal 1995, 1994 and 1993,
respectively.
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.
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
22
<PAGE>
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)
53 Weeks 52 Weeks 52 Weeks
Ended Ended Ended
June 3, May 28, May 29,
1995 1994 1993
-------- -------- --------
Service cost $ 743 $ 615 $ 441
Interest cost 2,488 2,178 1,807
Amortization of unrecognized
net loss 355 422 -
------ ------ ------
Net postretirement benefit
expense $3,586 $3,215 $2,248
====== ====== ======
The status of the Company's unfunded postretirement benefit obligation is as
follows:
(In Thousands)
June 3, May 28,
1995 1994
------- -------
Retirees $15,849 $15,795
Fully eligible active
plan participants 8,166 8,395
Other active plan
participants 8,595 8,290
------- -------
Accumulated postretirement
benefit obligation (APBO) 32,610 32,480
Unrecognized net loss from
assumption changes (5,871) (7,555)
------- -------
Accrued postretirement
benefit 26,739 24,925
Less current portion (2,150) (1,800)
------- -------
APBO included in other
liabilities $24,589 $23,125
======= =======
<PAGE>
In determining the APBO, the weighted average discount rate was assumed to be
8.0%, 7.0% and 8.0% for fiscal 1995, 1994 and 1993, respectively. The
assumed health care cost trend rate for fiscal 1995 was 10.5%, declining
gradually to 6.5% over the next 10 years and to 5.5% 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 1995 by approximately $420,000, as well as increase the June 3,
1995 APBO by approximately $4,207,000.
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 $47,672,000, $42,613,000
and $40,287,000 in fiscal 1995, 1994 and 1993, respectively.
7. Stock Option Plans
The 1991 Stock Option Plan allows the Company to grant to employees stock
options to purchase up to 2,032,000 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 either five or ten years after the date of grant. The changes in
outstanding options are as follows:
Shares Price Range
Under Option Per Share
------------ -------------
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
Issued 726,000 12.13- 14.38
Surrendered (62,000) 12.13- 17.00
--------- --------------
Balance June 3, 1995 1,588,000 $12.25- $17.00
========= ==============
Exercisable June 3, 1995 874,000 $12.25- $17.00
========= ==============
At June 3, 1995, options to purchase 381,000 shares were authorized but not
granted.
23
<PAGE>
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 May 30, 1992 112,000
Exercised (56,000)
-------
Balance May 29, 1993 56,000
Exercised (10,000)
-------
Balance May 28, 1994 46,000
Exercised (7,000)
-------
Balance June 3, 1995 39,000
=======
At June 3, 1995, 2,123,000 total shares of common stock were reserved for
issuance under various employee benefit plans.
8. Accrued Expenses
Included in accrued expenses are the following:
(In Thousands)
June 3, May 28,
1995 1994
-------- --------
Payroll, vacation and other
compensation $26,155 $22,618
Pension and welfare 6,623 4,177
Worker's compensation 8,686 9,495
Taxes other than income 6,660 6,506
9. 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.
<PAGE>
10. Quarterly Financial Information (Unaudited)
Summarized quarterly financial information for the fiscal years ended June 3,
1995 and May 28, 1994 is as follows (each quarter represents a period of
twelve weeks except the third quarters, which cover sixteen weeks, and the
fourth quarter of fiscal 1995, which covers thirteen weeks):
(In Thousands, Except Per Share Data)
First Second Third Fourth
-------- -------- -------- --------
1995
Net sales $274,099 $280,726 $358,240 $309,714
Cost of products sold 140,849 143,708 186,651 159,676
Operating income 15,171 15,544 11,192 15,386
Net income 5,886 6,063 3,096 5,652
Earnings per share .30 .31 .16 .29
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
Earnings (loss) per share .33 .36 (.12) .20
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.
24
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
- ----------------------------------------
We have audited the accompanying consolidated balance sheets of Interstate
Bakeries Corporation and its subsidiaries as of June 3, 1995 and May 28, 1994,
and the related consolidated statements of income, stockholders' equity
and cash flows for each of the three fiscal years in the period ended June 3,
1995. 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 June 3, 1995 and May 28, 1994, and the results of
their operations and their cash flows for each of the three fiscal years in
the period ended June 3, 1995 in conformity with generally accepted accounting
principles.
/s/Deloitte & Touche LLP
Kansas City, Missouri
July 14, 1995 (except as to Note 1
for which the date is July 24, 1995)
25
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF JUNE 3, 1995 AND THE CONSOLIDATED
STATEMENT OF INCOME FOR THE FIFTY-THREE WEEKS ENDED JUNE 3, 1995 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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<S> <C>
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<FISCAL-YEAR-END> JUN-03-1995
<PERIOD-END> JUN-03-1995
<CASH> 3726
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<RECEIVABLES> 76976
<ALLOWANCES> 1792
<INVENTORY> 24207
<CURRENT-ASSETS> 120349
<PP&E> 346409
<DEPRECIATION> 123440
<TOTAL-ASSETS> 598441
<CURRENT-LIABILITIES> 109154
<BONDS> 133205
<COMMON> 211
0
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<OTHER-SE> 197826
<TOTAL-LIABILITY-AND-EQUITY> 598441
<SALES> 1222779
<TOTAL-REVENUES> 1222779
<CGS> 630884
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<INTEREST-EXPENSE> 17745
<INCOME-PRETAX> 39652
<INCOME-TAX> 18955
<INCOME-CONTINUING> 20697
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