UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act
of 1934
(Mark One)
/ X / QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended November 16, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________ to __________
_______________
For the Quarter Ended November 16, 1996 Commission File Number 1-11165
INTERSTATE BAKERIES CORPORATION
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 43-1470322
- ------------------------------- -----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
12 East Armour Boulevard, Kansas City, Missouri 64111
- ----------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (816) 502-4000
--------
- ------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report.)
---------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes / X / No / /
There were 37,495,343 shares of common stock, $.01 par value per share,
outstanding on December 13, 1996.
<PAGE>
INTERSTATE BAKERIES CORPORATION
FORM 10-Q
QUARTER ENDED NOVEMBER 16, 1996
CONTENTS
- --------
Description Page
----------- ----
PART I - FINANCIAL INFORMATION (UNAUDITED)
- ------------------------------------------
Management's Discussion and Analysis of Financial
Condition and Results of Operations 1-2
Consolidated Balance Sheet 3
Consolidated Statement of Income 4
Consolidated Statement of Cash Flows 5
Notes to Consolidated Financial Statements 6-7
PART II - OTHER INFORMATION
- ---------------------------
Legal Proceedings Not Applicable
Changes in Securities Not Applicable
Defaults Upon Senior Securities Not Applicable
Submission of Matters to a Vote of Security Holders Not Applicable
Other Information Not Applicable
Exhibits and Reports on Form 8-K 8
Signatures 9
<PAGE>
INTERSTATE BAKERIES CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
- ---------------------
Net sales for the second quarter of fiscal 1997, the twelve weeks ended
November 16, 1996, were $758,378,000, a $23,841,000 or 3.2% increase over
prior year net sales of $734,537,000. Excluding the impact of acquired and
disposed operations, net sales for the quarter were up 4.1%. Year-to-date net
sales for fiscal 1997 were $1,512,003,000, an increase of $306,025,000, or
25.4%, over net sales of $1,205,978,000 in fiscal 1996. The increase in
quarterly net sales reflects higher selling prices and higher retail sales,
partially offset by somewhat lower unit volume. The substantial increase in
year-to-date net sales was attributable to the acquisition of Continental
Baking Company (CBC) on July 22, 1995, with fiscal 1996 reflecting only
seventeen weeks of CBC's operations.
Cost of products sold was 48.2% of net sales for the second quarter of 1997,
down from 51.2% of net sales in the prior year. Year-to-date cost of products
sold was 48.9% compared to fiscal 1996's 51.2%. These improvements resulted
from synergies realized through continuing integration of existing and
acquired operations and favorable mix changes to higher-margin branded
products. These factors, along with higher selling prices, more than offset
the effect of higher ingredient costs experienced in fiscal 1997.
Selling, delivery and administrative expenses represented 41.8% of net sales
for the quarter compared to 42.3% the prior year, while year-to-date selling,
delivery and administrative expenses declined to 41.9% of net sales from 42.1%
in fiscal 1996. Continued emphasis on cost control, integration synergies and
higher selling prices resulted in improved selling, delivery and
administrative expenses as a percent of net sales for the combined operation
in fiscal 1997.
Based upon these factors, operating income for the second quarter of fiscal
1997 was up $30,432,000, or 147.1%, to $51,126,000. Year-to-date operating
income was $89,861,000, a $52,644,000 and 141.5% increase from fiscal 1996.
The lower interest expense for the second quarter and year-to-date reflects
lower average borrowing levels and interest rates during these periods.
Non-deductible intangible asset amortization was responsible for the effective
tax rates of 43.1% and 51.4% in fiscal 1997 and 1996, respectively.
Reflecting the improved operations, net income for the second quarter of the
current year was $26,242,000, or $.69 per share compared to $6,095,000 and
$.16 per share the prior year. Year-to-date net income improved to
$44,909,000, or $1.18 per share, from $11,821,000, or $.37 per share, last
year. These earnings per share improvements amounted to 331% and 219%,
respectively.
-1-
<PAGE>
INTERSTATE BAKERIES CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Changes in Financial Condition
- ------------------------------
Cash generated by operating activities for the twenty-four weeks ended
November 16, 1996 was $77,145,000 compared to $74,422,000 a year ago. This
increase reflects the acquisition and improved operations, offset by a net
increase in working capital components. Cash generated by operations during
fiscal 1997 was used to fund capital expenditures of $30,312,000, pay common
stock dividends of $9,717,000 and reduce debt by $38,205,000.
As noted in the Company's Annual Report on Form 10-K for the year ended June
1, 1996, cash flows from operations and borrowing capacity under the bank
credit facility should be sufficient to meet the ongoing cash requirements in
the current year.
-2-
<PAGE>
INTERSTATE BAKERIES CORPORATION
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
(000's)
November 16, June 1,
1996 1996
------------ -----------
Assets
Current assets:
Cash and cash equivalents $ 1,428 $ -
Accounts receivable, less allowance
for doubtful accounts of $3,481,000
($3,606,000 at June 1) 183,443 179,538
Inventories 69,521 67,254
Other current assets 72,525 71,481
---------- ----------
Total current assets 326,917 318,273
---------- ----------
Property and equipment:
Land and buildings 281,678 279,863
Machinery and equipment 767,601 741,705
---------- ----------
1,049,279 1,021,568
Less accumulated depreciation (245,479) (204,173)
---------- ----------
Net property and equipment 803,800 817,395
---------- ----------
Intangibles 346,481 350,792
---------- ----------
$1,477,198 $1,486,460
========== ==========
<PAGE>
Liabilities and Stockholders' Equity
Current liabilities:
Long-term debt payable within one year $ 17,605 $ 21,554
Accounts payable 123,512 135,447
Accrued expenses 209,788 200,221
---------- ----------
Total current liabilities 350,905 357,222
---------- ----------
Long-term debt 269,395 303,651
Other liabilities 248,336 254,962
Deferred income taxes 110,378 110,378
---------- ----------
Total long-term liabilities 628,109 668,991
---------- ----------
Stockholders' equity:
Preferred stock, par value $.01 per share;
authorized - 1,000,000 shares; issued - none - -
Common stock, par value $.01 per share;
authorized - 60,000,000 shares; issued -
38,921,000 shares (38,735,000 at June 1) 389 387
Additional paid-in capital 518,241 515,497
Retained earnings (Accumulated deficit) 1,100 (34,092)
Treasury stock, at cost - 1,449,000 shares (21,546) (21,545)
---------- ----------
Total stockholders' equity 498,184 460,247
---------- ----------
$1,477,198 $1,486,460
========== ==========
See accompanying notes.
-3-
<PAGE>
INTERSTATE BAKERIES CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
(000'S EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Twelve Weeks Ended Twenty-Four Weeks Ended
-------------------------- ----------------------------
November 16, November 18, November 16, November 18,
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $758,378 $734,537 $1,512,003 $1,205,978
-------- -------- ---------- ----------
Cost of products sold 365,865 375,791 740,004 617,093
Selling, delivery and administrative
expenses 317,373 310,419 633,122 507,962
Depreciation and amortization 24,014 27,633 49,016 43,706
-------- -------- ---------- ----------
707,252 713,843 1,422,142 1,168,761
-------- -------- ---------- ----------
Operating income 51,126 20,694 89,861 37,217
-------- -------- ---------- ----------
Other income (190) (193) (390) (339)
Interest expense 5,488 7,449 11,325 13,232
-------- -------- ---------- ----------
5,298 7,256 10,935 12,893
-------- -------- ---------- ----------
Income before income taxes 45,828 13,438 78,926 24,324
Provision for income taxes 19,586 7,343 34,017 12,503
-------- -------- ---------- ----------
Net income $ 26,242 $ 6,095 $ 44,909 $ 11,821
======== ======== ========== ==========
Earnings per share $ .69 $ .16 $ 1.18 $ .37
======== ======== ========== ==========
Weighted average common and common
equivalent shares outstanding 38,029 37,227 37,907 31,985
======== ======== ========== ==========
</TABLE>
See accompanying notes.
-4-
<PAGE>
INTERSTATE BAKERIES CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(000's)
Twenty-Four Weeks Ended
--------------------------
November 16, November 18,
1996 1995
------------ ------------
Cash flows from operating activities:
Net income $ 44,909 $ 11,821
Depreciation and amortization 49,016 43,706
Other (5,819) 818
Change in operating assets and liabilities:
Accounts receivable (3,905) (5,195)
Inventories (2,267) (4,825)
Other current assets (2,421) (2,171)
Accounts payable and accrued expenses (2,368) 30,268
-------- --------
Cash from operating activities 77,145 74,422
-------- --------
Cash flows from investing activities:
Acquisition of a business - (228,281)
Additions to property and equipment (30,312) (14,700)
Sale of assets 888 626
Other (1,116) (1,186)
-------- --------
Cash from investing activities (30,540) (243,541)
-------- --------
Cash flows from financing activities:
Reduction of long-term debt (38,205) (133,112)
Addition to long-term debt - 300,000
Common stock dividends paid (9,717) (7,059)
Issuance of common stock 2,746 6,083
Acquisition of treasury stock (1) (519)
-------- --------
Cash from financing activities (45,177) 165,393
-------- --------
Change in cash and cash equivalents 1,428 (3,726)
Cash and cash equivalents:
Beginning of period - 3,726
-------- --------
End of period $ 1,428 $ -
======== ========
Supplemental disclosures:
Interest paid $ 11,918 $ 12,010
Income taxes paid 37,352 12,705
See accompanying notes.
-5-
<PAGE>
INTERSTATE BAKERIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Acquisition
-----------
During the first quarter of fiscal 1996, effective July 22, 1995, Interstate
Bakeries Corporation (the "Company") acquired Continental Baking Company
("CBC") from Ralston Purina Company for a total purchase price of $220,000,000
in cash and 16,923,077 shares of the Company's common stock. Second quarter
year-to-date operating results for fiscal 1996 include CBC's operating results
for seventeen weeks, effective with the date of the acquisition.
2. Accounting Policies and Basis of Presentation
---------------------------------------------
The accompanying unaudited consolidated financial statements include all
adjustments, consisting only of normal recurring accruals, which, in the
opinion of management, are necessary for a fair presentation of financial
position, results of operations and cash flows. Results of operations for
interim periods are not necessarily indicative of results to be expected for a
full year.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
3. Inventories
-----------
The components of inventories are as follows:
(000's)
-------------------------
November 16, June 1,
1996 1996
------------ ----------
Ingredients and packaging $43,464 $42,591
Finished goods 16,323 14,806
Other 9,734 9,857
------- -------
$69,521 $67,254
======= =======
-6-
<PAGE>
4. Income Taxes
------------
The reconciliation of the provision for income taxes to the statutory federal
rate is as follows:
Twenty-Four Weeks Ended
----------------------------
November 16, November 18,
1996 1995
------------ ------------
Statutory federal tax 35.0% 35.0%
State income tax 4.6 4.5
Intangibles amortization 2.8 11.9
Other .7 -
------ ------
43.1% 51.4%
====== ======
The provision for income taxes for the current quarter of both fiscal years
includes any adjustments for revisions in the projected annual effective tax
rate.
5. Adoption of New Accounting Standard
- ---------------------------------------
Effective with the first quarter of fiscal 1997, the Company adopted Statement
of Financial Accounting Standards (SFAS) No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of".
Under SFAS No. 121, impairment losses are recognized when information
indicates the carrying amount of long-lived assets, identifiable intangibles
and goodwill related to those assets will not be recovered through future
operations or disposal. The adoption of this statement had no effect on the
Company's consolidated financial statements.
-7-
<PAGE>
PART II
ITEM 6 - Exhibits and Reports on Form 8-K
a) Exhibits filed with this report:
1) 11 - Schedule regarding computation of per share earnings
2) 27 - Financial data schedule
-8-
<PAGE>
**************
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Interstate Bakeries Corporation
-------------------------------
(Registrant)
DATE December 20, 1996 /s/ Charles A. Sullivan
-------------------------------
Charles A. Sullivan, Chairman
and Chief Executive Officer
DATE December 20, 1996 /s/ John F. McKenny
-------------------------------
John F. McKenny, Vice President/
Corporate Controller and
Principal Accounting Officer
-9-
EXHIBIT 11
INTERSTATE BAKERIES CORPORATION
SCHEDULE REGARDING COMPUTATION OF PER SHARE EARNINGS
(000's EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Twelve Weeks Ended Twenty-Four Weeks Ended
-------------------------- --------------------------
November 16, November 18, November 16, November 18,
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net income $ 26,242 $ 6,095 $ 44,909 $ 11,821
========= ========== ========= ==========
Weighted average common shares
outstanding 37,440 36,784 37,382 31,637
Dilutive stock options 589 443 525 348
--------- ---------- --------- ----------
Weighted average common and common
equivalent shares outstanding 38,029 37,227 37,907 31,985
========= ========== ========= ==========
Earnings per share $ .69 $ .16 $ 1.18 $ .37
========= ========== ========= ==========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF NOVEMBER 16, 1996 AND THE CONSOLIDATED
STATEMENT OF INCOME FOR THE TWENTY-FOUR WEEKS ENDED NOVEMBER 16, 1996 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-END> NOV-16-1996
<CASH> 1,428
<SECURITIES> 0
<RECEIVABLES> 186,924
<ALLOWANCES> 3,481
<INVENTORY> 69,521
<CURRENT-ASSETS> 326,917
<PP&E> 1,049,279
<DEPRECIATION> 245,479
<TOTAL-ASSETS> 1,477,198
<CURRENT-LIABILITIES> 350,905
<BONDS> 269,395
0
0
<COMMON> 389
<OTHER-SE> 497,795
<TOTAL-LIABILITY-AND-EQUITY> 1,477,198
<SALES> 1,512,003
<TOTAL-REVENUES> 1,512,003
<CGS> 740,004
<TOTAL-COSTS> 740,004
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,325
<INCOME-PRETAX> 78,926
<INCOME-TAX> 34,017
<INCOME-CONTINUING> 44,909
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 44,909
<EPS-PRIMARY> 1.18
<EPS-DILUTED> 0
</TABLE>
