FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act
of 1934
(Mark One)
/ X / QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 9, 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 March 9, 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 37,211,932 shares of common stock, $.01 par value per share,
outstanding on April 1, 1996.
<PAGE>
INTERSTATE BAKERIES CORPORATION
FORM 10-Q
QUARTER ENDED MARCH 9, 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 third quarter, the sixteen weeks ended March 9, 1996, were
$926,482,000, a $568,242,000 increase over prior year net sales of
$358,240,000. Year-to-date net sales for fiscal 1996 were $2,132,460,000, an
increase of $1,219,395,000 over net sales of $913,065,000 in fiscal 1995.
These substantial increases were attributable to the acquisition of
Continental Baking Company on July 22, 1995, with year-to-date net sales
reflecting thirty-three weeks of Continental's operations. Excluding the
impact of the acquisition, third quarter net sales increased approximately
5.7% while year-to-date net sales increased approximately 5.0%. These
increases reflect higher selling prices and stable bread unit volume, offset
somewhat by continued softness in cake unit volume.
Cost of products sold was 50.8% of net sales for the third quarter of 1996, an
improvement over the prior year's 52.1% of net sales. Year-to-date cost of
products sold was 51.0%, an improvement over fiscal 1995's 51.6%. These
margin gains were primarily attributable to the efficiencies of the acquired
operations, as well as efficiencies realized through integration of existing
and acquired operations. Excluding the acquired operations, cost of products
sold reflected significantly higher ingredient and packaging costs, offset to
some degree by higher selling prices.
Selling, delivery and administrative expenses represented 43.8% of net sales
for the quarter compared to 41.9% the prior year, while year-to-date selling,
delivery and administrative expenses increased to 42.9% of net sales from
40.9% in fiscal 1995. These unfavorable variances were attributable to the
acquisition, with the new operations having higher selling and delivery labor
and labor related costs as a percentage of net sales. Excluding the acquired
operations, selling, delivery and administrative expenses as a percentage of
net sales were comparable to the prior year.
Depreciation and amortization was up $21,858,000 to $32,308,000 for the
quarter and increased $49,925,000 to $76,014,000 year-to-date, with these
increases attributable to the acquisition.
As a result of these factors, operating income for the third quarter of fiscal
1996 was up $6,519,000, or 58.2%, to $17,711,000. Year-to-date operating
income was $54,928,000, a $13,021,000 and 31.1% increase from fiscal 1995.
Interest expense for the third quarter was up $4,170,000 to $9,424,000, while
year-to-date interest expense increased $9,492,000 to $22,656,000. Higher
borrowings to finance the acquisition were the primary reason for these
increases, along with slightly higher market interest rates. The new credit
agreement signed in conjunction with the acquisition provides for interest
rates similar to the previous credit agreement.
Non-deductible intangibles asset amortization was responsible for the
effective tax rates of 51.4% and 47.8% in fiscal 1996 and 1995, respectively.
<PAGE>
Net income for the third quarter was $4,166,000, or $.11 per share, compared
to $3,096,000, or $.16 per share, for the same period a year ago. Year-to-
date net income in fiscal 1996 was $15,987,000, or $.47 per share, versus
$15,045,000, or $.76 per share, in fiscal 1995. The per share earnings
decline reflects the operating results discussed above, as well as the
additional shares issued in conjunction with the acquisition.
Changes in Financial Condition
- ------------------------------
Cash generated by operating activities for the forty weeks ended March 9, 1996
was $113,639,000 compared to $39,359,000 a year ago, with this increase
reflecting the acquired operations and favorable changes in working capital
components. Cash generated by operations during fiscal 1996, along with net
additional borrowings of $156,030,000, were used to fund capital expenditures
of $27,281,000, pay common stock dividends of $11,690,000 and pay $230,753,000
for the acquisition of Continental Baking Company.
As noted in the Company's Annual Report on Form 10-K for the year ended June
3, 1995, cash flows from operations and borrowing capacity under the new
credit facility should be sufficient to meet the ongoing cash requirements in
the current year.
2
<PAGE>
INTERSTATE BAKERIES CORPORATION
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
(000's)
March 9, June 3,
1996 1995
------------ -----------
Assets
Current assets:
Cash and cash equivalents $ 12,720 $ 3,726
Accounts receivable, less allowance
for doubtful accounts of $5,913,000
($1,792,000 at June 3) 170,396 75,184
Inventories 66,420 24,207
Other current assets 50,954 17,232
---------- --------
Total current assets 300,490 120,349
---------- --------
Property and equipment:
Land and buildings 276,554 99,609
Machinery and equipment 704,293 246,800
---------- --------
980,847 346,409
Less accumulated depreciation (185,385) (123,440)
---------- --------
Net property and equipment 795,462 222,969
---------- --------
Other assets 337,804 255,123
---------- --------
$1,433,756 $598,441
========== ========
<PAGE>
Liabilities and Stockholders' Equity
Current liabilities:
Long-term debt payable within one year $ 21,265 $ 1,030
Accounts payable 103,165 48,979
Accrued expenses 185,191 59,145
---------- --------
Total current liabilities 309,621 109,154
---------- --------
Long-term debt 349,000 212,205
Other liabilities 260,251 45,461
Deferred income taxes 60,024 33,584
---------- --------
Total long-term liabilities 669,275 291,250
---------- --------
Stockholders' equity:
Preferred stock, par value $.01 per share;
authorized - 1,000,000 shares; issued - none - -
Common stock, par value $.01 per share;
authorized - 60,000,000 shares; issued -
38,641,000 shares (21,056,000 at June 3) 386 211
Additional paid-in capital 513,935 261,065
Accumulated deficit (37,916) (42,213)
Treasury stock at cost - 1,449,000 shares
(1,421,000 at June 3) (21,545) (21,026)
---------- --------
Total stockholders' equity 454,860 198,037
---------- --------
$1,433,756 $598,441
========== ========
See accompanying notes.
3
<PAGE>
INTERSTATE BAKERIES CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
(000'S EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Sixteen Weeks Ended Forty Weeks Ended
------------------------ -------------------------
March 9, March 4, March 9, March 4,
1996 1995 1996 1995
--------- --------- ---------- --------
<S> <C> <C> <C> <C>
Net sales $926,482 $358,240 $2,132,460 $913,065
-------- -------- ---------- --------
Cost of products sold 470,459 186,651 1,087,552 471,208
Selling, delivery and administrative
expenses 406,004 149,947 913,966 373,861
Depreciation and amortization 32,308 10,450 76,014 26,089
-------- -------- ---------- --------
908,771 347,048 2,077,532 871,158
-------- -------- ---------- --------
Operating income 17,711 11,192 54,928 41,907
-------- -------- ---------- --------
Other expense (income) (285) 7 (624) (78)
Interest expense 9,424 5,254 22,656 13,164
-------- -------- ---------- --------
9,139 5,261 22,032 13,086
-------- -------- ---------- --------
Income before income taxes 8,572 5,931 32,896 28,821
Provision for income taxes 4,406 2,835 16,909 13,776
-------- -------- ---------- --------
Net income $ 4,166 $ 3,096 $ 15,987 $ 15,045
======== ======== ========== ========
Earnings per share $ .11 $ .16 $ .47 $ .76
======== ======== ========== ========
Weighted average common and common
equivalent shares outstanding 37,489 19,724 34,182 19,699
======== ======== ========== ========
</TABLE>
See accompanying notes.
4
<PAGE>
INTERSTATE BAKERIES CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(000's)
Forty Weeks Ended
--------------------------
March 9, March 4,
1996 1995
------------ ------------
Cash flows from operating activities:
Net income $ 15,987 $ 15,045
Depreciation and amortization 76,014 26,089
Other 4,121 1,198
Change in operating assets and liabilities:
Accounts receivable 1,520 (2,499)
Inventories 4,188 (1,872)
Other current assets (3,007) (1,256)
Accounts payable and accrued expenses 14,816 2,654
-------- --------
Cash from operating activities 113,639 39,359
-------- --------
Cash flows from investing activities:
Acquisition of a business (230,753) -
Additions to property and equipment (27,281) (29,886)
Sale of assets 714 552
Other (922) (14,682)
-------- --------
Cash from investing activities (258,242) (44,016)
-------- --------
Cash flows from financing activities:
Reduction of long-term debt (133,970) (1,208)
Addition to long-term debt 290,000 12,000
Common stock dividends paid (11,690) (7,365)
Issuance of common stock 9,776 1
Acquisition of treasury stock (519) (255)
-------- --------
Cash from financing activities 153,597 3,173
-------- --------
Change in cash and cash equivalents 8,994 (1,484)
Cash and cash equivalents:
Beginning of period 3,726 5,046
-------- --------
End of period $ 12,720 $ 3,562
======== ========
Supplemental disclosures:
Interest paid $ 21,773 $ 16,213
Income taxes paid 18,989 21,469
See accompanying notes.
5
<PAGE>
INTERSTATE BAKERIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Acquisition
-----------
During the first quarter, effective July 22, 1995, Interstate Bakeries
Corporation (the "Company") acquired Continental Baking Company ("CBC") from
Ralston Purina Company ("RPC") for a total purchase price of $220,000,000 in
cash and 16,923,077 shares of the Company's common stock. Prior to the
acquisition, CBC was the nation's largest wholesale baking company with annual
sales of approximately $2 billion and 21,000 employees at 36 bakery locations.
As a result of the acquisition, RPC owns approximately 46% of the Company's
common stock. Under terms of a shareholder agreement, RPC's holdings of the
Company's common stock must be less than 15% of the outstanding shares within
five years of the acquisition.
Year-to-date third quarter operating results include CBC's operating results
for 33 weeks, effective with the date of the acquisition.
In conjunction with the acquisition, the estimated cash and stock portions of
the purchase price, including fees and expenses, for fiscal 1996 were as
follows:
Estimated fair value of net assets acquired $474,022
Common stock issued (243,269)
--------
Cash paid for acquisition of CBC $230,753
========
2. Accounting Policies and Basis of Presentation
---------------------------------------------
The accompanying unaudited consolidated financial statements include all
adjustments, consisting only of normal recurring accruals, which, in the
opinion of management, are necessary for a fair presentation of financial
position, results of operations and cash flows. Results of operations for
interim periods are not necessarily indicative of results to be expected for a
full year.
Certain reclassifications have been made to prior years' amounts to conform to
the current year presentation.
6
<PAGE>
3. Inventories
-----------
The components of inventories are as follows:
(000's)
-------------------------
March 9, June 3,
1996 1995
--------- ---------
Ingredients and packaging $46,863 $15,274
Finished goods 13,379 7,122
Other 6,178 1,811
------- -------
$66,420 $24,207
======= =======
4. Income Taxes
------------
The reconciliation of the provision for income taxes to the statutory federal
rate is as follows:
Forty Weeks Ended
----------------------------
March 9, March 4,
1996 1995
------------ ------------
Statutory federal tax 35.0% 35.0%
State income tax 4.5 5.4
Amortization of intangibles 11.9 6.5
Other - .9
-------- -------
51.4% 47.8%
======== =======
The provision for income taxes for the current quarter of both fiscal years
includes any adjustments for revisions in the projected annual effective tax
rate.
7
<PAGE>
PART II
ITEM 6 - Exhibits and Reports on Form 8-K
a) 11 - Schedule regarding computation of per share earnings
b) 27 - Financial data schedule
8
<PAGE>
**************
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Interstate Bakeries Corporation
-------------------------------
(Registrant)
DATE April 8, 1996 /s/ Charles A. Sullivan
-------------------------------
Charles A. Sullivan, Chairman
and Chief Executive Officer
DATE April 8, 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>
Sixteen Weeks Ended Forty Weeks Ended
-------------------------- --------------------------
March 9, March 4, March 9, March 4,
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net income $ 4,166 $ 3,096 $ 15,987 $ 15,045
========= ========= ========= =========
Weighted average common shares
outstanding 37,082 19,639 33,814 19,640
Dilutive stock options 407 85 368 59
--------- --------- --------- ---------
Weighted average common and common
equivalent shares outstanding 37,489 19,724 34,182 19,699
========= ========= ========= =========
Earnings per share $ .11 $ .16 $ .47 $ .76
========= ========= ========= =========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF MARCH 9, 1996 AND THE CONSOLIDATED
STATEMENT OF INCOME FOR THE FORTY WEEKS ENDED MARCH 9, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-01-1996
<PERIOD-END> MAR-09-1996
<CASH> 12,720
<SECURITIES> 0
<RECEIVABLES> 176,309
<ALLOWANCES> 5,913
<INVENTORY> 66,420
<CURRENT-ASSETS> 300,490
<PP&E> 980,847
<DEPRECIATION> 185,385
<TOTAL-ASSETS> 1,433,756
<CURRENT-LIABILITIES> 309,621
<BONDS> 349,000
0
0
<COMMON> 386
<OTHER-SE> 454,474
<TOTAL-LIABILITY-AND-EQUITY> 1,433,756
<SALES> 2,132,460
<TOTAL-REVENUES> 2,132,460
<CGS> 1,087,552
<TOTAL-COSTS> 1,087,552
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 22,656
<INCOME-PRETAX> 32,896
<INCOME-TAX> 16,909
<INCOME-CONTINUING> 15,987
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,987
<EPS-PRIMARY> .47
<EPS-DILUTED> 0
</TABLE>
