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 March 8, 1997
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 8, 1997 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 37,453,471 shares of common stock, $.01 par value per share,
outstanding on April 4, 1997.
<PAGE>
INTERSTATE BAKERIES CORPORATION
FORM 10-Q
QUARTER ENDED MARCH 8, 1997
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 of fiscal 1997, the sixteen weeks ended March
8, 1997, were $945,258,000, an $18,776,000, or 2.0%, increase over prior year
net sales of $926,482,000. Excluding the impact of acquired and disposed
operations, net sales for the quarter were up 4.5%. Year-to-date net sales
for fiscal 1997 were $2,457,261,000, an increase of $324,801,000, or 15.2%,
over net sales of $2,132,460,000 in fiscal 1996. The increase in quarterly
net sales reflects higher selling prices and higher retail sales, with
essentially flat 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 thirty-three weeks of CBC's
operations.
Cost of products sold was 49.3% of net sales for the third quarter of 1997,
down from 50.8% of net sales in the prior year. Year-to-date cost of products
sold was 49.1% compared to fiscal 1996's 51.0%. 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 42.7% of net sales
for the quarter compared to 43.8% the prior year, while year-to-date selling,
delivery and administrative expenses declined to 42.2% of net sales from 42.9%
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 third quarter of fiscal
1997 was up $28,557,000, or 161.2%, to $46,268,000. Year-to-date operating
income was $136,129,000, a $81,201,000 and 147.8% increase from fiscal 1996.
The lower interest expense for the third 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 third quarter of the
current year was $22,629,000, or $.59 per share, compared to $4,166,000 and
$.11 per share the prior year. Year-to-date net income improved to
$67,538,000, or $1.78 per share, from $15,987,000, or $.47 per share, last
year. These earnings per share improvements amounted to 436% and 279%,
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 forty weeks ended March 8, 1997
was $144,327,000 compared to $113,639,000 a year ago. This increase reflects
the acquisition and improved operations, offset by a net increase in working
capital and some reduction in long-term liabilities. Cash generated by
operations during fiscal 1997 was used to fund capital expenditures of
$54,203,000, pay common stock dividends of $14,789,000 and reduce debt by
$86,205,000.
During the third quarter of fiscal 1997, the Company converted all bank debt
to revolving credit loans by repaying all term loans and reduced total
borrowing capacity from $550,000,000 to $350,000,000. The maturity date of
all revolving credit loans continues to be May 2000 and interest rates on the
borrowings were reduced slightly.
On March 29, 1997, the Company acquired the assets of the San Francisco French
Bread Company (SFFB), a wholly owned subsidiary of Speciality Foods
Corporation. SFFB, which produces and distributes sourdough bread and rolls
throughout Northern California and in the San Diego area, has annual sales of
approximately $95,000,000 and employs 1,100 people at five bakery locations.
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)
March 8, June 1,
1997 1996
------------ -----------
Assets
Current assets:
Cash and cash equivalents $ 10,739 $ -
Accounts receivable, less allowance
for doubtful accounts of $3,954,000
($3,606,000 at June 1) 176,394 179,538
Inventories 61,570 67,254
Other current assets 62,428 71,481
---------- ----------
Total current assets 311,131 318,273
---------- ----------
Property and equipment:
Land and buildings 279,993 279,863
Machinery and equipment 759,731 741,705
---------- ----------
1,039,724 1,021,568
Less accumulated depreciation (250,920) (204,173)
---------- ----------
Net property and equipment 788,804 817,395
---------- ----------
Intangibles 337,956 350,792
---------- ----------
$1,437,891 $1,486,460
========== ==========
<PAGE>
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 123,429 $ 135,447
Accrued expenses 204,892 200,221
Long-term debt payable within one year - 21,554
---------- ----------
Total current liabilities 328,321 357,222
---------- ----------
Long-term debt 239,000 303,651
Other liabilities 246,165 254,962
Deferred income taxes 110,378 110,378
---------- ----------
Total long-term liabilities 595,543 668,991
---------- ----------
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 -
39,067,000 shares (38,735,000 at June 1) 391 387
Additional paid-in capital 520,546 515,497
Retained earnings (Accumulated deficit) 18,657 (34,092)
Treasury stock, at cost - 1,537,000 shares (25,567) (21,545)
---------- ----------
Total stockholders' equity 514,027 460,247
---------- ----------
$1,437,891 $1,486,460
========== ==========
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 8, March 9, March 8, March 9,
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $945,258 $926,482 $2,457,261 $2,132,460
-------- -------- ---------- ----------
Cost of products sold 465,891 470,459 1,205,895 1,087,552
Selling, delivery and administrative
expenses 403,174 406,004 1,036,296 913,966
Depreciation and amortization 29,925 32,308 78,941 76,014
-------- -------- ---------- ----------
898,990 908,771 2,321,132 2,077,532
-------- -------- ---------- ----------
Operating income 46,268 17,711 136,129 54,928
-------- -------- ---------- ----------
Other income (166) (285) (556) (624)
Interest expense 6,664 9,424 17,989 22,656
-------- -------- ---------- ----------
6,498 9,139 17,433 22,032
-------- -------- ---------- ----------
Income before income taxes 39,770 8,572 118,696 32,896
Provision for income taxes 17,141 4,406 51,158 16,909
-------- -------- ---------- ----------
Net income $ 22,629 $ 4,166 $ 67,538 $ 15,987
======== ======== ========== ==========
Earnings per share $ .59 $ .11 $ 1.78 $ .47
======== ======== ========== ==========
Weighted average common and common
equivalent shares outstanding 38,293 37,489 38,045 34,182
======== ======== ========== ==========
</TABLE>
See accompanying notes.
-4-
<PAGE>
INTERSTATE BAKERIES CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(000's)
Forty Weeks Ended
--------------------------
March 8, March 9,
1997 1996
------------ ------------
Cash flows from operating activities:
Net income $ 67,538 $ 15,987
Depreciation and amortization 78,941 76,014
Other (10,502) 4,121
Change in operating assets and liabilities:
Accounts receivable 3,144 1,520
Inventories 5,684 4,188
Other current assets 6,869 (3,007)
Accounts payable and accrued expenses (7,347) 14,816
-------- --------
Cash from operating activities 144,327 113,639
-------- --------
Cash flows from investing activities:
Acquisition of a business - (230,753)
Additions to property and equipment (54,203) (27,281)
Sale of assets 13,842 714
Other 6,736 (922)
-------- --------
Cash from investing activities (33,625) (258,242)
-------- --------
Cash flows from financing activities:
Reduction of long-term debt (126,205) (133,970)
Addition to long-term debt 40,000 290,000
Common stock dividends paid (14,789) (11,690)
Issuance of common stock 5,053 9,776
Acquisition of treasury stock (4,022) (519)
-------- --------
Cash from financing activities (99,963) 153,597
-------- --------
Change in cash and cash equivalents 10,739 8,994
Cash and cash equivalents:
Beginning of period - 3,726
-------- --------
End of period $ 10,739 $ 12,720
======== ========
Supplemental disclosures:
Interest paid $ 20,754 $ 21,773
Income taxes paid 52,563 18,989
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. Third quarter
year-to-date operating results for fiscal 1996 include CBC's operating results
for thirty-three 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)
-------------------------
March 8, June 1,
1997 1996
------------ ----------
Ingredients and packaging $41,330 $42,591
Finished goods 12,845 14,806
Other 7,395 9,857
------- -------
$61,570 $67,254
======= =======
-6-
<PAGE>
4. Income Taxes
------------
The reconciliation of the provision for income taxes to the statutory federal
rate is as follows:
Forty Weeks Ended
----------------------------
March 8, March 9,
1997 1996
------------ ------------
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.
6. Bank Credit Agreement
- -------------------------
During the third quarter of fiscal 1997, the Company converted all bank debt
to revolving credit loans by repaying all term loans and reduced total
borrowing capacity from $550,000,000 to $350,000,000. The maturity date of
all revolving credit loans continues to be May 2000 and interest rates on the
borrowings were reduced slightly.
7. Subsequent Event
- --------------------
Effective March 29, 1997, the Company acquired the assets of the San Francisco
French Bread Company (SFFB), a wholly owned subsidiary of Specialty Foods
Corporation. SFFB, which produces and distributes sourdough breads and rolls
throughout Northern California and in the San Diego area, has annual sales of
approximately $95,000,000 and employs 1,100 people at five bakery locations.
-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 April 16, 1997 /s/ Charles A. Sullivan
-------------------------------
Charles A. Sullivan, Chairman
and Chief Executive Officer
DATE April 16, 1997 /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 8, March 9, March 8, March 9,
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net income $ 22,629 $ 4,166 $ 67,538 $ 15,987
========= ========== ========= ==========
Weighted average common shares
outstanding 37,529 37,082 37,441 33,814
Dilutive stock options 764 407 604 368
--------- ---------- --------- ----------
Weighted average common and common
equivalent shares outstanding 38,293 37,489 38,045 34,182
========= ========== ========= ==========
Earnings per share $ .59 $ .11 $ 1.78 $ .47
========= ========== ========= ==========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANACIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF MARCH 8, 1997 AND THE CONSOLIDATED
STATEMENT OF INCOME FOR THE FORTY WEEKS ENDED MARCH 8, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-END> MAR-08-1997
<CASH> 10,739
<SECURITIES> 0
<RECEIVABLES> 180,348
<ALLOWANCES> 3,954
<INVENTORY> 61,570
<CURRENT-ASSETS> 311,131
<PP&E> 1,039,724
<DEPRECIATION> 250,920
<TOTAL-ASSETS> 1,437,891
<CURRENT-LIABILITIES> 328,321
<BONDS> 239,000
0
0
<COMMON> 391
<OTHER-SE> 513,636
<TOTAL-LIABILITY-AND-EQUITY> 1,437,891
<SALES> 2,457,261
<TOTAL-REVENUES> 2,457,261
<CGS> 1,205,895
<TOTAL-COSTS> 1,205,895
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 17,989
<INCOME-PRETAX> 118,696
<INCOME-TAX> 51,158
<INCOME-CONTINUING> 67,538
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 67,538
<EPS-PRIMARY> 1.78
<EPS-DILUTED> 0
</TABLE>
