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 August 23, 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 August 23, 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 36,589,155 shares of common stock, $.01 par value per share,
outstanding on September 12, 1997.
<PAGE>
INTERSTATE BAKERIES CORPORATION
FORM 10-Q
QUARTER ENDED AUGUST 23, 1997
CONTENTS
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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
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 7
Signatures 8
<PAGE>
INTERSTATE BAKERIES CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
- ---------------------
Net sales for the first quarter of fiscal 1998, the twelve weeks ended August
23, 1997, were $763,719,000, up $10,094,000 or 1.3%, from prior year net sales
of $753,625,000. This increase represents slightly higher selling prices and
favorable mix changes, with unit volume holding steady.
Gross profit was 52.6% of net sales for the first quarter of fiscal 1998, up
from 50.4% of net sales in the prior year. This improvement resulted from
lower ingredient costs, primarily flour, partially offset by higher labor and
labor-related costs.
Selling, delivery and administrative expenses increased 2.4% over the first
quarter of fiscal 1997. Higher labor and labor-related expenses resulted in
this slight increase in selling, delivery and administrative expenses as a
percentage of net sales to 42.3% from 41.9% the prior year.
Based upon these factors, operating income for the first quarter of fiscal
1998 was $54,755,000, an increase of $16,020,000 and 41.4% over the prior
year's $38,735,000.
Interest expense for the first quarter of fiscal 1998 was $4,466,000, down
$1,371,000 from the prior year's expense of $5,837,000. The lower expense
reflects lower average borrowing levels, as well as slightly lower interest
rates.
The effective tax rates for fiscal 1998 and 1997 were 40.7% and 43.6%,
respectively. Non-deductible intangible asset amortization was responsible
for the higher effective tax rate in fiscal 1997.
Reflecting these improvements, net income for the first quarter of fiscal 1998
was $29,880,000, or $.79 per share, up $11,213,000 and $.30 per share from
fiscal 1997's $18,667,000 and $.49 per share. The earnings per share gain
represents a 61.2% improvement over the prior year.
-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 twelve weeks ended August 23,
1997 was $59,638,000 compared to $53,523,000 a year ago, with the increase
primarily attributable to improved operations. Cash generated by operations
during fiscal 1998, along with increased borrowings of $18,000,000, was used
to repurchase common stock of $60,090,000, fund capital expenditures of
$14,491,000 and pay common stock dividends of $5,072,000.
As noted in the Company's Annual Report on Form 10-K for the year ended May
31, 1997, 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)
August 23, May 31,
1997 1997
------------ -----------
Assets
Current assets:
Accounts receivable, less allowance
for doubtful accounts of $4,625,000
($4,577,000 at May 31) $ 199,182 $ 190,747
Inventories 63,572 63,962
Other current assets 65,329 70,453
---------- ----------
Total current assets 328,083 325,162
---------- ----------
Property and equipment:
Land and buildings 295,376 291,526
Machinery and equipment 794,375 784,910
---------- ----------
1,089,751 1,076,436
Less accumulated depreciation (290,670) (269,153)
---------- ----------
Net property and equipment 799,081 807,283
---------- ----------
Intangibles 357,976 360,642
---------- ----------
$1,485,140 $1,493,087
========== ==========
<PAGE>
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 141,093 $ 146,638
Accrued expenses 215,283 201,878
---------- ----------
Total current liabilities 356,376 348,516
---------- ----------
Long-term debt 269,000 251,000
Other liabilities 232,079 230,967
Deferred income taxes 123,882 123,882
---------- ----------
Total long-term liabilities 624,961 605,849
---------- ----------
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 -
39,293,000 shares (39,265,000 at May 31) 393 393
Additional paid-in capital 529,490 529,127
Retained earnings 68,036 43,228
Treasury stock, at cost - 2,709,000 shares
(1,708,000 at May 31) (94,116) (34,026)
---------- ----------
Total stockholders' equity 503,803 538,722
---------- ----------
$1,485,140 $1,493,087
========== ==========
See accompanying notes.
-3-
<PAGE>
INTERSTATE BAKERIES CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
(000'S EXCEPT PER SHARE DATA)
Twelve Weeks Ended
----------------------
August 23, August 24,
1997 1996
---------- ----------
Net sales $763,719 $753,625
-------- --------
Cost of products sold 362,155 374,139
Selling, delivery and administrative
expenses 323,326 315,749
Depreciation and amortization 23,483 25,002
-------- --------
708,964 714,890
-------- --------
Operating income 54,755 38,735
-------- --------
Other income (99) (200)
Interest expense 4,466 5,837
-------- --------
4,367 5,637
-------- --------
Income before income taxes 50,388 33,098
Provision for income taxes 20,508 14,431
-------- --------
Net income $ 29,880 $ 18,667
======== ========
Earnings per share $ .79 $ .49
======== ========
Weighted average common and common
equivalent shares outstanding 37,938 37,785
======== ========
See accompanying notes.
-4-
<PAGE>
INTERSTATE BAKERIES CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(000's)
Twelve Weeks Ended
--------------------------
August 23, August 24,
1997 1996
------------ ------------
Cash flows from operating activities:
Net income $ 29,880 $ 18,667
Depreciation and amortization 23,483 25,002
Other 1,336 (3,719)
Change in operating assets and liabilities:
Accounts receivable (8,435) 3,913
Inventories 390 (2,664)
Other current assets 5,124 (1,873)
Accounts payable and accrued expenses 7,860 14,197
------- -------
Cash from operating activities 59,638 53,523
------- -------
Cash flows from investing activities:
Additions to property and equipment (14,491) (16,967)
Sale of assets 1,811 350
Other (159) (557)
------- -------
Cash from investing activities (12,839) (17,174)
------- -------
Cash flows from financing activities:
Addition (reduction) of long-term debt 18,000 (20,205)
Common stock dividends paid (5,072) (4,659)
Issuance of common stock 363 1,691
Acquisition of treasury stock (60,090) (1)
------- -------
Cash from financing activities (46,799) (23,174)
------- -------
Change in cash and cash equivalents - 13,175
Cash and cash equivalents:
Beginning of period - -
------- -------
End of period $ - $ 13,175
======= =======
Supplemental disclosures:
Interest paid $ 6,536 $ 7,997
Income taxes paid 1,958 5,144
See accompanying notes.
-5-
<PAGE>
INTERSTATE BAKERIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Accounting Policies and Basis of Presentation
---------------------------------------------
The accompanying unaudited consolidated financial statements include all
adjustments, consisting only of normal recurring accruals, which, in the
opinion of management, are necessary for a fair presentation of financial
position, results of operations and cash flows. Results of operations for
interim periods are not necessarily indicative of results to be expected for a
full year.
2. Inventories
-----------
The components of inventories are as follows:
(000's)
-------------------------
August 23, May 31,
1997 1997
---------- ----------
Ingredients and packaging $41,844 $43,195
Finished goods 16,192 14,420
Other 5,536 6,347
------- -------
$63,572 $63,962
======= =======
3. Income Taxes
------------
The reconciliation of the provision for income taxes to the statutory federal
rate is as follows:
Twelve Weeks Ended
----------------------------
August 23, August 24,
1997 1996
------------ ------------
Statutory federal tax 35.0% 35.0%
State income tax 4.8 4.5
Intangibles amortization 1.4 3.2
Other (.5) .9
-------- -------
40.7% 43.6%
======== =======
-6-
<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
-7-
<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: September 18, 1997 /s/ Charles A. Sullivan
-------------------------------
Charles A. Sullivan, Chairman
and Chief Executive Officer
DATE: September 18, 1997 /s/ John F. McKenny
-------------------------------
John F. McKenny, Vice President/
Corporate Controller and
Principal Accounting Officer
-8-
EXHIBIT 11
INTERSTATE BAKERIES CORPORATION
SCHEDULE REGARDING COMPUTATION OF PER SHARE EARNINGS
(000's EXCEPT PER SHARE DATA)
Twelve Weeks Ended
-----------------------
August 23, August 24,
1997 1996
---------- ----------
Net income $29,880 $18,667
======= =======
Weighted average common shares
outstanding 37,261 37,323
Dilutive stock options 677 462
------- -------
Weighted average common and common
equivalent shares outstanding 37,938 37,785
======= =======
Earnings per share $ .79 $ .49
======= =======
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF AUGUST 23, 1997 AND THE CONSOLIDATED
STATEMENT OF INCOME FOR THE TWELVE WEEKS ENDED AUGUST 23, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-30-1998
<PERIOD-END> AUG-23-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 203,807
<ALLOWANCES> 4,625
<INVENTORY> 63,572
<CURRENT-ASSETS> 328,083
<PP&E> 1,089,751
<DEPRECIATION> 290,670
<TOTAL-ASSETS> 1,485,140
<CURRENT-LIABILITIES> 356,376
<BONDS> 269,000
0
0
<COMMON> 393
<OTHER-SE> 503,410
<TOTAL-LIABILITY-AND-EQUITY> 1,485,140
<SALES> 763,719
<TOTAL-REVENUES> 763,719
<CGS> 362,155
<TOTAL-COSTS> 362,155
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,466
<INCOME-PRETAX> 50,388
<INCOME-TAX> 20,508
<INCOME-CONTINUING> 29,880
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 29,880
<EPS-PRIMARY> .79
<EPS-DILUTED> 0
</TABLE>
