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 15, 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 November 15, 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 73,299,010 shares of common stock, $.01 par value per share,
outstanding on December 15, 1997.
<PAGE>
INTERSTATE BAKERIES CORPORATION
FORM 10-Q
QUARTER ENDED NOVEMBER 15, 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 second quarter of fiscal 1998, the twelve weeks ended
November 15, 1997, were $754,167,000, down $4,211,000 or .6% from net sales
of $758,378,000 in the prior year. Excluding the impact of acquired and
disposed operations, net sales for the quarter were down .4%. Year-to-date
net sales for fiscal 1998 were $1,517,886,000, an increase of $5,883,000, or
.4%, over net sales of $1,512,003,000 in fiscal 1997. Selling prices remained
steady for the quarter, while non-branded bread unit volume was down somewhat
due to mix changes to higher-margin, branded products. Unit volume for
branded bread and cake showed slight improvements for both the quarter and
year-to-date.
Gross profit was 53.3% of net sales for the second quarter of 1998, up from
51.8% of net sales in the prior year. Year-to-date gross profit increased to
52.9% of net sales from the prior year's 51.1%. These improvements resulted
from lower ingredient costs, primarily flour, partially offset by higher labor
and labor-related costs.
Selling, delivery and administrative expense represented 41.9% of net sales
for the quarter, consistent with 41.8% in the prior year. Year-to-date
selling, delivery and administrative expenses were 42.1% of net sales, up
slightly from 41.9% in the prior year, due to slightly higher labor and
labor-related expenses.
Based upon these factors, operating income for the second quarter of fiscal
1998 was $62,246,000, up $11,120,000 or 21.8% from the prior year's
$51,126,000. Year-to-date operating income was up $27,140,000, or 30.2%, to
$117,001,000 from $89,861,000 in fiscal 1997.
Interest expense declines of $915,000 and $2,286,000 for the second quarter and
year-to-date, respectively, reflect lower average borrowing levels, as well as
slightly lower interest rates during these periods.
The effective tax rates for fiscal 1998 and 1997 were 40.7% and 43.1%,
respectively. Non-deductible intangible asset amortization was responsible for
the higher effective tax rate in fiscal 1997.
Reflecting these improvements, net income for the second quarter of fiscal
1998 was $34,247,000, or $.46 per share, compared to $26,242,000, or $.35 per
share, the prior year. Year-to-date net income improved to $64,127,000, or
$.85 per share, from $44,909,000, or $.59 per share, last year. These earnings
per share amounts, which have been adjusted for a two-for-one stock split
effected in the form of a stock dividend paid November 3, 1997, represent
improvements of 31.4% and 44.1% for the quarter and year-to-date, 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
15, 1997 was $117,975,000 compared to $77,145,000 a year ago. This increase of
$40,830,000 reflects improved operations and a net improvement in working
capital components. Cash generated by operations during fiscal 1998 was used
to repurchase common stock of $61,214,000, fund net capital expenditures of
$31,521,000, pay common stock dividends of $10,201,000 and reduce debt by
$17,000,000.
On October 20, 1997, the Company signed an agreement to acquire the assets of
the John J. Nissen Baking companies ("Nissen"), a major baker and distributor
of fresh bread to the New England region. Sales of Nissen-branded products
exceed $115 million annually. The transaction, which has been cleared by
federal regulators, is scheduled to close in early January 1998.
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, including the Nissen acquisition.
-2-
<PAGE>
INTERSTATE BAKERIES CORPORATION
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
(000's)
November 15, May 31,
1997 1997
------------ -----------
Assets
Current assets:
Accounts receivable, less allowance
for doubtful accounts of $5,035,000
($4,577,000 at May 31) $ 199,576 $ 190,747
Inventories 65,380 63,962
Other current assets 77,849 70,453
---------- ----------
Total current assets 342,805 325,162
---------- ----------
Property and equipment:
Land and buildings 300,494 291,526
Machinery and equipment 798,275 784,910
---------- ----------
1,098,769 1,076,436
Less accumulated depreciation (301,928) (269,153)
---------- ----------
Net property and equipment 796,841 807,283
---------- ----------
Intangibles 356,914 360,642
---------- ----------
$1,496,560 $1,493,087
========== ==========
<PAGE>
Liabilities and Stockholders' Equity
Current liabilities:
Long-term debt payable within one year $ 25,000 $ -
Accounts payable 141,611 146,638
Accrued expenses 240,141 201,878
---------- ----------
Total current liabilities 406,752 348,516
---------- ----------
Long-term debt 209,000 251,000
Other liabilities 223,279 230,967
Deferred income taxes 123,882 123,882
---------- ----------
Total long-term liabilities 556,161 605,849
---------- ----------
Stockholders' equity:
Preferred stock, par value $.01 per share;
authorized - 1,000,000 shares; issued - none - -
Common stock, par value $.01 per share;
authorized - 120,000,000 shares; issued -
78,732,000 shares (78,530,000 at May 31) 787 393
Additional paid-in capital 531,340 529,127
Retained earnings 96,760 43,228
Treasury stock, at cost - 5,448,000 shares
(3,416,000 at May 31) (95,240) (34,026)
---------- ----------
Total stockholders' equity 533,647 538,722
---------- ----------
$1,496,560 $1,493,087
========== ==========
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 15, November 16, November 15, November 16,
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $754,167 $758,378 $1,517,886 $1,512,003
-------- -------- ---------- ----------
Cost of products sold 352,130 365,865 714,285 740,004
Selling, delivery and administrative
expenses 316,217 317,373 639,543 633,122
Depreciation and amortization 23,574 24,014 47,057 49,016
-------- -------- ---------- ----------
691,921 707,252 1,400,885 1,422,142
-------- -------- ---------- ----------
Operating income 62,246 51,126 117,001 89,861
-------- -------- ---------- ----------
Other income (79) (190) (178) (390)
Interest expense 4,573 5,488 9,039 11,325
-------- -------- ---------- ----------
4,494 5,298 8,861 10,935
-------- -------- ---------- ----------
Income before income taxes 57,752 45,828 108,140 78,926
Provision for income taxes 23,505 19,586 44,013 34,017
-------- -------- ---------- ----------
Net income $ 34,247 $ 26,242 $ 64,127 $ 44,909
======== ======== ========== ==========
Earnings per share $ .46 $ .35 $ .85 $ .59
======== ======== ========== ==========
Weighted average common and common
equivalent shares outstanding 74,725 76,058 75,303 75,814
======== ======== ========== ==========
</TABLE>
See accompanying notes.
-4-
<PAGE>
INTERSTATE BAKERIES CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(000's)
Twenty-Four Weeks Ended
--------------------------
November 15, November 16,
1997 1996
------------ ------------
Cash flows from operating activities:
Net income $ 64,127 $ 44,909
Depreciation and amortization 47,057 49,016
Other (8,802) (5,819)
Change in operating assets and liabilities:
Accounts receivable (8,829) (3,905)
Inventories (1,418) (2,267)
Other current assets (7,396) (2,421)
Accounts payable and accrued expenses 33,236 (2,368)
-------- --------
Cash from operating activities 117,975 77,145
-------- --------
Cash flows from investing activities:
Additions to property and equipment (33,726) (30,312)
Sale of assets 2,205 888
Other (252) (1,116)
-------- --------
Cash from investing activities (31,773) (30,540)
-------- --------
Cash flows from financing activities:
Reduction of long-term debt (17,000) (38,205)
Common stock dividends paid (10,201) (9,717)
Issuance of common stock 2,213 2,746
Acquisition of treasury stock (61,214) (1)
-------- --------
Cash from financing activities (86,202) (45,177)
-------- --------
Change in cash and cash equivalents - 1,428
Cash and cash equivalents:
Beginning of period - -
-------- --------
End of period $ - $ 1,428
======== ========
Supplemental disclosures:
Interest paid $ 9,482 $ 11,918
Income taxes paid 20,517 37,352
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)
-------------------------
November 15, May 31,
1997 1997
------------ ----------
Ingredients and packaging $43,449 $43,195
Finished goods 16,265 14,420
Other 5,666 6,347
------- -------
$65,380 $63,962
======= =======
3. Income Taxes
------------
The reconciliation of the provision for income taxes to the statutory federal
rate is as follows:
Twenty-Four Weeks Ended
----------------------------
November 15, November 16,
1997 1996
------------ ------------
Statutory federal tax 35.0% 35.0%
State income tax 4.8 4.6
Intangibles amortization 1.4 2.8
Other (.5) .7
------ ------
40.7% 43.1%
====== ======
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.
-6-
<PAGE>
4. Stock Split
-----------
On September 23, 1997, the shareholders of the Company approved an increase in
the number of authorized common shares to 120,000,000. The same day the
Company's Board of Directors declared a two-for-one stock split effected in the
form of a stock dividend payable November 3, 1997 to stockholders of record on
October 15, 1997. All share and per share amounts have been adjusted to reflect
this stock split.
5. Pending Acquisition
-------------------
On October 20, 1997, the Company signed an agreement to acquire the assets of
the John J. Nissen Baking companies, a major baker and distributor of fresh
bread to the New England region. Sales of Nissen-branded products exceed $115
million annually. The transaction, which has been cleared by federal
regulators, is scheduled to close in early January 1998.
-7-
<PAGE>
PART II
ITEM 6 - Exhibits and Reports on Form 8-K
a) Exhibits filed with this report
1) 3.3 - Certificate of Amendment to the Restated Certificate of
Incorporation
2) 11 - Schedule regarding computation of per share earnings
3) 27 - Financial data schedule
b) Reports on Form 8-K
1) A Report on Form 8-K was filed by the Company on September 29,
1997. The Report set forth information regarding the approval by
the Company's stockholders of an amendment to the Company's
Restated Certificate of Incorporation which increased the number
of authorized shares of all classes of stock which the Company
has authority to issue from 61,000,000 to 121,000,000. The
Report also disclosed the declaration by the Company's Board of
Directors of (i) the two-for-one stock split effected in the form
of a stock dividend, paid on November 3, 1997 to stockholders of
record of the Company's Common Stock at the close of business on
October 15, 1997 and (ii) the increase in the quarterly cash
dividend to $0.14 per share of Common Stock on a pre-split
basis.
-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 19, 1997 /s/ Charles A. Sullivan
-------------------------------
Charles A. Sullivan, Chairman
and Chief Executive Officer
DATE: December 19, 1997 /s/ John F. McKenny
-------------------------------
John F. McKenny, Vice President/
Corporate Controller and
Principal Accounting Officer
-9-
EXHIBIT 3.3
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)(I) 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 121,000,000 shares, consisting of
120,000,000 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 the Annual Meeting
held on September 23, 1997 in accordance with Section 211(b) of DGCL, has
approved this Certificate of Amendment.
THIRD: That Notice of the Annual 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 August 25, 1997.
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 September 23, 1997.
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
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 15, November 16, November 15, November 16,
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net income $ 34,247 $ 26,242 $ 64,127 $ 44,909
========= ========== ========= ==========
Weighted average common shares
outstanding 73,230 74,880 73,876 74,764
Dilutive stock options 1,495 1,178 1,427 1,050
--------- ---------- --------- ----------
Weighted average common and common
equivalent shares outstanding 74,725 76,058 75,303 75,814
========= ========== ========= ==========
Earnings per share $ .46 $ .35 $ .85 $ .59
========= ========== ========= ==========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF NOVEMBER 15, 1997 AND THE CONSOLIDATED
STATEMENT OF INCOME FOR THE TWENTY-FOUR WEEKS ENDED NOVEMBER 15, 1997 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-30-1998
<PERIOD-END> NOV-15-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 204,611
<ALLOWANCES> 5,035
<INVENTORY> 65,380
<CURRENT-ASSETS> 342,805
<PP&E> 1,098,769
<DEPRECIATION> 301,928
<TOTAL-ASSETS> 1,496,560
<CURRENT-LIABILITIES> 406,752
<BONDS> 209,000
0
0
<COMMON> 787
<OTHER-SE> 532,860
<TOTAL-LIABILITY-AND-EQUITY> 1,496,560
<SALES> 1,517,886
<TOTAL-REVENUES> 1,517,886
<CGS> 714,285
<TOTAL-COSTS> 714,285
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,039
<INCOME-PRETAX> 108,140
<INCOME-TAX> 44,013
<INCOME-CONTINUING> 64,127
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 64,127
<EPS-PRIMARY> .85<F1>
<EPS-DILUTED> 0
<FN>
<F1>THIS EARNINGS PER SHARE AMOUNT HAS BEEN ADJUSTED FOR A TWO-FOR-ONE STOCK
SPLIT EFFECTED IN THE FORM OF A STOCK DIVIDEND PAID BY THE COMPANY ON
NOVEMBER 3, 1997. FINANCIAL DATA SCHEDULES PREVIOUSLY FILED BY THE COMPANY
HAVE NOT BEEN ADJUSTED FOR THIS STOCK SPLIT.
</FN>
</TABLE>
