UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended May 30, 1998
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 1-11165
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INTERSTATE BAKERIES CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 43-1470322
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
12 East Armour Boulevard, Kansas City, Missouri 64111
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (816) 502-4000
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock,
$.01 par value per share New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value per share
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(Title of class)
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
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<PAGE>
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K.
[ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant was $1,090,609,823 as of August 7, 1998. For these purposes only,
the registrant has assumed that shares of Common Stock, $.01 par value per
share, that may be deemed to be beneficially owned by certain members of the
Board of Directors constitute shares held by affiliates of the registrant.
There were 72,164,135 shares of Common Stock, $.01 par value per share,
outstanding as of August 7, 1998.
DOCUMENTS INCORPORATED BY REFERENCE
-----------------------------------
Part and Item Document Incorporated
of Form 10-K: By Reference
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Part II, Item 5 Annual Report*
Part II, Item 6 Annual Report*
Part II, Item 7 Annual Report*
Part II, Item 8 Annual Report*
Part III, Item 10 Proxy Statement**
Part III, Item 11 Proxy Statement**
Part III, Item 12 Proxy Statement**
Part III, Item 13 Proxy Statement**
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* Refers to portions of Registrant's annual report to security
holders with respect to the fiscal year ended May 30, 1998.
** Refers to portions of Registrant's definitive proxy statement
filed on August 20, 1998.
<PAGE>
FORWARD-LOOKING STATEMENTS
Certain statements incorporated by reference or made in this Report,
including those under the captions "Business," "Legal Proceedings" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and elsewhere are "forward-looking statements" within the meaning
of the Private Securities Litigation Reform Act of 1995, and are subject to
the safe harbor created by that Act. Such forward-looking statements include,
without limitation, the future availability and prices of raw materials, the
availability of capital on acceptable terms, the competitiveness of the bread
and cake industry, potential environmental liabilities and other statements
contained herein that are not historical facts. Because such forward-looking
statements involve risks and uncertainties, there are important factors that
could cause actual results to differ materially from those expressed or
implied by such forward-looking statements. Factors that could cause actual
results to differ materially include, but are not limited to, changes in
general economic and business conditions (including in the bread and cake
markets), Interstate Bakeries Corporation's ability to recover its raw
material costs in the pricing of its products, the availability of capital on
acceptable terms, actions of competitors and governmental entities, the extent
to which Interstate Bakeries Corporation is able to develop new products and
markets for its products, the time required for such development, the level of
demand for such products, changes in Interstate Bakeries Corporation's
business strategies and other factors.
<PAGE>
PART I
Item 1. Business
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General
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Interstate Bakeries Corporation ("the Company"), a Delaware corporation
incorporated in 1987, is the largest baker and distributor of fresh bakery
products in the United States. The Company produces, markets, distributes and
sells a wide range of breads, rolls, snack cakes, donuts, sweet goods and
related products. These products are sold under a number of national brand
names, such as "Wonder ," "Hostess " and "Home Pride ," as well as regional
brand names, including "Butternut ," "Dolly Madison " and "Merita ". Based on
independent publicly available market data, "Wonder " white bread and "Home
Pride " wheat bread are the number one and two selling branded breads sold in
the United States. "Hostess " products, including "Twinkies " and "Ho-Hos ,"
are among the leading snack cake products sold in the United States.
The principal executive offices of the Company are located at 12 East
Armour Boulevard, Kansas City, Missouri 64111, and the telephone number is
(816)502-4000.
The Company distributes its products in markets representing
approximately 90% of the United States population. The Company operates 69
bakeries and approximately 1,500 thrift stores and employs over 34,000 people.
Its sales force delivers products directly from the Company's over 1,300
distribution centers to more than 200,000 food outlets and stores.
The Company or its predecessors have baked and distributed fresh bread
and cake products since 1927. The Company has grown to its present size
primarily through acquisitions of other baking businesses. In its 1988 fiscal
year, the Company underwent a change in control through a leveraged buyout
transaction and acquired 10 bakeries in the Southeastern United States. In
July 1991, the Company returned to the public market by issuing shares of
Common Stock. In July 1995, the Company acquired Continental Baking Company
("CBC") from Ralston Purina Company ("Ralston") for $220,000,000 in cash and
33,846,154 shares of Common Stock. Since the acquisition of CBC, the Company
has taken significant steps to continue to build and capitalize on the brand
equity in the "Wonder " and "Hostess " brands. The Company has also worked to
realize cost savings from the CBC acquisition and to achieve economies of
scale in its operations. On July 29, 1997, Ralston issued $479,953,687.50 of
7% Stock Appreciation Income Linked Securities ("SAILS"), which are
exchangeable at maturity, at the option of Ralston, for cash or up to
15,498,000 shares of the Company's Common Stock. Pursuant to the SAILS
transaction, the Company repurchased 2,000,000 shares of its Common Stock from
Ralston for $60,079,375, or $30.0396875 per share, which amount was the
closing sales price of the Common Stock on the New York Stock Exchange on July
23, 1997 of $30.96875 per share, less a 3% discount.
During 1998, the Company has purchased from Ralston 1,200,000 shares of the
Company's Common Stock at a average price of $31.375 per share.
<PAGE>
On September 23, 1997, the Company declared a two-for-one stock split effected
in the form of a stock dividend payable November 3, 1997 to stockholders of
record of the Company's common stock at the close of business October 15,
1997. All share and per share amounts have been adjusted to reflect this
stock split.
Products and Brands
- -------------------
The Company produces, markets, distributes and sells white breads,
variety breads, crusty breads, reduced calorie breads, English muffins, rolls
and buns under a number of well-known national brand names, including
"Wonder," "Home Pride" and "Bread du Jour," and regional brand names
including "Beefsteak," "Buttermaid," "Butternut," "Colombo," "Cotton's
Holsum," "DiCarlo," "Eddy's," "Emperor Norton," "Holsum," "J.J. Nissen,"
"Merita," "Millbrook Farms," "Parisian," "Sweetheart," "Toscano" and
"Weber's"; bagels under the brand name "Braun's"; and croutons under the
brand names "Mrs. Cubbison's" and "Marie Callender's". The Company's snack
cakes, donuts, sweet rolls, snack pies, breakfast pastries, variety cakes,
large cakes and shortcakes are also sold under a number of well-known national
and regional brand names, including "Hostess" and "Dolly Madison." The
Company is also a baker and distributor of "Roman Meal" breads, including
traditional Roman Meal bread, Roman Meal variety breads, Roman Meal light
breads, Roman Meal buns, rolls and English muffins, and Sunmaid raisin bread.
The Company's various brands are positioned across a wide spectrum of consumer
categories and price points.
The Company believes that its brand trademarks such as "Wonder,"
"Hostess," "Home Pride," "Butternut" and "Dolly Madison" and product
trademarks such as "Twinkies," "Ho-Hos" and "Zingers" are of material
importance to its strategy of brand building. The Company also owns a number
of patents related to the processes used in making the Company's bread and
cake products. The Company takes appropriate action from time to time against
third parties to prevent infringement of its trademarks and other intellectual
property. The Company also enters into confidentiality agreements from time
to time with employees and third parties as necessary to protect formulas and
processes used in producing the Company's products.
Marketing and Distribution
- --------------------------
The majority of the Company's bread sales are through supermarkets, while
the Company's cake products are sold principally through supermarkets and
convenience stores. Cake sales tend to be somewhat seasonal, with a
historically weak winter period, which the Company believes is attributable to
home baking and consumption patterns during the holiday season. Spring and
early summer months are historically stronger due to increased sales of
shortcake products during the fresh strawberry season. No single customer
accounts for more than 5% of the Company's net sales.
The Company's marketing and advertising campaigns are conducted through
targeted television and radio advertising, coupons in newspapers and other
printed media.
<PAGE>
The Company distributes its products in markets representing
approximately 90% of the United States population, with its strongest presence
in southern California, the Pacific Northwest, the upper Midwest, the
Northeast, the Mountain States, the Middle Atlantic States and Florida.
With plants and distribution centers across the United States, the Company is
located close to the major marketplaces enabling efficient delivery and
superior customer service. The Company does not keep a backlog of inventory
as its fresh bakery products are promptly distributed to its customers after
being produced.
The Company's fresh bakery products are delivered from the Company's
network of 69 bakeries to its over 1,300 distribution centers. The products
are then delivered primarily to supermarkets and convenience stores by the
Company's sales force on its more than 11,000 delivery routes. Unsold
products are picked up by the Company's sales force and delivered to the
Company's more than 1,500 thrift stores for retail sale. Thrift store sales
represented approximately 12% of the net sales of the Company during the
fifty-two week period ended May 30, 1998.
Sources and Availability of Raw Materials
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The ingredients of bread and cake products, principally flour, sugar and
edible oils, are readily available from numerous sources. Generally, the
Company purchases its commodity requirements on the spot markets, although the
Company attempts to lock in prices for raw materials through advance purchase
contracts, generally not longer than one year in duration, when prices are
expected to increase. Through its program of central purchasing of baking
ingredients and packaging materials, the Company believes it is able to
utilize its national presence to obtain competitive prices. The prices for
raw materials are dependent on a number of factors including the results of
crop production, transportation and processing costs, governmental legislation
and policies and export sales demand. Although commodity prices have been
volatile and may continue to be volatile, historically, the Company has been
able to recover the majority of its commodity cost increases through
increasing prices, switching to a higher-margin revenue mix and obtaining
additional operating efficiencies.
Employees
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The Company employs over 34,000 people. Approximately 80% of the
Company's employees are covered by over 600 union contracts. Most of the
Company's unionized workers are members of either the International
Brotherhood of Teamsters or the Bakery, Confectionery and Tobacco Workers
International Union. None of the 600 individual collective bargaining
agreements is material to the Company's consolidated operations. The Company
believes it has good relations with its union and nonunion employees.
<PAGE>
Competition
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The Company faces intense competition in all of its markets from large,
national bakeries and smaller regional operators, as well as from supermarket
chains with their own bakeries or private label products and grocery stores
with their own in-store bakeries. Competition is based on product quality,
price, brand loyalty, effective promotional activities and the ability to
identify and satisfy emerging consumer preferences. Customer service,
including frequency of deliveries and maintenance of fully stocked shelves, is
also an important competitive factor and is central to the competition for
retail shelf space among bread and cake product distributors. The Earthgrains
Company, Bestfoods and Flowers Industries, Inc. are the Company's largest
bread competitors, each marketing bread products under various brand names.
McKee Foods Corp., Tasty Baking Co. and Entenmann's are the largest
competitors of the Company with respect to cake sales. The Company from time
to time experiences price pressure in certain of its markets as a result of
competitors' promotional pricing practices. However, the Company believes
that its geographic diversity helps to limit the effect of regionally-based
competition.
<PAGE>
Governmental Regulation; Environmental Matters
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The Company's operations are subject to regulation by various federal,
state and local governmental entities and agencies. As a baker of goods for
human consumption, the Company's operations are subject to stringent quality
and labeling standards, including the Federal Food and Drug Act. The
operations of the Company's bakeries and its delivery fleet are subject to
various federal, state and local environmental laws and workplace regulations,
including the Occupational Safety and Health Act, the Fair Labor Standards
Act, the Clean Air Act and the Clean Water Act. The Company believes that its
current legal and environmental compliance programs adequately address such
concerns and that it is in substantial compliance with such applicable laws
and regulations.
The Company has underground fuel storage tanks at various locations
throughout the United States which are subject to federal and state
regulations establishing minimum standards for such tanks and where necessary,
remediation of associated contamination. The Company is presently in the
process of testing and evaluating, and, if necessary, removing, replacing or
upgrading such tanks in order to comply with such laws. In addition, the
Company has received notices from the United States Environmental Protection
Agency, state agencies, and/or private parties seeking contribution, that it
has been identified as a "potentially responsible party" (PRP), under the
Comprehensive Environmental Response, Compensation and Liability Act, as
amended. Because of these activities, the Company may be required to share in
the cost of cleanup with respect to a relatively small number of "Superfund"
sites. The Company's ultimate liability in connection with these sites may
depend on many factors including the volume of material contributed to the
site, the number of other PRP's and their financial viability and the
remediation methods and technology to be used. While it is difficult to
quantify the potential financial impact of actions involving environmental
matters, particularly remediation costs at waste disposal sites and future
capital expenditures for environmental control equipment, in the opinion of
the Company's management, the ultimate liability arising from such
environmental matters, taking into account established accruals for estimated
liabilities, should not be material to the overall financial position of the
Company, but could be material to results of operations or cash flows for a
particular quarter or annual period.
Subsequent Events
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On June 12, 1998, the Company signed an agreement to acquire the My Bread Co.
("My Bread") operation in New Bedford, Massachusetts, from The Earthgrains
Company, in exchange for its Grand Junction, Colorado bakery and an additional
cash payment. My Bread has annual sales of approximately $37 million and
employs over 400 people. The acquisition is subject to regulatory approval.
On August 16, 1998, the Company acquired the assets of the Drake baking
operation in Wayne, New Jersey ("Drake's") from Culinar, Inc. Drake's
employed over 800 people, sold cake products throughout the northeastern
United States and had annual sales of approximately $115 million. The
acquisition was financed with borrowings under a new $125,000,000 short-term
credit facility from a major bank. The short-term credit facility is expected
to be replaced with a new senior debt issuance during the second quarter of
fiscal 1999.
<PAGE>
Item 2. Properties
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Bakeries
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The Company produces substantially all of its products through its
national network of 69 bakeries. All of the Company's bakeries are owned with
the exception of a bakery in San Diego, Castroville and Montebello,
California, which are leased premises. The Company's bakeries are located as
follows:
Akron, Ohio Memphis, Tennessee
Alexandria, Louisiana Miami, Florida
Anchorage, Alaska Milwaukee, Wisconsin
Billings, Montana Minonk, Illinois
Birmingham, Alabama Minot, North Dakota
Boise, Idaho Monroe, Louisiana
Boonville, Missouri Montebello, California
Buffalo, New York Natick, Massachusetts
Castroville, California Oakland, California
Central Falls, Rhode Island Ogden, Utah
Charlotte, North Carolina Orlando, Florida
Cincinnati, Ohio Peoria, Illinois
Columbus, Georgia Philadelphia, Pennsylvania
Columbus, Indiana Pomona, California
Columbus, Ohio Portland, Maine
Davenport, Iowa Portland, Oregon
Decatur, Illinois Richmond, Virginia
Denver, Colorado Roanoke, Virginia
Detroit, Michigan Rocky Mount, North Carolina
Emporia, Kansas Sacramento, California (2)
Florence, South Carolina Salt Lake City, Utah
Glendale, California San Diego, California (2)
Grand Junction, Colorado San Francisco, California (2)
Grand Rapids, Michigan San Pedro, California
Hodgkins, Illinois Schiller Park, Illinois
Indianapolis, Indiana Seattle, Washington (2)
Jacksonville, Florida Spokane, Washington
Jamaica, New York Springfield, Missouri
Kansas City, Missouri St. Louis, Missouri
Knoxville, Tennessee Tampa, Florida
Los Angeles, California (3) Tulsa, Oklahoma
Waterloo, Iowa
The Company attempts to realize operating synergies through consolidation
of redundant facilities. In January 1998, the Company acquired the assets of
the John J. Nissen Baking companies, a major New England baker with bakeries
in Portland, Maine, Central Falls, Rhode Island and Worcester, Massachusetts.
The Worcester facility has been closed and the Company has announced the
closing of the Central Falls bakery. As part of the acquisition, the Company
also acquired a bakery under construction in Biddeford, Maine which is
expected to cost approximately $60 million.
<PAGE>
The Company also makes capital investments to update or retrofit its
facilities to produce new products on existing lines and to increase line
speeds. The Company just completed a $20 million expansion and modernization
of its Rocky Mount, North Carolina bakery to produce bread and buns for sale
in the Southeast United States and is constructing a new $27 million bread
bakery in Northwood, Ohio. The Company believes that its other facilities are
well maintained but continues to pursue opportunities to enhance operating
efficiencies through strategic capital investment.
Other Properties
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The Company's over 1,300 distribution centers and approximately 1,500
thrift stores are located throughout the Company's distribution area.
Generally, each thrift store is between 500 and 1,600 square feet in size.
Most of the stores are located at the Company's distribution centers, with the
remainder located along the Company's distribution routes. The majority of
the Company's distribution centers and thrift stores are located in leased
premises.
Item 3. Legal Proceedings
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The Company has been named as a defendant in various claims arising out
of its normal business operations. Based upon the facts available to date,
management believes that the Company has meritorious defenses to these actions
and that their ultimate resolution will not have a material adverse effect on
the Company's financial position.
Item 4. Submission of Matters to a Vote of Security Holders
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Not applicable.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
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Matters
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The section entitled "Common Stock Information" appearing on page 1 of
the Annual Report is incorporated herein by this reference. Note 2, entitled
"Description of Business and Significant Accounting Policies", specifically
the section subtitled "Stock Split" appearing on page 25 of the Annual Report
is also incorporated herein by this reference. Note 3, entitled "Debt", to
the consolidated financial statements appearing on page 26 of the Annual
Report is also incorporated herein by this reference with regard to
limitations on cash dividends and Common Stock repurchases. The section
entitled, "Management's Discussion and Analysis of Financial Condition and
Results of Operations", specifically the subsection entitled "Capital
Resources and Liquidity" appearing on page 19 of the Annual Report is also
incorporated herein by this reference with regard to planned common stock
repurchases and dividend payments on the Common Stock. The 33,846,154
unregistered shares of the Company's Common Stock issued to Ralston on
July 22, 1995 in connection with the Company's acquisition of CBC, were issued
in reliance upon Section 4(2) of the Securities Act of 1933, as amended, as a
transaction by an issuer not involving any public offering.
<PAGE>
Item 6. Selected Financial Data
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The section entitled "Five-Year Summary of Financial Data", appearing on
page 17 of the Annual Report, is incorporated herein by this reference.
Item 7. Management's Discussion and Analysis of Financial Condition and
- ------ ---------------------------------------------------------------
Results of Operations
---------------------
The section entitled "Management's Discussion and Analysis of Financial
Condition and Results of Operations" appearing on pages 18 to 19 of the Annual
Report is incorporated herein by this reference.
Item 8. Financial Statements and Supplementary Data
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The consolidated financial statements and accompanying notes and the
Independent Auditors' Report appearing on pages 20 to 31 of the Annual Report
are incorporated herein by this reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
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Financial Disclosure
--------------------
Not applicable.
PART III
The information required by Part III (Item 10, 11, 12 and 13) is
incorporated herein by reference to the Company's definitive proxy statement,
involving the election of directors and ratification of independent auditors
filed on August 20, 1998.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K
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(a) Documents Filed as Part of this Report:
1. Financial Statements
The following financial statements and report included in the
Company's Annual Report are incorporated herein by reference:
Consolidated Balance Sheet at May 30, 1998 and May 31,
1997.
For the 52 weeks ended May 30, 1998, May 31, 1997 and
June 1, 1996:
Consolidated Statement of Income
Consolidated Statement of Cash Flows
Consolidated Statement of Stockholders' Equity
Notes to Consolidated Financial Statements
Independent Auditors' Report dated July 15, 1998
2. Financial Statement Schedule
The following report and schedule are filed herewith as a
part hereof:
Independent Auditors' Report dated July 15, 1998
Schedule for the 52 weeks ended May 30, 1998, May 31,
1997 and June 1, 1996:
II Valuation and Qualifying Accounts
All other schedules have been omitted since the required
information is not present or not present in amounts
sufficient to require submission of the schedule, or because
the information required is included in the consolidated
financial statements or the notes thereto.
3. Exhibits
The exhibits are listed in the Exhibit Index. Copies of
certain documents have not been filed as exhibits, in
reliance upon paragraph (b)(4)(iii) of Item 601 of
Regulation S-K. Registrant agrees to furnish a copy of any
such instrument to the Securities and Exchange Commission
upon request.
(b) Reports on Form 8-K:
--------------------
No reports on Form 8-K were filed in the last quarter of the
fiscal year to which this Annual Report on Form 10-K relates.
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) 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
Dated: August 19, 1998 By: /s/ Charles A. Sullivan
-------------------------------
Charles A. Sullivan
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated and on the dates indicated.
Capacities
Name of Signatory In Which Signing Date
- ----------------- ---------------- ----
/s/ Charles A. Sullivan Chairman of the Board, August 19, 1998
- ----------------------- Chief Executive Officer
Charles A. Sullivan and Director (Principal
Executive Officer)
/s/ Michael J. Anderson Director August 19, 1998
- -----------------------
Michael J. Anderson
/s/ G. Kenneth Baum Director August 19, 1998
- -------------------
G. Kenneth Baum
/s/ Leo Benatar Director August 19, 1998
- ---------------
Leo Benatar
/s/ E. Garrett Bewkes, Jr. Director August 19, 1998
- --------------------------
E. Garrett Bewkes, Jr.
/s/ Philip Briggs Director August 19, 1998
- -----------------
Philip Briggs
/s/ Robert B. Calhoun, Jr. Director August 19, 1998
- --------------------------
Robert B. Calhoun, Jr.
<PAGE>
/s/ Frank E. Horton Director August 19, 1998
- -------------------
Frank E. Horton
/s/ James R. Elsesser Director August 19, 1998
- ---------------------
James R. Elsesser
/s/ Paul E. Yarick Vice President and Treasurer August 19, 1998
- ------------------ (Principal Financial Officer)
Paul E. Yarick
/s/ John F. McKenny Vice President and Corporate August 19, 1998
- ------------------- Controller (Principal
John F. McKenny Accounting Officer)
<PAGE>
INDEPENDENT AUDITORS' REPORT
Interstate Bakeries Corporation
We have audited the consolidated financial statements of Interstate
Bakeries Corporation and its subsidiaries as of May 30, 1998 and May 31, 1997,
and for each of the three fiscal years in the period ended May 30, 1998, and
have issued our report thereon dated July 15, 1998; such consolidated
financial statements and report are included in your 1998 Annual Report to
Stockholders and are incorporated herein by reference. Our audits also
included the consolidated financial statement schedule of Interstate Bakeries
Corporation and its subsidiaries, listed on Item 14. This consolidated
financial statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits.
In our opinion, such consolidated financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.
/s/ Deloitte & Touche LLP
Kansas City, Missouri
July 15, 1998
<PAGE>
INTERSTATE BAKERIES CORPORATION
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
FIFTY-TWO WEEKS ENDED MAY 30, 1998, MAY 31, 1997
AND JUNE 1, 1996
(In Thousands)
Balance at Additions Accounts Balance
beginning charged charged at end
Description of period to income off of period
- ----------- ---------- --------- -------- ---------
1998:
Reserve for
discounts
and allow-
ances on
accounts
receivable $ 7,977 $(2,663) $ - $ 5,314
Allowance for
doubtful
accounts 4,577 1,853 2,323 4,107
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$12,554 $ (810) $ 2,323 $ 9,421
======= ======= ======= =======
1997:
Reserve for
discounts
and allow-
ances on
accounts
receivable $ 7,414 $ 563 $ - $ 7,977
Allowance for
doubtful
accounts 3,606 2,478 1,507 4,577
------- ------- ------- -------
$11,020 $ 3,041 $ 1,507 $12,554
======= ======= ======= =======
1996:
Reserve for
discounts
and allow-
ances on
accounts
receivable $ 8,404 $ (990) $ - $ 7,414
Allowance for
doubtful
accounts 3,744 621 759 3,606
------- ------- ------- -------
$12,148(1) $ (369) $ 759 $11,020
======= ======= ======= =======
(1) Restated to include opening balance of Continental Baking Company acquired
on July 22, 1995.
<PAGE>
EXHIBIT INDEX
-------------
Exhibit
No. Exhibit
- ------- -------
3.1 Restated Certificate of Incorporation of Interstate Bakeries
Corporation, as amended (incorporated herein by reference to
Exhibit 3.1 to the Annual Report on Form 10-K of Interstate
Bakeries Corporation filed on August 30, 1995).
3.2 Restated Bylaws of Interstate Bakeries Corporation (incorporated
herein by reference to Exhibit 3.2 to the Annual Report on
Form 10-K of Interstate Bakeries Corporation filed on August 30,
1991 (the "1991 10-K")).
4.1 Article FOURTH of Restated Certificate of Incorporation of
Interstate Bakeries Corporation (incorporated herein by reference
to Exhibit A to the Proxy Statement relating to the 1997 Annual
Meeting of Stockholders of Interstate Bakeries Corporation).
10.1 Interstate Bakeries Corporation 1991 Stock Option Plan
(incorporated herein by reference to Exhibit 10.1 to the
Registration Statement on Form S-1 of Interstate Bakeries
Corporation, File No. 33-40830 (the "Form S-1")).
10.2 Employment Agreement, dated as of March 1, 1989, by and among
Interstate Bakeries Corporation, Interstate Brands Corporation and
Charles A. Sullivan (incorporated herein by reference to
Exhibit 10.2 to the Form S-1).
10.4 Memorandum of Agreement, dated as of May 16, 1991, by and among
Interstate Bakeries Corporation, Interstate Brands Corporation and
Charles A. Sullivan (incorporated herein by reference to
Exhibit 10.4 to the Form S-1).
10.5 Restated Memorandum of Agreement dated as of July 22, 1992 by and
among Interstate Bakeries Corporation, Interstate Brands
Corporation and Charles A. Sullivan (incorporated herein by
reference to Exhibit 10.5 to the Annual Report on Form 10-K of
Interstate Bakeries Corporation filed on August 20, 1992).
10.6 Credit Agreement, dated May 31, 1995, signed by Interstate Brands
Corporation, Chemical Bank, the Lenders and Issuing Bank (as
defined therein) (incorporated by reference to Exhibit 1 to the
Form 8-K filed on June 9, 1995).
10.7 Interstate Bakeries Corporation 1996 Stock Incentive Plan
(incorporated by reference to Exhibit A to the Proxy Statement
relating to the 1996 Annual Meeting of Stockholders of Interstate
Bakeries Corporation).
11.1 Statement regarding computation of per share earnings.*
<PAGE>
13.1 Page 1 and pages 17 to 31 of the Interstate Bakeries Corporation
annual report to security holders for the year ended May 30,
1998. (Those portions of the annual report to security holders
not listed here shall not be deemed to be filed as a part of this
Report.)*
21.1 Subsidiaries of Interstate Bakeries Corporation.*
-------------------------
* Filed herewith.
EXHIBIT 11.1
INTERSTATE BAKERIES CORPORATION
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
(In Thousands, Except Per Share Data)
52 Weeks 52 Weeks 52 Weeks
Ended Ended Ended
May 30, May 31, June 1,
1998 1997 1996
-------- -------- --------
Net income $127,924 $97,177 $24,463
======== ======= =======
Basic weighted average common
shares outstanding 73,512 74,928 69,202
Effect of dilutive stock
compensation 1,333 1,272 766
-------- ------- -------
Diluted weighted average common
shares outstanding 74,845 76,200 69,968
======== ======= =======
Earnings per share:
Basic $ 1.74 $ 1.30 $ .35
======== ======= =======
Diluted $ 1.71 $ 1.28 $ .35
======== ======= =======
FINANCIAL HIGHLIGHTS
- --------------------
(In Thousands, Except Per Share Data)
52 Weeks 52 Weeks 52 Weeks
Ended Ended Ended
May 30, May 31, June 1,
1998 1997 1996(2)
------------ ------------ ------------
Statement of Income
Net sales $3,265,842 $3,212,431 $2,878,180
Operating income 231,592 191,143 78,758(3)
% of net sales 7.1% 6.0% 2.7%
Net income $ 127,924 $ 97,177 $ 24,463(3)
% of net sales 3.9% 3.0% 0.8%
Per common share(1):
Net income (diluted basis) $ 1.71 $ 1.28 $ .35(3)
Book value 7.77 7.17 6.17
Common stock dividends .28 .27 .25
Avg. diluted shares
outstanding (1) 74,845 76,200 69,968
May 30, May 31, June 1,
1998 1997 1996(2)
------------ ------------ ------------
Balance Sheet
Total assets $1,549,986 $1,493,087 $1,486,460
Long-term debt 261,000 251,000 303,651
Stockholders' equity 565,155 538,722 460,247
Debt to total capital 31.6% 31.8% 39.8%
(1) All per share and average shares outstanding amounts have been
adjusted for (a) a 2-for-1 stock split effected in the form of a stock
dividend paid by the Company on November 3, 1997 and (b) the adoption of
SFAS No. 128 which defines the computation of basic and diluted earnings
per share.
(2) Fiscal 1996 includes the operations of Continental Baking Company for 45
weeks from its acquisition on July 22, 1995.
(3) Fiscal 1996 includes a charge of $9,500,000 ($5,738,000 and $.08 per basic
and diluted share on an after-tax basis) resulting from a payment due a
union-administered multi-employer pension plan which failed.
[This page includes 4 bar graphs which depict net sales, operating income, net
income and stockholders' equity for fiscal 1996, 1997 and 1998. All numbers
presented in these graphs are included in tabular form above.]
<PAGE>
COMMON STOCK INFORMATION
- ------------------------
The Company's common stock is listed on the New York Stock Exchange and is
traded under the symbol IBC. The table below presents the high and low sales
prices for the stock and cash dividends paid during fiscal 1998 and 1997:
Stock Price
Fiscal --------------------- Cash
Year Quarter High Low Dividends
------ --------- -------- -------- ------------
1998 1 $32.1875 $27.3125 $.0675
2 36.7813 28.7813 .0700
3 37.3750 32.0000 .0700
4 33.6250 30.1875 .0700
1997 1 $15.0625 $12.7500 $.0625
2 22.6250 14.8125 .0675
3 25.5000 21.1250 .0675
4 27.5625 23.1875 .0675
The Company had approximately 5,600 shareholders at May 30, 1998.
-1-
<PAGE>
INTERSTATE BAKERIES CORPORATION
FIVE-YEAR SUMMARY OF FINANCIAL DATA
<TABLE>
<CAPTION>
(In Thousands, Except Per Share Data)
52 Weeks 52 Weeks 52 Weeks 53 Weeks 52 Weeks
Ended Ended Ended Ended Ended
May 30, May 31, June 1, June 3, May 28,
1998 1997 1996<2> 1995 1994
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Statement of Income
Net sales $3,265,842 $3,212,431 $2,878,180 $1,222,779 $1,142,684
Operating income 231,592 191,143 78,758<3> 57,293 46,883<4>
% of net sales 7.1% 6.0% 2.7% 4.7% 4.1%
Net income $ 127,924 $ 97,177 $ 24,463<3> $ 20,697 $ 15,754<4>
Earnings per share:
Basic <1> 1.74 1.30 .35<3> .53 .39<4>
Diluted <1> 1.71 1.28 .35<3> .53 .39<4>
Common stock dividends
per share <1> .28 .27 .25 .25 .25
Weighted average common
shares outstanding:
Basic <1> 73,512 74,928 69,202 39,278 40,504
Diluted <1> 74,845 76,200 69,968 39,414 40,612
Balance Sheet
Total assets $1,549,986 $1,493,087 $1,486,460 $ 598,441 $ 574,791
Long-term debt, excluding
current maturities 261,000 251,000 303,651 212,205 201,235
Stockholders' equity 565,155 538,722 460,247 198,037 187,441
Debt to total capital 31.6% 31.8% 39.8% 51.7% 51.8%
<F1> All per share and average shares outstanding amounts have been adjusted for (a) a 2-for-1
stock split effected in the form of a stock dividend paid by the Company on November 3, 1997 and (b)
the adoption of SFAS No. 128 which defines the computation of basic and diluted earnings per share.
<F2> Fiscal 1996 includes the operations of Continental Baking Company for 45 weeks from its acquisition on
July 22, 1995.
<F3> Fiscal 1996 includes a charge of $9,500,000 ($5,738,000 and $.08 per basic and diluted share on an
after-tax basis) resulting from a payment due a union-administered multi-employer pension plan which
failed.
<F4> Fiscal 1994 includes a charge of $9,400,000 ($5,687,000 net of tax, or $.14 per basic and diluted
share), related to a plant disposal and environmental matters.
</TABLE>
-17-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Fiscal 1998 Compared With Fiscal 1997
Net sales for the fifty-two weeks ended May 30, 1998 were $3,265,842,000,
increasing $53,411,000 and 1.7%, over net sales of $3,212,431,000 for the
fifty-two weeks ended May 31, 1997. Excluding the impact of acquisitions and
dispositions, net sales for fiscal 1998 were up only slightly over fiscal
1997. Selling prices remained relatively steady, as did overall unit volume.
Branded units, after adjusting for acquisitions and dispositions, were up
slightly more than 1% while non-branded units were down due to an emphasis on
selling higher-margin, branded products.
Gross profit for fiscal 1998 was $1,723,922,000, representing 52.8% of net
sales, an increase of $77,756,000 over gross profit of $1,646,166,000, or
51.2% of net sales, in fiscal 1997. This improvement in fiscal 1998 was
attributable to lower ingredient costs, primarily flour, as well as favorable
mix changes to higher-margin, branded products. These positive factors were
partially offset by higher labor and labor-related costs experienced in fiscal
1998.
Selling, delivery and administrative expenses were $1,389,627,000, or 42.6% of
net sales, for fiscal 1998 compared to $1,352,026,000, or 42.1% of net sales,
for fiscal 1997. The 2.8% year-over-year dollar increase in selling, delivery
and administrative expenses resulted from inflationary increases, primarily in
labor and labor-related costs, as well as the impact of acquisitions, net of
dispositions.
Reflecting these factors, operating income for fiscal 1998 rose $40,449,000,
or 21.2%, to $231,592,000, representing 7.1% of net sales, from $191,143,000,
or 6.0% of net sales, in fiscal 1997.
Interest expense decreased $3,968,000, or 17.6%, in fiscal 1998 to $18,624,000
from $22,592,000 in fiscal 1997. This decrease was due to somewhat lower
average borrowing levels and interest rates, as well as increased interest
capitalized on major capital projects during fiscal 1998.
The fiscal 1998 effective tax rate of 40.1% approximates the statutory rate,
while the fiscal 1997 rate of 42.6% reflects the nondeductibility of
amortization of various intangibles.
Based upon these overall results, net income for fiscal 1998 increased
$30,747,000, or 31.6%, to $127,924,000 from $97,177,000 in fiscal 1997.
Reflecting this increase, basic earnings per share improved 33.8% to $1.74 per
share in fiscal 1998 from $1.30 per share in fiscal 1997, while diluted
earnings per share improved 33.6% to $1.71 per share from $1.28 per share.
Fiscal 1997 per share amounts have been adjusted for a two-for-one stock split
effected in the form of a stock dividend paid November 3, 1997, as well as the
fiscal 1998 adoption of Statement of Financial Accounting Standards ("SFAS")
No. 128, "Earnings per Share", which defines the computation of basic and
diluted earnings per share.
<PAGE>
Fiscal 1997 Compared With Fiscal 1996
Net sales for the fifty-two weeks ended May 31, 1997 were $3,212,431,000, an
increase of $334,251,000 and 11.6% over net sales of $2,878,180,000 for the
fifty-two weeks ended June 1, 1996. This increase in net sales was primarily
attributable to the acquisition of Continental Baking Company ("CBC") on July
22, 1995, with fiscal 1996 results reflecting only forty-five weeks of CBC's
operations. Excluding the impact of fiscal 1997 acquisitions and
dispositions, net sales rose approximately 3.8%.
Fiscal 1997's gross profit was $1,646,166,000, or 51.2% of net sales, up
$221,177,000 from gross profit of $1,424,989,000, or 49.5% of net sales, in
fiscal 1996. This margin improvement resulted from synergies realized through
continuing integration of existing and acquired operations, particularly
product sourcing efficiencies, 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 totaled $1,352,026,000, or 42.1%
of net sales, for fiscal 1997 compared to $1,236,586,000, or 43.0% of net
sales, 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 in fiscal 1997.
Included in fiscal 1996 were other charges of $9,500,000 ($5,738,000 and $.08
per basic and diluted share on an after-tax basis) resulting from a payment
due a union-administered multi-employer pension plan which failed.
Based upon these factors, operating income for fiscal 1997 was $191,143,000,
or 6.0% of net sales, a $112,385,000 and 142.7% increase over fiscal 1996's
operating income of $78,758,000, or 2.7% of net sales.
Interest expense for fiscal 1997 was $22,592,000, a decrease of $6,718,000
from fiscal 1996. The lower expense reflects both lower average borrowing
levels and lower interest rates.
-18-
The fiscal 1997 effective tax rate of 42.6%, as well as the fiscal 1996 rate
of 51.4%, reflects the nondeductibility of amortization of various
intangibles.
Reflecting the improved operations, net income for fiscal 1997 improved to
$97,177,000, or $1.30 and $1.28 per basic and diluted share, respectively, up
from $24,463,000, or $.35 per basic and diluted share, for fiscal 1996, a
diluted earnings per share improvement of 266%. Per share amounts have been
adjusted for a fiscal 1998 two-for-one stock split, as well as the fiscal 1998
adoption of SFAS No. 128.
<PAGE>
CAPITAL RESOURCES AND LIQUIDITY
The Company's primary source of liquidity is cash provided by operations which
totaled $201,622,000 for fiscal 1998, an increase of $5,449,000 over fiscal
1997's $196,173,000. This increase represents improved operations, offset by
less favorable changes in working capital components. Cash generated by
operations during fiscal 1998, along with additional bank borrowings of
$35,000,000 and stock issuance proceeds of $10,630,000, was used to fund net
capital expenditures of $93,651,000, common stock repurchases of $91,687,000,
acquisitions of $43,743,000 and common stock dividends of $20,434,000.
For fiscal 1999, the Company anticipates cash needs of approximately
$240,000,000, consisting of $95,000,000 of planned capital expenditures,
$25,000,000 of required debt reduction, $20,000,000 of common stock dividends
and approximately $100,000,000 for two recently announced acquisitions. Both
of the acquisitions are subject to regulatory approval, with closing dates
expected to shortly follow such approval. The Company expects these cash
needs to be funded by ongoing operations, borrowing capacity under its
existing bank credit facility and a new $125,000,000 short-term credit
facility from a major bank. The short-term credit facility is expected to be
replaced with a new senior debt issuance during the second quarter of fiscal
1999. In addition, the Company will continue to evaluate among its investment
alternatives the repurchase of additional shares of its common stock under its
stock repurchase program.
YEAR 2000 COMPLIANCE
The Company has been assessing the impact that the turn of the century will
have on its internal computer systems for several years. The Company has
developed an overall plan to evaluate and correct all date-related computer
system issues by mid-summer of 1999. This evaluation and correction process
has already been completed on a number of the Company's most critical systems,
with testing of changes already in process. The Company is also in the
process of communicating with significant suppliers and customers to ascertain
the status of their year 2000 compliance programs.
Based upon efforts to date and the assumed continued implementation of its
year 2000 compliance plan, the Company does not anticipate that year 2000
issues will significantly impact the business or that the costs associated
with year 2000 compliance will have a material impact on future consolidated
financial position, results of operations or cash flows of the Company.
NEW ACCOUNTING STANDARDS
See Note 2 to the Company's consolidated financial statements for discussions
on new accounting standards relating to (1) other comprehensive income, (2)
segment disclosures, (3) derivative instruments and hedging activities and (4)
disclosures about pension and other postretirement benefit plans.
<PAGE>
FORWARD-LOOKING STATEMENTS
The Company or its representatives may from time-to-time provide information,
in either written or oral form, which contains forward-looking statements as
defined in the Private Securities Litigation Reform Act of 1995. In receiving
and reviewing such information, it should be kept in mind that forward-looking
statements are subject to certain risks and uncertainties which could cause
actual results to differ materially from those discussed or projected.
Factors which create these risks and uncertainties can be either internal to
the Company or related to general external market conditions.
-19-
<PAGE>
INTERSTATE BAKERIES CORPORATION
CONSOLIDATED BALANCE SHEET
(In Thousands)
May 30, May 31,
1998 1997
----------- -----------
Assets
Current assets:
Accounts receivable, less allowance for
doubtful accounts of $4,106,000
($4,577,000 in 1997) $ 198,644 $ 190,747
Inventories 66,427 63,962
Other current assets 69,387 70,453
---------- ----------
Total current assets 334,458 325,162
---------- ----------
Property and equipment:
Land and buildings 343,339 291,526
Machinery and equipment 849,671 784,910
---------- ----------
1,193,010 1,076,436
Less accumulated depreciation (344,130) (269,153)
---------- ----------
Net property and equipment 848,880 807,283
---------- ----------
Intangibles 366,648 360,642
---------- ----------
$1,549,986 $1,493,087
========== ==========
<PAGE>
Liabilities and Stockholders' Equity
Current liabilities:
Long-term debt payable within one year $ 25,000 $ -
Accounts payable 146,852 146,638
Accrued expenses 193,236 201,878
---------- ----------
Total current liabilities 365,088 348,516
---------- ----------
Long-term debt 261,000 251,000
Other liabilities 236,506 230,967
Deferred income taxes 122,237 123,882
---------- ----------
Total long-term liabilities 619,743 605,849
---------- ----------
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 - 79,126,000 shares
(78,531,000 in 1997) 791 785
Additional paid-in capital 539,359 528,735
Retained earnings 150,718 43,228
Treasury stock, at cost - 6,382,000 shares
(3,417,000 in 1997) (125,713) (34,026)
---------- ----------
Total stockholders' equity 565,155 538,722
---------- ----------
$1,549,986 $1,493,087
========== ==========
See accompanying notes.
-20-
<PAGE>
INTERSTATE BAKERIES CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(In Thousands, Except Per Share Data)
52 Weeks 52 Weeks 52 Weeks
Ended Ended Ended
May 30, May 31, June 1,
1998 1997 1996
---------- ---------- ----------
Net sales $3,265,842 $3,212,431 $2,878,180
---------- ---------- ----------
Cost of products sold 1,541,920 1,566,265 1,453,191
Selling, delivery and
administrative expenses 1,389,627 1,352,026 1,236,586
Other charges - - 9,500
Depreciation and amortization 102,703 102,997 100,145
---------- ---------- ----------
3,034,250 3,021,288 2,799,422
---------- ---------- ----------
Operating income 231,592 191,143 78,758
---------- ---------- ----------
Other income (594) (747) (887)
Interest expense 18,624 22,592 29,310
---------- ---------- ----------
18,030 21,845 28,423
---------- ---------- ----------
Income before income taxes 213,562 169,298 50,335
Provision for income taxes 85,638 72,121 25,872
---------- ---------- ----------
Net income $ 127,924 $ 97,177 $ 24,463
========== ========== ==========
Earnings per share:
Basic $ 1.74 $ 1.30 $ .35
========== ========== ==========
Diluted $ 1.71 $ 1.28 $ .35
========== ========== ==========
See accompanying notes.
-21-
<PAGE>
INTERSTATE BAKERIES CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(In Thousands)
52 Weeks 52 Weeks 52 Weeks
Ended Ended Ended
May 30, May 31, June 1,
1998 1997 1996
-------- -------- --------
Cash flows from operating activities:
Net income $127,924 $ 97,177 $ 24,463
Depreciation and amortization 102,703 102,997 100,145
Other (12,226) (7,171) (4,468)
Change in operating assets
and liabilities:
Accounts receivable 507 (11,209) (5,958)
Inventories (1,042) 3,292 (233)
Other current assets 1,121 (1,761) (10,497)
Accounts payable and accrued expenses (17,365) 12,848 60,934
-------- -------- --------
Cash from operating activities 201,622 196,173 164,386
-------- -------- --------
Cash flows from investing activities:
Acquisitions (43,743) (43,618) (225,912)
Additions to property and equipment (97,664) (78,418) (47,658)
Sale of assets 4,013 19,291 1,945
Other 2,263 (521) (697)
-------- -------- --------
Cash from investing activities (135,131) (103,266) (272,322)
-------- -------- --------
Cash flows from financing activities:
Reduction of long-term debt - (126,205) (134,030)
Addition to long-term debt 35,000 52,000 245,000
Common stock dividends paid (20,434) (19,857) (16,342)
Stock option exercise proceeds and
related tax benefits 10,630 13,636 11,339
Acquisition of treasury stock (91,687) (12,481) (519)
Other - - (1,238)
-------- -------- --------
Cash from financing activities (66,491) (92,907) 104,210
-------- -------- --------
Change in cash and cash equivalents - - (3,726)
Cash and cash equivalents:
Beginning of period - - 3,726
-------- -------- --------
End of period $ - $ - $ -
======== ======== ========
Cash payments made:
Interest $ 19,859 $ 22,226 $ 28,710
Income taxes 84,009 63,402 24,162
See accompanying notes.
-22-
<PAGE>
INTERSTATE BAKERIES CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
(In Thousands)
Common
Stock Issued Treasury Stock
--------------- Retained ------------------
Number Additional Earnings Number
of Par Paid-in (Accumulated of
Shares Value Capital Deficit) Shares Cost
------ ----- ---------- ------------ ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance June 3, 1995 42,113 $421 $260,855 $(42,213) (2,843) $ (21,026)
Net income - - - 24,463 - -
Shares issued for an
acquisition 33,846 339 242,931 - - -
Stock options exercised
and related tax benefits 1,511 15 11,323 - - -
Dividends paid -
$.25 per share - - - (16,342) - -
Treasury stock acquired - - - - (55) (519)
------ ---- -------- -------- ------ ---------
Balance June 1, 1996 77,470 775 515,109 (34,092) (2,898) (21,545)
Net income - - - 97,177 - -
Stock options exercised
and related tax benefits 1,061 10 13,626 - - -
Dividends paid -
$.27 per share - - - (19,857) - -
Treasury stock acquired - - - - (519) (12,481)
------ ---- -------- -------- ------ ---------
Balance May 31, 1997 78,531 785 528,735 43,228 (3,417) (34,026)
Net income - - - 127,924 - -
Stock options exercised
and related tax benefits 595 6 10,624 - - -
Dividends paid -
$.28 per share - - - (20,434) - -
Treasury stock acquired - - - - (2,965) (91,687)
------ ---- -------- -------- ------ ---------
Balance May 30, 1998 79,126 $791 $539,359 $150,718 (6,382) $(125,713)
====== ==== ======== ======== ====== =========
</TABLE>
See accompanying notes.
-23-
<PAGE>
INTERSTATE BAKERIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Acquisitions
On January 4, 1998, Interstate Bakeries Corporation (the "Company") acquired
the assets of the John J. Nissen Baking companies ("Nissen"), a major baker
and distributor of fresh bread to the New England region. Nissen had annual
net sales of approximately $115 million and employed 1,000 people at three
bakery locations. The acquisition has been accounted for as a purchase.
On March 29, 1997, the Company purchased the assets comprising the San
Francisco French Bread Company ("SFFB") from Metz Baking Company. SFFB
produced and distributed sourdough bread and rolls throughout Northern
California and in the San Diego area, had net sales in calendar 1996 of
approximately $95 million and employed 1,100 people at five bakery locations.
In addition, in April 1997, the Company acquired the right to use the "Marie
Callender's" trademark in conjunction with the manufacture, marketing,
distribution and sale of croutons. These acquisitions were accounted for as
purchases.
On July 22, 1995, the Company acquired Continental Baking Company ("CBC") from
Ralston Purina Company ("RPC") for a total purchase price of $220,000,000 in
cash and 33,846,154 shares of the Company's common stock. 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 currently owns approximately 42% of the Company's common
stock. On July 29, 1997, RPC issued $479,954,000 of 7% Stock Appreciation
Income Linked Securities, which are exchangeable at maturity, at the option of
RPC, for cash or up to 15,498,000 shares 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.
The acquisition of CBC has been accounted for as a purchase and the results of
CBC have been included in the accompanying consolidated financial statements
since the date of the acquisition. The cash and stock portions of the
purchase price, including fees and expenses, were as follows:
(In Thousands)
Estimated fair value of net assets acquired $ 472,284
Common stock issued (243,269)
---------
Cash paid for acquisition of CBC $ 229,015
=========
<PAGE>
The pro forma unaudited consolidated results of operations as though CBC had
been acquired as of the beginning of fiscal 1996 are as follows:
(In Thousands, Except
Per Share Data)
52 Weeks
Ended
June 1,
1996
----------
Net sales $3,140,501
Net income 25,830
Earnings per share:
Basic .35
Diluted .35
Pro forma data does not purport to be indicative of the results that would
have been obtained had these events actually occurred at the beginning of the
periods presented and is not intended to be a projection of future results.
2. Description of Business and Significant Accounting Policies
Description of business - The Company is the largest baker and distributor of
fresh bakery products in the United States.
Fiscal year end - The Company has a 52-53 week year that ends on the Saturday
closest to the last day of May.
Principles of consolidation - The consolidated financial statements include
the accounts of the Company and its subsidiaries. All significant
intercompany accounts and transactions have been eliminated.
Inventories - Inventories are stated at the lower of cost or market.
Specific invoiced costs are used with respect to ingredients and average
costs are used for other inventory items.
The components of inventories are as follows:
(In Thousands)
May 30, May 31,
1998 1997
-------- --------
Ingredients and packaging $43,534 $43,195
Finished goods 16,996 14,420
Other 5,897 6,347
------- -------
$66,427 $63,962
======= =======
Property and equipment - Property and equipment are recorded at cost and
depreciated over estimated useful lives of 4 to 35 years, using the
straight-line method for financial reporting purposes and accelerated methods
for tax purposes.
-24-
<PAGE>
Depreciation expense was $91,296,000, $89,507,000 and $85,747,000 for fiscal
1998, 1997 and 1996, respectively. Interest cost capitalized as part of the
construction cost of capital assets was $1,707,000 and $555,000 in fiscal 1998
and 1997, respectively.
Intangibles - Included in intangibles, which are being amortized using the
straight-line method, are the following:
(In Thousands)
May 30, May 31,
Life 1998 1997
----------- -------- --------
Licenses and patents 9 years $ 2,510 $ 2,510
Trademarks and tradenames 25-40 years 144,555 123,831
Excess of purchase cost over
net assets acquired 40 years 296,473 301,529
Deferred financing cost
and other-net Term of loans 7,505 6,055
-------- --------
451,043 433,925
Accumulated amortization (84,395) (73,283)
-------- --------
Net intangibles $366,648 $360,642
======== ========
Long-lived assets - 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 based upon a review of expected undiscounted cash
flows. The Company currently expects the carrying amounts to be fully
recoverable.
Interest rate swap agreements - The Company has from time to time entered into
interest rate swaps with major banks to manage the balance of variable versus
fixed rate debt based upon current and anticipated future market conditions.
The differential to be paid or received is recognized over the term of the
swap agreements as a component of interest expense. The risk associated with
these agreements is limited to the cost of replacing these agreements at
current market rates.
Statement of cash flows - For purposes of the statement of cash flows, the
Company considers all investments purchased with a maturity of three months or
less to be cash equivalents.
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. On 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.
<PAGE>
Earnings per share - During the third quarter of fiscal 1998, the Company
adopted Statement of Financial Accounting Standards ("SFAS") No. 128,
"Earnings per Share." SFAS No. 128 replaces primary earnings per share with a
dual presentation of basic and diluted earnings per share. Earnings per share
amounts for prior periods have been restated in accordance with the new
standard. Following is a reconciliation between basic and diluted weighted
average shares outstanding used in the Company's earnings per share
computations:
(In Thousands)
52 Weeks 52 Weeks 52 Weeks
Ended Ended Ended
May 30, May 31, June 1,
1998 1997 1996
-------- -------- --------
Basic weighted average
common shares outstanding 73,512 74,928 69,202
Effect of dilutive stock
compensation 1,333 1,272 766
------ ------ ------
Diluted weighted average
common shares outstanding 74,845 76,200 69,968
====== ====== ======
Use of estimates - 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.
New accounting standards - During fiscal 1997, the Financial Accounting
Standards Board ("FASB") issued SFAS No. 130, "Reporting Comprehensive Income"
and SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information." Based upon a preliminary review of the provisions of these
standards, the Company believes that they will have no impact on its financial
statements, upon adoption in fiscal 1999.
-25-
SFAS No. 132, "Employers' Disclosures about Pension and Other Postretirement
Benefits," was issued by the FASB in February 1998. This statement revises
employers' disclosures about pension and other postretirement benefit plans,
but does not change the measurement or recognition of such plans. This
statement is effective for fiscal years beginning after December 15, 1997,
including restatement of prior periods provided for comparative purposes. The
Company will adopt SFAS No. 132 in fiscal 1999.
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities,"
was issued by the FASB in June 1998. This statement establishes accounting
and reporting standards for derivative instruments and for hedging activities.
It requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those
instruments at fair value. This statement is effective for all quarters of
fiscal years beginning after June 15, 1999. The Company believes that the
adoption of the provisions of SFAS No. 133 will not have a material effect on
its financial statements, based on current activities.
<PAGE>
3. Debt
Long-term debt consists of the following:
(In Thousands)
May 30, May 31,
1998 1997
-------- --------
Bank borrowing -
Revolving credit loans(a) $207,000 $172,000
Senior notes (b) 79,000 79,000
-------- --------
286,000 251,000
Less amounts payable
within one year (25,000) -
-------- --------
$261,000 $251,000
======== ========
(a) Represents borrowings under an unsecured $350,000,000 revolving credit
facility, including up to $150,000,000 available for letters of credit (with
an unused amount of $65,000,000 at May 30, 1998), maturing in February 2002.
The outstanding borrowings bear interest at variable rates generally equal to
the London Interbank Offered Rate (LIBOR) plus from .20% to .63% (.20% at May
30, 1998), depending on certain financial ratios. The Company also pays a fee
of between .08% and .23% (.08% at May 30, 1998) on the unused portion of the
revolving credit facility. The overall weighted average interest rate on the
bank borrowings was 5.96% and 6.08% at May 30, 1998 and May 31, 1997,
respectively.
The credit facility agreement contains covenants which, among other matters
(i) limit the Company's ability to incur indebtedness, merge, consolidate and
acquire or sell assets, (ii) require the Company to satisfy certain ratios
related to net worth, debt-to-capitalization and interest coverage and (iii)
limit the payment of cash dividends on common stock and common stock
repurchases to a total of $78,000,000 plus 75% of aggregate consolidated net
income after fiscal 1995, with availability of $103,853,000 at May 30, 1998.
(b) Represents 10.00% notes due in annual installments from July 1998 to July
2000. The note agreement includes covenants mirroring those of the bank
credit agreement.
The fair value of the senior notes, described in (b) above, is estimated at
$83,500,000 and $83,800,000 as of May 30, 1998 and May 31, 1997, respectively,
based upon rates available for debt with similar terms. The Company believes,
based upon current terms, that the carrying value of all other long-term debt
approximates fair value.
The scheduled repayment of long-term debt is as follows:
Fiscal Years Ending (In Thousands)
------------------- --------------
1999 $ 25,000
2000 25,000
2001 29,000
2002 207,000
--------
$286,000
========
<PAGE>
Subsequent to year end, the Company obtained a new $125,000,000 short-term
credit facility from a major bank. The short-term credit facility is expected
to be replaced with a new senior debt issuance during the second quarter of
fiscal 1999.
-26-
4. Commitments and Contingencies
Future minimum rental commitments for all noncancelable operating leases,
exclusive of taxes and insurance, are as follows:
Fiscal Years Ending (In Thousands)
------------------- --------------
1999 $ 53,600
2000 44,310
2001 35,424
2002 24,904
2003 14,329
Thereafter 23,185
--------
$195,752
========
Net rental expense under operating leases was $60,350,000, $53,792,000 and
$49,955,000 for fiscal 1998, 1997 and 1996, respectively. The majority
of the operating leases contain renewal options for varying periods.
Certain leases include purchase options during or at the end of the lease
term.
The Company is subject to various routine legal proceedings, environmental
actions and other matters in the ordinary course of business, some of which
may be covered in whole or in part by insurance. In management's opinion,
none of these matters will have a material adverse effect on the Company's
financial position, but could be material to the results of operations or cash
flows for a particular quarter or annual period.
5. Income Taxes
The reconciliation of the provision for income taxes to the statutory federal
rate is as follows:
52 Weeks 52 Weeks 52 Weeks
Ended Ended Ended
May 30, May 31, June 1,
1998 1997 1996
-------- -------- --------
Statutory federal tax 35.0% 35.0% 35.0%
State income tax 4.9 5.1 5.6
Intangibles amortization 1.1 2.0 9.6
Other (0.9) 0.5 1.2
---- ---- ----
40.1% 42.6% 51.4%
==== ==== ====
<PAGE>
The components of the provision for income taxes are as follows:
(In Thousands)
52 Weeks 52 Weeks 52 Weeks
Ended Ended Ended
May 30, May 31, June 1,
1998 1997 1996
-------- -------- --------
Current:
Federal $64,449 $54,057 $22,426
State 13,811 11,789 4,906
------- ------- -------
78,260 65,846 27,332
------- ------- -------
Deferred:
Federal 5,176 4,985 (561)
State 2,202 1,290 (899)
------- ------- -------
7,378 6,275 (1,460)
------- ------- -------
$85,638 $72,121 $25,872
======= ======= =======
Temporary differences and carryforwards which give rise to the deferred income
tax assets and liabilities are as follows:
(In Thousands)
May 30, May 31,
1998 1997
-------- --------
Deferred tax asset:
Payroll and benefits accruals $ 19,046 $ 19,404
Self-insurance reserves 15,224 16,355
Other 17,563 25,098
Valuation allowance - -
-------- --------
$ 51,833 $ 60,857
======== ========
Deferred tax liability:
Property and equipment $150,476 $154,559
Intangibles 48,986 43,191
Self-insurance reserves (33,412) (37,241)
Payroll and benefits accruals (39,250) (37,686)
Environmental accruals (9,407) (9,392)
Other 4,844 10,451
-------- --------
$122,237 $123,882
======== ========
-27-
<PAGE>
6. Employee Benefit Plans
The 1991 Employee Stock Purchase Plan, which is noncompensatory, allows all
eligible employees to purchase common stock of the Company. The common stock
can be either issued by the Company at market prices or purchased on the open
market. At May 30, 1998, 232,000 shares were authorized but not issued under
this plan.
The Company sponsors a defined contribution retirement plan for eligible
employees not covered by union plans. Contributions are based upon a
percentage of annual compensation plus a percentage of voluntary employee
contributions. Retirement expense related to this plan was $16,134,000,
$15,543,000 and $15,301,000 for fiscal 1998, 1997 and 1996, respectively.
There are also in effect numerous negotiated pension plans covering employees
participating by reason of union contracts. Expense for these plans was
$97,442,000, $88,971,000 and $78,378,000 for fiscal 1998, 1997 and 1996,
respectively.
In addition to providing retirement pension benefits, the Company provides
health care benefits for eligible retired employees. Under the Company's
plans, all nonunion employees, with 10 years of service after age 50, are
eligible for retiree health care coverage between ages 60 and 65.
Grandfathered nonunion employees and certain union employees who have
bargained into the Company-sponsored health care plans are generally eligible
after age 55, with 10 years of service, and have only supplemental benefits
after Medicare eligibility is reached. Certain of the plans require
contributions by retirees and spouses.
The components of the net postretirement benefit expense are as follows:
(In Thousands)
52 Weeks 52 Weeks 52 Weeks
Ended Ended Ended
May 30, May 31, June 1,
1998 1997 1996
-------- -------- --------
Service cost $2,146 $2,237 $1,209
Interest cost 6,791 6,977 5,850
Amortization of unrecognized
prior service cost 297 292 115
Amortization of unrecognized
net(gain)loss (316) 429 135
------ ------ ------
Net postretirement benefit
expense $8,918 $9,935 $7,309
====== ====== ======
<PAGE>
The status of the Company's unfunded postretirement benefit obligation is as
follows:
(In Thousands)
May 30, May 31,
1998 1997
------- -------
Retirees $57,107 $58,915
Fully eligible active
plan participants 16,113 15,098
Other active plan
participants 17,034 17,867
------- -------
Accumulated postretirement
benefit obligation(APBO) 90,254 91,880
Unrecognized prior service
cost (2,743) (2,711)
Unrecognized net gain(loss)
from assumption changes 2,718 (2,610)
------- -------
Accrued postretirement
benefit 90,229 86,559
Less current portion (7,650) (7,450)
------- -------
APBO included in other
liabilities $82,579 $79,109
======= =======
In determining the APBO, the weighted average discount rate was assumed to be
8.0% for fiscal 1998, 1997 and 1996. The assumed health care cost trend rate
for fiscal 1998 was 9.0%, declining gradually to 6.5% over the next 7 years
and to 5.5% after 16 years. A 1.0% increase in this assumed health care cost
trend rate would increase the service and interest cost components of the net
postretirement benefit expense for fiscal 1998 by approximately $1,038,000, as
well as increase the May 30, 1998 APBO by approximately $8,148,000.
The Company also participates in a number of multi-employer plans which
provide postretirement health care benefits to substantially all union
employees not covered by Company-administered plans. Amounts reflected as
benefit cost and contributed to such plans, including amounts related to
health care benefits for active employees, totaled $142,368,000, $134,917,000
and $123,867,000 in fiscal 1998, 1997 and 1996, respectively.
7. Stock-Based Compensation
The 1996 Stock Incentive Plan (the "Plan") allows the Company to grant to
employees and directors various stock awards, including stock options, which
are granted at prices not less than the fair market value at the date of
grant, and restricted stock. A maximum of 13,683,000 shares were approved to
be issued under the Plan. At May 30, 1998, shares totaling 5,007,000 were
authorized but not awarded under the Plan.
-28-
<PAGE>
The stock options may be granted over a period not to exceed 10 years and
generally vest from one to three years from the date of grant. The changes in
outstanding options are as follows:
Weighted Average
Shares Exercise Price
Under Option Per Share
------------ ----------------
Balance June 3, 1995 3,176,000 $ 7.37
Issued 503,000 10.30
Surrendered (122,000) 10.25
Exercised (1,496,000) 7.58
--------- ------
Balance June 1, 1996 2,061,000 7.76
Issued 2,246,000 18.50
Surrendered (38,000) 16.71
Exercised (1,040,000) 7.83
--------- ------
Balance May 31, 1997 3,229,000 15.10
Issued 2,648,000 33.90
Surrendered (63,000) 22.39
Exercised (553,000) 12.17
--------- ------
Balance May 30, 1998 5,261,000 $24.78
========= ======
Stock options outstanding and exercisable at May 30, 1998 are as follows:
Weighted Average
Weighted Average Remaining
Range of Exercise Shares Exercise Price Contractual Life
Prices Per Share Under Option Per Share In Years
- ----------------- ------------ ---------------- ----------------
Outstanding:
$ 6.13 - $10.63 703,000 $ 7.86 6.2
18.50 - 18.50 1,926,000 18.50 8.3
33.28 - 33.91 2,632,000 33.90 9.3
- ---------------- --------- ------ ---
$ 6.13 - $33.91 5,261,000 $24.78 8.5
- ---------------- --------- ------ ---
Exercisable:
$ 6.13 - $10.63 703,000 $ 7.86
18.50 - 18.50 596,000 18.50
33.28 - 33.91 140,000 33.91
- ---------------- --------- ------
$ 6.13 - $33.91 1,439,000 $14.80
- ---------------- --------- ------
The Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" ("APB25"), and related interpretations in
accounting for the Plan, and, therefore, no compensation expense has been
recognized for stock options issued under the Plan. For companies electing to
continue the use of APB25, SFAS No. 123, "Accounting for Stock-Based
Compensation," requires proforma disclosures determined through the use of an
option-pricing model as if the provisions of SFAS No. 123 had been adopted.
<PAGE>
The weighted average fair value at date of grant for options granted during
fiscal 1998, 1997 and 1996 was $11.94, $6.48 and $3.32 per share,
respectively. The fair value of each option grant was estimated on the date
of the grant using the Black-Scholes option-pricing model with the following
assumptions:
1998 1997 1996
---- ---- ----
Expected dividend yield .9% 1.0% 1.0%
Expected volatility 27.2% 26.5% 27.9%
Risk-free interest rate 6.0% 6.4% 5.9%
Expected term in years 4 4 4
If the Company had adopted the provisions of SFAS No. 123, the impact on
reported net income and earnings per share would have been as follows:
52 Weeks 52 Weeks 52 Weeks
Ended Ended Ended
May 30, May 31, June 1,
1998 1997 1996
-------- -------- --------
Net income (in thousands) $11,242 $ 4,050 $ 565
Earning per share:
Basic .15 .05 .01
Diluted .15 .05 .01
During fiscal 1998, the Company also awarded 200,000 shares of restricted
stock under the Plan, with a weighted average fair value at the date of grant
of $33.91 per share. These restricted shares vest ratably after one, two and
three years of continued employment. Compensation expense related to this
award was $1,565,000 for fiscal 1998.
At May 30, 1998, 10,700,000 total shares of common stock were reserved for
issuance under various employee benefit plans.
-29-
<PAGE>
8. Accrued Expenses and Other Liabilities
Included in accrued expenses are the following:
(In Thousands)
May 30, May 31,
1998 1997
-------- --------
Payroll, vacation and other
compensation $64,065 $64,454
Self-insurance reserves 54,256 53,160
Pension and welfare 36,832 34,372
Taxes other than income 20,928 21,306
Included in other liabilities are the following:
(In Thousands)
May 30, May 31,
1998 1997
-------- --------
Self-insurance reserves $86,182 $95,819
Accrued postretirement benefit 82,579 79,109
9. Other Charges
The Company incurred $9,500,000 of other charges in fiscal 1996 as the result
of a payment due a union-administered multi-employer pension plan which
failed.
10. Subsequent Events
On June 12, 1998, the Company signed an agreement to acquire the My Bread Co.
("My Bread") operation in New Bedford, Massachusetts, from The Earthgrains
Company, in exchange for its Grand Junction, Colorado bakery and an additional
cash payment. My Bread has annual sales of approximately $37 million and
employs over 400 people.
On June 23, 1998, the Company agreed to acquire the Drake baking operation in
Wayne, New Jersey ("Drake's") from Culinar, Inc. Drake's employs over 800
people, sells cake products throughout the northeastern United States and has
annual sales of approximately $115 million.
Both of these acquisitions are subject to regulatory approval, with closing
dates expected to shortly follow such approval.
<PAGE>
11. Quarterly Financial Information (Unaudited)
Summarized quarterly financial information for the fiscal years ended May 30,
1998 and May 31, 1997 is as follows (each quarter represents a period of
twelve weeks except the third quarters, which cover sixteen weeks):
(In Thousands, Except Per Share Data)
First Second Third Fourth
-------- -------- -------- --------
1998
Net sales $763,719 $754,167 $964,778 $783,178
Cost of products sold 362,155 352,130 457,054 370,581
Operating income 54,755 62,246 55,894 58,697
Net income 29,880 34,247 29,871 33,926
Earnings per share:
Basic .40 .47 .41 .46
Diluted .39 .46 .40 .46
1997
Net sales $753,625 $758,378 $945,258 $755,170
Cost of products sold 374,139 365,865 465,891 360,370
Operating income 38,735 51,126 46,268 55,014
Net income 18,667 26,242 22,629 29,639
Earnings per share:
Basic .25 .35 .30 .39
Diluted .25 .35 .30 .39
-30-
<PAGE>
INDEPENDENT AUDITORS' REPORT
- ----------------------------
To the Board of Directors and Stockholders
Interstate Bakeries Corporation
We have audited the accompanying consolidated balance sheets of Interstate
Bakeries Corporation and its subsidiaries as of May 30, 1998 and May 31, 1997
and the related consolidated statements of income, stockholders' equity
and cash flows for each of the three fiscal years in the period ended May 30,
1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Interstate Bakeries Corporation
and its subsidiaries as of May 30, 1998 and May 31, 1997, and the results of
their operations and their cash flows for each of the three fiscal years in
the period ended May 30, 1998 in conformity with generally accepted accounting
principles.
/s/ Deloitte & Touche LLP
Kansas City, Missouri
July 15, 1998
-31-
EXHIBIT 21.1
SUBSIDIARIES OF INTERSTATE BAKERIES CORPORATION
Subsidiaries of Percentage of
Interstate Jurisdiction Voting Shares
Bakeries Corporation of Incorporation Owned
- -------------------- ---------------- -------------
Interstate Brands Delaware 100%
Corporation
Interstate Brands West Delaware 100%
Corporation
Subsidiary of
Interstate
Brands West Corporation
- -----------------------
Mrs. Cubbison's Foods, Inc. California 80%
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF MAY 30, 1998 AND THE CONSOLIDATED
STATEMENT OF INCOME FOR THE FIFTY-TWO WEEKS ENDED MAY 30, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAY-30-1998
<PERIOD-END> MAY-30-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 202,750
<ALLOWANCES> 4,106
<INVENTORY> 66,427
<CURRENT-ASSETS> 334,458
<PP&E> 1,193,010
<DEPRECIATION> 344,130
<TOTAL-ASSETS> 1,549,986
<CURRENT-LIABILITIES> 365,088
<BONDS> 261,000
0
0
<COMMON> 791
<OTHER-SE> 564,364
<TOTAL-LIABILITY-AND-EQUITY> 1,549,986
<SALES> 3,265,842
<TOTAL-REVENUES> 3,265,842
<CGS> 1,541,920
<TOTAL-COSTS> 1,541,920
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18,624
<INCOME-PRETAX> 213,562
<INCOME-TAX> 85,638
<INCOME-CONTINUING> 127,924
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 127,924
<EPS-PRIMARY> 1.74
<EPS-DILUTED> 1.71
</TABLE>
