UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act
of 1934
(Mark One)
/ X / QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended August 21, 1999
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________ to __________
For the Quarter Ended August 21, 1999 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
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- ------------------------------------------------------------------------------
(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 70,125,037 shares of common stock, $.01 par value per share,
outstanding on September 16, 1999.
<PAGE>
INTERSTATE BAKERIES CORPORATION
FORM 10-Q
QUARTER ENDED AUGUST 21, 1999
CONTENTS
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Description Page
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PART I - FINANCIAL INFORMATION (UNAUDITED)
- ------------------------------------------
Management's Discussion and Analysis of Financial
Condition and Results of Operations 1-3
Consolidated Balance Sheet 4
Consolidated Statement of Income 5
Consolidated Statement of Cash Flows 6
Notes to Consolidated Financial Statements 7-8
PART II - OTHER INFORMATION
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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 9
Signatures 10
<PAGE>
INTERSTATE BAKERIES CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
- ---------------------
Net sales for the first quarter of fiscal year 2000, the twelve weeks ended
August 21, 1999, were $809,473,000, up $21,057,000 and 2.7%, from net sales of
$788,416,000 in the prior year. This increase was attributable to
acquisitions, as net sales adjusted for acquired and disposed operations were
essentially unchanged from the prior year. Selling prices and unit volume,
after adjustment, were both comparable to the prior year.
Gross profit was 53.0% of net sales for the first quarter of fiscal 2000, up
slightly from 52.8% of net sales in the prior year. This improvement resulted
from somewhat lower ingredient costs, partially offset by inflationary labor
and labor-related cost increases.
Selling, delivery and administrative expenses increased 3.4% to $344,370,000
from $333,112,000 the prior year. As a percentage of net sales, selling,
delivery and administrative expenses increased to 42.5% from 42.3% in the
prior year. Excluding the effect of acquired operations, both the dollar
amount and percentage of net sales for selling, delivery and administrative
expenses were essentially equal to the prior year.
Depreciation and amortization increased $1,488,000, or 6.2%, for the quarter.
This increase resulted from acquisitions, as well as the start-up of
operations in the new Biddeford, Maine bakery.
Based upon these factors, operating income for the first quarter of fiscal
2000 was $58,799,000, or 7.3% of net sales, compared to $59,396,000, or 7.5%
of net sales, in fiscal 1999.
Interest expense for the first quarter of fiscal 2000 was $5,769,000, a
$1,433,000 and 33.0% increase over the prior year's interest cost of
$4,336,000. Interest expense in fiscal 2000 reflects higher borrowing levels,
primarily due to acquisitions and lower interest capitalized on major capital
projects, partially offset by a lower overall interest rate.
The effective tax rate of 37.5% for fiscal 2000 and 1999 approximates the
overall federal and state statutory rates.
Reflecting these results, net income for the first quarter of fiscal 2000 was
$33,226,000, down $1,265,000 from fiscal 1999 net income of $34,491,000. The
quarter's earnings per share of $.47 (diluted basis) were unchanged from the
prior year.
- 1 -
<PAGE>
CAPITAL RESOURCES AND LIQUIDITY
- -------------------------------
Cash generated by operating activities for the twelve weeks ended August 21,
1999 was $78,211,000, compared to $41,199,000 a year ago, with the increase
reflecting favorable working capital variances. Cash generated by operations
during fiscal 2000 was used to reduce debt by $55,000,000, fund capital
expenditures of $14,000,000, repurchase common stock of $4,299,000 and pay
common stock dividends of $4,920,000.
As noted in the Company's Annual Report on Form 10-K for the year ended May
29, 1999, cash flows from operations, along with borrowing capacity under the
existing credit facility, are expected to be sufficient to meet the fiscal
2000 cash requirements.
YEAR 2000 COMPLIANCE
- --------------------
The Company is continuing to assess the impact that the turn of the century
will have on its internal computer systems and overall operations. The
Company has developed and is well into implementing a Company-wide Year 2000
plan (the "Plan"). The Plan consists of three major focus areas:
information-technology ("IT") systems, critical corporate support areas and
bakery critical systems and processes. The corporate and bakery focus areas
are comprised of primarily non-IT systems and third-party considerations. The
tasks common to each of these areas of focus are: (i) inventory and
prioritization of all critical Year 2000 issues, (ii) assessment of
compliance, (iii) remediation, (iv) testing and (v) design and implementation
of contingency and business continuation plans.
The IT systems area focuses on the Company's internal computer hardware and
software systems. All hardware, operating systems and business critical
software programs have been remediated and the Company is currently in the
final stages of testing for all operationally critical systems, replacement of
personal computer hardware and software and development of contingency and
business continuation plans for IT systems support. These final projects
should be completed by the end of September 1999.
All corporate support departments and bakery facilities have completed their
inventory, assessment and remediation efforts with regard to all non-IT
systems which include any hardware, software and associated embedded computer
technologies that are used to operate Company facilities, equipment and other
activities. The Company continues its efforts to test these non-IT systems
and develop appropriate contingency plans with an estimated completion date
for this phase of the Plan by the end of September 1999.
The Company, through its corporate support departments and individual bakery
facilities, has identified, prioritized and is continuing to communicate with
all critical business partners, including all third-party suppliers of goods
and services, to ascertain the status of their Year 2000 compliance programs.
The Company intends to monitor the progress of these critical third parties
and test critical system interfaces, where appropriate.
- 2 -
<PAGE>
The Company does not anticipate that the Year 2000 issues related to
internally-controllable systems will significantly impact the overall business
operations or financial results of the Company. However, the Company could
face significant disruptions in business operations and financial losses if
certain business-critical third parties, such as utility providers,
telecommunication systems, transportation service providers or certain
government entities, do not successfully complete their Year 2000 remediation
plans. The Company is currently in the process of identifying and developing
contingency plans for the most reasonably likely worst case scenarios. The
Company expects to complete its analysis and contingency planning by October
1999.
The total cost of the Company's Plan is not expected to be material to the
Company's financial position. The estimated total cost of the Plan is not
expected to exceed $5 million, and is being funded through normal operating
cash flows of the Company.
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.
- 3 -
<PAGE>
INTERSTATE BAKERIES CORPORATION
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
(000's)
August 21, May 29,
1999 1999
------------ -----------
Assets
Current assets:
Accounts receivable, less allowance
for doubtful accounts of $4,606,000
($4,240,000 at May 29) $ 206,713 $ 216,984
Inventories 70,382 65,861
Other current assets 56,615 65,905
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Total current assets 333,710 348,750
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Property and equipment:
Land and buildings 388,618 385,495
Machinery and equipment 953,625 942,748
---------- ----------
1,342,243 1,328,243
Less accumulated depreciation (447,797) (425,327)
---------- ----------
Net property and equipment 894,446 902,916
---------- ----------
Intangibles 426,620 429,109
---------- ----------
$1,654,776 $1,680,775
========== ==========
<PAGE>
Liabilities and Stockholders' Equity
Current liabilities:
Long-term debt payable within one year $ 29,000 $ 25,000
Accounts payable 114,042 134,681
Accrued expenses 222,458 195,515
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Total current liabilities 365,500 355,196
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Long-term debt 310,000 369,000
Other liabilities 222,913 225,030
Deferred income taxes 127,746 127,746
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Total long-term liabilities 660,659 721,776
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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 -
79,709,000 shares (79,630,000 at May 29) 797 796
Additional paid-in capital 549,886 549,080
Retained earnings 285,113 256,807
Treasury stock, at cost - 9,604,000 shares
(9,412,000 at May 29) (207,179) (202,880)
---------- ----------
Total stockholders' equity 628,617 603,803
---------- ----------
$1,654,776 $1,680,775
========== ==========
See accompanying notes.
-4-
<PAGE>
INTERSTATE BAKERIES CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
(000'S EXCEPT PER SHARE DATA)
Twelve Weeks Ended
-----------------------
August 21, August 22,
1999 1998
---------- ----------
Net sales $809,473 $788,416
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Cost of products sold 380,714 371,806
Selling, delivery and administrative
expenses 344,370 333,112
Depreciation and amortization 25,590 24,102
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750,674 729,020
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Operating income 58,799 59,396
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Other income (132) (125)
Interest expense 5,769 4,336
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5,637 4,211
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Income before income taxes 53,162 55,185
Provision for income taxes 19,936 20,694
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Net income $ 33,226 $ 34,491
======== ========
Earnings per share:
Basic $ .47 $ .48
======== ========
Diluted $ .47 $ .47
======== ========
See accompanying notes.
-5-
<PAGE>
INTERSTATE BAKERIES CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(000's)
Twelve Weeks Ended
--------------------------
August 21, August 22,
1999 1998
------------ ------------
Cash flows from operating activities:
Net income $ 33,226 $ 34,491
Depreciation and amortization 25,590 24,102
Other (1,949) (120)
Change in operating assets and liabilities:
Accounts receivable 10,271 1,760
Inventories (4,521) (969)
Other current assets 9,290 91
Accounts payable and accrued expenses 6,304 (18,156)
------- -------
Cash from operating activities 78,211 41,199
------- -------
Cash flows from investing activities:
Acquisitions - (80,103)
Additions to property and equipment (14,000) (25,768)
Sale of assets - 117
Other (799) (735)
------- -------
Cash from investing activities (14,799) (106,489)
------- -------
Cash flows from financing activities:
Addition of long-term debt - 114,000
Reduction of long-term debt (55,000) (25,000)
Common stock dividends paid (4,920) (5,092)
Stock option exercise proceeds
and related tax benefits 807 631
Acquisition of treasury stock (4,299) (19,249)
------- -------
Cash from financing activities (63,412) 65,290
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Change in cash and cash equivalents - -
Cash and cash equivalents:
Beginning of period - -
------- -------
End of period $ - $ -
======= =======
Cash payments made:
Interest $ 4,710 $ 7,071
Income taxes 418 905
See accompanying notes.
-6-
<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.
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.
2. Inventories
-----------
The components of inventories are as follows:
(000's)
-------------------------
August 21, May 29,
1999 1999
---------- ----------
Ingredients and packaging $44,388 $44,222
Finished goods 21,163 15,936
Other 4,831 5,703
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$70,382 $65,861
======= =======
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<PAGE>
3. Income Taxes
------------
The reconciliation of the provision for income taxes to the statutory federal
rate is as follows:
Twelve Weeks Ended
----------------------------
August 21, August 22,
1999 1998
------------ ------------
Statutory federal tax 35.0% 35.0%
State income tax 2.2 2.7
Intangibles amortization 1.2 1.0
Other (.9) (1.2)
---- ----
37.5% 37.5%
==== ====
4. Earnings Per Share
------------------
Following is a reconciliation between basic and diluted weighted average
shares outstanding used in the Company's earnings per share computations:
(000's)
Twelve Weeks Ended
-------------------------
August 21, August 22,
1999 1998
---------- ----------
Basic weighted average
common shares outstanding 70,312 72,597
Effect of dilutive stock
compensation 509 1,121
------ ------
Dilutive weighted average
common shares outstanding 70,821 73,718
====== ======
- 8 -
<PAGE>
PART II
ITEM 6 - Exhibits and Reports on Form 8-K
a) Exhibits filed with this report:
1) 27 - Financial data schedule
- 9 -
<PAGE>
**************
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Interstate Bakeries Corporation
-------------------------------
(Registrant)
DATE: September 17, 1999 /s/ Charles A. Sullivan
--------------------------------
Charles A. Sullivan, Chairman
and Chief Executive Officer
DATE: September 17, 1999 /s/ Frank W. Coffey
--------------------------------
Frank W. Coffey, Senior Vice
President and Chief Financial
Officer
- 10 -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF AUGUST 21, 1999 AND THE CONSOLIDATED
STATEMENT OF INCOME FOR THE TWELVE WEEKS ENDED AUGUST 21, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-03-2000
<PERIOD-END> AUG-21-1999
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 211,319
<ALLOWANCES> 4,606
<INVENTORY> 70,382
<CURRENT-ASSETS> 333,710
<PP&E> 1,342,243
<DEPRECIATION> 447,797
<TOTAL-ASSETS> 1,654,776
<CURRENT-LIABILITIES> 365,500
<BONDS> 310,000
0
0
<COMMON> 797
<OTHER-SE> 627,820
<TOTAL-LIABILITY-AND-EQUITY> 1,654,776
<SALES> 809,473
<TOTAL-REVENUES> 809,473
<CGS> 380,714
<TOTAL-COSTS> 380,714
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,769
<INCOME-PRETAX> 53,162
<INCOME-TAX> 19,936
<INCOME-CONTINUING> 33,226
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 33,226
<EPS-BASIC> .47
<EPS-DILUTED> .47
</TABLE>
