UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act
of 1934
(Mark One)
/ X / QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 4, 2000
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________ to __________
_______________
For the Quarter Ended March 4, 2000 Commission File Number 1-11165
INTERSTATE BAKERIES CORPORATION
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 43-1470322
- ------------------------------- -----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
12 East Armour Boulevard, Kansas City, Missouri 64111
- ----------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (816) 502-4000
--------------
- ------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report.)
---------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes / X / No / /
There were 65,990,375 shares of common stock, $.01 par value per share,
outstanding on March 31, 2000.
<PAGE>
INTERSTATE BAKERIES CORPORATION
FORM 10-Q
QUARTER ENDED MARCH 4, 2000
CONTENTS
- --------
Description Page
----------- ----
PART I - FINANCIAL INFORMATION (UNAUDITED)
- ------------------------------------------
Management's Discussion and Analysis of Financial
Condition and Results of Operations 1-2
Quantitative and Qualitative Disclosures
About Market Risk 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
- ---------------------------
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 third quarter of fiscal 2000, the sixteen weeks ended March
4, 2000, were $1,035,609,000, up $4,267,000 and .4% from net sales of
$1,031,342,000 in the prior year. Year-to-date net sales for fiscal 2000 were
$2,655,682,000, an increase of $21,331,000 and .8%, over net sales of
$2,634,351,000 in fiscal 1999. Year-to-date net sales adjusted for acquired
operations were essentially flat compared to the prior year. For both the
quarter and year-to-date, net sales reflected somewhat higher selling prices,
offset by slight unit volume declines.
Gross profit was 52.2% of net sales for the third quarter of fiscal 2000,
compared to 52.6% in the prior year. Year-to-date gross profit increased to
52.8% of net sales, up from the prior year's 52.5%. For the quarter, lower
ingredient costs experienced in the current year were more than offset by
increases in packaging costs and labor and labor-related expenses. On a year-
to-date basis, favorable ingredient prices and higher selling prices more than
offset higher packaging and labor and labor-related costs.
Selling, delivery and administrative expenses increased $10,239,000, or 2.3%,
for the third quarter of fiscal 2000 and $34,409,000, or 3.0%, on a year-to-date
basis. Selling, delivery and administrative expenses as a percentage of
net sales were 44.9% for the third quarter of fiscal 2000 compared to 44.0%
the prior year, while the year-to-date percentage increased to 43.9% from
42.9% in the prior year. These unfavorable variances reflect inflationary
labor and labor-related cost increases, as well as substantially higher fuel
costs, measured against essentially flat net sales.
Based upon these factors, operating income for the third quarter of fiscal
2000 was $41,336,000, or 4.0% of net sales, down $13,175,000 from the prior
year's $54,511,000, or 5.3% of net sales. Year-to-date operating income for
fiscal 2000 was $150,278,000, or 5.7% of net sales, down $20,089,000 from
$170,367,000, or 6.5% of net sales, in the prior year.
Increases in interest expense of $1,453,000 and $3,216,000 for the third
quarter and year-to-date, respectively, reflect higher average borrowing
levels primarily due to acquisitions and treasury stock repurchases.
The effective tax rate of 37.5% for fiscal 2000 and 1999 approximates the
overall federal and state statutory rates.
Reflecting the above, net income for the third quarter of fiscal 2000 was
$20,417,000, or $.30 per share (diluted basis), down $9,166,000 from
-1-
<PAGE>
$29,583,000, or $.41 per share, in the prior year. Year-to-date net income
declined $14,600,000 to $81,581,000, or $1.18 per share (diluted basis), from
$96,181,000, or $1.32 per share, in fiscal 1999.
CAPITAL RESOURCES AND LIQUIDITY
- -------------------------------
Cash generated by operating activities for the forty weeks ended March 4, 2000
was $131,500,000, compared to $140,586,000 a year ago, with the decrease
reflecting lower net income. Cash generated by operations, along with
additional net debt borrowings of $40,000,000 during fiscal 2000, was used to
fund net capital expenditures of $68,019,000, repurchase common stock of
$82,717,000, pay common stock dividends of $14,424,000 and acquire a business
for $3,112,000.
On December 9, 1999, the Company's board of directors authorized the
repurchase of an additional 3,000,000 shares of the Company's common stock.
At the end of the third quarter of fiscal 2000, approximately 2,600,000
authorized shares were available to be repurchased under the stock repurchase
program.
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.
SUBSEQUENT EVENT
- ----------------
On March 30, 2000, the Company amended its shareholder agreement with Ralston
Purina Company ("RPC"). Under the amended agreement, RPC will reduce its
ownership of the Company's common stock to no more than 20% by September 30,
2000, 15% by August 1, 2004 and 10% by August 1, 2005. The Company will
continue to have the right of first offer regarding the disposal of any of the
stock by RPC. RPC also agreed to settle its outstanding 7% Stock Appreciation
Income Linked Securities (SAILS) with shares of the Company's common stock in
August 2000. Excluding the shares related to the SAILS transaction, RPC
currently owns approximately 23% of the Company's common stock.
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.
-2-
<PAGE>
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- ----------------------------------------------------------
The Company is exposed to market risks relative to commodity price
fluctuations and interest rate changes. The Company actively manages these
risks through the use of derivative financial instruments. As a matter of
policy, the Company uses these financial instruments only for hedging
purposes, and the use of derivatives for trading and speculative purposes is
prohibited.
Commodity Prices
Commodities used by the Company in the production of its products are subject
to wide price fluctuations, depending upon factors such as weather, worldwide
market supply and demand and government regulation. To reduce the risk
associated with commodity price fluctuations (primarily for wheat), the
Company enters into commodity futures and options contracts, fixing commodity
prices for future periods. A sensitivity analysis was prepared and based upon
the Company's commodity-related derivatives position as of March 4, 2000, an
assumed 10% adverse change in commodity prices would not result in a material
effect on fair values, future earnings or cash flows of the Company.
Interest Rates
The Company manages its exposure to interest rate risk through the use of a
combination of floating and fixed-rate debt. In addition, from time to time,
the Company has entered into interest rate swap agreements to fix rates on
variable rate debt instruments. The Company had no outstanding interest rate
swap agreements at March 4, 2000. Based upon the Company's sensitivity
analysis at March 4, 2000, an assumed 10% adverse change in interest rates
would not have a material impact on fair values, future earnings or cash flows
of the Company.
-3-
<PAGE>
INTERSTATE BAKERIES CORPORATION
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
(000's)
March 4, May 29,
2000 1999
------------ ------------
Assets
Current assets:
Accounts receivable, less allowance
for doubtful accounts of $4,354,000
($4,240,000 at May 29) $ 217,490 $ 216,984
Inventories 71,565 65,861
Other current assets 67,126 65,905
---------- ----------
Total current assets 356,181 348,750
---------- ----------
Property and equipment:
Land and buildings 398,584 385,495
Machinery and equipment 986,948 942,748
---------- ----------
1,385,532 1,328,243
Less accumulated depreciation (489,604) (425,327)
---------- ----------
Net property and equipment 895,928 902,916
---------- ----------
Intangibles 426,120 429,109
---------- ----------
$1,678,229 $1,680,775
========== ==========
<PAGE>
Liabilities and Stockholders' Equity
Current liabilities:
Long-term debt payable within one year $ 29,000 $ 25,000
Accounts payable 116,836 134,681
Accrued expenses 196,623 195,515
---------- ----------
Total current liabilities 342,459 355,196
---------- ----------
Long-term debt 405,000 369,000
Other liabilities 212,813 225,030
Deferred income taxes 127,746 127,746
---------- ----------
Total long-term liabilities 745,559 721,776
---------- ----------
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 -
79,837,000 shares (79,630,000 at May 29) 798 796
Additional paid-in capital 551,046 549,080
Retained earnings 323,964 256,807
Treasury stock, at cost - 13,791,000 shares
(9,412,000 at May 29) (285,597) (202,880)
---------- ----------
Total stockholders' equity 590,211 603,803
---------- ----------
$1,678,229 $1,680,775
========== ==========
See accompanying notes.
-4-
<PAGE>
INTERSTATE BAKERIES CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
(000'S EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Sixteen Weeks Ended Forty Weeks Ended
-------------------------- ----------------------------
March 4, March 6, March 4, March 6,
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $1,035,609 $1,031,342 $2,655,682 $2,634,351
---------- ---------- ---------- ----------
Cost of products sold 494,886 488,976 1,254,563 1,250,136
Selling, delivery and administrative
expenses 464,534 454,295 1,164,653 1,130,244
Depreciation and amortization 34,853 33,560 86,188 83,604
---------- ---------- ---------- ----------
994,273 976,831 2,505,404 2,463,984
---------- ---------- ---------- ----------
Operating income 41,336 54,511 150,278 170,367
---------- ---------- ---------- ----------
Other income (115) (152) (337) (391)
Interest expense 8,784 7,331 20,085 16,869
---------- ---------- ---------- ----------
8,669 7,179 19,748 16,478
---------- ---------- ---------- ----------
Income before income taxes 32,667 47,332 130,530 153,889
Provision for income taxes 12,250 17,749 48,949 57,708
---------- ---------- ---------- ----------
Net income $ 20,417 $ 29,583 $ 81,581 $ 96,181
========== ========== ========== ==========
Earnings per share:
Basic $ .30 $ .41 $ 1.19 $ 1.34
========== ========== ========== ==========
Diluted $ .30 $ .41 $ 1.18 $ 1.32
========== ========== ========== ==========
</TABLE>
See accompanying notes.
-5-
<PAGE>
INTERSTATE BAKERIES CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(000's)
Forty Weeks Ended
--------------------------
March 4, March 6,
2000 1999
------------ ------------
Cash flows from operating activities:
Net income $ 81,581 $ 96,181
Depreciation and amortization 86,188 83,604
Other (12,262) (1,280)
Change in operating assets and liabilities:
Accounts receivable 766 (6,013)
Inventories (4,881) 1,900
Other current assets (1,207) 6,762
Accounts payable and accrued expenses (18,685) (40,568)
-------- ---------
Cash from operating activities 131,500 140,586
-------- ---------
Cash flows from investing activities:
Acquisitions (3,112) (106,566)
Additions to property and equipment (69,193) (85,041)
Sale of assets 1,174 7,270
Other (5,196) (521)
-------- ---------
Cash from investing activities (76,327) (184,858)
-------- ---------
Cash flows from financing activities:
Addition to long-term debt 65,000 200,000
Reduction of long-term debt (25,000) (87,000)
Common stock dividends paid (14,424) (15,150)
Stock option exercise proceeds and
related tax benefits 1,968 5,959
Acquisition of treasury stock (82,717) (58,678)
Other - (859)
-------- ---------
Cash from financing activities (55,173) 44,272
-------- ---------
Change in cash and cash equivalents - -
Cash and cash equivalents:
Beginning of period - -
-------- ---------
End of period $ - $ -
======== =========
Cash payments made:
Interest $ 17,872 $ 15,566
Income taxes 46,788 49,974
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)
-------------------------
March 4, May 29,
2000 1999
---------- ----------
Ingredients and packaging $46,833 $44,222
Finished goods 18,410 15,936
Other 6,322 5,703
------- -------
$71,565 $65,861
======= =======
3. Income Taxes
------------
The reconciliation of the provision for income taxes to the statutory federal
rate is as follows:
Forty Weeks Ended
----------------------------
March 4, March 6,
2000 1999
------------ ------------
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%
====== ======
-7-
<PAGE>
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)
Sixteen Weeks Ended Forty Weeks Ended
--------------------- ---------------------
March 4, March 6, March 4, March 6,
2000 1999 2000 1999
-------- -------- -------- --------
Basic weighted average
common shares outstanding 67,239 71,468 68,831 72,002
Effect of dilutive stock
compensation 143 703 298 933
-------- -------- -------- --------
Dilutive weighted average
common shares outstanding 67,382 72,171 69,129 72,935
======== ======== ======== ========
5. Stockholder Rights Plan
-----------------------
On September 21, 1999, the Company's board of directors adopted a stockholder
rights plan ("Rights Agreement") which provided that a dividend of one
Preferred Stock Purchase Right was declared for each share of the Company's
common stock outstanding on October 8, 1999 and any common shares issued
thereafter. On February 25, 2000, the Company, pursuant to the terms of the
Rights Agreement, redeemed all Rights for $.001 per Right and terminated the
Rights Agreement.
6. Subsequent Event
----------------
On March 30, 2000, the Company amended its shareholder agreement with Ralston
Purina Company ("RPC"). Under the amended agreement, RPC will reduce its
ownership of the Company's common stock to no more than 20% by September 30,
2000, 15% by August 1, 2004 and 10% by August 1, 2005. The Company will
continue to have the right of first offer regarding the disposal of any of the
stock by RPC. RPC also agreed to settle its outstanding 7% Stock Appreciation
Income Linked Securities (SAILS) with shares of the Company's common stock in
August 2000. Excluding the shares related to the SAILS transaction, RPC
currently owns approximately 23% of the Company's common stock.
-8-
<PAGE>
PART II
ITEM 6 - Exhibits and Reports on Form 8-K
a) Exhibits filed with this report:
1) 27.1 - Financial data schedule
b) Reports on Form 8-K
1) A report on Form 8-K was filed by the Company on February 15,
2000 announcing the redemption of the Company's Preferred
Stock Purchase Rights for $.001 per Right in cash to holders
of record of the Company's common stock as of February 15,
2000. These Rights were outstanding pursuant to the
Rights Agreement approved by the Company's board of directors on
September 21, 1999.
-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: April 5, 2000 /s/ Charles A. Sullivan
-------------------------------
Charles A. Sullivan, Chairman
and Chief Executive Officer
DATE: April 5, 2000 /s/ Frank W. Coffey
-------------------------------
Frank W. Coffey, Senior Vice
President and Chief Financial
Officer
-10-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SUMMARY CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF MARCH 04, 2000 AND THE CONSOLIDATED
STATEMENT OF INCOME FOR THE FORTY WEEKS ENDED MARCH 04, 2000 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FIANACIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-03-2000
<PERIOD-END> MAR-04-2000
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 221,844
<ALLOWANCES> 4,354
<INVENTORY> 71,565
<CURRENT-ASSETS> 356,181
<PP&E> 1,385,532
<DEPRECIATION> 489,604
<TOTAL-ASSETS> 1,678,229
<CURRENT-LIABILITIES> 342,459
<BONDS> 405,000
0
0
<COMMON> 798
<OTHER-SE> 589,413
<TOTAL-LIABILITY-AND-EQUITY> 1,678,229
<SALES> 2,655,682
<TOTAL-REVENUES> 2,655,682
<CGS> 1,254,563
<TOTAL-COSTS> 1,254,563
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 20,085
<INCOME-PRETAX> 130,530
<INCOME-TAX> 48,949
<INCOME-CONTINUING> 81,581
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 81,581
<EPS-BASIC> 1.19
<EPS-DILUTED> 1.18
</TABLE>
