SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities and Exchange Act of 1934
Date of Report (Date of earliest event reported) August 8, 2001
SARA LEE CORPORATION
--------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
MARYLAND 1-3344 36-2089049
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(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification Number)
Suite 4600, Three First National Plaza, Chicago, Illinois 60602-4260
--------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 312/726-2600
------------
This Amendment No. 1 on Form 8-K/A amends the Current Report on Form 8-K filed
by Sara Lee Corporation with the Commission on August 21, 2001.
Item 2. Acquisition or Disposition of Assets.
On August 7, 2001, the initial offering period for the tender offer by Sara
Lee Corporation, a Maryland corporation ("Sara Lee"), through its wholly owned
subsidiary, SLC Acquisition Corp., a Delaware corporation, for all of the
outstanding shares of common stock of The Earthgrains Company, a Delaware
corporation ("Earthgrains"), for $40.25 in cash per share, expired. The tender
offer was made pursuant to an Agreement and Plan of Merger, by and among Sara
Lee, SLC Acquisition Corp. and Earthgrains, dated as of June 29, 2001 (the
"Merger Agreement"). A copy of the Merger Agreement is filed as Exhibit 2.1 to
this Current Report. The details of the tender offer were disclosed in a Tender
Offer Statement on Schedule TO, filed with the Securities and Exchange
Commission on July 3, 2001 and subsequently amended. On August 8, 2001, SLC
Acquisition Corp. accepted all validly tendered shares and commenced a
subsequent offering period to acquire any remaining shares of Earthgrains common
stock. The subsequent offering period expired on August 13, 2001. SLC
Acquisition Corp. acquired a total of 44,094,209 shares of Earthgrains common
stock, representing approximately 94% of the outstanding shares, pursuant to the
tender offer.
On August 14, 2001, Sara Lee completed a short-form merger of SLC
Acquisition Corp. with and into Earthgrains. As a result of the merger, all
remaining stockholders of Earthgrains will receive the $40.25 per share in cash,
without interest, other than stockholders who properly exercise dissenters'
rights under applicable state law.
The initial funding of the Earthgrains acquisition was completed with cash
on hand and short-term debt, a portion of which Sara Lee intends to refinance on
a long-term basis. In connection with the acquisition, Sara Lee entered into the
364-day Competitive Advance and Revolving Credit Facility Agreement dated as of
August 8, 2001, among Sara Lee, the Lenders party thereto and The Chase
Manhattan Bank, as administrative agent, and the 364-day Bridge Competitive
Advance and Revolving Credit Facility Agreement dated as of August 8, 2001,
among Sara Lee, the Lenders party thereto and The Chase Manhattan Bank, as
administrative agent. A copy of each of these credit facilities is filed as
Exhibits 10.1 and 10.2 to this Current Report.
Earthgrains is an international manufacturer, distributor and consumer
marketer of packaged fresh bread and baked goods and refrigerated dough
products. Sara Lee currently intends to devote the Earthgrains assets to the
continuation of the business operations of Earthgrains, substantially as they
were conducted prior to the completion of the merger.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) Financial statements of businesses acquired.
2
THE EARTHGRAINS COMPANY
Condensed Consolidated Balance Sheets
(In millions)
June 19, March 27,
2001 2001
-------- --------
Assets (Unaudited)
Current assets:
Cash and cash equivalents $ 17.4 $ 18.1
Accounts receivable, net of allowance
for doubtful accounts of $2.7 and $2.9,
respectively 280.7 254.4
Inventories 99.3 94.7
Deferred income taxes and other 79.0 82.8
-------- --------
Total current assets 476.4 450.0
Goodwill, net 885.0 894.8
Plant and equipment, net 861.5 873.8
Other assets, net 34.7 37.3
-------- --------
Total assets $2,257.6 $2,255.9
======== ========
Liabilities and Shareholders' Equity
Current liabilities:
Current maturities of long-term debt $ 7.9 $ 7.9
Accounts payable 169.9 166.3
Accrued salaries, wages and benefits 83.1 79.8
Accrual for restructuring and consolidation 3.2 6.2
Other current liabilities 79.7 67.3
-------- --------
Total current liabilities 343.8 327.5
Postretirement benefits 103.1 103.8
Long-term debt 948.8 970.5
Deferred income taxes 102.8 102.8
Other noncurrent liabilities 83.8 82.8
Commitments and contingencies -- --
Minority interest-mandatorily redeemable
preferred stock of subsidiary 10.0 10.0
Shareholders' equity
Common stock 0.4 0.4
Additional paid-in capital 636.2 633.4
Retained earnings 140.7 128.7
Unearned ESOP shares (6.5) (7.0)
Treasury stock (41.3) (41.3)
Unearned portion of restricted stock (3.6) (4.0)
Accumulated other comprehensive income (60.6) (51.7)
-------- --------
Shareholders' equity 665.3 658.5
-------- --------
Total liabilities and shareholders'
equity $2,257.6 $2,255.9
======== ========
FN:
See accompanying Notes to Condensed Consolidated Financial Statements.
3
THE EARTHGRAINS COMPANY
Condensed Consolidated Statements of Earnings
(In millions except per share data)
(Unaudited)
For the 12-week period ended
------------------------------
June 19, June 20,
2001 2000
-------- --------
Net sales $611.1 $599.6
Cost of products sold 323.7 319.8
------ ------
Gross profit 287.4 279.8
Marketing, distribution and administrative
expenses 245.8 244.8
------ ------
Operating income 41.6 35.0
Other income and expenses:
Interest expense (17.5) (15.8)
Other income, net 0.7
------ ------
Income before income taxes 24.8 19.2
Provision for income taxes 10.3 8.1
Minority interest expense (0.1) (0.2)
------ ------
Net income $ 14.4 $ 10.9
====== ======
Earnings per share:
Basic
Net earnings $ 0.35 $ 0.27
====== ======
Weighted average shares outstanding 41.3 40.4
====== ======
Diluted
Net earnings $ 0.34 $ 0.27
====== ======
Weighted average shares outstanding 42.5 41.1
====== ======
FN:
See accompanying Notes to Condensed Consolidated Financial Statements.
4
THE EARTHGRAINS COMPANY
Condensed Consolidated Statements of Cash Flows
(In millions)
(Unaudited)
For the 12-week
period ended
-------------------
June 19, June 20,
2001 2000
-------- --------
Cash flows from operating activities:
Net income $ 14.4 $ 10.9
Adjustments to reconcile earnings to
net cash flow provided by operations:
Depreciation and amortization 33.0 34.2
Deferred income taxes 0.1 6.0
(Gain) on disposal of fixed assets (0.2) (0.1)
(Increase) in noncash working capital (16.4) (39.7)
Other, net 11.4 (0.6)
------ ------
Net cash flow from operations 42.3 10.7
------ ------
Cash flows from investing activities:
Capital expenditures (20.1) (20.7)
Acquisitions, net of cash acquired -- (8.8)
Other, net 0.7 0.4
------ ------
Net cash used by investing
activities (19.4) (29.1)
------ ------
Cash flows from financing activities:
Net (payments on) proceeds from
borrowings (21.7) 15.2
Dividends to shareholders (2.4) (2.1)
Purchases of treasury stock -- (1.3)
Other 1.2 0.1
------ ------
Net cash (used by) provided by
financing activities (22.9) (11.9)
------ ------
Effect of exchange rate changes on cash (0.7) --
Net (decrease) in cash and cash
equivalents (0.7) (6.5)
Cash and cash equivalents, beginning of
period 18.1 19.9
------ ------
Cash and cash equivalents, end of period $ 17.4 $ 13.4
====== ======
FN:
See accompanying Notes to Condensed Consolidated Financial Statements.
5
Notes to Condensed Consolidated Financial Statements (Unaudited)
----------------------------------------------------
Note 1 - In the opinion of Earthgrains, the accompanying unaudited condensed
consolidated financial statements contain all adjustments (consisting of only
normal recurring adjustments) necessary for a fair presentation of the financial
statements pursuant to the applicable SEC rules and guidelines pertaining to
interim financial information. Operating results for any quarter are not
necessarily indicative of the results for any other quarter or for the full
year. These condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
included in the Annual Report to Shareholders for the year ended March 27, 2001.
Note 2 - Inventories are carried at the lower of cost or market. Cost is
determined under the first-in, first-out method.
Total inventories consisted of the following:
June 19, March 27,
2001 2001
-------- --------
Raw materials $ 69.7 $ 67.5
Finished goods 29.6 27.2
------ ------
$ 99.3 $ 94.7
====== ======
Note 3 - Earthgrains has recorded various provisions for restructuring and
consolidation in conjunction with the closing of domestic bakeries and
restructuring operations in Spain to increase efficiencies and streamline
operations. Reserves have also been established in conjunction with certain
acquisitions for restructuring related to the acquired company's operations. In
accordance with generally accepted accounting principles, the acquisition-
related reserves were recorded as an increase to goodwill and no provision was
recorded.
No such provisions or additional reserves were recorded during the current
quarter. The reserve balance at June 19, 2001, is comprised primarily of $1.8
million in cash costs, primarily severance, yet to be paid and $1.4 million in
noncash charges. A reconciliation of activity with respect to Earthgrains'
restructuring and consolidation since fiscal year 2001 is as follows:
Ending balance, March 27, 2001 $ 6.2
Cash payments associated with severance (0.8)
Noncash asset write-offs (2.2)
-----
Ending balance, June 19, 2001 $ 3.2
=====
6
Note 4 - Long-term debt is comprised of the following:
June 19, 2001 March 27, 2001
------------- --------------
Commercial Paper $257.2 $229.0
Notes Payable, 6.5%, due
2009 148.1 148.0
Notes Payable, 8.375%,
due 2003 297.2 296.9
Notes Payable, 8.5%,
due 2005 245.8 245.5
Revolving Credit Facilities,
due 2001 -- 50.0
Other 8.4 9.0
------ ------
956.7 978.4
Less current portion 7.9 7.9
------ ------
$948.8 $970.5
====== ======
The commercial paper borrowings were at a weighted average interest rate of
5.0% during the current quarter, compared with 6.4% for the first quarter of
fiscal 2001. The revolving credit facilities, due 2001, have been terminated by
Earthgrains in June 2001 and July 2001. Borrowings outstanding under the
commercial paper program are classified as noncurrent because they are supported
by $450 million in committed lines of credit due in September 2002. As of June
19, 2001, $200 million of securities under a shelf registration statement filed
with the SEC in 2000 remain unissued. Based on outstanding debt, commercial
paper, and letters of credit, approximately $220 million was available for
incremental borrowings under the existing $500 million in committed lines of
credit at June 19, 2001.
Note 5 - Earnings per share are based on the weighted average number of shares
of Earthgrains common stock outstanding for the periods presented. The
difference in the weighted average shares outstanding used in the basic and
dilutive earnings per share calculations represents the assumed conversion of
stock options and restricted stock awards.
Note 6 - On March 28, 2001, Earthgrains implemented on a prospective basis,
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities," as amended by SFAS No. 137 and
SFAS No. 138 (collectively, the Statement.) This Statement requires all
derivatives to be recognized in the statement of financial position at fair
value, with changes in the fair value of derivative instruments to be recorded
in current earnings or deferred in other comprehensive income, depending on
whether a derivative is designated as and is effective as a hedge and on the
type of hedging transaction. Earthgrains' transition adjustment upon adoption
of this Statement was immaterial. In the ordinary course of business,
Earthgrains is exposed to commodity price risks relating to the acquisition of
raw materials and supplies and interest rate risks relating to debt. Authorized
individuals within Earthgrains may utilize derivative financial instruments,
including (but not limited to) future contracts, option contracts, forward
contracts and swaps, to manage certain of these exposures by hedging when it is
practical to do so. The terms of such instruments, and the hedging transactions
to which they relate, generally do not exceed 12 months. Earthgrains uses
commodity futures contracts with the objective of reducing commodity price risks
related to future raw material requirements for commodities such as corn, wheat
and soy oil. Commodity price risks arise from price volatility due to factors
such as weather conditions, government regulations, economic climate and other
unforeseen
7
circumstances. Earthgrains is not permitted to engage in speculative or
leveraged transactions and will not hold or issue financial instruments for
trading purposes. Hedge accounting is only applied when the derivative is
deemed to be highly effective at offsetting changes in fair values or
anticipated cash flows of the hedged item or transaction. Earnings impacts for
all designated hedges are recorded in the Consolidated Statement of Earnings
generally on the same line item as the gain or loss on the item being hedged.
For a cash flow hedge of an anticipated transaction, the ineffective portion of
the change in fair value of the derivative is recorded in earnings as incurred,
whereas the effective portion is deferred in accumulated other comprehensive
income in the Consolidated Balance Sheet until the transaction is realized, at
which time any deferred hedging gains or losses are recorded in earnings.
During the quarter ended June 19, 2001, hedging activities were immaterial,
consisting of only cash flow hedges of anticipated ingredient purchases. See
Note 7 for the related effect on comprehensive income.
Note 7 - Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" (SFAS 130) requires that noncash changes in shareholders'
equity be combined with net income and reported as "comprehensive income."
Earthgrains has elected to report comprehensive income in its Statement of
Shareholders' Equity. Other comprehensive income for Earthgrains relates to
foreign currency translation adjustments and cash flow derivative hedging
instruments. For the 12-week periods ended June 19, 2001 and June 20, 2000,
comprehensive income was $4.9 million and a negative $2.4 million, respectively.
Note 8 - The business segments of Earthgrains are Bakery Products, which
consists of the U.S. Bakery Products division and the European Bakery Products
division, and Refrigerated Dough Products, which consists of the U.S.
Refrigerated Dough Products division and the European Refrigerated Dough
Products division. There have been no changes to the basis of segmentation or
to the basis of measurement as presented in the 2001 Annual Report to
Shareholders. Its business segment information through the first quarter of
fiscal 2002 and 2001 is summarized below (in millions):
8
12-week period ended
----------------------
June 19, June 20,
Income Statement Information: 2001 2000
-------- --------
Net Sales
Bakery Products $546.3 $541.2
Refrigerated Dough
Products 64.8 58.4
------ ------
Total $611.1 $599.6
------ ------
Operating Income
Bakery Products $ 35.4 $ 32.8
Refrigerated Dough
Products 8.9 4.9
Corporate (a) (2.7) (2.7)
------ ------
Total $ 41.6 $ 35.0
------ ------
Depreciation & Amortization
Bakery Products $ 26.8 $ 27.7
Refrigerated Dough
Products 3.5 3.8
Corporate (a) 2.7 2.7
------ ------
Total $ 33.0 $ 34.2
------ ------
Balance Sheet Information:
Capital Expenditures
Bakery Products $ 17.8 $ 17.8
Refrigerated Dough
Products 2.3 2.9
------ ------
Total $ 20.1 $ 20.7
------ ------
FN:
(a) Amounts represent purchase accounting valuation in conjunction with the
acquisition of Earthgrains by Anheuser-Busch Companies, Inc., in 1982 and the
related depreciation and amortization thereon.
Note 9 - In May 2000, the EITF reached a consensus on Issue No. 00-14,
"Accounting for Certain Sales Incentives." This consensus establishes
requirements for the recognition and presentation of sales incentives, such as
coupons, rebates and other discounts. In April 2001, the EITF reached a
consensus to defer the effective date of this issue.
In September 2000, the EITF released Issue No. 00-25, "Accounting for
Consideration from a Vendor to a Retailer in Connection with the Purchase or
Promotion of the Vendor's Products." EITF Issue No. 00-25 addresses when
consideration from a vendor to a retailer (a) in connection with the retailer's
purchase of the vendor's products or (b) to promote sales of the vendor's
products by the retailer, should be classified in the vendor's income statement
as a reduction of revenue. In April 2001, a consensus was reached on this
issue. The guidance under Issue No. 00-14 and Issue No. 00-25 is effective for
Earthgrains' fourth quarter of fiscal year 2002. The impact of Issue No. 00-14
is not expected to have a significant impact on their financial position or
results of operations or have a material effect on its financial statement
reporting. Earthgrains has not completed its evaluation of the effect of Issue
No. 00-25.
9
In July 2001, the Financial Accounting Standards Board issued SFAS No. 141,
"Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible
Assets." These statements eliminate the amortization of purchased goodwill and
instead require an annual review of goodwill and intangibles for impairment or
when a change or event occurs that indicates goodwill may be impaired. The
statement is effective for Earthgrains' fiscal 2003 reporting. Earthgrains
expects an annual favorable impact to net income of approximately $24 million
upon adoption. The impact for the current quarter would have been a $5.6 million
increase to net income. However, Earthgrains continues to evaluate the total
impact of the adoption of these Statements on its financial statements and
financial reporting.
Subsequent Event
Note 10 - On July 2, 2001, Earthgrains announced that it has entered into a
merger agreement under which Sara Lee Corporation would buy Earthgrains for
$40.25 per share of common stock and would assume Earthgrains' debt. The
acquisition is subject to receipt of a majority of the Earthgrains shares in the
tender offer and subject to approval of antitrust authorities. As of July 31,
61% of the shares had been tendered through the tender offer. The transaction is
expected to be completed during the month of August.
10
CONSOLIDATED BALANCE SHEETS
THE EARTHGRAINS COMPANY
============================================================================================
MARCH 27, MARCH 28,
(IN MILLIONS, EXCEPT SHARE DATA) 2001 2000
--------------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 18.1 $ 19.9
Accounts receivable, net 254.4 261.3
Inventories, net 94.7 91.5
Deferred income taxes 50.7 67.1
Other current assets 32.1 41.5
--------------------------------------------------------------------------------------------
Total current assets 450.0 481.3
Goodwill, net 894.8 900.0
Plant and equipment, net 873.8 915.8
Other assets 37.3 42.4
--------------------------------------------------------------------------------------------
Total assets $ 2,255.9 $ 2,339.5
============================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 7.9 $ 442.1
Accounts payable 166.3 177.9
Accrued salaries, wages and benefits 79.8 83.3
Accrual for restructuring and consolidation 6.2 17.0
Other current liabilities 67.3 107.7
--------------------------------------------------------------------------------------------
Total current liabilities 327.5 828.0
Postretirement benefits 103.8 104.1
Long-term debt 970.5 562.3
Deferred income taxes 102.8 117.6
Other noncurrent liabilities 82.8 62.6
Commitments and contingencies -- --
Minority interest-redeemable preferred stock of subsidiary 10.0 10.0
Shareholders' equity:
Common stock, $.01 par value, 150,000,000 authorized, 44,431,293,
and 43,936,881 shares issued in 2001 and 2000, respectively 0.4 0.4
Additional paid-in capital 633.4 621.6
Retained earnings 128.7 125.8
Unearned ESOP shares (7.0) (11.0)
Treasury stock (41.3) (35.8)
Unearned portion of restricted stock (4.0) (1.6)
Accumulated other comprehensive income (51.7) (44.5)
--------------------------------------------------------------------------------------------
Total shareholders' equity 658.5 654.9
--------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 2,255.9 $ 2,339.5
============================================================================================
See accompanying Notes to Consolidated Financial Statements.
11
CONSOLIDATED STATEMENTS OF EARNINGS
THE EARTHGRAINS COMPANY
================================================================================================
FOR THE FISCAL YEARS ENDED
-----------------------------------------
MARCH 27, MARCH 28, MARCH 30,
(IN MILLIONS, EXCEPT PER-SHARE DATA) 2001 2000 1999
------------------------------------------------------------------------------------------------
Net sales $ 2,582.1 $ 2,039.3 $ 1,925.2
Cost of products sold 1,407.7 1,122.5 1,092.4
------------------------------------------------------------------------------------------------
Gross profit 1,174.4 916.8 832.8
Marketing, distribution and administrative expenses 1,060.0 804.4 731.6
Provision for restructuring and consolidation 11.5 2.3 28.0
------------------------------------------------------------------------------------------------
Operating income 102.9 110.1 73.2
Other income and expenses:
Interest (expense) (76.8) (26.5) (19.5)
Other income, net 3.5 4.3 6.2
------------------------------------------------------------------------------------------------
Income before income taxes 29.6 87.9 59.9
Provision for income taxes 16.4 32.8 21.9
Minority interest expense (0.8) (0.6) --
------------------------------------------------------------------------------------------------
Net income $ 12.4 $ 54.5 $ 38.0
================================================================================================
Earnings per share:
Basic
Net earnings per share $ 0.30 $ 1.34 $ 0.93
================================================================================================
Weighted average shares outstanding 40.7 40.6 40.7
================================================================================================
Diluted
Net earnings per share $ 0.30 $ 1.30 $ 0.89
================================================================================================
Weighted average shares outstanding 41.7 41.9 42.7
================================================================================================
See accompanying Notes to Consolidated Financial Statements.
12
CONSOLIDATED STATEMENTS OF CASH FLOWS
THE EARTHGRAINS COMPANY
================================================================================================================
FOR THE FISCAL YEARS ENDED
----------------------------------------
MARCH 27, MARCH 28, MARCH 30,
(IN MILLIONS) 2001 2000 1999
----------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $ 12.4 $ 54.5 $ 38.0
Adjustments to reconcile earnings to
net cash flow provided by operations:
Depreciation 112.9 89.9 82.6
Amortization 39.3 26.3 19.8
Deferred income taxes 11.2 13.7 (2.0)
Provision for restructuring and consolidation
($11.5 million, less cash payments of $2.5 million in 2001;
$2.3 million, less cash payments of $1.0 million in 2000;
$28.0 million, less cash payments of $2.8 million in 1999) 9.0 1.3 25.2
(Gain) on disposal of fixed assets (1.4) (0.7) (5.6)
(Increase) in noncash working capital (28.2) (54.0) (18.9)
Other, net 9.8 (24.1) (8.9)
----------------------------------------------------------------------------------------------------------------
Net cash flow from operations 165.0 106.9 130.2
----------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Capital expenditures (96.7) (94.1) (86.5)
Acquisitions, net of cash acquired (32.1) (655.2) (169.7)
Proceeds from sale of property/business 7.0 7.4 40.7
Other (1.5) -- --
----------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (123.3) (741.9) (215.5)
----------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net (payments on borrowings) increase in revolving credit facility (566.9) 483.2 90.1
Issuance of long-term debt 538.0 150.0 9.9
Principal payments on long-term debt, including current maturities -- (4.1) (0.9)
Dividends to shareholders (9.5) (7.8) (6.0)
Purchases of treasury stock (3.3) (15.4) (13.4)
Proceeds from issuance of preferred stock of subsidiary -- -- 10.0
Other 2.7 1.6 3.3
----------------------------------------------------------------------------------------------------------------
Net cash (used by) provided by financing activities (39.0) 607.5 93.0
----------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash (4.5) (5.7) 1.7
Net (decrease) increase in cash and cash equivalents (1.8) (33.2) 9.4
Cash and cash equivalents, beginning of year 19.9 53.1 43.7
----------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 18.1 $ 19.9 $ 53.1
================================================================================================================
See accompanying Notes to Consolidated Financial Statements.
13
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
THE EARTHGRAINS COMPANY
-----------------------------------------------------------------------------------------------------------------------------------
ACCUM.
OTHER
COMMON STOCK ADDITIONAL UNEARNED UNEARNED COMPRE-
-------------------- PAID-IN RETAINED ESOP TREASURY RESTRICTED HENSIVE
(IN MILLIONS, EXCEPT SHARE DATA) SHARES AMOUNT CAPITAL EARNINGS SHARES STOCK STOCK INCOME TOTAL
------------------------------------------------------------------------------------------------------------------------------------
Balance March 31, 1998 21,498,864 $0.2 $608.1 $ 47.1 $(14.1) $ (7.0) $ (3.3) $(24.4) $606.6
Comprehensive income:
Net income 38.0 38.0
Other comprehensive
income, translation
adjustments 3.6 3.6
-----------------------------------------------------------------------------------------------------------------------------------
Comprehensive income 38.0 3.6 41.6
Dividends ($.145 per share) (6.0) (6.0)
Two-for-one stock split 21,498,864 0.2 (0.2) --
Shares issued under stock plan
and related tax benefits 405,086 5.7 5.7
Amortization of restricted stock 0.9 0.9
Shares allocated under ESOP 2.8 1.1 3.9
Purchases of treasury stock (557,700) (13.4) (13.4)
Other 6,737 0.2 (0.1) 0.1
-----------------------------------------------------------------------------------------------------------------------------------
Balance March 30, 1999 42,851,851 0.4 616.6 79.1 (13.0) (20.4) (2.5) (20.8) 639.4
Comprehensive income:
Net income 54.5 54.5
Other comprehensive
income, translation
adjustments (23.7) (23.7)
-----------------------------------------------------------------------------------------------------------------------------------
Comprehensive income 54.5 (23.7) 30.8
Dividends ($.19 per share) (7.8) (7.8)
Shares issued under stock plan
and related tax benefits 190,130 2.4 2.4
Amortization of restricted stock 0.9 0.9
Purchases of treasury stock (722,300) (15.4) (15.4)
Shares allocated under ESOP 2.8 2.0 4.8
Other (0.2) (0.2)
-----------------------------------------------------------------------------------------------------------------------------------
Balance March 28, 2000 42,319,681 0.4 621.6 125.8 (11.0) (35.8) (1.6) (44.5) 654.9
Comprehensive income:
Net income 12.4 12.4
Other comprehensive
income, translation
adjustments (7.2) (7.2)
-----------------------------------------------------------------------------------------------------------------------------------
Comprehensive income 12.4 (7.2) 5.2
Dividends ($.23 per share) (9.5) (9.5)
Shares issued under stock plans
and related tax benefits 376,822 8.4 1.2 (2.2) (3.9) 3.5
Amortization of restricted stock 1.5 1.5
Purchases of treasury stock (186,100) (3.3) (3.3)
Shares allocated under ESOP 3.4 2.8 6.2
-----------------------------------------------------------------------------------------------------------------------------------
Balance March 27, 2001 42,510,403 $0.4 $633.4 $128.7 $ (7.0) $(41.3) $ (4.0) $(51.7) $658.5
===================================================================================================================================
See accompanying Notes to Consolidated Financial Statements
14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THE EARTHGRAINS COMPANY
1 SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES AND POLICIES
This summary of Earthgrains' significant accounting principles and policies is
presented to assist in evaluating Earthgrains' financial statements included in
this report. These principles and policies conform to generally accepted
accounting principles and are applied on a consistent basis among years.
PRINCIPLES OF CONSOLIDATION
These consolidated financial statements include Earthgrains and all its
subsidiaries. All significant intercompany transactions are eliminated.
FISCAL YEAR END
Earthgrains has a 52- or 53-week year, with its fiscal year end being the last
Tuesday in March. The following table summarizes the periods covered in each of
the three fiscal years presented in these financial statements and footnotes
thereto unless otherwise stated:
============================================================================
FISCAL YEAR PERIOD COVERED
----------------------------------------------------------------------------
2001 52-week period ended March 27, 2001
2000 52-week period ended March 28, 2000
1999 52-week period ended March 30, 1999
FOREIGN CURRENCY TRANSLATION
The local currency of Earthgrains' foreign operations is considered the
functional currency. Financial statements of the foreign operations are
translated using exchange rates in effect at period end for assets and
liabilities, and average exchange rates during the period for results of
operations. Adjustments resulting from foreign currency transactions are
recognized in income, whereas adjustments resulting from the translation of
financial statements are reflected within accumulated other comprehensive income
in shareholders' equity.
REVENUE RECOGNITION
Revenue is recognized upon shipment to and acceptance by the customer. Discounts
to customers are netted against sales. Costs and related expenses to manufacture
the products are recorded as costs of sales when the related revenue is
recognized.
GOODWILL
Goodwill is amortized on a straight-line basis over a period of 40 years.
Accumulated amortization at March 27, 2001, and March 28, 2000, was $124.6
million and $99.8 million, respectively. $105.5 million of the goodwill balance
at March 27, 2001, relates to the acquisition of Earthgrains by Anheuser-Busch
in 1982.
SUPPLY AGREEMENTS
Cash payments made in conjunction with long-term supply agreements with
customers are capitalized as other assets and amortized over the term of the
respective agreement. Such amortization is reflected in marketing, distribution
and administrative expenses in the Consolidated Statements of Earnings.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand and temporary investments
purchased with an initial maturity of three months or less.
INVENTORIES AND PRODUCTION COSTS
Inventories are valued at the lower of cost or market. Cost is determined under
the first-in, first-out method. Inventories include the cost of materials,
direct labor and manufacturing overhead. Obsolete or unsalable inventories are
reflected at their estimated realizable values. Earthgrains uses commodity
futures and option contracts to hedge certain of its commodity purchases as
considered necessary to reduce the inherent risk associated with market-price
fluctuations. Such contracts are accounted for as hedges; and accordingly, gains
and losses on hedges of future commodity purchases are recognized as a component
of inventory in the same period as the related purchase transaction. For any
contracts that expire or are terminated, any related gains or losses are
recognized in income or expense during the same period. The effect of any
realized or deferred gains or losses is immaterial to the financial position or
results of operations of Earthgrains.
PLANT AND EQUIPMENT
Plant and equipment is carried at cost and includes expenditures for new
facilities and expenditures that substantially increase the useful lives of
existing facilities. Maintenance, repairs and minor renewals are expensed as
incurred. When plant and equipment is retired or otherwise disposed, the related
cost and accumulated depreciation are eliminated and any gain or loss on
disposition is reflected in income or expense.
Depreciation is provided principally on the straight-line method over
the estimated useful lives of the assets, resulting in depreciation rates on
buildings ranging from 2-10 percent and on machinery and equipment ranging
from 5-25 percent.
In conjunction with the acquisition of Earthgrains by Anheuser-Busch in
1982, a portion of the purchase price was associated with reflecting the
property, plant and equipment (buildings) at fair value through purchase
accounting. Additionally, the effect of the adoption of Statement of Financial
Accounting Standards No. 109 (SFAS 109) in fiscal 1992 was applied to these
assets. The remaining unamortized purchase price assigned to fixed assets
amounted to $185.0 million, with related deferred tax liabilities of $70.8
million, at March 27, 2001.
15
CAPITALIZATION OF INTEREST
Interest relating to the cost of acquiring certain fixed assets is capitalized.
The capitalized interest is included as part of the cost of the related asset
and is amortized over its estimated useful life. Such amounts capitalized were
not material for any year presented.
INCOME TAXES
The provision for income taxes is based on the income and expense amounts as
reported in the Consolidated Statements of Earnings. Deferred income taxes are
recognized for the effect of temporary differences between financial and tax
reporting in accordance with the requirements of SFAS 109.
FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK AND CONCENTRATION OF CREDIT
RISK
Earthgrains is a party to certain financial instruments with off-balance-sheet
risk incurred in the normal course of business. These financial instruments
include forward and option contracts designated as hedges. Derivative financial
instruments are used solely as hedges to manage existing risks or exposure.
Earthgrains' exposure to credit loss in the event of non-performance by the
counterparties to these financial instruments (either individually or in the
aggregate) is not material to the financial condition or results of operations
of Earthgrains.
Derivative financial instruments, which are used by Earthgrains in the
management of commodity exposures, are accounted for on an accrual basis. Income
and expense are recognized in the same category as that of the related asset or
liability. The fair value of derivative instruments is determined based on the
estimated amounts Earthgrains would receive or pay to terminate the contracts.
In fiscal 1998, Earthgrains entered into a forward-starting interest rate
swap transaction, in order to hedge its future borrowing costs for an
anticipated 10-year fixed rate debt issuance. Through this swap transaction,
Earthgrains was obligated at a future date, up to one year, to make payments
based upon a fixed rate while receiving a LIBOR-based floating rate during a 10-
year term. This interest rate swap agreement was terminated in conjunction with
the debt issuance on April 20, 1999. The loss of $2.3 million on the termination
of this swap is reflected as a discount on the notes and amortized to interest
expense over their 10-year term.
In May 2000, Earthgrains entered into three separate, similar four-month
forward-starting interest rate swap transactions totaling $400 million, for
anticipated three-year, five-year, and 10-year debt issuances. Concurrent with
the fixed-rate debt issuances on July 25, 2000, such swap transactions were
terminated. The $7.8 million loss on these swap agreements is being recognized
as an adjustment to interest expense on the underlying notes over their
respective three-year and five-year terms.
Earthgrains does not have a material concentration of accounts receivable
or credit risk.
FAIR VALUE OF FINANCIAL INSTRUMENTS
As of March 27, 2001 and March 28, 2000, the fair value of long-term debt was
$984.6 million and $984.0 million respectively. The fair value of long-term debt
was estimated based on the quoted market values for the same or similar debt
issues, or rates currently available for debt with similar terms.
RESEARCH AND DEVELOPMENT, AND ADVERTISING AND PROMOTIONAL COSTS
Research and development, and advertising and promotional costs are expensed
in the year in which these costs are incurred.
IMPAIRMENT OF LONG-LIVED ASSETS
Earthgrains reviews long-lived assets and goodwill for impairment whenever
events or changes in business circumstances indicate that the carrying amount of
the assets may not be fully recoverable. Earthgrains performs undiscounted cash-
flow analyses to determine whether an impairment exists. Impairment losses, if
any, would be determined based on the present value of the cash flows using
discount rates that reflect the inherent risk of the underlying business.
SYSTEMS DEVELOPMENT COSTS
Earthgrains capitalizes certain systems development costs as required in
accordance with established criteria. Amounts capitalized are amortized over a
five-year period. In March 1998, the American Institute of Certified Public
Accountants (AICPA) issued Statement of Position (SOP) No. 98-1, "Accounting for
the Costs of Computer Software Developed or Obtained for Internal Use." This
statement requires that certain internal and external costs associated with the
purchase and/or development of internal use software be capitalized rather than
expensed. Earthgrains adopted this statement as of the beginning of fiscal year
1999. Such adoption did not have a material impact on Earthgrains' financial
position or results of operations.
EARNINGS PER SHARE
Earnings per share are based on the weighted average number of shares of common
stock outstanding during the year. The difference in the weighted average shares
outstanding used in the basic and dilutive earnings-per-share calculations
represents the assumed conversion of stock options and restricted stock awards.
The number of shares from such assumed conversion were 1.0 million, 1.3 million
and 2.0 million shares in fiscal 2001, 2000 and 1999, respectively.
STOCK-BASED COMPENSATION
Earthgrains accounts for employee stock options using the intrinsic value method
in accordance with Accounting Principles Board Opinion No. 25 (APB 25),
"Accounting for Stock Issued to Employees." Under APB 25, Earthgrains does not
recognize compensation expense for options granted, because options are only
granted at a price equal to market value on the date of grant.
16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THE EARTHGRAINS COMPANY
In 1996, Statement of Financial Accounting Standards No. 123 (SFAS 123),
"Accounting for Stock Based Compensation" became effective, which prescribes
recognition of compensation expense based upon the fair value of the options at
the date of grant. However, SFAS 123 allows companies to continue to apply APB
25 and disclose pro forma effects of the fair value method. See Note 7 for
additional discussion and pro forma disclosures as if the fair value method had
been utilized.
COMPREHENSIVE INCOME
Comprehensive income represents net income plus certain items that are charged
directly to stockholders' equity. Other comprehensive income for Earthgrains
relates only to foreign currency translation adjustments.
USE OF ESTIMATES
In conformity with generally accepted accounting principles, the preparation of
financial statements requires Earthgrains' management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Although these estimates are based on their knowledge of
current events and the actions that they may undertake in the future, they may
ultimately differ from actual results.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1999, the Financial Accounting Standards Board (FASB) issued SFAS No.
137, "Accounting for Derivative Instruments and Hedging Activities -- Deferral
of the Effective Date of FASB Statement No. 133." This Statement established
accounting and reporting standards for derivative instruments, requiring
recognition of the fair value of all derivatives as assets or liabilities on the
balance sheet. SFAS 133 will become effective for fiscal 2002 financial
reporting. Based upon a review of the provisions of this standard, Earthgrains'
existing derivative positions qualify for hedge accounting treatment under SFAS
133. Accordingly, Earthgrains expects to record a net-of-tax cumulative effect
adjustment to other comprehensive income to recognize all instruments that will
be designated as cash flow hedges at fair value. Earthgrains believes that the
adoption will not have a significant impact on its results of operations or
financial position.
In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin (SAB) No. 101, "Revenue Recognition," which provides
guidance on the application of existing revenue recognition rules for
transactions that existing rules do not specifically address. In June 2000, the
SEC issued SAB No. 101B, which delayed the effective date of SAB No. 101, making
it applicable for Earthgrains' fourth quarter of fiscal year 2001. The
implementation did not have a material impact on Earthgrains' consolidated
financial statements.
In the third calendar quarter of fiscal 2000, the Emerging Issues Task
Force (EITF) of the FASB reached a consensus on Issue No. 00-10, "Accounting for
Shipping and Handling Revenues and Costs." The consensus establishes
requirements for the classification and disclosure of shipping and handling
costs incurred and those costs billed. The required reclassification did not
have a material impact on Earthgrains' consolidated financial statements.
Approximately $484.5 million, $344.1 million and $305.0 million of shipping and
handling costs are included in marketing, distribution and administrative
expenses in the Consolidated Statements of Earnings for fiscal 2001, 2000, and
1999, respectively.
In May 2000, the EITF reached a consensus on Issue No. 00-14, "Accounting
for Certain Sales Incentives." This consensus establishes requirements for the
recognition and presentation of sales incentives such as coupons, rebates and
other discounts. In April 2001, the EITF reached a consensus to defer the
effective date of this issue.
In September 2000, the EITF released Issue No. 00-25, "Accounting for
Consideration from a Vendor to a Retailer in Connection with the Purchase or
Promotion of the Vendor's Products." EITF Issue No. 00-25 addresses when
consideration from a vendor to a retailer (a) in connection with the retailer's
purchase of the vendor's products or (b) to promote sales of the vendor's
products by the retailer should be classified in the vendor's income statement
as a reduction of revenue. In April 2001, a consensus was reached on this issue.
The guidance under Issue No. 00-14 and Issue No. 00-25 is effective for
Earthgrains' fourth quarter of fiscal year 2002. The impact of Issue No. 00-14
is not expected to have a significant impact on its financial position or
results of operations or have a material effect on its financial statement
reporting. Earthgrains has not completed its evaluation of the effect of Issue
No. 00-25.
The FASB is in the final stages of issuing a new statement, "Business
Combinations and Intangible Assets -- Accounting for Goodwill," which would
eliminate the amortization of purchased goodwill and instead require an annual
review of goodwill and intangibles for impairment or when a change or event
occurs that indicates goodwill may be impaired. If this new standard is issued
prior to Earthgrains' required SEC filing for the upcoming first quarter of
fiscal 2002, it would permit early adoption for Earthgrains. Accordingly,
pending issuance of the new statement under the current provisions provided in
the existing related Exposure Draft, Earthgrains plans to adopt the new
statement for reporting its first quarter of fiscal 2002 results. Earthgrains
expects an annual, favorable impact to net income of approximately $24 million
upon adoption for fiscal 2002.
2 ACQUISITIONS
On January 1, 2001, Earthgrains' European Bakery unit acquired the assets of
Ortiz, the toasted bread business of Nutrexpa, S.A. Ortiz, which produces
toasted bread through one plant in Vergel, Spain, with annual sales of
approximately $12.0 million, makes Earthgrains the market leader in toasted
bread products in Spain. The cash transaction is being funded through cash flows
of the local existing Spanish operations and has been accounted for using the
purchase method. Accordingly, the results of operations are reflected in the
Consolidated Statement of Earnings from the date of acquisition.
17
Effective June 30, 1999, Earthgrains acquired the stock of Patrick Raulet,
S.A., a leading producer of refrigerated dough products in Dole, France. This
acquisition complements Earthgrains' existing European Refrigerated Dough
Products business, making it the largest refrigerated dough supplier in France.
This acquisition was funded through the cash flows of the local existing
operations. Effective March 18, 2000, Earthgrains acquired the stock of Metz
Baking Company for $625 million. Metz, which currently operates 20 bread and
specialty bakeries, added major markets and brands in the upper Midwest. The
acquisition was initially financed through new and existing committed credit
facilities and commercial paper. In July 2000, three- and five-year notes were
issued to refinance a portion of the original borrowings. Both acquisitions were
purchased for cash and have been accounted for using the purchase method.
Accordingly, the results of operations are reflected in the Consolidated
Statement of Earnings from the respective dates of acquisition. The purchase
price has been allocated to the assets acquired and the liabilities assumed
based upon their estimated fair market value, and the excess costs over net
tangible assets are being amortized over 40 years. $494.6 million in excess
costs over assets acquired as of March 27, 2001 relates to the Metz acquisition.
Had these purchases taken place on April 1, 1998, unaudited pro forma
consolidated net sales would have been $2,601.3 million and $2,467.2 million for
fiscal years 2000 and 1999, respectively. Consolidated net earnings and earnings
per diluted share would have been $35.7 million and $0.85 per share in fiscal
2000 and $19.7 million and $0.46 per share in fiscal 1999.
On August 3, 1998, Earthgrains acquired the assets of Societe De Concept en
Produits Agro-Alimentaires, S.A., which owns Chevalier Servant, S.A., of Vittel,
France. Chevalier Servant, a refrigerated- and frozen-dough producer, has been
combined with Earthgrains' existing French-based refrigerated dough operations.
On August 19, 1998, Earthgrains acquired the assets of Palmetto Baking Company
of Orangeburg, S.C., and Tatum Bakeries of Birmingham, Ala., from Southern
Bakeries, Inc. Palmetto produces Sunbeam(R) and Country Hearth(R) brand bread,
buns and rolls in South Carolina and eastern Georgia. Tatum produces specialty
rolls for sale to other wholesale bakers. Effective October 5, 1998, Earthgrains
completed the transaction with Interstate Bakeries Corporation to exchange
assets of Earthgrains' My Bread Baking Co. in New Bedford, Mass., for those of
IBC's Holsum Bakery in Grand Junction, Colo., plus a cash payment from IBC. The
exchange, which added new brands and contiguous sales territory in western
Colorado, did not significantly affect financial results. On March 25, 1999, it
completed the acquisition of Reposteria Martinez Group of Santander, Spain.
Reposteria Martinez Group is a producer of fresh-baked sweet goods and with this
acquisition, Earthgrains became the branded market leader in the retail sweet-
good segments of cake and morning goods in Spain.
All of these acquisitions were purchased for cash and have been accounted
for using the purchase method. Accordingly, the results of operations are
reflected in the Consolidated Statement of Earnings from the date of
acquisition. The purchase price has been allocated to the assets acquired and
the liabilities assumed based upon their estimated fair market value, and the
excess costs over net tangible assets are being amortized over 40 years. Had
these purchases taken place on April 1, 1998, unaudited pro forma consolidated
net sales would have been $2,035.0 million for fiscal year 1999. Consolidated
net earnings and earnings per share would not have been significantly different
from the amounts reflected in the accompanying financial statements.
On July 22, 1998, Earthgrains entered into a multi-year agreement to supply
store-brand fresh bread and bakery products to Kroger Food Stores in Texas and
Louisiana. Earthgrains services this contract through its existing bakeries in
Dallas and Houston. On September 21, 1998, Earthgrains entered into a multi-year
agreement to supply store-brand fresh bread, buns and rolls to Lucky Stores,
Inc., in northern California. Earthgrains services this contract through its
existing bakeries in Oakland and Sacramento. Cash payments made in conjunction
with long-term supply agreements with customers are capitalized as other assets
and amortized over the term of the respective agreement.
Pro forma data do 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 such data are not intended to be a projection of future
results.
3 PROVISIONS FOR RESTRUCTURING AND CONSOLIDATION
Earthgrains has recorded various provisions for restructuring and consolidation
in conjunction with closing domestic bakeries and restructuring operations in
Spain in order to increase efficiencies and streamline operations. Reserves have
also been established in conjunction with certain acquisitions for restructuring
related to the acquiree's operations. In accordance with generally accepted
accounting principles, the acquisition-related reserves were recorded as an
increase to goodwill and no provision was recorded.
During fiscal 2001, an $11.5 million pretax restructuring charge was
recorded for costs associated with closing bakeries in Des Moines, Iowa and
Louisville, Kentucky. Additionally, the Rockford, Illinois bakery was also
closed, which was acquired as part of Metz Baking Company. Costs associated with
the Rockford closing are being charged against additional acquisition-related
reserves of $2.6 million and no provision was recorded. These provisions and
reserves include costs of reflecting certain fixed assets at net realizable
value less cost of disposal, employee severance benefits, and other related
closing costs that do not benefit future periods.
In fiscal 2000, Earthgrains recorded a provision of $2.3 million in
conjunction with closing one bakery. During fiscal 1999, provisions totaling
$28.0 million were recorded in conjunction with closing three domestic bakeries,
severance costs associated with the creation of a centralized Financial Shared
Services Center in
18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THE EARTHGRAINS COMPANY
St. Louis, and for the restructuring of existing operations in Spain related to
the fourth quarter acquisition of Reposteria Martinez Group. These provisions
reflect costs of writing off certain fixed assets, employee severance benefits,
and other related closing costs. In the case of plant closings, production was
transferred to other facilities.
Costs for the respective-year provisions are categorized as follows (in
millions):
==========================================================================
FISCAL YEAR 2001 2000 1999
--------------------------------------------------------------------------
Noncash asset write-offs $ 8.0 $ 0.8 $ 3.0
Other, primarily severance 3.5 1.5 25.0
--------------------------------------------------------------------------
$11.5 $ 2.3 $28.0
==========================================================================
Additionally, reserves have been established in conjunction with certain
acquisitions in prior years for restructuring related to the acquiree's
operations. During fiscal 1999, reserves totaling $7.2 million were recorded
primarily for severance relative to the Chevalier Servant and Reposteria
Martinez Group acquisitions. During fiscal 2000, reserves of $0.3 million and
$3.5 million were established in conjunction with the Patrick Raulet and Metz
acquisitions, respectively. Both reserves were for severance. In accordance with
generally accepted accounting principles, these acquisition-related reserves
were recorded as an increase to goodwill and no provision was recorded. At March
27, 2001, $2.6 million of the reserve balance is comprised of cash charges to be
incurred, primarily severance; the remaining $3.6 million is comprised of
noncash charges.
A reconciliation of activity with respect to Earthgrains' restructuring
and consolidation is as follows (in millions):
===========================================================================
Ending balance, March 31, 1998 $ 6.1
Provision, 1999 28.0
Acquisition-related reserves 7.2
Noncash asset write-offs (2.0)
Cash payments associated with severance (5.8)
Other miscellaneous items, net (1.1)
---------------------------------------------------------------------------
Ending balance, March 30, 1999 32.4
Provision, 2000 2.3
Acquisition-related reserves 3.8
Noncash asset write-offs (1.8)
Cash payments associated with severance (19.2)
Other miscellaneous items, net (0.5)
---------------------------------------------------------------------------
Ending balance, March 28, 2000 17.0
Provision, 2001 11.5
Acquisition-related reserves 2.6
Noncash asset write-offs (10.2)
Cash payments associated with severance (14.3)
Other miscellaneous items, net (0.4)
---------------------------------------------------------------------------
ENDING BALANCE, MARCH 27, 2001 $ 6.2
===========================================================================
4 LONG-TERM DEBT
Long-term debt is as follows (in millions):
==========================================================================
MARCH 27, MARCH 28,
2001 2000
--------------------------------------------------------------------------
Commercial Paper, 5.7% and 6.2%
wtd. avg., respectively $229.0 $ 259.1
Revolving Credit Facility due 2000 -- 25.0
Revolving Credit Facility due 2001 -- 568.0
Revolving Credit Facilities due 2001 50.0 --
Notes Payable, 6.5%, due 2009 148.0 150.0
Notes Payable, 8.375%, due 2003 296.9 --
Notes Payable, 8.5%, due 2005 245.5 --
Euro Revolving Credit Facility
due 2004 7.4 --
Industrial Development Bonds,
9.5%, due 2001 1.5 1.5
Other 0.1 0.8
-------------------------------------------------------------------------
978.4 1,004.4
Less current portion 7.9 442.1
-------------------------------------------------------------------------
$970.5 $ 562.3
=========================================================================
The aggregate maturities on long-term debt are $50.0 million, $229.0
million, $307.4 million, and $250.0 million in fiscal years 2002, 2003, 2004 and
2006, respectively.
On April 20, 1999, Earthgrains issued $150 million of 10-year 6.5 percent
fixed-rate senior debentures under a $250 million shelf registration statement
filed with the SEC. Proceeds from the offering were used to repay a portion of
the borrowings under Earthgrains' existing $450 million revolving credit
facility.
Beginning in July 1999, Earthgrains initiated a $400 million commercial
paper program to refinance the remaining borrowings under the revolving credit
facilities and to provide short-term financing for its working capital and
operating requirements.
In conjunction with the acquisition of Metz Baking Company in March 2000,
Earthgrains secured a $600 million committed revolving credit facility, due in
March 2001, to initially finance the transaction. Concurrently, Earthgrains
initiated an incremental $600 million commercial paper program to refinance any
borrowings under the new revolving credit facility.
On July 25, 2000, Earthgrains issued $300 million in three-year, 8.375
percent fixed-rate Notes due 2003 and $250 million in five-year, 8.5 percent
fixed-rate Notes due 2005 from the $750 million shelf registration statement
filed with the SEC, which became effective in April 2000. Proceeds from these
notes, which were issued at a discount, were used to repay a
19
portion of the outstanding commercial paper borrowings. As of March 27, 2001,
$200 million of securities under this shelf registration remain unissued. The
$100 million of unissued securities under the shelf registration statement filed
with the SEC in 1999 have been canceled. In conjunction with the fixed rate debt
issuance, the $600 million revolving credit facility was reduced to $50 million
and the $400 million in forward starting interest rate swaps, entered into in
May 2000, were terminated. The $7.8 million loss on these swap agreements is
being recognized as an adjustment to interest expense over the term of the
underlying notes. The remaining $50 million in commitments under the $600
million revolving credit facility was terminated by Earthgrains in October 2000.
At March 27, 2001, $50 million was outstanding under Earthgrains' $500 million
in committed lines of credit.
Borrowings outstanding under the commercial paper program and the $50
million under the credit line at March 27, 2001, are classified as noncurrent as
they are supported by $450 million in committed lines of credit due in September
2002. The commercial paper borrowings were at weighted average interest rates of
6.6 percent during fiscal 2001 compared to 5.9 percent for fiscal 2000.
Maturities of the commercial paper issued during the year generally were less
than 90 days, with an average maturity of 29 days at March 27, 2001.
Additionally, Earthgrains has a 10 million committed Euro revolving credit
facility, due 2004, for Earthgrains' French subsidiary, EuroDough, and a 27
million Euro revolving credit facility, due 2004, for operations in Spain, to
finance Earthgrains' foreign business requirements.
As of March 27, 2001, $26.6 million in letters of credit were also
outstanding under the revolving credit facility, principally related to self-
insurance requirements. Based on outstanding debt, commercial paper and letters
of credit, approximately $200 million was available for incremental borrowings
under the existing $500 million in committed lines of credit at March 27, 2001.
All credit facilities contain customary covenants, including maintenance of
interest coverage and debt-to-total capitalization ratios plus certain other
restrictions.
5 RETIREMENT BENEFITS
PENSION PLANS
For fiscal 2001, salaried employees from the Metz acquisition were included in
Earthgrains' salaried pension plan. The Metz Bargaining Unit Plan, also assumed
from the acquisition, is maintained as a separate plan and is included in the
disclosures below. During fiscal 2000, Earthgrains adopted a nonunion hourly
pension plan to provide benefit coverage for new nonunion hourly employees from
acquired companies. Net pension expense for single-employer defined benefit
plans was comprised of the following for the three fiscal years (in millions):
============================================================================
FISCAL YEAR 2001 2000 1999
----------------------------------------------------------------------------
Service cost (benefits
earned during the year) $ 7.8 $ 6.2 $ 4.4
Interest cost on projected
benefit obligation 4.9 1.9 1.4
Expected return on assets (5.9) (2.0) (1.0)
Amortization of actuarial gains,
prior service cost, and the
excess of market value of plan
assets over projected benefit
obligation at January 1, 1986 1.1 1.2 1.0
----------------------------------------------------------------------------
Net pension expense $ 7.9 $ 7.3 $ 5.8
============================================================================
The key actuarial assumptions used in determining pension expense for
single-employer defined benefit plans were as follows for each of the three
fiscal years:
============================================================================
FISCAL YEAR 2001 2000 1999
----------------------------------------------------------------------------
Discount rate 7.5% 7.0% 7.25%
Long-term rate of return
on plan assets 10.0% 10.0% 10.0%
Weighted-average rate of
compensation increase 4.5% 4.5% 4.5%
============================================================================
The actual (loss) gain on pension assets was $(0.9) million in fiscal 2001,
$2.6 million in fiscal 2000, and $1.1 million in fiscal 1999.
The following tables set forth a reconciliation of funded status to pension
liability of all company single-employer defined benefit plans for the two years
ended (in millions):
===============================================================================
MARCH 27, MARCH 28,
2001 2000
-------------------------------------------------------------------------------
Funded status -- Plan assets (less than)
projected benefit obligation (PBO) $(14.4) $(5.6)
Unamortized excess of market value
of plan assets over PBO
at January 1, 1986, being
amortized over 15 years (0.4) (0.4)
Unrecognized net actuarial loss 7.6 1.0
Unrecognized prior service costs 4.2 4.9
-------------------------------------------------------------------------------
Accrued pension liability $ (3.0) $(0.1)
===============================================================================
20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THE EARTHGRAINS COMPANY
The assumptions used in determining the funded status of these plans were
as follows:
==============================================================================
2001 2000
------------------------------------------------------------------------------
Discount rate 7.5% 7.5%
Weighted-average rate of
compensation increase 4.5% 4.5%
==============================================================================
The following tables summarize the change in the projected benefit
obligation and the change in fair market value of plan assets for all company
single-employer defined benefit pension plans for the years ended (in millions):
CHANGE IN PROJECTED BENEFIT OBLIGATION (PBO):
===============================================================================
MARCH 27, MARCH 28,
2001 2000
-------------------------------------------------------------------------------
PBO, beginning of year $66.8 $27.0
Service cost 7.8 6.2
Interest cost 4.9 1.9
Acquisitions -- 32.7
Plan amendments 0.4 0.7
Actuarial (gain) (0.2) (0.9)
Benefits paid (2.1) (0.8)
-------------------------------------------------------------------------------
PBO, end of year $77.6 $66.8
===============================================================================
CHANGE IN PLAN ASSETS (CONSISTING PRIMARILY OF CORPORATE EQUITY SECURITIES AND
PUBLICLY TRADED BONDS):
===============================================================================
MARCH 27, MARCH 28,
2001 2000
-------------------------------------------------------------------------------
Fair market value, beginning of year $60.9 $14.7
Actual return on plan assets (0.7) 2.6
Acquisitions -- 34.3
Employer contributions 5.1 10.1
Benefits paid (2.1) (0.8)
-------------------------------------------------------------------------------
Fair market value, end of year $63.2 $60.9
===============================================================================
The amounts listed as acquisitions in the preceding tables, reflect the
projected benefit obligation and related pension assets from the Metz
acquisition.
Contributions to multiple and multi-employer plans in which Earthgrains
participates are determined in accordance with the provisions of negotiated
labor contracts. Contributions to these plans were $32.3 million, $24.3 million,
and $24.9 million for fiscal 2001, 2000, and 1999, respectively.
POSTRETIREMENT BENEFITS
Earthgrains provides certain health care and life insurance benefits to eligible
retired employees. Salaried and certain bargaining unit employees generally
become eligible for retiree health care benefits after reaching age 55 with 15
years of service.
The following table sets forth the accumulated postretirement benefit
obligation (APBO) and the total postretirement benefit liability for all single-
employer defined benefit plans in Earthgrains' Consolidated Balance Sheets as
of (in millions):
==============================================================================
MARCH 27, MARCH 28,
2001 2000
------------------------------------------------------------------------------
Accumulated postretirement
benefit obligation (APBO) $ 86.0 $ 68.9
Unrecognized prior service benefits 25.3 30.2
Unrecognized net actuarial gains 2.7 14.3
------------------------------------------------------------------------------
Total postretirement benefit liabilities $114.0 $113.4
==============================================================================
As of March 27, 2001, and March 28, 2000, $103.8 million and $104.1 million
of this obligation was classified as a long-term liability, respectively, and
$10.2 million and $9.3 million was classified in other current liabilities,
respectively. The following tables summarize the change in the accumulated
postretirement benefit obligation for the years ended (in millions):
CHANGE IN ACCUMULATED POSTRETIREMENT BENEFIT OBLIGATION (APBO):
==============================================================================
MARCH 27, MARCH 28,
2001 2000
------------------------------------------------------------------------------
APBO, beginning of year $ 68.9 $72.0
Service cost 3.8 3.0
Interest cost 5.8 5.0
Acquisitions 6.6 --
Actuarial loss (gain) 10.9 (1.8)
Benefits paid (10.0) (9.3)
------------------------------------------------------------------------------
APBO, end of year $ 86.0 $68.9
==============================================================================
The amount listed as acquisitions in the preceding table, reflects the
accumulated postretirement benefit obligation from the Metz acquisition.
Net periodic postretirement benefits expense for single-employer defined
benefit plans for the following periods was comprised of the following (in
millions):
==============================================================================
FISCAL YEAR 2001 2000 1999
------------------------------------------------------------------------------
Service cost (benefits attributed
to service during the year) $ 3.8 $ 3.0 $ 3.4
Interest cost on accumulated
postretirement benefit obligation 5.8 5.0 6.1
Amortization of prior service benefit (4.9) (4.9) (4.9)
Amortization of actuarial gain (0.7) (1.0) (0.8)
------------------------------------------------------------------------------
Net periodic postretirement
benefits expense $ 4.0 $ 2.1 $ 3.8
==============================================================================
21
In measuring the APBO, the pre-Medicare medical indemnity costs
were assumed to increase 7.67 percent for fiscal year 2001, decreasing
by 1/3 percent per year to an ultimate rate of 4.0 percent in fiscal
year 2012. The post-Medicare medical indemnity costs were assumed to
increase 9.5 percent for fiscal year 2001, decreasing by 0.5 percent per
year to an ultimate rate of 4.0 percent in fiscal year 2012. The
Medicare Risk HMO medical costs were assumed to increase 5.75 percent in
fiscal year 2001, decreasing by 0.25 percent per year to an ultimate
rate of 4.0 percent in fiscal year 2008. The indemnity medical trend
rate combining pre- and post-Medicare costs for fiscal 1999 was assumed
to be 8.5 percent; the Medicare HMO medical trend rate was at an assumed
4.0 percent.
The weighted average discount rate used in determining the APBO
was 8.0 percent at March 27, 2001, and at March 28, 2000.
Assumed health care cost trend rates have a significant effect on
the amounts reported for the health care plan. A one-percentage-point
change in assumed health care cost trend rates would have the following
effects (in millions):
==================================================================
TREND +1% TREND -1%
------------------------------------------------------------------
Effect on total of service and
interest cost components for 2001 $1.0 $(1.0)
Effect on year-end 2001
postretirement benefit obligation $7.3 $(6.3)
==================================================================
6 EMPLOYEE STOCK OWNERSHIP PLAN
Substantially all domestic regular salaried and hourly employees are eligible
for participation in the company-sponsored Employee Stock Ownership Plan (ESOP)
that became effective July 1, 1996. The ESOP borrowed $16.8 million from
Earthgrains for a term of 10 years at an interest rate of 8.0 percent and used
the proceeds to buy 2,052,456 shares of common stock from Earthgrains. ESOP
shares are being allocated to participants over the 10-year period, as
contributions are made to the plan. At March 27, 2001, 1,198,472 shares have
been allocated to participants.
The ESOP cash contributions and ESOP expense accrued during the plan year
are determined by several factors, including the market price and number of
shares allocated to participants, ESOP debt service, dividends on unallocated
shares and Earthgrains' 401(k) matching contribution. Over the 10-year life of
the ESOP, total expense recognized will equal the total cash contributions made
by Earthgrains.
The ESOP is based on a June 30 plan year with cash contributions
made monthly. Cash contributions and dividends on unallocated ESOP
shares for fiscal 2001, 2000, and 1999 were $5.1 million and $0.3
million, $2.6 million and $0.3 million, and $1.4 million and $0.2
million, respectively.
7 STOCK OPTIONS AND RESTRICTED STOCK
The 1996 Incentive Plan, as amended, authorizes the issuance of up to 7,834,850
shares of Earthgrains Common Stock pursuant to the grant of restricted stock and
the exercise of incentive stock options, nonqualified stock options and stock
appreciation rights. Grants under the 1996 Incentive Plan are made at the market
price on the date of the grant. Options granted pursuant to the 1996 Incentive
Plan vest over a three-year period from the date of grant and, once vested, are
generally exercisable over 10 years from the anniversary of the grant date. The
plan also provides for the granting of stock appreciation rights (SARs) in
tandem with stock options. The exercise of a SAR cancels the related option and
the exercise of an option cancels the related SAR. At March 27, 2001, there were
no SARs outstanding under the plan.
Under the 1996 Incentive Plan, 666,204 restricted shares of Earthgrains
Common Stock were issued to certain officers of Earthgrains in fiscal 1997. This
restricted share award vests one-half each after 54 and 66 months following the
date of the award. Accordingly, one-half of the shares under this award vested
and were issued in October 2000. The remaining half of the award will vest in
October 2001. During fiscal 2001, 207,900 additional restricted shares of common
stock were issued to certain officers of Earthgrains. This restricted share
award vests 5 years from the date of the award. Compensation cost is recognized
over the vesting period.
Earthgrains applies Accounting Principles Board Opinion No. 25 (APB 25),
"Accounting for Stock Issued to Employees," in accounting for its stock option
plans. Accordingly, because the grant price equals the market price on the date
of grant, no compensation expense is recognized for stock option grants. Had
compensation cost for Earthgrains' stock options been determined based upon the
fair value at the grant date consistent with the methodology prescribed under
FAS 123, Earthgrains' net income and earnings per share for the years ended
March 27, 2001, March 28, 2000, and March 30, 1999, would have been affected as
follows (in millions except shares, per grant and per share amounts):
==================================================================
FISCAL YEAR 2001 2000 1999
------------------------------------------------------------------
Reported net income $12.4 $54.5 $38.0
Pro forma net income $ 8.1 $50.5 $35.1
Reported earnings per diluted share $0.30 $1.30 $0.89
Pro forma earnings per diluted share $0.19 $1.21 $0.82
==================================================================
22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THE EARTHGRAINS COMPANY
The weighted-average fair value of options granted (which is amortized to
expense over the option vesting period in determining the pro forma impact), is
estimated on the date of grant using the Black-Scholes option-pricing model with
the following assumptions:
=============================================================
2001 2000 1999
--------------------------------------------------------------
Risk-free interest rate 6.1% 6.2% 6.1%
Expected life of option 5 Yrs. 5 Yrs. 4 Yrs.
Expected volatility of
Earthgrains stock 38% 36% 34%
Expected dividend yield on
Earthgrains stock 1.12% 1.33% 0.75%
==============================================================
The weighted-average fair value of options granted during 2001,
2000, and 1999 is as follows:
==========================================================================
2001 2000 1999
--------------------------------------------------------------------------
Fair value of options granted $ 7.29 $ 6.07 $ 7.19
Number of options granted 493,950 668,715 681,928
Total fair value of all options granted $ 3.6 $ 4.1 $ 4.9
==========================================================================
In accordance with FAS 123, the weighted-average fair value of stock
options granted is required to be based on a theoretical statistical model in
accord with assumptions noted above. In actuality, because employee stock
options do not trade on a secondary exchange, employees receive no benefit and
derive no value from holding stock options under these plans without an increase
in the market price of Earthgrains stock. Such an increase in stock price would
benefit all stockholders.
The following table summarizes the stock option transactions under the
Earthgrains 1996 Incentive Plan:
===============================================================
WTD. AVG.
OPTION EXERCISE OPTIONS
SHARES PRICE EXERCISABLE
---------------------------------------------------------------
Outstanding,
March 31, 1998 3,447,620 $11.33 977,750
Granted 681,928 $22.41
Exercised 405,086 $ 8.43
Cancelled 38,608 $15.10
---------------------------------------------------------------
Outstanding,
March 30, 1999 3,685,854 $13.66 1,001,309
Granted 668,715 $16.14
Exercised 190,130 $ 8.67
Cancelled 94,401 $20.12
---------------------------------------------------------------
Outstanding,
March 28, 2000 4,070,038 $14.15 2,833,452
Granted 493,950 $18.75
Exercised 309,444 $10.02
Cancelled 75,995 $20.12
---------------------------------------------------------------
Outstanding,
March 27, 2001 4,178,549 $14.91 3,076,618
===============================================================
The following table summarizes information for options currently
outstanding at March 27, 2001:
================================================================
OPTIONS OUTSTANDING
----------------------------------------------------------------
WTD. AVG. WTD. AVG.
RANGE REMAINING EXERCISE
OF PRICES NUMBER LIFE PRICE
----------------------------------------------------------------
$ 7.65-13.06 1,991,312 5.4 YRS. $ 9.72
$14.46-14.63 58,450 9.0 YRS. 14.62
$15.59-15.72 603,174 8.8 YRS. 15.72
$17.50-20.41 422,100 9.4 YRS. 19.30
$21.34-25.28 1,103,513 7.6 YRS. 22.15
----------------------------------------------------------------
$ 7.65-25.28 4,178,549 6.9 YRS. $14.91
================================================================
At March 27, 2001, 1,678,190 shares of Earthgrains Common Stock were
available for future awards under the 1996 Incentive Plan. The plan provides for
acceleration of exercisability of outstanding options and the vesting of
restricted shares upon the occurrence of certain events relating to a change of
control, merger, sale of assets or liquidation of Earthgrains.
8 CAPITAL AND PREFERRED STOCK
7,834,850 shares are authorized for issuance under the amended 1996 Stock
Incentive Plan. Of those shares, 666,204 were issued as restricted share grants
to certain Earthgrains Officers in fiscal 1997. 2,052,456 shares were authorized
for the Employee Stock Ownership Plan, activated on July 1, 1996, of which
1,198,472 shares have been allocated to participants. 19,200 shares have been
granted as restricted shares and 22,601 shares issued as compensation to members
of the Board of Directors. During fiscal 2001, 207,900 additional shares were
issued as a restricted share grant to certain officers of Earthgrains.
1,803,300 shares have been repurchased into the treasury under Earthgrains'
stock repurchase program. Approximately 1.7 million remaining shares are
authorized for repurchase as of March 27, 2001. 42,510,403 shares of Earthgrains
Common Stock were issued and outstanding as of March 27, 2001.
All share and per-share amounts have been adjusted to reflect the
two-for-one common stock splits effective July 20, 1998 and July 28,
1997.
During March 1999, Earthgrains sold $10.0 million of mandatorily redeemable
preferred stock in a wholly owned subsidiary of Earthgrains. This preferred
stock is presented as a Minority Interest between long-term debt and
shareholders' equity. Earthgrains authorized and issued 10,000 shares of
preferred stock, which at any time on or after March 1, 2006, all (but not less
than all) of the shares may be redeemed at the option of Earthgrains, at the
redemption price of $1,000 per share. On March 1, 2019, Earthgrains shall redeem
all of the then-outstanding shares at the redemption price. During fiscal year
2000, Earthgrains began paying dividends on this preferred stock at a LIBOR-
based variable interest rate. Such dividends were recorded as Minority Interest
Expense below the income tax provision line.
23
9 INCOME TAXES
The provision for income taxes consists of the following amounts for the periods
ended (in millions):
==========================================================
FISCAL YEAR 2001 2000 1999
----------------------------------------------------------
Current tax (benefit) provision:
Federal $(0.5) $16.1 $20.1
State and foreign 5.7 3.0 3.8
----------------------------------------------------------
5.2 19.1 23.9
----------------------------------------------------------
Deferred tax provision (benefit):
Federal 7.6 8.6 3.1
State and foreign 3.6 5.1 (5.1)
----------------------------------------------------------
11.2 13.7 (2.0)
----------------------------------------------------------
Provision for income taxes $16.4 $32.8 $21.9
==========================================================
The deferred tax assets and deferred tax liabilities as of the end of each
period are comprised of the following (in millions):
=============================================================
MARCH 27, MARCH 28,
2001 2000
-------------------------------------------------------------
Deferred tax liabilities:
Depreciation and
property differences $ 163.7 $ 164.9
Deferred systems development costs 5.4 7.0
Pension plan 0.9 1.4
Other 8.1 18.1
-------------------------------------------------------------
Deferred tax liabilities 178.1 191.4
-------------------------------------------------------------
Deferred tax assets:
Postretirement benefits other
than pensions (39.8) (39.6)
Self-insurance reserves (21.3) (23.7)
Reserve for restructuring and
consolidation (2.7) (14.9)
Accrued liabilities (17.8) (20.9)
Deductible goodwill (3.2) (4.3)
NOLs and tax credit carryforwards (29.5) (23.6)
Other (11.7) (13.9)
-------------------------------------------------------------
Deferred tax (assets) (126.0) (140.9)
-------------------------------------------------------------
Net deferred tax liabilities $ 52.1 $ 50.5
=============================================================
The NOLs and tax credit carryforwards expire beginning in fiscal
2008 through 2019.
A reconciliation between the statutory rate and the effective rate
is presented below:
=================================================================
2001 2000 1999
-----------------------------------------------------------------
Tax at statutory rate $10.1 $30.5 $21.0
State income taxes,
net of federal benefit 0.6 0.7 1.0
Amortization of goodwill 7.5 3.4 3.0
Foreign tax credits and other (2.3) (2.4) (1.5)
Benefit management program -- -- (2.0)
Other, net 0.5 0.6 0.4
-----------------------------------------------------------------
Provision for income taxes $16.4 $32.8 $21.9
=================================================================
10 CASH FLOWS
Supplemental information with respect to the Consolidated Statements of Cash
Flows for each of the periods is presented below (in millions):
=============================================================
FISCAL YEAR 2001 2000 1999
-------------------------------------------------------------
Interest paid, net of
capitalized interest $ 71.5 $ 23.2 $ 19.2
Income taxes (refunded) paid, net (0.9) 25.1 34.0
-------------------------------------------------------------
Changes in noncash working
capital, net of effect
of acquisitions:
Decrease (increase) in
noncash current assets:
Accounts receivable, net 5.3 (35.5) (9.2)
Inventories, net (3.9) 3.2 (1.9)
Other current assets 9.3 (8.0) 8.2
Increase (decrease) in
current liabilities:
Accounts payable (11.9) 9.1 (21.2)
Accrued salaries,
wages and benefits (3.7) 2.7 (2.9)
Accrual for restructuring
and consolidation (10.9) (18.7) (3.0)
Other current liabilities (12.4) (6.8) 11.1
-------------------------------------------------------------
(Increase) in noncash
working capital $(28.2) $(54.0) $(18.9)
=============================================================
24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THE EARTHGRAINS COMPANY
11 COMMITMENTS AND CONTINGENCIES
Earthgrains and certain of its subsidiaries are involved in certain claims and
legal proceedings in which monetary damages and other relief are sought. These
proceedings, arising in the normal course of business, are in varying stages and
may proceed for protracted periods of time.
Although it is impossible to predict the outcome of any legal proceeding,
Earthgrains believes that it has meritorious defenses or insurance coverage to
meet the proceedings pending against it and that the outcome of such proceedings
should not, individually or in the aggregate, have a material adverse effect on
the results of operations or financial condition of Earthgrains.
The operations of Earthgrains, like those of similar businesses, are
subject to various Federal, State and Local laws and regulations with respect to
environmental matters, including air and water quality, underground fuel storage
tanks, and other regulations intended to protect public health and the
environment. Earthgrains has been identified as a potentially responsible party
("PRP") at certain locations under the Comprehensive Environmental Responses,
Compensation and Liability Act, and Earthgrains may be required to share in the
cost of cleanup with respect to one material site. In June 2000, Earthgrains
received a request from the Environmental Protection Agency (EPA) for
information pertaining to the Earthgrains' refrigerant handling practices.
Earthgrains is cooperating with the EPA in connection with such request.
Although it is difficult to quantify with certainty the financial impact of
actions related to environmental matters, based on the information currently
available it is Earthgrains' management's opinion that the ultimate liability
arising from such matters, taking into consideration established reserves,
should not have a material effect on the Earthgrains' results of operations or
financial position.
Future rental commitments under noncancelable operating leases in effect as
of the end of fiscal year 2001 were (in millions): 2002 - $22.5; 2003 - $18.5;
2004 - $15.3; 2005 - $12.5; 2006 - $9.9; thereafter -$29.1.
Total rental expense for all operating leases was $28.9 million, $18.7
million, and $16.8 million in fiscal 2001, 2000, and 1999, respectively.
12 BUSINESS SEGMENTS
The business segments of Earthgrains are Bakery Products, which consists of the
U.S. Bakery Products division and the European Bakery Products division, and
Refrigerated Dough Products, which contains the U.S. Refrigerated Dough Products
division and the European Refrigerated Dough Products division. Summarized below
is Earthgrains' business segment information for 2001, 2000, and 1999 (in
millions):
===================================================================
FISCAL YEAR 2001 2000 1999
-------------------------------------------------------------------
INCOME STATEMENT INFORMATION
NET SALES
Bakery Products $2,274.4 $1,745.0 $1,632.7
Refrigerated Dough Products 307.7 294.3 292.5
-------------------------------------------------------------------
Total $2,582.1 $2,039.3 $1,925.2
===================================================================
DEPRECIATION & AMORTIZATION
Bakery Products $ 124.0 $ 88.1 $ 77.8
Refrigerated Dough Products 16.6 16.5 13.0
Corporate(a) 11.6 11.6 11.6
-------------------------------------------------------------------
Total $ 152.2 $ 116.2 $ 102.4
===================================================================
OPERATING INCOME(b)
Bakery Products $ 66.1 $ 80.9 $ 48.8
Refrigerated Dough Products 48.4 40.8 36.0
Corporate(a) (11.6) (11.6) (11.6)
-------------------------------------------------------------------
Total $ 102.9 $ 110.1 $ 73.2
===================================================================
BALANCE SHEET INFORMATION
TOTAL ASSETS
Bakery Products $1,782.0 $1,839.6 $1,111.5
Refrigerated Dough Products 183.5 194.2 162.8
Corporate(a) 290.4 305.7 317.3
-------------------------------------------------------------------
Total $2,255.9 $2,339.5 $1,591.6
===================================================================
CAPITAL EXPENDITURES
Bakery Products $ 84.3 $ 76.7 $ 71.1
Refrigerated Dough Products 12.4 17.4 15.4
-------------------------------------------------------------------
Total $ 96.7 $ 94.1 $ 86.5
===================================================================
(a) Amounts represent purchase accounting valuation in conjunction with the
acquisition of Earthgrains by Anheuser-Busch Companies, Inc. in 1982 and
the related depreciation and organization thereon.
(b) 2001 operating income was reduced by the $8.5 million pretax accounts
receivable write-off and the $11.5 million pretax provision for
restructuring and consolidation. 2000 operating income was reduced by the
$5.4 million pretax write-off related to a customer bankruptcy filing and
the $2.3 million pretax provision for restructuring and consolidation. 1999
operating income was reduced by the $28.0 million pretax provision for
restructuring and consolidation. All amounts related to the Bakery Products
segment.
25
13 GEOGRAPHIC INFORMATION
Earthgrains operates in the United States and Europe. The foreign information
below is comprised primarily of its' operations in Spain.
=============================================================
(IN MILLIONS) 2001 2000 1999
-------------------------------------------------------------
NET SALES
Domestic $2,205.3 $1,638.9 $1,611.1
Foreign 376.8 400.4 314.1
-------------------------------------------------------------
Consolidated Total $2,582.1 $2,039.3 $1,925.2
=============================================================
OPERATING INCOME (LOSS)
Domestic $ 74.2(a) $ 87.6(b) $ 79.2
Foreign 28.7 22.5 (6.0)
-------------------------------------------------------------
Consolidated Total $ 102.9 $ 110.1 $ 73.2(c)
=============================================================
IDENTIFIABLE ASSETS
Domestic $1,078.9 $1,128.4 $ 852.5
Foreign 282.2 311.1 339.3
-------------------------------------------------------------
Consolidated Total $1,361.1 $1,439.5 $1,191.8
=============================================================
(a) 2001 operating income was reduced by the $8.5 million pretax accounts
receivable write-off and the $11.5 million pretax provision for
restructuring and consolidation.
(b) 2000 operating income was reduced by the $5.4 million pretax write-off
related to a customer bankruptcy filing and the $2.3 million pretax
provision for restructuring and consolidation.
(c) 1999 operating income was reduced by the $28.0 million pretax provision for
restructuring and consolidation, $19.6 million of which related to foreign
operations.
14 SUPPLEMENTAL BALANCE SHEET
INFORMATION
=========================================================================
MARCH 27, MARCH 28,
(IN MILLIONS) 2001 2000
-------------------------------------------------------------------------
Receivables:
Trade $ 257.3 $ 265.1
Allowance for doubtful accounts (2.9) (3.8)
-------------------------------------------------------------------------
$ 254.4 $ 261.3
=========================================================================
Inventories:
Raw materials $ 67.5 $ 68.3
Finished goods 27.2 23.2
-------------------------------------------------------------------------
$ 94.7 $ 91.5
=========================================================================
Plant and equipment:
Land $ 71.8 $ 76.0
Buildings 513.5 508.9
Machinery and equipment 1,055.1 1,000.2
Construction in progress 28.6 43.5
-------------------------------------------------------------------------
1,669.0 1,628.6
Less accumulated depreciation (795.2) (712.8)
-------------------------------------------------------------------------
$ 873.8 $ 915.8
=========================================================================
Accrued salaries, wages and benefits:
Accrued payroll $ 31.2 $ 29.1
Accrued vacation 23.6 27.1
Accrued group benefits 25.0 27.1
-------------------------------------------------------------------------
$ 79.8 $ 83.3
=========================================================================
Other current liabilities:
Current portion of
self-insurance reserves $ 21.5 $ 24.9
Accrued taxes, other than
income taxes 10.6 15.2
Other items 35.2 67.6
-------------------------------------------------------------------------
$ 67.3 $ 107.7
=========================================================================
Other noncurrent liabilities:
Self-insurance reserves $ 30.5 $ 32.6
Environmental reserves 13.1 10.1
Other items 39.2 19.9
-------------------------------------------------------------------------
$ 82.8 $ 62.6
=========================================================================
=========================================================================
FISCAL YEAR 2001 2000 1999
-------------------------------------------------------------------------
Allowance for doubtful accounts
Balance, beginning of period $ 3.8 $ 5.6 $ 6.2
Provision charged to expense 10.9 7.4 0.9
Acquisition-related additions -- 1.6 --
Write-offs, less recoveries (11.8) (10.8) (1.5)
-------------------------------------------------------------------------
Balance, end of period $ 2.9 $ 3.8 $ 5.6
=========================================================================
26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THE EARTHGRAINS COMPANY
15 QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for each of the fiscal years appear below
(each quarter represents a period of twelve weeks except for the December
quarter, which includes sixteen weeks):
=========================================================================================================
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
----------------------------------------------------------------
JUNE SEPTEMBER DECEMBER MARCH FISCAL
(IN MILLIONS, EXCEPT PER SHARE DATA) QUARTER QUARTER QUARTER QUARTER YEAR
-------------------------------------------------- ------------------------------------------------------
FISCAL 2001
Net sales $599.6 $603.2 $782.1 $597.2 $2,582.1
Gross profit 279.8 277.6 344.9 272.1 1,174.4
Net income (loss) 10.9 8.9 (a) (13.0) (b) 5.6 12.4
Basic earnings per share:
Net earnings per share $ 0.27 $ 0.22 (a) $(0.32) (b) $ 0.14 $ 0.30 (c)
=========================================================================================================
Diluted earnings per share:
Net earnings per share $ 0.27 $ 0.21 (a) $(0.32) (b) $ 0.13 $ 0.30 (c)
=========================================================================================================
FISCAL 2000
Net sales $449.6 $469.4 $642.8 $477.5 $2,039.3
Gross profit 202.1 208.9 286.8 219.0 916.8
Net income 12.5 15.7 18.7 (d) 7.6 (e) 54.5
Basic earnings per share:
Net earnings per share $ 0.31 $ 0.39 $ 0.46 (d) $ 0.19 (e) $ 1.34 (c)
=========================================================================================================
Diluted earnings per share:
Net earnings per share $ 0.30 $ 0.37 $ 0.45 (d) $ 0.18 (e) $ 1.30
=========================================================================================================
(a) Quarter's results include an estimated $7.3 million pretax or $0.13 per
share impact from the strike.
(b) Quarter's results include an $11.5 million pretax provision for
restructuring and consolidation, an $8.5 million pretax accounts
receivable write-off and an estimated $24.0 million pretax or
$0.37 per share impact from the strike.
(c) Earnings per share is computed independently for each of the periods
presented, therefore, the sum of the earnings per share amounts for
the quarters may not equal the total for the year.
(d) Quarter's results include a $2.3 million pretax provision for
restructuring and consolidation.
(e) Quarter's results include a $5.4 million pretax accounts receivable
write-off related to a customer bankruptcy filing.
16 QUARTERLY COMMON STOCK PRICE (UNAUDITED)
RANGES AND DIVIDENDS
The Earthgrains Company common stock is listed and traded on the New York
Stock Exchange under the ticker symbol "EGR." The table below presents
the high and low market for the stock and per-share cash dividend
information for each quarter of fiscal 2001 and 2000.
==========================================================================================================================
FISCAL 2001 FISCAL 2000
-------------------------------------------------------------------------------------
HIGH LOW DIVIDENDS HIGH LOW DIVIDENDS
---------------------------------------------------------------------------------------------------------------------------
June Quarter $21.00 $13.50 $.05 $25.38 $20.13 $.04
September Quarter 21.94 16.44 .06 29.00 23.50 .05
December Quarter 24.00 14.94 .06 24.44 15.31 .05
March Quarter 21.20 15.13 .06 16.44 13.31 .05
===========================================================================================================================
________________________________________________________________________________
27
RESPONSIBILITY FOR FINANCIAL STATEMENTS
The management of The Earthgrains Company is responsible for the
preparation and integrity of the consolidated financial statements
appearing in this annual report. The financial statements were prepared
in conformity with generally accepted accounting principles appropriate
in the circumstances and, accordingly, include certain amounts based on
our (Earthgrains) best judgments and estimates.
We (Earthgrains) are responsible for maintaining a system of internal
accounting controls and procedures, which we (Earthgrains) believe are adequate
to provide reasonable assurance, at an appropriate cost/benefit relationship,
that assets are safeguarded against loss from unauthorized use or disposition
and financial records provide a reliable basis for preparation of the financial
statements. The internal accounting control system is augmented by a program of
internal audits and appropriate reviews by management (Earthgrains'), written
policies and guidelines, careful selection and training of qualified personnel,
and a written Code of Business Conduct adopted by our Company's (Earthgrains')
Board of Directors, applicable to all management employees of our Company
(Earthgrains).
The Audit and Finance Committee of our Company's (Earthgrains') Board of
Directors, composed solely of directors who are not officers of our Company
(Earthgrains), meets with the independent auditors, management and internal
auditors periodically to discuss internal accounting controls and auditing and
financial reporting matters. The Committee reviews with the independent auditors
the scope and results of the audit effort. The Committee also meets with the
independent auditors and the chief internal auditor without Earthgrains'
management present to ensure that the independent auditors and the chief
internal auditor have free access to the Committee.
PricewaterhouseCoopers LLP is engaged to audit the consolidated
financial statements of The Earthgrains Company and conduct such tests
and related procedures as it deems necessary in conformity with
generally accepted auditing standards. The opinion of the independent
auditors, based upon their audits of the consolidated financial
statements, is shown below.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of
The Earthgrains Company
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of earnings, cash flows and
shareholders' equity present fairly, in all material respects, the
financial position of The Earthgrains Company and its subsidiaries at
March 27, 2001, and March 28, 2000, and the results of their operations
and their cash flows for the fiscal years ended March 27, 2001, March
28, 2000, and March 30, 1999, in conformity with accounting principles
generally accepted in the United States of America. 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 of these statements in
accordance with auditing standards generally accepted in the United
States of America, which require that we plan and perform the audit 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, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable
basis for our opinion.
/s/ PricewaterhouseCoopers LLP
St. Louis, Missouri
April 26, 2001
________________________________________________________________________________
28
(b) Pro forma financial information
Sara Lee Corporation
and
The Earthgrains Company
Unaudited Pro Forma Condensed and Consolidated Financial Information
The following unaudited pro forma condensed and consolidated financial
information combines the financial information of Sara Lee Corporation ("Sara
Lee") and The Earthgrains Company ("Earthgrains") as of and for the annual
period ended June 2001. These financial results include Sara Lee's results of
operations for the fiscal year ended June 30, 2001 and Earthgrains' results of
operations for the annual period ended on June 19, 2001.
The unaudited pro forma condensed and consolidated statement of income assumes
that the acquisition of Earthgrains occurred at the beginning of the 12-month
period beginning in July 2000. The unaudited pro forma condensed and
consolidated balance sheet assumes that the acquisition occurred at the end of
June 2001.
The pro forma assumptions are based on information available at the time these
statements were prepared and certain estimates and assumptions. The following is
a summary of the significant information, estimates and assumptions used in the
pro forma condensed and consolidated financial information:
. Immediately prior to the expiration of Sara Lee's tender offer to
acquire Earthgrains common stock, Earthgrains had 46,572,040 issued
and outstanding shares of common stock. This includes shares of common
stock issued upon exercise of Earthgrains employee stock options.
Using the tender offer price of $40.25 per share, the total purchase
price for all outstanding Earthgrains common stock is $1,875 million.
. Sara Lee initially funded the acquisition purchase price with short-
term debt. However, Sara Lee intends to refinance $750 million of such
short-term debt on a long-term basis, resulting in an assumed
effective interest rate for the combination of short-term and long-
term debt of 4.54%.
. After the completion of the acquisition, Earthgrains will continue to
have outstanding long-term debt of approximately $957 million.
. The acquisition will be accounted for using the purchase method of
accounting. All of the excess of the purchase price over the net
assets acquired has been allocated to goodwill. The purchase price
allocation in the pro forma financial information is preliminary since
the determination of the fair value of the acquired assets,
identification of intangibles and determination of the finite lives of
any intangibles has not been completed.
. In June 2001, Statement of Financial Accounting Standards No. 142,
"Goodwill and Other Intangible Assets," was issued which changed the
accounting rules for goodwill. Under the provisions of this Statement,
no goodwill amortization has been assumed for the incremental goodwill
that will be recorded from the acquisition. Previously recorded
goodwill amortization has not been adjusted.
Sara Lee believes that the assumptions used herein provide a reasonable basis
for presenting all of the significant effects of the acquisition in the
unaudited pro forma condensed and consolidated financial statements. However,
the actual results of operations, financing costs, final allocation of the
purchase price and other adjustments will differ from the pro forma adjustments.
Sara Lee's consolidated financial statements for fiscal year 2001 were filed
with the Securities and Exchange Commission on September 4, 2001 in a current
report on Form 8-K. Earthgrains' consolidated financial statements for fiscal
year 2001 and the first quarter ended June 19, 2001 are provided herein.
The unaudited pro forma condensed and consolidated financial information is
provided to show what Sara Lee might have looked like had the acquisition
occurred at the times specified above. You should not rely on this information
as being indicative of the historical results that would have been achieved by
the combined companies had the acquisition and events described in the notes
29
to the unaudited pro forma condensed and consolidated financial statements
actually occurred at the times specified above. Furthermore, this information
may not necessarily reflect the results of operations, financial position and
cash flows of Sara Lee in the future.
30
Sara Lee Corporation
Unaudited Pro Forma Condensed and Consolidated
Statement of Income
Annual Period ended June 2001
Sara Lee Earthgrains Interest Pro Forma
Actual (1) Actual (2) Adjustments as Adjusted
---------- ----------- ----------- -----------
(dollars and shares in millions, except per share amounts)
Net sales $17,747 $2,594 $ - $20,341
Cost of sales 10,264 1,412 - 11,676
Cost of sales - product line exit costs 26 - - 26
------- ------ ------ -------
Gross profit 7,457 1,182 - 8,639
Selling, general and administrative expenses 5,865 1,062 - 6,927
Interest expense 270 78 85 (3) 433
Interest income (90) - - (90)
Other income - (4) - (4)
Unusual items
Gain on disposal of Coach business (967) - - (967)
Business dispositions and other charges 528 12 - 540
------- ------ ------ -------
Income from continuing operations before
income taxes 1,851 34 (85) 1,800
Income taxes 248 18 (34) (4) 232
------- ------ ------ -------
Income from continuing operations 1,603 16 (51) 1,568
Preferred stock dividend 11 - - 11
------- ------ ------ -------
Income from continuing operations available
to common stockholders $ 1,592 $ 16 $(51) $ 1,557
======= ====== ====== =======
Income from continuing operations per share
-- Basic $ 1.94 $ 1.90
======= =======
-- Diluted $ 1.87 $ 1.83
======= =======
Basic shares outstanding 819 819
======= =======
Diluted shares outstanding 854 1 (7) 855
======= ====== =======
The accompanying Notes to the Unaudited Pro Forma Condensed and
Consolidated Financial Statements are an integral part of these statements
31
Sara Lee Corporation
Unaudited Pro Forma Condensed and Consolidated Balance Sheet
June 2001
Purchase Accounting Adjustments
---------------------------------
Invest- Change
Earth- ment in Control Stock Excess
Sara Lee grains Adjust- and Trans- Option Purchase Pro Forma
Actual (1) Actual (2) ments action Fees Conversion Price as Adjusted
---------- ---------- ------ ----------- ---------- -------- -----------
Assets (dollars in millions)
Cash and equivalents $ 548 $ 17 $ - $ - $ - $ - $ 565
Trade accounts
receivable, net 1,538 281 1,819
Inventory 2,582 99 2,681
Other current assets 321 79 400
Net assets of businesses
held for sale 94 - 94
------- ------ ------ ---- --- ------- -------
Total current assets 5,083 476 - - - - 5,559
Other non-current assets 304 35 339
Property, net 2,146 862 3,008
Investment in Earthgrains - - 1,875 (3) 27 (6) 64 (7) (1,966)(8) -
Trademarks and other
identifiable intangibles, net 1,097 - 1,097
Goodwill, net 1,537 885 1,301 (8) 3,723
------- ------ ------ ---- --- ------- -------
Total assets $10,167 $2,258 $1,875 $ 27 $64 $ (665) $13,726
======= ====== ====== ==== === ======= =======
Liabilities and Stockholders' Equity
Notes payable $ 101 $ - $1,125 (3) $ - $ - $ - $ 1,226
Accounts payable 1,505 170 1,675
Accrued liabilities
Payroll and employee benefits 812 83 18 (5) 913
Advertising and promotion 343 - 343
Taxes other than payroll and income 84 - 84
Income taxes 423 - 423
Other 1,210 3 45 (6) 1,258
Current maturities of long-term debt 480 8 488
Other current liabilities - 80 80
------- ------ ------ ---- --- ------- -------
Total current liabilities 4,958 344 1,125 63 - - 6,490
Long-term debt 2,640 949 750 (3) 4,339
Deferred income taxes 244 103 (18) (6) 329
Other liabilities 563 187 (18) (5) 732
Minority interest in subsidiaries 625 10 635
Preferred stock (authorized 13,500,000
shares; no par value)
ESOP convertible: Issued and
outstanding - 3,289,979 shares 238 - 238
Unearned deferred compensation (223) - (223)
Common stockholders' equity
Common stock: (authorized
1,200,000,000 shares;
$.01 par value) - Issued and
outstanding - 781,964,060 shares 8 - 8
Capital surplus - 636 64 (7) (636)(8) 64
Retained earnings 2,635 141 (141)(8) 2,635
Treasury stock - (41) 41 (8) -
Accumulated other comprehensive loss (1,521) (61) 61 (8) (1,521)
Unearned restricted stock issued for
future services - (10) 10 (8) -
------- ------ ------ ---- --- ------- -------
Total common stockholders' equity 1,122 665 - - 64 (665) 1,186
------- ------ ------ ---- --- ------- -------
Total liabilities and common
stockholders' equity $10,167 $2,258 $1,875 $ 27 $64 $ (665) $13,726
======= ====== ====== ==== === ======= =======
The accompanying Notes to the Unaudited Pro Forma Condensed and
Consolidated Financial Statements are an integral part of these statements
32
Sara Lee Corporation
and
The Earthgrains Company
Notes to Unaudited Pro Forma Condensed and Consolidated Financial Information
(1) The results for Sara Lee include the results of operations and statement of
position for the fiscal year ended June 30, 2001.
(2) The results for Earthgrains include the results of operations and statement
of position for the annual period ended June 19, 2001.
(3) Using the number of issued and outstanding shares of Earthgrains common
stock that were available for tender of 46,572,040 and the tender offer
price per share paid by Sara Lee of $40.25, the total purchase price for
the Earthgrains common stock was $1,875 million. Sara Lee initially funded
this purchase price with the proceeds from the issuance of short-term debt.
Sara Lee intends to refinance $750 million of the short-term debt with the
subsequent issuance of long-term debt. The pro forma financial statements
reflect the financing of the acquisition with $750 million of long-term
debt and $1,125 million of short-term debt.
The incremental interest expense for both the short-term and long-term debt
is calculated using a weighted average interest rate of 4.54%, resulting in
annual interest expense of $85 million. The weighted average interest rate
consists of a weighted average of short-term and long-term interest rates
of 3.62% and 5.92%, respectively. An increase of .125% in the average
interest rate would result in a change to interest expense of $2.3 million
on an annual basis.
(4) The effect of taxes on the pro forma income statement adjustments has been
reflected using a marginal incremental tax rate of 40%, representing the
U.S. statutory tax rate of 35% plus a marginal state tax rate of 5%.
(5) Upon completion of the acquisition of Earthgrains by Sara Lee, various
Earthgrains' employees became vested in certain employee benefit plans and
other benefits. Management estimates the payments required under these
plans approximate $42 million, of which $18 million was previously
recorded in other non-current liabilities at Earthgrains. This $18 million
has been reclassified to accrued liabilities pending payment after the
acquisition.
(6) The $42 million of estimated employee benefit liabilities described in note
5, less the $18 million accrued by Earthgrains which is also noted in note
5, results in $24 million of remaining employee benefit liabilities. The
$24 million, plus the assumed transaction costs of approximately $21
million, totaling $45 million, is recorded as a purchase accounting
adjustment to other accrued liabilities. This adjustment is recorded net of
tax of $18 million, (using a 40% tax rate), resulting in an increase to the
investment in Earthgrains of $27 million.
(7) All outstanding Earthgrains stock options vested when Sara Lee completed
the tender offer for Earthgrains. Any Earthgrains stock options that had
not been exercised prior to the completion of the merger were converted
into Sara Lee stock options. The fair market value of the Sara Lee stock
options issued to Earthgrains employees in exchange for outstanding
Earthgrains' stock options using the Black-Scholes option-pricing model was
$64 million. The value of these options is recorded on the balance sheet as
an increase in Sara Lee's investment in Earthgrains and an increase in
capital surplus. The additional Sara Lee stock options issued, had they
been outstanding at the end of the Sara Lee's fiscal year, would have
resulted
33
in an additional one million common stock equivalents in the diluted
earnings per share computation.
(8) The merger has been accounted for using the purchase method of accounting.
All of the excess of the purchase price over the net assets acquired has
been allocated to goodwill. The purchase price allocation in the pro forma
condensed and consolidated financial information is preliminary.
34
(c) Exhibits
Exhibit No. Exhibit
2.1 Agreement and Plan of Merger, dated as of June 29, 2001, by and among Sara
Lee, SLC Acquisition Corp. and Earthgrains (incorporated by reference to
Exhibit 2.1 to the Current Report on Form 8-K filed by Sara Lee
Corporation with the Commission on August 21, 2001).
10.1 364-day Competitive Advance and Revolving Credit Facility Agreement dated
as of August 8, 2001, among Sara Lee Corporation, the Lenders party
thereto and The Chase Manhattan Bank as administrative agent (incorporated
by reference to Exhibit (b)(2) to Amendment No. 5 to the Tender Offer
Statement on Schedule TO filed by Sara Lee Corporation with the Commission
on August 8, 2001).
10.1 364-day Bridge Competitive Advance and Revolving Credit Facility Agreement
dated as of August 8, 2001, among Sara Lee Corporation, the Lenders party
thereto and The Chase Manhattan Bank as administrative agent (incorporated
by reference to Exhibit (b)(3) to Amendment No. 5 to the Tender Offer
Statement on Schedule TO filed by Sara Lee Corporation on August 8, 2001).
23.1 Consent of PricewaterhouseCoopers LLP
This report contains certain forward-looking statements. Forward-looking
statements include statements that begin with "expects," "believes," "intends"
or similar words. These forward-looking statements, which are made in reliance
on the "safe harbor" protections provided under the Private Securities Reform
Act of 1995, are based on currently available competitive, financial and
economic data and management's views and assumptions regarding future events.
Such forward-looking statements are inherently uncertain, and actual results may
differ materially from those expressed or implied herein. Consequently, Sara Lee
cautions readers not to place undue reliance on any forward-looking statements.
Additional information about issues that could lead to material changes in
performance is contained in Sara Lee's annual and quarterly reports filed with
the Securities and Exchange Commission.
35
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
SARA LEE CORPORATION
--------------------
(Registrant)
/s/ Wayne R. Szypulski
September 4, 2001 ----------------------------------
Wayne R. Szypulski
Senior Vice President - Controller
36
EXHIBIT INDEX
The following exhibits are filed herewith as noted below.
Exhibit
No. Description
--- -----------
23.1 Consent of PricewaterhouseCoopers LLP
37