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Earthgrains Co/DE – ‘10-Q’ for 1/2/01

On: Friday, 2/16/01, at 3:27pm ET · For: 1/2/01 · Accession #: 891118-1-6 · File #: 0-27426

  As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

 2/16/01  Earthgrains Co/DE                 10-Q        1/02/01    2:38K                                    Stolar Partnership

Quarterly Report — Form 10-Q
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10-Q        Quarterly Report                                      16     67K 
 2: EX-27       Financial Data Schedule                                2±     8K

10-Q — Quarterly Report
Document Table of Contents

Page	(sequential)	\|	(alphabetic)	Top
			Alternative Formats (Word, et al.) Changes in Securities. None Defaults Upon Senior Securities. None Exhibits and Reports on Form 8-K Legal Proceedings. The Company has no legal proceedings which have become a reportable event in the current period Other Information. None Submission of Matters to a Vote of Security-Holders. No matters were submitted to a vote of security holders
1	1st Page - Filing Submission
15	Item 1. Legal Proceedings. The Company has no legal proceedings which have become a reportable event in the current period
"	Item 2. Changes in Securities. None
"	Item 3. Defaults Upon Senior Securities. None
"	Item 4. Submission of Matters to a Vote of Security-Holders. No matters were submitted to a vote of security holders
"	Item 5. Other Information. None
"	Item 6. Exhibits and Reports on Form 8-K

10-Q 1st Page of 16 TOC ↑Top Previous Next ↓Bottom Just 1st
 
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

 FORM 10-Q

Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934

For the Quarter Ended January 2, 2001 

Commission file number 1-7554 

THE EARTHGRAINS COMPANY 
(Exact name of registrant as specified in its charter)

    DELAWARE                      36-3201045
(State or other jurisdiction         (I.R.S. Employer   
of incorporation or organization)    Identification No.)

8400 Maryland Avenue, St. Louis, Missouri    63105
(Address of Principal Executive Offices)     (Zip)

314-259-7000
(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was     
required to file such reports), and (2) has been subject to such filing         
requirements for the past 90 days.                                              
Yes [X ]  No [ ]

Indicate the number of shares outstanding of each of the issuer's classes of    
common stock, as of the latest practicable date.                                

$.01 Par Value Common Stock - 42,481,246 shares 
as of January 30, 2001

10-Q 2nd Page of 16 TOC 1st Previous Next ↓Bottom Just 2nd
THE EARTHGRAINS COMPANY 

Index 

                                      Page No.
                                      --------

Part I.   Financial Information                                                 

Condensed Consolidated Balance Sheets           2           

Condensed Consolidated Statements of                        
Earnings                                        3           

Condensed Consolidated Statements of                        
Cash Flows                                      4           

Notes to Condensed Consolidated                             
Financial Statements                            5           

Management's Discussion and Analysis                        
of Financial Condition and Results of                       
Operations                                      10          

Part II.  Other Information                                                     

Other Information                               14          

Exhibits and Reports on Form 8-K                14          

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                                                                [Download Table]
                           THE EARTHGRAINS COMPANY                    
                    Condensed Consolidated Balance Sheets             
                                (In millions)                         
                                 (Unaudited)                          


                                                Jan. 2,   March 28,   
                                                 2001       2000      
                                                -------   ---------   
                                                                      
Assets                                                                
Current assets:                                                       
   Cash and cash equivalents                    $   35.6  $   19.9    
   Accounts receivable, net of allowance                              
    for doubtful accounts of $5.0 and $3.8,                           
    respectively                                   259.3     261.3    
   Inventories                                      93.3      91.5    
   Deferred income taxes and other                  90.1     108.6    
                                                --------  --------    
      Total current assets                         478.3     481.3    
Other assets, net                                   36.0      42.4    
Goodwill, net                                      884.1     900.0    
Plant and equipment, net                           878.8     915.8    
                                                --------  --------    
      Total assets                              $2,277.2  $2,339.5    
                                                ========  ========    

Liabilities and Shareholders' Equity                                  
Current liabilities:                                                  
   Current maturities of long-term debt         $    3.3  $  442.1    
   Accounts payable                                172.0     177.9    
   Accrued salaries, wages and benefits             73.2      83.3    
   Accrual for restructuring and consolidation      19.2      17.0    
   Other current liabilities                        95.2     107.7    
                                                --------  --------    
      Total current liabilities                    362.9     828.0    

Postretirement benefits                            103.6     104.1    
Long-term debt                                     984.7     562.3    
Deferred income taxes                              107.5     117.6    
Other noncurrent liabilities                        65.7      62.6    
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                      632.2     621.6    
   Retained earnings                               125.6     125.8    
   Unearned ESOP shares                             (7.7)    (11.0)   
   Treasury stock                                  (41.2)    (35.8)   
   Unearned portion of restricted stock             (4.2)     (1.6)   
   Accumulated other comprehensive income          (62.3)    (44.5)   
                                                --------- ---------   
      Shareholders' equity                         642.8     654.9    
                                                --------  --------    
         Total liabilities and shareholders'                          
         equity                                 $2,277.2  $2,339.5    
                                                ========  ========    

<FN>                                                                  
See accompanying Notes to Condensed Consolidated Financial Statements.
</FN>                                                                 

2 

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                                                                [Download Table]
                           THE EARTHGRAINS COMPANY                        
                Condensed Consolidated Statements of Earnings             
                     (In millions except per share data)                  
                                 (Unaudited)                              


                              16-week period ended    40-week period ended
                             ---------------------  --------------------- 
                             January 2, January 4,  January 2, January 4, 
                                2001       2000        2001       2000    
                                ----       ----        ----       ----    
                                                                          
Net sales                     $782.1     $642.8      $1,984.9   $1,561.8  

Cost of products sold          437.2      356.0       1,082.6      864.0  
                              ------     ------      --------   --------  

Gross profit                   344.9      286.8         902.3      697.8  

Marketing, distribution                                                   
 and administrative expenses   329.8      247.8         817.3      604.0  

Provision for restructuring                                               
 and consolidation              11.5        2.3          11.5        2.3  
                              ------     ------        ------     ------  

Operating income                 3.6       36.7          73.5       91.5  

Other income and expenses:                                                
   Interest expense            (25.1)      (7.9)        (59.1)     (18.9) 
   Other income (expense),                                                
    net                          1.3        1.2           2.0        3.2  
                              ------      -----        ------      -----  

(Loss) income before income                                               
 taxes                         (20.2)      30.0          16.4       75.8  

(Benefit) provision for                                                   
 income taxes                   (7.4)      11.1           9.0       28.4  
Minority interest expense       (0.2)      (0.2)         (0.6)      (0.5) 
                              -------     ------        ------     ------ 

Net (loss) income             $(13.0)     $18.7         $ 6.8      $46.9  
                              =======     =====         =====      =====  

(Loss) earnings per share:                                                
   Basic                                                                  
      Net (loss) earnings      $(0.32)     $0.46         $0.17      $1.16 
                               =======     =====         =====      ===== 
      Weighted average shares                                             
       outstanding              40.8       40.6          40.6       40.5  
                                ====       ====          ====       ====  
   Diluted                                                                
      Net (loss) earnings      $(0.32)     $0.45         $0.16      $1.12 
                               =======     =====         =====      ===== 
      Weighted average shares                                             
       outstanding              40.8       41.9          41.6       42.0  
                                ====       ====          ====       ====  

<FN>                                                                      
See accompanying Notes to Condensed Consolidated Financial Statements.    
</FN>                                                                     

3 

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                                                                [Download Table]
                           THE EARTHGRAINS COMPANY                    
               Condensed Consolidated Statements of Cash Flows        
                                (In millions)                         
                                 (Unaudited)                          


                                                For the 40-week       
                                                 period ended         
                                            ----------------------    
                                            January 2,  January 4,    
                                               2001        2000       
                                            ----------  ----------    
                                                                      
Cash flow from operating activities:                                  
   Net income                                $  6.8      $ 46.9       
   Adjustments to reconcile earnings to                               
    net cash flow provided by operations:                             
      Depreciation and amortization           116.2        86.7       
      Deferred income taxes                    10.0        (0.3)      
      Provision for restructuring and                                 
       consolidation ($11.5 million, less                             
       cash payments of $0.9 million;                                 
       $2.3 million, less cash payments of                            
       $0.9 million)                           10.6         1.4       
   (Gain) on disposal of fixed assets          (0.4)       (0.6)      
   Changes in working capital, net of                                 
    effect of acquisitions                     (5.5)      (49.7)      
   Other, net                                  (6.7)      (16.3)      
                                             -------     -------      
      Net cash flow from operations           131.0        68.1       
                                             ------      ------       

Cash flows from investing activities:                                 
   Capital expenditures                       (72.5)      (62.7)      
   Acquisitions, net of cash acquired         (18.9)      (20.2)      
   Other, net                                   3.2         5.9       
                                             ------      ------       
      Net cash used by investing                                      
       activities                             (88.2)      (77.0)      
                                             -------     -------      

Cash flows from financing activities:                                 
   Net (payments on) proceeds from                                    
    borrowings                               (554.8)        6.9       
   Issuance of long-term debt                 538.4          --       
   Dividends to shareholders                   (7.0)       (5.7)      
   Purchases of treasury stock                 (3.3)      (13.5)      
   Other                                        2.2         1.5       
                                             ------      ------       
      Net cash used by financing                                      
       activities                             (24.5)      (10.8)      
                                             -------     -------      

Effect of exchange rate changes on cash        (2.6)       (4.6)      
Net increase (decrease) in cash and                                   
 cash equivalents                              15.7       (24.3)      
Cash and cash equivalents, beginning of                               
 period                                        19.9        53.1       
                                             ------      ------       
Cash and cash equivalents, end of period     $ 35.6      $ 28.8       
                                             ======      ======       

<FN>                                                                  
See accompanying Notes to Condensed Consolidated Financial Statements.
</FN>                                                                 

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Notes to Condensed Consolidated Financial Statements                            

----------------------------------------------------                            

Note 1 - In the opinion of the Company, 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 28, 2000.

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:                                   

January 2,   March 28,    
2001        2000    
----------   ---------    

Raw materials         $ 69.6      $ 68.3                          
Finished goods          23.7        23.2                          
------      ------    

$ 93.3      $ 91.5    
======      ======    

Note 3 - The Company 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 the current quarter, 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, which was   
acquired with Metz Baking Company, was also closed during the third quarter.    
Costs associated with the Rockford closing will be charged against acquisition- 
related reserves 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.  $3.5 million of the $11.5 million charge   
represents cash costs, the remaining $8.0 million represents noncash charges.   
$1.4 million of the $2.1 million reserves for the Rockford closing represent    
cash costs.                                                                     

5 

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The reserve balance at January 2, 2001, is comprised primarily of $11.0 million 
in cash costs, primarily severance, yet to be paid and $8.2 million in noncash  
charges.  A reconciliation of activity with respect to the Company's            
restructuring and consolidation since fiscal year 2000 is as follows:           

Ending balance, March 28, 2000      $17.0                             
Provision, third quarter             11.5                             
Acquisition-related reserves          2.1                             
Cash payments associated with                                         
severance                           (9.2)                           
Noncash asset write-offs             (2.2)                            
        ------
Ending balance, January 2, 2001     $19.2                             
       =====

Note 4 - Effective March 18, 2000, the Company acquired the stock of Metz Baking
Company for $625 million.  Metz, which operates 21 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.                                                               

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 the Company's 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.                                                                     

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 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.  See comments in the         
Management's Discussion and Analysis section of this filing regarding impacts of
these transactions during the current quarter.                                  

Note 5 - Long-term debt is comprised of the following:                          

                                                                [Download Table]

                          January 2, 2001   March 28, 2000
                          ---------------   --------------
                                                          
 Commercial Paper              $246.6          $  259.1   
 Notes Payable, 6.5%, due                                 
  2009                          147.1             146.9   
 Notes Payable, 8 3/8%,                                   
  due 2003                      295.5                --   
 Notes Payable, 8 1/2%,                                   
  due 2005                      243.9                --   
 Revolving Credit Facility,                               
  due 2000                         --              25.0   
 Revolving Credit Facility,                               
  due 2001                         --             568.0   
 Revolving Credit Facilities,                             
  due 2001                       50.0                --   
 Other                            4.9               5.4   
                               ------          --------   
                                988.0           1,004.4   
 Less current portion             3.3             442.1   
                               ------          --------   
                               $984.7          $  562.3   
                               ======          ========   


Borrowings under a $600 million revolving credit facility due 2001 established  
to initially finance the acquisition of Metz Baking Company (March 2000) were   
refinanced during the                                                           

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first quarter of fiscal 2001 through borrowings under the Company's commercial  
paper programs.  On July 25, 2000, Earthgrains issued $300 million in three-    
year, 8-3/8% fixed-rate Notes due 2003 and $250 million in five-year, 8-1/2%    
fixed-rate Notes due 2005 from the $750 million shelf registration statement    
filed with the Securities and Exchange Commission, which became effective in    
April 2000.  Proceeds from these notes, which were issued at a discount, were   
used to repay a portion of the outstanding commercial paper borrowings.  As of  
January 2, 2001, $200 million of securities under this shelf and $100 million of
securities under a shelf registration statement filed with the SEC in 1999      
remain unissued.  In conjunction with the fixed rate debt issuance, the $600    
million 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 will be 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 the Company in October 2000.  At January 2, 2001, $50
million was outstanding under the Company's $500 million in committed lines of  
credit.                                                                         

Borrowings outstanding under the commercial paper programs and the $50 million  
under the credit line at January 2, 2001 are classified as noncurrent as they   
are supported by $450 million in committed lines of credit due in 2002.  The    
commercial paper borrowings were at weighted average interest rates of 7.0% and 
6.8% during the current quarter and for the 40-week period compared to weighted 
average short-term rates of 6.1% and 5.7%, respectively, for fiscal 2000.  Based
on outstanding debt, commercial paper and letters of credit, approximately $175 
million was available for incremental borrowings under the existing $500 million
in committed lines of credit at January 2, 2001.                                

Note 6 - 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.  For the fiscal 2001 third quarter   
earnings per share calculations, the basic share base is used for both the basic
and diluted calculations, as the diluted share base of 41.9 million shares would
be antidilutive given the Company's net loss for the quarter.                   

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."  The 
Company has elected to report comprehensive income in its Statement of          
Shareholders' Equity.  Other comprehensive income for the Company relates only  
to foreign currency translation adjustments.  For the 16- and 40-week periods   
ended January 2, 2001 and January 4, 2000, comprehensive income was a negative  
$20.0 million and a negative $11.0 million, and $7.2 million and $30.2 million, 
respectively.                                                                   

Note 8 - On August 26, 2000, a strike was initiated by employees at the Fort    
Payne, Alabama bakery.  The strike ultimately affected 27 bakeries before ending
with ratification of a new Fort Payne contract on September 22.  Significant    
incremental costs for overtime, temporary labor, security, travel, distribution 
and purchased goods were incurred for the Company to continue to operate        
bakeries and serve customers and consumers.  The labor strike had a significant 
impact on the second and third quarter results and, as expected, the impact to  
third quarter                                                                   

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earnings was even greater than that of the previous quarter.  See further       
discussion of the strike-related impacts in the discussion of results in the    
Management's Discussion and Analysis of Financial Condition section of this     
filing.                                                                         

Note 9 - During the current quarter, an $8.5 million pretax charge was recorded 
to reflect the collectibility of accounts receivable based on a complete review 
after centralization of the domestic accounts receivable processing function    
within the Company's Financial Shared Services Center.  The charge is reflected 
in administrative expenses.                                                     

Note 10 - The business segments of the Company 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.  
There have been no changes to the basis of segmentation or to the basis of      
measurement as presented in the 2000 Annual Report to Shareholders.  Summarized 
below is the Company's business segment information through the third quarter of
fiscal 2001 and 2000 (in millions):                                             

                                                        [Enlarge/Download Table]

                               16-week period ended    40-week period ended                                                         
                              ----------------------  ----------------------                                                        
                              January 2,  January 4,  January 2,  January 4,                                                        
Income Statement Information:    2001        2000        2001        2000                                                           
                              ----------  ----------  ----------  ----------                                                        
                                                                                                                                    
Net Sales                                                                                                                           
      Bakery Products          $676.3      $535.8      $1,758.4    $1,339.9                                                         
      Refrigerated Dough                                                                                                            
       Products                 105.8       107.0         226.5       221.9                                                         
                               ------      ------      --------    --------                                                         
      Total                    $782.1      $642.8      $1,984.9    $1,561.8                                                         
                               ------      ------      --------    --------                                                         

   Operating Income                                                                                                                 
      Bakery Products (b)      $(12.8)     $ 22.9      $   50.0    $   70.8                                                         
      Refrigerated Dough                                                                                                            
       Products                  20.0        17.4          32.4        29.6                                                         
      Corporate (a)              (3.6)       (3.6)         (8.9)       (8.9)                                                        
                               -------     -------     ---------   ---------                                                        
      Total                    $  3.6      $ 36.7      $   73.5    $   91.5                                                         
                               ------      ------      --------    --------                                                         

   Depreciation & Amortization                                                                                                      
      Bakery Products          $ 39.1      $ 27.2      $   94.6    $   66.0                                                         
      Refrigerated Dough                                                                                                            
       Products                   5.0         5.3          12.7        11.8                                                         
      Corporate (a)               3.6         3.6           8.9         8.9                                                         
                               ------      ------      --------    --------                                                         
      Total                    $ 47.7      $ 36.1      $  116.2    $   86.7                                                         
                               ------      ------      --------    --------                                                         

Balance Sheet Information:                                                                                                          
   Capital Expenditures                                                                                                             
      Bakery Products          $ 24.7      $ 23.0      $   63.7    $   49.0                                                         
      Refrigerated Dough                                                                                                            
       Products                   2.3         5.4           8.8        13.7                                                         
                               ------      ------      --------    --------                                                         
      Total                    $ 27.0      $ 28.4      $   72.5    $   62.7                                                         
                               ------      ------      --------    --------                                                         

<FN>                                                                                                                                
(a) Amounts represent purchase accounting valuation in conjunction with the acquisition of the Company by Anheuser-Busch in 1982 and
the related depreciation and amortization thereon.                                                                                  
</FN>                                                                                                                               
<FN>                                                                                                                                
(b) Includes the $8.5 million pretax accounts receivable write-off and the $11.5 million pretax provision for restructuring and     
consolidation recorded in the third quarter of fiscal 2001, and the $2.3 million pretax provision for restructuring and             
consolidation recorded in the third quarter of fiscal 2000.                                                                         
</FN>                                                                                                                               

Note 11 - In June 1999, the Financial Accounting Standards Board (FASB) issued  
SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities --  
Deferral of the Effective                                                       

8 

10-Q 10th Page of 16 TOC 1st Previous Next ↓Bottom Just 10th
Date of FASB Statement No. 133".  In June 2000, the FASB issued SFAS No. 138,   
"Accounting for Certain Derivative Instruments and Certain Hedging Activities - 
an amendment of FASB Statement No. 133."  This Statement established accounting 
and reporting standards on accounting and disclosure 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.                                                       

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.       

In the third calendar quarter of fiscal 2000, the Emerging Issues Task Force    
(EITF) of the FASB reached 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.                                          

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.  The guidance under SAB No. 101 and these EITF consensus's are 
effective for the Company's fourth quarter of fiscal year 2001.                 

Based upon reviews of the provisions of these recently issued accounting        
pronouncements and guidance, the Company believes that they will not have a     
significant impact on its financial position or results of operations or have a 
material effect on its financial statement reporting.                           

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Management's Discussion and Analysis of                                         
Financial Condition and Results of                                              
Operations                                                                      

INTRODUCTION                                                                    
------------                                                                    

This discussion summarizes the significant factors affecting the consolidated   
operating results, financial condition and liquidity of The Earthgrains Company 
for the 16- and 40-week periods ended January 2, 2001 compared to the 16- and   
40-week periods ended January 4, 2000.  This discussion should be read in       
conjunction with the consolidated financial statements and notes thereto for the
fiscal year ended March 28, 2000 included in the Company's Annual Report to     
Shareholders.                                                                   

RESULTS OF OPERATIONS                                                           
---------------------                                                           

Net sales for the 16-week period ended January 2, 2001, increased 21.7% to      
$782.1 million from $642.8 million reported for the comparable prior-year       
period, despite the significant impact of a strike during the quarter and an    
unfavorable impact from foreign exchange rates.  The strike, which began by     
employees at the Fort Payne, Alabama bakery on August 26, eventually affected 27
bakeries before ending with ratification of a new Fort Payne contract on        
September 22.  The estimated strike impact on sales during the current quarter  
was approximately $29 million and $37 to $39 million for the second and third   
quarters combined.  For the respective 40-week periods, net sales increased to  
$1,984.9 million from the year-ago $1,561.8 million.  International sales during
the current quarter were affected by a $23.8 million unfavorable foreign        
exchange rate impact compared to the same quarter in the prior year, and by     
$45.4 million year to date.  Excluding the unfavorable effect of foreign        
exchange rates, sales increased 25.4% for the current quarter and 30.0% year to 
date.  Sales growth can primarily be attributed to the contribution from the    
Metz Baking acquisition (March 2000) and favorable pricing and product mix.     

Gross margins decreased slightly in the current period to 44.1% from 44.6% a    
year ago but increased to 45.5% from 44.7% year to date.  The margin            
improvements can be attributed to enhanced price and mix of products, lower     
ingredient costs, and the greater percentage of business in bakery operations   
which has a higher gross margin than the refrigerated dough business.  However, 
these improvements were offset by significant increases in energy costs,        
including natural gas for bakery ovens, and lost revenues, significant          
incremental expenses and reduced manufacturing efficiencies, all resulting from 
the strike.  Incremental costs for overtime, temporary labor, security, travel  
and purchased goods were incurred for the Company to continue to operate        
bakeries in order to serve markets and protect customer relationships.  As      
expected, the continued impact of the strike was even greater to third quarter  
profitability than that experienced in the second quarter.                      

On a percentage-of-sales basis, marketing, distribution and administrative      
expenses increased to 42.2% from 38.6% in the year-ago quarter and to 41.2% from
38.7% on a year-to-date comparison.  During the current quarter, an $8.5 million
pretax accounting charge was taken to appropriately reflect the collectibility  
of accounts receivable based on a full review after the centralization of       
accounts receivable within Earthgrains' Financial Shared Services Center.  This 
charge was reflected in administrative expenses.  The additional increase in    
marketing, distribution and administrative expenses in the quarter and year-to- 
date can primarily be attributed to incremental strike-related distribution     
costs, significant increases in fuel costs, the furthering of mix shift between 
the Company's segments to a greater percentage of business in the bakery        
operations, which reflects higher selling and delivery costs, and additional    
goodwill amortization relative to acquisitions.                                 

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The $11.5 million pretax restructuring charge recorded in the current quarter   
was for fixed asset write-offs, employee severance and benefits, and other      
related expenses associated with closing the Company's bakeries in Des Moines,  
Iowa and Louisville, Kentucky.  In the year-ago period, a $2.3 million pretax   
charge was taken for similar costs associated with the shut down of the         
Company's Pueblo, Colorado bakery.                                              

The increase in interest expense is directly related to the increased long-term 
debt level resulting from acquisitions, generally higher interest rate levels,  
and the conversion from lower cost floating rate to fixed-rate, long-term debt  
during the second quarter.  Approximately $1.2 million during the quarter and   
$2.8 million year to date was due to higher interest rates.                     

The higher effective income tax rate for the current fiscal year is a direct    
result of the impact of the increased nondeductible goodwill amortization,      
related primarily to the Metz acquisition, on a reduced earnings level because  
of the strike and unusual charges.  Nondeductible goodwill amortization         
increased year over year from $3.0 million to $6.6 million in the current       
quarter, and from $7.2 million to $16.6 million year to date.  Due to the lower 
levels of earnings in the second half of the fiscal year, the annual effective  
tax rate is expected to remain significantly higher than normal for this fiscal 
year, in the range of 55-60%.                                                   

The current 16-week period resulted in a net loss of $13.0 million or a loss of 
$0.32 per diluted share, compared to $18.7 million, or $0.45 per diluted share  
in the prior year's comparable period.  The negative impact of the strike during
the current quarter was estimated at $0.37 per diluted share and $0.13 per      
diluted share in the second quarter.  The current quarter was also negatively   
affected by $0.13 per diluted share for the charge related to accounts          
receivable, $0.18 per share for the restructuring charge, $0.09 per share for   
higher costs of fuel and energy, and $0.04 per share due to unfavorable foreign 
exchange rates.  Year-to-date earnings were $6.8 million or $0.16 per diluted   
share compared to $46.9 million or $1.12 per diluted share in fiscal 2000.  The 
year-over-year comparison was affected by the strike, unusual items, and, as    
expected, acquisition-related impacts discussed above.                          

Operating Segment Information                                                   
-----------------------------                                                   

The business segments of the Company 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.  This discussion
reflects significant impacts in business results by operating segment, as       
reported consistently with how management assesses operating segment            
performance.  See Note 10 for comparative presentation of business segment data.

Bakery Products                                                                 
---------------                                                                 

The Bakery Products segment reflected significantly higher net sales during the 
current 16- and 40-week periods over the comparable year-ago periods, despite   
significant unfavorable impacts of the strike and foreign exchange rates.  Net  
sales for the segment increased 26.2% to $676.3 million during the current      
quarter and 31.2% to $1,758.4 million year to date.  The Metz acquisition       
contributed approximately $182 million in net sales during the current quarter  
and $458 million to date for fiscal 2001, excluding the impact of the strike.   
Sales volumes in pounds for domestic baking operations, excluding the strike,   
were comparable to prior year volumes but fell below Company expectations.      
Excluding the exchange rate impact, sales increased 29.6% in the current quarter
and 33.9% year to date. Continued favorable pricing and product mix shift to    
premium and superpremium product lines also contributed to the sales increase.  

Operating results during the quarter for the Bakery Products segment decreased  
to a loss of $12.8 million from earnings of $22.9 million, due to unfavorable   
impacts from the strike, the accounts receivable and                            

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restructuring charges, and foreign exchange rates.  Operating income decreased  
29.4% to $50.0 million from $70.8 million year to date.  Enhanced price and mix 
of products, and lower ingredient costs were drivers of improvement but were    
overcome by higher fuel and energy costs, impacts of the strike, unusual        
charges, and higher goodwill amortization.  Integration of the Reposteria       
Martinez acquisition in Spain (March 1999), which is substantially completed,   
continued to contribute to results for the European Bakery operations of the    
segment.                                                                        

Refrigerated Dough                                                              
------------------                                                              

Net sales for the Refrigerated Dough segment decreased slightly during the      
current quarter to $105.8 million, compared to the year-ago quarter and         
increased to $226.5 million for the 40-week period.  Excluding the impact of    
foreign exchange rates, net sales increased 4.1% to $111.4 million during the   
quarter and 6.7% to $236.8 million year to date.  Strong operating income for   
the quarter increased to $20.0 million compared with $17.4 million in the prior 
year and $32.4 million year to date, up from $29.6 million in the year-ago      
period.  Pricing and improved product mix in the United States contributed      
positively to sales and operating results coupled with lower manufacturing costs
and cold weather experienced for this seasonally strong period for the segment. 

LIQUIDITY AND CAPITAL RESOURCES                                                 
-------------------------------                                                 

Cash flow from operations continues to be a primary source of liquidity.  Net   
working capital, excluding cash and cash equivalents, was $79.8 million at      
January 2, 2001 compared to a negative $366.6 million at March 28, 2000.  The   
negative working capital at fiscal year end 2000 is directly attributed to the  
current maturities of the revolving credit facility used to initially finance   
the Metz acquisition.  During the second quarter, the initial bridge financing  
for the acquisition was substantially refinanced with the fixed-rate long-term  
debt issuance.                                                                  

$72.5 million has been invested in capital expenditures to date for fiscal 2001,
with the spending estimate for the total fiscal year reduced to approximately   
$100 million from a planned level of $110-115 million.  No shares were          
repurchased during the current quarter; 186,100 shares have been repurchased    
year to date at a cost of $3.3 million.  Approximately 1.7 million shares are   
authorized for repurchase as of January 2, 2001 under the Company's repurchase  
program.                                                                        

The Company initially financed the Metz acquisition (March 2000) with a new $600
million revolving credit facility due 2001.  During the first quarter of fiscal 
2001, borrowings under this revolving credit facility were refinanced through   
borrowings under the Company's commercial paper programs.  The commercial paper 
borrowings were at a weighted average interest rate of 7.0% during the current  
quarter compared to a short-term weighted average rate of 6.1% for fiscal 2000. 
For the current year 40-week period, the weighted average short-term rate was   
6.8% compared to 5.7% for the respective year-ago period.  These commercial     
paper programs are supported by the existing committed lines of credit.         

On July 25, 2000, Earthgrains issued $300 million in three-year, 8-3/8% fixed-  
rate Notes due 2003 and $250 million in five-year, 8-1/2% fixed-rate Notes due  
2005 under the Company's $750 million shelf registration statement filed with   
the Securities and Exchange Commission in April 2000.  Proceeds from the        
offering were used to refinance a portion of the outstanding commercial paper   
borrowings.  As of January 2, 2001, $200 million of securities under this shelf 
and $100 million of securities under a shelf registration statement filed with  
the SEC in 1999 remain unissued.  In conjunction with the fixed-rate debt       
issuance, $550 million of the $1.1 billion total committed lines of credit were 
terminated by the Company.  The $400 million in interest rate swaps, entered    
into in May 2000, were also terminated.  The $7.8 million loss on these swap    
agreements                                                                      

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will be recognized as an adjustment to interest expense over the term of the    
underlying notes.  The remaining $50 million in commitments under the $600      
million credit facility was terminated by the Company in October 2000.  At      
January 2, 2001 $50 million was outstanding under the Company's remaining $500  
million in committed lines of credit.  As of January 2, 2001, approximately $175
million was available under these lines for future borrowings.                  

The Company's available cash will be used to fund capital expenditures, interest
payments pursuant to the outstanding debt and the initiative to begin repaying a
portion of the debt in fiscal 2001, and dividends to shareholders.  Cash        
provided by operations and borrowings available under the existing credit       
facilities and commercial paper programs and the remaining shelf registration   
should continue to provide the necessary funding for ongoing cash requirements. 

ENVIRONMENTAL MATTERS                                                           
---------------------                                                           

The Company is subject to Federal, state and local environmental protection laws
and regulations and is operating within such laws or is taking action aimed at  
assuring compliance with such laws and regulations.  Earthgrains has been       
identified as a potentially responsible party ("PRP") at certain locations by   
the EPA and may be required to share in the cost of cleanup with respect to one 
material site.  While it is difficult to quantify with certainty the financial  
impact of actions related to environmental matters, based on the information    
currently available it is management's opinion that the ultimate liability      
arising from such matters, taking into consideration established reserves,      
should not have a material effect on the Company's results of operations or     
financial position.                                                             

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PART II.  OTHER INFORMATION 
--------------------------- 

Item 1.  Legal Proceedings.  The Company has no legal proceedings which have    
become a reportable event in the current period.                                

Item 2.  Changes in Securities.  None.                                          

Item 3.  Defaults Upon Senior Securities.  None.                                

Item 4.  Submission of Matters to a Vote of Security-Holders.  No matters were  
submitted to a vote of security holders.                                        

Item 5.  Other Information.  None.                                              

Item 6.  Exhibits and Reports on Form 8-K.                                      

(a)  Exhibit 27 - Financial Data Schedule.                    

(b)  Reports on Form 8-K                                      
On September 26, 2000, the Company filed with       
the Securities and Exchange Commission a            
current report on Form 8-K announcing that          
earnings for the second quarter would fall          
below analyst expectations because of strike        
-related costs and revenue impacts.                 

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SIGNATURES
----------

  Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the        
undersigned thereunto duly authorized.                                          

                   THE EARTHGRAINS COMPANY
        (Registrant)

Date:  February 15, 2001              By:  Mark H. Krieger                      

               /S/ MARK H. KRIEGER
                   Mark H. Krieger
              Vice President and
                   Chief Financial Officer

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Dates Referenced Herein and Documents Incorporated by Reference

		Referenced-On Page
This ‘10-Q’ Filing	Date	First	Last	Other Filings

Filed on:	2/16/01
	2/15/01	16		SC 13G/A
	1/30/01	1
For Period End:	1/2/01	1	14
	9/26/00	15		8-K
	8/26/00	8
	7/25/00	8	13	8-K
	3/28/00	6	13	10-K
	3/18/00	7		8-K
	1/4/00	8	11	10-Q
	6/30/99	7		11-K
				List all Filings

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Earthgrains Co/DE – ‘10-Q’ for 1/2/01

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