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Earthgrains Co/DE – ‘10-Q’ for 6/19/01

On: Friday, 8/3/01, at 4:24pm ET · For: 6/19/01 · Accession #: 891118-1-500015 · File #: 0-27426

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

 8/03/01  Earthgrains Co/DE                 10-Q        6/19/01    1:29K                                    Stolar Partnership

Quarterly Report — Form 10-Q
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10-Q        10Q for Quarter Ending 6/19/2001                      15     57K

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
1	1st Page - Filing Submission
14	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 5. Other Information. None
"	Item 6. Exhibits and Reports on Form 8-K

10-Q 1st Page of 15 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 June 19, 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 - 42,643,773 shares 
as of July 17, 2001 

10-Q 2nd Page of 15 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                               13          

Exhibits and Reports on Form 8-K                13          

10-Q 3rd Page of 15 TOC 1st Previous Next ↓Bottom Just 3rd
                                                                [Download Table]
                           THE EARTHGRAINS COMPANY                    
                    Condensed Consolidated Balance Sheets             
                                (In millions)                         
                                 (Unaudited)                          


                                               June 19,   March 27,   
                                                2001       2000       
                                               --------   ---------   
                                                                      
Assets                                                                
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.
</FN>                                                                 

2 

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                                                                [Download Table]
                           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        2001        
                                            ---------   ---------     
                                                                      
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.
</FN>                                                                 

3 

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                                                                [Download Table]
                           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.
</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 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 - The Company 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 the Company's    
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                        
                 =====

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Note 4 - Long-term debt is comprised of the following:                          

                                                                [Download Table]

                             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
the Company 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, the Company 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.  The Company's transition adjustment upon adoption 
of this Statement was immaterial.  In the ordinary course of business, the      
Company 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 the Company 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.  The Company 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                                                                      

6 

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circumstances.  The Company 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."  The 
Company has elected to report comprehensive income in its Statement of          
Shareholders' Equity.  Other comprehensive income for the Company 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 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 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.  Our business segment information through the first quarter of    
fiscal 2002 and 2001 is summarized below (in millions):                         

7 

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                                                        [Enlarge/Download Table]

                                    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 the Company by Anheuser-Busch Companies,
Inc., in 1982 and the related depreciation and amortization thereon.                                                               
</FN>                                                                                                                              

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 
the Company's fourth quarter of fiscal year 2002.  The impact of Issue 00-14 is 
not expected to have a significant impact on our financial position or results  
of operations or have a material effect on our financial statement reporting.   
The Company has not completed its evaluation of the effect of Issue No. 00-25.  

8 

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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 the Company's fiscal 2003 reporting.  The Company    
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, the Company 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 the company's 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.                         

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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 12-week period ended June 19, 2001 compared to the 12-week period ended 
June 20, 2000.  This discussion should be read in conjunction with the          
consolidated financial statements and notes thereto for the fiscal year ended   
March 27, 2001 included in the Company's Annual Report to Shareholders.         

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

Net sales for the 12-week period ended June 19, 2001, increased 1.9% to $611.1  
million from $599.6 million reported for the comparable prior-year period,      
despite an unfavorable impact from foreign exchange rates. International sales  
during the current quarter were affected by a $4.4 million unfavorable foreign  
exchange rate impact compared to the same quarter in the prior year.  Excluding 
the unfavorable effect of foreign exchange rates, sales increased 2.7% for the  
current quarter.  Sales growth can primarily be attributed to strong gains in   
price and mix of products sold and very strong results for Worldwide            
Refrigerated Dough, including significant volume increases.                     

Gross margins increased in the current period to 47.0% from 46.7% a year ago.   
The margin improvements can be attributed to product price and mix improvements 
across all operations, and improved efficiencies, in part reflecting cost       
synergies from integrating acquisitions.  However, these improvements were      
partially offset by significant increases in fuel and energy costs, including   
natural gas used for bakery ovens, and higher employee-related costs, primarily 
health and welfare costs.                                                       

On a percentage-of-sales basis, marketing, distribution and administrative      
expenses decreased to 40.2% from 40.8% in the year-ago quarter.  The decrease in
marketing, distribution and administrative expenses in the quarter can primarily
be attributed to the cycling of higher diesel fuel increases last year, improved
efficiencies driven in part from the Metz and Reposteria Martinez acquisition   
synergies, and the higher mix of refrigerated dough sales relative to total     
sales which have lower selling expense.                                         

The increase in interest expense is directly related to the increased interest  
rates associated with the conversion from lower cost floating rate to fixed-    
rate, long-term debt during the second quarter of last year.                    

The effective income tax rate for the current fiscal year is relatively flat    
compared to the rate for first quarter of last year.  The annual effective tax  
rate is expected to remain in the range of 41-42%.                              

The current 12-week period resulted in net income of $14.4 million or $0.34 per 
diluted share, compared to $10.9 million, or $0.27 per diluted share in the     
prior year's comparable period.  About 10 cents of the quarter's earnings-per-  
share improvement resulted from growth in operating income, which more than     
offset higher fuel and energy costs and higher employee-related costs.  The     
combination of higher interest expense and negative foreign exchange impacted   
earnings unfavorably by three cents a share.  The benefit of a slightly lower   
income tax rate was offset by an increase in shares outstanding.                

10  

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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 8 for comparative presentation of business segment data. 

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

The Bakery Products segment reflected relatively flat net sales during the      
current 12-week period over the comparable year-ago period.  Net sales for the  
segment increased 0.9% to $546.3 million during the current quarter primarily on
contributions from Europe.  In Europe, increased bread sales and contributions  
from the January 2001 acquisition of the Ortiz brand of toasted bread increased 
revenue.  Excluding the unfavorable foreign exchange impact, net sales were up  
1.6% to $549.7 million.                                                         

Operating income during the quarter for the Bakery Products segment increased   
7.9% to $35.4 million from $32.8 million due to enhanced price and mix of       
products sold.  Earthgrains' sales of higher-margin superpremium products in the
United States increased by more than 11.0%.  The improvements were partially    
offset by higher fuel and energy costs and higher employee-related costs.  The  
company is on target to realize cost synergies from the soon to be completed    
Metz Baking acquisition integration in the United States and the integration of 
the Reposteria Martinez acquisition in Spain, which has been completed.         

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

Net sales for the Refrigerated Dough segment increased 11.0% during the current 
quarter to $64.8 million, compared to the year-ago quarter.  Excluding the      
impact of foreign exchange rates, net sales increased 12.7% to $65.8 million    
during the quarter.  Strong operating income for the quarter increased to $8.9  
million compared with $4.9 million in the prior year.  The strong operating     
results in both the United States and Europe resulted from increased volume,    
better price and mix of products sold, successful new products, and enhanced    
manufacturing efficiencies.  These benefits were partially offset by increased  
packaging prices and employee-related costs.                                    

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 $115.2 million at June
19, 2001 compared to $104.4 million at March 27, 2001.                          

$20.1 million has been invested in capital expenditures during the first quarter
of fiscal 2002, with the spending estimate for the total fiscal year being      
approximately $105-115 million.  No shares were repurchased during the current  
quarter.  Approximately 1.7 million shares are authorized for repurchase as of  
June 19, 2001 under the Company's repurchase program.                           

The Company's 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. 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.  

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The Company's available cash will be used to fund capital expenditures, interest
payments pursuant to the outstanding debt and the initiative to continue        
repaying a portion of the debt in fiscal 2002, 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 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 may be required to share in the cost of     
cleanup with respect to one material site.  In June 2000, the Company received a
request from the Environmental Protection Agency (EPA) for information          
pertaining to the Company's refrigerant handling practices.  The Company is     
cooperating with the EPA in connection with such request.  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 Earthgrains' results of operations, cash flows from 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.  At the Annual    
Meeting of Shareholders of the Company held July 13, 2001, the following matters
were voted upon:                                                                

         1.  Election of J. Joe Adorjan, Jerry E. Ritter, and Timothy P. Smucker
to serve as Directors of the Company for a term of three years expiring in 2004.

                  For         Withheld
                  ---         --------

J. Joe Adorjan         39,257,474     180,049         
Jerry E. Ritter        39,248,388     189,135         
Timothy P. Smucker     39,274,417     163,106         

2.  Shareholder proposal regarding executive compensation.    

For              3,038,297                            
Against         32,266,792                            
Abstain            755,543                            
Non-Votes        3,376,891                            

Item 5.  Other Information.  None.                                              

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

(a)  Exhibits:  None.                                         

(b)  Reports on Form 8-K.  None.                              

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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:  August 3, 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:	8/3/01	15
	7/17/01	1
	7/13/01	14		DEF 14A
	7/2/01	10		8-K, SC TO-C
For Period End:	6/19/01	1	12
	3/28/01	7
	3/27/01	6	12	10-K405
	6/20/00	8	11	10-Q
				List all Filings

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Earthgrains Co/DE – ‘10-Q’ for 6/19/01

On: Friday, 8/3/01, at 4:24pm ET · For: 6/19/01 · Accession #: 891118-1-500015 · File #: 0-27426

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