UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
(X) Annual report pursuant to Section 13 or 15(d) of the Securities and
Exchange Act of 1934 (Fee Required) for the fiscal year ended December 30,
1995 (52 weeks)
( ) Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (No Fee Required) for the transition period from
________ to ________
Commission File Number 1-5084
TASTY BAKING COMPANY
(Exact name of registrant as specified in its charter)
Pennsylvania 23-1145880
(State of Incorporation) (IRS Employer Identification Number)
2801 Hunting Park Avenue
Philadelphia, Pennsylvania 19129
(Address of principal executive offices) (zip code)
Telephone: 215-221-8500
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock,
par value $.50 per share American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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_____
The aggregate market value of voting stock held by non-affiliates as of February
15, 1996 is $65,033,584 computed by reference to the closing price on the
American Stock Exchange on such date.
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of February 9, 1996.
Class Outstanding
Common Stock,
par value $.50 6,184,850 shares
DOCUMENTS INCORPORATED BY REFERENCE
Document Reference
Pages 12 to 31 inclusive of the Annual Report to Share-
holders for the Fiscal Year Ended December 30, 1995 Part II
Pages 2 to 12 inclusive of the definitive Proxy Statement
dated March 20, 1996 Part III
(Note: Portions of pages 10 through 12 are not deemed "filed")
The index of exhibits is located on page number 7 of 17.
1 of 17
<PAGE>
TASTY BAKING COMPANY AND SUBSIDIARIES
PART I
Item 1. Business
The Registrant was incorporated in Pennsylvania in 1914 and maintains its
main offices and manufacturing facilities in Philadelphia, Pennsylvania. The
Registrant's Tastykake Division (Tastykake) is engaged in the manufacture and
sale of a variety of small single portion cakes, pies, cookies, muffins,
pretzels, brownies, pastries, donuts and miniature donuts and cupcakes under the
well established trademark, TASTYKAKE(R). These products comprise approximately
85 varieties. The availability of some products, especially the holiday-themed
offerings, varies according to the season of the year. The cakes, cookies and
donuts principally sell at retail prices for individual packages ranging from
30(cent) to 69(cent) per package and family convenience packages and jumbo packs
ranging from $1.99 to $3.99. The best known products with the widest sales
acceptance are various cupcakes and sponge cakes marketed under the product
trademarks JUNIORS(R) and KRIMPETS(R), and chocolate covered cakes under KANDY
KAKES(R). The pies principally sell at retail for 69(cent) each and include
various fruit and creme filled varieties and, at various times of the year,
additional seasonal varieties. The pastries and brownies are marketed
principally in snack packages and sell at a retail price of 69(cent) per
package. Three varieties of english muffins range from $1.49 to $1.69 per
package. In response to a major market trend that has been heightened
considerably by the introduction of nutritional labeling, eight new low-fat cake
varieties were introduced in 1995. These low-fat products are sold primarily in
family convenience packages which sell at a retail price of $2.39 per package.
Tastykake products are sold principally by independent owner/operators
through distribution routes to approximately 25,000 retail outlets in a six
state region from New York to Virginia, which is Tastykake's principal market.
Tastykake also distributes its products through major grocery chains in states
located throughout the mid-west, southwest and south. Including these market
areas, products are sold by distributors in approximately thirty states.
Tastykake also distributes its products through the TASTYKARE(TM) program,
whereby consumers can call a toll-free number to order the delivery of a variety
of Tastykake gift packs. Although the division's three largest customers
comprise a significant portion of its net sales revenue, the large number of
retailers comprising the customer base ensure the availability of TASTYKAKE(R)
products to consumers.
In August 1995, the Registrant acquired all of the outstanding shares of
capital stock of Dutch Mill Baking Company, Inc. (Dutch Mill). Dutch Mill, based
in Wyckoff, New Jersey, produces approximately 25 varieties of donuts, muffins,
cookies and cakes which are marketed primarily under the trademark DUTCH MILL(R)
through distributors to retail outlets in the New York City metropolitan area.
These products are sold primarily in family convenience packages at retail
prices ranging from $2.39 to $2.69 per package.
The Registrant maintains a comprehensive advertising program which utilizes
outdoor poster campaigns, newspapers, customer coupons, radio and television
spot advertising and promotions with various sports teams. While the companies
sponsor research and development activities, the cost is not a material item.
The Registrant is engaged in a highly competitive business, particularly in
new marketing areas where its trademarks and reputation are not well-known.
Although the number of competitors varies among marketing areas and certain
competitors are national companies with multiple production facilities and a
nationwide distribution system, the Registrant believes it is one of the largest
independent producers in the country specializing primarily in small pies and
cakes. The Registrant is able to maintain a strong competitive position in its
principle marketing areas through the quality of its products.
2 of 17
<PAGE>
Item 1. Business, continued
The Registrant's policies with respect to working capital items is not
unique. Inventory is generally maintained at levels sufficient for one to three
weeks sales, while the ratio of current assets to current liabilities is
maintained at a level between 1.5 and 2.5 to 1.
The Registrant employs approximately 1,100 persons, including approximately
120 part-time employees.
Item 2. Properties
The locations and primary use of the materially important physical
properties of the Registrant and its subsidiaries are as follows:
Location Primary Facility Use
2801 Hunting Park Avenue Corporate Office,
Philadelphia, PA (1) Production of cakes,
pies and cookies
Fox and Roberts Streets Sales and Finance Offices,
Philadelphia, PA (1) Data Processing
Operations, Office
Services and Warehouse
500 Braen Avenue Dutch Mill Offices,
Wyckoff, NJ (2) Production of donuts, muffins,
cookies and cakes
(1) These properties are recorded as capital leases. For a description of
major encumbrances on these properties, see Note 10 and 11 of Notes to
Consolidated Financial Statements in the 1995 Annual Report to Shareholders -
Exhibit 13, incorporated herein by reference.
(2) This property is leased under an operating lease. For a description of
rental obligations, see Note 11 of Notes to Consolidated Financial Statements in
the 1995 Annual Report to Shareholders - Exhibit 13, incorporated herein by
reference.
In addition to the above, the Registrant leases various other properties
used principally as local pick up and distribution points. All of these
properties are sufficient for the business of the Registrant as now conducted,
although certain manufacturing space is near full utilization.
3 of 17
<PAGE>
Item 3. Legal Proceedings
In November, 1995, the Registrant received a proposed assessment from the
Internal Revenue Service for employment taxes based on an assertion that during
the years 1990 through 1994 the Registrant's independent owner/operators were
employees and not independent contractors. It is the Registrant's view that the
assertion is without merit since the independent owner/operator relationships
were established in compliance with the appropriate Internal Revenue Code
requirements. Therefore, the Registrant intends to vigorously defend its
position. At this time, however, the Registrant is unable to estimate the
possible loss, if any, that may be incurred as a result of this proposed
assessment. The ultimate outcome of this proposed assessment may or may not have
a material impact on the Registrant's financial position or results of
operations.
The Registrant is involved in certain legal and regulatory actions, all of
which have arisen in the ordinary course of the Registrant's business. The
Registrant is unable to predict the outcome of these matters, but does not
believe that the ultimate resolution of such matters will have a material
adverse effect on the consolidated financial position of the Registrant.
Item 4. Submission of Matters to a Vote of Security Holders
This item is not applicable.
4 of 17
<PAGE>
TASTY BAKING COMPANY AND SUBSIDIARIES
PART II
CROSS REFERENCE INDEX
FORM 10-K
ITEM NUMBER AND CAPTION INCORPORATED MATERIAL
Page(s) in Annual Report to
Shareholders for the Fiscal
Year Ended December 30, 1995
Item 5 Market for the Registrant's
Common Stock and Related
Shareholder Matters 16
Item 6 Selected Financial Data 17
Item 7 Management's Discussion and
Analysis of Financial Condition
and Results of Operations 13 - 15
Item 8 Consolidated Financial Statements
and Supplementary Data:
Summary of Significant Accounting
Policies 12
Quarterly Summary 16
Consolidated Statements of
Operations and Retained Earnings 18
Consolidated Statements of Cash Flows 19
Consolidated Balance Sheets 20 - 21
Consolidated Statements of Changes
in Capital Accounts 22
Notes to Consolidated Financial
Statements 23 - 31
Report of Independent Accountants 31
Item 9 Changes in and Disagreements with
Accountants on Accounting and Financial Disclosure
This item is not applicable.
5 of 17
<PAGE>
TASTY BAKING COMPANY AND SUBSIDIARIES
PART III
CROSS REFERENCE INDEX
FORM 10-K
ITEM NUMBER AND CAPTION INCORPORATED MATERIAL
Page(s) in definitive
Proxy Statement
Item 10 Directors and Executive Officers
of the Registrant 4 - 6
Item 11 Executive Compensation* 7 - 12
Item 12 Security Ownership of Certain Beneficial
Owners and Management 2 - 3
Item 13 Certain Relationship and Related
Transactions
With respect to certain business
relationships of Fred C. Aldridge, Jr.,
Esquire, director 5
*Note that the sections entitled "Report of
Compensation Committee on Executive
Compensation" and "PERFORMANCE GRAPH"
pursuant to Reg. S-K, Item 402(a)(9) are not
deemed "Soliciting Material" or "filed" as
part of this report.
6 of 17
<PAGE>
TASTY BAKING COMPANY AND SUBSIDIARIES
PART IV
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES
AND REPORTS ON FORM 8-K
for the fiscal years ended December 30, 1995,
December 31, 1994 and January 1, 1994
__________
Pages
(a)-1. List of Financial Statements
Summary of Significant Accounting Policies Incorporated herein
Quarterly Summary by reference to
Consolidated Statements of Operations and page 12 and pages
Retained Earnings 18 - 31 inclusive of
Consolidated Statements of Cash Flows the Annual Report to
Consolidated Balance Sheets Shareholders for the
Consolidated Statements of Changes in Capital fiscal year ended
Accounts December 30, 1995.
Notes to Consolidated Financial Statements See page 13 of 17.
(a)-2. Schedule* for the fiscal years ended December
30, 1995, December 31, 1994 and January 1,
1994:
Report of Independent Accountants 9 of 17
II. Valuation and Qualifying Accounts 10 of 17
(a)-3. Exhibits Index - The following Exhibit Numbers
refer to Regulation S-K, Item 601**
(3) Articles of Incorporation and Bylaws
of registrant as amended and
currently effective are incorporated
herein by reference to Exhibit 3 to
Form 10-K report of Registrant for
1992. 11 of 17
(10)(a) 1991 Long-term Incentive Plan,
effective as of January 1, 1991, is
incorporated herein by reference to
Exhibit 10 to Form 10-K report of
Registrant for 1990.
(b) 1985 Stock Option Plan, effective
December 20, 1985, is incorporated
herein by reference to Exhibit A of
the Proxy Statement for the Annual
Meeting of Shareholders on April 18,
1986, filed on or about March 21,
1986.
(c) Senior Management Employment
Agreements dated July 1, 1988 are
incorporated herein by reference to
Exhibit 10(c) to Form 10-K report of
Registrant for 1991.
(d) Supplemental Executive Retirement
Plan, dated February 18, 1983 and
amended May 15, 1987 and April 22,
1988, is incorporated herein by
reference to Exhibit 10(d) to Form
10-K report of Registrant for 1991.
_______________
* All other schedules are omitted because they are inapplicable or not required
under Regulation S-X or because the required information is given in the
financial statements and notes to financial statements.
** All other exhibits are omitted because they are inapplicable.
7 of 17
<PAGE>
TASTY BAKING COMPANY AND SUBSIDIARIES
ITEM 14, CONTINUED
Pages
(e) Management Stock Purchase Plan is
incorporated herein by reference to
the Proxy Statement for the Annual
Meeting of Shareholders on April 19,
1968 filed on or about March 20,
1968 and amended April 23, 1976,
April 24, 1987 and April 19, 1991.
(f) Trust Agreement dated as of November
17, 1989 between the company and
Meridian Trust Company relating to
Supplemental Executive Retirement
Plan is incorporated herein by
reference to Exhibit 10(f) to Form
10-K report of Registrant for 1994.
(g) 1988 Director Option Plan effective
April 22, 1988 is incorporated
herein by reference to Exhibit 10(g)
to Form 10-K report of Registrant
for 1992.
(h) Director Retirement Plan dated
October 16, 1987 is incorporated
herein by reference to Exhibit 10(h)
to Form 10-K report of Registrant
for 1992.
(i) 1993 Replacement Option Plan (P&J
Spin-Off) is incorporated herein by
reference to Exhibit A of the
Definitive Proxy Statement dated
March 17, 1994 for the Annual
Meeting of Shareholders on April 22,
1994.
(j) 1994 Long Term Incentive Plan is
incorporated herein by reference to
Exhibit 10(j) to Form 10-K report of
Registrant for 1994.
(k) Trust Agreement dated January 19,
1990 between the company and
Meridian Trust Company relating to
the Director Retirement Plan. 12 of 17
Each of exhibits 10(a) - 10(k) constitute
management contracts or compensatory plans or
arrangements.
(13) Annual Report to Shareholders for
the fiscal year ended December 30,
1995, pages 12 to 31 only. (The
balance of the Annual Report is not
deemed "filed" or "Soliciting
Material".) 13 of 17
(21) Subsidiaries of the Registrant 14 of 17
(23)(a) Consent of Independent Accountants
with respect to Form S-3
(Registration No. 33-30560) and
Post- Effective Amendment No. 10 to
Form S-8 (Registration No. 2-55836)
and Post- Effective Amendment No. 3
to Form S-8 (Registration No.
33-18904) and Post- Effective
Amendment No. 4 to Form S-3
(Registration No. 33-8427). 15 of 17
(b) The Registrant did not file a report on Form
8-K during the fourth quarter ended December
30, 1995.
8 of 17
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and
the Board of Directors
Tasty Baking Company
Philadelphia, Pennsylvania
Our report on the consolidated financial statements of Tasty Baking Company
and subsidiaries has been incorporated by reference in this Form 10-K from page
31 of the 1995 Annual Report to the Shareholders of Tasty Baking Company. In
connection with our audits of such financial statements, we have also audited
the related financial statement schedule listed in the index on page 7 of this
Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information required to be
included therein.
COOPERS & LYBRAND L.L.P.
Philadelphia, Pennsylvania
February 14, 1996
9 of 17
<PAGE>
TASTY BAKING COMPANY AND SUBSIDIARIES
SCHEDULE II. VALUATION AND QUALIFYING ACCOUNTS
for the fiscal years ended December 30, 1995,
December 31, 1994 and January 1, 1994
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
Additions
Balance at Charged to Balance at
Beginning Costs and End of
Description of Period Expenses Deductions(1) Period
<S> <C> <C> <C> <C>
Deducted from applicable assets:
Allowance for doubtful accounts:
For the fiscal year ended December 30, 1995 $2,063,765 $ 785,036 $ 487,007 $2,361,794
========== ========== ========== ==========
For the fiscal year ended December 31, 1994 $1,644,739 $ 592,040 $ 173,014 $2,063,765
========== ========== ========== ==========
For the fiscal year ended January 1, 1994 $1,429,897 $ 530,980 $ 316,138 $1,644,739
========== ========== ========== ==========
Inventory valuation reserves:
For the fiscal year ended December 30, 1995 $ 74,535 $ 12,781 $ 12,316 $ 75,000
========== ========== ========== ==========
For the fiscal year ended December 31, 1994 $ 81,023 $ 129,847 $ 136,335 $ 74,535
========== ========== ========== ==========
For the fiscal year ended January 1, 1994 $ 85,000 $ 59,796 $ 63,773 $ 81,023
========== ========== ========== ==========
Spare parts inventory reserve for obsolescence:
For the fiscal year ended December 30, 1995 $ 73,025 $ 46,262 $ 19,287 $ 100,000
========== ========== ========== ==========
For the fiscal year ended December 31, 1994 $ 89,760 $ 23,825 $ 40,560 $ 73,025
========== ========== ========== ==========
For the fiscal year ended January 1, 1994 $ 162,000 $ 108,484 $ 180,724 $ 89,760
========== ========== ========== ==========
Equipment allowance for obsolescence:
For the fiscal year ended December 30, 1995 $ 19,136 $ 29,726 $ 23,862 $ 25,000
========== ========== ========== ==========
For the fiscal year ended December 31, 1994 $ 32,510 $ (13,374)(2) $ -- $ 19,136
========== ========== ========== ==========
For the fiscal year ended January 1, 1994 $ 175,000 $ (140,554)(2) $ 1,936 $ 32,510
========== ========== ========== ==========
<FN>
(1) Decrease due to write-off of related assets.
(2) Reflects a reestimation of the equipment allowance for obsolescence
during fiscal years 1994 and 1993.
</FN>
</TABLE>
10 of 17
<PAGE>
TASTY BAKING COMPANY AND SUBSIDIARIES
Articles of Incorporation and By-Laws of Tasty Baking Company as amended and
currently effective.
EXHIBIT 3
11 of 17
<PAGE>
TASTY BAKING COMPANY AND SUBSIDIARIES
Trust Agreement
EXHIBIT 10
12 of 17
<PAGE>
TASTY BAKING COMPANY AND SUBSIDIARIES
Annual Report to Shareholders for the fiscal year ended December 30, 1995
EXHIBIT 13
13 of 17
<PAGE>
TASTY BAKING COMPANY AND SUBSIDIARIES
SUBSIDIARIES OF THE REGISTRANT
EXHIBIT 21
14 of 17
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
EXHIBIT 23(a)
15 of 17
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
TASTY BAKING COMPANY
By /s/ Carl S. Watts
----------------------------
Carl S. Watts, President
and Chief Executive Officer
16 of 17
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Capacity Date
<S> <C> <C>
/s/ Philip J. Baur, Jr.
- ------------------------------------------ Chairman of the Board March 22, 1996
Philip J. Baur, Jr. and Director of Tasty
Baking Company
/s/ Carl S. Watts
- ------------------------------------------ President and Chief March 22, 1996
Carl S. Watts Executive Officer and
Director of Tasty
Baking Company
/s/ Nelson G. Harris
- ------------------------------------------ Chairman of The March 22, 1996
Nelson G. Harris Executive Committee and
Director of Tasty
Baking Company
/s/ John M. Pettine
- ------------------------------------------ Vice President, Chief March 22, 1996
John M. Pettine Financial and Accounting
Officer and Director of
Tasty Baking Company
/s/ Fred. C. Aldridge, Jr.
- ------------------------------------------ Director of Tasty Baking March 22, 1996
Fred C. Aldridge, Jr. Company
/s/ James L. Everett, III
- ------------------------------------------ Director of Tasty Baking March 22, 1996
James L. Everett, III Company
/s/ Harold F. Still, Jr.
- ------------------------------------------ Director of Tasty Baking March 22, 1996
Harold F. Still, Jr. Company
/s/ Judith M. von Seldeneck
- ------------------------------------------ Director of Tasty Baking March 22, 1996
Judith M. von Seldeneck Company
</TABLE>
17 of 17
"ARTICLES OF INCORPORATION
OF
TASTY BAKING COMPANY
FIRST. The name of the corporation is Tasty Baking Company.
SECOND. The purposes for which the corporation is organized are as follows:
To manufacture or otherwise produce, use, buy, sell and otherwise deal
in goods, wares, merchandise and other articles of commerce and personal
property of every kind and nature including human foods of every kind and
description.
To acquire by purchase, lease, grant, gift, devise, bequest, exchange
of securities or property, or otherwise, any property, real or personal, and any
interest therein, including the business, good will, rights and assets of any
person, partnership, association or corporation engaged in any lawful business.
To hold, own, improve, develop, lease, sell, mortgage, pledge and
otherwise deal in, invest in and dispose of, any property, real or personal, and
any interest therein, including the business, good will, rights and assets of
any person, partnership, association or corporation engaged in any lawful
business.
THIRD. The location and post office address of the registered office of the
corporation in the Commonwealth of Pennsylvania is 2801 Hunting Park Avenue,
Philadelphia, Pennsylvania 19129.
FOURTH. The corporation is to exist perpetually.
FIFTH. The aggregate number of shares which the corporation shall have
authority to issue is 15,000,000 shares of common stock having a par value of
$0.50 per share.
SIXTH. The number of directors of the corporation shall be fixed from time
to time by or pursuant to its by-laws, but the number shall never be less than
three and, until after the annual meeting of shareholders to be held in 1998,
shall never be more than ten. Effective with the election of directors at the
annual meeting of shareholders to be held in 1986, the directors shall be
classified, with respect to the time for which they severally hold office, into
three classes, as nearly equal in number as possible, as shall be provided in
the manner specified in the by-laws; one
<PAGE>
class to hold office for a term expiring at the annual meeting of shareholders
to be held in 1987, another class to hold office initially for a term expiring
at the annual meeting of shareholders to be held in 1988, and another class to
hold office initially for a term expiring at the annual meeting of shareholders
to be held in 1989, with the members of each class to hold office until their
successors are elected and qualified. At the annual meetings of shareholders of
the corporation to be held in 1987 through 1997, the successors to the class of
directors whose term expires at that meeting shall be elected to hold office for
a three year term and until their successors are elected and qualified.
Effective with the election of directors at the annual meeting of shareholders
to be held in 1998, the successors to the class of directors whose term expires
at that meeting and thereafter shall be elected to hold office for a one year
term and until their successors are elected and qualified.
Notwithstanding anything contained in these Articles of Incorporation
to the contrary and notwithstanding the fact that a lesser percentage may be
permitted by law or the by-laws of the corporation, the affirmative vote of the
holders of at least seventy-five percent (75%) of the voting power of all shares
of the corporation entitled to vote generally in the election of directors,
voting together as a single class, shall be required to remove any director from
office without assigning any cause for such removal at any annual or special
meeting of shareholders until after the annual meeting of shareholders to be
held in 1998.
Notwithstanding anything contained in these Articles of Incorporation
to the contrary and notwithstanding the fact that a lesser percentage may be
permitted by law or the by-laws of the corporation, the affirmative vote of the
holders of at least seventy-five percent (75%) of the voting power of all shares
of the corporation entitled to vote generally in the election of directors,
voting together as a single class, shall be required to alter, amend or adopt
any provisions inconsistent with, or repeal this Article SIXTH or any provision
hereof at any annual or special meeting of shareholders until after the annual
meeting of shareholders to be held in 1998.
SEVENTH. Notwithstanding anything contained in any other provision of these
Articles of Incorporation to the contrary or the fact that a lesser percentage
may be permitted by law, the affirmative vote of the holders of at least
seventy-five percent (75%) of the voting power of all shares of the corporation
entitled to vote generally in the election of directors, voting together as a
single class, shall be required in order to approve or authorize any Business
Combination (as hereinafter defined) which has not been approved by seventy-five
(75%) of the directors then in office. The term "Business Combination" as used
in this Article SEVENTH shall mean any of the following:
<PAGE>
(a) any merger or consolidation of the corporation or any subsidiary
thereof with any other corporation if either (1) such merger or consolidation is
required by law to be approved or authorized by the shareholders or (2) as a
result of such merger or consolidation, the total number of shares of common
stock of the surviving corporation to be issued or delivered in connection
therewith plus the number of shares initially issuable upon conversion of any
other shares, securities or obligations to be issued or delivered in connection
therewith exceeds 15% of the number of shares of common stock outstanding
immediately prior to the effective date of such merger or consolidation;
(b) any sale, lease, exchange or other disposition (in one or a series
of transactions) of all, or substantially all, of the property and assets of the
corporation or any subsidiary thereof which is required by law to be approved or
authorized by the shareholders;
(c) the dissolution or any liquidation of the assets of the
corporation or any subsidiary thereof which is required by law to be approved or
authorized by the shareholders;
(d) the issuance or transfer by the corporation or any subsidiary
thereof of any securities of the corporation or any subsidiary thereof in
exchange for cash, securities or property (or a combination thereof) in one
transaction or a series of transactions which is or are required by-law or by
any agreement to which the corporation is a party to be approved or authorized
by the shareholders;
(e) any share exchange or division with respect to the corporation or
any subsidiary thereof which is required by law to be approved or authorized by
the shareholders;
(f) any reclassification of securities (including any reverse stock
split) or recapitalization of the corporation, or any merger or consolidation of
the corporation with any of its subsidiaries, which is required by law or by any
agreement to which the corporation is a party to be approved or authorized by
the shareholders.
The provisions of this Article SEVENTH shall apply only to Business
Combinations which are submitted to the shareholders for approval at any annual
or special meeting of shareholders held not later than the annual meeting of
shareholders to be held in 1998.
Notwithstanding anything contained in these Articles of Incorporation
to the contrary and notwithstanding the fact that a lesser percentage may be
permitted by law or by the by-laws of the corporation, the affirmative vote of
the holders of at least seventy-five (75%) of the voting power of all shares of
the corporation entitled to vote generally in the election of directors, voting
together as a single class, shall be required to alter, amend or adopt any
provisions inconsistent with, or repeal this Article SEVENTH or any provision
hereof at any annual or special meeting of shareholders until after the annual
meeting of shareholders to be held in 1998."
<PAGE>
Amended December 15, 1995
TASTY BAKING COMPANY
-----------------
BY-LAWS
-----------------
ARTICLE I
OFFICES
Section 1. The principal office shall be at 2801 Hunting Park Avenue in the
City of Philadelphia, Commonwealth of Pennsylvania. The location of the
principal office shall, at all times, be within the limits of the Commonwealth
of Pennsylvania.
Section 2. The corporation may also have offices at such other places both
within and without the Commonwealth of Pennsylvania, as the Board of Directors
may, from time to time, determine or the business of the corporation may
require.
ARTICLE II
MEETINGS OF SHAREHOLDERS
Section 1. All meetings of the shareholders shall be held in the City of
Philadelphia, Pennsylvania, or at such other places within or without the
Commonwealth of Pennsylvania as the Board of Directors may designate.
Section 2. The annual meeting of the shareholders shall be held on such day
in the months of April, May or June as the Board of Directors shall designate,
when they shall elect by a plurality vote, by ballot, a Board of Directors, to
serve for one year and until their successors are
<PAGE>
elected or chosen and qualify, and transact such other business as may properly
be brought before the meeting.
Section 3. Special meetings of the shareholders, for any purpose or
purposes, unless otherwise prescribed by stature or by the articles of
incorporation may be called at any time by the Chairman of the Board or a
majority of the Board of Directors, or shareholders entitled to cast at least a
majority of the votes which all shareholders are entitled to cast at the
particular meeting, upon written request delivered to the Secretary of the
corporation. Such request shall state the purpose or purposes of the proposed
meeting. Upon receipt of any such request, it shall be the duty of the Secretary
to call a special meeting of the shareholders to be held at such time, not less
than ten nor more than sixty days thereafter, as the Secretary may fix. If the
Secretary shall neglect to issue such call, the person or persons making the
request may issue the call.
Section 4. Written notice of every meeting of the shareholders, specifying
the place, date and hour and the general nature of the business of the meeting,
shall be served upon or mailed, postage prepaid, at least ten days prior to the
meeting, unless a greater period of notice is required by statute, to each
shareholder.
Section 5. The officer having charge of the transfer books for shares of
the corporation shall prepare and make at least ten days before each meeting of
shareholders, a complete list of the shareholders entitled to notice of the
meeting and a complete list of the shareholders entitled to vote at the meeting,
arranged in alphabetical order, with the address and the number of shares held
by each which lists shall be kept on file at the principal office of the
corporation and shall be subject to inspection by any shareholder at any time
during usual business hours. Such lists shall also be produced and kept open at
the time and place of the meeting and shall be subject to the inspection of any
shareholder during the whole time of the meeting.
Section 6. Business transacted at all special meetings of shareholders
shall be limited to the purposes stated in the notice.
Section 7. The presence, in person or by proxy, of shareholders entitled to
cast at least a majority of the votes which all shareholders are entitled to
cast on a particular matter, shall be requisite and shall constitute a quorum at
all meetings of the shareholders for the transaction of business, except
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as otherwise provided by statute or by the articles of incorporation or by these
by-laws. If, however, any meeting of the shareholders cannot be organized
because a quorum has not attended, the shareholders entitled to vote thereat,
present in person or by proxy, shall have power, except as otherwise provided by
statute, to adjourn the meeting to such time and place as they may determine,
but in the case of any meeting called for the election of directors such meeting
may be adjourned from day to day or for such longer periods not exceeding
fifteen days each as the holders of a majority of the votes present in person or
by proxy and entitled to vote shall direct, and those who attend the second of
such adjourned meetings, although less than a quorum, shall nevertheless
constitute a quorum for the purpose of electing directors. At any adjourned
meeting at which a quorum shall be present or represented any business may be
transacted which might have been transacted at the meeting as originally
notified.
Section 8. When a quorum is present or represented at any meeting, any
action to be taken shall be authorized by a majority of the votes cast at such
meeting by all shareholders entitled to vote thereon, unless the action is one
upon which, by express provision of the statutes or of the Articles of
Incorporation, a different vote is required in which case such express provision
shall govern and control the decision of such question.
Section 9. Each shareholder shall at every meeting of the shareholders be
entitled to vote in person or by proxy, but no proxy shall be voted on after
three years from its date, unless coupled with an interest, and, except where
the transfer books of the corporation have been closed or a date has been fixed
as a record date for the determination of its shareholders entitled to vote,
transferees of shares which are transferred on the books of the corporation
within ten days next preceding the date of such meeting shall not be entitled to
vote at such meeting. In each election for directors, every shareholder entitled
to vote shall have the right, in person or by proxy, to multiply the number of
votes to which he may be entitled by the total number of directors to be elected
in the same election, and he may cast the whole number of such votes for one
candidate or he may distribute them among any two or more candidates. The
candidates receiving the highest number of votes up to the number of directors
to be elected shall be elected.
Section 10. In advance of any meeting of shareholders, the Board of
Directors may appoint judges of election, who need not be shareholders, to act
at such meeting or any adjournment thereof. If
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judges of election be not so appointed, the chairman of any such meeting may
and, on the request of any shareholder entitled to vote or his proxy, shall make
such appointment at the meeting. The number of judges shall be one or three. If
appointed at a meeting on the request of one or more shareholders entitled to
vote or proxies, the majority of shares present and entitled to vote shall
determine whether one or three judges are to be appointed. No person who is a
candidate for office shall act as a judge. The judges of election shall do all
such acts as may be proper to conduct the election or vote with fairness to all
shareholders, and shall make a written report of any matter determined by them
and execute a certificate of any fact found by them, if requested by the
chairman of the meeting or any shareholder entitled to vote or his proxy. If
there be three judges of election, the decision, act or certificate of a
majority, shall be effective in al respects as the decision, act or certificate
of all.
ARTICLE III
DIRECTORS
Section 1. The number of directors which shall constitute the board shall
never be less than three (3) and, until after the annual meeting of shareholders
to be held in 1998, shall never be more than ten (10). The Board of Directors
may by a vote of not less than a majority of the authorized number of directors
increase or decrease the number of directors from time to time, without a vote
of the shareholders provided, however, that any such decrease shall not
eliminate any director then in office. Effective with the election of directors
at the annual meeting of shareholders to be held in 1986, the directors shall be
classified, with respect to the time for which they severally hold office, into
three classes, as nearly equal in number as possible, as shall be provided in
the manner specified in these by-laws; one class to hold office initially for a
term expiring at the annual meeting of shareholders to be held in 1987, another
class to hold office initially for a term expiring at the annual meeting of
shareholders to be held in 1988, and another class to hold office initially for
a term expiring at the annual meeting of shareholders to be held in 1989, with
the members of each class to hold office until their successors are elected and
qualified. The number of directors in each class shall be determined by a vote
of not less than a majority of the authorized number of directors. At the annual
meeting of shareholders of the corporation to be held in 1987 through 1997, the
successors to the class of directors whose term expires at that meeting shall be
elected to hold office for a three year term and until their successors are
elected and qualified. Effective with the election of directors at the annual
meeting of
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of shareholders to be held in 1998, the successors to the class of directors
whose term expires at that meeting and thereafter shall be elected to hold
office for a one year term and until their successors are elected and qualified.
Section 2. Except as otherwise prescribed in the articles of incorporation,
notwithstanding anything contained in these by-laws to the contrary, and
notwithstanding the fact that a lesser percentage may be permitted by law, the
affirmative vote of the holders of at least seventy-five percent (75%) of the
voting power of all shares of the corporation entitled to vote generally in the
election of directors, voting together as a single class, shall be required to
remove any director from office without assigning any cause for such removal at
any annual or special meeting of shareholders until after the annual meeting of
shareholders to be held in 1998. Except as otherwise prescribed in the articles
of incorporation, notwithstanding anything contained in these by-laws to the
contrary, and notwithstanding the fact that a lesser percentage may be permitted
by law, the affirmative vote of the holders of at least seventy-five percent
(75%) of the voting power of all shares of the corporation entitled to vote
generally in the election of directors, voting together as a single class, shall
be required to alter, amend or adopt any provisions inconsistent with, or repeal
this Section 2, or any provision hereof at any annual or special meeting of
shareholders until after the annual meeting of shareholders to be held in 1998.
Section 3. Vacancies and newly created directorships resulting from any
increase in the authorized number of directors shall be filled by the
affirmative vote of a majority of the remaining directors, though less than a
quorum. Any director so elected shall hold office for the remainder of the full
term of the class of directors in which the new directorship was created or the
vacancy occurred and until such director's successor shall have been elected and
qualified.
Section 4. The business of the corporation shall be managed by its board of
directors which may exercise all such powers of the corporation and do all such
lawful acts and things as are not by statute or by the articles of incorporation
or by these by-laws directed or required to be exercised and done by the
shareholders.
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MEETINGS OF THE BOARD OF DIRECTORS
Section 5. The Board of Directors of the corporation may hold meetings,
both regular and special, either within or without the Commonwealth of
Pennsylvania.
Section 6. The first meeting of each newly elected Board of Directors shall
be held immediately following the annual meeting of the shareholders at the
corporation's principal office unless a different time and place shall be fixed
by the shareholders at the meeting at which such directors were elected and no
notice of such meeting shall be necessary to the newly elected directors in
order legally to constitute the meeting, provided a majority of the whole board
shall be present. In the event such meeting is not held at such time and place,
or in the event of the failure of the shareholders to fix a different time or
place for such first meeting of the newly elected Board of Directors, the
meeting may be held at such time and place as shall be specified in a notice
given as hereinafter provided for such meetings of the Board of Directors, or as
shall be specified in a written waiver signed by all of the directors.
Section 7. Regular meetings of the Board of Directors may be held without
notice on the third Friday of each month at the principal office of the
corporation or at such other time or place as shall from time to time be
determined by the board.
Section 8. Special meetings of the Board may be called by the Chairman of
the Board or Chief Executive Officer on one day's notice to each director,
either personally or by mail or by telegram; special meetings shall be called by
the Chairman of the Board or Secretary in like manner and on like notice on the
written request of two directors, which request shall state the purpose or
purposes of the proposed meeting.
Section 9. At all meetings of the board a majority of the directors in
office shall be necessary to constitute a quorum for the transaction of
business, and the acts of a majority of the directors present at a meeting at
which a quorum is present shall be the acts of the Board of Directors, except as
may be otherwise specifically provided by statute or by the articles of
incorporation. If a quorum shall not be present at any meeting of directors, the
directors present thereat may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be present.
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Section 10. The order of business at all meetings of the board shall be
substantially as follows:
(1) Roll Call. A quorum being present.
(2) Reading and approval of minutes of preceding meeting of
Directors.
(3) Reading and approval of unapproved minutes of Executive
Committee.
(4) Reports of officers.
(5) Unfinished business.
(6) New business.
Section 11. If all the directors shall severally or collectively consent in
writing to any action to be taken by the corporation, such action shall be as
valid a corporate action as though it had been authorized at a meeting of the
Board of Directors.
Section 12. In the event a national disaster or national emergency is
proclaimed by the President or Vice-President of the United States, the
directors, even though there may be less than a quorum present, may take all
actions which they could have taken if a quorum had been present.
Section 13. One or more directors may participate in a meeting of the board
or any committee of the board by means of conference telephone or similar
communications equipment by means of which all persons participating in such
meeting can hear each other.
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EXECUTIVE COMMITTEE
Section 14. The Board of Directors may, by resolution passed by a majority
of the whole board, designate two or more of its number to constitute an
Executive Committee which, to the extent provided in such resolution shall have
and exercise the authority of the Board of Directors in the management and
business of the corporation. Vacancies in the membership of the committee shall
be filled by the Board of Directors at a regular or special meeting of the Board
of Directors. The Executive Committee shall keep regular minutes of its
proceedings and report the same to the board when required.
COMPENSATION OF DIRECTORS
Section 15. The Board of Directors shall have the power to fix, and from
time to time to change, the compensation of the directors of the corporation
which compensation may include an annual retainer fee and a fee for attendance
at regular or special meetings of the board and of any committees of the board.
CHAIRMAN EMERITUS
Section 16. Any director who shall have served as Chairman of the Board or
as Chairman and Chief Executive Officer may be appointed by the Board of
Directors to hold the position of Chairman Emeritus for such time as the board
shall by resolution determine from time to time which may extend beyond his term
as a director. Following the end of his term as a director, the Chairman
Emeritus (i) shall not be entitled to continue to receive the directors' annual
retainer fee, (ii) shall be entitled to attend meetings of the Board of
Directors and to be paid the regular attendance fee therefor but, (iii) shall
have no vote at such meetings or responsibility for actions taken by the Board
of Directors.
DIRECTOR EMERITUS
Section 17. Upon retirement, the Board of Directors may elect a director to
the position of Director Emeritus. The Director Emeritus shall serve for a one
year term and may be re-elected by the Board of Directors for one further one
year term but may not serve for more than two such one year terms. The Director
Emeritus (i) shall not be entitled to continue to receive the directors' annual
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retainer fee, (ii) shall be entitled to attend meetings of the Board of
Directors and to be paid the regular attendance fee therefor but, (iii) shall
have no vote at such meetings or responsibility for actions taken by the Board
of Directors.
ARTICLE IV
NOTICES
Section 1. Notices to directors and shareholders shall be in writing and
delivered personally or mailed to the directors or shareholders at their
addresses appearing on the books of the corporation. Notice by mail shall be
deemed to be given at the time when the same shall be mailed. Notice to
directors may also be given by telegram.
Section 2. Whenever any notice is required to be given under the provisions
of the statutes or of the articles of incorporation or of these by-laws, a
waiver thereof in writing signed by the person or persons entitled to said
notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.
ARTICLE V
OFFICERS
Section 1. The officers of the corporation shall be chosen by the Board of
Directors and shall be a Chairman of the Board, a Chief Executive Officer, a
President, a Vice-President, a Secretary and a Treasurer. The Board of Directors
may also choose additional vice-presidents and one or more assistant secretaries
and assistant treasurers.
Section 2. The Board of Directors, immediately after each annual meeting of
shareholders, shall elect a Chairman of the Board. The board shall also annually
choose a Chief Executive Officer, a President, a Vice-President, a Secretary and
a Treasurer who need not be members of the board.
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Section 3. The Board of Directors may appoint such other officers and
agents as it shall deem necessary who shall hold their offices for such terms
and shall exercise such powers and perform such duties as shall be determined
from time to time by the board.
Section 4. The salaries of all officers of the corporation shall be fixed
by the Board of Directors.
Section 5. The officers of the corporation shall hold office until their
successors are chosen and qualify. Any officer elected or appointed by the Board
of Directors may be removed at any time by the affirmative vote or a majority of
the Board of Directors. Any vacancy occurring in any office of the corporation
shall be filled by the Board of Directors.
CHAIRMAN OF THE BOARD
Section 6. The Chairman of the Board shall preside at all meetings of the
Board of Directors and all meetings of the shareholders and shall perform such
other duties and have such other powers as the Board of Directors may from time
to time prescribe. The Chairman of the Board need not be an employee of the
corporation.
CHIEF EXECUTIVE OFFICER
Section 7. The Chief Executive Officer shall have general supervisory
responsibility and authority over the officers of the corporation, shall see
that all orders and resolutions of the Board of Directors are carried into
effect, shall preside at all meetings of the Board of Directors in the absence
of the Chairman, and shall perform such other duties and have such other powers
as the Board of Directors may from time to time prescribe. The Board of
Directors shall determine the person or persons who shall perform the duties and
exercise the powers of the Chief Executive Officer in the absence or disability
of the Chief Executive Officer.
Section 8. The Chief Executive Officer shall execute bonds, mortgages and
other contracts requiring a seal, under the seal of the corporation, except
where required or permitted by law to be
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otherwise signed and executed and except where the signing and execution thereof
shall be expressly delegated by the Board of Directors to some other officer or
agent of the corporation.
THE PRESIDENT
Section 9. The President shall be the chief operating officer of the
corporation, shall, under the direction of the Chief Executive Officer, have
general and active management of the business of the corporation and shall
perform such other duties and have such other powers as the Board of Directors
may from time to time prescribe. The Board of Directors shall determine the
person or persons who shall perform the duties and exercise the powers of the
President in the absence or disability of the President.
THE VICE-PRESIDENTS
Section 10. The Vice-President or Vice-Presidents shall perform such duties
and have such powers as the Board of Directors may from time to time prescribe.
THE SECRETARIES AND ASSISTANT SECRETARIES
Section 11. The Secretary shall attend all meetings of the Board of
Directors and all meetings of the shareholders and record all the proceedings of
the meetings of the corporation and of the Board of Directors in a book to be
kept for that purpose and shall perform like duties for the Executive Committee
when required. He shall give, or cause to be given, notice of all meetings of
the shareholders and special meetings of the Board of Directors, and shall
perform such other duties as may be prescribed by the Board of Directors or
President, under whose supervision he shall be. He shall keep in safe custody
the seal of the corporation and affix the same to any instrument requiring it
and, when so affixed, it shall be attested by his signature or by the signature
of an assistant Secretary.
Section 12. The assistant Secretary, or if there are more than one, the
assistant secretaries in the order determined by the Board of Directors, shall,
in the absence or disability of the Secretary, perform the duties and exercise
the powers of the Secretary and shall perform such other duties and have such
other powers as the Board of Directors may from time to time prescribe.
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THE TREASURER AND ASSISTANT TREASURERS
Section 13. The Treasurer shall have the custody of the corporate funds and
securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the corporation and shall deposit all moneys
and other valuable effects in the name and to the credit of the corporation in
such depositories as may be designated by the Board of Directors.
Section 14. He shall disburse the funds of the corporation as may be
ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the President and the Board of Directors, at
its regular meetings, or when the Board of Directors so requires, an account of
all his transactions as Treasurer and of the financial condition of the
corporation.
Section 15. If required by the Board of Directors, he shall give the
corporation a bond in such sum and with such surety or sureties as shall be
satisfactory to the Board of Directors for the faithful performance of the
duties of his office and for the restoration of the corporation, in case of his
death, resignation, retirement or removal from office, of all books, papers,
vouchers, money and other property of whatever kind in his possession or under
his control belonging to the corporation.
Section 16. The assistant Treasurer, or if there shall be more than one,
the assistant Treasurers in the order determined by the Board of Directors,
shall, in the absence or disability of the Treasurer, perform the duties and
exercise the powers of the Treasurer and shall perform such other duties and
have such other powers as the Board of Directors may from time to time
prescribe.
ARTICLE VI
CERTIFICATES OF SHARES
Section 1. The certificates of shares of the corporation shall be numbered
and registered in a share register as they are issued. They shall exhibit the
name of the registered holder and the number and class of shares and the series,
if any, represented thereby and the par value of each share or a statement that
such shares are without par value as the case may be.
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Section 2. Every share certificate shall be signed by the Chairman of the
Board and the Treasurer and shall be sealed with the corporate seal which may be
facsimile, engraved or printed.
Section 3. Where a certificate is signed (1) by a transfer agent or (2) by
a transfer agent and/or registrar, the signature of such Chairman of the Board
and Treasurer may be facsimile. In case any officer or officers who have signed,
or whose facsimile signature or signatures have been used on, any such
certificate or certificates shall cease to be such officer or officers of the
corporation, whether because of death, resignation or otherwise, before such
certificate or certificates have been delivered by the corporation, such
certificate or certificates may nevertheless be adopted by the corporation and
be issued and delivered as though the person or persons who signed such
certificate or certificates or whose facsimile signature or signatures have been
used thereon had not ceased to be such officer or officers of the corporation.
LOST OR DESTROYED CERTIFICATES
Section 4. The Board of Directors shall direct a new certificate or
certificates to be issued in place of any certificate or certificates
theretofore issued by the corporation alleged to have been lost, destroyed or
wrongfully taken, upon the making of an affidavit of that fact by the person
claiming the share certificate to be lost, destroyed or wrongfully taken. When
authorizing such issue of a new certificate or certificates, the Board of
Directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, destroyed or wrongfully taken,
certificate or certificates, or his legal representative, to advertise the same
in such manner as it shall require and give the corporation a bond in such sum
as it may direct as indemnity against any claim that may be made against the
corporation with respect to the certificate or certificates alleged to have been
lost, destroyed or wrongfully taken.
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TRANSFERS OF SHARES
Section 5. Upon surrender to the corporation or the transfer agent of the
corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignment or authority to transfer, it shall be the
duty of the corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
CLOSING OF TRANSFER BOOKS
Section 6. The Board of Directors may fix a time, not more than
seventy-five days, prior to the date of any meeting or shareholders or the date
fixed for the payment of any dividend or distribution or the date for the
allotment of rights or the date when any change or conversion or exchange of
shares will be made or go into effect, as a record date for the determination of
the shareholders entitled to notice of and to vote at any such meeting or
entitled to receive payment of any such dividend or distribution or to receive
any such allotment of rights or to exercise the rights in respect to any such
change, conversion or exchange of shares. In such case only such shareholders as
shall be shareholders of record on the date so fixed shall be entitled to notice
of and to vote at such meeting or to receive payment of such dividend or to
receive such allotment of rights or to exercise such rights, as the case may be,
notwithstanding any transfer of any shares on the books of the corporation after
any record date so fixed. The Board of Directors may close the books of the
corporation against transfers of shares during the whole or any part of such
period and in such case written or printed notice thereof shall be mailed at
least ten days before the closing thereof to each shareholder of record at the
address appearing on the records of the corporation or supplied by him to the
corporation for the purpose of notice.
REGISTERED SHAREHOLDERS
Section 7. The corporation shall be entitled to treat the holder of record
of any share or shares as the holder in fact thereof and shall not be bound to
recognize any equitable or other claim to or interest in such share on the part
of any other person, and shall not be liable for any registration or transfer of
shares which are registered or to be registered in the name of a fiduciary or
the nominee of a fiduciary unless made with actual knowledge that a fiduciary or
nominee of a fiduciary is committing
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a breach of trust in requesting such registration or transfer, or with knowledge
of such facts that its participation therein amount to bade faith.
ARTICLE VII
INDEMNIFICATION AND INSURANCE
INDEMNIFICATION OF DIRECTORS, OFFICERS AND OTHER PERSONS
Section 1. The corporation shall indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that he is or was a director or officer of the corporation,
or is or was serving at the request of the corporation as a director or officer
of another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe this conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
Section 2. The corporation shall indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the corporation to procure a judgment in
its favor by reason of the fact that he is or was a director or officer of the
corporation, or is or was serving at the request of the corporation as a
director or officer of another corporation, partnership, joint venture, trust or
other enterprise against expense (including attorneys' fees) actually and
reasonably incurred by him in connection with the defense or settlement of such
action or suit if he acted in good faith and in a manner he reasonably believed
to be in or not
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opposed to the best interests of the corporation. No such indemnification
against expenses shall be made, however, in respect of any claim, issue or
matter as to which such person shall have been adjudged to be liable for
negligence or misconduct in the performance of his duty to the corporation
unless and only to the extent that the Court of Common Pleas of the county in
which the registered office of the corporation is located or the court in which
such action or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which the Court of Common Pleas or such other court shall deem proper.
Section 3. Indemnification under Sections 1 and 2 of this Article shall be
made by the corporation when ordered by a court or upon a determination that
indemnification of the director or officer is proper in the circumstances
because he has met the applicable standard of conduct set forth in those
Sections. Such determination shall be made (1) by the Board of Directors by a
majority vote of a quorum consisting of directors who were not parties to such
action, suit or proceeding, or (2) if such a quorum is not obtainable, or, even
if obtainable a quorum of disinterested directors so directs, by independent
legal counsel in a written opinion, or (3) by the stockholders.
Section 4. In addition to and notwithstanding the limited indemnification
provided in Sections 1, 2 and 3 of this Article, the corporation shall indemnify
and hold harmless its present and future officers and directors of, from and
against any and all liability, expenses (including attorneys' fees), claims,
judgments, fines and amounts paid in settlement, actually incurred by such
person in connection with any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (including
but not limited to any action by or in the right of the corporation), to which
such person is, was or at any time becomes, a party, or is threatened to be made
a party, by reason of the fact that such person is, was or at any time becomes a
director or officer of the corporation, or is or was serving or at any time
serves at the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other person
of any nature whatsoever. Nothing contained in this Section 4 shall authorize
the corporation to provide, or entitle any officer or director to receive,
indemnification for any action taken, or failure to act, which action or failure
to act is determined by a court to have constituted willful misconduct or
recklessness.
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Section 5. Expenses incurred in defending a civil or criminal action, suit
or proceeding of the kind described in Sections 1, 2 and 4 of this Article shall
be paid by the corporation in advance of the final disposition of such action,
suit or proceeding upon receipt of an undertaking, by or on behalf of the person
who may be entitled to indemnification under those Sections, to repay such
amount if it shall ultimately be determined that he is not entitled to be
indemnified by the corporation.
Section 6. The indemnification, advancement of expenses and limitation of
liability provided in this Article shall continue as to a person who has ceased
to be a director or officer of the corporation and shall inure to the benefit of
the heirs, executors and administrators of such a person.
Section 7. Nothing herein contained shall be construed as limiting the
power or obligation of the corporation to indemnify any person in accordance
with the Pennsylvania Business Corporation Law as amended from time to time or
in accordance with any similar law adopted in lieu thereof. The indemnification
and advancement of expenses provided under this Article shall not be deemed
exclusive of any other rights to which a person seeking indemnification or
advancement of expenses may be entitled under any agreement, vote of
shareholders or directors, or otherwise, both as to action in his official
capacity and as to action in another capacity while holding that office.
Section 8. The corporation shall also indemnify any person against
expenses, including attorneys' fees, actually and reasonably incurred by him in
enforcing any right to indemnification under this Article, under the
Pennsylvania Business Corporation Law as amended from time to time or under any
similar law adopted in lieu thereof.
Section 9. Any person who shall serve as director, officer, employee or
agent of the corporation or who shall serve, at the request of the corporation,
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, shall be deemed to do so with
knowledge of and in reliance upon the rights of indemnification provided in this
Article, in the Pennsylvania Business Corporation Law as amended from time to
time and in any similar law adopted in lieu thereof.
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INSURANCE
Section 10. The corporation shall have power to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted against
him and incurred by him in any such capacity, or arising out of his status as
such, whether or not the corporation would have the power to indemnify him
against such liability.
LIMITATION OF DIRECTORS' LIABILITY
Section 11. No director of this corporation shall be personally liable for
monetary damages as such for any action taken or failure to take any action, on
or after January 27, 1987, unless (a) the director has breached or failed to
perform the duties of his office under Section 8363 of Title 42 of the
Pennsylvania Consolidated Statutes Annotated (relating to the standard of care
and justifiable reliance of directors); and (b) the breach or failure to perform
constitutes self dealing, willful misconduct or recklessness; provided, however,
that the provisions of this Section 11 shall not apply to the responsibility or
liability of a director pursuant to any criminal statute, or the liability of a
director for the payment of taxes pursuant to local, state or federal law.
ARTICLE VIII
GENERAL PROVISIONS
DIVIDENDS
Section 1. Dividends upon the shares of the corporation, subject to the
provisions of the articles of incorporation, if any, may be declared by the
Board of Directors at any regular or special meeting, pursuant to law. Dividends
may be paid in cash, in property, or in its shares, subject to the provisions of
the articles of incorporation.
-18-
<PAGE>
Section 2. Before payment of any dividend, there may be set aside out of
any funds of the corporation available for dividends such sum or sums as the
directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the corporation, or for such other
purposes as the directors shall think conducive to the interest of the
corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
Section 3. The directors shall send, or cause to be sent, to the
shareholders, within one hundred twenty (120) days after the close of the fiscal
year of the corporation, a financial report as of the closing date of the
preceding fiscal year.
CHECKS
Section 4. All checks or demands for money and notes of the corporation
shall be signed manually or by facsimile signature of such officer or officers
or such other person or persons as the Board of Directors may from time to time
designate.
FISCAL YEAR
Section 5. The fiscal year of the corporation shall be fixed by resolution
of the Board of Directors.
SEAL
Section 6. The corporate seal shall have inscribed thereon the name of the
corporation, the year of its organization and the words "Corporate Seal,
Pennsylvania." The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
SHAREHOLDER EQUITY PROTECTION ACT
Section 7. In accordance with Section 910A(1) of the PA Business
Corporation Law, the provisions of Section 910 shall not apply to the
corporation.
-19-
<PAGE>
1990 ANTI-TAKEOVER AMENDMENTS TO THE
PENNSYLVANIA BUSINESS CORPORATION LAW
Section 8. Subsections (d) through (f) of Section 511 of Title 15 of the
Pennsylvania Consolidated Statutes as amended by Act No. 36 of 1990, shall not
be applicable to the corporation.
Section 9. Subsections (e) through (g) of Section 1721 of Title 15 of the
Pennsylvania Consolidated Statutes as amended by Act No. 36 of 1990, shall not
be applicable to the corporation.
Section 10. Subchapter G of Chapter 25 of Title 15 of the Pennsylvania
Consolidated Statutes as enacted by Act No. 36 of 1990, shall not be applicable
to the corporation.
Section 11. Subchapter H of Chapter 25 of Title 15 of the Pennsylvania
Consolidated Statutes as amended by Act No. 36 of 1990, shall not be applicable
to the corporation.
ARTICLE IX
AMENDMENTS
Section 1. These by-laws may be altered, amended or repealed by a majority
vote of the shareholders entitled to vote thereon at any regular or special
meeting duly convened after notice to the shareholders of that purpose or by a
majority vote of the members of the Board of Directors at any regular or special
meeting duly convened after notice to the directors of that purpose, subject
always to the power of the shareholders to change such action by the directors.
-20-
TRUST AGREEMENT
THIS TRUST AGREEMENT (hereinafter referred to as "Agreement") made as of
this 19th day of January 1990, by and between Tasty Baking Company, a
Pennsylvania Corporation (hereinafter referred to as "Company"), and Meridian
Trust Company (hereinafter referred to as "Trustee").
W I T N E S S E T H:
WHEREAS, On October 16, 1987, the Company established a Retirement Plan for
Directors (hereinafter referred to as "Plan"), attached hereto as Exhibit "A",
which grants retirement benefits to members of the Board of Directors of the
Company (hereinafter referred to as "Directors"); and
WHEREAS, the Company wishes to establish a trust (hereinafter called
"Trust") and to transfer to the Trust, but only upon a Potential Change of
Control of the Company, a certain sum of money which shall be held therein,
subject to the claims of the Company's creditors in the event of the Company's
insolvency, until paid to the Directors as beneficiaries of the Trust
(hereinafter referred to as "Trust Beneficiaries") as retirement income benefits
(hereinafter referred to as "Benefits") in such amount and manner and at such
times as specified in the Plan; and
WHEREAS, the Trustee is independent of, and is not subject to the direct or
indirect control of, either the Company or the Trust Beneficiaries;
NOW, THEREFORE, the parties do hereby establish the Trust and agree that
the Trust shall be comprised, held and disposed of as follows:
ARTICLE I: TRUST FUND.
A. Except as provided in Article IV, the Trust hereby established
shall be irrevocable.
B. The Trust is intended to be a grantor trust, within the meaning of
Section 671 of the Internal Revenue Code of 1986, as amended, and shall be
construed accordingly.
C. The principal of the Trust, and any earnings thereon which are not
paid to the Company as provided in Article IV and Article V, shall be held
separate and apart from other funds of the Company and shall be used exclusively
for the uses and purposes herein set forth. Neither the Trust Beneficiaries, nor
the Plan, shall have any preferred claim on, or any beneficial ownership
interest in, any assets of the Trust prior to the time such assets are paid to
the Trust Beneficiaries as Benefits as provided in Article III of this
Agreement. All rights created under the Plan and this Agreement in the Trust
Beneficiaries shall be mere unsecured contractual rights against the Company.
<PAGE>
ARTICLE II: CONTRIBUTIONS BY THE COMPANY.
A. Upon a Potential Change in Control (as hereinafter defined) of the
Company, the Company shall transfer to the Trustee that sum of money which is
sufficient to purchase from an insurance company (the "Insurance Company") with
a rating of B or better in Best's annuities which will provide the benefits in
the amounts and at the times due to all Trust Beneficiaries of the Plan. For
purposes of determining the purchase price of such annuity policies, the
retirement date for the Directors who are Trust Beneficiaries shall be presumed
to be the date upon which the Potential Change in Control occurred.
B. A Potential Change in Control occurs when the Company (1) has
entered into an agreement, the consummation of which would result in the
occurrence of a Change in Control of the Company; (2) any person or entity has
publicly announced an intention to take or consider taking actions which if
consummated would constitute a Change in Control of the Company; (3) any person
or entity, excluding persons or entities who on the date hereof have such
"beneficial ownership", has become the "beneficial owner" (as determined
pursuant to Sections 13(d) and 14(d) of the Securities Exchange Act of 1934),
directly or indirectly, of securities of the Company representing 10% or more of
the combined voting power of the Company's then outstanding securities; or (4)
the Board of Directors of the Company has adopted a resolution to the effect
that such a Potential Change in Control of the Company has occurred.
C. A Change in Control is that change in control of the Company which
is of a nature which would be required to be reported to the Securities and
Exchange Commission pursuant to Schedule 14A of Regulation 14A or any successor
provision (whether or not the Company is then subject to such reporting
requirements). A Change in Control will be deemed to have occurred if any person
other than persons or entities who on the date hereof have such "beneficial
ownership", is or becomes the "beneficial owner" (as determined pursuant to
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934) of 25% or more
of the combined voting power of the outstanding securities of the Company, or if
during any two consecutive year periods, the directors at the beginning of such
periods cease for any reason during the two-year period to constitute a majority
of the Board of Directors of the Company.
D. If a Change in Control occurs, the Trustee shall purchase an
annuity contract with respect to each Trust Beneficiary providing monthly
payments to the Trustee of amounts due the Trust Beneficiary under the Plan.
Written notice of such event received by the Trustee from the Board of Directors
or the Chief Executive Officer of the Company shall be sufficient evidence of a
Change of Control. Upon a Change in Control, the Company shall contribute to the
Trust such additional sums as shall reflect a recomputation of the Trust
Beneficiaries' Benefits as of the date of the commencement of payment of such
Benefits.
E. The Trustee shall cause each annuity contract to contain a
provision requiring, on notice to the Insurance Company from the Trustee, the
cessation of payments in the event the Company becomes insolvent within the
meaning of Article IV of this Trust Agreement and the payment of such annuities
or the cash surrender value thereof to the person or entity entitled thereto
under Article IV.B.2 of this Trust Agreement.
<PAGE>
F. If a Change in Control does not occur within one year of the
Potential Change in Control, then all sums contributed to the Trust by the
Company shall be returned to the Company together with any income earned
thereon.
ARTICLE III: PAYMENT TO TRUST BENEFICIARIES.
A. The Trustee shall make payments of Benefits to the Trust
Beneficiaries from the assets of the Trust in accordance with the terms set
forth in the Plan, if and to the extent (i) assets are available for
distribution; and (ii) at the time of each payment the Trustee does not have
actual knowledge of the insolvency of the Company as provided in Article IV.C.
B. If the assets of the Trust, which are not paid to the Company as
provided in Article IV, are not sufficient to make payments to the Trust
Beneficiaries in accordance with the terms set forth in the Plan, the Trustee
shall abate the payments pro rata and the Company shall pay the balance of any
such payments as they fall due.
ARTICLE IV: TRUSTEE'S RESPONSIBILITY WHEN THE
COMPANY IS INSOLVENT.
A. The Company shall be considered insolvent for the purposes of this
Agreement if (i) the Company is unable to pay its debts as they mature, or (ii)
the Company is subject to a pending proceeding as a debtor under the Bankruptcy
Code.
B. At all times during the continuance of this Trust, the principal
and income of the Trust shall be subject to claims of general creditors of the
Company as hereinafter set forth.
1. At such time as the Trustee has actual knowledge, or has
determined, that the Company is insolvent, the Trustee shall deliver the Trust
assets to satisfy such claims in such manner as a court of competent
jurisdiction may direct.
2. The Board of Directors and the Chief Executive Officer of the
Company shall inform the Trustee in the event the Company becomes insolvent. If
the Company or a person claiming to be a creditor of the Company alleges in
writing to the Trustee that the Company has become insolvent, the Trustee shall
independently determine, within 30 days after receipt of such notice, whether
the Company in insolvent. Pending such determination, the Trustee shall notify
the Insurance Company to discontinue payments to the Trust and the Trustee shall
hold the Trust assets for the benefit of the Company's general creditors. The
Trustee shall notify the Insurance Company to resume payments to the Trust and
the Trustee shall resume payments to the Trust Beneficiaries in accordance with
Article III of this Agreement only after the Trustee has determined that the
Company is not insolvent (or is no longer insolvent, if the Trustee initially
determined the Company to be insolvent).
3. Unless the Trustee has actual knowledge of the Company's
insolvency, the Trustee shall have no duty to inquire whether the Company is
insolvent and shall continue making payments to Trust Beneficiaries until he has
such actual knowledge. The Trustee may in all events rely on such evidence
<PAGE>
concerning the Company's solvency as may be furnished to the Trustee which will
give the Trustee a reasonable basis for making a determination concerning the
Company's solvency.
4. Nothing in this Trust Agreement shall in any way diminish any
rights of a Trust Beneficiary to pursue his rights as a general creditor of the
Company with respect to his Benefits.
C. If the Insurance Company discontinues payments to the Trust
pursuant to Article IV.B, of the Agreement, and subsequently resumes such
payments, the first payment to the Trust Beneficiaries following such
discontinuance shall include the aggregate amount of all payments which would
have been made to the Trust Beneficiaries (together with interest on the amount
delayed calculated at the long-term applicable federal rate) in accordance with
the terms set forth in the Plan during the period of such discontinuance, less
the aggregate amount of any payments made to the Trust Beneficiaries by the
Company in lieu of the payments provided for hereunder during any such period of
discontinuance.
ARTICLE V: PAYMENT TO THE COMPANY.
Except as provided in Article II.F and Article IV, the Company may not
direct the Trustee to return to the Company or to divert to others any of the
Trust assets before all payments have been made to the Trust Beneficiaries
pursuant to the terms set forth in the Plan.
ARTICLE IV: ACCOUNTING BY THE TRUSTEE.
A. The Trustee shall keep accurate and detailed records of all
investments, receipts, disbursements, and all other transactions required to be
done, including such specific records as shall be agreed upon in writing between
the Company and the Trustee. All such accounts, books and records shall be open
to inspection and audit at all reasonable times by the Company and by the Trust
Beneficiaries.
B. Within 90 days following the close of each calendar year and within
90 days after the removal or resignation of the Trustee, the Trustee shall
deliver to the Company and the Trust Beneficiaries a written account of its
administration of the Trust during such year or during the period from the close
of the last preceding year to the date of such removal or resignation, setting
forth all investments, receipts, disbursements and other transactions effected
by the Trustee, including a description of all securities and investments
purchased and sold with the cost or net proceeds of such purchases or sales
(accrued interest paid or receivable being shown separately), and showing all
cash, securities, and other property held in the Trust at the end of such year
or as of the date of such removal or resignation, as the case may be.
ARTICLE VII: DUTIES AND POWERS OF THE TRUSTEE.
A. The Trustee shall act with the care, skill, prudence and diligence
under the circumstances then prevailing that a prudent man acting in a like
capacity and familiar with such matters would use in the conduct of an
<PAGE>
enterprise of a like character and with like aims; provided, however, that the
Trustee shall incur no liability to anyone for any action taken pursuant to a
direction, request, or approval given by the Company or the Trust Beneficiaries
contemplated by and complying with the terms of this Agreement and/or the Plan,
and to that extent shall be relieved of the prudent man rule for investments.
B. The Trustee shall not be required to undertake or to defend any
litigation arising in connection with this Agreement, unless it be first
indemnified by the Company against its prospective costs, expenses and
liability, and the Company hereby agrees to indemnify the Trustee for such
costs, expenses and liability.
C. The Trustee may consult with legal counsel (who may also be counsel
for the Trustee generally) with respect to any of the Trustee's duties or
obligations hereunder, and shall have no liability for any losses occasioned by
the Company or any Trust Beneficiary as a result of acting or refraining from
acting in accordance with the advice of such counsel.
D. The Trustee may hire agents, accountants, actuaries and financial
consultants.
E. The Trustee shall have, without exclusion, all powers conferred on
Trustees by applicable law unless expressly provided otherwise herein; provided,
however, that if an insurance policy is held as an asset of the Trust in order
to fund the Supplemental Benefits payable to the Trust Beneficiaries:
1. The Trustee shall have no power, except in accordance with
Article III of this Agreement, to name as a beneficiary of any policy any person
or entity other than the Trust, to assign the policy (as distinct from
conversion of the policy to a different form) other than to a successor Trustee,
or to loan to any person the proceeds of any borrowing against such policy.
2. The Trust shall own any insurance policies purchased hereunder
outright, subject to any claims of creditors as provided in Article IV.B of this
Agreement.
3. The Insurance Company shall not be responsible to see to the
execution of performance of this Trust.
ARTICLE VIII: COMPENSATION AND EXPENSES OF THE TRUSTEE.
The Trustee shall be entitled to receive from the Company such reasonable
compensation for his services as shall be agreed upon by the Company and the
Trustee. All expenses incurred with respect to the administration of the Trust
shall be paid by the Company, including, without limitation, expenses for items
expressly referred to in Article VII.
ARTICLE IX: REPLACEMENT OF THE TRUSTEE.
A. The Trustee may be removed at any time by the Company, with the
consent of the Trust Beneficiaries, or may resign, in which case a new trustee,
which shall be independent and not subject to direct or indirect control of, or
an agent of, either the Company or the Trust Beneficiaries, shall be appointed
by
<PAGE>
the Company with the consent of the Trust Beneficiaries.
B. Any successor Trustee shall have all of the powers of the original
Trustee.
C. No bond shall be required of any Trustee.
D. The Company releases and discharges the Trustee and his successors
of and from all liability for any act of omission or commission as long as they
act in good faith.
ARTICLE X: AMENDMENT OR TERMINATION.
A. This Agreement may be amended any time and to any extent by a
written instrument executed by the Trustee and the Company and consented to by
all of the Trust Beneficiaries.
B. The Trust shall not terminate until the date on which the Trust
Beneficiaries are entitled to no more Benefits pursuant to the Plan, unless
sooner rendered inoperative in accordance with Article IV.B.1 of this Agreement.
C. Upon termination of the Trust as provided in Article X.B of this
Agreement, any assets remaining in the Trust shall be returned to the Company
after all debts and obligations of the Trust then outstanding shall have been
satisfied from such assets.
ARTICLE XI: ALIENATION AND ASSIGNMENT.
Amounts payable to the Trust Beneficiaries under this Agreement may not be
anticipated, assigned (either at law or in equity), alienated or subject to
attachment, garnishment, levy, execution or other legal or equitable process.
ARTICLE XII: MISCELLANEOUS.
A. Notices. Notice to the parties to this Agreement shall be sent to:
Company: Tasty Baking Company
c/o Nelson G. Harris, President
2801 Hunting Park Avenue
Philadelphia, PA 19129
and Trustee: Meridian Trust Company
5 Penn Center Plaza
Philadelphia, PA 19103
and Trust
Beneficiaries: Mr. Philip J. Baur, Jr.
1323 Horsham Road
Ambler, PA 19002
with a copy to each Trust Beneficiary
at his address of record with the Company.
<PAGE>
B. Waiver of Provisions. Any waiver at any time by either party hereto
of its rights with respect to any matter arising in connection with this
Agreement shall not be deemed to be a waiver with respect to any subsequent
matter. Any waiver at any time by either party hereto as to any right under this
Agreement shall not affect any other right or obligation held by such party
under this Agreement.
C. Alteration of Terms. No alteration or variation of the terms of
this Agreement shall be valid unless in writing and signed by the parties
hereto.
D. Board of Directors. Whenever reference is made in this Agreement to
the Board of Directors of the Company the reference shall be only to such
members who are not entitled to receive benefits under the Plan at the time of
the action referred to and a majority of that number shall constitute action by
the Board of Directors for purposes of this Agreement.
E. Valid and Binding Agreement. The Company and the Trustee intend to
be legally bound by this Agreement in accordance with its terms.
F. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania.
IN WITNESS WHEREOF, the Company and the Trustee have executed or caused its
authorized officers to execute this Agreement as of the date first above
written.
Attest: TASTY BAKING COMPANY
/s/ Elizabeth H. Gemmill By:/s/ P. J. Baur, Jr.
Secretary
The Trustee hereby accepts the Trust:
/s/ Thomas C. McCoy
Trustee
<PAGE>
COMMONWEALTH OF PENNSYLVANIA :
: SS.
COUNTY OF :
On this, the 19th day of January, 1990, before me, the undersigned Notary
Public, personally appeared P. J. Baur, Jr. who acknowledged himself to be an
officer of TASTY BAKING COMPANY, a corporation, and that he as such being
authorized to do, executed the foregoing instrument for the purposes therein
contained by signing the name of the corporation by himself as officer.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal.
/s/ Elaine L. Tomkowicz
Notary Public
My Commission Expires:
Notarial Seal
Elaine Tomkowicz, Notary Public
Philadelphia, Philadelphia County
My Commission Expires July 22, 1992
Member, Pennsylvania Association of Notaries
MANAGEMENT'S REVIEW
Summary of Significant Accounting Policies
Fiscal Year
The company and its subsidiaries operate under a 52-53 week fiscal year.
Basis of Consolidation
The consolidated financial statements include the accounts of the company and
its subsidiaries. Intercompany transactions are eliminated.
Use of Estimates
Certain amounts included in the accompanying consolidated financial statements
and related footnotes reflect the use of estimates based on assumptions made by
management. These estimates are made using all information available to
management, and management believes that these estimates are as accurate as
possible as of the dates and for the periods that the financial statements are
presented. Actual amounts could differ from these estimates.
Inventory Valuation
Inventories are stated at the lower of cost or market, cost being determined
using the first-in, first-out (FIFO) and last-in, first-out (LIFO) methods.
Property and Depreciation
Property, plant and equipment are carried at cost. Costs of major additions,
replacements and betterments are capitalized and maintenance and repairs which
do not improve or extend the life of the respective assets are charged to income
as incurred. When property is retired or otherwise disposed of, the cost of the
property and the related accumulated depreciation are removed from the accounts
and any resulting gains or losses are reflected in income for the period.
Depreciation is computed by the straight-line method over the estimated useful
lives of the assets. For income tax purposes, accelerated depreciation methods
are used.
Amortization of asset values under capital leases which transfer asset ownership
by the end of the lease term or contain bargain purchase options is provided
over the estimated useful asset lives. Amortization of asset values under other
capital leases and depreciation of leasehold improvements under operating leases
are provided over the terms of the related leases or the asset lives, if
shorter.
Pension Cost
Pension cost was determined in accordance with the requirements of Statement of
Financial Accounting Standards No. 87 - "Employers' Accounting for Pensions."
The company's general funding policy is to contribute amounts deductible for
federal income tax purposes plus such additional amounts, if any, as the
company's actuarial consultants advise to be appropriate. Contributions are
intended to provide for benefits attributed to service to date and for those
expected to be earned in the future.
Postretirement Benefits Other Than Pensions
In 1993, the company adopted Statement of Financial Accounting Standards No. 106
- - "Employers' Accounting for Postretirement Benefits Other Than Pensions," which
requires employers to account for retiree benefit obligations on an accrual
basis, rather than the "pay-as-you-go" basis the company previously used.
Income Taxes
The company adopted Statement of Financial Accounting Standards No. 109 -
"Accounting for Income Taxes" in 1993, which requires the use of an asset and
liability approach for financial accounting and reporting for income taxes.
Net Income Per Common Share
Net income per common share is based on the weighted average number of common
shares and equivalent common shares outstanding during the year.
<PAGE>
Management's Analysis
Results of Operations
Income from continuing operations for the fiscal year ended December 30, 1995
decreased to $5,640,112 or $.92 per share from $5,800,744 or $.94 per share for
the fiscal year ended December 31, 1994. The income from continuing operations
for the fiscal year ended January 1, 1994 was $5,687,004 or $.93 per share. In
the second quarter of 1995, the company recognized severance costs which
resulted in an after-tax charge to net income of $550,000 or $.09 per share. The
severance costs resulted from changes in certain management positions which were
established in connection with the restructuring program implemented in 1994. In
the third quarter of 1995, the company recorded a charge to net income of
$550,868 or $.09 per share in connection with a decrease in the Commonwealth of
Pennsylvania's Corporate Net Income Tax Rate from 11.99% to 9.99%, retroactive
to January 1, 1995, which resulted in a remeasuring of the company's deferred
tax asset and liability accounts. In the fourth quarter of 1995, the company
completed the amortization of the gain on sale of company routes which, for
financial reporting purposes, was being amortized over a ten year period
beginning June 30, 1986. This resulted in additional amortization which
increased net income in 1995 by $734,501 or $.12 per share. Excluding the
effects of the foregoing items, income from continuing operations, before the
impact of a severance charge, the effect of a decrease in the company's net
deferred tax asset and additional amortization of the gain on sale of company
routes would have been $6,006,479 or $.98 per share for the fiscal year ended
December 30, 1995 compared to $6,519,944 or $1.06 per share for the fiscal year
ended December 31, 1994. Results for 1994 exclude an after-tax charge to income
of $719,200 or $.12 per share for a restructuring program.
In 1995, net sales decreased slightly to $141,831,073 from $142,055,111 in 1994.
On a comparable basis, excluding the net sales contributed by the recently
acquired Dutch Mill Baking Company (Dutch Mill), net sales decreased by
$1,441,775 or 1.0% for 1995 when compared to 1994. The decrease in net sales is
attributable to a decrease in unit volume which was caused by the continuing
soft economy in the snack cake industry combined with a price increase in the
fourth quarter of 1995. An increase in sales discounts also contributed to the
decrease in net sales.
In 1994, net sales increased 3% to $142,055,111 from $137,772,730 in 1993. This
increase was due to an increase in unit sales of 2% combined with a decrease in
promotional expenses. The increase in unit sales was aided by the introduction
of new products. In 1993, net sales remained relatively unchanged at
$137,772,730 compared to $138,381,391 in 1992. Price increases on selected
varieties were offset by a slight decrease in unit volume along with special
promotional pricing on certain products. The generally soft economy in the snack
cake industry contributed to the decline in unit volume in 1993.
Cost of sales as a percentage of net sales was 63.0%, 59.8%, and 60.0% in 1995,
1994, and 1993, respectively. In 1995, the company began to charge the cost of
shipping cases, which were previously reflected in selling, general and
administrative expenses, to cost of sales. These charges were $3,262,000,
$2,687,000, and $2,614,000 in 1995, 1994, and 1993, respectively. On a
comparable basis, and further excluding the effect of Dutch Mill, cost of sales
as a percentage of net sales was 62.9%, 61.7%, and 61.9%, respectively. In 1995,
the company realized a decrease in gross margins, primarily as a result of
higher ingredient and packagin g costs. In 1994, the company realized an
improvement in gross margins as a result of savings from lower utility costs in
connection with the restructuring program. In 1993, the company realized an
improvement in gross margins as a result of lower commodity and packaging costs,
favorable price increases on selected products and continued improvements in
plant operating efficiences.
Selling, general and administrative expenses in fiscal year 1995 decreased
$3,673,358 or 9.0% from fiscal year 1994. A portion of this decrease, however,
reflects the reclassification of shipping case costs as previously discussed. On
a comparable basis, and further excluding the effect of Dutch Mill, selling,
general and administrative expenses decreased by $1,468,240 or 3.9%. The
decrease was primarily due to the first full year of administrative savings
associated with the restructure program implemented in the second quarter of
1994 which was somewhat offset by increased advertising expenditures. Selling,
general and administrative expenses in 1994 remained relatively unchanged from
1993 and 1992 levels. In 1994, administrative savings generated by the
restructure program were offset by increases in selling and advertising
expenses. In 1993, the company experienced anticipated payroll and benefit
increases along with costs associated with the roll-out to the sales routes of a
new hand-held computer system. These increases were offset by reductions in
advertising expenditures, corporate travel overhead and shipping cost savings
provided by a new case printing system.
<PAGE>
Results of Operations (continued)
Depreciation expense in 1995, excluding the effect of Dutch Mill, remained
relatively unchanged from 1994. Depreciation expense in 1994 increased by
$542,653 or 8% primarily as a result of charges associated with the roll-out in
1993 of a hand-held computer system to the sales routes. Depreciation expense in
1993 decreased by $206,939 or 3% as a result of the retirement of old computer
equipment combined with the decrease associated with cartoning and wrapping
equipment which became fully reserved in 1992.
Other income, net increased in 1995 due to an increase in the amortization of
the gain on sale of company routes. In 1995, the total gain on the sale of
company routes, which has now been fully amortized, was $3,162,033 resulting in
an after-tax increase to net income of $1,751,577 or $.29 per share. In 1994 and
1993, the gain on sale of routes resulted in increases to net income of $897,815
or $.15 per share and $893,365 or $.15 per share, respectively. Other income,
net remained relatively unchanged in 1994 and 1993.
Interest expense in 1995 and 1994 decreased as a result of lower average
borrowing levels somewhat offset by higher average interest rates. Interest
expense decreased significantly in 1993 as a result of lower average interest
rates and lower average borrowing levels.
The effective tax rates in 1995, 1994, and 1993 were 45.8%, 39.7%, and 40.7%,
respectively. Excluding the effect of the decrease in the company's net deferred
tax asset the effective tax rate in 1995 was 40.6%. The principal reason for the
difference between the effective rate and the statutory rate in 1995 was the
effect of a change related to a decrease in the company's net deferred tax asset
due to a change in the state income tax rate as previously discussed. Also, the
effect of state income taxes increased the overall effective rate.
The principal reason for the difference between the effective rate and the
statutory rate in 1994 is the effect of state income taxes. The principal reason
for the difference in 1993 is the effect of non-deductible expenses associated
with the spin-off of Phillips & Jacobs, Incorporated (P&J).
In October, 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based
Compensation." SFAS No. 123 requires companies to adopt its provisions for
fiscal years beginning after December 15, 1995. The provisions of SFAS No. 123
established accounting standards requiring calculation of expense for stock
options based on an option pricing model, as well as certain financial statement
disclosures. The company has not yet completely evaluated the impact of this new
statement.
During the third quarter of 1993, Tasty Baking Company (TBC) distributed, in the
form of a tax-free dividend to its shareholders, all of the issued and
outstanding shares of P&J, its wholly-owned subsidiary. Effective August 1,
1993, the financial statements of TBC reflect the results of P&J as a
discontinued operation. Accordingly, amounts previously reported have been
restated to reflect the effect of the spin-off of P&J.
In 1993, discontinued operations increased net income by $643,533. The company
realized income from discontinued operations, net of income taxes, of $2,253,366
or $.37 per share. Also included in discontinued operations is an after-tax
charge for spin-off costs of $804,569 or $.13 per share, consisting primarily of
legal, accounting and other professional fees and an after-tax charge of
$805,264 or $.13 per share resulting from the adoption of SFAS 106 and SFAS 109.
Financial Condition
Historically, the company's ability to generate sufficient amounts of cash has
primarily come from operations. Bank borrowings, under various lines of credit
arrangements, are used to supplement cash flow from operations during periods of
cyclical shortages.
<PAGE>
Financial Condition (continued)
Net cash from operating activities (continuing operations) in 1995 increased by
$601,579 relative to the comparable amount in 1994. The increase is primarily
the result of favorable changes in pension contributions, non-cash deferred tax
adjustments and favorable changes in working capital items, principally accounts
payable. These changes were partially offset by certain non-cash items,
principally the gain on the sale of the distributor routes, an increase in
federal income tax payments and an unfavorable change in accounts receivable.
Net cash from operating activities (continuing operations) in 1995 totaled
$11,195,291 and was used principally for dividend payments of $3,443,027,
repayment of long-term debt of $2,524,242, repayment of short-term debt of
$1,100,000 and capital expenditures.
Capital expenditures totaled $4,108,984 in 1995. These expenditures continued
the company's program of upgrading its bakery production equipment. New loans to
owner/operators in 1995 were funded principally from owner/operator loan
payments and pay-offs.
Net cash from operating activities (continuing operations) in 1994 decreased by
$2,445,671 relative to 1993. Favorable changes in accrued and deferred taxes and
the effect of increased depreciation were not sufficient to offset unfavorable
changes in accrued pensions and accounts payable which are primarily responsible
for the decline. Net cash from operating activities (continuing operations) in
1994 totaled $10,593,712 and was used principally for dividend payments of
$3,252,857, repayment of long-term debt of $3,624,638 and capital expenditures.
Capital expenditures totaled $3,704,770 in 1994. These expenditures to complete
the project to upgrade the electrical transformers within the bakery and for the
purchase of new computer software. New loans to Tastykake route owner/operators
in 1994 were, in effect, funded entirely from owner/operator loan payments and
pay-offs.
Net cash from operating activities (continuing operations) in 1993, net of the
effects of the spin-off of P&J, increased by $2,018,529 over 1992. The net loss
for financial reporting purposes adjusted for non-cash items, primarily the
cumulative effect of changes in accounting principles adopted in 1993 and the
normal recurring depreciation charges, along with favorable changes in working
capital items, principally accounts receivable and other accruals, resulted in a
net cash inflow which exceeded the previous year. Net cash from operating
activities (continuing operations) and dividends received from P&J totaled
$13,704,664 in 1993. These funds were used principally for dividend payments of
$3,989,078, repayment of short-term debt and capital expenditures.
In 1993, the company expended $7,308,727 on capital projects. These expenditures
were used principally to complete the company's implementation of hand-held
computers on the route distribution system and to upgrade its electrical
transformers within the bakery. New loans to Tastykake route owner/operators in
1993 were completely funded by owner/operator loan payments and pay-offs. In
1993, long-term debt payments, net of additional long-term debt, totaled
$6,089,848. This net reduction was made principally with funds received from P&J
in settlement of its intercompany debt at the time of the spin-off.
The company anticipates that cash flow from operating activities will improve in
1996, and with the continued availability of bank lines of credit, the Revolving
Credit Agreements and other long-term financing, sufficient cash will be
available for planned capital expenditures and other operating and financial
requirements.
<PAGE>
Quarterly Summary (Unaudited)
Summarized quarterly financial data (in thousands of dollars except for per
share amounts) for 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
First Second Third Fourth Year
<S> <C> <C> <C> <C> <C>
1995(a)
Net sales $37,064 $36,656 $33,654 $34,457 $141,831
Gross profit (after depreciation) 12,027 11,814 9,988 11,135 44,964
Net income 1,971 1,227 274 2,168 5,640
Per share of common stock:
Net income .32 .20 .04 .35 .92
Cash dividends .14 .14 .14 .14 .56
Market prices:
High 14 1/2 14 14 3/4 15 1/4 15 1/4
Low 12 3/4 12 1/2 12 1/4 11 7/8 11 7/8
1994(b)
Net sales $37,069 $36,082 $33,870 $35,034 $142,055
Gross profit (after depreciation) 13,074 12,655 11,554 12,523 49,806
Net income 1,909 1,001 1,042 1,849 5,801
Per share of common stock:
Net income .31 .16 .17 .30 .94
Cash dividends .13 .13 .13 .14 .53
Market prices:
High 13 3/4 15 3/8 14 13 3/4 15 3/8
Low 12 3/8 12 5/8 12 1/4 12 3/4 12 1/4
Each quarter consists of thirteen weeks. The market prices of the company's
stock reflect the high and low price by quarter as traded on the American Stock
Exchange. The approximate number of holders of record of the company's stock
(par value $.50 per share) as of February 15, 1996 was 3,600.
<FN>
(a) Includes an after-tax charge to net income in the second quarter in the
amount of $550,000 or $.09 per share for severance costs and a charge to
net income in the third quarter in the amount of $551,000 or $.09 per share
resulting from a remeasuring of the company's deferred tax and liability
accounts. The completion of the amortization of the gain on sale of company
routes increased net income in the fourth quarter by $735,000 or $.12 per
share. Net income per share amounts by quarter do not add due to rounding.
(b) Includes an after-tax charge to net income in the second quarter in the
amount of $719,200 or $.12 per share for the restructuring program.
</FN>
</TABLE>
<PAGE>
Five Year Selected Financial Data
All amounts presented are in thousands except for per share amounts.
<TABLE>
<CAPTION>
1995(a) 1994(b) 1993(c) 1992 1991
<S> <C> <C> <C> <C> <C>
Operating Results
Net Sales $ 141,831 $ 142,055 $ 137,773 $ 138,381 $ 136,352
Income from Continuing Operations $ 5,640 $ 5,801 $ 5,687 $ 5,022 $ 4,777
Per Share Amounts
Income from Continuing Operations $ .92 $ .94 $ .93 $ .83 $ .79
Cash Dividends $ .56 $ .53 $ .655 $ .80 $ .725
Shareholders' Equity $ 5.81 $ 5.37 $ 4.93 $ 10.03 $ 9.37
Financial Position
Working Capital $ 13,944 $ 12,340 $ 10,776 $ 7,422 $ 7,378
Total Assets $ 85,303 $ 87,136 $ 90,505 $ 112,096 $ 112,461
Long-term Obligations $ 6,230 $ 7,516 $ 11,206 $ 17,185 $ 19,780
Shareholders' Equity $ 35,938 $ 32,951 $ 30,243 $ 60,785 $ 56,723
Shares of Common Stock
Outstanding 6,185 6,136 6,136 6,058 6,052
Statistical Information
Capital Expenditures, Net $ 3,685 $ 3,705 $ 7,305 $ 4,682 $ 6,124
Depreciation $ 7,463 $ 7,327 $ 6,785 $ 6,992 $ 6,871
Average Common Shares
Outstanding 6,161 6,139 6,101 6,086 6,057
<FN>
(a) Income from continuing operations and per share amount include after-tax
charges of $550,000 or $.09 per share for severance costs and $551,000 or
$.09 per share resulting from a remeasuring of the company's deferred tax
assets and liabilities. The completion of the amortization of the gain on
sale of company routes increased income from continuing operations by
$735,000 or $.12 per share.
(b) Income from continuing operations and per share amount include a net charge
in the amount of $719,200 or $.12 per share for the restructuring program.
(c) In August 1993, the company spun-off its wholly-owned subsidiary, Phillips
& Jacobs, Incorporated (P&J), to its shareholders. Cash dividends and
shareholders' equity per share amounts, long-term obligations and
shareholders' equity were impacted as a result of the spin-off of P&J.
</FN>
</TABLE>
<PAGE>
TASTY BAKING COMPANY AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statements of Operations and Retained Earnings
<TABLE>
<CAPTION>
52 Weeks 52 Weeks 53 Weeks
Ended Dec. 30, Ended Dec. 31, Ended Jan. 1,
1995 1994 1994
<S> <C> <C> <C>
Operations
Net sales $ 141,831,073 $ 142,055,111 $ 137,772,730
-------------------------------------------------
Costs and expenses:
Cost of sales 89,403,295 84,921,787 82,603,806
Depreciation 7,463,311 7,327,385 6,784,732
Selling, general and administrative 37,040,622 40,713,980 40,684,291
Severance and restructure charges 950,000 1,240,000 --
Interest expense 675,613 803,688 838,184
Provision for doubtful accounts 785,036 592,040 530,980
Other income, net (4,901,455) (3,164,684) (3,262,708)
-------------------------------------------------
131,416,422 132,434,196 128,179,285
-------------------------------------------------
Income from continuing operations before provision
for income taxes 10,414,651 9,620,915 9,593,445
-------------------------------------------------
Provision for income taxes:
Federal 2,345,811 3,086,954 2,988,595
State 500,319 942,330 633,530
Deferred 1,377,541 (209,113) 284,316
Decrease in net deferred tax asset due to change in tax rate 550,868 -- --
-------------------------------------------------
4,774,539 3,820,171 3,906,441
-------------------------------------------------
Income from continuing operations before cumulative
effect of changes in accounting principles 5,640,112 5,800,744 5,687,004
Discontinued operations -- -- 643,533
Cumulative effect of changes in accounting principles -- -- (10,705,482)
-------------------------------------------------
Net income (loss) 5,640,112 5,800,744 (4,374,945)
Retained Earnings
Balance, beginning of year 17,228,764 14,680,877 45,851,426
Dividend of P&J common shares -- -- (22,806,526)
Cash dividends paid on common shares ($.56 per share in
1995, $.53 per share in 1994, $.655 per share in 1993) (3,443,027) (3,252,857) (3,989,078)
-------------------------------------------------
Balance, end of year $ 19,425,849 $ 17,228,764 $ 14,680,877
=================================================
Earnings per common share
Income from continuing operations before cumulative
effect of changes in accounting principles $ 0.92 $ 0.94 $ 0.93
Discontinued operations -- -- 0.11
Cumulative effect of changes in accounting principles -- -- (1.76)
-------------------------------------------------
Net income (loss) per common share $ 0.92 $ 0.94 $ (0.72)
=================================================
</TABLE>
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
<PAGE>
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
52 Weeks 52 Weeks 53 Weeks
Ended Dec. 30, Ended Dec. 31, Ended Jan. 1,
1995 1994* 1994*
<S> <C> <C> <C>
Cash flows from (used for) operating activities
Net income (loss) $ 5,640,112 $ 5,800,744 $ (4,374,945)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Cumulative effect of changes in accounting principles -- -- 10,705,482
Depreciation 7,463,311 7,327,385 6,784,732
Provision for doubtful accounts 785,036 592,040 530,980
Deferred taxes 1,928,409 (209,113) 284,316
Other (2,796,406) (251,160) (184,952)
Changes in assets and liabilities:
Decrease (increase) in receivables (1,271,407) (804,967) 411,896
Decrease (increase) in inventories (148,302) 15,659 514,002
Decrease (increase) in prepayments and other (482,770) 52,783 (249,467)
Increase (decrease) in accrued income taxes (893,111) 214,083 (303,969)
Increase (decrease) in accrued pensions, accounts payable
and other current liabilities 970,419 (2,143,742) 369,410
----------------------------------------------
11,195,291 10,593,712 14,487,485
Discontinued operations -- -- (1,448,102)
----------------------------------------------
Net cash from operating activities (continuing operations) 11,195,291 10,593,712 13,039,383
Cash flows from (used for) investing activities
Proceeds from owner/operators' loan repayments 3,276,511 3,860,216 3,138,745
Proceeds from sale of property, plant and equipment 127,734 -- 3,235
Purchase of property, plant and equipment (4,108,984) (3,704,770) (7,308,727)
Loans to owner/operators (3,442,811) (3,876,506) (2,492,993)
Dividends received from spun-off subsidiary -- -- 665,281
Net change in intercompany debt of spun-off subsidiary -- -- 7,024,029
Other (42,619) 11,068 107,373
----------------------------------------------
Net cash from (used for) investing activities (4,190,169) (3,709,992) 1,136,943
----------------------------------------------
Cash flows from (used for) financing activities
Dividends paid (3,443,027) (3,252,857) (3,989,078)
Payment of long-term debt (2,524,242) (3,624,638) (8,402,251)
Net increase (decrease) in short-term debt (1,100,000) -- (4,600,000)
Additional long-term debt -- -- 2,312,403
Proceeds from sale of common stock -- -- 194,000
----------------------------------------------
Net cash used for financing activities (7,067,269) (6,877,495) (14,484,926)
----------------------------------------------
Net increase (decrease) in cash (62,147) 6,225 (308,600)
Cash, beginning of year 147,251 141,026 449,626
----------------------------------------------
Cash, end of year $ 85,104 $ 147,251 $ 141,026
==============================================
Supplemental cash flow information
Cash paid during the year for:
Interest $ 718,587 $ 816,238 $ 1,296,631
==============================================
Income taxes $ 4,116,161 $ 3,767,503 $ 5,322,117
==============================================
Noncash financing activities:
Dividend of P&J common shares $ 22,806,526
============
Issuance of common stock from exercise of stock options $ 5,350,597
============
Increase in treasury stock from exercise of stock options $ 5,350,597
============
<FN>
*Reclassified for comparative purposes.
</FN>
</TABLE>
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
<PAGE>
Consolidated Balance Sheets
<TABLE>
<CAPTION>
Dec. 30, Dec. 31,
1995 1994
<S> <C> <C>
Assets
Current Assets:
Cash $ 85,104 $ 147,251
Receivables, less allowance of $2,361,794 and $2,063,765, respectively 18,630,903 17,574,423
Inventories 3,263,282 2,937,060
Deferred income taxes, prepayments and other 3,349,314 3,681,528
----------------------------
Total current assets 25,328,603 24,340,262
----------------------------
Property, plant and equipment:
Land 697,987 697,987
Buildings and improvements 24,797,546 23,937,822
Machinery and equipment 101,374,855 97,366,055
----------------------------
126,870,388 122,001,864
Less accumulated depreciation and amortization 91,230,770 84,063,636
----------------------------
35,639,618 37,938,228
----------------------------
Other assets:
Long-term receivables 11,074,974 10,872,115
Deferred income taxes 9,720,541 10,830,705
Spare parts inventory 2,929,882 2,623,979
Miscellaneous 609,365 531,307
----------------------------
24,334,762 24,858,106
----------------------------
$ 85,302,983 $ 87,136,596
============================
</TABLE>
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
Dec. 30, Dec. 31,
1995 1994
<S> <C> <C>
Liabilities
Current Liabilities:
Current portion of long-term debt $ 127,720 $ 222,831
Current obligations under capital leases 513,159 455,712
Notes payable, banks 700,000 1,800,000
Accounts payable 4,699,747 4,075,343
Accrued payrolls and employee benefits 4,310,550 3,565,536
Accrued income taxes -- 893,111
Other 1,033,612 987,307
--------------------------
Total current liabilities 11,384,788 11,999,840
--------------------------
Long-term debt, less current portion 4,576,385 5,349,558
--------------------------
Long-term obligations under capital leases, less current portion 1,653,134 2,166,293
--------------------------
Deferred income -- 3,271,268
--------------------------
Accrued pensions and other liabilities 13,129,760 11,691,444
--------------------------
Postretirement benefits other than pensions 18,620,763 19,707,364
--------------------------
Shareholders' Equity
Common stock, par value $.50 per share, and entitled to one vote per share:
Authorized 15,000,000 shares, issued 7,289,087 shares 3,644,544 3,644,544
Capital in excess of par value of stock 29,662,330 29,175,510
Retained earnings 19,425,849 17,228,764
--------------------------
52,732,723 50,048,818
Less:
Treasury stock, at cost:
1,104,237 shares and 1,152,643 shares, respectively 16,364,757 16,601,793
Management Stock Purchase Plan receivables and deferrals 429,813 496,196
--------------------------
35,938,153 32,950,829
--------------------------
$85,302,983 $87,136,596
==========================
</TABLE>
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
<PAGE>
Consolidated Statements of Changes in Capital Accounts
<TABLE>
<CAPTION>
Dec. 30, 1995 Dec. 31, 1994 Jan. 1, 1994
Shares Amount Shares Amount Shares Amount
<S> <C> <C> <C> <C> <C> <C>
Common Stock:
Balance, beginning of year 7,289,087 $ 3,644,544 7,289,087 $ 3,644,544 7,108,687 $ 3,554,344
Stock Option Plan issuance -- -- -- -- 180,400 90,200
-----------------------------------------------------------------------------------------
Balance, end of year 7,289,087 $ 3,644,544 7,289,087 $ 3,644,544 7,289,087 $ 3,644,544
=========================================================================================
Capital in Excess of Par
Value of Stock:
Balance, beginning of year $ 29,175,510 $ 29,105,725 $ 23,424,543
Issuances:
Management Stock
Purchase Plan 36,118 25,145 45,894
Stock Option Plan -- -- 5,205,526
Director Option Plan -- -- 131,779
Purchase of subsidiary 423,774 -- --
Tax benefits related to
Management Stock
Purchase Plan and
Stock Option Plan 26,928 44,640 297,983
-----------------------------------------------------------------------------------------
Balance, end of year $ 29,662,330 $ 29,175,510 $ 29,105,725
=========================================================================================
Treasury Stock:
Balance, beginning of year 1,152,643 $ 16,601,793 1,152,639 $ 16,579,825 1,050,799 $ 11,280,132
Management Stock
Purchase Plan:
Reissued (5,624) (36,433) (2,812) (11,270) (4,498) (28,252)
Reacquired 3,166 24,638 2,816 33,238 5,344 55,569
Shares reacquired (reissued) in
connection with:
Stock Option Plan -- -- -- -- 116,994 5,350,597
Director Option Plan -- -- -- -- (16,000) (78,221)
Purchase of subsidiary (45,948) (225,241) -- -- -- --
-----------------------------------------------------------------------------------------
Balance, end of year 1,104,237 $ 16,364,757 1,152,643 $ 16,601,793 1,152,639 $ 16,579,825
=========================================================================================
Management Stock Purchase
Plan Receivables and
Deferrals:
Balance, beginning of year $ 496,196 $ 608,555 $ 764,944
Common stock issued 72,550 36,415 74,146
Common stock
repurchased (33,602) (34,603) (67,767)
Note payments and
amortization of
deferred compensation (105,331) (114,171) (162,768)
-----------------------------------------------------------------------------------------
Balance, end of year $ 429,813 $ 496,196 $ 608,555
=========================================================================================
</TABLE>
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
<PAGE>
Notes to Consolidated Financial Statements
1. Purchase of Subsidiary:
On August 29, 1995, the company acquired all of the outstanding shares of
capital stock of Dutch Mill Baking Company, Inc. (Dutch Mill) in exchange for
45,948 shares of the company's common stock valued at $649,000. Dutch Mill,
based in Wyckoff, New Jersey, produces donuts, muffins and cakes and operates
principally in the New York metropolitan area. The acquisition was accounted for
as a purchase and, accordingly, the net assets and results of operations of
Dutch Mill are included in the company's consolidated financial statements since
the date of acquisition. The excess of the total acquisition cost over the fair
value of net assets acquired of $303,533 is being amortized on a straight line
basis over fifteen years. Had the acquisition occurred at the beginning of
fiscal year 1995 or 1994 there would have been no significant impact on the
company's consolidated results of operations.
2. Reclassification of Expense:
In the first quarter of 1995, the company began to charge the cost of shipping
cases, which was previously reflected in selling, general and administrative
expenses, to cost of sales. This change in classification was done as a result
of a change in operating policy that now treats shipping cases as completely
disposable items. These charges were $3,262,000, $2,687,000, and $2,614,000 in
1995, 1994, and 1993, respectively.
3. Severance and Restructure Charges:
During the second quarter of 1995, the company incurred a severance charge of
$950,000 resulting in a reduction in net income of $550,000 or $.09 per share
after related tax benefit. The severance charge resulted from changes in certain
management positions which were established in connection with a Restructuring
Program (the Program) implemented in 1994. During 1995, payments approximating
$288,000 were made in connection with the severance charge.
In the second quarter of 1994, the company implemented the Program which was
designed to enhance overall competitiveness, productivity and efficiency through
the reduction of overhead costs. The Program resulted in a pre-tax charge of
$1,240,000 in the second quarter of 1994 which had an after-tax effect of
$719,200 or $.12 per share. This charge principally reflects the severance costs
resulting from workforce reductions and realignments throughout the company. As
of December 30, 1995, all obligations under the Program have been satisfied.
4. Cumulative Effects of Changes in Accounting Principles:
In 1993, the company was required to comply with the provisions of Statement of
Financial Accounting Standards No. 106 - "Employers' Accounting for
Postretirement Benefits Other than Pensions." The standard requires employers to
account for retiree benefit obligations on an accrual basis, rather than the
"pay-as-you-go" basis. The company elected to recognize the full amount of its
accumulated postretirement benefit obligation, which represents the present
value of the estimated future benefits payable to current retirees and a
pro-rata portion of estimated benefits payable to active employees after
retirement. Upon adoption, the new standard resulted in a charge to income of
$20,049,638 which, after related tax benefits, represented a net charge of
$11,708,989 or $1.92 per share.
Additionally, in 1993, the company adopted Statement of Financial Accounting
Standards No. 109 - "Accounting for Income Taxes", which requires the use of an
asset and liability approach for financial accounting and reporting for income
taxes. Upon adoption, the new standard resulted in a deferred tax credit of
$1,003,507 or $.16 per share.
The resulting charge related to the adoption of SFAS No. 106 and the credit
related to the adoption of SFAS No. 109 are included together in the
accompanying consolidated statements of operations and retained earnings as a
cumulative effect of changes in accounting principles.
5. Discontinued Operations:
Pursuant to a Plan of Distribution, Tasty Baking Company (TBC) distributed in
the form of a tax-free dividend to its shareholders all of the issued and
outstanding common stock of its wholly-owned subsidiary, Phillips & Jacobs,
Incorporated (P&J), now known as PrimeSource Corporation. Each shareholder of
record of TBC common stock as of the close of business on July 21, 1993 was
entitled to receive two (2) shares of P&J common stock, par value $.01 per
share, for each three (3) shares of TBC common stock, par value $.50 per share,
then held. As a result of the distribution and divestiture of P&J by TBC,
effective August 1, 1993, each company operates as an independently publicly
traded company and reports separately to its shareholders. The consolidated
financial statements herein reflect P&J as a discontinued operation of TBC and
amounts previously reported have been restated accordingly.
<PAGE>
6. Inventories:
Inventories are classified and valued as follows:
<TABLE>
<CAPTION>
Dec. 30, Dec. 31,
1995 1994
<S> <C> <C>
Classification:
Finished goods $ 467,184 $ 645,225
Work in progress 593,416 633,909
Raw materials and supplies 2,202,682 1,657,926
-------------------------
$3,263,282 $2,937,060
=========================
Valued at lower of cost or market:
First-in, first-out (FIFO) $2,226,253 $1,951,217
Last-in, first-out (LIFO) 1,037,029 985,843
-------------------------
$3,263,282 $2,937,060
=========================
</TABLE>
For the inventories stated on the LIFO basis, the current replacement cost
exceeds LIFO value by approximately $439,000 at December 30, 1995 and $358,000
at December 31, 1994.
7. Long-Term Receivables and Distribution Routes:
The majority of the company's sales distribution routes are owned by independent
owner/operators who have purchased the exclusive right to sell and distribute
Tastykake products in defined geographical territories. Initially, financing for
the purchase of these distribution routes was provided by a group of banks. In
December, 1995 the final payments were made by the owner/operators on the
initial financing for the purchase of these routes. The company maintains a
wholly-owned subsidiary to finance route purchase activities. At December 30,
1995 and December 31, 1994, notes receivable of $12,813,000 and $12,631,000,
respectively, are included in current and long-term receivables in the
accompanying consolidated balance sheets.
For financial reporting purposes, the net gain from the original sale of the
distribution routes of $15,869,428 was being amortized over ten years beginning
June 30, 1986. In the fourth quarter of 1995, in connection with the final
payments by the owner/operators on the initial financing of the route purchases,
the company completed the amortization of the gain. The resulting additional
amortization of $1,254,957 increased net income in 1995 by $734,501 after
provision for income taxes. The total amount of the gain recognized after
expenses and provision for income taxes was $1,751,577, $897,815, and $893,365
in 1995, 1994, and 1993, respectively.
8. Notes Payable, Banks:
The company has credit arrangements with various banks under which it may borrow
up to $31,000,000 primarily at or below the prime rate of interest. Of the
$31,000,000, $11,000,000 is designated for short-term borrowings, while
$20,000,000 is for use under a Revolving Credit Agreement (see Note 9). The
company has agreed informally with the banks to provide compensating balances,
or fees in lieu thereof; however, withdrawal of funds is not restricted.
Notes payable of $700,000 and $1,800,000 were outstanding at December 30, 1995
and December 31, 1994 at interest rates of 6.35% and 7.10%, respectively. The
average outstanding borrowing during 1995 was $1,044,000 ($1,085,000 in 1994)
and the average interest rate was 6.32% (4.30%in 1994), calculated on the basis
of the average weekly balance. The maximum short-term borrowings by the company
at any period end during 1995 aggregated $2,800,000 ($2,000,000 in 1994).
<PAGE>
9. Long-Term Debt:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
Dec. 30, Dec. 31,
1995 1994
<S> <C> <C>
Revolving Credit Agreement, with interest at or below the prime rate
(6.3% average rate at December 30, 1995) $ 2,000,000 $ 3,000,000
Term Loan exercised under a Revolving Credit Agreement, with interest
at 6.5%, $51,292 principal and interest payments due quarterly beginning
July 1, 1993 with a final payment of $1,197,796 due April 1, 1996 1,210,268 1,331,793
Term Loan exercised under a Revolving Credit Agreement, with interest
at 6.5%, $44,877 principal and interest payments due quarterly beginning
April 3, 1994 with a final payment of $1,047,994 due January 2, 1997 1,139,290 1,240,596
Term loan with interest at 8%, $4,374 principal and interest payments due
monthly beginning September 18, 1995 with a final payment of $253,834
due August 18, 1999 354,547 --
-----------------------------------
4,704,105 5,572,389
Less current portion 127,720 222,831
-----------------------------------
$ 4,576,385 $ 5,349,558
===================================
</TABLE>
Effective September 28, 1989, the company entered into a Revolving Credit
Agreement ('89 Agreement) which currently permits borrowings up to $20,000,000.
Borrowings under the '89 Agreement bear interest at an annual rate equal to the
prime rate, a CD rate, a LIBOR rate or a money market rate at the company's
option. Under the '89 Agreement, the company may borrow up to $20,000,000 until
September 28, 1998. However, the '89 Agreement contains provisions which
effectively allow the revolving credit period and maturity to be extended
indefinitely upon approval of the banks. The '89 Agreement contains restrictive
covenants which include provisions for maintenance of minimum current ratio and
tangible net worth, and restrictions on total liabilities, guarantees, loans,
investments and subsidiary debt.
Effective August 2, 1992, the company entered into a Revolving Credit Agreement
('92 Agreement) for $6,000,000 to finance owner/operator loans for the purchase
of Tastykake distribution routes. Each borrowing under the '92 Agreement
becomes, in effect, a term loan repayable in equal quarterly installments based
on a ten year amortization schedule with a three year balloon payment. Each
borrowing bears interest at a fixed rate based on the prime rate or the three
year Treasury Note yield determined at the time of the borrowing, at the
company's option. In May, 1995, the company and the bank mutually agreed not to
renew the '92 Agreement beyond May 31, 1996. In addition, it was further agreed
that any of the term loans extended under the '92 Agreement would be repaid
under their original terms and conditions with the intention of refinancing them
under existing lines of credit. The '92 Agreement contains restrictive covenants
essentially the same as those contained in the '89 Agreement.
The following schedule of future long-term debt principal payments as of
December 30, 1995 is based on the stated maturity dates of the various long-term
borrowings and does not reflect future extensions or refinancings.
1996 127,720
1997 1,085,724
1998 3,220,151
1999 270,510
----------
Total principal payments $4,704,105
==========
<PAGE>
10. Obligations Under Capital Leases:
Obligations under capital leases consist of the following:
<TABLE>
<CAPTION>
Dec. 30, Dec. 31,
1995 1994
<S> <C> <C>
Capital lease obligation, with interest at 11%, payable in monthly installments
of $41,333 through June, 1999 $ 1,435,730 $ 1,754,642
Industrial development mortgages, with interest at 4% and 8 1/2%, payable in
monthly installments of $17,142 through March, 1998 and $8,052 thereafter
through February, 2003 730,563 867,363
---------------------------------
2,166,293 2,622,005
Less current portion 513,159 455,712
---------------------------------
$ 1,653,134 $ 2,166,293
=================================
</TABLE>
11. Commitments and Contingencies:
The company leases certain plant and distribution facilities, machinery and
automotive equipment under noncancelable lease agreements. The company expects
that in the normal course of business, leases that expire will be renewed or
replaced by other leases. Included therein is a lease with the Trustees of the
Tasty Baking Company Pension Plan for property contributed to the plan. The net
annual rental is subject to adjustment every three years to provide fair market
rental to the Pension Plan and, accordingly, the net annual rental was adjusted
effective July 1, 1993. The lease expires on June 30, 1999 with an option to
renew for five additional three year periods. In addition, the company has an
option to purchase the property at any time at its then fair market value.
Property, plant and equipment relating to capital leases was $5,801,000 at
December 30, 1995 and December 31, 1994 with accumulated amortization of
$4,260,000 and $4,023,000, respectively. Depreciation and amortization of assets
recorded under capital leases was $237,000, $237,000, and $231,000 in 1995,
1994, and 1993, respectively.
The following is a schedule of future minimum lease payments as of December 30,
1995:
<TABLE>
<CAPTION>
Noncancelable
Capital Operating
Leases Leases
<S> <C> <C>
1996 $ 701,704 $ 664,193
1997 701,704 454,316
1998 601,717 362,551
1999 344,627 230,602
2000 96,627 110,790
Later years 201,307 -
---------------------------------
Total minimum lease payments $ 2,647,686 $ 1,822,452
============
Less interest portion of payments 481,393
-----------
Present value of future minimum lease payments $ 2,166,293
===========
</TABLE>
Rental expense was approximately $1,113,000 in 1995, $840,000 in 1994, and
$853,000 in 1993.
In connection with a workers' compensation insurance policy, the company has
obtained a capital Standby Letter of Credit in the amount of $800,000 which was
required by the insurance company in order to guarantee future payment of
premiums.
In November, 1995, the company received a proposed assessment from the Internal
Revenue Service for employment taxes based on an assertion that during the years
1990 through 1994 the company's independent owner/operators were employees and
not independent contractors. It is the company's view that the assertion is
without merit since the independent owner/operator relationships were
established in compliance with the appropriate Internal Revenue Code
requirements. Therefore, the company intends to vigorously defend its position.
At this time, however, the company is unable to estimate the possible loss, if
any, that may be incurred as a result of this proposed assessment. The ultimate
outcome of this proposed assessment may or may not have a material impact on the
company's financial position or results of operations.
The company and its subsidiaries are also involved in certain legal and
regulatory actions, all of which have arisen in the ordinary course of the
company's business. The company is unable to predict the outcome of these
matters, but does not believe that the ultimate resolution of such matters will
have a material adverse effect on the consolidated financial position of the
company.
<PAGE>
12. Pension Costs:
The company participates in a funded noncontributory pension plan providing
retirement benefits for substantially all employees. Benefits under this plan
generally are based on the employee's years of service and compensation during
the years preceding retirement. Net pension gains and losses in excess of 10% of
the greater of the projected benefit obligation or the market value of the plan
assets ("the corridor") are recognized in income in the year of occurrence.
Effective January 1, 1995, previously eligible employees of P&J ceased their
participation in the plan. In August, 1995, $4,808,300 was transferred to the
PrimeSource Corporation Pension Plan. This transfer of assets corresponded to
the actuarially determined liabilities for active, retired and vested terminated
employees of P&J. Prior to January 1, 1995, costs were allocated to Tasty Baking
Company and P&J based on the number and actuarial attributes of the respective
participants.
The components of pension cost are summarized as follows:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Service cost-benefits earned during the year $ 1,033,000 $ 1,539,000 $ 1,228,000
Interest cost on projected benefit obligation 4,984,000 5,287,000 5,153,000
Actual return on plan assets (10,068,000) (337,000) (7,269,000)
Net amortization and deferral 5,186,000 (5,237,000) 1,997,000
------------------------------------------------
Net amount charged to income $ 1,135,000 $ 1,252,000 $ 1,109,000
================================================
</TABLE>
The company realized pension expense of $1,135,000, $998,000, and $882,000 in
1995, 1994, and 1993, respectively.
The following table sets forth the funded status of the pension plan at December
30, 1995 and December 31, 1994 and the amounts recognized in the accompanying
consolidated balance sheets.
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Plan assets at fair value $ 57,372,000 $ 56,675,000
-------------------------------
Actuarial present value of benefit obligations:
Vested 56,886,000 52,876,000
Nonvested 2,290,000 2,258,000
-------------------------------
Accumulated benefit obligations 59,176,000 55,134,000
Effect of projected future salary increases 11,644,000 9,964,000
-------------------------------
Projected benefit obligations 70,820,000 65,098,000
-------------------------------
Plan assets less than projected benefit obligations (13,448,000) (8,423,000)
Unrecognized net loss 5,081,000 295,000
Unrecognized net transition asset (2,257,000) (2,877,000)
-------------------------------
Pension liability $ (10,624,000) $ (11,005,000)
===============================
</TABLE>
The actuarial present value of benefits and projected benefit obligation was
determined using a discount rate of 7.25% for fiscal year 1995, 8.50% for fiscal
year 1994, and 7.50% for fiscal year 1993. The expected long-term rate of return
on assets was 9% and the rate of compensation increase used to measure the
projected benefit obligation was 6% for fiscal years 1995, 1994, and 1993. Plan
assets are invested in a diverse portfolio that primarily consists of equity and
debt securities as well as certain real property and subsequent improvements
with additions thereto.
<PAGE>
13. Postretirement Benefits Other than Pensions:
In addition to providing pension benefits, the company also provides certain
unfunded health care and life insurance programs for substantially all retired
employees. These benefits are provided through contracts with insurance
companies and health service providers.
The net periodic postretirement benefit cost of continuing operations included
the following components:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Service cost $ 137,530 $ 210,883 $ 328,380
Interest cost 901,760 1,246,404 1,645,744
Net amortization and deferral (657,253) (84,269) --
------------------------------------------------------------------
$ 382,037 $ 1,373,018 $ 1,974,124
===================================================================
</TABLE>
The amounts recognized in the company's balance sheet at December 30, 1995 and
December 31, 1994 were as follows:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees $ (9,204,954) $(12,714,882)
Fully eligible active employees (1,224,699) (1,571,277)
Other active employees (1,552,952) (1,654,248)
Unrecognized net gain (6,638,159) (3,766,957)
-----------------------------------------
$ (18,620,764) $(19,707,364)
========================================
</TABLE>
The accumulated postretirement benefit obligation was determined using a 7.25%,
and 8.50% weighted average discount rate in 1995, 1994, and 1993, respectively,
and an assumed compensation increase rate of 6% was used for fiscal years ended
1995, 1994, and 1993. For 1996, the health care cost trend rates are anticipated
to be 8.20% and 7.45% for indemnified health plans and HMO-type health plans,
respectively, gradually declining to 5% in nine years and remaining at that
level thereafter. The health care cost trend rate assumptions have a significant
effect on the amounts reported. For example, a 1% increase in the health care
trend rate would increase the accumulated postretirement benefit obligation by
$219,000, and $291,000 and $649,000 in 1995, 1994, and 1993, respectively and
the net periodic cost by $25,000, $34,000, and $87,000 in 1995, 1994, and 1993,
respectively..
14. Thrift Plan:
The Tasty Baking Company Thrift Plan (the Plan) permits participants to make
contributions to the Plan on a pre-tax salary reduction basis in accordance with
the provision of Section 401(k) of the Internal Revenue Code. The company
contributes $1.00 for each $1.00 contributed by a participant up to a specified
limit. Company contributions charged against income totalled $370,124 in 1995,
$367,246 in 1994, and $370,760 in 1993.
Effective January 1, 1995, the company amended the Plan by adopting a Section
401(k) prototype plan sponsored by the Dreyfus Corporation. Under the Plan, as
amended, the company's contributions are invested in Tasty Baking Company common
stock and participants may choose from a selection of mutual fund options
offered by the Dreyfus Corporation for their contributions.
The company had 150,822 shares of its common stock reserved for possible
issuance under the Plan at December 30, 1995.
15. Management Stock Purchase Plan:
The Management Stock Purchase Plan provides that common shares may be sold to
management employees from time to time at prices designated by the Board of
Directors (not less than 50% of the fair market value at date of grant) under
certain restrictions and obligations to resell to the company. During 1995 and
1994, a total of 5,624 and 2,812 shares of common stock was sold at 50% of fair
market value at date of grant. The aggregate sales price of these shares was
$36,275 and $18,210, respectively, for which collateral judgment notes were
obtained to be paid in equal quarterly installments (not to exceed 40) with
interest on the unpaid balance at 4.25% and 4.38% in 1995 and 3% and 3.63% in
1994. At December 30, 1995, a total of 745,254 common shares was authorized
under the Plan, of which 196,324 shares remain available for issuance through
December 31, 1996.
<PAGE>
15. Management Stock Purchase Plan (continued):
For accounting purposes, the difference between the fair market value of the
stock at the date of grant and the purchase price, $36,275 in 1995 and $18,205
in 1994, represents compensation. The compensation is deferred and, together
with the notes receivable, is shown as a deduction from shareholders' equity.
The deferred compensation is amortized over a ten year period or the period the
employees perform services, whichever is less. Amortization charged to income
amounted to $51,444, $60,986, and $95,529 in 1995, 1994, and 1993, respectively.
In accordance with an Internal Revenue Service regulation, the company includes
both the dividends paid on shares restricted under the Plan, and the difference
between the purchase price of the stock at the date of the grant and the fair
market value at the date the Plan restrictions lapse as employee compensation
for federal income tax purposes. The tax benefits relating to the difference
between the amounts deductible for federal income taxes over the amounts charged
to income for book purposes have been credited to capital in excess of par value
of stock.
16. Stock Option Plans:
The company has three Stock Option Plans - 1994 Long Term Incentive Plan, 1991
Long Term Incentive Plan and 1985 Stock Option Plan, all of which were approved
by the shareholders and Board of Directors of the company. Under the terms of
the 1994 Long Term Incentive Plan, options to purchase a total of 250,000 common
shares may be granted to key executives of the company. Options become
exercisable in five equal installments beginning on the date of grant until
fully exercisable after four years. The option price is determined by the Board
and, in the case of incentive stock options, will be no less than the fair
market value of the shares on the date of grant. Options lapse at the earlier of
the expiration of the option term specified by the Board (not more than ten
years in the case of incentive stock options) or three months following the date
on which employment with the company terminates. The terms and conditions of the
1991 Long Term Incentive Plan and the 1985 Stock Option Plan are similar to the
1994 Long Term Incentive Plan.
Transactions involving the Plans are summarized as follows:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Options outstanding at beginning of year 248,500 187,375 581,875
Less: Canceled options due to P&J spin-off -- -- (121,875)
Forfeitures (24,000) (23,375) (75,600)
------------------------------------
224,500 164,000 384,400
Exercised:
Shares -- -- (384,400)
Average price -- -- $ 10.91
Granted:
Replacement options due to P&J spin-off -- -- 121,875
New option grants 95,000 84,500 65,500
Average price $ 13.375 $ 13.00 $ 13.75
------------------------------------
Options outstanding at end of year 319,500 248,500 187,375
====================================
</TABLE>
The exercise of the options for 384,400 shares in 1993 was required in
connection with the spin-off of P&J. These options were paid for by turning back
to the company 320,994 shares, resulting in a net issuance to the executives of
63,406 shares. At December 30, 1995, 139,375 shares remain available for option
under the Plans.
In connection with the 1988 Directors' Option Plan, 116,000 options had been
granted at various prices. During 1993, 16,000 shares were exercised at an
average price of $12.13 and options for 25,000 shares were forfeited. The
remaining 75,000 shares, along with 41,100 shares previously issued under the
executive stock option plans above, were canceled and were eligible for
replacement in connection with the spin-off of P&J. The 1993 Replacement Option
Plan (P&J Spin-off) was adopted by the Board of Directors and approved by the
shareholders for the sole purpose of replacing these canceled options. Options
representing a total of 74,477 shares were granted under this plan after
adjustment for the conversion ratio. In 1995, 16,037 shares were forfeited and
58,440 shares remain outstanding as of December 30, 1995.
<PAGE>
17. Capitalization of Interest Costs:
The company capitalizes interest as a component of the cost of significant
construction projects in accordance with Statement of Financial Accounting
Standards No. 34. The following table sets forth data relative to capitalized
interest:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Total interest $738,852 $828,900 $978,590
Less capitalized interest 63,239 25,212 140,406
----------------------------------
Interest expense $675,613 $803,688 $838,184
==================================
</TABLE>
18. Other Income, Net:
<TABLE>
<CAPTION>
Other income, net consists of the following:
1995 1994 1993
<S> <C> <C> <C>
Interest income $1,166,438 $1,056,656 $1,197,413
Amortized gain on sale of distribution routes 3,162,033 1,535,820 1,528,187
Rental income 393,276 431,227 431,632
Other, net 179,708 140,981 105,476
----------------------------------------
$4,901,455 $3,164,684 $3,262,708
========================================
</TABLE>
19. Provision for Income Taxes:
The provision for income taxes, at an effective rate of 45.8% in 1995 (40.6%
excluding the effect of change in tax rate on the net deferred tax asset), 39.7%
in 1994, and 40.7% in 1993, differs from the amounts derived from applying the
statutory U.S. federal income tax rate of 34% to income from continuing
operations before provision for income taxes as follows:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Statutory tax provision $ 3,540,897 $ 3,271,111 $ 3,261,771
State income taxes, net of federal income tax benefit 354,662 607,154 465,309
Effect of state tax credits utilized 145,086 87,088 150,254
Tax rate differential -- 86,507 77,452
Effect of change in tax rate on deferred tax asset 550,868 -- --
Other, net 183,026 (231,689) (48,345)
--------------------------------------------
Provision for income taxes $ 4,774,539 $ 3,820,171 $ 3,906,441
============================================
</TABLE>
Deferred income taxes represent the future tax consequences of differences
between the tax bases of assets and liabilities and their financial reporting
amounts at each year end. Significant components of the company's deferred
income tax assets (liabilities) are as follows:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Postretirement benefits other than pensions $ 7,448,305 $ 8,198,263
Pension and employee benefit costs 4,517,361 4,595,970
Depreciation and amortization (1,668,601) (1,679,578)
Sale of distribution routes -- 1,466,874
Vacation pay 793,676 802,203
Provision for doubtful accounts 944,718 858,526
Other 358,699 80,309
------------------------------
12,394,158 14,322,567
Less current portion 2,673,617 3,491,862
------------------------------
$ 9,720,541 $ 10,830,705
==============================
</TABLE>
20. Concentrations of Credit:
The company encounters, in the normal course of business, exposure to
concentrations of credit risk with respect to trade receivables. This risk is
limited due to the large number of customers comprising the company's customer
base. Ongoing credit evaluations of customers' financial condition are performed
and, generally, no collateral is required. The company maintains reserves for
potential credit losses and such losses have not exceeded management's
expectations.
<PAGE>
Report of Independent Accountants
To the Shareholders and the
Board of Directors
Tasty Baking Company
We have audited the accompanying consolidated balance sheets of Tasty Baking
Company and subsidiaries as of December 30, 1995 and December 31, 1994 and the
related consolidated statements of operations and retained earnings, changes in
capital accounts and cash flows for each of the three fiscal years in the period
ended December 30, 1995. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and the significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above (page 12 and pages 18
- - 31) present fairly, in all material respects, the consolidated financial
position of Tasty Baking Company and subsidiaries as of December 30, 1995 and
December 31, 1994, and the consolidated results of their operations and their
cash flows for each of the three fiscal years in the period ended December 30,
1995 in conformity with generally accepted accounting principles.
As discussed in Note 4 to the consolidated financial statements, effective
December 27, 1992, the Company changed its method of accounting for
postretirement benefits other than pensions and income taxes.
COOPERS & LYBRAND L.L.P.
Philadelphia, Pennsylvania
February 14, 1996
TASTY BAKING COMPANY AND SUBSIDIARIES
SUBSIDIARIES OF THE REGISTRANT
The Registrant owns, directly or indirectly, 100% of the outstanding capital
stock of the following subsidiaries:
Business Name of Corporation Jurisdiction of Incorporation
TBC Financial Services, Inc. Pennsylvania
Dutch Mill Baking Company, Inc. New Jersey
The aforementioned is included in the Consolidated Financial Statements of the
Registrant filed herewith.
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statements
of Tasty Baking Company and subsidiaries on Form S-3 (File No. 33-30560), Post-
Effective Amendment No. 10 to Form S-8 (File No. 2-55836) and Post Effective
Amendment No. 3 to Form S-8 (File No. 33-18904) and Post-Effective Amendment No.
4 to Form S-3 (File No. 33-8427) of our reports dated February 14, 1996, on our
audits of the consolidated financial statements and financial statement
schedules of Tasty Baking Company and subsidiaries as of December 30, 1995 and
December 31, 1994, and for the three fiscal years in the period ended December
30, 1995, which reports are included or incorporated by reference in this Annual
Report on Form 10-K.
COOPERS & LYBRAND L.L.P.
Philadelphia, Pennsylvania
March 22, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000096412
<NAME> TASTY BAKING COMPANY
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-30-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-30-1995
<CASH> 85
<SECURITIES> 0
<RECEIVABLES> 20,993
<ALLOWANCES> (2,362)
<INVENTORY> 3,263
<CURRENT-ASSETS> 25,329
<PP&E> 126,870
<DEPRECIATION> 91,231
<TOTAL-ASSETS> 85,303
<CURRENT-LIABILITIES> 11,385
<BONDS> 7,570
0
0
<COMMON> 3,645
<OTHER-SE> 32,293
<TOTAL-LIABILITY-AND-EQUITY> 85,303
<SALES> 141,831
<TOTAL-REVENUES> 146,733
<CGS> 89,403
<TOTAL-COSTS> 89,403
<OTHER-EXPENSES> 8,413
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 676
<INCOME-PRETAX> 10,415
<INCOME-TAX> 4,775
<INCOME-CONTINUING> 5,640
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,640
<EPS-PRIMARY> 0.92
<EPS-DILUTED> 0.92
</TABLE>
