SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the twenty-six weeks ended June 27, 1998
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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)
(215) 221-8500
(Registrant's Telephone Number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes __X__ No ____
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, par value $.50 7,812,908
(Title of Class) (No. of Shares Outstanding
at August 7, 1998)
INDEX OF EXHIBITS IS LOCATED ON PAGE 9 OF 10.
1 of 10
<PAGE>
TASTY BAKING COMPANY AND SUBSIDIARIES
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheets
June 27, 1998 and December 27, 1997............................... 3
Consolidated Statements of Operations
Thirteen weeks and Twenty-six weeks
ended June 27, 1998 and June 28, 1997 ............................ 4
Consolidated Condensed Statements of Cash Flows
Twenty-six Weeks Ended June 27, 1998 and June 28, 1997............ 5
Notes to Consolidated Condensed Financial Statements.............. 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...............................7-8
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders .............. 9
Item 6. Exhibits and Reports on Form 8-K.................................. 9
Signature ..................................................................10
2 of 10
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
TASTY BAKING COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(unaudited)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
June 27, 1998 December 27, 1997
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Current assets:
Cash $ 728,696 $ 748,117
Accounts and notes receivable, net of
allowance for doubtful accounts 21,333,133 18,661,411
Inventories:
Raw materials 2,078,567 1,940,423
Work in progress 635,743 580,362
Finished goods 561,354 775,417
-----------------------------
3,275,664 3,296,202
Deferred income taxes, prepayments and other 3,261,935 2,241,587
-----------------------------
Total current assets 28,599,428 24,947,317
-----------------------------
Property, plant and equipment: 154,323,606 149,709,346
Less accumulated depreciation 107,899,344 105,501,230
-----------------------------
46,424,262 44,208,116
-----------------------------
Long-term receivables 11,355,107 11,233,128
-----------------------------
Deferred income taxes 11,059,696 11,059,696
-----------------------------
Spare parts inventory and miscellaneous assets 3,290,061 2,871,121
-----------------------------
Total assets $100,728,554 $ 94,319,378
=============================
Current liabilities:
Current portion of long-term debt $ 29,354 $ 29,354
Current obligations under capital leases 434,918 543,962
Notes payable, banks 950,000 900,000
Accounts payable 5,226,566 4,345,944
Accrued liabilities 7,243,115 8,644,300
-----------------------------
Total current liabilities 13,883,953 14,463,560
-----------------------------
Long-term debt, less current portion 12,258,669 7,773,053
-----------------------------
Long-term obligations under capital leases,
less current portion 420,628 587,156
-----------------------------
Accrued pensions and other liabilities 12,826,307 11,771,540
-----------------------------
Postretirement benefits other than pensions 18,790,097 18,129,226
-----------------------------
Shareholders' equity:
Common stock 4,558,243 4,558,243
Capital in excess of par value of stock 29,414,797 29,337,938
Retained earnings 25,570,586 24,788,276
-----------------------------
59,543,626 58,684,457
Less:
Treasury stock, at cost 16,479,745 16,738,364
Management Stock Purchase Plan
receivables and deferrals 514,981 351,250
-----------------------------
42,548,900 41,594,843
-----------------------------
Total liabilities and shareholders' equity $100,728,554 $ 94,319,378
=============================
</TABLE>
See accompanying notes to consolidated condensed financial statements.
3 of 10
<PAGE>
TASTY BAKING COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
For the Thirteen Weeks Ended For the Twenty-six Weeks Ended
June 27, 1998 June 28, 1997 June 27, 1998 June 28, 1997
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Gross Sales $ 56,933,408 $ 57,652,342 $ 114,094,160 $ 113,285,582
Less discounts and allowances (18,572,369) (18,678,237) (37,412,653) (36,856,731)
----------------------------------------------------------------------
Net Sales 38,361,039 38,974,105 76,681,507 76,428,851
----------------------------------------------------------------------
Costs and expenses:
Cost of sales 24,307,090 23,610,742 48,132,069 46,782,850
Depreciation 1,589,016 1,860,066 3,340,394 3,555,493
Selling, general and
administrative 11,167,403 10,327,675 21,638,420 20,559,255
Interest expense 178,308 158,045 319,551 285,635
Other income, net (357,356) (415,287) (708,720) (811,714)
----------------------------------------------------------------------
36,884,461 35,541,241 72,721,714 70,371,519
----------------------------------------------------------------------
Income before provision for
income taxes 1,476,578 3,432,864 3,959,793 6,057,332
Provision for income taxes 462,887 1,326,230 1,305,000 2,336,905
----------------------------------------------------------------------
Net income $ 1,013,691 $ 2,106,634 $ 2,654,793 $ 3,720,427
======================================================================
Average common shares outstanding:
Basic 7,806,554 7,761,182 7,799,103 7,752,276
Diluted 7,985,349 7,855,889 7,975,274 7,826,300
Per share of common stock:
Net income: Basic $ 0.13 $ 0.27 $ 0.34 $ 0.48
======================================================================
Diluted $ 0.13 $ 0.27 $ 0.33 $ 0.48
======================================================================
Cash dividend $ 0.12 $ 0.112 $ 0.24 $ 0.224
======================================================================
</TABLE>
See accompanying notes to consolidated condensed financial statements.
4 of 10
<PAGE>
TASTY BAKING COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
For the Twenty-six Weeks Ended
June 27, 1998 June 28, 1997
- -------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from (used for) operating activities
Net income $ 2,654,793 $ 3,720,427
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 3,340,394 3,555,493
Amortization 88,673 63,707
Other 1,709,908 1,620,436
Changes in assets and liabilities
affecting operations (4,192,095) (2,552,172)
----------------------------
Net cash from operating activities 3,601,673 6,407,891
----------------------------
Cash flows from (used for) investing activities
Purchase of property, plant and equipment (6,002,255) (5,788,833)
Proceeds from owner/operators' loan repayments 1,732,127 1,838,209
Loans to owner/operators (1,852,111) (3,505,018)
Other (8,566) 32,400
----------------------------
Net cash used for investing activities (6,130,805) (7,423,242)
----------------------------
Cash flows from (used for) financing activities
Additional long-term debt 5,500,000 2,000,000
Proceeds from sale of common stock 122,150 181,181
Dividends paid (1,872,483) (1,736,529)
Payment of long-term debt (1,289,956) (1,337,013)
Net increase in short-term debt 50,000 1,850,000
----------------------------
Net cash from financing activities 2,509,711 957,639
----------------------------
Net decrease in cash (19,421) (57,712)
Cash, beginning of year 748,117 233,366
----------------------------
Cash, end of period $ 728,696 $ 175,654
============================
Supplemental Cash Flow Information:
Cash paid during the period for:
Interest $ 345,733 $ 228,036
============================
Income taxes $ 1,247,575 $ 3,470,240
============================
</TABLE>
See accompanying notes to consolidated condensed financial statements.
5 of 10
<PAGE>
TASTY BAKING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. Interim Financial Information
-----------------------------
In the opinion of management, the accompanying unaudited consolidated
condensed financial statements contain all adjustments (consisting of only
normal recurring accruals) necessary to present fairly the financial
position of the company as of June 27, 1998 and December 27, 1997 and the
results of its operations for the thirteen and twenty-six weeks ended June
27, 1998 and June 28, 1997 and cash flows for the twenty-six weeks ended
June 27, 1998 and June 28, 1997. These unaudited consolidated condensed
financial statements should be read in conjunction with the consolidated
financial statements and footnotes thereto in the company's 1997 Annual
Report to Shareholders. In addition, the results of operations for the
twenty-six weeks ended June 27, 1998 are not necessarily indicative of the
results to be expected for the full year.
Certain expense items are charged to operations in the year incurred.
However, for interim reporting purposes the expenses are charged to
operations on a pro-rata basis over the company's accounting periods. For
the twenty-six weeks ended June 27, 1998 and June 28, 1997, the difference
between the actual expenses incurred and the expenses charged to operations
was not significant.
2. Net Income Per Common Share
---------------------------
Net income per common share is calculated according to the Statement of
Financial Accounting Standards No. 128 - "Earnings Per Share" which
requires companies to present basic and diluted earnings per share. Net
income per common share - Basic is based on the weighted average number of
common shares outstanding during the year. Net income per common share -
Diluted is based on the weighted average number of common shares and
dilutive potential common shares outstanding during the year. The company's
dilutive potential common shares outstanding during the year result
entirely from dilutive stock options.
6 of 10
<PAGE>
TASTY BAKING COMPANY AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
- ---------------------
For the second quarter of 1998, the company realized net income of $1,013,691
versus $2,106,634 for the second quarter of 1997. Net income per share decreased
to $.13 from $.27 per share for the comparable quarter of 1997.
For the twenty-six weeks ended June 27, 1998, the company realized net income of
$2,654,793 versus $3,720,427 for the twenty-six weeks ended June 28, 1997. Net
income per share decreased to $.34 from $.48 per share for the comparable period
in 1997.
For the second quarter, gross sales decreased 1.2% to $56,933,408, compared to
$57,652,342 last year. Gross sales, less discounts and allowances resulted in a
net sales decrease of 1.6% to $38,361,039 compared to $38,974,105 reported last
year. However, our unit sales remained stable. The decrease in gross sales was
the result of price reductions on certain product lines and changes in our
promotion schedule. As part of the company's strategic plan to expand
geographically, we had anticipated new sales volume in national sales and also
in products produced in our Oxford plant. As a result, we decided to reduce our
promotion schedule from the usual three weeks per quarter to two. We also
decided to take price reductions on certain product lines to stabilize their
sales. While we were successful in bringing stability to these product lines,
the change in promotion schedule, along with the lack of anticipated new
national sales volume, resulted in lower gross sales. The difference between the
decreases of 1.2% in gross sales and 1.6% in net sales resulted primarily from
an increase in returns partially offset by lower promotion costs.
Cost of sales, as a percentage of gross sales, was 42.7% and 41.0% for the
second quarters of 1998 and 1997, respectively. This increase in the current
quarter was due to the effect of the temporary price reductions on certain
product lines as well as costs incurred in conjunction with product development
costs at the Oxford facility.
Selling, general and administrative expenses for the second quarter of 1998
increased by $839,728 or 8.1% over the comparable period in 1997. This increase
resulted primarily from an increase in selling expenses associated with the
expansion into new geographic regions. Administrative costs also increased as a
result of payroll taxes generated from the IRS ruling classifying
owner/operators as statutory employees and costs associated with the
installation of a new computer system.
Interest expense increased for the second quarter of 1998 versus the second
quarter of 1997 as a result of increased average borrowing levels. The decrease
in other income, net for the second quarter of 1998 was the result of a decrease
in rental income.
The effective tax rate was 31.3% for the quarter ended June 27, 1998 and 38.6%
for the quarter ended June 28, 1997 which compares to a federal statutory rate
of 34%. The difference between the effective rate and the statutory rate in the
second quarter of 1998 is the result of tax benefits arising from passive income
and state tax credits. The principal reason for the difference between the
effective rate and the statutory rate in the second quarter of 1997 was the
effect of state income taxes.
7 of 10
<PAGE>
Financial Condition
- -------------------
The company has consistently demonstrated the ability to generate positive cash
flow from operations. Bank borrowings, under various lines of credit
arrangements, are used to supplement cash flow from operations during periods of
cyclical shortages.
For the twenty-six weeks ended June 27, 1998, net cash from operating activities
decreased by $2,806,218 to $3,601,673 from $6,407,891 for the same period in
1997. The decrease in net cash from operating activities was principally due to
a decrease in net income and the payment made to the IRS as settlement of the
dispute concerning the payroll taxes for the independent owner/operators which
was accrued in 1997.
Net cash used for investing activities for the twenty-six weeks ended June 27,
1998 decreased by $1,292,437 relative to the same period in 1997 principally due
to a decrease in the funds needed to finance the net owner/operator loan
activity. This decrease was partially offset by an increase in expenditures on
equipment to upgrade the computer system and production facilities.
Net cash from financing activities for the twenty-six weeks ended June 27, 1998
increased by $1,552,072 relative to the same twenty-six weeks in 1997. The
increase is primarily the result of a net increase in long-term debt partially
offset by a decrease in short-term debt relative to the prior year.
For the remainder of 1998 the company anticipates that cash flow from
operations, along with the continued availability of bank lines of credit, the
revolving credit agreement and other long-term financing, will provide
sufficient cash to meet operating and financing requirements.
8 of 10
<PAGE>
TASTY BAKING COMPANY AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Company's annual meeting of stockholders was held on April 24,
1998.
(b) The directors elected at the meeting were:
For Against Withheld
Philip J. Baur, Jr. 6,406,748 --- 375,836
Judith M. von Seldeneck 6,411,195 --- 371,389
Other directors whose terms of office continued after the meeting are as
follows: Fred C. Aldridge, Jr., G. Fred DiBona, Jr., John M. Pettine, James L.
Everett, III, Nelson G. Harris, and Carl S. Watts.
(c) Other matters voted upon at the meeting and the results of those votes
were as follows:
For Against Abstain
Approval of the Amendments to the
Tasty Baking Company Articles of
Incorporation and By-Laws 3,923,199 1,537,364 55,969
For Against Abstain
Approval of adoption of the 1997
Long Term Incentive Stock Option
Plan 5,735,043 919,828 127,713
For Against Abstain
Approval of Coopers & Lybrand
L.L.P., as independent certified
public accountants 6,724,446 29,447 28,689
The foregoing matters are described in detail in the Company's proxy statement
dated March 26, 1998.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
The registrant did not file a report on Form 8-K during the twenty-six
weeks ended June 27, 1998.
Exhibit Index
Exhibit 27 - Financial Data Schedule
9 of 10
<PAGE>
TASTY BAKING COMPANY AND SUBSIDIARIES
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TASTY BAKING COMPANY
(Registrant)
August 7, 1998 /S/ John M. Pettine
(Date) JOHN M. PETTINE
VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
(PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER)
10 of 10
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000096412
<NAME> TASTY BAKING COMPANY
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-26-1998
<PERIOD-START> DEC-28-1997
<PERIOD-END> JUN-27-1998
<CASH> 729
<SECURITIES> 0
<RECEIVABLES> 23,875
<ALLOWANCES> (2,542)
<INVENTORY> 3,276
<CURRENT-ASSETS> 28,599
<PP&E> 154,324
<DEPRECIATION> (107,899)
<TOTAL-ASSETS> 100,729
<CURRENT-LIABILITIES> 13,884
<BONDS> 12,680
0
0
<COMMON> 4,558
<OTHER-SE> 37,991
<TOTAL-LIABILITY-AND-EQUITY> 100,729
<SALES> 76,682
<TOTAL-REVENUES> 77,391
<CGS> 48,132
<TOTAL-COSTS> 48,132
<OTHER-EXPENSES> 3,340
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 320
<INCOME-PRETAX> 3,960
<INCOME-TAX> 1,305
<INCOME-CONTINUING> 2,655
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,655
<EPS-PRIMARY> 0.34
<EPS-DILUTED> 0.33
</TABLE>
