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 thirty-nine weeks ended September 26, 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 7,822,721
(Title of Class) (No. of Shares Outstanding
at November 6, 1998)
INDEX OF EXHIBITS IS LOCATED ON PAGE 9 OF 10.
<PAGE>
TASTY BAKING COMPANY AND SUBSIDIARIES
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheets
September 26, 1998 and December 27, 1997......................3
Consolidated Statements of Operations
Thirteen weeks and Thirty-nine weeks
ended September 26, 1998 and September 27, 1997 ..............4
Consolidated Condensed Statements of Cash Flows
Thirty-nine Weeks Ended September 26, 1998
and September 27, 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
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<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
TASTY BAKING COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
September 26, 1998 December 27, 1997
Current assets:
Cash $ 129,675 $ 748,117
Accounts and notes receivable, net of
allowance for doubtful accounts 22,582,705 18,661,411
Inventories:
Raw materials 1,972,895 1,940,423
Work in progress 793,788 580,362
Finished goods 1,066,432 775,417
------------- ------------
3,833,115 3,296,202
Deferred income taxes, prepayments and other 2,846,698 2,241,587
------------- ------------
Total current assets 29,392,193 24,947,317
------------- ------------
Property, plant and equipment: 157,015,673 149,709,346
Less accumulated depreciation 109,549,671 105,501,230
------------- ------------
47,466,002 44,208,116
------------- ------------
Long-term receivables 11,028,255 11,233,128
------------- ------------
Deferred income taxes 11,059,696 11,059,696
------------- ------------
Spare parts inventory and miscellaneous assets 3,223,937 2,871,121
------------- ------------
Total assets $ 102,170,083 $ 94,319,378
============= ============
Current liabilities:
Current portion of long-term debt $ 29,354 $ 29,354
Current obligations under capital leases 380,396 543,962
Notes payable, banks 2,000,000 900,000
Accounts payable 4,891,140 4,345,944
Accrued liabilities 7,900,092 8,644,300
------------- ------------
Total current liabilities 15,200,982 14,463,560
------------- ------------
Long-term debt, less current portion 12,251,259 7,773,053
------------- ------------
Long-term obligations under capital leases,
less current portion 341,376 587,156
------------- ------------
Accrued pensions and other liabilities 12,673,041 11,771,540
------------- ------------
Postretirement benefits other than pensions 18,734,328 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 25,965,554 24,788,276
------------- ------------
59,938,594 58,684,457
Less:
Treasury stock, at cost 16,501,533 16,738,364
Management Stock Purchase Plan
receivables and deferrals 467,964 351,250
------------- ------------
42,969,097 41,594,843
------------- ------------
Total liabilities and shareholders' equity $ 102,170,083 $ 94,319,378
============= ============
</TABLE>
See accompanying notes to consolidated condensed financial statements.
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TASTY BAKING COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
For the Thirteen Weeks Ended For the Thirty-nine Weeks Ended
Sept. 26, 1998 Sept. 27, 1997 Sept. 26, 1998 Sept. 27, 1997
<S> <C> <C> <C> <C>
Gross Sales $ 57,265,322 $ 53,651,996 $ 171,359,482 $ 166,937,578
Less discounts and allowances (20,441,486) (17,607,128) (57,850,544) (54,463,859)
------------- ------------- ------------- -------------
Net Sales 36,823,836 36,044,868 113,508,938 112,473,719
------------- ------------- ------------- -------------
Costs and expenses:
Cost of sales 22,790,068 22,478,742 70,922,137 69,261,592
Depreciation 1,656,291 1,847,134 4,996,685 5,402,627
Selling, general and
administrative 10,520,967 10,077,778 32,162,982 30,637,033
Interest expense 183,326 131,732 502,877 417,367
Other income, net (339,873) (413,500) (1,048,593) (1,225,214)
------------- ------------- ------------- -------------
34,810,779 34,121,886 107,536,088 104,493,405
------------- ------------- ------------- -------------
Income before provision for
income taxes 2,013,057 1,922,982 5,972,850 7,980,314
Provision for income taxes 680,540 726,455 1,985,540 3,063,360
------------- ------------- ------------- -------------
Net income $ 1,332,517 $ 1,196,527 $ 3,987,310 $ 4,916,954
------------- ------------- ------------- -------------
Average common shares outstanding:
Basic 7,812,542 7,784,274 7,803,583 7,762,942
Diluted 7,925,851 7,902,045 7,958,800 7,851,549
Per share of common stock:
Net income: Basic $ 0.17 $ 0.15 $ 0.51 $ 0.63
============= ============= ============= =============
Diluted $ 0.17 $ 0.15 $ 0.50 $ 0.63
============= ============= ============= =============
Cash dividend $ 0.12 $ 0.112 $ 0.36 $ 0.336
============= ============= ============= =============
</TABLE>
See accompanying notes to consolidated condensed financial statements.
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<PAGE>
TASTY BAKING COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
For the Thirty-nine Weeks Ended
September 26, 1998 September 27, 1997
<S> <C> <C>
Cash flows from (used for) operating activities
Net income $ 3,987,310 $ 4,916,954
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 4,996,685 5,402,627
Amortization 133,503 107,100
Other 1,535,511 2,080,853
Changes in assets and liabilities
affecting operations (5,262,330) (4,425,824)
----------- -----------
Net cash from operating activities 5,390,679 8,081,710
----------- -----------
Cash flows from (used for) investing activities
Purchase of property, plant and equipment (8,700,286) (7,769,331)
Proceeds from owner/operators' loan repayments 2,431,492 2,526,332
Loans to owner/operators (2,223,593) (3,728,396)
Other 2,288 46,536
----------- -----------
Net cash used for investing activities (8,490,099) (8,924,859)
----------- -----------
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 (2,810,032) (2,609,015)
Payment of long-term debt (1,431,140) (1,490,933)
Net increase in short-term debt 1,100,000 2,750,000
----------- -----------
Net cash from financing activities 2,480,978 831,233
----------- -----------
Net decrease in cash (618,442) (11,916)
Cash, beginning of year 748,117 233,366
----------- -----------
Cash, end of period $ 129,675 $ 221,450
=========== ===========
Supplemental Cash Flow Information:
Cash paid during the period for:
Interest $ 565,237 $ 348,833
=========== ===========
Income taxes $ 1,512,267 $ 4,727,240
=========== ===========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
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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 September 26, 1998 and December 27, 1997
and the results of its operations for the thirteen and thirty-nine weeks
ended September 26, 1998 and September 27, 1997 and cash flows for the
thirty-nine weeks ended September 26, 1998 and September 27, 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 thirty-nine weeks ended September 26,
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 thirty-nine weeks ended September 26, 1998 and September 27, 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.
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TASTY BAKING COMPANY AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
For the third quarter of 1998, the company realized net income of $1,332,517
versus $1,196,527 for the third quarter of 1997. Net income per share increased
to $.17 from $.15 per share for the comparable quarter of 1997. These results
represent increases of 11.4% and 13.3%, respectively.
For the thirty-nine weeks ended September 26, 1998, the company realized net
income of $3,987,310 versus $4,916,954 for the thirty-nine weeks ended September
27, 1997. Net income per share decreased to $.50 from $.63 per share for the
comparable period in 1997.
For the third quarter, gross sales increased 6.7% to $57,265,322, compared to
$53,651,996 last year. Gross sales, less discounts and allowances resulted in a
net sales increase of 2.2% to $36,823,836 compared to $36,044,868 reported last
year. The increase in gross sales resulted from an increase in volume due to
geographic expansion through new distribution agreements in addition to price
increases instituted during the third quarter. The difference between the
increases of 6.7% in gross sales and 2.2% in net sales resulted primarily from a
substantial increase in promotional activity during the quarter to support
market development efforts as well as the August price increase.
Cost of sales, as a percentage of gross sales, was 39.8% and 41.9% for the third
quarters of 1998 and 1997, respectively. This decrease in the current quarter
was due to the effect of the August price increase as well as efficiencies
generated from the increase in sales volume.
Selling, general and administrative expenses for the third quarter of 1998
increased by $443,189 or 4.4% 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 third quarter of 1998 versus the third
quarter of 1997 as a result of increased average borrowing levels. The decrease
in other income, net for the third quarter of 1998 was the result of a decrease
in rental income.
The effective tax rate was 33.8% for the quarter ended September 26, 1998 and
37.8% for the quarter ended September 27, 1997 which compares to a federal
statutory rate of 34%. The difference between the effective rate and the
statutory rate in the third 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 third
quarter of 1997 was the effect of state income taxes.
Year 2000 Issue
The company has been engaged in an ongoing process to determine the effect that
the change to the year 2000 (Y2K) will have on operations.
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The company has completed an assessment of its internal hardware and software
information technology systems and has determined that the systems will be Y2K
compliant. During 1998, all new, Y2K compliant, hardware was installed. New
business system software is currently being installed, the implementation of
which will be completed during the second quarter of 1999. The software supplier
has warranted that this system is Y2K compliant, which will be verified when the
system is in place. The decisions to replace these systems were primarily based
on the ongoing and expected future company and industry requirements and the
inability of the current applications to meet these expectations. The company
has not accelerated the plans to replace these systems because of the Y2K issue.
The company utilizes an automated hand-held sales order system which is,
however, not currently Y2K compliant. The vendor offers a "patch" to fix this
Y2K problem, the cost of which is immaterial and would be expensed when
incurred. Alternatively, the company may decide to accelerate the upgrade of
this system, given its age and limited capacity, which will also solve the Y2K
problem. If this system were to be upgraded, the company estimates the total
cost to be $3.7 million which would be capitalized in 1999.
A committee has been formed that completed an inventory of all manufacturing
systems to determine Y2K compliance. The cost to update certain systems in order
to avoid any Y2K complications is immaterial and updates have been scheduled for
1999.
During the fourth quarter of 1998, a questionnaire will be sent to all major
vendors and customers, that have not already been confirmed, to determine their
level of Y2K compliance. The company plans to have an evaluation of major
vendors and customers by the end of the year. Some uncertainties may exist
regarding the responses from these vendors and customers and there may be a
certain amount of risk associated with these uncertainties. In any event, the
company will make alternative plans as necessary.
To date, the company has not incurred any significant costs related to the
assessment of, and preliminary efforts in connection with, its Y2K issues. Based
on the evaluations to date, the company does not anticipate any significant
complications related to Y2K or any significant costs to avoid those
complications. The company also feels that all Y2K problems will be identified
and resolved in a timely manner.
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 thirty-nine weeks ended September 26, 1998, net cash from operating
activities decreased by $2,691,031 to $5,390,679 from $8,081,710 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 payroll taxes for the independent
owner/operators, which was accrued in 1997.
Net cash used for investing activities for the thirty-nine weeks ended September
26, 1998 decreased by $434,760 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 thirty-nine weeks ended September 26,
1998 increased by $1,649,745 relative to the same thirty-nine 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.
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<PAGE>
TASTY BAKING COMPANY AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the third
quarter of the fiscal year covered by this report.
Item 5. Other Information
Shareholders of the company are entitled to submit proposals on matters
appropriate for shareholder action consistent with regulations of the Securities
and Exchange Commission (SEC) and the company's bylaws. Should a shareholder
wish to have a proposal considered for inclusion in the proxy statement for the
company's 1999 annual meeting, under Rule 14a-8 of the Securities Exchange Act
of 1934, as amended (the Exchange Act), such proposal must be received by the
company on or before December 1, 1998.
In connection with the company's 1999 annual meeting and pursuant to
recently amended Rule 14a-4 under the Exchange Act, if the shareholder's notice
is not received by the company on or before February 9, 1999, the company
(through management proxy holders) may exercise discretionary voting authority
when the proposal is raised at the annual meeting without any reference to the
matter in the proxy statement.
The above summary, which sets forth only the procedures by which business
may be properly brought before and voted upon at the company's annual meeting,
is qualified in its entirety by reference to the company's bylaws.
All shareholder proposals and notices should be directed to the Secretary
of the company at 2801 Hunting Park Avenue, Philadelphia, Pennsylvania, 19129.
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 thirty-nine
weeks ended September 26, 1998.
Exhibit Index
Exhibit 27 - Financial Data Schedule
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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)
November 9, 1998 /S/ John M. Pettine
(Date) JOHN M. PETTINE
VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
(PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER)
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<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> SEP-26-1998
<CASH> 130
<SECURITIES> 0
<RECEIVABLES> 25,312
<ALLOWANCES> (2,729)
<INVENTORY> 3,833
<CURRENT-ASSETS> 29,392
<PP&E> 157,016
<DEPRECIATION> (109,550)
<TOTAL-ASSETS> 102,170
<CURRENT-LIABILITIES> 15,201
<BONDS> 12,592
0
0
<COMMON> 4,558
<OTHER-SE> 38,411
<TOTAL-LIABILITY-AND-EQUITY> 102,170
<SALES> 113,509
<TOTAL-REVENUES> 114,558
<CGS> 70,922
<TOTAL-COSTS> 70,922
<OTHER-EXPENSES> 4,997
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 503
<INCOME-PRETAX> 5,973
<INCOME-TAX> 1,986
<INCOME-CONTINUING> 3,987
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,987
<EPS-PRIMARY> 0.51
<EPS-DILUTED> 0.50
</TABLE>
