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 (No Fee Required) for the fiscal year ended December
27, 1997 (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 New York 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 __
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (ss. 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. YES X NO __
The aggregate market value of voting stock held by non-affiliates as of February
13, 1998 is $113,824,946 computed by reference to the closing price on the New
York Stock Exchange on such date.
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of February 13, 1998.
Class Outstanding
Common Stock,
par value $.50 7,790,762 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 27, 1997 Part II
Pages 2 to 15 inclusive of the definitive Proxy Statement
dated March 26, 1998 Part III
(Note: Portions of pages 14 through 16 are not deemed "filed")
The index of exhibits is located on page number 7 of 16.
<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 100 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 33(cent) to 99(cent) per package and family convenience packages
and jumbo packs ranging from $2.39 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 75(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 75(cent) per
package. In 1995, the Registrant began marketing low-fat products in response to
consumer reaction to nutritional labeling. Currently, the Registrant markets
four varieties of low-fat cake which are sold primarily in family convenience
packages and sell at a retail price of $2.49 per package. Individual muffins
were introduced in 1996, three varieties of which were low-fat. The muffins sell
at a retail price of 99(cent) each. In 1997, the Registrant introduced a new
snack bar product, marketed under the trademark SNAK BARS(TM), replacing an
existing cookie bar line. These new bars are larger and more nutritious than the
line they replaced, targeting a new market. SNAK BARS are sold either
individually at a retail price of 40(cent) or in family convenience packages at
a retail price of $2.39.
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.
This method of distribution has been used since 1986. In November 1995, the
Registrant received a proposed assessment from the Internal Revenue Service
(IRS) for payroll taxes on the owner/operators. The assessment was based on the
assertion that the owner/operators were employees and not independent
contractors. In December 1997, the Registrant entered into a Closing Agreement
(Agreement) with the IRS that classifies non-incorporated owner/operators as
"statutory employees" for payroll tax purposes only (see Item 3. Legal
Proceedings). The Registrant believes that the Agreement will not adversely
affect the distribution of Tastykake products by the independent owner/operators
in any material way.
Tastykake also distributes its products through major grocery chains in
states located throughout the mid-west, southwest and south. In July 1997, the
Registrant began selling certain of its Tastykake brand products to one of the
leading supermarket chains in the Chicago metropolitan area and to other area
outlets as well. Further supermarket expansion is planned for early 1998.
Including these market areas, products are sold by distributors in approximately
forty 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.
While the three largest customers of the Tastykake division comprise a
significant portion of its net sales revenue, the large number of retailers
comprising the customer base ensures the availability of Tastykake products to
consumers.
On July 1, 1996, the Registrant, through a wholly-owned subsidiary,
Tasty Baking Oxford, Inc., completed the purchase of a 160,000 square foot
manufacturing facility in Oxford, Chester County, Pennsylvania for $4,000,000.
The Oxford facility was set up to manufacture yeast raised products, under the
trademark TASTYKAKE(R), that were either being provided by other suppliers or
were not available for sale by Tastykake. This facility began producing honey
buns in the second quarter of 1997. A second production line was completed
during the fourth quarter of 1997 and began producing sweet rolls in the first
quarter of 1998. Other products are planned for introduction during 1998. During
1997, all of the products from the Oxford facility were sold to the Tastykake
division of the Registrant. For 1998, the Registrant has instituted two new
brands: AUNT SWEETIE'S BAKERY(TM) and SNAK n' FRESH(TM). These two new brands
will allow the Registrant to enter the private label, food service and
institutional marketplaces with yeast raised and other products without
compromising the integrity of its Tastykake brand.
<PAGE>
Item 1. Business, continued
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,
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 $2.19 to $2.99 per package. During 1996, the Registrant
reduced Dutch Mill donut packaging from an eight-count to a six-count box,
allowing them to set the regular retail price at a competitive level. In the
first quarter of 1998, the Registrant will make Dutch Mill donuts available to
its independent owner/operators to be sold through their distribution routes.
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 producers in the country specializing in small pies and cakes. The
Registrant is able to maintain a strong competitive position in its principal
marketing areas through the quality of its products.
No difficulty was experienced in obtaining raw materials in 1997. It is
not anticipated that there will be any significant adverse effects on the
financial condition of the Registrant as a result of price fluctuations or
availability of raw materials in 1998.
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 1,060 persons, including
approximately 100 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
700 Lincoln Street Tasty Baking Oxford Offices,
Oxford, PA (3) Production of honey buns and
sweet rolls, future production
of other varieties of baked
goods
(1) These properties are recorded as capital leases. For a description of
major encumbrances on these properties, see Note 9 and 10 of Notes to
Consolidated Financial Statements in the 1997 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 10 of Notes to Consolidated Financial Statements in
the 1997 Annual Report to Shareholders - Exhibit 13, incorporated herein by
reference.
(3) This property was purchased and is owned by Tasty Baking Oxford, Inc.
<PAGE>
Item 2. Properties, (continued)
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.
Item 3. Legal Proceedings
In December 1997, the Registrant entered into the Agreement with the
Internal Revenue Service relative to their proposed assessment for payroll taxes
on the registrant's independent owner/operators for the years 1990 - 1997. The
terms of the Agreement require that, effective December 28, 1997,
non-incorporated independent owner/operators be classified as "statutory
employees" for payroll tax purposes only, and that the Registrant withhold and
match payroll taxes based on their estimated earnings. The Registrant
anticipates that there will be no material adverse effect on future earnings as
a result of the Agreement. (1)
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 or results of operations
of the Registrant.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year covered by this report.
(1) See Note 4 of Notes to Consolidated Financial Statements in the 1997
Annual Report to Shareholders - Exhibit 13, incorporated herein by reference.
<PAGE>
TASTY BAKING COMPANY AND SUBSIDIARIES
PART II
CROSS REFERENCE INDEX
<TABLE>
<CAPTION>
FORM 10-K
ITEM NUMBER AND CAPTION INCORPORATED MATERIAL
<S> <C>
Page(s) in Annual Report to
Shareholders for the Fiscal
Year Ended December 27, 1997
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 - 30
Report of Independent Accountants 31
Item 9 Changes in and Disagreements with
Accountants on Accounting and Financial Disclosure
This item is not applicable.
<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 8 - 10
Item 11 Executive Compensation* 11 - 15
Item 12 Security Ownership of Certain Beneficial
Owners and Management 2 - 3
Item 13 Certain Relationships and Related
Transactions
With respect to certain business
relationships of Fred C. Aldridge, Jr.,
Esquire, director 8
*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.
<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 27, 1997,
December 28, 1996 and December 30, 1995
------
Pages
(a)-1. List of Financial Statements
Summary of Significant Accounting Policies Incorporated herein
Quarterly Summary by reference to
Consolidated Statements of Operations and Retained pages 12 to 30
Earnings inclusive of the
Consolidated Statements of Cash Flows Annual Report to
Consolidated Balance Sheets Shareholders for the
Consolidated Statements of Changes in Capital fiscal year ended
Accounts December 27, 1997.
Notes to Consolidated Financial Statements See page 12 of 16.
(a)-2. Schedule* for the fiscal years ended December 27, 1997,
December 28, 1996 and December 30, 1995:
Report of Independent Accountants 9 of 16
II. Valuation and Qualifying Accounts 10 of 16
(a)-3. Exhibits Index - The following Exhibit Numbers refer to
Regulation S-K, Item 601**
(3)(a) Articles of Incorporation of registrant as amended
are incorporated herein by reference to Exhibit 3
to Form 10-K report of Registrant for 1995.
(3)(b) By-laws of Registrant as amended on January 23,
1998. 11 of 16
(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.
<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) 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.
(h) 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.
(i) 1994 Long Term Incentive Plan is incorporated herein
by reference to Exhibit 10(j) to Form 10-K report of
Registrant for 1994.
(j) Trust Agreement dated January 19, 1990 between the
company and Meridian Trust Company relating to the
Director Retirement Plan is incorporated herein by
reference to Exhibit 10(k) to Form 10-K report of
Registrant for 1995.
(k) 1997 Long Term Incentive Plan is incorporated herein
by reference to Annex II of the Proxy Statement for
the Annual Meeting of Shareholders on April 24, 1998,
filed on or about March 26, 1998.
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 27, 1997, pages 12 to 30 only. (The
balance of the Annual Report is not deemed
"filed" or "Soliciting Material".) 12 of 16
(21) Subsidiaries of the Registrant 13 of 16
(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). 14 of 16
(b) The Registrant did not file a report on Form 8-K during the fourth
quarter ended December 27, 1997.
</TABLE>
<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 1997 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, presents fairly, in all material respects, the
information required to be included therein.
COOPERS & LYBRAND L.L.P.
Philadelphia, Pennsylvania
February 12, 1998
<PAGE>
<TABLE>
<CAPTION>
TASTY BAKING COMPANY AND SUBSIDIARIES
SCHEDULE II. VALUATION AND QUALIFYING ACCOUNTS
for the fiscal years ended December 27, 1997, December 28, 1996 and December 30, 1995
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 27, 1997 $2,394,864 $ 499,787 $ 346,099 $2,548,552
========== ========== ============ ==========
For the fiscal year ended December 28, 1996 $2,361,794 $ 825,145 $ 792,075 $2,394,864
========== ========== ============ ==========
For the fiscal year ended December 30, 1995 $2,063,765 $ 785,036 $ 487,007 $2,361,794
========== ========== ============ ==========
Inventory valuation reserves:
For the fiscal year ended December 27, 1997 $ 100,000 $ 57,379 $ 32,379 $ 125,000
========== ========== ============ ==========
For the fiscal year ended December 28, 1996 $ 75,000 $ 60,386 $ 35,386 $ 100,000
========== ========== ============ ==========
For the fiscal year ended December 30, 1995 $ 74,535 $ 12,781 $ 12,316 $ 75,000
========== ========== ============ ==========
Spare parts inventory reserve for obsolescence:
For the fiscal year ended December 27, 1997 $ 300,000 $ 294,967 $ 269,967 $ 325,000
========== ========== ============ ==========
For the fiscal year ended December 28, 1996 $ 100,000 $ 282,315 $ 82,315 $ 300,000
========== ========== ============ ==========
For the fiscal year ended December 30, 1995 $ 73,025 $ 46,262 $ 19,287 $ 100,000
========== ========== ============ ==========
Equipment allowance for obsolescence:
For the fiscal year ended December 27, 1997 $ 75,000 $ 25,000 $ -- $ 100,000
========== ========== ============ ==========
For the fiscal year ended December 28, 1996 $ 25,000 $ 40,019 $ (9,981) $ 75,000
========== ========== ============ ==========
For the fiscal year ended December 30, 1995 $ 19,136 $ 29,726 $ 23,862 $ 25,000
========== ========== ============ ==========
</TABLE>
(1) Decrease due to write-off of related assets.
TASTY BAKING COMPANY AND SUBSIDIARIES
<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, Chairman, President
and Chief Executive Officer
<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. Retired Chairman of the March 27, 1998
Philip J. Baur, Jr. Board and Director of
Tasty Baking Company
/s/ Carl S. Watts Chairman of the Board, March 27, 1998
Carl S. Watts President, Chief
Executive Officer and
Director of Tasty
Baking Company
/s/ Nelson G. Harris Chairman of The March 27, 1998
Nelson G. Harris Executive Committee and
Director of Tasty
Baking Company
/s/ John M. Pettine Vice President, Chief March 27, 1998
John M. Pettine Financial and Accounting
Officer and Director of
Tasty Baking Company
/s/ Fred. C. Aldridge, Jr. Director of Tasty Baking March 27, 1998
Fred C. Aldridge, Jr. Company
/s/ G. Fred DiBona, Jr. Director of Tasty Baking March 27, 1998
G. Fred DiBona, Jr. Company
/s/ James L. Everett, III Director of Tasty Baking March 27, 1998
James L. Everett, III Company
/s/ Judith M. von Seldeneck Director of Tasty Baking March 27, 1998
Judith M. von Seldeneck Company
</TABLE>
Amended January 23, 1998
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 statute 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
-2-
<PAGE>
business, except 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 a
meeting by all shareholders entitled to vote thereon, unless the question is one
upon which, by express provision of the statutes or of the articles of
incorporation or of these by-laws, 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
-3-
<PAGE>
thereof. If 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 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 and thereafter, 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.
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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. 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 Section 1 or Section 2 of this Article
III, or any provision thereof at any annual or special meeting of shareholders.
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.
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
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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.
Section 10. The order of business at all meetings of the board shall be
substantially as follows:
(1) Roll Call. A quorum being present.
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(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
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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.
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
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law to be 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,
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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.
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
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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.
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
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committing 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
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be in or not 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.
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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.
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1990 ANTI-TAKEOVER AMENDMENTS TO THE
PENNSYLVANIA BUSINESS CORPORATION LAW
Section 8. The provisions of Section 1715 of Title 15 of the
Pennsylvania Consolidated Statutes shall be applicable to the corporation.
Section 9. 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 10. 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.
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Contents
1 Financial Highlights
2 Letter to Shareholders
11 Financial Information
32 Directors and Officers
About Tasty Baking Company
Tasty Baking Company is a manufacturer and marketer of sweet baked goods,
notably Tastykakes - Americas fastest growing and best tasting snack cake brand.
Founded in Philadelphia in 1914, Tasty is now one of the largest independent
baking companies in the country. Long a dominant brand in its home region, Tasty
now ships products to 41 states from its three Mid-Atlantic bakeries. Tasty has
also broadened its product lines, adding a line of yeast-raised baked goods
designed to capitalize on the expanding marketing opportunities in food service
and private labeling.
<PAGE>
Financial Highlights
<TABLE>
<CAPTION>
For the Year 1997(a) 1996
<S> <C> <C>
Gross Sales $222,054,329 $212,508,870
Net Sales $149,291,974 $146,718,391
Net Income $ 6,067,177 $ 6,304,579
Average Number of Common Shares Outstanding(b):
Basic 7,770,119 7,733,663
Diluted 7,895,922 7,733,663
Per Share of Common Stock(b):
Net Income:
Basic $ .78 $ .82
Diluted $ .77 $ .82
Cash Dividend $ .456 $ .448
At the Year End 1997 1996
Total Assets $ 94,319,378 $ 87,428,364
Working Capital $ 10,483,757 $ 10,159,698
Current Ratio 1.72 to 1 1.81 to 1
Shareholders' Equity:
Amount $ 41,594,843 $ 38,906,854
Per Share of Common Stock(b) $ 5.34 $ 5.02
<FN>
(a) Net income and per share amounts include an after-tax charge of $1,171,170
or $.15 per share resulting from a settlement with the IRS concerning
payroll taxes for the company's independent owner/operators for tax years
1990-1997 and related expenses.
(b) Restated to reflect five-for-four stock split.
</FN>
</TABLE>
1
<PAGE>
Letter to Shareholders
Tasty Baking Company had an excellent year. Once again, we were able to achieve
our goals of increased sales, earnings and returns for our shareholders.
Moreover, we moved the Company along a strategic track that will continue to
strengthen our marketplace position in sweet baked goods, broaden our
distribution base, and increase our sales and net earnings.
We are a baking company bound to the traditions of quality, freshness, and
flavor that have made consumers fiercely loyal to Tasty products. That will
never change, but much about the Company has changed and will continue to. Tasty
is a company on the move, energized, and focused. For 1997, the most telling
evidence of that is our geographic expansion, particularly our entry into the
Chicago market; an expanding line-up of products; and a new family of brands
concept that helps us compete more effectively in the food service market.
Building Shareholder Value through Financial Performance
Our shareholders enjoyed exceptional returns in 1997. The Board of Directors
increased cash dividends and authorized a 5-for-4 stock split, thus enhancing
the liquidity of Tasty common stock. In addition, our move to the New York Stock
Exchange and management presentations to the financial community helped raise
the profile of the company among institutional investors. These initiatives and
solid earnings performance helped push total returns for Tasty shareholders up
75% in 1997.
Here are the highlights of the Company's 1997 financial performance:
- ------------------------
The Company took a payroll tax settlement charge of $1,950,000 in connection
with its dispute with the Internal Revenue Service related to the treatment of
Tasty owner-operators for payroll tax purposes. On a post-split basis, the
after-tax effect of this charge is approximately $1,170,000 or $0.15 per share.
The settlement will have no material effect on our future financial results.
- ------------------------
Higher bakery productivity, relatively stable commodity prices, and vigorous
expense control combined with increased sales to lift net income, excluding the
effect of the payroll tax settlement charge, for 1997 to $7,238,000, up 15% over
the $6,305,000 we reported last year.
- ------------------------
On a post-split basis, net income per share, excluding the effect of the payroll
tax settlement charge, reached $.93 in 1997 compared with $.82 per share last
year, a 13% increase.
2
<PAGE>
- ------------------------
Gross sales for 1997 increased 4.5% to $222,054,000; net sales were
$149,292,000, 2% ahead of last year's figure of $146,718,000.
- ------------------------
Our balance sheet remains exceptionally strong with total assets at $94,319,000
and shareholders' equity at $41,595,000.
- ------------------------
Capital expenditures of $10,528,000 included funds to complete the second
production line and freezer at the Oxford facility and begin our computer
installation. As a result, total debt increased to $9,834,000 from $7,079,000.
- ------------------------
In October, the Board of Directors authorized a 7.1% increase in the quarterly
cash dividend, raising it to $0.12 per share on a post-split basis.
Keeping Tasty on the Move
In order to fulfill our responsibilities to all our constituencies, and most
certainly to our shareholders, Tasty must not only be profitable, we must grow.
We are doing that in four important ways:
By expanding geographically
By introducing new products
By using new branding concepts
(Tasty's family of brands)
By diversifying channels of distribution
To be sure, we use other growth strategies as well. We continue to nurture our
base business and help it grow. We control costs. And we remain alert to
acquisitions. If the right opportunity comes along, we intend to buy. Even so,
the four strategies outlined present opportunities for significant growth as
well as help position Tasty for sustained growth in future years. Moreover,
unlike an acquisition opportunity that may or may not appear, implementing these
growth strategies is within our control.
Expanding Our Marketing Territory
We entered the Chicago snack cake market in 1997 and we're happy to report it
was the most successful marketplace entry in the history of Tasty Baking. It
takes more than a map with pins in it to convey the significance of the opening
of the Chicago market, however. After all, Tasty is now selling products in 41
states. The real significance of this market entry lies in other factors. One of
those factors is the depth of market penetration we have achieved in the Chicago
area. Tasty products are now being sold in 187 Jewel Food
3
<PAGE>
stores and in 177 7-Eleven stores. As of January 1998, we entered 107 Dominick's
stores, another leading Chicago supermarket chain.
We attach additional significance to the Chicago market for yet another reason.
Going forward, we believe Chicago can serve as an anchor for our Midwest
marketing and distribution efforts, much as Philadelphia does for the
Mid-Atlantic States. With our sales base in Chicago as a linchpin, we can move
more rapidly and more aggressively into other Midwest markets assured of
distributor and store support.
Important as it is, Chicago is by no means the limit of our geographic
aspirations, but it will serve as an archetype as we move forward in other parts
of the country. For example, as has been the case with our Chicago market entry,
brokers and distributors will play a larger role in geographic market expansion.
In fact, we are now in the process of putting together a broker network around
the country to capi-
4
<PAGE>
talize on expansion opportunities. During 1997, we signed a major broker
agreement in Chicago. In addition, we signed an agreement with a major wholesale
distributor on the West Coast.
Building Sales with New Snack Products
Tasty now has more than 100 products. It's not enough, and can't ever be, for
one simple reason: new products bring new sales. The inescapable conclusion is
that revenue growth requires new products, so Tasty will remain in the business
of innovation. One particularly successful effort in 1997 was the introduction
of Snak Bars. The Snak Bar product, while virtually new, began life as an
extensive reformulation and repackaging of an existing Tasty product line that
had been experiencing flat sales. In revitalizing what had been a cookie bar
product line, two varieties were dropped and two new varieties added. All
varieties were reformulated for improved taste and nutrition. And all were
resized, that is, made some 33%
5
<PAGE>
larger than the products they replaced. The new, bigger bar was repackaged,
re-priced, and perhaps most important, repositioned for a youth market that
wants a delicious and healthful snack that is easy to handle and easy to eat on
the go.
Spurring Impulse Purchases with Holiday Novelties
Tasty has been very successful in marketing specially packaged products keyed to
holidays and holiday themes. During 1997, we expanded our range of novelty
products and packaging so that we now have two and even three themed products on
store shelves during every holiday period. For example: Santa Snacks and Kringle
Kakes for Christmas, Cupid Kakes and Sweetie Kakes for St. Valentine's Day,
Tasty Tweets and Bunny Trail Treats for Easter.
In tracking sales of holiday varieties, we have confirmed that new products do
indeed add new sales. That is, when we have introduced a second product keyed to
a given holiday season, the sale of both novelty products increases. Of note,
the additional sales generated by these novelty products have not eroded sales
of our traditional products. It would appear that holiday-themed novelties are
attracting impulse purchasers, including consumers that may be trying Tasty
brand products for the first time.
Expanding into Yeast-Raised Products
Snack cakes are the foundation of the Tasty franchise, but they are only one
part of Tasty's future. In 1996, Tasty purchased a 160,000 square foot bakery in
Oxford, Pennsylvania, for the purpose of expanding our product line into
yeast-raised products. Our goal was and is to capture an increasing share of
yeast-raised products that constitute the mainstream food service market for
sweet baked goods.
6
<PAGE>
In 1997, our Oxford bakery inaugurated baking operations by producing honey
buns, a product that previously we had produced to our specifications by a
contract baker. In November, Oxford completed a second production line. This
line is capable of producing bakery items such as sweet rolls, bear claws,
Danish pastry, and coffee rolls. Pre-production testing has been finished and
these products are scheduled for sale in the latter part of the first quarter of
1998. Indeed, it is the production flexibility of the Oxford bakery that will
help Tasty keep pace with a dynamic market and meet the changing needs of the
food service industry.
Creating Tasty's Family of Brands
Tasty is no longer just one brand. We are now a family of brands that includes
Tastykake, Dutch Mill, Aunt Sweetie's, and Snak n' Fresh. We have a number of
good reasons for having four brands (or more, if that becomes desirable):
- ------------------------
We can use brand equity effectively
- ------------------------
We can provide breadth in our product portfolio
- ------------------------
We can offer a control label to stores that don't own a private label
- ------------------------
We can enter food service and institutional markets more readily
- ------------------------
We can meet different client customization needs
- ------------------------
We can make our sales teams more effective
- ------------------------
8
<PAGE>
If the foregoing benefits had to be summed in a word, that word might be
flexibility. For example, we can provide customized product formulations - bear
claws, perhaps - to supermarkets and convenience stores using the Snak n' Fresh
or Aunt Sweetie's brand rather than the Tastykake brand. That flexibility
protects brand equity. Certainly, we want no marketplace confusion about what
our brand names stand for. Tastykake, for instance, is and will remain our
flagship snack cake brand. It should. Beyond having unequaled brand equity in
our traditional trading areas, the Tastykake brand is gaining wider recognition.
It is the fastest growing national snack cake brand, rising from a 7% to an 8%
market share last year. In 1997, our sales to supermarkets grew at a rate of
6.1%.
Outlook
Tasty enters 1998 in excellent shape. The company is solidly profitable,
earnings are increasing, our expenses are under control, and our balance sheet
is sound. By virtually any measure, Tasty and Tasty shareholders did
exceptionally well in 1997 and we expect positive results going forward.
One challenge facing us now is to stimulate revenue growth, to sell more baked
goods. We have a multi-pronged strategy in place to get that job done. We are
expanding our marketing territory vigorously. Our Midwest expansion initiative
is especially promising and we are off to a very solid start in the Chicago
marketplace. We are formulating
9
<PAGE>
new products at a record pace so that customers will have a growing list of
reasons to choose a Tasty product. We are also giving consumers more
opportunities to choose a Tasty product. We are expanding the production of
yeast-raised baked goods at our Oxford bakery. And we are selling those products
under a family of brands concept that will let us compete more effectively in
the food service marketplace.
During 1998, we expect these strategies to bring results. Our new Oxford bakery
is now ready to contribute to sales and earnings. Dutch Mill has shown
increasing productivity and profitability, a trend we expect to continue through
the upcoming year. Our expanded marketing territory is beginning to make an
impact on our sales figures. That impact will grow in 1998. We will continue to
seek acquisition opportunities throughout the upcoming year.
We are committed to a long list of strategic initiatives, all focused on a very
short list of critical objectives. At the top of that short list is maximizing
shareholder value through growth in net income. We will manage this Company and
the Tasty family of brands with that goal uppermost in mind.
Helping in that task is an extraordinarily capable group of people, a list
headed by Philip J. Baur, Jr. who has stepped down as Chairman of our Board of
Directors after a distinguished 45-year career. In succeeding him in that
position, I have a particularly good vantage point from which to appreciate the
many contributions he has made to Tasty Baking Company over that time. I look
forward to his continuing counsel as a member of our board.
This is an exciting time for Tasty. The Company is well positioned and on the
move. We intend to translate that action into even greater returns for our
shareholders.
/s/ Carl S. Watts
Carl S. Watts
Chairman, President & Chief Executive Officer
10
<PAGE>
Financial Information
Management's Review
12 Summary of Significant Accounting Policies
13 Management's Analysis
16 Quarterly Summary
17 Five Year Selected Financial Data
Consolidated Financial Statements
18 Operations and Retained Earnings
19 Cash Flows
20 Balance Sheets
22 Changes in Capital Accounts
23 Notes to Consolidated Financial Statements
31 Report of Independent Accountants
11
<PAGE>
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.
Long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable
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.
Net Income Per Common Share
Net income per common share is calculated according to the requirements of
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.
12
<PAGE>
Management's Analysis
Results of Operations
Net income for the fiscal year ended December 27, 1997 was $6,067,177 or $.78
per share. Included in net income for 1997 is an after-tax charge of $1,171,170
or $.15 per share resulting from a settlement with the IRS concerning payroll
taxes for the company's independent owner/operators for tax years 1990-1997 and
related expenses. After eliminating the effect of the payroll tax settlement,
the 1997 results were $7,238,347 or $.93 per share compared to $6,304,579 or
$.82 per share for the fiscal year ended December 28, 1996, representing
increases of 14.8% and 13.4%, respectively. Net income reported for the fiscal
year ended December 30, 1995 was $5,640,112 or $.73 per share. The comparable
1995 net income was $4,989,403 or $.65 per share after eliminating the
after-tax effects of a charge of $550,000 or $.07 per share for severance cost,
a charge of $550,868 or $.07 per share related to the remeasuring of the
company's deferred tax assets and an increase of $1,751,577 or $.22 per share
related to the amortization of the gain on the sale of company routes.
Gross sales increased to $222,054,329 in 1997 from $212,508,870 in 1996
representing an increase of 4.5% due to price increases in effect for the entire
year. In 1996 gross sales increased to $212,508,870 from $205,180,282 in 1995
representing an increase of 3.6%. In 1996, Dutch Mill Baking Company, Inc.
(Dutch Mill), which was acquired on August 29, 1995, contributed gross sales of
$6,017,668 compared to $1,924,856 in 1995. On a comparable basis, excluding the
gross sales contributed by Dutch Mill, gross sales increased $3,235,776 or 1.6%.
The increase was due to excellent market conditions in the second half of 1996
and gradual acceptance of the price increases instituted by the company. In
1995, gross sales increased modestly to $205,180,282 compared to $202,703,889 in
1994 representing an increase of 1.2%. On a comparable basis, excluding the
gross sales contributed by Dutch Mill, gross sales remained relatively unchanged
increasing $551,537 or .3% as a result of the continuing soft economy in the
snack cake industry.
Net sales increased to $149,291,974 in 1997 from $146,718,391 in 1996
representing an increase of 1.8%. Relative to gross sales, this increase was
lower due to the effect of an increase in promotions and discounts. In 1996, net
sales increased to $146,718,391 from $141,831,073 in 1995 representing an
increase of 3.4%. In 1996, Dutch Mill contributed $3,573,720 compared to
$1,217,737 in 1995. On a comparable basis, excluding the net sales contributed
by Dutch Mill, net sales increased $2,531,335 or 1.8%. The net sales increase
for 1996 was consistent with the increase in gross sales. 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 Dutch Mill, net sales decreased by
$1,441,775 or 1.0% for 1995 when compared to 1994. This decrease in net sales is
attributable to an increase in returns.
Cost of sales as a percentage of net sales was 60.8%, 62.0%, and 63.0% in 1997,
1996 and 1995, respectively. The improvement in gross margin during 1997 was due
to further improvements in manufacturing efficiencies, moderating commodity
costs, reduced utility costs and price increases in effect for the entire year.
In 1996, the company realized an improvement in gross margin as a result of
favorable price increases on selected products and improvements in plant
operating efficiencies. In 1995, after an adjustment for shipping cases formerly
reported in selling, general and administrative expenses, the company realized a
decrease in gross margins, primarily as a result of higher ingredient and
packaging costs.
Selling, general and administrative expenses in fiscal year 1997 increased
$1,576,509 or 4.1% over fiscal year 1996. The principal reasons for the increase
were higher advertising costs, an increase in selling expense, and the effect of
Tasty Baking Oxford, Inc. (Oxford). Oxford was acquired on July 1, 1996 and
became operational during the second quarter of 1997. Advertising costs
increased from a television advertising campaign undertaken in the first half of
1997 and selling expense increased due to costs associated with regional
re-alignment and higher exhibition costs. These increases were partially offset
by a decrease in administrative costs. In 1996 selling, general and
administrative expenses increased $1,581,518 or 4.3% over fiscal year 1995. Most
of the increase
13
<PAGE>
can be attributed to a full year of Dutch Mill expenses versus four months in
1995. The remaining increases were selling and shipping costs associated with
the higher sales. These increases were partially offset by a reduction in
advertising expense. In 1995, selling, general and administrative expenses
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 restructuring program implemented in the second
quarter of 1994 which was somewhat offset by increased advertising expenditures.
Depreciation expense in 1997 remained relatively unchanged as certain production
equipment that became fully depreciated in 1996 was offset by additional
depreciation expense on new equipment at the Oxford facility. Depreciation
expense in 1996 and 1995, excluding the effect of Dutch Mill, remained
relatively unchanged.
Other income, net decreased in 1997 compared to 1996 by $135,341 as a result of
a decrease in rental income that was partially offset by an increase in interest
income. Other income, net decreased in 1996 compared to 1995 by $3,158,592 which
is attributed to the amortization of the gain on sale of company routes in 1995.
In 1995, the total gain on the sale of company routes, which has been fully
amortized, was $3,162,033 resulting in an after-tax increase to net income of
$1,751,577 or $.22 per share. The increase in 1995 compared to 1994 was due to
the increase in the amortization of the gain on sale of company routes.
Interest expense in 1997 increased as a result of higher average borrowing
levels and higher average interest rates. Interest expense in 1996 decreased as
a result of lower average borrowing levels and lower average interest rates.
Interest expense in 1995 decreased as a result of lower average borrowing levels
somewhat offset by higher average interest rates.The effective tax rate in 1997
was 37.7%. In 1997, the principal reason for the difference between the
effective rate and statutory rate was the effect of state income taxes partially
offset by benefits related to certain permanent differences. The effective tax
rates in 1996 and 1995 were 38.6% and 45.8%, respectively. In 1995, excluding
the effect of the decrease in the company's net deferred tax asset, the
effective tax rate was 40.6%. The principal reason for the difference between
the effective rate and statutory rate for 1996 and 1995 was the effect of state
income taxes.
In December 1997, the company entered into a Closing Agreement (Agreement) with
the Internal Revenue Service relative to their proposed assessment for payroll
taxes on the company's independent owner/operators. The terms of the Agreement
require that effective December 28, 1997, non-incorporated independent
owner/operators be classified as 93statutory employees' for payroll tax
purposes only, and that the company withhold and match payroll taxes based on
their estimated earnings. The company incurred a pre-tax charge of $1,950,000 in
the fourth quarter of 1997 for the settlement of years 1990-1997, and related
expenses (see Note 4). The company anticipates that there will be no material
adverse effect on future earnings as a result of the Agreement.
The company is currently engaged in a continuing project to upgrade its computer
hardware and software in order to improve its operating performance and avoid
any potential "year 2000" problems it may encounter. To date, the project is
proceeding on schedule and is expected to be completed during 1999. As a result,
the company believes that there will be no adverse effect on operations relative
to any "year 2000" issues.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income"
which establishes standards for reporting and presentation of comprehensive
income and its components in the financial statements. SFAS No. 130 is effective
for fiscal years beginning after December 15, 1997. The adoption of SFAS No. 130
is not expected to have any impact on the company's consolidated results of
operations, financial position or cash flows.
14
<PAGE>
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.
Net cash from operating activities in 1997 decreased by $3,268,120 to
$12,567,651 from the 1996 amount of $15,835,771. This decrease was primarily due
to an unfavorable change in accrued income taxes due to the payment of the 1996
balance and an increase in estimated payments during 1997. There were also
unfavorable changes in receivables and inventories partially offset by a
favorable change in accrued pensions, accounts payable and other current
liabilities, which included the amount accrued for the IRS settlement. Net cash
from operating activities was used to fund dividend payments of $3,544,121 and
most of the capital expenditures.
Capital expenditures totaled $10,528,359 in 1997 of which approximately
$5,900,000 can be attributed to the new Oxford facility. The remaining capital
expenditures continued to upgrade the bakery's production equipment and began
the upgrading of the computer system for the company and its subsidiaries. The
balance of the capital expenditures not funded by operating cash and the excess
of new loans granted to owner/operators not funded by the proceeds from existing
loans came from bank borrowings.
Net cash from operating activities increased in 1996 by $4,640,480 over the 1995
amount and totaled $15,835,771, a record amount from bakery operations. The
increase resulted principally from favorable changes in net income, receivables,
inventories and other working capital items. Net cash from operating activities
was used primarily to fund capital expenditures of $12,534,926 and dividend
payments of $3,465,208.
Capital expenditures totaled $12,534,926 in 1996 of which approximately
$8,900,000 represented the company's investment to date in the new Oxford
facility which was acquired in July 1996. The remaining capital expenditures
were made to continue the program of upgrading the company's bakery production
equipment. New loans to owner/operators in 1996 were funded entirely from
owner/operator loan payments and pay-offs which exceeded new loans by $773,717.
This excess was used principally to reduce short-term debt.
Net cash from operating activities 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 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.
The company anticipates that cash flow from operating activities will improve in
1998, and with the continued availability of bank lines of credit, the Revolving
Credit Agreement and other long-term financing, sufficient cash will be
available for planned capital expenditures and other operating and financial
requirements.
15
<PAGE>
Quarterly Summary (Unaudited)
Summarized quarterly financial data (in thousands of dollars except for per
share amounts) for 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
First Second Third Fourth Year
<S> <C> <C> <C> <C> <C>
1997(a)
Gross sales $55,633 $57,652 $53,652 $55,117 $222,054
Net sales 37,455 38,974 36,045 36,818 149,292
Gross profit (after depreciation) 12,587 13,503 11,719 13,513 51,322
Net income 1,614 2,107 1,196 1,150 6,067
Per share of common stock(b):
Net income:
Basic .21 .27 .15 .15 .78
Diluted .21 .27 .15 .14 .77
Cash dividends .112 .112 .112 .12 .456
Market prices(b):
High 14.40 14.30 17.35 20.13 20.13
Low 10.40 12.60 13.90 16.95 10.40
1996
Gross sales $51,354 $54,781 $52,756 $53,618 $212,509
Net sales 35,944 37,749 36,022 37,003 146,718
Gross profit (after depreciation) 11,287 12,601 11,851 12,756 48,495
Net income 1,219 1,837 1,052 2,197 6,305
Per share of common stock(b):
Net income:
Basic and Diluted .16 .24 .14 .28 .82
Cash dividends .112 .112 .112 .112 .448
Market prices(b):
High 10.20 9.50 10.30 12.00 12.00
Low 8.90 8.50 8.70 10.00 8.50
</TABLE>
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 through September 23, 1996 and the New York Stock Exchange for the
remainder of 1996 and all of 1997. The approximate number of holders of record
of the company's common stock (par value $.50 per share) as of February 13, 1998
was 3,500.
(a) Includes an after-tax charge to net income in the fourth quarter in the
amount of $1,171,170 or $.15 per share resulting from a settlement with the
IRS concerning payroll taxes for the company's independent owner/operators
for tax years 1990-1997 and related expenses.
(b) The first through third quarters of 1997 and all four quarters of 1996 have
been restated to reflect the five-for-four stock split.
16
<PAGE>
Five Year Selected Financial Data
All amounts presented are in thousands except for per share amounts.
<TABLE>
<CAPTION>
1997(a) 1996 1995(d) 1994(e) 1993(f)
<S> <C> <C> <C> <C> <C>
Operating Results
Gross Sales $222,054 $212,509 $205,180 $202,704 $199,548
Net Sales $149,292 $146,718 $141,831 $142,055 $137,773
Income from Continuing Operations(c) $ 6,067 $ 6,305 $ 5,640 $ 5,801 $ 5,687
Per Share Amounts(b)
Income from Continuing Operations(c):
Basic $ .78 $ .82 $ .73 $ .76 $ .75
Diluted $ .77 $ .82 $ .73 $ .76 $ .75
Cash Dividends $ .456 $ .448 $ .448 $ .424 $ .524
Shareholders Equity $ 5.34 $ 5.02 $ 4.65 $ 4.30 $ 3.94
Financial Position
Working Capital $ 10,484 $ 10,160 $ 13,944 $ 12,340 $ 10,776
Total Assets $ 94,319 $ 87,428 $ 85,303 $ 87,136 $ 90,505
Long-term Obligations $ 8,360 $ 6,434 $ 6,230 $ 7,516 $ 11,206
Shareholders Equity $ 41,595 $ 38,907 $ 35,938 $ 32,951 $ 30,243
Shares of Common Stock
Outstanding(b) 7,791 7,742 7,731 7,670 7,670
Statistical Information
Capital Expenditures, Net $ 10,439 $ 12,479 $ 3,685 $ 3,705 $ 7,305
Depreciation $ 7,215 $ 7,268 $ 7,463 $ 7,327 $ 6,785
Average Common Shares Outstanding(b):
Basic 7,770 7,734 7,690 7,671 7,624
Diluted 7,896 7,734 7,701 7,675 7,626
<FN>
(a) Net income and per share amounts include an after-tax charge of $1,171,170
or $.15 per share resulting from a settlement with the IRS concerning
payroll taxes for the company's independent owner/operators for tax years
1990-1997 and related expenses.
(b) Prior years have been restated to reflect the five-for-four stock split.
(c) Amortization of the gain on sale of company routes resulted in increased
income from continuing operations of $1,752,000 or $.22 per share in 1995,
$898,000 or $.12 per share in 1994, and $893,000 or $.12 per share in 1993.
(d) Income from continuing operations and per share amounts include after-tax
charges of $550,000 or $.07 per share for severance costs and $551,000 or
$.07 per share resulting from a remeasuring of the company' s deferred tax
assets and liabilities.
(e) Income from continuing operations and per share amounts include an
after-tax charge in the amount of $719,000 or $.09 per share for a
restructuring program.
(f) 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>
17
<PAGE>
Consolidated Statements of Operations and Retained Earnings
<TABLE>
<CAPTION>
52 Weeks Ended 52 Weeks Ended 52 Weeks Ended
Dec. 27, 1997 Dec. 28, 1996 Dec. 30, 1995
Operations
<S> <C> <C> <C>
Gross Sales $ 222,054,329 $ 212,508,870 $ 205,180,282
Less discounts and allowances (72,762,355) (65,790,479) (63,349,209)
------------- ------------- -------------
Net sales 149,291,974 146,718,391 141,831,073
------------- ------------- -------------
Costs and expenses:
Cost of sales 90,754,876 90,955,370 89,403,295
Depreciation 7,214,997 7,267,639 7,463,311
Selling, general and administrative 40,198,649 38,622,140 37,040,622
Payroll tax settlement and severance charges 1,950,000 -- 950,000
Interest expense 536,820 520,375 675,613
Provision for doubtful accounts 499,787 825,145 785,036
Other income, net (1,607,522) (1,742,863) (4,901,455)
------------- ------------- -------------
139,547,607 136,447,806 131,416,422
------------- ------------- -------------
Income before provision for income taxes 9,744,367 10,270,585 10,414,651
------------- ------------- -------------
Provision for income taxes:
Federal 3,183,866 3,528,932 2,345,811
State 881,528 784,352 500,319
Deferred (388,204) (347,278) 1,377,541
Decrease in net deferred tax asset due to change in tax rate -- -- 50,868
------------- ------------- -------------
3,677,190 3,966,006 4,774,539
------------- ------------- -------------
Net income 6,067,177 6,304,579 5,640,112
Retained Earnings
Balance, beginning of year 22,265,220 19,425,849 17,228,764
Cash dividends paid on common shares(a)
($.456 per share in 1997 and $.448 per share in 1996 and 1995) (3,544,121) (3,465,208) (3,443,027)
Balance, end of year $ 24,788,276 $ 22,265,220 $ 19,425,849
------------- ------------- -------------
Net income per common share - Basic $ .78 $ .82(a) $ .73(a)
------------- ------------- -------------
Net income per common share - Diluted $ .77 $ .82(a) $ .73(a)
------------- ------------- -------------
<FN>
(a) Restated to reflect five-for-four stock split.
</FN>
</TABLE>
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
18
<PAGE>
Consolidated Financial Statements
Tasty Baking Company and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
52 Weeks Ended 52 Weeks Ended 52 Weeks Ended
Dec. 27, 1997 Dec. 28, 1996 Dec. 30, 1995
<S> <C> <C> <C>
Cash flows from (used for) operating activities
Net income $ 6,067,177 $ 6,304,579 $ 5,640,112
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 7,214,997 7,267,639 7,463,311
Provision for doubtful accounts 499,787 825,145 785,036
Deferred taxes (388,204) (346,213) 1,928,409
Other 864,332 754,438 (2,796,406)
Changes in assets and liabilities:
Decrease (increase) in receivables (2,198,607) 843,167 (1,271,407)
Decrease (increase) in inventories (440,690) 407,770 (148,302)
Decrease (increase) in prepayments and other 48,591 454,398 (482,770)
Increase (decrease) in accrued income taxes (1,901,206) 1,474,887 (893,111)
Increase (decrease) in accrued pensions,
accounts payable and other current liabilities 2,801,474 (2,150,039) 970,419
------------- ------------- -------------
Net cash from operating activities 12,567,651 15,835,771 11,195,291
------------- ------------- -------------
Cash flows from (used for) investing activities
Proceeds from owner/operators' loan repayments 3,368,285 3,804,198 3,276,511
Purchase of property, plant and equipment (10,528,359) (12,534,926) (4,108,984)
Loans to owner/operators (4,320,365) (3,030,481) (3,442,811)
Other 55,947 114,483 85,115
------------- ------------- -------------
Net cash used for investing activities (11,424,492) (11,646,726) (4,190,169)
------------- ------------- -------------
Cash flows from (used for) financing activities
Dividends paid (3,544,121) (3,465,208) (3,443,027)
Payment of long-term debt (1,645,685) (6,875,575) (2,524,242)
Net increase (decrease) in short-term debt 900,000 (700,000) (1,100,000)
Additional long-term debt 3,500,000 7,000,000 --
Other 161,398 -- --
------------- ------------- -------------
Net cash used for financing activities (628,408) (4,040,783) (7,067,269)
------------- ------------- -------------
Net increase (decrease) in cash 514,751 148,262 (62,147)
Cash, beginning of year 233,366 85,104 147,251
------------- ------------- -------------
Cash, end of year $ 748,117 $ 233,366 $ 85,104
------------- ------------- -------------
Supplemental cash flow information
Cash paid during the year for:
Interest $ 591,090 $ 600,135 $ 718,587
------------- ------------- -------------
Income taxes $ 5,947,420 $ 2,421,142 $ 4,116,161
------------- ------------- -------------
</TABLE>
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
19
<PAGE>
Consolidated Balance Sheets
<TABLE>
<CAPTION>
Dec. 27, 1997 Dec. 28, 1996
Assets
Current Assets:
<S> <C> <C>
Cash $ 748,117 $ 233,366
Receivables, less allowance of $2,548,552 and $2,394,864, respectively 18,661,411 16,962,591
Inventories 3,296,202 2,855,512
Deferred income taxes 2,068,879 2,504,715
Prepayments and other 172,708 221,299
------------ ------------
Total current assets 24,947,317 22,777,483
------------ ------------
Property, plant and equipment:
Land 1,267,095 1,267,095
Buildings and improvements 27,843,342 27,366,281
Machinery and equipment 120,598,909 110,715,679
------------ ------------
149,709,346 139,349,055
Less accumulated depreciation and amortization 105,501,230 98,375,648
------------ ------------
44,208,116 40,973,407
------------ ------------
Other assets:
Long-term receivables 11,233,128 10,288,159
Deferred income taxes 11,059,696 10,235,656
Spare parts inventory 2,425,837 2,779,531
Miscellaneous 445,284 374,128
------------ ------------
25,163,945 23,677,474
------------ ------------
$ 94,319,378 $ 87,428,364
------------ ------------
</TABLE>
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
20
<PAGE>
<TABLE>
<CAPTION>
Dec. 27, 1997 Dec. 28, 1996
Liabilities
Current Liabilities:
<S> <C> <C>
Current portion of long-term debt $ 29,354 $ 58,340
Current obligations under capital leases 543,962 587,336
Notes payable, banks 900,000 --
Accounts payable 4,345,944 3,963,610
Accrued payrolls and employee benefits 6,817,319 5,608,274
Accrued income taxes -- 1,474,887
Other 1,826,981 925,338
----------- -----------
Total current liabilities 14,463,560 12,617,785
----------- -----------
Long-term debt, less current portion 7,773,053 5,302,416
----------- -----------
Long-term obligations under capital leases, less current portion 587,156 1,131,118
----------- -----------
Accrued pensions and other liabilities 11,771,540 11,203,178
----------- -----------
Postretirement benefits other than pensions 18,129,226 18,267,013
----------- -----------
Shareholders' Equity
Common stock, par value $.50 per share, and entitled to one vote per share:
Authorized 15,000,000 shares, issued 9,116,483 and 9,111,358(a) shares, respectively 4,558,243 4,555,680(a)
Capital in excess of par value of stock 29,337,938 28,831,377(a)
Retained earnings 24,788,276 22,265,220
----------- -----------
58,684,457 55,652,277
Less:
Treasury stock, at cost:
1,325,721 shares and 1,369,317(a) shares, respectively 16,738,364 16,329,055
Management Stock Purchase Plan receivables and deferrals 351,250 416,368
----------- -----------
41,594,843 38,906,854
----------- -----------
$94,319,378 $87,428,364
----------- -----------
</TABLE>
(a) Restated to reflect five-for-four stock split.
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
21
<PAGE>
Consolidated Statements of Changes in Capital Accounts
<TABLE>
<CAPTION>
Dec. 27,1997 Dec. 28,1996(a) Dec. 30,1995(a)
Shares Amount Shares Amount Shares Amount
<S> <C> <C> <C> <C> <C> <C>
Common Stock:
Balance, beginning of year 9,111,358 $4,555,680 9,111,358 $4,555,680 9,111,358 $4,555,680
Issuances:
Stock Option Plan 5,125 2,563 -- -- -- --
--------- ----------- --------- ----------- --------- -----------
Balance, end of year 9,116,483 $4,558,243 9,111,358 $4,555,680 9,111,358 $4,555,680
========= =========== ========= =========== ========= ===========
Capital in Excess of
Par Value of Stock:
Balance, beginning of year $28,831,377 $28,751,194 $28,264,374
Issuances:
Management Stock
Purchase Plan 20,988 68,251 36,118
Stock Option Plan 466,192 -- --
Purchase of subsidiary -- -- 423,774
Tax benefits related to
Management Stock
Purchase Plan and
Stock Option Plan 19,381 11,932 26,928
--------- ----------- --------- ----------- --------- -----------
Balance, end of year $29,337,938 $28,831,377 $28,751,194
========= =========== ========= =========== ========= ===========
Treasury Stock:
Balance, beginning of year 1,369,317 $16,329,055 1,380,297 $16,364,757 1,440,804 $16,601,793
Management Stock
Purchase Plan:
Reissued (4,919) (30,658) (11,949) (43,716) (7,030) (36,433)
Reacquired 1,847 14,743 969 8,014 3,958 24,638
Shares reacquired (reissued)
in connection with:
Stock Option Plan (41,608) 405,441 -- -- -- --
Stock split - fractional shares 1,084 19,783 -- -- -- --
Purchase of subsidiary -- -- -- -- (57,435) (225,241)
--------- ----------- --------- ----------- --------- -----------
Balance, end of year 1,325,721 $16,738,364 1,369,317 $16,329,055 1,380,297 $16,364,757
========= =========== ========= =========== ========= ===========
Management Stock Purchase
Plan Receivables and Deferrals:
Balance, beginning of year $416,368 $429,813 $496,196
Common stock issued 51,647 111,966 72,550
Common stock
repurchased (16,489) (10,608) (33,602)
Note payments and
amortization of
deferred compensation (100,276) (114,803) (105,331)
--------- ----------- --------- ----------- --------- -----------
Balance, end of year $351,250 $416,368 $429,813
========= =========== ========= =========== ========= ===========
</TABLE>
(a) Restated to reflect five-for-four stock split.
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
22
<PAGE>
Notes to Consolidated Financial Statements
1. Manufacturing Facility:
On July 1, 1996, the company, through a wholly-owned subsidiary, Tasty Baking
Oxford, Inc., completed the purchase for $4,000,000 of a 160,000 square foot
manufacturing facility in Oxford, Chester County, Pennsylvania. This facility is
currently enabling the company to manufacture products that were made by other
suppliers, improve operating margins on those products and expand new product
offerings. The first manufacturing line at the facility began making products in
the first quarter of 1997. A second manufacturing line was completed in the
fourth quarter of 1997 and products will be available for sale in the first
quarter of 1998.
2. 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
57,435 shares of the company's common stock valued at $649,000. Dutch Mill,
based in Wyckoff, New Jersey, produces primarily donuts 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 there would have been no significant impact on the company's
consolidated results of operations.
3. Stock Split:
On October 24, 1997, the Board of Directors approved a five-for-four stock split
of the company's common stock for the shareholders of record as of November 7,
1997, which was distributed on December 1, 1997. Shareholders' equity, for all
years presented, has been adjusted to give retroactive effect to the stock split
by reclassifying the aggregate par value of the additional shares in an amount
of $911,136 from capital in excess of par value of stock to common stock.
Additionally, all share and per share amounts as well as stock option data, have
been restated to give retroactive effect to the stock split.
4. Payroll Tax Settlement and Severance Charges:
During the fourth quarter of 1997, the company incurred a pre-tax charge of
$1,950,000 which represents a settlement with the IRS concerning payroll taxes
for the company's independent owner/operators for tax years 1990-1997 and
related expenses. Unpaid amounts relating to this charge are included in other
current liabilities on the balance sheet. The after-tax effect of this charge
resulted in a reduction of net income of $1,171,170 or $.15 per share.
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 $.07 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 implemented in 1994. During 1997, 1996 and 1995, payments approximating
$133,000, $266,000 and $288,000, respectively, were made in connection with the
severance charge.
5. Inventories:
Inventories are classified and valued as follows:
Dec. 27, 1997 Dec. 28, 1996
Classification:
Finished goods $ 775,417 $ 665,254
Work in progress 580,362 563,381
Raw materials and supplies 1,940,423 1,626,877
---------- ----------
$3,296,202 $2,855,512
========== ==========
Valued at lower of cost or market:
First-in, first-out (FIFO) $2,561,739 $2,155,455
Last-in, first-out (LIFO) 734,463 700,057
---------- ----------
$3,296,202 $2,855,512
========== ==========
For the inventories stated on the LIFO basis, the current replacement cost
exceeds LIFO value by approximately $435,000 at December 27, 1997 and $467,000
at December 28, 1996.
23
<PAGE>
6. 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 27,
1997 and December 28, 1996, notes receivable of $12,870,000 and $12,423,000,
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 in 1995.
7. 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 8). 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 $900,000 were outstanding at December 27, 1997 at an interest rate of
5.84%. Notes payable had a zero balance at December 28, 1996. The average
outstanding borrowing during 1997 was $1,637,000 ($986,000 in 1996) and the
average interest rate was 5.89% (5.47% in 1996), calculated on the basis of the
average daily balance. The maximum short-term borrowings by the company at any
period end during 1997 aggregated $2,750,000 ($3,900,000 in 1996).
8. Long-Term Debt:
<TABLE>
<CAPTION>
Long-term debt consists of the following:
Dec. 27, 1997 Dec. 28, 1996
<S> <C> <C>
Revolving Credit Agreement ('89 Agreement), with interest at or below
the prime rate (6.0% average rate at December 27, 1997) $7,500,000 $4,000,000
Term Loan exercised under a Revolving Credit Agreement ('92 Agreement), with
interest at 6.5%, $44,877 principal and interest payments due quarterly
beginning April 3, 1994 with a final payment of $1,031,236 due January 2, 1997 -- 1,031,236
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 302,407 329,520
---------- ----------
7,802,407 5,360,756
Less current portion 29,354 58,340
---------- ----------
$7,773,053 $5,302,416
========== ==========
</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, 2000. 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.
24
<PAGE>
8. Long-Term Debt (continued):
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 the '89 Agreement. 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 27, 1997 is based on the stated maturity dates of the various long-term
borrowings and does not reflect future extensions or refinancings.
1998 $ 29,354
1999 273,053
2000 7,500,000
----------
Total principal payments $7,802,407
==========
9. Obligations Under Capital Leases:
Obligations under capital leases consist of the following:
<TABLE>
<CAPTION>
Dec. 27, 1997 Dec. 28, 1996
<S> <C> <C>
Capital lease obligation, with interest at 11%, payable in monthly installments
of $43,833 through June 1999 $ 724,351 $1,145,269
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 406,767 573,185
---------- ----------
1,131,118 1,718,454
Less current portion 543,962 587,336
---------- ----------
$ 587,156 $1,131,118
========== ==========
</TABLE>
10. 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, 1996. 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 27, 1997 and December 28, 1996 with accumulated amortization of
$4,689,000 and $4,423,000, respectively. Depreciation and amortization of assets
recorded under capital leases was $267,000, $247,000 and $237,000 in 1997, 1996
and 1995, respectively.
The following is a schedule of future minimum lease payments as of December 27,
1997:
Noncancelable
Capital Leases Operating Leases
1998 $631,717 $887,833
1999 359,627 731,930
2000 96,627 590,303
2001 96,627 316,928
2002 96,627 128,348
Later years 8,053 35,389
---------- ----------
Total minimum lease payments $1,289,278 $2,690,731
==========
Less interest portion of payments 158,160
----------
Present value of future minimum lease payments $1,131,118
==========
25
<PAGE>
10. Commitments and Contingencies (continued):
Rental expense was approximately $1,396,000 in 1997, $1,222,000 in 1996 and
$1,113,000 in 1995. In connection with a workers compensation insurance policy,
the company has obtained a Standby Letter of Credit in the amount of $1,300,000
which is required by the insurance company in order to guarantee future payment
of premiums.
The company and its subsidiaries are 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 or results of
operations of the company.
11. 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 employees' 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.
The components of pension cost are summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Service cost-benefits earned during the year $ 1,292,000 $ 1,315,000 $ 1,033,000
Interest cost on projected benefit obligation 4,910,000 4,811,000 4,984,000
Actual return on plan assets (9,324,000) (6,527,000) (10,068,000)
Net amortization and deferral 3,486,000 1,011,000 5,186,000
------------ ------------ ------------
Net amount charged to income $ 364,000 $ 610,000 $ 1,135,000
============ ============ ============
</TABLE>
The following table sets forth the funded status of the pension plan at December
27, 1997 and December 28, 1996 and the amounts recognized in the accompanying
consolidated balance sheets.
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Plan assets at fair value $ 67,806,000 $ 62,699,000
Actuarial present value of benefit obligations:
Vested 58,501,000 54,731,000
Nonvested 2,396,000 2,147,000
------------ ------------
Accumulated benefit obligations 60,897,000 56,878,000
Effect of projected future salary increases 11,479,000 10,060,000
------------ ------------
Projected benefit obligations 72,376,000 66,938,000
------------ ------------
Plan assets less than projected benefit obligations (4,570,000) (4,239,000)
Unrecognized net (gain) loss (2,905,000) (2,504,000)
Unrecognized net transition asset (1,519,000) (1,888,000)
------------ ------------
Pension liability $ (8,994,000) $ (8,631,000)
============ ============
</TABLE>
The actuarial present value of benefits and projected benefit obligations was
determined using a discount rate of 7.0% for fiscal year 1997, 7.50% for fiscal
year 1996 and 7.25% for fiscal year 1995. 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 1997, 1996 and 1995. Plan
assets are invested in a diverse portfolio that primarily consists of equity and
debt securities as well as certain rea property and subsequent improvements with
additions thereto.
12. 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. Effective January 1, 1996, the company
amended its plan to provide health care benefits to retired employees' spouses.
As a result, the unrecognized prior service cost amounted to $1,559,217 which is
being amortized over a five year period using the straight line method.
26
<PAGE>
12. Postretirement Benefits Other than Pensions (continued):
The net periodic postretirement benefit cost included the following components:
1997 1996 1995
Service cost $ 302,747 $ 266,489 $ 137,530
Interest cost 900,932 917,257 901,760
Net amortization and deferral (219,835) (211,434) (657,253)
--------- --------- ---------
$ 983,844 $ 972,312 $ 382,037
========= ========= =========
The amounts recognized in the company's balance sheet at December 27, 1997 and
December 28, 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
Accumulated postretirement benefit obligation:
<S> <C> <C>
Retirees $ (8,059,164) $ (8,525,409)
Fully eligible active employees (2,256,885) (1,980,385)
Other active employees (2,893,545) (2,396,635)
Unrecognized net gain (5,867,391) (6,618,072)
Unrecognized prior service cost 947,759 1,253,488
------------ ------------
$(18,129,226) $(18,267,013)
============ ============
</TABLE>
The accumulated postretirement benefit obligation was determined using a 7.0%,
7.50% and 7.25% weighted average discount rate in 1997, 1996 and 1995,
respectively, and an assumed compensation increase rate of 6% was used for
fiscal years ended 1997, 1996 and 1995. For 1997, the health care cost trend
rates are anticipated to be 7.67% and 7.00% for indemnified health plans and
HMO-type health plans, respectively, gradually declining to 5% in seven 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 $412,000, $371,000 and $219,000 in 1997,
1996 and 1995, respectively and the net periodic cost by $52,000, $49,000 and
$25,000 in 1997, 1996 and 1995, respectively.
13. 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 totaled $355,077 in 1997,
$369,169 in 1996 and $370,124 in 1995.
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 188,527 shares of its common stock reserved for possible
issuance under the Plan at December 27, 1997.
14. 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 1997 and
1996, a total of 4,919 and 11,949 shares of common stock was sold at 50% of fair
market value at date of grant. The aggregate sales price of these shares was
$25,775 and $55,836, 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 4.125% in 1997, and 4.25% and 4.125% in 1996.
At December 27, 1997, a total of 931,567 common shares was authorized under the
Plan, of which 231,353 shares remain available for issuance through December 31,
1997.
For accounting purposes, the difference between the fair market value of the
stock at the date of grant and the purchase price, $25,872 in 1997 and $56,130
in 1996, 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 $41,526, $38,755 and $51,444, in 1997, 1996 and 1995, respectively.
27
<PAGE>
14. Management Stock Purchase Plan (continued):
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.
15. Stock Option Plans:
Effective December 18, 1997, the Board of Directors approved the 1997 Long Term
Incentive Plan, subject to the approval of the shareholders at their April 1998
meeting. Under the terms of the 1997 Plan, options to purchase a total of
375,000 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 company also has options
outstanding under the 1994 Long Term Incentive Plan, the 1991 Long Term
Incentive Plan and the 1985 Stock Option Plan, the terms and conditions of which
are similar to the 1997 Long Term Incentive Plan.
Transactions involving the Plans are summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
Weighted-Average Weighted-Average Weighted-Average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at
beginning of year 508,750 $10.95 399,375 $10.77 310,625 $10.80
Less: Forfeitures -- -- -- -- (30,000) 10.81
Exercises (165,375) 10.93 -- -- -- --
------- ------ ------- ------ ------- ------
343,375 399,375 280,625
Granted 156,500 18.31 109,375 11.60 118,750 10.70
------- ------ ------- ------ ------- ------
Outstanding at end of year 499,875 $13.26 508,750 $10.95 399,375 $10.77
======= ====== ======= ====== ======= ======
Options exercisable at year-end 229,925 286,750 209,500
Range of exercise prices $10.40 to 18.31 $10.40 to 11.60 $10.40 to 11.00
Weighted-average fair value of
options granted during the year $3.56 $2.02 $1.80
Weighted-average remaining
contractual life 8.3 years 6.9 years 7.1 years
</TABLE>
A summary of the status of options granted to the Directors by the company as of
the fiscal years 1997, 1996 and 1995 is presented below:
<TABLE>
<CAPTION>
1997 1996 1995
Weighted-Average Weighted-Average Weighted-Average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at
beginning of year 96,342 $ 11.35 73,050 $ 11.00 93,096 $ 11.00
Less: Forfeitures -- -- -- -- (20,046) 11.00
Expirations -- -- (32,958) 11.00 -- --
------- ------ ------- ------ ------- ------
96,342 40,092 73,050
Granted -- -- 56,250 11.60 -- --
------- ------ ------- ------ ------- ------
Outstanding at end of year 96,342 $ 11.35 96,342 $ 11.35 73,050 $ 11.00
======= ====== ======= ====== ======= ======
Options exercisable at year-end 62,592 51,342 73,050
Range of exercise prices $11.00 to 11.60 $11.00 to 11.60 $11.00
Weighted-average fair value of
options granted during the year $2.02
</TABLE>
28
<PAGE>
15. Stock Option Plans (continued):
The company has continued to apply APB Opinion No. 25 and related
interpretations in accounting for its plans and, accordingly, no compensation
cost has been recognized for the stock option plans. In 1995, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 123 "Accounting for Stock Based Compensation" (SFAS No. 123) which permits
an alternative method for recognition of cost on plans similar to those of the
company. Under SFAS No. 123 pro forma disclosures are required if no
compensation cost is recognized.
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model and certain weighted-average assumptions. The
following assumptions were used for the 1997 grant: dividend yield of 4.02%,
expected volatility of 23.02%, an expected life of 5 years and a risk-free
interest rate of 5.75%. The following assumptions were used for the 1996 grants:
dividend yield of 4.17%, expected volatility of 19.51%, an expected life of 5
years and a risk-free interest rate of 6.17% for the employee and directors
grants. The following assumptions were used for the 1995 grant: dividend yield
of 4.03%, expected volatility of 19.19%, an expected life of 5 years, and a
risk-free interest rate of 5.71%. The calculated difference between the reported
and pro forma amounts is $.02 per share for 1997 and $.01 per share for both
1996 and 1995.
16. 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:
1997 1996 1995
Total interest $593,906 $551,709 $738,852
Less capitalized interest 57,086 31,334 63,239
-------- -------- --------
Interest expense $536,820 $520,375 $675,613
======== ======== ========
17. Other Income, Net:
Other income, net consists of the following:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Interest income $1,223,126 $1,155,599 $1,166,438
Amortized gain on sale
of distribution routes -- -- 3,162,033
Rental income 231,826 428,701 393,276
Other, net 152,570 158,563 179,708
---------- ---------- ----------
$1,607,522 $1,742,863 $4,901,455
========== ========== ==========
</TABLE>
18. Provision for Income Taxes:
The provision for income taxes, at an effective rate of 37.7% in 1997, 38.6% in
1996, and 45.8% in 1995 (40.6% excluding the effect of change in tax rate on the
net deferred tax asset), differs from the amounts derived from applying the
statutory U.S. federal income tax rate of 34% to income before provision for
income taxes as follows:
1997 1996 1995
Statutory tax provision $ 3,313,085 $ 3,491,999 $ 3,540,897
State income taxes, net of
federal income tax benefit 435,311 445,234 499,748
Effect of change in tax rate
on deferred tax asset -- -- 550,868
Other, net (71,206) 28,773 183,026
----------- ----------- -----------
Provision for income taxes $ 3,677,190 $ 3,966,006 $ 4,774,539
=========== =========== ===========
29
<PAGE>
18. Provision for Income Taxes (continued):
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>
1997 1996
<S> <C> <C>
Postretirement benefits other than pensions $ 7,366,581 $ 7,368,720
Pension and employee benefit costs 4,802,987 4,608,914
Depreciation and amortization (1,785,302) (1,500,103)
Vacation pay 895,999 870,156
Provision for doubtful accounts 1,035,572 966,063
Other 812,738 426,621
------------ ------------
13,128,575 12,740,371
Less current portion 2,068,879 2,504,715
------------ ------------
$ 11,059,696 $ 10,235,656
============ ============
</TABLE>
19. Earnings per Share:
In 1997, the Financial Accounting Standards Board issued statement of Financial
Accounting Standards No. 128 "Earnings per Share" (SFAS No. 128) which changes
the presentation and calculation requirements of earnings per share amounts on
net income. The company has restated all prior year per share amounts presented
in these financial statements according to the requirements of SFAS No. 128.
This restatement resulted in no material change from amounts previously
reported. Two per share amounts are presented for net income, basic and diluted.
Net income per common share - Basic is calculated based only on the weighted
average number of common shares outstanding during the year. Net income per
common share - Diluted is calculated based on the weighted average number of
common shares outstanding including dilutive potential common shares outstanding
during the year.
The following is a reconciliation of the basic and diluted net income per common
share computations for net income:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Net income per common share - Basic:
Net income $6,067,177 $6,304,579 $5,640,112
---------- ---------- ----------
Weighted average shares outstanding 7,770,119 7,733,663 7,689,768
---------- ---------- ----------
Basic per share amount $ .78 $ .82 $ .73
========== ========== ==========
Net inome per common share - Diluted:
Net income $6,067,177 $6,304,579 $5,640,112
---------- ---------- ----------
Weighted average shares outstanding 7,770,119 7,733,663 7,689,768
Dilutive options 125,803 97 11,736
---------- ---------- ----------
Total diluted shares 7,895,922 7,733,663 7,701,504
Diluted per share amount $ .77 $ .82 $ .73
========== ========== ==========
</TABLE>
In 1997, additional options to purchase 156,500 shares of common stock at a
price of $18.3125 were outstanding but were not included in the computation of
the diluted per share amount because the options' exercise price was greater
than the average market price of common shares.
In 1996, options to purchase 605,092 shares of common stock at a range of prices
from $10.40 to $11.60 were outstanding but were not included in the computation
of the diluted per share amount because the options' exercise price was greater
than the average market price of common shares.
In 1995, additional options to purchase 257,425 shares of common stock at a
price of $11.00 were outstanding but were not included in the computation of the
diluted per share amount because the options' exercise price was greater than
the average market price of common shares.
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.
30
<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 27, 1997 and December 28, 1996 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 27, 1997. 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
18-30) present fairly, in all material respects, the consolidated financial
position of Tasty Baking Company and subsidiaries as of December 27, 1997 and
December 28, 1996, and the consolidated results of their operations and their
cash flows for each of the three fiscal years in the period ended December 27,
1997 in conformity with generally accepted accounting principles.
/s/ COOPERS & LYBRAND L.L.P.
COOPERS & LYBRAND L.L.P.
Philadelphia, Pennsylvania
February 12, 1998
31
<PAGE>
Directors and Officers
Directors
Philip J. Baur, Jr.
Retired Chairman of the Board
Carl S. Watts
Chairman, President and
Chief Executive Officer
Nelson G. Harris
Chairman of the Executive Committee
Fred C. Aldridge, Jr., Esq.
Attorney-at-law
G. Fred DiBona, Jr.
President and CEO,
Independence Blue Cross
James L. Everett, III
Retired Chairman of the Board,
Philadelphia Electric Company
John M. Pettine
Vice President and Chief Financial Officer
Judith M. von Seldeneck
Chief Executive Officer,
Diversified Search Companies
Director Emeritus
W. Thacher Longstreth
Councilman-at-Large
Committees of the Board
Audit Committee
James L. Everett, III
Chairman
Fred C. Aldridge, Jr.
G. Fred DiBona, Jr.
Compensation Committee
Judith M. von Seldeneck
Chairman
Nelson G. Harris
G. Fred DiBona, Jr.
Executive Committee
Nelson G. Harris
Chairman
Fred C. Aldridge, Jr.
James L. Everett, III
Carl S. Watts
Nominating Committee
Philip J. Baur, Jr.
Chairman
Nelson G. Harris
Carl S. Watts
Officers
Carl S. Watts
Chairman, President and
Chief Executive Officer
John M. Pettine
Vice President and Chief Financial Officer
William E. Mahoney
Vice President Human Resources
Elizabeth H. Gemmill, Esq.
Vice President and Secretary
W. Dan Nagle
Vice President Sales and Marketing
Paul M. Woite
Vice President Manufacturing
Daniel J. Decina
Controller and Treasurer
Eugene P. Malinowski
Assistant Treasurer
Thomas M. Lubiski
Assistant Controller
Edward J. Delahunty
Assistant Secretary
Colleen M. Henderson
Assistant Secretary
32
<PAGE>
Transfer Agent
American Stock Transfer
& Trust Company
40 Wall Street
46th Floor
New York, NY 10005
Stock Listing
New York Stock Exchange
Ticker symbol: TBC
Tasty Baking Company
2801 Hunting Park Avenue
Philadelphia, PA 19129
(215) 221-8500
TastyKare Department
1-800-33-TASTY
Tastykake On-Line
www.tastykake.com
All paper used in this annual report meets or exceeds EPA guidelines for
paper containing recovered materials
<PAGE>
Tasty Baking Company
2801 Hunting Park Avenue
Philadelphia, PA 19129
(215) 221-8500
Exhibit 21
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 New Jersey
Tasty Baking Oxford, Inc. Pennsylvania
Tastykake Investment Company Delaware
The aforementioned is included in the Consolidated Financial Statements of the
Registrant filed herewith.
Exhibit 23 (a)
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statements
of Tasty Baking Company and subsidiaries on Post-Effective Amendment No. 10 to
Form S-8 (File No. 2-55836) and Post-Effective Amendment No. 4 to Form S-3 (File
No. 33-8427) of our reports dated February 12, 1998, on our audits of the
consolidated financial statements and financial statement schedules of Tasty
Baking Company and subsidiaries as of December 27, 1997 and December 28, 1996,
and for the three fiscal years in the period ended December 27, 1997, which
reports are included or incorporated by reference in this Annual Report on Form
10-K.
COOPERS & LYBRAND L.L.P.
Philadelphia, Pennsylvania
March 26, 1998
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<PERIOD-START> DEC-31-1996
<PERIOD-END> SEP-28-1996
<CASH> 111
<SECURITIES> 0
<RECEIVABLES> 23,220
<ALLOWANCES> (2,389)
<INVENTORY> 3,386
<CURRENT-ASSETS> 26,804
<PP&E> 135,141
<DEPRECIATION> (96,636)
<TOTAL-ASSETS> 88,707
<CURRENT-LIABILITIES> 14,435
<BONDS> 6,557
0
0
<COMMON> 3,645
<OTHER-SE> 33,892
<TOTAL-LIABILITY-AND-EQUITY> 88,707
<SALES> 109,715
<TOTAL-REVENUES> 111,070
<CGS> 68,485
<TOTAL-COSTS> 68,485
<OTHER-EXPENSES> 5,491
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 362
<INCOME-PRETAX> 6,664
<INCOME-TAX> 2,556
<INCOME-CONTINUING> 4,108
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,108
<EPS-PRIMARY> 0.54<F1>
<EPS-DILUTED> 0.54<F1>
<FN>
<F1>Restated
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000096412
<NAME> TASTY BAKING COMPANY
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-START> DEC-31-1995
<PERIOD-END> JUN-29-1996
<CASH> 33
<SECURITIES> 0
<RECEIVABLES> 21,903
<ALLOWANCES> (2,442)
<INVENTORY> 3,443
<CURRENT-ASSETS> 26,063
<PP&E> 129,340
<DEPRECIATION> 94,882
<TOTAL-ASSETS> 84,068
<CURRENT-LIABILITIES> 10,024
<BONDS> 4,673
0
0
<COMMON> 3,645
<OTHER-SE> 33,681
<TOTAL-LIABILITY-AND-EQUITY> 84,068
<SALES> 73,693
<TOTAL-REVENUES> 74,602
<CGS> 46,152
<TOTAL-COSTS> 46,152
<OTHER-EXPENSES> 3,653
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 228
<INCOME-PRETAX> 4,975
<INCOME-TAX> 1,919
<INCOME-CONTINUING> 3,056
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,056
<EPS-PRIMARY> .40<F1>
<EPS-DILUTED> .40<F1>
<FN>
<F1>Restated
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000096412
<NAME> TASTY BAKING COMPANY
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-START> DEC-31-1995
<PERIOD-END> MAR-30-1996
<CASH> 135
<SECURITIES> 0
<RECEIVABLES> 22,544
<ALLOWANCES> (2,431)
<INVENTORY> 3,334
<CURRENT-ASSETS> 26,709
<PP&E> 127,368
<DEPRECIATION> 93,070
<TOTAL-ASSETS> 85,035
<CURRENT-LIABILITIES> 11,201
<BONDS> 6,025
0
0
<COMMON> 3,645
<OTHER-SE> 32,676
<TOTAL-LIABILITY-AND-EQUITY> 85,035
<SALES> 35,943
<TOTAL-REVENUES> 36,397
<CGS> 22,817
<TOTAL-COSTS> 22,817
<OTHER-EXPENSES> 1,839
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 129
<INCOME-PRETAX> 1,981
<INCOME-TAX> 762
<INCOME-CONTINUING> 1,219
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,219
<EPS-PRIMARY> .16<F1>
<EPS-DILUTED> .16<F1>
<FN>
<F1>Restated
</FN>
</TABLE>
<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> 0.73<F1>
<EPS-DILUTED> 0.73<F1>
<FN>
<F1>Restated
</FN>
</TABLE>
