SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the thirteen weeks ended March 27, 1999
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number 1-5084
TASTY BAKING COMPANY
(Exact name of company as specified in its charter)
Pennsylvania 23-1145880
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(State of Incorporation) (IRS Employer Identification Number)
2801 Hunting Park Avenue, Philadelphia, Pennsylvania 19129
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(Address of Principal Executive Offices) (Zip Code)
(215) 221-8500
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(Company's Telephone Number, including area code)
Indicate by check mark whether the company (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 company was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No __
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, par value $.50 7,827,724
(Title of Class) (No. of Shares Outstanding
at May 7, 1999)
INDEX OF EXHIBITS IS LOCATED ON PAGE 9 OF 10.
1 of 10
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TASTY BAKING COMPANY AND SUBSIDIARIES
INDEX
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheets
March 27, 1999 and December 26, 1998....................................................................3
Consolidated Condensed Statements of Operations
Thirteen weeks ended March 27, 1999 and March 28, 1998..................................................4
Consolidated Condensed Statements of Cash Flows
Thirteen weeks ended March 27, 1999 and March 28, 1998..................................................5
Notes to Consolidated Condensed Financial Statements....................................................6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...................................................................7-9
Item 3. Quantitative and Qualitative Disclosure
About Market Risk9
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders ....................................................9
Item 6. Exhibits and Reports on Form 8-K........................................................................9
Signature............................................................................................................10
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
TASTY BAKING COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(unaudited)
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<CAPTION>
<S> <C> <C>
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March 27, 1999 December 26, 1998
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Current assets:
Cash $ 49,547 $ 372,871
Accounts and notes receivable, net of
allowance for doubtful accounts 23,049,459 21,214,576
Inventories:
Raw materials 2,569,372 2,407,042
Work in progress 732,598 530,863
Finished goods 965,449 1,330,016
-----------------------------------------------
4,267,419 4,267,921
Deferred income taxes, prepayments and other 3,504,555 2,426,784
-----------------------------------------------
Total current assets 30,870,980 28,282,152
-----------------------------------------------
Property, plant and equipment: 162,211,714 159,419,070
Less accumulated depreciation 108,972,473 110,998,936
-----------------------------------------------
53,239,241 48,420,134
-----------------------------------------------
Long-term receivables 11,066,362 10,851,320
-----------------------------------------------
Deferred income taxes 10,452,681 10,452,681
-----------------------------------------------
Spare parts inventory and miscellaneous assets 3,328,568 3,436,481
-----------------------------------------------
Total assets $108,957,832 $101,442,768
===============================================
Current liabilities:
Current portion of long-term debt $ 265,342 $ 273,053
Current obligations under capital leases 261,835 325,873
Notes payable, banks 1,900,000 1,200,000
Accounts payable 6,536,107 4,204,211
Accrued liabilities 6,193,446 6,733,029
-----------------------------------------------
Total current liabilities 15,156,730 12,736,166
-----------------------------------------------
Long-term debt, less current portion 17,500,000 13,500,000
-----------------------------------------------
Long-term obligations under capital leases,
less current portion 192,575 261,283
-----------------------------------------------
Accrued pensions and other liabilities 14,297,273 12,683,231
-----------------------------------------------
Postretirement benefits other than pensions 18,319,709 18,160,785
-----------------------------------------------
Shareholders' equity:
Common stock 4,558,243 4,558,243
Capital in excess of par value of stock 29,678,680 29,762,210
Retained earnings 26,148,866 26,766,403
-----------------------------------------------
60,385,789 61,086,856
Less:
Treasury stock, at cost 16,306,905 16,372,219
Management Stock Purchase Plan
receivables and deferrals 587,339 613,334
-----------------------------------------------
43,491,545 44,101,303
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Total liabilities and shareholders' equity $108,957,832 $101,442,768
===============================================
</TABLE>
See accompanying notes to consolidated condensed financial statements.
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TASTY BAKING COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
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For the Thirteen Weeks Ended
March 27, 1999 March 28, 1998
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<S> <C> <C>
Gross Sales $57,146,174 $57,160,752
Less discounts and allowances (19,293,525) (18,840,284)
------------------------------------------------
Net Sales 37,852,649 38,320,468
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Costs and expenses:
Cost of sales 23,632,065 23,824,979
Depreciation 1,785,783 1,751,378
Selling, general and
administrative 11,000,903 10,471,017
Interest expense 222,508 141,243
Restructure charge 950,000 -
Other income, net (414,359) (351,364)
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37,176,900 35,837,253
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Income before provision for
income taxes 675,749 2,483,215
Provision for income taxes 149,470 842,113
------------------------------------------------
Income before cumulative effect of a change
in accounting principle 526,279 1,641,102
Cumulative effect of a change in accounting
principle for start-up costs (204,709) -
------------------------------------------------
Net income $ 321,570 $ 1,641,102
================================================
Average common shares outstanding:
Basic 7,825,586 7,791,652
Diluted 7,921,517 7,965,199
Per share of common stock:
Income before cumulative effect of a change
in accounting principle: Basic and Diluted $0.07 $0.21
===================== =======================
Cumulative effect of a change in accounting
principle for start-up costs: Basic and Diluted ($0.03) -
===================== =======================
Net income: Basic and Diluted $0.04 $0.21
===================== =======================
Cash dividend $0.12 $0.12
===================== =======================
</TABLE>
See accompanying notes to consolidated condensed financial statements.
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TASTY BAKING COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(unaudited)
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<CAPTION>
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For the Thirteen Weeks Ended
March 27, 1999 March 28, 1998
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Cash flows from (used for) operating activities
<S> <C> <C>
Net income $ 321,570 $ 1,641,102
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 1,785,783 1,751,378
Amortization 19,895 43,651
Cumulative effect of change in accounting principle 204,709 --
Other 1,535,039 883,774
Changes in assets and liabilities
affecting operations (954,717) (3,481,810)
-----------------------------------------
Net cash from operating activities 2,912,279 838,095
-----------------------------------------
Cash flows from (used for) investing activities
Purchase of property, plant and equipment (6,633,880) (2,344,325)
Proceeds from owner/operators' loan repayments 1,138,842 875,832
Loans to owner/operators (1,354,956) (970,408)
Other 12,171 (179)
-----------------------------------------
Net cash used for investing activities (6,837,823) (2,439,080)
-----------------------------------------
Cash flows from (used for) financing activities
Additional long-term debt 5,000,000 3,000,000
Dividends paid (939,107) (934,891)
Payment of long-term debt (1,140,457) (1,149,264)
Net increase in short-term debt 700,000 50,000
Other (18,216) 32,775
-----------------------------------------
Net cash from financing activities 3,602,220 998,620
-----------------------------------------
Net decrease in cash (323,324) (602,365)
Cash, beginning of year 372,871 748,117
-----------------------------------------
Cash, end of period $ 49,547 $ 145,752
=========================================
Supplemental Cash Flow Information:
Cash paid during the period for:
Interest $ 223,376 $ 152,893
=========================================
Income taxes $ 9,884 $ 235,648
=========================================
</TABLE>
See accompanying notes to consolidated condensed financial statements.
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TASTY BAKING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. Interim Financial Information
In the opinion of management, the accompanying unaudited consolidated
condensed financial statements contain all adjustments (consisting of
only normal recurring accruals) necessary to present fairly the financial
position of the company as of March 27, 1999 and December 26, 1998, the
results of its operations for the thirteen weeks ended March 27, 1999 and
March 28, 1998 and cash flows for the thirteen weeks ended March 27, 1999
and March 28, 1998. These unaudited consolidated condensed financial
statements should be read in conjunction with the consolidated financial
statements and footnotes thereto in the company's 1998 Annual Report to
Shareholders. In addition, the results of operations for the thirteen
weeks ended March 27, 1999 are not necessarily indicative of the results
to be expected for the full year.
Certain expense items are charged to operations in the year incurred.
However, for interim reporting purposes the expenses are charged to
operations on a pro-rata basis over the company's accounting periods. For
the thirteen weeks ended March 27, 1999 and March 28, 1998, the
difference between the actual expenses incurred and the expenses charged
to operations was not material.
2. 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. The company's dilutive potential common shares outstanding during
the year result entirely from dilutive stock options.
3. Restructure Charge
During the first quarter the company discontinued forty-three route
territories in those areas not achieving appropriate levels of
profitability, assigning most of those territories to regional
distributorships. As a result, the company incurred a charge of $950,000
resulting in a reduction in net income of $570,570 or $.07 per share,
primarily relating to costs associated with the repurchase of some
owner/operator territories as well as severance payments and other
related costs. The company expects that this liability will be satisfied
by the second quarter of 1999.
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TASTY BAKING COMPANY AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
Net income for the first quarter of 1999 was $321,570 or $.04 per share.
Included in net income for 1999 were two non-recurring charges. The company
discontinued forty-three route territories in those areas not achieving
appropriate levels of profitability, assigning most of those territories to
regional distributorships. This resulted in an after-tax charge of $570,570 or
$.07 per share, primarily relating to costs associated with the repurchase of
some owner/operator territories as well as severance payments and other related
costs. The second charge relates to the adoption of a new accounting regulation,
which required the write off of the remaining start-up costs pertaining to the
company's acquision of it's Oxford facility. This charge is reflected as a
cumulative effect of a change in accounting principle which resulted in an
after-tax charge to net income in the amount of $204,709 or $.03 per share.
After eliminating the effect of these two non-recurring charges, the 1999 first
quarter results were $1,096,849 or $.14 per share compared to $1,641,102 or $.21
per share for the first quarter of 1998.
For the first quarter, gross sales were $57,146,174, compared to $57,160,752
last year. The flat sales for the first quarter of 1999 are directly related to
dimininshed production capabilities from the startup of the plant modernization
program, as well as the decision to discontinue the sale of the Dutch Mill donut
varieties on owner/operator routes. Gross sales, less discounts and allowances,
resulted in net sales of $37,852,649, compared to $38,320,468 reported last
year, representing a decrease of 1.2% which was related to increased national
sales which carry a higher discount rate.
Cost of sales, as a percentage of gross sales, was 41.4% and 41.7% for the first
quarters of 1999 and 1998, respectively. The improvement in 1999 resulted from a
decrease in ingredient costs due to a larger percentage of sales coming from
in-house production, as well as a price increase instituted in the third quarter
of 1998.
Selling, general and administrative expenses for the first quarter of 1999
increased by $529,886 or 5.1% over the comparable period in 1998. The increase
came primarily from an increase in selling expenses associated with the
expansion into new geographic regions.
Interest expense increased for the first quarter of 1999 versus the first
quarter of 1998 as a result of increased average borrowing levels.
The effective tax rate was 22.1% for the quarter ended March 27, 1999 and 34.0%
for the quarter ended March 28, 1998 which compares to a federal statutory rate
of 34%. The difference between the effective rate and the statutory rate in the
first quarter of 1999 was due to low taxable income compounded by the effect of
state tax benefits arising from passive income. There was no difference between
the effective rate and the statutory rate in the first quarter of 1998 because
the effect of state taxes was offset by tax benefits arising from passive
income.
7 of 10
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Year 2000 disclosure
The company has been engaged in an ongoing process to determine the effect
that the change to the year 2000 (Y2K) will have on operations. The company has
completed an assessment of its internal hardware and software information
technology systems and has determined that the systems will be Y2K compliant.
During 1998, all new, Y2K compliant, hardware was installed. New business system
software is being installed. To date, approximately 60% of the new business
system modules have been installed and are operational. The remaining modules
are currently being installed, the implementation of which will be completed
during the third quarter of 1999. The software supplier has warranted that this
system is Y2K compliant and the company believes that the supplier has done
sufficient testing of its product to make such a claim. The decisions to replace
these systems were primarily based on the ongoing and expected future company
and industry requirements and the inability of the current applications to meet
these expectations. The company has not accelerated the plans to replace these
systems because of the Y2K issue.
The company utilizes an automated hand-held sales order system which is,
however, not currently Y2K compliant. The existing system is in the process of
being repaired to bring it into Y2K compliance. Repair is proceeding without
difficulty and completion is targeted for the third quarter of 1999.
A committee was formed to take an inventory of all manufacturing systems to
determine Y2K compliance. The raw ingredient distribution machinery has already
been corrected to resolve a Y2K problem; the cost was immaterial. The company
received positive responses to inquiries regarding the Y2K compliance of certain
manufacturing equipment from the individual manufacturers of the equipment.
There were minor repairs that had to be made to computers in the manufacturing
system to prevent Y2K complications. These repairs have been made and the
equipment has been tested. The company feels secure that production will not
experience any complications as a result of the change to the year 2000.
The company's Human Resource/Payroll system requires a version upgrade to bring
the software into Y2K compliance. This project is also underway with completion
targeted for the third quarter of 1999. The cost of the repair is immaterial.
Questionnaires have been sent to approximately 800 of our vendors and customers
to identify any issues that may impact the company externally. To date, the
company has received an estimated 60% return response to these questionnaires. A
project to compile a more detailed analysis of these responses is underway. The
initial review of the responses did not raise any concern. There are limitations
to the amount of reliance the company can place on the responses to these
questionnaires considering the respondents have to rely on responses from their
suppliers and customers. Should any suppliers have complications going into the
year 2000 the company has alternative suppliers. In the case of major customers,
the company does not have a single customer whose purchases exceed 10% of the
net sales of the company. The three top customers contributed 7.8%, 3.9% and
2.8% respectively to net sales in 1998. If any of these customers were to have
complications, more of the product would be sold through other retailers. Since
ordering for most customers in the principal marketing area is accomplished by
independent route operators and not by the retailer directly, any losses in
revenues the company would incur would not be expected to be material.
To date, the company has not incurred any significant costs related to the
assessment of, and preliminary efforts in connection with, its Y2K issues. Based
on the evaluations to date, the company does not anticipate any significant
complications related to Y2K or any significant costs to avoid those
complications.
8 of 10
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Financial Condition
The company has consistently demonstrated the ability to generate sufficient
cash flow from operations. Bank borrowings, under various lines of credit
arrangements, are used to supplement cash flow from operations during periods of
cyclical shortages.
For the thirteen weeks ended March 27, 1999, net cash from operating activities
increased by $2,074,184 to $2,912,279 from $838,095 for the same period in 1998.
The increase over 1998 was principally due to the payment of the IRS settlement
in the first quarter of 1998, which was accrued in 1997.
Net cash used for investing activities for the thirteen weeks ended March 27,
1999 increased by $4,398,743 relative to the same period in 1998 principally due
to the upgrade of the bakery's production equipment as a part of a plant
modernization program.
Net cash from financing activities for the thirteen weeks ended March 27, 1999
increased by $2,603,600 relative to the same thirteen weeks in 1998. The
increase is primarily the result of a net increase in short and long-term debt
relative to the prior year.
For the remainder of 1999 the company anticipates that cash flow from
operations, along with the continued availability of bank lines of credit, the
revolving credit agreement and other long-term financing, will provide
sufficient cash to meet operating and financing requirements.
Item 3. Quantitative and Qualitative Disclosure About Market Risk
The company has certain floating rate debt notes. Under current market
conditions, the company believes that changes in interest rates would not have a
material impact on the financial statements of the company. The company also has
notes receivable from owner operators whose rates adjust every three years, and,
therefore, would offset the fluctuations in the company's notes payable. The
company also has the right to sell these notes receivable, and could use these
proceeds to liquidate a corresponding amount of the debt notes payable.
TASTY BAKING COMPANY AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the first
quarter of the fiscal year covered by this report.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
The company did not file a report on Form 8-K during the thirteen
weeks ended March 27, 1999.
Exhibit Index
Exhibit 27 - Financial Data Schedule
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TASTY BAKING COMPANY AND SUBSIDIARIES
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the company
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
TASTY BAKING COMPANY
(Company)
May 10, 1999 /S/ John M. Pettine
(Date) JOHN M. PETTINE
EXECUTIVE VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
(PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER)
10 of 10
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<ARTICLE> 5
<CIK> 0000096412
<NAME> TASTY BAKING COMPANY
<MULTIPLIER> 1,000
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<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> JAN-01-2000
<PERIOD-START> DEC-27-1998
<PERIOD-END> MAR-27-1999
<CASH> 50
<SECURITIES> 0
<RECEIVABLES> 25,778
<ALLOWANCES> (2,729)
<INVENTORY> 4,267
<CURRENT-ASSETS> 30,871
<PP&E> 162,212
<DEPRECIATION> (108,972)
<TOTAL-ASSETS> 108,958
<CURRENT-LIABILITIES> 15,157
<BONDS> 17,693
<COMMON> 4,558
0
0
<OTHER-SE> 38,934
<TOTAL-LIABILITY-AND-EQUITY> 108,958
<SALES> 37,853
<TOTAL-REVENUES> 38,267
<CGS> 23,632
<TOTAL-COSTS> 23,632
<OTHER-EXPENSES> 1,785
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 223
<INCOME-PRETAX> 675
<INCOME-TAX> 149
<INCOME-CONTINUING> 526
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<NET-INCOME> 322
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