SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the twenty-six weeks ended June 26, 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
- -------------------------------------------------------------------------------
(State of Incorporation) (IRS Employer Identification Number)
2801 Hunting Park Avenue, Philadelphia, Pennsylvania 19129
- -------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(215) 221-8500
- -------------------------------------------------------------------------------
(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 7,823,581
- -------------------------------------------------------------------------------
(Title of Class) (No. of Shares Outstanding
at August 6, 1999)
INDEX OF EXHIBITS IS LOCATED ON PAGE 9 OF 10.
1 of 11
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TASTY BAKING COMPANY AND SUBSIDIARIES
<TABLE>
<CAPTION>
INDEX
Page
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheets
June 26, 1999 and December 26, 1998.....................................................................3
Consolidated Condensed Statements of Operations
Thirteen and Twenty-six weeks ended
June 26, 1999 and June 27, 1998.........................................................................4
Consolidated Condensed Statements of Cash Flows
Twenty-six weeks ended June 26, 1999 and June 27, 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 ...................................................10
Item 6. Exhibits and Reports on Form 8-K.......................................................................10
Signature ...........................................................................................................11
</TABLE>
2 of 11
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
TASTY BAKING COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
June 26, 1999 December 26, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Current assets:
Cash $ 101,435 $ 372,871
Accounts and notes receivable, net of
allowance for doubtful accounts 20,492,936 21,214,576
Inventories:
Raw materials 2,791,429 2,407,042
Work in progress 645,317 530,863
Finished goods 1,630,037 1,330,016
--------------------------------------------------------
5,066,783 4,267,921
Deferred income taxes, prepayments and other 3,238,839 2,426,784
--------------------------------------------------------
Total current assets 28,899,993 28,282,152
--------------------------------------------------------
Property, plant and equipment: 165,678,926 159,419,070
Less accumulated depreciation 110,821,144 110,998,936
--------------------------------------------------------
54,857,782 48,420,134
--------------------------------------------------------
Long-term receivables 10,809,349 10,851,320
--------------------------------------------------------
Deferred income taxes 10,452,681 10,452,681
--------------------------------------------------------
Spare parts inventory and miscellaneous assets 3,261,406 3,436,481
========================================================
Total assets $108,281,211 $101,442,768
========================================================
Current liabilities:
Current portion of long-term debt $ 257,475 $ 273,053
Current obligations under capital leases 197,797 325,873
Notes payable, banks 1,500,000 1,200,000
Accounts payable 4,467,717 4,204,211
Accrued liabilities 8,025,340 6,733,029
--------------------------------------------------------
Total current liabilities 14,448,329 12,736,166
--------------------------------------------------------
Long-term debt, less current portion 17,500,000 13,500,000
--------------------------------------------------------
Long-term obligations under capital leases,
less current portion 123,499 261,283
--------------------------------------------------------
Accrued pensions and other liabilities 13,784,843 12,683,231
--------------------------------------------------------
Postretirement benefits other than pensions 18,423,770 18,160,785
--------------------------------------------------------
Shareholders' equity:
Common stock 4,558,243 4,558,243
Capital in excess of par value of stock 29,773,944 29,762,210
Retained earnings 26,601,341 26,766,403
--------------------------------------------------------
60,933,528 61,086,856
Less:
Treasury stock, at cost 16,401,631 16,372,219
Management Stock Purchase Plan
receivables and deferrals 531,127 613,334
--------------------------------------------------------
44,000,770 44,101,303
--------------------------------------------------------
Total liabilities and shareholders' equity $108,281,211 $101,442,768
========================================================
</TABLE>
See accompanying notes to consolidated condensed financial statements.
3 of 11
<PAGE>
TASTY BAKING COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
For the Thirteen Weeks Ended For the Twenty-Six Weeks Ended
June 26, 1999 June 27, 1998 June 26, 1999 June 27, 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Gross Sales $56,769,425 $ 56,933,408 $113,915,599 $114,094,160
Less discounts and allowances (18,265,519) (18,572,369) (37,559,044) (37,412,653)
-----------------------------------------------------------------------------
Net Sales 38,503,906 38,361,039 76,356,555 76,681,507
-----------------------------------------------------------------------------
Costs and expenses:
Cost of sales 24,069,240 24,307,090 47,701,305 48,132,069
Depreciation 1,905,531 1,589,016 3,691,314 3,340,394
Selling, general and
administrative 10,470,880 11,167,403 21,401,425 21,638,420
Interest expense 267,672 178,308 490,180 319,551
Restructure charge - - 950,000 -
Other income, net (334,327) (357,356) (678,328) (708,720)
-----------------------------------------------------------------------------
36,378,996 36,884,461 73,555,896 72,721,714
-----------------------------------------------------------------------------
Income before provision for
income taxes 2,124,910 1,476,578 2,800,659 3,959,793
Provision for income taxes 733,109 462,887 882,579 1,305,000
-----------------------------------------------------------------------------
Income before cumulative effect of a change
in accounting principle 1,391,801 1,013,691 1,918,080 2,654,793
Cumulative effect of a change in accounting
principle for start-up costs - - (204,709) -
-----------------------------------------------------------------------------
Net income $ 1,391,801 $1,013,691 $1,713,371 $2,654,793
=============================================================================
Average common shares outstanding:
Basic 7,825,206 7,806,554 7,825,396 7,799,103
Diluted 7,867,647 7,985,349 7,894,582 7,975,274
Per share of common stock:
Income before cumulative effect of a change
in accounting principle:
Basic $0.18 $0.13 $0.25 $0.34
================ ================== ================== ==================
Diluted $0.18 $0.13 $0.24 $0.33
================ ================== ================== ==================
Cumulative effect of a change in accounting
principle for start-up costs:
Basic and Diluted - - ($0.03) -
================ ================== ================== ==================
Net income:
Basic $0.18 $0.13 $0.22 $0.34
================ ================== ================== ==================
Diluted $0.18 $0.13 $0.22 $0.33
================ ================== ================== ==================
Cash dividend $0.12 $0.12 $0.24 $0.24
================ ================== ================== ==================
</TABLE>
See accompanying notes to consolidated condensed financial statements.
4 of 11
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TASTY BAKING COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
For the Twenty-six Weeks Ended
June 26, 1999 June 27, 1998
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from (used for) operating activities
Net income $ 1,713,371 $ 2,654,793
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 3,691,314 3,340,394
Amortization 39,180 88,673
Cumulative effect of change in accounting principle 204,709 --
Other 1,188,834 1,709,908
Changes in assets and liabilities
affecting operations 831,662 (4,192,095)
------------ ------------
Net cash from operating activities 7,669,070 3,601,673
------------ ------------
Cash flows from (used for) investing activities
Purchase of property, plant and equipment (10,157,952) (6,002,255)
Proceeds from owner/operators' loan repayments 2,664,073 1,732,127
Loans to owner/operators (2,624,268) (1,852,111)
Other 21,402 (8,566)
------------ ------------
Net cash used for investing activities (10,096,745) (6,130,805)
------------ ------------
Cash flows from (used for) financing activities
Additional long-term debt 5,000,000 5,500,000
Dividends paid (1,878,433) (1,872,483)
Payment of long-term debt (1,281,438) (1,289,956)
Net increase in short-term debt 300,000 50,000
Other 16,110 122,150
------------ ------------
Net cash from financing activities 2,156,239 2,509,711
------------ ------------
Net decrease in cash (271,436) (19,421)
Cash, beginning of year 372,871 748,117
------------ ------------
Cash, end of period $ 101,435 $ 728,696
============ ============
Supplemental Cash Flow Information:
Cash paid during the period for:
Interest $ 562,821 $ 345,733
============ ============
Income taxes $ 77,561 $ 1,247,575
============ ============
</TABLE>
See accompanying notes to consolidated condensed financial statements.
5 of 11
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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 June 26, 1999 and December 26, 1998, the
results of its operations for the thirteen and twenty-six weeks ended
June 26, 1999 and June 27, 1998 and cash flows for the twenty-six weeks
ended June 26, 1999 and June 27, 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 twenty-six weeks ended June 26, 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 and twenty-six weeks ended June 26, 1999 and June 27, 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. Substantially all the costs accrued under this charge have
been satisfied.
6 of 11
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TASTY BAKING COMPANY AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
For the second quarter of 1999, the company realized net income of $1,391,801
versus $1,013,691 for the second quarter of 1998. Net income per share increased
to $.18 from $.13 per share for the comparable quarter of 1998.
Net income for the twenty-six weeks ended June 26, 1999 was $1,713,371 or $.22
per share. Included in net income for 1999 were two non-recurring charges.
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. 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 acquisition 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 results were $2,488,650 or $.32 per share
compared to $2,654,793 or $.33 per share for the twenty-six weeks ended June 27,
1998.
For the second quarter, gross sales were $56,769,425, compared to $56,933,408
last year. Gross sales, less discounts and allowances, resulted in net sales of
$38,503,906, compared to $38,361,039 reported last year. The decrease in gross
sales resulted from heavy competitive pressures during the second quarter
coupled with our realignment and discontinuance of routes in certain sales
territories. The excessive June heat and decrease in promotion activity also
contributed to the decreased sales levels in our core product line. In April
1999 the company introduced a Classic Baked Goods line consisting of large cakes
which helped to offset the decreased sales levels of its existing products. The
increase in net sales was related to the decrease in promotional activity and a
decrease in returns.
Cost of sales, as a percentage of gross sales, was 42.4% and 42.7% for the
second quarters of 1999 and 1998, respectively. The improvement in 1999 resulted
from a decrease in ingredient costs, a larger percentage of sales coming from
in-house production, and a price increase instituted in the third quarter of
1998.
Selling, general and administrative expenses for the second quarter of 1999
decreased by $696,523 or 6.2% compared to the second quarter of 1998. The
decrease resulted from savings associated with the restructure as well as
increased efforts to control costs.
Interest expense increased for the second quarter of 1999 versus the second
quarter of 1998 as a result of increased average borrowing levels.
The effective tax rate was 34.5% for the quarter ended June 26, 1999 and 31.3%
for the quarter ended June 27, 1998 which compares to a federal statutory rate
of 34%. The difference between the effective rate and the statutory rate in the
second quarter of 1999 was due to the effect of state taxes. The difference
between the effective rate and the statutory rate in the second quarter of 1998
was due to low taxable income compounded by the effect of state tax benefits
arising from passive income.
7 of 11
<PAGE>
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 and the company will begin using these systems in
the fourth 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 remains on track for completion in the third quarter.
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 75% return response to these questionnaires.
No issues pertaining to the year 2000 have been raised with the responses we
have received so far. 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 gross sales of the company.
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.
The year 2000 statements set forth above constitute "Year 2000 Readiness
Disclosures" as defined in the Year 2000 Information and Readiness Disclosure
Act of 1998, 15 U.S.C. ss.1, Note.
8 of 11
<PAGE>
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 twenty-six weeks ended June 26, 1999, net cash from operating activities
increased by $4,067,397 to $7,669,070 from $3,601,673 for the same period in
1998. The increase over 1998 was due to the payment of the IRS settlement in the
first quarter of 1998, which was accrued in 1997, as well as a decrease in
accounts receivable in 1999 compared to an increase for the same period in 1998.
Net cash used for investing activities for the twenty-six weeks ended June 26,
1999 increased by $3,965,940 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 twenty-six weeks ended June 26, 1999
decreased by $353,472 relative to the same twenty-six weeks in 1998. The
decrease is primarily the result of a net decrease in short and long-term
borrowings 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.
9 of 11
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TASTY BAKING COMPANY AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
(a) The company's annual meeting of shareholders was held on April 23,
1999.
(b) The directors elected at the meeting were:
For Against Withheld
Fred C. Aldridge, Jr. 6,533,572 --- 48,958
G. Fred DiBona, Jr. 6,525,649 --- 56,880
John M. Pettine 6,532,159 --- 50,371
Other directors whose terms of office continued after the meeting are
as follows: Phillip J. Baur, Jr., James L. Everett, III, Nelson G.
Harris, Judith M. von Seldeneck and Carl S. Watts.
(c) Other matters voted upon at the meeting and the results of those votes
were as follows:
For Against Abstain
Approval of PricewaterhouseCoopers LLP, as
independent certified public accountants 6,535,385 20,774 26,369
The foregoing matters are described in detail in the company's proxy statement
dated March 23, 1999.
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 twenty-six
weeks ended June 26, 1999.
Exhibit Index
Exhibit 27 - Financial Data Schedule
10 of 11
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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)
August 9, 1999 /S/ John M. Pettine
(Date) JOHN M. PETTINE
EXECUTIVE VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
(PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER)
11 of 11
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000096412
<NAME> TASTY BAKING COMPANY
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> Jan-01-2000
<PERIOD-START> Dec-27-1997
<PERIOD-END> Jun-26-1999
<CASH> 101
<SECURITIES> 0
<RECEIVABLES> 23,287
<ALLOWANCES> (2,794)
<INVENTORY> 5,067
<CURRENT-ASSETS> 28,900
<PP&E> 165,679
<DEPRECIATION> (110,821)
<TOTAL-ASSETS> 108,281
<CURRENT-LIABILITIES> 14,448
<BONDS> 17,623
0
0
<COMMON> 4,558
<OTHER-SE> 39,443
<TOTAL-LIABILITY-AND-EQUITY> 108,281
<SALES> 76,357
<TOTAL-REVENUES> 77,035
<CGS> 47,701
<TOTAL-COSTS> 47,701
<OTHER-EXPENSES> 3,691
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 490
<INCOME-PRETAX> 2,800
<INCOME-TAX> 883
<INCOME-CONTINUING> 1,917
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (204)
<NET-INCOME> 1,713
<EPS-BASIC> 0.22
<EPS-DILUTED> 0.22
</TABLE>
