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
26, 1998 (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
12, 1999 is $93,241,121 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 12, 1999.
Class Outstanding
Common Stock,
par value $.50 7,825,888 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 26, 1998 Part II
Pages 2 to 10 inclusive of the definitive Proxy Statement
dated March 23, 1999 Part III
(Note: Portions of pages 9 through 11 are not deemed "filed")
The index of exhibits is located on page number 7 of 16.
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<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) manufactures and sells a variety of
premium single portion cakes, pies, cookies, pretzels, brownies, pastries,
donuts and miniature donuts, cupcakes, and snack bars 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 50(cent)
to 79(cent) per package and family convenience packages ranging from $2.39 to
$2.59. The pies principally sell at a retail price of 79(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 79(cent) per
package. The best known products with the widest sales acceptance are various
sponge cakes marketed under the product trademarks JUNIORS(R) and KRIMPETS(R),
and chocolate covered cakes under KANDY KAKES(R). Currently, the Registrant
markets two varieties of low-fat cake which are sold individually at a retail
price of 50(cent) or in family convenience packages at a retail price of $2.59.
In 1998 individual muffins and pastries that were manufactured for the
Registrant by another vendor were discontinued. Two varieties of enrobed cake
were added to the Tastykake product line during 1998. These snack cakes are
manufactured by the Registrant and sold under the trademark KREME BARS(TM)
either individually at a retail price of 79(cent) or in family convenience
packages at a retail price of $2.59. Also during 1998 two varieties of boxed
cookies and 4 varieties of a new snack cake TROPICAL DELIGHTS(TM) were added to
the Tastykake product line. The cookies are sold at a retail price of $2.99 and
the snack cakes are sold individually at a retail price of 50(cent) or in family
convenience packages at a retail price of $2.59.
The Dutch Mill facility, Dutch Mill Baking Company, Inc. (Dutch Mill),
based in Wyckoff, New Jersey, produces approximately 25 varieties of donuts,
cookies and cakes primarily under the trademark DUTCH MILL(R). Dutch Mill's
direct sales are made through distributors to retail outlets in the New York
City metropolitan area. Tastykake also purchases these products to be sold
through its methods of distribution. These products are sold primarily in family
convenience packages at retail prices ranging from $2.19 to $2.99 per package.
The Oxford facility, Tasty Baking Oxford, Inc., located in Oxford,
Chester County, Pennsylvania, currently manufactures yeast raised products,
under the trademarks TASTYKAKE(R) and SNAK n' FRESH(TM). 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 several
varieties of pastry products during 1998. In the first quarter of 1999 muffins
will be introduced. During 1998, all of the products from the Oxford facility
were sold to the Tastykake division of the Registrant. In 1997 the Registrant
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(R) brand.
Tastykake products are sold principally by independent owner/operators
through distribution routes to approximately 25,000 retail outlets in New York,
New Jersey, Pennsylvania, Delaware, Maryland and Virginia, which make up
Tastykake's principal market. This method of distribution has been used since
1986. Tastykake also distributes its products through major grocery chains in
states located throughout the mid-west, southwest and south. The Registrant
formed alliances with distributors who can handle the Tastykake product line
most effectively in order to promote geographic expansion. Products are now sold
by distributors in forty-seven states, Puerto Rico and Canada. 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.
The Registrant has been in the process of upgrading the entire computer
system for all its divisions which will enable the Registrant to coordinate a
wide range of activities and will eventually link to large customers and
suppliers. The total conversion is expected to be complete by the fourth quarter
of 1999. The Registrant also began a $22 million modernization program for the
manufacturing facility in Philadelphia, Pennsylvania. The program will be
completed in phases, and is expected to take three years. Phase I of the
program, the complete renovation of the Krimpet and Junior production and
packaging lines, began in 1998. These renovations are expected to increase
productivity and efficiency.
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 in the principal market area.
2 of 16
<PAGE>
Item 1. Business, continued
The Registrant maintains a comprehensive advertising program which
utilizes outdoor poster campaigns, newspapers, customer coupons, radio
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. Although
the number of competitors varies among marketing areas, 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 premium single portion pies and cakes. The
Registrant is able to maintain a strong competitive position in its principal
marketing area through the quality of its products and brand name recognition.
Outside of its principal market area, the Registrant's trademarks and
reputation for quality are not well-known. In these markets, the Registrant
competes for the limited shelf space available from retailers chiefly on price,
quality and the ability to sell its products (i.e. consumer acceptance).
The Registrant has a significant market position throughout its
principal marketing area. Outside of the principal market area, its market share
is generally small. Its principal competitor in the premium snack cake market
throughout the country is Interstate Baking Corporation, with its three (3)
brands - Hostess, Dolly Madison and, since September 1998, Drakes. There are
also local independent bakers which compete in a number of regional markets.
Interstate Baking Corporation is a large publicly-held corporation which has
achieved national recognition of its "Hostess" brand name through national
advertising and competes on price, quality and brand name recognition. It also
is heavily promoting its Drakes product line in areas where the Registrant is
attempting to expand its market share. Little Debbie, a large privately-held
company, competes in the snack cake market, principally as a low price snack
cake.
No difficulty was experienced in obtaining raw materials in 1998. 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 1999.
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 1,100 persons, including
approximately 140 part-time employees.
Year 2000 disclosure
The Registrant has been engaged in an ongoing process to determine the
effect that the change to the year 2000 (Y2K) will have on operations. The
Registrant has completed an assessment of its internal hardware and software
information technology systems and has determined that the systems will be Y2K
compliant. During 1998, all new, Y2K compliant, hardware was installed. New
business system software is currently being installed, the implementation of
which will be completed during the third quarter of 1999. The software supplier
has warranted that this system is Y2K compliant, which will be verified when the
system is in place. The decisions to replace these systems were primarily based
on the ongoing and expected future company and industry requirements and the
inability of the current applications to meet these expectations. The Registrant
has not accelerated the plans to replace these systems because of the Y2K issue.
The Registrant utilizes an automated hand-held sales order system which
is, however, not currently Y2K compliant. The existing system is going to be
repaired by the vendor during 1999 to bring it into Y2K compliance. If repair
was not an option, the Registrant could replace the entire system with a new Y2K
compliant one at an approximate cost of $3.7 million. The worst case scenario
would be if the system failed, despite our efforts, when the year changed to
2000. If this were to occur, the Registrant and the route operators would have
to revert to the manual system of ordering product during the down time of
repair or replacement. Additional personnel would be required to handle the
inefficiencies of a manual sales order system. The Registrant does not expect
this to occur but makes the disclosure to indicate that there are viable
alternatives.
The Registrant formed a committee to take an inventory of all
manufacturing systems to determine Y2K compliance. Some of the major items were
identified in 1998. The raw ingredient distribution machinery has already been
corrected to resolve a Y2K problem; the cost was immaterial. The Registrant
received positive responses to inquiries regarding the Y2K compliance of certain
manufacturing equipment from the individual manufacturers of the equipment.
There are minor repairs that will have to be made to computers in the
manufacturing system to prevent Y2K complications. The production department
budgeted $40,000 to handle these repairs during 1999. More evaluations of the
manufacturing systems will continue to be made during 1999.
3 of 16
<PAGE>
Item 1. Business, continued
The Registrant will be evaluating, in the form of a questionnaire, all
major vendors and customers for Y2K compliance. There are limitations to the
amount of reliance the Registrant 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 Registrant has alternative suppliers. In the case of major
customers, the Registrant does not have a single customer whose purchases exceed
10% of the net sales of the Registrant. 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 Registrant would incur would not be expected to be
material.
To date, the Registrant 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 Registrant does not anticipate any
significant complications related to Y2K or any significant costs to avoid those
complications.
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,
cookies and cakes
700 Lincoln Street Tasty Baking Oxford Offices,
Oxford, PA (3) Production of honey buns,
pastries and muffins, 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 7 and 8 of Notes to
Consolidated Financial Statements in the 1998 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 8 of Notes to Consolidated Financial Statements
in the 1998 Annual Report to Shareholders - Exhibit 13, incorporated herein by
reference.
(3) This property was purchased and is owned by Tasty Baking Oxford,
Inc.
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
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.
4 of 16
<PAGE>
TASTY BAKING COMPANY AND SUBSIDIARIES
PART II
CROSS REFERENCE INDEX
FORM 10-K
ITEM NUMBER AND CAPTION INCORPORATED MATERIAL
Page(s) in Annual Report to
Shareholders for the Fiscal
Year Ended December 26, 1998
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 7a Quantitative and Qualitative Disclosure 23 - 24
about market risk
The Registrant has certain floating rate debt
notes. Under current market conditions, the
Registrant believes that changes in interest
rates would not have a material impact on the
financial statements of the Registrant. The
Registrant also has notes receivable from owner
operators whose rates adjust every three years,
and, therefore, would offset the fluctuations in
the Registrant's notes payable. The Registrant
also has the right to sell these notes
receivable, and could use these proceeds to
liquidate a corresponding amount of the debt
notes payable. Information on the debt and
receivable notes can be found in the Notes to
Consolidated Financial Statements, Notes 5,6 and
4, respectively, in the 1998 Annual Report to
Shareholders.
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.
5 of 16
<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 4 - 6
Item 11 Executive Compensation* 7 - 10
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 4 - 5
*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.
6 of 16
<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 26, 1998,
December 27, 1997 and December 28, 1996
------
<TABLE>
<CAPTION>
<S> <C> <C>
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 26, 1998.
Notes to Consolidated Financial Statements See page 12 of 16.
(a)-2. Schedule* for the fiscal years ended December 26, 1998,
December 27, 1997 and December 28, 1996:
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 11 of 16
on May 7, 1998.
(b) By-laws of Registrant as amended are incorporated
herein by reference to Exhibit 3 to Form 10-K
report of Registrant for 1997.
(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.
7 of 16
<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.
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 26, 1998, pages 12 to 31 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 14 of 16
(b) The Registrant did not file a report on Form 8-K during the fourth
quarter ended December 26, 1998.
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<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE
To the Shareholders and
the Board of Directors
Tasty Baking Company
Philadelphia, Pennsylvania
Our audits of the consolidated financial statements referred to in our
report dated February 10, 1999, appearing on page 31 of the 1998 Annual Report
to the Shareholders of Tasty Baking Company, (which report and consolidated
financial statements are incorporated by reference in this Annual Report on Form
10-K) also included an audit of the Financial Statement Schedule listed in Item
14(a)(2) of this Form 10-K. In our opinion, this Financial Statement Schedule
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
February 10, 1999
9 of 16
<PAGE>
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TASTY BAKING COMPANY AND SUBSIDIARIES
SCHEDULE II. VALUATION AND QUALIFYING ACCOUNTS
for the fiscal years ended December 26, 1998, December 27, 1997 and December 28, 1996
<S> <C> <C> <C> <C>
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
Deducted from applicable assets:
Allowance for doubtful accounts:
For the fiscal year ended December 26, 1998 $2,548,552 $ 716,000 $ 415,014 $2,849,538
========== ========== ========== ==========
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
========== ========== ========== ==========
Inventory valuation reserves:
For the fiscal year ended December 26, 1998 $ 125,000 $ 78,225 $ 68,225 $ 135,000
========== ========== ========== ==========
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
========== ========== ========== ==========
Spare parts inventory reserve for obsolescence:
For the fiscal year ended December 26, 1998 $ 325,000 $ 29,762 $ 14,762 $ 340,000
========== ========== ========== ==========
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
========== ========== ========== ==========
Equipment allowance for obsolescence:
For the fiscal year ended December 26, 1998 $ 100,000 $ 44,348 $ (5,652) $ 150,000
========== ========== ========== ==========
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
========== ========== ========== ==========
</TABLE>
(1) Decrease due to write-off of related assets.
10 of 16
<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
11 of 16
<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>
<S> <C> <C>
Signature Capacity Date
/s/ Philip J. Baur, Jr. Retired Chairman of the March 26, 1999
- ------------------------------------------ Board and Director of
Philip J. Baur, Jr. Tasty Baking Company
/s/ Carl S. Watts Chairman of the Board, March 26, 1999
- ------------------------------------------ President, Chief
Carl S. Watts Executive Officer and
Director of Tasty
Baking Company
/s/ Nelson G. Harris Chairman of The March 26, 1999
- ------------------------------------------ Executive Committee and
Nelson G. Harris Director of Tasty
Baking Company
/s/ John M. Pettine Executive Vice President, March 26, 1999
- ------------------------------------------ Chief Financial and
John M. Pettine Accounting Officer and
Director of Tasty Baking
Company
/s/ Fred. C. Aldridge, Jr. Director of Tasty Baking March 26, 1999
- ------------------------------------------ Company
Fred C. Aldridge, Jr.
/s/ G. Fred DiBona, Jr. Director of Tasty Baking March 26, 1999
- ------------------------------------------ Company
G. Fred DiBona, Jr.
/s/ James L. Everett, III Director of Tasty Baking March 26, 1999
- ------------------------------------------ Company
James L. Everett, III
/s/ Judith M. von Seldeneck Director of Tasty Baking March 26, 1999
- ------------------------------------------ Company
Judith M. von Seldeneck
</TABLE>
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EXHIBIT 3(a)
TASTY BAKING COMPANY AND SUBSIDIARIES
Articles of Incorporation of Tasty Baking Company as amended and
currently effective.
<PAGE>
Reflects all amendments of
record through May 19, 1998
AMENDED ARTICLES OF INCORPORATION
OF
TASTY BAKING COMPANY
FIRST. The name of the corporation is Tasty Baking Company.
SECOND. The purposes for which the corporation is organized
are as follows:
To manufacture or otherwise produce, use, buy, sell and
otherwise deal in goods, wares, merchandise and other articles of commerce and
personal property of every kind and nature including human foods of every kind
and description.
To acquire by purchase, lease, grant, gift, devise,
bequest, exchange of securities or property, or otherwise, any property, real or
personal, and any interest therein, including the business, good-will, rights
and assets of any person, partnership, association or corporation engaged in any
lawful business.
To hold, own, improve, develop, lease, sell, mortgage,
pledge and otherwise deal in, invest in and dispose of, any property, real or
personal, and any interest therein, including the business, good-will, rights
and assets of any person, partnership, association or corporation engaged in any
lawful business.
THIRD. The location and post office address of the registered
office of the corporation in the Commonwealth of Pennsylvania is 2801 Hunting
Park Avenue, Philadelphia, Pennsylvania, 19129.
FOURTH. The corporation is to exist perpetually.
FIFTH. The aggregate number of shares which the corporation
shall have authority to issue is 15,000,000 shares of common stock having a par
value of $0.50 per share.
SIXTH. The number of directors of the corporation shall be
fixed from time to time by or pursuant to its by-laws, but the number shall
never be less than three and shall never be more than ten. 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 the 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
<PAGE>
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. At the annual meetings
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.
Notwithstanding anything contained in these Articles of
Incorporation to the contrary and notwithstanding the fact that a lesser
percentage may be permitted by law or the by-laws of the corporation, 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.
Notwithstanding anything contained in these Articles of
Incorporation to the contrary and notwithstanding the fact that a lesser
percentage may be permitted by law or the by-laws of the corporation, 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 this Article
SIXTH or any provision hereof at any annual or special meeting of shareholders.
SEVENTH. Notwithstanding anything contained in any other
provision of these Articles of Incorporation to the contrary or 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 in order to approve or authorize
any Business Combination (as hereinafter defined) which has not been approved by
seventy-five (75%) of the directors then in office. The term "Business
Combination" as used in this Article SEVENTH shall mean any of the following:
(a) any merger or consolidation of the corporation or any
subsidiary thereof with any other corporation if either (1) such merger or
consolidation is required by law to be approved or authorized by the
shareholders or (2) as a result of such merger or consolidation, the total
number of shares of common stock of the surviving corporation to be issued or
delivered in connection therewith plus the number of shares initially issuable
upon conversion of any other shares, securities or obligations to be issued or
delivered in connection therewith exceeds 15% of the number of shares of common
stock outstanding immediately prior to the effective date of such merger or
consolidation;
(b) any sale, lease, exchange or other disposition (in
one or a series of transactions) of all, or substantially all, of the property
and assets of the corporation or any subsidiary thereof which is required by law
to be approved or authorized by the shareholders;
2
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(c) the dissolution or any liquidation of the assets of
the corporation or any subsidiary thereof which is required by law to be
approved or authorized by the shareholders;
(d) the issuance or transfer by the corporation or any
subsidiary thereof of any securities of the corporation or any subsidiary
thereof in exchange for cash, securities or property (or a combination thereof)
in one transaction or a series of transactions which is or are required by-law
or by any agreement to which the corporation is a party to be approved or
authorized by the shareholders;
(e) any share exchange or division with respect to the
corporation or any subsidiary thereof which is required by law to be approved or
authorized by the shareholders;
(f) any reclassification of securities (including any
reverse stock split) or recapitalization of the corporation, or any merger or
consolidation of the corporation with any of its subsidiaries, which is required
by law or by any agreement to which the corporation is a party to be approved or
authorized by the shareholders.
The provisions of this Article SEVENTH shall apply only to
Business Combinations which are submitted to the shareholders for approval at
any annual or special meeting of shareholders held not later than the annual
meeting of shareholders to be held in 1998.
Notwithstanding anything contained in these Articles of
Incorporation to the contrary and notwithstanding the fact that a lesser
percentage may be permitted by law or by the by-laws of the corporation, the
affirmative vote of the holders of at least seventy-five (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 this Article
SEVENTH or any provision hereof at any annual or special meeting of shareholders
until after the annual meeting of shareholders to be held in 1998.
3
EXHIBIT 13
TASTY BAKING COMPANY AND SUBSIDIARIES
The Annual Report to Shareholders for the fiscal year ended December
26, 1998 was mailed to all shareholders on March 23, 1999.
<PAGE>
Tasty Baking Company
1998 Annual Report
Building a national brand
<PAGE>
Contents
1
Financial Highlights
2
Letter to Shareholders
11
Financial Information
32
Directors and Officers
About Tasty
Tasty Baking Company, founded in 1914, is a leading snack cake producer and one
of the largest independent baking companies in the United States. Tasty has
annual sales of $230 million and distributes its products in supermarkets and
convenience stores throughout the Middle Atlantic States and, increasingly, in
Midwestern, Southern, Southwestern and West Coast states, as well as in Puerto
Rico. Recently, Tasty's products were also introduced into the Canadian market.
Tasty operates three bakeries producing sweet baked goods under the Tastykake,
Dutch Mill, Aunt Sweeties, and Snak N' Fresh brands. Tasty Baking Company is
listed on the New York Stock Exchange under the symbol TBC.
Tasty's 85th
1999 marks Tasty Banking Company's 85th anniversary, an occasion marked by the
celebratory emblem to be used on Tasty packaging. While company anniversaries
may not ordinarily be occasions that consumers note, let alone celebrate, Tasty
is perhaps an exception. The celebration, in this case, is for the persistence
of quality and Tasty's ability to make itself felt, however modestly, on
peoples' lives. Many of our customers have grown up with Tasty products and, for
many, Tasty quality and freshness have achieved almost mythic status and created
enviable customer loyalty. Then too, Tasty evokes memories of a simpler time
when pure ingredients like flour, eggs and fruit could be transformed into
wonderful and wholesome treats. It would seem easy to do, but in fact, few do it
as well as Tasty. It is what we have done for 85 years. It is what we still do.
It is why more people then ever buy Tasty products. And why we believe that
Tasty Baking Company's future is even more remarkable than our past.
<PAGE>
Financial Highlights
For the Year 1998 1997(a)
- --------------------------------------------------------------
Gross Sales $228,453,285 $222,054,329
Net Sales $150,729,377 $149,291,974
Net Income $ 5,726,885 $ 6,067,177
Average Number of
Common Shares Outstanding:
Basic 7,807,507 7,770,119
Diluted 7,952,874 7,895,922
Per Share of Common Stock:
Net Income:
Basic $ .73 $ .78
Diluted $ .72 $ .77
Cash Dividend $ .48 $ .456
At the Year End 1998 1997
- --------------------------------------------------------------
Total Assets $101,442,768 $ 94,319,378
Working Capital $ 15,545,986 $ 10,483,757
Current Ratio 2.22 to 1 1.72 to 1
Shareholders' Equity:
Amount $ 44,101,303 $ 41,594,843
Per Share of Common Stock $ 5.64 $ 5.34
(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.
1
<PAGE>
To our shareholders:
1998 was a complex year for Tasty Baking Company. The Company was faced with a
host of challenges in every area of the business, from manufacturing to
marketing.
Here are the key financial results for 1998:
o Gross sales were up approximately 3%, to $228,453,000 compared with
$222,054,000 last year. Net sales reached $150,729,000, about 1% above the
$149,292,000 we reported in 1997.
o Net income for 1998 was $5,727,000 or 72(cent) a share compared with
$6,067,000 or 77(cent) a share last year. Measured on an operating basis -
that is, without the extraordinary charge that reduced 1997 earnings - the
decrease in income for 1998 was 20(cent) per share.
o Our balance sheet remains strong, with total assets at $101,443,000
compared to $94,319,000 in 1997. Total debt rose to $15,560,000 from
$9,834,000.
o Shareholders' equity was $44,101,000 compared to $41,595,000 at year-end
1997.
2
<PAGE>
The Year in Review
While 1998 proved to be a difficult year for the Company, we were able to
achieve a number of positive accomplishments.
Our gross sales increase of 3% for 1998 actually outpaced the snack cake
category on a national basis. More importantly, we were able to increase our
total units sold by 5%. These two accomplishments pushed the Company's national
market share to 7.3% of the snack cake category, the highest in the Company's
history.
Through our geographic expansion program during 1998, we were able to place
Tastykake products into the hands of more consumers in more states than ever
before. We now sell Tastykake products in 47 states, Puerto Rico and, most
recently, Canada.
We continued our efforts in the development of new products and in 1998
introduced new varieties of yeast-raised baked goods, including danish pastries
and bear claws. We also introduced several entirely new Tastykake products -
chocolate chip and oatmeal raisin boxed cookies, and peanut butter and
cream-filled Kreme Bars, a chocolate-enrobed snack cake.
In addition, we introduced Tropical Delights, an exciting new line of
coconut-topped, fruit- and creme-filled vanilla cupcakes. Tropical Delights
varieties include guava, papaya, pineapple and coconut.
3
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We initiated two major productivity improvements during 1998.
First, we began a $22 million modernization program for our Hunting
Park Avenue bakery. The program, expected to take three years to complete, began
with the complete renovation of our Krimpet and Junior production and packaging
lines. It also included significant changes in our mixing processes. The
results, some of which are pictured here, are truly impressive. With all
functions fully automated, these lines will have more production capacity and
increased efficiencies.
Our second area of productivity improvement involves the installation of a new
state-of-the-art computer system. This new system will not only upgrade all of
the Company's existing computer applications, but will also bring the Company
into compliance with the issues
4
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surrounding the year 2000. One of the major benefits of the new system is
greater coordination across a wide range of activities, including purchasing,
scheduling, production, shipping and inventory control. In addition, the new
system will eventually allow us to link directly with large customers and
suppliers through an electronic data interface. We anticipate completing our
computer conversion by the fourth quarter of 1999.
5
<PAGE>
While we are pleased with these accomplishments, 1998 presented a number of
unexpected events that adversely affected our financial results.
Our goal to bring the Oxford Bakery facility to profitability was not achieved.
In fact, we lost 18(cent) per share during 1998, an increase of 7(cent) from the
11(cent) per share lost in 1997. The major issue at the Oxford facility is sales
volume. During 1997, we began operating our first production line and were able
to increase volume on this line in 1998. However, we were not able to generate
the sales required to overcome the cost of the second production line which we
brought into operation in early 1998.
While we are pleased with the results of our efforts to make Tastykake a
national brand, this did not come without increased costs to the Company. Our
financial results for 1998 were negatively impacted for market development and
promotion support for our new accounts. We believe these investments will pay
benefits in the future.
Competition in the sweet-baked goods category was extremely intense in 1998, as
all the major players in this category tried to gain market share. This
competitive environment required more aggressive price promotion with resulting
reduced profit margins.
Finally, in August 1998, the Company made the decision to increase prices on the
entire product line while continuing aggressive price promotions to support unit
sales volume. These decisions also resulted in reduced profit margins.
6
<PAGE>
[GRAPHIC OMITTED]
7
<PAGE>
Outlook For 1999
While 1998 was a year of transition for the Company with all the initiatives
undertaken and the challenges we faced, we remain very optimistic about 1999.
We have increased our focus and efforts on the Oxford facility and intend to
achieve profitability in 1999. We will continue to work toward additional sales
volume for the first production line and have re-doubled our efforts to increase
production for the second line. Our fresh food service project and our large
cake initiative are proceeding at an accelerated pace.
We plan to continue our geographic expansion program primarily through strategic
alliances with those distributors who can handle the Tastykake product line most
effectively. During 1998, we were most pleased with the relationships we were
able to develop. We plan to further strengthen these relationships, while
seeking appropriate new alliances.
While product line expansion through new product development will continue to
receive our full attention, we intend to be more selective with the types and
varieties of products we offer in order to better control our overall product
offerings.
1999 will see Phase II of our bakery modernization program with the renovation
to our cupcake production lines. And, as the year progresses, we should
8
<PAGE>
[GRAPHIC OMITTED]
9
<PAGE>
begin to see the positive impact of the renovations completed during 1998
through significant production cost savings.
Competition in 1999 will continue to be strong. Our challenge is to meet this
competitive environment with more efficient and effective programs that convince
more consumers of the high quality of the Tastykake brand. Our August 1998 price
increase will gradually provide additional revenues for the Company at both the
normal retail level and through promotion.
Summary
1998 was a complex year for our Company. However, many of the challenges and
expenses we experienced were investments which should enhance future
profitability. The positive accomplishments we made in productivity and market
expansion will provide an ongoing base for additional sales and profits.
Our overall financial condition remains strong, while our Tastykake brand name
continues to gain national recognition. Thus, we continue to be optimistic about
1999 and future years. We have the resources we need. We have the commitment. We
intend to turn those resources and our commitment into improved earnings results
for 1999.
/s/ Carl S. Watts
Carl S. Watts
Chairman of the Board
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 Plan
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 presented as 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 26, 1998 was $5,726,885 or $.72
per share. Net income for the fiscal year ended December 27, 1997 was $6,067,177
or $.77 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 comparable 1997 results were $7,238,347 or $.92 per share. Net
income reported for the fiscal year ended December 28, 1996 was $6,304,579 or
$.82 per share.
Gross sales increased to $228,453,285 in 1998 from $222,054,329 in 1997
representing an increase of 2.9% resulting from an increase in volume due to
geographic expansion through new distribution agreements as well as a price
increase instituted during the third quarter of 1998. In 1997, gross sales
increased to $222,054,329 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
price increases instituted by the company.
Net sales increased to $150,729,377 in 1998 from $149,291,974 in 1997
representing an increase of 1.0%. The percentage increase in net sales was lower
than the percentage increase in gross sales due to heavy promotional activity to
support market expansion efforts and to encourage acceptance of the price
increase. In 1997, net sales increased to $149,291,974 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.
Cost of sales as a percentage of gross sales was 40.8%, 40.9% and 42.8% in 1998,
1997 and 1996, respectively. The slight improvement in 1998 resulted from a
decrease in ingredient costs from more in-house production at Tasty Baking
Oxford, Inc. (Oxford) and the price increase instituted during the third quarter
of 1998. Most of the improvements were offset by an increase in labor, packaging
and utility costs. 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.
Selling, general and administrative expenses in 1998 increased $2,091,570 or
5.2% over 1997. The increase came primarily from an increase in selling expenses
associated with the expansion into new geographic regions, an increase in
payroll taxes generated from the IRS ruling classifying certain owner/operators
as statutory employees and costs associated with the installation of a new
computer system. Shipping costs also increased relative to the increase in sales
but this increase was offset by a decrease in advertising. In 1997, selling,
general and administrative expenses increased $1,576,509 or 4.1% over 1996. The
principal reasons for the increase were higher advertising costs, an increase in
selling expense, and the effect of 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 1995. Most of the
increase 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.
13
<PAGE>
Results of Operations (continued)
Depreciation expense in 1998 decreased $564,520 or 7.8% due to major lines of
production equipment becoming fully depreciated. Depreciation expense in 1997
remained relatively unchanged as the effect of 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, excluding
the effect of Dutch Mill, remained relatively unchanged.
Other income, net remained relatively unchanged for 1998 versus 1997. In 1997,
other income, net decreased 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 completion of the amortization of the gain on sale of
company routes in 1995.
Interest expense in 1998 increased compared to 1997 as a result of higher
average borrowing levels. The average interest rate remained relatively
unchanged versus 1997. Interest expense in 1997 increased compared to 1996 as a
result of higher average borrowing levels and higher average interest rates.
Interest expense in 1996 decreased compared to 1995 as a result of lower average
borrowing levels and lower average interest rates.
The effective tax rates were 34.1%, 37.7% and 38.6% in 1998, 1997 and 1996,
respectively, which compare to a federal statutory rate of 34%. The slight
difference between the effective rate and the statutory rate in 1998 was the
result of state income taxes offset by tax benefits arising from passive income
and certain permanent differences. 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 principal reason for the difference between the effective rate
and statutory rate for 1996 was the effect of state income taxes.
During 1998 the company adopted SFAS No. 130 "Reporting Comprehensive Income",
SFAS No. 131 "Disclosures about Segments of an Enterprise and Related
Information", SFAS No. 132 "Employers' Disclosures about Pensions and Other
Postretirement Benefits" and SOP 98-1 "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use". SFAS Nos. 130 and 131 did not
have any impact on the company's consolidated results of operations, financial
position, cash flows or disclosure. SFAS No. 132 amends only the disclosures for
pensions and postretirement benefits. The company still measures these costs
according to SFAS No. 87 and SFAS No. 106. The related disclosures have been
amended in Notes 9 and 10. Under SOP 98-1, the company is capitalizing the
allowable costs associated with the installation of a new computer system.
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 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, which will be verified when the system is in
place. The decisions to replace these systems were primarily based on the
ongoing and expected future company and industry requirements and the inability
of the current applications to meet these expectations. The company has not
accelerated the plans to replace these systems because of the Y2K issue. The
company utilizes an automated hand-held sales order system which is, however,
not currently Y2K compliant. The company is planning to correct this Y2K
problem. The vendor offers a "patch" for this purpose, the cost of which is
immaterial and would be expensed when incurred. Alternatively, if the company
should decide to upgrade this entire system, given its age, this would be
accomplished prior to the year 2000.
A committee has been formed that completed an inventory of all manufacturing
systems to determine Y2K compliance. The cost to update certain systems in order
to avoid any Y2K complications is immaterial and updates have been scheduled for
1999.
During the first quarter of 1999, a questionnaire will be sent to all major
vendors and customers, that have not already been confirmed, to determine their
level of Y2K compliance. The company
14
<PAGE>
Year 2000 disclosure (continued)
plans to have an evaluation of major vendors and customers by mid 1999. Some
uncertainties may exist regarding the responses from these vendors and customers
and there may be a certain amount of risk associated with these uncertainties.
In any event, the company will make alternative plans as necessary.
To date, the company has not incurred any significant costs related to the
assessment of, and preliminary efforts in connection with, its Y2K issues. Based
on the evaluations to date, the company does not anticipate any significant
complications related to Y2K or any significant costs to avoid those
complications. The company feels that any Y2K problems will be identified and
resolved in a timely manner.
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 1998 decreased by $4,134,570 to $8,433,081
from the 1997 amount of $12,567,651. The decrease is primarily the result of
payment of the IRS settlement accrued for in 1997 and an unfavorable change in
accounts receivable and inventories as well as a decrease in net income. These
changes were partially offset by favorable changes in accrued income taxes and
accrued payroll relative to 1997. Net cash from operating activities was used to
fund dividend payments of $3,748,758 and part of the capital expenditures.
Capital expenditures totaled $11,328,167 in 1998. These expenditures were made
primarily to upgrade the bakery's production equipment, and for the new computer
system. Bank borrowings funded the balance of the capital expenditures not
funded by operating cash.
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 favorable
changes 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 the upgrade of the bakery's production equipment and
began the upgrade 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.
The company anticipates that cash flow from operating activities will improve in
1999, 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 1998 and 1997 is as follows:
First Second Third Fourth Year
- --------------------------------------------------------------------------------
1998
- ---------------------------------
Gross sales $57,161 $56,933 $57,265 $57,094 $228,453
Net sales 38,320 38,361 36,824 37,224 150,729
Gross profit (after depreciation) 12,744 12,465 12,377 13,255 50,841
Net income 1,641 1,014 1,333 1,739 5,727
Per share of common stock:
Net income:
Basic .21 .13 .17 .22 .73
Diluted .21 .13 .17 .22 .72
Cash dividends .12 .12 .12 .12 .48
Market prices:
High 22.38 22.25 17.31 17.13 22.38
Low 16.88 15.19 14.31 14.25 14.25
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:
Net income:
Basic .21 .27 .15 .15 .78
Diluted .21 .27 .15 .14 .77
Cash dividends .112 .112 .112 .12 .456
Market prices:
High 14.40 14.30 17.35 20.13 20.13
Low 10.40 12.60 13.90 16.95 10.40
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 New York Stock
Exchange. The approximate number of holders of record of the company's common
stock (par value $.50 per share) as of February 12, 1999 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.
16
<PAGE>
Five Year Selected Financial Data
All amounts presented are in thousands except for per share amounts.
<TABLE>
<CAPTION>
1998 1997(a) 1996 1995(b)(c) 1994(b)(d)
<S> <C> <C> <C> <C> <C>
Operating Results
Gross Sales $228,453 $222,054 $212,509 $205,180 $202,704
Net Sales $150,729 $149,292 $146,718 $141,831 $142,055
Income from Continuing Operations $ 5,727 $ 6,067 $ 6,305 $ 5,640 $ 5,801
Per Share Amounts
Income from Continuing Operations:
Basic $ .73 $ .78 $ .82 $ .73 $ .76
Diluted $ .72 $ .77 $ .82 $ .73 $ .76
Cash Dividends $ .48 $ .456 $ .448 $ .448 $ .424
Shareholders' Equity $ 5.64 $ 5.34 $ 5.02 $ 4.65 $ 4.30
Financial Position
Working Capital $ 15,546 $ 10,484 $ 10,160 $ 13,944 $ 12,340
Total Assets $101,443 $ 94,319 $ 87,428 $ 85,303 $ 87,136
Long-term Obligations $ 13,761 $ 8,360 $ 6,434 $ 6,230 $ 7,516
Shareholders' Equity $ 44,101 $ 41,595 $ 38,907 $ 35,938 $ 32,951
Shares of Common Stock Outstanding 7,822 7,791 7,742 7,731 7,670
Statistical Information
Capital Expenditures, Net $ 10,155 $ 10,439 $ 12,479 $ 3,685 $ 3,705
Depreciation $ 6,650 $ 7,215 $ 7,268 $ 7,463 $ 7,327
Average Common Shares Outstanding:
Basic 7,808 7,770 7,734 7,690 7,671
Diluted 7,953 7,896 7,734 7,701 7,675
</TABLE>
(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) 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
and $898,000 or $.12 per share in 1994.
(c) 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.
(d) 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.
17
<PAGE>
Consolidated Financial Statements
Tasty Baking Company and Subsidiaries
Consolidated Statements of Operations and Retained Earnings
<TABLE>
<CAPTION>
52 Weeks Ended 52 Weeks Ended 52 Weeks Ended
Dec. 26, 1998 Dec. 27, 1997 Dec. 28, 1996
- ---------------------------------------------------------------------------------------------------------
Operations
- ------------------------------------------
<S> <C> <C> <C>
Gross Sales $ 228,453,285 $ 222,054,329 $ 212,508,870
Less discounts and allowances (77,723,908) (72,762,355) (65,790,479)
---------------------------------------------------
Net sales 150,729,377 149,291,974 146,718,391
---------------------------------------------------
Costs and expenses:
- ------------------------------------------
Cost of sales 93,237,881 90,754,876 90,955,370
Depreciation 6,650,477 7,214,997 7,267,639
Selling, general and administrative 42,290,219 40,198,649 38,622,140
Payroll tax settlement charge -- 1,950,000 --
Interest expense 745,281 536,820 520,375
Provision for doubtful accounts 716,000 499,787 825,145
Other income, net (1,606,820) (1,607,522) (1,742,863)
---------------------------------------------------
142,033,038 139,547,607 136,447,806
---------------------------------------------------
Income before provision for income taxes 8,696,339 9,744,367 10,270,585
---------------------------------------------------
Provision for income taxes:
- ------------------------------------------
Federal 2,227,978 3,183,866 3,528,932
State 240,365 881,528 784,352
Deferred 501,111 (388,204) (347,278)
---------------------------------------------------
2,969,454 3,677,190 3,966,006
---------------------------------------------------
Net income 5,726,885 6,067,177 6,304,579
- ------------------------------------------
Retained Earnings
- ------------------------------------------
Balance, beginning of year 24,788,276 22,265,220 19,425,849
Cash dividends paid on common shares
($.48 per share in 1998, $.456 per share in 1997
and $.448 per share in 1996) (3,748,758) (3,544,121) (3,465,208)
---------------------------------------------------
Balance, end of year $ 26,766,403 $ 24,788,276 $ 22,265,220
===================================================
Net income per common share - Basic $ .73 $ .78 $ .82
===================================================
Net income per common share - Diluted $ .72 $ .77 $ .82
===================================================
</TABLE>
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
18
<PAGE>
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
<S> <C> <C> <C>
52 Weeks Ended 52 Weeks Ended 52 Weeks Ended
Dec. 26, 1998 Dec. 27, 1997 Dec. 28, 1996
- ---------------------------------------------------------------------------------------------------------------------
Cash flows from (used for) operating activities
- -----------------------------------------------------------
Net income $ 5,726,885 $ 6,067,177 $ 6,304,579
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 6,650,477 7,214,997 7,267,639
Provision for doubtful accounts 716,000 499,787 825,145
Deferred taxes 501,111 (388,204) (346,213)
Other 1,227,116 864,332 754,438
Changes in assets and liabilities:
Decrease (increase) in receivables (3,269,165) (2,198,607) 843,167
Decrease (increase) in inventories (971,719) (440,690) 407,770
Decrease (increase) in prepayments and other (94,620) 48,591 454,398
Increase (decrease) in accrued payroll, accrued income taxes,
accounts payable and other current liabilities (2,053,004) 900,268 (675,152)
------------------------------------------------
Net cash from operating activities 8,433,081 12,567,651 15,835,771
------------------------------------------------
Cash flows from (used for) investing activities
- -----------------------------------------------------------
Proceeds from owner/operators' loan repayments 3,229,272 3,368,285 3,804,198
Purchase of property, plant and equipment (11,328,167) (10,528,359) (12,534,926)
Loans to owner/operators (2,853,097) (4,320,365) (3,030,481)
Other 43,589 55,947 114,483
------------------------------------------------
Net cash used for investing activities (10,908,403) (11,424,492) (11,646,726)
------------------------------------------------
Cash flows from (used for) financing activities
- -----------------------------------------------------------
Dividends paid (3,748,758) (3,544,121) (3,465,208)
Payment of long-term debt (1,573,316) (1,645,685) (6,875,575)
Net increase (decrease) in short-term debt 300,000 900,000 (700,000)
Additional long-term debt 7,000,000 3,500,000 7,000,000
Other 122,150 161,398 --
------------------------------------------------
Net cash from (used for) financing activities 2,100,076 (628,408) (4,040,783)
------------------------------------------------
Net increase (decrease) in cash (375,246) 514,751 148,262
Cash, beginning of year 748,117 233,366 85,104
------------------------------------------------
Cash, end of year $ 372,871 $ 748,117 $ 233,366
================================================
Supplemental cash flow information
Cash paid during the year for:
- -----------------------------------------------------------
Interest $ 866,619 $ 591,090 $ 600,135
================================================
Income taxes $ 2,067,760 $ 5,947,420 $ 2,421,142
================================================
</TABLE>
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
19
<PAGE>
Consolidated Balance Sheets
<TABLE>
<CAPTION>
<S> <C> <C>
Dec. 26, 1998 Dec. 27, 1997*
- -----------------------------------------------------------------------------------------------------------
Assets
- ---------------------------------------------------
Current Assets:
- ---------------------------------------------------
Cash $ 372,871 $ 748,117
Receivables, less allowance of $2,849,538 and $2,548,552, respectively 21,214,576 18,661,411
Inventories 4,267,921 3,296,202
Deferred income taxes 2,159,456 2,068,879
Prepayments and other 267,328 172,708
-----------------------------
Total current assets 28,282,152 24,947,317
-----------------------------
Property, plant and equipment:
- ---------------------------------------------------
Land 1,097,987 1,097,987
Buildings and improvements 30,122,338 28,012,450
Machinery and equipment 128,198,745 120,153,194
-----------------------------
159,419,070 149,263,631
Less accumulated depreciation and amortization 110,998,936 105,501,230
-----------------------------
48,420,134 43,762,401
-----------------------------
Other assets:
- ---------------------------------------------------
Long-term receivables 10,851,320 11,233,128
Deferred income taxes 10,452,681 11,059,696
Spare parts inventory 2,665,399 2,425,837
Miscellaneous 771,082 890,999
-----------------------------
24,740,482 25,609,660
-----------------------------
$101,442,768 $ 94,319,378
=============================
</TABLE>
*Reclassified for comparative purposes
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
20
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Dec. 26, 1998 Dec. 27, 1997
- --------------------------------------------------------------------------------------------------------------
Liabilities
- --------------------------------------------
Current Liabilities:
- --------------------------------------------
Current portion of long-term debt $ 273,053 $ 29,354
Current obligations under capital leases 325,873 543,962
Notes payable, banks 1,200,000 900,000
Accounts payable 4,204,211 4,345,944
Accrued payroll and employee benefits 6,687,408 6,817,319
Other 45,621 1,826,981
-----------------------------
Total current liabilities 12,736,166 14,463,560
-----------------------------
Long-term debt, less current portion 13,500,000 7,773,053
-----------------------------
Long-term obligations under capital leases, less current portion 261,283 587,156
-----------------------------
Accrued pensions and other liabilities 12,683,231 11,771,540
-----------------------------
Post-retirement benefits other than pensions 18,160,785 18,129,226
-----------------------------
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 shares 4,558,243 4,558,243
Capital in excess of par value of stock 29,762,210 29,337,938
Retained earnings 26,766,403 24,788,276
-----------------------------
61,086,856 58,684,457
Less:
- --------------------------------------------
Treasury stock, at cost:
1,294,026 shares and 1,325,721 shares, respectively 16,372,219 16,738,364
Management Stock Purchase Plan receivables and deferrals 613,334 351,250
-----------------------------
44,101,303 41,594,843
-----------------------------
$101,442,768 $ 94,319,378
=============================
</TABLE>
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
21
<PAGE>
Consolidated Statements of Changes in Capital Accounts
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Dec. 26, 1998 Dec. 27, 1997 Dec. 28, 1996
- --------------------------------------------------------------------------------------------------------------------
Shares Amount Shares Amount Shares Amount
- --------------------------------------------------------------------------------------------------------------------
Common Stock:
Balance, beginning of year 9,116,483 $4,558,243 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 9,116,483 $4,558,243 9,111,358 $4,555,680
====================================================================================
Capital in Excess of
Par Value of Stock:
Balance, beginning of year $29,337,938 $28,831,377 $28,751,194
Issuances:
Management Stock
Purchase Plan 116,975 20,988 68,251
Stock Option Plan 5,031 466,192 --
Tax benefits related to
Management Stock
Purchase Plan and
Stock Option Plan 302,266 19,381 11,932
------------------------------------------------------------------------------------
Balance, end of year $29,762,210 $29,337,938 $28,831,377
------------------------------------------------------------------------------------
Treasury Stock:
Balance, beginning of year 1,325,721 $16,738,364 1,369,317 $16,329,055 1,380,297 $16,364,757
Management Stock
Purchase Plan:
Reissued (23,815) (288,607) (4,919) (30,658) (11,949) (43,716)
Reacquired 3,245 39,580 1,847 14,743 969 8,014
Shares reacquired (reissued)
in connection with:
Stock Option Plan (11,125) (117,118) (41,608) 405,441 -- --
5 for 4 Stock split in
1997 - fractional shares -- -- 1,084 19,783 -- --
------------------------------------------------------------------------------------
Balance, end of year 1,294,026 $16,372,219 1,325,721 $16,738,364 1,369,317 $16,329,055
====================================================================================
Management Stock Purchase
Plan Receivables and Deferrals:
Balance, beginning of year $351,250 $416,368 $429,813
Common stock issued 405,581 51,647 111,966
Common stock repurchased (43,370) (16,489) (10,608)
Note payments and
amortization of
deferred compensation (100,127) (100,276) (114,803)
------------------------------------------------------------------------------------
Balance, end of year $613,334 $351,250 $416,368
====================================================================================
</TABLE>
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 were available for sale in the first quarter
of 1998.
2. Payroll Tax Settlement Charge:
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 were included in other
current liabilities in the 1997 balance sheet. The after-tax effect of this
charge resulted in a reduction of net income of $1,171,170 or $.15 per share.
All amounts relative to this charge were paid in 1998.
3. Inventories:
Inventories are classified and valued as follows:
Dec. 26, 1998 Dec. 27, 1997
- ---------------------------------------------------------------------------
Classification:
Finished goods $1,330,016 $ 775,417
Work in progress 530,863 580,362
Raw materials and supplies 2,407,042 1,940,423
------------------------------
$4,267,921 $3,296,202
==============================
Valued at lower of cost or market:
First-in, first-out (FIFO) $3,271,884 $2,561,739
Last-in, first-out (LIFO) 996,037 734,463
------------------------------
$4,267,921 $3,296,202
==============================
For the inventories stated on the LIFO basis, the current replacement cost
exceeds LIFO value by approximately $439,000 at December 26, 1998 and $435,000
at December 27, 1997.
4. Long-Term Receivables and Distribution Routes:
The majority of the company's sales distribution routes are owned by independent
owner/operators who purchase the exclusive right to sell and distribute
Tastykake products in defined geographical territories. The company maintains a
wholly-owned subsidiary to assist in financing route purchase activities if
requested by new owner/operators. At December 26, 1998 and December 27, 1997,
notes receivable of $12,669,000 and $12,870,000, respectively, are included in
current and long-term receivables in the accompanying consolidated balance
sheets.
5. 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 6). 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 $1,200,000 were outstanding at December 26, 1998 at an interest rate
of 5.15%.
Notes payable of $900,000 were outstanding at December 27, 1997 at an interest
rate of 5.84%. The average outstanding borrowing during 1998 was $1,987,000
($1,637,000 in 1997) and the average interest rate was 5.85% (5.89% in 1997),
calculated on the basis of the average daily balance. The maximum short-term
borrowings by the company at any period end during 1998 aggregated $2,700,000
($2,750,000 in 1997).
23
<PAGE>
6. Long-Term Debt:
<TABLE>
<CAPTION>
Long-term debt consists of the following:
<S> <C> <C>
Dec. 26, 1998 Dec. 27, 1997
- --------------------------------------------------------------------------------------------------------------------
Revolving Credit Agreement, with interest at or below
the prime rate (6.1% average rate at December 26, 1998) $13,500,000 $ 7,500,000
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 273,053 302,407
---------------------------------
13,773,053 7,802,407
Less current portion 273,053 29,354
---------------------------------
$13,500,000 $ 7,773,053
=================================
</TABLE>
Effective September 28, 1989, the company entered into a Revolving Credit
Agreement (Agreement) which currently permits borrowings up to $20,000,000.
Borrowings under the 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 Agreement, the company may borrow up to $20,000,000 until
September 28, 2000. However, the Agreement contains provisions which effectively
allow the revolving credit period and maturity to be extended indefinitely upon
approval of the banks. The 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.
The following schedule of future long-term debt principal payments as of
December 26, 1998 is based on the stated maturity dates of the various long-term
borrowings and does not reflect future extensions or refinancings.
1999 $ 273,053
2000 13,500,000
-----------
Total principal payments $13,773,053
===========
7. Obligations Under Capital Leases:
Obligations under capital leases consist of the following:
<TABLE>
<CAPTION>
Dec. 26, 1998 Dec. 27, 1997
<S> <C> <C>
Capital lease obligation, with interest at 11%, payable in monthly installments
of $43,833 through June 1999 $ 254,771 $ 724,351
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. The 4% Industrial development mortgage was paid
off during 1998 332,385 406,767
------------------------------
587,156 1,131,118
Less current portion 325,873 543,962
------------------------------
$ 261,283 $ 587,156
==============================
</TABLE>
24
<PAGE>
8. 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 26, 1998 and December 27, 1997 with accumulated amortization of
$4,956,000 and $4,689,000, respectively. Depreciation and amortization of assets
recorded under capital leases was $267,000 in 1998 and 1997 and $247,000 in
1996.
The following is a schedule of future minimum lease payments as of December 26,
1998:
<TABLE>
<CAPTION>
<S> <C> <C>
Noncancelable
Capital Leases Operating Leases
- -------------------------------------------------------------------------------
1999 $ 359,627 $ 1,138,421
2000 96,627 953,823
2001 96,627 561,729
2002 96,627 223,086
2003 8,053 114,143
Later years -- --
-------------------------
Total minimum lease payments $ 657,561 $ 2,991,202
-----------
Less interest portion of payments 70,405
---------
Present value of future minimum lease payments $ 587,156
=========
</TABLE>
Rental expense was approximately $1,826,000 in 1998, $1,396,000 in 1997 and
$1,222,000 in 1996.
In connection with a workers compensation insurance policy, the company has
obtained a Standby Letter of Credit in the amount of $1,600,000 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.
25
<PAGE>
9. 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. In
accordance with Statement of Financial Accounting Standards No. 132 "Employers'
Disclosures about Pensions and Other Postretirement Benefits" the company has
adopted the following disclosure format:
The components of pension cost are summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
Service cost-benefits earned during the year $ 1,439,000 $ 1,292,000 $ 1,315,000
Interest cost on projected benefit obligation 4,913,000 4,910,000 4,811,000
Expected return on plan assets (5,946,000) (5,469,000) (5,147,000)
Prior service cost amortization (30,000) (30,000) (30,000)
Transition amount amortization (339,000) (339,000) (339,000)
----------------------------------------------
Net amount charged to income $ 37,000 $ 364,000 $ 610,000
==============================================
</TABLE>
The following table sets forth the change in projected benefit obligation,
change in plan assets, funded status of the pension plan and the net liability
recognized in the company's balance sheet at December 26, 1998 and December 27,
1997:
<TABLE>
<CAPTION>
1998 1997
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Change in Projected Benefit Obligation
- -------------------------------------------------
Projected benefit obligation, beginning of year $ 72,376,000 $ 66,275,000
Service cost 1,439,000 1,292,000
Interest cost 4,913,000 4,910,000
Actuarial loss 785,000 4,283,000
Benefits paid (4,374,000) (4,384,000)
------------------------------
Projected benefit obligation, end of year $ 75,139,000 $ 72,376,000
==============================
Change in Plan Assets
- -------------------------------------------------
Fair value of plan assets, beginning of year $ 67,806,000 $ 62,866,000
Actual return on plan assets 6,457,000 9,324,000
Benefits paid (4,374,000) (4,384,000)
------------------------------
Fair value of plan assets, end of year $ 69,889,000 $ 67,806,000
==============================
Net Liability Recognized in Balance Sheet
- -------------------------------------------------
Funded status of plan, end of year $ (5,250,000) $ (4,570,000)
Unrecognized actuarial loss (2,631,000) (2,905,000)
Unrecognized prior service cost (134,000) (164,000)
Unrecognized net transition obligation (1,016,000) (1,355,000)
------------------------------
Net liability recognized in balance sheet, end of year $ (9,031,000) $ (8,994,000)
==============================
</TABLE>
The actuarial present value of benefits and projected benefit obligations was
determined using a discount rate of 6.75% for fiscal year 1998, 7.0% for fiscal
year 1997 and 7.5% for fiscal year 1996. 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 1998, 1997 and 1996. Plan
assets are invested in a diverse portfolio that primarily consists of equity and
debt securities as well as certain real property with subsequent improvements
and additions thereto.
26
<PAGE>
10. 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. In
accordance with Statement of Financial Accounting Standards No. 132 "Employers'
Disclosures about Pensions and Other Postretirement Benefits" the company has
adopted the following disclosure format:
The net periodic postretirement benefit cost included the following components:
1998 1997 1996
- --------------------------------------------------------------------------------
Service cost $ 321,000 $ 303,000 $ 266,000
Interest cost 924,000 901,000 917,000
Net amortization and deferral (58,000) (220,000) (211,000)
----------------------------------------------
Net amount charged to income $ 1,187,000 $ 984,000 $ 972,000
==============================================
The following table sets forth the change in projected benefit obligation,
funded status of the postretirement benefit plan and the net liability
recognized in the company's balance sheet at December 26, 1998 and December 27,
1997:
<TABLE>
<CAPTION>
<S> <C> <C>
1998 1997
- -----------------------------------------------------------------------------------------
Change in Projected Benefit Obligation
- --------------------------------------------------
Projected benefit obligation, beginning of year $ 13,210,000 $ 12,903,000
Service cost 321,000 303,000
Interest cost 924,000 901,000
Actuarial loss 881,000 225,000
Benefits paid (1,156,000) (1,122,000)
-------------------------------
Projected benefit obligation, end of year $ 14,180,000 $ 13,210,000
===============================
Net Liability Recognized in Balance Sheet
- --------------------------------------------------
Funded status of plan, end of year $(14,180,000) $(13,210,000)
Unrecognized net gain (4,623,000) (5,867,000)
Unrecognized prior service cost 642,000 948,000
-------------------------------
Net liability recognized in balance sheet, end of year $(18,161,000) $(18,129,000)
===============================
</TABLE>
The accumulated postretirement benefit obligation was determined using a
weighted average discount rate of 6.75% in 1998, 7.00% in 1997 and 7.50% in
1996, and an assumed compensation increase rate of 6% was used for fiscal years
ended 1998, 1997 and 1996. For 1998, the health care cost trend rates are
anticipated to be 7.23% and 6.67% for indemnified health plans and HMO-type
health plans, respectively, gradually declining to 5% in six 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 $410,000, $412,000 and $371,000 in 1998, 1997 and 1996,
respectively and the net periodic cost by $53,000, $52,000 and $49,000 in 1998,
1997 and 1996, respectively. A 1% decrease in the healthcare trend rate would
decrease the accumulated postretirement benefit obligation by $373,000 and the
net periodic cost by $47,000 in 1998.
11. 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 $356,525 in 1998,
$355,077 in 1997 and $369,169 in 1996.
The Plan is administered under a Section 401(k) prototype plan sponsored by the
Dreyfus Corporation. Under the Plan, 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 26, 1998.
27
<PAGE>
12. 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 1998 and
1997, a total of 23,815 and 4,919 shares of common stock was sold at 50% of fair
market value at date of grant. The aggregate sales price of these shares was
$203,013 and $25,775, 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 4.25% in 1998, and 4.125% in 1997. At December
26, 1998, a total of 931,567 common shares was authorized under the Plan, of
which 210,783 shares remain available for issuance.
For accounting purposes, the difference between the fair market value of the
stock at the date of grant and the purchase price, $202,567 in 1998 and $25,872
in 1997, 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 $45,919, $41,526 and $38,755, in 1998, 1997 and 1996, respectively.
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.
13. Stock Option Plans:
Under the terms of the 1997 Long Term Incentive 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>
1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------
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 499,875 $13.26 508,750 $10.95 399,375 $10.77
Less: Exercises (11,125) 10.98 (165,375) 10.93 -- --
---------------------------------------------------------------------------
488,750 343,375 399,375
Granted -- -- 156,500 18.31 109,375 11.60
---------------------------------------------------------------------------
Outstanding at end of year 488,750 $13.31 499,875 $13.26 580,750 $10.95
===========================================================================
Options exercisable at year-end 327,350 229,925 286,750
Range of exercise prices $10.40 to $18.31 $10.40 to $18.31 $10.40 to $11.60
Weighted-average fair value of
options granted during the year -- $3.56 $2.02
Weighted-average remaining
contractual life 7.4 years 8.3 years 6.9 years
</TABLE>
28
<PAGE>
13. Stock Option Plans (continued):
A summary of the status of options granted to the Directors by the company for
the fiscal years 1998, 1997 and 1996 is presented below:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------
Weighted-Average Weighted-Average Weighted-Average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
- -----------------------------------------------------------------------------------------------------------------------
Options outstanding at
beginning of year 96,342 $11.35 96,342 $11.35 73,050 $11.00
Less: Expirations -- -- -- -- (32,958) 11.00
96,342 96,342 40,092
-------------------------------------------------------------------------
Granted -- -- -- -- 56,250 11.60
-------------------------------------------------------------------------
Outstanding at end of year 96,342 $11.35 96,342 $11.35 96,342 $11.35
=========================================================================
Options exercisable at year-end 73,842 62,592 51,342
Range of exercise prices $11.00 to $11.60 $11.00 to $11.60 $11.00 to $11.60
Weighted-average fair value of
options granted during the year -- -- $2.02
</TABLE>
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 employee grant: dividend yield of
4.02%, expected volatility of 23.02%, expected life of 5 years and risk-free
interest rate of 5.75%. The following assumptions were used for the 1996
employee and director grants: dividend yield of 4.17%, expected volatility of
19.51%, expected life of 5 years and risk-free interest rate of 6.17%.
The company applies 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. Under Statement of Financial Accounting Standards No. 123
"Accounting for Stock Based Compensation" pro forma disclosures are required if
no compensation cost is recognized. The calculated difference between the
reported and pro forma net income amounts is $.02 per share for 1998 and 1997
and $.01 per share for 1996.
14. Capitalization of Interest Costs:
The company capitalizes interest as a component of the cost of significant
construction projects. The following table sets forth data relative to
capitalized interest:
1998 1997 1996
- -----------------------------------------------------------------
Total interest $926,544 $593,906 $551,709
Less capitalized interest 181,263 57,086 31,334
------------------------------------
Interest expense $745,281 $536,820 $520,375
====================================
15. Other Income, Net:
Other income, net consists of the following:
1998 1997 1996
- ------------------------------------------------------------
Interest income $1,193,699 $1,223,126 $1,155,599
Rental income -- 231,826 428,701
Other, net 413,121 152,570 158,563
----------------------------------------
$1,606,820 $1,607,522 $1,742,863
========================================
29
<PAGE>
16. Provision for Income Taxes:
The provision for income taxes, at an effective rate of 34.1% in 1998, 37.7% in
1997, and 38.6% in 1996, 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:
1998 1997 1996
- ------------------------------------------------------------------------------
Statutory tax provision $ 2,956,755 $ 3,313,085 $ 3,491,999
State income taxes, net of
federal income tax benefit (7,471) 435,311 445,234
Other, net 20,170 (71,206) 28,773
----------------------------------------------
Provision for income taxes $ 2,969,454 $ 3,677,190 $ 3,966,006
==============================================
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>
<S> <C> <C>
1998 1997
- --------------------------------------------------------------------------------
Postretirement benefits other than pensions $ 7,571,662 $ 7,366,581
Pension and employee benefit costs 5,054,697 4,802,987
Depreciation and amortization (2,601,863) (1,785,302)
Vacation pay 940,148 895,999
Provision for doubtful accounts 1,188,040 1,035,572
Other 459,453 812,738
------------------------------
12,612,137 13,128,575
Less current portion 2,159,456 2,068,879
------------------------------
$ 10,452,681 $ 11,059,696
==============================
</TABLE>
17. Net Income per Common Share:
The following is a reconciliation of the basic and diluted net income per common
share computations:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1998 1997 1996
- -----------------------------------------------------------------------------------
Net income per common share - Basic:
- --------------------------------------
Net income $5,726,885 $6,067,177 $6,304,579
----------------------------------------
Weighted average shares outstanding 7,807,507 7,770,119 7,733,663
----------------------------------------
Basic per share amount $ .73 $ .78 $ .82
========================================
Net income per common share - Diluted:
- --------------------------------------
Net income $5,726,885 $6,067,177 $6,304,579
----------------------------------------
Weighted average shares outstanding 7,807,507 7,770,119 7,733,663
Dilutive options 145,367 125,803 --
----------------------------------------
Total diluted shares 7,952,874 7,895,922 7,733,663
Diluted per share amount $ .72 $ .77 $ .82
========================================
</TABLE>
Options to purchase a total of 156,500 shares of common stock at a price of
$18.3125 were outstanding in 1998 and 1997, and options to purchase a total of
605,092 shares of common stock at a price range of $10.40 to $11.60 were
outstanding in 1996. None of these shares were included in the computation of
the diluted per share amounts because the options' exercise prices were greater
than the average market prices of the common shares.
18. 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
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations and retained earnings, changes in capital
accounts and cash flows (page 12 and pages 18-30) present fairly, in all
material respects, the financial position of Tasty Baking Company and
subsidiaries as of December 26, 1998 and December 27, 1997, and the results of
their operations and their cash flows for each of the three fiscal years in the
period ended December 26, 1998, in conformity with generally accepted accounting
principles. 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 of these statements in
accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe our audits provide a reasonable basis for the opinion expressed
above.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
February 10, 1999
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
Executive 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.
Philip J. Baur, 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
Carl S. Watts
Chairman
Philip J. Baur, Jr.
Nelson G. Harris
Officers
Carl S. Watts
Chairman, President and
Chief Executive Officer
John M. Pettine
Executive Vice President and
Chief Financial Officer
Gary G. Kyle
Vice President Marketing and
National Sales
William E. Mahoney
Vice President Human Resources
W. Dan Nagle
Vice President Route and
Food Service Operations
Paul M. Woite
Vice President Manufacturing
Daniel J. Decina
Controller and Treasurer
Ronald O. Whitford, Jr.
Secretary
Thomas M. Lubiski
Assistant Controller
Eugene P. Malinowski
Assistant Treasurer
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 contain-
ing 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 10, 1999, on our audits of
the consolidated financial statements and financial statement schedule of Tasty
Baking Company and subsidiaries as of December 26, 1998 and December 27, 1997,
and for the three fiscal years in the period ended December 26, 1998, which
reports are included or incorporated by reference in this Annual Report on Form
10-K.
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
March 24, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000096412
<NAME> TASTY BAKING COMPANY
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> Dec-26-1998
<PERIOD-START> Dec-28-1997
<PERIOD-END> Dec-26-1998
<CASH> 373
<SECURITIES> 0
<RECEIVABLES> 24,065
<ALLOWANCES> (2,850)
<INVENTORY> 4,268
<CURRENT-ASSETS> 28,282
<PP&E> 159,419
<DEPRECIATION> (110,999)
<TOTAL-ASSETS> 101,443
<CURRENT-LIABILITIES> 12,736
<BONDS> 13,761
0
0
<COMMON> 4,558
<OTHER-SE> 39,543
<TOTAL-LIABILITY-AND-EQUITY> 101,443
<SALES> 150,729
<TOTAL-REVENUES> 152,336
<CGS> 93,238
<TOTAL-COSTS> 93,238
<OTHER-EXPENSES> 6,650
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 745
<INCOME-PRETAX> 8,696
<INCOME-TAX> 2,969
<INCOME-CONTINUING> 5,727
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,727
<EPS-PRIMARY> 0.73
<EPS-DILUTED> 0.72
</TABLE>
