SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the thirty-nine weeks ended September 23, 2000
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( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number 1-5084
TASTY BAKING COMPANY
(Exact name of company as specified in its charter)
Pennsylvania 23-1145880
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(State of Incorporation) (IRS Employer Identification Number)
2801 Hunting Park Avenue, Philadelphia, Pennsylvania 19129
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(Address of Principal Executive Offices) (Zip Code)
(215) 221-8500
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(Company's Telephone Number, including area code)
Indicate by check mark whether the company (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the company was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, par value $.50 7,846,012
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(Title of Class) (No. of Shares Outstanding
at November 6, 2000)
INDEX OF EXHIBITS IS LOCATED ON PAGE 9 OF 10.
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TASTY BAKING COMPANY AND SUBSIDIARIES
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheets
September 23, 2000 and December 25, 1999.............................3
Consolidated Condensed Statements of Operations
Thirteen and Thirty-nine weeks ended
September 23, 2000 and September 25, 1999............................4
Consolidated Condensed Statements of Cash Flows
Thirty-nine weeks ended September 23, 2000 and September 25, 1999....5
Notes to Consolidated Condensed Financial Statements.................6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................................7-8
Item 3. Quantitative and Qualitative Disclosure
About Market Risk8
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders .................9
Item 6. Exhibits and Reports on Form 8-K.....................................9
Signature ....................................................................11
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
TASTY BAKING COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(unaudited)
<TABLE>
<CAPTION>
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September 23, 2000 December 25, 1999
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Current assets:
<S> <C> <C>
Cash $ 31,186 $ 705,494
Accounts and notes receivable, net of
allowance for doubtful accounts 24,227,613 19,682,733
Inventories:
Raw materials 3,462,347 3,193,027
Work in progress 766,827 568,416
Finished goods 1,908,000 744,336
------------------------------------------------
6,137,174 4,505,779
Deferred income taxes, prepayments and other 2,694,145 2,505,212
------------------------------------------------
Total current assets 33,090,118 27,399,218
------------------------------------------------
Property, plant and equipment: 176,523,746 170,394,608
Less accumulated depreciation 116,380,236 110,936,937
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60,143,510 59,457,671
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Long-term receivables 10,232,724 10,681,972
------------------------------------------------
Deferred income taxes 10,909,070 10,909,070
------------------------------------------------
Spare parts inventory and miscellaneous assets 3,745,910 3,305,010
------------------------------------------------
Total assets $ 118,121,332 $111,752,941
================================================
Current liabilities:
Current obligations under capital leases $ 186,139 $ 196,240
Notes payable, banks 2,350,000 750,000
Accounts payable 5,341,565 4,120,600
Accrued liabilities 8,235,402 7,926,105
------------------------------------------------
Total current liabilities 16,113,106 12,992,945
------------------------------------------------
Long-term debt, less current portion 18,000,000 17,000,000
------------------------------------------------
Long-term obligations under capital leases,
less current portion 3,924,948 4,059,724
------------------------------------------------
Accrued pensions and other liabilities 12,818,234 13,950,361
------------------------------------------------
Postretirement benefits other than pensions 18,681,179 18,328,367
------------------------------------------------
Shareholders' equity:
Common stock 4,558,243 4,558,243
Capital in excess of par value of stock 29,741,074 29,778,768
Retained earnings 30,787,840 27,968,811
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65,087,157 62,305,822
Less:
Treasury stock, at cost 16,105,868 16,408,808
Management Stock Purchase Plan
receivables and deferrals 397,424 475,470
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48,583,865 45,421,544
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Total liabilities and shareholders' equity $ 118,121,332 $111,752,941
================================================
</TABLE>
See accompanying notes to consolidated condensed financial statements.
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<TABLE>
<CAPTION>
TASTY BAKING COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(unaudited)
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For the Thirteen Weeks Ended For the Thirty-nine Weeks Ended
Sept. 23, 2000 Sept. 25, 1999 Sept. 23, 2000 Sept. 25, 1999
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<S> <C> <C> <C> <C>
Gross Sales $ 60,571,793 $ 53,765,048 $ 184,618,949 $ 167,680,647
Less discounts and allowances (20,716,010) (18,131,163) (62,701,448) (55,690,207)
------------- ------------- ------------- -------------
Net Sales 39,855,783 35,633,885 121,917,501 111,990,440
------------- ------------- ------------- -------------
Costs and expenses:
Cost of sales 26,154,324 23,344,953 78,530,920 71,046,258
Depreciation 1,900,398 1,726,780 5,582,234 5,418,094
Selling, general and
administrative 9,595,653 9,535,289 28,903,436 30,936,714
Interest expense 411,812 321,657 1,137,362 811,837
Restructure charge -- -- -- 950,000
Other income, net (346,385) (306,406) (971,142) (984,734)
------------- ------------- ------------- -------------
37,715,802 34,622,273 113,182,810 108,178,169
------------- ------------- ------------- -------------
Income before provision for
income taxes 2,139,981 1,011,612 8,734,691 3,812,271
Provision for income taxes 748,924 287,571 3,096,725 1,170,150
------------- ------------- ------------- -------------
Income before cumulative effect of a change
in accounting principle 1,391,057 724,041 5,637,966 2,642,121
Cumulative effect of a change in accounting
principle for start-up costs -- -- -- (204,709)
------------- ------------- ------------- -------------
Net income $ 1,391,057 $ 724,041 $ 5,637,966 $ 2,437,412
============= ============= ============= =============
Average common shares outstanding:
Basic 7,845,341 7,823,546 7,833,294 7,824,782
Diluted 7,886,859 7,847,241 7,852,424 7,878,804
Per share of common stock:
Income before cumulative effect of a change
in accounting principle: Basic and Diluted $0.18 $0.09 $0.72 $0.34
Cumulative effect of a change in accounting
principle for start-up costs:
Basic and Diluted -- -- -- ($0.03)
============= ============= ============= =============
Net income: Basic and Diluted $0.18 $0.09 $0.72 $0.31
============= ============= ============= =============
Cash dividend $0.12 $0.12 $0.36 $0.36
============= ============= ============= =============
See accompanying notes to consolidated condensed financial statements.
</TABLE>
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<TABLE>
<CAPTION>
TASTY BAKING COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(unaudited)
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For the Thirty-nine Weeks Ended
September 23, 2000 September 25, 1999
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<S> <C> <C>
Cash flows from (used for) operating activities
Net income $ 5,637,966 $ 2,437,412
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 5,582,234 5,418,093
Amortization 50,040 57,712
Cumulative effect of change in accounting principle - 204,709
Other (916,195) 1,287,890
Changes in assets and liabilities
affecting operations (4,834,946) 553,554
--------------------------------------------
Net cash from operating activities 5,519,099 9,959,370
--------------------------------------------
Cash flows from (used for) investing activities
Purchase of property, plant and equipment (6,268,073) (11,922,311)
Proceeds from owner/operators' loan repayments 3,059,301 3,383,101
Loans to owner/operators (2,613,202) (3,020,970)
Other 29,085 33,038
--------------------------------------------
Net cash used for investing activities (5,792,889) (11,527,142)
--------------------------------------------
Cash flows from (used for) financing activities
Additional long-term debt 5,000,000 6,000,000
Dividends paid (2,818,937) (2,817,266)
Payment of long-term debt (4,144,877) (3,172,405)
Net increase in short-term debt 1,600,000 1,200,000
Other (36,704) 16,110
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Net cash from (used for) financing activities (400,518) 1,226,439
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Net decrease in cash (674,308) (341,333)
Cash, beginning of year 705,494 372,871
--------------------------------------------
Cash, end of period $ 31,186 $ 31,538
============================================
Supplemental Cash Flow Information:
Cash paid during the period for:
Interest $ 974,785 $ 833,760
============================================
Income taxes $ 4,783,833 $ 1,206,479
============================================
Noncash investing and financing activities:
Issuance of common stock for services $ 319,016 $ -
============================================
Capital lease renewal $ - $ 4,049,406
============================================
See accompanying notes to consolidated condensed financial statements.
</TABLE>
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TASTY BAKING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. Interim Financial Information
-----------------------------
In the opinion of management, the accompanying unaudited consolidated
condensed financial statements contain all adjustments (consisting of
only normal recurring accruals) necessary to present fairly the financial
position of the company as of September 23, 2000 and December 25, 1999,
the results of its operations for the thirteen and thirty-nine weeks
ended September 23, 2000 and September 25, 1999 and cash flows for the
thirty-nine weeks ended September 23, 2000 and September 25, 1999. These
unaudited consolidated condensed financial statements should be read in
conjunction with the consolidated financial statements and footnotes
thereto in the company's 1999 Annual Report to Shareholders. In addition,
the results of operations for the thirty-nine weeks ended September 23,
2000 are not necessarily indicative of the results to be expected for the
full year.
Certain expense items are charged to operations in the year incurred.
However, for interim reporting purposes the expenses are charged to
operations on a pro-rata basis over the company's accounting periods. For
the thirteen and thirty-nine weeks ended September 23, 2000 and September
25, 1999, the difference between the actual expenses incurred and the
expenses charged to operations was not material.
2. Net Income Per Common Share
---------------------------
Net income per common share is 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. The company's dilutive potential common shares outstanding during
the year result entirely from dilutive stock options. Potential common
shares which would result from the exercise of stock options are not
included in the computation of diluted per share amounts when the
options' exercise price is greater than the average market price of the
common shares.
3. Restructure Charge
------------------
During the first quarter of 1999, the company discontinued forty-three
route territories in certain areas not achieving appropriate levels of
profitability, assigning most of those territories to regional
distributorships. As a result, the company incurred a charge of $950,000
resulting in a reduction in net income of $570,570 or $.07 per share,
primarily relating to costs associated with the repurchase of some
owner/operator territories as well as severance payments and other
related costs. All the costs accrued under this charge have been
satisfied.
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TASTY BAKING COMPANY AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
-----------------------------------------------------------
Results of Operations
---------------------
For the third quarter of 2000, net income increased to $1,391,057 compared to
$724,041 for the third quarter of 1999. Net income per share increased to $.18
from $.09 per share for the comparable quarter of 1999.
Net income for the thirty-nine weeks ended September 23, 2000 was $5,637,966 or
$.72 per share. Net income for the thirty-nine weeks ended September 25, 1999
was $2,437,412 or $.31 per share. Included in net income for 1999 were two
non-recurring charges. The company discontinued forty-three route territories in
certain areas not achieving appropriate levels of profitability, assigning most
of those territories to certain other independent regional distributorships.
This resulted in an after-tax charge of $570,570 or $.07 per share, primarily
relating to costs associated with the repurchase of some owner/operator
territories as well as employee severance payments and other related costs. The
second charge relates to the adoption of a new accounting regulation, which
required the write off of the remaining start-up costs pertaining to the
company's acquisition of its Oxford facility. This charge is reflected as a
cumulative effect of a change in accounting principle which resulted in an
after-tax charge to net income in the amount of $204,709 or $.03 per share.
After eliminating the effect of these two non-recurring charges, the comparable
1999 results were $3,212,691 or $.41 per share.
For the third quarter, gross sales increased 12.7% to $60,571,793, compared to
$53,765,048 last year. The increase in gross sales for the third quarter of 2000
is a continuation of a turnaround that began in the fourth quarter of 1999.
Increased promotions and growing relationships with large distributors have
contributed to sales growth. Gross sales, less discounts and allowances,
resulted in an increase in net sales of 11.8% to $39,855,783, compared to
$35,633,885 reported last year. The increase in net sales reflected the increase
in gross sales which was partially offset by an increase in discounts and
promotions.
Cost of sales, as a percentage of gross sales, was 43.2% and 43.4% for the third
quarters of 2000 and 1999, respectively. The slight improvement in 2000 over
1999 can be attributed to the increase in sales volume relative to the fixed
portion of cost of sales.
Selling, general and administrative expenses for the third quarter of 2000
remained relatively flat compared to the third quarter of 1999.
Interest expense increased for the third quarter of 2000 versus the third
quarter of 1999 as a result of increased average interest rates and increased
average borrowing levels.
The effective tax rate was 35.0% for the quarter ended September 23, 2000 and
28.4% for the quarter ended September 25, 1999 which compares to a federal
statutory rate of 34%. The difference between the effective rate and the
statutory rate in the third quarter of 2000 was the effect of state taxes. The
difference between the effective rate and the statutory rate in the third
quarter of 1999 was due to low taxable income compounded by the effect of state
tax benefits arising from passive income.
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Financial Condition
-------------------
The company has consistently demonstrated the ability to generate sufficient
cash flow from operations. Bank borrowings, under various lines of credit
arrangements, are used to supplement cash flow from operations during periods of
cyclical shortages.
For the thirty-nine weeks ended September 23, 2000, net cash from operating
activities decreased by $4,440,272 to $5,519,098 from $9,959,370 for the same
period in 1999. The decrease in 2000 compared to 1999 was due to a number of
factors. The increase in net income for 2000 was offset by a negative change in
assets and liabilities, mostly resulting from an increase in accounts
receivable, which can be attributed to the increase in sales activity, an
increase in cash paid for income taxes and an increase in inventory compared to
1999. Another contributing factor was a decrease in accrued pension expense.
These decreases to net cash from operating activities were slightly offset by an
increase in accounts payable.
Net cash used for investing activities for the thirty-nine weeks ended September
23, 2000 decreased by $5,734,253 relative to the same period in 1999 principally
due to less capital expenditures in the current year. During the thirty-nine
weeks ended September 23, 1999, a higher level of capital expenditures was
required due to the computer system upgrade and the first phase of the bakery
modernization project.
Net cash from financing activities for the thirty-nine weeks ended September 23,
2000 decreased by $1,626,956 relative to the same thirty-nine weeks in 1999. The
decrease is primarily the result of a decrease in the level of net borrowings
relative to the prior year.
Non Cash Activity disclosed in Supplemental Cash Flow Information for 1999
refers to a capital lease between the company and its Pension Plan("Plan") for
its principal production facilities which are owned by the Plan. On July 1,
1999, the company exercised the first of five, three-year extension options with
the Plan upon the expiration of the lease's initial 15 year term. As per the
provisions of Statement of Financial Accounting Standards(SFAS) No. 13, as
amended by SFAS No. 98, the company was required to revalue its lease with the
Plan at the present value of the future minimum lease payments over the expected
renewal periods. As a result, the values of the asset and obligation have been
increased by the amount disclosed.
For the remainder of 2000 the company anticipates that cash flow from
operations, along with the continued availability of bank lines of credit, the
revolving credit agreement and other long-term financing, will provide
sufficient cash to meet operating and financing requirements.
Item 3. Quantitative and Qualitative Disclosure About Market Risk
---------------------------------------------------------
The company has certain floating rate debt notes. Under current market
conditions, the company believes that changes in interest rates would not have a
material impact on the financial statements of the company. The company also has
notes receivable from owner operators whose rates adjust every three years, and,
therefore, would partially offset the fluctuations in the company's interest
rates on its notes payable. The company also has the right to sell these notes
receivable, and could use these proceeds to liquidate a corresponding amount of
the debt notes payable.
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TASTY BAKING COMPANY AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the third
quarter of the fiscal year covered by this report.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
The company did not file a report on Form 8-K during the thirty-nine
weeks ended September 23, 2000.
Exhibit Index
Exhibit 27 - Financial Data Schedule
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TASTY BAKING COMPANY AND SUBSIDIARIES
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the company
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
TASTY BAKING COMPANY
-----------------------------
(Company)
November 6, 2000 /S/ John M. Pettine
---------------------- -----------------------------------------------
(Date) JOHN M. PETTINE
EXECUTIVE VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
(PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER)
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