-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AJCY9/JO1PsAZte711INvvl8tZSYuNcgN0OONZ4JoGk43dKegv+4SjGpcvYBXgWp iji0MAhWUcplDH1+uH67XA== 0000950159-02-000181.txt : 20020415 0000950159-02-000181.hdr.sgml : 20020415 ACCESSION NUMBER: 0000950159-02-000181 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020328 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TASTY BAKING CO CENTRAL INDEX KEY: 0000096412 STANDARD INDUSTRIAL CLASSIFICATION: BAKERY PRODUCTS [2050] IRS NUMBER: 231145880 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-05084 FILM NUMBER: 02589723 BUSINESS ADDRESS: STREET 1: 2801 HUNTING PARK AVE CITY: PHILADELPHIA STATE: PA ZIP: 19129 BUSINESS PHONE: 2152218500 MAIL ADDRESS: STREET 1: 3413 FOX ST CITY: PHILADELPHIA STATE: PA ZIP: 19129 10-K 1 tbc10k.txt 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 29, 2001 (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. [ ] The aggregate market value of voting stock held by non-affiliates as of February 12, 2002 is $129,280,716 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 11, 2002. Class Outstanding Common Stock, par value $.50 8,049,225 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 29, 2002 Part II Pages 2 to 10 inclusive of the definitive Proxy Statement dated March 27, 2002 Part III The index of exhibits is located on page number 7 of 13. 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, miniature donuts, snack bars, boxed cookies and large family sized cakes, pies and danish under the well established trademark, TASTYKAKE(R). These products comprise approximately 120 varieties. The availability of some products, especially the holiday-themed offerings, varies according to the season of the year. The single portion cakes, cookies and donuts principally sell at retail prices for individual packages ranging from 50(cent) to 99(cent) per package and family convenience packages ranging from $2.50 to $2.99. The pies principally sell at a retail price of 69(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 99(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 enrobed cakes under KANDY KAKES(R). In 1999, Tastykake introduced a line of large family sized cakes produced by Tasty Baking Oxford, Inc., a wholly-owned subsidiary, and currently sold by the Registrant, under the trademark CLASSIC BAKED GOODS(TM) at retail prices ranging from $2.99 to $3.29. In addition, large pies, boxed cookies, donuts, donut holes and large danish are sold by the Registrant under the trademark CLASSIC BAKED GOODS(TM) at retail prices ranging from $2.99 to $3.49. There are approximately thirty varieties available under the Classic Baked Goods line. During the fourth quarter of 2001 the Registrant closed the plant of its wholly-owned subsidiary Dutch Mill Baking Company, Inc. (Dutch Mill), based in Wyckoff, New Jersey. Dutch Mill was then merged into the Registrant's subsidiary, Tasty Baking Oxford, Inc., which will continue production of the varieties formerly produced at the Dutch Mill plant. The trademark DUTCH MILL(R) will remain an asset of the Registrant. Tasty Baking Oxford, Inc., located in Oxford, Chester County, Pennsylvania, currently manufactures honey buns, large cakes, donuts and muffins under the trademarks TASTYKAKE(R), CLASSIC BAKED GOODS(TM), SNAK N' FRESH(R) and AUNT SWEETIE'S BAKERY(R) for distribution through the traditional route and distributor methods as well as for private label, food service and institutional marketplaces. The SNAK N' FRESH(R) and AUNT SWEETIE'S BAKERY(R) brands were instituted to allow the Registrant to enter the private label and food service markets without compromising the integrity of its TASTYKAKE(R) brand. All of the products from the Oxford facility are sold to the Tastykake division for resale. 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 distributorships and major grocery chains located in most areas of the country. The Registrant has formed alliances with distributors who can handle the Tastykake product line most effectively in order to promote geographic expansion. Products are sold in forty-nine states and Puerto Rico. Tastykake also distributes its products through the TASTYKARE(R) program, whereby consumers can call a toll-free number or visit our web-site to order the delivery of a variety of Tastykake gift packs. At the end of 2001 the Registrant had eighteen thrift stores. The thrift store program for the Registrant was first implemented at the end of 2000; at that time two thrift stores were opened. The purpose of the thrift stores is to recover the cost of stale, damaged and other products not generally salable through normal distribution channels, to recoup part of the cost of developing and introducing new products into the marketplace, and to raise consumer awareness and acceptance of the Registrant's products. The Registrant has completed an upgrade of the entire computer system for all its divisions which is enabling the Registrant to coordinate a wide range of activities and will eventually link to large customers and suppliers. In 1998, the Registrant 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 approximately four years from inception. Phase I of the program, the complete renovation of the Krimpet and Junior production and packaging lines, was completed in 1999. Phase II, the renovation of the cupcake lines, began in 2000. Two of the four lines were successfully converted in 2000. These renovations are expected to increase productivity and efficiency. While the three largest customers of the Tastykake division together comprise a significant portion of its gross sales revenue, individually none exceeds 8%. The large number of retailers comprising the customer base ensures the availability of Tastykake products to consumers in the principal market area. 2 of 13 Item 1. Business, continued The Registrant maintains a comprehensive advertising program which from time to time utilizes outdoor poster campaigns, newspapers, customer coupons, radio and television advertising, and promotions with various sports teams. While the Registrant sponsors 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, nationwide distribution systems and large advertising budgets. 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 been able to grow nationally with the distribution of the Registrant's products through mass merchandisers, wholesales clubs, convenience stores and other means. The growth in national sales has resulted generally in higher average balances of finished product inventory in order to satisfy the delivery requirements of customers and of accounts receivable due to the billing cycles and payment terms of national account customers. The Registrant has a significant market position throughout its principal marketing area. Outside of the principal market area, its market share is generally less significant. Its principal competitor in the premium snack cake market throughout the country is Interstate Bakeries Corporation, with its three (3) brands - Hostess, Dolly Madison and Drakes. There are also local independent bakers that compete in a number of regional markets. Interstate Bakeries 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 promotes its Drakes product line in areas where the Registrant is attempting to expand its market share. McKee Foods Corporation, a large privately held company, competes in the snack cake market under the brand "Little Debbie", principally as a low price snack cake. Little Debbie holds the largest share of the snack cake market in the United States. Many other large companies are heavily advertising and promoting single serve packages of their traditional cookie and sweet snack varieties which now compete against the Registrant for the consumer's snack dollars No difficulty was experienced in obtaining raw materials in 2001. 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 2002. The Registrant's policies with respect to working capital items are 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 1,000 persons, including approximately 140 part-time employees. 3 of 13 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, cookies and donuts Fox and Roberts Streets Sales and Finance Offices, Philadelphia, PA (1) Data Processing Operations, Office Services and Warehouse 500 Braen Avenue Former Dutch Mill Offices and plant Wyckoff, NJ (2) which produced donuts, donut holes and cakes 700 Lincoln Street Tasty Baking Oxford Offices, Oxford, PA (3) Production of honey buns, donuts, pastries, muffins, and large cake, 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 2001 Annual Report to Shareholders - Exhibit 13, incorporated herein by reference. (2) Production operations at this facility ceased on October 19, 2001. This property is leased under an operating lease which expires in 2002. The balance of the lease payments is included in a restructure charge, see Note 2 of Notes to Consolidated Financial Statements in the 2001 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 and more recently, for the thrift store outlets. 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. However, if one or more of such matters were determined adversely to the Registrant, the ultimate liability arising therefrom should not be material to the financial position of the Registrant, but could be material to its results of operations in any quarter or annual period. 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 13 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 29, 2001 Item 5 Market for the Registrant's Common Equity and Related Shareholder Matters 14 Item 6 Selected Financial Data 15 Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations 12 - 13 Certain matters discussed in this Report, including those under the headings "Business," "Legal Proceedings" and "Management's Analysis," are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, and are subject to the safe harbor created by that Act. These forward-looking statements include comments about legal proceedings, competition within the baking industry, availability and pricing of raw materials and capital, improvements in efficiency expected from plant modernization programs, sales growth by distribution through private label, food service, institutional sales and national sales programs, changes in the Registrant's business strategies and other statements contained herein that are not historical facts. Because such forward-looking statements involve risks and uncertainties, there are important factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements which include changes in general economic or business conditions nationally and in the Registrant's primary markets, the availability of capital upon terms acceptable to the Registrant, the availability and prices of raw materials, the level of demand for the Registrant's products, the outcome of legal proceedings to which the Registrant is or may become a party, the actions of competitors within the baking industry, changes in consumer tastes or eating habits, the success of plant modernization and business strategies implemented by the Registrant to meet future challenges, and the ability to develop and market in a timely and efficient manner new products which are accepted by consumers. Item 7a Quantitative and Qualitative Disclosure about market risk 22 - 23 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 partially offset the fluctuations in the Registrant's interest rates on its 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 2001 Annual Report to Shareholders.
5 of 13 TASTY BAKING COMPANY AND SUBSIDIARIES PART III 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 29, 2001 Item 8 Consolidated Financial Statements and Supplementary Data: Quarterly Summary 14 Consolidated Statements of Operations and Retained Earnings 16 Consolidated Statements of Cash Flows 17 Consolidated Balance Sheets 18 - 19 Consolidated Statements of Changes in Capital Accounts 20 Notes to Consolidated Financial Statements 21 - 30 Report of Independent Accountants 31 Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure This item is not applicable. Page(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 5
6 of 13 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 30, 2000, December 25, 1999 and December 26, 1998 ------
Pages (a)-1. List of Financial Statements Quarterly Summary Incorporated herein Consolidated Statements of Operations and Retained by reference to Earnings pages 12 to 31 Consolidated Statements of Cash Flows inclusive of the Consolidated Balance Sheets Annual Report to Consolidated Statements of Changes in Capital Shareholders for the Accounts fiscal year ended Notes to Consolidated Financial Statements, including December 29, 2001. Summary of Significant Accounting Policies See page 11 of 13. Report of Independent Accountants (a)-2. Schedule* for the fiscal years ended December 29, 2001, December 30, 2000 and December 25, 1999: Report of Independent Accountants 9 of 13 II. Valuation and Qualifying Accounts 10 of 13 (a)-3. Exhibits Index - The following Exhibit Numbers refer to Regulation S-K, Item 601** (3) (a) Articles of Incorporation of Registrant as amended are incorporated herein by reference to Exhibit 3 to Form 10-K report of Registrant for 1998. (b) By-laws of Registrant as amended on March 31, 2000 are incorporated by reference to Exhibit 10 to form 10-Q report of Registrant for the twenty-six weeks ended June 24, 2000. (10) (a) Tasty Baking Company Restricted Stock Incentive Plan, effective as of December 21, 2000, is incorporated herein by reference to Exhibit 10 to Form 10-Q report of Registrant for the twenty-six weeks ended June 30, 2001. (b) 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. (c) 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. (d) 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. (e) 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 13 TASTY BAKING COMPANY AND SUBSIDIARIES ITEM 14, CONTINUED Pages (f) 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. (g) 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. (h) Director Retirement Plan dated October 15, 1987 is incorporated herein by reference to Exhibit 10(h) to Form 10-K report of Registrant for 1992. (i) 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. (j) 1994 Long Term Incentive Plan is incorporated herein by reference to Exhibit 10(j) to Form 10-K report of Registrant for 1994. (k) 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. (l) 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(l) constitute management contracts or compensatory plans or arrangements. (13) Annual Report to Shareholders for the fiscal year ended December 29, 2001, pages 12 to 31 only. (The balance of the Annual Report is not deemed "filed" or "soliciting material".) 11 of 13 (21) Subsidiaries of the Registrant 12 of 13 (23)(a) Consent of Independent Accountants 13 of 13 (b) On October 19, 2001, the Registrant furnished a report on Form 8-K, pursuant to Regulation FD, announcing the closing of its Dutch Mill facility in Wyckoff, New Jersey and the release of anticipated results of operations for the quarter ended September 29, 2001. The related press release was included.
8 of 13 REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE To the Shareholders and the Board of Directors Tasty Baking Company Our audits of the consolidated financial statements referred to in our report dated February 12, 2002, appearing on page 31 of the 2001 Annual Report to Shareholders of Tasty Baking Company and subsidiaries, (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 12, 2002 9 of 13
TASTY BAKING COMPANY AND SUBSIDIARIES SCHEDULE II. VALUATION AND QUALIFYING ACCOUNTS for the fiscal years ended December 29, 2001, December 30, 2000 and December 25, 1999 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 Period ========== ========== ======== ========== Deducted from applicable assets: Allowance for doubtful accounts: For the fiscal year ended December 29, 2001 $3,329,344 $ 772,372 $351,862 $3,751,854 ========== ========== ======== ========== For the fiscal year ended December 30, 2000 $2,874,088 $1,250,385 $795,129 $3,329,344 ========== ========== ======== ========== For the fiscal year ended December 25, 1999 $2,849,538 $ 428,864 $404,314 $2,874,088 ========== ========== ======== ========== Inventory valuation reserves: For the fiscal year ended December 29, 2001 $ 301,614 $ 81,340 $ 47,954 $ 335,000 ========== ========== ======== ========== For the fiscal year ended December 30, 2000 $ 275,109 $ 185,149 $158,644 $ 301,614 ========== ========== ======== ========== For the fiscal year ended December 25, 1999 $ 135,000 $ 323,709 $183,600 $ 275,109 ========== ========== ======== ========== Spare parts inventory reserve for obsolescence: For the fiscal year ended December 29, 2001 $ 445,063 $ 121,546 $ 86,050 $ 480,559 ========== ========== ======== ========== For the fiscal year ended December 30, 2000 $ 407,072 $ 153,787 $115,796 $ 445,063 ========== ========== ======== ========== For the fiscal year ended December 25, 1999 $ 340,000 $ 116,489 $ 49,417 $ 407,072 ========== ========== ======== ========== Equipment allowance for obsolescence: For the fiscal year ended December 29, 2001 $ 200,000 $ 10,000 $ -- $ 210,000 ========== ========== ======== ========== For the fiscal year ended December 30, 2000 $ 175,000 $ 25,000 $ -- $ 200,000 ========== ========== ======== ========== For the fiscal year ended December 25, 1999 $ 150,000 $ 42,086 $ 17,086 $ 175,000 ========== ========== ======== ==========
10 of 13 TASTY BAKING COMPANY AND SUBSIDIARIES The Annual Report to Shareholders for the fiscal year ended December 29, 2001 will be mailed to all shareholders on March 27, 2002. 11 of 13 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 /s/ John M. Pettine ------------------------------------- John M. Pettine, Executive Vice President, Chief Financial Officer and Director /s/ Daniel J. Decina ------------------------------------- Daniel J. Decina, Vice President Finance and Chief Accounting Officer 12 of 13 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. Signature Capacity Date - ------------------------------ ------------------------- ------------- /s/ Philip J. Baur, Jr. Retired Chairman of the March 27, 2002 - ------------------------------ Board and Director of Philip J. Baur, Jr. Tasty Baking Company /s/ Carl S. Watts Chairman of the Board, March 27, 2002 - ------------------------------ President, Chief Carl S. Watts Executive Officer and Director of Tasty Baking Company /s/ John M. Pettine Executive Vice President, March 27, 2002 - ------------------------------ Chief Financial Officer John M. Pettine and Director of Tasty Baking Company /s/ Fred C. Aldridge, Jr. Chairman of the March 27, 2002 - ------------------------------ Executive Committee and Fred C. Aldridge, Jr. Director of Tasty Baking Company /s/ G. Fred DiBona, Jr. Director of Tasty Baking March 27, 2002 - ------------------------------ Company G. Fred DiBona, Jr. /s/ Ronald J. Kozich Director of Tasty Baking March 27, 2002 - ------------------------------ Company Ronald J. Kozich /s/ Judith M. von Seldeneck Director of Tasty Baking March 27, 2002 - ------------------------------ Company Judith M. von Seldeneck 13 of 13 EX-13 3 exhibit13.txt EXHIBIT 13 Tasty Baking Company 2001 Annual Report New ideas. [GRAPHIC OMITTED] New opportunities. Contents 1 Financial Highlights 2 Letter to Shareholders 4 Operations Review 11 Financial Information 32 Directors and Officers About Tasty Tasty Baking Company, one of the nation's oldest and largest independent baking companies, is a leading producer of sweet baked goods. A baker of individual snack cakes and pies since 1914, Tasty has now entered the multi-serve market with the Classic Baked Goods line, including donuts, Danish pastry and large cakes and pies. Tasty has annual sales of $255 million and sells its products through supermarkets, convenience stores and mass merchandisers. Independent owner/operators distribute Tasty's products in the Mid-Atlantic core markets, accounting for 74% of revenues. An aggressive national distribution program is establishing Tasty brands outside the core market throughout the United States, Puerto Rico and Canada. Tasty operates two regional bakeries and markets its products under the Tastykake, Classic Baked Goods, Dutch Mill, Aunt Sweetie's Bakery, Mrs. Bauer's Bakery and Snak n' Fresh brands. Tasty Baking Company common stock is listed on the New York Stock Exchange under the symbol TBC. Financial Highlights For the Year 2001(a) 2000 - -------------------------------------------------------------------------------- Gross Sales $255,335,587 $249,690,639 Net Sales $164,607,854 $164,283,260 Net Income $ 6,320,202 $ 8,143,540 Average Number of Common Shares Outstanding: Basic 7,998,222 7,836,591 Diluted 8,139,765 7,861,069 Per Share of Common Stock: Net Income: Basic $ .79 $ 1.04 Diluted $ .78 $ 1.04 Cash Dividend $ .48 $ .48 At the Year End 2001 2000 - -------------------------------------------------------------------------------- Total Assets $116,136,819 $112,192,217 Working Capital $ 18,283,853 $ 15,474,123 Current Ratio 2.08 to 1 2.03 to 1 Shareholders' Equity: Amount $ 55,064,502 $ 50,173,678 Per Share of Common Stock $ 6.84 $ 6.40 (a) During the fourth quarter of 2001, the company incurred a $1,728,000 restructure charge related to its decision to close its Dutch Mill plant in Wyckoff, New Jersey and two company thrift stores. The after-tax effect of this charge was $1,038,000 or $.13 per share. Tasty Banking Company 2001 Annual Report 1 [GRAPHIC OMITTED] (photo caption) Carl S. Watts Chairman, President and Chief Executive Officer To Our Shareholders I'm pleased to report that Tasty Baking Company achieved the second best year in the Company's history in fiscal 2001. More important, we completed major initiatives that expanded our markets and increased our growth potential, both regionally and nationally. We've built an aggressive, highly creative company that's committed to capturing for our shareholders the full value of our knowledge, our expertise, and our ability to produce sweet baked goods better than anyone else. We've successfully cultivated the know-how to transform new ideas into new opportunities. A year of challenge Yet 2001 was not without its disappointments. It was a challenging year for our nation, for the national economy and for our industry. Tasty was not immune. We missed our goals for the third and fourth quarters, as our results reflected recession and uncertainty in the U.S. economy. The September 11 tragedies in New York and Washington, D.C. - in effect, the northern and southern boundaries of our core direct store delivery markets - disrupted our customers' buying habits to an extent that's difficult to measure. However, it's important to recognize that the effects of recession and uncertainty are temporary and Tasty's key strategies remain on track. 2001 Accomplishments Important initiatives were completed in 2001 that position Tasty for growth in the years ahead by opening new markets, forging new alliances, and attracting new customers. o In our direct store delivery markets we introduced new products and promotions, and established our Classic Baked Goods line in the multi-serve market. Classic Baked Goods allows us to compete in a new product category and expand our presence in supermarkets throughout the Mid-Atlantic region. o In 2001, we re-designed our entire line of Family Packs - supporting an intense branding campaign for our most popular product lines: Iced Cupcakes, Krimpets and Kandy Kakes. o National sales increased 14% and now account for 26% of our total revenues. We've established Tasty as a key player in the national marketplace on the strength of our sales to mass merchandisers and large supermarket chains. o To keep pace with increasing national sales, we decided to close our Dutch Mill plant and transfer production to our Hunting Park and Oxford bakeries. While the resulting charge reduced fourth quarter earnings, this action was necessary to increase efficiency. Continuing to expand our capacity, we added a new fryer line in Oxford, bringing the total number of lines in Oxford to four. 2 Financial Highlights o Gross sales increased 2.3% to $255,336,000, up from $249,691,000 last year. o Net sales were $164,608,000, which compares to $164,283,000 in 2000. o Net income was $6,320,000 or $ .78 per share, compared with $8,144,000 or $1.04 per share last year. However, 2001's results were negatively impacted by the restructure charge related to the closure of our Dutch Mill plant and two thrift stores, amounting to $ .13 per share. o Results on an operating basis were $7,358,000, or $ .90 per share. o At year-end 2001, our total assets were $116,137,000, which compares to $112,192,000 in 2000. o Total debt fell to $18,743,000 from $19,260,000 last year. o Shareholders' equity was $55,065,000, compared to $50,174,000 at year-end 2000. 2002 Outlook Though economic conditions remain difficult and uncertain, we look to the future with confidence because we've increased the range of opportunities to create value for our investors. We'll carefully manage our pricing and promotional policies in the direct store delivery markets to increase profitability. Now that our Classic Baked Goods line and thrift stores are established, our goal is to manage these new businesses for increased revenues and profits. Both represent a significant expansion of our core direct store delivery business, and provide opportunities to increase revenues and profits, despite our high market share in the Mid-Atlantic region. We'll continue to grow our national sales through all distribution channels, using the expertise gained in the mass merchandise market to enter the in-store bakery market, where we've identified an outstanding opportunity that requires only a modest investment of resources. By developing new ideas and pursuing new opportunities, Tasty has diversified the traditional snack cake business so that revenues and profits are now derived from multiple sources - increasing our potential to achieve positive results. Our success comes from exploiting the full potential of every innovation. For this we rely on the expertise, the energy and the commitment of our employees, our owner/operators, and our management team. Together, we look to the future with confidence in our strength and our ability to achieve outstanding results. /s/ Carl S. Watts Carl S. Watts Chairman, President and Chief Executive Officer 3 New ideas New Energy in Direct Store Delivery Markets In our core route markets in the Mid-Atlantic states, independent owner/operators deliver Tasty products directly to our customers and maintain our displays on the store shelves. Products include Tasty's traditional single-serve cakes, pies, donuts, snack bars and cookies; Family Packs, and Classic Baked Goods multi-serve products. Sales in 2001 were flat in the face of recession and reduced consumer demand. A range of actions is underway to enhance the profitability of Tasty's traditional snack cake business in our direct store delivery (DSD) markets. Price increases in early 2002 are expected to boost margins, accompanied by careful and judicious use of promotions so that "sale" prices do not undermine profitability. In addition, new cost analyses made possible by enhanced computer systems will be used to better manage the DSD line - further enhancing profitability by avoiding short and costly production runs. In 2001, Tasty broadened its franchise in the DSD markets by re-launching and expanding the Classic Baked Goods line, originally introduced in 1999. Classic Baked Goods includes donuts and donut holes, cookies, Danish pastries, and scaled-up versions of Tasty's popular snack cakes and pies. Classic Baked Goods represents Tasty's entry into the multi-serve market, with its emphasis on breakfast foods and desserts served throughout the day - augmenting the Tasty snack line with products for breakfast, lunch and dinner. While Tasty's high market share in the Mid-Atlantic region tends to limit possibilities for dramatic growth in snack cakes and pies, the multi-serve segment offers significant opportunities for Tasty and its owner/operators. Classic Baked Goods allows Tasty to expand its "footprint" in supermarkets throughout the Mid-Atlantic region. Now, instead of donuts and Danish wedged alongside Family Packs and single-serve cakes and pies in a single display, Classic Baked Goods frequently commands its own "island" display, competing directly with national multi-serve competitors. 4 [GRAPHIC OMITTED] (photo caption) The Classic Baked Goods line commands its own "island" display space in many supermarkets - establishing Tasty as a significant contender in the multi-serve market and significantly increasing the total shelf space devoted to Tastykake products. New opportunities 5 New ideas [GRAPHIC OMITTED] (photo caption) Eighteen Tastykake thrift stores located throughout the direct store delivery market provide a new way for consumers to purchase our snack and Classic Baked Goods products. New Thrift Store Network Supporting the DSD market is a network of 18 thrift stores throughout the Mid-Atlantic region. For many years our competition has used thrift stores to manage stale returns and to promote their brands. While Tasty has generally experienced relatively low stale returns on its established products, the thrift stores provide an outlet for these stale products as well as an important way for Tasty to recoup part of the cost of introducing new products, which initially have higher stale returns. The thrift stores not only facilitate new product development, but also raise consumer awareness and acceptance of Tasty's products in the Mid-Atlantic region. New Packaging for Family Packs In 2001, Tasty re-designed the packaging for Family Packs - our top-selling products, sold in both the DSD and national sales markets. Updated packaging now emphasizes the branding of product names - such as "Iced Cupcakes," "Krimpets," and "Kandy Kakes" - which differentiate Tasty's products from those of competitors. The new look is part of a continuing effort to communicate the value of our products to consumers. New Markets for National Sales Tasty's national sales markets include supermarkets, mass merchandisers, wholesale clubs, convenience stores, limited assortment stores, and vending machine operators. National sales markets are an important growth opportunity, as Tasty becomes a strong national brand. National sales increased by 14% in 2001 and represent 26% of Tasty's revenues. [GRAPHIC OMITTED] (photo caption) New packaging communicates distinctive product character-istics to consumers and distinguishes Tastykake products from competitors - especially important in national sales markets where Tasty's growth potential is greatest. 6 Tasty's growth in national sales markets continued in 2001 as customers consolidated and the need to develop product offerings for multiple distribution channels became more pronounced. While only five companies now dominate the grocery industry in the United States, increasingly they compete with mass merchandisers, warehouse clubs, dollar stores, drug stores and other retail channels that also sell food. Competition is intense, as the low cost/high value business model has won widespread acceptance among consumers. A volatile marketplace creates both opportunities and challenges for Tasty. Supermarket consolidation makes it possible to reach many individual stores with a single sales effort, and new retail channels offer significant growth potential. At the same time, however, uncertainty in the marketplace makes stable and predictable business relationships more important than ever. In 2001, sales through the mass merchandiser channel continued to increase, and we added a fryer line at our Oxford bakery to keep pace with demand. We increased our market share in southern California by more than 40%, and entered the New England market for the first time with sales to Stop & Shop, Shaw's and DeMoula's. Sales to A&P's Food Basics stores mark our entry to the limited assortment store market. Our experience in the mass merchandiser market, with its emphasis on low price, narrow margins and high volume, has proven extremely valuable, because it requires a highly disciplined approach to product development and sales. This translates into a decided advantage as we pursue new opportunities in multiple channels, since price points and profitability thresholds are well established. [GRAPHIC OMITTED] (photo caption) Today many retailers sell snack foods as part of a diverse product mix that includes a wide range of non-food merchandise. As retail channels grow more diverse and target specific market segments, Tasty offers products to meet a wide range of consumer wants and needs. Tasty Baking Company National Sales [Bar chart omitted] New opportunities 7 New ideas New In-Store Bakery Line In 2002, Tasty will enter the supermarket in-store bakery arena - both regionally and nationally - with a line of freeze-thaw-ready products. This new product line draws on our experience in developing Classic Baked Goods for the DSD market, as well as other products designed for mass merchandisers. In-store bakeries have a total market potential estimated at over $16 billion, with more than 31,000 outlets nationwide. Supermarkets initiated the in-store bakery concept during the 1990s with the expectation of producing baked goods on site, but profit performance has been generally poor due to the increased labor requirements. Freeze-thaw-ready products are a more cost effective alternative, and Tasty is able to provide a complete array of sweet baked goods. The Tasty line, which may feature the supermarket's private label, includes donuts, mini donuts, donut holes, breakfast and dessert cakes, Danish pastry, and cookies. [GRAPHIC OMITTED] (photo caption) Private-label products for in-store supermarket bakeries capitalize on innovations developed for Classic Baked Goods and the mass merchandiser markets. 8 New Classic Baked Goods Tasty continues to refine and expand the Classic Baked Goods line of multi-serve products. New products introduced in 2001 include Cheese Danish, Cinnamon Buns and Cheese Cinnamon Buns. The core Classic Baked Goods line of classic favorites remains constant throughout the year, with seasonal products rotated in and out to maintain variety. Consistent and standardized packaging makes new product development extremely easy and cost effective. New items can now be test-marketed in the actual retail sales environment to determine consumer acceptance. New Product Challenges Tasty's entry into national sales markets created special challenges for all those responsible for developing and pricing new products. With huge sales volumes and fixed price points, there's no room for error. Just a few cents can make the difference between profit and loss. Some would see this as a risk. For Tasty, it's a true opportunity - and one that's produced positive results. [GRAPHIC OMITTED] (photo caption) The Classic Baked Goods line remains new and exciting as new products like Cheese Danish are added and seasonal items like Cherry Crumb Pie are rotated in and out throughout the year. New opportunities 9 [GRAPHIC OMITTED] (photo caption) Specialists from many disciplines come together as a team to bring new products to market. Above (from left), discussing Tasty's diverse product line, are John Sawicki (Research & Development), Adriane Posner (Purchasing), George Latella (Marketing & National Sales), Don Whitelock (Engineering) and Tom Gatter (Finance). New Investment in Growth Ongoing capital investment in facilities, manufacturing equipment and technology continue to have a positive effect on efficiency. Both the Hunting Park and Oxford plants posted excellent results in 2001. Ultimately, Tasty's success is founded on our investment in our people - talented individuals who know our business and who bring creativity, precision and determination to their work. It's a team effort involving all our departments. Each offers creative ideas that continually refine and improve our ability to meet the requirements of our retail customers and maintain our reputation for great taste and outstanding value. 10 Financial Information Management's Review 12 Management's Analysis 14 Quarterly Summary 15 Five Year Selected Financial Data Consolidated Financial Statements 16 Operations and Retained Earnings 17 Cash Flows 18 Balance Sheets 20 Changes in Capital Accounts 21 Notes to Consolidated Financial Statements 31 Report of Independent Accountants Tasty Banking Company 2001 Annual Report 11 Management's Review Management's Analysis Results of Operations Net income for the fiscal year ended December 29, 2001 was $6,320,202 or $.78 per share. Included in net income for 2001 was a restructuring charge, which consisted of costs associated with the closing of the company's Dutch Mill plant in Wyckoff, New Jersey, and the closing of two company thrift stores that were under performing. The after-tax impact of this charge was $1,038,000 or $.13 per share, primarily related to costs associated with existing leases and contracts, write-off of certain equipment, employee severance payments and other related costs. After eliminating the effect of this charge, the comparable 2001 results were $7,358,202 or $.90 per share. Net income for the fiscal year ended December 30, 2000 was $8,143,540 or $1.04 per share. Net income for the fiscal year ended December 25, 1999 was $4,702,822 or $.60 per share. Included in net income for 1999 were two non-recurring charges. 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 certain other independent regional distributorships. This decision resulted in an after-tax charge of $570,570 or $.07 per share, primarily related to costs associated with the repurchase of some owner/operator territories as well as employee severance payments and other related costs. Also during the first quarter of 1999, the company adopted a new accounting regulation, which required the write-off of the remaining start-up costs pertaining to the company's Oxford plant. This charge was 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 $5,478,101 or $.70 per share. Gross sales increased in 2001 to $255,335,587 from $249,690,639 in 2000, representing an increase of 2.3%. The increase resulted from price increases instituted at the end of 2000 and during 2001. Gross sales increased in 2000 to $249,690,639 from $226,350,463 in 1999, representing an increase of 10.3%. This increase can be attributed to the company's national sales expansion efforts, more aggressive promotions, and a full year of restored production capabilities after the completion in 1999 of the first phase of the bakery modernization project. Also, price increases implemented during the fourth quarter of 2000 had a minor effect on the increase in gross sales relative to 1999. Net sales were $164,607,854 in 2001 compared to $164,283,260 in 2000, remaining relatively flat as the increase in gross sales was offset principally by an increase in returns. Net sales were $164,283,260 in 2000 compared to $150,661,637 in 1999, representing an increase of 9.0%. The percentage increase was slightly lower than the percentage increase in gross sales mostly due to increased promotions. Cost of sales, as a percentage of gross sales, was 41.1%, 42.2% and 42.3% in 2001, 2000 and 1999, respectively. The decrease in 2001 can be attributed to the price increases instituted in 2000 and 2001. The slight decrease in 2000 compared to 1999 can be attributed to the price increase instituted in the fourth quarter of 2000 and plant efficiencies, partially offset by increased energy costs. Selling, general and administrative expenses in 2001 increased $2,723,272 or 7.3% compared to 2000 primarily due to compensation expense from a conditional stock grant during 2001, an increase in pension expense compared to 2000 and an increase in shipping costs. Selling, general and administrative expenses in 2000 decreased $2,187,721 or 5.6% compared to 1999 mostly due to a decrease in advertising expense. Depreciation expense in 2001 decreased $555,657 or 7.2% compared to 2000. The majority of the decrease was the result of an evaluation in the second quarter of 2001 of the utilization of certain fixed assets and a determination that their useful lives should be extended to seven years from five years. Depreciation expense in 2000 increased $743,216 or 10.6% compared to 1999 due to the recognition of a full year of depreciation relative to the bakery modernization project and the new computer system. Other income, net decreased by $230,951 in 2001 compared to 2000 as a result of a decrease in interest income from owner/operators and a decrease in gains on the sale of equipment. Other income, net increased by $139,516 in 2000 compared to 1999 as a result of an increase in interest income from owner/operators and the gain on the sale of equipment. 12 Results of Operations (continued) Interest expense in 2001 decreased compared to 2000 due to lower average interest rates. Interest expense in 2000 increased compared to 1999 due to higher average interest rates partially offset by lower average borrowing levels. The effective tax rates were 37.4%, 36.1% and 34% in 2001, 2000 and 1999, respectively, which compare to a federal statutory rate of 34%. The difference between the effective rate and the statutory rate for 2001 and 2000 was principally due to the effect of state income taxes. The 1999 effective rate was essentially the same as the federal statutory rate as a result of state income taxes being offset by tax benefits arising from passive income and certain permanent differences. Financial Condition Historically, the company's ability to generate sufficient amounts of cash has primarily come from operations. Bank borrowings are used to supplement cash flow from operations during periods of cyclical shortages. The company's debt structure is relatively straightforward. Short- and long-term credit lines are maintained with two banks and certain capital and operating leases are utilized. Contractual obligations arising under these arrangements and related commitment expirations are detailed in Notes 6 to 8. Net cash from operating activities in 2001 decreased by $2,293,961 to $10,904,614 from $13,198,575 in 2000. The decrease principally resulted from a decrease in net income, an increase in inventories and a decrease in accrued liabilities, offset by positive non-cash adjustments to net income. Capital expenditures totaled $7,313,982 in 2001. These expenditures were made primarily for the continued upgrade of the bakery's production equipment and were funded totally from operating activities. The excess cash from operating activities after funding the net increase in loans to owner/operators was used to partially fund dividend payments of $3,833,460. Proceeds from the exercise of stock options were used to fund the balance of the dividends and reduce net bank borrowings. Net cash from operating activities in 2000 decreased by $2,300,357 to $13,198,575 from $15,498,932 in 1999. The decrease principally resulted from an increase in accounts receivable, inventories and prepayments offset by an increase in deferred taxes and bad debts. A decrease in accrued pensions also contributed to the reduction of net cash from operating activities for 2000. Capital expenditures totaled $8,116,213 in 2000. These expenditures were made primarily for the continued upgrade of the bakery's production equipment and for the computer system, and were funded totally from operating activities. The excess cash from operating activities and proceeds from the excess of owner/operator loan payments over new loans were used to fund dividend payments of $3,760,457 and reduce net bank borrowings. Net cash from operating activities in 1999 increased by $7,065,851 to $15,498,932 from the 1998 amount of $8,433,081. A majority of the increase can be attributed to a decrease in accounts receivable during 1999 relative to an increase during 1998. The increase can also be attributed to payment of the IRS settlement in the first quarter of 1998, which was accrued for in 1997, and an increase in accrued income taxes. These favorable changes were slightly offset by the decrease in net income and the change in the deferred tax asset. Net cash from operating activities was used to fund dividend payments of $3,755,847 and the majority of the capital expenditures. Capital expenditures totaled $14,037,837 in 1999. These expenditures were made primarily to upgrade the bakery's production equipment and for the new computer system. Bank borrowings and proceeds from the excess of owner/operator loan payments over new loans funded the balance of the capital expenditures not funded by operating cash. The company anticipates that cash flow from operating activities will improve in 2002, and with the continued availability of bank lines of credit, the new Credit Facility (see Note 6) and other long-term financing, sufficient cash will be available for planned capital expenditures and other operating and financial requirements. Tasty Banking Company 2001 Annual Report 13 Quarterly Summary (Unaudited) Summarized quarterly financial data (in thousands of dollars except for per share amounts) for 2001 and 2000 is as follows:
First Second Third Fourth Year 2001(a) Gross sales $65,656 $66,520 $62,532 $60,628 $255,336 Net sales 42,394 43,024 40,341 38,849 164,608 Gross profit (after depreciation) 14,131 14,225 11,699 12,283 52,338 Net income 2,119 2,499 1,050 652 6,320 Per share of common stock: Net income: Basic .27 .31 .13 .08 .79 Diluted .26 .31 .13 .08 .78 Cash dividends .12 .12 .12 .12 .48 Market prices: High 16.35 17.99 19.87 18.35 19.87 Low 12.66 14.35 16.43 15.74 12.66 2000 Gross sales $61,148 $62,899 $60,572 $65,072 $249,691 Net sales 40,343 41,718 39,856 42,366 164,283 Gross profit (after depreciation) 12,484 13,519 11,801 13,426 51,230 Net income 2,023 2,224 1,391 2,506 8,144 Per share of common stock: Net income: Basic .26 .28 .18 .32 1.04 Diluted .26 .28 .18 .32 1.04 Cash dividends .12 .12 .12 .12 .48 Market prices: High 11.19 12.27 13.43 14.61 14.61 Low 7.92 9.20 10.43 10.43 7.92
Each quarter consists of thirteen weeks except for the fourth quarter of 2000 which consists of fourteen 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 11, 2002 was 2,650. (a) During the fourth quarter of 2001, the company incurred a $1,728,000 restructure charge related to its decision to close its Dutch Mill plant in Wyckoff, New Jersey and two company thrift stores. The after-tax effect of this charge was $1,038,000 or $.13 per share. 14 Five Year Selected Financial Data All amounts presented are in thousands except for per share amounts.
2001(a) 2000 1999(b) 1998 1997(c) - -------------------------------------------------------------------------------------------------------------- Operating Results Gross Sales $255,336 $249,691 $226,350 $228,453 $222,054 Net Sales $164,608 $164,283 $150,662 $150,729 $149,292 Net Income $ 6,320 $ 8,144 $ 4,703 $ 5,729 $ 6,048 - -------------------------------------------------------------------------------------------------------------- Per Share Amounts Net Income: Basic $ .79 $ 1.04 $ .60 $ .73 $ .78 Diluted $ .78 $ 1.04 $ .60 $ .72 $ .77 Cash Dividends $ .48 $ .48 $ .48 $ .48 $ .456 Shareholders' Equity $ 6.84 $ 6.40 $ 5.81 $ 5.67 $ 5.37 - -------------------------------------------------------------------------------------------------------------- Financial Position Working Capital $ 18,284 $ 15,474 $ 14,406 $ 15,830 $ 10,737 Total Assets $116,137 $112,192 $111,753 $101,744 $ 94,572 Long-term Obligations $ 14,603 $ 16,843 $ 21,060 $ 13,761 $ 8,360 Shareholders' Equity $ 55,065 $ 50,174 $ 45,422 $ 44,357 $ 41,848 Shares of Common Stock Outstanding 8,052 7,845 7,823 7,822 7,791 - -------------------------------------------------------------------------------------------------------------- Statistical Information Capital Expenditures $ 7,314 $ 8,116 $ 14,038 $ 11,328 $ 10,528 Depreciation $ 7,204 $ 7,759 $ 7,016 $ 6,650 $ 7,215 Average Common Shares Outstanding: Basic 7,998 7,837 7,824 7,808 7,770 Diluted 8,140 7,861 7,865 7,953 7,896 - -------------------------------------------------------------------------------------------------------------- (a) During the fourth quarter of 2001, the company incurred a $1,728,000 restructure charge related to its decision to close its Dutch Mill plant in Wyckoff, New Jersey and two company thrift stores. The after-tax effect of this charge was $1,038,000 or $.13 per share. (b) Net income and per share amounts include an after-tax charge to net income of $570,570 or $.07 per share resulting from a route restructuring. Also included is an after-tax charge of $204,709 or $.03 per share related to an accounting change that required the write-off of start-up costs. Long-term obligations reflect the renewal of a capital lease with the trustees of the company pension plan (see Note 7). (c) 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.
Tasty Banking Company 2001 Annual Report 15 Consolidated Financial Statements Tasty Baking Company and Subsidiaries Consolidated Statements of Operations and Retained Earnings
52 Weeks Ended 53 Weeks Ended 52 Weeks Ended Dec. 29, 2001 Dec. 30, 2000 Dec. 25, 1999 - -------------------------------------------------------------------------------------------------------------------- Operations - ------------------------------------------------------ Gross Sales $ 255,335,587 $ 249,690,639 $ 226,350,463 Less discounts and allowances (90,727,733) (85,407,379) (75,688,826) ----------------------------------------------------------- Net sales 164,607,854 164,283,260 150,661,637 ----------------------------------------------------------- Costs and expenses: - ------------------------------------------------------ Cost of sales 105,065,849 105,294,026 95,696,570 Depreciation 7,203,688 7,759,345 7,016,129 Selling, general and administrative 39,830,182 37,106,910 39,294,631 Restructure charge 1,727,844 -- 950,000 Interest expense 1,102,777 1,540,242 1,124,469 Provision for doubtful accounts 772,372 1,250,385 428,864 Other income, net (1,189,606) (1,420,557) (1,281,041) ----------------------------------------------------------- 154,513,106 151,530,351 143,229,622 ----------------------------------------------------------- Income before provision for income taxes 10,094,748 12,752,909 7,432,015 ----------------------------------------------------------- Provision for income taxes: - ------------------------------------------------------ Federal 3,284,796 2,562,171 3,113,669 State (89,526) (269,625) 319,140 Deferred 579,276 2,316,823 (908,325) ----------------------------------------------------------- 3,774,546 4,609,369 2,524,484 ----------------------------------------------------------- Income before cumulative effect of a change in accounting principle 6,320,202 8,143,540 4,907,531 Cumulative effect of a change in accounting principle for start-up costs -- -- (204,709) ----------------------------------------------------------- Net income 6,320,202 8,143,540 4,702,822 - ------------------------------------------------------ Retained Earnings - ------------------------------------------------------ Balance, beginning of year 32,351,894 27,968,811 27,021,836 Cash dividends paid on common shares ($.48 per share in 2001, 2000 and 1999) (3,833,460) (3,760,457) (3,755,847) ----------------------------------------------------------- Balance, end of year $ 34,838,636 $ 32,351,894 $ 27,968,811 =========================================================== Per share of common stock: Income before cumulative effect of a change in accounting principle: Basic $ .79 $ 1.04 $ .63 Diluted $ .78 $ 1.04 $ .62 Cumulative effect of a change in accounting principle for start-up costs: Basic and Diluted -- -- $ (.03) ----------------------------------------------------------- Net income: Basic $ .79 $ 1.04 $ .60 =========================================================== Diluted $ .78 $ 1.04 $ .60 ===========================================================
See accompanying notes to consolidated financial statements. 16
Consolidated Statements of Cash Flows 52 Weeks Ended 53 Weeks Ended 52 Weeks Ended Dec. 29, 2001 Dec. 30, 2000 Dec. 25, 1999 - ----------------------------------------------------------------------------------------------------------------------------------- Cash flows from (used for) operating activities - ------------------------------------------------------------------------ Net income $ 6,320,202 $ 8,143,540 $ 4,702,822 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 7,203,688 7,759,345 7,016,129 Restructure charge 1,727,844 -- 950,000 Provision for doubtful accounts 772,372 1,250,385 428,864 Cumulative effect of a change in accounting principle -- -- 204,709 Conditional stock grant 804,759 319,016 -- Deferred taxes 579,276 2,316,823 (908,325) Other (637,047) (2,472,683) 1,286,084 Changes in assets and liabilities: Decrease (increase) in receivables (2,233,932) (2,339,505) 1,102,979 Decrease (increase) in inventories (2,481,235) (1,424,770) 201,501 Decrease (increase) in prepayments and other (197,658) (948,500) 209,213 Increase (decrease) in accrued payroll, accrued income taxes, accounts payable and other current liabilities (953,655) 594,924 304,956 ------------------------------------------------------ Net cash from operating activities 10,904,614 13,198,575 15,498,932 ------------------------------------------------------ Cash flows from (used for) investing activities - ------------------------------------------------------------------------ Proceeds from owner/operator loan repayments 3,494,763 4,065,144 4,021,428 Purchase of property, plant and equipment (7,313,982) (8,116,213) (14,037,837) Loans to owner/operators (4,043,379) (3,038,759) (3,856,500) Other 46,131 40,402 49,988 ------------------------------------------------------ Net cash used for investing activities (7,816,467) (7,049,426) (13,822,921) ------------------------------------------------------ Cash flows from (used for) financing activities - ------------------------------------------------------------------------ Dividends paid (3,833,460) (3,760,457) (3,755,847) Payment of long-term debt (3,216,821) (10,196,240) (3,153,651) Net increase (decrease) in short-term debt 1,700,000 1,450,000 (450,000) Additional long-term debt 1,000,000 6,000,000 6,000,000 Net proceeds from sale of common stock 1,318,112 (36,704) 16,110 ------------------------------------------------------ Net cash used for financing activities (3,032,169) (6,543,401) (1,343,388) ------------------------------------------------------ Net increase (decrease) in cash 55,978 (394,252) 332,623 Cash, beginning of year 311,242 705,494 372,871 ------------------------------------------------------ Cash, end of year $ 367,220 $ 311,242 $ 705,494 ====================================================== Supplemental cash flow information Cash paid during the year for: - ------------------------------------------------------------------------ Interest $ 1,228,287 $ 1,750,990 $ 1,125,763 ====================================================== Income taxes $ 3,065,069 $ 4,819,057 $ 1,714,027 ====================================================== Noncash investing and financing activities: - ------------------------------------------------------------------------ Capital lease renewal -- -- $ 4,049,406 ====================================================== See accompanying notes to consolidated financial statements. Tasty Banking Company 2001 Annual Report 17
Consolidated Balance Sheets Dec. 29, 2001 Dec. 30, 2000 - -------------------------------------------------------------------------------------------------------------- Assets - ------------------------------------------------------------------------ Current Assets: - ------------------------------------------------------------------------ Cash $ 367,220 $ 311,242 Receivables, less allowance of $3,751,854 and $3,329,344, respectively 22,233,413 20,771,853 Inventories 8,411,784 5,930,549 Deferred income taxes 3,055,410 2,483,323 Prepayments and other 1,101,345 1,035,605 -------------------------------- Total current assets 35,169,172 30,532,572 -------------------------------- Property, plant and equipment: - ------------------------------------------------------------------------ Land 1,097,987 1,097,987 Buildings and improvements 37,103,226 34,053,518 Machinery and equipment 146,023,373 143,150,543 -------------------------------- 184,224,586 178,302,048 Less accumulated depreciation and amortization 124,522,610 118,487,509 -------------------------------- 59,701,976 59,814,539 -------------------------------- Other assets: - ------------------------------------------------------------------------ Long-term receivables 10,201,049 9,652,433 Deferred income taxes 7,381,934 8,533,257 Spare parts inventory 3,632,687 3,406,483 Miscellaneous 50,001 252,933 -------------------------------- 21,265,671 21,845,106 -------------------------------- $116,136,819 $112,192,217 ================================
See accompanying notes to consolidated financial statements. 18
Dec. 29, 2001 Dec. 30, 2000 - ------------------------------------------------------------------------------------------------------------------ Liabilities - ---------------------------------------------------------------------------- Current Liabilities: - ---------------------------------------------------------------------------- Current obligations under capital leases $ 239,593 $ 216,820 Notes payable, banks 3,900,000 2,200,000 Accounts payable 5,306,976 5,385,864 Accrued payroll and employee benefits 6,208,889 6,887,625 Reserve for restructure 850,879 -- Other 378,982 368,140 ---------------------------------- Total current liabilities 16,885,319 15,058,449 ---------------------------------- Long-term debt 11,000,000 13,000,000 ---------------------------------- Long-term obligations under capital leases, less current portion 3,603,310 3,842,904 ---------------------------------- Accrued pensions and other liabilities 11,506,969 11,728,847 ---------------------------------- Postretirement benefits other than pensions 18,076,719 18,388,339 ---------------------------------- 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 29,388,567 29,742,434 Retained earnings 34,838,636 32,351,894 ---------------------------------- 68,785,446 66,652,571 Less: - ---------------------------------------------------------------------------- Treasury stock, at cost: 1,271,171 shares and 1,293,135 shares, respectively 13,167,082 16,106,361 Management Stock Purchase Plan receivables and deferrals 553,862 372,532 ---------------------------------- 55,064,502 50,173,678 ---------------------------------- $116,136,819 $112,192,217 ================================== See accompanying notes to consolidated financial statements. Tasty Banking Company 2001 Annual Report 19
Consolidated Statements of Changes in Capital Accounts
Dec. 29, 2001 Dec. 30, 2000 Dec. 25, 1999 - -------------------------------------------------------------------------------------------------------------------------------- Shares Amount Shares Amount Shares Amount - -------------------------------------------------------------------------------------------------------------------------------- Common Stock: Balance, beginning of year 9,116,483 $4,558,243 9,116,483 $4,558,243 9,116,483 $4,558,243 ------------------------------------------------------------------------------------------------ Balance, end of year 9,116,483 $4,558,243 9,116,483 $4,558,243 9,116,483 $4,558,243 ================================================================================================ Capital in Excess of Par Value of Stock: Balance, beginning of year $29,742,434 $29,778,768 $29,762,210 Issuances: Management Stock Purchase Plan 53,766 (4,211) 1,308 Stock Option Plan (599,642) -- 9,221 Conditional Stock Grant (11,535) (35,573) -- Tax benefits related to Management Stock Purchase Plan and Stock Option Plan 203,544 3,449 6,029 ------------------------------------------------------------------------------------------------ Balance, end of year $29,388,567 $29,742,434 $29,778,768 ------------------------------------------------------------------------------------------------ Treasury Stock: Balance, beginning of year 1,271,171 $16,106,361 1,293,135 $16,408,808 1,294,026 $16,372,219 Management Stock Purchase Plan: Reissued (20,345) (270,021) (1,400) (20,048) (4,640) (58,167) Reacquired 5,775 64,790 2,365 35,487 7,180 101,645 Net shares reissued in connection with: Stock Option Plan (155,820) (2,141,247) -- -- (3,431) (6,889) Conditional Stock Grant (36,242) (592,801) (22,929) (317,887) -- -- ------------------------------------------------------------------------------------------------ Balance, end of year 1,064,539 $13,167,082 1,271,171 $16,106,361 1,293,135 $16,408,808 ================================================================================================ Management Stock Purchase Plan Receivables and Deferrals: Balance, beginning of year $ 372,532 $ 475,470 $ 613,334 Common stock issued 323,787 15,838 59,475 Common stock repurchased (60,083) (29,904) (97,046) Note payments and amortization of deferred compensation (82,374) (88,871) (100,293) ------------------------------------------------------------------------------------------------ Balance, end of year $ 553,862 $ 372,532 $ 475,470 ================================================================================================
See accompanying notes to consolidated financial statements. 20 Notes to Consolidated Financial Statements 1. Summary of Significant Accounting Policies: - -------------------------------------------------------------------------------- Fiscal Year The company and its subsidiaries operate on a 52-53 week fiscal year, ending on the last Saturday of December. 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. 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. Revenue Recognition Revenue is recognized when title and risk of loss pass, which is generally upon receipt of goods by the customer. Shipping and Handling Costs The company does not bill customers for shipping and handling of product. These costs are included as a part of selling, general and administrative expense and were approximately $7,400,000, $7,000,000 and $6,800,000 for the years 2001, 2000 and 1999, respectively. Inventory Valuation Inventories are stated at the lower of cost or market, cost being determined using the first-in, first-out (FIFO) method. 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. Amortization of asset values under capital leases is provided in accordance with SFAS No. 13, "Accounting for Leases", as amended. The principal manufacturing plant related to the long-term lease with the company's pension plan is amortized over twenty years. Buildings and improvements are depreciated over thirty-nine years. Other leasehold improvements are generally depreciated over five years, and machinery and equipment are depreciated over a range of seven to fifteen years. For income tax purposes, accelerated depreciation methods are used. During the year, the company evaluated the utilization of certain fixed assets and determined that their useful lives should be extended to seven years from five years which resulted in a decrease of depreciation expense by $558,000 for the year 2001. Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Treasury Stock Treasury stock is stated at cost. Cost is determined by the first-in, first-out method. Pension Plan The company's general funding policy for the pension plan 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. Dilution is the result of outstanding stock options. Tasty Banking Company 2001 Annual Report 21 2. Restructure Charge: - -------------------------------------------------------------------------------- During the fourth quarter of 2001, the company closed its Dutch Mill plant in Wyckoff, New Jersey moving production of Dutch Mill products to the Hunting Park and Oxford plants. The company also closed two thrift stores that were under performing. Costs related to these events were included in a restructure charge of $1,728,000. The after-tax effect of this charge was $1,038,000 or $.13 per share. During the fourth quarter, $877,000 was expended relative to this charge leaving a remaining balance of $851,000 to be paid. 3. Inventories: - -------------------------------------------------------------------------------- Inventories are classified as follows: Dec. 29, 2001 Dec. 30, 2000 - -------------------------------------------------------------------------------- Finished goods $3,696,045 $1,791,570 Work in progress 720,511 705,380 Raw materials and supplies 3,995,228 3,433,599 ------------------------------- $8,411,784 $5,930,549 =============================== 4. Long-Term Receivables and Distribution Routes: - -------------------------------------------------------------------------------- The majority of the company's sales distribution routes are owned by independent owner/operators who purchased 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 using the route and certain associated assets as collateral. Most route purchase activities involve transactions between existing and new independent owner/operators. At December 29, 2001 and December 30, 2000, interest-bearing notes receivable (based on treasury yields plus a spread) of $11,685,189 and $11,213,000, 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 $41,000,000 primarily at or below the prime rate of interest. Of the $41,000,000, $11,000,000 is designated for short-term borrowings, while $30,000,000 is for use under a Revolving Credit Agreement. On January 31, 2002, a new Credit Facility was entered into which replaced all existing lines of credit (see Note 6). Notes payable of $3,900,000 were outstanding at December 29, 2001 at an interest rate of 2.39%. Notes payable of $2,200,000 were outstanding at December 30, 2000 at an interest rate of 7.14%. The average outstanding borrowing during 2001 was $3,549,000 ($2,003,000 in 2000) and the average interest rate was 4.59% (6.39% in 2000), calculated on the basis of the average daily balance. The maximum short-term borrowing by the company at any period end during 2001 was $4,600,000 ($3,100,000 in 2000). 22 6. Long-Term Debt: - -------------------------------------------------------------------------------- Long-term debt consists of the following:
Dec. 29, 2001 Dec. 30, 2000 - ---------------------------------------------------------------------------------------------------------------------- Revolving Credit Agreement, with interest at or below the prime rate (2.39% at December 29, 2001 and 7.15% at December 30, 2000) $11,000,000 $13,000,000 - ----------------------------------------------------------------------------------------------------------------------
In 1989, the company entered into a Revolving Credit Agreement (Agreement). On April 30, 1999, the Agreement was amended to permit a $10,000,000 increase in borrowings from $20,000,000 to $30,000,000. 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 $30,000,000 until September 2002. However, the Agreement contains provisions which effectively allow the revolving credit period and maturity to be extended indefinitely upon approval of the bank. The Agreement, as amended, contains restrictive covenants which include provisions for maintenance of minimum earnings to funded debt, fixed charge coverage, current ratio and tangible net worth, and restrictions on total liabilities, guarantees, loans, investments and subsidiary debt. The company was in compliance with all the covenants in 2001 and 2000. On January 31, 2002, the company entered into a new Credit Facility (Facility) for $40,000,000 with two banks. This Facility replaces all existing short-term lines of credit and the Agreement. Under the Facility, $15,000,000 is available on a 364 day basis and $25,000,000 is available on a three-year revolving term, both of which are renewable annually for an extension of one year upon approval of the banks. The Facility bears interest at an indexed LIBOR rate or the prime rate, and it contains restrictive covenants which include provisions for the maintenance of tangible net worth, coverage of fixed charges, and restrictions on total indebtedness, guarantees and investments. The 364 day portion of the Facility contains a sub-limit of $6,000,000 for overnight "Swing Line" borrowings. The revolving portion allows for Standby Letters of Credit to be issued. The following schedule of future long-term debt principal payments as of December 29, 2001 is based on the stated maturity dates under the Facility, as a result of the refinancing on January 31, 2002, and does not reflect future extensions or refinancings. 2005 $ 11,000,000 -------------- Total principal payments $ 11,000,000 ============== 7. Obligations Under Capital Leases: - -------------------------------------------------------------------------------- Obligations under capital leases consist of the following:
Dec. 29, 2001 Dec. 30, 2000 - ------------------------------------------------------------------------------------------------------------------------ Capital lease obligation, with interest at 11%, payable in monthly installments of $46,000 through June 2015 $3,743,235 $3,875,828 Industrial development mortgage, with interest at 8.5%, payable in monthly installments of $8,052 through February 2003 99,668 183,896 -------------------------------- 3,842,903 4,059,724 Less current portion 239,593 216,820 -------------------------------- $3,603,310 $3,842,904 ================================
The initial term of the company's lease with the Tasty Baking Company Pension Plan for the 2801 Hunting Park Avenue building expired on June 30, 1999. On July 1, 1999, the company exercised its option to renew its lease for an additional five three-year terms. This building contains the company's principal production facilities. The terms and conditions of the original lease will continue during the renewal period. In accordance with generally accepted accounting principles, the company remeasured its asset and related obligation based on the present value of the future minimum lease payments during the renewal period. This remeasurement is reflected in the company's financial statements at December 25, 1999 and resulted in an increase of $4,049,406 to both the fixed asset and the corresponding obligation at July 1, 1999. Tasty Banking Company 2001 Annual Report 23 8. Commitments and Contingencies: - -------------------------------------------------------------------------------- The company leases certain plant and distribution facilities, retail facilities for thrift stores, 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, 1999. The lease was renewed on July 1, 1999 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 $6,549,000 at December 29, 2001 and December 30, 2000 with accumulated amortization of $2,397,000 and $2,154,000, respectively. Depreciation and amortization of assets recorded under capital leases was $244,000 in 2001, $210,000 in 2000 and $289,000 in 1999. The following is a schedule of future minimum lease payments as of December 29, 2001: Noncancelable Capital Leases Operating Leases - -------------------------------------------------------------------------------- 2002 $ 648,627 $ 1,619,589 2003 560,053 1,528,160 2004 552,000 993,913 2005 552,000 695,950 2006 552,000 393,304 Later years 4,140,000 84,516 ----------------------------- Total minimum lease payments $ 7,004,680 $ 5,315,433 ------------ Less interest portion of payments 3,161,777 ------------ Present value of future minimum lease payments $ 3,842,903 ============ Rental expense was approximately $2,411,000 in 2001, $1,812,000 in 2000 and $2,000,000 in 1999. The increase in 2001 rental expense was principally related to the new company thrift stores, the majority of which opened during 2001. In connection with a workers compensation insurance policy, the company has obtained Standby Letters of Credit in the amount of $3,286,000 which are required by its 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. 24 9. Pension Costs: - -------------------------------------------------------------------------------- The company maintains a funded noncontributory pension plan providing retirement benefits for substantially all employees. Benefits under this plan generally are based on the employees' years of service and compensation during the years preceding retirement. Net pension gains and losses in excess of 10% of the greater of the projected benefit obligation or the market value of the plan assets ("the corridor") are recognized in income in the year of occurrence. The components of pension cost are summarized as follows:
2001 2000 1999 - ------------------------------------------------------------------------------------------------------- Service cost-benefits earned during the year $ 1,222,000 $ 1,201,000 $ 1,646,000 Interest cost on projected benefit obligation 5,065,000 5,027,000 5,114,000 Expected return on plan assets (6,135,000) (6,248,000) (6,077,000) Prior service cost amortization (30,000) (30,000) (30,000) Transition amount amortization (339,000) (339,000) (339,000) Actuarial gain recognition - corridor excess -- (1,776,000) -- --------------------------------------------------- Net amount charged (credited) to income $ (217,000) $(2,165,000) $ 314,000 ===================================================
The following table sets forth the change in projected benefit obligation, change in plan assets, funded status of the pension plan and net liability recognized in the company's balance sheet at December 29, 2001 and December 30, 2000:
2001 2000 - ---------------------------------------------------------------------------------------------- Change in Projected Benefit Obligation - ------------------------------------------------------- Projected benefit obligation, beginning of year $ 69,693,000 $ 71,644,000 Service cost 1,222,000 1,201,000 Interest cost 5,065,000 5,027,000 Actuarial loss (gain) 974,000 (3,603,000) Benefits paid (4,616,000) (4,576,000) --------------------------------- Projected benefit obligation, end of year $ 72,338,000 $ 69,693,000 ================================= Change in Plan Assets - ------------------------------------------------------- Fair value of plan assets, beginning of year $ 69,917,000 $ 70,479,000 Actual return on plan assets (457,000) 4,014,000 Benefits paid (4,616,000) (4,576,000) --------------------------------- Fair value of plan assets, end of year $ 64,844,000 $ 69,917,000 ================================= Net Liability Recognized in Balance Sheet - ------------------------------------------------------- Funded status of plan, end of year $ (7,494,000) $ 224,000 Unrecognized actuarial loss (gain) 575,000 (6,992,000) Unrecognized prior service income (45,000) (74,000) Unrecognized net transition asset -- (339,000) --------------------------------- Net liability recognized in balance sheet, end of year $ (6,964,000) $ (7,181,000) =================================
The actuarial present value of benefits and projected benefit obligations were determined using a discount rate of 7.25% for fiscal year 2001 and 7.5% for fiscal years 2000 and 1999. The expected long-term rate of return on assets was 9% for fiscal years 2001, 2000 and 1999. The rate of compensation increase used to measure the projected benefit obligation was 4.5% for fiscal years 2001 and 2000 and 6% for fiscal year 1999. 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. Tasty Banking Company 2001 Annual Report 25 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. The net periodic postretirement benefit cost included the following components:
2001 2000 1999 - ------------------------------------------------------------------------------------- Service cost $ 236,000 $ 252,000 $ 314,000 Interest cost 923,000 967,000 973,000 Net amortization and deferral (403,000) (96,000) 91,000 --------------------------------------------------- Net amount charged to income $ 756,000 $ 1,123,000 $ 1,378,000 ===================================================
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 29, 2001 and December 30, 2000:
2001 2000 - ---------------------------------------------------------------------------------------------- Change in Projected Benefit Obligation - ------------------------------------------------------ Projected benefit obligation, beginning of year $ 13,583,000 $ 13,667,000 Service cost 236,000 252,000 Interest cost 923,000 967,000 Actuarial gain (12,000) (240,000) Benefits paid (1,068,000) (1,063,000) ---------------------------------- Projected benefit obligation, end of year $ 13,662,000 $ 13,583,000 ================================== Net Liability Recognized in Balance Sheet - ------------------------------------------------------ Funded status of plan, end of year $(13,662,000) $(13,583,000) Unrecognized net gain (4,415,000) (4,836,000) Unrecognized prior service cost -- 31,000 ---------------------------------- Net liability recognized in balance sheet, end of year $(18,077,000) $(18,388,000) ==================================
The accumulated postretirement benefit obligation was determined using a weighted average discount rate of 7.25% in 2001 and 7.5% in 2000 and 1999, and an assumed compensation increase rate of 4.5% in 2001 and 2000 and 6% in 1999. For 2001, the health care cost trend rates are anticipated to be 11.0% for HMO-type health plans, gradually declining to 5.5% in eight 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 $328,000 and $339,000 in 2001 and 2000, respectively and the net periodic cost by $43,000, $46,000 and $56,000 in 2001, 2000 and 1999, respectively. A 1% decrease in the healthcare trend rate would decrease the accumulated postretirement benefit obligation by $307,000 and $314,000 in 2001 and 2000, respectively and the net periodic cost by $39,000, $41,000 and $52,000 in 2001, 2000 and 1999, respectively. 26 11. Thrift Plan: - -------------------------------------------------------------------------------- The Tasty Baking Company Thrift 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 $498,337 in 2001, $398,567 in 2000 and $340,313 in 1999. The plan is administered under a Section 401(k) prototype plan sponsored by Mellon Employee Benefit Solutions. 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 Mellon Employee Benefit Solutions for investment of their contributions. The company had 188,527 shares of its common stock reserved for possible issuance under the plan at December 29, 2001. 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) and under certain restrictions and obligations to resell to the company. During 2001 and 2000, 20,345 and 1,400 shares of common stock, respectively, were sold at 50% of fair market value at date of grant. The aggregate sales price of these shares was $161,956 and $7,919, 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 4.50% and 3.38% in 2001, and 4.25% and 4.75% in 2000. At December 29, 2001, a total of 931,567 common shares was authorized under the plan, of which 199,718 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, $161,830 in 2001 and $7,919 in 2000, 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 $45,385, $46,041 and $54,711, in 2001, 2000 and 1999, 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. Tasty Banking Company 2001 Annual Report 27 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:
2001 2000 1999 - ----------------------------------------------------------------------------------------------------------------------------------- Weighted-Average Weighted-Average Weighted-Average Shares Exercise Price Shares Exercise Price Shares Exercise Price - ----------------------------------------------------------------------------------------------------------------------------------- Options outstanding at beginning of year 585,000 $12.86 585,000 $12.86 488,750 $13.31 Less: Exercises (151,192) 11.08 -- -- (15,625) 13.94 Forfeitures -- -- -- -- (24,625) 13.39 ------------------------------------------------------------------------------------------ 433,808 585,000 448,500 Granted -- -- -- -- 136,500 11.50 ------------------------------------------------------------------------------------------ Outstanding at end of year 433,808 $13.48 585,000 $12.86 585,000 $12.86 ========================================================================================== Options exercisable at year-end 381,008 477,400 402,600 Weighted-average fair value of options granted during the year -- -- $2.57
The following table provides certain information with respect to stock options outstanding and exercisable at December 29, 2001:
Outstanding Options Exercisable Options ---------------------------------------------- -------------------------- Weighted-Average Range of Remaining Weighted-Average Weighted-Average Exercise Prices Shares Contractual Life Exercise Price Shares Exercise Price - --------------- ---------------------------------------------- -------------------------- $10.40 - $13.38 291,808 4.9 $11.13 239,008 $11.04 $18.31 142,000 6.0 $18.31 142,000 $18.31 - --------------- ---------------------------------------------- -------------------------- Total 433,808 381,008 =============== ============================================== ==========================
A summary of the status of options granted to the Directors by the company for the fiscal years 2001, 2000 and 1999 is presented below:
2001 2000 1999 - ----------------------------------------------------------------------------------------------------------------------------------- Weighted-Average Weighted-Average Weighted-Average Shares Exercise Price Shares Exercise Price Shares Exercise Price - ----------------------------------------------------------------------------------------------------------------------------------- Options outstanding at beginning of year 141,342 $11.40 141,342 $11.40 96,342 $11.35 Less: Exercises (36,921) 11.25 -- -- -- -- 104,421 141,342 96,342 Granted -- -- -- -- 45,000 11.50 ------------------------------------------------------------------------------------------ Outstanding at end of year 104,421 $11.45 141,342 $11.40 141,342 $11.40 ========================================================================================== Options exercisable at year-end 89,421 114,342 94,092 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 -- -- $2.57
28 13. Stock Option Plans (continued): - -------------------------------------------------------------------------------- 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 1999 employee grant: dividend yield of 3.34%, expected volatility of 26.18%, expected life of 5 years and risk-free interest rate of 5.11%. 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 2001, $.03 per share for 2000, and $.02 per share for 1999. In addition, effective December 17, 1999, the Board of Directors approved a resolution to distribute 79,304 shares to executives and managers of the company as a conditional stock grant expiring December 17, 2002. The shares were to be distributed to the executives and managers in one-third increments upon reaching the targeted stock prices of $12, $14 and $16. Compensation expense was required to be recognized for the number of shares granted at the time the targeted stock price levels were reached. Compensation expense was recognized for 2000 in the amount of $319,016 upon reaching the targeted stock price of $12. In the first quarter of 2001 the final two targets of $14 and $16 were reached which resulted in compensation expense of $804,759 in the first quarter of 2001. All shares related to the plan were distributed by the end of the first quarter of 2001. On December 21, 2000, the Board of Directors adopted the Tasty Baking Company Restricted Stock Incentive Plan (Restricted Stock Plan), which was approved by shareholders at the 2001 Annual Meeting. Under the terms of the Restricted Stock Plan, 200,000 common shares were authorized and 109,500 of those shares were granted to executives of the company. The target for these awards is the achievement of a compound annualized increase in earnings per share of 10% per year for fiscal years 2001 through 2003 (Measurement Period) over earnings per share for fiscal year 2000. The number of shares awarded is subject to adjustment on a roughly pro rata basis in the event the actual compound annualized rate of increase in the company's cumulative earnings per share for the Measurement Period is 50% to 125% of the target. Based on the earnings per share for 2001, the company made the decision to accrue compensation expense at the rate of 50% of the total award, allocated over the vesting period. Compensation expense recognized for the Restricted Stock Plan for 2001 was $239,664.
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: 2001 2000 1999 - ------------------------------------------------------------------------------------------------ Total interest $1,265,408 $1,755,261 $1,307,147 Less capitalized interest 162,631 215,019 182,678 --------------------------------------------- Interest expense $1,102,777 $1,540,242 $1,124,469 ============================================= 15. Other Income, Net: - ------------------------------------------------------------------------------------------------ Other income, net consists of the following: 2001 2000 1999 - ------------------------------------------------------------------------------------------------ Interest income $996,044 $1,116,989 $1,074,411 Other, net 193,562 303,568 206,630 --------------------------------------------- $1,189,606 $1,420,557 $1,281,041 =============================================
Tasty Banking Company 2001 Annual Report 29 16. Provision for Income Taxes: - -------------------------------------------------------------------------------- The provision for income taxes, at an effective rate of 37.4% in 2001, 36.1% in 2000, and 34% in 1999, 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:
2001 2000 1999 - ------------------------------------------------------------------------------------------ Statutory tax provision $3,432,214 $4,336,178 $2,526,884 State income taxes, net of federal income tax benefit 112,246 264,117 (20,087) Non-deductible expenses and other 230,086 9,074 17,687 ------------------------------------------------ Provision for income taxes $3,774,546 $4,609,369 $2,524,484 ================================================
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: 2001 2000 - ----------------------------------------------------------------------------- Postretirement benefits other than pensions $7,340,606 $7,507,422 Pension and employee benefit costs 4,351,955 4,353,814 Depreciation and amortization (4,836,840) (3,896,545) Vacation pay 980,563 923,680 Provision for doubtful accounts 1,523,555 1,359,274 Reserve for obsolescence 416,460 388,653 Restructure charge 341,001 -- Other 320,043 768,935 -------------------------------- 10,437,343 11,016,580 Less current portion 3,055,410 2,483,323 -------------------------------- $7,381,933 $8,533,257 ================================ 17. Net Income per Common Share: - -------------------------------------------------------------------------------- The following is a reconciliation of the basic and diluted net income per common share computations:
2001 2000 1999 Net income per common share - Basic: Net income $6,320,202 $8,143,540 $4,702,822 ---------------------------------------------- Weighted average shares outstanding 7,998,222 7,836,591 7,824,308 ---------------------------------------------- Basic per share amount $.79 $1.04 $.60 ============================================== Net income per common share - Diluted: Net income $6,320,202 $8,143,540 $4,702,822 ---------------------------------------------- Weighted average shares outstanding 7,998,222 7,836,591 7,824,308 Dilutive options 141,543 24,478 40,517 ---------------------------------------------- Total diluted shares 8,139,765 7,861,069 7,864,825 ---------------------------------------------- Diluted per share amount $.78 $1.04 $.60 ==============================================
Potentially dilutive options to purchase a total of 142,000 shares of common stock at a price of $18.3125 were outstanding in 2001, 2000 and 1999. These shares were not included in the computation of the diluted per share amounts because the exercise price of the options was greater than the average market prices of the common shares. 30 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 present fairly, in all material respects, the financial position of Tasty Baking Company and subsidiaries as of December 29, 2001 and December 30, 2000, and the results of their operations and their cash flows for each of the three fiscal years in the period ended December 29, 2001, in conformity with accounting principles generally accepted in the United States of America. 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 auditing standards generally accepted in the United States of America 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. PricewaterhouseCoopers LLP Philadelphia, Pennsylvania February 12, 2002 Tasty Banking Company 2001 Annual Report 31 [GRAPHICS OMITTED] (photo captions) Philip J. Baur, Jr. Carl S. Watts Fred C. Aldridge, Jr., Esq. G. Fred DiBona, Jr. Ronald J. Kozich John M. Pettine Judith M. von Seldeneck Directors and Officers Directors Philip J. Baur, Jr. Retired Chairman of the Board Carl S. Watts Chairman, President and Chief Executive Officer Fred C. Aldridge, Jr., Esq. Attorney-at-law G. Fred DiBona, Jr. President and CEO, Independence Blue Cross Ronald J. Kozich Retired Managing Partner, Ernst & Young LLP, Philadelphia John M. Pettine Executive Vice President and Chief Financial Officer Judith M. von Seldeneck Chief Executive Officer, Diversified Search Companies Committees of the Board Audit Committee Ronald J. Kozich, Chairman Fred C. Aldridge, Jr. Philip J. Baur, Jr. G. Fred DiBona, Jr. Compensation Committee Judith M. von Seldeneck, Chairperson G. Fred DiBona, Jr. Ronald J. Kozich Executive Committee Fred C. Aldridge, Jr., Chairman Philip J. Baur, Jr. Judith M. von Seldeneck Carl S. Watts Nominating Committee Carl S. Watts, Chairman Fred C. Aldridge, Jr. Philip J. Baur Officers Carl S. Watts Chairman, President and Chief Executive Officer John M. Pettine Executive Vice President and Chief Financial Officer Daniel J. Decina Vice President, Finance Mark M. Johnson Vice President, Human Resources Gary G. Kyle Vice President, Marketing and National Sales W. Dan Nagle Vice President, Route and Food Service Operations Paul M. Woite Vice President, Manufacturing Thomas M. Lubiski Controller Eugene P. Malinowski Treasurer Ronald O. Whitford, Jr. Secretary Dana E. Bell Assistant Controller Joseph A. Gaudiosi Assistant Treasurer and Assistant Secretary Transfer Agent American Stock Transfer & Trust Company 59 Maiden Lane New York, NY 10007 Stock Listing New York Stock Exchange Ticker symbol: TBC Tasty Baking Company 2801 Hunting Park Avenue Philadelphia, PA 19129 (215) 221-8500 TastyKare Department 1-800-33-TASTY Tastykake On-Line www.tastykake.com All paper used in this annual report meets or exceeds EPA guidelines for paper containing recovered materials. [LOGO] Tasty Baking Company 2801 Hunting Park Avenue Philadelphia, PA 19129 (215) 221-8500 EX-21 4 exhibit21.txt 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 Tasty Baking Oxford, Inc. Pennsylvania Tastykake Investment Company Delaware The aforementioned is included in the Consolidated Financial Statements of the Registrant filed herewith. EX-23 5 exhibit23.txt EXHIBIT 23 EXHIBIT 23(a) CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statements 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 Tasty Baking Company and subsidiaries of our report dated February 12, 2002 relating to the consolidated financial statements, which appears in the Annual Report to Shareholders, which is incorporated in this Annual Report on Form 10-K. We also consent to the incorporation by reference of our report dated February 12, 2002 relating to the consolidated financial statement schedule, which appears in this form 10-K. PricewaterhouseCoopers LLP Philadelphia, Pennsylvania March 27, 2002 -----END PRIVACY-ENHANCED MESSAGE-----