-----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, MJyoXBjKpM7aDhyfcSUtZENhPyFbgd+7oV+uniG8AFEiGWDIFnDBEomT4e5fTJSs c67SkY3EBm+tNGLU5np9Ag== 0000950159-99-000211.txt : 19990810 0000950159-99-000211.hdr.sgml : 19990810 ACCESSION NUMBER: 0000950159-99-000211 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990626 FILED AS OF DATE: 19990809 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-Q SEC ACT: SEC FILE NUMBER: 001-05084 FILM NUMBER: 99681093 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-Q 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON D.C. 20549 FORM 10-Q (Mark One) (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the twenty-six weeks ended June 26, 1999 ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________ Commission File Number 1-5084 TASTY BAKING COMPANY (Exact name of company as specified in its charter) Pennsylvania 23-1145880 - ------------------------------------------------------------------------------- (State of Incorporation) (IRS Employer Identification Number) 2801 Hunting Park Avenue, Philadelphia, Pennsylvania 19129 - ------------------------------------------------------------------------------- (Address of Principal Executive Offices) (Zip Code) (215) 221-8500 - ------------------------------------------------------------------------------- (Company's Telephone Number, including area code) Indicate by check mark whether the company (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the company was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock, par value $.50 7,823,581 - ------------------------------------------------------------------------------- (Title of Class) (No. of Shares Outstanding at August 6, 1999) INDEX OF EXHIBITS IS LOCATED ON PAGE 9 OF 10. 1 of 11 TASTY BAKING COMPANY AND SUBSIDIARIES
INDEX Page PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Condensed Balance Sheets June 26, 1999 and December 26, 1998.....................................................................3 Consolidated Condensed Statements of Operations Thirteen and Twenty-six weeks ended June 26, 1999 and June 27, 1998.........................................................................4 Consolidated Condensed Statements of Cash Flows Twenty-six weeks ended June 26, 1999 and June 27, 1998..................................................5 Notes to Consolidated Condensed Financial Statements....................................................6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations...................................................................7-9 Item 3. Quantitative and Qualitative Disclosure About Market Risk9 PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders ...................................................10 Item 6. Exhibits and Reports on Form 8-K.......................................................................10 Signature ...........................................................................................................11
2 of 11 PART I. FINANCIAL INFORMATION Item 1. Financial Statements TASTY BAKING COMPANY AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS (unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------ June 26, 1999 December 26, 1998 - ------------------------------------------------------------------------------------------------------------------------------------ Current assets: Cash $ 101,435 $ 372,871 Accounts and notes receivable, net of allowance for doubtful accounts 20,492,936 21,214,576 Inventories: Raw materials 2,791,429 2,407,042 Work in progress 645,317 530,863 Finished goods 1,630,037 1,330,016 -------------------------------------------------------- 5,066,783 4,267,921 Deferred income taxes, prepayments and other 3,238,839 2,426,784 -------------------------------------------------------- Total current assets 28,899,993 28,282,152 -------------------------------------------------------- Property, plant and equipment: 165,678,926 159,419,070 Less accumulated depreciation 110,821,144 110,998,936 -------------------------------------------------------- 54,857,782 48,420,134 -------------------------------------------------------- Long-term receivables 10,809,349 10,851,320 -------------------------------------------------------- Deferred income taxes 10,452,681 10,452,681 -------------------------------------------------------- Spare parts inventory and miscellaneous assets 3,261,406 3,436,481 ======================================================== Total assets $108,281,211 $101,442,768 ======================================================== Current liabilities: Current portion of long-term debt $ 257,475 $ 273,053 Current obligations under capital leases 197,797 325,873 Notes payable, banks 1,500,000 1,200,000 Accounts payable 4,467,717 4,204,211 Accrued liabilities 8,025,340 6,733,029 -------------------------------------------------------- Total current liabilities 14,448,329 12,736,166 -------------------------------------------------------- Long-term debt, less current portion 17,500,000 13,500,000 -------------------------------------------------------- Long-term obligations under capital leases, less current portion 123,499 261,283 -------------------------------------------------------- Accrued pensions and other liabilities 13,784,843 12,683,231 -------------------------------------------------------- Postretirement benefits other than pensions 18,423,770 18,160,785 -------------------------------------------------------- Shareholders' equity: Common stock 4,558,243 4,558,243 Capital in excess of par value of stock 29,773,944 29,762,210 Retained earnings 26,601,341 26,766,403 -------------------------------------------------------- 60,933,528 61,086,856 Less: Treasury stock, at cost 16,401,631 16,372,219 Management Stock Purchase Plan receivables and deferrals 531,127 613,334 -------------------------------------------------------- 44,000,770 44,101,303 -------------------------------------------------------- Total liabilities and shareholders' equity $108,281,211 $101,442,768 ========================================================
See accompanying notes to consolidated condensed financial statements. 3 of 11 TASTY BAKING COMPANY AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (unaudited)
- ------------------------------------------------------------------------------------------------------------------- For the Thirteen Weeks Ended For the Twenty-Six Weeks Ended June 26, 1999 June 27, 1998 June 26, 1999 June 27, 1998 - ------------------------------------------------------------------------------------------------------------------- Gross Sales $56,769,425 $ 56,933,408 $113,915,599 $114,094,160 Less discounts and allowances (18,265,519) (18,572,369) (37,559,044) (37,412,653) ----------------------------------------------------------------------------- Net Sales 38,503,906 38,361,039 76,356,555 76,681,507 ----------------------------------------------------------------------------- Costs and expenses: Cost of sales 24,069,240 24,307,090 47,701,305 48,132,069 Depreciation 1,905,531 1,589,016 3,691,314 3,340,394 Selling, general and administrative 10,470,880 11,167,403 21,401,425 21,638,420 Interest expense 267,672 178,308 490,180 319,551 Restructure charge - - 950,000 - Other income, net (334,327) (357,356) (678,328) (708,720) ----------------------------------------------------------------------------- 36,378,996 36,884,461 73,555,896 72,721,714 ----------------------------------------------------------------------------- Income before provision for income taxes 2,124,910 1,476,578 2,800,659 3,959,793 Provision for income taxes 733,109 462,887 882,579 1,305,000 ----------------------------------------------------------------------------- Income before cumulative effect of a change in accounting principle 1,391,801 1,013,691 1,918,080 2,654,793 Cumulative effect of a change in accounting principle for start-up costs - - (204,709) - ----------------------------------------------------------------------------- Net income $ 1,391,801 $1,013,691 $1,713,371 $2,654,793 ============================================================================= Average common shares outstanding: Basic 7,825,206 7,806,554 7,825,396 7,799,103 Diluted 7,867,647 7,985,349 7,894,582 7,975,274 Per share of common stock: Income before cumulative effect of a change in accounting principle: Basic $0.18 $0.13 $0.25 $0.34 ================ ================== ================== ================== Diluted $0.18 $0.13 $0.24 $0.33 ================ ================== ================== ================== Cumulative effect of a change in accounting principle for start-up costs: Basic and Diluted - - ($0.03) - ================ ================== ================== ================== Net income: Basic $0.18 $0.13 $0.22 $0.34 ================ ================== ================== ================== Diluted $0.18 $0.13 $0.22 $0.33 ================ ================== ================== ================== Cash dividend $0.12 $0.12 $0.24 $0.24 ================ ================== ================== ==================
See accompanying notes to consolidated condensed financial statements. 4 of 11 TASTY BAKING COMPANY AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (unaudited)
- -------------------------------------------------------------------------------------------------------- For the Twenty-six Weeks Ended June 26, 1999 June 27, 1998 - -------------------------------------------------------------------------------------------------------- Cash flows from (used for) operating activities Net income $ 1,713,371 $ 2,654,793 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 3,691,314 3,340,394 Amortization 39,180 88,673 Cumulative effect of change in accounting principle 204,709 -- Other 1,188,834 1,709,908 Changes in assets and liabilities affecting operations 831,662 (4,192,095) ------------ ------------ Net cash from operating activities 7,669,070 3,601,673 ------------ ------------ Cash flows from (used for) investing activities Purchase of property, plant and equipment (10,157,952) (6,002,255) Proceeds from owner/operators' loan repayments 2,664,073 1,732,127 Loans to owner/operators (2,624,268) (1,852,111) Other 21,402 (8,566) ------------ ------------ Net cash used for investing activities (10,096,745) (6,130,805) ------------ ------------ Cash flows from (used for) financing activities Additional long-term debt 5,000,000 5,500,000 Dividends paid (1,878,433) (1,872,483) Payment of long-term debt (1,281,438) (1,289,956) Net increase in short-term debt 300,000 50,000 Other 16,110 122,150 ------------ ------------ Net cash from financing activities 2,156,239 2,509,711 ------------ ------------ Net decrease in cash (271,436) (19,421) Cash, beginning of year 372,871 748,117 ------------ ------------ Cash, end of period $ 101,435 $ 728,696 ============ ============ Supplemental Cash Flow Information: Cash paid during the period for: Interest $ 562,821 $ 345,733 ============ ============ Income taxes $ 77,561 $ 1,247,575 ============ ============
See accompanying notes to consolidated condensed financial statements. 5 of 11 TASTY BAKING COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS 1. Interim Financial Information ----------------------------- In the opinion of management, the accompanying unaudited consolidated condensed financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the financial position of the company as of June 26, 1999 and December 26, 1998, the results of its operations for the thirteen and twenty-six weeks ended June 26, 1999 and June 27, 1998 and cash flows for the twenty-six weeks ended June 26, 1999 and June 27, 1998. These unaudited consolidated condensed financial statements should be read in conjunction with the consolidated financial statements and footnotes thereto in the company's 1998 Annual Report to Shareholders. In addition, the results of operations for the twenty-six weeks ended June 26, 1999 are not necessarily indicative of the results to be expected for the full year. Certain expense items are charged to operations in the year incurred. However, for interim reporting purposes the expenses are charged to operations on a pro-rata basis over the company's accounting periods. For the thirteen and twenty-six weeks ended June 26, 1999 and June 27, 1998, the difference between the actual expenses incurred and the expenses charged to operations was not material. 2. Net Income Per Common Share --------------------------- Net income per common share is calculated according to the requirements of Statement of Financial Accounting Standards No. 128 - "Earnings Per Share" which requires companies to present basic and diluted earnings per share. Net income per common share - Basic is based on the weighted average number of common shares outstanding during the year. Net income per common share - Diluted is based on the weighted average number of common shares and dilutive potential common shares outstanding during the year. The company's dilutive potential common shares outstanding during the year result entirely from dilutive stock options. 3. Restructure Charge ------------------ During the first quarter the company discontinued forty-three route territories in those areas not achieving appropriate levels of profitability, assigning most of those territories to regional distributorships. As a result, the company incurred a charge of $950,000 resulting in a reduction in net income of $570,570 or $.07 per share, primarily relating to costs associated with the repurchase of some owner/operator territories as well as severance payments and other related costs. Substantially all the costs accrued under this charge have been satisfied. 6 of 11 TASTY BAKING COMPANY AND SUBSIDIARIES Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations For the second quarter of 1999, the company realized net income of $1,391,801 versus $1,013,691 for the second quarter of 1998. Net income per share increased to $.18 from $.13 per share for the comparable quarter of 1998. Net income for the twenty-six weeks ended June 26, 1999 was $1,713,371 or $.22 per share. Included in net income for 1999 were two non-recurring charges. During the first quarter the company discontinued forty-three route territories in those areas not achieving appropriate levels of profitability, assigning most of those territories to regional distributorships. This resulted in an after-tax charge of $570,570 or $.07 per share, primarily relating to costs associated with the repurchase of some owner/operator territories as well as severance payments and other related costs. The second charge relates to the adoption of a new accounting regulation, which required the write off of the remaining start-up costs pertaining to the company's acquisition of it's Oxford facility. This charge is reflected as a cumulative effect of a change in accounting principle which resulted in an after-tax charge to net income in the amount of $204,709 or $.03 per share. After eliminating the effect of these two non-recurring charges, the 1999 results were $2,488,650 or $.32 per share compared to $2,654,793 or $.33 per share for the twenty-six weeks ended June 27, 1998. For the second quarter, gross sales were $56,769,425, compared to $56,933,408 last year. Gross sales, less discounts and allowances, resulted in net sales of $38,503,906, compared to $38,361,039 reported last year. The decrease in gross sales resulted from heavy competitive pressures during the second quarter coupled with our realignment and discontinuance of routes in certain sales territories. The excessive June heat and decrease in promotion activity also contributed to the decreased sales levels in our core product line. In April 1999 the company introduced a Classic Baked Goods line consisting of large cakes which helped to offset the decreased sales levels of its existing products. The increase in net sales was related to the decrease in promotional activity and a decrease in returns. Cost of sales, as a percentage of gross sales, was 42.4% and 42.7% for the second quarters of 1999 and 1998, respectively. The improvement in 1999 resulted from a decrease in ingredient costs, a larger percentage of sales coming from in-house production, and a price increase instituted in the third quarter of 1998. Selling, general and administrative expenses for the second quarter of 1999 decreased by $696,523 or 6.2% compared to the second quarter of 1998. The decrease resulted from savings associated with the restructure as well as increased efforts to control costs. Interest expense increased for the second quarter of 1999 versus the second quarter of 1998 as a result of increased average borrowing levels. The effective tax rate was 34.5% for the quarter ended June 26, 1999 and 31.3% for the quarter ended June 27, 1998 which compares to a federal statutory rate of 34%. The difference between the effective rate and the statutory rate in the second quarter of 1999 was due to the effect of state taxes. The difference between the effective rate and the statutory rate in the second quarter of 1998 was due to low taxable income compounded by the effect of state tax benefits arising from passive income. 7 of 11 Year 2000 disclosure - -------------------- The company has been engaged in an ongoing process to determine the effect that the change to the year 2000 (Y2K) will have on operations. The company has completed an assessment of its internal hardware and software information technology systems and has determined that the systems will be Y2K compliant. During 1998, all new, Y2K compliant, hardware was installed. New business system software is being installed. To date, approximately 60% of the new business system modules have been installed and are operational. The remaining modules are currently being installed and the company will begin using these systems in the fourth quarter of 1999. The software supplier has warranted that this system is Y2K compliant and the company believes that the supplier has done sufficient testing of its product to make such a claim. The decisions to replace these systems were primarily based on the ongoing and expected future company and industry requirements and the inability of the current applications to meet these expectations. The company has not accelerated the plans to replace these systems because of the Y2K issue. The company utilizes an automated hand-held sales order system which is, however, not currently Y2K compliant. The existing system is in the process of being repaired to bring it into Y2K compliance. Repair is proceeding without difficulty and remains on track for completion in the third quarter. A committee was formed to take an inventory of all manufacturing systems to determine Y2K compliance. The raw ingredient distribution machinery has already been corrected to resolve a Y2K problem; the cost was immaterial. The company received positive responses to inquiries regarding the Y2K compliance of certain manufacturing equipment from the individual manufacturers of the equipment. There were minor repairs that had to be made to computers in the manufacturing system to prevent Y2K complications. These repairs have been made and the equipment has been tested. The company feels secure that production will not experience any complications as a result of the change to the year 2000. The company's Human Resource/Payroll system requires a version upgrade to bring the software into Y2K compliance. This project is also underway with completion targeted for the third quarter of 1999. The cost of the repair is immaterial. Questionnaires have been sent to approximately 800 of our vendors and customers to identify any issues that may impact the company externally. To date, the company has received an estimated 75% return response to these questionnaires. No issues pertaining to the year 2000 have been raised with the responses we have received so far. There are limitations to the amount of reliance the company can place on the responses to these questionnaires considering the respondents have to rely on responses from their suppliers and customers. Should any suppliers have complications going into the year 2000 the company has alternative suppliers. In the case of major customers, the company does not have a single customer whose purchases exceed 10% of the gross sales of the company. If any of these customers were to have complications, more of the product would be sold through other retailers. Since ordering for most customers in the principal marketing area is accomplished by independent route operators and not by the retailer directly, any losses in revenues the company would incur would not be expected to be material. To date, the company has not incurred any significant costs related to the assessment of, and preliminary efforts in connection with, its Y2K issues. Based on the evaluations to date, the company does not anticipate any significant complications related to Y2K or any significant costs to avoid those complications. The year 2000 statements set forth above constitute "Year 2000 Readiness Disclosures" as defined in the Year 2000 Information and Readiness Disclosure Act of 1998, 15 U.S.C. ss.1, Note. 8 of 11 Financial Condition - ------------------- The company has consistently demonstrated the ability to generate sufficient cash flow from operations. Bank borrowings, under various lines of credit arrangements, are used to supplement cash flow from operations during periods of cyclical shortages. For the twenty-six weeks ended June 26, 1999, net cash from operating activities increased by $4,067,397 to $7,669,070 from $3,601,673 for the same period in 1998. The increase over 1998 was due to the payment of the IRS settlement in the first quarter of 1998, which was accrued in 1997, as well as a decrease in accounts receivable in 1999 compared to an increase for the same period in 1998. Net cash used for investing activities for the twenty-six weeks ended June 26, 1999 increased by $3,965,940 relative to the same period in 1998 principally due to the upgrade of the bakery's production equipment as a part of a plant modernization program. Net cash from financing activities for the twenty-six weeks ended June 26, 1999 decreased by $353,472 relative to the same twenty-six weeks in 1998. The decrease is primarily the result of a net decrease in short and long-term borrowings relative to the prior year. For the remainder of 1999 the company anticipates that cash flow from operations, along with the continued availability of bank lines of credit, the revolving credit agreement and other long-term financing, will provide sufficient cash to meet operating and financing requirements. Item 3. Quantitative and Qualitative Disclosure About Market Risk --------------------------------------------------------- The company has certain floating rate debt notes. Under current market conditions, the company believes that changes in interest rates would not have a material impact on the financial statements of the company. The company also has notes receivable from owner operators whose rates adjust every three years, and, therefore, would offset the fluctuations in the company's notes payable. The company also has the right to sell these notes receivable, and could use these proceeds to liquidate a corresponding amount of the debt notes payable. 9 of 11 TASTY BAKING COMPANY AND SUBSIDIARIES PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders --------------------------------------------------- (a) The company's annual meeting of shareholders was held on April 23, 1999. (b) The directors elected at the meeting were: For Against Withheld Fred C. Aldridge, Jr. 6,533,572 --- 48,958 G. Fred DiBona, Jr. 6,525,649 --- 56,880 John M. Pettine 6,532,159 --- 50,371 Other directors whose terms of office continued after the meeting are as follows: Phillip J. Baur, Jr., James L. Everett, III, Nelson G. Harris, Judith M. von Seldeneck and Carl S. Watts. (c) Other matters voted upon at the meeting and the results of those votes were as follows: For Against Abstain Approval of PricewaterhouseCoopers LLP, as independent certified public accountants 6,535,385 20,774 26,369 The foregoing matters are described in detail in the company's proxy statement dated March 23, 1999. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: Exhibit 27 - Financial Data Schedule (b) Reports on Form 8-K The company did not file a report on Form 8-K during the twenty-six weeks ended June 26, 1999. Exhibit Index Exhibit 27 - Financial Data Schedule 10 of 11 TASTY BAKING COMPANY AND SUBSIDIARIES SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. TASTY BAKING COMPANY (Company) August 9, 1999 /S/ John M. Pettine (Date) JOHN M. PETTINE EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER (PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER) 11 of 11 EX-27 2
5 0000096412 TASTY BAKING COMPANY 1,000 OTHER Jan-01-2000 Dec-27-1997 Jun-26-1999 101 0 23,287 (2,794) 5,067 28,900 165,679 (110,821) 108,281 14,448 17,623 0 0 4,558 39,443 108,281 76,357 77,035 47,701 47,701 3,691 0 490 2,800 883 1,917 0 0 (204) 1,713 0.22 0.22
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