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 29, 2002
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( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number 1-5084
TASTY BAKING COMPANY
(Exact name of company as specified in its charter)
Pennsylvania 23-1145880
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(State of Incorporation) (IRS Employer Identification Number)
2801 Hunting Park Avenue, Philadelphia, Pennsylvania 19129
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(Address of Principal Executive Offices) (Zip Code)
(215) 221-8500
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(Company's Telephone Number, including area code)
Indicate by check mark whether the company (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the company was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, par value $.50 8,074,185
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(Title of Class) (No. of Shares Outstanding
at July 26, 2002)
INDEX OF EXHIBITS IS LOCATED ON PAGE 10 OF 11.
TASTY BAKING COMPANY AND SUBSIDIARIES
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheets
June 29, 2002 and December 29, 2001.............................3
Consolidated Condensed Statements of Operations
Twenty-six weeks ended June 29, 2002 and June 30, 2001..........4
Consolidated Condensed Statements of Cash Flows
Twenty-six weeks ended June 29, 2002 and June 30, 2001..........5
Notes to Consolidated Condensed Financial Statements..........6-7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...........................8-9
Item 3. Quantitative and Qualitative Disclosure
About Market Risk9
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds......................10
Item 4. Submission of Matters to a Vote of Security Holders............10
Item 6. Exhibits and Reports on Form 8-K...............................10
Signatures ..................................................................11
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
TASTY BAKING COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(unaudited)
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June 29, 2002 December 29, 2001
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Current assets:
Cash $ 498,735 $ 367,220
Accounts and notes receivable, net of
allowance for doubtful accounts 23,386,393 22,233,413
Inventories:
Raw materials 4,042,358 3,995,228
Work in progress 846,373 720,511
Finished goods 2,741,892 3,696,045
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7,630,623 8,411,784
Deferred income taxes, prepayments and other 4,203,781 4,156,755
--------------------------------------------------------
Total current assets 35,719,532 35,169,172
--------------------------------------------------------
Property, plant and equipment: 187,618,168 184,224,586
Less accumulated depreciation 127,897,470 124,522,610
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59,720,698 59,701,976
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Long-term receivables 10,299,255 10,201,049
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Deferred income taxes 7,381,934 7,381,934
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Spare parts inventory and miscellaneous assets 3,834,935 3,682,688
--------------------------------------------------------
Total assets $ 116,956,354 $ 116,136,819
========================================================
Current liabilities:
Current obligations under capital leases $ 202,309 $ 239,593
Notes payable, banks 2,500,000 3,900,000
Accounts payable 6,574,233 5,306,976
Accrued liabilities 6,839,996 7,438,750
--------------------------------------------------------
Total current liabilities 16,116,538 16,885,319
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Long-term debt, less current portion 11,000,000 11,000,000
--------------------------------------------------------
Long-term obligations under capital leases,
less current portion 3,521,774 3,603,310
--------------------------------------------------------
Accrued pensions and other liabilities 12,862,258 11,506,969
--------------------------------------------------------
Postretirement benefits other than pensions 17,932,305 18,076,719
--------------------------------------------------------
Shareholders' equity:
Common stock 4,558,243 4,558,243
Capital in excess of par value of stock 29,450,835 29,388,567
Retained earnings 34,987,962 34,838,636
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68,997,040 68,785,446
Less:
Treasury stock, at cost 12,923,978 13,167,082
Management Stock Purchase Plan
receivables and deferrals 549,583 553,862
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55,523,479 55,064,502
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Total liabilities and shareholders' equity $ 116,956,354 $ 116,136,819
========================================================
See accompanying notes to consolidated condensed financial statements.
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TASTY BAKING COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(unaudited)
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For the Thirteen Weeks Ended For the Twenty-six Weeks Ended
June 29, 2002 June 30,2001 (b) June 29, 2002 June 30,2001 (b)
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Gross Sales $65,617,235 $ 66,520,073 $ 129,656,293 $132,175,447
Less discounts and allowances (23,530,676) (23,323,163) (46,910,860) (46,735,274)
----------------------------------------------------------------------------------
Net Sales 42,086,559 43,196,910 82,745,433 85,440,173
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Costs and expenses:
Cost of sales 26,907,214 26,742,951 52,861,488 52,934,288
Depreciation 1,639,966 1,703,058 3,374,858 3,552,088
Restructure charge (a) 1,405,000 - 1,405,000 -
Selling, general and
administrative 10,910,316 10,784,522 21,893,623 21,588,289
Interest expense 188,155 320,355 555,888 602,397
Other income, net (295,478) (303,078) (575,239) (621,229)
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40,755,173 39,247,808 79,515,618 78,055,833
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Income before provision for
income taxes 1,331,386 3,949,102 3,229,815 7,384,340
Provision for income taxes 452,621 1,450,570 1,145,894 2,766,357
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Net income $ 878,765 $ 2,498,532 $ 2,083,921 $ 4,617,983
==================================================================================
Average common shares outstanding:
Basic 8,070,466 7,998,041 8,060,062 7,950,222
Diluted 8,180,632 8,137,241 8,184,468 8,085,533
Per share of common stock:
Net income:
Basic $0.11 $0.31 $0.26 $0.58
================ ================== ================= =================
Diluted $0.11 $0.31 $0.25 $0.57
================ ================== ================= =================
Cash dividend $0.12 $0.12 $0.24 $0.24
================ ================== ================= =================
(a) The restructure charge of $1,405,000 includes costs associated with the closure of six thrift stores and severance
charges related to the elimination of certain manufacturing and administrative positions during the second quarter
of 2002.
(b) Reclassified for comparative purposes to reflect the change in presentation for thrift stores and cooperative
advertising.
See accompanying notes to consolidated condensed financial statements.
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TASTY BAKING COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(unaudited)
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For the Twenty-six Weeks Ended
June 29, 2002 June 30, 2001
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Cash flows from (used for) operating activities
Net income $ 2,083,921 $ 4,617,983
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 3,374,858 3,552,088
Amortization 20,905 32,988
Restructure charge 1,314,714 -
Other 520,256 707,806
Changes in assets and liabilities
affecting operations (526,684) (5,278,006)
---------------------------------------------------
Net cash from operating activities 6,787,970 3,632,859
---------------------------------------------------
Cash flows from (used for) investing activities
Purchase of property, plant and equipment (3,393,580) (4,002,649)
Proceeds from owner/operators' loan repayments 2,152,832 2,050,497
Loans to owner/operators (2,251,038) (2,218,842)
Other 70,746 14,382
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Net cash used for investing activities (3,421,040) (4,156,612)
---------------------------------------------------
Cash flows from (used for) financing activities
Additional long-term debt - 1,000,000
Dividends paid (1,934,595) (1,898,662)
Payment of long-term debt (118,820) (1,041,222)
Net increase (decrease) in short-term debt (1,400,000) 1,150,000
Net proceeds from sale of common stock 218,000 1,307,764
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Net cash from (used for) financing activities (3,235,415) 517,880
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Net increase (decrease) in cash 131,515 (5,873)
Cash, beginning of year 367,220 311,242
---------------------------------------------------
Cash, end of period $ 498,735 $ 305,369
===================================================
Supplemental Cash Flow Information:
Cash paid during the period for:
Interest $ 275,924 $ 523,439
===================================================
Income taxes $ 901,651 $ 1,958,642
===================================================
See accompanying notes to consolidated condensed financial statements.
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TASTY BAKING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. Restructure Charges
Thrift, Corporate and Manufacturing Restructure 2002
During the second quarter the company closed six thrift stores and
eliminated certain manufacturing and administrative positions. There were
a total of 67 employees terminated as a result of the restructure, of
which 42 were temporary employees, 13 were thrift store employees and 12
were corporate and administrative employees. Costs related to these
events were included in a restructure charge of $1,405,000, $970,922
related to thrift store closures and $434,078 related to elimination of
positions. The after-tax effect of this charge was $843,000 or $.10 per
share. During the second quarter, $90,286 was expended relative to the
charge leaving a balance of $1,314,714 to be paid.
Original Expenditures Balance
Charge to date 6/29/02
---------- ------------ ------------
Lease obligations $ 767,293 $ 14,566 $ 752,727
Severance 434,078 69,760 364,318
Fixed Assets 90,882 - 90,882
Other 112,747 5,960 106,787
---------- -------- --------
Total $1,405,000 $ 90,286 $1,314,714
Dutch Mill and Thrift Restructure 2001
During the fourth quarter of 2001, the company closed its Dutch Mill
plant in Wyckoff, New Jersey. In addition, the company closed two thrift
stores. Costs related to these events were included in a restructure
charge of $1,728,000. On March 30, 2002 the remaining balance to be paid
was $161,338. During the second quarter of 2002 there were additional
expenditures of $84,352 relative to this charge leaving a balance of
$76,986 to be paid.
Balance Current Balance
3/30/02 Expenditures 6/29/02
------- ------------ --------
Lease obligations $ 72,257 $ 54,472 $ 17,785
Severance 15,981 102 15,879
Other 73,100 29,778 43,322
---------- -------- -------
Total $ 161,338 $ 84,352 $ 76,986
2. 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 29, 2002 and December 29, 2001, the
results of its operations for the thirteen and twenty-six weeks ended
June 29, 2002 and June 30, 2001 and cash flows for the twenty-six weeks
ended June 29, 2002 and June 30, 2001. These unaudited consolidated
condensed financial statements should be read in conjunction with the
consolidated financial statements and footnotes thereto in the company's
2001 Annual Report to Shareholders. In addition, the results of
operations for the thirteen and twenty-six weeks ended June 29, 2002 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 twenty-six weeks ended June 29, 2002 and June 30, 2001, the
difference between the actual expenses incurred and the expenses charged
to operations was not material.
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3. New Credit Facility
On January 31, 2002 the company entered into a new credit facility
(facility) for $40,000,000 with two banks. This facility replaced all
existing short-term and long-term lines of credit. 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.
4. Net Income Per Common Share
Net income per common share is presented as basic and diluted earnings
per share. Net income per common share - Basic is based on the weighted
average number of common shares outstanding during the year. Net income
per common share - Diluted is based on the weighted average number of
common shares and dilutive potential common shares outstanding during the
year. The company's dilutive potential common shares outstanding during
the year result entirely from dilutive stock options. Potential common
shares, which would result from the exercise of stock options, are not
included in the computation of diluted per share amounts when the
options' exercise price is greater than the average market price of the
common shares.
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TASTY BAKING COMPANY AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
For the second quarter of 2002, the company realized net income of $878,765
versus $2,498,532 for the second quarter of 2001. Net income per share was $.11
in 2002 compared to $.31 in 2001. Included in net income was a restructure
charge in the amount of $1,405,000, which consisted of costs associated with the
closing of six company thrift stores and severance charges relating to the
elimination of certain manufacturing and administrative positions. The after-tax
impact of this charge was $843,000 or $.10 per share. After eliminating the
effect of this charge, the comparable 2002 second quarter results were $.21 per
share.
Net income for the twenty-six weeks ended June 29, 2002 was $2,083,921 versus
$4,617,983 for the twenty-six weeks ended June 30, 2001. Net income per share
was $.25 in 2002 compared to $.57 in 2001. Included in net income was the
restructure charge in the amount of $1,405,000. The after-tax impact of this
charge was $843,000 or $.10 per share. After eliminating the effect of this
charge, the comparable results for the twenty-six weeks ended June 29, 2002 were
$.35 per share.
For the second quarter, gross sales decreased 1.4% to $65,617,235, compared to
$66,520,073 last year. The decrease in gross sales for the second quarter of
2002 is primarily the result of volume decreases due to heavy promotional
activity mostly from route market competition. Gross sales, less discounts and
allowances, resulted in a decrease in net sales of 2.6% to $42,086,559, compared
to $43,196,910 reported last year. The percentage decrease in net sales was
greater than the percentage decrease in gross sales primarily due to the effect
of commissions related to the company's increased national sales efforts. For
comparability, 2001 net sales in this filing are revised, by a net amount of
$172,792, to reflect the reclassification of thrift store and co-operative
advertising expenses. In 2002, the company reported expenses incurred to run its
thrift stores as operating expenses; in 2001 those expenses were shown as a
reduction of net sales. Also during 2002, due to a change in accounting rules,
the company is reporting co-operative advertising as a reduction of net sales;
in 2001 co-operative advertising was included in operating expense.
Cost of sales, as a percentage of gross sales, was 41.0% and 40.2% for the
second quarters of 2002 and 2001, respectively. The percentage increase in 2002
was primarily due to an increase in the percentage of sales of lower profit
margin products, and an increase in sales to mass merchandisers.
Selling, general and administrative expenses for the second quarter of 2002
increased by $125,794 or 1.2% compared to the second quarter of 2001. The
increase resulted primarily from an increase in advertising and selling
expenses.
Interest expense decreased for the second quarter of 2002 versus the second
quarter of 2001 primarily as a result of decreased average interest rates as
well as lower average borrowing levels.
The effective tax rate was 34% for the quarter ended June 29, 2002 and 36.7% for
the quarter ended June 30, 2001, which compares to a federal statutory rate of
34%. The 2002 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.
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Financial Condition
The company has consistently demonstrated the ability to generate sufficient
cash flow from operations. Bank borrowings, under the company's credit facility,
are used to supplement cash flow from operations during periods of cyclical
shortages.
For the twenty-six weeks ended June 29, 2002, net cash from operating activities
increased by $3,155,111 to $6,787,970 from $3,632,859 for the same period in
2001. The increase in 2002 compared to 2001 was due to a smaller increase in
receivables as compared to the prior year and a decrease in inventories compared
to an increase in the prior year. In addition, net cash from operating
activities in 2002 was affected by favorable adjustments including the
restructure charge.
Net cash used for investing activities for the twenty-six weeks ended June 29,
2002 decreased by $735,572 relative to the same period in 2001. This was
principally due to reduced purchases of equipment compared to the prior year.
Net cash from financing activities for the twenty-six weeks ended June 29, 2002
decreased by $3,753,295 relative to the same twenty-six week period in 2001.
This was principally due to an overall reduction in the company's debt level and
to lower proceeds from the sale of company stock.
For the remainder of 2002 the company anticipates that cash flow from
operations, along with the continued availability of credit under the credit
facility, will provide sufficient cash to meet operating and financing
requirements.
Forward-Looking Statements
Certain statements in this filing that are not historical facts are
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Forward-looking statements involve risks and
uncertainties, which could cause actual results to differ from those projected.
Factors that could cause actual results to differ materially from those
expressed or implied by such forward-looking statements include changes in
general economic or business conditions, the availability of capital upon terms
acceptable to the company, the availability and prices of raw materials, the
level of demand for the company's products, legal proceedings to which the
company is or may become a party, the actions of competitors and customers,
changes in consumer tastes or eating habits, the success of plant modernization
and business strategies implemented by the company, and the ability to develop
and market in a timely and efficient manner new products which are accepted by
consumers.
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 consolidated financial statements of the company. The
company also has notes receivable from owner operators whose rates adjust every
three years, and, therefore, would partially offset the fluctuations in the
company's interest rates on its notes payable. The company also has the right to
sell these notes receivable, and could use these proceeds to liquidate a
corresponding amount of the debt notes payable.
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TASTY BAKING COMPANY AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
During the quarter, the company sold 18,875 shares of its common
stock to an officer and one former director of the company
pursuant to the exercise of outstanding stock options. All shares
were sold for cash and the aggregate price paid for the shares
sold was $218,000.00. The options were originally granted under
the terms and conditions of the company's various stock option
plans and the stock option awards made from time to time to
officers and directors. The original stock option awards and the
subsequent sale of common stock by the company are exempt from
registration as transactions by the issuer not involving a public
offering as provided under Section 4(2) of the Securities Act of
1933, as amended, and the regulations and rulings thereunder. All
proceeds from the sale of the common stock will be used for
general corporate purposes.
Item 4. Submission of Matters to a Vote of Security Holders
(a) The company's annual meeting of shareholders was held on April
26, 2002.
(b) The directors elected at the meeting were:
For Against Withheld
Fred C. Aldridge, Jr. 6,590,718 --- 79,760
G. Fred DiBona, Jr. 6,585,683 --- 84,794
John M. Pettine 6,586,967 --- 83,509
Other directors whose terms of office continued after the meeting
are as follows: Carl S. Watts, Ronald J. Kozich, Philip J. Baur
Jr. and Judith M. von Seldeneck.
(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 6,642,485 16,120 11,871
The foregoing matters are described in detail in the company's proxy statement
dated March 27, 2002.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 99.1 - Certification pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
(b) Reports on Form 8-K
The company did not file a report on Form 8-K during the
twenty-six weeks ended June 29, 2002.
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TASTY BAKING COMPANY AND SUBSIDIARIES
SIGNATURES
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
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(Company)
August 12, 2002 /S/ John M. Pettine
------------------- ----------------------------------------------
(Date) JOHN M. PETTINE
EXECUTIVE VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
(PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER)
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