SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the thirty-nine weeks ended September 29, 2001
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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
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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 8,052,677
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(Title of Class) (No. of Shares Outstanding
at November 7, 2001)
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TASTY BAKING COMPANY AND SUBSIDIARIES
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheets
September 29, 2001 and December 30, 2000........................... 3
Consolidated Condensed Statements of Operations
Thirteen and Thirty-nine weeks ended
September 29, 2001 and September 23, 2000.......................... 4
Consolidated Condensed Statements of Cash Flows
Thirty-nine weeks ended September 29, 2001 and September 23, 2000.. 5
Notes to Consolidated Condensed Financial Statements............... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................................7-8
Item 3. Quantitative and Qualitative Disclosure
About Market Risk9
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds.......................... 9
Item 6. Exhibits and Reports on Form 8-K................................... 9
Signature...................................................................11
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
TASTY BAKING COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(unaudited)
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September 29, 2001 December 30, 2000
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Current assets:
Cash $ 109,058 $ 311,242
Accounts and notes receivable, net of
allowance for doubtful accounts 25,593,399 20,771,853
Inventories:
Raw materials 3,905,783 3,433,599
Work in progress 763,225 705,380
Finished goods 2,414,189 1,791,570
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7,083,197 5,930,549
Deferred income taxes, prepayments and other 3,286,587 3,518,928
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Total current assets 36,072,241 30,532,572
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Property, plant and equipment: 184,299,482 178,302,048
Less accumulated depreciation 123,752,646 118,487,509
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60,546,836 59,814,539
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Long-term receivables 10,244,930 9,652,433
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Deferred income taxes 8,533,257 8,533,257
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Spare parts inventory and miscellaneous assets 4,053,446 3,659,416
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Total assets $ 119,450,710 $112,192,217
========================================================
Current liabilities:
Current obligations under capital leases $ 200,159 $ 216,820
Notes payable, banks 2,900,000 2,200,000
Accounts payable 7,058,095 5,385,864
Accrued liabilities 7,436,769 7,255,765
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Total current liabilities 17,595,023 15,058,449
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Long-term debt, less current portion 13,000,000 13,000,000
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Long-term obligations under capital leases,
less current portion 3,664,496 3,842,904
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Accrued pensions and other liabilities 11,642,969 11,728,847
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Postretirement benefits other than pensions 18,385,938 18,388,339
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Shareholders' equity:
Common stock 4,558,243 4,558,243
Capital in excess of par value of stock 29,153,507 29,742,434
Retained earnings 35,152,814 32,351,894
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68,864,564 66,652,571
Less:
Treasury stock, at cost 13,213,241 16,106,361
Management Stock Purchase Plan
receivables and deferrals 489,039 372,532
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55,162,284 50,173,678
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Total liabilities and shareholders' equity $ 119,450,710 $112,192,217
========================================================
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 Thirty-nine Weeks Ended
September 29, 2001 September 23, 2000 September 29, 2001 September 23, 2000
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Gross Sales $ 62,531,791 $ 60,571,793 $ 194,707,238 $ 184,618,949
Less discounts and allowances (22,191,145) (20,716,010) (68,948,385) (62,701,448)
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Net Sales 40,340,646 39,855,783 125,758,853 121,917,501
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Costs and expenses:
Cost of sales 26,929,080 26,154,324 80,438,854 78,530,920
Depreciation 1,713,048 1,900,398 5,265,136 5,582,234
Selling, general and
administrative 10,042,967 9,595,653 31,033,804 28,903,436
Interest expense 264,225 411,812 866,622 1,137,362
Other income, net (316,181) (346,385) (937,410) (971,142)
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38,633,139 37,715,802 116,667,006 113,182,810
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Income before provision for
income taxes 1,707,507 2,139,981 9,091,847 8,734,691
Provision for income taxes 657,430 748,924 3,423,787 3,096,725
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Net income $ 1,050,077 $ 1,391,057 $ 5,668,060 $ 5,637,966
===========================================================================================
Average common shares outstanding:
Basic 8,041,297 7,845,341 7,980,580 7,833,294
Diluted 8,202,964 7,886,859 8,124,676 7,852,424
Per share of common stock:
Net income: Basic $0.13 $0.18 $0.71 $0.72
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Diluted $0.13 $0.18 $0.70 $0.72
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Cash dividend $0.12 $0.12 $0.36 $0.36
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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 Thirty-nine Weeks Ended
September 29, 2001 September 23, 2000
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Cash flows from (used for) operating activities
Net income $ 5,668,060 $ 5,637,966
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 5,265,135 5,582,234
Amortization 49,927 50,040
Other 307,452 (916,195)
Changes in assets and liabilities
affecting operations (3,888,618) (4,834,946)
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Net cash from operating activities 7,401,956 5,519,099
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Cash flows from (used for) investing activities
Purchase of property, plant and equipment (5,997,432) (6,268,073)
Proceeds from owner/operators' loan repayments 2,888,092 3,059,301
Loans to owner/operators (3,480,589) (2,613,202)
Other 29,885 29,085
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Net cash used for investing activities (6,560,044) (5,792,889)
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Cash flows from (used for) financing activities
Additional long-term debt 1,000,000 5,000,000
Dividends paid (2,867,140) (2,818,937)
Payment of long-term debt (1,195,069) (4,144,877)
Net increase in short-term debt 700,000 1,600,000
Net proceeds from sale of common stock 1,318,113 (36,704)
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Net cash used for financing activities (1,044,096) (400,518)
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Net decrease in cash (202,184) (674,308)
Cash, beginning of year 311,242 705,494
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Cash, end of period $ 109,058 $ 31,186
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Supplemental Cash Flow Information:
Cash paid during the period for:
Interest $ 716,220 $ 974,785
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Income taxes $ 3,058,642 $ 4,783,833
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Noncash financing activities:
Issuance of common stock for services $ 804,759 $ 319,016
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See accompanying notes to consolidated condensed financial statements.
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TASTY BAKING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. Interim Financial Information
In the opinion of management, the accompanying unaudited consolidated
condensed financial statements contain all adjustments (consisting of
only normal recurring accruals) necessary to present fairly the financial
position of the company as of September 29, 2001 and December 30, 2000,
the results of its operations for the thirteen and thirty-nine weeks
ended September 29, 2001 and September 23, 2000 and cash flows for the
thirty-nine weeks ended September 29, 2001 and September 23, 2000. These
unaudited consolidated condensed financial statements should be read in
conjunction with the consolidated financial statements and footnotes
thereto in the company's 2000 Annual Report to Shareholders. In addition,
the results of operations for the thirty-nine weeks ended September 29,
2001 are not necessarily indicative of the results to be expected for the
full year.
Certain expense items are charged to operations in the year incurred.
However, for interim reporting purposes the expenses are charged to
operations on a pro-rata basis over the company's accounting periods. For
the thirteen and thirty-nine weeks ended September 29, 2001 and September
23, 2000, the difference between the actual expenses incurred and the
expenses charged to operations was not material.
2. Net Income Per Common Share
Net income per common share is presented as basic and diluted earnings
per share. Net income per common share - Basic is based on the weighted
average number of common shares outstanding during the year. Net income
per common share - Diluted is based on the weighted average number of
common shares and dilutive potential common shares outstanding during the
year. The company's dilutive potential common shares outstanding during
the year result entirely from dilutive stock options. Potential common
shares which would result from the exercise of stock options are not
included in the computation of diluted per share amounts when the
options' exercise price is greater than the average market price of the
common shares.
3. Debt Refinancing
On September 28, 2001, management chose not to extend the company's $30
million Revolving Credit Agreement (Revolver) with the current lender. On
November 9, 2001, a proposal was signed and accepted by the company and
two banks to enter into a new Credit Facility (Facility) for $40 million
to replace the Revolver and its current short-term lines of credit. The
Facility will provide $15 million in short-term borrowings and $25
million in long-term borrowings with options to extend the maturity of
the Facility indefinitely, upon approval of the banks. Based on these
commitments accepted by the company and the banks, the Revolver continues
to be classified as long-term.
4. Subsequent Event
On October 19, 2001 the company's wholly-owned subsidiary, Dutch Mill
Baking Company, Inc., closed its manufacturing facility in Wyckoff, New
Jersey. The company is currently evaluating the costs related to the
plant closing. This charge will be recognized in the fourth quarter of
2001.
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TASTY BAKING COMPANY AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
For the third quarter of 2001, net income decreased to $1,050,077 compared to
$1,391,057 for the third quarter of 2000. Net income per share decreased to $.13
from $.18 per share for the comparable quarter of 2000.
Net income for the thirty-nine weeks ended September 29, 2001 was $5,668,060 or
$.70 per share. Net income for the thirty-nine weeks ended September 23, 2000
was $5,637,966 or $.72 per share.
For the third quarter, gross sales increased 3.2% to $62,531,791, compared to
$60,571,793 last year. The increase in gross sales for the third quarter of 2001
is primarily due to price increases instituted in the fourth quarter of 2000.
Gross sales, less discounts and allowances, resulted in an increase in net sales
of 1.2% to $40,340,646, compared to $39,855,783 reported last year. The
percentage increase in net sales was lower than the percentage increase in gross
sales due to the effect of returns and commissions.
Cost of sales, as a percentage of gross sales, was 43.1% and 43.2% for the third
quarters of 2001 and 2000, respectively. The slight improvement in 2001 over
2000 can be attributed to the price increases offset by an increase in labor and
utility costs.
Depreciation expense decreased by $187,350 for the third quarter of 2001
compared to 2000. The majority of the decrease was the result of the 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.
Selling, general and administrative expenses for the third quarter of 2001
increased by $447,314 or 4.7% compared to the third quarter of 2000 generally as
the result of an increase in certain administrative expenses including utilities
and temporary labor.
Interest expense decreased for the third quarter of 2001 versus the third
quarter of 2000 as a result of decreased average interest rates as well as lower
average borrowing levels.
The effective tax rate was 38.5% for the quarter ended September 29, 2001 and
35.0% for the quarter ended September 23, 2000, which compares to a federal
statutory rate of 34%. The difference between the effective rate and the
statutory rate in the third quarter of 2001 was the effect of state taxes. The
difference between the effective rate and the statutory rate in the third
quarter of 2000 was the effect of state taxes partially offset by tax benefits
arising from passive income.
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Financial Condition
The company has consistently demonstrated the ability to generate sufficient
cash flow from operations. Bank borrowings, under various lines of credit
arrangements, are used to supplement cash flow from operations during periods of
cyclical shortages.
For the thirty-nine weeks ended September 29, 2001, net cash from operating
activities increased by $1,882,857 to $7,401,956 from $5,519,099 for the same
period in 2000. The increase in 2001 compared to 2000 was due to a number of
factors. Favorable non-cash adjustments to 2001 net income resulted from stock
bonuses, and for the same period in 2000 an unfavorable non-cash adjustment
resulted from a decrease in accrued pension expense. There was also a decrease
in the negative change in assets and liabilities when comparing 2001 to 2000,
most of which can be attributed to an increase in income tax payments.
Net cash used for investing activities for the thirty-nine weeks ended September
29, 2001 increased by $767,155 relative to the same period in 2000. The increase
was principally due to an increase in loans to owner/operators compared to the
prior year.
Net cash used for financing activities for the thirty-nine weeks ended September
29, 2001 increased by $643,578 relative to the same thirty-nine weeks in 2000.
The increase is primarily the result of a reduction of net borrowings relative
to the prior year through the use of excess cash from operating activities and
proceeds from the sales of treasury stock through the exercise of executive
stock options.
On September 28, 2001, management chose not to extend the company's $30 million
Revolving Credit Agreement (Revolver) with the current lender. On November 9,
2001, a proposal was signed and accepted by the company and two banks to enter
into a new Credit Facility (Facility) for $40 million to replace the Revolver
and its current short-term lines of credit. The Facility will provide $15
million in short-term borrowings and $25 million in long-term borrowings with
options to extend the maturity of the Facility indefinitely, upon approval of
the banks.
For the remainder of 2001 the company anticipates that cash flow from
operations, along with the continued availability of the existing bank lines of
credit, the new credit facility and other long-term financing, 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.
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Item 3. Quantitative and Qualitative Disclosure About Market Risk
The company has certain floating rate debt notes. Under current market
conditions, the company believes that changes in interest rates would not have a
material impact on the financial statements of the company. The company also has
notes receivable from owner operators whose rates adjust every three years, and,
therefore, would partially offset the fluctuations in the company's interest
rates on its notes payable. The company also has the right to sell these notes
receivable, and could use these proceeds to liquidate a corresponding amount of
the debt notes payable.
TASTY BAKING COMPANY AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
During the quarter, the company sold 46,500 shares of its common
stock to one officer of the company pursuant to the exercise of
outstanding stock options. The options were purchased through the
exchange of existing shares owned by the officer with an aggregate
fair market value of $513,188 representing the total price paid
for the exercised options. 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. 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. In addition,
the sale of common stock by the company pursuant to its long-term
incentive plans has been registered on Form S-8, filed July 27,
2001, registration no. 33-66020.
Item 6. Exhibits and Reports on Form 8-K
(b) Reports on Form 8-K
On October 19, 2001, the company furnished a report on Form 8-K
under Item 9, Regulation FD Disclosure, attaching a press release
announcing its anticipated results for the quarter ended September
29, 2001 and supplemental information regarding Dutch Mill Baking
Company, Inc., a wholly-owned subsidiary, closing its bakery in
Wyckoff, New Jersey.
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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)
November 13, 2001 /S/ John M. Pettine
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(Date) JOHN M. PETTINE
EXECUTIVE VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
(PRINCIPAL FINANCIAL OFFICER)
November 13, 2001 /S/ Daniel J. Decina
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(Date) DANIEL J. DECINA
VICE PRESIDENT, FINANCE AND
CHIEF ACCOUNTING OFFICER
(PRINCIPAL ACCOUNTING OFFICER)
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