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 thirteen weeks ended March 27, 2004
--------------
( ) 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
--- --------
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
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 8,091,671
--------------------------------------------------------------------------------
(Title of Class) (No. of Shares Outstanding
as of April 29, 2004)
1 of 17
TASTY BAKING COMPANY AND SUBSIDIARIES
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
March 27, 2004 and December 27, 2003.............................3
Consolidated Statements of Operations
Thirteen weeks ended March 27, 2004 and March 29, 2003...........4
Consolidated Statements of Cash Flows
Thirteen weeks ended March 27, 2004 and March 29, 2003...........5
Notes to Consolidated Financial Statements....................6-10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations..........................11-14
Item 3. Quantitative and Qualitative Disclosures
About Market Risk ..............................................15
Item 4. Controls and Procedures.........................................15
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K................................16
Signature .................................................................17
2 of 17
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
TASTY BAKING COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)
(000's)
------------------------------------------------------------------------------------
March 27, December 27,
2004 2003
------------------------------------------------------------------------------------
Assets
Current assets:
Cash $ 29 $ 33
Receivables, less allowance of $4,333
and $3,648, respectively 20,504 19,503
Inventories 5,852 5,730
Deferred income taxes 3,902 3,902
Prepayments and other 3,630 3,271
-------------------------
Total current assets 33,917 32,439
-------------------------
Property, plant and equipment:
Land 1,098 1,098
Buildings and improvements 40,288 40,288
Machinery and equipment 160,417 158,286
-------------------------
201,803 199,672
Less accumulated depreciation 137,886 136,156
-------------------------
63,917 63,516
-------------------------
Other assets:
Long-term receivables from sales distributors 11,084 11,253
Deferred income taxes 9,268 9,267
Other 768 768
-------------------------
21,120 21,288
-------------------------
Total assets $118,954 $117,243
=========================
Liabilities
Current liabilities:
Current obligations under capital leases $ 639 $ 634
Notes payable, banks 4,700 4,900
Accounts payable 8,718 9,261
Accrued payroll and employee benefits 6,730 6,013
Reserve for restructures 976 1,331
Other 2,014 2,280
-------------------------
Total current liabilities 23,777 24,419
Long-term debt 10,000 8,000
Long-term obligations under capital leases,
less current portion 4,545 4,705
Reserve for restructures, less current portion 871 1,044
Accrued pensions and other liabilities 20,458 19,938
Postretirement benefits other than pensions 16,789 16,718
-------------------------
Total liabilities 76,440 74,824
-------------------------
Shareholders' equity
Common stock 4,558 4,558
Capital in excess of par value of stock 29,390 29,393
Retained earnings 22,719 22,641
-------------------------
56,667 56,592
Less:
Accumulated other comprehensive loss 1,236 1,236
Treasury stock, at cost 12,560 12,545
Management Stock Purchase Plan
receivables and deferrals 357 392
-------------------------
42,514 42,419
-------------------------
Total liabilities and shareholders' equity $118,954 $117,243
=========================
See Notes to Consolidated Financial Statements.
3 of 17
TASTY BAKING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(000's, except per share amounts)
--------------------------------------------------------------------------------
For the Thirteen Weeks Ended
March 27, 2004 March 29, 2003
--------------------------------------------------------------------------------
Gross Sales $ 68,360 $ 64,372
Less discounts and allowances (27,882) (23,388)
--------------------------
Net Sales 40,478 40,984
--------------------------
Costs and expenses:
Cost of sales 26,230 27,984
Depreciation 1,730 1,739
Selling, general and administrative 11,672 10,790
Restructure charge net of reversals -- (220)
Interest expense 303 201
Other income, net (226) (252)
--------------------------
39,709 40,242
--------------------------
Income before provision for
income taxes 769 742
Provision for income taxes 286 260
--------------------------
Net income $ 483 $ 482
==========================
Average common shares outstanding:
Basic 8,096 8,099
Diluted 8,113 8,099
Net income:
Basic and Diluted $ 0.06 $ 0.06
==========================
Cash dividend $ 0.05 $ 0.05
==========================
See Notes to Consolidated Financial Statements.
4 of 17
TASTY BAKING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(000's)
-----------------------------------------------------------------------------------------------------
For the Thirteen Weeks Ended
March 27, 2004 March 29, 2003
-----------------------------------------------------------------------------------------------------
Cash flows from (used for) operating activities
Net income $ 483 $ 482
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 1,730 1,739
Restructure charge net of reversals -- (220)
Restructure payments (528) (681)
Pension expense 527 520
Other 89 (343)
Changes in assets and liabilities:
Increase in receivables (1,002) (2,718)
Decrease (increase) in inventories (122) 495
Decrease (increase) in prepayments and other (359) 517
Increase (decrease) in accounts payable, accrued
payroll and accrued liabilities (91) 2,217
-------------------------------
Net cash from operating activities 727 2,008
-------------------------------
Cash flows from (used for) investing activities
Purchase of property, plant and equipment (2,148) (593)
Proceeds from independent sales distributor loan repayments 741 858
Loans to independent sales distributors (573) (733)
Other 9 (3)
-------------------------------
Net cash used for investing activities (1,971) (471)
-------------------------------
Cash flows from (used for) financing activities
Dividends paid (405) (405)
Payment of long-term debt (155) (58)
Net increase (decrease) in short-term debt (200) (1,300)
Additional long-term debt 2,000 --
-------------------------------
Net cash from (used for) financing activities 1,240 (1,763)
-------------------------------
Net decrease in cash (4) (226)
Cash, beginning of year 33 282
-------------------------------
Cash, end of period $ 29 $ 56
===============================
Supplemental Cash Flow Information:
Cash paid during the period for:
Interest $ 325 $ 157
===============================
Income taxes $ 7 $ 41
===============================
See Notes to Consolidated Financial Statements.
5 of 17
TASTY BAKING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000's, except share and per share amounts)
1. Significant Accounting Policies
-------------------------------
Interim Financial Information
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all normal and recurring adjustments
necessary to present fairly the financial position of the company as of
March 27, 2004, and December 27, 2003, the results of its operations for
the thirteen weeks ended March 27, 2004, and March 29, 2003, and cash
flows for the thirteen weeks ended March 27, 2004, and March 29, 2003.
These unaudited consolidated financial statements should be read in
conjunction with the consolidated financial statements and footnotes
thereto in the company's 2003 Annual Report to Shareholders. In addition,
the results of operations for the thirteen weeks ended March 27, 2004,
are not necessarily indicative of the results to be expected for the full
year.
Property and Depreciation
During the quarter, the company performed a comprehensive review of the
estimated useful lives of all asset classes. As a result, the company
evaluated the utilization of certain machinery and equipment and
determined that its useful lives should be extended to 15 years from 7
years, consistent with similar assets already being depreciated over 15
years. The useful lives of buildings and improvements were standardized
at 39 years from 15 to 35 years. These changes in estimates resulted in a
decrease of depreciation expense by $402 for the first quarter. Also,
depreciation expense increased in the first quarter by $381 due to a
change in estimated useful lives of certain machinery, leasehold
improvements and the current Enterprise Resource Planning (ERP) system
which is expected to be replaced within the next year. The company is
currently evaluating the scope, timeline and specific implementation date
for the new ERP system and will provide additional information regarding
the project 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.
6 of 17
Stock-Based Compensation
In December of 2002, the FASB issued Statement No. 148 "Accounting for
Stock-Based Compensation - Transition and Disclosure - an Amendment of
FASB Statement No. 123 (FAS 148)". The provisions of this statement are
effective for fiscal years beginning after December 15, 2003. The company
measures stock-based compensation and reports the calculated differences
between the reported and pro forma impact of the fair-value method on the
interim and annual financial reports as required.
Thirteen Weeks Ended
3/27/04 3/29/03
------------------------
Net income as reported $ 483 $ 482
Deduct: Total stock-based employee
compensation expense determined under fair
value method, net of related tax effects (61) (21)
------------------------
Pro forma net income $ 422 $ 461
========================
Earnings per share:
Basic and Diluted - as reported $ 0.06 $ 0.06
========================
Basic and Diluted - pro forma $ 0.05 $ 0.06
========================
Pension Plan
The company's funding policy for its 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. The company accrues normal periodic pension expense or
income during the year based upon certain assumptions and estimates from
its actuarial consultants in accordance with Statement of Financial
Accounting Standard No. 87, "Employers' Accounting for Pensions." These
estimates and assumptions include discount rate, rate of return on plan
assets, compensation increases, mortality and employee turnover. In
addition, the rate of return on plan assets is directly related to
changes in the equity and credit markets, which can be very volatile. The
use of the above estimates and assumptions, market volatility and the
company's election to immediately recognize all gains and losses in
excess of its pension corridor in the current year may cause the company
to experience significant changes in its pension expense or income from
year to year. Expenses or income that fall outside the corridor are
recognized only in the fourth quarter of each year.
Prior Period Reclassifications
Amounts have been reclassified in the company's statements of operations
and statements of cash flows for the thirteen weeks ended March 29, 2003,
for comparative purposes.
2. Restructure Charges
-------------------
During the fourth quarter of 2003, the company incurred a $429 pre-tax
restructure charge related to specific arrangements made with senior
executives who departed the company.
During the fourth quarter of 2002, the company incurred a $4,936 pre-tax
restructure charge related to the closing of twelve thrift stores and the
specific arrangements made with senior executives who departed the
company in the fourth quarter of 2002. There were 29 employees terminated
as a result of this restructure, of which 25 were thrift store employees
and 4 were corporate executives.
7 of 17
During the second quarter of 2002, the company closed six thrift stores
and eliminated certain manufacturing and administrative positions. There
were 67 employees terminated as a result of this 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 pre-tax restructure charge of $1,405.
During the fourth quarter of 2001, the company closed its Dutch Mill
Baking Company production facility. In addition, the company closed two
thrift stores. Costs related to these events were included in a pre-tax
restructure charge of $1,728.
Restructure Reserve Activity
Lease
obligations Severance Fixed Assets Other Total
----------- --------- ------------ ----- -----
Balance Dec. 28, 2002 $ 2,078 $ 3,403 $ 326 $ 178 $ 5,985
Q1 2003 Reclass of PP&E -- -- (326) -- (326)
Q1 2003 Reversal of Reserve (220) -- -- -- (220)
Q1 2003 Payments (165) (475) -- (41) (681)
------- ------- ------- ------- -------
Balance March 29, 2003 1,693 2,928 -- 137 4,758
Q2 2003 Reversal of Reserve (95) -- -- -- (95)
Q2 2003 Payments (229) (460) -- (40) (729)
------- ------- ------- ------- -------
Balance June 28, 2003 1,369 2,468 -- 97 3,934
Q3 2003 Reversal of Reserve (129) -- -- -- (129)
Q3 2003 Payments (154) (363) -- (18) (535)
------- ------- ------- ------- -------
Balance Sept. 27, 2003 1,086 2,105 -- 79 3,270
Q4 2003 Restructure Charges -- 429 -- -- 429
Q4 2003 Reclass of SERP -- (683) -- -- (683)
Q4 2003 Reversal of Reserve (56) -- -- -- (56)
Q4 2003 Payments (217) (366) -- (2) (585)
------- ------- ------- ------- -------
Balance Dec. 27, 2003 813 1,485 -- 77 2,375
Q1 2004 Payments (125) (387) -- (16) (528)
------- ------- ------- ------- -------
Balance March 27, 2004 $ 688 $ 1,098 $ -- $ 61 $ 1,847
======= ======= ======= ======= =======
The balance of the severance charges is expected to be paid as of
December 2005 and the balance of the lease obligations and other charges
is expected to be paid as of November 2006.
3. Inventories
-----------
Inventories are classified as follows:
3/27/04 12/27/03
------------------------------------------
Finished goods $ 2,777 $ 2,397
Work in progress 671 740
Raw materials and supplies 2,404 2,593
------------------------------------------
$ 5,852 $ 5,730
==========================================
4. Stock Option Plans
------------------
On February 4, 2004, and February 13, 2004, 10,000 and 20,000 options,
respectively, were granted to employees and directors of the company. Of
the 30,000 granted options, there were 25,042 and 4,958 options granted
under the 1997 Long Term Incentive Plan and the 1994 Long Term Incentive
Plan, respectively. Under these grants, the options vest in three equal
installments beginning on the first anniversary date with a five year
8 of 17
retention period from the date of grant. The option price is determined
by the Compensation Committee of 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 date
of the option term specified by the Compensation Committee of the Board
(not more than ten years from the date of grant in the case of incentive
stock options) or three months following the date on which employment
with the company terminates.
5. Credit Facility
---------------
On January 31, 2002, the company entered into a Credit Facility
(Facility) for $40 million with two banks. This Facility replaced all
existing short-term lines of credit and the Revolving Credit Agreement.
Under the Facility, $15 million was available on a 364-day basis and $25
million was available on a three-year revolving term, both of which were
renewable annually for an extension of one year upon approval of the
banks. The Facility interest rate is indexed with the LIBOR rate or the
prime rate (Index Rate), and it contained restrictive covenants, which
included provisions for the maintenance of tangible net worth, coverage
of fixed charges, and restrictions on total indebtedness to EBITDA. The
364-day portion of the Facility contained a sub-limit of $6 million for
overnight "Swing Line" borrowings. The revolving portion allowed for
Standby Letters of Credit to be issued, reducing the availability under
the Facility.
On January 23, 2004, the company amended its Facility with its bank
group. This Amended Credit Facility (Amended Facility) is for $30 million
and replaces the $40 million Facility. The Amended Facility provides for
$10 million on a 364-day basis and $20 million available on a three-year
revolving term. The terms of the Amended Facility require the same type
of covenants as those in the Facility, and provide the bank group with a
security interest in all unencumbered assets of the company, and limit
capital expenditures to $9 million dollars in 2004 and to a mutually
agreed upon amount thereafter. The Amended Facility requires the payment
of a fee. Interest rates are determined using a variable credit spread
added to the Index Rate. Commitment fees are determined on the same basis
without the addition of a base rate. The credit spread varies relative to
the company's debt level and adjusted pre-tax earnings. The current
credit spread is in the highest of four tiers and it may decline as the
performance of the company improves. The range of credit spreads for
interest rates is 1.5% and the range of credit spreads for commitment
fees is .15%. The company expects to be in compliance with the new
covenants this year.
6. Pension and Supplemental Retirement Costs
-----------------------------------------
Components of Net Periodic Cost
Thirteen Weeks Ended
3/27/04 3/29/03
------------------------------
Service cost $ 352 $ 334
Interest cost 1,287 1,215
Expected return on plan assets (1,124) (1,043)
Amortization of prior service costs (1) (2)
Amortization of net (gain) loss 13 16
------------------------------
Net periodic benefit cost $ 527 $ 520
==============================
Employer Contributions
The company previously disclosed in its financial statement for the year
9 of 17
ended December 27, 2003, that it was not required to make contributions
to its pension plan in 2004. As of March 27, 2004, no contributions have
been made. The company will evaluate whether or not to make a
contribution to the plan before September 15, 2004.
7. Postretirement Benefits Other than Pensions
-------------------------------------------
Components of Net Periodic Postretirement Benefit Cost
Thirteen Weeks Ended
3/27/04 3/29/03
------------------------------
Service cost $ 104 $ 84
Interest cost 236 247
Net amortization and deferral - (32)
------------------------------
Net periodic benefit cost $ 340 $ 299
==============================
Employer Contributions
Estimated company contributions for the first quarter of 2004 are $290.
10 of 17
TASTY BAKING COMPANY AND SUBSIDIARIES
(000's, except share and per share amounts)
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
-----------------------------------------------------------
Results of Operations
Overview
The net income for the first quarter of 2004 was $483 or $.06 per diluted share.
Net income for the first quarter of 2003 was $482 or $.06 per diluted share. Net
income for 2003 included a $220 pre-tax restructure charge reversal due to the
favorable settlement of certain thrift store lease contracts.
Sales
Gross sales increased by 6.2% in the first quarter of 2004 relative to the
comparable quarter in 2003. Gross sales in core route areas increased by 12.2%
due to price increases instituted on the family pack product line and pies and
the impact of the new route territories in Pittsburgh and Cleveland. Without the
increase from the new route territories, same route sales increased 9.2% over
the first quarter of 2003. Gross sales in non-route areas decreased by 9.1% in
the first quarter of 2004 as compared to 2003. The decrease is primarily
attributable to the company's exit from business on the West Coast.
In the first quarter of 2004, net sales decreased by 1.2% compared to the same
period last year. The decrease in net sales was due to an increase in price
promotion spending in the route areas, incurred to support price increases and
new packaging designs. The decrease in net sales also was impacted by increased
product returns and commissions associated with the new markets in Pittsburgh
and Cleveland.
Cost of Sales
Cost of sales for the first quarter of 2004 decreased by 6.3%. As a percentage
of gross sales, cost of sales decreased 5.1 percentage points to 38.4% in the
first quarter from 43.5% in the same quarter last year. These decreases are
mostly the result of sales volume reductions along with packaging and
controllable cost reductions, partially offset by the increased cost of eggs,
soy bean oil, butter and vanilla.
Gross Margin
Gross margin after depreciation, as a percentage of net sales, was 30.9% and
27.5% for the first quarters of 2004 and 2003, respectively. This 3.4 percentage
points improvement resulted from the combined effect of the price increases,
cost of sales decreases and the favorable sales mix of core route versus
non-route business. These positive improvements were partially offset by price
promotion spending.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the first quarter of 2004
increased by $882 or 8.2% compared to the first quarter of 2003. The increase
was due to investments in personnel to fill key positions and an increase in
selling expense related to the expansion of the direct store delivery system
into the Pittsburgh and Cleveland markets.
11 of 17
Depreciation
Depreciation expense in the first quarter of 2004 decreased .1% compared to the
first quarter of 2003. During the quarter, the company performed a comprehensive
review of the estimated useful lives of all asset classes. As a result, the
company evaluated the utilization of certain machinery and equipment and
determined that its useful lives should be extended to 15 years from 7 years,
consistent with similar assets already being depreciated over 15 years. The
useful lives of buildings and improvements were standardized at 39 years from 15
to 35 years. These changes in estimates resulted in a decrease of depreciation
expense by $402 for the first quarter. Also, depreciation expense increased in
the first quarter by $381 due to a change in estimated useful lives of certain
machinery, leasehold improvements and the current Enterprise Resource Planning
(ERP) system which is expected to be replaced within the next year. The company
is currently evaluating the scope, timeline and specific implementation date for
the new ERP system and will provide additional information regarding the project
in the future.
Non-Operating Items
Interest expense increased by 50.7% in the first quarter of 2004 compared to the
first quarter of 2003. The increase is due to increased average borrowing levels
and increased average interest rates. The company is exposed to market risk
relative to its interest expense as its notes payable and long-term debt have
floating interest rates that vary with the conditions in the credit market. It
is expected that a one percentage point increase in interest rates would result
in additional quarterly expense of approximately $48.
The effective tax rate was 37.2% for the quarter ended March 27, 2004, and 35.0%
for the quarter ended March 29, 2003, which compares to a federal statutory rate
of 34%. Differences between the effective rates and the statutory rate arise
from the effect of state income taxes.
Liquidity and Capital Resources
Historically, the company has been able to generate sufficient amounts of cash
from operations. Bank borrowings are used to supplement cash flow from
operations during periods of cyclical shortages. A Credit Facility is maintained
with two banks and certain capital and operating leases are utilized.
On January 31, 2002, the company entered into a Credit Facility (Facility) for
$40 million with two banks. This Facility replaced all existing short-term lines
of credit and the Revolving Credit Agreement. Under the Facility, $15 million
was available on a 364-day basis and $25 million was available on a three-year
revolving term, both of which were renewable annually for an extension of one
year upon approval of the banks. The Facility interest rate is indexed with the
LIBOR rate or the prime rate (Index Rate), and it contained restrictive
covenants, which included provisions for the maintenance of tangible net worth,
coverage of fixed charges, and restrictions on total indebtedness to EBITDA. The
364-day portion of the Facility contained a sub-limit of $6 million for
overnight "Swing Line" borrowings. The revolving portion allowed for Standby
Letters of Credit to be issued, reducing the availability under the Facility.
On January 23, 2004, the company amended its Facility with its bank group. This
Amended Credit Facility (Amended Facility) is for $30 million and replaces the
$40 million Facility. The Amended Facility provides for $10 million on a 364-day
basis and $20 million available on a three-year revolving term. The terms of the
Amended Facility require the same type of covenants as those in the Facility,
and provide the bank group with a security interest in all unencumbered assets
of the company, and limit capital expenditures to $9 million dollars in 2004 and
to a mutually agreed upon amount thereafter. The Amended
12 of 17
Facility requires the payment of a fee. Interest rates are determined using a
variable credit spread added to the Index Rate. Commitment fees are determined
on the same basis without the addition of a base rate. The credit spread varies
relative to the company's debt level and adjusted pre-tax earnings. The current
credit spread is in the highest of four tiers and it may decline as the
performance of the company improves. The range of credit spreads for interest
rates is 1.5% and the range of credit spreads for commitment fees is .15%. The
company expects to be in compliance with the new covenants this year.
Net cash from operating activities for the thirteen weeks ended March 27, 2004,
decreased by $1,281 compared to the same period in 2003. This decrease was
driven by an unfavorable change in assets and liabilities in the first quarter
of 2004 compared to the first quarter of 2003. The unfavorable change in assets
and liabilities resulted primarily from a decrease in accounts payable during
2004 compared to a significant increase in the first quarter of 2003.
Prepayments increased in the first quarter of 2004 relative to the first quarter
of 2003 due to the payment of a long-term maintenance contract. Inventory
increased due to additional finished goods inventory related to a frozen sales
program outside the core route region. These unfavorable changes were partially
offset by a smaller increase in accounts receivable, relative to the prior year,
due to continued increased management focus on cash collections.
Net cash used for investing activities for the thirteen weeks ended March 27,
2004, increased by $1,500 relative to the same period in 2003 principally due to
an increase of $1,555 in capital expenditures for the new Enterprise Resource
Planning system and a new production line at the company's Oxford manufacturing
location.
Net cash from financing activities for the thirteen weeks ended March 27, 2004,
increased by $3,003 relative to the comparable period in 2003, due to a $2,000
increase in long-term borrowing and $1,100 decrease in repayments for short-term
borrowing relative to the prior year.
For the remainder of 2004, the company anticipates that cash flow from
operations, along with the continued availability of credit under the Amended
Facility, will provide sufficient cash to meet operating and financing
requirements.
Forward-Looking Statements
Certain matters discussed in this Report, including those under the heading
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," contain "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 may include
comments about legal proceedings, competition within the baking industry,
availability and pricing of raw materials and capital, sales growth by
distribution through national sales programs, private label, food service,
institutional sales and other channels of distribution, changes in the company'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 company's primary markets, 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, the outcome of legal
proceedings to which the company is or may become a party, the actions of
competitors within the packaged food industry, changes in consumer tastes or
eating habits, the success of business strategies implemented by the company to
meet future challenges, and the ability to develop and market in a timely and
efficient manner new products which are accepted by consumers. The reader should
review "Management's Discussion and Analysis" in the company's annual report on
13 of 17
Form 10-K for the year ended December 27, 2003 for a more complete discussion of
other risk factors which may affect the company's financial position or
operating performance.
14 of 17
Item 3. Quantitative and Qualitative Disclosures 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 independent sales distributors 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 notes payable.
Item 4. Controls and Procedures
-----------------------
The company maintains a system of disclosure controls and procedures designed to
provide reasonable assurance as to the reliability of its consolidated financial
statements and other disclosures included in this report. The company
established a disclosure controls committee, which consists of certain members
of management. The company carried out an evaluation, under the supervision and
with the participation of management, including the Chief Executive Officer and
Chief Financial Officer, of the design and operation of the company's disclosure
controls and procedures as of the end of the period covered by this report.
Based on this evaluation, the company's Chief Executive Officer and Chief
Financial Officer concluded that the company's disclosure controls and
procedures are effective at a reasonable level of assurance for gathering,
analyzing and disclosing material information the company is required to
disclose in the reports it files with the SEC pursuant to the Securities and
Exchange Act of 1934, within the time periods specified in the SEC's rules and
forms. In addition, the company reviewed its internal control over financial
reporting and there have been no changes during the company's first quarter
covered by this report in the company's internal control over financial
reporting, to the extent that elements of internal control over financial
reporting are subsumed within disclosure controls and procedures, that has
materially affected, or is reasonably likely to materially affect, the company's
internal control over financial reporting.
15 of 17
TASTY BAKING COMPANY AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits:
Exhibit 10 - Credit Agreement, as amended January 23, 2004, by and
among the company and PNC Bank, N.A. and Citizens Bank of
Pennsylvania
Exhibit 31.1 - Certification of Chief Financial Officer pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 31.2 - Certification of Chief Executive Officer pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 32 - 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 filed the following reports on Form 8-K during the
thirteen weeks ended March 27, 2004:
On December 29, 2003, the company furnished a report on Form 8-K
under Item 5, Other Events, attaching a press release announcing
the retirement of John M. Pettine as Executive Vice President and
director of the company, effective December 27, 2003.
On February 11, 2004, the company furnished a report on Form 8-K
under Item 12, Results of Operation and Financial Condition,
attaching a press release announcing its financial results for the
fifty-two weeks and the fourth quarter ended December 27, 2003.
16 of 17
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)
May 5, 2004 /s/David S. Marberger
----------------- ------------------------------------
(Date) DAVID S. MARBERGER
SENIOR VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
(Principal Financial and
Accounting Officer)
17 of 17