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 30, 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 ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes 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 8,066,100
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(Title of Class) (No. of Shares Outstanding
as of May 10, 2002)
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TASTY BAKING COMPANY AND SUBSIDIARIES
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheets
March 30, 2002 and December 29, 2001...............................3
Consolidated Condensed Statements of Operations
Thirteen weeks ended March 30, 2002 and March 31, 2001.............4
Consolidated Condensed Statements of Cash Flows
Thirteen weeks ended March 30, 2002 and March 31, 2001.............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 Risk8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings..................................................9
Item 6. Exhibits and Reports on Form 8-K...................................9
Signature..................................................................10
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
TASTY BAKING COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(unaudited)
-----------------------------------------------------------------------------------------------------------------------
March 30, 2002 December 29, 2001
-----------------------------------------------------------------------------------------------------------------------
Current assets:
Cash $ 129,506 $ 367,220
Accounts and notes receivable, net of
allowance for doubtful accounts 23,356,098 22,233,413
Inventories:
Raw materials 4,316,605 3,995,228
Work in progress 757,887 720,511
Finished goods 2,373,578 3,696,045
------------------------------------------------------
7,448,070 8,411,784
Deferred income taxes, prepayments and other 4,159,399 4,156,755
------------------------------------------------------
Total current assets 35,093,073 35,169,172
------------------------------------------------------
Property, plant and equipment: 185,646,386 184,224,586
Less accumulated depreciation 126,257,504 124,522,610
------------------------------------------------------
59,388,882 59,701,976
------------------------------------------------------
Long-term receivables 10,197,682 10,201,049
------------------------------------------------------
Deferred income taxes 7,381,934 7,381,934
------------------------------------------------------
Spare parts inventory and miscellaneous assets 3,786,591 3,682,688
------------------------------------------------------
Total assets $ 115,848,162 $ 116,136,819
======================================================
Current liabilities:
Current obligations under capital leases $ 220,951 $ 239,593
Notes payable, banks 5,100,000 3,900,000
Accounts payable 4,334,227 5,306,976
Accrued liabilities 6,460,377 7,438,750
------------------------------------------------------
Total current liabilities 16,115,555 16,885,319
------------------------------------------------------
Long-term debt, less current portion 11,000,000 11,000,000
------------------------------------------------------
Long-term obligations under capital leases,
less current portion 3,562,779 3,603,310
------------------------------------------------------
Accrued pensions and other liabilities 11,720,043 11,506,969
------------------------------------------------------
Postretirement benefits other than pensions 18,072,716 18,076,719
------------------------------------------------------
Shareholders' equity:
Common stock 4,558,243 4,558,243
Capital in excess of par value of stock 29,468,280 29,388,567
Retained earnings 35,077,885 34,838,636
------------------------------------------------------
69,104,408 68,785,446
Less:
Treasury stock, at cost 13,221,322 13,167,082
Management Stock Purchase Plan
receivables and deferrals 506,017 553,862
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55,377,069 55,064,502
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Total liabilities and shareholders' equity $ 115,848,162 $ 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)
------------------------------------------------------------------------------------------------------------
For the Thirteen Weeks Ended
March 30, 2002 March 31, 2001 (a)
------------------------------------------------------------------------------------------------------------
Gross Sales $64,039,058 $ 65,655,374
Less discounts and allowances (23,380,184) (23,412,110)
-----------------------------------------------------
Net Sales 40,658,874 42,243,264
-----------------------------------------------------
Costs and expenses:
Cost of sales 25,954,274 26,191,337
Depreciation 1,734,892 1,849,030
Selling, general and
administrative 10,983,307 10,803,768
Interest expense 367,733 282,042
Other income, net (279,761) (318,151)
-----------------------------------------------------
38,760,445 38,808,026
-----------------------------------------------------
Income before provision for
income taxes 1,898,429 3,435,238
Provision for income taxes 693,273 1,315,787
-----------------------------------------------------
Net income $ 1,205,156 $2,119,451
=====================================================
Average common shares outstanding:
Basic 8,049,657 7,902,402
Diluted 8,188,303 8,022,865
Per share of common stock:
Net income:
Basic $0.15 $0.27
===================== =======================
Diluted $0.15 $0.26
===================== =======================
Cash dividend $0.12 $0.12
===================== =======================
(a) 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)
---------------------------------------------------------------------------------------------------------------------------
For the Thirteen Weeks Ended
March 30, 2002 March 31, 2001
---------------------------------------------------------------------------------------------------------------------------
Cash flows from (used for) operating activities
Net income $ 1,205,156 $ 2,119,451
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 1,734,892 1,849,030
Amortization 10,490 15,939
Conditional Stock Grant - 804,759
Other 105,168 (274,068)
Changes in assets and liabilities
affecting operations (2,112,737) (3,952,023)
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Net cash from operating activities 942,969 563,088
--------------------------------------------------------
Cash flows from (used for) investing activities
Purchase of property, plant and equipment (1,421,798) (1,763,269)
Proceeds from owner/operators' loan repayments 860,855 782,552
Loans to owner/operators (857,488) (1,174,608)
Other 62,828 9,554
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Net cash used for investing activities (1,355,603) (2,145,771)
--------------------------------------------------------
Cash flows from (used for) financing activities
Additional long-term debt - 1,000,000
Dividends paid (965,907) (941,437)
Payment of long-term debt (59,173) (20,393)
Net increase in short-term debt 1,200,000 550,000
Net proceeds from sale of common stock - 748,776
--------------------------------------------------------
Net cash from financing activities 174,920 1,336,946
--------------------------------------------------------
Net decrease in cash (237,714) (245,737)
Cash, beginning of year 367,220 311,242
--------------------------------------------------------
Cash, end of period $ 129,506 $ 65,505
========================================================
Supplemental Cash Flow Information:
Cash paid during the period for:
Interest $ 214,738 $ 273,219
========================================================
Income taxes $ 150,151 $ 798,400
========================================================
See accompanying notes to consolidated condensed financial statements.
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TASTY BAKING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. 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.
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 March 30, 2002 and December 29, 2001, the
results of its operations for the thirteen weeks ended March 30, 2002 and
March 31, 2001 and cash flows for the thirteen weeks ended March 30, 2002
and March 31, 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 weeks
ended March 30, 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 thirteen weeks ended March 30, 2002 and March 31, 2001, the difference
between the actual expenses incurred and the expenses charged to operations
was not material.
3. 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.
4. Restricted Stock Plan
---------------------
On December 21, 2000, the Board of Directors adopted the Tasty Baking
Company Restricted Stock Incentive Plan (Restricted Stock Plan), which was
approved by shareholders at the 2001 Annual Meeting. Under the terms of the
Restricted Stock Plan, 200,000 common shares were authorized and 109,500
common shares were granted to executives of the company. The target for
these awards was to be the achievement of a compound annualized increase in
earnings per share of 10% per year for fiscal years 2001 through 2003 (the
Measurement Period) over earnings per share for fiscal year 2000. Since the
target for 2001 had not been achieved, and based on the first quarter 2002
results, the company is satisfied that the overall target will not be
achieved. Therefore, in the first quarter of 2002 the balance of the
accrual of $239,664 was reversed.
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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
---------------------
Net income for the first quarter of 2002 was $1,205,156 or $.15 per share. Net
income for the first quarter of 2001 was $2,119,451 or $.26 per share. During
the first quarter of 2001, both the $14.00 and $16.00 stock price targets
pertaining to a 1999 conditional stock grant were achieved and a resulting
pre-tax charge of $805,000 of compensation expense was recorded. Without the
additional expense related to the $16.00 per share price target, net income per
share would have been $.29. The achievement of the $16.00 target completed the
conditional stock grant.
For the first quarter, gross sales decreased 2.5% to $64,039,058, compared to
$65,655,374 last year. The decrease in gross sales was primarily the result of
volume decreases due to consumer resistance to price increases and heavy
promotional activity by competitors. Gross sales, less discounts and allowances,
resulted in a decrease in net sales of 3.8% to $40,658,874, compared to
$42,243,264 last year. For comparability, 2001 net sales in this filing are
revised due to reclassifications 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. 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.
Cost of sales, as a percentage of gross sales, was 40.5% and 39.9% for the first
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 first quarter of 2002
increased by $179,539 or 1.7% compared to the first quarter of 2001. Thrift
store expenses increased due to the number of stores operating during the
quarter (sixteen in 2002 compared to eleven in 2001). This increase was offset
by a decrease in compensation expense in 2002 relative to the additional expense
in 2001 resulting from the achievement of the conditional stock grant targets.
Interest expense increased for the first quarter of 2002 versus the first
quarter of 2001 as a result of bank charges related to a debt restructuring,
partially offset by decreased average interest rates as well as lower average
borrowing levels.
The effective tax rate was 36.5% for the quarter ended March 30, 2002 and 38.3%
for the quarter ended March 31, 2001, which compare to a federal statutory rate
of 34%. The difference between the effective rates and the statutory rate was
the effect of state taxes.
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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 thirteen weeks ended March 30, 2002, net cash from operating activities
increased by $379,881 to $942,969 from $563,088 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. These positive changes were partially offset by a
decrease in liabilities and net income in the current year.
Net cash used for investing activities for the thirteen weeks ended March 30,
2002 decreased by $790,168 relative to the same period in 2001 principally due
to lower capital expenditures in the current year. Also, there was an excess of
proceeds from owner/operator loan payments over new loans granted in the current
quarter compared to an excess of new loans granted over proceeds from loan
payments in the prior year.
Net cash from financing activities for the thirteen weeks ended March 30, 2002
decreased by $1,162,026 relative to the same thirteen weeks in 2001 due to the
fact that there were no proceeds from the sale of common stock in the current
quarter and there was a decrease in net bank borrowings.
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 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 1. Legal Proceedings
-----------------
In November, 1998, nine (9) independent route owner/operators
(Plaintiffs), on behalf of all present and former route
owner/operators, commenced suit against the Registrant seeking
recovery from the Registrant of amounts (i) which the owner/operators
paid in the past to the Internal Revenue Service on account of
employment taxes, and (ii) collected by the Registrant since January
1, 1998 as an administrative fee from all unincorporated
owner/operators. The Registrant removed the complaint to the United
States District Court for the Eastern District of Pennsylvania and was
successful in having the complaint dismissed with prejudice as to all
federal causes of action.
Subsequently, Plaintiffs commenced a new suit in Common Pleas Court
for Philadelphia County, Pennsylvania, asserting state law claims
seeking damages for (1) the alleged erroneous treatment of the
owner/operators as independent contractors by the Registrant such that
the owner/operators were required to pay self-employment, social
security and federal unemployment taxes which they allege should have
been paid by the Registrant, and (2) for breach of contract relating
to the collection of an administrative fee from all unincorporated
owner/operators. The Court dismissed with prejudice the Plaintiffs
first claim in March 2000. As to the second claim, in January 2002,
the Court certified a class of approximately 200 owner/operators
(representing approximately 43% of the Registrant's current routes),
consisting of unincorporated owner/operators who, since February 7,
1998, have paid or continue to pay the administrative fee to the
Registrant. The Registrant believes the case to be without merit and
is defending the matter vigorously. The Registrant has not established
any reserve in the event that the ultimate outcome of this litigation
proves unfavorable to the Registrant. If this matter is determined
adversely to the Registrant, the ultimate liability arising therefrom
should not be material to the financial position of the Registrant,
but could be material to its results of operations in any quarter or
annual period.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Reports on Form 8-K
The company did not file a report on Form 8-K during the thirteen
weeks ended March 30, 2002.
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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 13, 2002 /S/ John M. Pettine
---------------------- ----------------------------------------
(Date) JOHN M. PETTINE
EXECUTIVE VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
(PRINCIPAL FINANCIAL OFFICER)
May 13, 2002 /S/ Daniel J. Decina
---------------------- ----------------------------------------
(Date) DANIEL J. DECINA
VICE PRESIDENT, FINANCE AND
CHIEF ACCOUNTING OFFICER
(PRINCIPAL ACCOUNTING OFFICER)
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