Tasty Baking Company (NasdaqGM:TSTY) today reported net sales of
$39.3 million for its fourth quarter ended December 29, 2007, a
4.0% decrease from the $40.9 million reported for the fourth
quarter last year. Net income was $0.1 million in the fourth
quarter of 2007 compared to net income of $1.6 million in the
fourth quarter of 2006. Net income in the fourth quarter 2007
included $0.8 million of after-tax incremental depreciation expense
due to a change in useful lives of assets at the Philadelphia
bakery related to the company�s plan to complete the move from its
present facility in 2010. Net income in the fourth quarter 2006
included $1.0 million of after-tax gain on the termination of the
option on the company�s corporate office and distribution center.
Adjusted EBITDA for the fourth quarter 2007 increased 8.8% to $3.2
million versus the fourth quarter 2006. FINANCIAL HIGHLIGHTS FOURTH
QUARTER 2007 $ in millions, except per share data (unaudited) � �
2007 Q4 � 2006 Q4 � % Change1 � Fiscal 2007 � Fiscal 2006 � %
Change1 Gross Sales $62.8 $64.6 -2.8% $272.3 $267.9 1.6% Discounts
& Allowances -0.8% 2.2% Net Sales $39.3 $40.9 -4.0% $169.9
$167.7 1.3% Route Net Sales -0.2% 1.8% Non-route Net Sales -16.1%
-0.4% Depreciation2 $3.0 $1.8 70.4% $9.9 $6.6 51.0% Gross Margin3 %
26.4% 34.5% -8.1 pps 30.4% 34.4% -4.0 pps Net Income4 $0.1 $1.6
-93.8% $2.1 $4.2 -49.3% Net Income per Fully-diluted Share5 $0.01
$0.19 -94.7% $0.26 $0.51 -49.0% Adjusted EBITDA6 $3.2 $3.0 8.8%
$13.7 $12.7 7.7% Footnotes: 1 � Percentages may not calculate due
to rounding. 2 2007 Q4 and fiscal 2007 include pre-tax incremental
depreciation of $1.3 million and $3.3 million, respectively, due to
a change in useful lives of assets at the Philadelphia bakery
related to the company's plan to move from its present facility. 3
Based on net sales less cost of sales and depreciation. Incremental
depreciation as described in footnote 2 reduced gross margin by
approximately 330 basis points in 2007 Q4 and 200 basis points in
fiscal 2007. 4 2007 Q4 and fiscal 2007 reduced by $0.8 million and
$2.1 million, respectively, due to the after-tax impact of
incremental depreciation described in footnote 2. 2006 Q4 and
fiscal 2006 include approximately $1.0 million in after-tax income
from the gain on a terminated option with Keystone Redevelopment
Partners (the "Keystone Option"). During the fourth quarter of
2007, the Company recorded a favorable income tax expense
adjustment of $0.4 million related to fiscal 2006, which was not
material. This favorable adjustment increased net income for both
2007 Q4 and fiscal 2007 by $0.4 million. 5 2007 Q4 and fiscal 2007
reduced by approximately $0.10 per share and $0.26 per share,
respectively, due to the impact of incremental depreciation expense
described in footnote 2; 2006 Q4 and fiscal 2006 include
approximately $.12 per share from gain on termination of the
Keystone Option. Results for 2007 Q4 and fiscal 2007 reflect the
favorable adjustment to income tax expense as described in footnote
4. This favorable adjustment increased net income per fully diluted
share for both 2007 Q4 and fiscal 2007 by $0.05. 6 Earnings before
net interest, income taxes, depreciation and amortization excluding
the benefit of the non-recurring gain from the termination of the
Keystone Option during the fourth quarter 2006. Reconciliation
table of GAAP Net Income to Adjusted EBITDA, a non-GAAP financial
measure, is provided below in the release. Charles P. Pizzi,
president and chief executive officer of Tasty Baking Company,
said, �During the fourth quarter of 2007 we faced significant
challenges as industry-wide commodity cost increases continued and
negatively impacted gross margin. While we were disappointed with
our Non-route sales decline in the fourth quarter, we have seen
this business return to more normalized sales levels thus far in
the first quarter 2008. In our Route geography, we gained market
share in the fourth quarter and remain optimistic about the sales
growth prospects for both our Non-route and Route territories.� Mr.
Pizzi continued, �I believe we have the right strategy and team to
face the current challenges and to take Tasty Baking to the next
level as we work towards completing our new manufacturing facility,
which remains on time and on budget. Our original estimate of
$13-15 million in annual cash savings, net of facility leases and
before debt service, remains the same. As we look to the future,
these savings along with increased production flexibility will be
important long-term value drivers for this company and its
shareholders.� RESULTS OF OPERATIONS The company�s 4.0% net sales
decline in the fourth quarter of 2007 versus the comparable period
in 2006 resulted from a 16.1% decrease in Non-route net sales and
0.2% decrease in Route net sales. Non-route net sales declined
primarily due to the company�s largest Non-route customer reducing
warehouse inventory levels and offering lower year over year
promotional activity. Gross sales for the Routes grew in the fourth
quarter of 2007 versus a year ago due to sales increases in the
Family Pack and Sensables product lines. However, higher
promotional expense stemming from strong Family Pack sales kept
total Route net sales in the fourth quarter of 2007 the same
compared to prior year. For the fiscal year ended December 29, 2007
total net sales were up 1.3% versus the prior year. Cost of sales,
excluding depreciation, increased 3.4% on a unit volume decline of
7.0% in the fourth quarter of 2007, as compared to the fourth
quarter of 2006. Variable manufacturing expense per case in the
fourth quarter of 2007 increased 14.5% versus the comparable period
a year ago. The increase was driven by continued industry-wide cost
increases in key ingredients such as eggs, grains, and oils as well
as packaging. The increase in variable manufacturing expense was
partially offset by a 3.1% reduction in fixed manufacturing expense
in the quarter due to lower employee-related costs, which resulted,
in part, from changes in the company�s vacation benefit plan. The
full benefit of the plan changes is not expected to recur in future
years. Cost of sales, excluding depreciation, for fiscal 2007 was
up 4.7% on a unit volume increase of 0.4% versus fiscal 2006. As
compared to the fourth quarter of 2006, gross margin in the fourth
quarter of 2007 declined 8.1 percentage points to 26.4% of net
sales. The decline in gross margin was primarily attributable to
the increased cost of ingredients and packaging, which accounted
for approximately 72% of the margin decline or 5.8 percentage
points. Additionally, 3.3 percentage points of the gross margin
decline is explained by the incremental depreciation expense the
company recorded related to the anticipated move to its new
facility. Partially offsetting these declines were the benefits
from lower fixed manufacturing expenses and product price
increases. Fiscal 2007 gross margin declined 4.0 percentage points
versus fiscal 2006 to 30.4% of net sales. Increased ingredient and
packaging costs drove a 4.1 percentage point decline and
incremental, accelerated depreciation accounted for a 2.0
percentage point drop. Partially offsetting these full-year
declines were reductions in fixed manufacturing expense and
benefits from product price increases. Selling, general and
administrative (SG&A) expense in the fourth quarter 2007
declined 21.0% versus the comparable period last year. This
decrease was driven by several factors, including a $0.8 million
benefit from state franchise tax credits that were generated by
certain of the company�s charitable contributions in 2007 and prior
years. The company expects to continue to generate approximately
$0.1 million in state franchise tax credits on an annual basis. The
company also benefited from lower employee-related costs, which
included changes in the company�s vacation benefit plan, as well as
lower insurance and compensation related expenses. When measured as
a percentage of net sales, SG&A declined to 26.3% in the fourth
quarter 2007 compared to 32.0% in the same quarter 2006. SG&A
expenses for the fiscal year ended December 29, 2007 were down 7.4%
versus the fiscal year ended December 30, 2006. The full-year
decline in 2007 compared to 2006 was primarily driven by the same
factors mentioned above for the fourth quarter. David S. Marberger,
executive vice president and chief financial officer, said, �The
story for the last quarter has been the negative impact of
commodity inflation in the areas of eggs, grains, and oils. The
market prices for certain of these commodities have increased more
than fifty percent since the end of the second quarter 2007 and are
affecting many companies in the baking industry. We remain
committed to managing these higher costs through an appropriate
pricing strategy and productivity improvements.� PRELIMINARY 2008
OPERATING OUTLOOK The following outlook is subject to, among other
things, the uncertainty surrounding the impact on sales volumes
from the already announced price increases and the volatility of
commodity markets for key ingredients such as eggs, grains, and
oils. Fiscal 2008 total net sales are expected to grow by
approximately 3% to 4% compared to fiscal 2007 while total volumes
are expected to decline 1% to 2% due to the impact of implemented
price increases. Gross profit is expected to decline by $3 million
dollars, which is driven by the estimated $3 million dollar
increase in depreciation versus fiscal 2007. Most of the increase
in depreciation is due to a full year impact of the change in
useful lives of assets at the Philadelphia bakery related to the
company�s plan to move from its present facility. Selling, general
and administrative expenses are expected to increase approximately
3% to 4% compared to 2007. Total capital expenditures for fiscal
2008 are expected to be approximately $32 million. Of that amount,
the company estimates $26 million will be associated with
expenditures related to the new manufacturing facility at the Navy
Yard. Interest expense is expected to increase commensurate with
the pacing and level of expenditures related to the new
manufacturing facility. CONFERENCE CALL Tasty Baking Company
management will host a conference call Thursday, February 28, 2008,
at 11:00 a.m. EST to discuss the company�s financial results and
other business developments. Investors will have the opportunity to
listen to the call over the Internet at Tasty Baking Company�s web
site, http://www.tastykake.com. The webcast link can be found in
the �Investors� section, under the subheading �Corporate Profile�.�
For those who cannot listen to the live web broadcast, a replay
will be available shortly after the call and will remain available
for ninety days on the company�s website. To access a telephone
replay, please call 1-888-203-1112 and enter the passcode
�7188374.� The telephone replay will be available from 2:00 p.m. on
February 28, 2008, until Friday, March 14, 2008, at 11:59 p.m. EDT.
NON-GAAP FINANCIAL MEASURES In addition to the reported results
presented in accordance with generally accepted accounting
principles (GAAP) in this press release, the company presented
EBITDA (see below) and Adjusted EBITDA, which are non-GAAP
financial measures. EBITDA represents net income before net
interest, income taxes, depreciation and amortization. Adjusted
EBITDA is defined as EBITDA further adjusted to give effect to
certain non-recurring items. In 2006, the company recorded a
one-time gain of $1.6 million on the termination of an option to
purchase its corporate headquarters and distribution center, which
was excluded from Adjusted EBITDA for fiscal 2006. The company also
presents gross profit, a GAAP financial measure, excluding the
impact of depreciation (�gross profit excluding depreciation�),
which is a non-GAAP financial measure, to provide a more comparable
metric to prior quarters� performance. The company believes that
these non-GAAP financial measures, viewed in addition to the
company�s reported GAAP results, provide useful information and
greater transparency to investors in regards to the company�s
performance and position within its industry. The company uses
these non-GAAP financial measures internally to evaluate the
company�s operating performance on a period over period basis and
for forecasting future periods. EBITDA and Adjusted EBITDA as
presented herein are not necessarily comparable to similarly titled
measures of other companies. A schedule is included below that
provides a reconciliation of EBITDA and Adjusted EBITDA to net
income, the GAAP measure the company believes to be most directly
comparable to EBITDA and Adjusted EBITDA. In addition, a schedule
is provided reconciling gross profit excluding depreciation to
gross profit. ABOUT TASTY BAKING COMPANY Tasty Baking Company
(NasdaqGM:TSTY), founded in 1914 and headquartered in Philadelphia,
Pennsylvania, is one of the country�s leading bakers of snack
cakes, pies, cookies, and donuts with manufacturing facilities in
Philadelphia and Oxford, Pennsylvania. Tasty Baking Company offers
more than 100 products under the Tastykake brand name. For more
information on Tasty Baking Company, visit www.tastykake.com. In
addition, consumers can send Tastykake products throughout the
United States from the company�s website or by calling
1-800-33-TASTY. �Safe Harbor Statement� Under the Private
Securities Litigation Reform Act of 1995 Except for historical
information contained herein, the matters discussed herein are
forward-looking statements (as such term is defined in the
Securities Act of 1933, as amended) that are subject to risks and
uncertainties that could cause actual results to differ materially
from those stated or implied herein. There are a number of factors
that may cause actual results to differ from these forward-looking
statements, including, without limitation, the costs to lease and
fit-out a new facility and relocate thereto, the risks of business
interruption while transitioning to a new facility, possible
disruption of production efficiencies arising out of the company�s
announcement of and subsequent reduction in workforce, the costs
and availability of capital to fund improvements or new facilities,
the success of marketing and sales strategies and new product
development, the ability to enter new markets successfully, the
price of raw materials, and general economic and business
conditions. Other risks and uncertainties that may materially
affect the company are provided in the company�s annual report to
shareholders and the company�s periodic reports filed with the
Securities and Exchange Commission from time to time, including,
without limitation, reports on Forms 10-K and 10-Q. Please refer to
these documents for a more thorough description of these and other
risk factors. There can be no assurance that the company will
succeed in implementing its manufacturing and sales strategies or
that estimated operating cash savings will be realized. The company
assumes no obligation to update publicly or revise any
forward-looking statements. TASTY BAKING COMPANY AND
SUBSIDIARIESCONSOLIDATED HIGHLIGHTS OF OPERATING
RESULTS(Unaudited)(000's, except per share amounts) � � � � 13
Weeks Ended 52 Weeks Ended 12/29/2007 12/30/2006 12/29/2007
12/30/2006 � Gross sales $ 62,809 $ 64,636 $ 272,276 $ 267,911 Less
discounts and allowances (23,540) (23,720) (102,358) (100,196) Net
sales 39,269 40,916 169,918 167,715 Cost of sales, exclusive of
depreciation shown below 25,887 25,041 108,381 103,495 Depreciation
3,008 1,765 9,917 6,566 Selling, general and administrative 10,338
13,079 48,285 52,138 Interest expense 504 321 1,410 1,480 Gain on
termination of option (a) - (1,600) - (1,600) Other income, net
(304) (236) (900) (936) � Income before provision for income taxes
(164) 2,546 2,825 6,572 � Provision for income taxes (b) (263) 945
697 2,376 � � Net income (b) $ 99 $ 1,601 $ 2,128 $ 4,196 � �
Average number of shares outstanding: Basic 8,034 8,033 8,034 8,045
Diluted 8,170 8,217 8,154 8,236 Per share of common stock: � Net
income: Basic (c) $0.01 $0.20 $0.26 $0.52 Net income: Diluted (c)
$0.01 $0.19 $0.26 $0.51 � Cash Dividend $0.05 $0.05 $0.20 $0.20 (a)
- During the fourth quarter of 2006, the company recorded a gain of
$1,600 upon termination of the option entered into with Keystone
Redevelopment Partners, LLC. � (b) - During the fourth quarter of
2007, the Company recorded a favorable income tax expense
adjustment of $386 related to fiscal 2006, which was not material.
This favorable adjustment reduced the provision for income taxes
and increased net income for both the thirteen and fifty-two weeks
ended December 29, 2007 by $386. � (c) - Results for the thirteen
and fifty-two weeks ended December 29, 2007 reflect the favorable
tax adjustment as described above in note (b), which increased
basic and fully diluted earnings per share by $.05. TASTY BAKING
COMPANY AND SUBSIDIARIESCONSOLIDATED HIGHLIGHTS OF BALANCE
SHEET(Unaudited)(000's) � � � � 12/29/2007 (a) 12/30/2006 � Current
assets $ 30,984 $ 29,161 Property, plant, and equipment, net 74,090
65,384 Other assets � 19,447 � � 17,746 � Total assets $ 124,521 �
$ 112,291 � � � Current liabilities $ 16,954 $ 19,791 Long term
debt 26,700 18,385 Accrued pension and other liabilities 26,066
19,781 Postretirement benefits other than pensions 7,365 6,065
Shareholders' equity � 47,436 � � 48,269 � Total liabilities and
shareholders' equity $ 124,521 � $ 112,291 (a) - During the quarter
ended December 29, 2007, the Company recorded a favorable income
tax expense adjustment, related to fiscal 2006, which was not
material. This favorable adjustment increased current assets, other
assets, current liabilities and shareholders' equity by $16, $611,
$228 and $399, respectively. Reconciliation of GAAP and Non-GAAP
Financial Measures, as reported in the Tasty Baking Company
earnings release of February 28, 2008. � The table below reconciles
net income, presented in accordance with GAAP, to earnings before
net interest, income taxes, depreciation and amortization (EBITDA),
which is a non-GAAP financial measure. Adjusted EBITDA is defined
as EBITDA further adjusted to give effect to the non-recurring,
one-time gain in the fourth quarter 2006 due to the termination of
an option on the company's corporate offices and distribution
center. (in thousands)(unaudited) � � � � 13 Weeks Ended � 13 Weeks
Ended 52 Weeks Ended � 52 Weeks Ended 12/29/2007 (a) � 12/30/2006
12/29/2007 (a) � 12/30/2006 Net Income $ 99 $ 1,601 $ 2,128 $ 4,196
Add (Subtract): Net interest 274 97 485 617 Provision for income
taxes (263 ) 945 697 2,376 Depreciation 3,008 1,765 9,917 6,566
Amortization � 97 � � 146 � 478 � � 566 EBITDA $ 3,215 $ 4,554 $
13,705 $ 14,321 Deduct: Gain on termination of option � - � � 1,600
� - � � 1,600 Adjusted EBITDA $ 3,215 � $ 2,954 $ 13,705 � $ 12,721
(a) - Reflects the correction of the error described in footnote
(b) to the company's consolidated highlights of operating results.
The table below reconciles gross profit, presented in accordance
with GAAP, to gross profit excluding depreciation, which is a
non-GAAP financial measure. (in thousands)(unaudited) � � � � 13
Weeks Ended � 13 Weeks Ended 52 Weeks Ended � 52 Weeks Ended
12/29/2007 12/30/2006 12/29/2007 12/30/2006 � Net Sales $ 39,269 $
40,916 $ 169,918 $ 167,715 Subtract: Cost of Goods Sold 25,887
25,041 108,381 103,495 Depreciation � 3,008 � � 1,765 � � 9,917 � �
6,566 � Gross Profit $ 10,374 � $ 14,110 � $ 51,620 � $ 57,654 �
Gross margin including depreciation (% of net sales) 26.4% 34.5%
30.4% 34.4% � Add: Depreciation � 3,008 � � 1,765 � � 9,917 � �
6,566 � Gross Profit excluding depreciation $ 13,382 � $ 15,875 � $
61,537 � $ 64,220 � Gross margin excluding depreciation (% of net
sales) 34.1% 38.8% 36.2% 38.3%
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