10-Q 1 0001.txt TOOTSIE ROLL INDUSTRIES, INC 10-Q ENDING 07/01/00 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10 - Q QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For Quarter Ended July 1, 2000 Commission File Number 1 - 1361 TOOTSIE ROLL INDUSTRIES, INC. (Exact name of registrant as specified in its charter) VIRGINIA 22 - 1318955 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 7401 South Cicero Avenue Chicago, Illinois 60629 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (773) 838 - 3400 None Former name, former address and former fiscal year, if changed since last report. Indicate by check mark whether the registrant (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 registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding Common Stock, $.69 4/9 par value 33,432,980 Class B Common Stock, $.69 4/9 par value 16,099,209 PART I - FINANCIAL INFORMATION TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (UNAUDITED) ASSETS July 1, July 3, Dec. 31, CURRENT ASSETS 2000 1999 1999 Cash & Cash Equiv. $ 20,593,808 $ 64,416,400 $ 88,503,731 Investments 69,497,283 62,101,985 71,002,420 Trade Accounts Receivable, Less Allowances of $2,360,000, $2,110,000 & $2,032,000 23,688,324 15,400,062 19,031,958 Other Receivables 2,956,497 5,885,236 5,716,150 Inventories, at Cost (Last-in,First-out): Finished Goods & Work in Process 50,200,214 42,067,331 20,688,894 Raw Material & Supplies 19,919,144 18,695,793 14,395,996 Prepaid Expenses 5,443,076 5,567,276 3,123,428 Deferred Income Taxes 2,069,000 2,584,000 2,069,000 Total Current Assets 194,367,346 216,718,083 224,531,577 PROPERTY, PLANT & EQUIPMENT, (at cost) Land 8,320,053 7,774,820 7,981,419 Buildings 32,558,297 22,246,583 30,329,791 Machinery & Equipment 180,225,620 144,524,357 145,789,056 221,103,970 174,545,760 184,100,266 Less-Accumulated Depreciation 93,007,575 84,692,076 88,202,899 128,096,395 89,853,684 95,897,367 OTHER ASSETS Intangible Assets, net of accumulated amortization of $25,106,000, $22,144,000 & $23,497,000 123,102,626 86,489,854 85,136,703 Investments 72,283,495 76,146,068 87,166,551 Cash Surrender Value of Life Insurance and Other Assets 40,153,550 32,266,776 36,683,965 235,539,671 194,902,698 208,987,219 Total Assets $558,003,412 $501,474,465 $529,416,163 (The accompanying notes are an integral part of these statements)
(UNAUDITED) LIABILITIES AND SHAREHOLDERS( EQUITY July 1, July 3, Dec. 31, CURRENT LIABILITIES 2000 1999 1999 Notes Payable to Banks $ 16,075,000 $ -- $ -- Accounts Payable 13,824,753 13,026,031 12,845,180 Dividends Payable 3,467,253 3,070,307 3,035,496 Accrued Liabilities 32,521,967 28,478,519 31,944,769 Income Taxes Payable 10,610,010 10,108,155 8,283,501 Total Current Liabilities 76,498,983 54,683,012 56,108,946 NON-CURRENT LIABILITIES Industrial Development Bonds 7,500,000 7,500,000 7,500,000 Post Retirement Benefits 6,726,792 6,327,717 6,556,860 Deferred Compensation and Other Liabilities 19,986,590 16,716,917 19,084,505 Deferred Income Taxes 9,415,150 8,516,992 9,519,818 Total Non-Current Liabilities 43,628,532 39,061,626 42,661,183 SHAREHOLDERS( EQUITY Common Stock, $.69-4/9 par value- 120,000,000 shares authorized 33,432,980, 33,241,555 & 32,853,761 respectively, issued 23,217,144 23,084,205 22,814,906 Class B Common Stock, $.69-4/9 par value- 40,000,000 shares authorized 16,099,209, 15,808,093 & 15,706,907 respectively, issued 11,179,908 10,977,743 10,907,476 Capital in Excess of Par Value 275,362,049 264,695,118 249,236,182 Retained Earnings 139,981,837 120,459,556 158,619,140 Accumulated Other Comprehensive Earnings (9,873,638) (9,495,392) (8,940,267) Treasury Stock (at cost)- 51,500, 51,500 & 51,500, shares respectively (1,991,403) (1,991,403) (1,991,403) Total Shareholders( Equity 437,875,897 407,729,827 430,646,034 Total Liabilities and Shareholders( Equity $558,003,412 $501,474,465 $529,416,163 (The accompanying notes are an integral part of these statements)
TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS, COMPREHENSIVE EARNINGS AND RETAINED EARNINGS (NOTE 1) (UNAUDITED) 13 Weeks Ended 26 Weeks Ended July 1, 2000 & July 3, 1999 July 1, 2000 & July 3,1999 NET SALES (Note 2) $ 90,376,428 $ 88,265,054 $168,391,237 $162,464,568 Cost of goods sold 42,167,153 42,363,471 79,115,158 77,747,726 Gross Margin 48,209,275 45,901,583 89,276,079 84,716,842 Selling, Marketing and Administrative Expense 24,707,493 23,853,618 46,916,912 44,509,021 Amortization of Intangible Assets 876,537 676,575 1,608,621 1,353,150 Earnings from Operations 22,625,245 21,371,390 40,750,546 38,854,671 Other Income, Net 1,797,354 1,785,404 4,050,172 3,650,891 Earnings before Income Taxes 24,422,599 23,156,794 44,800,718 42,505,562 Provision for Income Taxes 8,771,000 8,406,000 16,086,000 15,430,000 Net Earnings (Note 5) $ 15,651,599 $ 14,750,794 $ 28,714,718 $ 27,075,562 Net Earnings $ 15,651,599 $ 14,750,794 $ 28,714,718 $ 27,075,562 Other Comprehensive Earnings, Net of Tax (1,649,779) 251,254 (933,371) 1,027,374 Comprehensive Earnings $ 14,001,820 $ 15,002,048 $ 27,781,347 $ 28,102,936 Retained Earnings at Beginning of Period $127,793,886 $108,775,945 $158,619,140 $164,652,120 Net Earnings 15,651,599 14,750,794 28,714,718 27,075,562 Cash Dividends (3,463,648) (3,067,183) (6,468,866) (5,578,594) Stock Dividends - 3% -- -- (40,883,155) (65,689,532) Retained Earnings at End of Period $139,981,837 $120,459,556 $139,981,837 $120,459,556 Net Earnings per Share (Note 3) $ .32 $ .29 $ .58 $ .53 Dividends per Share * $ .07 $ .0625 $ .1325 $ .115 Average Number of Shares Outstanding (Notes 3 & 4) 49,480,689 50,610,594 49,623,675 50,650,976 *Does not include 3% Stock Dividend to Shareholders of Record on 3/07/00 and 3/09/99. (The accompanying notes are an integral part of the statements)
TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) 26 Weeks Ended July 1, 2000 & July 3, 1999 CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings $28,714,718 $27,075,562 Adjustments to reconcile net earnings to net cash provided by (used in) operating activities: Depreciation and amortization 6,313,296 5,358,053 (Increase) decrease in assets excluding effects from acquisitions: Accounts receivable (4,758,065) 3,812,043 Other receivables 2,759,653 (2,561,091) Inventories (29,222,095) (23,938,035) Prepaid expenses and other assets (6,952,058) (5,547,302) Increase (decrease) in liabilities excluding effects from acquisitions: Accounts payable and accrued liabilities 999,229 (2,304,943) Income taxes payable and deferred 2,182,023 2,556,483 Postretirement health care and life insurance benefits 169,932 182,774 Deferred compensation and other liabilities 902,085 1,794,020 Other (278,870) 282,509 Net cash provided by operating activities 829,848 6,710,073 CASH FLOWS FROM INVESTING ACTIVITIES: Business acquisitions acquired, net of cash and cash equivalents (74,293,419) -- Capital expenditures (7,609,113) (10,955,007) Purchase of held to maturity securities (97,991,933) (104,311,000) Maturity of held to maturity securities 109,931,588 110,330,442 Purchase of available for sale securities (46,837,375) (79,297,278) Sale and maturity of available for sale securities 52,105,208 77,468,984 Net cash used in investing activities (64,695,044) (6,763,859) CASH FLOWS FROM FINANCING ACTIVITIES: Issuance of notes payable 38,775,000 -- Repayment of notes payable (22,700,000) -- Purchase of treasury stock -- (1,018,815) Shares repurchased and retired (13,940,329) (10,051,416) Dividends paid in cash (6,179,398) (5,203,174) Net cash used in financing activities (4,044,727) (16,273,405) Decrease in cash and cash equivalents (67,909,923) (16,327,191) Cash and cash equivalents-beginning of year 88,503,731 80,743,591 Cash and cash equivalents-end of quarter $20,593,808 $64,416,400 Supplemental cash flow information: Income taxes paid $13,806,000 $12,688,000 Interest paid $ 429,000 $ 385,000 (The accompanying notes are an integral part of the statements)
TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JULY 1, 2000 (UNAUDITED) Note 1 - Foregoing data has been prepared from the unaudited financial records of the Company and in the opinion of Management all adjustments necessary for a fair statement of the results for the interim period have been reflected. All adjustments were of a normal and recurring nature. These consolidated financial statements should be read in conjunction with the financial statements and the related notes included in the Company's 1999 Annual Report on Form 10-K. Note 2 - The Company's unshipped orders at July 1, 2000 amounted to $52,955,000. Note 3 - Based on Average Shares outstanding adjusted for Stock Dividends. Note 4 - Includes 3% stock dividends distributed on April 19, 2000 and April 21, 1999. Note 5 - Results of operations for the period ended July 1, 2000 are not necessarily indicative of results to be expected for the year to end December 31, 2000 because of the seasonal nature of the Company's operations. Historically, the Third Quarter has been the Company's largest Sales Quarter due to Halloween Sales. Note 6 - On May 12, 2000, the Company acquired the assets of Andes Candies, Inc. from Brach & Brock Confections, Inc. In February 2000, the Company acquired the assets of a small confectionery company. The cost of these acquisitions was $74.3 million in cash, which was funded through existing cash, and the issuance of $38.8 million of floating rate short term notes drawn on Company lines of credit due on 6/30/01. The Company repaid $22.7 million of the notes payable prior to the end of the quarter. The notes payable are expected to be repaid no later than December 31, 2000. The acquisition cost has been allocated to the assets acquired and liabilities assumed based on their respective appraised values as follows (in millions): Current assets $ 6.4 Property, plant and equipment 29.4 Intangible assets - primarily trademarks 39.5 Liabilities 1.0 Total purchase price $74.3 Intangible assets are being amortized over periods ranging from 15 to 40 years on a straight-line basis. The acquitions were accounted for by the purchase method. Accordingly, the operating results of the acquired businesses have been included in the consolidated financial statements since the date of acquisition. The operating results of the acquired businesses did not have a material effect on the consolidated statement of earnings, comprehensive earnings and retained earnings for the second quarter or first half of 2000. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following is Management's discussion of the Company's operating results and analysis of factors which have affected the accompanying Statement of Earnings. This discussion, the information contained in the preceding notes to the financial statements and the information contained in "Quantitative and Qualitative Disclosures About Market Risk," contain certain forward-looking statements that are based largely on the Company's current expectations. Forward-looking statements are subject to certain risks, trends and uncertainties that could cause actual results and achievements to differ materially from those expressed in the forward-looking statements. Such risks, trends and uncertainties, which in some instances are beyond the Company's control, include changes in demand; raw material prices; competition; the effect of acquisitions on the Company's results of operations and financial condition; and the Company's reliance on third-party vendors for various services. The words "believe," "expect," "anticipate," "estimate," "intend," and similar expressions generally identify forward-looking statements. Readers are cautioned not to place undue reliance on such forward-looking statements, which are as of the date of this filing. NET SALES: Second Quarter, 2000 Second Quarter vs. 2000 1999 Second Quarter, 1999 $90,376,428 $88,265,054 +2.4% First Half, 2000 First Half vs. 2000 1999 First Half, 1999 $168,391,237 $162,464,568 +3.6% Second Quarter 2000 net sales of $90,376,000, a record, were up 2.4% from the Second Quarter 1999 net sales of $88,265,000. First Half 2000 net sales of $168,391,000 were up 3.6% from First Half 1999 net sales of $162,465,000. Second Quarter 2000 net sales of $90,376,000 were up 15.8% from First Quarter 2000 net sales of $78,015,000. This is not considered unusual as the First Quarter of the year is historically the Company's lowest sales quarter. Record sales for the Second Quarter and First Half of 2000 are the result of successful marketing and promotional programs, new products from the two businesses acquired in 2000 and product line extensions. The products from the acquired businesses are marketed under the brands of Andes Candies and Fluffy Stuff. These record sales are primarily the result of increased sales volume. COST OF SALES: Cost of Sales as a Second Quarter Percentage of Net Sales 2000 1999 2nd Qtr. 2000 2nd Qtr. 1999 $42,167,153 $42,363,471 46.7% 48.0% Cost of Sales as a First Half Percentage of Net Sales 2000 1999 1st Half 2000 1st Half 1999 $79,115,158 $77,747,726 47.0% 47.9% Cost of sales as a percentage of net sales favorably decreased from 48.0% in the Second Quarter 1999 to 46.7% in the Second Quarter 2000. First Half cost of sales also decreased from 47.9% in 1999 to 47.0% in 2000. NET EARNINGS: Second Quarter, 2000 Second Quarter vs. 2000 1999 Second Quarter, 1999 $15,651,599 $14,750,794 6.1% First Half, 2000 First Half vs 2000 1999 First Half, 1999 $28,714,718 $27,075,562 6.1% Second Quarter 2000 net earnings were $15,652,000, a record, compared to $14,751,000 in the Second Quarter 1999. Second Quarter 2000 earnings per share of $.32 were up 10.3% over Second Quarter 1999 earning per share of $.29. First Half 2000 net earnings were $28,715,000 compared to prior year's First Half 1999 net earnings of $27,076,000. First Half 2000 earnings per share of $.58 were up 9.4% over First Half 1999 earnings per share of $.53. Second Quarter 2000 net earnings of $15,652,000 increased $2,589,000 or 19.8% from First Quarter 2000 net earnings of $13,063,000. The increase in net earnings for the Second Quarter and First Half of 2000 reflects higher sales, improved gross profit margins and ongoing cost control programs. Other income in the Second Quarter and First Half benefited from increased investment income and capital gains. The consolidated effective income tax rate favorably decreased from 36.3% in the First Half of 1999 to 35.9% in the First Half of 2000. This improvement generally reflects increased tax-free investment income. LIQUIDITY AND CAPITAL RESOURCES: The Company's current ratio (current assets divided by current liabilities) is in excess of 2.5 to 1 as of the end of the Second Quarter 2000 as compared to 4.0 to 1 as of the Second Quarter 1999 and 4.0 to 1 as of the Fourth Quarter 1999. Net working Capital was $117,868,000 as of the end of the Second Quarter 2000 as compared to $162,035,000 as of the Second Quarter 1999 and $168,423,000 at the end of the Fourth Quarter 1999 reflecting the acquisition of Andes Candies, Inc. Capital expenditures for 2000 are anticipated to be generally in line with historical spending and are to be funded from the Company's cash flow from operations and internal sources. In the first half of 2000, the Company repurchased 467,000 shares of its common stock for $13.9 million. On May 12, 2000, the Company acquired the assets of Andes Candies, Inc. from Brach & Brock Confections, Inc. In February 2000, the Company acquired the assets of a small confectionery company. The cost of these acquisitions was $74.3 million in cash, which was funded through existing cash, and the issuance of $38.8 million of floating rate short term notes drawn on Company lines of credit due on 6/30/01. The Company repaid $22.7 million of the notes payable prior to the end of the quarter. The notes payable are expected to be repaid no later than December 31, 2000. Debt securities that matured during the quarters ended July 1, 2000 and July 3, 1999 were replaced with debt securities of similar maturities, or used to fund the businesses aquired as discussed above. QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET RISK: The Company is exposed to various market risks, including fluctuations in sugar, corn, edible oils, cocoa and packaging costs. The Company also invests in securities with maturities of up to three years, the majority of which are held to maturity, which limits the Company's exposure to interest rate fluctuations. There has been no material change in the Company's market risks that would significantly affect the disclosures made in the Form 10-K for the year ended December 31, 1999. PART II - OTHER INFORMATION TOOTSIE ROLL INDUSTRIES, INC AND SUBSIDIARIES Item 4. Submission of Matters to a Vote of Security-Holders At the Annual Meeting of Shareholders of the Company, held on May 1, 2000, the following number of votes were cast for the matters indicated: 1. For the election of four Directors of the Company by the holders of Common Shares and Class B Common Shares voting together: Broker Nominee For Withheld Abstain Non-vote Melvin J. Gordon 182,365,464 234,086 -0- -0- Ellen R. Gordon 182,373,789 225,761 -0- -0- Lana Jane Lewis-Brent 182,437,033 162,517 -0- -0- Charles W. Siebert 182,402,876 196,674 -0- -0- 2. Proposal to ratify the appointment of PricewaterhouseCoopers LLP as auditors for the fiscal year 2000: Broker For Withheld Abstain Non-vote Common Shares and Class B Common Shares voting together 180,370,234 2,155,049 74,267 -0- No other matters were submitted to a vote by ballot at the 2000 Annual Meeting. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits. None (b) Reports on Form 8-K. The Company filed two reports on Form 8-K during the quarter for which this report is filed. The Company filed a Form 8-K Current Report dated April 21, 2000, which reported under item 5 that the Company had entered into an agreement to acquire the assets of Andes Candies, Inc. No financial statements were filed as part of the report. The Company filed a Form 8-K Current Report dated May 18, 2000, which reported under item 5 that the Company had completed the acquisition of Andes Candies, Inc. No financial statements were filed as part of the report. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly causedthis report to be signed on its behalf by the undersigned thereunto duly authorized. TOOTSIE ROLL INDUSTRIES, INC. Date: August 11,2000 BY: Melvin J. Gordon Chairman of the Board BY: G. Howard Ember Vice President - Finance