-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JUyo66ElK3fi2CXfa/CSuTGkfsiRNy2yQVoVclAWlcD1RlUHuKwvdjwMg4B22AdK FW02AhpJhdomCh+9noy7NA== 0000098677-98-000012.txt : 19981110 0000098677-98-000012.hdr.sgml : 19981110 ACCESSION NUMBER: 0000098677-98-000012 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980926 FILED AS OF DATE: 19981109 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TOOTSIE ROLL INDUSTRIES INC CENTRAL INDEX KEY: 0000098677 STANDARD INDUSTRIAL CLASSIFICATION: SUGAR & CONFECTIONERY PRODUCTS [2060] IRS NUMBER: 221318955 STATE OF INCORPORATION: VA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-01361 FILM NUMBER: 98740634 BUSINESS ADDRESS: STREET 1: 7401 S CICERO AVE CITY: CHICAGO STATE: IL ZIP: 60629 BUSINESS PHONE: 3128383400 FORMER COMPANY: FORMER CONFORMED NAME: SWEETS CO OF AMERICA INC DATE OF NAME CHANGE: 19660921 10-Q 1 TOOTSIE ROLL INDUSTRIES, INC 10-Q ENDING 09/26/98 1 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 September 26, 1998 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 practicalbe date. Class Outstanding Common Stock, $.69 4/9 par value 32,507,845 Class B Common Stock, $.69 4/9 par value 15,465,575 PART I - FINANCIAL INFORMATION TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(UNAUDITED) ASSETS Sept 26, Sept 27, Dec. 31, CURRENT ASSETS 1998 1997 1997 Cash & Cash Equiv. $ 44,165,781 $ 74,478,364 $ 60,432,573 Marketable Securities 63,864,726 33,774,830 81,847,537 Accounts Receivable Less Allowances of $3,204,000,$3,090,000 & $2,085,000 67,740,215 64,360,955 23,319,189 Inventories at Cost (Last-in,First-out): Finished Goods & Work in Process 24,521,839 20,876,234 22,937,821 Raw Material & Supplies 15,393,247 14,430,165 13,721,292 Prepaid Expenses 5,594,447 4,394,035 2,910,043 Deferred Income Taxes 1,793,000 2,839,000 1,793,000 Total Current Assets 223,073,255 215,153,583 206,961,455 PROPERTY, PLANT & EQUIPMENT, (at cost) Land 6,895,294 6,898,131 6,895,124 Building 22,144,888 28,110,270 22,099,681 Machinery & Equipment 131,855,285 123,423,144 122,429,737 160,895,467 158,431,545 151,424,542 Less-Accumulated Depreciation and Amortization 79,839,907 78,188,442 73,060,644 81,055,560 80,243,103 78,363,898 OTHER ASSETS Intangibles 88,519,578 91,225,878 90,549,303 Investments 69,767,649 37,831,852 39,737,566 Other Assets 28,253,530 20,691,430 21,129,874 186,540,757 149,749,160 151,416,743 Total Assets $490,669,572 $445,145,846 $436,742,096
(UNAUDITED) LIABILITIES AND SHAREHOLDERS( EQUITY Sept 26, Sept 27, Dec. 31, CURRENT LIABILITIES 1998 1997 1997 Accounts Payable $ 13,173,546 $ 12,616,824 $ 11,623,404 Dividends Payable 2,517,301 1,938,591 1,930,339 Accrued Liabilities 37,016,405 35,930,926 32,793,347 Fed. & State Income Taxes 15,111,846 16,138,903 7,259,040 Total Current Liabilities 67,819,098 66,625,244 53,606,130 NON-CURRENT LIABILITIES Ind.Dev.Bonds 7,500,000 7,500,000 7,500,000 Post Retirement Benefits 6,148,636 5,876,858 5,904,593 Deferred Compensation 13,185,654 9,676,731 9,918,664 Deferred Income Taxes 8,195,314 9,487,123 8,650,156 Total Non-Current Liabilities 35,029,604 32,540,712 31,973,413 SHAREHOLDERS( EQUITY Common Stk., $.69-4/9 par value- 50,000,000 shares author. 32,507,845, 15,938,273 & 15,851,296 respectively, issued 22,574,682 11,068,106 11,007,706 Class B Common Stk $.69-4/9 par value- 20,000,000 shares author. 15,465,575, 7,559,528 & 7,546,505 respectively, issued 10,739,883 5,249,606 5,240,563 Capital in Excess of Par Value 214,328,970 192,980,615 187,259,058 Retained Earnings 151,981,777 147,325,412 159,123,991 Cumulative Translation Adjustment (11,072,368) (10,878,556) (11,468,765) Unrealized Gain on Marketable Securities 240,514 234,707 -- Treasury Shares at cost- 20,000, -0-, & -0- (972,588) -- -- Total Shareholders( Equity 387,820,870 345,979,890 351,162,553 Total Liabilities and Shareholders( Equity $490,669,572 $445,145,846 $436,742,096
TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS AND RETAINED EARNINGS (NOTE 1) (UNAUDITED) 13 Weeks Ended 39 Weeks Ended Sept. 26, 1998 & Sept. 27, 1997 Sept 26, 1998 & Sept. 27, 1997 1998 1997 1998 1997 Net Sales (Note 2) $144,230,201 $140,645,293 $299,861,881 $289,190,453 Cost of Goods Sold 70,979,589 70,899,622 144,512,542 144,739,664 Gross Margin 73,250,612 69,745,671 155,349,339 144,450,789 Operating Expenses: Marketing, Selling and Advertising 19,257,186 18,243,872 43,776,875 40,542,380 Distribution and Warehousing 7,531,064 7,449,166 18,421,447 18,486,956 General and Administrative 4,200,981 4,819,617 12,526,401 12,906,867 Goodwill Amortization 676,575 676,575 2,029,725 2,029,725 31,665,806 31,189,230 76,754,448 73,965,928 Earnings from Operations 41,584,806 38,556,441 78,594,891 70,484,861 Other Income (Expense), Net 1,129,684 749,651 3,577,550 3,839,387 Earnings before Income Taxes 42,714,490 39,306,092 82,172,441 74,324,248 Provision for Income Taxes 15,498,000 14,611,000 29,829,000 27,371,000 Net Earnings (Note 5) 27,216,490 24,695,092 52,343,441 46,953,248 Retained Earnings at beginning of period 127,281,538 124,568,911 159,123,991 136,352,123 154,498,028 149,264,003 211,467,432 183,305,371 Deduct: Cash Dividends 2,516,251 1,938,591 6,972,206 5,541,625 Stock Dividends - 3% -- -- 52,513,449 30,438,334 2,516,251 1,938,591 59,485,655 35,979,959 Retained Earnings at end of period $151,981,777 $147,325,412 $151,981,777 $147,325,412 Net Earnings per Share (Note 3) $ .57 $ .51 $1.09 $ .97 Dividends per Share * $ .0525 $ .0425 $ .14625 $ .11875 Average Number of Shares Outstanding (Notes 3 & 4) 48,056,095 48,262,320 48,104,750 48,332,520 *Does not include 3% Stock Dividend to Shareholders of Record on 3/10/98 and 3/11/97, but has been restated for the 2-for-1 Stock Split to Shareholders of Record 6/22/98.
TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) 39 Weeks Ended September 26, 1998 & September 27, 1997 1998 1997 CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings $52,343,441 $46,953,248 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 8,823,102 8,764,738 (Increase) decrease in assets: Accounts receivable (44,426,619) (43,089,094) Inventories (3,264,804) (4,915,195) Prepaid expenses and other assets (26,944,117) (11,468,168) Increase in liabilities: Accounts payable and accrued liabilities 7,736,449 11,724,651 Income taxes payable and deferred 7,396,319 6,644,794 Other long term liabilities 3,266,990 1,689,949 Other 238,292 270,453 Net cash provided by operating activities 5,169,053 16,575,376 CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (11,432,761) (5,124,650) Purchase of held to maturity securities (162,095,418) (38,722,325) Maturity of held to maturity securities 168,437,355 68,358,591 Purchase of available for sale securities (163,024,238) (8,464,025) Sale and maturity of available for sale securities 162,414,290 10,171,246 Net cash (used in) provided by investing activities (5,700,772) 26,218,837 CASH FLOWS FROM FINANCING ACTIVITIES: Issuance of notes payable 7,000,000 -- Repayment of notes payable (7,000,000) -- Purchase of treasury stock (972,588) -- Shares repurchased and retired (8,128,477) (8,609,811) Dividends paid in cash (6,634,008) (5,364,837) Net cash used in financing activities (15,735,073) (13,974,648) (Decrease) increase in cash and cash equivalents (16,266,792) 28,819,565 Cash and cash equivalents-beginning of year 60,432,573 45,658,799 Cash and cash equivalents end of quarter $44,165,781 $74,478,364 Supplemental cash flow information: Income taxes paid $22,672,000 $20,676,000 Interest paid $ 348,000 $ 361,000
TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 26, 1998 (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. Note 2 - The Company's unshipped orders at September 26, 1998 amounted to $33,100,000. Note 3 - Based on Average Shares outstanding adjusted for Stock Dividends. Note 4 - Includes 3% stock dividends distributed on April 22, 1998 and April 22, 1997 and the 2-for-1 stock split distributed on July 13, 1998. Note 5 - Results of operations for the period ended September 26, 1998 are not necessarily indicative of results to be expected for the year to end December 31, 1998 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 - New Accounting Pronouncement Effective January 1, 1998, Tootsie Roll adopted Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income." This Statement requires that all items recognized under accounting standards as components of comprehensive earnings be reported in an annual financial statement that is displayed with the same prominence as other annual financial statements. Such components may include foreign currency translation adjustments and unrealized gains and losses on marketable securities classified as available for sale. Annual financial statements for prior periods will be reclassified as required. The Company(s total comprehensive income was as follows: (in thousands) 13 Weeks Ended Sept 26, 1998 Sept 27, 1997 Net earnings $27,216 $24,695 Other comprehensive (loss)gain (269) 447 Total comprehensive earnings $26,947 $25,142 (in thousands) 39 Weeks Ended Sept 26, 1998 Sept 26, 1997 Net earnings $52,343 $46,953 Other comprehensive gain 637 391 Total comprehensive earnings $52,980 $47,344 MANAGEMENT'S DISCUSSION AND ANALYSIS 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: NET SALES: Third Quarter, 1998 Third Quarter vs. 1998 1997 Third Quarter, 1997 $144,230,201 $140,645,293 2.5% Nine Months, 1998 Nine Months vs. 1998 1997 Nine Months, 1997 $299,861,881 $289,190,453 +3.7% Third Quarter 1998 net sales of $144,230,000, were up 2.5% from Third Quarter 1997 net sales of $140,645,000. Nine Months 1998 net sales of $299,862,000 were up 3.7% from Nine Months 1997 net sales of $289,190,000. Third Quarter 1998 net sales of $144,230,000 were up 67.8% from Second Quarter 1998 net sales of $85,931,000. Historically, the Third Quarter includes pre-Halloween sales and is the company's largest quarterly sales period of the year. Record sales for the Third Quarter and Nine Months 1998 are the result of successful marketing and promotional programs, including pre-Halloween sales programs, as well as new products and product line extensions. These record sales principally reflect sales gains of the Company's core brands and are primarily the result of increased sales volume. COST OF SALES: Cost of Sales as a Third Quarter Percentage of Net Sales 1998 1997 3rd Qtr. 1998 3rd Qtr. 1997 $70,979,589 $70,899,622 49.2% 50.4% Cost of Sales as a Nine Months Percentage of Net Sales 1998 1997 9 Months 1998 9 Months 1997 $144,512,542 $144,739,664 48.2% 50.0% Cost of sales as a percentage of net sales favorably decreased from 50.4% for the Third Quarter of 1997 to 49.2% in the Third Quarter of 1998. Nine Months cost of sales also favorably decreased from 50.0% in 1997 to 48.2% for the same period in 1998. This improvement reflects lower costs of certain ingredients and packaging materials as well as various manufacturing productivity improvements. MANAGEMENT'S DISCUSSION AND ANALYSIS FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) NET EARNINGS: Third Quarter, 1998 Third Quarter vs. 1998 1997 Third Quarter, 1997 $27,216,490 $24,695,092 10.2% Nine Months, 1998 Nine Months vs. 1998 1997 Nine Months, 1997 $52,343,441 $46,953,248 11.5% Third Quarter 1998 net earnings were $27,216,000 compared to $24,695,000 in the Third Quarter of 1997. Third Quarter earnings per share of $.57 were up $.06 or 11.8% over Third Quarter 1997 earnings per share of $.51. Nine Months 1998 net earnings were $52,343,000 compared to the prior year's Nine Months net earnings of $46,953,000. Nine Months 1998 earnings per share of $1.09 were up $.12 or 12.4% over Nine Months 1997 earnings per share of $.97. Third Quarter 1998 net earnings of $27,216,000 increased $13,306,000 or 95.7% from Second Quarter of 1998 net earnings of $13,910,000. The increase in net earnings for the Third Quarter and Nine Months of 1998 reflects higher sales, improved gross profit margins and effective ongoing cost control programs which resulted in higher income from operations. Third Quarter 1998 income from operations was $41,585,000 an increase of 8% from Third Quarter 1997 income from operations of $38,556,000. Income from operations for the Nine Months 1998 increased 12% to $78,595,000 from $70,485,000 in the Nine Months of 1997. Other income in the Third Quarter and Nine Months was adversely affected by $597,000 and $1,812,000, respectively, of foreign exchange and translation losses in Mexico; based on the accounting rules that classify Mexico as hyper-inflationary, these translation losses were charged to expense in the current period. Increased investment income in 1998 partially mitigated these losses. The consolidated effective income tax rate decreased from 36.8% in the Nine Months of 1997 to 36.3% in the Nine Months of 1998. This favorable decrease principally reflects increased tax-free investment income. NEW ACCOUNTING PRONOUNCEMENTS: In June 1998, the FASB issued Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities", which is effective for all fiscal quarters beginning after June 15, 1999. Under existing practice, there exist a variety of bases on which derivatives are reported on the balance sheet. SFAS 133 establishes a new model which supersedes and amends a number of existing standards. This Statement requires that all derivatives be recorded in the balance sheet as either assets or liabilities and be measured at fair value. The accounting for changes in fair value of a derivative depends on the intended use of the derivative and the resulting designation. The Company's use of derivatives relate principally to hedging activities in order to fix the future price of certain ingredients. Management is in the process of evaluating this standard and has not yet determined the future impact on the consolidated financial statements upon adoption. YEAR 2000 COMPUTER ISSUE The Year 2000 computer issue (often referred to as "Y2K") is the result of date-sensitive computer programs and technologies that were deployed using two digits rather than four digits to define the applicable year. Beginning in 2000, computer system failures could result if such systems recognize "00" as the year 1900 instead of the year 2000. The Company has substantially completed its year 2000 assessment of all of its systems which includes business software applications, computer operating systems and data bases, electronic data interchange (EDI), networks, manufacturing controllers and facility management systems. The Company is in the process of communicating with its key customers, suppliers and outside organizations, such as banks and sales brokers, in order to assess their Year 2000 readiness. All of the Company's Year 2000 compliance efforts, except system testing, should be substantially complete by December 31, 1998. System testing is scheduled to be completed in the first quarter of 1999. Most of the Company's mission critical business applications are already Year 2000 compliant because they are Oracle-based software applications that operate within the Oracle database. These systems utilize modern technologies where year 2000 dates are not problematic. However, the Company determined in 1997 that its Mexican operation's computer systems were not Year 2000 compliant, and initiated a Year 2000 remediation project which is expected to be substantially complete by December 31, 1998. Based on the progress to date as well as the Company's ongoing assessment of this matter, no contingency plans are expected to be needed, and therefore, none have been developed. However, the Company continues to monitor its Year 2000 progress in Mexico and with respect to customers, venders, and third-parties; if necessary, the Company will prepare a contingency plan to mitigate these risks. The cost associated with Year 2000 compliance is not incremental to the Company, but principally represents a reallocation of existing resources. The remediation and testing effort is being accomplished with existing staff. The incremental cost is not expected to exceed $100,000. The Company's assessment of Year 2000 compliance issues is a forward looking statement subject to risk and uncertainties. If the Company's assessment of its systems is in error, remediation work is not completed timely and properly, or key suppliers or other third parties are not Year 2000 compliant, then resulting problems could have a material adverse effect on the Company's operations. However, Company management believes that material adverse consequences are unlikely based on its assessment of the Company's systems and progress to date on its Year 2000 plan. PART II - OTHER INFORMATION TOOTSIE ROLL INDUSTRIES, INC AND SUBSIDIARIES Item 2. Sales of unregistered Securities - None. Item 4. Submission of matters to a vote of security holders - None. Item 6. Form 8-K was not required to be filed during the Third Quarter of 1998. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. TOOTSIE ROLL INDUSTRIES, INC. Date: November 9, 1998 BY: Melvin J. Gordon Chairman of the Board BY: G. Howard Ember Vice President - Finance EX-27 2 ARTICLE 5 FIN. DATA SCHEDULE FOR 3RD QTR 10-Q
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED STATEMENTS OF FINANCIAL POSITION AND CONSOLIDATED STATEMENTS OF EARNINGS AND RETAINED EARNINGS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 Dec-31-1998 Jan-01-1998 Sep-26-1998 9-MOS 44,166 63,865 70,944 3,204 39,915 223,073 160,895 79,840 490,670 67,819 7,500 0 0 33,315 354,507 490,670 299,862 299,862 144,513 76,754 3,874 254 296 82,172 29,829 52,343 0 0 0 52,343 1.09 1.09
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