<PAGE> 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 June 27, 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 practicable date.
Class Outstanding
Common Stock, $.69 4/9 par value 32,610,182
Class B Common Stock, $.69 4/9 par value 15,496,638
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<TABLE>
PART I - FINANCIAL INFORMATION
TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
<CAPTION>
(UNAUDITED)
ASSETS June 27, June 28, Dec. 31,
CURRENT ASSETS 1998 1997 1997
<S> <C> <C> <C>
Cash & Cash Equiv. $ 42,422,848 $ 41,979,248 $ 60,432,573
Marketable Securities 83,068,342 38,954,587 81,847,537
Accounts Receivable
Less Allowances of
$2,242,000,$2,146,000 & $2,085,000 24,104,647 19,759,642 23,319,189
Inventories at Cost
(Last-in,First-out):
Finished Goods & Work in Process 44,760,913 40,224,993 22,937,821
Raw Material & Supplies 18,844,947 13,785,906 13,721,292
Prepaid Expenses 5,891,727 4,450,370 2,910,043
Deferred Income Taxes 1,793,000 2,839,000 1,793,000
Total Current Assets 220,886,424 161,993,746 206,961,455
PROPERTY, PLANT & EQUIPMENT,
(at cost)
Land 6,895,294 6,894,139 6,895,124
Building 22,144,888 28,393,242 22,099,681
Machinery & Equipment 129,510,930 121,778,739 122,429,737
158,551,112 157,066,120 151,424,542
Less-Accumulated Depreciation
and Amortization 77,607,078 75,839,385 73,060,644
80,944,034 81,226,735 78,363,898
OTHER ASSETS
Intangibles 89,196,153 91,902,453 90,549,303
Investments 46,556,761 53,661,021 39,737,566
Other Assets 24,491,287 16,826,535 21,129,874
160,244,201 162,390,009 151,416,743
Total Assets $462,074,659 $405,610,490 $436,742,096
</TABLE>
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<TABLE>
<CAPTION>
(UNAUDITED)
LIABILITIES AND SHAREHOLDERS( EQUITY June 27, June 28, Dec. 31,
CURRENT LIABILITIES 1998 1997 1997
<S> <C> <C> <C.
Notes Payable to Banks $ 7,000,000 $ -- $ --
Accounts Payable 10,049,803 10,393,202 11,623,404
Dividends Payable 2,525,616 1,940,654 1,930,339
Accrued Liabilities 31,338,177 28,666,646 32,793,347
Fed. & State Income Taxes 6,932,280 9,462,415 7,259,040
Total Current Liabilities 57,845,876 50,462,917 53,606,130
NON-CURRENT LIABILITIES
Ind.Dev.Bonds 7,500,000 7,500,000 7,500,000
Post Retirement Benefits 6,068,347 5,789,881 5,904,593
Deferred Compensation 13,089 880 8,777,168 9,918,664
Deferred Income Taxes 8,274,497 9,078,530 8,650,156
Total Non-Current Liabilities 34,932,724 31,145,579 31,973,413
SHAREHOLDERS( EQUITY
Common Stk., $.69-4/9 par value-
50,000,000 shares author.
32,610,182, 15,948,909 & 15,851,296
respectively, issued 22,645,749 11,075,492 11,007,706
Class B Common Stk $.69-4/9 par value-
20,000,000 shares author.
15,496,638, 7,573,892 & 7,546,505
respectively, issued 10,761,454 5,259,581 5,240,563
Capital in Excess of Par Value 219,169,952 194,189,254 187,259,058
Retained Earnings 127,281,538 124,568,911 159,123,991
Accumulated other comprehensive income (10,562,364) (11,091,244) (11,468,765)
Total Shareholders( Equity 369,296,059 324,001,994 351,162,553
Total Liabilities and
Shareholders( Equity $462,074,659 $405,610,490 $436,742,096
</TABLE>
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<TABLE>
TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
EARNINGS AND RETAINED EARNINGS (NOTE 1)
(UNAUDITED)
13 Weeks Ended 26 Weeks Ended
June 27, 1998 & June 28, 1997 June 27, 1998 & June 28,1997
<S> <C> 1998 <C> 1997 <C> 1998 <C> 1997
NET SALES (Note 2) $ 85,930,837 $ 82,287,560 $155,631,680 $148,545,160
Cost of goods sold 40,798,091 40,905,105 73,532,953 73,840,042
Gross Margin 45,132,746 41,382,455 82,098,727 74,705,118
Operating Expenses:
Marketing, Selling and Advertising 13,662,796 12,404,317 24,519,689 22,298,508
Distribution and Warehousing 6,018,968 5,877,557 10,890,383 11,037,790
General and Administrative 4,272,077 4,221,345 8,325,420 8,087,250
Goodwill amortization 676,575 676,575 1,353,150 1,353,150
24,630,416 23,179,794 45,088,642 42,776,698
Earnings from Operations 20,502,330 18,202,661 37,010,085 31,928,420
Other Income (Expense) Net 1,285,104 1,431,698 2,447,866 3,089,736
Earnings before Income Taxes 21,787,434 19,634,359 39,457,951 35,018,156
Provision for Income Taxes 7,877,000 7,127,000 14,331,000 12,760,000
Net Earnings (Note 5) 13,910,434 12,507,359 25,126,951 22,258,156
Retained Earnings at beginning of period 115,896,720 114,002,206 159,123,991 136,352,123
129,807,154 126,509,565 184,250,942 158,610,279
Deduct:
Cash Dividends 2,525,616 1,940,654 4,455,955 3,603,034
Stock Dividends - 3% -- -- 52,513,449 30,438,334
2,525,616 1,940,654 56,969,404 34,041,368
Retained Earnings at end of period $127,281,538 $124,568,911 $127,281,538 $124,568,911
Net Earnings per Share (Note 3) $ .29 $ .26 $ .52 $ .46
Dividends Per Share * $ .0525 $ .04125 $ .09375 $ .0775
Average Number of Shares Outstanding
(Notes 3 & 4) 48,120,120 48,343,820 48,132,849 48,364,391
*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.
</TABLE>
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<TABLE>
TOOTSIE ROLL INDUSTRIES, INC.AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
26 Weeks Ended
June 27, 1998 & June 28, 1997
<S> <C> 1998 <C> 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Earnings $25,126,951 $22,258,156
Adjustments to reconcile net earnings to
net cash (used in) provided by operating activities:
Depreciation and amortization 5,899,590 5,701,084
(Increase) decrease in assets:
Accounts receivable (787,182) 1,436,930
Inventories (26,951,052) (23,734,113)
Prepaid expenses and other assets (6,660,362) (6,125,462)
Increase (decrease) in liabilities:
Accounts payable and accrued liabilities (1,066,339) 2,265,280
Income taxes payable and deferred (703,406) (445,112)
Other long term liabilities 3,171,216 944,182
Other 160,821 (17,008)
Net cash (used in) provided by
operating activities (1,809,763) 2,283,937
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (9,088,412) (3,759,225)
Purchase of held to maturity securities (73,647,614) (19,192,819)
Maturity of held to maturity securities 66,944,226 27,362,195
Purchase of available for sale securities (74,978,240) (6,000,000)
Sale and maturity of available for
sale securities 74,874,377 6,434,354
Net cash (used in) provided by
investing activities (15,895,663) 4,844,505
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of notes payable 7,000,000 --
Shares repurchased and retired (3,194,858) (7,383,811)
Dividends paid in cash (4,109,441) (3,424,182)
Net cash used in financing activities (304,299) (10,807,993)
Decrease in cash and cash equivalents (18,009,725) (3,679,551)
Cash and cash equivalents-beginning of year 60,432,573 45,658,799
Cash and cash equivalents-end of quarter $42,422,848 $41,979,248
Supplemental cash flow information:
Income taxes paid $15,253,000 $13,117,000
Interest paid $ 272,000 $ 284,000
</TABLE>
<PAGE 6>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
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:
Second Quarter, 1998
Second Quarter vs.
1998 1997 Second Quarter, 1997
$85,930,837 $82,287,560 +4.4
First Half, 1998
First Half vs.
1998 1997 First Half, 1997
$155,631,680 $148,545,160 +4.8%
Second Quarter 1998 net sales of $85,931,000, a record, were up 4.4% from
the Second Quarter 1997 net sales of $82,288,000.
First Half 1998 net sales of $155,632,000 were up 4.8% from First Half 1997
net sales of $148,545,000.
Second Quarter 1998 net sales of $85,931,000 were up 23.3% from First Quarter
1998 net sales of $69,701,000. 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 1998 are the result of
successful marketing and promotional 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
Second Quarter Percentage of Net Sales
1998 1997 2nd Qtr. 1998 2nd Qtr. 1997
$40,798,091 $40,905,105 47.5% 49.7%
Cost of Sales as a
First Half Percentage of Net Sales
1998 1997 1st Half 1998 1st Half 1997
$73,532,953 $73,840,042 47.2% 49.7%
Cost of sales as a percentage of net sales favorably decreased from 49.7% for
the Second Quarter of 1997 to 47.5% for the Second Quarter of 1998. First
Half cost of sales also favorably decreased from 49.7% in 1997 to 47.2% for
the same period in 1998. This improvement reflects lower costs of certain
ingredients and packaging materials as well as various manufacturing
productivity improvements.
NET EARNINGS:
Second Quarter, 1998
Second Quarter vs.
1998 1997 Second Quarter, 1997
$13,910,434 $12,507,359 +11.2%
First Half, 1998
First Half vs.
1998 1997 First Half, 1997
$25,126,951 $22,258,156 +12.9%
Second Quarter 1998 net earnings were $13,910,000 compared to $12,507,000
in the Second Quarter 1997. Second Quarter 1998 earnings per share of $.29
were up 12% over Second Quarter 1997 earnings per share of $.26.
First Half 1998 net earnings were $25,127,000 compared to prior year's First
Half 1997 net earnings of $22,258,000. First Half 1998 earnings per share of
$.52 were up 13% over First Half 1997 earnings per share of $.46.
Second Quarter 1998 net earnings of $13,910,000 increased $2,693,000 or
24.0% from First Quarter 1998 net earnings of $11,217,000.
The increase in net earnings for the Second Quarter and First Half of 1998
reflects higher sales, improved gross profit margins and effective ongoing
cost control programs which resulted in higher income from operations.
Second Quarter 1998 income from operations was $20,502,000, an increase of
13% from Second Quarter 1997 income from operations of $18,203,000.
Income from operations for the First Half 1998 increased 16% to $37,010,000
from $31,928,000 in the First Half of 1997. Other income in the Second
Quarter and First Half was adversely affected by $382,000 and $1,215,000,
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 36.4% in the First
Half of 1997 to 36.3% in the First Half of 1998. This favorable decrease
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 supercedes and amends a number of
existing standards. This Statement requires that all derivatives be recorded
in the balance sheet as either assets of liabilities and be measured at fair
value. The accounting 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.
<PAGE 7>
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 4, 1998, the
following number of votes were cast for the matters indicated:
1. For the election of five 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 86,391,507 873,453 -0- -0-
Ellen R. Gordon 86,396,638 868,322 -0- -0-
Lana Jane Lewis-Brent 86,380,531 884,429 -0- -0-
Charles W. Siebert 86,376,063 888,897 -0- -0-
William Touretz 86,376,952 888,008 -0- -0-
2. Proposal to ratify the appointment of Price Waterhouse LLP (subsquently
renamed PricewaterhouseCoopers LLP) as auditors for the fiscal year 1998:
Broker
For Withheld Abstain Non-vote
Common Shares and Class B
Common Shares voting together 86,206,861 1,022,618 35,481 -0-
No other matters were submitted to a vote by ballot at the 1998 Annual
Meeting.
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: August 4, 1998 BY:
Melvin J. Gordon
Chairman of the Board
BY:
G. Howard Ember
Vice President - Finance
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
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.
<MULTIPLIER> 1,000
<S> <C>
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-START> Jan-01-1997
<PERIOD-END> Jun-27-1998
<PERIOD-TYPE> 6-MOS
<CASH> 42,423
<SECURITIES> 83,068
<RECEIVABLES> 26,347
<ALLOWANCES> 2,242
<INVENTORY> 63,606
<CURRENT-ASSETS> 220,886
<PP&E> 158,551
<DEPRECIATION> 77,607
<TOTAL-ASSETS> 462,075
<CURRENT-LIABILITIES> 57,846
<BONDS> 7,500
0
0
<COMMON> 33,407
<OTHER-SE> 335,889
<TOTAL-LIABILITY-AND-EQUITY> 462,075
<SALES> 155,632
<TOTAL-REVENUES> 155,632
<CGS> 73,533
<TOTAL-COSTS> 45,089
<OTHER-EXPENSES> (2,660)
<LOSS-PROVISION> 101
<INTEREST-EXPENSE> 212
<INCOME-PRETAX> 39,458
<INCOME-TAX> 14,331
<INCOME-CONTINUING> 25,127
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 25,127
<EPS-PRIMARY> .52
<EPS-DILUTED> .52
</TABLE>
