<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 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
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<TABLE>
PART I - FINANCIAL INFORMATION
TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
<CAPTION>
(UNAUDITED)
ASSETS Sept 26, Sept 27, Dec. 31,
CURRENT ASSETS 1998 1997 1997
<S> <C> <C> <C>
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
</TABLE>
<PAGE 3>
<TABLE>
<CAPTION>
(UNAUDITED)
LIABILITIES AND SHAREHOLDERS( EQUITY Sept 26, Sept 27, Dec. 31,
CURRENT LIABILITIES 1998 1997 1997
<S> <C> <C> <C>
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
</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 39 Weeks Ended
Sept. 26, 1998 & Sept. 27, 1997 Sept 26, 1998 & Sept. 27, 1997
<S> <C> 1998 <C> 1997 <C> 1998 <C> 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.
</TABLE>
<PAGE 5>
<TABLE>
TOOTSIE ROLL INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
39 Weeks Ended
September 26, 1998 & September 27, 1997
<S> <C> 1998 <C> 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
</TABLE>
<PAGE 6>
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
<PAGE 7>
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.
<PAGE 8>
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
<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-01-1998
<PERIOD-END> Sep-26-1998
<PERIOD-TYPE> 9-MOS
<CASH> 44,166
<SECURITIES> 63,865
<RECEIVABLES> 70,944
<ALLOWANCES> 3,204
<INVENTORY> 39,915
<CURRENT-ASSETS> 223,073
<PP&E> 160,895
<DEPRECIATION> 79,840
<TOTAL-ASSETS> 490,670
<CURRENT-LIABILITIES> 67,819
<BONDS> 7,500
0
0
<COMMON> 33,315
<OTHER-SE> 354,507
<TOTAL-LIABILITY-AND-EQUITY> 490,670
<SALES> 299,862
<TOTAL-REVENUES> 299,862
<CGS> 144,513
<TOTAL-COSTS> 76,754
<OTHER-EXPENSES> 3,874
<LOSS-PROVISION> 254
<INTEREST-EXPENSE> 296
<INCOME-PRETAX> 82,172
<INCOME-TAX> 29,829
<INCOME-CONTINUING> 52,343
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 52,343
<EPS-PRIMARY> 1.09
<EPS-DILUTED> 1.09
</TABLE>
