<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 April 3, 1999 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 practible date.
Class Outstanding
Common Stock, $.69 4/9 par value 33,446,257
Class B Common Stock, $.69 4/9 par value 15,846,841
<PAGE 2>
<TABLE> PART I - FINANCIAL INFORMATION
TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
<CAPTION>
(UNAUDITED)
ASSETS April 3, March 28, Dec. 31,
CURRENT ASSETS 1999 1998 1998
<S> <C> <C> <C>
Cash & Cash Equiv. $ 76,565,908 $ 34,384,760 $ 80,743,591
Investments 74,227,270 92,450,294 83,176,169
Trade Accounts Receivable,
Less Allowances of
$2,082,000,$2,238,000 & $2,184,000 18,424,094 18,414,892 19,110,304
Other Receivables 7,882,608 6,586,536 3,324,145
Inventories, at Cost
(Last-in,First-out):
Finished Goods & Work in Process 29,546,106 31,228,297 21,394,685
Raw Material & Supplies 14,856,605 15,550,639 15,125,269
Prepaid Expenses 6,158,831 5,795,280 3,081,281
Deferred Income Taxes 2,584,000 1,793,000 2,584,000
Total Current Assets 230,245,422 206,203,698 228,539,444
PROPERTY, PLANT & EQUIPMENT,
(at cost)
Land 7,773,504 6,895,114 7,773,504
Buildings 22,226,017 22,082,109 22,226,017
Machinery & Equipment 138,638,705 126,300,215 133,601,378
168,638,226 155,277,438 163,600,899
Less-Accumulated Depreciation 82,631,283 75,234,907 80,577,319
86,006,943 80,042,531 83,023,580
OTHER ASSETS
Intangible assets, net of accumulated
amortization of $21,467,000, $18,761,000,
$20,791,000 87,166,429 89,872,728 87,843,004
Investments 68,507,383 51,519,053 59,252,305
Cash surrender value of Life Insurance and
Other Assets 30,229,651 22,525,607 28,764,817
185,903,463 163,917,388 175,860,126
Total Assets $502,155,828 $450,163,617 $487,423,150
</TABLE>
<PAGE 3>
<TABLE>
<CAPTION>
(UNAUDITED)
LIABILITIES AND SHAREHOLDERS( EQUITY April 3, March 28, Dec. 31,
CURRENT LIABILITIES 1999 1998 1998
<S> <C> <C> <C>
Accounts Payable $ 12,732,737 $ 11,654,609 $ 12,449,800
Dividends Payable 2,693,837 2,179,102 2,513,774
Accrued Liabilities 27,997,577 29,611,543 31,297,560
Income Taxes Payable 13,396,027 13,060,208 7,123,316
Total Current Liabilities 56,820,178 56,505,462 53,384,450
NON-CURRENT LIABILITIES
Ind.Dev.Bonds 7,500,000 7,500,000 7,500,000
Post Retirement Benefits 6,240,390 5,991,768 6,144,943
Deferred Compensation and Other Liabilities 15,844,932 12,325,480 14,922,897
Deferred Income Taxes 8,885,136 8,617,653 9,014,031
Total Non-Current Liabilities 38,470,458 34,434,901 37,581,871
SHAREHOLDERS( EQUITY
Common Stk., $.69-4/9 par value-
50,000,000 shares author.
33,446,257, 16,315,044 & 32,438,988
respectively, issued 23,226,358 11,329,753 22,526,866
Class B Common Stk $.69-4/9 par value-
20,000,000 shares author.
15,846,841, 7,761,366 & 15,422,232
respectively, issued 11,004,651 5,389,772 10,709,784
Capital in Excess of Par Value 274,577,472 237,614,188 210,063,413
Retained Earnings 108,775,945 115,896,720 164,652,120
Accumulated Other Comprehensive Earnings (9,746,646) (11,007,179) (10,522,766)
Treasury Stock (at cost)-
25,750, 0 & 25,000, shares respectively (972,588) -- (972,588)
Total Shareholders( Equity 406,865,192 359,223,254 396,456,829
Total Liabilities and
Shareholders( Equity $502,155,828 $450,163,617 $487,423,150
</TABLE>
<PAGE 4>
<TABLE>
TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
EARNINGS, COMPREHENSIVE EARNINGS AND RETAINED EARNINGS (NOTE 1)
(UNAUDITED)
13 Weeks Ended
April 3, 1999 & March 28, 1998
<S> <C> 1999 <C> 1998
Net Sales (Note 2) $ 74,199,514 $ 69,700,843
Cost of Goods Sold 35,384,255 32,734,862
Gross Margin 38,815,259 36,965,981
Selling, Marketing and Administrative Expense 20,655,403 19,781,651
Amortization of Intangible Assets 676,575 676,575
Earnings from Operations 17,483,281 16,507,755
Other Income, Net 1,865,487 1,162,762
Earnings before Income Taxes 19,348,768 17,670,517
Provision for Income Taxes 7,024,000 6,454,000
Net Earnings (Note 5) $ 12,324,768 $ 11,216,517
Net Earnings $ 12,324,768 $ 11,216,517
Other Comprehensive Earnings, Net of Tax 776,120 461,586
Comprehensive Earnings $ 13,100,888 $ 11,678,103
Retained Earnings at Beginning of Period $164,652,120 $159,123,991
Net Earnings 12,324,768 11,216,517
Cash Dividends (2,511,411) (1,930,339)
Stock Dividends - 3% (65,689,532) (52,513,449)
Retained Earnings at End of Period $108,775,945 $115,896,720
Net Earnings Per Share (Note 3) $.25 $ .23
Dividends Per Share * $.0525 $ .04125
Average Number of Shares Outstanding
(Notes 3 & 4) 49,267,348 49,575,948
*Does not include 3% Stock Dividend to Shareholders of Record on 3/09/99 and 3/10/98, 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 STATEMENT OF CASH FLOWS
(UNAUDITED)
13 Weeks Ended
April 3, 1999 & March 28, 1998
<S> <C> 1999 <C> 1998
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Earnings $12,324,768 $11,216,517
Adjustments to reconcile net earnings to
net cash provided by operating
activities:
Depreciation and amortization 2,680,685 2,850,838
(Increase) decrease in assets:
Accounts receivable 768,921 223,237
Other receivables (4,558,463) (1,903,922)
Inventories (7,724,917) (10,117,321)
Prepaid expenses and other assets (4,099,897) (4,388,669)
Increase (decrease) in liabilities:
Accounts payable and accrued liabilities (3,041,243) (1,189,185)
Income taxes payable and deferred 6,180,958 5,769,285
Postretirement health care and life
insurance benefits 95,447 87,175
Deferred compensation and other liabilities 922,035 2,319,641
Other 140,138 90,051
Net cash provided by operating activities 3,688,432 4,957,647
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (5,047,473) (5,814,732)
Purchase of held to maturity securities (41,033,294) (51,490,774)
Maturity of held to maturity securities 40,024,101 30,483,669
Purchase of available for sale securities (55,899,440) (45,885,963)
Sale and maturity of available for
sale securities 56,602,453 45,070,979
Net cash used in investing activities (5,353,653) (27,636,821)
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid in cash (2,512,462) (1,930,339)
Shares repurchased and retired -- (1,438,300)
Net cash used in financing activities (2,512,462) (3,368,639)
Decrease in cash and cash equivalents (4,177,683) (26,047,813)
Cash and cash equivalents-beginning of year 80,743,591 60,432,573
Cash and cash equivalents end of quarter $76,565,908 $34,384,760
Supplemental cash flow information:
Income taxes paid $ 1,265,000 $ 788,000
Interest paid $ 170,000 $ 147,000
</TABLE>
<PAGE 6>
TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 3, 1999
(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 April 3, 1999 amounted to
$11,900,000.
Note 3 - Based on Average Shares outstanding adjusted for Stock
Dividends.
Note 4 - Includes 3% stock dividends distributed on April 21, 1999 and
April 22, 1998.
Note 5 - Results of operations for the period ended April 3, 1999 are
not necessarily indicative of results to be expected for the
year to end December 31, 1999 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 - Form 8-K was not required to be filed during the First
Quarter of 1999.
Note 7 - Sales of unregistered Securities - None.
-5-
<PAGE 7>
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:
First Quarter, 1999
First Quarter vs.
1999 1998 First Quarter, 1998
$74,199,514 $69,700,843 +6.5%
First Quarter 1999 net sales of $74,200,000, a record, were up 6.5% from First
Quarter 1998 net sales of $69,701,000. Sales rose as a 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.
First Quarter 1999 net sales of $74,200,000 were down from Fourth Quarter 1998
net sales of $88,797,000. This is not considered unusual as the First Quarter
of the year is historically the company's lowest sales quarter.
COST OF SALES:
Cost of Sales as a
First Quarter Percentage of Net Sales
1999 1998 1st Qtr. 1999 1st Qtr. 1998
$35,384,255 $32,734,862 47.7% 47.0%
Cost of sales as a percentage of net sales increased slightly from 47.0% for
First Quarter 1998 to 47.7% for First Quarter 1999. This increase generally
reflects higher labor and related fringe benefit costs as well as changes in
product mix.
NET EARNINGS:
First Quarter, 1999
First Quarter vs.
1999 1998 First Quarter, 1998
$12,324,768 $11,216,517 +9.9%
First Quarter 1999 net earnings of $12,325,000 a record, were up 9.9% from net
earnings of $11,217,000 for the First Quarter 1998. The increase in net
earnings reflects higher sales and effective on-going cost control programs
which resulted in higher income from operations. First Quarter 1999 income
from operations was $17,483,000, an increase of 6% from First Quarter 1998
income from operations of $16,508,000. Other income in First Quarter 1999
benefited from decreased foreign exchange translation losses relating to the
Company's Mexican operations.
First Quarter 1999 earnings per share were $0.25 compared to $0.23 in 1998,
reflecting the increase in net earnings discussed above.
The consolidated effective income tax rate decreased from 36.5% in the First
Quarter of 1998 to 36.3% in the First Quarter of 1999. This improvement
generally reflects increased tax-free investment income.
First Quarter 1999 net earnings of $12,325,000 decreased $2,858,000 or 18.8%
from Fourth Quarter of 1998 net earnings of $15,183,000, which reflects the
lower level of sales in the First Quarter 1999 compared to the Fourth Quarter
1998. This is consistent with historical trends.
LIQUIDITY AND CAPITAL RESOURCES:
The Company's current ratio (current assets divided by current liabilities) is
in excess of 4 to 1 as of the end of the First Quarter 1999. Capital
expenditures for 1999 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.
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 company has completed its year 2000 assessment of all of its computer
systems which includes business software applications, operating systems and
data bases, electronic data interchange (EDI), system networks, manufacturing
controllers and facility management systems. The Company has substantially
completed its assessment of its key customers, suppliers and outside
organizations, such as banks and sales brokers, in order to evaluate their
Year 2000 readiness. All of the Company's Year 2000 compliance efforts are
now substantially complete, and management has not ascertained any exception
that in its opinion could have material adverse consequences to the Company.
Most of the Company's mission critical business applications are Year 2000
compliant because they are Oracle-based software applications that operate
within the Oracle data base. These systems utilize modern technologies where
year 2000 dates are not problematic. However, the Company is in the process
of upgrading these systems to the version or release that has been Year 2000
"certified" by the software vendor. The Company has further completed its
Year 2000 remediation project at its Mexican operations and is in the process
of completing system testing.
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 issues, and if necessary, the Company will prepare a contingency plan to
mitigate any identifiable 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 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 results to date
on its Year 2000 compliance plan.
<PAGE 8>
PART II - OTHER INFORMATION
TOOTSIE ROLL INDUSTRIES, INC
AND SUBSIDIARIES
- NONE -
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: May 10, 1999 BY:
Melvin J. Gordon
Chairman of the Board
BY:
G. Howard Ember
Vice President - Finance
-7-
<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.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-START> Jan-01-1999
<PERIOD-END> Apr-03-1999
<PERIOD-TYPE> 3-MOS
<CASH> 76,566
<SECURITIES> 74,227
<RECEIVABLES> 28,389
<ALLOWANCES> 2,082
<INVENTORY> 44,403
<CURRENT-ASSETS> 230,245
<PP&E> 168,638
<DEPRECIATION> 82,631
<TOTAL-ASSETS> 502,156
<CURRENT-LIABILITIES> 56,820
<BONDS> 7,500
0
0
<COMMON> 34,231
<OTHER-SE> 372,633
<TOTAL-LIABILITY-AND-EQUITY> 502,156
<SALES> 74,200
<TOTAL-REVENUES> 74,200
<CGS> 35,384
<TOTAL-COSTS> 21,332
<OTHER-EXPENSES> (1,956)
<LOSS-PROVISION> 45
<INTEREST-EXPENSE> 91
<INCOME-PRETAX> 19,349
<INCOME-TAX> 7,024
<INCOME-CONTINUING> 12,325
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,325
<EPS-PRIMARY> .25
<EPS-DILUTED> .25
</TABLE>
