<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 October 2, 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 practicable date.
Class Outstanding
Common Stock, $.69 4/9 par value 33,005,122
Class B Common Stock, $.69 4/9 par value 15,729,526
<PAGE 2>
<TABLE>
PART I - FINANCIAL INFORMATION
TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(UNAUDITED)
ASSETS Oct. 2, Sept 26, Dec. 31,
CURRENT ASSETS 1999 1998 1998
<S> <C> <C> <C>
Cash & Cash Equiv. $ 61,001,611 $ 44,165,781 $ 80,743,591
Investments 48,625,057 63,864,726 83,176,169
Trade Accounts Receivable,
Less Allowances of
$3,230,000,$3,204,000 & $2,184,000 66,604,454 64,003,438 19,110,304
Other Receivables 5,834,852 3,736,777 3,324,145
Inventories, at Cost
(Last-in,First-out):
Finished Goods & Work in Process 23,278,453 24,521,839 21,394,685
Raw Material & Supplies 14,418,155 15,393,247 15,125,269
Prepaid Expenses 5,304,182 5,594,447 3,081,281
Deferred Income Taxes 2,584,000 1,793,000 2,584,000
Total Current Assets 227,650,764 223,073,255 228,539,444
PROPERTY, PLANT & EQUIPMENT,
(at cost)
Land 7,785,843 6,895,294 7,773,504
Buildings 28,401,308 22,144,888 22,226,017
Machinery & Equipment 142,680,394 131,855,285 133,601,378
178,867,545 160,895,467 163,600,899
Less-Accumulated Depreciation 86,805,965 79,839,907 80,577,319
92,061,580 81,055,560 83,023,580
OTHER ASSETS
Intangible Assets, Net of Accumulated
Amortization of $22,821,000, $20,114,000,
& $20,791,000 85,813,279 88,519,578 87,843,004
Investments 96,158,769 69,767,649 59,252,305
Cash Surrender Value of Life Insurance and
Other Assets 36,169,042 28,253,530 28,764,817
218,141,090 186,540,757 175,860,126
Total Assets $537,853,434 $490,669,572 $487,423,150
</TABLE>
<PAGE 3>
<TABLE>
<CAPTION>
(UNAUDITED)
LIABILITIES AND SHAREHOLDERS( EQUITY Oct 2, Sept 26, Dec. 31,
CURRENT LIABILITIES 1999 1998 1998
<S> <C> <C> <C>
Accounts Payable $ 14,966,655 $ 13,173,546 $ 12,449,800
Dividends Payable 3,045,932 2,517,301 2,513,774
Accrued Liabilities 38,029,931 37,016,405 31,297,560
Income Taxes Payable 19,136,425 15,111,846 7,123,316
Total Current Liabilities 75,178,943 67,819,098 53,384,450
NON-CURRENT LIABILITIES
Ind.Dev.Bonds 7,500,000 7,500,000 7,500,000
Post Retirement Benefits 6,381,938 6,148,636 6,144,943
Deferred Compensation and Other Liabilities 16,941,859 13,185,654 14,922,897
Deferred Income Taxes 8,473,105 8,195,314 9,014,031
Total Non-Current Liabilities 39,296,902 35,029,604 37,581,871
SHAREHOLDERS( EQUITY
Common Stk., $.69-4/9 par value-
50,000,000 shares author.
33,005,122, 32,507,845 & 32,438,988,
respectively, issued and outstanding 22,920,017 22,574,682 22,526,866
Class B Common Stk $.69-4/9 par value-
20,000,000 shares author.
15,729,526, 15,465,575 & 15,422,232,
respectively, issued 10,923,183 10,739,883 10,709,784
Capital in Excess of Par Value 254,455,479 214,328,970 210,063,413
Retained Earnings 146,699,796 151,981,777 164,652,120
Accumulated Other Comprehensive Earnings (9,629,483) (10,831,854) (10,522,766)
Treasury Stock (at cost)-
50,000, 25,000 & 25,000, shares
respectively (1,991,403) (972,588) (972,588)
Total Shareholders( Equity 423,377,589 387,820,870 396,456,829
Total Liabilities and
Shareholders( Equity $537,853,434 $490,669,572 $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 39 Weeks Ended
Oct 2, 1999 & Sept 26, 1998 Oct 2, 1999 & Sept 26,1998
<S> <C> 1999 <C> 1998 <C> 1999 <C> 1998
NET SALES (Note 2) $152,667,380 $144,230,201 $315,131,948 $299,861,881
Cost of Goods Sold 75,016,227 70,979,589 152,763,953 144,512,542
Gross Margin 77,651,153 73,250,612 162,367,995 155,349,339
Selling, Marketing and
Administrative Expense 32,321,005 30,989,231 76,830,026 74,724,723
Amortization of Intangible Assets 676,575 676,575 2,029,725 2,029,725
Earnings from Operations 44,653,573 41,584,806 83,508,244 78,594,891
Other Income, Net 1,183,473 1,129,684 4,834,364 3,577,550
Earnings before Income Taxes 45,837,046 42,714,490 88,342,608 82,172,441
Provision for Income Taxes 16,554,000 15,498,000 31,984,000 29,829,000
Net Earnings (Note 5) $ 29,283,046 $ 27,216,490 $ 56,358,608 $ 52,343,441
Net Earnings $ 29,283,046 $ 27,216,490 $ 56,358,608 $ 52,343,441
Other Comprehensive Earnings, Net of Tax (134,091) (269,220) 893,283 636,911
Comprehensive Earnings $ 29,148,955 $ 26,947,270 $ 57,251,891 $ 52,980,352
Retained Earnings at Beginning of Period $120,459,556 $127,281,538 $164,652,120 $159,123,991
Net Earnings 29,283,046 27,216,490 56,358,608 52,343,441
Cash Dividends (3,042,806) (2,516,251) (8,621,400) (6,972,206)
Stock Dividends - 3% -- -- (65,689,532) (52,513,449)
Retained Earnings at End of Period $146,699,796 $151,981,777 $146,699,796 $151,981,777
Net Earnings per Share (Note 3) $ .60 $ .55 $1.15 $1.06
Dividends per Share * $ .0625 $ .0525 $ .1775 $ .14625
Average Number of Shares Outstanding
(Notes 3 & 4) 48,830,898 49,487,223 49,081,848 49,535,878
*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 on 6/22/98.
</TABLE>
<PAGE 5> TOOTSIE ROLL INDUSTRIES, INC.
<TABLE> AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
39 Weeks Ended
October 2, 1999 & September 26, 1998
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $56,358,608 $52,343,441
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 8,088,517 8,823,102
(Increase) decrease in assets:
Accounts receivable (47,270,080) (45,372,456)
Other receivables (2,510,707) 945,837
Inventories (850,546) (3,264,804)
Prepaid expenses and other assets ( 9,355,764) (26,944,117)
Increase in liabilities:
Accounts payable and accrued liabilities 9,163,579 7,736,449
Income taxes payable and deferred 11,537,679 7,396,319
Postretirement health care and life
insurance benefits 236,995 244,043
Deferred compensation and other liabilities 2,018,962 3,022,947
Other 261,167 238,292
Net cash provided by
operating activities 27,678,410 5,169,053
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (15,276,792) (11,432,761)
Purchase of held to maturity securities (169,907,134) (162,095,418)
Maturity of held to maturity securities 169,524,189 168,437,355
Purchase of available for sale securities (105,675,624) (163,024,238)
Sale and maturity of available for
sale securities 103,713,944 162,414,290
Net cash used in investing activities (17,621,417) (5,700,772)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of notes payable -- 7,000,000
Repayment of notes payable -- (7,000,000)
Purchase of treasury stock (1,018,815) (972,588)
Shares repurchased and retired (20,509,802) (8,128,477)
Dividends paid in cash (8,270,356) (6,634,008)
Net cash used in financing activities (29,798,973) (15,735,073)
(Decrease) in cash and cash equivalents (19,741,980) (16,266,792)
Cash and cash equivalents-beginning of year 80,743,591 60,432,573
Cash and cash equivalents end of quarter $61,001,611 $44,165,781
Supplemental cash flow information:
Income taxes paid $20,316,000 $22,672,000
Interest paid $ 448,000 $ 348,000
</TABLE>
<PAGE 6>
TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 2, 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 October 2, 1999 amounted to
$23,700,000.
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 and the 2-for-1 stock split distributed
on July 13, 1998.
Note 5 - Results of operations for the period ended October 2, 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 Comprehensive Income -
The Company(s total comprehensive income was as follows:
(in thousands)
13 Weeks Ended
Oct. 2, 1999 Sept 26, 1998
Net earnings $29,283 $27,216
Other comprehensive (loss) (134) (269)
Total comprehensive earnings $29,149 $26,947
(in thousands)
39 Weeks Ended
Oct. 2, 1999 Sept 26, 1998
Net earnings $56,359 $52,343
Other comprehensive gain 893 637
Total comprehensive earnings $57,252 $52,980
<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, 1999
Third Quarter vs.
1999 1998 Third Quarter, 1998
$152,667,380 $144,230,201 +5.8%
Nine Months, 1999
Nine Months vs.
1999 1998 Nine Months, 1998
$315,131,948 $299,861,881 +5.1%
Third Quarter 1999 net sales of $152,667,000, were up 5.8% from Third Quarter
1998 net sales of $144,230,000.
Nine Months 1999 net sales of $315,132,000 were up 5.1% from Nine Months 1998
net sales of $299,862,000.
Third Quarter 1999 net sales of $152,667,000 were up 73.0% from Second Quarter
1999 net sales of $88,265,000. 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 1999 are the result of
successful marketing and promotional programs, including pre-Halloween sales
programs, as well as new products, product line extensions and the benefits
of earlier 1999 shipments compared to 1998. Although the timing of such
earlier shipments had a favorable impact on 1999 reported sales, they will
have a corresponding unfavorable effect when comparing the Fourth Quarter of
1999 to 1998.
COST OF SALES:
Cost of Sales as a
Third Quarter Percentage of Net Sales
1999 1998 3rd Qtr. 1999 3rd Qtr. 1998
$75,016,227 $70,979,589 49.1% 49.2%
Cost of Sales as a
Nine Months Percentage of Net Sales
1999 1998 9 Months 1999 9 Months 1998
$152,763,953 $144,512,542 48.5% 48.2%
Third Quarter 1999 cost of sales as a percentage of net sales was 49.1%, which
was generally unchanged from the Third Quarter 1998 percentage of 49.2%. Nine
months cost of sales increased slightly from 48.2% in 1998 to 48.5% in 1999.
This increase principally reflects higher ingredient costs offset partially
by the benefits of higher volumes against generally fixed plant overhead costs.
(6)
MANAGEMENT'S DISCUSSION AND ANALYSIS
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
NET EARNINGS:
Third Quarter, 1999
Third Quarter vs.
1999 1998 Third Quarter, 1998
$29,283,046 $27,216,490 +7.6%
Nine Months, 1999
Nine Months vs.
1999 1998 Nine Months, 1998
$56,358,608 $52,343,441 +7.7%
Third Quarter 1999 net earnings were $29,283,000 compared to $27,216,000 in
the Third Quarter of 1998. Third Quarter earnings per share of $.60 were up
$.05 or 9.1% over Third Quarter 1998 earnings per share of $.55.
Nine Months 1999 net earnings were $56,359,000 compared to the prior year's
Nine Months net earnings of $52,343,000. Nine Months 1999 earnings per share
of $1.15 were up $.09 or 8.5% over Nine Months 1998 earnings per share of $1.06.
Third Quarter 1999 net earnings of $29,283,000 increased $14,532,000 or 98.5%
from Second Quarter of 1999 net earnings of $14,751,000.
The increase in net earnings for the Third Quarter and Nine Months of 1999
reflects higher sales and effective ongoing cost control programs which resulted
in higher income from operations. Third Quarter 1999 income from operations was
$44,654,000 an increase of 7% from Third Quarter 1998 income from operations of
$41,585,000. Income from operations for the Nine Months 1999 increased 6%
to $83,508,000 from $78,595,000 in the Nine Months of 1998. Other income in
the Third Quarter and Nine Months benefited from decreased foreign exchange
translation losses relating to the Company's Mexican operations. Also as
discussed above, the timing of period to date sales contributed to the Third
Quarter and Nine Months 1999 results.
The consolidated effective income tax rate decreased from 36.3% in the Nine
Months of 1998 to 36.2% in the Nine Months of 1999. This favorable decrease
principally reflects modification for changes in local and state taxes.
LIQUIDITY AND CAPITAL RESOURCES:
The Company's current ratio (current assets divided by current liabilities)
is 3 to 1 as of the end of the Third Quarter 1999. Capital expenditures for
1999 are anticipated to be generally in line with historical spending and are
to 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, as amended by Statement No. 137,
"Accounting for Derivative Instruments and Hedging Activities - Deferral of
the effective Date of FASB Statement No. 133", is effective for all fiscal
years beginning after June 15, 2000. Under existing practice, there exist a
variety of basses 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 or liabilities and be measured at fair
value.
(6 A)
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 relates 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 of
adoption on the consolidated financial statements.
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 also 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 complete,
and management has not ascertained any exception that in its opinion could have
material adverse consequences to the Company.
The Company's mission critical business applications are year 2000 compliant
Oracle-based software applications that operate within the Oracle data base.
These systems utilize modern technologies where year 2000 dates are not
problematic. The Company has completed upgrading these systems to the
version or release that has been year 2000 "certified" by the software vender.
The Company has further completed its year 2000 remediation project at its
Mexican operations including system testing.
<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 1999.
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 8, 1999 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-31-1999
<PERIOD-START> Jan-01-1999
<PERIOD-END> Oct-02-1999
<PERIOD-TYPE> 9-MOS
<CASH> 61,002
<SECURITIES> 48,625
<RECEIVABLES> 75,669
<ALLOWANCES> 3,230
<INVENTORY> 37,697
<CURRENT-ASSETS> 227,651
<PP&E> 178,868
<DEPRECIATION> 86,806
<TOTAL-ASSETS> 537,853
<CURRENT-LIABILITIES> 75,179
<BONDS> 7,500
0
0
<COMMON> 33,843
<OTHER-SE> 389,535
<TOTAL-LIABILITY-AND-EQUITY> 537,853
<SALES> 315,132
<TOTAL-REVENUES> 315,132
<CGS> 152,764
<TOTAL-COSTS> 78,860
<OTHER-EXPENSES> 4,922
<LOSS-PROVISION> 368
<INTEREST-EXPENSE> 88
<INCOME-PRETAX> 88,343
<INCOME-TAX> 31,984
<INCOME-CONTINUING> 56,359
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 56,359
<EPS-BASIC> 1.15
<EPS-DILUTED> 0
</TABLE>
