<PAGE 1> 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 July 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 practicable date.
Class Outstanding
Common Stock, $.69 4/9 par value 33,241,555
Class B Common Stock, $.69 4/9 par value 15,808,093
<PAGE 2>
<TABLE>
PART I - FINANCIAL INFORMATION
TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(UNAUDITED)
ASSETS July 3, June 27, Dec. 31,
CURRENT ASSETS 1999 1998 1998
<S> <C> <C> <C>
Cash & Cash Equiv. $ 64,416,400 $ 42,422,848 $ 80,743,591
Investments 62,101,985 83,068,342 83,176,169
Trade Accounts Receivable,
Less Allowances of
$2,110,000,$2,242,000 & $2,184,000 15,400,062 16,479,410 19,110,304
Other Receivables 5,885,236 7,625,237 3,324,145
Inventories, at Cost
(Last-in,First-out):
Finished Goods & Work in Process 42,067,331 44,760,913 21,394,685
Raw Material & Supplies 18,695,793 18,844,947 15,125,269
Prepaid Expenses 5,567,276 5,891,727 3,081,281
Deferred Income Taxes 2,584,000 1,793,000 2,584,000
Total Current Assets 216,718,083 220,886,424 228,539,444
PROPERTY, PLANT & EQUIPMENT,
(at cost)
Land 7,774,820 6,895,294 7,773,504
Buildings 22,246,583 22,144,888 22,226,017
Machinery & Equipment 144,524,357 129,510,930 133,601,378
174,545,760 158,551,112 163,600,899
Less-Accumulated Depreciation 84,692,076 77,607,078 80,577,319
89,853,684 80,944,034 83,023,580
OTHER ASSETS
Intangible assets, net of accumulated
amortization of $22,144,000, $19,438,000,
& $20,791,000 86,489,854 89,196,153 87,843,004
Investments 76,146,068 46,556,761 59,252,305
Cash Surrender Value of Life Insurance and
Other Assets 32,266,776 24,491,287 28,764,817
194,902,698 160,244,201 175,860,126
Total Assets $501,474,465 $462,074,659 $487,423,150
</TABLE>
<PAGE 3>
<TABLE>
<CAPTION>
(UNAUDITED)
LIABILITIES AND SHAREHOLDERS( EQUITY July 3, June 27, Dec. 31,
CURRENT LIABILITIES 1999 1998 1998
<S> <C <C> <C>
Notes Payable to Banks $ -- $ 7,000,000 $ --
Accounts Payable 13,026,031 10,049,803 12,449,800
Dividends Payable 3,070,307 2,525,616 2,513,774
Accrued Liabilities 28,478,519 31,338,177 31,297,560
Income Taxes Payable 10,108,155 6,932,280 7,123,316
Total Current Liabilities 54,683,012 57,845,876 53,384,450
NON-CURRENT LIABILITIES
Ind.Dev.Bonds 7,500,000 7,500,000 7,500,000
Post Retirement Benefits 6,327,717 6,068,347 6,144,943
Deferred Compensation and Other Liabilities 16,716,917 13,089,880 14,922,897
Deferred Income Taxes 8,516,992 8,274,497 9,014,031
Total Non-Current Liabilities 39,061,626 34,932,724 37,581,871
SHAREHOLDERS( EQUITY
Common Stk., $.69-4/9 par value-
50,000,000 shares author.
33,241,555, 32,610,182 & 32,438,988,
respectively, issued and outstanding 23,084,205 22,645,749 22,526,866
Class B Common Stk $.69-4/9 par value-
20,000,000 shares author.
15,808,093,15,496,638 & 15,422,232,
respectively, issued 10,977,743 10,761,454 10,709,784
Capital in Excess of Par Value 264,695,118 219,169,952 210,063,413
Retained Earnings 120,459,556 127,281,538 164,652,120
Accumulated Other Comprehensive Earnings (9,495,392) (10,562,634) (10,522,766)
Treasury Stock (at cost)-
50,000, 0 & 25,000, shares respectively (1,991,403) -- (972,588)
Total Shareholders( Equity 407,729,827 369,296,059 396,456,829
Total Liabilities and
Shareholders( Equity $501,474,465 $462,074,659 $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 26 Weeks Ended
July 3, 1999 & June 27, 1998 July 3, 1999 & June 27,1998
<S> <C> 1999 <C> 1998 <C> 1999 <C> 1998
NET SALES (Note 2) $ 88,265,054 $ 85,930,837 $162,464,568 $155,631,680
Cost of goods sold 42,363,471 40,798,091 77,747,726 73,532,953
Gross Margin 45,901,583 45,132,746 84,716,842 82,098,727
Selling, Marketing and
Administrative Expense 23,853,618 23,953,841 44,509,021 43,735,492
Amortization of Intangible Assets 676,575 676,575 1,353,150 1,353,150
Earnings from Operations 21,371,390 20,502,330 38,854,671 37,010,085
Other Income, Net 1,785,404 1,285,104 3,650,891 2,447,866
Earnings before Income Taxes 23,156,794 21,787,434 42,505,562 39,457,951
Provision for Income Taxes 8 406,000 7,877,000 15,430,000 14,331,000
Net Earnings (Note 5) $ 14,750,794 $ 13,910,434 $ 27,075,562 $ 25,126,951
Net Earnings $ 14,750,794 $ 13,910,434 $ 27,075,562 $ 25,126,951
Other Comprehensive Earnings, Net of Tax 251,254 444,545 1,027,374 906,131
Comprehensive Earnings $ 15,002,048 $ 14,354,979 $ 28,102,936 $ 26,033,082
Retained Earnings at Beginning of Period $108,775,945 $115,896,720 $164,652,120 $159,123,991
Net Earnings 14,750,794 13,910,434 27,075,562 25,126,951
Cash Dividends (3,067,183) (2,525,616) (5,578,594) (4,455,955)
Stock Dividends - 3% -- -- (65,689,532) (52,513,449)
Retained Earnings at End of Period $120,459,556 $127,281,538 $120,459,556 $127,281,538
Net Earnings per Share (Note 3) $ .30 $ .28 $ .55 $ .51
Dividends per Share * $ .0625 $ .0525 $ .115 $ .09375
Average Number of Shares Outstanding
(Notes 3 & 4) 49,173,123 49,551,248 49,213,505 49,563,977
*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>
<TABLE>
TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
26 Weeks Ended
July 3, 1999 & June 27, 1998
<S> <C>1999 <C> 1998
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $27,075,562 $25,126,951
Adjustments to reconcile net earnings to
net cash provided by (used in) operating activities:
Depreciation and amortization 5,358,053 5,899,590
(Increase) decrease in assets:
Accounts receivable 3,812,043 2,155,441
Other receivables (2,561,091) (2,942,623)
Inventories (23,938,035) (26,951,052)
Prepaid expenses and other assets (5,547,302) (6,660,362)
Increase (decrease) in liabilities:
Accounts payable and accrued liabilities (2,304,943) (1,066,339)
Income taxes payable and deferred 2,556,483 (703,406)
Postretirement health care and life
insurance benefits 182,774 163,754
Deferred compensation and other liabilities 1,794,020 3,007,462
Other 282,509 160,821
Net cash provided by (used in)
operating activities 6,710,073 (1,809,763)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (10,955,007) (9,088,412)
Purchase of held to maturity securities (104,311,000) (73,647,614)
Maturity of held to maturity securities 110,330,442 66,944,226
Purchase of available for sale securities (79,297,278) (74,978,240)
Sale and maturity of available for
sale securities 77,468,984 74,874,377
Net cash (used in) investing activities (6,763,859) (15,895,663)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of notes payable -- 7,000,000
Purchase of treasury stock (1,018,815) --
Shares repurchased and retired (10,051,416) (3,194,858)
Dividends paid in cash (5,203,174) (4,109,441)
Net cash used in financing activities (16,273,405) (304,299)
Decrease in cash and cash equivalents (16,327,191) (18,009,725)
Cash and cash equivalents-beginning of year 80,743,591 60,432,573
Cash and cash equivalents-end of quarter $64,416,400 $42,422,848
Supplemental cash flow information:
Income taxes paid $12,688,000 $15,253,000
Interest paid $ 385,000 $ 272,000
</TABLE>
<PAGE 6>
TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 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 July 3, 1999 amounted to
$44,700,000.
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 July 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 Second
Quarter of 1999
Note 7 - Sales of unregistered Securities - None.
Note 8 - 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
July 3, 1999 June 27, 1998
Net earnings $14,751 $13,910
Other comprehensive gain 251 445
Total comprehensive earnings $15,002 $14,355
(in thousands)
26 Weeks Ended
July 3, 1999 June 27, 1998
Net earnings $27,076 $25,127
Other comprehensive gain (loss) 1,027 906
Total comprehensive earnings $28,103 $26,033
<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:
Second Quarter, 1999
Second Quarter vs.
1999 1998 Second Quarter, 1998
$88,265,054 $85,930,837 +2.7%
First Half, 1999
First Half vs.
1999 1998 First Half, 1998
$162,464,568 $155,631,680 +4.4%
Second Quarter 1999 net sales of $88,265,000, a record, were up 2.7%
from the Second Quarter 1998 net sales of $85,931,000.
First Half 1999 net sales of $162,465,000 were up 4.4% from First Half
1998 net sales of $155,632,000.
Second Quarter 1999 net sales of $88,265,000 were up 19.0% from First
Quarter 1999 net sales of $74,200,000. 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 1999 are the
result of successful marketing and promotional programs as well as new
products and product line extensions. These record sales are primarily
the result of increased sales volume.
COST OF SALES:
Cost of Sales as a
Second Quarter Percentage of Net Sales
1999 1998 2nd Qtr. 1999 2nd Qtr. 1998
$42,363,471 $40,798,091 48.0% 47.5%
Cost of Sales as a
First Half Percentage of Net Sales
1999 1998 1st Half 1999 1st Half 1998
$77,747,726 $73,532,953 47.9% 47.2%
Cost of sales as a percentage of net sales increased slightly from
47.5% for the Second Quarter of 1998 to 48.0% for the Second Quarter
of 1999. First Half cost of sales also increased slightly from 47.2%
in 1998 to 47.9% for the same period in 1999. This increase generally
reflects higher ingredient costs as well as higher labor and related
fringe benefit costs.
NET EARNINGS:
Second Quarter, 1999
Second Quarter vs.
1999 1998 Second Quarter, 1998
$14,750,794 $13,910,434 +6.0%
First Half, 1999
First Half vs.
1999 1998 First Half, 1998
$27,075,562 $25,126,951 +7.8%
Second Quarter 1999 net earnings were $14,751,000, a record, compared
to $13,910,000 in the Second Quarter 1998. Second Quarter 1999
earnings per share of $.30 were up 7% over Second Quarter 1998
earnings per share of $.28.
First Half 1999 net earnings were $27,076,000 compared to prior year(s
First Half 1998 net earnings of $25,127,000. First Half 1999 earnings
per share of $.55 were up 8% over First Half 1998 earnings per share
of $.51.
Second Quarter 1999 net earnings of $14,751,000 increased $2,426,000
or 19.7% from First Quarter 1999 net earnings of $12,325,000.
The increase in net earnings for the Second Quarter and First Half of
1999 reflects higher sales and effective ongoing cost control programs
which resulted in higher income from operations. Second Quarter 1999
income from operations was $21,371,000, an increase of 4% from Second
Quarter 1998 income from operations of $20,502,000. Income from
operations for the First Half 1999 increased 5% to $38,855,000 from
$37,010,000 in the First Half of 1998. Other income in the Second
Quarter and First Half benefited from decreased foreign exchange
translation losses relating to the Company(s Mexican operations.
The consolidated effective income tax rate remained at 36.3% for the
First Half of both years.
LIQUIDITY AND CAPITAL RESOURCES:
The Company(s current ratio (current assets divided by current
liabilities) is almost 4 to 1 as of the end of the Second 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, 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 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 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 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 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 vender. The Company has further completed its year 2000
remediation project at its Mexican operations including system
testing, and no exceptions were detected that, in the opinion of
management, could have material adverse consequences.
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 formally 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
Item 4. Submission of Matters to a Vote of Security-Holders
At the Annual Meeting of Shareholders of the Company, held on May 3, 1999, 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 178,741,389 169,811 -0- -0-
Ellen R. Gordon 178,742,219 169,981 -0- -0-
Lana Jane Lewis-Brent 178,722,796 188,404 -0- -0-
Charles W. Siebert 178,693,022 218,178 -0- -0-
2. Proposal to Amend the Articles of Incorporation
For Withheld Abstain
Common Shares and Class B
Common Shares voting together 175,022,103 3,754,524 134,573
3. Proposal to ratify the appointment of PriceWaterhouseCoopers LLP as
auditors for the fiscal year 1999:
Broker
For Withheld Abstain Non-vote
Common Shares and Class B
Common Shares voting together 177,016,461 1,717,382 177,357 -0-
No other matters were submitted to a vote by ballot at the 1999 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 9, 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.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-START> Jul-01-1999
<PERIOD-END> Apr-03-1999
<PERIOD-TYPE> 6-MOS
<CASH> 64,416
<SECURITIES> 62,102
<RECEIVABLES> 23,395
<ALLOWANCES> 2,110
<INVENTORY> 60,763
<CURRENT-ASSETS> 216,718
<PP&E> 174,546
<DEPRECIATION> 84,692
<TOTAL-ASSETS> 501,474
<CURRENT-LIABILITIES> 54,683
<BONDS> 7,500
0
0
<COMMON> 34,062
<OTHER-SE> 373,669
<TOTAL-LIABILITY-AND-EQUITY> 501,474
<SALES> 162,465
<TOTAL-REVENUES> 162,465
<CGS> 77,748
<TOTAL-COSTS> 45,862
<OTHER-EXPENSES> (3,771)
<LOSS-PROVISION> 252
<INTEREST-EXPENSE> 120
<INCOME-PRETAX> 42,506
<INCOME-TAX> 15,430
<INCOME-CONTINUING> 27,076
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 27,076
<EPS-BASIC> .55
<EPS-DILUTED> .55
</TABLE>
