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 30, 2000 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 33,181,053
Class B Common Stock, $.69 4/9 par value 16,075,136
<TABLE>
PART I - FINANCIAL INFORMATION
TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(UNAUDITED)
ASSETS Sept 30, Oct 2, Dec 31,
CURRENT ASSETS 2000 1999 1999
<S> <C> <C> <C>
Cash & Cash Equivalents $ 26,987,031 $ 61,001,611 $ 88,503,731
Investments 67,580,914 48,625,057 71,002,420
Trade Accounts Receivable,
Less Allowances of
$3,363,000, $3,230,000 & $2,032,000 78,096,019 66,604,454 19,031,958
Other Receivables 2,029,844 5,834,852 5,716,150
Inventories, at Cost
(Last-in,First-out):
Finished Goods & Work in Process 28,707,521 23,278,453 20,688,894
Raw Material & Supplies 13,791,673 14,418,155 14,395,996
Prepaid Expenses 5,281,356 5,304,182 3,123,428
Deferred Income Taxes 2,069,000 2,584,000 2,069,000
Total Current Assets 224,543,358 227,650,764 224,531,577
PROPERTY, PLANT & EQUIPMENT,
(at cost)
Land 8,340,160 7,785,843 7,981,419
Buildings 32,622,229 28,401,308 30,329,791
Machinery & Equipment 183,451,767 142,680,394 145,789,056
224,414,156 178,867,545 184,100,266
Less-Accumulated Depreciation 95,641,646 86,805,965 88,202,899
128,772,510 92,061,580 95,897,367
OTHER ASSETS
Intangible Assets, net of accumulated
amortization of $26,098,000, $22,821,000 &
$23,497,000 122,081,549 85,813,279 85,136,703
Investments 64,260,579 96,148,042 87,166,551
Cash Surrender Value of Life Insurance and
Other Assets 44,032,039 36,179,769 36,683,965
230,374,167 218,141,090 208,987,219
Total Assets $583,690,035 $537,853,434 $529,416,163
(The accompanying notes are an integral part of these statements)
</TABLE>
<TABLE>
<CAPTION>
(UNAUDITED)
LIABILITIES AND SHAREHOLDERS' EQUITY Sept 30, Oct 2, Dec 31,
CURRENT LIABILITIES 2000 1999 1999
<S> <C> <C> <C>
Accounts Payable $18,277,970 $14,966,655 $12,845,180
Dividends Payable 3,451,853 3,045,932 3,035,496
Accrued Liabilities 41,613,647 38,029,931 31,944,769
Income Taxes Payable 20,248,583 19,136,425 8,283,501
Total Current Liabilities 83,592,053 75,178,943 56,108,946
NON-CURRENT LIABILITIES
Industrial Development Bonds 7,500,000 7,500,000 7,500,000
Post Retirement Benefits 6,727,941 6,381,938 6,556,860
Deferred Compensation and Other Liabilities 20,548,272 16,941,859 19,084,505
Deferred Income Taxes 9,521,250 8,473,105 9,519,818
Total Non-Current Liabilities 44,297,463 39,296,902 42,661,183
SHAREHOLDERS' EQUITY
Common Stock, $.69-4/9 par value-
120,000,000 shares authorized
33,181,053, 33,005,122 & 32,853,761
respectively, issued 23,042,191 22,920,017 22,814,906
Class B Common Stock, $.69-4/9 par value-
40,000,000 shares authorized
16,075,136, 15,729,526 & 15,706,907
respectively, issued 11,163,196 10,923,183 10,907,476
Capital in Excess of Par Value 264,740,799 254,455,479 249,236,182
Retained Earnings 168,047,585 146,699,796 158,619,140
Accumulated Other Comprehensive Earnings (9,201,849) (9,629,483) (8,940,267)
Treasury Stock (at cost)-
51,500, 51,500 & 51,500, shares
respectively (1,991,403) (1,991,403) (1,991,403)
Total Shareholders' Equity 455,800,519 423,377,589 430,646,034
Total Liabilities and
Shareholders' Equity $583,690,035 $537,853,434 $529,416,163
(The accompanying notes are an integral part of these statements)
</TABLE>
<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
Sept 30, 2000 & Oct 2, 1999 Sept 30, 2000 & Oct 2, 1999
<S> <C> <C> <C> <C>
Net Sales (Note 2) $165,873,251 $152,667,380 $334,264,488 $315,131,948
Cost of goods sold 82,647,914 75,016,227 161,763,072 152,763,953
Gross Margin 83,225,337 77,651,153 172,501,416 162,367,995
Selling, Marketing and
Administrative Expense 34,640,850 32,321,005 81,557,762 76,830,026
Amortization of Intangible Assets 992,063 676,575 2,600,684 2,029,725
Earnings from Operations 47,592,424 44,653,573 88,342,970 83,508,244
Other Income, Net 1,332,572 1,183,473 5,382,744 4,834,364
Earnings before Income Taxes 48,924,996 45,837,046 93,725,714 88,342,608
Provision for Income Taxes 17,411,000 16,554,000 33,497,000 31,984,000
Net Earnings (Note 5) $ 31,513,996 $ 29,283,046 $ 60,228,714 $ 56,358,608
Net Earnings $ 31,513,996 $ 29,283,046 $ 60,228,714 $ 56,358,608
Other Comprehensive Earnings, Net of Tax 671,789 (134,091) (261,582) 893,283
Comprehensive Earnings $ 32,185,785 $ 29,148,955 $ 59,967,132 $ 57,251,891
Retained Earnings at Beginning of Period $139,981,837 $120,459,556 $158,619,140 $164,652,120
Net Earnings 31,513,996 29,283,046 60,228,714 56,358,608
Cash Dividends (3,448,248) (3,042,806) (9,917,114) (8,621,400)
Stock Dividends - 3% -- -- (40,883,155) (65,689,532)
Retained Earnings at End of Period $168,047,585 $146,699,796 $168,047,585 $146,699,796
Net Earnings per Share (Note 3) $ .64 $ .58 $1.22 $1.12
Dividends per Share * $ .07 $ .0625 $ .2025 $ .1775
Average Number of Shares Outstanding
(Notes 3 & 4) 49,411,689 50,268,369 49,553,179 50,519,319
*Does not include 3% Stock Dividend to Shareholders of Record on 3/07/00 and 3/09/99.
(The accompanying notes are an integral part of the statements)
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<TABLE>
TOOTSIE ROLL INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
39 Weeks Ended
Sept 30, 2000 & Oct. 2, 1999
<S>
CASH FLOWS FROM OPERATING ACTIVITIES: <C> <C>
Net earnings $60,228,714 $56,358,608
Adjustments to reconcile net earnings to
net cash provided by (used in)
operating activities:
Depreciation and amortization 9,852,682 8,088,517
Gain on disposal of equipment 11,750 -
(Increase) decrease in assets
excluding effects from acquisitions:
Accounts receivable (59,054,295) (47,270,080)
Other receivables 3,686,306 (2,510,707)
Inventories ( 1,428,575) (850,546)
Prepaid expenses and other assets (13,676,631) (9,355,764)
Increase (decrease) in liabilities
excluding effects from acquisitions:
Accounts payable and accrued liabilities 14,497,492 9,163,579
Income taxes payable and deferred 11,967,848 11,537,679
Postretirement health care and life
insurance benefits 171,081 236,995
Deferred compensation and other liabilities 1,463,767 2,018,962
Other 1,411 261,167
Net cash provided by operating activities 27,721,550 27,678,410
CASH FLOWS FROM INVESTING ACTIVITIES:
Business acquisitions acquired, net of
cash and cash equivalents (74,293,419) --
Capital expenditures (10,919,299) (15,276,792)
Purchase of held to maturity securities (101,547,876) (169,907,134)
Maturity of held to maturity securities 127,124,081 169,524,189
Purchase of available for sale securities (62,965,414) (105,675,624)
Sale and maturity of available for
sale securities 67,759,967 103,713,944
Net cash used in investing activities (54,841,960) (17,621,417)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of notes payable 43,625,000 --
Repayment of notes payable (43,625,000) --
Purchase of treasury stock -- (1,018,815)
Shares repurchased and retired (24,753,244) (20,509,802)
Dividends paid in cash (9,643,046) (8,270,356)
Net cash used in financing activities (34,396,290) (29,798,973)
Decrease in cash and cash equivalents (61,516,700) (19,741,980)
Cash and cash equivalents-beginning of year 88,503,731 80,743,591
Cash and cash equivalents-end of quarter $26,987,031 $61,001,611
Supplemental cash flow information:
Income taxes paid $21,012,000 $20,316,000
Interest paid $ 905,000 $ 448,000
(The accompanying notes are an integral part of the statements)
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TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(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. These consolidated financial
statements should be read in conjunction with the financial
statements and the related notes included in the Company's 1999
Annual Report on Form 10-K.
Note 2 - The Company's unshipped orders at September 30, 2000 amounted to
$35,900,000.
Note 3 - Based on Average Shares outstanding adjusted for Stock
Dividends.
Note 4 - Includes 3% stock dividends distributed on April 19, 2000
and April 21, 1999.
Note 5 - Results of operations for the period ended September 30, 2000 are
not necessarily indicative of results to be expected for the year
to end December 31, 2000 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 - On May 12, 2000, the Company acquired the assets of Andes Candies,
Inc. from Brach & Brock Confections, Inc. In February 2000, the
Company acquired the assets of a small confectionery company. The
cost of these acquisitions was $74.3 million in cash, which was
funded through existing cash, and the issuance of $38.8 million
of floating rate short term notes drawn on Company lines of credit
due on 6/30/01. The Company repaid $22.7 million of the notes
payable prior to the end of the second quarter. The remaining
balance of notes payable amounting to $16.1 million was repaid
by the end of the third quarter.
The acquisition cost has been allocated to the assets acquired and
liabilities assumed based on their respective appraised values as
follows (in millions):
Current assets $ 6.4
Property, plant and equipment 29.4
Intangible assets - primarily trademarks 39.5
Liabilities 1.0
Total purchase price $74.3
Intangible assets are being amortized over periods ranging from
15 to 40 years on a straight-line basis.
The acquitions were accounted for by the purchase method.
Accordingly, the operating results of the acquired businesses
have been included in the consolidated financial statements
since the date of acquisition. The operating results of the
acquired businesses did not have a material effect on the
consolidated statement of earnings, comprehensive earnings and
retained earnings for the third quarter or nine months of 2000.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
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.
This discussion, the information contained in the preceding notes to the
financial statements and the information contained in "Quantitative and
Qualitative Disclosures About Market Risk," contain certain forward-looking
statements that are based largely on the Company's current expectations.
Forward-looking statements are subject to certain risks, trends and
uncertainties that could cause actual results and achievements to differ
materially from those expressed in the forward-looking statements. Such risks,
trends and uncertainties, which in some instances are beyond the Company's
control, include changes in demand; raw material prices; competition; the
effect of acquisitions on the Company's results of operations and financial
condition; and the Company's reliance on third-party vendors for various
services. The words "believe," "expect," "anticipate," "estimate," "intend,"
and similar expressions generally identify forward-looking statements. Readers
are cautioned not to place undue reliance on such forward-looking statements,
which are as of the date of this filing.
NET SALES:
Third Quarter, 2000
Third Quarter vs.
2000 1999 Third Quarter, 1999
$165,873,251 $152,667,380 + 8.7 %
Nine Months, 2000
Nine Months vs.
2000 1999 Nine Months, 1999
$334,264,488 $315,131,948 + 6.1 %
Third Quarter 2000 net sales of $165.9 million were up 8.7% from the Third
Quarter 1999 net sales of $152.7 million.
Nine months 2000 net sales of $334.3 million were up 6.1% from Nine Months 1999
net sales of $315.1 million.
Third Quarter 2000 net sales of $165.9 million were up 83.5% from Second
Quarter 2000 net sales of $90.4 million. 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 of 2000 were the result of
approximately equal effects of sales volume growth in core products/product
line extensions and new products.
COST OF SALES:
Cost of Sales as a
Third Quarter Percentage of Net Sales
2000 1999 3rd Qtr. 2000 3rd Qtr. 1999
$82,647,914 $75,016,227 49.8% 49.1%
Cost of Sales as a
Nine Months Percentage of Net Sales
2000 1999 9 Months 2000 9 Months 1999
$161,763,072 $152,763,953 48.4% 48.5%
Cost of sales as a percentage of net sales increased from 49.1% in the Third
Quarter 1999 to 49.8% in the Third Quarter 2000. Nine Months cost of sales
decreased from 48.5% in 1999 to 48.4% in 2000. The quarterly percentage
increase is primarily due to higher manufacturing overhead costs including such
costs associated with the companies acquired in 2000. The year to date
percentage decrease reflects lower raw costs of major ingredients.
NET EARNINGS:
Third Quarter, 2000
Third Quarter vs.
2000 1999 Third Quarter, 1999
$31,513,996 $29,283,046 7.6%
Nine Months, 2000
Nine Months vs
2000 1999 Nine Months, 1999
$60,228,714 $56,358,608 6.9%
Third Quarter 2000 net earnings were $31.5 million, compared to $29.3 million
in the Third Quarter 1999. Third Quarter 2000 earnings per share of $.64 were
up 10.3% over Third Quarter 1999 earning per share of $.58.
Nine Months 2000 net earnings were $60.2 million compared to prior year's
Nine Months 1999 net earnings of $56.4 million. Nine months 2000 earnings
per share of $1.22 were up 8.9% over Nine Months 1999 earnings per share
of $1.12.
Third Quarter 2000 net earnings of $31.5 million increased $15.8 million or
100.6% from Second Quarter 2000 net earnings of $15.7 million. As discussed
above, the Third Quarter has historically been the Company's largest sales and
earnings period because of pre-Halloween sales.
The increase in net earnings for the Third Quarter and Nine Months 2000 is the
result of higher sales and ongoing cost control programs. Selling, Marketing,
and Administrative Expense for the Third Quarter and Nine Months 2000 increased
by 7.2% and 6.2%, respectively, over the comparative periods in the prior year.
These increases principally reflect higher expenses relating to the increased
sales, including the acquired brands, in the respective periods.
Amortization of intangible assets was $1.0 million and $2.6 million for the
Third Quarter and Nine Months of 2000, respectively, compared to $.7 million and
$2.0 million for the Third Quarter and Nine Months of 1999, respectively. The
increase reflects additional amortization expense relating to the businesses
acquired in 2000.
Other income in the Third Quarter and Nine Months benefited from increased
investment income and capital gains.
The consolidated effective income tax rate favorably decreased from 36.2% in
the Nine Months of 1999 to 35.7% in the Nine Months of 2000. This improvement
generally reflects increased tax-free investment income and a favorable
judgement in a state income tax matter.
LIQUIDITY AND CAPITAL RESOURCES:
Historically, the Company's principal source of financing has been cash
generated from operations. Net cash flow provided by operating activities for
the Nine Month 2000 period was $27.7 million, the same as the comparable period
in 1999.
The Company's current ratio (current assets divided by current liabilities) is
2.7 to 1 as of the end of the Third Quarter 2000 as compared to 3.0 to 1 as of
the Third Quarter 1999 and 4.0 to 1 as of the Fourth Quarter 1999. Net working
Capital was $141.0 million as of the end of the Third Quarter 2000 as compared
to $152.5 million and $168.4 million as of the end of the Third Quarter 1999
and Fourth Quarter 1999, respectively. The decrease in net working capital
reflects the businesses acquired in 2000, including Andes Candies, Inc. Capital
expenditures for 2000 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.
In the nine months of 2000, the Company repurchased 743,000 shares of its common
stock for $24.8 million.
On May 12, 2000, the Company acquired the assets of Andes Candies, Inc. from
Brach & Brock Confections, Inc. In February 2000, the Company acquired the
assets of a small confectionery company. The cost of these acquisitions was
$74.3 million in cash, which was funded through existing cash, and the issuance
of $38.8 million of floating rate short term notes drawn on Company lines of
credit due on 6/30/01. The Company repaid $22.7 million of the notes payable
prior to the end of the second quarter. The remaining notes payables of $16.1
million were repaid by the end of the third quarter.
QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET RISK:
The Company is exposed to various market risks, including fluctuations in
sugar, corn, edible oils, cocoa and packaging costs. The Company also invests
in securities with maturities of up to three years, the majority of which are
held to maturity, which limits the Company's exposure to interest rate
fluctuations. There has been no material change in the Company's market risks
that would significantly affect the disclosures made in the Form 10-K for the
year ended December 31, 1999.
OTHER MATTERS:
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities (SFAS No. 133). SFAS No. 133 establishes accounting and
reporting standards requiring that every derivative instrument be recorded in
the balance sheet as either an asset or liability measured at its fair value.
The Company anticipates the adoption of SFAS No. 133 as of Q1 2001. The
adoption of SFAS No. 133 is not expected to have a material impact on the
Company's results of operations.
The SEC has issued SAB 101 Revenue Recognition, EITF 00-10, Accounting for
Shipping and Handling Revenues and Costs and EITF 00-14, Accounting for Coupons,
Rebates and Discounts. Adoption of these pronouncements is not expected to have
a material impact on the Company's results of operations.
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: November 14, 2000 BY:
Melvin J. Gordon
Chairman of the Board
BY:
G. Howard Ember
Vice President - Finance
