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 29, 2001 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
No Changes
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 34,039,257
Class B Common Stock, $.69 4/9 par value 16,469,065
TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES
SEPTEMBER 29, 2001
I N D E X
Part I - Financial Information
Page No
Financial Statements:
Consolidated Statements of Financial Position 2
Consolidated Statements of Earnings, Comprehensive
Earnings and Retained Earnings 3
Consolidated Statements of Cash Flows 4
Notes to Consolidated Financial Statements 5
Management's Discussion and Analysis of
Financial Condition and Results of Operations 6
Part II - Other Information
Other Information 7
Signatures 7
PART I - FINANCIAL INFORMATION
TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(UNAUDITED)
ASSETS Sept. 29, Sept. 30, Dec. 31,
CURRENT ASSETS 2001 2000 2000
Cash & Cash Equivalents $ 76,596,668 $ 26,987,031 $ 60,882,142
Investments 50,844,943 67,580,914 71,605,091
Trade Accounts Receivable,
Less Allowances of
$3,181,000, $3,363,000 & $2,147,000 80,036,328 78,096,019 23,567,411
Other Receivables 4,003,135 2,029,844 1,229,701
Inventories, at Cost
(Last-in,First-out):
Finished Goods & Work in Process 29,152,649 28,707,521 24,984,361
Raw Material & Supplies 15,916,532 13,791,673 16,906,199
Prepaid Expenses 8,833,340 5,281,356 2,684,738
Deferred Income Taxes 1,351,000 2,069,000 1,351,000
Total Current Assets 266,734,595 224,543,358 203,210,643
PROPERTY, PLANT & EQUIPMENT,
(at cost)
Land 8,358,060 8,340,160 8,327,400
Buildings 37,214,057 32,622,229 36,936,658
Machinery & Equipment 193,952,769 183,451,767 183,858,538
239,524,886 224,414,156 229,122,596
Less-Accumulated Depreciation 106,840,003 95,641,646 98,004,162
132,684,883 128,772,510 131,118,434
OTHER ASSETS
Intangible Assets, net of Accumulated
Amortization of $29,750,000, $26,098,000 &
$26,917,000 118,443,991 122,081,549 121,262,726
Investments 72,056,132 64,260,579 62,548,257
Cash Surrender Value of Life Insurance and
Other Assets 50,994,112 44,032,039 44,301,529
241,494,235 230,374,167 228,112,512
Total Assets $640,913,713 $583,690,035 $562,441,589
(The accompanying notes are an integral part of these statements)
(UNAUDITED)
LIABILITIES AND SHAREHOLDERS' EQUITY Sept. 29, Sept. 30, Dec. 31,
CURRENT LIABILITIES 2001 2000 2000
Accounts Payable $ 13,493,532 $ 18,277,970 $ 10,296,197
Dividends Payable 3,535,583 3,451,853 3,436,103
Accrued Liabilities 40,199,269 41,613,647 33,336,341
Income Taxes Payable 36,681,835 20,248,583 10,377,643
Total Current Liabilities 93,910,219 83,592,053 57,446,284
NON-CURRENT LIABILITIES
Industrial Development Bonds 7,500,000 7,500,000 7,500,000
Post Retirement Benefits 7,344,084 6,727,941 6,956,094
Deferred Compensation and Other Liabilities 18,717,137 20,548,272 19,421,338
Deferred Income Taxes 12,226,048 9,521,250 12,422,248
Total Non-Current Liabilities 45,787,269 44,297,463 46,299,680
SHAREHOLDERS' EQUITY
Common Stock, $.69-4/9 par value-
120,000,000 shares authorized
34,039,257, 33,181,053 & 32,985,805
respectively, issued 23,638,172 23,042,191 22,906,603
Class B Common Stock, $.69-4/9 par value-
40,000,000 shares authorized
16,469,065, 16,075,136 & 16,056,384
respectively, issued 11,436,753 11,163,196 11,150,174
Capital in Excess of Par Value 325,878,304 264,740,799 256,698,004
Retained Earnings 152,482,948 168,047,585 180,123,036
Accumulated Other Comprehensive Earnings (10,228,549) (9,201,849) (10,190,789)
Treasury Stock (at cost)-
53,045, 53,045 & 53,045 shares,
respectively (1,991,403) (1,991,403) (1,991,403)
Total Shareholders' Equity 501,216,225 455,800,519 458,695,625
Total Liabilities and
Shareholders' Equity $640,913,713 $583,690,035 $562,441,589
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. 29, 2001 & Sept. 30, 2000 Sept 29, 2001 & Sept 30, 2000
NET SALES (Note 2) $158,780,862 $165,873,251 $328,284,209 $334,264,488
Cost of Goods Sold 82,476,398 82,647,914 165,504,786 161,763,072
Gross Margin 76,304,464 83,225,337 162,779,423 172,501,416
Selling, Marketing & Administrative Expense 35,010,079 34,640,850 83,592,150 81,557,762
Amortization of Intangible Assets 944,578 992,063 2,833,736 2,600,684
Earnings from Operations 40,349,807 47,592,424 76,353,537 88,342,970
Other Income, Net 1,142,690 1,332,572 5,517,667 5,382,744
Earnings before Income Taxes 41,492,497 48,924,996 81,871,204 93,725,714
Provision for Income Taxes 14,482,000 17,411,000 28,574,000 33,497,000
Net Earnings (Note 5) $ 27,010,497 $ 31,513,996 $ 53,297,204 $ 60,228,714
Net Earnings $ 27,010,497 $ 31,513,996 $ 53,297,204 $ 60,228,714
Other Comprehensive Earnings, Net of Tax (1,209,504) 671,789 (37,760) (261,582)
Comprehensive Earnings $ 25,800,993 $ 32,185,785 $ 53,259,444 $ 59,967,132
Retained Earnings at Beginning of Period $129,004,320 $139,981,837 $180,123,036 $158,619,140
Net Earnings 27,010,497 31,513,996 53,297,204 60,228,714
Cash Dividends (3,531,869) (3,448,248) (10,493,087) (9,917,114)
Stock Dividends - 3% -- -- (70,444,205) (40,883,155)
Retained Earnings at End of Period $152,482,948 $168,047,585 $152,482,948 $168,047,585
Net Earnings per Share (Note 3) $ .54 $ .62 $1.06 $1.18
Dividends per Share * $ .07 $ .07 $ .21 $ .2025
Average Number of Shares Outstanding
(Notes 3 & 4) 50,455,277 50,876,277 50,455,277 51,017,767
*Does not include 3% Stock Dividend to Shareholders of Record on 3/06/01 and 3/07/00.
(The accompanying notes are an integral part of the statements)
TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
39 Weeks Ended
Sept. 29, 2001 & Sept. 30, 2000
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $53,297,204 $60,228,714
Adjustments to reconcile net earnings to
net cash provided by (used in)
operating activities:
Depreciation and amortization 11,669,819 9,852,682
Gain on disposal of equipment 11,750
(Increase) decrease in assets:
Accounts receivable (56,393,550) (59,054,295)
Other receivables (2,730,466) 3,686,306
Inventories (3,090,120) (1,428,575)
Prepaid expenses and other assets (13,233,910) (13,676,631)
Increase (decrease) in liabilities:
Accounts payable and accrued liabilities 10,031,436 14,497,492
Income taxes payable and deferred 26,122,697 11,967,848
Postretirement health care and life
insurance benefits 387,990 171,081
Deferred compensation and other liabilities (704,201) 1,463,767
Other 13,194 1,411
Net cash provided by operating activities 25,370,093 27,721,550
CASH FLOWS FROM INVESTING ACTIVITIES:
Business acquisitions acquired, net of
cash and cash equivalents -- (74,293,419)
Capital expenditures (10,268,476) (10,919,299)
Purchase of held to maturity securities (140,392,471) (101,547,876)
Maturity of held to maturity securities 140,665,130 127,124,081
Purchase of available for sale securities (50,870,031) (62,965,414)
Sale of available for sale securities 61,849,645 67,759,967
Net cash provided by (used in)
investing activities 983,797 (54,841,960)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of notes payable -- 43,625,000
Repayment of notes payable -- (43,625,000)
Shares repurchased and retired -- (24,753 244)
Dividends paid in cash (10,639,364) (9,643,046)
Net cash used in financing activities (10,639,364) (34,396,290)
Increase (decrease) in cash & cash equivalents 15,714,526 (61,516,700)
Cash and cash equivalents-beginning of year 60,882,142 88,503,731
Cash and cash equivalents-end of quarter $76,596,668 $26,987,031
Supplemental cash flow information:
Income taxes paid $ 2,558,000 $21,012,000
Interest paid $ 694,000 $ 905,000
(The accompanying notes are an integral part of the statements)
TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 29, 2001
(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 consolidated financial statements and
the related notes included in the Company's 2000 Annual
Report on Form 10-K.
Note 2 - The Company's unshipped orders at September 29, 2001 amounted
to $35,500,000 and $35,900,000 at September 30, 2000.
Note 3 - Based on Average Shares outstanding adjusted for Stock
Dividends.
Note 4 - Includes 3% stock dividends distributed on April 18, 2001
and April 19, 2000.
Note 5 - Results of operations for the period ended September 29, 2001
are not necessarily indicative of results to be expected
for the year to end December 31, 2001 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. The acquisitions 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.
Note 7 - Effective January 1, 2001, the Company adopted Statement of
Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" and its
related amendment, Statement of Financial Accounting Standards
No. 138, "Accounting for Certain Derivative Instruments and
Certain Hedging Activities." These standards require that every
derivative instrument be recorded in the balance sheet as
either an asset or liability measured at its fair value.
Changes in the fair value of derivatives are recorded each
period in earnings or accumulated other comprehensive earnings,
depending on whether a derivative is designated and effective
as part of a hedge transaction and, if it is, the type of hedge
transaction. Gains and losses on derivative instruments
reported in accumulated other comprehensive earnings are
reclassified as earnings in the periods in which earnings are
affected by the hedged item. The adoption of these new
standards did not affect net earnings and increased comprehen-
sive earnings by $229,000, net of income taxes, as of January
1, 2001.
The Company utilizes commodity futures contracts to manage
variability in cash flows associated with certain commodities
(primarily sugar). Commodity futures contracts are entered into
for varying periods and are intended and effective as hedges of
market price risks associated with the anticipated purchase of
raw materials. To qualify as a hedge, the Company evaluates the
the nature and relationships between the hedging instrument and
hedged items, as well as its risk-management objectives,
strategies for undertaking the various hedge transactions and
method of assessing hedge effectiveness. In addition, the
significant characteristics and expected terms of the anticip-
ated transaction must be specifically identified and it must be
probable that the anticipated transaction will occur. If the
anticipated transaction were not to occur, the gain or loss
would be recognized in earnings currently. Financial instru-
ments qualifying for hedge accounting must maintain a high
correlation between the hedging instrument and the item being
hedged, both at inception and throughout the hedged period. The
Company does not engage in trading or other speculative use of
derivative instruments. In entering into these contracts, the
Company has assumed the risk that might arise from the possible
inability of counterparties to meet the terms of their con-
tracts. The Company does not expect any losses as a result of
counterparty defaults.
The company uses foreign exchange contracts to hedge the impact
of foreign currency fluctuations on certain committed capital
expenditures. Upon payment of each commitment, the underlying
contract is closed and the corresponding gain or loss is
included in the measurement of the cost of the acquired asset.
During the quarter ended September 29, 2001, accumulated other
comprehensive earnings decreased by $26,000 due to hedging
transactions, and increased by $57,000 as a result of the net
amount reclassified to the consolidated statement of earnings,
comprehensive earnings and retained earnings. As of September
29, 2001, $69,000 of deferred net gains on derivative
instruments accumulated in other comprehensive earnings are
expected to be reclassified to earnings during the next twelve
months.
NOTE 8 - In April 2001, a consensus was reached by the Emerging Issues
Task Force (EITF) on Issue No. 00-25, "Vendor Income Statement
Characterization of Consideration Paid to a Reseller of the
Vendor's Products." The Company's cooperative advertising
programs are covered by this issue. In May 2000, a consensus
was reached by the EITF on Issue 00-14, "Accounting for Certain
Sales Incentives." These issues require that cooperative
advertising and certain sales incentives costs currently being
reported as selling, marketing and administrative expense to be
recorded as a reduction of net sales beginning with the quarter
ended March 31, 2002. The total potential impact of such
reclassifications has not yet been determined. The reclassifi-
cations will not affect the Company's financial position or net
income.
In June 2001, the Financial Accounting Standards Board issued SFAS
No. 141, "Business Combinations". This standard prohibits the use
of pooling-of-interest method of accounting for business
combinations initiated after June 30, 2001 and applies to all
business combinations accounted for under the purchase method that
are completed after June 30, 2001. The standard also requires
that identifiable intangible assets shall be recognized as assets
apart from goodwill. The Company does not expect that implemen-
tation of this standard will have a significant impact on its
financial statements.
In July 2001, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 142 (SFAS 142),
"Goodwill and Other Intangible Assets." This statement requires
that amortization be ceased on all indefinite-lived intangible
assets and goodwill, with impairment tests being performed on an
annual basis. The provisions of SFAS 142 are effective for fiscal
years beginning after December 15, 2001, thus, the Company will
adopt SFAS 142 on January 1, 2002. Management is currently
assessing the impact of the adoption of this statement.
In October 2001, the Financial Accounting Standards Board issued
SFAS No. 144, "Accounting for the Impairment or Disposal of Long-
Lived Assets." The objectives of SFAS 144 are to address signifi-
cant issues relating to the implementation of FASB Statement No.
121 (FAS 121), "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of," and to develop a
single accounting model, based on the framework established in
SFAS 121, for long-lived assets to disposed of by sale, whether
previously held and used or newly acquired. Generally, the
provisions of SFAS 144 are effective for financial statements
issued for (1) fiscal years beginning after December 15, 2001 and
(2) interim periods within those fiscal years. The Company does
not expect the implementation of this standard will have a
significant impact on our financial statements.
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 finan-
cial 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
and consumer preferences; raw material prices; competition; the effect of
acquisitions on the Company's results of operations and financial condition;
the Company's reliance on third-party vendors for various services; and changes
in the confectionary environment including action taken by major retailers and
customer accounts, and consumer candy purchases and resulting retailer sell-
throughs during the Halloween buying season. 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, 2001
Third Quarter vs.
2001 2000 Third Quarter, 2000
$158,780,862 $165,873,251 - 4.3%
Nine Months, 2001
Nine Months vs.
2001 2000 Nine Months, 2000
$328,284,209 $334,264,488 - 1.8%
Third Quarter 2001 net sales of $158,781,000 were down 4.3% from Third
Quarter 2000 net sales of $165,873,000. Nine Months 2001 net sales of
$328,284,000 were down 1.8% from Nine Months 2000 net sales of $334,264,000.
The slowing economy and increased competitive pressures affected both the
Third Quarter and Nine Months 2001 sales results. Declining consumer
confidence and slowdown in consumer spending in the retail sector contributed
to the softness in the Company's Third Quarter and Nine Months 2001 sales
results.
Third Quarter 2001 net sales of $158,781,000 were up 82.8% from Second Quarter
2001 net sales of $86,882,000. Historically, the Third Quarter includes
pre-Halloween sales and is the Company's largest quarterly sales period of the
year.
COST OF SALES:
Cost of Sales as a
Third Quarter Percentage of Net Sales
2001 2000 3rd Qtr. 2001 3rd Qtr. 2000
$82,476,398 $82,647,914 51.9% 49.8%
Cost of Sales as a
Nine Months Percentage of Net Sales
2001 2000 Nine Months 2001 Nine Months 2000
$165,504,786 $161,763,072 50.4% 48.4%
Cost of sales as a percentage of net sales increased from 49.8% in the Third
Quarter 2000 to 51.9% in the Third Quarter 2001. Nine Months cost of sales
also increased from 48.4% to 50.4% in 2001. These increases are the result of
changes in the sales and product mix, lower profit margins of the acquired
brands, and higher overhead costs from multiple plant locations including
increased energy costs. In addition, inventory adjustments of a nonrecurring
nature increased Third Quarter 2001 cost of sales by $1,100,000.
NET EARNINGS:
Third Quarter, 2001
Third Quarter vs.
2001 2000 Third Quarter, 2000
$27,010,497 $31,513,996 -14.3%
Nine Months, 2001
Nine Months vs
2001 2000 Nine Months, 2000
$53,297,204 $60,228,714 -11.5%
Third Quarter net earnings were $27,010,000, compared to $31,514,000 in the
Third Quarter 2000. Third Quarter 2001 earnings per share were $.54, a
decrease of $.08 or 12.9% from Third Quarter 2000 earnings per share of $.62.
Nine Months 2001 net earnings were $53,297,000 compared to the prior year's
Nine Months 2000 net earnings of $60,229,000. Nine months 2001 earnings per
share of $1.06 decreased $.12 or 10.2% from Nine Months 2000 earnings per share
of $1.18.
Third Quarter earnings from operations were $40,350,000 and $47,592,000 in
2001 and 2000 respectively, a decline of $7,242,000 or 15.2% . This decrease
reflects the effects of lower sales and gross margins as explained above,
coupled with higher distribution and delivery expenses relating to higher fuel
costs, and higher trade promotion spending and customer dedutions. These
factors also had an adverse impact on the Nine Months 2001 operating earnings.
Other Income, Net, was $1,143,000 and $1,333,000 in the Third Quarter 2001 and
2000, respectively, a decrease of $190,000. This decrease represents lower net
investment income from dividends and interest.
Third Quarter 2001 net earnings of $27,010,000 increased $13,108,000 or 94.3%
from Second Quarter 2001 net earnings of $13,902,000. As discussed above, the
Third Quarter has historically been the Company's largest sales and earnings
period because of pre-Halloween sales.
The consolidated effective income tax rate favorably decreased from 35.74% in
the Nine Months of 2000 to 34.9% in the Nine Months of 2001. This improvement
generally reflects increased tax-free investment income as well as some
reduction in state income taxes.
LIQUIDITY AND CAPITAL RESOURCES:
The Company's current ratio (current assets divided by current liabilities)
is 2.8 to 1 as of the end of the Third Quarter 2001 as compared to 2.7 to 1
as of the Third Quarter 2000 and 3.5 to 1 as of the Fourth Quarter 2000. Net
Working Capital was $172,824,000 as of the end of the Third Quarter 2001 as
compared to $140,951,000 as of the Third Quarter 2000 and $145,764,000 at the
end of the Fourth Quarter 2000. Net cash provided by operating activities was
$25,370,000 for the 39 weeks ended Sept. 29, 2001 compared to $27,722,000 for
the Quarter ended Sept. 30, 2000. The change primarily reflects lower net
income partially offset by a change in the timing of the funding of certain
medical benefit costs and tax liabilities. Capital expenditures for 2001 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.
Debt securities that matured during the quarters ended September 29, 2001 and
September 30, 2000 were replaced with debt securities of similar maturities.
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 fluctu-
ations. 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, 2000.
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 7, 2001 BY:
Melvin J. Gordon
Chairman of the Board
BY:
G. Howard Ember
Vice President - Finance