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 March 28, 1998 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 close of the period covered by this report.
Class Outstanding
Common Stock, $.69 4/9 par value 16,315,044
Class B Common Stock, $.69 4/9 par value 7,761,366
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PART I - FINANCIAL INFORMATION
TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(UNAUDITED)
ASSETS March 28, March 29, Dec. 31,
CURRENT ASSETS 1998 1997 1997
Cash & Cash Equiv. $ 34,384,760 $ 37,487,705 $ 60,432,573
Marketable Securities 92,450,294 105,068,687 81,847,537
Accounts Receivable
Less Allowances of
$2,238,000,$2,074,000 & $2,085,000 25,001,428 19,026,063 23,319,189
Inventories at Cost
(Last-in,First-out):
Finished Goods & Work in Process 31,228,297 27,939,041 22,937,821
Raw Material & Supplies 15,550,639 12,348,294 13,721,292
Prepaid Expenses 5,795,280 4,205,972 2,910,043
Deferred Income Taxes 1,793,000 2,839,000 1,793,000
Total Current Assets 206,203,698 208,914,762 206,961,455
PROPERTY, PLANT & EQUIPMENT,
(at cost)
Land 6,895,114 6,897,457 6,895,124
Building 22,082,109 28,643,304 22,099,681
Machinery & Equipment 126,300,215 118,949,136 122,429,737
155,277,438 154,489,897 151,424,542
Less-Accumulated Depreciation
and Amortization 75,234,907 73,820,803 73,060,644
80,042,531 80,669,094 78,363,898
OTHER ASSETS
Intangibles 89,872,728 92,579,027 90,549,303
Investments 51,519,053 - 39,737,566
Other Assets 22,525,607 16,693,431 21,129,874
163,917,388 109,272,458 151,416,743
Total Assets $450,163,617 $398,856,314 $436,742,096
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(UNAUDITED)
LIABILITIES AND SHAREHOLDERS( EQUITY March 28, March 29, Dec. 31,
CURRENT LIABILITIES 1998 1997 1997
Accounts Payable $ 11,654,609 $ 9,834,673 $ 11,623,404
Dividends Payable 2,179,102 1,756,365 1,930,339
Accrued Liabilities 29,611,543 25,732,281 32,793,347
Fed. & State Income Taxes 13,060,208 12,869,580 7,259,040
Total Current Liabilities 56,505,462 50,192,899 53,606,130
NON-CURRENT LIABILITIES
Ind.Dev.Bonds 7,500,000 7,500,000 7,500,000
Post Retirement Benefits 5,991,768 5,708,379 5,904,593
Deferred Compensation 12,325,480 8,405,886 9,918,664
Deferred Income Taxes 8,617,653 9,212,680 8,650,156
Total Non-Current Liabilities 34,434,901 30,826,945 31,973,413
SHAREHOLDERS( EQUITY
Common Stk., $.69-4/9 par value-
50,000,000 shares author.
16,315,044, 16,018,418 & 15,851,296
respectively, issued 11,329,753 11,123,762 11,007,706
Class B Common Stk $.69-4/9 par value-
20,000,000 shares author.
7,761,366, 7,596,383 & 7,546,505
respectively, issued 5,389,772 5,275,200 5,240,563
Capital in Excess of Par Value 237,614,188 198,571,051 187,259,058
Retained Earnings 115,896,720 114,002,206 159,123,991
Cumulative Translation Adjustment (11,044,831) (11,135,749) (11,051,961)
Unrealized gain (loss) on investments 37,652 - (416,804)
Total Shareholders( Equity 359,223,254 317,836,470 351,162,553
Total Liabilities and
Shareholders( Equity $450,163,617 $398,856,314 $436,742,096
<PAGE 4>
TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
EARNINGS AND RETAINED EARNINGS (NOTE 1)
(UNAUDITED)
13 Weeks Ended
March 28, 1998 & March 29, 1997
1998 1997
Net Sales (Note 2) $ 69,700,843 $ 66,257,600
Cost of Goods Sold 32,734,862 32,934,937
Gross Margin 36,965,981 33,322,663
Operating Expenses:
Marketing, Selling and Advertising 10,856,893 9,894,191
Distribution and Warehousing 4,871,415 5,160,233
General and Administrative 4,053,343 3,865,905
Goodwill Amortization 676,575 676,575
20,458,226 19,596,904
Earnings from Operations 16,507,755 13,725,759
Other Income (Expense), Net 1,162,762 1,658,038
Earnings before Income Taxes 17,670,517 15,383,797
Provision for Income Taxes 6,454,000 5,633,000
Net Earnings (Note 5) 11,216,517 9,750,797
Retained Earnings at beginning of period 159,123,991 136,352,123
170,340,508 146,102,920
Deduct:
Cash Dividends 1,930,339 1,662,380
Stock Dividends - 3% 52,513,449 30,438,334
54,443,788 32,100,714
Retained Earnings at end of period $115,896,720 $114,002,206
Net Earnings per Share (Note 3) $.47 $ .40
Dividends Per Share * $.0825 $ .0725
Average Number of Shares Outstanding
(Notes 3 & 4) 24,091,410 24,332,160
*Does not include 3% Stock Dividend to Shareholders of Record on 3/10/98 and 3/11/97.
<PAGE 5>
TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
13 Weeks Ended
March 28, 1998 & March 29, 1997
1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Earnings $11,216,517 $ 9,750,797
Adjustments to reconcile net earnings to
net cash provided by operating
activities:
Depreciation and amortization 2,850,838 2,921,062
(Increase) decrease in assets:
Accounts receivable (1,680,685) 2,157,902
Inventories (10,117,321) (10,030,144)
Prepaid expenses and other assets (4,388,669) (2,942,073)
Increase (decrease) in liabilities:
Accounts payable and accrued liabilities (1,189,185) (1,225,562)
Income taxes payable and deferred 5,769,285 3,095,870
Other long term liabilities 2,406,816 419,104
Other 90,051 41,264
Net cash provided by operating 4,957,647 4,188,220
activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (5,814,732) (1,183,002)
Purchase of held to maturity securities (51,490,774) (12,234,589)
Maturity of held to maturity securities 30,483,669 5,229,865
Purchase of available for sale securities (45,885,963) (6,000,000)
Sale and maturity of available for
sale securities 45,070,979 6,434,354
Net cash used in investing activities (27,636,821) ( 7,753,372)
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid in cash (1,930,339) (1,667,817)
Shares repurchased and retired (1,438,300) (2,938,125)
Net cash used in financing activities (3,368,639) (4,605,942)
Decrease in cash and cash equivalents (26,047,813) ( 8,171,094)
Cash and cash equivalents-beginning of year 60,432,573 45,658,799
Cash and cash equivalents end of quarter $34,384,760 $37,487,705
Supplemental cash flow information:
Income taxes paid $ 788,000 $ 2,420,000
Interest paid $ 147,000 $ 202,000
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TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 28, 1998
(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 March 28, 1998 amounted to
$14,800,000.
Note 3 - Based on Average Shares outstanding adjusted for Stock
Dividends.
Note 4 - Includes 3% Stock Dividends distributed on April 22, 1998 and
April 22, 1997.
Note 5 - Results of operations for the period ended March 28, 1998 are
not necessarily indicative of results to be expected for the
year to end December 31, 1998 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 1998.
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
March 28, 1998 March 29, 1997
Net earnings $11,217 $9,751
Other comprehensive gain(loss) 462 (101)
Total comprehensive earnings $11,679 $9,650
<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, 1998
First Quarter vs.
1998 1997 First Quarter, 1997
$69,700,843 $66,257,600 +5.2%
First Quarter 1998 net sales of $69,701,000, a record, were up 5.2% from
First Quarter 1997 net sales of $66,258,000. Sales rose as a result of
successful marketing and promotional programs. These record sales
principally reflect sales gains of the Company's core brands.
First Quarter 1998 net sales of $69,701,000 were down from Fourth
Quarter 1997 net sales of $86,403,000. 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
1998 1997 1st Qtr. 1998 1st Qtr. 1997
$32,734,862 $32,934,937 47.0% 49.7%
Cost of sales as a percentage of net sales favorably decreased from
49.7% for First Quarter 1997 to 47.0% for First Quarter 1998. This
improvement reflects lower costs in certain ingredients and packaging
material costs as well as various manufacturing productivity improvements.
NET EARNINGS:
First Quarter, 1998
First Quarter vs.
1998 1997 First Quarter, 1997
$11,216,517 $9,750,797 +15.0%
First Quarter 1998 net earnings of $11,217,000 a record, were up 15.0% from
net earnings of $9,751,000 for the First Quarter 1997. The increase in net
earnings reflects higher sales, improved gross profit margins and effective
on-going cost control programs which resulted in higher income from
operations. First Quarter 1998 income from operations was $16,508,000, an
increase of 20% from First Quarter 1997 income from operations of
$13,726,000. Other income was adversely affected by $835,000 of foreign
exchange and translation losses in Mexico; based on the accounting
rules that classify Mexico as hyper-inflationary, these translation losses
were charged to expense in the current period. Increased investment income
in the First Quarter of 1998
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partially mitigated this loss.
First Quarter 1998 earnings per share were $.47 compared to $.40 in 1997,
a 17% increase reflecting the increase in net earnings discussed above as
well as the stock repurchases during the last 12 months.
The consolidated effective income tax rate decreased from 36.6% in the First
Quarter of 1997 to 36.5% in the First Quarter of 1998. This improvement
reflects increased tax-free investment income.
First Quarter 1998 net earnings of $11,217,000 decreased $2,512,000 or 18.3%
from Fourth Quarter of 1997 net earnings of $13,729,000, which reflects the
lower level of sales in the First Quarter 1998 compared to the Fourth Quarter
1997. This is consistent with historical trends.
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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 4, 1998 BY:
Melvin J. Gordon
Chairman of the Board
BY:
G. Howard Ember
Vice President - Finance