UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended APRIL 4, 2009
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ----to----
COMMISSION FILE NUMBER 1-1361
Tootsie Roll Industries, Inc.
(Exact Name of Registrant as Specified in its Charter)
VIRGINIA 22-1318955
(State of Incorporation) (I.R.S. Employer Identification No.)
7401 South Cicero Avenue, Chicago, Illinois 60629
(Address of Principal Executive Offices) (Zip Code)
773-838-3400
(Registrant's Telephone Number, Including Area Code)
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 by check mark whether the registrant has submitted electronically
and posted on its corporate Web site, if any, every Interactive Data File
required to be submitted and posted pursuant to rule 405 of Regulation S-T
during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files)
Yes ___ No ___
Indicate by check mark whether the Registrant is a large accelerated
filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of "accelerated filer," "large accelerated
filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer X Accelerated filer _
Non-accelerated filer __ Smaller reporting company ___
Indicate by check mark whether the Registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act)
Yes No X
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date (April
4, 2009)
Class Outstanding
Common Stock, $.69 4/9 par value 36,513,865
Class B Common Stock, $.69 4/9 par value 19,932,500
TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES
APRIL 4, 2009
INDEX
Page No.
Part I - Financial Information
Item 1. Financial Statements:
Condensed Consolidated Statements of
Financial Position 2
Condensed Consolidated Statements of Earnings,
Comprehensive Earnings and Retained Earnings 3
Condensed Consolidated Statements of Cash Flows 4
Notes to Condensed Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 6
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 6F
Item 4. Controls and Procedures 6F
Part II - Other Information
Item 2. Unregistered Sales of Equity Securities and
Use of Proceeds 7
Item 6. Exhibits 7
Signatures 7
Certifications 7A-C
This Quarterly Report on Form 10-Q contains "forward-looking statements" within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of
the Securities Exchange Act of 1934. See "Information Regarding Forward-
Looking Statements" under Part I - Item 2 "Management's Discussion and Analysis
of Financial Condition and Results of Operations" of this Quarterly Report on
Form 10-Q.
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(in thousands of dollars) (UNAUDITED)
ASSETS April 4, March 29, Dec. 31,
CURRENT ASSETS 2009 2008 2008____
Cash & cash equivalents $ 53,774 $ 45,267 $ 68,908
Investments 16,257 13,945 17,963
Trade accounts receivable,
Less allowances of
$2,016, $2,084 & $1,923 26,980 27,395 31,213
Other receivables 2,354 4,789 2,983
Inventories, at cost
Finished goods & work in process 47,159 49,637 34,862
Raw material & supplies 23,229 22,938 20,722
Prepaid expenses 7,117 4,193 11,328
Deferred income taxes - 1,590 -
Total current assets 176,870 169,754 187,979
PROPERTY, PLANT & EQUIPMENT, at cost
Land 19,298 19,398 19,307
Buildings 89,046 88,226 89,077
Machinery & equipment 279,761 265,565 279,100
Construction in progress 26,232 10,061 20,701
414,337 383,250 408,185
Less-accumulated depreciation 193,675 180,348 190,557
Net property, plant and equipment 220,662 202,902 217,628
OTHER ASSETS
Goodwill 73,237 73,237 73,237
Trademarks 189,024 189,024 189,024
Investments 50,280 75,011 49,809
Split dollar life insurance 74,808 74,944 74,808
Prepaid expenses 10,929 - 10,333
Investment in joint venture 8,940 11,002 9,274
407,218 423,218 406,485
Total assets $804,750 $795,874 $812,092
-2-
(The accompanying notes are an integral part of these statements.)
(in thousands except per share data) (UNAUDITED)
LIABILITIES AND SHAREHOLDERS' EQUITY April 4, March 29, Dec. 31,
CURRENT LIABILITIES 2009 2008 2008___
Accounts payable $ 15,085 $ 16,919 $ 13,885
Dividends payable 91 4,424 4,401
Accrued liabilities 36,679 38,322 40,335
Income taxes payable - 509 -
Deferred income taxes 631 - 631
Total current liabilities 52,486 60,174 59,252
NON-CURRENT LIABILITIES
Deferred income taxes 43,427 36,234 43,346
Postretirement health care and life
insurance benefits 15,847 13,503 15,468
Industrial development bonds 7,500 7,500 7,500
Liability for uncertain tax positions 19,144 20,496 19,412
Deferred compensation and other liabilities 32,234 36,668 32,344
Total non-current liabilities 118,152 114,401 118,070
Total liabilities 170,638 174,575 177,322
SHAREHOLDERS' EQUITY
Common Stock, $.69-4/9 par value-
120,000 shares authorized; 36,514, 35,656 & 35,658
respectively, issued 25,357 24,761 24,762
Class B common stock, $.69-4/9 par value-
40,000 shares authorized; 19,932, 19,409 & 19,357,
respectively, issued 13,842 13,478 13,442
Capital in excess of par value 498,265 472,067 470,927
Retained earnings 114,172 123,744 142,872
Accumulated other comprehensive loss (15,532) (10,759) (15,241)
Treasury stock (at cost)-
67, 65 & 65 shares, respectively (1,992) (1,992) (1,992)
Total shareholders' equity 634,112 621,299 $634,770
Total liabilities and
shareholders' equity $804,750 $795,874 $812,092
-2A-
(The accompanying notes are an integral part of these statements.)
TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF
EARNINGS, COMPREHENSIVE EARNINGS AND RETAINED EARNINGS
(in thousands except per share amounts) (UNAUDITED)
13 WEEKS ENDED
April 4, 2009 & March 29, 2008
Net product sales $ 94,054 $ 90,341
Rental and royalty revenue 977 1,092
Total revenue 95,031 91,433
Product cost of goods sold 60,719 60,629
Rental and royalty cost 216 282
Total costs 60,935 60,911
Product gross margin 33,335 29,712
Rental and royalty gross margin 761 810
Total gross margin 34,096 30,522
Selling, marketing and administrative expenses 22,133 20,050
Earnings from operations 11,963 10,472
Other expense, net (380) (1,240)
Earnings before income taxes 11,583 9,232
Provision for income taxes 3,263 2,779
Net earnings 8,320 6,453
Other comprehensive income (loss), before tax:
Foreign currency translation adjustments (751) 2,916
Unrealized gains (losses) on securities 153 (2,144)
Unrealized gains on derivatives 386 574
Other comprehensive income (loss), before tax (212) 1,346
Income tax (expense) benefit related to items
of other comprehensive income (79) (379)
Other comprehensive income (loss), net of tax (291) 967
Comprehensive earnings $ 8,029 $ 7,364
Retained earnings at beginning of period $142,872 $156,752
Net earnings 8,320 6,453
Cash dividends (4,391) (4,296)
Stock dividends - 3% (32,629) (35,165)
Retained earnings at end of period $114,172 $123,744
Net earnings per share $0.15 $0.11
Dividends per share * $0.08 $0.08
Average number of shares outstanding 56,539 57,185
*Does not include 3% stock dividend to shareholders of record on 3/10/09 and 3/10/08.
-3-
(The accompanying notes are an integral part of these statements.)
TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of dollars) (UNAUDITED)
13 WEEKS ENDED
April 4, 2009 & March 29, 2008
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 8,320 $ 6,453
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 4,158 3,988
Amortization of marketable securities 86 97
Net sales (purchases) of trading securities, net (693) 632
Changes in operating assets and liabilities:
Accounts receivable 4,160 5,043
Other receivables 1,015 (1,302)
Inventories (14,884) (15,091)
Prepaid expenses and other assets 3,596 2,373
Accounts payable and accrued liabilities (2,421) 1,573
Income taxes payable and deferred (287) 881
Postretirement health care and life
insurance benefits 379 289
Deferred compensation and other liabilities 240 (1,193)
Other (188) 85
Net cash provided by operating activities 3,481 3,828
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (7,287) (5,394)
Purchase of available for sale securities - (23,236)
Sale and maturity of available for
sale securities 1,669 36,736
Net cash provided by (used in) investing activities (5,618) 8,106
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid in cash (8,792) (4,339)
Shares repurchased and retired (4,205) (19,934)
Net cash used in financing activities (12,997) (24,273)
Increase (decrease) in cash and cash equivalents (15,134) (12,339)
Cash and cash equivalents beginning of year 68,908 57,606
Cash and cash equivalents end of quarter $ 53,774 $ 45,267
Supplemental cash flow information:
Income taxes paid $ 758 $ 411
Interest paid $ 126 $ 50
Stock dividend issued $ 32,537 $ 35,043
(The accompanying notes are an integral part of these statements.)
-4-
(The accompanying notes are an integral part of these statements.)
TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 4, 2009
(in thousands except per share amounts) (UNAUDITED)
Note 1 - Foregoing data has been prepared from the unaudited financial
records of Tootsie Roll Industries, Inc. and Subsidiaries
(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. Certain reclassifications have been made
to the prior year financial statements to conform to the current
year presentation. These consolidated financial statements
should be read in conjunction with the consolidated financial
statements and the related notes included in the Company's 2008
Annual Report on Form 10-K.
Note 2 - Average shares outstanding for the period ended April 4, 2009
reflects stock repurchases of 213 shares for $4,205 and a 3%
stock dividend distributed on April 9, 2009. Average shares
outstanding for the period ended March 29, 2008 reflects stock
repurchases of 839 shares for $19,934 and a 3% stock dividend
distributed on April 10, 2008.
Note 3 - Results of operations for the period ended April 4, 2009 are not
necessarily indicative of results to be expected for the year to end
December 31, 2009 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. The Company's quarterly
financial reporting is based on thirteen week periods, the first
quarter of 2009 ended on April 4, 2009, and benefited from three
additional shipping days compared to the same period of the prior year.
Note 4 - The Company is subject to taxation in the U.S. and various state and
foreign jurisdictions. The Company remains subject to examination by
U.S. federal and state and foreign tax authorities for the years 2005
through 2007. With few exceptions, the Company is no longer subject
to examinations by tax authorities for year 2004 and prior. The
Company experienced a decrease in state income tax expense due to the
effective conclusion of an income tax audit in first quarter 2009 and
resulting favorable adjustment.
Note 5 - Fair Value Measurements
In the first quarter of 2009, the Company adopted FASB statement 157,
"Fair Value Measurements," (SFAS 157) for non-financial assets and
liabilities that are not recognized or disclosed at fair value in the
financial statements on a recurring basis. This adoption did not have
a material impact on the Company's financial position or results of
operations.
The Company's investments are carried at fair value which is measured
on a recurring basis and adjusted each time a financial statement is
prepared. In determining fair value of financial instruments, the
Company uses various prescribed techniques. The availability of inputs
observable in the market varies from instrument to instrument and
depends on a variety of factors including the type of instrument,
whether the instrument is actively traded, and other characteristics
particular to the instrument.
-5-
For many financial instruments, pricing inputs are readily observable
in the market, the valuation methodology used is widely accepted by
market participants, and the valuation does not require significant
management discretion. For other financial instruments, pricing inputs
are less observable in the market and may require management judgment.
The Company assesses the inputs used to measure fair value using a
three-tier hierarchy, as prescribed under SFAS 157. The hierarchy
indicates the extent to which inputs used in measuring fair value are
observable in the market. Level 1 inputs include quoted prices for
identical instruments and are the most observable. Level 2 inputs
include quoted prices for similar assets and observable inputs such as
interest rates, foreign currency exchange rates, commodity rates and
yield curves. Level 3 inputs are not observable in the market and
include management's own judgments about the assumptions market
participants would use in pricing the asset or liability. The use of
observable and unobservable inputs is reflected in the hierarchy
assessment disclosed in the table below.
As of April 4, 2009, the Company held certain financial instruments
that were required to be measured at fair value on a recurring basis.
These included cash and cash equivalents, derivative hedging
instruments related to Canadian dollar forward purchase contracts, and
investments in trading securities and available for sale securities,
including auction rate securities (ARS). The Company's available for
sale and trading securities principally consist of municipal bonds and
mutual funds that are publicly traded.
The following table presents information about the Company's financial
assets measured at fair value as of April 4, 2009, and indicates the
fair value hierarchy of the valuation techniques utilized by the
Company to determine such fair value:
Estimated Fair Value April 4, 2009
Total Input Levels Used
Description Fair Value Level 1 Level 2 Level 3
Cash and Cash Equivalents $ 53,774 $ 53,774
Auction Rate Securities (ARS) 8,410 $ 8,410
Available-For-Sale Securities excluding ARS 31,760 $ 31,760
Derivatives 734 734
Trading Securities 26,367 26,367 _______ ______
Total Assets Measured at Fair Value $121,045 $ 80,875 $ 31,760 $ 8,410
As of April 4, the Company's long term investments include $8,410
($13,550 original cost) of Jefferson County Alabama Sewer Revenue
Refunding Warrants, an ARS, originally purchased with an AAA rating.
The fair value remained unchanged from December 31, 2008. The Company
estimated the fair value of this ARS utilizing a valuation model with
Level 3 inputs as of April 4, 2009. This valuation model considered,
among other items, the credit risk of the collateral underlying the
ARS, the credit risk of the bond insurer, interest rates, and the
amount and timing of expected future cash flows including the
Company's assumption about the market expectation of the next
successful auction. The Company classified this ARS as non-current
and has included it in long term investments on the Consolidated
Statements of Financial Position at April 4, 2009 because the Company
believes that the current condition of the ARS market may take more
-5A-
than twelve months to improve. Available for sale securities which
utilize Level 2 inputs consist primarily of municipal bonds, which are
valued based on quoted market prices or alternative pricing sources
with reasonable levels of price transparency.
Note 6 - Derivative Instruments and Hedging Activities
In March 2008, the FASB issued statement 161, "Disclosures about
Derivative Instruments and Hedging Activities - an amendment of FASB
Statement No. 133" (SFAS 161). This statement requires qualitative
disclosures about objectives and strategies for using derivatives,
quantitative disclosures about fair value amounts of derivative
instruments and related gains and losses, and disclosures about
credit-risk-related contingent features in derivative agreements.
The Company adopted SFAS 161 during the first quarter of 2009, and the
adoption did not impact its financial condition, results of operations
or cash flow.
From time to time, the Company enters into futures contracts.
Commodity futures are intended and effective as hedges of market price
risks associated with the anticipated purchase of certain raw materials
(primarily sugar). Foreign currency forward contracts are intended and
effective as hedges of the Company's exposure to the variability of
cash flows, primarily related to the foreign exchange rate changes of
products manufactured in Canada and sold in the United States, and
periodic equipment purchases from foreign suppliers denominated in
a foreign currency. The Company does not engage in trading or other
speculative use of derivative instruments.
The Company's futures contracts are being accounted for as cash flow
hedges and are recorded on the balance sheet at fair value. Changes
therein are recorded in accumulated other comprehensive loss, net of
tax, and are reclassified to earnings in the periods in which earnings
are affected by the hedged item. Substantially all amounts reported in
accumulated other comprehensive loss are expected to be reclassified to
cost of goods sold.
The Company utilizes foreign currency forward contracts to reduce the
effects of fluctuations in exchange rates, primarily relating to the
Canadian dollar. As of April 4, 2009, the Company had foreign currency
forward contracts outstanding with a notional amount of $26,195 that
hedged its exposure to changes in foreign currency exchange rates for
its costs of manufacturing certain products in Canada for the U.S.
market. The fair value of foreign currency forward contracts, using
Level 1 inputs, was an asset of $734 as of April 4, 2009, and this
asset is recorded in other receivables.
During the quarter ended April 4, 2009, the Company recorded $425 of
existing net derivative gains in accumulated other comprehensive loss
which is a component of shareholders' equity in the statement of
financial position. The Company also recognized a gain of $54 for the
change in the exchange rates from December 31, 2008 to the settlement
dates of its foreign currency forward contracts that were settled
during the quarter ended April 4, 2009. The Company expects to
reclassify existing net gains of approximately $312 from accumulated
other comprehensive loss to net earnings during the next twelve
months.
The Company utilizes commodities futures contracts to mitigate the
effect of commodity cost fluctuations on certain ingredients, primarily
sugar. As of April 4, 2009, the Company had no outstanding commodities
futures contracts.
-5B-
Note 7 - New Accounting Pronouncements
In April 2008, the FASB issued FASB Staff Position No. 142-3,
"Determination of the Useful Life of Intangible Assets" (FSP 142-3).
FSP 142-3 amends the factors to be considered in developing renewal or
extension assumptions used to determine the useful life of intangible
assets under SFAS No. 142, "Goodwill and Other Intangible Assets." The
intent of FSP 142-3 is to improve the consistency between the useful
life of an intangible asset and the period of expected cash flows used
to measure its fair value. FSP 142-3 was effective for first quarter
2009. The Company does not expect FSP 142-3 to have a material impact
on the accounting for future acquisitions of intangible assets, but the
potential impact is dependent upon the acquisitions of intangible
assets in the future.
In April 2009, the FASB issued FASB Staff Position No. 157-4,
"Determining Fair Value When the Volume and Level of Activity for the
Asset or Liability Have Significantly Decreased and Identifying
Transactions That Are Not Orderly" (FSP 157-4). FSP 157-4 provides
guidance on (1) estimating the fair value of an asset or liability
when the volume and level of activity for the asset or liability have
significantly decreased and (2) identifying transactions that are not
orderly. FSP 157-4 is effective for interim and annual periods ending
after June 15, 2009. The Company is in the process of evaluating the
impact of FSP 157-4, but does not expect it to have a material impact
on the Company's consolidated financial statements.
In April 2009, the FASB issued FASB Staff Position No. 115-2 and FAS
124-2, "Recognition and Presentation of Other-Than-Temporary
Impairments" (FSP 115-2). FSP 115-2 amends the other-than-temporary
impairment guidance for debt securities to make the guidance more
operational and to improve the presentation and disclosure of other-
than-temporary impairments on debt and equity securities. FSP 115-2 is
effective for interim and annual periods ending after June 15, 2009.
The Company is in the process of evaluating the impact of FSP 115-2,
but does not expect it to have a material impact on the Company's
consolidated financial statements.
In April 2009, the FASB issued FASB Staff Position No. 107-1 and
APB 28-1, "Interim Disclosures about Fair Value of Financial
Instruments" (FSP 107-1). FSP 107-1 requires disclosures about the
fair value of financial instruments in interim reporting periods of
publicly traded companies as well as in annual financial statements.
FSP 107-1 is effective for interim periods ending after June 15, 2009.
The Company is in the process of evaluating the impact of FSP 107-1,
but does not expect it to have a material impact on the Company's
consolidated financial statements.
-5C-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(in thousands except per share amounts)
The following is management's discussion of the Company's operating results and
analysis of factors that have affected the accompanying Condensed Consolidated
Statement of Earnings.
NET PRODUCT SALES: Net change in
First Quarter, 2009
First Quarter vs.
2009 2008 First Quarter, 2008
$94,054 $90,341 4.1 %
First quarter 2009 net product sales were $94,054 compared to $90,341 in first
quarter 2008, an increase of $3,713 or 4.1%. First quarter sales benefited from
successful marketing programs and selective price increases. The first quarter
2009 sales increase also reflects the timing of the comparative quarter end
reporting periods which resulted in three additional shipping days in first
quarter 2009 compared to first quarter 2008. The Company operates in thirteen
week quarterly periods which must be adjusted from time to time in order to
coincide with the Company's calendar year end reporting. Although consolidated
net sales increased in first quarter 2009, such sales reflect declines in sales
outside of the United States, including the adverse effects of certain foreign
sales, primarily in Mexico, that are translated into a stronger U.S. dollar
currency.
First quarter 2009 net product sales were $94,054 compared to $115,432 in fourth
quarter 2008. Other than the factors affecting first quarter 2009 net product
sales discussed above, this decrease in net product sales is not considered
unusual, as the first quarter of the year is historically the Company's lowest
sales quarter.
PRODUCT COST OF GOODS SOLD:
First Quarter Percentage of Net Product Sales
2009 2008 1st Qtr. 2009 1st Qtr. 2008
$60,719 $60,629 64.6% 67.1%
Product cost of goods sold as a percentage of net product sales decreased from
67.1% in first quarter 2008 to 64.6% in first quarter 2009. This favorable
decrease in product cost of goods sold as a percentage of net product sales is
primarily the result of selective price increases, lower product costs for
products manufactured in Canada due to more favorable foreign exchange rates,
and the overall benefits of additional sales and production volumes, including
improved plant efficiencies. The Company's ingredient unit costs, in the
aggregate during first quarter 2009, were generally comparable to first quarter
2008. As a result of the above discussed factors, product gross margin increased
from 32.9% in first quarter 2008 to 35.4% in first quarter 2009, an increase of
2.5% as a percentage of net product sales.
-6-
SELLING, MARKETING AND ADMINISTRATIVE EXPENSES:
First Quarter Percentage of Net Product Sales
2009 2008 1st Qtr. 2009 1st Qtr. 2008
$22,133 $20,050 23.5% 22.2%
Selling, marketing and administrative expenses increased from $20,050 in first
quarter 2008 to $22,133 in first quarter 2009, an increase of $2,083 or 10.4%.
This increase primarily reflects the increase in certain variable operating
expenses relating to higher net product sales, changes in deferred compensation
expense as discussed below, increases in certain accrued compensation and
incentive awards that are generally adjusted for changes in net earnings, and
an increase in bad debt expense in the comparative quarterly periods.
However, selling, marketing and administrative expenses did favorably benefit
from lower energy and fuel costs relating to freight and delivery. As a
percentage of net product sales, selling, marketing and administrative
operating expenses increased from 22.2% in 2008 to 23.5% in 2009, principally
reflecting the above discussed factors.
First quarter earnings from operations were $11,963 and $10,472 in 2009 and
2008, respectively, an increase of $1,491 or 14.2%. As a percentage of net
product sales, income from operations was 12.7% and 11.6% in first quarter 2009
and 2008, respectively, an increase of 1.1% as a percent of net product sales.
Results for first quarter 2009 were favorably impacted by improved gross profit
margins as well as other factors which are discussed above.
NET EARNINGS:
First Quarter Percentage of Net Product Sales
2009 2008 1st Qtr. 2009 1st Qtr. 2008
$8,320 $6,453 8.8% 7.1%
Other expense, net was $(380) in first quarter 2009 compared to $(1,240) in
first quarter 2008, a net decrease of $860. Other expense, net in 2009 and 2008
includes $327 and $1,970, respectively, of investment losses on trading
securities relating to deferred compensation plans; the aforementioned losses
resulted in a corresponding decrease in deferred compensation expense included
in aggregate cost of products sold and selling, marketing and administrative
expenses in the corresponding first quarter periods.
The consolidated effective income tax rate decreased from 30.1% in first quarter
2008 to 28.2% in first quarter 2009, a favorable decline of 1.9%. The afore-
mentioned decrease principally reflects a decrease in state income tax expense
due to the effective conclusion of an income tax audit in first quarter 2009 and
resulting favorable adjustment.
First quarter 2009 net earnings were $8,320 compared to first quarter 2008 net
earnings of $6,453. First quarter 2009 earnings per share were $0.15 compared
to $0.11 in first quarter 2008, an increase of $0.04 per share or 36%. In
addition to the factors discussed above, earnings per share benefited from fewer
shares outstanding as a result of the Company's share repurchases during the
trailing twelve months, including first quarter 2009.
-6A-
Goodwill and intangibles are assessed annually as of December 31 or
whenever events or circumstances indicate that the carrying values may not be
recoverable from future cash flows. The Company has not ascertained any
triggering events, as defined, or other adverse information that would indicate
a material impairment of its goodwill or intangibles in first quarter 2009.
LIQUIDITY AND CAPITAL RESOURCES:
The Company's current ratio (current assets divided by current liabilities) was
3.4 to 1 as of the end of first quarter 2009 as compared to 2.8 to 1 as of the
end of first quarter 2008 and 3.2 to 1 as of the end of fourth quarter 2008.
Net working capital was $124,384 as of the end of first quarter 2009 as compared
to $109,580 and $128,727 as of the end of first quarter 2008 and fourth quarter
2008, respectively. The aforementioned net working capital amounts are
principally reflected in aggregate cash and cash equivalents and short-term
investments which totaled $70,031 as of the end of first quarter 2009 compared
to $59,212 and $86,871, as of the end of first quarter 2008 and fourth quarter
2008, respectively. In addition, long term investments, principally debt
securities comprising municipal bonds, were $50,280 (including $8,410 of
Jefferson County auction rate securities (ARS) discussed below) as of the end of
first quarter 2009, as compared to $75,011 and $49,809 as of the end of first
quarter 2008 and fourth quarter 2008, respectively. Aggregate cash and cash
equivalents and short and long-term investments were $120,311, $134,223,
$136,680, for first quarter ended 2009 and 2008, and fourth quarter 2008,
respectively. Investments in municipal bonds and other debt securities that
matured during first quarters 2009 and 2008 were generally used to purchase the
Company's common stock or were replaced with debt securities of similar
maturities.
During fourth quarter 2008, the Company determined that the fair value of the
Jefferson County ARS resulted in an other than temporary impairment, as defined,
and recorded an after-tax charge of $3,328 ($5,140 pre-tax charge). The adverse
events in 2008 relating to Jefferson County and its insurer, Financial Guaranty
Insurance Company (FIGIC), continue in 2009, and the auction for this ARS has
continued to fail in 2009. Therefore, as of April 4, 2009, the Company has
continued to estimate the fair value of this ARS utilizing a valuation model
with Level 3 inputs as defined by SFAS 157, "Fair Value Measurements". The
Company has classified this ARS as non-current and has included it in long term
investments as of April 4, 2009 because the Company believes that the financial
conditions of the ARS market and FIGIC may take more than twelve months to
resolve. Future decreases in the fair value of this ARS could also be classified
as other than temporary and result in additional charges to earnings.
Notwithstanding, the Company continues to receive all contractual interest
payments on this ARS on a timely basis, there has been no default, it is insured
by FIGIC and the Company has the intent and ability to hold this ARS until
recovery assuming that it occurs in a reasonable number of years. See also Note
5 for further discussion and disclosure regarding the determination of fair
value and related accounting.
Net cash provided by operating activities was $3,481 for first quarter 2009, as
compared to $3,828 for first quarter 2008. The aforementioned change in net
cash provided by operating activities principally reflects the $1,867 increase
in net earnings for the comparative periods, and the timing of payments and cash
flows relating to inventories, income taxes payable and deferred, and accounts
payable and accrued liabilities, including the timing of the quarterly dividend
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payment in the comparative quarterly periods. Capital expenditures for first
quarter 2009 and 2008 were $7,287 and $5,394, respectively. Capital expenditures
for the 2009 year are anticipated to be generally in line with historical
annualized spending, and are to be funded from the Company's cash flow from
operations and internal sources.
Cash dividends declared in first quarter 2009 and 2008 were $4,391 and $4,296,
respectively. However, dividends paid in cash were $8,792 and $4,339, in first
quarter 2009 and 2008, respectively. The difference between dividends declared
and dividends paid is due to the timing of the payment of the first quarter
dividends in the quarterly periods.
During first quarter 2009, the Company purchased and retired 213 of its shares
of common stock for $4,205. The Company purchased and retired 839 of its shares
of common stock for $19,934 during first quarter 2008.
NEW ACCOUNTING PRONOUNCEMENTS
In March 2008, the FASB issued statement 161, "Disclosures about Derivative
Instruments and Hedging Activities - an amendment of FASB Statement No. 133"
(SFAS 161). This statement requires qualitative disclosures about objectives
and strategies for using derivatives, quantitative disclosures about fair value
amounts of derivative instruments and related gains and losses, and disclosures
about credit-risk-related contingent features in derivative agreements. The
Company adopted SFAS 161 during the first quarter of 2009 and the adoption did
not impact its financial condition, results of operations or cash flow.
The Company utilizes commodities futures contracts to mitigate the effect of
commodity cost fluctuations on certain ingredients, primarily sugar. The Company
enters into futures contracts that are intended and effective as hedges of
market price risks associated with the anticipated purchase of such ingredients.
The Company also periodically enters into foreign currency forward contracts
that are intended and effective as hedges of the Company's exposure to the
variability of cash flows, including the foreign exchange rate changes of
products manufactured in Canada and sold in the United States, and periodic
equipment purchases from foreign suppliers denominated in a foreign currency.
The Company does not engage in trading or other speculative use of derivative
instruments.
As of April 4, 2009, the Company had Canadian dollar foreign currency forward
contracts outstanding with a notional amount of $26,195 that hedged its exposure
to changes in foreign currency exchange rates for products to be manufactured in
Canada for the U.S. market. Such contracts hedge a portion of Canadian dollar
cash flows for the years 2009 through 2011. The fair value of these foreign
currency forward contracts, using level 1 inputs, reflects an asset of $734 as
of April 4, 2009 which is included in other receivables in the Company's
condensed statements of financial position.
The Company's futures contracts are being accounted for as cash flow hedges and
are recorded on the balance sheet at fair value. Changes therein are recorded
in accumulated other comprehensive loss, net of tax, and are reclassified to
earnings in the periods in which earnings are affected by the hedged item.
Substantially all amounts reported in accumulated other comprehensive loss are
expected to be reclassified to cost of goods sold. Gains and losses on
derivatives not designated for hedge accounting are recognized in earnings
currently.
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During the quarter ended April 4, 2009, the Company recorded $425 of existing
net derivative gains in accumulated other comprehensive loss which is a
component of shareholders' equity in the statement of financial position.
The Company also recognized a gain of $54 for the change in the exchange rates
from December 31, 2008 to the settlement dates of its foreign currency forward
contracts that were settled during the quarter ended April 4, 2009. The Company
expects to reclassify existing net gains of approximately $312 from accumulated
other comprehensive loss to net earnings during the next twelve months.
As of April 4, 2009, the Company had no outstanding commodities futures
contracts. The fair value of any existing commodities futures contracts, using
Level 1 inputs, would be recorded in other receivables. Any existing gain or
loss on the hedged items attributable to this hedged risk would be included in
cost of goods sold.
In February 2008, the FASB issued FSP FAS 157-2, "Effective Date of FASB
Statement No 157" (FAP FAS 157-2). FSP FAS 157-2 delayed the effective date for
SFAS 157 for certain non-financial assets and non-financial liabilities,
including goodwill and other intangible assets. The Company's adoption of FSP
FAS 157-2 in first quarter 2009 did not have a material effect on its financial
statements.
In December 2007, the FASB issued SFAS 141(R), "Business Combinations", and SFAS
160, "Non-controlling Interests in Consolidated Financial Statements", which
affect the accounting for business combinations and the reporting of
non-controlling interests in consolidated financial statements. These statements
became effective for fiscal years beginning after December 15, 2008, and will
principally affect the Company's accounting relating to future acquisitions. The
Company's adoption of these statements in first quarter 2009 did not have any
effect on its financial statements.
In April 2008, the FASB issued FASB Staff Position No. 142-3, "Determination of
the Useful Life of Intangible Assets" (FSP 142-3). FSP 142-3 amends the
factors to be considered in developing renewal or extension assumptions used to
determine the useful life of intangible assets under SFAS No. 142, "Goodwill and
Other Intangible Assets." The intent of FSP 142-3 is to improve the consistency
between the useful life of an intangible asset and the period of expected cash
flows used to measure its fair value. FSP 142-3 was effective for first quarter
2009. The Company does not expect FSP 142-3 to have a material impact on the
accounting for future acquisitions or renewals of intangible assets, but the
potential impact is dependent upon the acquisitions of intangible assets in the
future.
In April 2009, the FASB issued FASB Staff Position No. 157-4, "Determining Fair
Value When the Volume and Level of Activity for the Asset or Liability Have
Significantly Decreased and Identifying Transactions That Are Not Orderly"
(FSP 157-4). FSP 157-4 provides guidance on (1) estimating the fair value of an
asset or liability when the volume and level of activity for the asset or
liability have significantly decreased and (2) identifying transactions that
are not orderly. FSP 157-4 is effective for interim and annual periods ending
after June 15, 2009. The Company is in the process of evaluating the impact of
FSP 157-4, but does not expect it to have a material impact on the Company's
consolidated financial statements.
In April 2009, the FASB issued FASB Staff Position No. 115-2 and FAS 124-2,
"Recognition and Presentation of Other-Than-Temporary Impairments"
(FSP 115-2). FSP 115-2 amends the other-than-temporary impairment guidance
for debt securities to make the guidance more operational and to improve the
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presentation and disclosure of other-than-temporary impairments on debt and
equity securities. FSP 115-2 is effective for interim and annual periods ending
after June 15, 2009. The Company is in the process of evaluating the impact of
FSP 115-2, but does not expect it to have a material impact on the Company's
consolidated financial statements.
In April 2009, the FASB issued FASB Staff Position No. 107-1 and APB 28-1,
"Interim Disclosures about Fair Value of Financial Instruments" (FSP 107-1).
FSP 107-1 requires disclosures about the fair value of financial instruments in
interim reporting periods of publicly traded companies as well as in annual
financial statements. FSP 107-1 is effective for interim periods ending after
June 15, 2009. The Company is in the process of evaluating the impact of
FSP 107-1, but does not expect it to have a material impact on the Company's
consolidated financial statements.
INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
This discussion and certain other sections contain forward-looking statements
that are based largely on the Company's current expectations and are made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. Forward-looking statements can be identified by the use of
words such as "anticipated," "believe," "expect," "intend," "estimate,"
"project," and other words of similar meaning in connection with a discussion of
future operating or financial performance and are subject to certain factors,
risks, trends and uncertainties that could cause actual results and achievements
to differ materially from those expressed in the forward-looking statements.
Such factors, risks, trends and uncertainties, which in some instances are
beyond the Company's control, including without limitation, the following: (i)
significant competitive activity, including advertising, promotional and price
competition, and changes in consumer demand for the Company's products; (ii)
fluctuations in the cost and availability of various ingredients and packaging
materials; (iii) inherent risks in the marketplace, including uncertainties
about trade and consumer acceptance and seasonal events such as Halloween; (iv)
the effect of acquisitions on the Company's results of operations and financial
condition; (v) the effect of changes in foreign currencies on the Company's
foreign subsidiaries operating results, and the effect of the Canadian dollar on
products manufactured in Canada and marketed and sold in the United States in
U.S. dollars; (vi) the Company's reliance on third-party vendors for various
goods and services; (vii) the Company's ability to successfully implement new
production processes and lines; (viii) the effect of changes in assumptions,
including discount rates, sales growth and profit margins, and the capability to
pass along higher ingredient and other input costs through price increases,
relating to the Company's impairment testing and analysis of its goodwill and
trademarks; (ix) changes in the confectionery marketplace including actions
taken by major retailers and customers; (x) customer, consumer and competitor
response to marketing programs and price and product weight adjustments, and new
products; (xi) dependence on significant customers, including volume and timing
of their purchases, and availability of shelf space; (xii) increases in energy
costs, including freight and delivery, that cannot be passed along to customers
through increased prices due to competitive reasons; (xiii) any significant
labor stoppages, strikes or production interruptions; (xiv) changes in
governmental laws and regulations including taxes and tariffs; (xv) the risk
that the market value of Company's investments could decline including being
classified as "other than temporary" as defined, and (xvi) the potential effects
of the current and future recessionary economic conditions. In addition, the
Company's results may be affected by general factors, such as overall economic
conditions, financial and securities' market factors, political developments,
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currency exchange rates, interest and inflation rates, accounting standards,
taxes, and laws and regulations affecting the Company in markets where it
competes and those factors described in Part 1, Item 1A "Risk Factors" and
elsewhere in the Company's Annual Report on Form 10-K and in other Company
filings, including quarterly reports on Form 10-Q, with the Securities and
Exchange Commission.
The risk factors identified and referred to above are believed to be significant
factors, but not necessarily all of the significant factors that could cause
actual results to differ from those expressed in any forward-looking statement.
Readers are cautioned not to place undue reliance on such forward-looking
statements, which are made only as of the date of this report. The Company
undertakes no obligation to update such forward-looking statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK:
The Company is exposed to various market risks, including fluctuations in sugar,
corn syrup, edible oils, including soybean oil, cocoa, dextrose, milk and whey,
and gum-base input ingredients and packaging and fuel costs. The Company is
exposed to exchange rate fluctuations in the Canadian dollar which is the
currency used for a portion of the raw material and packaging material costs and
operating expenses at its Canadian plants. The Company invests in securities
with maturities or auction dates 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, 2008.
Item 4. CONTROLS AND PROCEDURES
Under the supervision and with the participation of management, the Chief
Executive Officer and Chief Financial Officer of the Company have evaluated the
effectiveness of the design and operation of the Company's disclosure controls
and procedures as of April 4, 2009 and, based on their evaluation, the Chief
Executive Officer and Chief Financial Officer have concluded that these controls
and procedures are effective. Disclosure controls and procedures are designed
to ensure that information required to be disclosed by the Company in the
reports that it files or submits under the Securities Exchange Act of 1934 is
recorded, processed, summarized and reported, within the time periods specified
in the Securities and Exchange Commission's rules and forms. Disclosure
controls and procedures are also designed to ensure that information is
accumulated and communicated to management, including the Chief Executive
Officer and chief financial officer, as appropriate to allow timely decisions
regarding required disclosure.
There has been no change in the Company's internal control over financial
reporting that occurred during the Company's fiscal quarter ended April 4, 2009
that has materially affected, or is reasonably likely to materially affect, the
Company's internal control over financial reporting.
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PART II - OTHER INFORMATION
TOOTSIE ROLL INDUSTRIES, INC.
AND SUBSIDIARIES
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Approximate Dollar
(a) Total (b) Average Shares Value of Shares that
Number of Price Paid per Purchased as Part of May Yet Be Purchased
Shares Share Publicly Announced Plans Under the Plans
Period Purchased Or Programs or Programs_____
JAN 1 TO JAN 31 - $ - NOT APPLICABLE NOT APPLICABLE
FEB 1 TO FEB 28 - - NOT APPLICABLE NOT APPLICABLE
MAR 1 TO APR 4 212,600 19.74 NOT APPLICABLE NOT APPLICABLE
TOTAL 212,600 $ 19.74
While the Company does not have a formal or publicly announced stock
repurchase program, the Company's board of directors periodically authorizes
a dollar amount for share repurchases. The treasurer executes share
repurchase transactions according to these guidelines.
Item 6. EXHIBITS
Exhibits 31.1 and 31.2 - Certifications Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
Exhibit 32 - Certification Pursuant to 18 U.S.C. Section 1350,
As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
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 13, 2009 BY:/S/MELVIN J. GORDON
Melvin J. Gordon
Chairman and Chief
Executive Officer
Date: May 13, 2009 BY:/S/G. HOWARD EMBER, JR.
G. Howard Ember, Jr.
V.P./Finance and
Chief Financial Officer
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Exhibit 31.1
CERTIFICATION
I, Melvin J. Gordon, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Tootsie Roll
Industries, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the state-
ments made, in light of the circumstances under which such statements were made,
not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial infor-
mation included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:
a) designed such disclosure controls and procedures, or caused such dis-
closure controls and procedures to be designed under our supervision, to ensure
that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;
b) designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
d) disclosed in this report any change in the registrant's internal control
over financial reporting that occurred during the registrant's most recent
fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control over
financial reporting.
Date: May 13, 2009
By: /S/MELVIN J. GORDON
Melvin J. Gordon
Chairman and Chief Executive Officer
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Exhibit 31.2
CERTIFICATION
I, G. Howard Ember, Jr. certify that:
1. I have reviewed this quarterly report on Form 10-Q of Tootsie Roll
Industries, Inc,;
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the state-
ments made, in light of the circumstances under which such statements were made,
not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial infor-
mation included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:
a) designed such disclosure controls and procedures, or caused such dis-
closure controls and procedures to be designed under our supervision, to ensure
that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;
b) designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
d) disclosed in this report any change in the registrant's internal control
over financial reporting that occurred during the registrant's most recent
fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control over
financial reporting.
Date: May 13, 2009
By: /S/G. HOWARD EMBER, JR.
G. Howard Ember, Jr.
Vice President/Finance and
Chief Financial Officer
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Exhibit 32
Certificate Pursuant to Section 1350 of Chapter 63
Of Title 18 of the United States Code
Each of the undersigned officers of Tootsie Roll Industries, Inc.
Certifies that (i) the Quarterly Report on Form 10-Q of Tootsie Roll
Industries, Inc. for the quarterly period ended April 4, 2009 (the
Form 10-Q) fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934 and (ii) the information
contained in the Form 10-Q fairly presents, in all material respects,
the financial condition and results of operations of Tootsie Roll
Industries, Inc. and its subsidiaries.
Dated: May 13, 2009 /S/MELVIN J. GORDON
Melvin J. Gordon
Chairman and Chief
Executive Officer
Dated: May 13, 2009 /S/G. HOWARD EMBER, JR.
G. Howard Ember, Jr.
V.P./Finance and
Chief Financial Officer
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