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 October 3, 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 (October 3, 2009)
Class Outstanding
Common Stock, $.69 4/9 par value 35,823,231
Class B Common Stock, $.69 4/9 par value 19,923,778
TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES
OCTOBER 3, 2009
INDEX
Page No.
Part I - Financial Information
Item 1. Financial Statements:
Condensed Consolidated Statements of
Financial Position 2-2A
Condensed Consolidated Statements of Earnings,
Comprehensive Earnings and Retained Earnings 3-3A
Condensed Consolidated Statements of Cash Flows 4
Notes to Condensed Consolidated Financial Statements 5-5D
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 6-6E
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 6E
Item 4. Controls and Procedures 6E
Part II - Other Information
Item 2. Unregistered Sales of Equity Securities and
Use of Proceeds 7
Item 6. Exhibits 7
Signatures 7
Certifications 7A-7C
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 Oct. 3, Sep. 27, Dec. 31,
CURRENT ASSETS 2009 2008 2008
Cash & cash equivalents $ 36,731 $ 28,944 $ 68,908
Investments 12,814 14,520 17,963
Trade accounts receivable,
Less allowances of
$3,802, $3,437 & $1,923 95,269 90,250 31,213
Miscellaneous receivables and other 5,361 3,867 2,983
Inventories, at cost
Finished goods & work in process 43,251 45,884 34,862
Raw material & supplies 23,890 23,923 20,722
Prepaid expenses 5,820 1,095 11,328
Deferred income taxes - 1,981 -
Total current assets 223,136 210,464 187,979
PROPERTY, PLANT & EQUIPMENT, at cost
Land 19,313 19,416 19,307
Buildings 89,096 88,286 89,077
Machinery & equipment 279,944 265,066 279,100
Construction in process 36,724 20,067 20,701
425,077 392,835 408,185
Less-accumulated depreciation 203,102 188,194 190,557
Net property, plant and equipment 221,975 204,641 217,628
OTHER ASSETS
Goodwill 73,237 73,237 73,237
Trademarks 189,024 189,024 189,024
Investments 49,674 59,368 49,809
Split dollar life insurance 74,797 74,944 74,808
Investment in joint venture 9,521 9,953 9,274
Prepaid expenses 9,037 - 10,333
405,290 406,526 406,485
Total assets $850,401 $821,631 $812,092
-2-
(The accompanying notes are an integral part of these statements.)
(in thousands except per share data) (UNAUDITED)
LIABILITIES AND SHAREHOLDERS' EQUITY Oct. 3, Sep. 27, Dec. 31,
CURRENT LIABILITIES 2009 2008 2008
Accounts payable $ 17,499 $ 17,828 $ 13,885
Dividends payable 4,460 4,405 4,401
Accrued liabilities 45,980 43,867 40,335
Income taxes payable 7,449 4,609 -
Deferred income taxes 631 - 631
Total current liabilities 76,019 70,709 59,252
NON-CURRENT LIABILITIES
Deferred income taxes 45,513 34,309 43,346
Postretirement health care and life
insurance benefits 16,570 14,123 15,468
Industrial development bonds 7,500 7,500 7,500
Liability for uncertain tax positions 18,173 21,609 19,412
Deferred compensation and other liabilities 37,270 36,034 32,344
Total non-current liabilities 125,026 113,575 118,070
Total liabilities 201,045 184,284 177,322
SHAREHOLDERS' EQUITY
Common Stock, $.69-4/9 par value-
120,000 shares authorized; 35,823,
35,693 & 35,658 respectively, issued 24,877 24,787 24,762
Class B common stock, $.69-4/9 par value-
40,000 shares authorized; 19,924, 19,372
& 19,357, respectively, issued 13,836 13,453 13,442
Capital in excess of par value 482,844 472,066 470,927
Retained earnings 142,810 141,904 142,872
Accumulated other comprehensive loss (13,019) (12,871) (15,241)
Treasury stock (at cost)-
67, 65 & 65 shares, respectively (1,992) (1,992) (1,992)
Total shareholders' equity 649,356 637,347 634,770
Total liabilities and
shareholders' equity $850,401 $821,631 $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
Oct. 3, 2009 & Sep. 27, 2008
Net product sales $183,408 $184,687
Rental and royalty revenues 943 1,015
Total revenues 184,351 185,702
Product cost of goods sold 117,707 125,394
Rental and royalty costs 218 247
Total costs 117,925 125,641
Product gross margin 65,701 59,293
Rental and royalty gross margins 725 768
Total gross margin 66,426 60,061
Selling, marketing and administrative expenses 30,877 29,669
Earnings from operations 35,549 30,392
Other income (expense) 3,083 (986)
Earnings before income taxes 38,632 29,406
Provision for income taxes 11,385 9,691
Net earnings 27,247 19,715
Other comprehensive income (loss), before tax
Foreign currency translation adjustments (112) (1,527)
Unrealized gains (losses) on securities 1 (1,320)
Unrealized gains (losses) on derivatives 1,062 (29)
Other comprehensive income (loss), before tax 951 (2,876)
Income tax benefit (expense) related to items
of other comprehensive income (521) 790
Other comprehensive income (loss), net of tax 430 (2,086)
Comprehensive earnings $ 27,677 $ 17,629
Retained earnings at beginning of period $120,018 $126,589
Net earnings 27,247 19,715
Cash dividends (4,455) (4,400)
Retained earnings at end of period $142,810 $141,904
Net earnings per share $0.49 $0.35
Dividends per share * $0.08 $0.08
Average number of shares outstanding 55,796 56,642
*Does not include 3% stock dividend to shareholders of record on 3/09/09 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
EARNINGS, COMPREHENSIVE EARNINGS AND RETAINED EARNINGS
(in thousands except per share amounts) (UNAUDITED)
39 WEEKS ENDED
Oct. 3, 2009 & Sep. 27, 2008
Net product sales $385,274 $376,619
Rental and royalty revenues 2,780 3,130
Total revenues 388,054 379,749
Product cost of goods sold 247,233 254,764
Rental and royalty costs 645 763
Total costs 247,878 255,527
Product gross margin 138,041 121,855
Rental and royalty gross margins 2,135 2,367
Total gross margin 140,176 124,222
Selling, marketing and administrative expenses 78,738 72,907
Earnings from operations 61,438 51,315
Other income (expense), net 4,524 (1,573)
Earnings before income taxes 65,962 49,742
Provision for income taxes 20,057 16,328
Net earnings 45,905 33,414
Other comprehensive income (loss), before tax
Foreign currency translation adjustments 671 2,036
Unrealized gains (losses) on securities 72 (3,680)
Unrealized gains (losses) on derivatives 2,630 (311)
Other comprehensive income (loss), before tax 3,373 (1,955)
Income tax benefit (expense) related to items
of other comprehensive income (1,150) 810
Other comprehensive income (loss), net of tax 2,223 (1,145)
Comprehensive earnings $ 48,128 $ 32,269
Retained earnings at beginning of period $142,872 $156,752
Net earnings 45,905 33,414
Cash dividends (13,338) (13,097)
Stock dividends - 3% (32,629) (35,165)
Retained earnings at end of period $142,810 $141,904
Net earnings per share $0.82 $0.59
Dividends per share * $0.24 $0.24
Average number of shares outstanding 56,198 56,859
*Does not include 3% stock dividend to shareholders of record on 3/09/09 and
3/10/08.
-3A-
(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)
39 WEEKS ENDED
Oct. 3, 2009 & Sep. 27, 2008
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 45,905 $ 33,414
Adjustments to reconcile net earnings to
net cash provided by (used in) operating activities
Depreciation and amortization 13,627 12,362
Amortization of marketable securities 240 306
Purchase of trading securities (2,058) (1,862)
Sales of trading securities 620 1,730
Changes in operating assets and liabilities
Accounts receivable (63,965) (57,796)
Other receivables 252 (1,265)
Inventories (11,499) (12,354)
Prepaid expenses and other assets 6,826 5,465
Accounts payable and accrued liabilities 9,203 8,030
Income taxes payable and deferred 7,242 4,957
Postretirement health care and life
insurance benefits 1,102 909
Deferred compensation and other liabilities 1,925 (624)
Other 261 306
Net cash provided by (used in) operating activities 9,681 (6,422)
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (17,918) (15,540)
Purchase of available for sale securities - (30,326)
Sale and maturity of available for
sale securities 9,542 56,718
Net cash used in investing activities (8,376) (10,852)
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid in cash (13,370) (13,157)
Shares repurchased and retired (20,112) (19,935)
Net cash used in financing activities (33,482) (33,092)
Decrease in cash and cash equivalents (32,177) (28,662)
Cash and cash equivalents at the beginning of year 68,908 57,606
Cash and cash equivalents at the end of quarter $ 36,731 $ 28,944
Supplemental cash flow information
Income taxes paid, net of refunds $ 6,877 $ 10,001
Interest paid $ 176 $ 191
Stock dividend issued $ 32,538 $ 35,043
(The accompanying notes are an integral part of these statements.)
-4-
TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
October 3, 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. The Company evaluated all subsequent events
through the date and time its financial statements were issued
on November 12, 2009. These consolidated financial statements
should be read in conjunction with the consolidated financial
statements and the related notes included in the Company's on 2008
Annual Report on Form 10-K.
Note 2 - Average shares outstanding for the 39 week period ended October 3,
2009 reflect stock repurchases and subsequent retirements of 912
shares for $20,112 and a 3% stock dividend distributed on April 9,
2009. Average shares outstanding for the 39 week period ended
September 27, 2008 reflect stock repurchases and subsequent
retirements of 839 shares for $19,935 and a 3% stock dividend
distributed on April 10, 2008 and April 9, 2009.
Note 3 - Results of operations for the period ended October 3, 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 nine months
ended on October 3, 2009 benefited from three additional shipping days,
experienced in prior quarters, 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 2006
through 2008. With few exceptions, the Company is no longer subject
to examinations by tax authorities for years 2005 and prior.
Note 5 - Fair Value Measurements
In the first quarter of 2009, the Company adopted the authoritative
guidance for fair value measurements 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.
-5-
The Company's investments, other than its equity method investment,
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.
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. 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 October 3, 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 October 3, 2009, and indicates the
fair value hierarchy of the valuation techniques utilized by the
Company to determine such fair value:
Estimated Fair Value Oct 3, 2009
Total Input Levels Used
Description Fair Value Level 1 Level 2 Level 3
Cash and Cash Equivalents $ 36,731 $ 36,731
Auction Rate Security (ARS) 8,410 $ 8,410
Available-for-sale Security excluding ARS 23,652 $ 23,652
Derivatives 2,978 2,978
Trading Securities 30,426 30,426 ________ ______
Total assets measured at fair value $102,197 $ 70,135 $ 23,652 $ 8,410
-5A-
As of October 3, 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 did not change significantly from December 31, 2008.
The Company estimated the fair value of this ARS utilizing a valuation
model with Level 3 inputs as of October 3, 2009. This valuation model
considered, among other items, the credit risk of the collateral
underlying the ARS, the credit risk of Financial Guaranty Insurance
Company (FIGIC) 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 October 3, 2009, because the Company believes that the
current condition of the ARS market as well as the credit condition of
Jefferson County and FIGIC may take more than twelve months to improve.
Available for sale securities, excluding the Jefferson County ARS,
which utilize Level 2 inputs consist primarily of municipal bonds,
which are valued based on alternative pricing sources with reasonable
levels of price transparency.
There is no significant difference between the fair value and carrying
value of the Company's long term debt.
Note 6 - Derivative Instruments and Hedging Activities
During the first quarter of 2009 the Company adopted the authoritative
guidance for disclosures about derivative instruments and hedging
activities. It 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 adoption did not impact the Company's
financial condition, results of operations or cash flow.
From time to time, the Company enters into futures contracts.
Commodity futures are intended and are 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 are 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. Realized gains/losses are recorded
in 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 October 3, 2009, the Company had foreign
currency forward contracts outstanding with a notional amount of
$17,772 that hedged its exposure to changes in foreign currency
exchange rates for its costs of manufacturing certain products in
-5B-
Canada for the U.S. market. The fair value of foreign currency
forward contracts, using level 1 inputs, resulted in an asset of
$2,978 as of October 3, 2009 which is included in other receivables.
During third quarter and nine months ended October 3, 2009, the
Company recorded $1,062 and $2,669, respectively, of net derivative
gains into accumulated other comprehensive loss which is a component
of shareholders' equity in the statement of financial position. The
Company also recognized a gain of $511 and $989, related to
settlement dates of foreign currency contracts settled during the
third quarter and nine months of 2009, respectively. At October 3,
2009, the Company expects to reclassify existing net gains of
approximately $1,520 from accumulated other comprehensive loss to
net earnings during the next twelve months.
The Company utilizes commodities futures contracts and options to
mitigate the effect of commodity cost fluctuations on certain
ingredients, primarily sugar. As of October 3, 2009, the Company
had no outstanding commodities futures contracts.
Note 7 - New Accounting Pronouncements
In April 2008, the FASB issued guidance which amends the factors to
be considered in developing renewal or extension assumptions used to
determine the useful life of intangible assets. The intent of the
guidance 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. It was effective for first quarter 2009.
The Company does not expect the guidance to have a material impact
on the accounting for future acquisitions or intangible assets, but
the potential impact is dependent upon the acquisitions of
intangible assets in the future.
In April 2009, the FASB issued 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. It is effective for
interim and annual periods ending after June 15, 2009. The
Company's adoption of the guidance during second quarter 2009 did
not have a material impact on the Company's consolidated financial
statements.
In April 2009, the FASB amended 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. It is effective
for interim and annual periods ending after June 15, 2009. The
Company's adoption of the guidance during second quarter 2009 did
not have a material impact on the Company's consolidated financial
statements.
In April 2009, the FASB issued guidance which required disclosures
about the fair value of financial instruments in interim reporting
periods of publicly traded companies as well as in annual financial
statements. It is effective for interim periods ending after June
15, 2009. The Company's adoption of the guidance during second
quarter 2009 did not have a material impact on the Company's
consolidated financial statements. See Note 5 to the Condensed
Consolidated financial statements.
-5C-
In May 2009, the FASB issued guidance which established general
standards of accounting for, and disclosure of, events that occur
after the balance sheet date but before financial statements are
issued. It includes a requirement to disclose the date through
which subsequent events were evaluated. See Note 1 to the Condensed
Consolidated financial statements.
In June 2009, the FASB issued guidance which establishes the FASB
Accounting Standards Codification to become the source of
authoritative U.S. generally accepted accounting principles to be
applied by non-governmental entities. It is effective for interim
or annual financial periods ending after September 15, 2009. The
Company adopted this guidance during the current reporting period.
-5D-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(dollars 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
Statements of Earnings.
NET PRODUCT SALES Net change in
Third Quarter, 2009
Third Quarter vs.
2009 2008 Third Quarter, 2008
$183,408 $184,687 -0.7%
Nine Months, 2009
Nine Months vs.
2009 2008 Nine Months, 2008
$385,274 $376,619 2.3%
Third quarter 2009 net product sales were $183,408 compared to $184,687 in
third quarter 2008, a decrease of $1,279 or 0.7%. Nine months 2009 net product
sales of $385,274 increased $8,655 or 2.3% from nine months 2008 net product
sales of $376,619. Third quarter 2009 net sales in the United States benefited
from effective marketing programs, selective price increases and product weight
declines reflecting indirect price increases, however, the timing of certain
customer sales in the comparative second and third quarters of 2009 and 2008
adversely affected third quarter 2009 net product sales. Third quarter
consolidated 2009 net product sales were also adversely affected by declines in
export sales and certain international sales translated into U.S. dollars from
a devalued Mexican foreign currency. Nine months 2009 net product sales also
benefited from effective marketing programs and selective price increases, and
were also adversely impacted by declines in export sales and a devalued Mexican
foreign currency.
The Company's quarterly financial reporting is based on thirteen week
periods, the nine months 2009 benefited from three additional shipping days,
experienced in prior quarters, compared to the same periods of the prior year.
The number of shipping days in the comparative third quarter 2009 and 2008
periods were identical.
PRODUCT COST OF GOODS SOLD:
Third Quarter Percentage of Net Product Sales
2009 2008 3rd Qtr. 2009 3rd Qtr. 2008
$117,707 $125,394 64.2% 67.9%
Nine Months Percentage of Net Product Sales
2009 2008 Nine Months 2009 Nine Months 2008
$247,233 $254,764 64.2% 67.6%
Product cost of goods sold as a percentage of net product sales favorably
decreased from 67.9% in third quarter 2008 to 64.2% in third quarter 2009,
and from 67.6% in nine months 2008 to 64.2% in nine months 2009. These
favorable cost percentage decreases are primarily the result of selective price
increases, product weight declines resulting in indirect price increases, lower
product costs for products manufactured in Canada due to more favorable foreign
exchange rates, and the overall benefits of additional sales for the
comparative nine month periods. As a result of the above discussed factors,
product gross margin increased from 32.1% in third quarter 2008 to 35.8% in
third quarter 2009, and from 32.4% in nine months 2008 to 35.8% in nine months
2009, increases of 3.7% and 3.4% as a percentage of net product sales,
respectively.
-6-
SELLING, MARKETING AND ADMINISTRATIVE EXPENSES:
Third Quarter Percentage of Net Product Sales
2009 2008 3rd Qtr. 2009 3rd Qtr. 2008
$30,877 $29,669 16.8% 16.1%
Nine Months Percentage of Net Product Sales
2009 2008 Nine Months 2009 Nine Months 2008
$78,738 $72,907 20.4% 19.4%
Third quarter 2009 and 2008 selling, marketing and administrative expenses were
$30,877 and $29,669, respectively, an increase of $1,208; and nine months 2009
and 2008 selling, marketing and administrative expenses were $78,738 and
$72,907, respectively, an increase of $5,831. The third quarter 2009 expense
reflects an increase of $1,642 relating to deferred compensation expense,
whereas third quarter 2008 expense reflects a decrease of $950 for this
expense. These expenses for nine months 2009 reflect an increase of $2,338
relating to deferred compensation expense, whereas nine months 2008 expense
reflects a decrease of $2,356 for this expense. Such deferred compensation
expense principally results from changes in the market value of trading
securities used as an economic hedge of the Company's deferred compensation
liabilities as further discussed below under "Net Earnings." Excluding the
effects of the aforementioned deferred compensation changes, third quarter
selling, marketing and administrative expenses were $29,235 and $30,619 in 2009
and 2008, respectively, a decrease of $1,384 or 4.5%; and nine month selling,
marketing and administrative expenses were $76,400 and $75,263 in 2009 and
2008, respectively, an increase of $1,137 or 1.5%.
As a percentage of net product sales, third quarter selling, marketing and
administrative expenses were 16.8% and 16.1% in 2009 and 2008, respectively;
and nine month expenses as a percent of net product sales were 20.4% and 19.4%
in 2009 and 2008, respectively. Adjusting for the above discussed deferred
compensation expenses, selling, marketing and administrative expenses as a
percent of sales favorably decreased from 16.6% in third quarter 2008 to 15.9%
in third quarter 2009; and from 20.0% in nine months 2008 to 19.8% in nine
months 2009.
The above discussed changes in selling, marketing and administrative expenses
primarily reflect the related increases or decreases in certain variable
operating expenses relating to changes in net product sales. Third quarter and
nine months 2009 selling, marketing and administrative expenses did favorably
benefit from lower energy and fuel costs relating to freight and delivery.
Third quarter and nine months 2009 selling, marketing and administrative
expenses also reflect increases in certain accrued incentive compensation
awards that are generally adjusted for changes in net earnings, and an increase
in bad debt expense in the comparative periods.
Third quarter 2009 and 2008 earnings from operations were $35,549 and $30,392,
respectively; and nine months 2009 and 2008 earnings from operations were
$61,438 and $51,315, respectively. Adjusting for the above discussed deferred
compensation expenses (including amounts included in product cost of goods
sold), third quarter 2009 earnings from operations were $37,656 compared to
$29,114 in third quarter 2008, an increase of $8,542 or 29.3%; and nine months
2009 earnings from operations were $64,426 compared to $48,146 in nine months
2008, an increase of $16,280 or 33.8%. Results for third quarter and nine
months 2009 were favorably impacted by higher sales in the United States and
improved gross profit margins, as well as other factors discussed above.
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Other income (expense), net was $3,083 in third quarter 2009 compared to ($986)
in third quarter 2008, a net increase of $4,069. Nine months 2009 other income
(expense), net was $4,524 compared to $(1,573) for nine months 2008, a net
increase of $6,097. Other income, net includes the changes in the market value
in the Company's trading securities which are an economic hedge of the
Company's deferred compensation liabilities. The income (expense) on such
trading securities was $2,107 and ($1,278) in third quarter 2009 and 2008,
respectively, and $2,988 and $(3,169) in nine months 2009 and 2008,
respectively. Such income or (expense) was substantially offset by a like
amount of (expense) or income in aggregate product cost of goods sold and
selling marketing and administrative expenses in the respective periods. Other
income, net in third quarter and nine months 2009 reflects decreases of $571
and $1,460, respectively, in investment income on available for sale securities
and cash balances reflecting lower interest rates in the investment markets.
Other income, net in third quarter and nine months 2009 also includes favorable
increases of $1,086 and $1,429, respectively, in net changes in net foreign
exchange and transaction gains and losses.
The consolidated effective income tax rate favorably decreased from 33.0% in
third quarter 2008 to 29.5% in third quarter 2009, and from 32.8% in nine
months 2008 to 30.4% in nine months 2009. The decrease in the third quarter
and nine months 2009 effective tax rates reflects lower state income tax
expense, including the effective conclusion of an income tax audit, and
favorable changes in federal and state tax reserves, including the effects of
statutory expirations.
NET EARNINGS:
Third Quarter, 2009
Third Quarter vs.
2009 2008 Third Quarter, 2008
$27,247 $ 19,715 38.2%
Nine Months, 2009
Nine Months vs.
2009 2008 Nine Months, 2008
$45,905 $33,414 37.4%
Third quarter 2009 net earnings were $27,247 compared to third quarter 2008 net
earnings of $19,715, a $7,532 or 38.2% increase. Third quarter 2009 and 2008
earnings per share were $0.49 and $0.35, an increase of $0.14 or 40.0%. Nine
months 2009 net earnings were $45,905 compared to nine months 2008 net earnings
of $33,414, a $12,491 or 37.4% increase. Nine months 2009 and 2008 earnings
per share were $0.82 and $0.59, an increase of $0.23 or 39.0%. The Company's
earnings per share for both third quarter and nine months 2009 reflect common
stock purchases in the open market resulting in fewer shares outstanding.
LIQUIDITY AND CAPITAL RESOURCES:
The Company's current ratio (current assets divided by current liabilities) was
2.9 to 1 as of the end of third quarter 2009 as compared to 3.0 to 1 as of the
end of third quarter 2008 and 3.2 to 1 as of the end of fourth quarter 2008.
Net working capital was $147,117 as of the end of third quarter 2009 as compared
to $139,755 and $128,727 as of the end of third quarter 2008 and fourth quarter
2008, respectively. These net working capital amounts include total cash and
cash equivalents and short-term investments which aggregated $49,545 as of the
end of third quarter 2009 compared to $43,464 and $86,871, as of the end of
third quarter 2008 and fourth quarter 2008, respectively. In addition, long-
term investments, principally debt securities comprising municipal bonds, were
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$49,674 (includes $8,410 of Jefferson County auction rate securities discussed
in Note 5 to the accompanying Condensed Consolidated Financial Statements) as of
the end of third quarter 2009, as compared to $59,368 and $49,809 as of the end
of third quarter 2008 and fourth quarter 2008, respectively. Aggregate cash and
cash equivalents and short and long-term investments were $99,219, $102,832 and
$136,680, respectively for third quarter 2009, third quarter 2008 and fourth
quarter 2008, respectively. Investments in municipal bonds and other debt
securities that matured during nine months 2009 and 2008 were generally used to
purchase the Company's common stock or were replaced with debt securities of
similar maturities.
Net cash provided by operating activities was $9,681 for nine months 2009, as
compared to net cash used in operating activities of $6,422 for nine months
2008. The $16,103 change in net cash provided by (used in) operating activities
for the comparative nine month months periods principally reflects the $12,491
increase in net earnings and the timing of payments and cash flows relating to
operating assets and liabilities for the comparative periods. Capital
expenditures for nine months 2009 and 2008 were $17,918 and $15,540,
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 paid in nine months 2009 and 2008 were $13,370 and $13,157,
respectively.
During nine months 2009, the Company also purchased and retired $20,112 of its
shares of common stock compared to $19,935 during the same period of the
previous year.
NEW ACCOUNTING PRONOUNCEMENTS
In April 2008, the FASB issued guidance which amends the factors to be
considered in developing renewal or extension assumptions used to determine
the useful life of intangible assets. The intent of the guidance 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. It was effective for
first quarter 2009. The Company does not expect the guidance to have a
material impact on the accounting for future acquisitions or intangible assets,
but the potential impact is dependent upon the acquisitions of intangible
assets in the future.
In April 2009, the FASB issued 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. It is effective for interim and annual periods ending after
June 15, 2009. The Company's adoption of the guidance during second quarter
2009 did not have a material impact on the Company's consolidated financial
statements.
In April 2009, the FASB amended 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. It is effective for interim and annual periods ending after
June 15, 2009. The Company's adoption of the guidance during second quarter
2009 did not have a material impact on the Company's consolidated financial
statements.
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In April 2009, the FASB issued guidance which required disclosures about the
fair value of financial instruments in interim reporting periods of publicly
traded companies as well as in annual financial statements. It is effective
for interim periods ending after June 15, 2009. The Company's adoption of the
guidance during second quarter 2009 did not have a material impact on the
Company's consolidated financial statements. See Note 5 to the Condensed
Consolidated financial statements.
In May 2009, the FASB issued guidance which established general standards of
accounting for, and disclosure of, events that occur after the balance sheet
date but before financial statements are issued. It includes a requirement to
disclose the date through which subsequent events were evaluated. See Note 1
to the Condensed Consolidated financial statements.
In June 2009, the FASB issued guidance which establishes the FASB Accounting
Standards Codification to become the source of authoritative U.S. generally
accepted accounting principles to be applied by non-governmental entities. It
is effective for interim or annual financial periods ending after September 15,
2009. The Company adopted this guidance during the current reporting period.
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
-6D-
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 and/or other adverse economic
conditions or events. In addition, the Company's results may be affected by
general factors, such as overall economic conditions, financial and securities'
market factors, political developments, 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 generally up to three years, the
majority of the Company's investments have historically been 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 October 3, 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 October 3,
2009 that has materially affected, or is reasonably likely to materially
affect, the Company's internal control over financial reporting.
-6E-
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
JUL 5 TO AUG 1 176,056 22.80 NOT APPLICABLE NOT APPLICABLE
AUG 2 TO AUG 29 20,800 23.47 NOT APPLICABLE NOT APPLICABLE
AUG 30 TO OCT 3 82,700 23.51 NOT APPLICABLE NOT APPLICABLE
TOTAL 279,556 23.06
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: Nov. 12, 2009 BY:/S/MELVIN J. GORDON
Melvin J. Gordon
Chairman and Chief
Executive Officer
Date: Nov. 12, 2009 BY:/S/G. HOWARD EMBER, JR.
G. Howard Ember, Jr.
Vice President Finance and
Chief Financial Officer
-7-
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: Nov. 12, 2009
By: /S/MELVIN J. GORDON
Melvin J. Gordon
Chairman and Chief Executive Officer
-7A-
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: Nov. 12, 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 October 3, 2009 (the
Form 10-Q) fully complies with the requirements of secton 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: Nov. 12, 2009 /S/MELVIN J. GORDON
Melvin J. Gordon
Chairman and Chief
Executive Officer
Dated: Nov. 12, 2009 /S/G. HOWARD EMBER, JR.
G. Howard Ember, Jr.
Vice President Finance and
Chief Financial Officer
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