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Tootsie Roll Industries 10-Q 2011

Documents found in this filing:

  1. 10-Q
  2. Ex-31.1
  3. Ex-31.2
  4. Ex-32.1
  5. Ex-32.1

Table of Contents

 

 

 

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 JULY 2, 2011

 

OR

 

o         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 o

 

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 x  No o

 

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 o

 

 

 

Non-accelerated filer o

 

Smaller reporting company o

 

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes o  No x

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date (July 2, 2011)

 

Class

 

Outstanding

 

 

 

Common Stock, $.69 4/9 par value

 

36,889,948

Class B Common Stock, $.69 4/9 par value

 

21,039,591

 

 

 



Table of Contents

 

TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES

 

JULY 2, 2011

 

INDEX

 

 

 

Page No.

 

 

 

Part I —

Financial Information

 

 

 

 

Item 1.

Financial Statements:

 

 

 

 

 

Condensed Consolidated Statements of Financial Position

3-4

 

 

 

 

Condensed Consolidated Statements of Earnings, Comprehensive Earnings and Retained Earnings

5-6

 

 

 

 

Condensed Consolidated Statements of Cash Flows

7

 

 

 

 

Notes to Condensed Consolidated Financial Statements

8-12

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

13-16

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

17

 

 

 

Item 4.

Controls and Procedures

18

 

 

 

Part II —

Other Information

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

19

 

 

 

Item 6.

Exhibits

20

 

 

Signatures

20

 

 

Certifications

21-23

 

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 “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.

 

2



Table of Contents

 

PART I - FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

(in thousands)

 

 

 

July 2,

 

December 31,

 

July 3,

 

 

 

2011

 

2010

 

2010

 

 

 

(unaudited)

 

 

 

(unaudited)

 

ASSETS

 

 

 

 

 

 

 

CURRENT ASSETS

 

 

 

 

 

 

 

Cash & cash equivalents

 

$

41,282

 

$

115,976

 

$

60,006

 

Investments

 

10,324

 

7,996

 

7,082

 

Trade accounts receivable,

 

 

 

 

 

 

 

Less allowances of $1,661, $1,531 & $1,879

 

26,862

 

37,394

 

23,566

 

Other receivables

 

7,043

 

9,961

 

7,471

 

Inventories, at cost

 

 

 

 

 

 

 

Finished goods & work in process

 

75,385

 

36,935

 

71,604

 

Raw material & supplies

 

31,308

 

22,141

 

34,055

 

Prepaid expenses

 

8,103

 

6,499

 

8,001

 

Deferred income taxes

 

682

 

689

 

1,367

 

 

 

 

 

 

 

 

 

Total current assets

 

200,989

 

237,591

 

213,152

 

 

 

 

 

 

 

 

 

PROPERTY, PLANT & EQUIPMENT, at cost

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Land

 

21,659

 

21,619

 

21,570

 

Buildings

 

103,002

 

102,934

 

102,395

 

Machinery & equipment

 

307,325

 

307,178

 

297,919

 

Construction in progress

 

15,221

 

9,243

 

12,624

 

 

 

447,207

 

440,974

 

434,508

 

Less-accumulated depreciation

 

234,714

 

225,482

 

216,129

 

Net property, plant and equipment

 

212,493

 

215,492

 

218,379

 

 

 

 

 

 

 

 

 

OTHER ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Goodwill

 

73,237

 

73,237

 

73,237

 

Trademarks

 

175,024

 

175,024

 

175,024

 

Investments

 

103,835

 

64,461

 

61,721

 

Split dollar life insurance

 

74,441

 

74,441

 

74,638

 

Prepaid expenses

 

5,034

 

6,680

 

6,444

 

Investment in joint venture

 

4,751

 

4,254

 

3,930

 

Deferred income taxes

 

9,106

 

9,203

 

11,580

 

Total other assets

 

445,428

 

407,300

 

406,574

 

 

 

 

 

 

 

 

 

Total assets

 

$

858,910

 

$

860,383

 

$

838,105

 

 

(The accompanying notes are an integral part of these statements.)

 

3



Table of Contents

 

(in thousands except per share data)

 

 

 

July 2,

 

December 31,

 

July 3,

 

 

 

2011

 

2010

 

2010

 

 

 

(unaudited)

 

 

 

(unaudited)

 

LIABILITIES AND SHAREHOLDERS’ EQUITY CURRENT LIABILITIES

 

 

 

 

 

 

 

Accounts payable

 

$

13,869

 

$

9,791

 

$

13,671

 

Dividends payable

 

4,635

 

4,529

 

4,560

 

Accrued liabilities

 

41,197

 

44,185

 

44,292

 

Total current liabilities

 

59,701

 

58,505

 

62,523

 

 

 

 

 

 

 

 

 

NONCURRENT LIABILITIES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deferred income taxes

 

47,159

 

48,743

 

42,842

 

Postretirement health care and life insurance benefits

 

21,709

 

20,689

 

17,489

 

Industrial development bonds

 

7,500

 

7,500

 

7,500

 

Liability for uncertain tax positions

 

10,074

 

9,835

 

17,695

 

Deferred compensation and other liabilities

 

48,866

 

46,157

 

39,217

 

Total noncurrent liabilities

 

135,308

 

132,924

 

124,743

 

 

 

 

 

 

 

 

 

SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock, $.69-4/9 par value- 120,000 shares authorized; 36,890, 36,057 & 36,517, respectively, issued

 

25,618

 

25,040

 

25,358

 

Class B common stock, $.69-4/9 par value- 40,000 shares authorized; 21,040, 20,466 & 20,488, respectively, issued

 

14,611

 

14,212

 

14,228

 

Capital in excess of par value

 

543,503

 

505,495

 

518,013

 

Retained earnings

 

95,261

 

137,412

 

110,420

 

Accumulated other comprehensive loss

 

(13,100

)

(11,213

)

(15,188

)

Treasury stock (at cost)- 71, 69 & 69 shares, respectively

 

(1,992

)

(1,992

)

(1,992

)

Total shareholders’ equity

 

663,901

 

668,954

 

650,839

 

Total liabilities and shareholders’ equity

 

$

858,910

 

$

860,383

 

$

838,105

 

 

(The accompanying notes are an integral part of these statements.)

 

4



Table of Contents

 

TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF

EARNINGS, COMPREHENSIVE EARNINGS AND RETAINED EARNINGS

(in thousands except per share amounts)    (UNAUDITED)

 

 

 

Quarter Ended

 

 

 

July 2, 2011

 

July 3, 2010

 

 

 

 

 

 

 

Net product sales

 

$

104,884

 

$

105,026

 

Rental and royalty revenue

 

936

 

997

 

 

 

 

 

 

 

Total revenue

 

105,820

 

106,023

 

 

 

 

 

 

 

Product cost of goods sold

 

71,490

 

69,360

 

Rental and royalty cost

 

238

 

254

 

 

 

 

 

 

 

Total costs

 

71,728

 

69,614

 

 

 

 

 

 

 

Product gross margin

 

33,394

 

35,666

 

Rental and royalty gross margin

 

698

 

743

 

 

 

 

 

 

 

Total gross margin

 

34,092

 

36,409

 

 

 

 

 

 

 

Selling, marketing and administrative expenses

 

26,171

 

22,544

 

 

 

 

 

 

 

Earnings from operations

 

7,921

 

13,865

 

 

 

 

 

 

 

Other income (expense), net

 

1,001

 

(2,058

)

 

 

 

 

 

 

Earnings before income taxes

 

8,922

 

11,807

 

Provision for income taxes

 

2,757

 

3,360

 

Net earnings

 

6,165

 

8,447

 

 

 

 

 

 

 

Other comprehensive income, before tax:

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

448

 

(1,342

)

 

 

 

 

 

 

Unrealized gains on securities

 

1,965

 

273

 

 

 

 

 

 

 

Reclassifications to earnings and changes in fair value of derivatives

 

(1,607

)

(1,257

)

 

 

 

 

 

 

Other comprehensive income (loss), before tax

 

806

 

(2,326

)

 

 

 

 

 

 

Income tax benefit related to items of other comprehensive income

 

(175

)

579

 

 

 

 

 

 

 

Other comprehensive income (loss), net of tax

 

631

 

(1,747

)

 

 

 

 

 

 

Comprehensive earnings

 

$

6,796

 

$

6,700

 

 

 

 

 

 

 

Retained earnings at beginning of period

 

$

93,725

 

$

106,529

 

Net earnings

 

6,165

 

8,447

 

Cash dividends

 

(4,629

)

(4,556

)

 

 

 

 

 

 

Retained earnings at end of period

 

$

95,261

 

$

110,420

 

 

 

 

 

 

 

Net earnings per share

 

$

0.11

 

$

0.14

 

Dividends per share *

 

$

0.08

 

$

0.08

 

 

 

 

 

 

 

Average number of shares outstanding

 

58,012

 

58,792

 

 


*Does not include 3% stock dividend to shareholders of record on 3/8/11 and 3/9/10.

 

(The accompanying notes are an integral part of these statements.)

 

5



Table of Contents

 

TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF

EARNINGS, COMPREHENSIVE EARNINGS AND RETAINED EARNINGS

(in thousands except per share amounts)     (UNAUDITED)

 

 

 

Year to Date Ended

 

 

 

July 2, 2011

 

July 3, 2010

 

 

 

 

 

 

 

Net product sales

 

$

213,207

 

$

208,270

 

Rental and royalty revenue

 

2,008

 

2,126

 

 

 

 

 

 

 

Total revenue

 

215,215

 

210,396

 

 

 

 

 

 

 

Product cost of goods sold

 

145,531

 

137,483

 

Rental and royalty cost

 

508

 

549

 

 

 

 

 

 

 

Total costs

 

146,039

 

138,032

 

 

 

 

 

 

 

Product gross margin

 

67,676

 

70,787

 

Rental and royalty gross margin

 

1,500

 

1,577

 

 

 

 

 

 

 

Total gross margin

 

69,176

 

72,364

 

 

 

 

 

 

 

Selling, marketing and administrative expenses

 

52,135

 

47,870

 

 

 

 

 

 

 

Earnings from operations

 

17,041

 

24,494

 

 

 

 

 

 

 

Other income, net

 

3,993

 

1,358

 

 

 

 

 

 

 

Earnings before income taxes

 

21,034

 

25,852

 

Provision for income taxes

 

6,869

 

8,201

 

Net earnings

 

14,165

 

17,651

 

 

 

 

 

 

 

Other comprehensive income, before tax:

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

1,450

 

(585

)

 

 

 

 

 

 

Unrealized gains on securities

 

1,776

 

512

 

 

 

 

 

 

 

Reclassifications to earnings and changes in fair value of derivatives

 

(6,860

)

(4,539

)

 

 

 

 

 

 

Other comprehensive loss, before tax

 

(3,634

)

(4,612

)

 

 

 

 

 

 

Income tax benefit related to items of other comprehensive income

 

1,747

 

1,820

 

 

 

 

 

 

 

Other comprehensive loss, net of tax

 

(1,887

)

(2,792

)

 

 

 

 

 

 

Comprehensive earnings

 

$

12,278

 

$

14,859

 

 

 

 

 

 

 

Retained earnings at beginning of period

 

$

137,412

 

$

148,582

 

Net earnings

 

14,165

 

17,651

 

Cash dividends

 

(9,141

)

(9,008

)

Stock dividends — 3%

 

(47,175

)

(46,805

)

 

 

 

 

 

 

Retained earnings at end of period

 

$

95,261

 

$

110,420

 

 

 

 

 

 

 

Net earnings per share

 

$

0.24

 

$

0.30

 

Dividends per share *

 

$

0.16

 

$

0.16

 

 

 

 

 

 

 

Average number of shares outstanding

 

58,050

 

58,884

 

 


*Does not include 3% stock dividend to shareholders of record on 3/8/11 and 3/9/10.

 

(The accompanying notes are an integral part of these statements.)

 

6



Table of Contents

 

TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands of dollars)       (UNAUDITED)

 

 

 

Year to Date Ended

 

 

 

July 2, 2011

 

July 3, 2010

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

 

 

 

Net earnings

 

$

14,165

 

$

17,651

 

Adjustments to reconcile net earnings to net cash used in operating activities:

 

 

 

 

 

Depreciation and amortization

 

9,255

 

9,184

 

(Gain) loss from equity method investment

 

(133

)

139

 

Amortization of marketable securities

 

513

 

232

 

Changes in operating assets and liabilities:

 

 

 

 

 

Accounts receivable

 

10,765

 

13,989

 

Other receivables

 

710

 

(3,612

)

Inventories

 

(47,319

)

(49,183

)

Prepaid expenses and other assets

 

84

 

2,201

 

Accounts payable and accrued liabilities

 

995

 

6,322

 

Income taxes payable and deferred

 

(4,078

)

(645

)

Postretirement health care and life insurance benefits

 

1,020

 

815

 

Deferred compensation and other liabilities

 

828

 

550

 

Other

 

385

 

120

 

 

 

 

 

 

 

Net cash used in operating activities

 

(12,810

)

(2,237

)

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

 

 

 

Capital expenditures

 

(6,067

)

(6,781

)

Net purchases of trading securities

 

(2,724

)

(2,369

)

Purchase of available for sale securities

 

(37,142

)

(3,039

)

Sale and maturity of available for sale securities

 

1,275

 

2,498

 

 

 

 

 

 

 

Net cash used in investing activities

 

(44,658

)

(9,691

)

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

 

 

 

Dividends paid in cash

 

(9,157

)

(9,028

)

Shares purchased and retired

 

(8,069

)

(10,028

)

 

 

 

 

 

 

Net cash used in financing activities

 

(17,226

)

(19,056

)

 

 

 

 

 

 

Decrease in cash and cash equivalents

 

(74,694

)

(30,984

)

Cash and cash equivalents at beginning of year

 

115,976

 

90,990

 

 

 

 

 

 

 

Cash and cash equivalents at end of quarter

 

$

41,282

 

$

60,006

 

 

 

 

 

 

 

Supplemental cash flow information:

 

 

 

 

 

Income taxes paid, net

 

$

7,941

 

$

8,470

 

Interest paid

 

$

29

 

$

41

 

Stock dividend issued

 

$

47,053

 

$

46,682

 

 

(The accompanying notes are an integral part of these statements.)

 

7



Table of Contents

 

TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JULY 2, 2011

(in thousands except per share amounts) (UNAUDITED)

 

Note 1 — Significant Accounting Policies

 

General Information

 

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 2010 Annual Report on Form 10-K.

 

Results of operations for the period ended July 2, 2011 are not necessarily indicative of results to be expected for the year to end December 31, 2011 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.

 

Revision

 

During 2010, the Company identified certain liabilities for uncertain tax positions that should not have been recorded based on a reevaluation of the related facts. Management has concluded that the effects of the correcting adjustments were not material to the Company’s previously issued quarterly and annual financial statements.  The Company has revised the previously issued financial statements in this quarterly report and will do so in future filings.  The revised financial statements reflect an increase in retained earnings at the beginning of the quarter and year 2010 of $2,773 and $2,654, respectively.  The revised financial statements also reflect changes to the provision for income tax expense which resulted in an increase (decrease) in net earnings of $(24) and $95, for the second quarter and year to date 2010, respectively.

 

Accounting Pronouncements

 

In May 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2011-04, “Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards (IFRS).”  ASU 2011-04 represents converged guidance between U.S. GAAP and IFRS resulting in common requirements for measuring fair value and for disclosing information about fair value measurements.  This new guidance will be effective for fiscal years beginning after December 15, 2011 and subsequent interim periods.  The Company is currently assessing the impact, if any, on the consolidated financial statements.

 

In June 2011, the FASB issued ASU 2011-05, “Presentation of Comprehensive Income.” ASU 2011-05 requires us to present components of other comprehensive income and of net income in one continuous statement of comprehensive income, or in two separate, but consecutive statements.  The option to report other comprehensive income within the statement of equity has been removed.  This new presentation of comprehensive income will be effective for fiscal years beginning after December 15, 2011 and subsequent interim periods.

 

Note 2 — Average Shares Outstanding

 

Average shares outstanding for the first half ended July 2, 2011 reflect stock purchases of 283 shares for $8,069 and a 3% stock dividend distributed on April 7, 2011. Average shares outstanding for the first half ended July 3, 2010 reflect stock purchases of 384 shares for $10,028 and a 3% stock dividend distributed on April 8, 2010.

 

Note 3 — Income Taxes

 

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 2007 through 2010.  Certain foreign jurisdictions are subject to examinations for the years 2004 through 2010.

 

Note 4 — Fair Value Measurements

 

Current accounting guidance defines fair value as the price that would be received in the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  Guidance requires disclosure of the extent to which fair value is used to measure financial assets and liabilities, the inputs utilized in calculating valuation

 

8



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measurements, and the effect of the measurement of significant unobservable inputs on earnings, or changes in net assets, as of the measurement date.  Guidance establishes a three-level valuation hierarchy based upon the transparency of inputs utilized in the measurement and valuation of financial assets or liabilities as of the measurement date.  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 July 2, 2011, December 31, 2010 and July 3, 2010, the Company held certain financial assets that are required to be measured at fair value on a recurring basis.  These included derivative hedging instruments related to the purchase of certain raw materials, 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 and liabilities measured at fair value as of July 2, 2011, December 31, 2010 and July 3, 2010, and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value:

 

 

 

Estimated Fair Value July 2, 2011

 

 

 

Total

 

Input Levels Used

 

 

 

Fair Value

 

Level 1

 

Level 2

 

Level 3

 

Cash and cash equivalents

 

$

41,282

 

$

41,282

 

$

 

$

 

ARS

 

8,130

 

 

 

8,130

 

Available-for-sale securities excluding ARS

 

62,953

 

 

62,953

 

 

Foreign currency forward contracts

 

368

 

368

 

 

 

Commodity futures contracts

 

573

 

573

 

 

 

Commodity options contracts

 

565

 

565

 

 

 

Trading securities

 

43,076

 

43,076

 

 

 

Total assets measured at fair value

 

$

156,947

 

$

85,864

 

$

62,953

 

$

8,130

 

 

 

 

Estimated Fair Value December 31, 2010

 

 

 

Total

 

Input Levels Used

 

 

 

Fair Value

 

Level 1

 

Level 2

 

Level 3

 

Cash and cash equivalents

 

$

115,976

 

$

115,976

 

$

 

$

 

ARS

 

6,775

 

 

 

6,775

 

Available-for-sale securities excluding ARS

 

27,178

 

 

27,178

 

 

Foreign currency forward contracts

 

942

 

942

 

 

 

Commodity futures contracts

 

2,310

 

2,310

 

 

 

Commodity options contracts

 

5,369

 

5,369

 

 

 

Trading securities

 

38,504

 

38,504

 

 

 

Total assets measured at fair value

 

$

197,054

 

$

163,101

 

$

27,178

 

$

6,775

 

 

 

 

Estimated Fair Value July 3, 2010

 

 

 

Total

 

Input Levels Used

 

 

 

Fair Value

 

Level 1

 

Level 2

 

Level 3

 

Cash and cash equivalents

 

$

60,006

 

$

60,006

 

$

 

$

 

ARS

 

8,279

 

 

 

8,279

 

Available-for-sale securities excluding ARS

 

27,102

 

 

27,102

 

 

Foreign currency forward contracts

 

1,371

 

1,371

 

 

 

Commodity futures contracts

 

(823

)

(823

)

 

 

Commodity options contracts

 

(1,339

)

(1,339

)

 

 

Trading securities

 

33,422

 

33,422

 

 

 

Total assets measured at fair value

 

$

128,018

 

$

92,637

 

$

27,102

 

$

8,279

 

 

As of July 2, 2011, the Company’s long term investments included an ARS, Jefferson County Alabama Sewer Revenue Refunding Warrants, reported at a fair value of $8,130, after reflecting a $5,140 other than temporary impairment and a $280 temporary decline in market value against its $13,550 par value.  In 2008, this ARS was determined to be other than temporarily impaired due to the duration and severity of the decline in fair value.  The Company estimated the fair value of this ARS utilizing a valuation model with Level 3 inputs.  This valuation model considered, among other items, a limited

 

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number of market trades, 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.  See Management’s Discussion and Analysis of Financial Condition and Results of Operations regarding Jefferson County ARS.  The Company classified this ARS as non-current and has included it in long term investments on the Condensed Consolidated Statements of Financial Position at July 2, 2011, December 31, 2010 and July 3, 2010 because the Company believes that the current condition of the ARS market may take more than twelve months to improve.

 

The following table presents additional information about the Company’s financial instruments (all ARS) measured at fair value on a recurring basis using significant unobservable inputs (Level 3) at July 2, 2011 and July 3, 2010:

 

 

 

2011

 

2010

 

 

 

 

 

 

 

Balance at January 1

 

$

6,775

 

$

7,710

 

Unrealized gain in other comprehensive loss

 

1,355

 

569

 

 

 

 

 

 

 

Balance at July 2 and July 3, respectively

 

$

8,130

 

$

8,279

 

 

The $7,500 carrying amount of the Company’s industrial revenue development bonds at July 2, 2011 and July 3, 2010 approximates its estimated fair value as the bonds have a floating interest rate.

 

Note 5 — Derivative Instruments and Hedging Activities

 

From time to time, the Company uses derivative instruments, including foreign currency forward contracts, commodity futures contracts and commodity option contracts, to manage its exposures to foreign exchange and commodity prices. Commodity futures contracts and most commodity option contracts 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 recognizes all derivative instruments as either assets or liabilities at fair value in the Condensed Consolidated Statement of Financial Position.  Derivative assets are recorded in other receivables and derivative liabilities are recorded in accrued liabilities.  The Company uses either hedge accounting or mark-to-market accounting for its derivative instruments.  Derivatives that qualify for hedge accounting are designated as cash flow hedges by formally documenting the hedge relationships, including identification of the hedging instruments, the hedged items and other critical terms, as well as the Company’s risk management objectives and strategies for undertaking the hedge transaction.

 

Changes in the fair value of the Company’s cash flow hedges 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 for commodity derivatives are expected to be reclassified to cost of goods sold.  Substantially all amounts reported in accumulated other comprehensive loss for foreign currency derivatives are expected to be reclassified to other income (expense), net.

 

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The following table summarizes the Company’s outstanding derivative contracts and their effects on its Condensed Consolidated Statements of Financial Position at July 2, 2011, December 31, 2010 and July 3, 2010:

 

 

 

July 2, 2011

 

 

 

Notional

 

 

 

 

 

 

 

Amounts

 

Assets

 

Liabilities

 

 

 

 

 

 

 

 

 

Derivatives designated as hedging instruments:

 

 

 

 

 

 

 

Foreign currency forward contracts

 

$

1,192

 

$

368

 

$

 

Commodity futures contracts

 

7,773

 

615

 

(42

)

Commodity option contracts

 

1,160

 

566

 

(1

)

Total derivatives designated as hedges

 

 

 

1,549

 

(43

)

Derivatives not designated as hedging instruments:

 

 

 

 

 

 

 

Commodity option contracts

 

370

 

 

 

Total derivatives not designated as hedges

 

 

 

 

 

Total derivatives

 

 

 

$

1,549

 

$

(43

)

 

 

 

December 31, 2010

 

 

 

Notional

 

 

 

 

 

 

 

Amounts

 

Assets

 

Liabilities

 

 

 

 

 

 

 

 

 

Derivatives designated as hedging instruments:

 

 

 

 

 

 

 

Foreign currency forward contracts

 

$

3,572

 

$

942

 

$

 

Commodity futures contracts

 

4,407

 

2,310

 

 

Commodity option contracts

 

10,344

 

5,481

 

(112

)

Total derivatives designated as hedges

 

 

 

8,733

 

(112

)

Derivatives not designated as hedging instruments:

 

 

 

 

 

 

 

Commodity option contracts

 

 

 

 

 

Total derivatives not designated as hedges

 

 

 

 

 

Total derivatives

 

 

 

$

8,733

 

$

(112

)

 

 

 

July 3, 2010

 

 

 

Notional

 

 

 

 

 

 

 

Amounts

 

Assets

 

Liabilities

 

 

 

 

 

 

 

 

 

Derivatives designated as hedging instruments:

 

 

 

 

 

 

 

Foreign currency forward contracts

 

$

7,520

 

$

1,371

 

$

 

Commodity futures contracts

 

5,033

 

 

(823

)

Commodity option contracts

 

11,607

 

581

 

(1,680

)

Total derivatives designated as hedges

 

 

 

1,952

 

(2,503

)

Derivatives not designated as hedging instruments:

 

 

 

 

 

 

 

Commodity option contracts

 

3,313

 

 

(240

)

Total derivatives not designated as hedges

 

 

 

 

(240

)

Total derivatives

 

 

 

$

1,952

 

$

(2,743

)

 

The effects of derivative instruments on the Company’s Condensed Consolidated Statement of Earnings, Comprehensive Earnings and Retained Earnings for quarter and year to date ended July 2, 2011 and July 3, 2010 are as follows:

 

 

 

For Quarter Ended July 2, 2011

 

 

 

 

 

 

 

Gain (Loss)

 

 

 

 

 

Gain (Loss)

 

on Amount Excluded

 

 

 

Gain(Loss)

 

Reclassified from

 

from Effectiveness

 

 

 

Recognized

 

Accumulated OCI

 

Testing Recognized

 

 

 

in OCI

 

into Earnings

 

in Earnings

 

 

 

 

 

 

 

 

 

Foreign currency forward contracts

 

$

12

 

$

244

 

$

 

Commodity futures contracts

 

1,615

 

1,415

 

 

Commodity option contracts

 

(1,627

)

(52

)

 

 

 

 

 

 

 

 

 

Total

 

$

 

$

1,607

 

$

 

 

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For Quarter Ended July 3, 2010

 

 

 

 

 

 

 

Gain (Loss)

 

 

 

 

 

Gain (Loss)

 

on Amount Excluded

 

 

 

Gain (Loss)

 

Reclassified from

 

from Effectiveness

 

 

 

Recognized

 

Accumulated OCI

 

Testing Recognized

 

 

 

in OCI

 

into Earnings

 

in Earnings

 

 

 

 

 

 

 

 

 

Foreign currency forward contracts

 

$

(590

)

$

1,077

 

$

 

Commodity futures contracts

 

(1,145

)

(1,523

)

 

Commodity option contracts

 

(295

)

(327

)

 

 

 

 

 

 

 

 

 

Total

 

$

(2,030

)

$

(773

)

$

 

 

 

 

For Year to Date Ended July 2, 2011

 

 

 

 

 

 

 

Gain (Loss)

 

 

 

 

 

Gain (Loss)

 

on Amount Excluded

 

 

 

Gain(Loss)

 

Reclassified from

 

from Effectiveness

 

 

 

Recognized

 

Accumulated OCI

 

Testing Recognized

 

 

 

in OCI

 

into Earnings

 

in Earnings

 

 

 

 

 

 

 

 

 

Foreign currency forward contracts

 

$

121

 

$

695

 

$

 

Commodity futures contracts

 

3,856

 

5,593

 

 

Commodity option contracts

 

(4,836

)

(287

)

 

 

 

 

 

 

 

 

 

Total

 

$

(859

)

$

6,001

 

$

 

 

 

 

For Year to Date Ended July 3, 2010

 

 

 

 

 

 

 

Gain (Loss)

 

 

 

 

 

Gain (Loss)

 

on Amount Excluded

 

 

 

Gain (Loss)

 

Reclassified from

 

from Effectiveness

 

 

 

Recognized

 

Accumulated OCI

 

Testing Recognized

 

 

 

in OCI

 

into Earnings

 

in Earnings

 

 

 

 

 

 

 

 

 

Foreign currency forward contracts

 

$

21

 

$

2,325

 

$

 

Commodity futures contracts

 

(1,283

)

(461

)

 

Commodity option contracts

 

(1,740

)

(327

)

 

 

 

 

 

 

 

 

 

Total

 

$

(3,002

)

$

1,537

 

$

 

 

During the quarters and years to date ended July 2, 2011 and July 3, 2010, the Company recognized earnings/(losses) of $(105) and $16, and $822 and $(1,788) respectively, related to mark-to-market accounting for certain commodity option contracts.

 

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

(in thousands except per share amounts)

 

This financial review discusses the Company’s financial condition, results of operations, liquidity and capital resources, new accounting pronouncements, and other matters.  It should be read in conjunction with the accompanying Condensed Consolidated Financial Statements and related footnotes.

 

Net product sales were $104,884 in second quarter 2011 compared to $105,026 in second quarter 2010, a decrease of $142 or 0.1%.  First half 2011 net product sales were $213,207 compared to $208,270 in first half 2010, an increase of $4,937 or 2.4%. Second quarter 2011 net product sales were adversely affected by the timing of certain customer sales. First half 2011 sales, which were 2.4% greater than first half 2010 sales, benefited from effective marketing and sales programs and principally reflect organic growth in volume, including product line extensions.

 

Product cost of goods sold were $71,490 in second quarter 2011 compared to $69,360 in second quarter 2010, and first half 2011 product cost of goods sold were $145,531 compared to $137,483.  Product cost of goods sold in second quarter and first half 2011 reflect increases of $601 and $656, respectively, in deferred compensation expense compared to the corresponding periods in the prior year. These increases principally result from changes in the market value of investments in trading securities relating to compensation deferred in previous years and are not reflective of current operating results. Adjusting for the aforementioned changes in deferred compensation expense, product cost of goods sold increased from $69,879 in second quarter 2010 to $71,408 in second quarter 2011, an increase of $1,529 or 2.2%, and increased from $137,722 in first half 2010 to $145,114 in first half 2011, an increase of $7,392 or 5.4%.  As a percentage of net product sales, adjusted product cost of goods sold increased from 66.5% in second quarter 2010 to 68.1% in second quarter 2011, an increase of 1.6% as a percent of sales, and from 66.1% in first half 2010 to 68.1% in first half 2011, an increase of 2.0% as a percent of sales.  These unfavorable increases principally reflect significantly higher ingredient unit costs, with higher costs for packaging materials also contributing to increased product cost of good sold.  The Company expects its ingredient costs to continue at these significantly higher levels throughout 2011 in comparison to 2010.  Although the Company is in the process of implementing price increases because of higher input costs, a substantial portion of such price increases will not become effective until fourth quarter 2011.

 

Selling, marketing and administrative expenses were $26,171 in second quarter 2010 compared to $22,544 in second quarter 2010, and first half 2011 and 2010 selling, marketing and administrative expenses were $52,135 and $47,870, respectively. Selling, marketing and administrative expenses in second quarter and first half 2010 reflect increases of $2,233 and $2,379, respectively, in deferred compensation expense compared to the corresponding periods in the prior year. These increases principally result from changes in the market value of investments in trading securities relating to compensation deferred in previous years and are not reflective of current operating results.  Adjusting for the aforementioned changes in deferred compensation expense, selling,  marketing and administrative expenses increased from $24,497 in second quarter 2010 to $25,891 in second quarter 2011, an increase of $1,394 or 5.7%, and increased from $48,817 in first half 2010 to $50,703 in first half 2011, an increase of $1,886 or 3.9%.  As a percentage of net product sales, adjusted selling, marketing and administrative expenses increased from 23.3% in second quarter 2010 to 24.7% in second quarter 2011, an increase of 1.4% as a percent of sales, and increased from 23.4% in first half 2010 to 23.8% in first half 2011, an increase of 0.4% as a percent of sales.  Selling marketing and administrative expenses reflect higher distribution expenses, principally increased freight and delivery expenses including higher fuel surcharges, relating to customer deliveries.  Freight, delivery, warehousing and distribution expenses as a percent of net product sales increased from 10.0% in second quarter 2010 to 10.5% in second quarter 2011, and from 9.6% in first half 2010 to 10.0% in first half 2011.

 

Earnings from operations were $7,921 in second quarter 2011 compared to $13,865 in second quarter 2010, and were $17,041 in first half 2011 compared to $24,494 in first half 2010. Earnings from operations include the above discussed changes in deferred compensation liabilities relating to corresponding changes in the market value of trading securities that hedge these liabilities as discussed above.  Adjusting for the aforementioned as discussed above, operating earnings were $8,283 and $11,393 in second quarter 2011 and 2010, respectively, a decrease of $3,110 or 27.3%; and operating earnings were $18,890 and $23,308 in first half 2011 and 2010, respectively, a decrease of $4,418 or 19.0%. A>s a percentage of net product sales, these adjusted operating earnings were 7.9% and 10.8% in second quarter 2011 and 2010, respectively, a decrease of 2.9% as a percentage of net product sales; and operating earnings were 8.9% and 11.2% in first half 2011 and 2010, respectively, a decrease of 2.3% as a percentage of net product sales. The above discussed decreases principally reflect the adverse effects of higher ingredient costs as well as higher costs for packaging materials and freight and delivery expenses as discussed above.  Management believes the presentation in the preceding paragraphs relating to amounts adjusted for deferred compensation expense better reflect operating results for the quarter and first half ended July 2, 2011 as compared to the quarter and first half ended July 3, 2010 and, accordingly, provides additional insight of the underlying operations of the Company.

 

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Other income (expense), net, was $1,001 in second quarter 2011 compared to $(2,058) in second quarter 2010, a favorable increase of $3,059.  Other income (expense), net, was $3,993 in first half 2011 compared to $1,358 in first half 2010, a favorable increase of $2,635.  The increase in second quarter principally reflects a $2,834 favorable net increase in the fair value of trading securities investments which are used as an economic hedge for deferred compensation liabilities.  The increase in first half Other income (expense), net principally reflects a $3,035 favorable net increase in the fair value of these trading securities which was offset by $571 unfavorable net decrease in foreign currency exchange transactions. The income (expense), on such trading securities was $362 and $(2,472) in second quarter 2011 and 2010, respectively, and $1,849 and $(1,186) in first half 2011 and 2010, 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 as discussed above.  The income (expense) relating to trading securities in second quarter and first half 2011 and 2010, principally reflects market appreciation (depreciation) in the equity markets in the respective periods.

 

The consolidated effective tax rates were 30.9% and 28.5% in second quarter 2011 and 2010, respectively, and 32.7% and 31.7% in first half 2011 and 2010, respectively. The increase in the effective tax rate in second quarter and first half principally relates to higher state income taxes.

 

Net earnings were $6,165 in second quarter 2011 compared to $8,447 in second quarter 2010, and earnings per share were $0.11 and $0.14 in second quarter 2011 and second quarter 2010, respectively, a decrease of $0.03 per share or 21.4%.  First half 2011 net earnings were $14,165 compared to first half 2010 net earnings of $17,651, a $3,486 or 19.7% decrease.  First half net earnings per share were $0.24 in 2011 compared to $0.30 per share in first half 2010, a decrease of $0.06 per share or 20.0%.  Earnings per share for second quarter and first half 2011 did benefit from the reduction in average shares outstanding resulting from common stock purchases in the open market by the Company.  Average shares outstanding decreased from 58,792 in second quarter 2010 to 58,012 in second quarter 2011, and from 58,884 in first half 2010 to 58,050 in first half 2011.

 

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 second quarter or first half 2011.

 

LIQUIDITY AND CAPITAL RESOURCES

 

Net cash flows used in operating activities were $12,810 and $2,237 in first half 2011 and 2010, respectively.  The $10,573 increase in cash flows used in operating activities from first half 2010 to first half 2011 reflects changes in other current assets and liabilities, principally other accounts receivable, and accounts payable and accrued liabilities, and income taxes payable.

 

Net cash used in investing activities was $44,658 in first half 2011 compared to $9,691 in first half 2010.  This increase of $34,967 consists primarily of $34,103 used to purchase available for sale securities. Cash flows from investing activities reflect capital expenditures of $6,067 and $6,781 in first half 2011 and first half 2010, respectively.  >Capital expenditures for the 2011 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.

 

The Company had no bank borrowing or repayments in second quarter 2011 or 2010, and had no outstanding bank borrowings as of the end of second quarter 2011 or second quarter 2010.

 

Financing activities include Company Common Stock purchases and retirements of $8,069 and $10,028 in first half 2011 and first half 2010, respectively.  Cash dividends of $9,157 and $9,028 were paid in first half 2011 and first half 2010, respectively.  The increase in cash dividends each year reflects the annual 3% stock dividend issued in each of these years less the effects of Company Common Stock purchases and retirements.

 

The Company’s current ratio (current assets divided by current liabilities) was 3.4 to 1 as of the end of second quarter 2011 and as of the end of second quarter 2010 and 4.1 to 1 as of the end of fourth quarter 2010.  Net working capital was $141,288 as of the end of second quarter 2011 as compared to $179,086 and $150,629 as of the end of fourth and second quarters 2010, respectively.

 

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The aforementioned net working capital amounts are principally reflected in aggregate cash and cash equivalents and short-term investments which totaled $51,606 as of the end of second quarter 2011 compared to $123,972 and $67,088 as of the end of fourth and second quarters 2010, respectively.  In addition, long term investments, principally debt securities comprising municipal bonds, were $103,835 (including $8,130 of Jefferson County auction rate securities (ARS) discussed below) as of the end of second quarter 2011, as compared to $64,461 and $61,721 as of the end of second and fourth quarters 2010, respectively.  Aggregate cash and cash equivalents and short and long-term investments were $155,441, $188,433, $128,809, as of the end of second quarter 2011, and as of the end of fourth and second quarters 2010, respectively. The aforementioned includes $43,076, $38,504, and $33,422 as of the end of the second quarter 2011, and fourth and second quarters 2010, respectively, relating to trading securities which are used as an economic hedge for the Company’s deferred compensation liabilities.  Investments in municipal bonds and other debt securities that matured during second quarters 2011 and 2010 were generally used to purchase the Company’s Common Stock or were replaced with debt securities of similar maturities.

 

During 2008, the Company contributed $16,050 to a VEBA trust to fund the estimated future costs of certain employee health, welfare and other benefits. The Company used the funds, as well as investment income in this VEBA trust, to pay the actual cost of such benefits during 2010 and 2011 and will continue to do so through 2012.  As of the end of second quarter 2011, the VEBA trust holds $8,390 of aggregate cash, cash equivalents and investments; this asset value is included in prepaid expenses in the Company’s current and other assets.

 

As of the end of second quarter 2011 and 2010, the Company’s long-term investments include $8,130 and $8,279 ($13,550 original cost), respectively, of Jefferson County Alabama Sewer Revenue Refunding Warrants, originally purchased with an insurance-backed AAA rating.  This is an ARS that is classified as an available for sale security.  Due to adverse events related to Jefferson County and its bond insurance carrier, Financial Guaranty Insurance Company (FGIC), as well as events in the credit markets, the auctions for this ARS have failed since 2008.  As such, the Company continues to estimate the fair value of this ARS utilizing a valuation model with Level 3 inputs, as defined by guidance.  This valuation model considered, among others items, a limited number of market trades, 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 assumptions about the market expectation of the next successful auction or possible negotiated settlement between the County and debt holders.  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 FGIC and the Company has the intent and ability to hold this ARS until recovery of its amortized cost basis. Representatives of Jefferson County and the bond holders are currently in negotiations to reach a settlement agreeable to the bondholders and the insurers, and if a settlement cannot be reached, the County is likely to pursue a bankruptcy filing. The Company is not currently able to predict the outcome of such negotiations and/or bankruptcy, or the amount and timing of net proceeds it may ultimately recover.

 

ACCOUNTING PRONOUNCEMENTS

 

In May 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2011-04, “Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards (IFRS).”  ASU 2011-04 represents converged guidance between U.S. GAAP and IFRS resulting in common requirements for measuring fair value and for disclosing information about fair value measurements.  This new guidance will be effective for fiscal years beginning after December 15, 2011 and subsequent interim periods.  The Company is currently assessing the impact, if any, on the consolidated financial statements.

 

In June 2011, the FASB issued ASU 2011-05, “Presentation of Comprehensive Income.” ASU 2011-05 requires us to present components of other comprehensive income and of net income in one continuous statement of comprehensive income, or in two separate, but consecutive statements.  The option to report other comprehensive income within the statement of equity has been removed.  This new presentation of comprehensive income will be effective for fiscal years beginning after December 15, 2011 and subsequent interim periods.

 

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RISK FACTORS

 

The Company’s operations and financial results are subject to a number of risks and uncertainties that could adversely affect the Company’s operating results and financial condition.  Significant risk factors, without limitation, that could impact the Company include the following: (i) significant competitive activity, including advertising, promotional and price competition, and changes in consumer demand for the Company’s products; (ii) increases in ingredients and other input costs, which are expected to be significantly higher in 2011 compared to 2010, as well as the uncertainty of long-term costs of major ingredients; (iii) effects on sales, including response from customers and the final consumers, relating to price increase and weight declines (indirect price increase) of products; (iv) the Company’s dependence on its enterprise resource planning computer system to manage its supply chain and customer deliveries;  (v) availability of ingredients and packaging materials; (vi) inherent risks in the marketplace, including uncertainties about trade and consumer acceptance and seasonal events such as Halloween; (vii) the effect of acquisitions on the Company’s results of operations and financial condition; (viii) the effect of changes in foreign currencies on the Company’s foreign subsidiaries operating results, and the effect of the fluctuation of the Canadian dollar on products manufactured in Canada and marketed and sold in the United States in U.S. dollars; (ix) the Company’s reliance on third party vendors for various goods and services; (x) the Company’s ability to successfully implement new production processes and lines; (xi) 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; (xii) changes in the confectionery marketplace including actions taken by major retailers and customers; (xiii) customer, consumer and competitor response to marketing programs and price and product weight adjustments, and new products; (xiv) dependence on significant customers, including the volume and timing of their purchases, and availability of shelf space; (xv) increases in ingredient and energy costs, including freight and delivery, that cannot be fully passed along to customers through increased prices due to competitive reasons; (xvi) any significant labor stoppages, strikes or production interruptions; (xvii) changes in governmental laws and regulations including taxes and tariffs; (xviii) the risk that the market value of Company’s cash equivalents or investments, including municipal bonds, could decline in value, including being impaired and classified as an “other-than-temporary” impairment as defined; and (xix) the potential effects of current and future macroeconomic conditions.

 

In addition, the Company’s results may be affected by other general factors, such as 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.

 

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 provision 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, include the overall competitive environment in the Company’s industry, changes in assumptions and judgments discussed above under the heading “Significant Accounting Policies and Estimates”, and factors identified and referred to above under the heading “Risk Factors.”

 

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.

 

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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 principally relating to freight and delivery fuel surcharges.  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, 2010.

 

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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 July 2, 2011 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 July 2, 2011 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.                             UNREGEISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

The following table summarizes purchases of the Company’s Common Stock during the quarter ended July 2, 2011:

 

 

 

 

 

 

 

 

 

Approximate Dollar

 

 

 

(a) Total

 

 

 

Shares

 

Value of Shares that

 

 

 

Number of

 

(b) Average

 

Purchased as Part of

 

May Yet Be Purchased

 

 

 

Shares

 

Price Paid per

 

Publicly Announced Plans

 

Under the Plans

 

Period

 

Purchased

 

Share

 

Or Programs

 

or Programs

 

 

 

 

 

 

 

 

 

 

 

APR 3 TO APR 30

 

 

$

 

NOT APPLICABLE

 

NOT APPLICABLE

 

 

 

 

 

 

 

 

 

 

 

MAY 1 TO MAY 28

 

10,000

 

28.51

 

NOT APPLICABLE

 

NOT APPLICABLE

 

 

 

 

 

 

 

 

 

 

 

MAY 29 TO JUL 2

 

198,321

 

28.30

 

NOT APPLICABLE

 

NOT APPLICABLE

 

 

 

 

 

 

 

 

 

 

 

TOTAL

 

208,321

 

$

28.31

 

NOT APPLICABLE

 

NOT APPLICABLE

 

 

While the Company does not have a formal or publicly announced stock purchase program, the Company’s board of directors periodically authorizes a dollar amount for share purchases.  The treasurer executes share purchase transactions according to these guidelines.

 

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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.

 

Exhibit 101.INS - XBRL Instance Document.*

 

Exhibit 101.SCH - XBRL Taxonomy Extension Schema Document.*

 

Exhibit 101.CAL - XBRL Taxonomy Extension Calculation Linkbase Document.*

 

Exhibit 101.LAB - XBRL Taxonomy Extension Label Linkbase Document.*

 

Exhibit 101.PRE - XBRL Taxonomy Extension Presentation Linkbase Document.*

 

Exhibit 101.DEF - XBRL Taxonomy Extension Definition Linkbase Document*

 


*                      Pursuant to Regulation S-T, this interactive data file is deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections.

 

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:

August 11, 2011

 

BY:

/S/MELVIN J. GORDON

 

 

 

 

Melvin J. Gordon

 

 

 

 

Chairman and Chief

 

 

 

 

Executive Officer

 

 

 

 

 

Date:

August 11, 2011

 

BY:

/S/G. HOWARD EMBER, JR.

 

 

 

 

G. Howard Ember, Jr.

 

 

 

 

Vice President Finance and

 

 

 

 

Chief Financial Officer

 

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