XNYS:TR Tootsie Roll Industries Quarterly Report 10-Q Filing - 3/31/2012

Effective Date 3/31/2012

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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 March 31, 2012

 

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 (March 31, 2012).

 

Class

 

Outstanding

 

 

 

Common Stock, $.69 4/9 par value

 

37,389,649

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

 

21,651,705

 

 

 



Table of Contents

 

TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES

 

MARCH 31, 2012

 

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

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows

 

6

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements

 

7-11

 

 

 

 

Item 2.

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

 

12-15

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

16

 

 

 

 

Item 4.

Controls and Procedures

 

16

 

 

 

 

Part II —

Other Information

 

 

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

17

 

 

 

 

Item 6.

Exhibits

 

17

 

 

 

 

Signatures

 

 

17

 

 

 

 

Certifications

 

 

18-20

 

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)

 

 

 

March 31, 2012

 

December 31, 2011

 

April 2, 2011

 

 

 

(Unaudited)

 

 

 

(Unaudited)

 

ASSETS

 

 

 

 

 

 

 

CURRENT ASSETS

 

 

 

 

 

 

 

Cash & cash equivalents

 

$

79,909

 

$

78,612

 

$

84,908

 

Investments

 

10,994

 

10,895

 

9,555

 

Trade accounts receivable,

 

 

 

 

 

 

 

Less allowances of $1,618, $1,731 & $1,824

 

37,227

 

41,895

 

35,758

 

Other receivables

 

2,966

 

3,391

 

6,581

 

Inventories, at cost

 

 

 

 

 

 

 

Finished goods & work in process

 

41,617

 

42,676

 

46,041

 

Raw material & supplies

 

30,737

 

29,084

 

25,156

 

Prepaid expenses

 

5,312

 

5,070

 

5,585

 

Deferred income taxes

 

593

 

578

 

711

 

 

 

 

 

 

 

 

 

Total current assets

 

209,355

 

212,201

 

214,295

 

 

 

 

 

 

 

 

 

PROPERTY, PLANT & EQUIPMENT, at cost

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Land

 

21,697

 

21,939

 

21,647

 

Buildings

 

107,968

 

107,567

 

102,981

 

Machinery & equipment

 

323,612

 

322,993

 

307,291

 

Construction in progress

 

5,797

 

2,598

 

12,607

 

 

 

459,074

 

455,097

 

444,526

 

Less-accumulated depreciation

 

248,369

 

242,935

 

230,125

 

Net property, plant and equipment

 

210,705

 

212,162

 

214,401

 

 

 

 

 

 

 

 

 

OTHER ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Goodwill

 

73,237

 

73,237

 

73,237

 

Trademarks

 

175,024

 

175,024

 

175,024

 

Investments

 

101,866

 

96,161

 

84,239

 

Split dollar officer life insurance

 

74,209

 

74,209

 

74,441

 

Prepaid expenses

 

2,389

 

3,212

 

5,902

 

Equity method investment

 

3,937

 

3,935

 

4,530

 

Deferred income taxes

 

7,914

 

7,715

 

9,498

 

Total other assets

 

438,576

 

433,493

 

426,871

 

 

 

 

 

 

 

 

 

Total assets

 

$

858,636

 

$

857,856

 

$

855,567

 

 

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

 

3



Table of Contents

 

(in thousands except per share data)

 

 

 

March 31, 2012

 

December 31, 2011

 

April 2, 2011

 

 

 

(Unaudited)

 

 

 

(Unaudited)

 

LIABILITIES AND SHAREHOLDERS’ EQUITY CURRENT LIABILITIES

 

 

 

 

 

 

 

Accounts payable

 

$

10,398

 

$

10,683

 

$

13,426

 

Dividends payable

 

97

 

4,603

 

122

 

Accrued liabilities

 

40,890

 

43,069

 

41,059

 

Income taxes payable

 

2,376

 

 

1,428

 

Total current liabilities

 

53,761

 

58,355

 

56,035

 

 

 

 

 

 

 

 

 

NONCURRENT LIABILITIES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deferred income taxes

 

43,493

 

43,521

 

46,293

 

Postretirement health care and life insurance benefits

 

26,912

 

26,108

 

21,219

 

Industrial development bonds

 

7,500

 

7,500

 

7,500

 

Liability for uncertain tax positions

 

7,548

 

8,345

 

9,966

 

Deferred compensation and other liabilities

 

51,967

 

48,092

 

48,131

 

Total noncurrent liabilities

 

137,420

 

133,566

 

133,109

 

 

 

 

 

 

 

 

 

SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock, $.69-4/9 par value- 120,000 shares authorized; 37,390, 36,479 & 37,087, respectively, issued

 

25,965

 

25,333

 

25,755

 

Class B common stock, $.69-4/9 par value- 40,000 shares authorized; 21,652, 21,025 & 21,051, respectively, issued

 

15,036

 

14,601

 

14,619

 

Capital in excess of par value

 

566,599

 

533,677

 

549,264

 

Retained earnings

 

80,128

 

114,269

 

92,509

 

Accumulated other comprehensive loss

 

(18,281

)

(19,953

)

(13,732

)

Treasury stock (at cost)- 73, 71 & 71 shares, respectively

 

(1,992

)

(1,992

)

(1,992

)

Total shareholders’ equity

 

667,455

 

665,935

 

666,423

 

Total liabilities and shareholders’ equity

 

$

858,636

 

$

857,856

 

$

855,567

 

 

(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

 

 

 

March 31, 2012

 

April 2, 2011

 

 

 

 

 

 

 

Net product sales

 

$

109,763

 

$

108,323

 

Rental and royalty revenue

 

1,057

 

1,072

 

 

 

 

 

 

 

Total revenue

 

110,820

 

109,395

 

 

 

 

 

 

 

Product cost of goods sold

 

74,905

 

73,524

 

Rental and royalty cost

 

257

 

270

 

 

 

 

 

 

 

Total costs

 

75,162

 

73,794

 

 

 

 

 

 

 

Product gross margin

 

34,858

 

34,799

 

Rental and royalty gross margin

 

800

 

802

 

 

 

 

 

 

 

Total gross margin

 

35,658

 

35,601

 

 

 

 

 

 

 

Selling, marketing and administrative expenses

 

27,239

 

25,964

 

 

 

 

 

 

 

Earnings from operations

 

8,419

 

9,637

 

 

 

 

 

 

 

Other income, net

 

3,335

 

2,992

 

 

 

 

 

 

 

Earnings before income taxes

 

11,754

 

12,629

 

Provision for income taxes

 

2,980

 

4,299

 

Net earnings

 

8,774

 

8,330

 

 

 

 

 

 

 

Net earnings per share

 

$

0.15

 

$

0.14

 

Dividends per share *

 

$

0.08

 

$

0.08

 

 

 

 

 

 

 

Average number of shares outstanding

 

59,058

 

59,806

 

 

 

 

 

 

 

Other comprehensive income (loss), before tax

 

 

 

 

 

Foreign currency translation adjustments

 

1,851

 

1,002

 

 

 

 

 

 

 

Unrealized losses for the period on investments

 

(546

)

(189

)

Less: reclassification adjustment for losses in net income

 

 

 

Unrealized losses on investments

 

(546

)

(189

)

 

 

 

 

 

 

Unrealized gains (losses) for the period on derivatives

 

506

 

(859

)

Less: reclassification adjustment for losses in net income

 

(167

)

(4,394

)

Unrealized gains (losses) on derivatives

 

339

 

(5,253

)

 

 

 

 

 

 

Total other comprehensive income (loss), before tax

 

1,644

 

(4,440

)

Income tax benefit related to items of other comprehensive income

 

28

 

1,921

 

 

 

 

 

 

 

Comprehensive earnings

 

$

10,446

 

$

5,811

 

 

 

 

 

 

 

Retained earnings at beginning of period

 

$

114,269

 

$

135,866

 

Net earnings

 

8,774

 

8,330

 

Cash dividends

 

(4,581

)

(4,512

)

Stock dividends

 

(38,334

)

(47,175

)

 

 

 

 

 

 

Retained earnings at end of period

 

$

80,128

 

$

92,509

 

 


*Does not include 3% stock dividend to shareholders of record on 3/6/12 and 3/8/11.

 

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

 

5



Table of Contents

 

TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)       (UNAUDITED)

 

 

 

Year to Date Ended

 

 

 

March 31, 2012

 

April 2, 2011

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

 

 

 

Net earnings

 

$

8,774

 

$

8,330

 

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

 

 

 

 

 

Depreciation and amortization

 

4,953

 

4,605

 

(Gain) loss from equity method investment

 

122

 

(27

)

Amortization of marketable security premiums

 

370

 

169

 

Changes in operating assets and liabilities:

 

 

 

 

 

Accounts receivable

 

4,955

 

1,807

 

Other receivables

 

764

 

1,761

 

Inventories

 

(175

)

(14,356

)

Prepaid expenses and other assets

 

503

 

1,723

 

Accounts payable and accrued liabilities

 

(2,621

)

455

 

Income taxes payable and deferred

 

1,724

 

(1,997

)

Postretirement health care and life insurance benefits

 

804

 

530

 

Deferred compensation and other liabilities

 

511

 

456

 

Other

 

703

 

268

 

 

 

 

 

 

 

Net cash from operating activities

 

21,387

 

3,724

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

 

 

 

Capital expenditures

 

(3,250

)

(3,382

)

Net purchases of trading securities

 

(1,949

)

(2,544

)

Purchase of available for sale securities

 

(2,805

)

(17,718

)

Sale and maturity of available for sale securities

 

1,346

 

55

 

 

 

 

 

 

 

Net cash used in investing activities

 

(6,658

)

(23,589

)

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

 

 

 

Shares purchased and retired

 

(4,247

)

(2,163

)

Dividends paid in cash

 

(9,185

)

(9,040

)

 

 

 

 

 

 

Net cash used in financing activities

 

(13,432

)

(11,203

)

 

 

 

 

 

 

Increase(decrease) in cash and cash equivalents

 

1,297

 

(31,068

)

Cash and cash equivalents at beginning of year

 

78,612

 

115,976

 

 

 

 

 

 

 

Cash and cash equivalents at end of quarter

 

$

79,909

 

$

84,908

 

 

 

 

 

 

 

Supplemental cash flow information:

 

 

 

 

 

Income taxes paid, net

 

$

1,657

 

$

1,302

 

Interest paid

 

$

14

 

$

25

 

Stock dividend issued

 

$

38,237

 

$

47,054

 

 

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

 

6


 


Table of Contents

 

TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2012

(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.  These consolidated financial statements should be read in conjunction with the consolidated financial statements and the related notes included in the Company’s 2011 Annual Report on Form 10-K.

 

Results of operations for the period ended March 31, 2012 are not necessarily indicative of results to be expected for the year to end December 31, 2012 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.

 

Accounting Pronouncements

 

In May 2011, the Financial Accounting Standards Board (FASB) issued new accounting rules related to fair value measurements. The new accounting rules clarify some existing concepts, eliminate wording differences between Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS), and in some limited cases, change some principles to achieve convergence between GAAP and IFRS. The new accounting rules result in a consistent definition of fair value and common requirements for measurement of and disclosure about fair value between GAAP and IFRS. The new accounting rules also expand the disclosures for fair value measurements that are estimated using significant unobservable (Level 3) inputs. The adoption of the new accounting rules in the first quarter of 2012 did not have a material effect on the Company’s financial condition, results of operations or cash flows.

 

In June 2011, the FASB issued new accounting rules that require an entity to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income, or in two separate but consecutive statements. The new accounting rules eliminate the option to present components of other comprehensive income as part of the statement of equity. The adoption of the new accounting rules in the first quarter of 2012 did not have a material effect on the Company’s financial condition, results of operations or cash flows.

 

In December 2011, the FASB issued new accounting rules which deferred certain provisions of the rules issued in June 2011 that required entities to present reclassification adjustments out of accumulated other comprehensive income by component in both the statement in which net income is presented and the statement in which other comprehensive income is presented. Accordingly, this requirement is indefinitely deferred.

 

In September 2011, the FASB issued new accounting rules related to testing goodwill for impairment. The new accounting rules permit an entity to first assess qualitative factors to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying value. If it is concluded that this is the case, it is necessary to perform the two-step goodwill impairment test prescribed under current accounting rules. Otherwise, the two-step goodwill impairment test is not required. The adoption of the new accounting rules did not have a material effect on the Company’s financial condition, results of operations or cash flows.

 

Note 2 — Average Shares Outstanding

 

Average shares outstanding for the period ended March 31, 2012 reflect stock purchases of 179 shares for $4,247 and a 3% stock dividend distributed on April 5, 2012. Average shares outstanding for the period ended April 2, 2011 reflect stock purchases of 75 shares for $2,163 and a 3% stock dividend distributed on April 7, 2011.

 

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 2008 through 2011.  Certain foreign jurisdictions are subject to examinations for the years 2005 through 2011. During first quarter 2012, the Company effectively settled a state tax examination resulting in a reduction in the provision for income taxes and an increase in net earnings of $927 in first quarter 2012.

 

7



Table of Contents

 

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 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 March 31, 2012, December 31, 2011 and April 2, 2011, 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 and foreign currencies, investments in trading securities and available for sale securities, including an auction rate security.  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 March 31, 2012, December 31, 2011 and April 2, 2011, and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value:

 

 

 

Estimated Fair Value March 31, 2012

 

 

 

Total

 

Input Levels Used

 

 

 

Fair Value

 

Level 1

 

Level 2

 

Level 3

 

Cash and cash equivalents

 

$

79,909

 

$

79,909

 

$

 

$

 

Auction rate security

 

6,775

 

 

 

6,775

 

Available-for-sale securities excluding the auction rate security

 

59,054

 

 

59,054

 

 

Foreign currency forward contracts

 

308

 

 

308

 

 

Commodity futures contracts

 

440

 

440

 

 

 

Commodity options contracts

 

33

 

33

 

 

 

Trading securities

 

47,031

 

47,031

 

 

 

Total assets measured at fair value

 

$

193,550

 

$

127,413

 

$

59,362

 

$

6,775

 

 

 

 

Estimated Fair Value December 31, 2011

 

 

 

Total

 

Input Levels Used

 

 

 

Fair Value

 

Level 1

 

Level 2

 

Level 3

 

Cash and cash equivalents

 

$

78,612

 

$

78,612

 

$

 

$

 

Auction rate security

 

7,453

 

 

 

7,453

 

Available-for-sale securities excluding the auction rate security

 

57,835

 

 

57,835

 

 

Foreign currency forward contracts

 

205

 

 

205

 

 

Commodity futures contracts

 

203

 

203

 

 

 

Commodity options contracts

 

 

 

 

 

Trading securities

 

41,768

 

41,768

 

 

 

Total assets measured at fair value

 

$

186,076

 

$

120,583

 

$

58,040

 

$

7,453

 

 

 

 

Estimated Fair Value April 2, 2011

 

 

 

Total

 

Input Levels Used

 

 

 

Fair Value

 

Level 1

 

Level 2

 

Level 3

 

Cash and cash equivalents

 

$

84,908

 

$

84,908

 

$

 

$

 

Auction rate security

 

6,775

 

 

 

6,775

 

Available-for-sale securities excluding the auction rate security

 

44,483

 

 

44,483

 

 

Foreign currency forward contracts

 

600

 

 

600

 

 

Commodity futures contracts

 

373

 

373

 

 

 

Commodity options contracts

 

2,287

 

2,287

 

 

 

Trading securities

 

42,536

 

42,536

 

 

 

Total assets measured at fair value

 

$

181,962

 

$

130,104

 

$

45,083

 

$

6,775

 

 

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As of March 31, 2012, the Company’s long term investments included an auction rate security, Jefferson County Alabama Sewer Revenue Refunding Warrants, reported at a fair value of $6,775 after reflecting a $5,140 other than temporary impairment and a $1,635 temporary decline in market value against its $13,550 par value and original cost.  This other-than-temporary impairment was recorded in other income (expense), net in 2008.  In 2008, this auction rate security was determined to be other-than-temporarily impaired due to the duration and severity of the decline in fair value.  At March 31, 2012, the Company estimated the fair value of this auction rate security utilizing market comparable bonds.  The significant unobservable inputs used in the fair value measurement of the reporting entity’s auction rate securities are the market prices on fixed income securities with terms similar to those of the auction rate securities.  Significant increases or decreases in these inputs in isolation would result in a significantly lower or higher fair value measurement. The trading range of these inputs was between 51% and 64%, with a weighted average of 55%, of the original par value.  The Company classified this auction rate security as non-current and has included it in long term investments on the Condensed Consolidated Statements of Financial Position at March 31, 2012, December 31, 2011 and April 2, 2011 because the Company believes that the current condition of the auction rate security market may take more than twelve months to improve.  Jefferson County is in bankruptcy and has asked the bankruptcy court judge to divert some money to municipal sewer repairs that would have otherwise gone to pay debtholders and other creditors. A ruling in favor of the county could further reduce the market value of this auction rate security resulting in an additional other-than-temporary impairments and charges to net earnings. The Company is not currently able to determine the outcome of this bankruptcy, or the amount and timing of the ultimate net proceeds that it may recover. See also Management’s Discussion and Analysis of Financial Condition and Results of Operations regarding Jefferson County auction rate security.

 

The following table presents additional information about the Company’s financial instruments (an auction rate security) measured at fair value on a recurring basis using significant unobservable inputs (Level 3) at March 31, 2012 and April 2, 2011:

 

 

 

2012

 

2011

 

 

 

 

 

 

 

Balance at January 1

 

$

7,453

 

$

6,775

 

Unrealized loss in other comprehensive earnings

 

(678

)

 

 

 

 

 

 

 

Balance at March 31 and April 2, respectively

 

$

6,775

 

$

6,775

 

 

The $7,500 carrying amount of the Company’s industrial revenue development bonds at March 31, 2012 and April 2, 2011 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, 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 March 31, 2012, December 31, 2011 and April 2, 2011:

 

 

 

March 31, 2012

 

 

 

Notional

 

 

 

 

 

 

 

Amounts

 

Assets

 

Liabilities

 

 

 

 

 

 

 

 

 

Derivatives designated as hedging instruments:

 

 

 

 

 

 

 

Foreign currency forward contracts

 

$

8,698

 

$

308

 

$

 

Commodity futures contracts

 

5,623

 

499

 

(59

)

Commodity option contracts

 

1,701

 

33

 

 

Total derivatives designated as hedges

 

 

 

840

 

(59

)

Derivatives not designated as hedging instruments:

 

 

 

 

 

 

 

Commodity futures contracts

 

850

 

 

 

Total derivatives not designated as hedges

 

 

 

 

 

Total derivatives

 

 

 

$

840

 

$

(59

)

 

 

 

December 31, 2011

 

 

 

Notional

 

 

 

 

 

 

 

Amounts

 

Assets

 

Liabilities

 

 

 

 

 

 

 

 

 

Derivatives designated as hedging instruments:

 

 

 

 

 

 

 

Foreign currency forward contracts

 

$

13,044

 

$

205

 

$

 

Commodity futures contracts

 

4,557

 

341

 

(138

)

Commodity option contracts

 

 

 

 

Total derivatives

 

 

 

$

546

 

$

(138

)

 

 

 

April 2, 2011

 

 

 

Notional

 

 

 

 

 

 

 

Amounts

 

Assets

 

Liabilities

 

 

 

 

 

 

 

 

 

Derivatives designated as hedging instruments:

 

 

 

 

 

 

 

Foreign currency forward contracts

 

$

1,986

 

$

600

 

$

 

Commodity futures contracts

 

12,545

 

438

 

(65

)

Commodity option contracts

 

5,628

 

2,305

 

(15

)

Total derivatives designated as hedges

 

 

 

3,343

 

(80

)

Derivatives not designated as hedging instruments:

 

 

 

 

 

 

 

Commodity option contracts

 

1,680

 

 

(3

)

Total derivatives not designated as hedges

 

 

 

 

(3

)

Total derivatives

 

 

 

$

3,343

 

$

(83

)

 

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The effects of derivative instruments on the Company’s Condensed Consolidated Statement of Earnings, Comprehensive Earnings and Retained Earnings for quarters ended March 31, 2012 and April 2, 2011 are as follows:

 

 

 

For Quarter Ended March 31, 2012

 

 

 

 

 

 

 

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

 

$

252

 

$

149

 

$

 

Commodity futures contracts

 

256

 

18

 

 

Commodity option contracts

 

(2

)

 

 

 

 

 

 

 

 

 

 

Total

 

$

506

 

$

167

 

$

 

 

 

 

For Quarter Ended April 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

 

$

108

 

$

451

 

$

 

Commodity futures contracts

 

2,242

 

4,178

 

 

Commodity option contracts

 

(3,209

)

(235

)

 

 

 

 

 

 

 

 

 

Total

 

$

(859

)

$

4,394

 

$

 

 

During the quarters ended March 31, 2012 and April 2, 2011, the Company recognized earnings of $46 and $120, respectively, related to mark-to-market accounting for certain commodity option and future contracts.

 

Note 6 — Subsequent Events

 

Subsequent to the end of first quarter 2012, the Company received an Annual Funding Notice and a Notice of Funded Status (Notices), as defined by the Pension Protection Act (PPA), from the Bakery and Confectionery Union and Industry International Pension Fund (Fund), a multi-employer defined benefit pension plan (Plan) for certain Company union employees. The Notices indicate that the Fund’s actuary has certified that the Plan is 65.8% funded as of January 1, 2012. This funding percentage is based on actuarial values and not market values of investments which may be lower. As of January 1, 2011, the Plan was 83.6% funded based on the actuarial value of investments, however, it was only 70.0% funded based on the then current market value of its investments.  The Fund’s actuary has certified to the U.S. Department of the Treasury that the Plan is in critical status, the “Red Zone”, as defined by the PPA.

 

The Trustees of the Fund (Trustees) have advised that one of the largest contributors to the Fund filed for bankruptcy and ceased making contributions to the Fund in 2011, and that the Fund has achieved less favorable investment performance returns needed to maintain a favorable funding status. The Trustees have advised that the aforementioned are some of the reasons for the Fund’s deterioration to critical status.  The PPA requires that plans in critical status develop a plan to improve the Fund’s funded status, including that contributing employers pay a surcharge to help correct the plan’s financial situation.  In the event that a plan does not have the financial resources to pay benefits at a level specified by law, then it must apply to the Pension Benefits Guaranty Corporation for government financial assistance.

 

The Trustees have advised that the Company’s contributions will be increased to reflect a 5% surcharge effective June 1, 2012, and that a 10% surcharge will become effective January 1, 2013. Company contributions to the Fund were $2,046 and $1,923 in calendar years 2011 and 2010, respectively. The Company is currently unable to determine the ultimate outcome to the above discussed matter and therefore, is unable to determine the effects on its consolidated financial statements, but, the ultimate outcome could be material to its consolidated results of operations of one or more periods.

 

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

 

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

 

Net product sales were $109,763 in first quarter 2012 compared to $108,323 in first quarter 2011, an increase of $1,440 or 1.3%.  First quarter 2012 benefited from effective sales programs and price increases needed to recover higher input costs.

 

Product cost of goods sold were $74,905 in first quarter 2012 compared to $73,524 in first quarter 2011.  Product cost of goods sold includes $739 and $335 of deferred compensation expense in first quarter 2012 and 2011, respectively, an increase of $404.  Changes in deferred compensation expense principally result from the increase or decrease 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 $73,189 in first quarter 2011 to $74,166 in first quarter 2012, an increase of $977 or 1.3%.  As a percentage of net product sales, adjusted product cost of goods sold was 67.6% in both first quarter 2011 and 2012.  Although first quarter 2012 reflects increased selling prices, higher input costs for ingredients and packaging materials mitigated much of the benefits.

 

Selling, marketing and administrative expenses were $27,239 in first quarter 2012 compared to $25,964 in first quarter 2011.  Selling, marketing and administrative expenses includes $2,575 and $1,152 of deferred compensation expense in first quarter 2012 and 2011, respectively, an increase of $1,423.  As discussed above, 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 decreased from $24,812 in first quarter 2011 to $24,664 in first quarter 2012, a decrease of $148 or 0.6%.  As a percentage of net product sales, adjusted selling, marketing and administrative expenses favorably decreased from 22.9% in first quarter 2011 to 22.5% in first quarter 2012, a decrease of 0.4% as a percent of sales.  Selling marketing and administrative expenses reflect higher 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 decreased from 9.5% in first quarter 2011 to 9.1% in first quarter 2012 which reflects the effects of product selling price increases.

 

Earnings from operations were $8,419 in first quarter 2012 compared to $9,637 in first quarter 2011.  Earnings from operations include deferred compensation expenses relating to corresponding changes in the market value of trading securities that hedge these liabilities as discussed above.  Adjusting for the aforementioned, operating earnings were $11,733 and $11,124 in first quarter 2012 and 2011, respectively, an increase of $609 or 5.5%. As a percentage of net product sales, these adjusted operating earnings were 10.7% and 10.3% in first quarter 2012 and 2011, respectively, an increase of 0.4% as a percentage of net product sales.  The above discussed increases in operating earnings principally reflect the favorable impact of price increases partially offset by the adverse impact of higher ingredient and packaging costs as well as higher costs for freight and delivery expenses as discussed above.  Management believes the presentation in this and the preceding paragraphs relating to amounts adjusted for deferred compensation expense better reflects controllable costs affecting operating results for first quarter 2012 as compared to the corresponding prior year quarter period and, accordingly, provides additional insight of the underlying operations of the Company.

 

Other income, net, was $3,335 in first quarter 2012 compared to $2,992 in first quarter 2011, a favorable increase of $343. Other income, net for first quarter 2012 and 2011 includes gains of $3,314 and $1,487, respectively, in trading securities, and a $192 loss and $1,175 gain, respectively, on foreign exchange.  The favorable change relating to trading securities principally reflect increases in the fair value of trading securities investments which are used as an economic hedge for deferred compensation liabilities.  The gain relating to trading securities was substantially offset by a like amount of deferred compensation (expense) or income included in product cost of goods sold and selling, marketing, and administrative expenses in the respective periods as discussed above.  The gain relating to trading securities in first quarter 2012 and 2011, principally reflects market appreciation in the equity markets in the respective periods.

 

The consolidated effective tax rates were 25.4% and 34.0% in first quarter 2012 and 2011, respectively. The decrease in the effective tax rate in first quarter 2012 principally reflects the reduction of uncertain tax positions of approximately $927 resulting from the effective settlement of a state income tax examination.

 

Net earnings were $8,774 in first quarter 2012 compared to $8,330 in first quarter 2011, and earnings per share were $0.15 and $0.14 in first quarter 2012 and first quarter 2011, respectively, an increase of $0.01 per share or 7.1%.  Earnings per share

 

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for first quarter 2012 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 59,806 in first quarter 2011 to 59,058 in first quarter 2012.

 

Goodwill and intangibles are assessed annually as of December 31 or whenever events or circumstances indicate that the carrying values may not be recoverable from future cash flows.  The Company has not ascertained any triggering events, as defined, or other adverse information that would indicate a material impairment of its goodwill or intangibles in first quarter 2012.

 

Subsequent to the end of first quarter 2012, the Company received an Annual Funding Notice and a Notice of Funded Status (Notices), as defined by the Pension Protection Act (PPA), from the Bakery and Confectionery Union and Industry International (BC&T) Pension Fund (Fund), a multi-employer defined benefit pension plan (Plan) for certain Company union employees. The Notices indicate that the Fund’s actuary has certified that the Plan is 65.8% funded as of January 1, 2012. This funding percentage is based on actuarial values and not market values of investments which may be lower. As of January 1, 2011 the Plan was 83.6% funded based on the actuarial value of investments, however, it was only 70.0% funded based on the then current market value of its investments.  The Fund’s actuary has certified to the U.S. Department of the Treasury that the Plan is in critical status, the “Red Zone”, as defined by the PPA.

 

The Trustees of the Fund (Trustees) have advised that one of the largest contributors to the Fund filed for bankruptcy and ceased making contributions to the Fund in 2011, and that the Fund has achieved less favorable investment performance returns needed to maintain a favorable funding status. The Trustees have advised that the aforementioned are some of the reasons for the Fund’s deterioration to critical status. As of January 1, 2011 plan valuation date, the BC&T multiemployer Plan had 116,708 participants, of which 32,449 were active participants, 54,470 were retired or separated from service and receiving benefits, and 29,789 were retired or separated from service and entitled to receive future benefits. The PPA requires that plans in critical status develop a plan to improve the Fund’s funded status, including that contributing employers pay a surcharge to help correct the plan’s financial situation.  In the event that a plan does not have the financial resources to pay benefits at a level specified by law then it must apply to the Pension Benefits Guaranty Corporation for government financial assistance.

 

The Trustees have advised that the Company’s contributions will be increased to reflect a 5% surcharge effective June 1, 2012, and that a 10% surcharge will become effective January 1, 2013. Company contributions to the Fund were $2,046 and $1,946 in calendar years 2011 and 2010, respectively. The Company is currently unable to determine the ultimate outcome to the above discussed matter and therefore, is unable to determine the effects on its consolidated financial statements, but, the ultimate outcome could be material to its consolidated results of operations of one or more periods.

 

LIQUIDITY AND CAPITAL RESOURCES

 

Net cash flows from operating activities were $21,387 and $3,724 in first quarter 2012 and 2011, respectively.  The $17,663 increase in cash flows from operating activities from first quarter 2011 to first quarter 2012 principally reflects changes in inventories as well as changes in other operating assets and liabilities, principally accounts receivable, accounts payable and accrued liabilities, and income taxes payable and deferred. The change in inventories primarily reflects the later timing of customer orders and manufacturing of finished goods inventories for the back-to-school and Halloween selling season.

 

Net cash used in investing activities was $6,658 in first quarter 2012 compared to $23,589 in first quarter 2011.  Cash flows from investing activities reflect $2,805 and $17,718 relating to the purchase of available for sale securities during first quarter 2012 and 2011, respectively.  First quarter 2012 and first quarter 2011 also includes capital expenditures of $3,250 and $3,382, respectively.  Capital expenditures for the 2012 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 borrowings or repayments in first quarter 2012 or 2011, and had no outstanding bank borrowings as of the end of first quarter 2012 or first quarter 2011.

 

Financing activities include Company Common Stock purchases and retirements of $4,247 and $2,163 in first quarter 2012 and 2011, respectively.  Cash dividends of $9,185 and $9,040 were paid in first quarter 2012 and 2011, 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 3.9 to 1 as of the end of first quarter 2012 as compared to 3.6 to 1 as of the end of fourth quarter 2011 and 3.8 to 1 as of the end of first quarter 2011.  Net working capital was $155,594 as of the end of first quarter 2012 as compared to $153,846 and $158,260 as of the end of fourth and first quarters 2011, 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 $90,903 as of the end of first quarter 2012 compared to $89,507 and $94,463 as of the end of fourth and first quarters 2011, respectively.  In addition, long term investments, principally debt securities comprising municipal bonds (including $6,775 of Jefferson County auction rate securities discussed below) and trading securities, were $101,866 as of the end of first quarter 2012, as compared to $96,161 and $84,239 as of the end of fourth and first quarters 2011, respectively.  Aggregate cash and cash equivalents and short and long-term investments were $192,769, $185,668, $178,702, as of the end of first quarter 2012, and as of the end of fourth and first quarters 2011, respectively.  The aforementioned includes $47,031, $41,768, and $42,536 as of the end of the first quarter 2012, and fourth and first quarters 2011, 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 first quarter 2012 and 2011 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 2012 and 2011 and will continue to do so in future periods.  As of the end of the first quarter 2012, the VEBA trust holds $5,575 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 first quarter 2012 and 2011, the Company’s long-term investments include $6,775 ($13,550 original cost), respectively, of Jefferson County Alabama Sewer Revenue Refunding Warrants, originally purchased with an insurance-backed AAA rating.  This is an auction rate security 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 auction rate security have failed since 2008.  As such, the Company continues to estimate the fair value of this auction rate security 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 auction rate security, 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 auction rate security 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 auction rate security until recovery of its amortized cost basis.  Representatives of Jefferson County and the bond holders were in negotiations to reach a settlement agreeable to the bondholders and the insurers, and since a settlement could not be reached that was also agreeable to the state of Alabama which was asked to provide a form of future guarantee, the County has filed for bankruptcy. Jefferson County has asked the bankruptcy court judge to divert some money to municipal sewer repairs that would have otherwise gone to pay debtholders and other creditors. Rulings by the bankruptcy court on this and other matters in favor of the county, and with adverse effects to the holders of warrants and other debt, could further reduce the market value of this auction rate security resulting in an additional other-than-temporary impairments and charges to net earnings. The Company is not currently able to determine the outcome of this bankruptcy, or the amount and timing of the ultimate net proceeds that it may recover.

 

ACCOUNTING PRONOUNCEMENTS

 

In May 2011, the Financial Accounting Standards Board (FASB) issued new accounting rules related to fair value measurements. The new accounting rules clarify some existing concepts, eliminate wording differences between Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS), and in some limited cases, change some principles to achieve convergence between GAAP and IFRS. The new accounting rules result in a consistent definition of fair value and common requirements for measurement of and disclosure about fair value between GAAP and IFRS. The new accounting rules also expand the disclosures for fair value measurements that are estimated using significant unobservable (Level 3) inputs. The adoption of the new accounting rules in the first quarter of 2012 did not have a material effect on the Company’s financial condition, results of operations or cash flows.

 

In June 2011, the FASB issued new accounting rules that require an entity to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income, or in two separate but consecutive statements. The new accounting rules eliminate the option to present components of other comprehensive income as part of the statement of equity. The adoption of the new accounting rules in the first quarter of 2012 did not have a material effect on the Company’s financial condition, results of operations or cash flows.

 

In December 2011, the FASB issued new accounting rules which deferred certain provisions of the rules issued in June 2011 that required entities to present reclassification adjustments out of accumulated other comprehensive income by component in both the statement in which net income is presented and the statement in which other comprehensive income is presented. Accordingly, this requirement is indefinitely deferred.

 

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In September 2011, the FASB issued new accounting rules related to testing goodwill for impairment. The new accounting rules permit an entity to first assess qualitative factors to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying value. If it is concluded that this is the case, it is necessary to perform the two-step goodwill impairment test prescribed under current accounting rules. Otherwise, the two-step goodwill impairment test is not required. The adoption of the new accounting rules did not have a material effect on the Company’s financial condition, results of operations or cash flows.

 

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 limitations that could impact the Company, are 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 commodities and ingredients, and packaging materials, and the ability to recover cost increases through product sales price increases; (iii) inherent risks in the marketplace, including uncertainties about trade and consumer acceptance of price increases 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 fluctuation 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, including commodities used for ingredients that are primarily grown or sourced from foreign locations; (vii) the Company’s ability to successfully implement new production processes and lines, and new computer software systems; (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 the 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 adverse effects should the Company either voluntarily or involuntarily recall its product(s) from the marketplace; (xvi) the risk that the market value of Company’s investments could decline including being classified as “other-than-temporary” as defined; (xvii) the Company’s dependence on its enterprise resource planning computer system to manage its supply chain and customer deliveries, and the risk that the Company’s information technology systems fail to perform adequately or the Company is unable to protect such information technology systems against data corruption, cyber-based attacks or network security breaches; (xvii) the potential effects of adverse rulings by the bankruptcy court relating to the Jefferson County auction rate security; (xviii) the potential adverse effects on the Company of the plan to be developed by the Bakery and Confectionary Union and Industry Pension Fund Trustees to improve the funding status of the plan; and (xix) the potential effects of current and future macroeconomic conditions and geopolitical events.

 

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, 2011.

 

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 March 31, 2012 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 March 31, 2012 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

16



Table of Contents

 

PART II — OTHER INFORMATION

 

TOOTSIE ROLL INDUSTRIES, INC.

AND SUBSIDIARIES

 

ITEM 2.                             UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

The following table summarizes purchases of the Company’s Common Stock during the quarter ended March 31, 2012:

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

JAN 1 TO JAN 28

 

61,189

 

$

23.60

 

NOT APPLICABLE

 

NOT APPLICABLE

 

 

 

 

 

 

 

 

 

 

 

JAN 29 TO FEB 25

 

52,473

 

23.83

 

NOT APPLICABLE

 

NOT APPLICABLE

 

 

 

 

 

 

 

 

 

 

 

FEB 26 TO MAR 31

 

65,000

 

23.78

 

NOT APPLICABLE

 

NOT APPLICABLE

 

 

 

 

 

 

 

 

 

 

 

TOTAL

 

178,662

 

$

23.73

 

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.

 

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:

May 10, 2012

 

BY:

/S/MELVIN J. GORDON

 

 

 

Melvin J. Gordon

 

 

 

Chairman and Chief

 

 

 

Executive Officer

 

 

 

Date:

May 10, 2012

 

BY:

/S/G. HOWARD EMBER, JR.

 

 

 

G. Howard Ember, Jr.

 

 

 

Vice President Finance and

 

 

 

Chief Financial Officer

 

17


 

XNYS:TR Tootsie Roll Industries Quarterly Report 10-Q Filling

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