Tootsie Roll Industries, Inc. — 2011 Form 10-K
Business context and reporting period. This annual filing covers the fiscal year ended December 31, 2011; it is not a standalone fourth-quarter report. The company manufactures and sells confectionery products as its sole business segment, primarily in the United States, Canada and Mexico. Sales are typically seasonal, with a substantial third-quarter Halloween increase.
Financial performance and position
- The filing text provided does not give clear values for annual or quarterly revenue, earnings, cash flow, margins, debt, or liquidity. Those financial statements and management’s discussion are incorporated by reference from the 2011 Annual Report.
- Ingredient unit costs increased approximately $17.3 million in 2011 versus 2010, including increases in sugar, corn syrup, cocoa, edible oils, dairy, gum base and packaging. The company said these costs raised cost of goods sold as a percentage of sales.
- Wal-Mart represented approximately 23.3% of net product sales in 2011, compared with 21.4% in 2010 and 22.9% in 2009.
- During the quarter ended December 31, 2011, the company purchased 334,926 common shares at an average price of $23.60 per share. It reported no formal or publicly announced repurchase program; purchases were made under periodic Board authorizations.
Changes, outlook and risks
- Management described significant input-cost pressure in 2011. The company uses commodity derivatives for selected sugar, corn syrup and soybean oil needs and may also change product size or pricing to respond to material cost increases.
- The filing provides no specific forward earnings or revenue guidance. Results are exposed to commodity availability and prices, energy and freight costs, competitive discounting, consumer demand, and the company’s ability to adjust prices or product sizes.
- Key business risks include reliance on Wal-Mart and other large customers; changing consumer tastes; product safety and recall exposure; labor or production interruptions; and dependence on specialized equipment, with most products manufactured at a single facility.
- Other disclosed risks include foreign-exchange and international-market exposure, investment-value fluctuations, regulatory changes, and impairment of goodwill or intangible assets. No trademark impairment was recorded in 2011; the company cited $14 million of pre-tax trademark impairment charges in 2009.
- No material pending legal proceedings were reported. Management concluded disclosure controls were effective, and reported no material changes to internal control over financial reporting during the fourth quarter.
Important facts for investors to verify
- Review the incorporated 2011 Annual Report for actual revenue, earnings, margins, cash flows, balance-sheet liquidity and debt, and quarter-by-quarter results; these figures are not clearly included in the supplied filing text.
- Assess whether pricing, product-size changes and hedging can offset continued ingredient, packaging and energy-cost volatility.
- Monitor Wal-Mart’s share of sales and the potential impact of reduced purchases by major customers.
- Review the company’s seasonal Halloween working-capital pattern and the risks associated with concentrated production facilities.
- Consider the Gordon family’s majority of combined voting power, which gives it control over director elections and shareholder-approved actions.