Business context and reporting period
Tootsie Roll Industries, Inc. filed this Form 10-K for the fiscal year ended December 31, 2010. It manufactures and sells confectionery products and reports one industry segment and one line of business. Its principal markets are the United States, Canada, and Mexico.
Financial performance and position
The supplied filing text refers to financial statements and management discussion incorporated from the 2010 Annual Report, but does not provide clear values for revenue, profit, cash flow, margins, debt, or liquidity. Those metrics cannot be summarized from the text provided.
- Ingredient unit costs increased approximately $16.6 million in 2010 versus 2009; packaging material unit costs decreased approximately $0.8 million.
- Wal-Mart accounted for approximately 21.4% of net product sales in 2010, compared with 22.9% in 2009 and 23.5% in 2008.
- The company purchased 411,400 common shares on the open market during the fourth quarter at an average price of $27.09 per share. It had no formal publicly announced repurchase program.
- The company invests surplus cash in diversified, highly rated marketable securities, generally with maturities of up to three years; the filing text does not provide clear cash or debt balances.
Changes versus prior comparable period
Input-cost pressure was significant in 2010, led by higher costs for sugar, cocoa, edible oils, and dairy inputs; corn syrup costs declined. The company recorded no trademark impairment in 2010, compared with $14 million of pretax trademark impairment charges in 2009.
Outlook, risks, and other matters
- Management anticipated higher ingredient costs in 2011 and described commodity hedging and possible product pricing or product-weight adjustments as tools to manage costs.
- Sales are seasonal, with a substantial third-quarter increase associated with Halloween; the company builds inventory beginning in the second quarter and offers extended credit terms for Halloween sales.
- Key risks include volatile input prices and availability, competition and discounting, dependence on major customers, changing consumer preferences, economic weakness, energy costs, product recalls, regulatory changes, international and currency exposure, investment-market fluctuations, and production interruptions. Most products are manufactured at a single production facility, and implementation of new business software systems could disrupt operations.
- The Gordon family held a majority of combined voting power at year-end 2010. No material pending legal proceedings were reported. Management stated disclosure controls were effective and reported no material change in internal control over financial reporting during the fourth quarter.
Important facts for investors to verify
- Review the incorporated annual-report financial statements and MD&A for 2010 and comparative revenue, earnings, cash flow, margins, debt, and liquidity figures.
- Assess whether 2011 ingredient-cost increases were offset by hedging, pricing actions, or product-weight changes.
- Monitor Wal-Mart’s share of sales and the company’s exposure to other large customers.
- Review the marketable-securities portfolio, commodity derivatives, and the potential effects of financial-market changes.
- Evaluate concentration of production, software-system implementation risk, and the company’s capacity to manage seasonal inventory and receivables.