Broadening Your Perspective 9-1 The financial statements *

| June 4, 2016

Question
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Broadening Your Perspective 9-1

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The financial statements of Tootsie Roll are presented below.

TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
Earnings, Comprehensive Earnings and Retained Earnings (in thousands except per share data)

For the year ended December 31,

2011

2010

2009

Net product sales

$528,369

$517,149

$495,592

Rental and royalty revenue

4,136

4,299

3,739

Total revenue

532,505

521,448

499,331

Product cost of goods sold

365,225

349,334

319,775

Rental and royalty cost

1,038

1,088

852

Total costs

366,263

350,422

320,627

Product gross margin

163,144

167,815

175,817

Rental and royalty gross margin

3,098

3,211

2,887

Total gross margin

166,242

171,026

178,704

Selling, marketing and administrative expenses

108,276

106,316

103,755

Impairment charges

14,000

Earnings from operations

57,966

64,710

60,949

Other income (expense), net

2,946

8,358

2,100

Earnings before income taxes

60,912

73,068

63,049

Provision for income taxes

16,974

20,005

9,892

Net earnings

$43,938

$53,063

$53,157

Net earnings

$43,938

$53,063

$53,157

Other comprehensive earnings (loss)

(8,740

)

1,183

2,845

Comprehensive earnings

$35,198

$54,246

$56,002

Retained earnings at beginning of year.

$135,866

$147,687

$144,949

Net earnings

43,938

53,063

53,157

Cash dividends

(18,360

)

(18,078

)

(17,790

)

Stock dividends

(47,175

)

(46,806

)

(32,629

)

Retained earnings at end of year

$114,269

$135,866

$147,687

Earnings per share

$0.76

$0.90

$0.89

Average Common and Class B Common shares outstanding

57,892

58,685

59,425

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

CONSOLIDATED STATEMENTS OF
Financial Position
TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES (in thousands except per share data)

Assets

December 31,

2011

2010

CURRENT ASSETS:

Cash and cash equivalents

$78,612

$115,976

Investments

10,895

7,996

Accounts receivable trade, less allowances of $1,731 and $1,531

41,895

37,394

Other receivables

3,391

9,961

Inventories:

Finished goods and work-in-process

42,676

35,416

Raw materials and supplies

29,084

21,236

Prepaid expenses

5,070

6,499

Deferred income taxes

578

689

Total current assets

212,201

235,167

PROPERTY, PLANT AND EQUIPMENT, at cost:

Land

21,939

21,696

Buildings

107,567

102,934

Machinery and equipment

322,993

307,178

Construction in progress

2,598

9,243

455,097

440,974

Less—Accumulated depreciation

242,935

225,482

Net property, plant and equipment

212,162

215,492

OTHER ASSETS:

Goodwill

73,237

73,237

Trademarks

175,024

175,024

Investments

96,161

64,461

Split dollar officer life insurance

74,209

74,441

Prepaid expenses

3,212

6,680

Equity method investment

3,935

4,254

Deferred income taxes

7,715

9,203

Total other assets

433,493

407,300

Total assets

$857,856

$857,959

Liabilities and Shareholders’ Equity

December 31,

2011

2010

CURRENT LIABILITIES:

Accounts payable

$10,683

$9,791

Dividends payable

4,603

4,529

Accrued liabilities

43,069

44,185

Total current liabilities

58,355

58,505

NONCURRENT LIABILITES:

Deferred income taxes

43,521

47,865

Postretirement health care and life insurance benefits

26,108

20,689

Industrial development bonds

7,500

7,500

Liability for uncertain tax positions

8,345

9,835

Deferred compensation and other liabilities

48,092

46,157

Total noncurrent liabilities

133,566

132,046

SHAREHOLDERS’ EQUITY:

Common stock, $.69-4/9 par value—120,000 shares authorized—36,479 and 36,057 respectively, issued

25,333

25,040

Class B common stock, $.69-4/9 par value—40,000 shares authorized—21,025 and 20,466 respectively, issued

14,601

14,212

Capital in excess of par value

533,677

505,495

Retained earnings, per accompanying statement

114,269

135,866

Accumulated other comprehensive loss

(19,953

)

(11,213

)

Treasury stock (at cost)—71 shares and 69 shares, respectively

(1,992

)

(1,992

)

Total shareholders’ equity

665,935

667,408

Total liabilities and shareholders’ equity

$857,856

$857,959

TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
Cash Flows (in thousands)

For the year ended December 31,

2011

2010

2009

CASH FLOWS FROM OPERATING ACTIVITIES:

Net earnings

$43,938

$53,063

$53,157

Adjustments to reconcile net earnings to net cash provided by operating activities:

Depreciation

19,229

18,279

17,862

Impairment charges

14,000

Impairment of equity method investment

4,400

Loss from equity method investment

194

342

233

Amortization of marketable security premiums

1,267

522

320

Changes in operating assets and liabilities:

Accounts receivable

(5,448

)

717

(5,899

)

Other receivables

3,963

(2,373

)

(2,088

)

Inventories

(15,631

)

(1,447

)

455

Prepaid expenses and other assets

5,106

4,936

5,203

Accounts payable and accrued liabilities

84

2,180

(2,755

)

Income taxes payable and deferred

(5,772

)

2,322

(12,543

)

Postretirement health care and life insurance benefits

2,022

1,429

1,384

Deferred compensation and other liabilities

2,146

2,525

2,960

Others

(708

)

310

305

Net cash provided by operating activities

50,390

82,805

76,994

CASH FLOWS FROM INVESTING ACTIVITIES:

Capital expenditures

(16,351

)

(12,813

)

(20,831

)

Net purchase of trading securities

(3,234

)

(2,902

)

(1,713

)

Purchase of available for sale securities

(39,252

)

(9,301

)

(11,331

)

Sale and maturity of available for sale securities

7,680

8,208

17,511

Net cash used in investing activities

(51,157

)

(16,808

)

(16,364

)

CASH FLOWS FROM FINANCING ACTIVITIES:

Shares repurchased and retired

(18,190

)

(22,881

)

(20,723

)

Dividends paid in cash

(18,407

)

(18,130

)

(17,825

)

Net cash used in financing activities

(36,597

)

(41,011

)

(38,548

)

Increase (decrease) in cash and cash equivalents

(37,364

)

24,986

22,082

Cash and cash equivalents at beginning of year

115,976

90,990

68,908

Cash and cash equivalents at end of year

$78,612

$115,976

$90,990

Supplemental cash flow information

Income taxes paid

$16,906

$20,586

$22,364

Interest paid

$38

$49

$182

Stock dividend issued

$47,053

$46,683

$32,538

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

Notes to Consolidated Financial Statements ($ in thousands)

PROPERTY, PLANT AND EQUIPMENT:

Depreciation is computed for financial reporting purposes by use of the straight-line method based on the useful lives of 20 to 35 years for building and 5 to 25 years for machinery and equipment. Depreciation expenses was $19,229, $18,279 and $17,862 in 2011, 2010 and 2009, respectively.

Goodwill and intangible assets:

In accordance with authoritative guidance, goodwill and intangible assets with indefinite lives are not amortized, but rather tested for impairment at least annually unless certain interim triggering events or circumstances require more frequent testing. All trademarks have been assessed by management to have indefinite lives because they are expected to generate cash flows indefinitely. The Company has completed its annual impairment testing of its goodwill and trademarks at December 31 of each of the years presented. As of December 31, 2009, management ascertained that certain trademarks were impaired, and recorded a pre-tax charge of $14,000. No impairments of intangibles were recorded in 2011 and 2010. This determination is made by comparing the carrying value of the asset with its estimated fair value, which is calculated using estimates including discounted projected future cash flows. If the carrying value of goodwill exceeds the fair value, a second step would measure the carrying value and implied fair value of goodwill. Management believes that all assumptions used for the impairment tests are consistent with those utilized by market participants performing similar valuations.
Answer the following questions.

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What were the total cost and book value of property, plant, and equipment at December 31, 2011? (Enter the amounts in thousands.)

Total cost

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Book value

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What was the amount of depreciation expense for each of the 3 years 2009–2011? (Hint: Use the statement of cash flows.) (Enter the amounts in thousands.)

Depreciation

2009

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2010

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2011

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Using the statement of cash flows, what are the amounts of property, plant, and equipment purchased (capital expenditures) in 2011 and 2010? (Enter the amounts in thousands.)

2011

2010

Property, plant, and equipment purchased

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