ACCOUNTING-The financial statements of The Hershey Company and Tootsie Roll

QUESTION

Broadening Your Perspective 8-2The financial statements of The Hershey Company and Tootsie Roll are presented below.THE HERSHEY COMPANYCONSOLIDATED STATEMENTS OF INCOMEFor the years ended December 31,201120102009In thousands of dollars except per share amountsNet Sales$6,080,788$5,671,009$5,298,668Costs and Expenses: Cost of sales3,548,8963,255,8013,245,531 Selling, marketing and administrative1,477,7501,426,4771,208,672 Business realignment and impairment (credits) charges, net(886)83,43382,875 Total costs and expenses5,025,7604,765,7114,537,078Income before Interest and Income Taxes1,055,028905,298761,590 Interest expense, net92,18396,43490,459Income before Income Taxes962,845808,864671,131 Provision for income taxes333,883299,065235,137Net Income$628,962$509,799$435,994Net Income Per Share—Basic—Class B Common Stock$2.58$2.08$1.77Net Income Per Share—Diluted—Class B Common Stock$2.56$2.07$1.77Net Income Per Share—Basic—Common Stock$2.85$2.29$1.97Net Income Per Share—Diluted—Common Stock$2.74$2.21$1.90Cash Dividends Paid Per Share: Common Stock$1.3800$1.2800$1.1900 Class B Common Stock1.25001.16001.0712The notes to consolidated financial statements are an integral part of these statements and are included in the Hershey’s 2011 Annual Report, available at www.thehersheycompany.com.THE HERSHEY COMPANYCONSOLIDATED BALANCE SHEETSDecember 31,20112010In thousands of dollarsASSETSCurrent Assets: Cash and cash equivalents$693,686$884,642 Accounts receivable—trade399,499390,061 Inventories648,953533,622 Deferred income taxes136,86155,760 Prepaid expenses and other167,559141,132 Total current assets2,046,5582,005,217Property, Plant and Equipment, Net1,559,7171,437,702Goodwill516,745524,134Other Intangibles111,913123,080Deferred Income Taxes38,54421,387Other Assets138,722161,212 Total assets$4,412,199$4,272,732LIABILITIES AND STOCKHOLDERS’ EQUITYCurrent Liabilities: Accounts payable$420,017$410,655 Accrued liabilities612,186593,308 Accrued income taxes1,8999,402 Short-term debt42,08024,088 Current portion of long-term debt97,593261,392 Total current liabilities1,173,7751,298,845Long-term Debt1,748,5001,541,825Other Long-term Liabilities617,276494,461 Total liabilities3,539,5513,335,131Commitments and Contingencies——Stockholders’ Equity: The Hershey Company Stockholders’ Equity Preferred Stock, shares issued: none in 2011 and 2010—— Common Stock, shares issued: 299,269,702 in 2011 and 299,195,325 in 2010299,269299,195 Class B Common Stock, shares issued: 60,632,042 in 2011 and 60,706,419 in 201060,63260,706 Additional paid-in capital490,817434,865 Retained earnings4,699,5974,374,718 Treasury—Common Stock shares, at cost: 134,695,826 in 2011 and 132,871,512 in 2010(4,258,962)(4,052,101) Accumulated other comprehensive loss(442,331)(215,067) The Hershey Company stockholders’ equity849,022902,316 Noncontrolling interests in subsidiaries23,62635,285 Total stockholders’ equity872,648937,601 Total liabilities and stockholders’equity$4,412,199$4,272,732THE HERSHEY COMPANYCONSOLIDATED STATEMENTS OF CASH FLOWSFor the years ended December 31,201120102009In thousands of dollarsCash Flows Provided from (Used by) Operating ActivitiesNet income$628,962$509,799$435,994Adjustments to reconcile net income to net cash provided from operations:Depreciation and amortization215,763197,116182,411Stock-based compensation expense, net of tax of $15,127, $17,413 and $19,223, respectively28,34132,05534,927Excess tax benefits from stock-based compensation(13,997)(1,385)(4,455)Deferred income taxes33,611(18,654)(40,578)Gain on sale of trademark licensing rights, net of tax of $5,962(11,072)——Business realignment and impairment charges, net of tax of $18,333, $20,635 and $38,308, respectively30,83877,93560,823Contributions to pension plans(8,861)(6,073)(54,457)Changes in assets and liabilities, net of effects from business acquisitions and divestitures:Accounts receivable—trade(9,438)20,32946,584Inventories(115,331)(13,910)74,000Accounts payable7,86090,43437,228Other assets and liabilities(205,809)13,777293,272Net Cash Provided from Operating Activities580,867901,4231,065,749Cash Flows Provided from (Used by) Investing ActivitiesCapital additions(323,961)(179,538)(126,324)Capitalized software additions(23,606)(21,949)(19,146)Proceeds from sales of property, plant and equipment3122,20110,364Proceeds from sales of trademark licensing rights20,000——Business acquisitions(5,750)—(15,220)Net Cash (Used by) Investing Activities(333,005)(199,286)(150,326)Cash Flows Provided from (Used by) Financing ActivitiesNet change in short-term borrowings10,8341,156(458,047)Long-term borrowings249,126348,208—Repayment of long-term debt(256,189)(71,548)(8,252)Proceeds from lease financing agreement47,601——Cash dividends paid(304,083)(283,434)(263,403)Exercise of stock options184,41192,03328,318Excess tax benefits from stock-based compensation13,9971,3854,455Contributions from noncontrolling interests in subsidiaries—10,1997,322Repurchase of Common Stock(384,515)(169,099)(9,314)Net Cash (Used by) Financing Activities(438,818)(71,100)(698,921)(Decrease) Increase in Cash and Cash Equivalents(190,956)631,037216,502Cash and Cash Equivalents as of January 1884,642253,60537,103Cash and Cash Equivalents as of December 31$693,686$884,642$253,605Interest Paid$97,892$97,932$91,623Income Taxes Paid292,315350,948252,230TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OFEarnings, Comprehensive Earnings and Retained Earnings (in thousands except per share data)For the year ended December 31,201120102009Net product sales$528,369$517,149$495,592Rental and royalty revenue4,1364,2993,739Total revenue532,505521,448499,331Product cost of goods sold365,225349,334319,775Rental and royalty cost1,0381,088852Total costs366,263350,422320,627Product gross margin163,144167,815175,817Rental and royalty gross margin3,0983,2112,887Total gross margin166,242171,026178,704Selling, marketing and administrative expenses108,276106,316103,755Impairment charges——14,000Earnings from operations57,96664,71060,949Other income (expense), net2,9468,3582,100Earnings before income taxes60,91273,06863,049Provision for income taxes16,97420,0059,892Net earnings$43,938$53,063$53,157Net earnings$43,938$53,063$53,157Other comprehensive earnings (loss)(8,740)1,1832,845Comprehensive earnings$35,198$54,246$56,002Retained earnings at beginning of year.$135,866$147,687$144,949Net earnings43,93853,06353,157Cash 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$147,687Earnings per share$0.76$0.90$0.89Average Common and Class B Common shares outstanding57,89258,68559,425(The accompanying notes are an integral part of these statements.)CONSOLIDATED STATEMENTS OFFinancial PositionTOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES (in thousands except per share data)AssetsDecember 31,20112010CURRENT ASSETS:Cash and cash equivalents$78,612$115,976Investments10,8957,996Accounts receivable trade, less allowances of $1,731 and $1,53141,89537,394Other receivables3,3919,961Inventories:Finished goods and work-in-process42,67635,416Raw materials and supplies29,08421,236Prepaid expenses5,0706,499Deferred income taxes578689Total current assets212,201235,167PROPERTY, PLANT AND EQUIPMENT, at cost:Land21,93921,696Buildings107,567102,934Machinery and equipment322,993307,178Construction in progress2,5989,243455,097440,974Less—Accumulated depreciation242,935225,482Net property, plant and equipment212,162215,492OTHER ASSETS:Goodwill73,23773,237Trademarks175,024175,024Investments96,16164,461Split dollar officer life insurance74,20974,441Prepaid expenses3,2126,680Equity method investment3,9354,254Deferred income taxes7,7159,203Total other assets433,493407,300Total assets$857,856$857,959Liabilities and Shareholders’ EquityDecember 31,20112010CURRENT LIABILITIES:Accounts payable$10,683$9,791Dividends payable4,6034,529Accrued liabilities43,06944,185Total current liabilities58,35558,505NONCURRENT LIABILITES:Deferred income taxes43,52147,865Postretirement health care and life insurance benefits26,10820,689Industrial development bonds7,5007,500Liability for uncertain tax positions8,3459,835Deferred compensation and other liabilities48,09246,157Total noncurrent liabilities133,566132,046SHAREHOLDERS’ EQUITY:Common stock, $.69-4/9 par value—120,000 shares authorized—36,479 and 36,057 respectively, issued25,33325,040Class B common stock, $.69-4/9 par value—40,000 shares authorized—21,025 and 20,466 respectively, issued14,60114,212Capital in excess of par value533,677505,495Retained earnings, per accompanying statement114,269135,866Accumulated other comprehensive loss(19,953)(11,213)Treasury stock (at cost)—71 shares and 69 shares, respectively(1,992)(1,992)Total shareholders’ equity665,935667,408Total liabilities and shareholders’ equity$857,856$857,959TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OFCash Flows (in thousands)For the year ended December 31,201120102009CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings$43,938$53,063$53,157 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation19,22918,27917,862 Impairment charges——14,000 Impairment of equity method investment——4,400 Loss from equity method investment194342233 Amortization of marketable security premiums1,267522320 Changes in operating assets and liabilities: Accounts receivable(5,448)717(5,899) Other receivables3,963(2,373)(2,088) Inventories(15,631)(1,447)455 Prepaid expenses and other assets5,1064,9365,203 Accounts payable and accrued liabilities842,180(2,755) Income taxes payable and deferred(5,772)2,322(12,543) Postretirement health care and life insurance benefits2,0221,4291,384 Deferred compensation and other liabilities2,1462,5252,960 Others(708)310305 Net cash provided by operating activities50,39082,80576,994CASH 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 securities7,6808,20817,511 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)24,98622,082Cash and cash equivalents at beginning of year115,97690,99068,908Cash and cash equivalents at end of year$78,612$115,976$90,990Supplemental 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.)Based on the information contained in these financial statements, compute the following 2011 values for each company.(Round answers to 1 decimal place, e.g. 15.2.)(1)Accounts receivable turnover. (For Tootsie Roll, use “Net product sales.” Assume all sales were credit sales.)(2)Average collection period for accounts receivable.Tootsie RollHershey CompanyAccounts receivable turnovertimestimesAverage collection perioddaysdaysQuestion

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