ATTACHMENT TO PART IV-ITEM (3) OF FORM 12B-25
Tootsie Roll Industries, Inc.
WITH RESPECT TO ITS FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2020
The Company estimates that its results of operations and reported net earnings for the three and nine months ended September 30, 2020, as reflected in its condensed consolidated statements of earnings to be included in its Form 10-Q for the quarterly period ended September 30, 2020, will reflect the following information and updated estimates:
Second and third quarter 2020 net sales were adversely impacted by the effects of the Covid-19 pandemic, including mandates and public health guidelines issued by state, local, federal and foreign governments and agencies. The “closing” of the economy in second quarter 2020, and its gradual “reopening” in the later part of the second quarter and third quarter, including mandates and public health guidelines in 2020, has curtailed and at times completely closed certain channels of trade where the Company has historically sold its products. Response to this pandemic has resulted in the disruption and changes in lifestyles, shopping habits, daily work routines, and event celebrations, including Halloween, all of which have adversely affected planned consumer purchases of the Company’s products for “sharing” and “give away” occasions, as well as impulse purchases of the Company’s products at retail outlets. Pre-Halloween sales have historically represented approximately 50% of the Company’s third quarter net sales.
The Company has continued to monitor its retail “sell through” as of Halloween (through October 31, 2020) and will be making adjustments to its third quarter pre-Halloween net sales for the third quarter 2020 to reflect the estimated effects of resulting sales realization. Sales realization can be adversely affected by sales returns and significant discounting of excess unsold product at retail at the conclusion of a seasonal event. The Company has primarily relied on historical sales and retail sell-through data to determine its net sales realization of third quarter 2020 pre- Halloween net sales. Due to the unprecedented nature of Covid-19 pandemic and significant uncertainties surrounding the Halloween event, including related confectionary sales, management concluded that it could not rely on historical activity to determine its estimated sales realization for third quarter 2020 pre- Halloween sales. A significant portion of the Company’s Halloween sales are purchased by consumers at retail outlets during the final days prior to the event date (October 31, 2020). Therefore, management is reviewing actual sell-through information for its primary retail customers up to and through Halloween (October 31, 2020) and will be adjusting its sales realization based on this information.
Based on the above described procedures, the Company expects to report third quarter 2020 net sales of approximately $157.0 million, a decrease of approximately $24.9 million or 14%, which compares to $181.9 million for third quarter 2019. For third quarter 2020, the Company is expecting to report net earnings of approximately $24.7 million, compared to net earnings of $29.9 million for third quarter 2019. For third