UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2007
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ----to----
COMMISSION FILE NUMBER 1-1361
Tootsie Roll Industries, Inc.
(Exact Name of Registrant as Specified in its Charter)
VIRGINIA 22-1318955
(State of Incorporation)(I.R.S. Employer Identification No.)
7401 South Cicero Avenue, Chicago, Illinois 60629
(Address of Principal Executive Offices) (Zip Code)
773-838-3400
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the Registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No ___
Indicate by check mark whether the Registrant is a large accelerated
filer, an accelerated filer or a non-accelerated filer. See definition
of "accelerated filer and large accelerated filer" in Rule 12b-2 of the
Exchange Act.
Large accelerated filer X Accelerated filer _ Non-accelerated filer __
Indicate by check mark whether the Registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act)
Yes No X
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date (June 30, 2007)
Class Outstanding
Common Stock, $.69 4/9 par value 36,098,854
Class B Common Stock, $.69 4/9 par value 18,916,177
TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES
JUNE 30, 2007
INDEX
Page No.
Part I - Financial Information
Item 1. Financial Statements:
Condensed Consolidated Statements of
Financial Position 2
Condensed Consolidated Statements of Earnings,
Comprehensive Earnings and Retained Earnings 3
Condensed Consolidated Statements of Cash Flows 4
Notes to Condensed Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 6-6D
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 6E
Item 4. Controls and Procedures 6E
Part II - Other Information
Item 2. Unregistered Sales of Equity Securities and
Use of Proceeds 7
Item 4. Submission of Matters to a Vote of Security
Holders 7
Item 6. Exhibits 7A
Signatures 7A
Certifications 7B-D
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(in thousands of dollars) (UNAUDITED)
ASSETS June 30, July 1, Dec. 31,
CURRENT ASSETS 2007 2006 2006____
Cash & cash equivalents $ 39,761 $ 11,511 $ 55,729
Investments 19,596 39,452 23,531
Trade accounts receivable,
Less allowances of
$2,090, $2,160 & $2,322 27,396 21,969 35,075
Other receivables 2,850 1,160 3,932
Inventories
Finished goods & work in process 75,333 73,993 42,146
Raw material & supplies 25,735 24,778 21,811
Prepaid expenses 5,114 3,758 6,489
Deferred income taxes 7,150 6,654 2,204
Total current assets 202,935 183,275 190,917
PROPERTY, PLANT & EQUIPMENT, at cost
Land 19,402 19,401 19,402
Buildings 87,273 84,241 87,273
Machinery & equipment 263,034 254,614 259,049
369,709 358,256 365,724
Less-accumulated depreciation 169,100 156,220 162,826
Net property, plant and equipment 200,609 202,036 202,898
OTHER ASSETS
Goodwill 73,237 74,194 74,194
Trademarks 189,024 189,024 189,024
Investments 59,172 45,425 51,581
Split dollar life insurance 75,058 72,857 73,357
Investment in joint venture 9,207 11,188 9,668
405,698 392,688 397,824
Total assets $809,242 $777,999 $791,639
-2-
(The accompanying notes are an integral part of these statements.)
(in thousands except per share data) (UNAUDITED)
LIABILITIES AND SHAREHOLDERS' EQUITY June 30, July 1, Dec. 31,
CURRENT LIABILITIES 2007 2006 2006____
Accounts payable $ 18,817 $ 19,702 $ 13,102
Dividends payable 4,401 4,347 4,300
Accrued liabilities 38,027 41,021 43,802
Income taxes payable - 7,936 1,007
Total current liabilities 61,245 73,006 62,211
NON-CURRENT LIABILITIES
Deferred income taxes 36,504 38,756 40,864
Postretirement health care and life
insurance benefits 13,201 11,025 12,582
Industrial development bonds 7,500 7,500 7,500
Liability for uncertain tax positions 19,273 - -
Deferred compensation and other
liabilities 39,398 32,565 37,801
Total non-current liabilities 115,876 89,846 98,747
Total liabilities 177,121 162,852 160,958
SHAREHOLDERS' EQUITY
Common Stock, $.69-4/9 par value-
120,000 shares authorized; 36,099,
35,870 & 35,364, respectively, issued 25,069 24,910 24,558
Class B common stock, $.69-4/9 par value-
40,000 shares authorized; 18,916, 18,414
& 18,390, respectively, issued 13,136 12,788 12,771
Capital in excess of par value 474,467 453,074 438,648
Retained earnings 133,894 137,182 169,233
Accumulated other comprehensive loss (12,453) (10,815) (12,537)
Treasury stock (at cost)-
63, 61 & 62 shares, respectively (1,992) (1,992) (1,992)
Total shareholders' equity 632,121 615,147 630,681
Total liabilities and
shareholders' equity $809,242 $777,999 $791,639
-2A-
(The accompanying notes are an integral part of these statements.)
TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF
EARNINGS, COMPREHENSIVE EARNINGS AND RETAINED EARNINGS
(in thousands except per share amounts) (UNAUDITED)
13 WEEKS ENDED
June 30, 2007 & July 1, 2006
Net sales $101,901 $ 94,944
Cost of goods sold 67,026 56,894
Gross margin 34,875 38,050
Selling, marketing and administrative expenses 23,069 22,378
Earnings from operations 11,806 15,672
Other income, net 2,495 2,542
Earnings before income taxes 14,301 18,214
Provision for income taxes 4,075 5,356
Net earnings 10,226 12,858
Other comprehensive income, before tax:
Foreign currency translation adjustments 290 (374)
Unrealized losses on securities (23) (900)
Unrealized losses on derivatives (169) (2,035)
Other comprehensive income (loss), before tax 98 (3,309)
Income tax benefit related to items
of other comprehensive income 72 1,085
Other comprehensive income (loss), net of tax 170 (2,224)
Comprehensive earnings $ 10,396 $ 10,634
Retained earnings at beginning of period $128,064 $128,666
Net earnings 10,226 12,858
Cash dividends (4,396) (4,342)
Retained earnings at end of period $133,894 $137,182
Net earnings per share $0.19 $0.23
Dividends per share * $0.08 $0.08
Average number of shares outstanding 55,139 55,943
*Does not include 3% stock dividend to shareholders of record on 3/09/07 and 3/10/06.
-3-
(The accompanying notes are an integral part of the statements.)
TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF
EARNINGS, COMPREHENSIVE EARNINGS AND RETAINED EARNINGS
(in thousands except per share amounts) (UNAUDITED)
26 WEEKS ENDED
June 30, 2007 & July 1, 2006
Net sales $194,815 $198,766
Cost of goods sold 126,570 121,316
Gross margin 68,245 77,450
Selling, marketing and administrative expenses 43,788 45,427
Earnings from operations 24,457 32,023
Other income, net 4,477 4,389
Earnings before income taxes 28,934 36,412
Provision for income taxes 8,897 11,192
Net earnings 20,037 25,220
Other comprehensive income, before tax:
Foreign currency translation adjustments - (698)
Unrealized gains (losses) on securities 12 (740)
Unrealized gains (losses) on derivatives 118 (2,704)
Other comprehensive income (loss), before tax 130 (4,142)
Income tax benefit (expense) related to items
of other comprehensive income (47) 1,274
Other comprehensive income, net of tax 83 (2,868)
Comprehensive earnings $ 20,120 $ 22,352
Retained earnings at beginning of period $169,233 $164,236
Net earnings 20,037 25,220
Cash dividends (8,691) (8,580)
Stock dividends - 3% (46,685) (43,694)
Retained earnings at end of period $133,894 $137,182
Net earnings per share $0.36 $0.45
Dividends per share * $0.16 $0.16
Average number of shares outstanding 55,207 56,117
*Does not include 3% stock dividend to shareholders of record on 3/09/07 and 3/10/06.
-3A-
(The accompanying notes are an integral part of the statements.)
TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of dollars) (UNAUDITED)
26 WEEKS ENDED
June 30, 2007 & July 1, 2006
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 20,037 $ 25,220
Adjustments to reconcile net earnings to
net cash provided by (used in) operating
activities:
Depreciation and amortization 7,796 7,414
Amortization of marketable securities 312 555
Purchase of trading securities (326) (1,643)
Changes in operating assets and liabilities:
Accounts receivable 7,679 8,723
Other receivables 1,202 (95)
Inventories (37,111) (43,953)
Prepaid expenses and other assets 1,019 (1,730)
Accounts payable and accrued liabilities (61) (1,570)
Income taxes payable and deferred 8,920 (921)
Postretirement health care and life
insurance benefits 619 242
Deferred compensation and other liabilities (392) 767
Other 66 (42)
Net cash provided by (used in) operating activities 9,760 (7,033)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (5,506) (30,983)
Decrease in restricted cash - 22,330
Purchase of available for sale securities (15,104) (6,826)
Sale and maturity of available for
sale securities 13,463 21,544
Net cash (used in) provided by investing activities (7,147) 6,065
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of bank loan - (32,001)
Dividends paid in cash (8,756) (8,628)
Shares repurchased and retired (9,825) (15,898)
Net cash used in financing activities (18,581) (56,527)
Decrease in cash and cash equivalents (15,968) (57,495)
Cash and cash equivalents at the beginning of year 55,729 69,006
Cash and cash equivalents at the end of quarter $ 39,761 $ 11,511
Supplemental cash flow information:
Income taxes paid (refunded) $ (300) $ 10,118
Interest paid $ 319 $ 593
Stock dividend issued $ 46,520 $ 43,563
(The accompanying notes are an integral part of the statements.)
-4-
TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2007
(in thousands except per share amounts) (UNAUDITED)
Note 1 - Foregoing data has been prepared from the unaudited
financial records of Tootsie Roll Industries, Inc.
and Subsidiaries (the Company) and in the opinion
of management all adjustments necessary for a fair
statement of the results for the interim period have
been reflected. All adjustments were of a normal
and recurring nature. These consolidated financial
statements should be read in conjunction with the
consolidated financial statements and the related
notes included in the Company's 2006 Annual Report
on Form 10-K.
Note 2 - Average shares outstanding for the period ended June
30, 2007 reflects stock repurchases and subsequent
retirements of 346 shares for $9,825 and a 3% stock
dividend distributed on April 12, 2007. Average shares
outstanding for the period ended July 1, 2006 reflects
stock repurchases and subsequent retirements of 557
shares for $15,898 and a 3% stock dividend distributed
on April 13, 2006.
Note 3 - Results of operations for the period ended June 30,
2007 are not necessarily indicative of results to be
expected for the year to end December 31, 2007 because
of the seasonal nature of the Company's operations.
Historically, the third quarter has been the Company's
largest sales quarter due to Halloween sales.
Note 4 - The bank loan, a demand note issued in December 2005,
was fully repaid in May 2006.
Note 5 - The Company adopted the provisions of FASB Interpretation
No. 48, "Accounting for Uncertainty in Income Taxes" (FIN 48)
effective January 1, 2007. The company is subject to taxation
in the U.S. and various state and foreign jurisdictions. The
Company remains subject to examination by U.S. federal and state
and foreign tax authorities for the years 2003 through 2006.
With few exceptions, the Company is no longer subject to
examinations by tax authorities for the year 2002 and prior.
As of January 1, 2007, the Company had $14,961 of unrecognized tax
benefits. Included in this balance is $7,160 of unrecognized tax
benefits that, if recognized, would favorably affect the annual
effective income tax rate. As of June 30, 2007, the Company had
$15,331 of unrecognized tax benefits ($7,530 represented those
unrecognized tax benefits that, if recognized, would favorably
affect the annual effective income tax rate). During the second
quarter and first half 2007, the Company recorded approximately
$200 and $370, respectively, of additional income tax expense
relating to its uncertain tax positions.
-5-
The Company recognizes interest and penalties related to
unrecognized tax benefits in the provision for income taxes on
the Consolidated Statement of Earnings. As of January 1, 2007,
$3,382 of interest and penalties were included in the Liability
for Uncertain Tax Positions account on the Consolidated Statement
of Financial Position. As of June 30, 2007, $3,942 of interest and
penalties were included in the aforementioned account. During the
second quarter and first half 2007, the Company recorded
approximately $280 and $560, respectively, of additional income tax
expense related to interest and penalties.
The Company is not currently subject to a U.S. federal income tax
examination, however, the Company is currently subject to various
state tax examinations. Although the Company is unable to determine
the ultimate outcome of these examinations, the Company believes
that its liability for uncertain tax positions relating to these
jurisdictions for such years is adequate.
It is expected that the liability for uncertain tax positions will
change in the next 12 months; however, the Company does not expect
the change to have a significant impact on the Company's financial
position, results of operations, and related cash flows from
operating activities. The related cash flows in future periods with
respect to the liability for uncertain tax positions are not readily
determinable.
Note 6 - New Accounting Pronouncements
In September 2006, the FASB issued SFAS No. 157, "Fair Value
Measurements" (SFAS No. 157). SFAS No. 157 establishes a
common definition for fair value to be applied to US GAAP
guidance requiring use of fair value, establishes a framework
for measuring fair value, and expands disclosure about such
fair value measurements. SFAS No. 157 is effective for fiscal
years beginning after November 15, 2007. The Company is
currently assessing the impact of SFAS No. 157 and has not
yet made any determination as to the effects, if any, that it
may have on the Company's financial position and results of
operations.
In February 2007, the FASB issued SFAS No. 159, "The Fair
Value Option for Financial Assets and Financial Liabilities-
including an amendment to FASB Statement No. 115" (SFAS No.
159), which permits entities to choose to measure many
financial instruments and certain other items at fair value
that are not currently required to be measured at fair value.
SFAS No. 159 is effective for fiscal years beginning after
November 15, 2007. The Company is currently assessing the
impact of SFAS No. 159 and has not yet made any determination
as to the effects, if any, that it may have on the Company's
financial position and results of operations.
-5A-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(dollars in thousands except per share amounts)
The following is management's discussion of the Company's operating results and
analysis of factors that have affected the accompanying Condensed Consolidated
Statement of Earnings.
NET SALES: Net change in
Second Quarter, 2007
Second Quarter vs.
2007 2006 Second Quarter, 2006
$101,901 $ 94,944 7.3 %
First Half, 2007
First Half vs.
2006 2006 First Half, 2006
$194,815 $198,766 (2.0)%
Second quarter 2007 net sales were $101,901 compared to $94,944 in second
quarter 2006, an increase of $6,957 or 7.3%. First half 2007 net sales of
$194,815 decreased $3,951 or 2.0% from first half 2006 net sales of $198,766.
The increase in second quarter 2007 sales was the result of successful
marketing programs which are reflected in increases in all of the Company's
core brands. The first half 2007 sales decline reflects the conclusion of a
contract to manufacture product under a private label for a third party and a
non-recurring sale of certain inventory to a new foreign distributor, both
during the prior year first quarter.
COST OF SALES:
Cost of Sales as a
Second Quarter Percentage of Net Sales
2007 2006 2nd Qtr. 2007 2nd Qtr. 2006
$67,026 $56,894 65.8% 59.9%
Cost of Sales as a
First Half Percentage of Net Sales
2007 2006 1st Half 2007 1st Half 2006
$126,570 $121,316 65.0% 61.0%
Cost of sales as a percentage of net sales increased from 59.9% in the second
quarter 2006 to 65.8% in second quarter 2007, and from 61.0% in first half 2006
to 65.0% in first half 2007. These increases in cost of sales as a percentage
of net sales are primarily the result of higher input costs relating to major
ingredients, packaging materials and products manufactured in Canada due to
less favorable foreign exchange rates. Substantially all of the Company's
principal ingredient costs, including those relating to sugar, corn syrup, milk
and whey, soy bean and edible oils, dextrose and gum base products, were
significantly higher in second quarter and first half 2007 compared to the
corresponding periods of the prior year.
-6-
SELLING, MARKETING AND ADMINISTRATIVE EXPENSES:
Second Quarter Percentage of Net Sales
2007 2006 2nd Qtr. 2007 2nd Qtr. 2006
$23,069 $22,378 22.6% 23.6%
First Half Percentage of Net Sales
2007 2006 1st Half 2007 1st Half 2006
$43,788 $45,427 22.5% 22.9%
Second quarter 2007 selling, marketing and administrative expenses were $23,069
compared to $22,378 in second quarter 2006, an increase of $691 or 3.1%. The
same expenses decreased from $45,427 in first half 2006 to $43,788 in first
half 2007, a decrease of $1,639 or 3.6%. The changes for both periods
primarily reflect the change in net sales for the respective second quarter and
first half periods. The Company was adversely affected by higher expenses for
freight and delivery in both second quarter and first half 2007 compared to the
corresponding periods in the prior year. However, the Company did benefit from
lower marketing expenses in both second quarter and first half 2007 compared to
those in the same periods of the prior year. The prior year 2006 second quarter
and first half marketing expenses reflected higher expenses for new packaging
artwork and plates associated with changes in pack sizes and government
mandated labeling. As a percentage of net sales, total selling, marketing and
administrative expenses favorably decreased from 23.6% in second quarter 2006
to 22.6% in second quarter 2007, and from 22.9% in first half 2006 to 22.5% in
first half 2007.
Second quarter 2007 earnings from operations were $11,806 compared to $15,672
in second quarter 2006, a decrease of $3,866 or 24.7%. First half 2007 earnings
from operations were $24,457 compared to $32,023, a decrease of $7,566 or
23.6%. The decline in operating earnings during both second quarter and first
half 2007 primarily resulted from higher input costs, principally increases in
the cost of ingredients, which more than offset reduced marketing expenses, as
discussed above.
The Company took actions and implemented programs, including selected price
increases primarily in 2006 as well as cost reduction programs in 2007, with
the objective to recover some of these higher input costs. However, these
actions did not result in a recovery of all the increases in ingredient and
other input costs during the second quarter and first half 2007.
NET EARNINGS:
Second Quarter, 2007
Second Quarter vs.
2007 2006 Second Quarter, 2006
$10,226 $12,858 (20.5)%
First Half, 2007
First Half vs.
2007 2006 First Half, 2006
$20,037 $25,220 (20.6)%
Second quarter 2007 net earnings were $10,226 compared to second quarter 2006
net earnings of $12,858, a $2,632 or 20.5% decrease. Second quarter 2007
earnings per share were $0.19, compared to $0.23 per share in the prior year
comparative period, a decrease of $0.04 or 17.4%.
-6A-
First half 2007 net earnings were $20,037 compared to first half 2006 net
earnings of $25,220, a $5,183 or 20.6% decrease. First half net earnings per
share were $0.36 in 2007 compared to $0.45 per share in 2006, a decrease of
$0.09 per share or 20.0%.
Other income, net was $2,495 in second quarter 2007 compared to $2,542 in
second quarter 2006. Other income, net was $4,477 in first half 2007 compared
to $4,389 in first half 2006. The favorable effects of increased investment
income and decreased interest expense in 2007 were offset by the combination of
lower earnings from the Company's 50% interest in its foreign joint venture and
a gain of the sale of marketable securities during second quarter 2006.
The consolidated effective income tax rate favorably decreased from 30.0% in
second quarter 2006 to 28.5% in second quarter 2007 and from 31.3% in first
half 2006 to 30.9% in first half 2007. This improvement principally reflects
lower foreign taxes and resulting lower overall effective rate.
In addition to the factors discussed above, earnings per share benefited from
fewer shares outstanding as a result of the Company's share repurchases in 2006
and 2007.
LIQUIDITY AND CAPITAL RESOURCES:
The Company's current ratio (current assets divided by current liabilities) was
3.3 to 1 as of the end of second quarter 2007 as compared to 2.5 to 1 as of the
end of second quarter 2006 and 3.1 to 1 as of the end of fourth quarter 2006.
Net working capital was $141,690 as of the end of second quarter 2007 as
compared to $128,706 and $110,269 as of the end of fourth quarter 2006 and
second quarter 2006, respectively. The aforementioned net working capital
amounts include total cash and cash equivalents and short-term investments
which aggregated $59,357 as of the end of second quarter 2007 compared to
$79,260 and $50,963, as of the end of fourth quarter 2006 and second quarter
2006, respectively. In addition, long-term investments, principally debt
securities comprising municipal bonds, were $59,172 as of the end of second
quarter 2007 as compared to $51,581 and $45,425 as of the end of fourth quarter
2006 and second quarter 2006, respectively. Investments in municipal bonds and
other debt securities that matured during first half 2007 and 2006 were
generally used to pay down bank loans or replaced with debt securities of
similar maturities.
During prior year first half 2006, the Company fully repaid $32,001 of short-
term bank loans. These bank loans were paid down through a combination of cash
flows provided by operating activities and investment maturities.
Net cash provided by operating activities was $9,760 for first half 2007,
compared to cash used of $7,033 in first half 2006. The aforementioned change
in net cash from operating activities principally reflects the timing of
payments and cash flows related to income taxes payable and deferred combined
with reduced cash used to increase inventories during the first half 2007,
partially offset by reduced cash flows provided by lower net income and
decreased accounts receivable.
Capital expenditures for first half 2007 and 2006 were $5,506 and $30,983,
respectively. First half 2006 capital expenditures reflect $25,241 of
investments in rental income producing real estate which was funded from the
Company's restricted cash. Capital expenditures for the 2007 year are
anticipated to be generally in line with historical annualized spending, and
are to be funded from the Company's cash flow from operations and internal
sources.
-6B-
All of the $22,330 in proceeds from the sale of surplus real estate during 2005
and held as restricted cash as of December 31, 2005, was reinvested in
"likekind" real estate during first half 2006 in compliance with U.S. Internal
Revenue Code Section 1031.
Cash dividends paid in first half 2007 and 2006 were $8,756 and $8,628,
respectively. The Company also repurchased and retired $9,825 and $15,898 of
its shares outstanding during first half 2007 and 2006, respectively.
NEW ACCOUNTING PRONOUNCEMENTS
The Company adopted the provisions of FASB Interpretation No. 48, "Accounting
for Uncertainty in Income Taxes" (FIN 48) effective January 1, 2007. The
company is subject to taxation in the U.S. and various state and foreign
jurisdictions. The Company remains subject to examination by U.S. federal and
state and foreign tax authorities for the years 2003 through 2006. With few
exceptions, the Company is no longer subject to examinations by tax authorities
for the year 2002 and prior.
As of January 1, 2007, the Company had $14,961 of unrecognized tax benefits.
Included in this balance is $7,160 of unrecognized tax benefits that, if
recognized, would favorably affect the annual effective income tax rate. As of
June 30, 2007, the Company had $15,331 of unrecognized tax benefits ($7,530
represented those unrecognized tax benefits that, if recognized, would
favorably affect the annual effective income tax rate). During the second
quarter and first half 2007, the Company recorded approximately $200 and $370,
respectively, of additional income tax expense relating to its uncertain tax
positions.
The Company recognizes interest and penalties related to unrecognized tax
benefits in the provision for income taxes on the Consolidated Statement of
Earnings. As of January 1, 2007, $3,382 of interest and penalties were
included in the Liability for Uncertain Tax Positions account on the
Consolidated Statement of Financial Position. As of June 30, 2007, $3,942 of
interest and penalties were included in the aforementioned account. During the
second quarter and first half 2007, the Company recorded approximately $280 and
$560, respectively, of additional income tax expense related to interest and
penalties.
The Company is not currently subject to a U.S. federal income tax examination,
however, the Company is currently subject to various state tax examinations.
Although the Company is unable to determine the ultimate outcome of these
examinations, the Company believes that its liability for uncertain tax
positions relating to these jurisdictions for such years is adequate.
It is expected that the liability for uncertain tax positions will change in
the next 12 months; however, the Company does not expect the change to have a
significant impact on the Company's financial position, results of operations,
and related cash flows from operating activities. The related cash flows in
future periods with respect to the liability for uncertain tax positions are
not readily determinable.
In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements"
(SFAS No. 157). SFAS No. 157 establishes a common definition for fair value to
be applied to US GAAP guidance requiring use of fair value, establishes a
framework for measuring fair value, and expands disclosure about such fair
value measurements. SFAS No. 157 is effective for fiscal years beginning after
November 15, 2007. The Company is currently assessing the impact of SFAS No.
157 and has not yet made any determination as to the effects, if any, that it
may have on the Company's financial position and results of operations.
-6C-
In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities-including an amendment to FSAB
Statement No. 115" (SFAS No. 159), which permits entities to choose to measure
many financial instruments and certain other items at fair value that are not
currently required to be measured at fair value. SFAS No. 159 is effective for
fiscal years beginning after November 15, 2007. The Company is currently
assessing the impact of SFAS No. 159 and has not yet made any determination as
to the effects, if any, that it may have on the Company's financial position
and results of operations.
FORWARD-LOOKING STATEMENTS
From time to time, in the Company's statements and written reports, including
this report, the Company discusses its expectations regarding future
performance by making certain "forward-looking statements." These forward-
looking statements are based on currently available competitive, financial and
economic data and management's views and assumptions regarding future events.
Such forward-looking statements are inherently uncertain, and actual results
may differ materially from those expressed or implied herein. Consequently,
the Company wishes to caution readers not to place undue reliance on any
forward-looking statements. In connection with the "safe harbor provisions" of
the Private Securities Litigation Reform Act of 1995, the Company notes the
following factors which, among others, could cause future results to differ
materially from the forward-looking statements, expectations and assumptions
expressed or implied herein. Among the factors that could impact the Company's
ability to achieve its stated goals are the following: (i) significant
competitive activity, including advertising, promotional and price competition,
(ii) changes in consumer demand, tastes and trends for the Company's products,
including changes in consumer acceptance of seasonal events such as Halloween;
(iii) fluctuations in the cost and availability of various raw materials; (iv)
inherent risks in the marketplace associated with new product introductions,
(v) the effect of acquisitions on the Company's results of operations and
financial condition; (vi) the effect of changes in foreign currencies on the
Company's foreign subsidiaries, and effects of changes in foreign exchange on
the cost of products marketed and sold in the United States; (vii) the
Company's reliance on third-party vendors for various goods and services;
(viii) the Company's ability to successfully implement new production processes
and lines; (ix) the effect of changes in assumptions, including future input
costs, including ingredients costs, price increases, discount rates, sales
growth and profit margins, relating to the Company's impairment testing and
analysis of its goodwill and trademarks; (x) changes in the confectionary
market place including actions taken by major retailers and customers regarding
the Company's product line; (xi) customer and consumer response to marketing
programs and price adjustments, and the Company's ability to increase prices or
make product weight declines (indirect price increase) due to raising
ingredient and other input costs; (xii) dependence on significant customers,
including the volume and timing of their purchases; (xiii) increases in energy
costs, including higher freight and delivery costs, and the ability to pass
such cost increases along to customers through increased prices; (xiv) any
significant labor stoppages or production interruptions, including those
relating to union negotiations; and (xv) changes in governmental laws and
regulations including taxes. In addition, the Company's results may be
affected by general factors, such as economic conditions, political
developments, currency exchange rates, interest and inflation rates, accounting
standards, taxes, and laws and regulations affecting the Company in markets
where it competes and those factors described in Item 1A "Risk Factors" and
elsewhere in the Company's Annual Report on Form 10-K and in other Company
filings with the Securities and Exchange Commission.
-6D-
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK:
The Company is exposed to various market risks, including fluctuations in
sugar, corn syrup, edible oils, cocoa, milk and whey, dextrose, gum base
ingredients and packaging costs. The Company is also exposed to exchange rate
fluctuations in the Canadian dollar which is the currency used for a portion of
the raw material and packaging material costs and operating expenses at its
Canadian plants. The Company also invests in securities with maturities of up
to three years, the majority of which are held to maturity, which limits the
Company's exposure to interest rate fluctuations. There has been no material
change in the Company's market risks that would significantly affect the
disclosures made in the Form 10-K for the year ended December 31, 2006.
Item 4. CONTROLS AND PROCEDURES
Under the supervision and with the participation of management, the chief
executive officer and chief financial officer of the Company have evaluated the
effectiveness of the design and operation of the Company's disclosure controls
and procedures as of June 30, 2007 and, based on their evaluation, the chief
executive officer and chief financial officer have concluded that these
controls and procedures are effective. Disclosure controls and procedures are
designed to ensure that information required to be disclosed by the Company in
the reports that it files or submits under the Securities Exchange Act of 1934
is recorded, processed, summarized and reported, within the time periods
specified in the Securities and Exchange Commission's rules and forms.
Disclosure controls and procedures are also designed to ensure that information
is accumulated and communicated to management, including the chief executive
officer and chief financial officer, as appropriate to allow timely decisions
regarding required disclosure.
There has been no change in the Company's internal control over financial
reporting that occurred during the Company's fiscal quarter ended June 30, 2007
that has materially affected, or is reasonably likely to materially affect, the
Company's internal control over financial reporting.
-6E-
PART II - OTHER INFORMATION
TOOTSIE ROLL INDUSTRIES, INC.
AND SUBSIDIARIES
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Approximate Dollar
(a) Total (b) Average Shares Value of Shares that
Number of Price Paid per Purchased as Part of May Yet Be Purchased
Shares Share Publicly Announced Plans Under the Plans
Period Purchased Or Programs or Programs_____
APR 1 TO APR 28 1,612 $ 29.76 NOT APPLICABLE NOT APPLICABLE
APR 29 TO MAY 26 287,300 28.48 NOT APPLICABLE NOT APPLICABLE
MAY 27 TO JUN 30 56,600 27.91 NOT APPLICABLE NOT APPLICABLE
TOTAL 345,512 $ 28.40
While the Company does not have a formal or publicly announced stock
repurchase program, the Company's board of directors periodically authorizes
a dollar amount for share repurchases. The treasurer executes share
repurchase transactions according to these guidelines.
Item 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Shareholders of the Company, held on May 7, 2007,
the following number of votes were cast for the matters indicated:
1. For the election of five directors of the Company by the holders of
Common Shares and Class B Common Shares voting together:
Broker
Nominee For Withheld Abstain Non-Vote
Melvin J. Gordon 207,049,042 7,703,944 -0- -0-
Ellen R. Gordon 207,018,181 7,734,805 -0- -0-
Lana Jane Lewis-Brent 211,084,812 3,668,174 -0- -0-
Barre A. Siebert 211,242,764 3,510,222 -0- -0-
Richard P. Bergeman 211,173,586 3,579,400 -0- -0-
2. Proposal to ratify the appointment of PricewaterhouseCoopers LLP as
auditors for the fiscal year 2007:
Broker
For Withheld Abstain Non-Vote
Common Shares and Class B
Common Shares voting together 211,777,792 2,904,099 71,090 -0-
No other matters were submitted to a vote by ballot at the 2007 Annual
Meeting.
-7-
Item 6. EXHIBITS
Exhibits 31.1 and 31.2 - Certifications Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
Exhibit 32 - Certification Pursuant to 18 U.S.C. Section 1350,
As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly
authorized.
TOOTSIE ROLL INDUSTRIES, INC.
Date: Aug. 8, 2007 BY:/S/MELVIN J. GORDON
Melvin J. Gordon
Chairman of the Board
Date: Aug. 8, 2007 BY:/S/G. HOWARD EMBER, JR.
G. Howard Ember, Jr.
Vice President Finance
-7A-
Exhibit 31.1
CERTIFICATION
I, Melvin J. Gordon, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Tootsie Roll
Industries, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the state-
ments made, in light of the circumstances under which such statements were made,
not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial infor-
mation included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:
a) designed such disclosure controls and procedures, or caused such dis-
closure controls and procedures to be designed under our supervision, to ensure
that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;
b) designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
d) disclosed in this report any change in the registrant's internal control
over financial reporting that occurred during the registrant's most recent
fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control over
financial reporting.
Date: Aug. 8, 2007
By: /S/MELVIN J. GORDON
Melvin J. Gordon
Chairman and Chief Executive Officer
-7B-
Exhibit 31.2
CERTIFICATION
I, G. Howard Ember, Jr. certify that:
1. I have reviewed this quarterly report on Form 10-Q of Tootsie Roll
Industries, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the state-
ments made, in light of the circumstances under which such statements were made,
not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial infor-
mation included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:
a) designed such disclosure controls and procedures, or caused such dis-
closure controls and procedures to be designed under our supervision, to ensure
that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;
b) designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
d) disclosed in this report any change in the registrant's internal control
over financial reporting that occurred during the registrant's most recent
fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control over
financial reporting.
Date: Aug. 8, 2007
By: /S/G.HOWARD EMBER, JR.
G. Howard Ember, Jr.
Vice President Finance and
Chief Financial Officer
-7C-
Exhibit 32
Certificate Pursuant to Section 1350 of Chapter 63
Of Title 18 of the United States Code
Each of the undersigned officers of Tootsie Roll Industries, Inc.
Certifies that (i) the Quarterly Report on Form 10-Q of Tootsie Roll
Industries, Inc. for the quarterly period ended June 30, 2007 (the
Form 10-Q) fully complies with the requirements of secton 13(a) or
15(d) of the Securities Exchange Act of 1934 and (ii) the information
contained in the Form 10-Q fairly presents, in all material respects,
the financial condition and results of operations of Tootsie Roll
Industries, Inc. and its subsidiaries.
Dated: Aug. 8, 2007 /S/MELVIN J. GORDON
Melvin J. Gordon
Chairman and Chief
Executive Officer
Dated: Aug. 8, 2007 /S/G. HOWARD EMBER, JR.
G. Howard Ember, Jr.
V.P. Finance and
Chief Financial Officer
-7D-