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 SEPTEMBER 30, 2006
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 (October
6, 2006)
Class Outstanding
Common Stock, $.69 4/9 par value 35,351,129
Class B Common Stock, $.69 4/9 par value 18,402,511
TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES
SEPTEMBER 30, 2006
INDEX
Page No.
Part I - Financial Information
Item 1. Unaudited Financial Statements:
Condensed Consolidated Statements of
Financial Position 2-2A
Condensed Consolidated Statements of Earnings,
Comprehensive Earnings and Retained Earnings 3-3A
Condensed Consolidated Statements of Cash Flows 4
Notes to Condensed Consolidated Financial Statements 5-5A
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 6. Exhibits 7
Signatures 7
Certifications 7A-C
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 Sep. 30, Oct. 01, Dec. 31,
CURRENT ASSETS 2006 2005 2005____
Cash & cash equivalents $ 13,176 $ 32,361 $ 69,006
Restricted cash - - 22,330
Investments 32,364 46,027 54,892
Trade accounts receivable,
Less allowances of
$3,548, $3,528 & $2,255 90,780 87,078 30,856
Other receivables 1,875 1,666 2,768
Inventories
Finished goods & work in process 47,937 45,069 34,311
Raw material & supplies 23,044 21,086 20,721
Prepaid expenses 3,349 3,754 5,840
Deferred income taxes 6,374 1,410 5,872
Total current assets 218,899 238,451 246,596
PROPERTY, PLANT & EQUIPMENT, at cost
Land 19,401 14,991 14,857
Buildings 84,241 61,776 63,544
Machinery & equipment 257,580 255,713 250,841
361,222 332,480 329,242
Less-accumulated depreciation 160,472 152,208 150,482
Net property, plant and equipment 200,750 180,272 178,760
OTHER ASSETS
Goodwill 74,194 74,619 74,194
Trademarks 189,024 193,342 189,024
Investments 42,234 65,265 44,851
Split dollar life insurance 72,857 69,528 69,772
Investment in joint venture 11,168 11,041 10,499
389,477 413,795 388,340
Total assets $809,126 $832,518 $813,696
-2-
(The accompanying notes are an integral part of these statements.)
(in thousands except per share data) (UNAUDITED)
LIABILITIES AND SHAREHOLDERS' EQUITY Sep. 30, Oct. 01, Dec. 31,
CURRENT LIABILITIES 2006 2005 2005____
Bank loan $ - $ 60,000 $ 32,001
Accounts payable 20,359 17,546 17,482
Dividends payable 4,300 3,751 4,263
Accrued liabilities 52,096 52,603 44,969
Income taxes payable 17,443 17,159 14,941
Total current liabilities 94,198 151,059 113,656
NON-CURRENT LIABILITIES
Deferred income taxes 38,086 25,974 32,088
Postretirement health care and life
insurance benefits 11,114 10,579 10,783
Industrial development bonds 7,500 7,500 7,500
Deferred compensation and other liabilities 33,371 31,488 32,264
Total non-current liabilities 90,071 75,541 82,635
Total liabilities 184,269 226,600 196,291
SHAREHOLDERS' EQUITY
Common Stock, $.69-4/9 par value-
120,000 shares authorized; 35,360,
35,574 & 35,255 respectively, issued 24,555 24,704 24,483
Class B common stock, $.69-4/9 par value-
40,000 shares authorized; 18,414, 18,006
& 18,000, respectively, issued 12,788 12,504 12,500
Capital in excess of par value 439,232 435,675 426,125
Retained earnings 161,856 145,169 164,236
Accumulated other comprehensive loss (11,582) (10,142) (7,947)
Treasury stock (at cost)-
61, 60 & 60 shares, respectively (1,992) (1,992) (1,992)
Total shareholders' equity 624,857 605,918 617,405
Total liabilities and
shareholders' equity $809,126 $832,518 $813,696
-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
Sep. 30, 2006 & Oct. 1, 2005
Net sales $186,403 $173,692
Cost of goods sold 116,173 106,197
Gross margin 70,230 67,495
Selling, marketing and administrative expenses 29,926 28,507
Earnings from operations 40,304 38,988
Other income, net 1,890 1,543
Earnings before income taxes 42,194 40,531
Provision for income taxes 13,225 12,866
Net earnings 28,969 27,665
Other comprehensive income, before tax:
Foreign currency translation adjustments 317 195
Unrealized gains on securities 290 54
Unrealized gains (losses) on derivatives (2,009) 529
Other comprehensive income (loss), before tax (1,402) 778
Income tax benefit (expense) related to items
of other comprehensive income 635 (215)
Other comprehensive income (loss), net of tax (767) 563
Comprehensive earnings $ 28,202 $ 28,228
Retained earnings at beginning of period $137,182 $121,251
Net earnings 28,969 27,665
Cash dividends (4,295) (3,747)
Retained earnings at end of period $161,856 $145,169
Net earnings per share $0.54 $0.50
Dividends per share * $0.08 $0.07
Average number of shares outstanding 54,024 55,105
*Does not include 3% stock dividend to shareholders of record on 3/10/06 and 3/11/05.
-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)
39 WEEKS ENDED
Sep. 30, 2006 & Oct. 1, 2005
Net sales $385,169 $375,244
Cost of goods sold 237,489 226,559
Gross margin 147,680 148,685
Selling, marketing and administrative expenses 75,353 73 617
Earnings from operations 72,327 75,068
Other income, net 6,279 3,934
Earnings before income taxes 78,606 79,002
Provision for income taxes 24,417 25,100
Net earnings 54,189 53,902
Other comprehensive income, before tax:
Foreign currency translation adjustments (381) 806
Unrealized losses on securities (450) (152)
Unrealized gains (losses) on derivatives (4,713) 124
Other comprehensive income (loss), before tax (5,544) 778
Income tax benefit related to items
of other comprehensive income 1,909 11
Other comprehensive income (loss), net of tax (3,635) 789
Comprehensive earnings $ 50,554 $ 54,691
Retained earnings at beginning of period $164,236 $149,055
Net earnings 54,189 53,902
Cash dividends (12,875) (11,148)
Stock dividends - 3% (43,694) (46,640)
Retained earnings at end of period $161,856 $145,169
Net earnings per share $1.00 $0.98
Dividends per share * $0.24 $0.21
Average number of shares outstanding 54,346 55,184
*Does not include 3% stock dividend to shareholders of record on 3/10/06 and 3/11/05.
-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)
39 WEEKS ENDED
Sep. 30, 2006 & Oct. 1, 2005
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 54,189 $ 53,902
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 11,557 10,860
Amortization of marketable securities 762 1,332
Purchase of trading securities (1,994) (1,770)
Sales of trading securities 1,473 706
Changes in operating assets and liabilities:
Accounts receivable (60,082) (58,359)
Other receivables (2,076) 658
Inventories (16,045) (7,219)
Prepaid expenses and other assets (1,282) (2,862)
Accounts payable and accrued liabilities 10,123 5,964
Income taxes payable and deferred 8,124 8,930
Postretirement health care and life
insurance benefits 331 504
Deferred compensation and other liabilities (103) 914
Other (3) 164
Net cash provided by operating activities 4,974 13,724
CASH FLOWS FROM INVESTING ACTIVITIES:
Working capital adjustment from acquisition - 6,755
Capital expenditures (33,702) (12,097)
Decrease in restricted cash 22,330 -
Purchase of available for sale securities (9,539) (15,086)
Sale and maturity of available for
sale securities 35,173 32,936
Net cash provided by (used in) investing activities 14,262 ( 12,508)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from bank loan - 6,400
Repayment of bank loan (32,001) (38,400)
Dividends paid in cash (12,969) (11,386)
Shares repurchased and retired (30,096) (7,474)
Net cash used in financing activities (75,066) (50,860)
Decrease in cash and cash equivalents (55,830) (24,628)
Cash and cash equivalents at the beginning of year 69,006 56,989
Cash and cash equivalents at the end of quarter $ 13,176 $ 32,361
Supplemental cash flow information:
Income taxes paid $ 13,339 $ 17,044
Interest paid $ 665 $ 1,961
Stock dividend issued $ 43,563 $ 46,311
(The accompanying notes are an integral part of the statements.)
-4-
TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2006
(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 2005 Annual Report on Form 10-K.
Note 2 - Average shares outstanding for the 39 week period ended
September 30, 2006 reflects stock repurchases of 1,068
shares for $30,096 and a 3% stock dividend distributed
on April 13, 2006. Average shares outstanding for the
39 week period ended October 1, 2005 reflects stock
repurchases of 252 shares for $7,474 and a 3% stock
dividend distributed on April 14, 2005.
Note 3 - Results of operations for the period ended September 30,
2006 are not necessarily indicative of results to be
expected for the year ending December 31, 2006 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 - Recent Accounting Pronouncements
In July 2006, the FASB issued FASB Interpretation (FIN)
No. 48 "Accounting for Uncertainty in Income Taxes - an
interpretation of FASB Statement 109." FIN 48 prescribes
a comprehensive model for recognizing, measuring,
presenting and disclosing in the financial statements
tax positions taken on a tax return. FIN 48 is effective
for fiscal years beginning after December 15, 2006. The
Company is currently assessing the impact of FIN 48 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 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.
-5-
In September 2006, the FASB issued SFAS No. 158, "Employers'
Accounting for Defined Benefit Pension and Other Postretirement
Plans" (SFAS No. 158). SFAS No. 158 requires that employers
recognize on a prospective basis the funded status of their
defined benefit pension and other postretirement plans on their
consolidated balance sheet and recognize as a component of other
comprehensive income, net of tax, the gains or losses and prior
service costs or credits that arise during the period but are not
recognized as components of net periodic benefit cost. SFAS No. 158
also requires additional disclosures in the notes to financial
statements. SFAS No. 158 is effective as of the end of fiscal years
ending after December 15, 2006. The Company is currently assessing
the impact of SFAS No. 158 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 September 2006, the SEC staff issued Staff Accounting Bulletin
("SAB") 108 "Considering the Effects of Prior Year Misstatements
when Quantifying Misstatements in Current Year Financial Statement."
SAB 108 requires that public companies utilize a "dual-approach" to
assessing the quantitative effects of financial misstatements. This
dual approach includes both an income statement focused assessment
and a balance sheet focused assessment. The guidance in SAB 108
must be applied to annual financial statements for fiscal years
ending after November 15, 2006. The Company is currently assessing
the impact of SAB 108 and has not made a final determination of its
effects on the Company's financial statements.
-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 Financial Statements.
NET SALES: Net change in
Third Quarter, 2006
Third Quarter vs.
2006 2005 Third Quarter, 2005
$186,403 $173,692 7.3%
Nine Months, 2006
Nine Months vs.
2006 2005 Nine Months, 2005
$385,169 $375,244 2.6%
Third quarter 2006 net sales were $186,403 compared to $173,692 in third
quarter 2005, an increase of $12,711 or 7.3%. Nine months 2006 net sales of
$385,169 increased $9,925 or 2.6% from nine months 2005 net sales of $375,244.
Record third quarter sales were achieved as a result of successful marketing
programs, including those related to "back-to-school" and Halloween, as well
as line extensions and new products. Record third quarter sales also propelled
the Company to record nine months sales, and overcame a first half that was
behind the corresponding period in the prior year. First half 2006 sales were
affected by a number of factors including some transitional disruption of sales
as a result of package size, weight and price changes, inventory adjustments
made by certain national account customers, the timing of shipments in the
comparative periods, and a late Easter which adversely impacted the Company's
spring-summer promotion by shortening the 2006 sales promotion period compared
to the prior year.
The conclusion, during second quarter 2006, of a contract acquired in the
Concord Confections acquisition in 2004 to manufacture product under a private
label for a third party resulted in a sales decline of approximately $2,700
in the third quarter 2006 and approximately $5,600 in the nine months 2006
compared to the corresponding periods in 2005. As previously disclosed in our
Form 10-K for the year ended December 31, 2005, such contract manufacturing
sales aggregated 2% of annual net sales in 2005.
COST OF SALES:
Cost of Sales as a
Third Quarter Percentage of Net Sales
2006 2005 3rd Qtr. 2006 3rd Qtr. 2005
$116,173 $106,197 62.3% 61.1%
Cost of Sales as a
Nine Months Percentage of Net Sales
2006 2005 Nine Months 2006 Nine Months 2005
$237,489 $226,559 61.7% 60.4%
-6-
Cost of sales as a percentage of net sales increased from 61.1% in the third
quarter 2005 to 62.3% in third quarter 2006, and from 60.4% in nine months 2005
to 61.7% in nine months 2006. These increases in cost of sales as a percentage
of net sales are principally the result of higher input costs relating to major
ingredients, energy, including natural gas, higher plant repair and maintenance
expenses, and higher costs for products manufactured in Canada due to a
strengthening of the Canadian dollar relative to the U.S. dollar. In addition,
higher costs for labor and fringe benefits, including health insurance, as well
as generally higher plant overhead costs, also contributed to the increase in
cost of sales as a percentage of sales for the third quarter and nine months
2006 periods.
The Company anticipates additional cost increases in 2007 in many commodities
and packaging materials widely used in the confectionary industry, including
sugar, corn syrup, dextrose, and gum base ingredients. The Company is currently
studying the effects of these cost increases and how they can be mitigated.
SELLING, MARKETING AND ADMINISTRATIVE EXPENSES:
Third Quarter Percentage of Net Sales
2006 2005 3rd Qtr. 2006 3rd Qtr. 2005
$29,926 $28,507 16.1% 16.4%
Nine Months Percentage of Net Sales
2006 2005 9 Months 2006 9 Months 2005
$75,353 $73,617 19.6% 19.6%
Third quarter 2006 selling, marketing and administrative expenses were $29,926
compared to $28,507 in third quarter 2005, an increase of $1,419 or 5.0%. In
the comparative nine months periods, these expenses rose from $73,617 in 2005
to $75,353 in 2006, an increase of $1,736 or 2.4%. These increases principally
reflect the added expenses associated with increased sales combined with higher
freight and delivery expenses, including higher fuel surcharges from carriers,
and additional marketing expenses associated with the transition to new pack
sizes and government mandated labeling changes.
As a percentage of sales, selling, marketing and administrative expenses
favorably decreased from 16.4% of sales in third quarter 2005 to 16.1% in 2006,
and was unchanged at 19.6% of sales in nine months 2005 and 2006. The
aforementioned favorable results generally reflect the Company's cost
containment initiatives as well as the benefits of higher sales against certain
expenses that are generally not variable with sales.
Third quarter 2006 earnings from operations were $40,304 compared to $38,988 in
third quarter 2005, an increase of $1,316 or 3.4%. Improved operating earnings
in third quarter 2006 principally resulted from higher reported sales and the
benefits of programs implemented by the Company, including price increases and
cost reduction initiatives, with the objective to recover higher input costs.
Nine months 2006 earnings from operations were $72,327 compared to $75,068, a
decrease of $2,741 or 3.7%. The benefits of higher nine month 2006 sales were
mitigated by those adverse factors that affected cost of sales as discussed
above, principally higher input costs, and the effects of phasing in marketing
programs, including price increases, with the objective to recover increases in
costs and expenses.
-6A-
NET EARNINGS:
Third Quarter, 2006
Third Quarter vs.
2006 2005 Third Quarter, 2005
$28,969 $27,665 4.7%
Nine Months, 2006
Nine Months vs.
2006 2005 Nine Months, 2005
$54,189 $53,902 0.5%
Third quarter 2006 net earnings were $28,969 compared to third quarter 2005 net
earnings of $27,665, a $1,304 or 4.7% increase. Third quarter 2006 earnings
per share were $0.54, compared to $0.50 per share in the prior year comparative
period, an increase of $0.04 or 8.0%.
Nine months 2006 net earnings were $54,189 compared to nine months 2005 net
earnings of $53,902. Nine months net earnings per share were $1.00 in 2006
compared to $0.98 per share in 2005, an increase of $0.02 per share or 2.0%.
Other income, net was $1,890 in third quarter 2006 compared to $1,543 in third
quarter 2005, an increase of $347. The aforementioned increase is primarily
the result of decreased interest expense of $642 partially offset by decreased
investment income of $257. Other income, net was $6,279 in nine months 2006
compared to $3,934 in nine months 2005, an increase of $2,345. Nine months
2006 other income net reflects $1,332 of decreased interest expense combined
with $486 of increased royalty income and a $739 capital gain on the sale of
marketable securities. The decreased interest expense in both third quarter
and nine months 2006 reflects the continuous reduction in bank loans during
2005 and 2006.
The consolidated effective income tax rate favorably decreased to 31.3% in both
the third quarter and nine months 2006 from 31.8% in the third quarter 2005 and
32.1% in nine months 2005. This improvement principally reflects lower
effective rates on foreign taxes.
In addition to the factors discussed above, earnings per share benefited from
fewer shares outstanding as a result of the Company's common stock share
repurchases in the open market in 2005 and 2006, and resulting fewer shares
outstanding.
LIQUIDITY AND CAPITAL RESOURCES:
The Company's current ratio (current assets divided by current liabilities) was
2.3 to 1 as of the end of third quarter 2006 as compared to 1.6 to 1 as of the
end of third quarter 2005 and 2.2 to 1 as of the end of fourth quarter 2005.
Net working capital was $124,701 as of the end of third quarter 2006 as
compared to $132,940 and $87,392 as of the end of fourth quarter 2005 and third
quarter 2005, respectively. The aforementioned net working capital amounts
include aggregate cash and cash equivalents and short-term investments less
short-term bank loans which aggregated $45,540 as of the end of third quarter
2006 compared to $91,897 and $18,388, as of the end of fourth quarter 2005 and
third quarter 2005, respectively. In addition, long-term investments,
principally debt securities comprising municipal bonds, were $42,234 as of the
end of third quarter 2006 as compared to $44,851 and $65,265 as of the end of
fourth quarter 2005 and third quarter 2005, respectively. Investments in
municipal bonds and other debt securities that matured during nine months 2006
and 2005 were generally used to pay down bank loans or replaced with debt
securities of similar maturities.
-6B-
The Company fully repaid its short-term bank loans in second quarter 2006.
The balances of these bank loans as of the end of fourth quarter 2005 and
third quarter 2005, were $32,001 and $60,000, respectively. 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 $4,974 for nine months 2006,
compared to $13,724 in nine months 2005. The aforementioned change in net
cash provided by operating activities principally reflects increases in
accounts receivable, other receivables and inventories which were partially
offset by increases in accounts payable and accrued liabilities.
Capital expenditures for nine months 2006 and 2005 were $33,702 and $12,097,
respectively. Nine months 2006 capital expenditures reflect $25,241 of
investments in rental income producing real estate which was funded from the
Company's restricted cash. Excluding the reinvestment of restricted cash,
capital expenditures for the 2006 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.
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 "like kind" real estate during first half 2006 in compliance with U.S.
Internal Revenue Code Section 1031. During first half 2006 the Company
also reclassified approximately $7,600 of current income taxes payable to
deferred income taxes, all of which relates to the aforementioned Section
1031 reinvestment gain.
Cash dividends paid in nine months 2006 and 2005 were $12,969 and $11,386,
respectively. The Company also repurchased and retired $30,096 and $7,474 of
its shares outstanding during nine months 2006 and 2005, respectively.
RECENT ACCOUNTING PRONOUNCMENTS
In July 2006, the FASB issued FASB Interpretation (FIN) No. 48 "Accounting
for Uncertainty in Income Taxes - an interpretation of FASB Statement 109."
FIN 48 prescribes a comprehensive model for recognizing, measuring, presenting
and disclosing in the financial statements tax positions taken on a tax return.
FIN 48 is effective for fiscal years beginning after December 15, 2006. The
Company is currently assessing the impact of FIN 48 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 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 September 2006, the FASB issued SFAS No. 158, "Employers' Accounting for
Defined Benefit Pension and Other Postretirement Plans" (SFAS No. 158). SFAS
No. 158 requires that employers recognize on a prospective basis the funded
status of their defined benefit pension and other postretirement plans on their
consolidated balance sheet and recognize as a component of other comprehensive
income, net of tax, the gains or losses and prior service costs or credits that
arise during the period but are not recognized as components of net periodic
benefit cost. SFAS No. 158 also requires additional disclosures in the notes
to financial statements. SFAS No. 158 is effective as of the end of fiscal
years ending after December 15, 2006. The Company is currently assessing the
impact of SFAS No. 158 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 September 2006, the SEC staff issued Staff Accounting Bulletin ("SAB") 108
"Considering the Effects of Prior Year Misstatements when Quantifying
Misstatements in Current Year Financial Statement." SAB 108 requires that
public companies utilize a "dual-approach" to assessing the quantitative
effects of financial misstatements. This dual approach includes both an income
statement focused assessment and a balance sheet focused assessment. The
guidance in SAB 108 must be applied to annual financial statements for fiscal
years ending after November 15, 2006. The Company is currently assessing the
impact of SAB 108 and has not made a final determination of its effects on the
Company's financial statements.
This discussion and certain other sections of this Form 10-Q contain forward-
looking statements that are based largely on the Company's current expectations
and are made pursuant to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. Forward-looking statements are subject to
certain risks, trends and uncertainties that could cause actual results and
achievements to differ materially from those expressed in the forward-looking
statements. Such risks, trends and uncertainties, which in some instances are
beyond the Company's control, include changes in demand and consumer
preferences, including seasonal events such as Halloween; the effect of changes
in commodity prices and ingredient costs; the effect of changes in foreign
currencies on the Company's foreign subsidiaries and resulting effects on costs
relating to foreign products principally marketed and sold in the USA; the
Company's reliance on third-party vendors, including foreign supplies for
various goods and services; the Company's ability to successfully implement new
production processes and automated production lines; the effect of acquisitions
on the Company's results of operations and financial condition including the
effect of changes in assumptions such as discount rates and profit margins,
relating to the Company's impairment testing and analysis of its goodwill and
trademarks; changes in the confectionary market place including actions taken
by major retailers and customers; customer and consumer response to marketing
programs, changes in pack size and weights, and price adjustments; changes in
governmental laws and regulations; changes in domestic and foreign taxes laws
as well as the Company's ability to utilize deferred tax assets relating to
foreign tax loss and credit carry-forwards; the overall competitive environment
in the Company's industry; changes in assumptions and judgments discussed
under the heading "Critical Accounting Policies" of the Company included
in the 2005 Annual Report and Form 10-K; and the effects of new accounting
pronouncements, discussed above. The words "believe," "expect," "anticipate,"
"estimate," "intend" and similar expressions generally identify forward-looking
statements. Readers are cautioned not to place undue reliance on such forward-
looking statements, which are as of the date of this filing.
-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, 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 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, 2005.
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 September 30, 2006 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 September 30,
2006 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
JUL 2 TO JUL 29 8,100 $ 27.67 NOT APPLICABLE NOT APPLICABLE
JUL 30 TO AUG 26 267,400 26.96 NOT APPLICABLE NOT APPLICABLE
AUG 27 TO SEP 30 234,800 28.72 NOT APPLICABLE NOT APPLICABLE
TOTAL 510,300 $ 27.78
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 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: Nov. 9, 2006 BY:/S/MELVIN J. GORDON
Melvin J. Gordon
Chairman of the Board
Date: Nov. 9, 2006 BY:/S/G. HOWARD EMBER, JR.
G. Howard Ember, Jr.
Vice President Finance
-7-
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 disclosure controls 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: Nov. 9, 2006
By: /S/MELVIN J. GORDON
Melvin J. Gordon
Chairman and Chief Executive Officer
-7A-
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 disclosure controls 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: Nov. 9, 2006
By: /S/G. HOWARD EMBER, JR.
G. Howard Ember, Jr.
Vice President Finance and
Chief Financial Officer
-7B-
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 September 30, 2006 (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: Nov. 9, 2006 /S/MELVIN J. GORDON
Melvin J. Gordon
Chairman and Chief
Executive Officer
Dated: Nov. 9, 2006 /S/G. HOWARD EMBER, JR.
G. Howard Ember, Jr.
V.P. Finance and
Chief Financial Officer
-7C-