-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VRHAu/7/IdH1kn6Mwv03PjlNvDSGCQz9m3Eb29oeJiEBp485/y3L/jnnVBbDDijR 8hPO+6Fx3u6RnnIu3IVp8g== 0000098677-07-000011.txt : 20070808 0000098677-07-000011.hdr.sgml : 20070808 20070808172842 ACCESSION NUMBER: 0000098677-07-000011 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20070630 FILED AS OF DATE: 20070808 DATE AS OF CHANGE: 20070808 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TOOTSIE ROLL INDUSTRIES INC CENTRAL INDEX KEY: 0000098677 STANDARD INDUSTRIAL CLASSIFICATION: SUGAR & CONFECTIONERY PRODUCTS [2060] IRS NUMBER: 221318955 STATE OF INCORPORATION: VA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-01361 FILM NUMBER: 071036932 BUSINESS ADDRESS: STREET 1: 7401 S CICERO AVE CITY: CHICAGO STATE: IL ZIP: 60629 BUSINESS PHONE: 7738383400 MAIL ADDRESS: STREET 1: 7401 S CICERO AVE CITY: CHICAGO STATE: IL ZIP: 60629 FORMER COMPANY: FORMER CONFORMED NAME: SWEETS CO OF AMERICA INC DATE OF NAME CHANGE: 19660921 10-Q 1 jun07filing.txt TOOTSIE ROLL INDUSTRIES, INC. 10-Q ENDING 6/30/07 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- -----END PRIVACY-ENHANCED MESSAGE-----