10-K

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 10-K

(Mark One)
x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the fiscal year ended December 31, 2006
	OR
o	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 or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)
7401 South Cicero Avenue, Chicago, Illinois 60629 (Address of principal executive offices) (Zip Code)
Registrant’s Telephone Number: (773) 838-3400

Securities registered pursuant to Section 12(b) of the Act:
Title of each class	Name of each exchange on which registered
Common Stock — Par Value $.69-4/9 Per Share	New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
Class B Common Stock — Par Value $.69-4/9 Per Share

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes  x                        No  o

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes  o                        No  x

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  o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    o

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   o          Non-accelerated Filer  o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes  o                        No  x

As of February 16, 2007, there were outstanding 35,368,981 shares of Common Stock par value $.69-4/9 per share, and 18,384,659 shares of Class B Common Stock par value $.69-4/9 per share.

As of June 30, 2006, the aggregate market value of the Common Stock (based upon the closing price of the stock on the New York Stock Exchange on such date) held by non-affiliates was approximately $599,322,000.  Class B Common Stock is not traded on any exchange, is restricted as to transfer or other disposition, but is convertible into Common Stock on a share-for-share basis.  Upon such conversion, the resulting shares of Common Stock are freely transferable and publicly traded.  Assuming all 18,384,659 shares of outstanding Class B Common Stock were converted into Common Stock, the aggregate market value of Common Stock held by non-affiliates on June 30, 2006 (based upon the closing price of the stock on the New York Stock Exchange on such date) would have been approximately $700,303,000.  Determination of stock ownership by non-affiliates was made solely for the purpose of this requirement, and the Registrant is not bound by these determinations for any other purpose.

DOCUMENTS INCORPORATED BY REFERENCE

1.             Portions of the Company’s Annual Report to Shareholders for the year ended December 31, 2006 (the “2006 Report”) are incorporated by reference in Parts I and II of this report and filed as an exhibit to this report.

2.             Portions of the Company’s Definitive Proxy Statement for the Company’s Annual Meeting of Shareholders (the “2007 Proxy Statement”) scheduled to be held on May 7, 2007 are incorporated by reference in Part III of this report.

TABLE OF CONTENTS
ITEM 1.	Business	1
ITEM 1A.	Risk Factors	4
ITEM 1B.	Unresolved Staff Comments	6
ITEM 2.	Properties	6
ITEM 3.	Legal Proceedings	6
ITEM 4.	Submission of Matters to a Vote of Security Holders	6
ITEM 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	8
ITEM 6.	Selected Financial Data	8
ITEM 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	8
ITEM 7A.	Quantitative and Qualitative Disclosures About Market Risk	9
ITEM 8.	Financial Statements and Supplementary Data	9
ITEM 9.	Changes in and Disagreements with Auditors on Accounting and Financial Disclosure	9
ITEM 9A.	Controls and Procedures	9
ITEM 9B.	Other Information	10
ITEM 10.	Directors, Executive Officers and Corporate Governance	10
ITEM 11.	Executive Compensation	11
ITEM 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	11
ITEM 13.	Certain Relationships and Related Transactions, and Director Independence	11
ITEM 14.	Principal Accountant Fees and Services	11
ITEM 15.	Exhibits and Financial Statement Schedules	12

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Forward-Looking Information

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, and changes in consumer demand for the Company’s products; (ii) fluctuations in the cost and availability of various raw materials; (iii) inherent risks in the marketplace associated with new product introductions, including uncertainties about trade and consumer acceptance and seasonal events such as Halloween (iv) the effect of acquisitions on the Company’s results of operations and financial condition; (v) the effect of changes in foreign currencies on the Company’s foreign subsidiaries; (vi) the Company’s reliance on third-party vendors for various goods and services; (vii) the Company’s ability to successfully implement new production processes and lines; (viii) the effect of changes in assumptions, including discount rates, sales growth and profit margins, relating to the Company’s impairment testing and analysis of its goodwill and trademarks; (ix) changes in the confectionary market place including actions taken by major retailers and customers; (x) customer and consumer response to marketing programs and price adjustments; (xi) changes in governmental laws and regulations including taxes; and (xii) changes in assumptions and judgments discussed under the heading “Critical Accounting Policies” included in the 2006 Report and incorporated by reference into this report. 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 this Annual Report on Form 10-K and in other Company filings with the Securities and Exchange Commission.

PART I

ITEM 1.  Business.

Tootsie Roll Industries, Inc. and its consolidated subsidiaries (the “Company”) have been engaged in the manufacture and sale of confectionery products for over 100 years. This is the only industry segment in which the Company operates and is its only line of business. The majority of the Company’s products are sold under the registered trademarks TOOTSIE ROLL, TOOTSIE ROLL POPS, CHILD’S PLAY, CARAMEL APPLE POPS, CHARMS, BLOW-POP, BLUE RAZZ, ZIP-A-DEE POPS, CELLA’S, MASON DOTS, MASON CROWS, JUNIOR MINT, CHARLESTON CHEW, SUGAR DADDY, SUGAR BABIES, ANDES, FLUFFY STUFF, DUBBLE BUBBLE, RAZZLES, CRY BABY and NIK-L-NIP. In 2004 the

Company acquired the trademarks for DUBBLE BUBBLE, RAZZLES, CRY BABY and NIK-L-NIP along with their corresponding manufacturing assets and a 50% equity interest in a Spanish joint venture that manufactures and sells confectionery products, principally gum, from Concord Confections, Inc. and its affiliates for an adjusted aggregate purchase price, including direct transactions fees and expenses, of $212,474,000. See Note 12 of the Notes to Consolidated Financial Statements on Page 21 of the 2006 Report.

The Company’s products are marketed in a variety of packages designed to be suitable for display and sale in different types of retail outlets. They are distributed through approximately 100 candy and grocery brokers and by the Company itself to approximately 15,000 customers throughout the United States. These customers include wholesale distributors of candy and groceries, supermarkets, variety stores, dollar stores, chain grocers, drug chains, discount chains, cooperative grocery associations, warehouse and membership club stores, vending machine operators, the U. S. military and fund-raising charitable organizations.

The Company’s principal markets are in the United States, Canada and Mexico. The Company’s Mexican plant supplies a very small percentage of the products marketed in the United States and Canada. The majority of production from the Company’s Canadian plants is sold in the United States.

The domestic confectionery business is highly competitive. The Company competes primarily with other manufacturers of bar candy, bagged candy and bubble gum of the type sold in the above mentioned stores. Although accurate statistics are not available, the Company believes it is among the ten largest domestic manufacturers in this field. In the markets in which the Company competes, the main forms of competition comprise brand recognition as well as a fair price for our products at various retail price points.

The Company did not have a material backlog of firm orders at the end of the calendar years 2006 or 2005.

Packaging materials and ingredients used by the Company are readily obtainable from a number of suppliers at competitive prices. Prices for refined corn products including corn syrup and dextrose were higher as significant amounts of corn and corn refining capacity have been redirected to ethanol production. The domestic price of both raw and refined sugar, and the price of vegetable oil were higher in 2006 than in 2005 due to supply and demand. Packaging material costs, including films, cartons, and waxed paper, were higher in 2006, in part due to higher oil prices and tighter supplies of certain papers. Certain packaging, ingredients and supplies purchased locally for our Canadian plant were higher in 2006 due to the relative strength of the Canadian dollar. The Company continues to seek competitive bids to leverage the high volume of annual purchases it makes of these items and to lower per unit costs. The Company has engaged in hedging transactions, primarily in sugar, corn syrup and soybean oil and may do so in the future if and when advisable. From time to time, the Company changes the size of certain of its products, which are usually sold at standard prices, to reflect significant changes in raw material costs.

The Company does not hold any material patents, licenses, franchises or concessions. The Company’s major trademarks are registered in the United States and in many

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other countries. Continued trademark protection is of material importance to the Company’s business as a whole.

Although the Company does develop new products, including product line extensions for existing brands, the Company does not expend material amounts of money on research or development activities.

The Company’s compliance with Federal, State and local regulations which have been enacted or adopted regulating the discharge of materials into the environment, or otherwise relating to the protection of the environment, has not had a material effect on the capital expenditures, earnings or competitive position of the Company nor does the Company anticipate any such material effects from presently enacted or adopted regulations.

The Company employs approximately 2,200 persons.

The Company has found that its sales normally maintain a consistent level throughout the year except for a substantial upsurge in the third quarter which reflects sales associated with Halloween. In anticipation of this high sales period, the Company generally begins its Halloween inventory build-up in the second quarter of each year. The Company historically offers extended credit terms for sales made under Halloween sales programs. Each year, after Halloween receivables have been collected, the Company invests such funds in various temporary cash investments.

Revenues from Wal-Mart Stores, Inc. aggregated approximately 23.7%, 24.0% and 20.8% of total net sales during the years ended December 31, 2006, 2005 and 2004, respectively. Although no other customer other than Wal-Mart Stores, Inc. accounted for more than 10% of net sales, the loss of one or more significant customers could have a material adverse effect on the Company’s business.  In early 2006, one customer of the business acquired from Concord Confections terminated a contract manufacturing arrangement which accounted for approximately 2% of net sales in 2005.

For a summary of sales and long-lived assets of the Company by geographic area and additional information regarding the foreign subsidiaries of the Company, see Note 9 of the Notes to Consolidated Financial Statements on Page 20 of the 2006 Report and on Page 4 of the 2006 Report under the section entitled “International.” Note 9 and the aforesaid section are incorporated herein by reference. Portions of the 2006 Report are filed as an exhibit to this report.

Information regarding the Company’s annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to these reports, will be made available, free of charge, upon written request to Tootsie Roll Industries, Inc., 7401 South Cicero Avenue, Chicago, Illinois 60629, Attention: Barry Bowen, Treasurer and Assistant Secretary. The Company does not make such reports available on its website at www.tootsie.com because it believes that they are readily available from the Securities Exchange Commission at www.sec.gov, and because the Company provides them free of charge upon request. Interested parties, including shareholders, may communicate to the Board of Directors or any individual director in writing, by regular mail, addressed to the Board of Directors or an

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individual director, in care of Tootsie Roll Industries, Inc., 7401 South Cicero Avenue, Chicago, Illinois 60629, Attention: Ellen R. Gordon, President. If you wish to communicate directly with the Company’s non-employee directors, please note that on the cover of the communication.

ITEM 1A.              Risk Factors

Significant factors that could impact the Company’s financial condition or results of operations include, without limitation, the following:

·Changes in the price and availability of raw materials - The packaging materials and several of the principal ingredients used by the Company are subject to price volatility. Although the Company engages in commodity hedging transactions and seeks to leverage the high volume of its annual purchases, the Company may experience price increases in these raw materials that it may not be able to offset, which could have an adverse impact on the Company’s results of operations and financial condition. In addition, although the Company has historically been able to procure sufficient supplies of raw materials, market conditions could change such that adequate supplies might not be available.

·Changes in product performance and competition - The Company competes with other well-established manufacturers of confectionery products. A failure of new or existing products to be favorably received, a failure to retain preferred shelf space at retail or a failure to sufficiently counter aggressive competitive actions could have an adverse impact on the Company’s results of operations and financial condition.

·Discounting and other competitive actions - Discounting and other competitive actions may make it more difficult for the Company to maintain its operating margins.

·Dependence on customers - The Company’s largest customer, Wal-Mart Stores, Inc., accounted for approximately 23.7% of total net sales in 2006. The loss of Wal-Mart or one or more other large customers, or a material decrease in purchases by one or more large customers, could result in decreased sales and adversely impact the Company’s results of operations and financial condition.

·Changes in consumer preferences and tastes -  Failure to adequately anticipate and react to changing demographics, consumer trends, consumer health concerns and product preferences could have an adverse impact on the Company’s results of operations and financial condition.

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·Governmental laws and regulations - Governmental laws and regulations, including food and drug laws, laws related to advertising and marketing practices, accounting standards, taxation requirements, competition laws, employment laws and environmental laws, both in and outside the U.S., could adversely impact the Company’s results of operations and ability to compete in domestic or foreign marketplaces.

·Labor stoppages - To the extent the Company experiences any material labor stoppages, such disputes or strikes could negatively affect shipments from suppliers or shipments of finished product.

·An increase in the cost of energy could affect our profitability - Recently, we have experienced significant increases in energy costs, and energy costs could continue to rise, which would result in higher distribution, freight and other operating costs. Our future operating expenses and margins will be dependent on our ability to manage the impact of cost increases. We cannot guarantee that we will be able to pass along increased energy costs to our customers through increased prices.

·Production interruptions - The majority of the Company’s products are manufactured in a single production facility on specialized equipment. In the event of a disaster at a specific plant location it would be difficult to transfer production to other facilities in a timely manner, which could result in loss of market share for the affected products.

·International operations - While the countries in which the Company operates tend to be politically, socially and economically stable, to the extent there is political or social unrest, civil war, terrorism or significant economic instability, the results of the Company’s business in such countries could be adversely impacted. Currency exchange rate fluctuations between the U.S. dollar and foreign currencies could have an adverse impact on the Company’s results of operations and financial condition.

The factors identified above are believed to be significant factors, but not necessarily all of the significant factors, that could impact our business.  Unpredictable or unknown factors could also have material effects on the Company.

Additional significant factors that may affect the Company’s operations, performance and business results include the risks and uncertainties listed from time to time in filings with the Securities and Exchange Commission and the risk factors or uncertainties listed herein or listed in any document incorporated by reference herein.

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ITEM 1B.               Unresolved Staff Comments.

None.

ITEM 2.                  Properties.

The Company owns its principal plant and offices which are located in Chicago, Illinois in a building consisting of approximately 2,225,000 square feet which is utilized for offices, manufacturing and warehousing. In addition to owning the principal plant and warehousing facilities mentioned above, the Company leases manufacturing and warehousing facilities at a second location in Chicago which comprises 138,000 square feet. The lease is renewable by the Company every five years through June, 2011. The Company also periodically leases additional warehousing space at this second location as needed on a month to month basis.

The Company’s other principal manufacturing facilities, all of which are owned, are:

Location	Square Feet (a)
Covington, Tennessee	685,000
Cambridge, Massachusetts	142,000
Delevan, Wisconsin	162,000
Concord, Ontario, Canada	280,500	(b)
Mexico City, Mexico	90,000

(a)        Square footage is approximate and includes production, warehousing and office space.

(b)       Two facilities; a third owned facility, comprising 225,000 square feet of warehousing space, and which is excluded from the reported totals above, is leased to a third party.

The Company owns substantially all of the production machinery and equipment located in its plants and considers that all of its facilities are well maintained, in good operating condition and adequately insured.

ITEM 3.                  Legal Proceedings.

There are no material pending legal proceedings known to the Company to which the Company or any of its subsidiaries is a party or of which any of their property is the subject, and no penalties have been imposed by the Internal Revenue Service on the Company.

ITEM 4.                  Submission of Matters to a Vote of Security Holders.

No matters were submitted to a vote of the Company’s shareholders through the solicitation of proxies or otherwise during the fourth quarter of 2006.

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ADDITIONAL ITEM.         Executive Officers of the Registrant.

See the information on Executive Officers set forth in the table in Part III, Item 10, Page 10 of this report, which is incorporated herein by reference.

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PART II

ITEM 5.                  Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

The Company’s Common Stock is traded on the New York Stock Exchange.  The Company’s Class B Common Stock is subject to restrictions on transferability and no market exists for such shares of Class B Common Stock.  The Class B Common Stock is convertible at the option of the holder into shares of Common Stock on a share-for-share basis.  As of February 16, 2007, there were approximately 4,100 and 1,500 registered holders of record of Common and Class B Common Stock, respectively.  In addition, the Company estimates that as of February 16, 2007 there were 18,000 and 5,000 beneficial holders of Common and Class B Common Stock, respectively.  For information on the market price of, and dividends paid with respect to, the Company’s Common Stock, see the section entitled “2006-2005 Quarterly Summary of Tootsie Roll Industries, Inc. Stock Price and Dividends Per Share” which appears on Page 24 of the 2006 Report.  This section is incorporated herein by reference and filed as an exhibit to this report.

The following table sets forth information about the shares of Common Stock the Company repurchased on the open market during the quarter ended December 31, 2006:

				Total Number of	Maximum Number (or
	Total	Average		Shares Purchased	Approximate Dollar Value)
	Number	Price		as Part of Publicly	of Shares that May Yet
	of Shares	Paid per		Announced Plans	be Purchased Under the
Period	Purchased	Share		or Programs	Plans or Programs
Oct 1 to Oct 31	20,500	$	29.12	Not Applicable	Not Applicable
Nov 1 to Nov 30	—	—		Not Applicable	Not Applicable
Dec 1 to Dec 31	—	—		Not Applicable	Not Applicable
Total	20,500	$	29.12

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.                  Selected Financial Data.

See the section entitled “Five Year Summary of Earnings and Financial Highlights” which appears on Page 25 of the 2006 Report.  This section is incorporated herein by reference and filed as an exhibit to this report.

ITEM 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations.

See the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” on Pages 5-12 of the 2006 Report.  This section is incorporated herein by reference and filed as an exhibit to this report.

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ITEM 7A.           Quantitative and Qualitative Disclosures About Market Risk.

See the section entitled “Market Risks” in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” on page 8-9 of the 2006 Report.  This section is incorporated herein by reference and filed as an exhibit to this report.

See also Note 1 of the Notes of Consolidated Financial Statements commencing on Page 17 of the 2006 Report, which is incorporated herein by reference.

ITEM 8.                  Financial Statements and Supplementary Data.

The financial statements, together with the report thereon of PricewaterhouseCoopers LLP dated February 28, 2007, appearing on Pages 13-21 and 22 of the 2006 Report and the Quarterly Financial Data on Page 24 of the 2006 Report are incorporated by reference in this report.  With the exception of the aforementioned information and the information incorporated in Items 1, 5, 6, 7, 7A, and 9A, the 2006 Report is not to be deemed filed as part of this report.

ITEM 9.Changes in and Disagreements with Auditors on Accounting and Financial Disclosure.

None.

ITEM 9A.              Controls And Procedures.

Disclosure Controls and Procedures

The Company’s Chief Executive Officer and Chief Financial Officer have concluded, based on their evaluation as of the end of the period covered by this report, that the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) ) are effective to ensure that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is (i)  recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and (ii) is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Internal Control over Financial Reporting

(a)  See Page 12 of the 2006 Report for Management’s Report on Internal Control over Financial Reporting, which is incorporated herein by reference.

(b)  See Page 22 of the 2006 Report for the attestation report of the Company’s independent registered public accounting firm, which is incorporated herein by reference.

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(c)  There were no changes in the Company’s internal control over financial reporting during the quarter ended December 31, 2006 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

ITEM 9B.               Other Information.

None

PART III

ITEM 10.                Directors, Executive Officers and Corporate Governance.

See the information with respect to the Directors of the Company which is set forth in the section entitled “Election of Directors” of the 2007 Proxy Statement, which  section of the 2007 Proxy Statement is incorporated herein by reference.  See the information in the section entitled “Section 16(a) Beneficial Ownership Reporting Compliance” of the Company’s 2007 Proxy Statement, which section is incorporated herein by reference.

The following table sets forth the information with respect to the executive officers of the Company:

Name	Position (1)	Age
Melvin J. Gordon*	Chairman of the Board and Chief Executive Officer (2)	87
Ellen R. Gordon*	President and Chief Operating Officer (2)	75
G. Howard Ember Jr.	Vice President/Finance	54
John W. Newlin Jr.	Vice President/Manufacturing	69
Thomas E. Corr	Vice President/Marketing and Sales	58
John P. Majors	Vice President/Distribution	45
Barry P. Bowen	Treasurer	51

*A member of the Board of Directors of the Company

(1)All of the above named officers other than Mr. Majors have served in the positions set forth in the table as their principal occupations for more than the past ten years.  From January, 2000 until joining the Company in October, 2004 Mr. Majors was employed by The Pepsi Bottling Group in various senior logistics management positions.  Mr. and Mrs. Gordon also serve as President and Vice President, respectively of HDI Investment Corp., a family investment company.

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(2)Melvin J. Gordon and Ellen R. Gordon are husband and wife.

Code of Ethics

The Company has a Code of Business Conduct and Ethics, which applies to all of the Company’s directors and employees, and which meets the Securities Exchange Commission criteria for a “code of ethics.”  The Code of Ethics is available on the Company’s website, located at www.tootsie.com, and the information in such Code of Conduct is available in print to any shareholder who requests a copy.

ITEM 11.                Executive Compensation.

See the information set forth in the sections entitled “Executive Compensation”  and “Director Compensation” of the Company’s 2007 Proxy Statement, which are incorporated herein by reference.

ITEM 12.                Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

For information with respect to the beneficial ownership of the Company’s Common Stock and Class B Common Stock by the beneficial owners of more than 5% of said shares and by the management of the Company, see the sections entitled “Ownership of Common Stock and Class B Common Stock by Certain Beneficial Owners” and “Ownership of Common Stock and Class B Common Stock by Management” of the 2007 Proxy Statement.  These sections of the 2007 Proxy Statement are incorporated herein by reference.  The Company does not have any compensation plans under which equity securities of the Company are authorized for issuance.

ITEM 13.                Certain Relationships and Related Transactions, and Director Independence.

See the section entitled “Related Person Transactions” of the 2007 Proxy Statement, which is incorporated herein by reference.

Our board of directors has determined that our non-management directors, Messrs. Seibert and Bergeman and Ms. Lewis-Brent, are independent under the New York Stock Exchange listing standards because they have no direct or indirect relationship with the Company other than through their service on the Board of Directors

ITEM 14.                Principal Accountant Fees and Services.

See the section entitled “Independent Auditor Fees and Services” of the 2007 Proxy Statement, which is incorporated herein by reference.

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ITEM 15.                Exhibits and Financial Statement Schedule.

(a)           Financial Statements.

The following financial statements and schedule are filed as part of this report:

(1)Financial Statements (filed herewith as part of Exhibit 13):

Report of Independent Registered Public Accounting Firm

Consolidated Statements of Earnings, Comprehensive Earnings and Retained Earnings for the three years ended December 31, 2006

Consolidated Statements of Cash Flows for the three years ended December 31, 2006

Consolidated Statements of Financial Position at December 31, 2006 and 2005

Notes to Consolidated Financial Statements

(2)Financial Statement Schedule:

Report of Independent Registered Public Accounting Firm on Financial Statement Schedule

For the three years ended December 31, 2006 — Valuation and Qualifying Accounts

All other schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto.

(3)Exhibits required by Item 601 of Regulation S-K:

See Index to Exhibits which appears following Financial Schedule II.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, Tootsie Roll Industries, Inc., has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

TOOTSIE ROLL INDUSTRIES, INC.

By:	Melvin J. Gordon
	Melvin J. Gordon, Chairman
	of the Board of Directors
	and Chief Executive Officer
Date:	February 28, 2007

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Melvin J. Gordon                 Melvin J. Gordon	Chairman of the Board of Directors and Chief Executive Officer (principal executive officer)	February 28, 2007
Ellen R. Gordon                   Ellen R. Gordon	Director, President and Chief Operating Officer	February 28, 2007
Barre A. Seibert                   Barre A. Seibert	Director	February 28, 2007
Lana Jane Lewis-Brent        Lana Jane Lewis-Brent	Director	February 28, 2007
Richard P. Bergeman           Richard P. Bergeman	Director	February 28, 2007
G. Howard Ember, Jr.          G. Howard Ember, Jr.	Vice President, Finance (principal financial officer and principal accounting officer)	February 28, 2007

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON
FINANCIAL STATEMENT SCHEDULE

To the Board of Directors of

Tootsie Roll Industries, Inc.:

Our audits of the consolidated financial statements, of management’s assessment of the effectiveness of internal control over financial reporting and of the effectiveness of internal control over financial reporting referred to in our report dated February 28, 2007 appearing in the 2006 Annual Report to Shareholders of Tootsie Roll Industries, Inc. (which report, consolidated financial statements and assessment are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the financial statement schedule listed in Item 15(a)(2) of this Form 10-K.  In our opinion, this financial statement schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements.

PricewaterhouseCoopers LLP

Chicago, Illinois

February 28, 2007

TOOTSIE ROLL INDUSTRIES, INC.
AND SUBSIDIARY COMPANIES

SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS (in thousands)

DECEMBER 31, 2006, 2005 AND 2004

Description	Balance at beginning of year		Additions charged to costs and expenses		Deductions(1)		Balance at End of Year
2006:
Reserve for bad debts	$	1,703	$	288	$	250	$	1,741
Reserve for cash discounts	552		7,645		7,616		581
	$	2,255	$	7,933	$	7,866	$	2,322
2005:
Reserve for bad debts	$	1,954	$	122	$	373	$	1,703
Reserve for cash discounts	486		7,400		7,334		552
	$	2,440	$	7,522	$	7,707	$	2,255
2004:
Reserve for bad debts	$	1,628	$	489	$	163	$	1,954
Reserve for cash discounts	342		7,512		7,368		486
	$	1,970	$	8,001	$	7,531	$	2,440

(1)           Deductions against reserve for bad debts consist of accounts receivable written off net of recoveries and exchange rate movements.  Deductions against reserve for cash discounts consist of allowances to customers.

INDEX TO EXHIBITS

The Company hereby agrees to provide the Commission, upon request, copies of any omitted exhibits or schedules required by Item 601(b)(2) of Regulation S-K.

3.1Restated Articles of Incorporation.  Incorporated by reference to Exhibit 3.1 of the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1997; Commission File No. 1-1361.

3.2Amendment to Restated Articles of Incorporation.  Incorporated by reference to Exhibit 3.2 of the Company’s Annual Report on Form 10-K for the year ended December 31, 1999; Commission File No. 1-1361.

3.3Amended and Restated By-Laws .  Incorporated by reference to Exhibit 3.2 of the Company’s Annual Report on Form 10-K for the year ended December 31, 1996; Commission File No. 1-1361.

4.1Specimen Class B Common Stock Certificate.  Incorporated by reference to Exhibit 1.1 of the Company’s Registration Statement on Form 8-A dated February 29, 1988. Commission File No. 1-1361.

10.8.1*Excess Benefit Plan.  Incorporated by reference to Exhibit 10.8.1 of the Company’s Annual Report on Form 10-K for the year ended December 31, 1990; Commission File No. 1-1361.

10.8.2*Amended and Restated Career Achievement Plan of the Company.  Incorporated by reference to Exhibit 10.8.2 of the Company’s Annual Report on Form 10-K for the year ended December 31, 1998; Commission File No. 1-1361.

10.8.3*Amendment to the Amended and Restated Career Achievement Plan of the Company.  Incorporated by reference to Exhibit 10.8.3 of the Company’s Annual Report on Form 10-K for the year ended December 31, 1999; Commission File No. 1-1361.

10.12*Restatement of Split Dollar Agreement (Special Trust) between the Company and the trustee of the Gordon Family 1993 Special Trust dated January 31, 1997.  Incorporated by reference to Exhibit 10.12 of the Company’s Annual Report on Form 10-K for the year ended December 31, 1996; Commission File No. 1-1361.

10.21*Executive Split Dollar Insurance and Collateral Assignment Agreement between the Company and G. Howard Ember Jr. dated July 30, 1994.  Incorporated by reference to Exhibit 10.21 of the Company’s Annual Report on Form 10-K for the year ended December 31, 1994; Commission File No. 1-1361.

10.22*Executive Split Dollar Insurance and Collateral Assignment Agreement between the Company and John W. Newlin dated July 30, 1994.  Incorporated by reference to Exhibit 10.22 of the Company’s Annual Report on Form 10-K for the year ended December 31, 1994; Commission File No. 1-1361.

10.23*Executive Split Dollar Insurance and Collateral Assignment Agreement between the Company and Thomas E. Corr dated July 30, 1994.  Incorporated by reference to Exhibit 10.23 of the Company’s Annual Report on Form 10-K for the year ended December 31, 1994; Commission File No. 1-1361.

10.25*Form of Change In Control Agreement dated August, 1997 between the Company and certain executive officers.  Incorporated by reference to Exhibit 10.25 of the Company’s Annual Report on Form 10-K for the year ended December 31, 1997; Commission File No. 1-1361.

10.26*Executive Split Dollar Insurance and Collateral Assignment Agreement between the Company and Barry Bowen dated April 1, 1997.  Incorporated by reference to Exhibit 10.26 of the Company’s Annual Report on Form 10-K for the year ended December 31, 1997; Commission File No. 1-1361.

10.27*Amendment to Split Dollar Agreement (Special Trust) dated April 2, 1998 between the Company and the trustee of the Gordon Family 1993 Special Trust, together with related Collateral Assignments.  Incorporated by reference to Exhibit 10.27 of the Company’s Annual Report on Form 10-K for the year ended December 31, 1998; Commission File No. 1-1361.

10.28*Executive Officer Compensation

10.29*Director Compensation

13The following items incorporated by reference herein from the Company’s 2006 Annual Report to Shareholders for the year ended December 31, 2006 (the “2006 Report”), are filed as Exhibits to this report:

(i)Information under the section entitled “International” set forth on Page 4 of the 2006 Report;

(ii)Information under the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” set forth on Pages 5-12 of the 2006 Report;

(iii)Consolidated Statement of Earnings, Comprehensive Earnings and Retained Earnings for the three years ended December 31, 2006 set forth on Page 15 of the 2006 Report;

(iv)Consolidated Statement of Financial Position at December 31, 2006 and 2005 set forth on Pages 13-14 of the 2006 Report;

(v)Consolidated Statement of Cash Flows for the three years ended December 31, 2006 set forth on Page 16 of the 2006 Report;

(vi)Notes to Consolidated Financial Statements set forth on Pages 17-21 of the 2006 Report;

(vii)Management’s Report on Internal Control over Financial Reporting set forth on Page 12 of the 2006 Report,

(viii)Report of Independent Registered Public Accounting Firm set forth on Page 22 of the 2006 Report;

(ix)Quarterly Financial Data set forth on Page 24 of the 2006 Report;

(x)Information under the section entitled “2006-2005 Quarterly Summary of Tootsie Roll Industries, Inc. Stock Price and Dividends per Share” set forth on Page 24 of the 2006 Report; and

(xi)Information under the section entitled “Five Year Summary of Earnings and Financial Highlights” set forth on Page 25 of the 2006 Report.

21List of Subsidiaries of the Company.

31.1Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

______________________________________

*Management compensation plan or arrangement.

EX-10.28

EXHIBIT 10.28

EXECUTIVE OFFICER COMPENSATION

1) Base Salary

The Board of Directors annually reviews each executive officer’s salary. The Board considers the following with respect to the determination of an individual executive officer’s base salary:  performance and contribution to the Company, including length of service in the position, comparative compensation levels of other companies, including periodic compensation studies performed by independent compensation and benefit consultants, overall competitive environment for executives and the level of compensation considered necessary to attract and retain executive talent, historical compensation and performance levels for the Company; and a desire to adhere to Internal Revenue Code Section 162(m) regulations on deductible compensation, thus maximizing the Company’s ability to receive federal income tax deductions.

Companies used in comparative analyses for the purpose of determining each executive officer’s salary are selected periodically with the assistance of professional compensation consultants. Selection of such companies is based on a variety of factors, including market capitalization, revenue size and industry classification.  The Board of Directors believes that the Company’s primary competitors for executive talent are companies with a similar market capitalization and, accordingly, relies on a broad array of companies in various industries for comparative analyses. 2007 base salary for the named executive officers is $999,000, each, for Melvin J. Gordon, Ellen R. Gordon and John W. Newlin, $952,000  for Thomas E. Corr, and $722,000 for G. Howard Ember.

2) Annual Incentives and Other Awards

Effective January 1, 1997, the Compensation Committee established the Tootsie Roll Industries, Inc. Bonus Incentive Plan.  In 2006, the shareholders approved the Management Incentive Plan to replace the previous Bonus Incentive Plan for 2007 and future years.  The Management Incentive Plan was adopted to ensure the tax deductibility of the annual bonus that may be earned by executive officers of the Company.  Under the Plan, certain key employees (including employees who are also directors) designated by the Compensation Committee may receive annual incentive compensation determined by pre-established objective performance goals.  This year, all executive officers named in the summary compensation table included in the proxy statement were eligible for the Management Incentive Plan.  Performance goals were based on the measures, objectives and financial criteria discussed below.

Annual incentive bonuses to executive officers and/or CAP and split dollar insurance awards for all executive officers are made at the discretion of the Board of Directors in order to recognize and reward each executive officer’s contribution to the Company’s overall performance in terms of both financial results and attainment of individual and Company goals.  The annual cash incentive bonus is designed to reward executives, as well as other management personnel, for their contributions to the Company’s financial performance during the recently completed year.

The annual CAP award and/or split dollar life insurance program is principally designed to provide an incentive to executive officers to achieve both short-term and long-term financial and other goals, including strategic objectives.  These programs are also designed to provide an incentive for the executive to remain with the Company on a long-term basis. These awards are determined by the Board of Directors based on the performance of the Company and the executive’s contribution to the growth and success of the Company.

The Board of Directors considers both achievement of strategic objectives and financial performance measures in determining compensation levels. The following measures of Company performance are considered in the determination of bonuses and awards:  earnings per share, increase in sales of core brands and total sales, return on assets, return on equity; and net earnings as a percentage of sales.

3) Other

Each named executive officer is provided an automobile except for Mr. and Mrs. Gordon who share an automobile and are provided with the services of a driver.  As disclosed in the proxy, Mr. and Mrs. Gordon also share the use of a corporate apartment in connection with travel to their Chicago offices and share the use of a corporate aircraft in connection with such travel and other business and personal purposes.

EX-10.29

EXHIBIT 10.29

DIRECTOR COMPENSATION

Mr. and Mrs. Gordon do not receive fees for their service on the Board of Directors or committees. Other directors receive an annual fee of $46,000 plus $1,250 per meeting attended. Each member of the Audit Committee receives an annual retainer of $7,000 and each member of the Compensation Committee receives $1,250 per meeting attended. The Chairman of the Audit Committee receives an additional annual fee of $5,500.  Board members are reimbursed for reasonable travel expenses in connection with attending meetings, and, in their capacity as ambassadors of the Company,  receive free samples of the Company’s products at Halloween and at other times throughout the year.

EX-13

Corporate Profile

Tootsie Roll Industries, Inc. has been engaged in the manufacture and sale of confectionery products for 110 years. Our products are primarily sold under the familiar brand names, Tootsie Roll, Tootsie Roll Pops, Caramel Apple Pops, Child's Play, Charms, Blow Pop, Blue Razz, Cella's chocolate covered cherries, Mason Dots, Mason Crows, Junior Mints, Charleston Chew, Sugar Daddy, Sugar Babies, Andes, Fluffy Stuff cotton candy, Dubble Bubble, Razzles, Cry Baby, Nik-L-Nip and EI Bubble.

Corporate Principles

We believe that the differences among companies are attributable to the caliber of their people, and therefore we strive to attract and retain superior people for each job.

We believe that an open family atmosphere at work combined with professional management fosters cooperation and enables each individual to maximize his or her contribution to the Company and realize the corresponding rewards.

We do not jeopardize long-term growth for immediate, short-term results.

We maintain a conservative financial posture in the deployment and management of our assets.

We run a trim operation and continually strive to eliminate waste, minimize cost and implement performance improvements.

We invest in the latest and most productive equipment to deliver the best quality product to our customers at the lowest cost.

We seek to outsource functions where appropriate and to vertically integrate operations where it is financially advantageous to do so.

We view our well known brands as prized assets to be aggressively advertised and promoted to each new generation of consumers.

We conduct business with the highest ethical standards and integrity which are codified in the Company's "Code of Business Conduct and Ethics."

1

To Our Shareholders

To Our Shareholders:

2006 was another year of record sales for Tootsie Roll. Net sales reached $496 million in 2006 as compared to $488 million in the previous year. Sales increased in most of our core brands and we had another strong Halloween selling season this year.

Net earnings in 2006 were $66 million, a decline from the $77 million reported in 2005. The majority of the decrease in earnings relates to a $14 million after-tax gain on the sale of surplus real estate last year. Adjusting for this gain and other non-recurring items, net earnings declined in 2006 by approximately $1 million and earnings per share were even with the adjusted prior year figure of $1.22.

Our margins have continued to be pressured by substantial price increases in several key ingredients used in candy manufacturing. We also experienced higher energy costs to operate our production facilities and higher distribution costs as a result of record high fuel surcharges.

At Tootsie Roll we have always maintained a bottom line focus and continually review all facets of our operations in order to increase efficiency and eliminate waste. We have adjusted selling prices or package weights on some items and will continue to take other prudent steps to increase our profitability whenever possible. We take a long-term view of the business and therefore try to ensure that our reactions to current market conditions will not jeopardize the Company's future prospects.

One long-term business strategy that has served us well over the years is that we continually deploy production technologies that are state-of-the-art, or even better. As a value-oriented branded confectioner, we believe it is essential to be the low cost producer in each of our major product lines. Accordingly, $14 million of capital expenditures were incurred in operations during 2006. An additional $25 million was directed toward real estate investments in order to defer last year's capital gain on the sale of surplus real estate for federal income tax purposes.

Cash dividends and a 3% stock dividend were paid in 2006. This was the sixty-fourth consecutive year in which cash dividends have been paid and the forty-second consecutive year in which a 3% stock dividend has been distributed. Our record of paying dividends once again earned us the distinction of being named a Mergent "Dividend Achiever," an honor shared with only 3% of U.S. listed dividend paying companies.

We entered 2006 with $30 million remaining of the debt used to acquire Concord Confections in 2004. This debt was retired early in the year. We ended the year with $131 million of cash and investments, even after retiring this debt, capital expenditures, cash dividends and the buy back of $31 million of our common stock.

We believe this conservative balance sheet will enable us to capitalize on appropriate investment opportunities as they may arise. These may include the development of new products, capital projects that are strategically or economically prudent or complementary business acquisitions. We remain active in evaluating opportunities in each of these areas.

Sales and Marketing

As a consumer products company we face intense competition for retail shelf space and, in turn, consumers' dollars. Our competitive advantage lies in our many well known brands which offer high volume sales for retailers and attractive values for consumers. In 2006 we built upon past successes in several important areas.

Halloween was again our largest selling period. Focused promotional programs, particularly in the high volume drug, warehouse club, grocery and mass merchandiser classes of trade contributed to Halloween sales growth.

Packaged goods, including assortments of our most popular items, were once again successful in these channels. We also continued to have good results in the important dollar store trade class where our brands fit well with their value perception.

Line extensions and other new products brought incremental sales and generated excitement for our venerable product portfolio. Several

Financial Highlights

	December 31,
	2006		2005
	(in thousands except per share data)
Net Sales	$	495,990	$	487,739
Net Earnings		65,919		77,227
Working Capital		128,706		132,940
Net Property, Plant and Equipment		202,898		178,760
Shareholders' Equity		630,681		617,405
Average Shares Outstanding*		54,195		55,127
Per Share Items*
Net Earnings	$	1.22	$	1.40
Cash Dividends Paid		.32		.29

*Adjusted for stock dividends.

2

new items were successfully introduced in 2006. Our market-leading "Theater Box" line was expanded with two new offerings—Tootsie Roll Mini Chews and Chocolate Covered Sugar Babies.

Tootsie Roll Mini Chews

Tootsie Roll Mini Chews are luscious morsels of soft, chewy Tootsie Roll smothered in creamy milk chocolate-a combination of flavors and textures that produces an incredible taste sensation! Chocolate Covered Sugar Babies are familiar nuggets of chewy Sugar Baby caramel covered with a delicious chocolate shell. Packaged in convenient, reclosable boxes, these items are perfect for movie time, TV watching or any snacking occasion.

Chocolate Covered Sugar Babies

One example of a targeted merchandising initiative is the theater box shipper that we introduced in the third quarter of 2006 with promising results. This attractive, store-ready, disposable plastic rack merchandises our five most popular theater box candies on an eye-catching, bright red skirted pallet. It is available in three different configurations, to suit the traffic and floor space available in a variety of retail outlets.

Theater Box Shipper

A new product hit in the Charms family of products was Blow Pop Minis—bite size, candy tablets in four tangy flavors, each with a real Blow Pop bubble gum center. Blow Pop Minis, are convenient, portable and packed in attractive pouches with instantly recognizable, high impact brand graphics that convey "It's a Blow Pop-With No Stick!"

Blow Pop Minis

The Andes product assortment was enhanced with two new items. Andes Mocha Mint Indulgence is a decadent, creamy blend of rich coffee flavor and refreshing mint. It is packed in an upscale, stand-up, gusseted bag which fully displays its appealing, high quality graphics. Mocha Mint joins other popular gusseted bag items in the Andes portfolio.

Mocha Mint—the latest addition to Andes stand-up bag line

Andes Peppermint Crunch Baking Chips are rich and creamy morsels embedded with bits of crunchy peppermint candy. This newest addition to our baking chip line delivers a festive flavor—perfect for holiday baking or as a fun topping for ice cream or hot chocolate.

Andes Peppermint Crunch Baking Chips

Enhanced product freshness and bold new graphics were achieved by packaging upgrades made to two favorites. The most popular size Dubble Bubble bag and mini-boxes of Dots, both of which are sold in high volume trade channels, are now packed in eye-catching new metalized bags which increase both the real and perceived consumer value of these popular items.

Dubble Bubble and Mini Dots in new foil bags

3

Advertising and Pubic Relations

Our products again received cable television exposure through showings of popular special interest features. These include several segments on the Food Network's Unwrapped program, a segment exploring "snack food technology" on The History Channel's Modern Marvels, and John Ratzenberger's Made in America show on the Travel Channel.

We also promoted our long-standing "How Many Licks" Tootsie Pop theme through campaigns on several children's channels on cable television. As always, these campaigns were followed by many consumer letters advising us just exactly how many licks it does take to get to the Tootsie Roll center of a Tootsie Pop. Absent a consensus, the long-standing supposition remains: "the world may never know!"

The Company received a number of gratifying accolades in 2006, being named among:

• "100 Best Corporate Citizens" by Business Ethics magazine

• "America's 200 Best Small Companies" by Forbes magazine.

• "America's Finest Companies" by Staton Financial Advisors

We also received a particularly heartwarming and very unusual honor from The National Marine Corps Museum in Quantico, Virginia. Their new exhibit depicting the brave men who battled sub- zero temperatures and overwhelming odds in the famous battle at the Chosin Reservoir in the Korean War includes Tootsie Rolls. Many of the survivors have fondly reported that Tootsie Rolls kept them alive in these harsh conditions. We salute those who fought in the battle and all the men and women in uniform who serve our country so proudly.

Purchasing

Although 2006 was a year of generally modest consumer price inflation, many of the commodities we use increased considerably in price. Packaging material increases reflected generally robust demand for printed foil and paper wrappers. Bag film, a petroleum based product, was impacted further by higher oil prices. Packaging and other items sourced locally for our Canadian plant were adversely impacted by a stronger Canadian dollar.

Ingredient costs as well were substantially higher in 2006. For us, the most important of these are sugar, edible oils, corn syrup and dextrose. In particular, the cost of refined corn products such as corn syrup and dextrose rose dramatically during the year. Significant quantities of both raw corn and corn refining capacity have been redirected to ethanol production. This has caused higher prices in corn and corn by-products. This trend is expected to continue for the foreseeable future.

We continue to use formalized competitive bidding programs, hedging and forward purchase contracts to help shield the company from short-term price fluctuations and to mitigate cost increases to the extent possible.

Operations

We continue to invest capital and resources in projects and processes that keep our production and distribution facilities as efficient as possible, support growing product lines or changing distribution patterns and improve the quality of our offerings. Further, as technology continues to evolve we have continued to realize benefits through automation. A number of significant projects of these types were completed in 2006 and several more are currently underway.

Consistent with our Corporate Principles, we remain committed to investing in our operations and will continue to examine every facet of them in search of operational improvements.

Information Technology and Internal Controls

We view information technology as a key strategic tool. The demands of today's rapidly changing business environment require us to deliver information and support process refinements that enable the Company to remain competitive. We have and will continue to invest in state of the art information systems and infrastructure in order to achieve our business objectives.

Information technology is also a key component of our internal control system. Consistent with the requirements of Section 404 of the Sarbanes-Oxley Act, our internal controls were once again successfully tested and certified during 2006.

International

All of our international businesses grew profitably during 2006. Mexico had another strong year with higher sales and profits. Our Canadian division was reorganized which resulted in sales growth and increased profitability. Additionally, our export division, which reaches approximately 75 countries in Europe, Asia, and South and Central America, had higher sales and profits.

In Appreciation

We wish to thank our many loyal employees, customers, suppliers, sales brokers and domestic as well as foreign distributors for their contributions during 2006. We also thank our fellow shareholders for their support over the years. Excellence and dedication is required at every level of the organization in order to meet the challenges of today's business environment and we are committed to both.

Melvin J. Gordon
Chairman of the Board and
Chief Executive Officer

Ellen R. Gordon
President and
Chief Operating Officer

4

Management's Discussion and Analysis of Financial
Condition and Results of Operations

(in thousands except per share, percentage and ratio figures)

FINANCIAL REVIEW

This financial review discusses the Company's financial condition, results of operations, liquidity and capital resources, market risks and other matters. It should be read in conjunction with the Consolidated Financial Statements and related footnotes that follow this discussion.

FINANCIAL CONDITION

The Company's overall financial position was further strengthened by its 2006 net earnings and related cash flows provided by operating activities. After making the Concord Confections acquisition which resulted in the Company borrowing $154,000 in the second half of 2004, the Company reduced its overall bank loan balance to $32,001 at December 31, 2005, and then repaid this balance in the first half of 2006. Bank loans were paid down through a combination of cash flows provided by operating activities and investment maturities.

During 2006, the Company's cash flows from operating activities aggregated $55,656. The Company used these cash flows and its restricted cash of $22,330 (at December 31, 2005) to pay cash dividends of $17,264, repurchase $30,694 of its outstanding shares, and make capital expenditures of $39,207, including $25,241 relating to the investment in like-kind real estate as discussed below.

Although the Company's net working capital was $128,706 at December 31, 2006 compared to $132,940 at December 31, 2005, working capital at December 31, 2005 included $22,330 of restricted cash. This restricted cash related to the sale of surplus real estate in 2005, and was reinvested in rental income producing real estate in 2006. As provided under the U.S. Internal Revenue Code Section 1031, the Company was able to defer the payment of $7,972 of income taxes on this gain, and, accordingly reclassified this amount from current income taxes payable to deferred taxes payable in 2006.

As of December 31, 2006 the Company's aggregate cash, cash equivalents and investments (excluding restricted cash but including all long-term investments), net of all bank and interest-bearing loans was $123,341 compared to $129,248 at December 31, 2005. The aforementioned amounts include $30,761 and $27,473 of trading securities as of December 31, 2006 and 2005, respectively, that the Company has invested to hedge its deferred compensation liabilities.

Shareholders' equity increased to $630,681 as of December 31, 2006 compared to $617,405 as of December 31, 2005, reflecting 2006 net earnings of $65,919 less cash dividends of $17,170 and share repurchases and retirements of $30,694. The Company has paid cash dividends for sixty-four consecutive years and has distributed a stock dividend for forty-two consecutive years.

The Company has a relatively straight-forward financial structure and has historically maintained a conservative financial position. Except for an immaterial amount of operating leases, the Company has no special financing arrangements or "off-balance sheet" special purpose entities. Cash flows from operations plus maturities of short term investments are expected to be adequate to meet the Company's overall financing needs in 2007. Notwithstanding, the Company continues to pursue appropriate acquisition opportunities which could result in future bank borrowings.

RESULTS OF OPERATIONS

2006 vs. 2005

Net sales were $495,990 in 2006, a new record, compared to $487,739 in 2005, reflecting an increase of $8,251 or 1.7%. Although this sales increase includes some selective price increases, the Company

5

achieved record "back to school" and pre-Halloween sales in third quarter 2006.

Cost of goods sold as a percentage of net sales increased from 61.3% in 2005 to 62.6% in 2006. The aforementioned reflects increases in ingredient and packaging costs of approximately $4,882 and $730, respectively, as well as increases in labor and fringe benefits, and overall plant overhead. In addition, the adverse effects of foreign exchange relating to products manufactured in Canada for the U.S. market adversely affected gross profit margins by approximately $2,200 in 2006.

Due to the seasonal nature of the Company's business and corresponding variations in product mix, gross margins have historically been lower in the second half of the year, and second half 2006 was consistent with this trend.

Selling, marketing and administrative expenses were $99,233 in 2006 compared to $96,936 in 2005, an increase of $2,297 or 2.4%. This increase reflects $2,517 of higher freight, warehousing and distribution expenses relating to higher energy costs. In addition, $1,505 of costs associated with the transition to new pack sizes and government mandated labeling changes were offset by lower general and administrative costs. Selling, marketing and administrative expenses as a percent of sales increased slightly from 19.9% of sales in 2005 to 20.0% of sales in 2006.

Reported earnings from operations were $86,250 in 2006, compared to $108,744 in 2005. Prior year 2005 operating earnings benefited from a $21,840 pre-tax gain on the sale of surplus real estate partially offset by a $4,743 pre-tax charge relating to the impairment of a minor trademark and related goodwill. Excluding the aforementioned nonrecurring net benefit in 2005, adjusted earnings from operations were $86,250 in 2006 compared to $91,647 in 2005, a decrease of $5,397 or 5.9%. This decrease principally reflects the decrease in gross profit margin and higher freight and delivery expenses as discussed above.

The Company performs its annual impairment testing of its intangible assets, trademarks and goodwill, during the fourth quarter of each year. The Company believes that the carrying values of its trademarks and goodwill have indefinite lives as they are expected to generate cash flows indefinitely. There were no impairments in 2006.

Other income, net was $8,465 in 2006 compared to $4,908 in 2005, an increase of $3,557. This net increase principally reflects $1,811 of decreased interest expense due to the retirement of bank debt, $833 of increased rental income due to the reinvestment in like-kind real estate as discussed above, and $498 of increased royalty income reflecting royalties paid by third parties to license the Company's various trademarks.

The consolidated effective tax rate was 30.7% and 32.3% in 2006 and 2005, respectively. The decrease in the effective tax rate principally reflects the effects of additional taxes in 2005 relating to the repatriation of foreign dividends as allowed by the American Jobs Creation Act of 2004, as well as a minor reduction in rates relating to increased exempt municipal bond interest and lower state taxes. During 2006, the Company also recorded a $3,000 valuation allowance relating to foreign subsidiary tax loss carry-forwards to reduce the future income tax benefits to amounts expected to be realized.

Net earnings were $65,919 in 2006 compared to $77,227 in 2005, and earnings per share were $1.22 and $1.40 in 2006 and 2005, respectively. Both fourth quarter and twelve months 2005 periods benefited from a nonrecurring net after-tax gain of $10,053 or $.18 per share relating to the sale of surplus real estate, net of the write-off of a minor trademark and goodwill and additional income taxes relating to repatriated foreign dividends as discussed below. Excluding this non-recurring net gain, adjusted net earnings were $11,730 and

6

$13,272, and adjusted net earnings per share were $.22 and $.24 in fourth quarter 2006 and 2005, respectively, a decrease of $.02 per share or 8.3%. Excluding this non-recurring net gain in 2005, twelve months 2006 and 2005 adjusted net earnings were $65,919 and $67,174, respectively, and adjusted per share earnings were $1.22 for both 2006 and 2005. Earnings per share also benefited from a reduction in average shares outstanding resulting from common stock purchases in the open market by the Company. Average shares outstanding decreased from 55,127 in 2005 to 54,195 in 2006. To facilitate the understanding of the above, a reconciliation of 2005 GAAP and Non-GAAP net earnings and earnings per share have been provided below.

2005 vs. 2004

Net sales were $487,739 in 2005, a new record, compared to $420,110 in 2004, an increase of $67,629 or 16.1%. The 2005 and 2004 sales reflect approximately $76,100 and $29,300, respectively, of sales from Concord Confections acquired on August 30, 2004. Excluding these Concord sales, 2005 net sales grew to $411,639, a $20,829 or 5.3% increase over 2004. This sales increase principally reflects volume increases in most of the Company's core brands, including record "back to school" and pre-Halloween sales in third quarter 2005.

Cost of goods sold as a percentage of net sales increased from 58.2% in 2004 to 61.3% in 2005. The aforementioned reflects cost increases in overall major ingredients, packaging and plant overhead, including energy costs and additional costs associated with the relocation and start-up of new production lines. Increases in 2005 ingredient and packaging costs approximated $700 and $900, respectively; and increases in energy costs added $1,700 to plant overhead costs in 2005, $1,000 of which was incurred in fourth quarter 2005. Management estimates that relocation and start-up costs of new production lines incrementally added $3,600 to 2005 cost of goods sold. The effect of slightly lower margins on certain new products and line extensions also contributed to lower gross profit margins in 2005 compared to 2004.

Due to the seasonal nature of the Company's business and corresponding variations in product mix, gross margins have historically been lower in the second half of the year, and second half 2005 was consistent with this trend. The impact of those factors affecting higher input costs were more concentrated in fourth quarter 2005, resulting in lower fourth quarter 2005 gross margins compared to 2004.

Selling, marketing and administrative expenses were $96,936 in 2005 compared to $85,705 in 2004, an increase of $11,231 or 13.1%. This increase principally reflects the additional costs associated with Concord. However, these costs favorably decreased from 20.4% of sales in 2004 to 19.9% of sales in 2005, reflecting certain synergies achieved as part of the integration of Concord into the Company's sales and distribution systems, as well as other expense reductions achieved. The Company incurred higher fuel surcharges for freight and delivery expense in 2005; however, improved efficiencies gained in the Company's distribution network mitigated a substantial portion of these cost increases.

Earnings from operations were $108,744 in 2005, compared to $89,904 in 2004. Operating earnings in 2005 benefited from a $21,840 pre-tax gain on the sale of surplus real estate partially offset by a $4,743 pre-tax charge relating to the impairment of a minor trademark and related goodwill. Both of these factors impacted operating earnings for the fourth quarter and twelve month 2005 periods.

As of result of the Company's regular impairment testing of its intangible assets, trademarks and goodwill, management determined that due to a reassessment of

Reconciliation of GAAP to Non-GAAP Financial Measures For the Periods Ended December 31, 2005

	Net Earnings						Earnings per Share
	Fourth Quarter			Twelve Months			Fourth Quarter			Twelve Months
GAAP	$	23,325		$	77,227		$	0.42		$	1.40
Adjusted for:
Sale of surplus real estate, net of tax		(13,868	)		(13,868	)		(0.25	)		(0.25	)
Write-off of a minor trademark and associated goodwill, net of tax		3,012			3,012			0.06			0.06
Income taxes relating to repatriated foreign earnings		803			803			0.01			0.01
Non-GAAP	$	13,272		$	67,174		$	0.24		$	1.22

7

long-range marketing plans a minor trademark and related goodwill were impaired, and, accordingly wrote off $4,743 of intangible assets as an operating expense in fourth quarter 2005. There were no impairments in 2004.

Other income, net was $4,908 in 2005 compared to $4,784 in 2004. The difference reflects $1,625 of increased interest expense and $1,152 of decreased investment income, both of which relate to the financing of the Concord acquisition. However, this was substantially offset by increased building rental income, increased royalty income from the licensing of Company trademarks, and an insurance recovery in 2005.

The consolidated effective tax rate held at 32.3% in both 2005 and 2004. Although the Company's effective state tax rate increased slightly, the Company's effective foreign tax rate decreased reflecting reductions in Canadian and Mexican income tax expense. In addition, the Company repatriated earnings from its foreign subsidiaries in Canada and Mexico at an incremental tax cost of $800, as allowed by the American Jobs Creation Act of 2004.

Net earnings were $77,227 in 2005 compared to $64,174 in 2004, and earnings per share were $1.40 and $1.16 in 2005 and 2004, respectively, an increase of $.24 or 20.7%. Both fourth quarter and twelve months 2005 benefited from a $13,868 after-tax gain on the sale of surplus real estate partially offset by a $3,012 non-recurring after-tax charge relating to the write-off of a minor trademark and goodwill, and $803 of additional income taxes relating to repatriated foreign earnings. Earnings per share also benefited from a reduction in average shares outstanding reflecting common stock purchases in the open market by the Company. Average shares outstanding decreased from 55,506 in 2004 to 55,127 in 2005.

LIQUIDITY AND CAPITAL RESOURCES

Cash flows from operating activities were $55,656, $82,524, and $76,228 in 2006, 2005 and 2004, respectively. The $26,868 decrease in 2006 compared to 2005 reflects changes in certain operating assets and liabilities. Such changes are principally the result of a $4,368 increase in accounts receivables, $4,125 increase in other receivables, $8,451 increase in inventories, $1,912 increase in prepaid expenses and other assets, $3,688 decrease in accounts payable and accrued liabilities, and a $3,984 decrease in income taxes payable and deferred. In addition, cash provided by operating activities in 2005 benefited from both a $3,947 decrease in inventories and an $8,423 increase in taxes payable and deferred.

Cash flows from investing activities reflect capital expenditures of $39,207, $14,690 and $17,948 in 2006, 2005, and 2004 respectively, including $25,241 relating to the reinvestment in like-kind real estate in 2006; 2005 cash flows also included $22,559 relating to the proceeds from the sale of surplus real estate as discussed above. Cash flows from investing activities reflect the purchase of Concord in 2004 for $218,229 less a 2005 recovery of $6,755 relating to a minimum working capital adjustment.

Cash flows from financing activities reflect bank borrowings of $38,401 and $154,000 in 2005 and 2004, respectively, and the repayment of various bank loans of $32,001, $98,400, and $62,000 in 2006, 2005, and 2004, respectively.

Financing activities also include common share repurchases and retirements of $30,694, $17,248, and $16,407 in 2006, 2005 and 2004, respectively. Cash dividends of $17,264, $15,132, and $14,877 were paid in 2006, 2005 and 2004, respectively.

MARKET RISKS

The Company is exposed to market risks related to commodity prices, interest rates, equity prices and foreign exchange rates.

Commodities

Commodity price risks relate to ingredients, primarily sugar, cocoa, chocolate, corn syrup, dextrose, vegetable oils, milk and whey. The Company believes its competitors face similar risks, and the industry has historically adjusted prices to compensate for adverse fluctuations in commodity costs. The Company, as well as competitors in the confectionary industry, has taken actions, including price increases and selective product weight declines (indirect price increases) to mitigate rising input costs for ingredients, transportation, fuel and energy. While management believes it will substantially recover cost increases over the long term, there is risk that price increases and weight declines passed on too quickly could adversely affect customer and consumer acceptance and resulting sales volume.

The Company utilizes commodity futures contracts as well as annual supply agreements to hedge anticipated purchases of certain ingredients, including sugar, in order to mitigate commodity cost fluctuations. Such commodity futures contracts are cash flow hedges and are effective as hedges as defined by Statement of Financial Accounting Standards (SFAS) 133, "Accounting for Derivative Instruments and Hedging Activities." The unrealized gains and losses on such contracts are deferred as a component of accumulated other comprehensive earnings (loss) and are recognized as a component of cost of goods sold when the related inventory is sold.

8

The potential change in fair value of commodity derivative instruments (primarily sugar futures contracts) held by the Company, assuming a 10% change in the underlying commodity price, was $853. This analysis only includes commodity derivative instruments and, therefore, does not consider the offsetting effect of changes in the price of the underlying commodity. This amount is not significant compared with the net earnings and shareholders' equity of the Company.

Interest Rates

Interest rate risks primarily relate to the Company's investments in debt securities, primarily municipal bonds, with maturities of generally up to four years. The majority of these investments have historically been held to maturity, which limits the Company's exposure to interest rate fluctuations.

Maturities of the Company's investments in debt securities at December 31, 2006 are as follows:

Less than 1 year	$	23,473
1 - 2 years		6,109
2 - 3 years		14,311
over 3 years		400
Total	$	44,293

The Company had no outstanding debt at the end of 2006 other than a $7,500 Industrial Revenue Bond for which interest rates reset each week based on the current market rate. Therefore, the Company does not believe that it has significant interest rate risk with respect to its interest bearing debt.

Equity price

Equity price risk relates to the Company's investments in mutual funds which are principally used to fund and hedge the Company's deferred compensation liabilities. At December 31, 2006, the Company had investments in mutual funds, classified as trading securities, of $30,761. Any change in the fair value of these trading securities would be completely offset by a corresponding change in the respective hedged deferred compensation liability.

Foreign Exchange

Foreign exchange risk principally relates to the Company's foreign operations in Canada and Mexico, as well as periodic purchase commitments of machinery and equipment from foreign sources.

Certain of the Company's Canadian manufacturing costs, including local payroll and a portion of its packaging, ingredients and supplies are sourced in Canadian dollars. The Company uses its Canadian dollar collections on Canadian sales as a partial hedge of this exposure. The Company also periodically purchases Canadian dollars to facilitate the management of currency risk.

From time to time the Company may use forward foreign exchange contracts and derivative instruments to mitigate its exposure to foreign exchange risk, as well as those related to firm commitments to purchase equipment from foreign vendors. As of December 31, 2006 the Company did not have any material outstanding foreign exchange contracts.

NEW ACCOUNTING PRONOUNCEMENTS

Staff Accounting Bulletin No. 108, "Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statement" (SAB 108)

In September 2006, the SEC staff issued SAB 108 in order to eliminate the diversity of practice surrounding how public companies quantify financial statement misstatements.

Traditionally, there have been two widely-recognized methods for quantifying the effects of financial statement misstatements: the "roll-over" method and the "iron curtain" method. The roll-over method focuses primarily on the impact of a misstatement on the income statement—including the reversing effect of prior year misstatements—but its use can lead to the accumulation of misstatements in the balance sheet. The iron-curtain method, on the other hand, focuses primarily on the effect of correcting the period-end balance sheet with less emphasis on the reversing effects of prior year errors on the income statement. The Company has historically used the roll-over method for quantifying identified financial statement misstatements.

In SAB 108, the SEC staff established an approach that requires quantification of financial statement misstatements based on the effects of the misstatements on each of the company's financial statements and the related financial statement disclosures. This model is commonly referred to as a "dual approach" because it requires quantifications of errors under both the iron curtain and the roll-over methods.

SAB 108 permits existing public companies to initially apply its provisions either by (i) restating prior financial statements as if the "dual approach" had always been used or (ii) recording the cumulative effect of initially applying the "dual approach" as adjustments to the carrying values of assets and liabilities as of January 1, 2006 with an offsetting adjustment recorded to the opening balance of retained earnings. Use of the "cumulative effect" transition method requires detailed disclosure of the nature and amount of each individual error being corrected through the cumulative adjustment and how and when it arose.

9

The Company has applied the provisions of SAB 108 using the cumulative effect transition method in connection with the preparation of its annual financial statements for the year ending December 31, 2006. The effects of the adoption of SAB 108 are outlined in Note 14 to the accompanying financial statements. The Company previously evaluated these items under the "roll-over" method and concluded they were quantitatively and qualitatively immaterial, individually and in the aggregate.

SFAS No. 158, "Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans" (SFAS 158)

In September 2006, the FASB issued SFAS 158 which 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 158 also requires additional disclosures in the notes to financial statements and is effective as of the end of fiscal years ending after December 15, 2006. The Company adopted SFAS 158 as of December 31, 2006, the effects of which, as well as the related new disclosures, are included in Note 7 to the accompanying financial statements. The adoption of SFAS158 did not have a material effect o n the Company's financial position and results of operations.

FASB Interpretation No. 48 "Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement 109" (FIN 48)

In July 2006, the FASB issued FIN 48 which 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.

SFAS No. 157, "Fair Value Measurements" (SFAS 157)

In September 2006, the FASB issued SFAS 157 which establishes a common definition for fair value to be applied to U.S. GAAP guidance requiring use of fair value, establishes a framework for measuring fair value, and expands disclosure about such fair value measurements. SFAS 157 is effective for fiscal years beginning after November 15, 2007. The Company is currently assessing the impact of SFAS 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.

CRITICAL ACCOUNTING POLICIES

Preparation of the Company's financial statements involves judgments due to uncertainties affecting the application of accounting policies, and the likelihood that different amounts would be reported under different conditions or using different assumptions. In the opinion of management, the Company does not have any individual accounting policy that is clearly "critical." However following is a summary of the more significant accounting policies and methods where estimates are used.

Revenue Recognition

Revenue, net of applicable provisions for discounts, returns, allowances, and certain advertising and promotional costs, is recognized when products are delivered to customers based on a customer purchase order, and collectibility is reasonably assured. The accounting for such promotional programs is discussed below.

Provisions for bad debts are recorded as selling, marketing and administrative expense. Such provisions did not exceed 0.2% of net sales for 2006, 2005 and 2004 and, accordingly, were not significant to the Company's financial position or results of operations.

Intangible assets

The Company's intangible assets consist primarily of acquired trademarks and related goodwill. In accordance with SFAS 142, goodwill and other indefinite lived assets are not amortized, but are instead subjected to annual testing for impairment. This determination is made by comparing the carrying value of the asset with its estimated fair value, which is calculated using discounted projected future cash flows. These projected future cash flows are dependent on a number of factors including future business plans and projected operating results. Although the majority of the Company's trademarks relate to well established brands with a long history of consumer acceptance, projected cash flows are inherently uncertain. A change in the assumptions underlying the impairment analysis, such as a reduction in projected cash flows or the use of a different discount rate, could cause impairment in the future. As a result of its impairment testing, the Company recorded a pre-tax impairment charge of $4,743 during 2005 with respect to a minor trademark and related goodwill. No impairments were recorded in 2006 or 2004.

10

Customer incentive programs, advertising and marketing

Advertising and marketing costs are recorded in the period to which such costs relate. The Company does not defer the recognition of any amounts on its consolidated balance sheet with respect to such costs. Customer incentives and other promotional costs are recorded at the time of sale based upon incentive program terms and historical utilization statistics, which are generally consistent from year to year.

The liabilities associated with these programs are reviewed quarterly and adjusted if utilization rates differ from management's original estimates. Such adjustments have not historically been material to the Company's operating results.

Split dollar life officer life insurance

The Company provides split dollar insurance benefits to certain executive officers and records an asset equal to the cumulative premiums paid on the related policies, as the Company will fully recover these premiums under the terms of the plan. The Company retains a collateral assignment of the cash surrender values and policy death benefits payable to insure recovery of these premiums.

Valuation of long-lived assets

Long-lived assets, primarily property, plant and equipment, are reviewed for impairment as events or changes in business circumstances occur indicating that the carrying value of the asset may not be recoverable. The estimated cash flows produced by the asset or asset groups are compared to the asset carrying value to determine whether impairment exists. Such estimates involve considerable management judgment and are based upon assumptions about expected future operating performance. As a result, actual cash flows could differ from management's estimates due to changes in business conditions, operating performance, and economic conditions.

Income taxes

Deferred income taxes are recognized for future tax effects of temporary differences between financial and income tax reporting using tax rates in effect for the years in which the differences are expected to reverse. The Company, along with third-party tax advisors, periodically reviews assumptions and estimates of the Company's probable tax obligations using informed judgment and historical experience.

Guarantees

The Financial Accounting Standards Board issued Interpretation No. 45 relating to the accounting for and disclosure of certain types of guarantees. No disclosures were required for the Company as a result of this standard, as it has no such guarantees outstanding.

Other matters

In the opinion of management, other than contracts for raw materials, including commodity hedges and outstanding purchase orders for packaging, ingredients supplies, and operational services, all entered into in the ordinary course of business, the Company does not have any significant contractual obligations or future commitments. The Company's outstanding contractual commitments as of December 31, 2006, all of which are normal and recurring in nature, are summarized in the accompanying chart.

Forward-looking statements

This discussion and certain other sections 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

Open Contractual Commitments as of December 31, 2006

Payable in	Total		Less than 1 year		1 to 3 Years		3 to 5 Years		More than 5 Years
Commodity hedges	$	8,353	$	7,868	$	485	$	—	$	—
Purchase obligations		64,870		64,870		—		—		—
Split dollar insurance		1,718		1,718		—		—		—
Interest bearing debt		7,500		—		—		—		7,500
Operating leases		5,392		1,005		1,730		1,334		1,323
Total	$	87,833	$	75,461	$	2,215	$	1,334	$	8,823

Note: the above amounts exclude deferred income tax liabilities of $40,864, postretirement health care and life insurance benefits of $12,582 and deferred compensation and other liabilities of $37,800 because the timing of payments relating to these items cannot be reasonably determined.

11

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; 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 rates and laws, including state and local jurisdictions; the overall competitive environment in the Company's industry; and changes in assumptions and judgments discussed under the heading "Critical Accounting Policies."

The factors identified above are believed to be significant factors, but not necessarily all of the significant factors that could cause actual results to differ from those expressed in any forward-looking statement. 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.

The results of the Company's operations and its financial condition are expressed in the accompanying financial statements.

Management's Report on Internal Control Over
Financial Reporting

The management of Tootsie Roll Industries, Inc. is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in the Securities Exchange Act of 1934 (SEC) Rule 13a-15(f). Our management conducted an evaluation of the effectiveness of the Company's internal control over financial reporting as of December 31, 2006 as required by SEC Rule 13a-15(c). In making this assessment, we used the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Based on our evaluation under the COSO criteria, our management concluded that our internal control over financial reporting was effective as of December 31, 2006.

Our management's assessment of the effectiveness of our internal control over financial reporting as of December 31, 2006 has been audited by PricewaterhouseCoopers LLP an independent registered public accounting firm, as stated in their report which appears on page 22.

Tootsie Roll Industries, Inc.

Chicago, Illinois
February 28, 2007

Required Certifications

In 2006, the Company's Chief Executive Officer submitted to the New York Stock Exchange the required Annual CEO Certification certifying that he was not aware of any violation by the Company of the exchange's corporate governance listing standards.

The Company filed with the Securities and Exchange Commission the certifications required of the Company's Chief Executive Officer and Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002 as exhibits to the Form 10-K for the year ended December 31, 2006.

12

CONSOLIDATED STATEMENT OF

Financial Position

TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES  (in thousands)

Assets	December 31,
	2006		2005
CURRENT ASSETS:
Cash and cash equivalents	$	55,729	$	69,006
Restricted cash		—		22,330
Investments		23,531		54,892
Accounts receivable trade, less allowances of $2,322 and $2,255		35,075		30,856
Other receivables		3,932		2,768
Inventories:
Finished goods and work-in-process		42,146		34,311
Raw materials and supplies		21,811		20,721
Prepaid expenses		6,489		5,840
Deferred income taxes		2,204		5,872
Total current assets		190,917		246,596
PROPERTY, PLANT AND EQUIPMENT, at cost:
Land		19,402		14,857
Buildings		87,273		63,544
Machinery and equipment		259,049		250,841
		365,724		329,242
Less—Accumulated depreciation		162,826		150,482
		202,898		178,760
OTHER ASSETS:
Goodwill		74,194		74,194
Trademarks		189,024		189,024
Investments		51,581		44,851
Split dollar officer life insurance		73,357		69,772
Investment in joint venture		9,668		10,499
		397,824		388,340
	$	791,639	$	813,696

(The accompanying notes are an integral part of these statements.)
13

(in thousands except per share data)

Liabilities and Shareholders' Equity	December 31,
	2006			2005
CURRENT LIABILITIES:
Bank loan	$	—		$	32,001
Accounts payable		13,102			17,482
Dividends payable		4,300			4,263
Accrued liabilities		43,802			44,969
Income taxes payable		1,007			14,941
Total current liabilities		62,211			113,656
NONCURRENT LIABILITIES:
Deferred income taxes		40,864			32,088
Postretirement health care and life insurance benefits		12,582			10,783
Industrial development bonds		7,500			7,500
Deferred compensation and other liabilities		37,801			32,264
Total noncurrent liabilities		98,747			82,635
SHAREHOLDERS' EQUITY:
Common stock, $.69-4/9 par value— 120,000 shares authorized—  35,364 and 35,255, respectively, issued		24,558			24,483
Class B common stock, $.69-4/9 par value— 40,000 shares authorized—  18,390 and 18,000, respectively, issued		12,771			12,500
Capital in excess of par value		438,648			426,125
Retained earnings, per accompanying statement		169,233			164,236
Accumulated other comprehensive loss		(12,537	)		(7,947	)
Treasury stock (at cost)— 62 shares and 60 shares, respectively		(1,992	)		(1,992	)
		630,681			617,405
	$	791,639		$	813,696

14

CONSOLIDATED STATEMENT OF

Earnings, Comprehensive Earnings and Retained Earnings

TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES  (in thousands except per share data)

	For the year ended December 31,
	2006			2005			2004
Net sales	$	495,990		$	487,739		$	420,110
Cost of goods sold		310,507			299,156			244,501
Gross margin		185,483			188,583			175,609
Selling, marketing and administrative expenses		99,233			96,936			85,705
Impairment charges		—			4,743			—
Gain on sale of real estate		—			(21,840	)		—
Earnings from operations		86,250			108,744			89,904
Other income, net		8,465			4,908			4,784
Earnings before income taxes		94,715			113,652			94,688
Provision for income taxes		28,796			36,425			30,514
Net earnings	$	65,919		$	77,227		$	64,174
Net earnings	$	65,919		$	77,227		$	64,174
Other comprehensive earnings (loss)		(3,697	)		2,984			778
Comprehensive earnings	$	62,222		$	80,211		$	64,952
Retained earnings at beginning of year	$	164,236		$	149,055		$	156,786
Net earnings		65,919			77,227			64,174
Cash dividends ($.32, $.29 and $.27 per share, respectively)		(17,170	)		(15,406	)		(14,547	)
Stock dividends		(43,694	)		(46,640	)		(57,358	)
Cumulative effect of SAB 108		(58	)		—			—
Retained earnings at end of year	$	169,233		$	164,236		$	149,055
Earnings per share	$	1.22		$	1.40		$	1.16
Average common and class B common shares outstanding		54,195			55,127			55,506

(The accompanying notes are an integral part of these statements.)
15

CONSOLIDATED STATEMENT OF

Cash Flows

TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES  (in thousands)

	For the year ended December 31,
	2006			2005			2004
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings	$	65,919		$	77,227		$	64,174
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization		15,816			14,687			11,680
Gain on sale of real estate		—			(21,840	)		—
Impairment charges		—			4,743			—
Excess of earnings from joint venture over dividends received		(921	)		(267	)		(232	)
Amortization of marketable securities		909			1,680			1,885
Purchase of trading securities		(749	)		(1,141	)		(1,796	)
Changes in operating assets and liabilities:
Accounts receivable		(4,368	)		(1,846	)		673
Other receivables		(4,125	)		1,519			1,574
Inventories		(8,451	)		3,947			(4,567	)
Prepaid expenses and other assets		(1,912	)		(4,357	)		(4,822	)
Accounts payable and accrued liabilities		(3,688	)		(1,868	)		2,478
Income taxes payable and deferred		(3,984	)		8,423			2,712
Postretirement health care and life insurance benefits		971			708			773
Deferred compensation and other liabilities		382			1,251			1,516
Other		(143	)		(342	)		180
Net cash provided by operating activities		55,656			82,524			76,228
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of business, net of cash acquired		—			—			(218,229	)
Working capital adjustment from acquisition		—			6,755			—
Proceeds from sale of real estate and other assets		1,343			22,559			—
(Increase) decrease in restricted cash		22,330			(22,330	)		—
Capital expenditures		(39,207	)		(14,690	)		(17,948	)
Purchase of held to maturity securities		—			—			(22,049	)
Maturity of held to maturity securities		—			—			44,113
Purchase of available for sale securities		(35,663	)		(16,772	)		(83,987	)
Sale and maturity of available for sale securities		62,223			46,350			134,061
Net cash provided by (used in) investing activities		11,026			21,872			(164,039	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from bank loan		—			38,401			154,000
Repayment of bank loan		(32,001	)		(98,400	)		(62,000	)
Shares repurchased and retired		(30,694	)		(17,248	)		(16,407	)
Dividends paid in cash		(17,264	)		(15,132	)		(14,877	)
Net cash provided by (used in) financing activities		(79,959	)		(92,379	)		60,716
Increase (decrease) in cash and cash equivalents		(13,277	)		12,017			(27,095	)
Cash and cash equivalents at beginning of year		69,006			56,989			84,084
Cash and cash equivalents at end of year	$	55,729		$	69,006		$	56,989
Supplemental cash flow information:
Income taxes paid	$	29,780		$	26,947		$	28,966
Interest paid	$	733		$	2,537		$	879
Stock dividend issued	$	43,563		$	46,310		$	56,959

(The accompanying notes are an integral part of these statements.)
16

Notes to Consolidated Financial Statements ($ in thousands except per share data)

TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES

NOTE 1—SIGNIFICANT ACCOUNTING POLICIES:

Basis of consolidation:

The consolidated financial statements include the accounts of Tootsie Roll Industries, Inc. and its wholly-owned subsidiaries (the Company), which are primarily engaged in the manufacture and sale of candy products. All significant intercompany transactions have been eliminated.

The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Certain reclassifications have been made to the prior year financial statements to conform to the current year presentation.

Revenue recognition:

Products are sold to customers based on accepted purchase orders which include quantity, sales price and other relevant terms of sale. Revenue, net of applicable provisions for discounts, returns, allowances, and certain advertising and promotional costs, is recognized when products are delivered to customers and collectibility is reasonably assured. Shipping and handling costs of $40,353, $37,836 and $31,795 in 2006, 2005 and 2004, respectively, are included in selling, marketing and administrative expenses. Accounts receivable are unsecured. Revenues from a major customer aggregated approximately 23.7%, 24.0% and 20.8% of total net sales during the years ended December 31, 2006, 2005 and 2004, respectively.

Cash and cash equivalents:

The Company considers temporary cash investments with an original maturity of three months or less to be cash equivalents.

Restricted cash represents the net proceeds received from the sale of surplus real estate in 2005 which was held by a third party intermediary and earmarked for reinvestment in like-kind real estate as provided under U.S. Internal Revenue Code Section 1031. During 2006, the Company reinvested such restricted cash in like-kind real estate.

Investments:

Investments consist of various marketable securities with maturities of generally up to four years. The Company classifies debt and equity securities as either available for sale or trading. Available for sale are not actively traded and are carried at fair value. Unrealized gains and losses on these securities are excluded from earnings and are reported as a separate component of shareholders' equity, net of applicable taxes, until realized. Trading securities relate to deferred compensation arrangements and are carried at fair value. The Company invests in trading securities to hedge changes in its deferred compensation liabilities.

Hedging activities:

From time to time, the Company enters into commodities futures contracts that are intended and effective as hedges of market price risks associated with the anticipated purchase of certain raw materials (primarily sugar). To qualify as a hedge, the Company evaluates a variety of characteristics of these transactions, including the probability that the anticipated transaction will occur. If the anticipated transaction were not to occur, the gain or loss would then be recognized in current earnings. The Company does not engage in trading or other speculative use of derivative instruments. The Company does assume the risk that counter parties may not be able to meet the terms of their contracts. The Company does not expect any losses as a result of counter party defaults.

The Company's commodities futures contracts are being accounted for as cash flow hedges and are recorded on the balance sheet at fair value. Changes therein are recorded in other comprehensive earnings and are reclassified to earnings in the periods in which earnings are affected by the hedged item. Substantially all amounts reported in accumulated other comprehensive earnings (loss) are expected to be reclassified to cost of goods sold.

Inventories:

Inventories are stated at cost, not to exceed market. The cost of substantially all of the Company's inventories ($61,092 and $51,969 at December 31, 2006 and 2005, respectively) has been determined by the last-in, first-out (LIFO) method. The excess of current cost over LIFO cost of inventories approximates $7,350 and $4,908 at December 31, 2006 and 2005, respectively. The cost of certain foreign inventories ($2,865 and $3,063 at December 31, 2006 and 2005, respectively) has been determined by the first-in, first-out (FIFO) method. Rebates, discounts and other cash consideration received from a vendor related to inventory purchases is reflected as a reduction in the cost of the related inventory item, and is therefore reflected in cost of sales when the related inventory item is sold.

Property, plant and equipment:

Depreciation is computed for financial reporting purposes by use of the straight-line method based on useful lives of 20 to 35 years for buildings and 5 to 20 years for machinery and equipment. Depreciation expense was $15,816, $14,687, and $11,680 in 2006, 2005 and 2004, respectively.

Carrying value of long-lived assets:

The Company reviews long-lived assets to determine if there are events or circumstances indicating that the amount of the asset reflected in the Company's balance sheet may not be recoverable. When such indicators are present, the Company compares the carrying value of the long-lived asset, or asset group, to the future undiscounted cash flows of the underlying assets to determine if an impairment exists. If applicable, an impairment charge would be recorded to write down the carrying value to its fair value. The determination of fair value involves the use of estimates of future cash flows that involve considerable management judgment and are based upon assumptions about expected future operating performance. The actual cash flows could differ from management's estimates due to changes in business conditions, operating performance, and economic conditions. No impairment charges were recorded by the Company during 2006, 2005 or 2004.< /p>

Postretirement health care and life insurance benefits:

The Company provides certain postretirement health care and life insurance benefits. The cost of these postretirement benefits is accrued during employees' working careers. The Company also provides split dollar life insurance benefits to certain executive officers. The Company records an asset equal to the cumulative insurance premiums that will be recovered upon the death of a covered employee(s) or earlier under the terms of the plan. Split dollar premiums paid were $3,023, $3,678, and $3,620 in 2006, 2005 and 2004, respectively.

Goodwill and Intangible assets:

The Company accounts for intangible assets in accordance with SFAS No. 142, "Goodwill and Other Intangible Assets." In accordance with this statement, goodwill and intangible assets with indefinite lives are not amortized, but rather tested for impairment at least annually. All trademarks have been assessed by management to have indefinite lives because they are expected to generate cash flows indefinitely. The Company has completed its annual impairment testing of its goodwill and trademarks during the fourth quarter of each of the years presented, and recorded an impairment of $4,743 in the fourth quarter of 2005 relating to a minor trademark and related goodwill. No impairments were recorded in either 2006 or 2004.

Income taxes:

Deferred income taxes are recorded and recognized for future tax effects of temporary differences between financial and income tax reporting. Federal income taxes are provided on the portion of income of foreign subsidiaries that is expected to be remitted to the U.S. and become taxable, but not on the portion that is considered to be permanently invested in the foreign subsidiary.

Foreign currency translation:

The Company has determined the functional currency for each foreign subsidiary. The U.S. dollar is used as the functional currency where a substantial portion of the subsidiary's business is indexed to the U.S. dollar or where its manufactured products are principally sold in the U.S. All other foreign subsidiaries use the local currency as their functional currency. Where the U.S. dollar is used as the functional currency, foreign currency translation adjustments are recorded as a charge or credit to other income in the statement of earnings. Where the foreign currency is used as the functional currency, translation adjustments are recorded as a separate component of comprehensive earnings (loss).

17

Joint venture:

The Company's 50% interest in two companies is accounted for using the equity method. The Company records an increase in its investment in the joint venture to the extent of its share of the joint venture's earnings, and reduces its investment to the extent of dividends received. During 2006, dividends of $1,946 were declared and paid by the joint venture but not received by the Company until after December 31, 2006; this amount is included in other receivables at December 31, 2006. Dividends of $651 were received in 2005, and no dividends were received in 2004.

Comprehensive earnings:

Comprehensive earnings includes net earnings, foreign currency translation adjustments and unrealized gains/losses on commodity hedging contracts and available for sale securities.

Earnings per share:

A dual presentation of basic and diluted earnings per share is not required due to the lack of potentially dilutive securities under the Company's simple capital structure. Therefore, all earnings per share amounts represent basic earnings per share.

The Class B Common Stock has essentially the same rights as Common Stock, except that each share of Class B Common Stock has ten votes per share (compared to one vote per share of Common Stock), is not traded on any exchange, is restricted as to transfer and is convertible on a share-for-share basis, at any time and at no cost to the holders, into shares of Common Stock which are traded on the New York Stock Exchange.

Recent Accounting Pronouncements

In July 2006, the FASB issued FASB Interpretation No. 48 "Accounting for Uncertainty in Income Taxes—an Interpretation of FASB Statement 109" (FIN 48). 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.

In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements" (SFAS 157). SFAS 157 establishes a common definition for fair value to be applied to U.S. GAAP guidance requiring use of fair value, establishes a framework for measuring fair value, and expands disclosure about such fair value measurements. SFAS 157 is effective for fiscal years beginning after November 15, 2007.

The Company is currently assessing the impact of FIN 48 and SFAS 157 and has not yet made any determination as to the effects, if any, that they may have on the Company's financial position and results of operations.

NOTE 2—ACCRUED LIABILITIES:

Accrued liabilities are comprised of the following:

	December 31,
	2006		2005
Compensation	$	12,923	$	15,756
Other employee benefits		5,631		5,213
Taxes, other than income		1,781		1,765
Advertising and promotions		17,854		14,701
Other		5,613		7,534
	$	43,802	$	44,969

NOTE 3—BANK LOAN AND INDUSTRIAL DEVELOPMENT BONDS:

Bank loans at December 31, 2005 are demand notes collateralized by certain investments in marketable securities. Interest was LIBOR based and averaged 4.6%. All bank loans outstanding at December 31, 2005 were repaid in 2006.

Industrial development bonds are due in 2027. The average floating interest rate was 3.6% and 2.5% in 2006 and 2005, respectively.

NOTE 4—INCOME TAXES:

The domestic and foreign components of pretax income are as follows:

	2006		2005		2004
Domestic	$	81,514	$	103,725	$	89,164
Foreign		13,201		9,927		5,524
	$	94,715	$	113,652	$	94,688

The provision for income taxes is comprised of the following:

	2006		2005			2004
Current:
Federal	$	14,358	$	33,036		$	26,303
Foreign		944		1,151			731
State		1,050		1,990			1,070
		16,352		36,177			28,104
Deferred:
Federal		10,962		1,038			2,907
Foreign		1,196		(849	)		(605	)
State		286		59			108
		12,444		248			2,410
	$	28,796	$	36,425		$	30,514

Significant components of the Company's net deferred tax liability at year end were as follows:

	December 31,
	2006			2005
Deferred tax assets:
Deferred compensation	$	10,644		$	10,759
Post retirement benefits		3,938			3,759
Reserve for uncollectible accounts		567			506
Other accrued expenses		3,008			2,822
Foreign subsidiary tax loss carry forward		5,172			5,796
Foreign tax credit carry forward		4,900			2,312
Marked to market on investments		573			—
Inventory reserves		—			701
Other		687			1,206
		29,489			27,861
Valuation reserve		(4,329	)		(1,464	)
Total deferred tax assets	$	25,160		$	26,397
	December 31,
	2006			2005
Deferred tax liabilities:
Depreciation	$	22,330		$	21,992
Deductible goodwill and trademarks		22,447			19,373
Accrued export Company commissions		3,974			3,353
VEBA funding		897			748
Inventory reserves		2,591			2,287
Prepaid insurance		627			587
Marked to market on investments		—			1,423
Deferred gain on sale of real estate		7,972			—
Other		2,982			2,850
Total deferred tax liabilities	$	63,820		$	52,613
Net deferred tax liability	$	38,660		$	26,216

At December 31, 2006, the tax benefit of foreign subsidiary tax loss carry forwards expiring by year are as follows: $1,175 in 2014, $3,331 in 2015 and $666 in 2026. A valuation allowance has been established for these tax loss carry forwards to reduce the future income tax benefits to amounts expected to be realized.

18

Also at December 31, 2006, the amounts of the foreign subsidiary tax credit carry forwards expiring by year are as follows: $271 in 2007, $231 in 2008, $168 in 2009, $321 in 2010, $341 in 2011, $325 in 2012, $286 in 2013, $55 in 2014, $1,561 in 2015 and $1,341 in 2016. A valuation allowance has been established for these carry forward credits to reduce the future income tax benefits to amounts expected to be realized.

The effective income tax rate differs from the statutory rate as follows:

	2006			2005			2004
U.S. statutory rate		35.0	%		35.0	%		35.0	%
State income taxes, net		0.9			1.2			0.8
Exempt municipal bond interest		(0.8	)		(0.6	)		(1.2	)
Foreign tax rates		(2.8	)		(2.8	)		(1.9	)
Qualified domestic production activities deduction		(0.8	)		(0.9	)		—
Repatriation of accumulated foreign earnings		—			0.7			—
Other, net		(0.8	)		(0.3	)		(0.5	)
Effective income tax rate		30.7	%		32.3	%		32.2	%

The Company has not provided for U.S. federal or foreign withholding taxes on $6,561 and $8,831 of foreign subsidiaries' undistributed earnings as of December 31, 2006 and December 31, 2005, respectively, because such earnings are considered to be permanently reinvested. It is not practicable to determine the amount of income taxes that would be payable upon remittance of the undistributed earnings.

American Jobs Creation Act of 2004 created a temporary incentive for U.S. corporations to repatriate accumulated income earned abroad by providing an 85% dividends received deduction for certain dividends from controlled foreign corporations. In 2005, the Company repatriated accumulated income earned abroad by its controlled foreign corporations in the amount of $21,200 and incurred a U.S. tax expense of $800 net of foreign tax credits.

NOTE 5—SHARE CAPITAL AND CAPITAL IN EXCESS OF PAR VALUE:

	Common Stock						Class B Common Stock						Treasury Stock						Capital in excess of par
	Shares			Amount			Shares			Amount			Shares			Amount			value
	(000's)						(000's)						(000's)
Balance at January 1, 2004		34,082		$	23,668			17,145		$	11,906			(56	)	$	(1,992	)	$	357,922
Issuance of 3% stock dividend		1,009			701			513			356			(2	)		—			55,901
Conversion of Class B common shares to common shares		143			99			(143	)		(99	)		—			—			—
Purchase and retirement of common shares		(474	)		(329	)		—			—			—			—			(16,078	)
Balance at December 31, 2004		34,760			24,139			17,515			12,163			(58	)		(1,992	)		397,745
Issuance of 3% stock dividend		1,033			717			524			364			(2	)		—			45,229
Conversion of Class B common shares to common shares		39			27			(39	)		(27	)		—			—			—
Purchase and retirement of common shares		(577	)		(400	)		—			—			—			—			(16,849	)
Balance at December 31, 2005		35,255			24,483			18,000			12,500			(60	)		(1,992	)		426,125
Issuance of 3% stock dividend		1,048			727			539			375			(2	)		—			42,461
Conversion of Class B common shares to common shares		149			104			(149	)		(104	)		—			—			—
Purchase and retirement of common shares		(1,088	)		(756	)		—			—			—			—			(29,938	)
Balance at December 31, 2006		35,364		$	24,558			18,390		$	12,771			(62	)	$	(1,992	)	$	438,648

Average shares outstanding and all per share amounts included in the financial statements and notes thereto have been adjusted retroactively to reflect annual three percent stock dividends.

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.

Based upon this policy, shares were purchased and retired as follows:

Year		Total Number Of Shares Purchased		Average Price Paid Per Share
	2006		1,088	$	28.17
	2005		577	$	29.87
	2004		474	$	34.56

NOTE 6—OTHER INCOME, NET:

Other income (expense) is comprised of the following:

	2006			2005			2004
Interest and dividend income	$	2,615		$	2,632		$	3,784
Interest expense		(726	)		(2,537	)		(912	)
Joint venture income		921			918			232
Foreign exchange gains		453			852			453
Royalty income		1,879			1,381			698
Capital gains (losses)		678			166			(163	)
Rental income		1,940			1,107			413
Insurance recovery		300			326			—
Miscellaneous, net		405			63			279
	$	8,465		$	4,908		$	4,784

NOTE 7—EMPLOYEE BENEFIT PLANS:

Pension plans:

The Company sponsors defined contribution pension plans covering certain nonunion employees with over one year of credited service. The Company's policy is to fund pension costs accrued based on compensation levels. Total pension expense for 2006, 2005 and 2004 was $3,362, $3,362 and $3,174, respectively. The Company also maintains certain profit sharing and retirement savings-investment plans. Company contributions in 2006, 2005 and 2004 to these plans were $916, $905 and $806, respectively.

The Company also contributes to a multi-employer defined benefit pension plan for its union employees in the U.S. Such contributions aggregated $1,084, $1,011 and $1,007 in 2006, 2005 and 2004, respectively. Although the Company has been advised that the plan is currently in an underfunded status, the relative position of each employer associated with the multi-employer plan with respect to the actuarial present value of benefits and net plan assets is not determinable by the Company.

Deferred compensation:

The Company sponsors three deferred compensation plans for selected executives and other employees: (i) the Excess Benefit Plan, which restores retirement benefits lost due to IRS limitations on contributions to tax-qualified plans, (ii) the Supplemental Savings Plan, which allows eligible employees to defer the receipt of eligible compensation until designated future dates and (iii) the Career Achievement Plan, which provides a deferred annual incentive award to selected executives. Participants in these plans earn a return on amounts due them based on several investment options, which mirror returns on underlying investments (primarily mutual funds). The Company hedges its obligations under the plans by investing in the actual underlying investments. These investments are classified as trading securities and are carried at fair value. At December 31, 2006 and 2005, these investments totaled $30,800 and $27,500, respectively. All gains and losses in these investments are equally offset by corresponding gains and losses in the Company's deferred compensation liabilities.

Postretirement health care and life insurance benefit plans:

The Company provides certain postretirement health care and life insurance benefits for corporate office and management employees. Employees become eligible for these benefits based upon their age and service and if they agree to contribute a portion of the cost. The Company has the right to modify or terminate these benefits. The Company does not fund postretirement health care and life insurance benefits in advance of payments for benefit claims.

The Company adopted SFAS No. 158, "Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans" (SFAS 158) as of December 31, 2006. SFAS 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. The effect of the adoption of SFAS 158 on the Company's consolidated statement of financial position at December 31, 2006 was an increase of $1,325 in the non-current liability for postretirement health care and life insurance benefits and a $893 increase in accumulated other comprehensive loss (net of tax effect of $432).

19

Amounts recognized in accumulated other comprehensive loss (pre-tax) at December 31, 2006 are as follows:

Prior service credit	$	(1,252	)
Net actuarial loss		2,577
Net amount recognized in accumulated other comprehensive loss	$	1,325

The estimated actuarial loss, prior service credit and transition obligation to be amortized from accumulated other comprehensive income into net periodic benefit cost during 2007 are $215, $(125) and $0, respectively.

The changes in the accumulated postretirement benefit obligation at December 31, 2006 and 2005 consist of the following:

	December 31,
	2006			2005
Benefit obligation, beginning of year	$	9,924		$	9,193
Service cost		524			474
Interest cost		539			519
Plan participant contributions		—			52
Actuarial (gain)/loss		2,101			(103	)
Benefits paid		(506	)		(211	)
Benefit obligation, end of year		12,582			9,924
Prior service cost		—			1,377
Net actuarial loss		—			(518	)
Net amount recognized at December 31	$	12,582		$	10,783

Net periodic postretirement benefit cost included the following components:

	2006			2005			2004
Service cost—benefits attributed to service during the period	$	524		$	474		$	521
Interest cost on the accumulated postretirement benefit obligation		539			519			514
Net amortization		(84	)		(74	)		(43	)
Net periodic postretirement benefit cost	$	979		$	919		$	992

For measurement purposes, the 2006 annual rate of increase in the per capita cost of covered health care benefits was assumed to be 9.0% for pre-age 65 retirees, 10.5% for post-age 65 retirees and 12.0% for prescription drugs; these rates were assumed to decrease gradually to 5.0% for 2014 and remain at that level thereafter. The health care cost trend rate assumption has a significant effect on the amounts reported. The weighted-average discount rate used in determining the accumulated postretirement benefit obligation was 5.60% and 5.50% at December 31, 2006 and 2005, respectively.

Increasing or decreasing the health care trend rates by one percentage point in each year would have the following effect on:

	1% Increase		1% Decrease
Postretirement benefit obligation	$	1,802	$	(1,481	)
Total of service and interest cost components	$	195	$	(155	)

The Company estimates future benefit payments will be $368, $429, $480, $546 and $575 in 2007 through 2011, respectively, and a total of $4,286 in 2012 through 2016. The future benefit payments are net of the annual Medicare Part D subsidy of approximately $1,003 beginning in 2007.

NOTE 8—COMMITMENTS:

Rental expense aggregated $1,132, $1,090 and $1,012 in 2006, 2005 and 2004, respectively.

Future operating lease commitments are not significant.

NOTE 9—SEGMENT AND GEOGRAPHIC INFORMATION:

The Company operates as a single reportable segment encompassing the manufacture and sale of confectionery products. Its principal manufacturing operations are located in the United States and Canada, and its principal market is the United States. The Company also manufactures and sells confectionery products in Mexico, and exports products to Canada as well as to over 30 countries worldwide.

The following geographic data include net sales summarized on the basis of the customer location and long-lived assets based on their physical location.

	2006		2005		2004
Net Sales:
United States	$	450,591	$	445,405	$	387,280
Foreign		45,399		42,334		32,830
	$	495,990	$	487,739	$	420,110
Long-lived assets:
United States	$	282,490	$	246,721	$	293,618
Foreign		55,014		57,160		58,098
	$	337,504	$	303,881	$	351,716

NOTE 10—DISCLOSURES ABOUT THE FAIR VALUE AND CARRYING AMOUNT OF FINANCIAL INSTRUMENTS:

The carrying amount approximates fair value of cash and cash equivalents because of the short maturity of those instruments. The fair values of investments are estimated based on quoted market prices. The fair value of the Company's bank loan and industrial development bonds approximates their carrying value because they have a floating interest rate.

The carrying amount and estimated fair values of the Company's financial instruments are as follows:

	2006				2005
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Cash and cash equivalents	$	55,729	$	55,729	$	69,006	$	69,006
Restricted cash		—		—		22,330		22,330
Investments available for sale		44,351		44,351		72,270		72,270
Investments in trading securities		30,761		30,761		27,473		27,473
Bank loan and industrial development bonds		7,500		7,500		39,501		39,501

A summary of the aggregate fair value, gross unrealized gains, gross unrealized losses and amortized cost basis of the Company's investment portfolio by major security type is as follows:

	December 31, 2006
	Amortized		Fair		Unrealized
Available for Sale:	Cost		Value		Gains		Losses
Municipal bonds	$	44,532	$	44,293	$	—	$	(239	)
Mutual funds		57		58		1		—
	$	44,589	$	44,351	$	1	$	(239	)
	December 31, 2005
	Amortized		Fair		Unrealized
Available for Sale:	Cost		Value		Gains		Losses
Municipal bonds	$	69,560	$	68,723	$	—	$	(837	)
Mutual funds		2,527		3,547		1,020		—
	$	72,087	$	72,270	$	1,020	$	(837	)

There were no securities with maturities greater than four years. The sale of available for sale securities in 2006 resulted in realized gains of $684. Gross realized gains and losses on the sale of available for sale securities in 2005 were not significant.

20

NOTE 11—COMPREHENSIVE INCOME:

The following table sets forth information with respect to accumulated other comprehensive income (loss):

	Foreign			Unrealized Gain (Loss) on									Accumulated
	Currency Translation Adjustment			Investments			Derivatives			Postretirement and Pension Benefits			Other Comprehensive Earnings (Loss)
Balance at January 1, 2004	$	(12,157	)	$	480		$	(32	)	$	—		$	(11,709	)
Unrealized gains (losses)		193			(585	)		2,594			—			2,202
(Gains) losses reclassified to net earnings		—			155			(1,237	)		—			(1,082	)
Tax effect		—			159			(501	)		—			(342	)
Net of tax amount		193			(271	)		856			—			778
Balance at December 31, 2004		(11,964	)		209			824			—			(10,931	)
Unrealized gains (losses)		1,036			(184	)		4,186			—			5,038
(Gains) losses reclassified to net earnings		—			36			(946	)		—			(910	)
Tax effect					—			55			(1,199	)		(1,144	)
Net of tax amount		1,036			(93	)		2,041			—			2,984
Balance at December 31, 2005		(10,928	)		116			2,865			—			(7,947	)
Unrealized gains (losses)		(296	)		263			880			—			847
(Gains) losses reclassified to net earnings		—			(684	)		(5,856	)		—			(6,540	)
Tax effect		—			156			1,840			—			1,996
Net of tax amount		(296	)		(265	)		(3,136	)		—			(3,697	)
Adoption of SFAS 158 (Note 7)		—			—			—			(893	)		(893	)
Balance at December 31, 2006	$	(11,224	)	$	(149	)	$	(271	)	$	(893	)	$	(12,537	)

NOTE 12—ACQUISITION:

On August 30, 2004, the Company purchased certain assets and assumed certain liabilities from Concord Confections, Inc. and its affiliates (collectively Concord) including its 50% equity interest in a Spanish joint venture. Cash consideration paid of $218,229 was funded by the liquidation of $64,229 of marketable securities and a bank term loan of $154,000. The results of Concord's operations have been included in the Company's condensed consolidated financial statements since August 30, 2004. Concord holds a strong market position in the bubble gum category and its products are sold primarily under the Dubble Bubble brand name and trademark.

The acquisition has been accounted for under SFAS 141, "Business Combinations," and accordingly the purchase method of accounting has been used. The allocation of purchase price is based on management's determination and professional valuations of the fair value of the assets acquired and liabilities to be assumed. The final adjusted purchase price was allocated as follows:

Calculation of adjusted purchase price:
Cash consideration paid for net assets acquired	$	218,229
Direct transactions fees and expenses		1,000
Less—Adjustment to purchase relating to minimum working capital required		(6,755	)
Total purchase price	$	212,474
Allocation of purchase price:
Net working capital	$	6,818
Step up of inventories		1,622
Investment in joint venture		10,000
Property, plant and equipment		43,572
Indefinite lived trademarks		113,994
Goodwill—deductible for income tax		36,468
Total purchase price	$	212,474

The following table includes the unaudited pro forma net sales, net earnings and net earnings per share for 2004 as if the Company had acquired Concord as of January 1, 2004. Pro forma adjustments are necessary to reflect costs and expenses of financing the purchase, including additional interest expense relating to bank borrowings and the decrease in investment income reflecting the sale of marketable securities, and changes in depreciation expense resulting from fair value adjustments to net tangible assets.

The unaudited pro forma combined financial information presented does not reflect any cost savings or synergies that might be realized, including the anticipated elimination of substantially all of the Concord historical senior executive compensation and other management expenses which aggregated approximately $3,872 net of income taxes for the twelve months of 2004. The pro forma results also reflect $495 of historical foreign exchange gains net of tax for 2004.

UNAUDITED PRO FORMA COMBINED INCOME STATEMENT OF TOOTSIE ROLL
AND CONCORD FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2004

	2004 Combined Pro forma
Net sales	$	479,278
Net earnings	$	64,673
Earnings per share	$	1.20

The pro forma results are not necessarily indicative of what actually would have occurred if the acquisition had been completed as of the beginning of the presented periods, nor are they necessarily indicative of future consolidated results.

NOTE 13—GAIN ON SALE OF REAL ESTATE:

During 2005, the Company sold surplus real estate and realized a pre-tax gain of $21,840. As of December 31, 2005, the Company had recorded a current income tax expense and related current income tax payable of $7,972 relating to this gain. During 2006, the Company invested the net proceeds, $22,330 of restricted cash as of December 31, 2005, in new real estate investments in compliance with U.S. Internal Revenue Code (IRC) Section 1031. Upon reinvestment of these proceeds, the Company reclassified the related current income tax payable to deferred income tax liability, since the income tax on such gain was deferred.

Note 14—SEC STAFF ACCOUNTING BULLETIN NO. 108

In September 2006, the SEC issued Staff Accounting Bulletin No. 108, "Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements" (SAB 108). Traditionally, there have been two widely-recognized methods for quantifying the effects of financial statement misstatements: the "roll-over" method and the "iron curtain" method. Prior to its application of the guidance in SAB 108, the Company used the "roll-over" method for quantifying financial statement misstatements, which focused primarily on the impact of a misstatement on the income statement (and net earnings), including the reversing effects, if any, of prior year misstatements. SAB 108 permits companies to initially apply its provisions by recording the cumulative effect of any misstatements as adjustments to the carrying values of assets and liabilities as of January 1, 2006 with an offsetting adjustment recorded to the opening ba lance of retained earnings. The Company previously evaluated these items under the "roll-over" method and concluded they were quantitatively and qualitatively immaterial, individually and in the aggregate. The following table, and accompanying footnotes, summarizes the effects of applying the guidance in SAB 108:

	Period in which the Misstatement Originated
	Cumulative Prior to January 1,			Year Ended December 31,						Adjustment Recorded as of January 1,
	2004			2004			2005			2006
Current assets (1)	$	3,252		$	—		$	—		$	3,252
Noncurrent assets (2)		2,184			(464	)		1,446			3,166
Current liabilities (3)		(1,625	)		(242	)		—			(1,867	)
Noncurrent liabilities (4)		(2,280	)		—			(2,329	)		(4,609	)
Impact on net income (5)	$	1,531		$	(706	)	$	(883	)
Net decrease to retained earnings (6)										$	(58	)

(1)  Primarily includes adjustments to (a) inventory relating to the calculation of a valuation reserve of $333 and (b) accounts receivable for the classification of estimated collectible accounts on the balance sheet which were previously classified as an offset to an accrued liability of $2,635.

(2)  Primarily includes adjustments to (a) property, plant and equipment for a computational correction relating to depreciation expense over several prior years of $1,500, the timing of the recognition of a loss associated with the abandonment and disposal of certain machinery and equipment of ($464), and the timing of the recognition of a minor asset retirement obligation of $1,446 which is partially offset by the related liability discussed in Note 4 (c) below, and (b) other assets relating to the carrying value of cumulative split-dollar life insurance premiums paid by the Company of $587.

(3)  Primarily includes adjustments to (a) accounts payable relating to certain estimated liabilities recorded during various acquisition purchase accounting transactions which were not subsequently adjusted for the lower actual amounts paid of $940, (b) accrued liabilities resulting from higher estimates which were not subsequently adjusted to lower actual amounts of $809, and the classification on the balance sheet of estimated collectible accounts of ($2,635) as described in Note 1(b) above, and (c) income taxes payable and deferred to reflect the income tax impact of recording the items described herein of ($981).

(4)  Primarily includes adjustments to (a) employee benefit obligations relating to the unintentional misapplication of certain technical GAAP requirements surrounding the establishment of employee disability obligations of $1,575, and of the timing of the recognition of liabilities relating to employee severance obligations of ($1,982), each of which are substantially offsetting, (b) deferred income tax liabilities for computational differences relating to the calculation and reconciliation of deferred tax liabilities of ($2,059), and (c) other long term liabilities relating to the timing of the recognition of a minor asset retirement obligation of ($2,143).

(5)  Represents the net after-tax effect for the indicated periods resulting from the above-described items.

(6)  Represents the net after tax impact on retained earnings as of January 1, 2006 to record the initial application of SAB 108.

21

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of Tootsie Roll Industries, Inc.:

We have completed integrated audits of Tootsie Roll Industries, Inc.'s consolidated financial statements and of its internal control over financial reporting as of December 31, 2006, in accordance with the standards of the Public Company Accounting Oversight Board (United States). Our opinions, based on our audits, are presented below.

Consolidated financial statements

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of earnings, comprehensive earnings, retained earnings, and cash flows present fairly, in all material respects, the financial position of Tootsie Roll Industries, Inc. and its subsidiaries at December 31, 2006 and December 31, 2005, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2006 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assuran ce about whether the financial statements are free of material misstatement. An audit of financial statements includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

Internal control over financial reporting

Also, in our opinion, management's assessment, included in the accompanying Management's Report on Internal Control Over Financial Reporting, that the Company maintained effective internal control over financial reporting as of December 31, 2006 based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), is fairly stated, in all material respects, based on those criteria. Furthermore, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2006, based on criteria established in Internal Control—Integrated Framework issued by the COSO. The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express opinions on management's assessment and on the effectiveness of the Company's internal control over financial reporting based on our audit. We conducted our audit of internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. An audit of internal control over financial reporting includes obtaining an understanding of internal control over financial reporting, evaluating management's assessment, testing and evaluating the design and o perating effectiveness of internal control, and performing such other procedures as we consider necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.

A company's internal control over financial reporting is a process designed 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. A company's internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detect ion of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Chicago, Illinois
February 28, 2007

22

Performance Graph

The following performance graphs compare the Company's cumulative total shareholder return on the Company's Common Stock for a five-year period (December 31, 2001 to December 31, 2006) and a ten-year period (December 31, 1996 to December 31, 2006 with the cumulative total return of Standard & Poor's 500 Stock Index ("S&P 500") and the Dow Jones Industry Food Index ("Peer Group," which includes the Company), assuming (i) $100 invested on December 31 of the first year of the chart in each of the Company's Common Stock, S&P 500 and the Dow Jones Industry Food Index and (ii) the reinvestment of dividends.

Legend

23

Quarterly Financial Data (Unaudited)

TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES

	(Thousands of dollars except per share data)
2006	First		Second		Third		Fourth		Total
Net sales	$	103,822	$	94,944	$	186,403	$	110,821	$	495,990
Gross margin		39,400		38,050		70,230		37,803		185,483
Net earnings		12,362		12,858		28,969		11,730		65,919
Net earnings per share		.23		.24		.54		.22		1.22
2005
Net sales	$	97,925	$	103,627	$	173,692	$	112,495	$	487,739
Gross margin		39,449		41,741		67,495		39,898		188,583
Net earnings		12,506		13,731		27,665		23,325		77,227
Net earnings per share		.23		.25		.50		.42		1.40
2004
Net sales	$	80,046	$	77,157	$	156,971	$	105,936	$	420,110
Gross margin		34,730		34,992		64,804		41,083		175,609
Net earnings		11,493		11,828		26,976		13,877		64,174
Net earnings per share		.21		.21		.49		.25		1.16

Net earnings per share is based upon average outstanding shares as adjusted for 3% stock dividends issued during the second quarter of each year. The sum of the per share amounts may not equal annual amounts due to rounding.

2006-2005 QUARTERLY SUMMARY OF TOOTSIE ROLL INDUSTRIES, INC. STOCK PRICE AND DIVIDENDS PER SHARE

STOCK PRICES*

		2006				2005
		High		Low		High		Low
1	st Qtr	$	29.71	$	26.98	$	33.82	$	29.05
2	nd Qtr	$	31.42	$	28.23	$	32.30	$	29.25
3	rd Qtr	$	29.75	$	26.35	$	32.44	$	29.55
4	th Qtr	$	33.26	$	29.08	$	32.05	$	28.93

*NYSE - Closing Price

Estimated Number of shareholders at February 2007:
Common Stock	18,000
Class B Common Stock	5,000

DIVIDENDS

		2006		2005
1	st Qtr	$	.0800	$	.0680
2	nd Qtr	$	.0800	$	.0680
3	rd Qtr	$	.0800	$	.0680
4	th Qtr	$	.0800	$	.0777

NOTE: In addition to the above cash dividends, a 3% stock dividend was issued on April 13, 2006 and April 14, 2005. Cash dividends are restated to reflect 3% stock dividends.

24

Five Year Summary of Earnings and Financial Highlights

TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES

  (Thousands of dollars except per share, percentage and ratio figures)

(See Management's Comments starting on page 5)	2006			2005			2004			2003			2002
Sales and Earnings Data
Net sales	$	495,990		$	487,739		$	420,110		$	392,656		$	393,185
Gross margin		185,483			188,583			175,609			170,109			170,981
Interest expense		726			2,537			912			172			309
Provision for income taxes		28,796			36,425			30,514			32,933			34,300
Net earnings		65,919			77,227			64,174			65,014			66,388
% of sales		13.3	%		15.8	%		15.3	%		16.6	%		16.9	%
% of shareholders' equity		10.5	%		12.5	%		11.3	%		12.1	%		12.6	%
Per Common Share Data (1)
Net earnings	$	1.22		$	1.40		$	1.16		$	1.16		$	1.15
Cash dividends declared		.32			.29			.27			.25			.25
Stock dividends		3	%		3	%		3	%		3	%		3	%
Additional Financial Data
Working capital	$	128,706		$	132,940		$	110,376		$	180,818		$	161,852
Net cash provided by operating activities		55,656			82,524			76,228			83,466			75,473
Net cash provided by (used in) investing activities		11,026			21,872			(164,039	)		(50,383	)		(29,571	)
Net cash provided by (used in) financing activities		(79,959	)		(92,379	)		60,716			(54,506	)		(46,927	)
Property, plant & equipment additions		39,207			14,690			17,948			12,150			10,308
Net property, plant & equipment		202,898			178,760			178,750			129,163			128,869
Total assets		791,639			813,696			811,753			665,297			646,080
Long term debt		7,500			7,500			93,167			7,500			7,500
Shareholders' equity		630,681			617,405			570,179			536,581			526,740
Average shares outstanding (1)		54,195			55,127			55,506			56,507			57,831

(1)  Adjusted for annual 3% stock dividends.

25

Board of Directors

Melvin J. Gordon(1)	Chairman of the Board and Chief Executive Officer
Ellen R. Gordon(1)	President and Chief Operating Officer
Barre A. Seibert(2)(3)	First Vice President, Washington Mutual Bank
Lana Jane Lewis-Brent(2)(3)	President, Paul Brent Designer, Inc., an art publishing, design and licensing company
Richard P. Bergeman(2)(3)	Retired Senior Vice President, Bestfoods

⁽¹⁾Executive Committee  ⁽²⁾Audit Committee  ⁽³⁾Compensation Committee

Officers

Melvin J. Gordon	Chairman of the Board and Chief Executive Officer
Ellen R. Gordon	President and Chief Operating Officer
G. Howard Ember, Jr.	Vice President, Finance & Chief Financial Officer
John W. Newlin, Jr.	Vice President, Manufacturing
Thomas E. Corr	Vice President, Marketing & Sales
John P. Majors	Vice President, Physical Distribution
Barry P. Bowen	Treasurer & Asst. Secy.
Richard F. Berezewski	Controller

Offices, Plants

Executive Offices	7401 S. Cicero Ave. Chicago, Illinois 60629 www.tootsie.com
Plants	Illinois Tennessee Massachusetts Wisconsin Concord, Ontario Mexico City, Mexico
Foreign Sales Offices	Mexico City, Mexico Concord, Ontario

Subsidiaries

Andes Candies L.P.

Andes Manufacturing LLC

Andes Services LLC

C.C.L.P., INC.

C.G.P., INC.

Cambridge Brands Manufacturing, Inc.

Cambridge Brands Services, Inc.

Cambridge Brands, Inc.

Cella's Confections, Inc.

Charms LLC

Concord (GP) Inc.

Concord Brands, ULC

Concord Canada Holdings ULC

Concord Confections Holdings USA, Inc.

Concord Confections ULC

Concord Partners LP

JT Company, Inc.

The Sweets Mix Company, Inc.

Tootsie Roll Company, Inc.

Tootsie Roll Industries, LLC

Tootsie Roll Management, Inc

Tootsie Roll Mfg., LLC

Tootsie Roll of Canada, ULC

Tootsie Roll Worldwide, Ltd.

Tootsie Rolls—Latin America

TRI de Latinoamerica S.A. de C.V.

TRI Finance, Inc.

TRI International Inc.

TRI Investments LLC

TRI Sales Co.

TRI Sales Finance LLC

TRI-MASS, Inc.

Tutsi S.A. de C.V.

World Trade & Marketing Ltd.

Other Information

Stock Exchange	New York Stock Exchange, Inc. (Since 1922)
Stock Identification	Ticker Symbol: TR CUSIP No. 890516 10-7
Stock Transfer Agent and Stock Registrar	American Stock Transfer and Trust Company Operations Center 6201 15th Avenue Brooklyn, NY 11219 1-800-710-0932 www.amstock.com
Independent Accountants	PricewaterhouseCoopers LLP One North Wacker Chicago, IL 60606
General Counsel	Becker Ross, LLP 317 Madison Avenue New York, NY 10017
Annual Meeting	May 7, 2007 Mutual Building, Room 1200 909 East Main Street Richmond, VA 23219

Printed on recycled paper.

26

EX-21

EXHIBIT 21

LIST OF SUBSIDIARIES OF THE COMPANY

NAME	JURISDICTION OF INCORPORATION
Andes Candies, LP	Illinois
Andes Manufacturing LLC	Illinois
Andes Services LLC	Illinois
C. C. L. P., Inc.	Delaware
C. G. C. L. P., Inc.	Delaware
C. G. P., Inc.	Delaware
Cambridge Brands, ULC	Delaware
Cambridge Brands Manufacturing., Inc.	Delaware
Cambridge Brands Services, Inc.	Delaware
Candy Realty, Inc.	New Jersey
Cella’s Confections, Inc.	Virginia
Charms LLC	Illinois
Concord (GP) Inc.	Ontario
Concord Brands, Ltd	Alberta
Concord Canada Holdings ULC	Nova Scotia
Concord Confections Holdings USA, Inc.	Delaware
Concord Confections ULC	Ontario
Concord Partners LP	Ontario
Concord Wax, Inc.	Delaware
General Magnetics, Inc.	New Jersey
Henry Eisen Advertising Agency, Inc.	New Jersey
Impel Movie Line, Inc	Delaware
J. T. Company, Inc.	Delaware
O’Tec Industries, Inc.	Delaware
Sweets Company of New York, Inc.	New York
Tootsie Roll Industries LLC	Illinois
Tootsie Roll of Canada Ltd.	Ontario
Tootsie Roll Central Europe Ltd.	Delaware
The Tootsie Roll Company, Inc.	Illinois
Tootsie Roll Management, Inc.	Illinois
Tootsie Roll Manufacturing., LLC	Illinois
Tootsie Rolls - Latin America, Inc.	Delaware
Tootsie Roll Worldwide Ltd.	Illinois
The Sweets Mix Company, Inc.	Illinois
TRI de Latino America S.A. de C.V.	Mexico

TRI Finance, Inc.	Delaware
TRI International Co.	Illinois
TRI Investments LLC	Illinois
TRI-Mass, Inc.	Massachusetts
TRI Sales Co	Delaware
TRI Sales Finance LLC	Delaware
Tutsi S. A. de C. V	Mexico
World Trade & Marketing Ltd.	British West Indies

EX-31.1

Exhibit 31.1

CERTIFICATIONS

I, Melvin J. Gordon, Chairman and Chief Executive Officer of Tootsie Roll Industries, Inc., certify that:

1.I have reviewed this annual report on Form 10-K 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 statements 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 information 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(s) 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 disclosure 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(s) 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: February 28, 2007
	By:	/s/ Melvin J. Gordon
		Melvin J. Gordon
		Chairman and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATIONS

I, G. Howard Ember, Jr., Vice President/Finance and Chief Financial Officer of Tootsie Roll Industries, Inc., certify that:

1.I have reviewed this annual report on Form 10-K 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 statements 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 information 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(s) 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 disclosure 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(s) 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: February 28, 2007
	By:	/s/ G. Howard Ember, Jr.
		G. Howard Ember, Jr.
		Vice President/Finance and
		Chief Financial Officer

EX-32

Exhibit 32

Certificate Pursuant to 18 U.S.C. Section 1350, as Adopted

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Each of the undersigned officers of Tootsie Roll Industries, Inc. certifies that (i) the Annual Report on Form 10-K of Tootsie Roll Industries, Inc. for the year ended December 31, 2006 (the Form 10-K) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended and (ii) the information contained in the Form 10-K fairly presents, in all material respects, the financial condition and results of operations of Tootsie Roll Industries, Inc.

Dated:	February 28, 2007	/s/ Melvin J. Gordon
		Melvin J. Gordon
		Chairman and Chief
		Executive Officer
Dated:	February 28, 2007	/s/ G. Howard Ember, Jr.
		G. Howard Ember, Jr.
		Vice President/Finance and
		Chief Financial Officer