UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JULY 2, 2005
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ----to----
COMMISSION FILE NUMBER 1-1361
Tootsie Roll Industries, Inc.
(Exact Name of Registrant as Specified in its Charter)
VIRGINIA 22-1318955
(State of Incorporation) (I.R.S. Employer Identification No.)
7401 South Cicero Avenue, Chicago, Illinois 60629
(Address of Principal Executive Offices) (Zip Code)
773-838-3400
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the Registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No ___
Indicate by check mark whether the Registrant is an accelerated filer (as
Defined in Rule 12b-2 of the Exchange Act)
Yes X No ___
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date (August
8, 2005)
Class Outstanding
Common Stock, $.69 4/9 par value 35,568,861
Class B Common Stock, $.69 4/9 par value 18,011,170
TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES
JULY 2, 2005
INDEX
Page No.
Part I - Financial Information
Item 1. Financial Statements:
Condensed Consolidated Statements of
Financial Position 2
Condensed Consolidated Statements of Earnings,
Comprehensive Earnings and Retained Earnings 3
Condensed Consolidated Statements of Cash Flows 4
Notes to Condensed Consolidated Financial Statements 5-5A
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 6-6C
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 6D
Item 4. Controls and Procedures 6D
Part II - Other Information
Item 2. Unregistered Sales of Equity Securities and
Use of Proceeds 7
Item 4. Submission of Matters to a Vote of Security
Holders 7
Item 6. Exhibits 7A
Signatures 7A
Certifications 7B-D
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(in thousands of dollars) (UNAUDITED)
ASSETS July 2, July 3, Dec. 31,
CURRENT ASSETS 2005 2004 2004
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Cash & cash equivalents $ 31,780 $ 59,750 $ 56,989
Investments 39,015 62,130 32,369
Trade accounts receivable,
Less allowances of
$2,582, $2,020 & $2,440 29,293 21,837 28,456
Other receivables 2,273 3,014 9,001
Inventories, at cost
Finished goods & work in process 66,797 55,821 37,384
Raw material & supplies 24,103 21,737 21,393
Prepaid expenses 3,729 11,204 5,719
Deferred income taxes 1,352 951 1,382
Total current assets 198,342 236,444 192,693
PROPERTY, PLANT & EQUIPMENT, at cost
Land 14,992 8,254 14,973
Buildings 61,778 44,925 61,714
Machinery & equipment 253,204 213,781 244,367
329,974 266,960 321,054
Less-accumulated depreciation 149,607 136,280 142,304
Net property, plant and equipment 180,367 130,680 178,750
OTHER ASSETS
Goodwill 74,793 38,151 74,002
Trademarks 193,342 79,348 193,342
Investments 78,465 126,135 96,640
Split dollar life insurance 69,563 66,043 66,094
Investment in joint venture 10,945 - 10,232
427,108 309,677 440,310
Total assets $805,817 $676,801 $811,753
-2-
(The accompanying notes are an integral part of these statements.)
(in thousands except per share data) (UNAUDITED)
LIABILITIES AND SHAREHOLDERS' EQUITY July 2, July 3, Dec. 31,
CURRENT LIABILITIES 2005 2004 2004
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Bank loan $ 26,400 $ - $ 6,333
Accounts payable 16,874 11,752 19,315
Dividends payable 3,751 3,666 3,659
Accrued liabilities 42,460 39,076 44,722
Income taxes payable 12,089 18,941 8,288
Total current liabilities 101,574 73,435 82,317
NON-CURRENT LIABILITIES
Bank loan 49,000 - 85,667
Deferred income taxes 25,691 22,896 25,995
Postretirement health care and life
insurance benefits 10,409 9,671 10,075
Industrial development bonds 7,500 7,500 7,500
Deferred compensation and other
liabilities 30,206 27,385 30,020
Total non-current liabilities 122,806 67,452 159,257
Total liabilities 224,380 140,887 241,574
SHAREHOLDERS' EQUITY
Common Stock, $.69-4/9 par value-
120,000 shares authorized; 35,561,
34,661 & 34,760, respectively, issued 24,695 24,070 24,139
Class B common stock, $.69-4/9 par value-
40,000 shares authorized; 18,019, 17,614
& 17,515, respectively, issued 12,513 12,232 12,163
Capital in excess of par value 435,675 397,745 397,745
Retained earnings 121,251 115,512 149,055
Accumulated other comprehensive loss (10,705) (11,653) (10,931)
Treasury stock (at cost)-
60, 60 & 60 shares, respectively (1,992) (1,992) (1,992)
Total shareholders' equity 581,437 535,914 570,179
Total liabilities and
shareholders' equity $805,817 $676,801 $811,753
-2A-
(The accompanying notes are an integral part of these statements.)
TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF
EARNINGS, COMPREHENSIVE EARNINGS AND RETAINED EARNINGS
(in thousands except per share amounts) (UNAUDITED)
13 WEEKS ENDED
July 2, 2005 & July 3, 2004
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Net sales $103,627 $ 77,157
Cost of goods sold 61,886 42,165
Gross margin 41,741 34,992
Selling, marketing and administrative expenses 22,820 18,173
Earnings from operations 18,921 16,819
Other income, net 1,184 1,022
Earnings before income taxes 20,105 17,841
Provision for income taxes 6,374 6,012
Net earnings 13,731 11,829
Other comprehensive income, before tax:
Foreign currency translation adjustments 525 (472)
Unrealized gains (losses) on securities 415 (211)
Unrealized (losses) gains on derivatives (252) 776
Other comprehensive income, before tax 688 93
Income tax expense related to items of other
comprehensive income (60) (209)
Other comprehensive income (loss), net of tax 628 (116)
Comprehensive earnings $ 14,359 $ 11,713
Retained earnings at beginning of period $111,266 $107,345
Net earnings 13,731 11,829
Cash dividends (3,746) (3,662)
Retained earnings at end of period $121,251 $115,512
Net earnings per share $0.26 $0.22
Dividends per share * $0.07 $0.07
Average number of shares outstanding 53,529 53,952
*Does not include 3% stock dividend to shareholders of record on 3/11/05 and 3/02/04.
-3-
(The accompanying notes are an integral part of the statements.)
TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF
EARNINGS, COMPREHENSIVE EARNINGS AND RETAINED EARNINGS
(in thousands except per share amounts) (UNAUDITED)
26 WEEKS ENDED
July 2, 2005 & July 3, 2004
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Net sales $201,552 $157,203
Cost of goods sold 120,362 87,481
Gross margin 81,190 69,722
Selling, marketing and administrative expenses 45,110 36,843
Earnings from operations 36,080 32,879
Other income, net 2,391 2,296
Earnings before income taxes 38,471 35,175
Provision for income taxes 12,234 11,854
Net earnings 26,237 23,321
Other comprehensive income, before tax:
Foreign currency translation adjustments 611 (393)
Unrealized losses on securities (206) (271)
Unrealized (losses) gains on derivatives (405) 979
Other comprehensive income, before tax 0 315
Income tax benefit (expense) related to items
of other comprehensive income 226 (260)
Other comprehensive income, net of tax 226 55
Comprehensive earnings $ 26,463 $ 23,376
Retained earnings at beginning of period $149,055 $156,786
Net earnings 26,237 23,321
Cash dividends (7,401) (7,236)
Stock dividends - 3% (46,640) (57,359)
Retained earnings at end of period $121,251 $115,512
Net earnings per share $0.49 $0.43
Dividends per share * $0.14 $0.14
Average number of shares outstanding 53,634 54,048
*Does not include 3% stock dividend to shareholders of record on 3/11/05 and 3/02/04.
-3A-
(The accompanying notes are an integral part of the statements.)
TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of dollars) (UNAUDITED)
26 WEEKS ENDED
July 2, 2005 & July 3, 2004
CASH FLOWS FROM OPERATING ACTIVITIES:
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Net earnings $ 26,237 $ 23,321
Adjustments to reconcile net earnings to
net cash provided by (used in) operating
activities:
Depreciation and amortization 7,156 5,615
Amortization of marketable securities 967 1,333
Purchase of trading securities (1,424) (1,776)
Changes in operating assets and liabilities:
Accounts receivable (736) (3,768)
Other receivables (282) 680
Inventories (31,975) (31,592)
Prepaid expenses and other assets (2,958) (10,354)
Accounts payable and accrued liabilities (4,779) 107
Income taxes payable and deferred 3,567 10,682
Postretirement health care and life
insurance benefits 334 369
Deferred compensation and other liabilities 1,060 1,097
Other 227 (86)
Net cash used in operating activities (2,606) (4,372)
CASH FLOWS FROM INVESTING ACTIVITIES:
Working capital adjustment from acquisition 6,755 -
Capital expenditures (8,550) (7,282)
Purchase of held to maturity securities - (22,049)
Maturity of held to maturity securities - 32,146
Purchase of available for sale securities (13,386) (37,528)
Sale and maturity of available for
sale securities 24,292 38,718
Net cash provided by investing activities 9,111 4,005
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from bank loan 6,400 -
Repayment of bank loan (23,000) -
Dividends paid in cash (7,639) (7,560)
Shares repurchased and retired (7,475) (16,407)
Net cash used in financing activities (31,714) (23,967)
Decrease in cash and cash equivalents (25,209) (24,334)
Cash and cash equivalents at the beginning of year 56,989 84,084
Cash and cash equivalents at the end of quarter $ 31,780 $ 59,750
Supplemental cash flow information:
Income taxes paid $ 9,202 $ 1,688
Interest paid $ 1,092 $ 95
Stock dividend issued $ 46,311 $ 56,959
(The accompanying notes are an integral part of the statements.)
-4-
TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JULY 2, 2005
(in thousands except per share amounts) (UNAUDITED)
Note 1 - Foregoing data has been prepared from the unaudited
financial records of the company and in the opinion
of management all adjustments necessary for a fair
statement of the results for the interim period have
been reflected. All adjustments were of a normal
and recurring nature. Certain reclassifications have
been made to the prior year financial statements to
conform to the current year presentation. These
condensed consolidated financial statements should be
read in conjunction with the consolidated financial
statements and the related notes included in the
company's 2004 Annual Report on Form 10-K.
Note 2 - Average shares outstanding for the period ended July
2, 2005 reflects stock repurchases of 252 shares for
$7,475 and a 3% stock dividend distributed on April
14, 2005. Average shares outstanding for the period
ended July 3, 2004 reflects stock repurchases of
474 shares for $16,407 and a 3% stock dividend
distributed on April 14, 2004.
Note 3 - Results of operations for the period ended July 2,
2005 are not necessarily indicative of results to be
expected for the year to end December 31, 2005 because
of the seasonal nature of the company's operations.
Historically, the third quarter has been the company's
largest sales quarter due to Halloween sales.
Note 4 - On October 22, 2004, the President signed the American Jobs
Creation Act of 2004 (the "Act"). The Act creates 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. The deduction is subject to a number of
limitations and as of today, uncertainty remains as to how to
interpret certain provisions of the Act. As such, the company
has not yet determined whether, and to what extent, it may
repatriate earnings that have not yet been remitted to the
U.S. and therefore makes no estimate as to the amount of
future remittances. The company has determined that to the
extent that foreign earnings are repatriated, the tax effect
of such repatriation will not be material.
The Act also provides for a deduction for income from
qualified domestic production activities, which will be
phased in from 2005 through 2010. This provision also is
subject to a number of limitations which affect the effective
tax rate in 2005 and later. The accompanying financial
statements reflect the company's estimate of the Act on its
effective tax rate in 2005.
-5-
Note 5 - 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. During
the second quarter 2005, the company finalized a working capital
deficiency required under terms of the purchase contract, and
collected $6,755. 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 following table includes the unaudited pro forma net
sales, net earnings and net earnings per share for the second
quarter and first half of 2004, respectively, as if the company
had acquired Concord as of January 1, 2004. Pro forma adjust-
ments are necessary to reflect costs and expenses of financing
the purchase, including additional interest expense on bank
borrowings, 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 pro forma results do 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 $1,561 and $2,424 net of income taxes for the
second quarter and first half, respectively.
Following is a summary of the unaudited pro forma combined
results for Tootsie Roll Industries, Inc. and the Concord
Confections business for the second quarter and first half
2004:
Combined Pro Forma
13 WEEKS ENDED 26 WEEKS ENDED
JULY 3, 2004 JULY 3,2004
Net sales $99,129 $196,132
Net earnings $12,090 $ 24,094
Earnings per share $ 0.22 $ 0.45
The pro forma results are not necessarily indicative of what
actually would have occurred if the acquisition had been
completed as of January 1, 2004, nor are they necessarily
indicative of future consolidated results.
Note 6 - The bank loan is payable in quarterly installments through
August of 2006. As a result of prepayments, the next
quarterly installment is due in March, 2006. The loan is
collateralized by investments in marketable securities and
is subject to other terms and conditions, none of which are
significant. Interest is LIBOR based, and the average rate
was 3.2% in 2005.
-5A-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(dollars in thousands except per share amounts)
The following is management's discussion of the company's operating results and
analysis of factors that have affected the accompanying Condensed Consolidated
Statement of Earnings.
NET SALES: Net change in
Second Quarter, 2005
Second Quarter vs.
2005 2004 Second Quarter, 2004
$103,627 $77,157 34.3%
First Half, 2005
First Half vs.
2005 2004 First Half, 2004
$201,552 $157,203 28.2%
Second quarter 2005 net sales were $103,627 compared to $77,157 in second
quarter 2004, an increase of $26,470 or 34.3%. First half 2005 net sales of
$201,552 increased $44,349 or 28.2% from first half 2004 net sales of $157,203.
Second quarter and first half 2005 sales benefited from $17,982 and $35,327,
respectively, of sales from Concord Confections which was acquired on August
30,2004. In addition, many of the company's core brands had sales increases
in the second quarter and first half 2005 as a result of successful marketing
programs. The company also had selective price increases in early 2005 which
aided the second quarter and first half sales results.
COST OF SALES:
Cost of Sales as a
Second Quarter Percentage of Net Sales
2005 2004 2nd Qtr. 2005 2nd Qtr. 2004
$61,886 $42,165 59.7% 54.6%
Cost of Sales as a
First Half Percentage of Net Sales
2005 2004 1st Half 2005 1st Half 2004
$120,362 $87,481 59.7% 55.6%
Cost of sales as a percentage of net sales increased from 54.6% in the second
quarter 2004 to 59.7% in second quarter 2005, and from 55.6% in first half
2004 to 59.7% in first half 2005. These increases in cost of sales as a
percentage of net sales are the result of the inclusion of Concord Confections,
which has lower gross margins, various start-up costs associated with new
production lines, higher costs for certain ingredients, packaging materials and
labor, including health insurance and other fringe benefits, and increased
manufacturing plant overhead costs.
-6-
OPERATING EARNINGS:
Second Quarter, 2005
Second Quarter vs.
2005 2004 Second Quarter, 2004
$18,921 $16,819 12.5%
First Half, 2005
First Half vs.
2005 2004 First Half, 2004
$36,080 $32,879 9.7%
Second quarter 2005 selling, marketing and administrative expenses were $22,820
compared to $18,173 in second quarter 2004, an increase of $4,647 or 25.6%.
These expenses rose from $36,843 in first half 2004 to $45,110 in first half
2005, an increase of $8,267 or 22.4%. These increases principally reflect the
incremental operating expenses of Concord Confections in the respective 2005
periods. As a percentage of net sales, total selling, marketing and
administrative expenses favorably decreased from 23.6% in second quarter 2004
to 22.0% in second quarter 2005, and from 23.4% in first half 2004 to 22.4% in
first half 2005, reflecting various cost efficiencies achieved from increased
consolidated net sales, including the sales from Concord Confections. The
company has substantially completed the integration of the Concord Confections
brands into its confectionary product portfolio.
Second quarter 2005 earnings from operations were $18,921 compared to $16,819
in second quarter 2004, an increase of $2,102 or 12.5%. First half 2005 earnings
from operations were $36,080 compared to $32,879, an increase of $3,201 or 9.7%.
Improved operating earnings in second quarter and first half 2005 principally
resulted from higher reported consolidated sales, including the inclusion of the
Concord Confections results as discussed above. However, the effects of higher
sales were partially mitigated by those adverse factors that affected cost of
sales as discussed above.
NET EARNINGS:
Second Quarter, 2005
Second Quarter vs.
2005 2004 Second Quarter, 2004
$13,731 $11,829 16.1%
First Half, 2005
First Half vs.
2005 2004 First Half, 2004
$26,237 $23,321 12.5%
Second quarter 2005 net earnings were $13,731 compared to second quarter 2004
net earnings of $11,829, a $1,902 or 16.1% increase. Second quarter 2005
earnings per share were $0.26, compared to $0.22 per share in the prior year
comparative period, an increase of $0.04 or 18.2%.
First half 2005 net earnings were $26,237 compared to first half 2004 net
earnings of $23,321. First half net earnings per share were $0.49 in 2005
compared to $0.43 per share in 2004, an increase of $0.06 per share or 14.0%.
-6A-
Other income, net was $1,184 in second quarter 2005 compared to $1,022 in second
quarter 2004, an increase of $162. The aforementioned increase includes $610 of
increased interest expense and $391 of decreased investment income reflecting
the financing costs of Concord Confections acquired on August 30, 2004. Second
quarter 2005 other income, net benefited from $248 of real estate rental income
from Concord Confections and $433 of net income from the company's Spanish joint
venture acquired as part of the Concord Confections acquisition.
Other income, net was $2,391 in first half 2005 compared to $2,296 in first half
2004, an increase of $95. First half other income, net reflects $1,180 of
increased interest expense and $878 of decreased investment income reflecting
the financing costs of the Concord Confections business. First half 2005 other
income, net benefited from $499 of real estate rental income from Concord
Confections and $713 of net income from the company's Spanish joint venture.
The consolidated effective income tax rate favorably decreased in both the
quarter and first half from 33.7% in 2004 to 32.4% in 2005. This improvement
generally reflects the statutory reduction in the U.S. federal income tax rate
in 2005 for US manufacturing activities as well as lower effective rates for
foreign taxes.
In addition to the factors discussed above, earnings per share benefited from
fewer shares outstanding as a result of the company's share repurchases.
LIQUIDITY AND CAPITAL RESOURCES:
The company's current ratio (current assets divided by current liabilities) was
2.0 to 1 as of the end of second quarter 2005 as compared to 3.2 to 1 as of the
end of second quarter 2004 and 2.3 to 1 as of the end of fourth quarter 2004.
Net working capital was $96,768 as of the end of second quarter 2005 as compared
to $110,376 and $163,009 as of the end of fourth quarter 2004 and second quarter
2004, respectively. The aforementioned net working capital amounts are
principally reflected in aggregate cash and cash equivalents and short-term
investments which totaled $70,795 as of the end of second quarter 2005 compared
to $89,358 and $121,880, as of the end of fourth quarter 2004 and second quarter
2004, respectively. Net working capital was also affected by the classification
of $26,400 of the bank loan as a short-term liability as of the end of second
quarter 2005. In addition, long-term investments, principally debt securities
comprising municipal bonds, were $78,465 as of the end of second quarter 2005 as
compared to $96,640 and $126,135 as of the end of fourth quarter 2004 and second
quarter 2004, respectively.
The bank loan and decreases in aggregate cash and cash equivalents, and short-
term and long-term investments from second quarter 2004 reflect the company's
financing of Concord Confections on August 30,2004 for an adjusted purchase
price of approximately $212,500. The aforementioned adjusted purchase price
reflects the company's recovery during second quarter 2005 of approximately
$6,800 relating to the final determination of the required minimum working
capital amount under terms of the Concord purchase contract.
Investments in municipal bonds and other debt securities that matured during
first half 2004 were generally replaced with debt securities of similar
maturities. Investments that matured or were sold during first half 2005 were
generally used to repay the bank loan relating to the Concord acquisition.
-6B-
Net cash used in operating activities was $2,606 for first half 2005, compared
to $4,372 of net cash was used in operating activities in first half 2004. The
aforementioned net change in net cash used in operating activities principally
reflects higher net income and higher depreciation in 2005, and the company's
pre-funding of the annual cost of certain defined contribution employee benefit
plans in 2004, reflected as a prepaid expense, which was not pre-funded in 2005.
However, the timing of payments in 2005 compared to 2004 relating to income
taxes and accounts payable and accrued liabilities offset the effects of the
aforementioned net cash provided by operating activities.
Capital expenditures for first half 2005 and 2004 were $8,550 and $7,282,
respectively. Capital expenditures for the 2005 year are anticipated to be
generally in line with historical annualized spending after adjusting for the
addition of the Concord Confections business, and are to be funded from the
company's cash flow from operations and internal sources.
As of the end of second quarter 2005, the company has $69,000 outstanding
relating to its bank loan in connection with the financing of the Concord
Confections acquisition on August 30,2004. As a result of prepayments on this
loan, the next required installments of $1,667 and $18,333 are due in March 2006
and June 2006, respectively. The balance of the bank loan is due in later 2006.
The company anticipates making substantial prepayments on this loan in 2005
which will be funded from cash flows from operations and maturities of
investments in marketable securities.
Cash dividends paid in first half 2005 and 2004 were $7,639 and $7,560,
respectively. The company also repurchased and retired $7,475 and $16,407 of
its shares outstanding during first half 2005 and 2004, respectively.
This discussion and certain other sections of this Form 10-Q contain forward-
looking statements that are based largely on the company's current expectations
and are made pursuant to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. Forward-looking statements are subject to
certain risks, trends and uncertainties that could cause actual results and
achievements to differ materially from those expressed in the forward-looking
statements. Such risks, trends and uncertainties, which in some instances are
beyond the company's control, include changes in demand and consumer
preferences, including seasonal events such as Halloween; the effect of
ingredient costs; the effect of acquisitions on the company's results of
operations and financial condition; the effect of changes in foreign currencies
on the company's foreign subsidiaries; the company's reliance on third-party
vendors for various goods and services; the company's ability to successfully
implement new production processes and lines; the effect of changes in
assumptions, including discount rates and profit margins, relating to the
company's impairment testing and analysis of its goodwill and trademarks;
changes in the confectionary market place including actions taken by major
retailers and customers; customer and consumer response to marketing programs
and price adjustments; changes in governmental laws and regulations including
taxes; the overall competitive environment in the company's industry; and
changes in assumptions and judgments discussed under the heading "Critical
Accounting Policies of the company's MD&A" included in the 2004 annual report
and 10-K. 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.
-6C-
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK:
The company is exposed to various market risks, including fluctuations in sugar,
corn syrup, edible oils, cocoa and packaging costs. The company is also exposed
to exchange rate fluctuations in the Canadian dollar which is the currency used
for a portion of the operating expenses at its Canadian plants. The company also
invests in securities with maturities of up to three years, the majority of
which are held to maturity, which limits the company's exposure to interest rate
fluctuations. There has been no material change in the company's market risks
that would significantly affect the disclosures made in the Form 10-K for the
year ended December 31, 2004.
Item 4. CONTROLS AND PROCEDURES
Under the supervision and with the participation of management, the chief
executive officer and chief financial officer of the company have evaluated the
effectiveness of the design and operation of the company's disclosure controls
and procedures as of July 2, 2005 and, based on their evaluation, the chief
executive officer and chief financial officer have concluded that these controls
and procedures are effective. Disclosure controls and procedures are designed
to ensure that information required to be disclosed by the company in the
reports that it files or submits under the Securities Exchange Act of 1934 is
recorded, processed, summarized and reported, within the time periods specified
in the Securities and Exchange Commission's rules and forms. Disclosure
controls and procedures are also designed to ensure that information is
accumulated and communicated to management, including the chief executive
officer and chief financial officer, as appropriate to allow timely decisions
regarding required disclosure.
There has been no change in the company's internal control over financial
reporting that occurred during the company's fiscal quarter ended July 2, 2005
that has materially affected, or is reasonably likely to materially affect, the
company's internal control over financial reporting.
-6D-
PART II - OTHER INFORMATION
TOOTSIE ROLL INDUSTRIES, INC.
AND SUBSIDIARIES
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Approximate Dollar
(a) Total (b) Average Shares Value of Shares that
Number of Price Paid per Purchased as Part of May Yet Be Purchased
Shares Share Publicly Announced Plans Under the Plans
Period Purchased or Programs or Programs
<s> <c> <c> <c> <c>
APR 3 TO APR 30 36,400 $ 29.75 NOT APPLICABLE NOT APPLICABLE
MAY 1 TO MAY 28 - . NOT APPLICABLE NOT APPLICABLE
MAY 29 TO JUL 2 - . NOT APPLICABLE NOT APPLICABLE
TOTAL 36,400 $ 29.75
While the Company does not have a formal or publicly announced stock
repurchase program, the company's board of directors periodically authorizes
a dollar amount for share repurchases. The treasurer executes share
repurchase transactions according to these guidelines.
Item 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Shareholders of the Company, held on May 2, 2005,
The following number of votes were cast for the matters indicated:
1. For the election of five Directors of the Company by the holders of
Common Shares and Class B Common Shares voting together:
Broker
Nominee For Withheld Abstain Non-Vote
<s> <c> <c> <c> <c>
Melvin J. Gordon 199,923,426 4,834,020 -0- -0-
Ellen R. Gordon 199,930,765 4,826,681 -0- -0-
Lana Jane Lewis-Brent 202,776,328 1,981,118 -0- -0-
Barre A. Siebert 202,944,328 1,813,118 -0- -0-
Richard P. Bergeman 202,208,037 2,549,409 -0- -0-
2. Proposal to ratify the appointment of PricewaterhouseCoopers LLP as
auditors for the fiscal year 2005:
Broker
For Against Abstain Non-Vote
Common Shares and Class B
Common Shares voting together 202,307,724 2,366,412 83,310 -0-
No other matters were submitted to a vote by ballot at the 2005 Annual
Meeting.
-7-
Item 6. EXHIBITS
Exhibits 31.1 and 31.2 - Certifications Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
Exhibit 32 - Certification Pursuant to 18 U.S.C. Section 1350,
As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly
authorized.
TOOTSIE ROLL INDUSTRIES, INC.
Date: August 10, 2005 BY:/S/MELVIN J. GORDON
Melvin J. Gordon
Chairman of the Board
Date: August 10, 2005 BY:/S/G. HOWARD EMBER, JR.
G. Howard Ember, Jr.
Vice President - Finance
-7A-
Exhibit 31.1
CERTIFICATION
I, Melvin J. Gordon, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Tootsie Roll
Industries, Inc,;
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the state-
ments made, in light of the circumstances under which such statements were made,
not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial infor-
mation included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:
a) designed such disclosure controls and procedures, or caused such dis-
closure controls and procedures to be designed under our supervision, to ensure
that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;
b) designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
d) disclosed in this report any change in the registrant's internal control
over financial reporting that occurred during the registrant's most recent
fiscal quarter that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting;
and
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of
directors:
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: August 10, 2005
By: /S/MELVIN J. GORDON
Melvin J. Gordon
Chairman and Chief Executive Officer
-7B-
Exhibit 31.2
CERTIFICATION
I, G. Howard Ember, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Tootsie Roll
Industries, Inc,;
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the state-
ments made, in light of the circumstances under which such statements were made,
not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial infor-
mation included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:
a) designed such disclosure controls and procedures, or caused such dis-
closure controls and procedures to be designed under our supervision, to ensure
that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;
b) designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
d) disclosed in this report any change in the registrant's internal control
over financial reporting that occurred during the registrant's most recent
fiscal quarter that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting;
and
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of
directors:
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: August 10, 2005
By: /S/G. HOWARD EMBER, JR.
G. Howard Ember, Jr.
Vice President/Finance and
Chief Financial Officer
-7C-
Exhibit 32
Certificate Pursuant to Section 1350 of Chapter 63
Of Title 18 of the United States Code
Each of the undersigned officers of Tootsie Roll Industries, Inc.
Certifies that (i) the Quarterly Report on Form 10-Q of Tootsie Roll
Industries, Inc. for the quarterly period ended July 2, 2005 (the
Form 10-Q) fully complies with the requirements of 13(a) or 15(d) of
the Securities Exchange Act of 1934 and (ii) the information
contained in the Form 10-Q fairly presents, in all material respects,
the financial condition and results of operations of Tootsie Roll
Industries, Inc. and its subsidiaries.
Dated: August 10, 2005 By:/S/MELVIN J. GORDON
Melvin J. Gordon
Chairman and Chief
Executive Officer
Dated: August 10, 2005 By:/S/G. HOWARD EMBER, JR.
G. Howard Ember, Jr.
V.P./Finance and
Chief Financial Officer
-7D-