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 OCTOBER 1, 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 by check mark whether the Registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act)
Yes No X
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date (October
12, 2005)
Class Outstanding
Common Stock, $.69 4/9 par value 35,574,325
Class B Common Stock, $.69 4/9 par value 18,005,706
TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES
OCTOBER 1, 2005
INDEX
Page No.
Part I - Financial Information
Item 1. Unaudited 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 6. Exhibits 7
Signatures 7
Certifications 7A
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 Oct. 01, Oct. 02, Dec. 31,
CURRENT ASSETS 2005 2004 2004
<s> <c> <c> <c>
Cash & cash equivalents $ 32,361 $ 29,807 $ 56,989
Investments 46,027 30,399 32,369
Trade accounts receivable,
Less allowances of
$3,528, $3,334 & $2,440 87,078 90,895 28,456
Other receivables 1,666 6,924 9,001
Inventories, at cost
Finished goods & work in process 45,069 40,633 37,384
Raw material & supplies 21,086 22,179 21,393
Prepaid expenses 3,754 6,367 5,719
Deferred income taxes 1,410 951 1,382
Total current assets 238,451 228,155 192,693
PROPERTY, PLANT & EQUIPMENT, at cost
Land 14,991 14,968 14,973
Buildings 61,776 60,718 61,714
Machinery & equipment 255,713 238,313 244,367
332,480 313,999 321,054
Less-accumulated depreciation 152,208 139,059 142,304
Net property, plant and equipment 180,272 174,940 178,750
OTHER ASSETS
Goodwill 74,619 75,297 74,002
Trademarks 193,342 191,747 193,342
Investments 65,265 106,761 96,640
Split dollar life insurance 69,528 66,062 66,094
Investment in joint venture 11,041 10,000 10,232
413,795 449,867 440,310
Total assets $832,518 $852,962 $811,753
-2-
(The accompanying notes are an integral part of these statements.)
(in thousands except per share data) (UNAUDITED)
LIABILITIES AND SHAREHOLDERS' EQUITY Oct. 1, Oct. 02, Dec. 31,
CURRENT LIABILITIES 2005 2004 2004
<s> <c> <c> <c>
Bank loan $ 60,000 $ 17,000 $ 6,333
Accounts payable 17,546 23,994 19,315
Dividends payable 3,751 3,659 3,659
Accrued liabilities 52,603 52,981 44,722
Income taxes payable 17,159 22,112 8,288
Total current liabilities 151,059 119,746 82,317
NON-CURRENT LIABILITIES
Bank loan - 105,000 85,667
Deferred income taxes 25,974 23,034 25,995
Postretirement health care and life
insurance benefits 10,579 9,852 10,075
Industrial development bonds 7,500 7,500 7,500
Deferred compensation and other liabilities 31,488 28,076 30,020
Total non-current liabilities 75,541 173,462 159,257
Total liabilities 226,600 293,208 241,574
SHAREHOLDERS' EQUITY
Common Stock, $.69-4/9 par value-
120,000 shares authorized; 35,574,
34,680 & 34,760 respectively, issued 24,704 24,083 24,139
Class B common stock, $.69-4/9 par value-
40,000 shares authorized; 18,006, 17,595
& 17,515, respectively, issued 12,504 12,219 12,163
Capital in excess of par value 435,675 397,745 397,745
Retained earnings 145,169 138,833 149,055
Accumulated other comprehensive loss (10,142) (11,134) (10,931)
Treasury stock (at cost)-
60, 60 & 60 shares, respectively (1,992) (1,992) (1,992)
Total shareholders' equity 605,918 559,754 570,179
Total liabilities and
shareholders' equity $832,518 $852,962 $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
Oct. 1, 2005 & Oct. 2, 2004
<s> <c> <c>
Net sales $173,692 $156,971
Cost of goods sold 106,197 92,167
Gross margin 67,495 64,804
Selling, marketing and administrative expenses 28,507 25,123
Earnings from operations 38,988 39,681
Other income, net 1,543 1,007
Earnings before income taxes 40,531 40,688
Provision for income taxes 12,866 13,712
Net earnings 27,665 26,976
Other comprehensive income, before tax:
Foreign currency translation adjustments 195 283
Unrealized gains on securities 54 95
Unrealized gains on derivatives 529 283
Other comprehensive income, before tax 778 661
Income tax expense related to items of other
comprehensive income (215) (141)
Other comprehensive income, net of tax 563 520
Comprehensive earnings $ 28,228 $ 27,496
Retained earnings at beginning of period $121,251 $115,512
Net earnings 27,665 26,976
Cash dividends (3,747) (3,655)
Retained earnings at end of period $145,169 $138,833
Net earnings per share $0.52 $0.50
Dividends per share * $0.07 $0.07
Average number of shares outstanding 53,520 53,772
*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)
39 WEEKS ENDED
Oct. 1, 2005 & Oct. 2, 2004
<s> <c> <c>
Net sales $375,244 $314,174
Cost of goods sold 226,559 179,648
Gross margin 148,685 134,526
Selling, marketing and administrative expenses 73,617 61,966
Earnings from operations 75,068 72,560
Other income, net 3,934 3,303
Earnings before income taxes 79,002 75,863
Provision for income taxes 25,100 25,566
Net earnings 53,902 50,297
Other comprehensive income, before tax:
Foreign currency translation adjustments 806 (110)
Unrealized losses on securities (152) (176)
Unrealized gains on derivatives 124 1,262
Other comprehensive income, before tax 778 976
Income tax benefit (expense) related to items
of other comprehensive income 11 (401)
Other comprehensive income, net of tax 789 575
Comprehensive earnings $ 54,691 $ 50,872
Retained earnings at beginning of period $149,055 $156,786
Net earnings 53,902 50,297
Cash dividends (11,148) (10,891)
Stock dividends - 3% (46,640) (57,359)
Retained earnings at end of period $145,169 $138,833
Net earnings per share $1.01 $0.93
Dividends per share * $0.21 $0.21
Average number of shares outstanding 53,600 53,966
*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)
39 WEEKS ENDED
Oct. 1, 2005 & Oct. 2, 2004
CASH FLOWS FROM OPERATING ACTIVITIES:
<s> <c> <c>
Net earnings $ 53,902 $ 50,297
Adjustments to reconcile net earnings to
net cash provided by (used in) operating
activities:
Depreciation and amortization 10,860 8,325
Amortization of marketable securities 1,332 1,885
Purchase of trading securities (1,770) (2,113)
Changes in operating assets and liabilities:
Accounts receivable (58,359) (61,476)
Other receivables 658 2,089
Inventories (7,219) (7,245)
Prepaid expenses and other assets (2,862) (5,453)
Accounts payable and accrued liabilities 5,964 15,544
Income taxes payable and deferred 8,930 13,997
Postretirement health care and life
insurance benefits 504 550
Deferred compensation and other liabilities 1,620 1,745
Other 164 (30)
Net cash provided by operating activities 13,724 18,115
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of business, net of cash acquired - (218,229)
Working capital adjustment from acquisition 6,755 -
Capital expenditures (12,097) (10,825)
Purchase of held to maturity securities - (22,049)
Maturity of held to maturity securities - 67,657
Purchase of available for sale securities (15,086) (81,699)
Sale and maturity of available for
sale securities 32,936 98,382
Net cash provided by (used in) investing activities 12,508 (166,763)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from bank loan 6,400 154,000
Repayment of bank loan (38,400) (32,000)
Dividends paid in cash (11,386) (11,222)
Shares repurchased and retired (7,474) (16,407)
Net cash (used in) provided by financing activities (50,860) 94,371
Decrease in cash and cash equivalents (24,628) (54,277)
Cash and cash equivalents at the beginning of year 56,989 84,084
Cash and cash equivalents at the end of quarter $ 32,361 $ 29,807
Supplemental cash flow information:
Income taxes paid $ 17,044 $ 12,402
Interest paid $ 1,961 $ 351
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
OCTOBER 1, 2005
(in thousands except per share amounts) (UNAUDITED)
Note 1 - Foregoing data has been prepared from the unaudited
financial records of Tootsie Roll Industries, Inc. and Subsidiaries
(the company) and in the opinion of management all adjustments
necessary for a fair statement of the results for the interim period
have been reflected. All adjustments were of a normal and recurring
nature. These 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 nine month period ended October
1, 2005 reflects stock repurchases of 252 shares for
$7,474 and a 3% stock dividend distributed on April
14, 2005. Average shares outstanding for the nine month period
ended October 2, 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 October 1,
2005 are not necessarily indicative of results to be
expected for the full year ended 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 - The consolidated effective income tax rate favorably decreased in
both the quarter and nine months from 33.7% in 2004 to 31.8% in
2005. This improvement generally reflects the statutory reduction
in the U.S. federal income tax rate in 2005 for US manufacturing
activities, lower effective rates for foreign taxes, and research
and development credits against federal income taxes.
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 company has not completed its evaluation 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 to its financial statements.
The Act also provides for a deduction from income for
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 and income tax expense 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 calculation 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 third
quarter and nine months of 2004, respectively, 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
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 $1,601 and $4,026 net of income taxes for the
third quarter and nine months, respectively.
Following is a summary of the unaudited pro forma combined
results for Tootsie Roll Industries, Inc. and the Concord
Confections business for the third quarter and nine months
2004:
Combined Pro Forma
13 WEEKS ENDED 39 WEEKS ENDED
OCTOBER 1, 2004 OCTOBER 1,2004
Net sales $177,210 $373,342
Net earnings $ 27,412 $ 51,506
Earnings per share $ 0.51 $ 0.95
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 3.5% 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
Third Quarter, 2005
Third Quarter vs.
2005 2004 Third Quarter, 2004
$173,692 $156,971 10.7%
Nine Months, 2005
Nine Months vs.
2005 2004 Nine Months, 2004
$375,244 $314,174 19.4%
Third quarter 2005 net sales were $173,692 compared to $156,971 in third
quarter 2004, an increase of $16,721 or 10.7%. Nine months 2005 net sales of
$375,244 increased $61,070 or 19.4% from nine months 2004 net sales of
$314,174. Third quarter and nine months 2005 sales benefited from $23,200 and
$62,200, 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 third quarter and nine month 2005 period as a result of
successful marketing programs, including those related to "back-to-school" and
pre-Halloween programs. The Company also had selective price increases in early
2005 which aided the third quarter and nine months sales results.
COST OF SALES:
Cost of Sales as a
Third Quarter Percentage of Net Sales
2005 2004 3rd Qtr. 2005 3rd Qtr. 2004
$106,197 $92,167 61.1% 58.7%
Cost of Sales as a
Nine Months Percentage of Net Sales
2005 2004 Nine Months 2005 Nine Months 2004
$226,559 $179,648 60.4% 57.2%
Cost of sales as a percentage of net sales increased from 58.7% in the third
quarter 2004 to 61.1% in third quarter 2005, and from 57.2% in nine months 2004
to 60.4% in nine months 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, combined with the impact of increases in certain
ingredient and packaging costs, higher energy, fuel and transportation costs,
and additional costs associated with the relocation and implementation of new
production lines.
Significant cost increases are anticipated during 2006 in many commodities and
packaging materials widely used in the confectionary industry, including sugar,
corn syrup, dextrose, milk, whey and energy. The company is currently
assessing the effects of these cost increases as well as how they can be
mitigated in 2006.
-6-
OPERATING EARNINGS:
Third Quarter, 2005
Third Quarter vs.
2005 2004 Third Quarter, 2004
$38,988 $39,681 (1.7)%
Nine Months, 2005
Nine Months vs.
2005 2004 Nine Months, 2004
$75,068 $72,560 3.5%
Third quarter 2005 selling, marketing and administrative expenses were $28,507
compared to $25,123 in third quarter 2004, an increase of $3,384 or 13.5%. In
the comparative nine month periods, these expenses rose from $61,966 in 2004 to
$73,617 in 2005, an increase of $11,651 or 18.8%. These increases principally
reflect the additional expenses associated with increased sales, including the
incremental operating expenses of Concord Confections, in the respective 2005
periods. As a percentage of net sales, total selling, marketing and
administrative expenses increased from 16.0% in third quarter 2004 to 16.4% in
third quarter 2005, however, such expenses decreased from 19.7% in nine months
2004 to 19.6% in nine months 2005. The aforementioned decrease in nine months
operating expenses as a percentage of sales reflects various cost efficiencies
achieved year-to-date from increased consolidated net sales, including the
sales from Concord Confections, partially offset by generally higher operating
expenses. The Company has substantially completed the integration of the
Concord Confections branch into its confectionary product portfolio.
Third quarter 2005 earnings from operations were $38,988 compared to $39,681 in
third quarter 2004, a decrease of $693 or 1.7%. Nine months 2005 earnings from
operations were $75,068 compared to $72,560, an increase of $2,508 or 3.5%.
Improved operating earnings in nine months 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, particularly in third quarter 2005.
NET EARNINGS:
Third Quarter, 2005
Third Quarter vs.
2005 2004 Third Quarter, 2004
$27,665 $26,976 2.6%
Nine Months, 2005
Nine Months vs.
2005 2004 Nine Months, 2004
$53,902 $50,297 7.2%
Third quarter 2005 net earnings were $27,665 compared to third quarter 2004 net
earnings of $26,976, a $689 or 2.6% increase. Third quarter 2005 earnings per
share were $0.52, compared to $0.50 per share in the prior year comparative
period, an increase of $0.02 or 4.0%.
-6A-
Nine months 2005 net earnings were $53,902 compared to nine months 2004 net
earnings of $50,297. Nine months net earnings per share were $1.01 in 2005
compared to $0.93 per share in 2004, an increase of $0.08 per share or 8.6%.
Other income, net was $1,543 in third quarter 2005 compared to $1,007 in third
quarter 2004, an increase of $536. The aforementioned increase includes $457
of increased interest expense and $293 of decreased investment income
reflecting the financing costs of Concord Confections acquired on August 30,
2004. However, third quarter 2005 other income, net benefited from an
increased real estate rental income from Concord Confections and higher net
income from the company's Spanish joint venture acquired as part of the Concord
Confections acquisition. In addition, third quarter 2005 other income, net
benefited from $684 of foreign exchange gains compared to a $68 loss in third
quarter 2004.
Other income, net was $3,934 in nine months 2005 compared to $3,303 in nine
months 2004, an increase of $631. Nine months other income, net reflects
$1,637 of increased interest expense and $1,171 of decreased investment income
reflecting the financing costs of the Concord Confections acquisition. However,
nine months 2005 other income, net benefited from an increased real estate
rental income from Concord Confections and higher net income from the company's
Spanish joint venture. In addition, nine months 2005 other income, net
benefited from $744 of foreign exchange gains compared to $45 of gains in nine
months 2004.
The consolidated effective income tax rate favorably decreased in both the
quarter and nine months from 33.7% in 2004 to 31.8% in 2005. This improvement
generally reflects the statutory reduction in the U.S. federal income tax rate
in 2005 for US manufacturing activities, lower effective rates for foreign
taxes, and research and development credits against federal income 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
1.6 to 1 as of the end of third quarter 2005 as compared to 1.9 to 1 as of the
end of third quarter 2004 and 2.3 to 1 as of the end of fourth quarter 2004.
Net working capital was $87,392 as of the end of third quarter 2005 as compared
to $110,376 and $108,409 as of the end of fourth quarter 2004 and third quarter
2004, respectively. The aforementioned net working capital amounts are
principally reflected in aggregate cash and cash equivalents and short-term
investments which totaled $78,388 as of the end of third quarter 2005 compared
to $89,358 and $60,206, as of the end of fourth quarter 2004 and third quarter
2004, respectively. Net working capital was also affected by the
classification of $60,000 of the bank loan as a short-term liability as of the
end of third quarter 2005. In addition, long-term investments, principally
debt securities comprising municipal bonds, were $65,265 as of the end of third
quarter 2005 as compared to $96,640 and $106,761 as of the end of fourth
quarter 2004 and third quarter 2004, respectively.
The decreases in aggregate cash and cash equivalents, and short-term and
long-term investments from third quarter 2004 reflect the Company's partial
repayment of the bank term loan related to the acquisition 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.
-6B-
Investments in municipal bonds and other debt securities that matured during
nine months 2004 were generally replaced with debt securities of similar
maturities. Investments that matured or were sold during nine months 2005 were
generally used to repay the bank loan relating to the Concord acquisition.
Net cash provided by operating activities was $13,724 for nine months 2005,
compared to $18,115 of net cash provided by operating activities in nine months
2004. The aforementioned net change in net cash provided by 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 more than offset the aforementioned effects of net cash provided by
operating activities.
Capital expenditures for nine months 2005 and 2004 were $12,097 and $10,825,
respectively. Capital expenditures for the 2005 year are anticipated to be
generally in line with historical annualized spending after adjusting for the
addition of Concord Confections, and are to be funded from the company's cash
flow from operations and internal sources.
As of the end of third quarter 2005, the company has $60,000 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 $11,000 and $49,000 are due in the
second and third quarters of 2006, respectively. The company anticipates making
substantial prepayments on this loan in 2005 and 2006 which will be funded from
cash flows from operations and maturities of investments in marketable
securities.
Cash dividends paid in nine months 2005 and 2004 were $11,386 and $11,222,
respectively. The company also repurchased and retired $7,474 and $16,407 of
its shares outstanding during nine months 2005 and 2004, respectively.
The company has entered into a contract to sell a surplus parcel of real
estate. This transaction, which is subject to customary closing conditions, is
expected to close in the fourth quarter of 2005 or first quarter 2006 and will
result in a net after-tax gain of approximately $13.0 million. Because the
company expects to defer substantially all of the current income taxes related
to this gain by entering into an IRC Section 1031 Like-Kind Exchange for
alternate real estate, the aforementioned net gain of $13.0 million reflects a
provision for deferred income taxes. The Company will recognize this gain in
the period of the real estate closing including the receipt of the proceeds.
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 changes; 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, sales growth and profit
-6C-
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.
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 October 1, 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 October 1,
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>
JUL 3 TO JUL 30 -0- $ - NOT APPLICABLE NOT APPLICABLE
JUL 31 TO AUG 27 -0- - NOT APPLICABLE NOT APPLICABLE
AUG 28 TO OCT 1 -0- - NOT APPLICABLE NOT APPLICABLE
TOTAL -0- $ -
While the Company does not have a formal or publicly announced stock
repurchase program, the company's board of directors periodically authorizes
a dollar amount for share repurchases. The treasurer executes share
repurchase transactions according to these guidelines.
Item 6. EXHIBITS
Exhibits 31.1 and 31.2 - Certifications Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
Exhibit 32 - Certification Pursuant to 18 U.S.C. Section 1350,
As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly
authorized.
TOOTSIE ROLL INDUSTRIES, INC.
Date: Nov. 9, 2005 BY:/s/Melvin J. Gordon
Melvin J. Gordon
Chairman of the Board
Date: Nov. 9, 2005 BY:/s/G. Howard Ember, Jr.
G. Howard Ember, Jr.
Vice President/Finance
-7-
Exhibit 31.1
CERTIFICATION
I, Melvin J. Gordon, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Tootsie Roll
Industries, Inc,;
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the state-
ments made, in light of the circumstances under which such statements were made,
not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial infor-
mation included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:
a) designed such disclosure controls and procedures, or caused such dis-
closure controls and procedures to be designed under our supervision, to ensure
that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;
b) designed such disclosure controls over financial reporting, or caused
such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
d) disclosed in this report any change in the registrant's internal control
over financial reporting that occurred during the registrant's most recent
fiscal quarter 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: Nov. 9, 2005
By: /s/Melvin J. Gordon
Melvin J. Gordon
Chairman and Chief Executive Officer
-7A-
Exhibit 31.2
CERTIFICATION
I, G. Howard Ember, Jr. certify that:
1. I have reviewed this quarterly report on Form 10-Q of Tootsie Roll
Industries, Inc,;
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the state-
ments made, in light of the circumstances under which such statements were made,
not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial infor-
mation included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:
a) designed such disclosure controls and procedures, or caused such dis-
closure controls and procedures to be designed under our supervision, to ensure
that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;
b) designed such disclosure controls over financial reporting, or caused
such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
d) disclosed in this report any change in the registrant's internal control
over financial reporting that occurred during the registrant's most recent
fiscal quarter 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: Nov. 9, 2005
By: /s/G. Howard Ember, Jr.
G. Howard Ember, Jr.
Vice President/Finance and
Chief Financial Officer
-7B-
Exhibit 32
Certificate Pursuant to Section 1350 of Chapter 63
Of Title 18 of the United States Code
Each of the undersigned officers of Tootsie Roll Industries, Inc.
Certifies that (i) the Quarterly Report on Form 10-Q of Tootsie Roll
Industries, Inc. for the quarterly period ended October 1, 2005 (the
Form 10-Q) fully complies with the requirements of secton 13(a) or
15(d) of the Securities Exchange Act of 1934 and (ii) the information
contained in the Form 10-Q fairly presents, in all material respects,
the financial condition and results of operations of Tootsie Roll
Industries, Inc. and its subsidiaries.
Dated: Nov. 9, 2005 /s/Melvin J. Gordon
Melvin J. Gordon
Chairman and Chief
Executive Officer
Dated: Nov. 9, 2005 /s/G. Howard Ember, Jr.
G. Howard Ember, Jr.
V.P./Finance and
Chief Financial Officer
-7C-