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 MARCH 29, 2008
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ----to----
COMMISSION FILE NUMBER 1-1361
Tootsie Roll Industries, Inc.
(Exact Name of Registrant as Specified in its Charter)
VIRGINIA 22-1318955
(State of Incorporation) (I.R.S. Employer Identification No.)
7401 South Cicero Avenue, Chicago, Illinois 60629
(Address of Principal Executive Offices) (Zip Code)
773-838-3400
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the Registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No ___
Indicate by check mark whether the Registrant is a large accelerated
filer, an accelerated filer or a non-accelerated filer. See definition
of "large accelerated filer", "accelerated filer" and "smaller reporting
company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer X Accelerated filer __ Non-accelerated filer __
Smaller reporting company __
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 (March
29, 2008)
Class Outstanding
Common Stock, $.69 4/9 par value 35,655,865
Class B Common Stock, $.69 4/9 par value 19,408,951
TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES
MARCH 29, 2008
INDEX
Page No.
Part I - Financial Information
Item 1. Financial Statements:
Condensed Consolidated Statements of
Financial Position 2
Condensed Consolidated Statements of Earnings,
Comprehensive Earnings and Retained Earnings 3
Condensed Consolidated Statements of Cash Flows 4
Notes to Condensed Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 6
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-C
This Quarterly Report of Form 10-Q contains "forward-looking statements" within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. See "Information Regarding Forward-Looking
Statements" under Part I - Item 2 "Management's Discussion and Analysis of
Financial Condition and Results of Operations" of this Quarterly Report on
Form 10-Q.
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 March 29, March 31, Dec. 31,
CURRENT ASSETS 2008 2007 2007
Cash & cash equivalents $ 45,267 $ 58,189 $ 57,606
Investments 13,945 22,807 41,307
Trade accounts receivable,
Less allowances of
$2,084, $2,055 & $2,287 27,395 30,698 32,371
Other receivables 4,789 3,592 2,913
Inventories, at cost
Finished goods & work in process 49,637 52,269 37,031
Raw material & supplies 22,938 23,221 20,371
Prepaid expenses 4,193 5,407 6,551
Deferred income taxes 1,590 6,713 1,576
Total current assets 169,754 202,896 199,726
PROPERTY, PLANT & EQUIPMENT, at cost
Land 19,398 19,402 19,398
Buildings 88,226 87,273 88,225
Machinery & equipment 275,626 260,344 270,070
383,250 367,019 377,693
Less-accumulated depreciation 180,348 166,162 176,292
Net property, plant and equipment 202,902 200,857 201,401
OTHER ASSETS
Goodwill 73,237 73,237 73,237
Trademarks 189,024 189,024 189,024
Investments 75,011 54,043 65,993
Split dollar life insurance 74,944 73,357 74,944
Investment in joint venture 11,002 9,197 8,400
423,218 398,858 411,598
Total assets $795,874 $802,611 $812,725
-2-
(The accompanying notes are an integral part of these statements.)
(in thousands except per share data) (UNAUDITED)
LIABILITIES AND SHAREHOLDERS' EQUITY March 29, March 31, Dec. 31,
CURRENT LIABILITIES 2008 2007 2007
Accounts payable $ 16,919 $ 15,114 $ 11,572
Dividends payable 4,424 165 4,344
Accrued liabilities 38,322 37,875 42,056
Income tax payable 509 - -
Total current liabilities 60,174 53,154 57,972
NON-CURRENT LIABILITIES
Deferred income taxes 36,234 40,410 35,940
Postretirement health care and life
insurance benefits 13,503 12,918 13,214
Industrial development bonds 7,500 7,500 7,500
Liability for uncertain tax positions 20,496 14,444 20,056
Deferred compensation and other liabilities 36,668 38,240 39,813
Total non-current liabilities 114,401 113,512 116,523
Total liabilities 174,575 166,666 174,495
SHAREHOLDERS' EQUITY
Common Stock, $.69-4/9 par value-
120,000 shares authorized; 35,656, 36,427 & 35,404
respectively, issued 24,761 25,296 24,586
Class B common stock, $.69-4/9 par value-
40,000 shares authorized; 19,409, 18,934 & 18,892,
respectively, issued 13,478 13,149 13,120
Capital in excess of par value 472,067 484,052 457,491
Retained earnings 123,744 128,064 156,752
Accumulated other comprehensive loss (10,759) (12,624) (11,727)
Treasury stock (at cost)-
65, 63 & 63 shares, respectively (1,992) (1,992) (1,992)
Total shareholders' equity 621,299 635,945 $638,230
Total liabilities and
shareholders' equity $795,874 $802,611 $812,725
-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
March 29, 2008 & March 31, 2007
Net product sales $ 90,341 $ 92,914
Rental and royalty revenue 1,092 1,509
Total revenue 91,433 94,423
Product cost of goods sold 60,629 59,736
Rental and royalty cost 282 472
Total costs 60,911 60,208
Product gross margin 29,712 33,178
Rental and royalty gross margin 810 1,037
Total gross margin 30,522 34,215
Selling, marketing and administrative expenses 20,050 21,056
Earnings from operations 10,472 13,159
Other income (loss), net (1,240) 1,474
Earnings before income taxes 9,232 14,633
Provision for income taxes 2,779 4,822
Net earnings 6,453 9,811
Other comprehensive income, before tax:
Foreign currency translation adjustments 2,916 (290)
Unrealized (losses) gains on securities (2,144) 35
Unrealized gains on derivatives 574 287
Other comprehensive income, before tax 1,346 32
Income tax expense related to items
of other comprehensive income (379) (119)
Other comprehensive income (loss), net of tax 967 (87)
Comprehensive earnings $ 7,364 $ 9,724
Retained earnings at beginning of period $156,752 $169,233
Net earnings 6,453 9,811
Cash dividends (4,296) (4,295)
Stock dividends - 3% (35,165) (46,685)
Retained earnings at end of period $123,744 $128,064
Net earnings per share $0.12 $0.17
Dividends per share * $0.08 $0.08
Average number of shares outstanding 55,543 56,903
*Does not include 3% stock dividend to shareholders of record on 3/10/08 and 3/09/07.
-3-
(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)
13 WEEKS ENDED
March 29, 2008 & March 31, 2007
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 6,453 $ 9,811
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 3,988 3,867
Amortization of marketable securities 97 183
Sales (purchases) of trading securities 632 (307)
Changes in operating assets and liabilities:
Accounts receivable 5,043 4,309
Other receivables (1,302) 522
Inventories (15,091) (11,641)
Prepaid expenses and other assets 2,373 3,326
Accounts payable and accrued liabilities 1,573 (3,876)
Income taxes payable and deferred 881 7,551
Postretirement health care and life
insurance benefits 289 336
Deferred compensation and other liabilities (1,193) (47)
Other 85 83
Net cash provided by operating activities 3,828 14,117
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (5,394) (1,934)
Purchase of available for sale securities (23,236) (9,418)
Sale and maturity of available for
sale securities 36,736 8,291
Net cash provided by (used in) investing activities 8,106 (3,061)
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid in cash (4,339) (8,596)
Shares repurchased and retired (19,934) -
Net cash used in financing activities (24,273) (8,596)
Increase (decrease) in cash and cash equivalents (12,339) 2,460
Cash and cash equivalents-beginning of year 57,606 55,729
Cash and cash equivalents end of quarter $ 45,267 $ 58,189
Supplemental cash flow information:
Income taxes paid (refunded) $ 411 $ (4,870)
Interest paid $ 50 $ 221
Stock dividend issued $ 35,043 $ 46,520
(The accompanying notes are an integral part of the statements.)
-4-
TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 29, 2008
(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. Certain reclassifications have been made
to the prior year financial statements to conform to the current
year presentation. These consolidated financial statements
should be read in conjunction with the consolidated financial
statements and the related notes included in the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 2007.
Note 2 - Average shares outstanding for the period ended March 29, 2008
reflects stock repurchases of 839 shares for $19,934 and a 3%
stock dividend distributed on April 10, 2008. Average shares
outstanding for the period ended March 31, 2007 reflects a 3%
stock dividend distributed on April 12, 2007.
Note 3 - Results of operations for the period ended March 29, 2008 are not
necessarily indicative of results to be expected for the year to end
December 31, 2008 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 Company is subject to taxation in the U.S. and various state and
foreign jurisdictions. The Company remains subject to examination by
U.S. federal and state and foreign tax authorities for the years 2004
through 2006. With few exceptions, the Company is no longer subject
to examinations by tax authorities for year 2003 and prior.
Note 5 - New Accounting Pronouncements
In September 2006, the FASB issued statement No. 157, "Fair Value
Measurements" (SFAS 157). SFAS 157 defines fair value, establishes
a framework for measuring fair value in accordance with accounting
principles generally accepted in the United States, and expands
disclosures about fair value measurements. The Company has adopted
the provisions of SFAS 157 as of January 1, 2008, for financial
instruments measured at fair value on recurring and nonrecurring
basis. Although the adoption of SFAS 157 did not materially impact
its financial condition, results of operations, or cash flow, the
Company is now required to provide additional disclosures as part of
its financial statements.
-5-
SFAS 157 establishes a three-tier fair value hierarchy, which
prioritizes the inputs used in measuring fair value. These tiers
include: Level 1, defined as observable inputs such as quoted prices
in active markets; Level 2, defined as inputs other than quoted
prices in active markets that are either directly or indirectly
observable; and Level 3, defined as unobservable inputs in which
little or no market data exists, therefore requiring an entity to
develop its own assumptions.
As of March 29, 2008, the Company held certain financial assets that
are required to be measured at fair value on a recurring basis. These
included derivative hedging instruments related to the purchase of
certain raw materials, investments in trading securities and available
for sale securities, including auction rate securities (ARS), and
investments associated with a foreign benefit plan, which were deemed
immaterial for further discussion. The Company's available for sale
and trading securities principally consist of municipal bonds and
mutual funds that are publicly traded.
As of March 29, 2008, the Company's long-term investments include
$11,043 of Jefferson County Alabama Sewer Revenue Refunding Warrants
which is an ARS that is classified as an available for sale security.
Due to recent events in the credit markets, as well as events related
to Jefferson County and its bond insurance carrier, Financial Guaranty
Insurance Company (FGIC), the auction for this ARS failed during first
quarter 2008 and on April 30, 2008. As such, the Company estimated the
fair value of this ARS utilizing a valuation model with Level 3 inputs
as of March 29, 2008. This valuation model considered, among other
items, the credit risk of the collateral underlying the ARS, the
credit risk of the bond insurer, interest rates, and the amount and
timing of expected future cash flows including our expectation of the
next successful auction. The Company corroborated the fair value of
this ARS by comparing, where possible, to other ARS and municipal
securities with similar characteristics.
As of March 29, 2008, the Company has concluded that the market
decline in fair value of its Jefferson County ARS is temporary because
the Company continues to receive interest on its ARS on a timely
basis, there has been no default on this ARS, and this ARS is insured
by FGIC. The Company also has the intent and ability to hold this
ARS to maturity. Therefore, the Company has recorded an unrealized
loss of $2,507 (original cost and par value was $13,550) to accumulated
other comprehensive income during the period.
The Company has also classified this ARS as non-current and has
included it in long-term Investments on the unaudited Condensed
Consolidated Balance Sheet at March 29, 2008 because the Company
believes that the current condition of the auction rate securities
market, as well as the financial conditions of Jefferson County and
FGIC, may take more than twelve months to improve.
Any future fluctuation in fair value related to this ARS that the
Company deems to be temporary, including any recoveries of previous
write-downs, would be recorded to accumulated other comprehensive
income. If the Company determines that any future valuation
adjustment is other than temporary, it would record an impairment
charge to earnings as appropriate.
-5A-
The Company's assets measured at fair value on a recurring basis
subject to the disclosure requirements of SFAS 157 at March 29,
2008, were as follows:
Fair Value Measurements at Reporting
Date Using
Quoted
Prices in
Active
Markets Significant
for Other Significant
Identical Observable Unobservable
(in thousands) Assets Inputs Inputs
Description 3/29/2008 (Level 1) (Level 2) (Level 3)
Auction Rate Security (ARS) $ 11,043 $ - $ - $ 11,043
Available-for-sale Security 49,650 49,650 -
Excluding ARS
Commodity Derivatives 1,038 1,038 - -
Trading Securities 30,242 30,242 - -
Total assets measured at fair value $ 91,973 $ 31,280 49,650 $ 11,043
Available for sale securities which utilize Level 2 inputs consist
primarily of municipal bonds.
Based on market conditions, the Company changed its valuation
methodology for ARS to a discounted cash flow analysis during first
quarter 2008. Accordingly, these securities changed from Level 2 to
Level 3 within SFAS 157's hierarchy since the Company's initial
adoption of SFAS 157 at January 1, 2008.
The following table presents the Company's financial assets measured
at fair value on a recurring basis using significant unobservable
inputs (Level 3) as defined in SFAS 157 at March 29, 2008:
Fair Value Measurements Using Significant
Unobservable Inputs (Level 3)
Auction
Rate
Security
(in thousands)
Balance at 12/31/2007 $ -
Transfers to Level 3 27,250
Included in other comprehensive income (2,507)
Purchases and (sales) net (13,700)
Balance at 3/29/2008 $ 11,043
In February 2007, the FASB issued SFAS No. 159, "The Fair
Value Option for Financial Assets and Financial Liabilities-
including an amendment to FASB Statement No. 115" (SFAS No.
159), which permits entities to choose to measure many
financial instruments and certain other items at fair value.
SFAS No. 159 became effective beginning with our first
quarter of 2008. The Company has chosen not to adopt the
provisions of SFAS 159 for our existing financial instruments.
-5B-
In March 2008, the FASB issued SFAS No. 161, "Disclosures
about Derivative Instruments and Hedging Activities, an
amendment of FASB Statement No. 133" ("SFAS 161"), which
requires enhanced disclosures for derivative and hedging
activities. SFAS 161 will become effective beginning with our
first quarter of 2009. Early adoption is permitted. The Company
is currently evaluating the impact of this standard on our
Consolidated Financial Statements.
-5C-
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 PRODUCT SALES: Net change in
First Quarter, 2008
First Quarter vs.
2008 2007 First Quarter, 2007
$90,341 $92,914 (2.8%)
First quarter 2008 net product sales were $90,341 compared to $92,914 in first
quarter 2007, a decrease of $2,573 or 2.8%. The first quarter 2008 sales
decline principally reflects the overall recessionary economic conditions in
the United States, the Company's principal market.
First quarter 2008 net product sales were $90,341 compared to $115,010 in fourth
quarter 2007. Other than the factors affecting first quarter 2008 net product
sales discussed above, this decrease in net product sales is not considered
unusual, as the first quarter of the year is historically the Company's lowest
sales quarter.
PRODUCT COST OF GOODS SOLD:
First Quarter Percentage of Net Product Sales
2008 2007 1st Qtr. 2008 1st Qtr. 2007
$60,629 $59,736 67.1% 64.3%
Product cost of goods sold as a percentage of net product sales increased from
64.3% in first quarter 2007 to 67.1% in first quarter 2008. This unfavorable
increase in product cost of goods sold as a percentage of net product sales is
primarily the result of higher input costs. These higher input costs principally
relate to increases in costs for ingredients and packaging materials, products
manufactured in Canada (due to less favorable foreign exchange rates), higher
costs for labor and fringe benefits, and increases in plant manufacturing
overhead costs. In addition, lower sales volumes also adversely affected
certain plant manufacturing overhead costs as a percentage of net product sales.
As a result, product gross margin decreased from 35.7% in first quarter 2007 to
32.9% in first quarter 2008, a decline of 2.8% as a percentage of net product
sales.
SELLING, MARKETING AND ADMINISTRATIVE EXPENSES:
First Quarter Percentage of Net Product Sales
2008 2007 1st Qtr. 2008 1st Qtr. 2007
$20,050 $21,056 22.2 % 22.7%
Selling, marketing and administrative expenses decreased from $21,056 in first
quarter 2007 to $20,050 in first quarter 2008, a decrease of $1,006 or 4.8%.
This decrease primarily reflects the decline in operating expenses relating to
the decrease in net product sales, as well as a decline in deferred compensation
-6-
expense which is discussed below. As a percentage of net product sales, such
operating expenses decreased slightly from 22.7% in 2007 to 22.2% in 2008,
principally reflecting the aforementioned decrease in deferred compensation
expense. However, the Company was adversely affected by higher freight,
delivery and warehousing expenses, principally reflecting higher fuel costs,
during first quarter 2008 compared to the corresponding period in the prior
year.
First quarter earnings from operations were $10,472 and $13,159 in 2008 and
2007, respectively, a decrease of $2,687 or 20.4%. Results for first quarter
2008 were adversely affected by lower sales volumes and higher input costs as
discussed above. Although the Company took actions and implemented programs,
including sales price increases and cost reduction initiatives, in 2008 to
restore margins that declined as a result of higher input costs, the Company
was not able to fully recover ongoing input cost increases in first quarter
2008.
NET EARNINGS:
First Quarter Percentage of Net Product Sales
2008 2007 1st Qtr. 2008 1st Qtr. 2007
$6,453 $9,811 7.1% 10.6%
First quarter 2008 net earnings were $6,453 compared to first quarter 2007 net
earnings of $9,811. First quarter 2008 earnings per share were $0.12 compared
to $0.17 in first quarter 2007, a decrease of $0.05 per share or 29%.
Other income (loss), net was ($1,240) in first quarter 2008 compared to $1,474
in first quarter 2007, a net decrease of $2,714. Other income (loss), net in
2008 includes $1,970 of investment losses on trading securities relating to
deferred compensation plans; the aforementioned 2008 losses resulted in a
corresponding decrease in deferred compensation expense included in aggregate
cost of products sold and selling, marketing and administrative expenses for
first quarter 2008. However, other income (loss), net in 2007 includes $452 of
investment gains on trading securities relating to deferred compensation plans;
the aforementioned 2007 gains resulted in a corresponding increase in deferred
compensation expense included in aggregate cost of products sold and selling,
marketing and administrative expenses for first quarter 2007.
The consolidated effective income tax rate decreased from 33.0% in first quarter
2007 to 30.1% in first quarter 2008, a favorable decline of 2.9%. The afore-
mentioned decrease principally reflects a decrease in state income tax expense.
In addition to the factors discussed above, earnings per share benefited from
fewer shares outstanding as a result of the Company's share repurchases during
the trailing twelve months including first quarter 2008.
LIQUIDITY AND CAPITAL RESOURCES:
The Company's current ratio (current assets divided by current liabilities) was
2.8 to 1 as of the end of first quarter 2008 as compared to 3.8 to 1 as of the
end of first quarter 2007 and 3.4 to 1 as of the end of fourth quarter 2007.
Net working capital was $109,580 as of the end of first quarter 2008 as compared
to $149,742 and $141,754 as of the end of first quarter 2007 and fourth quarter
2007, respectively. The aforementioned net working capital amounts are
principally reflected in aggregate cash and cash equivalents and short-term
-6A-
investments which totaled $59,212 as of the end of first quarter 2008 compared
to $80,996 and $98,913, as of the end of first quarter 2007 and fourth quarter
2007, respectively. In addition, long term investments, principally debt
securities comprising municipal bonds, were $75,011 (including $11,043 of
Jefferson County auction rate securities discussed below under "New Accounting
Pronouncements") as of the end of first quarter 2008, as compared to $54,043 and
$65,993 as of the end of first quarter 2007 and fourth quarter 2007,
respectively. Aggregate cash and cash equivalents and short and long-term
investments were $134,223, $135,039, $164,306, respectively for first quarter
ended 2008 and 2007, and fourth quarter 2007, respectively. Except for the
Jefferson County auction rate securities referenced above, investments in
municipal bonds and other debt securities that matured during first quarters
2008 and 2007 were generally used to purchase the Company's common stock or were
replaced with debt securities of similar maturities.
Net cash provided by operating activities was $3,828 for first quarter 2008, as
compared to $14,117 for first quarter 2007. The aforementioned change in net
cash provided by operating activities principally reflects the $3,358 decline
in net earnings for the comparative periods, and the timing of payments and
cash flows relating to inventories, accounts payable and accrued liabilities,
and income taxes payable and deferred. Capital expenditures for first quarter
2008 and 2007 were $5,394 and $1,934, respectively. Capital expenditures for
the 2008 year are anticipated to be generally in line with historical annualized
spending, and are to be funded from the Company's cash flow from operations and
internal sources.
Cash dividends declared in first quarter 2008 and 2007 were $4,296 and $4,295,
respectively. However, dividends paid in cash were $4,339 and $8,596, in first
quarter 2008 and 2007, respectively. The difference between dividends declared
and dividends paid is due to the timing of the payment of the first quarter
dividend in 2007.
During first quarter 2008, the Company purchased and retired 839 of its shares
of common stock for $19,934. The Company had no repurchases and retirements of
its outstanding common stock during first quarter 2007.
NEW ACCOUNTING PRONOUNCEMENTS
In September 2006, the FASB issued statement No. 157, "Fair Value Measurements"
(SFAS 157). SFAS 157 defines fair value, establishes a framework for measuring
fair value in accordance with accounting principles generally accepted in the
United States, and expands disclosures about fair value measurements. The
Company has adopted the provisions of SFAS 157 as of January 1, 2008, for
financial instruments. Although the adoption of SFAS 157 did not materially
impact its financial condition, results of operations, or cash flow, the Company
is now required to provide additional disclosures as part of its financial
statements.
SFAS 157 establishes a three-tier fair value hierarchy, which prioritizes the
inputs used in measuring fair value. These tiers include: Level 1, defined as
observable inputs such as quoted prices in active markets; Level 2, defined as
inputs other than quoted prices in active markets that are either directly or
indirectly observable; and Level 3, defined as unobservable inputs in which
little or no market data exists, therefore requiring an entity to develop its
own assumptions.
-6B-
As of March 29, 2008, the Company held certain assets that are required to be
measured at fair value on a recurring basis. These included the Company's
derivative instruments related to certain commodities and raw materials which
are hedged by the Company, and investments in trading securities and available
for sale securities, including auction rate securities (ARS). The Company's
available for sale and trading securities investments principally consist of
municipal bonds and mutual funds that are publicly traded.
As of December 31, 2008, the Company held $27,250 of ARS, $13,700 of which were
successfully auctioned and sold during first quarter 2008. As of March 29, 2008,
the Company's long-term investment includes $11,043 of Jefferson County Alabama
Sewer Revenue Refunding Warrants which is an ARS that is classified as an
available for sale security. Due to recent events in the credit markets, as
well as events related to Jefferson County and its bond insurance carrier,
Financial Guaranty Insurance Company (FGIC), the auction for this ARS failed
during first quarter 2008 and on April 30, 2008. As such, the Company estimated
the fair value of this ARS utilizing a valuation model with Level 3 inputs as of
March 29, 2008. This valuation model considered, among other items, the credit
risk of the collateral underlying the ARS, the credit risk of the bond insurer,
interest rates, and the amount and timing of expected future cash flows
including our expectation of the next successful auction. The Company
corroborated the fair value of this ARS by comparing, where possible, to other
ARS and municipal securities with similar characteristics.
As of March 29, 2008, the Company has concluded that the market decline in fair
value of its Jefferson County ARS is temporary because the Company continues to
receive interest on its ARS on a timely basis, there has been no default on this
ARS, and this ARS is insured by FGIC. The Company also has the intent and
ability to hold this ARS to maturity. Therefore, the Company has recorded an
unrealized loss of $2,507 (original cost and par value was $13,550) to
accumulated other comprehensive income during the period.
The Company has also classified this ARS as non-current and has included it in
long-term Investments on the unaudited Condensed Consolidated Balance Sheet at
March 29, 2008 because the Company believes that the current condition of the
auction rate securities market, as well as the financial conditions of Jefferson
County and FGIC, may take more than twelve months to improve.
Any future fluctuation in fair value related to this ARS that the Company deems
to be temporary, including any recoveries of previous write-downs, would be
recorded to accumulated other comprehensive income. If the Company determines
that any future valuation adjustment is other than temporary, it would record
an impairment charge to earnings as appropriate.
INFORMATION REGARDING 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 can be identified by the use
of words such as "anticipated," "believe," "expect," "intend," "estimate,"
"project," and other words of similar meaning in connection with a discussion
of future operating or financial performance and are subject to certain factors,
risks, trends and uncertainties that could cause actual results and achievements
to differ materially from those expressed in the forward-looking statements.
Such factors, risks, trends and uncertainties, which in some instances are
beyond the Company's control, including without limitation, 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 ingredients and packaging
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materials; (iii) inherent risks in the marketplace, 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 operating results, and the effect of the Canadian dollar on
products manufactured in Canada and marketed and sold in the United States in
U.S. dollars; (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, and the capability to
pass along higher ingredient and other input costs through price increases,
relating to the Company's impairment testing and analysis of its goodwill and
trademarks; (ix) changes in the confectionery marketplace including actions
taken by major retailers and customers; (x) customer and consumer response to
marketing programs and price and product weight adjustments, and new products;
(xi) dependence on significant customers, including volume and timing or
purchases and availability of shelf space; (xii) increases in input costs,
including ingredients, packaging materials, energy and fuel costs related to
freight and delivery, that cannot be passed on to customers through increased
prices due to competitive reasons; (xiii) any significant labor stoppages,
strikes or production interruptions; (xiv) changes in governmental laws and
regulations including taxes and tariffs; (xv) changes in the auction rate
securities markets and issuing municipalities and their insurers. 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 Part 1,
Item 1A "Risk Factors" and elsewhere in the Company's Annual Report on Form
10-K and in other Company filings, including quarterly reports on Form 10-Q,
with the Securities and Exchange Commission.
The risk factors identified and referred to 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.
Readers are cautioned not to place undue reliance on such forward-looking
statements, which are made only as of the date of this report. The Company
undertakes no obligation to update such forward-looking statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK:
The Company is exposed to various market risks, including fluctuations in sugar,
corn syrup, edible oils, including soybean oil, cocoa, dextrose, milk and whey,
and gum-base ingredients and packaging and fuel costs. The Company is exposed
to exchange rate fluctuations in the Canadian dollar which is the currency used
for a portion of the raw material and packaging material costs and operating
expenses at its Canadian plants. The Company invests in securities with
maturities of up to three years, the majority of which are held to maturity,
which limits the Company's exposure to interest rate fluctuations. Except for
the Jefferson County auction rate security discussed above, 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, 2007.
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 March 29, 2008 and, based on their evaluation, the chief
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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 March 29, 2008
that has materially affected, or is reasonably likely to materially affect, the
Company's internal control over financial reporting.
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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_____
JAN 1 TO JAN 26 167,700 $ 25.17 NOT APPLICABLE NOT APPLICABLE
JAN 27 TO FEB 23 9,000 24.96 NOT APPLICABLE NOT APPLICABLE
FEB 24 TO MAR 29 662,200 23.34 NOT APPLICABLE NOT APPLICABLE
TOTAL 838,900 $ 23.72
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: May 08, 2008 BY:/S/MELVIN J. GORDON
Melvin J. Gordon
Chairman of the Board
Date: May 08, 2008 BY:/S/G. HOWARD EMBER, JR.
G. Howard Ember, Jr.
Vice President Finance
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Exhibit 31.1
CERTIFICATION
I, Melvin J. Gordon, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Tootsie Roll
Industries, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the state-
ments made, in light of the circumstances under which such statements were made,
not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial infor-
mation included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:
a) designed such disclosure controls and procedures, or caused such dis-
closure controls and procedures to be designed under our supervision, to ensure
that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;
b) designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
d) disclosed in this report any change in the registrant's internal control
over financial reporting that occurred during the registrant's most recent
fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control over
financial reporting.
Date: May 08, 2008
By: /S/MELVIN J. GORDON
Melvin J. Gordon
Chairman and Chief Executive Officer
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Exhibit 31.2
CERTIFICATION
I, G. Howard Ember, Jr. certify that:
1. I have reviewed this quarterly report on Form 10-Q of Tootsie Roll
Industries, Inc,;
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the state-
ments made, in light of the circumstances under which such statements were made,
not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial infor-
mation included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:
a) designed such disclosure controls and procedures, or caused such dis-
closure controls and procedures to be designed under our supervision, to ensure
that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;
b) designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
d) disclosed in this report any change in the registrant's internal control
over financial reporting that occurred during the registrant's most recent
fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control over
financial reporting.
Date: May 08, 2008
By: /S/G. HOWARD EMBER, JR.
G. Howard Ember, Jr.
Vice President/Finance and
Chief Financial Officer
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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 March 29, 2008 (the
Form 10-Q) fully complies with the requirements of section 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: May 08, 2008 /S/MELVIN J. GORDON
Melvin J. Gordon
Chairman and Chief
Executive Officer
Dated: May 08, 2008 /S/G. HOWARD EMBER, JR.
G. Howard Ember, Jr.
V.P./Finance and
Chief Financial Officer
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