-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QM+89Rovsqes+xo8wZJIBDYvED5CQ30uIFG03HSLF0AknGwaQ7HgZ4ZKa+fkL38n kKhfJGIEawgAz/bJmWICEQ== 0000912057-00-014470.txt : 20000411 0000912057-00-014470.hdr.sgml : 20000411 ACCESSION NUMBER: 0000912057-00-014470 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000329 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TOOTSIE ROLL INDUSTRIES INC CENTRAL INDEX KEY: 0000098677 STANDARD INDUSTRIAL CLASSIFICATION: SUGAR & CONFECTIONERY PRODUCTS [2060] IRS NUMBER: 221318955 STATE OF INCORPORATION: VA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-01361 FILM NUMBER: 583495 BUSINESS ADDRESS: STREET 1: 7401 S CICERO AVE CITY: CHICAGO STATE: IL ZIP: 60629 BUSINESS PHONE: 3128383400 FORMER COMPANY: FORMER CONFORMED NAME: SWEETS CO OF AMERICA INC DATE OF NAME CHANGE: 19660921 10-K405 1 10-K405 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999 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 OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NO.) INCORPORATION OR ORGANIZATION 7401 SOUTH CICERO AVENUE, CHICAGO, ILLINOIS 60629 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) REGISTRANT'S TELEPHONE NUMBER: (773) 838-3400 SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED ------------------- ----------------------- COMMON STOCK - PAR VALUE $.69-4/9 PER SHARE NEW YORK STOCK EXCHANGE SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: ----------------------------------------------------------- CLASS B COMMON STOCK - PAR VALUE $.69-4/9 PER SHARE Indicate by check mark 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. X ------- As of March 7, 2000, 32,440,569 shares of Common Stock, par value $.69-4/9 per share, were outstanding and the aggregate market value of the Common Stock (based upon the closing price of the stock on the New York Stock Exchange on such date) held by non-affiliates was approximately $532,831,511. As of March 7, 2000, 15,692,649 shares of Class B Common Stock, par value $.69-4/9 per share, were outstanding. Class B Common Stock is not traded on any exchange, is restricted as to transfer or other disposition, but is convertible into Common Stock on a share-for-share basis. Upon such conversion, the resulting shares of Common Stock are freely transferable and publicly traded. Assuming all 15,692,649 shares of outstanding Class B Common Stock were converted into Common Stock, the aggregate market value of Common Stock held by non-affiliates on March 7, 2000 (based upon the closing price of the stock on the New York Stock Exchange on such date) would have been approximately $574,992,334. Determination of stock ownership by non-affiliates was made solely for the purpose of this requirement, and the Registrant is not bound by these determinations for any other purpose. DOCUMENTS INCORPORATED BY REFERENCE 1. Portions of the Company's Annual Report to Shareholders for the year ended December 31, 1999 (the "1999 Report") are incorporated by reference in Parts I and II of this report. 2. Portions of the Company's Definitive Proxy Statement which will be distributed on or before April 29, 2000 in connection with the Company's 2000 Annual Meeting of Shareholders (the "2000 Proxy Statement") are incorporated by reference in Part III of this report. TABLE OF CONTENTS
ITEM 1. Business.................................................................................................1 ITEM 2. Properties...............................................................................................2 ITEM 3. Legal Proceedings........................................................................................3 ITEM 4. Submission of Matters to a Vote of Security Holders......................................................3 ITEM 5. Market for Registrant's Common Equity and Related Stockholder Matters....................................4 ITEM 6. Selected Financial Data..................................................................................4 ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations....................4 ITEM 8. Financial Statements and Supplementary Data..............................................................5 ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.....................5 ITEM 10. Directors and Executive Officers of the Registrant......................................................5 ITEM 11. Executive Compensation..................................................................................6 ITEM 12. Security Ownership of Certain Beneficial Owners and Management..........................................6 ITEM 13. Certain Relationships and Related Transactions..........................................................6 ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.........................................6
-i- PART I ITEM 1. BUSINESS. Tootsie Roll Industries, Inc. and its consolidated subsidiaries (the "Company") have been engaged in the manufacture and sale of candy for over 100 years. This is the only industry segment in which the Company operates and is its only line of business. The majority of the Company's products are sold under the registered trademarks TOOTSIE ROLL, TOOTSIE ROLL POPS, CHILD'S PLAY, CARAMEL APPLE POPS, CHARMS, BLOW-POP, BLUE RAZZ, ZIP-A-DEE-DOO-DA POPS, CELLA'S, MASON DOTS, MASON CROWS, JUNIOR MINT, CHARLESTON CHEW, SUGAR DADDY AND SUGAR BABIES. The Company acquired the last four of these trademarks in 1993 along with the manufacturing assets of the former Chocolate/Caramel Division of Warner Lambert Company. The Company's products are marketed in a variety of packages designed to be suitable for display and sale in different types of retail outlets. They are distributed through approximately 100 candy and grocery brokers and by the Company itself to approximately 15,000 customers throughout the United States. These customers include wholesale distributors of candy and groceries, supermarkets, variety stores, chain grocers, drug chains, discount chains, cooperative grocery associations, warehouse and membership club stores, vending machine operators, and fund-raising charitable organizations. The Company's principal markets are in the United States, Canada and Mexico. The Company's Mexican plant supplies a very small percentage of the products marketed in the United States and Canada. The Company has advertised nationally for many years. Although nearly all advertising media have been used at one time or another, at present most of the Company's advertising expenditures are for the airing of network and syndicated television and cable and spot television in major markets throughout the country. The domestic candy business is highly competitive. The Company competes primarily with other manufacturers of bar candy and candy of the type sold in variety, grocery and convenience stores. Although accurate statistics are not available, the Company believes it is among the ten largest domestic manufacturers in this field. In the markets in which the Company competes, the main forms of competition comprise brand recognition as well as a fair price for our products at various retail price points. The Company did not have a material backlog of firm orders at the end of the calendar years 1999 or 1998. Packaging materials and ingredients used by the Company are readily obtainable from a number of suppliers at competitive prices. Packaging material costs, including films, cartons, corrugated containers and waxed paper, were stable in 1999. The Company continues to seek competitive bids to leverage the high volume of annual purchases it makes of these items and to lower per unit costs. The Company has engaged in hedging transactions primarily in sugar and corn syrup and may do so in the future if and when advisable. From time to time the Company changes the size of certain of its products, which are usually sold at standard retail prices, to reflect significant changes in raw material costs. The Company does not hold any material patents, licenses, franchises or concessions. The Company's major trademarks are registered in the United States and in many other countries. Continued trademark protection is of material importance to the Company's business as a whole. The Company does not expend significant amounts of money on research or development activities. The Company's compliance with Federal, State and local regulations which have been enacted or adopted regulating the discharge of materials into the environment, or otherwise relating to the protection of the environment, has not had a material effect on the capital expenditures, earnings or competitive position of the Company nor does the Company anticipate any such material effects from presently enacted or adopted regulations. The Company employs approximately 1,750 persons. The Company has found that its sales normally maintain a consistent level throughout the year except for a substantial upsurge in the third quarter which reflects sales associated with Halloween. In anticipation of this high sales period, the Company generally begins its Halloween inventory build up in the second quarter of each year. The Company historically offers extended credit terms for sales made under Halloween sales programs. Each year, after Halloween receivables have been collected, the Company invests such funds in various temporary cash investments. Revenues from a major customer aggregated approximately 17.9%, 17.2% and 15.9% of total net sales during the years ended December 31, 1999, 1998 and 1997, respectively. For a summary of sales, net earnings and assets of the Company by geographic area and additional information regarding the foreign subsidiaries of the Company, see Note 11 of the Notes to Consolidated Financial Statements on Page 15 of the Company's Annual Report to Shareholders for the year ended December 31, 1999 (the "1999 Report") and on Page 4 of the 1999 Report under the section entitled "International." Note 11 and the aforesaid section are incorporated herein by reference. Portions of the 1999 Report are filed as an exhibit to this report. ITEM 2. PROPERTIES. The Company owns its principal plant and offices which are located in Chicago, Illinois in a building consisting of approximately 2,200,000 square feet. The Company utilizes approximately 1,800,000 square feet for offices, manufacturing and warehousing facilities and leases, or has available to lease to third parties, approximately 400,000 square feet. 2 In addition to owning the principal plant and warehousing facilities mentioned above, the Company leases manufacturing and warehousing facilities at a second location in Chicago which comprises 138,000 square feet. The lease is renewable by the Company every five years through June, 2011. The Company also periodically leases additional warehousing space at this second location as needed on a month to month basis. Cella's Confections, Inc., a subsidiary, owns a facility in New York, New York, containing approximately 60,000 square feet. This facility consists of manufacturing, warehousing and office space on three floors containing approximately 48,000 square feet with a below surface level of approximately 12,000 square feet. Charms L.P., a subsidiary, owns a facility in Covington, Tennessee, containing approximately 485,000 square feet of manufacturing, warehousing and office space. Cambridge Brands, Inc., a subsidiary, owns a facility in Cambridge, Massachusetts, containing approximately 142,000 square feet. The facility consists of manufacturing, warehousing and office space on five floors. The Company also owns a facility in Mexico City, Mexico, consisting of approximately 57,000 square feet plus a parking lot and yard area comprising approximately 25,000 square feet. The facility consists of manufacturing, warehousing and office space. The Company owns substantially all of the production machinery and equipment located in the plants in Chicago, New York, Covington (Tennessee), Cambridge (Massachusetts) and Mexico City. The Company considers that all of its facilities are well maintained, in good operating condition and adequately insured. ITEM 3. LEGAL PROCEEDINGS. There are no material pending legal proceedings known to the Company to which the Company or any of its subsidiaries is a party or of which any of their property is the subject. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. No matters were submitted to a vote of the Company's shareholders through the solicitation of proxies or otherwise during the fourth quarter of 1999. ADDITIONAL ITEM. EXECUTIVE OFFICERS OF THE REGISTRANT. See the information on Executive Officers set forth in the table in Part III, Item 10, Page 6 of this report, which is incorporated herein by reference. 3 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. The Company's Common Stock is traded on the New York Stock Exchange. The Company's Class B Common Stock is subject to restrictions on transferability and no market exists for such shares of Class B Common Stock. The Class B Common Stock is convertible at the option of the holder into shares of Common Stock on a share for share basis. As of March 7, 2000, there were approximately 5,800 holders of record of Common and Class B Common Stock. For information on the market price of, and dividends paid with respect to, the Company's Common Stock, see the section entitled "1999-1998 Quarterly Summary of Tootsie Roll Industries, Inc. Stock Prices and Dividends" which appears on Page 16 of the 1999 Report. This section is incorporated herein by reference and filed as an exhibit to this report. ITEM 6. SELECTED FINANCIAL DATA. See the section entitled "Five Year Summary of Earnings and Financial Highlights" which appears on Page 17 of the 1999 Report. This section is incorporated herein by reference and filed as an exhibit to this report. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. See the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" on Pages 5-7 of the 1999 Report. This section is incorporated herein by reference and filed as an exhibit to this report. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. The Company's products are manufactured from several key raw materials, including sugar, corn syrup, edible oils and cocoa, and finished products incorporate packaging materials such as waxed paper, printed films, cartons and corrugated boxes. Although these items are expected to remain in adequate supply, spot market prices can be influenced by external factors such as weather conditions and crop yields, as well as by factors such as industry capacity and the general balance of supply and demand. Where deemed advisable, the Company utilizes a variety of hedging strategies and fixed price contracts to mitigate its exposure to short-term price fluctuations. In the long term, the Company has latitude to adjust product weights or take other measures to compensate for fluctuations in raw material prices. At December 31, 1999, the Company had open contracts to purchase approximately twelve months of its expected sugar usage. The Company may also, when it deems advisable to do so, hedge certain foreign currency cash flows, particularly with respect to large equipment purchase commitments. Inasmuch as the Company has low levels of debt, and invests in securities with maturities of up to 4 three years, the majority of which are held to maturity, its exposure to interest rate fluctuations is not material. See Note 1 of the Notes of Consolidated Financial Statements on Page 12 of the 1999 Report, which is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The financial statements, together with the report thereon of PricewaterhouseCoopers LLP dated February 11, 2000, appearing on Pages 8-15 of the 1999 Report and the Quarterly Financial Data on Page 16 of the 1999 Report are incorporated by reference in this report. With the exception of the aforementioned information and the information incorporated in Items 1, 5, 6 and 7, the 1999 Report is not to be deemed filed as part of this report. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. See the information with respect to the Directors of the Company which is set forth in the section entitled "Election of Directors" of the Company's Definitive Proxy Statement to be used in connection with the Company's 2000 Annual Meeting of Shareholders (the "2000 Proxy Statement"). Except for the last paragraph of this section relating to the compensation of Directors, this section is incorporated herein by reference. See the information in the section entitled "Section 16(a) Beneficial Ownership Reporting Compliance" of the Company's 2000 Proxy Statement, which section is incorporated herein by reference. The 2000 Proxy Statement will be filed with the Securities and Exchange Commission on or before April 29, 2000. The following table sets forth the information with respect to the executive officers of the Company: NAME POSITION (1) AGE - ---- ------------ ----- Melvin J. Gordon* Chairman of the Board and Chief Executive Officer (2) 80 Ellen R. Gordon* President and Chief Operating Officer (2) 68 G. Howard Ember Jr. Vice President/Finance 47 John W. Newlin Jr. Vice President/Manufacturing 63 5 Thomas E. Corr Vice President/Marketing and Sales 51 James M. Hunt Vice President/Distribution 57 Barry P. Bowen Treasurer 44 *A member of the Board of Directors of the Company (1) Mr. and Mrs. Gordon and Messrs. Newlin, Corr, Ember and Bowen have served in the positions set forth in the table as their principal occupations for more than the past eight years. Mr. Hunt has served in his position for the past seven years and in the fifteen years prior to that, served the Company in the positions of Director of Distribution and Assistant Vice President of Distribution. Mr. and Mrs. Gordon have also served as President and Vice President, respectively of HDI Investment Corp., a family investment company. (2) Melvin J. Gordon and Ellen R. Gordon are husband and wife. ITEM 11. EXECUTIVE COMPENSATION. See the information set forth in the section entitled "Executive Compensation and Other Information" of the Company's 2000 Proxy Statement. Except for the "Report on Executive Compensation" and "Performance Graph," this section of the 2000 Proxy Statement is incorporated herein by reference. See the last paragraph of the section entitled "Election of Directors" of the 2000 Proxy Statement, which paragraph is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. For information with respect to the beneficial ownership of the Company's Common Stock and Class B Common Stock by the beneficial owners of more than 5% of said shares and by the management of the Company, see the sections entitled "Ownership of Common Stock and Class B Common Stock by Certain Beneficial Owners" and "Ownership of Common Stock and Class B Common Stock by Management" of the 2000 Proxy Statement. These sections of the 2000 Proxy Statement are incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. None. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K. (a) Financial Statements. 6 The following financial statements and schedules are filed as part of this report: (1) Financial Statements (filed herewith as part of Exhibit 13): Report of Independent Accountants Consolidated Statements of Earnings, Comprehensive Earnings and Retained Earnings for the three years ended December 31, 1999 Consolidated Statements of Cash Flows for the three years ended December 31, 1999 Consolidated Statements of Financial Position at December 31, 1999 and 1998 Notes to Consolidated Financial Statements (2) Financial Statement Schedule: Report on Independent Accountants on Financial Statement Schedule For the three years ended December 31, 1999 - Valuation and Qualifying Accounts All other schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto. (3) Exhibits required by Item 601 of Regulation S-K: See Index to Exhibits which appears following Financial Schedule II. No reports on Form 8-K were filed during the year ended December 31, 1999. 7 FORWARD-LOOKING INFORMATION From time to time, in the Company's statements and written reports, including this report, the Company discusses its expectations regarding future performance by making certain "forward-looking statements." These forward-looking statements are based on currently available competitive, financial and economic data and management's views and assumptions regarding future events. Such forward-looking statements are inherently uncertain, and actual results may differ materially from those expressed or implied herein. Consequently, the Company wishes to caution readers not to place undue reliance on any forward-looking statements. In connection with the "safe harbor provisions" of the Private Securities Litigation Reform Act of 1995, the Company notes the following factors which, among others, could cause future results to differ materially from the forward-looking statements, expectations and assumptions expressed or implied herein. Among the factors that could impact the Company's ability to achieve its stated goals are the following: (i) significant competitive activity, including advertising, promotional and price competition, and changes in consumer demand for the Company's products; (ii) fluctuations in the cost and availability of various raw materials; and (iii) inherent risks in the marketplace associated with new product introductions, including uncertainties about trade and consumer acceptance. 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. 8 SIGNATURES Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, Tootsie Roll Industries, Inc., has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. TOOTSIE ROLL INDUSTRIES, INC. By: MELVIN J. GORDON -------------------------------------- Melvin J. Gordon, Chairman of the Board of Directors and Chief Executive Officer Date: MARCH 23, 2000 ------------------------------------ Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. MELVIN J. GORDON Chairman of the Board - ---------------------- of Directors and Chief Melvin J. Gordon Executive Officer (principal executive officer) March 23, 2000 ELLEN R. GORDON Director, President - ---------------------- and Chief Operating Officer March 23, 2000 Ellen R. Gordon CHARLES W. SEIBERT Director March 23, 2000 - ---------------------- Charles W. Seibert LANA JANE LEWIS-BRENT Director March 23, 2000 - --------------------- Lana Jane Lewis-Brent G. HOWARD EMBER JR. Vice President, Finance - --------------------- (principal financial G. Howard Ember Jr. officer and principal accounting officer) March 23, 2000 9 REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE To the Board of Directors of Tootsie Roll Industries, Inc. Our audits of the consolidated financial statements referred to in our report dated February 11, 2000 appearing in the 1999 Annual Report to Shareholders of Tootsie Roll Industries, Inc. (which report and consolidated financial statements are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the financial statement schedule listed in Item 14(a)(2) of this Form 10-K. In our opinion, this financial statement schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. PricewaterhouseCoopers LLP Chicago, Illinois February 11, 2000 TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARY COMPANIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS DECEMBER 31, 1999, 1998 AND 1997
ADDITIONS BALANCE AT CHARGED TO BALANCE AT BEGINNING COSTS AND END OF DESCRIPTION OF YEAR EXPENSES DEDUCTIONS(1) YEAR - ----------- ---------- ---------- ------------- ------------ 1999: Reserve for bad debts $1,898,000 $ 275,289 $ 422,289 $1,751,000 Reserve for cash discounts 286,000 7,116,112 7,121,112 281,000 ---------- ---------- ------------- ------------ $2,184,000 $7,391,401 $7,543,401 $2,032,000 ---------- ---------- ------------- ------------ 1998: Reserve for bad debts $1,811,000 $ 275,920 $188,920 $1,898,000 Reserve for cash discounts 274,000 7,599,163 7,587,163 286,000 ---------- ---------- ------------- ------------ $ 2,085,000 $ 7,875,083 $ 7,776,083 $ 2,184,000 ---------- ---------- ------------- ------------ 1997: Reserve for bad debts $ 1,626,000 $ 338,982 $153,982 $1,811,000 Reserve for cash discounts 259,000 7,360,132 7,345,132 274,000 ---------- ---------- ------------- ------------ $1,885,000 $ 7,699,114 $ 7,499,114 $ 2,085,000 ---------- ---------- ------------- ------------
(1) Deductions against reserve for bad debts consist of accounts receivable written off net of recoveries and exchange rate movements. Deductions against reserve for cash discounts consist of allowances to customers. INDEX TO EXHIBITS 2.1 Asset Sale Agreement dated September 29, 1993 between Warner-Lambert Company and the Company, including a list of omitted exhibits and schedules. Incorporated by reference to Exhibit 2 to the Company's Report on Form 8-K dated October 15, 1993; Commission File No. 1-1361. The Company hereby agrees to provide the Commission, upon request, copies of any omitted exhibits or schedules required by Item 601(b)(2) of Regulation S-K. 3.1 Restated Articles of Incorporation. Incorporated by reference to Exhibit 3.1 of the Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1997; Commission File No. 1-1361. 3.2 Amendment to Restated Articles of Incorporation. 3.3 Amended and Restated By-Laws. Incorporated by reference to Exhibit 3.2 of the Company's Annual Report on Form 10-K for the year ended December 31, 1996; Commission File No. 1-1361. 3.4 Specimen Class B Common Stock Certificate. Incorporated by reference to Exhibit 1.1 of the Company's Registration Statement on Form 8-A dated February 29, 1988. 10.8.1* Excess Benefit Plan. Incorporated by reference to Exhibit 10.8.1 of the Company's Annual Report on Form 10-K for the year ended December 31, 1990; Commission File No. 1-1361. 10.8.2* Amended and Restated Career Achievement Plan of the Company. Incorporated by reference to Exhibit 10.8.2 of the Company's Annual Report on Form 10-K for the year ended December 31, 1998; Commission File No. 1-1361. 10.8.3* Amendment to the Amended and Restated Career Achievement Plan of the Company. 10.12* Restatement of Split Dollar Agreement (Special Trust) between the Company and the trustee of the Gordon Family 1993 Special Trust dated January 31, 1997. Incorporated by reference to Exhibit 10.12 of the Company's Annual Report on Form 10-K for the year ended December 31, 1996; Commission File No. 1-1361. 10.21* Executive Split Dollar Insurance and Collateral Assignment Agreement between the Company and G. Howard Ember Jr. dated July 30, 1994. Incorporated by reference to Exhibit 10.21 of the Company's Annual Report on Form 10-K for the year ended December 31, 1994; Commission File No. 1-1361. 10.22* Executive Split Dollar Insurance and Collateral Assignment Agreement between the Company and John W. Newlin dated July 30, 1994. Incorporated by reference to Exhibit 10.22 of the Company's Annual Report on Form 10-K for the year ended December 31, 1994; Commission File No. 1-1361. 10.23* Executive Split Dollar Insurance and Collateral Assignment Agreement between the Company and Thomas E. Corr dated July 30, 1994. Incorporated by reference to Exhibit 10.23 of the Company's Annual Report on Form 10-K for the year ended December 31, 1994; Commission File No. 1-1361. 10.24* Executive Split Dollar Insurance and Collateral Assignment Agreement between the Company and James Hunt dated July 30, 1994. Incorporated by reference to Exhibit 10.24 of the Company's Annual Report on Form 10-K for the year ended December 31, 1994; Commission File No. 1-1361. 10.25* Form of Change In Control Agreement dated August, 1997 between the Company and certain executive officers. Incorporated by reference to Exhibit 10.25 of the Company's Annual Report on Form 10-K for the year ended December 31, 1997; Commission File No. 1-1361. 10.26* Executive Split Dollar Insurance and Collateral Assignment Agreement between the Company and Barry Bowen dated April 1, 1997. Incorporated by reference to Exhibit 10.26 of the Company's Annual Report on Form 10-K for the year ended December 31, 1997; Commission File No. 1-1361. 10.27* Amendment to Split Dollar Agreement (Special Trust) dated April 2, 1998 between the Company and the trustee of the Gordon Family 1993 Special Trust, together with related Collateral Assignments. Incorporated by reference to Exhibit 10.27 of the Company's Annual Report on Form 10-K for the year ended December 31, 1998; Commission File No. 1-1361. 13 The following items incorporated by reference herein from the Company's 1999 Annual Report to Shareholders for the year ended December 31, 1999 (the "1999 Report"), are filed as Exhibits to this report: (i) Information under the section entitled "International" set forth on Page 4 of the 1999 Report; (ii) Information under the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" set forth on Pages 5-7 of the 1999 Report; (iii) Consolidated Statements of Earnings, Comprehensive Earnings and Retained Earnings for the three years ended December 31, 1999 set forth on Page 8 of the 1999 Report; (iv) Consolidated Statements of Financial Position at December 31, 1999 and 1998 set forth on Pages 9-10 of the 1999 Report; (v) Consolidated Statements of Cash Flow for the three years ended December 31, 1999 set forth on Page 11 of the 1999 Report; (vi) Notes to Consolidated Financial Statements set forth on Pages 12-15 of the 1999 Report; (vii) Report of Independent Accountants set forth on Page 15 of the 1999 Report; (viii) Quarterly Financial Data set forth on Page 16 of the 1999 Report; (ix) Information under the section entitled "1999-1998 Quarterly Summary of Tootsie Roll Industries, Inc. Stock Prices and Dividends" set forth on Page 16 of the 1999 Report; and (x) Information under the section entitled "Five Year Summary of Earnings and Financial Highlights" set forth on Page 17 of the 1999 Report. 21 List of Subsidiaries of the Company. 27 Financial Data Schedule. - -------------------------------------- *Executive compensation plan or arrangement. EX-3.2 2 EX-3.2 EXHIBIT 3.2 ARTICLES OF AMENDMENT OF THE ARTICLES OF INCORPORATION OF TOOTSIE ROLL INDUSTRIES, INC. MAY 3, 1999 1. The name of the corporation is Tootsie Roll Industries, Inc. 2. The text of the amendment, which replaces in its entirety Paragraph 1 of Article FOURTH of the articles of incorporation of this corporation, is as follows: 1. AUTHORIZED SHARES. The total number of shares of all classes of capital stock which the corporation shall have authority to issue is 160 million (160,000,000), consisting of 120 million (120,000,000) shares of Common Stock, par value 69-4/9 cents per share ("Common Stock"), and 40 million (40,000,000) shares of Class B Common Stock, par value 69-4/9 cents per share ("Class B Common Stock"). 3. The amendment to this articles of incorporation was adopted on May 3, 1999. 4. The amendment to the articles of incorporation was proposed by the board of directors and submitted to the shareholders in accordance with the Virginia Stock Corporation Act. The outstanding shares of Common Stock and of Class B Common Stock, each class being entitled to vote as a separate voting group, were entitled to vote on the amendment to the articles of incorporation. Each outstanding share of Common Stock was entitled to one vote. Each outstanding share of Class B Common Stock was entitled to ten votes. The results of the shareholder vote are summarized below:
NUMBER OF SHARES TOTAL OF UNDISPUTED OUTSTANDING AND VOTES CAST FOR THE CLASS OF STOCK ENTITLED TO VOTE AMENDMENT -------------- ---------------- ------------------- Common Stock 32,475,205 26,832,563 Class B Common Stock 15,386,015 148,189,540
The number of votes cast by each voting group in favor of the amendment of the articles of incorporation was sufficient for approval by that voting group. Tootsie Roll Industries, Inc. By: ELLEN R. GORDON --------------------------------- Ellen R. Gordon Its President 2 EX-10.8-3 3 EX-10.8-3 EXHIBIT 10.8.3 TOOTSIE ROLL INDUSTRIES, INC. RESOLUTIONS OF THE BOARD OF DIRECTORS FEBRUARY 21, 2000 =============================================================================== WHEREAS, Tootsie Roll Industries, Inc. ("Company") maintains the Tootsie Roll Industries, Inc. Career Achievement Plan ("Plan"); WHEREAS, pursuant to the provisions of Section 9(f) of the Plan, the Board of Directors of the Company has the authority to amend the Plan, subject to certain restrictions; and WHEREAS, amendment of the Plan is now considered desirable; NOW, THEREFORE, IT IS RESOLVED that the Plan be, and it hereby is, amended effective as of the date this Resolution is adopted, by substituting the following for Section 5(e) of the Plan: "5(e). FORFEITURE OF CAREER ACHIEVEMENT ACCOUNT. Notwithstanding any provision of this plan to the contrary, a participant will forfeit all rights to any amounts previously credited after January 2, 1999, if, after the termination of the participant's employment, the participant engages in any activities in violation of Section 7 hereof or fails to enter into the agreement described in Section 7 hereof as provided in such Section 7." EX-13 4 EXHIBIT 13 CORPORATE PROFILE Tootsie Roll Industries, Inc. has been engaged in the manufacture and sale of candy for 103 years. Our products are primarily sold under the familiar brand names, Tootsie Roll, Tootsie Roll Pops, Caramel Apple Pops, Child's Play, Charms, Blow Pop, Blue Razz, Cella's, Mason Dots, Mason Crows, Junior Mints, Charleston Chew, Sugar Daddy and Sugar Babies. CORPORATE PRINCIPLES We believe that the differences among companies are attributable to the caliber of their people, and therefore we strive to attract and retain superior people for each job. We believe that an open family atmosphere at work combined with professional management fosters cooperation and enables each individual to maximize his or her contribution to the company and realize the corresponding rewards. We do not jeopardize long-term growth for immediate, short-term results. We maintain a conservative financial posture in the deployment and management of our assets. We run a trim operation and continually strive to eliminate waste, minimize cost and implement performance improvements. We invest in the latest and most productive equipment to deliver the best quality product to our customers at the lowest cost. We seek to outsource functions where appropriate and to vertically integrate operations where it is financially advantageous to do so. We view our well known brands as prized assets to be aggressively advertised and promoted to each new generation of consumers. [PHOTO] MELVIN J. GORDON, CHAIRMAN AND CHIEF EXECUTIVE OFFICER AND ELLEN R. GORDON, PRESIDENT AND CHIEF OPERATING OFFICER. [TOOTSIE ROLL LOGO] 1 TO OUR SHAREHOLDERS - ------------------------------------------------------------------------ We are pleased to report that 1999 was another year of record performance for Tootsie Roll Industries. Sales for the year were $397 million, an increase of $8 million or 2% over the prior year. Net earnings were $71 million, an increase of $4 million or 6% over the prior year. Earnings per share were up by an even greater 7% due to the lower number of average shares outstanding this year than last year. This year represented the twenty-third consecutive year in which the company posted record sales and the eighteenth consecutive year in which record earnings were achieved. Milestones such as these reflect both the enduring strength of our many fine brands and the company's continuing commitment to bottom line performance. Other notable events during 1999 were: - The quarterly cash dividend rate increased by 23%. - 756,700 of the company's common shares were repurchased on the open market. - Capital expenditures were accelerated to support the - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS
December 31, 1999 1998 - ------------------------------------------------------------------------------------------------------- (in thousands except per share data) Net Sales. $396,750 $388,659 Net Earnings................................................ 71,310 67,526 Working Capital............................................. 168,423 175,155 Net Property, Plant and Equipment........................... 95,897 83,024 Shareholders' Equity........................................ 430,646 396,457 Average Shares Outstanding*................................. 48,974 49,482 Per Share Items* Net Earnings.............................................. $1.46 $1.36 Shareholders' Equity...................................... 8.88 8.05 Cash Dividends Paid....................................... .24 .19 - -------------------------------------------------------------------------------------------------------
*Based on average shares outstanding adjusted for stock dividends and 2-for-1 stock split. - -------------------------------------------------------------------------------- current and future needs of the company. Despite the considerable financial resources committed to these activities, the company's balance sheet strengthened further during 1999. We remain ready to respond quickly to future growth opportunities as they arise. Sales and Marketing Our strategy for sales growth is threefold: first, we look for ways to expand the sales of existing products; second, we try to introduce new products and product line extensions; and, third, we seek to acquire brands that will integrate well with our business. We reviewed several possible acquisitions during 1999, increased our distribution and added both new products and product line extensions to our well-known brands. Gains experienced in our core brands were the result of another strong Halloween sales period and continued implementation of targeted promotional programs such as shippers, combo packs and bonus packages throughout the year. One such promotion that was particularly successful in the Tootsie Roll line during 1999 was our "Family Learning Fun Pack" computer software offer. This on-pack, self-liquidating promotion featured a customized CD-ROM consisting of three of today's most highly rated educational software programs-a $60 retail value for $4.99. This promotion was carried on over 60 million specially marked packages of our most popular products and reinforced the attributes of "family fun at a good value" that these brands convey to consumers. The promotion also helped to increase the shelf turns that make our products perennial favorites in the retail trade. Another successful promotion was our "Y2K compliant" Tootsie Roll Milennium Bank, a whimsical twist on our popular line of fun banks. Filled with chewy Tootsie Roll Midgees, this special Y2K bank came in three assorted designs, each featuring upscale gold foil graphics along with a unique millennium message, and made a perfect gift to commemorate the new millennium. - ------------------------------------------------------------------------ - ------------------------------------------------------------------------ [PICTURE] - ------------------------------------------------------------------------------- 2 - ------------------------------------------------------------------------ As is customary for the company, the third quarter was our highest selling period in 1999 due to Halloween shipments. Our bagged goods, including variety packs containing popular assortments of the company's offerings, helped increase Halloween sales, particularly among the mass merchandise, drug and warehouse club classes of trade. Other seasonal sales gains came from our Valentine's Day, Easter and Christmas bagged goods. During 1999, we redesigned the packaging graphics throughout these lines to give them a fresh and appealing look on store shelves. Positive sales trends indicate that these changes were rewarded with increased popularity among consumers. The Charms line benefited from continued growth of the Super Blow Pop, a 1.35 ounce version of our popular gum-filled confection. The introduction of Way 2 Sour Blow Pops added to growth in the Charms division. This new pop delivers three intense taste sensations that appeal to today's kids: a super sour outer candy shell, followed by a sweet inner candy shell, and, finally, a super sour bubble gum center. Distinguished by high impact neon colored graphics and blended into an assortment of five popular flavors, this product is available as count goods, in bags and in both the regular and the "super" 1.35 ounce size, and has been an instant success. [PICTURE] Another new item in the Charms line that was introduced in 1999 is S'Moresels. Reminiscent of the popular treat long-enjoyed at campfires, S'Moresels combine a chewy marshmallow nougat center, crunchy bits of graham cracker and chocolatey goodness into a convenient and promising new confection. [PICTURE] During 1999, we also updated the Charms flat pop line by modifying the product mix to keep up with today's taste preferences and by rejuvenating the packaging graphics to incorporate more contemporary design elements. These marketing efforts are typical of our focus of maintaining the identity and vitality of our core brands while searching for evolutionary ways to update and extend these franchises to new items and new distribution opportunities. Advertising and Public Relations As we have done for many years, we again employed television as the chief medium to convey our advertising messages. Children and adults in selected spot and cable markets were targeted with the famous "How Many Licks?" and "That's a Blow Pop!" themes during the peak sales season. At other times during the year, adults watching talk, game and adventure shows were encouraged to enjoy our popular Caramel Apple Pops, or to satisfy their children's urges for a chocolatey candy treat with Tootsie Rolls and Tootsie Pops, two of our delicious, low fat confections. Our website, "tootsie.com," was enhanced by the addition of an interactive children's game. The site also serves as a vehicle from which Tootsie fans can obtain not only historical and product information, but also current information about our financial performance and other developments through the periodic posting of press releases. Junior Mints celebrated its 50(th) anniversary during 1999. Named after the popular 1949 Broadway production "Junior Miss," this unique mint with the creamy center has endured as one of America's favorite confections. This occasion was commemorated by another in our series of collectable tins, this one featuring a 50th anniversary banner in a festive Christmas motif, and by extensive press coverage and a series of radio interviews on top rated morning programs. [PICTURE] Manufacturing and Distribution Capital investments of $20 million were made during the year to increase productive capacity, - ------------------------------------------------------------------------ 3 - ------------------------------------------------------------------------improve product quality or reduce cost. For many years we have viewed such investments as being vital to maintaining our stature as one of the industry's most efficient competitors. We believe that the wisdom of this strategy is evident in the 18% after-tax profit margin the company delivered in 1999. In addition, our new distribution facility in Covington, Tennessee, was brought on line in time for our peak storage and shipping period. This facility features the leading edge inventory tracking and control technology that we have deployed throughout our operations. Purchasing Prices for certain of our major raw materials increased somewhat, while packaging and minor ingredient costs remained stable in 1999. Costs reflected generally moderate inflationary pressure domestically and reasonable worldwide demand. We continue to utilize hedging strategies, where we deem it appropriate to do so, as a means of insulating the company from unpredictable spot market fluctuations and to lock in prices for major commodities when they are at attractive levels. All purchases, such as corrugated and film, are competitively bid. This policy enables us to leverage the high volumes of those items that we buy annually and further control our costs. Information Technology During 1999, we continued to deploy leading edge data processing technology. Whether in transaction processing, production control or electronic communications, data management has been another long standing priority of the company. During 1999, we installed a current version of the enterprise resource planning (ERP) software we use, and completed our extensive preparations for the transition to the Year 2000. As a result of these initiatives, we can happily report that the company did not experience any business disruptions from Year 2000 issues. International 1999 was also a good year for the international dimension of the company. In Mexico, stabilizing local economic conditions and aggressive new marketing programs resulted in sales increases. The absence of currency devaluations experienced during 1998, along with the new production efficiences from the capital investments we have made in recent years, increased the profitability of this operation. In this regard, we completed another phase of the modernization program in our Mexican plant during 1999. Sales growth in Canada came from general distribution gains, further growth in the Charms line, including the introduction of Way 2 Sour Blow Pops, and another strong Halloween. Our distribution in the mass merchandise, drug and warehouse club trade classes continues to grow in this market. Positive sales trends developed in several other international markets where strong local distribution relationships have been formed. Dividends We distributed our thirty-fifth consecutive 3% stock dividend in April and increased the quarterly cash dividend rate by 23% in July. Also, 1999 was the fifty-seventh consecutive year in which the company has paid cash dividends. After considering the payment of dividends, the construction of a new distribution center and cash invested in other fixed asset additions, our balance sheet strengthened further during the year. With considerable financial reserves, we remain watchful for appropriate strategic acquisitions and other growth opportunities. In Conclusion.... Record results were achieved in 1999 in spite of several unprecedented events in the industry. Consolidation in the sales brokerage community and several significant business combinations in the retail industry required us to forge new relationships and to adapt our offerings to meet changing retail philosophies. Achieving records such as those Tootsie Roll established during 1999 required contributions from many constituencies. In this regard, we extend our sincere appreciation to our customers and consumers, along with our many loyal employees, suppliers, sales brokers and shareholders, for making 1999 another record year. [SIGNATURE] Melvin J Gordon Chairman of the Board and Chief Executive Officer [SIGNATURE] Ellen R. Gordon President and Chief Operating Officer - -------------------------------------------------------------------------------- 4 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (in thousands except per share, percentage and ratio figures) - -------------------------------------------------------------------------------- [GRAPH] [GRAPH] FINANCIAL REVIEW This financial review discusses the company's financial condition, results of operations, liquidity and capital resources. It should be read in conjunction with the Consolidated Financial Statements and related footnotes that follow this discussion. FINANCIAL CONDITION Our financial condition was further strengthened by the record operating results we achieved in 1999. Net earnings for the year increased 5.6% to $71,310 and shareholders' equity grew by 8.6% to $430,646. Cash and investments in marketable securities increased by $23,501 during the year. Cash generated from operating activities was used to fund share repurchases of $26,869, capital expenditures of $20,283 and cash dividends of $11,313. Adjusting for stock dividends, the quarterly cash dividend rate was increased by 22.6% in 1999, which marked the fifty-seventh consecutive year in which cash dividends have been paid. A 3% stock dividend was also distributed to shareholders during the year. This was the thirty-fifth consecutive year that a stock dividend has been distributed. Our financial position in 1999 compared to 1998, measured by commonly used financial ratios, is as follows: the current ratio fell from 4.3:1 to 4.0:1. This reflects an increase in the investments in marketable securities that are classified as non-current due to their maturity dates. For the same reason, working capital also declined by $6,732 to $168,423. Current liabilities to net worth remained comparable at 13.0% versus 13.5% in the prior year, as did debt to equity at 1.7% versus 1.9%. The company continues to finance its operations with funds generated from operations rather than with borrowed funds. Our history of successful operations, coupled with our conservative financial posture, has left us well positioned to respond quickly to future growth opportunities that may arise. In this regard, the company is aggressively seeking acquisitions to complement our existing operations. RESULTS OF OPERATIONS 1999 vs. 1998 1999 was our twenty-third consecutive year of record sales achievement. Sales of $396,750 were up 2.1% over 1998 sales of $388,659. The third quarter, driven by Halloween sales, continued to be our largest selling period and surpassed levels attained in previous years. Also in 1999, the timing of certain Halloween shipments had a favorable effect on the third quarter and a corresponding unfavorable impact on the fourth quarter as compared to the prior year. Throughout the year, sales were favorably impacted by successful promotional programs as we continued to broaden distribution in mass merchandisers and other select trade classes with our core product offerings. Line extensions, new products and seasonal packs all contributed to added sales. Sales growth occurred in our two most significant foreign operations as well. In Mexico, stabilizing local conditions and aggressive new marketing and promotional programs complemented the already strong business we have developed for the Christmas holiday season in that market. Sales growth in our Canadian operation is attributable to another strong Halloween season coupled with further distribution gains in the mass merchandiser and grocery trade classes. Also, the new Way 2 Sour Blow Pop was successfully introduced in this market. - ------------------------------------------------------------------------ 5 - ------------------------------------------------------------------------ [GRAPH] [GRAPH] Cost of goods sold, as a percentage of sales, remained steady at 48.5% versus 48.3%. This reflects generally stable cost levels for packaging and minor ingredients, although certain of our raw material costs did increase somewhat. These increases were largely offset by higher production efficiencies associated with increased volumes in relation to fixed costs. The company continues to focus on cost control throughout all levels of its operations. Gross margin dollars grew by 1.6% to $204,189, and remained steady as a percent of sales at 51.5% versus 51.7% in 1998, due to the factors cited above. Gross margins as a percent of sales in the third and fourth quarters continue to be somewhat lower due to the seasonal nature of our business and to the product mix sold in those quarters. Operating expenses, comprised of marketing, selling, advertising, physical distribution, general and administrative expenses and goodwill amortization, as a percentage of sales, declined slightly from 25.7% to 25.1%. This improvement is due to effective expense control programs aimed at holding down costs. Earnings from operations increased by 3.2% to $104,519, or 26.3% of sales, as a result of favorable gross margins and operating expenses. Other income increased by $2,130 to $6,928, primarily reflecting significantly lower foreign exchange losses in Mexico where local economic conditions have improved. Also, interest expense was lower and interest income was higher due to lower average borrowings and increased investments in marketable securities during 1999. Interest income was also higher in 1999 due to higher interest rates. As a majority of our interest income is not subject to federal income tax, the effective tax rate declined from 36.3% to 36.0%. Consolidated net earnings rose 5.6% to a new company record of $71,310. Earnings per share increased by 7.4% to $1.46 from the previous record of $1.36 reached in 1998. Earnings per share increased by a greater percent than net earnings due to lower average shares outstanding during 1999 as a result of share repurchases made during the year. Our net earnings as a percent of sales increased to 18.0% from 17.4%. 1999 was the eighteenth consecutive year of record earnings achievement for the company. "Comprehensive earnings" is a way to look at earnings whereby traditionally reported net earnings must be adjusted by items that are normally recorded directly to the equity accounts. By this measure, our earnings are $72,893 or 6.5% higher than in 1998. 1998 vs. 1997 1998 represented the twenty-second consecutive year of record sales. Sales reached $388,659, an increase of 3.5% over 1997 sales of $375,594. Increases were seen in each quarter, and the third quarter, which was driven by another successful Halloween season, continued to be our largest selling period. Sales throughout the year were favorably impacted by successful promotional programs. Increases were seen in all major trade classes and in all major domestic brands. Line extensions, new products and seasonal packs also contributed to sales gains. Domestic sales growth was partially offset by declines in the sales of our Mexican subsidiary due to currency devaluations and difficult local market conditions. Sales in our Canadian operation increased due to distribution gains, seasonal sales growth at Halloween and a new product introduction. These increases were also partially offset by adverse currency translation. Cost of goods sold, as a percentage of sales, decreased from 50.1% to 48.3%. This reflected favorable ingredient - -------------------------------------------------------------------------------- 6 - ------------------------------------------------------------------------ [GRAPH] [GRAPH] costs and increased operating efficiencies associated with higher production volumes coupled with stable packaging and labor costs. Consequently, gross margin, which was $201,042 or 7.3% higher than in 1997, improved as a percentage of sales from 49.9% to 51.7%. Gross margins as a percent of sales have historically been lower in the third and fourth quarters of the year due to the seasonal nature of our business and the product mix sold at that time of year. This occurred again in 1998. Operating expenses as a percent of sales were 25.7% in 1998, a decrease of .2% versus 1997. This improvement is due to effective expense control programs aimed at keeping costs in check. Earnings from operations were $101,265 or 26.1% of sales versus 24.0% in 1997, reflecting the combined effects of an increased gross margin percentage and lower operating costs as a percent of sales. Other income decreased to $4,798, due to exchange losses from Mexico, partially offset by higher investment income. Earnings per share rose 11.5% to a new company record of $1.36 or $67,526 from the previous record of $1.22 or $60,682 in 1997. This represents an improvement in earnings as a percent of sales to 17.4% and the seventeenth consecutive year of record earnings for the company. Comprehensive earnings were $68,472 or 13.7% higher than in 1997. LIQUIDITY AND CAPITAL RESOURCES Cash flows from operating activities were $72,935, $77,735 and $68,176 in 1999, 1998 and 1997, respectively. The decrease in 1999 was principally attributable to an increase in prepaid expenses and other assets, partially offset by higher net earnings and increases in income taxes payable and deferred. Also, depreciation expense was lower in 1999 because some equipment became fully depreciated during 1998, and due to foreign currency translation. The increase in 1998 was attributable to higher net earnings than in 1997, augmented by other receivables, inventory, deferred compensation and other liabilities and income taxes payable and deferred. This was partially offset by accounts receivable and accounts payable and accrued liabilities. Cash flows from investing activities reflect net increases in marketable securities of $6,710, $19,951 and $23,087 as well as capital expenditures of $20,283, $14,878 and $8,611 in 1999, 1998 and 1997, respectively. Cash flows from financing activities reflect share repurchases of $26,869, $13,445 and $14,401 in 1999, 1998 and 1997, respectively. In 1998 there was a short term borrowing which was subsequently repaid during that same year. Cash dividends of $11,313 were paid in 1999, the fifty-seventh consecutive year in which we have paid cash dividends. Year 2000 Conversion During 1998 and 1999 the company undertook an extensive program to ensure that its operations would not be adversely impacted by software failures arising from calculations using the year 2000 date. This program entailed a thorough evaluation of the risks and costs associated with this problem, a plan to remediate "Y2K" problems that were identified, and the development of contingency plans. Since the majority of systems used throughout the company were found to be year 2000 compliant, this program was precautionary in nature and did not have a material impact on the company or its operations, and the company did not experience any significant business disruptions on January 1, 2000. The results of our operations and our financial condition are expressed in the following financial statements. - ------------------------------------------------------------------------ 7 CONSOLIDATED STATEMENT OF EARNINGS, COMPREHENSIVE EARNINGS AND RETAINED EARNINGS TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES (in thousands except per share data) - -------------------------------------------------------------------------------- For the year ended December 31, 1999 1998 ---------------- ---------------- Net sales................................................... $396,750 $388,659 Cost of goods sold.......................................... 192,561 187,617 ---------------- ---------------- Gross margin................................................ 204,189 201,042 ---------------- ---------------- Selling, marketing and administrative expenses.............. 96,964 97,071 Amortization of intangible assets........................... 2,706 2,706 ---------------- ---------------- Earnings from operations.................................... 104,519 101,265 Other income, net........................................... 6,928 4,798 ---------------- ---------------- Earnings before income taxes................................ 111,447 106,063 Provision for income taxes.................................. 40,137 38,537 ---------------- ---------------- Net earnings................................................ $ 71,310 $ 67,526 ================ ================ Net earnings................................................ $ 71,310 $ 67,526 Other comprehensive earnings (loss), net of tax Unrealized gains (losses) on securities................. 930 976 Foreign currency translation adjustments................ 653 (30) ---------------- ---------------- Other comprehensive earnings (loss)..................... 1,583 946 ---------------- ---------------- Comprehensive earnings...................................... $ 72,893 $ 68,472 ================ ================ Retained earnings at beginning of year...................... $164,652 $159,124 Net earnings............................................ 71,310 67,526 Cash dividends ($.24, $.19 and $.15 per share).......... (11,654) (9,484) Stock dividends......................................... (65,689) (52,514) ---------------- ---------------- Retained earnings at end of year............................ $158,619 $164,652 ================ ================ Earnings per share.......................................... $ 1.46 $ 1.36 ================ ================ Average common and class B common shares outstanding........ 48,974 49,482 ================ ================ For the year ended December 31, 1997 ---------------- Net sales................................................... $375,594 Cost of goods sold.......................................... 188,313 ---------------- Gross margin................................................ 187,281 ---------------- Selling, marketing and administrative expenses.............. 94,488 Amortization of intangible assets........................... 2,706 ---------------- Earnings from operations.................................... 90,087 Other income, net........................................... 5,274 ---------------- Earnings before income taxes................................ 95,361 Provision for income taxes.................................. 34,679 ---------------- Net earnings................................................ $ 60,682 ================ Net earnings................................................ $ 60,682 Other comprehensive earnings (loss), net of tax Unrealized gains (losses) on securities................. (417) Foreign currency translation adjustments................ (17) ---------------- Other comprehensive earnings (loss)..................... (434) ---------------- Comprehensive earnings...................................... $ 60,248 ================ Retained earnings at beginning of year...................... $136,352 Net earnings............................................ 60,682 Cash dividends ($.24, $.19 and $.15 per share).......... (7,472) Stock dividends......................................... (30,438) ---------------- Retained earnings at end of year............................ $159,124 ================ Earnings per share.......................................... $ 1.22 ================ Average common and class B common shares outstanding........ 49,725 ================
(The accompanying notes are an integral part of these statements.) - -------------------------------------------------------------------------------- 8 CONSOLIDATED STATEMENT OF FINANCIAL POSITION TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES (in thousands) - -------------------------------------------------------------------------------- ASSETS December 31, 1999 1998 ---------------- ---------------- CURRENT ASSETS: Cash and cash equivalents............................... $ 88,504 $ 80,744 Investments............................................. 71,002 83,176 Accounts receivable trade, less allowances of $2,032 and $2,184................................................. 19,032 19,110 Other receivables....................................... 5,716 3,324 Inventories: Finished goods and work-in-process.................. 20,689 21,395 Raw materials and supplies.......................... 14,396 15,125 Prepaid expenses........................................ 3,124 3,081 Deferred income taxes................................... 2,069 2,584 ---------------- ---------------- Total current assets............................ 224,532 228,539 ---------------- ---------------- PROPERTY, PLANT AND EQUIPMENT, at cost: Land.................................................... 7,981 7,774 Buildings............................................... 30,330 22,226 Machinery and equipment................................. 145,789 133,601 ---------------- ---------------- 184,100 163,601 Less--Accumulated depreciation.......................... 88,203 80,577 ---------------- ---------------- 95,897 83,024 ---------------- ---------------- OTHER ASSETS: Intangible assets, net of accumulated amortization of $23,497 and $20,791.................................... 85,137 87,843 Investments............................................. 87,167 59,252 Cash surrender value of life insurance and other assets................................................. 36,683 28,765 ---------------- ---------------- 208,987 175,860 ---------------- ---------------- $529,416 $487,423 ================ ================
(The accompanying notes are an integral part of these statements.) - -------------------------------------------------------------------------------- 9 (in thousands except per share data) - -------------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY December 31, 1999 1998 ---------------- ---------------- CURRENT LIABILITIES: Accounts payable........................................ $ 12,845 $ 12,450 Dividends payable....................................... 3,035 2,514 Accrued liabilities..................................... 31,945 31,297 Income taxes payable.................................... 8,284 7,123 ---------------- ---------------- Total current liabilities....................... 56,109 53,384 ---------------- ---------------- NONCURRENT LIABILITIES: Deferred income taxes................................... 9,520 9,014 Postretirement health care and life insurance benefits............................................... 6,557 6,145 Industrial development bonds............................ 7,500 7,500 Deferred compensation and other liabilities............. 19,084 14,923 ---------------- ---------------- Total noncurrent liabilities.................... 42,661 37,582 ---------------- ---------------- SHAREHOLDERS' EQUITY: Common stock, $.69-4/9 par value-- 120,000 and 50,000 shares authorized-- 32,854 and 32,439, respectively, issued............... 22,815 22,527 Class B common stock, $.69-4/9 par value-- 40,000 and 20,000 shares authorized-- 15,707 and 15,422, respectively, issued............... 10,908 10,710 Capital in excess of par value.......................... 249,236 210,064 Retained earnings, per accompanying statement........... 158,619 164,652 Accumulated other comprehensive earnings................ (8,940) (10,523) Treasury stock (at cost)-- 50 shares and 25 shares, respectively................. (1,992) (973) ---------------- ---------------- 430,646 396,457 ---------------- ---------------- $529,416 $487,423 ================ ================
- ------------------------------------------------------------------------------- 10 CONSOLIDATED STATEMENT OF CASH FLOWS TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES (in thousands) - ------------------------------------------------------------------------------- For the year ended December 31, 1999 1998 ---------------- ---------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings............................................ $71,310 $67,526 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization....................... 9,979 12,807 (Gain) loss on retirement of fixed assets........... (43) 118 Changes in operating assets and liabilities: Accounts receivable............................. 400 (915) Other receivables............................... (2,392) 1,358 Inventories..................................... 1,592 (106) Prepaid expenses and other assets............... (15,672) (7,723) Accounts payable and accrued liabilities........ 968 (596) Income taxes payable and deferred............... 2,232 (625) Postretirement health care and life insurance benefits....................................... 412 241 Deferred compensation and other liabilities..... 4,162 5,004 Other........................................... (13) 646 ---------------- ---------------- Net cash provided by operating activities............... 72,935 77,735 ---------------- ---------------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures.................................... (20,283) (14,878) Purchase of held to maturity securities................. (238,949) (259,112) Maturity of held to maturity securities................. 235,973 240,195 Purchase of available for sale and trading securities... (117,694) (217,799) Sale and maturity of available for sale and trading securities............................................. 113,960 216,765 ---------------- ---------------- Net cash used in investing activities................... (26,993) (34,829) ---------------- ---------------- CASH FLOWS FROM FINANCING ACTIVITIES: Issuance of notes payable............................... -- 7,000 Repayments of notes payable............................. -- (7,000) Treasury stock purchases................................ (1,019) (973) Shares repurchased and retired.......................... (25,850) (12,472) Dividends paid in cash.................................. (11,313) (9,150) ---------------- ---------------- Net cash used in financing activities................... (38,182) (22,595) ---------------- ---------------- Increase in cash and cash equivalents....................... 7,760 20,311 Cash and cash equivalents at beginning of year.............. 80,744 60,433 ---------------- ---------------- Cash and cash equivalents at end of year.................... $88,504 $80,744 ================ ================ Supplemental cash flow information: Income taxes paid....................................... $38,827 $40,000 ================ ================ Interest paid........................................... $ 453 $ 803 ================ ================ For the year ended December 31, 1997 ---------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings............................................ $60,682 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization....................... 12,819 (Gain) loss on retirement of fixed assets........... 26 Changes in operating assets and liabilities: Accounts receivable............................. 199 Other receivables............................... (2,526) Inventories..................................... (6,463) Prepaid expenses and other assets............... (6,622) Accounts payable and accrued liabilities........ 9,624 Income taxes payable and deferred............... (2,049) Postretirement health care and life insurance benefits....................................... 269 Deferred compensation and other liabilities..... 1,932 Other........................................... 285 ---------------- Net cash provided by operating activities............... 68,176 ---------------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures.................................... (8,611) Purchase of held to maturity securities................. (68,982) Maturity of held to maturity securities................. 27,473 Purchase of available for sale and trading securities... (304,910) Sale and maturity of available for sale and trading securities............................................. 323,332 ---------------- Net cash used in investing activities................... (31,698) ---------------- CASH FLOWS FROM FINANCING ACTIVITIES: Issuance of notes payable............................... -- Repayments of notes payable............................. -- Treasury stock purchases................................ -- Shares repurchased and retired.......................... (14,401) Dividends paid in cash.................................. (7,303) ---------------- Net cash used in financing activities................... (21,704) ---------------- Increase in cash and cash equivalents....................... 14,774 Cash and cash equivalents at beginning of year.............. 45,659 ---------------- Cash and cash equivalents at end of year.................... $60,433 ================ Supplemental cash flow information: Income taxes paid....................................... $36,716 ================ Interest paid........................................... $ 389 ================
(The accompanying notes are an integral part of these statements.) - ------------------------------------------------------------------------------- 11 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ($ IN THOUSANDS EXCEPT PER SHARE DATA) TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES NOTE 1--SIGNIFICANT ACCOUNTING POLICIES: Basis of consolidation: The consolidated financial statements include the accounts of Tootsie Roll Industries, Inc. and its wholly-owned subsidiaries (the company), which are primarily engaged in the manufacture and sale of candy products. All significant intercompany transactions have been eliminated. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Revenue recognition: Revenues are recognized when products are shipped. Accounts receivable are unsecured. Cash and cash equivalents: The company considers temporary cash investments with an original maturity of three months or less to be cash equivalents. Investments: Investments consist of various marketable securities with maturities of generally less than one year. In accordance with Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting For Certain Investments in Debt and Equity Securities," the company's debt and equity securities are considered as either held to maturity, available for sale or trading. Held to maturity securities represent those securities that the company has both the positive intent and ability to hold to maturity and are carried at amortized cost. Available for sale securities represent those securities that do not meet the classification of held to maturity, are not actively traded and are carried at fair value. Unrealized gains and losses on these securities are excluded from earnings and are reported as a separate component of shareholders' equity, net of applicable taxes, until realized. Trading securities relate to deferred compensation arrangements and are carried at fair value. Inventories: Inventories are stated at cost, not in excess of market. The cost of domestic inventories ($29,111 and $31,307 at December 31, 1999 and 1998, respectively) has been determined by the last-in, first-out (LIFO) method. The excess of current cost over LIFO cost of inventories approximates $5,008 and $5,016 at December 31, 1999 and 1998, respectively. The cost of foreign inventories ($5,974 and $5,213 at December 31, 1999 and 1998, respectively) has been determined by the first-in, first-out (FIFO) method. From time to time, the company enters into commodity futures and option contracts in order to fix the future price of certain key ingredients which may be subject to price volatility (primarily sugar and corn syrup). Gains or losses, if any, resulting from these contracts are considered as a component of the cost of the ingredients being hedged. At December 31, 1999 the company had open contracts to purchase most of its expected 2000 sugar usage. Property, plant and equipment: Depreciation is computed for financial reporting purposes by use of both the straight-line and accelerated methods based on useful lives of 20 to 35 years for buildings and 12 to 20 years for machinery and equipment. For income tax purposes the company uses accelerated methods on all properties. Depreciation expense was $7,663, $10,101 and $9,947 in 1999, 1998 and 1997, respectively. Carrying value of long-lived assets: In the event that facts and circumstances indicate that the company's long-lived assets may be impaired, an evaluation of recoverability would be performed. Such an evaluation entails comparing the estimated future undiscounted cash flows associated with the asset to the asset's carrying amount to determine if a write down to market value or discounted cash flow value is required. The company considers that no circumstances exist that would require such an evaluation. Postretirement health care and life insurance benefits: The company provides certain postretirement health care and life insurance benefits. The cost of these postretirement benefits is accrued during employees' working careers. Income taxes: The company uses the liability method of computing deferred income taxes. Intangible assets: Intangible assets represent the excess of cost over the acquired net tangible assets of operating companies and is amortized on a straight-line basis over a 40 year period. The company assesses the recoverability of its intangible assets using undiscounted future cash flows. Foreign currency translation: During 1997, management determined that the Mexican economy was hyper-inflationary. Accordingly, the US dollar was used as the functional currency for the company's Mexican operations, and translation gains and losses were included in the determination of 1997 and 1998 earnings. Effective January 1, 1999, management determined that the Mexican economy was no longer hyper-inflationary and designated the local currency as the functional currency. Accordingly, the net effect of translating the Mexican operations' financial statements was reported in a separate component of shareholders' equity during 1999. Comprehensive earnings: Comprehensive earnings includes net earnings, foreign currency translation adjustments and unrealized gains/losses on marketable securities. Earnings per share: A dual presentation of basic and diluted earnings per share is not required due to the lack of potentially dilutive securities under the company's simple capital structure. Therefore, all earnings per share amounts represent basic earnings per share. NOTE 2--ACCRUED LIABILITIES: Accrued liabilities are comprised of the following:
December 31, ---------------------- 1999 1998 -------- ------- Compensation.......................................... $ 8,993 $ 8,433 Other employee benefits............................... 4,067 4,143 Taxes, other than income.............................. 2,248 2,460 Advertising and promotions............................ 8,508 8,451 Other................................................. 8,129 7,810 ------- ------- $31,945 $31,297 ======= =======
NOTE 3--INCOME TAXES: The domestic and foreign components of pretax income are as follows:
1999 1998 1997 --------- -------- ------- Domestic................................ $110,052 $106,667 $93,318 Foreign................................. 1,395 (604) 2,043 -------- -------- ------- $111,447 $106,063 $95,361 ======== ======== =======
12 The provision for income taxes is comprised of the following:
1999 1998 1997 -------- ------- ------- Current: Federal.................................. $34,290 $34,373 $29,764 Foreign.................................. 783 618 626 State.................................... 4,294 4,286 3,836 ------- ------- ------- 39,367 39,277 34,226 ------- ------- ------- Deferred: Federal.................................. 1,039 (250) 738 Foreign.................................. (388) (479) (368) State.................................... 119 (11) 83 ------- ------- ------- 770 (740) 453 ------- ------- ------- $40,137 $38,537 $34,679 ======= ======= =======
Deferred income taxes are comprised of the following:
December 31, ---------------------- 1999 1998 -------- ------- Workers' compensation................................... $ 396 $ 413 Reserve for uncollectible accounts...................... 467 547 Other accrued expenses.................................. 1,214 1,137 VEBA funding............................................ (347) (478) Other, net.............................................. 339 965 ------- ------- Net current deferred income tax asset................... $ 2,069 $ 2,584 ======= =======
December 31, --------------------- 1999 1998 -------- ------ Depreciation............................................. $10,563 $9,371 Postretirement benefits.................................. (2,220) (2,132) Deductible goodwill...................................... 5,647 5,176 Deferred compensation.................................... (4,947) (4,244) Accrued commissions...................................... 2,011 1,729 Foreign subsidiary tax loss carryforward................. (1,898) (1,428) Other, net............................................... 364 542 ------- ------ Net long-term deferred income tax liability.............. $ 9,520 $9,014 ======= ======
At December 31, 1999, gross deferred tax assets and gross deferred tax liabilities are $14,897 and $22,348, respectively. The effective income tax rate differs from the statutory rate as follows:
1999 1998 1997 -------- ----- ----- U.S. statutory rate............................ 35.0% 35.0% 35.0% State income taxes, net........................ 2.6 2.6 2.7 Amortization of intangible assets.............. 0.4 0.4 0.5 Other, net..................................... (2.0) (1.7) (1.8) ---- ---- ---- Effective income tax rate...................... 36.0% 36.3% 36.4% ==== ==== ====
The company has not provided for U.S. federal or foreign withholding taxes on $4,303 of foreign subsidiaries' undistributed earnings as of December 31, 1999 because such earnings are considered to be permanently reinvested. When excess cash has accumulated in the company's foreign subsidiaries and it is advantageous for tax or foreign exchange reasons, subsidiary earnings may be remitted, and income taxes will be provided on such amounts. It is not practicable to determine the amount of income taxes that would be payable upon remittance of the undistributed earnings. NOTE 4--SHARE CAPITAL AND CAPITAL IN EXCESS OF PAR VALUE:
Class B Capital in Common Stock Common Stock Treasury Stock excess ----------------- ----------------- ----------------- of par Shares Amount Shares Amount Shares Amount value ------- ------- ------- ------- ------- ------- ---------- (000's) (000's) (000's) Balance at January 1, 1997.............. 15,617 $10,845 7,387 $ 5,130 -- $ -- $171,589 Issuance of 3% stock dividend..................... 465 323 221 153 -- -- 29,868 Conversion of Class B common shares to common shares...... 61 42 (61) (42) -- -- -- Purchase and retirement of common shares................ (292) (202) -- -- -- -- (14,198) ------ ------- ------ ------- --- ------- -------- Balance at December 31, 1997............ 15,851 11,008 7,547 5,241 -- -- 187,259 Issuance of 3% stock dividend..................... 473 329 225 156 -- -- 51,780 Purchase of shares for the treasury..................... -- -- -- -- (20) (973) -- Issuance of 2-for-1 stock split........................ 16,305 11,323 7,748 5,381 (5) -- (16,704) Conversion of Class B common shares to common shares...... 98 68 (98) (68) -- -- -- Purchase and retirement of common shares................ (288) (201) -- -- -- -- (12,271) ------ ------- ------ ------- --- ------- -------- Balance at December 31, 1998............ 32,439 22,527 15,422 10,710 (25) (973) 210,064 Issuance of 3% stock dividend..................... 971 674 461 320 (1) -- 64,514 Purchase of shares for the treasury..................... -- -- -- -- (24) (1,019) -- Conversion of Class B common shares to common shares...... 176 122 (176) (122) -- -- -- Purchase and retirement of common shares................ (732) (508) -- -- -- -- (25,342) ------ ------- ------ ------- --- ------- -------- Balance at December 31, 1999.. 32,854 $22,815 15,707 $10,908 (50) $(1,992) $249,236 ====== ======= ====== ======= === ======= ========
The Class B Common Stock has essentially the same rights as Common Stock, except that each share of Class B Common Stock has ten votes per share (compared to one vote per share of Common Stock), is not traded on any exchange, is restricted as to transfer and is convertible on a share-for-share basis, at any time and at no cost to the holders, into shares of Common Stock which are traded on the New York Stock Exchange. Average shares outstanding and all per share amounts included in the financial statements and notes thereto have been adjusted retroactively to reflect annual three percent stock dividends and the two-for-one stock split distributed in 1998. NOTE 5--NOTES PAYABLE AND INDUSTRIAL DEVELOPMENT BONDS: During 1992, the company entered into an industrial development bond agreement with the City of Covington, Tennessee. The bond proceeds of $7.5 million were used to finance the expansion of the company's existing facilities. Interest is payable at various times during the year based upon the interest calculation option (fixed, variable or floating) selected by the company. As of December 31, 1999 and 1998, interest was calculated under the floating option (4.7% and 3.7%, respectively) which requires monthly payments of interest. Principal on the bonds is due in its entirety in the year 2027. In connection with the issuance of the bonds, the company entered into a letter of credit agreement with a bank for the amount of principal outstanding plus 48 days' accrued interest. The letter of credit, which expires in January 2001, carries an annual fee of 32 1/2 basis points on the outstanding principal amount of the bonds. 13 NOTE 6--EMPLOYEE BENEFIT PLANS: Pension plans: The company sponsors defined contribution pension plans covering certain nonunion employees with over one year of credited service. The company's policy is to fund pension costs accrued based on compensation levels. Total pension expense for 1999, 1998 and 1997 approximated $2,062, $1,951 and $2,153, respectively. The company also maintains certain profit sharing and savings-investment plans. Company contributions in 1999, 1998 and 1997 to these plans were $616, $582 and $540, respectively. The company also contributes to multi-employer defined benefit pension plans for its union employees. Such contributions aggregated $713, $680 and $609 in 1999, 1998 and 1997, respectively. The relative position of each employer associated with the multi-employer plans with respect to the actuarial present value of benefits and net plan assets is not determinable by the company. Postretirement health care and life insurance benefit plans: The company provides certain postretirement health care and life insurance benefits for corporate office and management employees. Employees become eligible for these benefits if they meet minimum age and service requirements and if they agree to contribute a portion of the cost. The company has the right to modify or terminate these benefits. The company does not fund postretirement health care and life insurance benefits in advance of payments for benefit claims. The changes in the accumulated postretirement benefit obligation at December 31, 1999 and 1998 consist of the following:
December 31, ----------------------- 1999 1998 -------- ------ Benefit obligation, beginning of year............... $6,163 $5,904 Net periodic postretirement benefit cost............ 531 438 Benefits paid....................................... (137) (197) ------ ------ Benefit obligation, end of year..................... $6,557 $6,145 ====== ======
Net periodic postretirement benefit cost included the following components:
1999 1998 1997 -------- ---- ---- Service cost--benefits attributed to service during the period............................. $306 $258 $251 Interest cost on the accumulated postretirement benefit obligation.................................... 302 279 285 Amortization of unrecognized net gain................... (77) (99) (101) ---- ---- ---- Net periodic postretirement benefit cost................ $531 $438 $435 ==== ==== ====
For measurement purposes, an 8.0% annual rate of increase in the per capita cost of covered health care benefits was assumed for 1999; the rate was assumed to decrease gradually to 5.5% for 2004 and remain at that level thereafter. The health care cost trend rate assumption has a significant effect on the amounts reported. The weighted-average discount rate used in determining the accumulated postretirement benefit obligation was 7.25% and 6.25% at December 31, 1999 and 1998, respectively. Increasing or decreasing the health care trend rates by one percentage point in each year would have the following effect:
1% Increase 1% Decrease ------------ ------------ Effect on postretirement benefit obligation....... $646 $(530) Effect on total of service and interest cost components...................................... $117 $ (92)
NOTE 7--OTHER INCOME, NET: Other income (expense) is comprised of the following:
1999 1998 1997 -------- ------ ------ Interest income................................ $7,449 $6,934 $5,764 Interest expense............................... (453) (756) (483) Dividend income................................ 611 822 999 Foreign exchange losses........................ (126) (2,140) (447) Royalty income................................. 263 155 312 Miscellaneous, net............................. (816) (217) (871) ------ ------ ------ $6,928 $4,798 $5,274 ====== ====== ======
NOTE 8--COMMITMENTS: Rental expense aggregated $457, $432 and $477 in 1999, 1998 and 1997, respectively. Future operating lease commitments are not significant. NOTE 9--COMPREHENSIVE INCOME: Components of accumulated other comprehensive earnings (loss) are shown as follows:
Accumulated Foreign Unrealized Other Currency Gains (Losses) Comprehensive Items on Securities Earnings/(Loss) --------- -------------- --------------- Balance at January 1, 1997............ $(11,035) $ -- $(11,035) Change during period.................. (17) (417) (434) -------- ------- -------- Balance at December 31, 1997.......... (11,052) (417) (11,469) Change during period.................. (30) 976 946 -------- ------- -------- Balance at December 31, 1998.......... (11,082) 559 (10,523) Change during period.................. 653 930 1,583 -------- ------- -------- Balance at December 31, 1999.......... $(10,429) $ 1,489 $ (8,940) ======== ======= ========
The individual tax effects of each component of other comprehensive earnings for the year ended December 31, 1999 are shown as follows:
Before Tax Tax Net-of-Tax Amount Expense Tax Amount -------- ------- ---------- Foreign currency translation adjustment......... $ 653 $ -- $ 653 Unrealized gains (losses) on securities: Unrealized holding gains (losses) arising during 1999.................................. 1,504 (556) 948 Less: reclassification adjustment for gains (losses) realized in earnings................ 28 (10) 18 ------ ----- ------ Net unrealized gains........................ 1,476 (546) 930 ------ ----- ------ Other comprehensive earnings.................... $2,129 $(546) $1,583 ====== ===== ======
NOTE 10--DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS: Carrying amount and fair value: The carrying amount approximates fair value of cash and cash equivalents because of the short maturity of those instruments. The fair values of investments are estimated based on quoted market prices. The fair value of the company's industrial development bonds approximates their carrying value because they have a floating interest rate. The carrying amount and estimated fair values of the company's financial instruments are as follows:
1999 1998 --------------------- ------------------- Carrying Fair Carrying Fair Amount Value Amount Value --------- --------- -------- -------- Cash and cash equivalents............ $ 88,504 $ 88,504 $80,744 $80,744 Investments held to maturity......... 110,245 111,151 106,415 109,182 Investments available for sale....... 37,390 37,390 28,214 28,214 Investments in trading securities.... 10,534 10,534 7,799 7,799 Industrial development bonds......... 7,500 7,500 7,500 7,500
14 A summary of the aggregate fair value, gross unrealized gains, gross unrealized losses and amortized cost basis of the company's investment portfolio by major security type is as follows:
December 31, 1999 December 31, 1998 ----------------------------------------------- ------------------------------------------------- Unrealized Unrealized Amortized Fair -------------------- Amortized -------------------- Held to Maturity: Cost Value Gains Losses Cost Fair Value Gains Losses - ----------------- ---------- -------- -------- -------- ---------- ---------- -------- -------- Unit investment trusts of preferred stocks.......... $ 2,592 $ 4,618 $ 2,026 $ -- $ 3,626 $ 5,978 $ 2,352 $ -- Tax-free commercial paper... -- -- -- -- 8,250 8,250 -- -- Municipal bonds............. 109,256 108,160 -- (1,096) 96,828 97,266 438 -- Unit investment trusts of municipal bonds........... 959 935 -- (24) 979 956 -- (23) Private export funding securities................ 4,933 4,933 -- -- 4,982 4,982 -- -- --------- -------- ------- ------- --------- --------- ------- ----- $ 117,740 $118,646 $ 2,026 $(1,120) $ 114,665 $ 117,432 $ 2,790 $ (23) ========= ======== ======= ======= ========= ========= ======= ===== Available for Sale: - ------------------- Municipal bonds............. $ 40,930 $ 40,603 $ -- $ (327) $ 39,397 $ 39,264 $ -- $(133) Mutual funds................ 3,007 5,698 2,691 -- 3,007 4,028 1,021 -- --------- -------- ------- ------- --------- --------- ------- ----- $ 43,937 $ 46,301 $ 2,691 $ (327) $ 42,404 $ 43,292 $ 1,021 $(133) ========= ======== ======= ======= ========= ========= ======= =====
Held to maturity securities of $7,495 and $8,250 and available for sale securities of $8,911 and $15,078 were included in cash and cash equivalents at December 31, 1999 and 1998, respectively. There were no securities with maturities greater than three years and gross realized gains and losses on the sale of available for sale securities in 1999 and 1998 were not significant. NOTE 11--GEOGRAPHIC AREA AND SALES INFORMATION: Summary of sales, net earnings and assets by geographic area
1999 1998 -------------------------------------- ----------------------------------- Mexico Mexico United and Consoli- United and Consoli- States Canada dated States Canada dated --------- -------- --------- -------- ------- -------- Sales to unaffiliated customers.... $365,975 $30,775 $396,750 $363,569 $25,090 $388,659 ======== ======== Sales between geographic areas..... 3,787 1,794 2,805 4,374 -------- ------- -------- ------- $369,762 $32,569 $366,374 $29,464 ======== ======= ======== ======= Net earnings....................... $ 69,917 $ 1,393 $ 71,310 $ 68,521 $ (995) $ 67,526 Total assets....................... $505,152 $24,264 $529,416 $467,265 $20,158 $487,423 Net assets......................... $409,160 $21,486 $430,646 $378,892 $17,565 $396,457 1997 ----------------------------------- Mexico United and Consoli- States Canada dated -------- ------- -------- Sales to unaffiliated customers.... $346,487 $29,107 $375,594 ======== Sales between geographic areas..... 1,694 3,314 -------- ------- $348,181 $32,421 ======== ======= Net earnings....................... $ 58,898 $ 1,784 $ 60,682 Total assets....................... $414,629 $22,113 $436,742 Net assets......................... $332,410 $18,753 $351,163
Total assets are those assets associated with or used directly in the respective geographic area, excluding intercompany advances and investments. Major customer Revenues from a major customer aggregated approximately 17.9%, 17.2% and 15.9% of total net sales during the years ended December 31, 1999, 1998 and 1997, respectively. - -------------------------------------------------------------------------------- REPORT OF INDEPENDENT ACCOUNTANTS [LOGO] To the Board of Directors and Shareholders of Tootsie Roll Industries, Inc. In our opinion, the accompanying consolidated statement of financial position and the related consolidated statements of earnings, comprehensive earnings and retained earnings and of cash flows present fairly, in all material respects, the financial position of Tootsie Roll Industries, Inc. and its subsidiaries at December 31, 1999 and 1998, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. [SIGNATURE] Chicago, Illinois February 11, 2000 15 QUARTERLY FINANCIAL DATA TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES
(Thousands of dollars except per share data) 1999 First Second Third Fourth Total ------------------------------------------------------------------------------------------------------------------------ Net sales................................ $74,200 $88,265 $152,667 $81,618 $396,750 Gross margin............................. 38,815 45,902 77,651 41,821 204,189 Net earnings............................. 12,325 14,751 29,283 14,951 71,310 Net earnings per share................... .25 .30 .60 .31 1.46 1998 ------------------------------------------------------------------------------------------------------------------------ Net sales................................ $69,701 $85,931 $144,230 $88,797 $388,659 Gross margin............................. 36,966 45,133 73,251 45,692 201,042 Net earnings............................. 11,217 13,910 27,216 15,183 67,526 Net earnings per share................... .22 .28 .55 .31 1.36 1997 ------------------------------------------------------------------------------------------------------------------------ Net sales................................ $66,258 $82,287 $140,645 $86,404 $375,594 Gross margin............................. 33,323 41,382 69,746 42,830 187,281 Net earnings............................. 9,751 12,507 24,695 13,729 60,682 Net earnings per share................... .20 .25 .50 .27 1.22 Net earnings per share is based upon average outstanding shares as adjusted for 3% stock dividends issued during the second quarter of each year and the 2-for-1 stock split effective July 13, 1998. ------------------------------------------------------------------------------------------------------------------------
1999-1998 QUARTERLY SUMMARY OF TOOTSIE ROLL INDUSTRIES, INC. STOCK PRICE AND DIVIDENDS PER SHARE STOCK PRICES* DIVIDENDS** 1999 1998 ------------------------------------------------------------- High Low High Low 1999 ------------------------------------------------------------- ---------------------------- 1st Qtr..... 46-15/16 39-3/4 38-13/32 29-27/32 1st Qtr............ $.0510 2nd Qtr..... 46-3/4 38-1/8 40-3/4 34-31/32 2nd Qtr............ $.0625 3rd Qtr..... 39-7/16 30 47-1/4 33-3/4 3rd Qtr............ $.0625 4th Qtr..... 33-7/16 29-13/16 42-7/8 34-1/8 4th Qtr............ $.0625 NOTE: In addition to the above cash dividends, a 3% stock dividend was issued on 4/21/99 and 4/22/98. **Cash dividends are restated to reflect 3% stock dividends and the 2-for-1 stock split. *NYSE -- Composite Quotations adjusted for the 2-for-1 stock split effective July 13, 1998 Estimated Number of shareholders at 12/31/99 ........................ 9,500 ----- 1998 --------------------- ------------------------------------------ 1st Qtr..... $.0389 2nd Qtr..... $.0510 3rd Qtr..... $.0510 4th Qtr..... $.0510 dividends and the 2-for-1 stock split.
16 FIVE YEAR SUMMARY OF EARNINGS AND FINANCIAL HIGHLIGHTS TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES (Thousands of dollars except per share, percentage and ratio figures) - -------------------------------------------------------------------------------- (See Management's Comments starting on page 5) 1999 1998 1997 ----------- ----------- ----------- Sales and Earnings Data Net sales........................................ $ 396,750 $ 388,659 $ 375,594 Gross margin..................................... 204,189 201,042 187,281 Interest expense................................. 453 756 483 Provision for income taxes....................... 40,137 38,537 34,679 Net earnings..................................... 71,310 67,526 60,682 % of sales................................... 18.0% 17.4% 16.2% % of shareholders' equity.................... 16.6% 17.0% 17.3% Per Common Share Data (1) Net sales........................................ $ 8.10 $ 7.85 $ 7.55 Net earnings..................................... 1.46 1.36 1.22 Shareholders' equity............................. 8.88 8.05 7.08 Cash dividends declared.......................... .24 .19 .15 Stock dividends.................................. 3% 3% 3% Additional Financial Data Working capital.................................. $ 168,423 $ 175,155 $ 153,355 Net cash provided by operating activities........ 72,935 77,735 68,176 Net cash used in (provided by) investing activities...................................... 26,993 34,829 31,698 Net cash used in financing activities............ 38,182 22,595 21,704 Property, plant & equipment additions............ 20,283 14,878 8,611 Net property, plant & equipment.................. 95,897 83,024 78,364 Total assets..................................... 529,416 487,423 436,742 Long term debt................................... 7,500 7,500 7,500 Shareholders' equity............................. 430,646 396,457 351,163 Average shares outstanding (1)................... 48,974 49,482 49,725 (See Management's Comments starting on page 5) 1996 1995 ----------- ----------- Sales and Earnings Data Net sales........................................ $ 340,909 $ 312,660 Gross margin..................................... 162,420 145,922 Interest expense................................. 1,498 1,515 Provision for income taxes....................... 27,891 23,670 Net earnings..................................... 47,207 40,368 % of sales................................... 13.8% 12.9% % of shareholders' equity.................... 15.1% 14.8% Per Common Share Data (1) Net sales........................................ $ 6.84 $ 6.27 Net earnings..................................... .95 .81 Shareholders' equity............................. 6.27 5.46 Cash dividends declared.......................... .13 .11 Stock dividends.................................. 3% 3% Additional Financial Data Working capital.................................. $ 153,329 $ 109,643 Net cash provided by operating activities........ 76,710 50,851 Net cash used in (provided by) investing activities...................................... 52,364 14,544 Net cash used in financing activities............ 26,211 5,292 Property, plant & equipment additions............ 9,791 4,640 Net property, plant & equipment.................. 81,687 81,999 Total assets..................................... 391,456 353,816 Long term debt................................... 7,500 7,500 Shareholders' equity............................. 312,881 272,186 Average shares outstanding (1)................... 49,873 49,873
(1) Adjusted for annual 3% stock dividends and the 2-for-1 stock splits effective July 13, 1998 and July 11, 1995. 17 BOARD OF DIRECTORS Melvin J. Gordon(1) Chairman of the Board and Chief Executive Officer Ellen R. Gordon(1) President and Chief Operating Officer Charles W. Seibert(2)(3) Retired Banker Lana Jane President, Paul Brent Designer, Inc. Lewis-Brent(2)(3) (1)Member of the Executive Committee (2)Member of the Audit Committee (3)Member of the Compensation Committee OFFICERS Melvin J. Gordon Chairman of the Board and Chief Executive Officer Ellen R. Gordon President and Chief Operating Officer G. Howard Ember, Jr. Vice President, Finance & Asst. Secy. John W. Newlin, Jr. Vice President, Manufacturing Thomas E. Corr Vice President, Marketing & Sales James M. Hunt Vice President, Physical Distribution Barry P. Bowen Treasurer & Asst. Secy. Daniel P. Drechney Controller OFFICES, PLANTS Executive Offices 7401 S. Cicero Ave. Chicago, Illinois 60629 www.tootsie.com Plants Chicago, Illinois Covington, Tennessee Cambridge, Massachusetts New York, New York Mexico City, Mexico Foreign Sales Offices Mexico City, Mexico Mississauga, Ontario
SUBSIDIARIES C.C. L.P., Inc. The Tootsie Roll Company, Inc. C.G.C. Corporation Tootsie Roll Management, Inc. C.G.P., Inc. Tootsie Roll Mfg., Inc. Cambridge Brands, Inc. Tootsie Rolls--Latin America, Cambridge Brands Mfg., Inc. Inc. Cambridge Brands Services, Inc. Tootsie Roll Worldwide Ltd. Cella's Confections, Inc. The Sweets Mix Company, Inc. Charms Company TRI de Latino America S.A. de Charms L.P. C.V. Charms Marketing Company TRI Finance, Inc. Henry Eisen Advertising Agency, Inc. TRI International Co. J.T. Company, Inc. TRI-Mass., Inc. Tootsie Roll of Canada Ltd. TRI Sales Co. Tootsie Roll Central Europe Ltd. Tutsi S.A. de C.V. World Trade & Marketing Ltd.
OTHER INFORMATION Stock Exchange New York Stock Exchange, Inc. (Since 1922) Stock Identification Ticker Symbol: TR CUSIP No. 890516 10-7 Stock Transfer Agent ChaseMellon Shareholder Services, L.L.C. and Stock Registrar Overpeck Centre 85 Challenger Road Ridgefield Park, NJ 07660 1-800-851-9677 www.chasemellon.com Independent PricewaterhouseCoopers LLP Accountants 200 East Randolph Drive Chicago, IL 60601 General Counsel Becker Ross Stone DeStefano & Klein 317 Madison Avenue New York, NY 10017 Annual Meeting May 1, 2000 Mutual Building, Room 1200 909 East Main Street [LOGO] Richmond, VA 23219
[RECYCLED LOGO] Printed on recycled paper. 18 EX-21 5 EX-21 EXHIBIT 21 LIST OF SUBSIDIARIES OF THE COMPANY
NAME JURISDICTION OF INCORPORATION - ---- ----------------------------- C.G. L.P., Inc. Delaware C.G.C. Corporation Delaware C.G.P., Inc. Delaware Cambridge Brands, Inc. Delaware Cambridge Brands Mfg., Inc. Delaware Cambridge Brands Services, Inc. Delaware Cella's Confections, Inc. Virginia Charms Company Delaware Charms L.P. Delaware Charms Marketing Company Illinois Henry Elsen Advertising Agency, Inc. New Jersey J.T. Company, Inc. Delaware O'Tec Industries, Inc. Delaware Tootsie Roll of Canada Ltd. Canada Tootsie Roll Central Europe Ltd. Delaware The Tootsie Roll Company, Inc. Illinois Tootsie Roll Management, Inc. Illinois Tootsie Roll Mfg., Inc. Illinois Tootsie Rolls - Latin America, Inc. Delaware Tootsie Roll Worldwide Ltd. Illinois The Sweets Mix Company, Inc. Illinois TRI de Latino America S.A. de C.V. Mexico TRI Finance, Inc. Delaware TRI International Co. Illinois TRI-Mass., Inc. Massachusetts TRI Sales Co. Delaware Tutsi S.A. de C.V. Mexico World Trade & Marketing Ltd. British West Indies
EX-27 6 EX-27
5 This schedule contains summary financial information extracted from consolidated statements of financial position and consolidated statement of earnings and is qualified in its entirety by reference to such financial statements. 1,000 YEAR DEC-31-1999 JAN-01-1999 DEC-31-1999 88,504 71,002 21,064 2,032 35,085 224,532 184,100 88,203 529,416 56,109 7,500 0 0 33,723 396,923 529,416 396,750 396,750 192,561 99,670 (7,381) 275 453 111,447 40,137 71,310 0 0 0 71,310 1.46 1.46
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