<PAGE>
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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, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
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COMMISSION FILE NUMBER 1-1361
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TOOTSIE ROLL INDUSTRIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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VIRGINIA 22-1318955
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(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: (312) 838-3400
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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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
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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.
----
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<PAGE>
As of March 11, 1997, 15,553,147 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 $412,520,846.
As of March 11, 1997, 7,375,906 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 7,375,906 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 11, 1997 (based upon the closing price
of the stock on the New York Stock Exchange on such date) would have been
approximately $452,288,852. 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, 1996 (the "1996 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 30, 1997 in connection with the Company's 1997
Annual Meeting of Shareholders (the "1997 Proxy Statement") is incorporated by
reference in Part III of this report.
<PAGE>
PART I
ITEM 1. BUSINESS.
Tootsie Roll Industries, Inc. and its consolidated subsidiaries (the
"Company") are engaged in the manufacture and sale of candy. This is the
only industry segment in which the Company operates and is its only line of
business. A majority of the Company's products are sold under the registered
trademarks "Tootsie," "Tootsie Roll," or "Tootsie Pop." The principal
product of the Company is the familiar "Tootsie Roll," a chocolate-flavored
candy of a chewy consistency, which is sold in several sizes and which is
also used as a center for "Tootsie Pops," a spherical fruit or
chocolate-flavored shell of hard candy with a center of "Tootsie Roll" candy
on a paper safety stick. The Company and its predecessors have manufactured
the "Tootsie Roll" product to substantially the same formula and sold it
under the same name for 100 years. The Company's products also include
"Tootsie Roll Flavor Rolls" and "Tootsie Frooties," multiflavored candies of
chewy consistency.
The Company also manufactures and sells molded candy drop products
under the registered trademark "Mason" and "Tootsie," including "Mason Dots"
and "Mason Crows."
The Company's wholly owned subsidiary, Cella's Confections Inc.,
produces a chocolate covered cherry under the registered trademark "Cella's."
In 1988, the Company acquired the Charms Company. This candy
manufacturer produces lollipops, including bubble gum-filled lollipops, and
hard candy. The majority of the Company's products are sold under the
registered trademarks "Charms," "Blow-Pop," "Blue Razz," and
"Zip-A-Dee-Doo-Da-Pops."
In 1993, the Company acquired Cambridge Brands, Inc. which was the
former Chocolate/Caramel Division of Warner Lambert. Cambridge Brands, Inc.
manufactures various confectionery products under the registered trademarks
"Junior Mint," "Charleston Chew," "Sugar Babies," and "Sugar Daddy."
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 TV 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.
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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.
Sale of candy products may be influenced to some extent by
discussions of and effect on dental health and weight.
The Company did not have a material backlog of firm orders at the
end of the calendar years 1995 or 1996.
Packaging materials and ingredients used by the Company are readily
obtainable from a number of suppliers at competitive prices. Packaging
costs, which peaked in 1995, fell slightly in 1996 as continued strength in
the domestic economy was partially offset by some weakness in foreign demand.
The average cost of certain key ingredients increased in 1996 compared to
1995. Adverse spring weather in the Midwest in 1996 was disruptive to the
grains and oilseed crops and, coupled with strong export demand earlier in
the year, produced record high corn prices in the United States during the
summer. The Company also saw increased prices in dairy products in 1996 due
to higher feed grain prices, and in sugar due to a poor sugar beet crop and
strong domestic demand. The Company has engaged in hedging transactions in
sugar and corn 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 on research or
development activities.
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 paid, the Company invests funds
in various temporary cash investments.
Revenues from a major customer aggregated approximately 16.2%, 16.0%
and 16.8% of total net sales during the years ended December 31, 1996, 1995
and 1994, respectively.
For a summary of sales, net earnings and assets of the Company by
geographic area and
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<PAGE>
additional information regarding the foreign subsidiaries of the Company, see
Note 10 of the Notes to Consolidated Financial Statements on Page 15 of the
Company's Annual Report to Shareholders for the year ended December 31, 1996
(the "1996 Report") and on Page 4 of the 1996 Report under the section
entitled "International." Note 10 and the aforesaid section are incorporated
herein by reference. Portions of the 1996 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 1,600,000 square feet for
offices, manufacturing and warehousing facilities and leases, or has
available to lease to third parties, approximately 600,000 square feet.
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 80,600 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
City, containing approximately 43,000 square feet. This facility consists of
manufacturing, warehousing and office space on three floors containing
approximately 33,200 square feet with a below surface level of approximately
9,800 square feet.
Charms L.P., a subsidiary, owns a facility in Covington, Tennessee,
containing approximately 267,000 square feet of manufacturing, warehousing
and office space.
Cambridge Brands, Inc., a subsidiary, owns a facility in Cambridge,
Massachusetts, containing approximately 145,000 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 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.
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No matters were submitted to a vote of the Company's shareholders
through the solicitation of proxies or otherwise during the fourth quarter of
1996.
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.
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 transfer 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 11, 1997, there were approximately
9,500 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 "1996-1995 Quarterly Summary of
Tootsie Roll Industries, Inc. Stock Prices and Dividends" which appears on
Page 16 of the 1996 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 1996 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 1996
Report. This section is incorporated herein by reference and filed as an
exhibit to this report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements, together with the report thereon of Price
Waterhouse LLP dated February 12, 1997, appearing on Pages 8-15 of the 1996
Report and the Quarterly Financial Data on Page 16 of the 1996 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 1996 Report is not to be deemed filed as part of this report.
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
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<PAGE>
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 1997 Annual Meeting of Shareholders (the "1997 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 1997 Proxy Statement, which section is
incorporated herein by reference. The 1997 Proxy Statement will be filed
with the Securities and Exchange Commission on or before April 30, 1997.
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) 77
Ellen R. Gordon* President and Chief
Operating Officer (2) 65
G. Howard Ember Jr. Vice President/Finance 44
John W. Newlin Jr. Vice President/Manufacturing 60
Thomas E. Corr Vice President/Marketing and
Sales 48
James M. Hunt Vice President/Distribution 54
Barry P. Bowen Treasurer 41
*A member of the Board of Directors of the Company.
(1) Mr. and Mrs. Gordon and Messrs. Newlin and Corr have served in the
positions set forth in the table as their principal occupations for more
than the past seven years. Mr. Ember has served in his position for the
past six years, and in the seven years prior to that, served the
Company in the position of Treasurer and Assistant Vice President of
Finance. Mr. Hunt has served in his position for the past four 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. Bowen has served in his position for the past six
years. 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.
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<PAGE>
ITEM 11. EXECUTIVE COMPENSATION.
See the information set forth in the section entitled "Executive
Compensation and Other Information" of the Company's 1997 Proxy Statement.
Except for the "Report on Executive Compensation" and "Performance Graph,"
this section of the 1997 Proxy Statement is incorporated herein by reference.
See the last paragraph of the section entitled "Election of Directors" of
the 1997 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 1997 Proxy Statement. These sections of the 1997 Proxy
Statement are incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K.
(a) Financial Statements.
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 and Retained
Earnings for the three years ended December 31,
1996
Consolidated Statements of Cash Flows for the
three years ended December 31, 1996
Consolidated Statements of Financial Position at
December 31, 1996 and 1995
Notes to Consolidated Financial Statements
(2) Financial Statement Schedules:
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Report of Independent Accountants on Financial
Statement Schedules
For the three years ended December 31, 1996-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, 1996.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, Tootsie Roll Industries, Inc., has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
TOOTSIE ROLL INDUSTRIES, INC.
By:
--------------------------------------
Melvin J. Gordon, Chairman
of the Board of Directors
and Chief Executive Officer
Date: March , 1997
---------------------------------------
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.
-------------------- Chairman of the Board
Melvin J. Gordon of Directors and Chief
Executive Officer
(principal executive
officer) March 27, 1997
-------------------- Director, President
Ellen R. Gordon and Chief Operating
Officer March 27, 1997
-------------------- Director March 27, 1997
Charles W. Seibert
-------------------- Director and Secretary
William Touretz March 27, 1997
-------------------- Director March 27, 1997
Lana Jane Lewis-Brent
-------------------- Vice President, Finance
G. Howard Ember Jr. (principal financial
officer and principal
accounting officer)
March 27, 1997
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REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors and Shareholders of
Tootsie Roll Industries, Inc.
Our audits of the consolidated financial statements referred to in
our report dated February 12, 1997 appearing on Page 15 of the 1996 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) of this Form 10-K. In our opinion, this
financial statement schedule presents fairly, in all material respects, the
information set forth herein when read in conjunction with the related
consolidated financial statements
PRICE WATERHOUSE LLP
Chicago, Illinois
February 12, 1997
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FINANCIAL SCHEDULE
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TOOTSIE ROLL INDUSTRIES, INC.
AND SUBSIDIARY COMPANIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
Additions
Balance at charged to Balance at
beginning costs and End of
Classification of year expenses Deductions Year
- -------------- -------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
1996:
Reserve for bad debts $ 1,446,000 $ 476,204 $ 296,204 (1) $ 1,626,000
Reserve for cash discounts 328,000 6,767,016 6,836,016 (2) 259,000
----------- ---------- -------------- ------------
$1,774,000 $7,243,220 $7,132,220 $ 1,885,000
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1995:
Reserve for bad debts $ 1,173,000 563,162 290,162 (1) $ 1,446,000
Reserve for cash discounts 293,000 6,163,894 6,128,894 (2) 328,000
----------- ---------- -------------- ------------
1,466,000 $6,727,056 $6,419,056 $ 1,774,000
1994:
Reserve for bad debts $ 1,835,000 350,935 1,012,935 (1) $ 1,173,000
Reserve for cash discounts 240,000 5,972,711 5,919,711 (2) 293,000
----------- ---------- -------------- ------------
$ 2,075,000 $6,323,646 $6,932,646 $ 1,466,000
----------- ---------- -------------- ------------
</TABLE>
(1) Accounts receivable written off net of recoveries and exchange rate
movements.
(2) Allowances to customers.
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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 Articles of Incorporation. Incorporated by reference to Exhibit 2.1 to
Company's Registration Statement on Form 8-A dated February 29, 1988.
3.1.1 Articles of Amendment of the Articles of Incorporation dated May 2,
1988. Incorporated by reference to Exhibit 3.1.1 of the Company's
Annual Report on Form 10-K for the year ended December 31, 1988;
Commission File No. 1-1361.
3.1.2 Articles of Amendment of the Articles of Incorporation dated May 7,
1990. Incorporated by reference to Exhibit 3.1.2 of the Company's
Annual Report on Form 10-K for the year ended December 31, 1990;
Commission File No. 1-1361.
3.2 Amended and Restated By-Laws.
3.3 Specimen Class B Common Stock Certificate. Incorporated by reference to
Exhibit 1.1 to Company's Registration Statement on Form 8-A dated
February 29, 1988.
10.5*Consultation Agreement between the Company and William Touretz dated
December 21, 1979. Incorporated by reference to Exhibit 10.5 of the
Company's Annual Report on Form 10-K for the year ended December 31,
1992; Commission File No. 1-1361.
10.5.1*Modification Agreement between the Company and William Touretz dated
as of December 5, 1984. Incorporated by reference to Exhibit
10.5.1 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1984; Commission File No. 1-1361.
10.5.2* Modification Agreement between the Company and William Touretz dated
as of December 13, 1985. Incorporated by reference to Exhibit
10.5.2 of the Company's Annual Report on Form 10-K for the year
ended December 31, 1985; Commission File No. 1-1361.
10.5.3*Modification Agreement between the Company and William Touretz dated
as of December 17, 1986. Incorporated by reference to Exhibit
10.5.3 of the Company's Annual Report on Form 10-K for the year
ended December 31, 1986; Commission File No. 1-1361.
10.8.1*Excess Benefit Plan. Incorporated by reference to Exhibit 10.8.1 of
the Company's Annual Report on Form 10-K for the year ended
December 31, 1990; Commission File No. 1-1361.
10.8.2*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, 1993; Commission File No. 1-1361.
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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.
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.
13The following items incorporated by reference herein from the Company's
1996 Annual Report to Shareholders for the year ended December 31, 1996
(the "1996 Report"), are filed as Exhibits to this report:
(i)Information under the section entitled "International" set forth
on Page 4 of the 1996 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 1996 Report;
(iii)Consolidated Statements of Earnings and Retained Earnings for the
three years ended December 31, 1996 set forth on Page 8 of the 1996
Report;
(iv)Consolidated Statements of Financial Position at December 31,
1996 and 1995 set forth on Pages 9-10 of the 1996 Report;
(v)Consolidated Statements of Cash Flow for the three years ended
December 31, 1996 set forth on Page 11 of the 1996 Report;
(vi)Notes to Consolidated Financial Statements set forth on Pages
12-15 of the 1996 Report;
(vii)Report of Independent Accountants set forth on Page 15 of the
1996 Report;
(viii)Quarterly Financial Data set forth on Page 16 of the 1996 Report;
(ix)Information under the section entitled "1996-1995 Quarterly
Summary of Tootsie Roll Industries, Inc. Stock Prices and Dividends"
set forth on Page 16 of the 1996 Report; and
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<PAGE>
(x)Information under the section entitled "Five Year Summary of
Earnings and Financial Highlights" set forth on Page 17 of the 1996
Report.
21 List of Subsidiaries of the Company.
______________________________________
*Executive compensation plan or arrangement.
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EXHIBIT 3.2
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<PAGE>
BY-LAWS
OF
TOOTSIE ROLL INDUSTRIES, INC.
AS AMENDED TO
FEBRUARY 25, 1997
ARTICLE I
MEETINGS OF SHAREHOLDERS
SECTION 1. ANNUAL MEETINGS. (a) The annual meeting of the
shareholders for the election of directors and for the transaction of such
other business as may properly come before the meeting shall be held annually
on such day in each year, as the board of directors shall from time to time
determine in its discretion.
(b) Only such business shall be conducted at an annual meeting of
shareholders as shall have been properly brought before the meeting. For
business to be properly brought before the meeting, it must be: (i)
authorized by the board of directors and specified in the notice, or a
supplemental notice, of the meeting, (ii) otherwise brought before the
meeting by or at the direction of the board of directors, or (iii) otherwise
properly brought before the meeting by a shareholder. For business to be
properly brought before an annual meeting by a shareholder, the shareholder
must have given written notice thereof to the secretary, delivered or mailed
to and received at the principal executive offices of the corporation (x) not
less than 60 days nor more than 90 days prior to the meeting, or (y) if less
than 70 days' notice of the meeting or prior public disclosure of the date of
the meeting is given or made to shareholders, not later than the close of
business on the tenth day following the day on which the notice of the
meeting was mailed or, if earlier, the day on which such public disclosure
was made. A shareholder's notice to the secretary shall set forth as to each
item of business the shareholder proposes to bring before the meeting (1) a
brief description of such item and the reasons for conducting such business
at the meeting, (2) the name and address, as they appear on the corporation's
records, of the shareholder proposing such business, (3) the class and number
of shares of stock of the corporation which are beneficially owned by the
shareholder (for purposes of the regulations under Sections 13 and 14 of the
Securities Exchange Act of 1934, as amended), and (4) any material interest
of the shareholder in such business. No business shall be conducted at any
annual meeting except in accordance with the procedures set forth in this
paragraph (b). The chairman of the meeting at which any business is proposed
by a shareholder shall, if the facts warrant, determine and declare to the
meeting that such business was not properly brought before the meeting in
accordance with the provisions of this paragraph (b), and, in such event, the
business not properly before the meeting shall not be transacted.
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SECTION 2. SPECIAL MEETINGS. Special meetings of the shareholders
may be called by the chairman of the board, by the president, or by order of
the board of directors.
SECTION 3. DATE, TIME AND PLACE OF MEETING. All meetings of the
shareholders shall be held at such date, time and place, within or without
the Commonwealth of Virginia, as may be provided in the notice of meeting.
SECTION 4. NOTICE OF MEETING. Written notice of the annual and of
any special meeting of the shareholders shall be given not less than fourteen
days nor more than sixty days before the meeting unless greater notice is
prescribed by law, by the secretary or, in his absence, by any assistant
secretary, to each holder of record of shares of the corporation entitled to
vote at the meeting, addressed to the holder at his address as it appears on
the corporation's record of shareholders as of the record date of the
meeting. Such notice may be given by mail, with postage thereon prepaid, or
in any other manner permitted by law for the giving of such written notice.
Notice to any particular holder may be dispensed with if permitted by law.
Every notice of an annual or special meeting of shareholders, besides stating
the day, hour, and place of the meeting, shall state briefly the purposes
thereof. Written notice of meeting given by mail, postage prepaid and
addressed as herein prescribed, shall be effective when mailed. Notices of
meeting given in any other manner shall be effective as prescribed by law.
SECTION 5. WAIVER OF NOTICE. Any shareholder may waive any
required notice of meeting before or after the time of the meeting, by
written waiver signed by the shareholder entitled to the notice and delivered
to the secretary of the corporation for inclusion in the minutes or filing
with the corporate records. A shareholder's attendance at the meeting waives
objection to the lack of notice or defective notice unless he objects at the
beginning of the meeting to the holding of the meeting or the transaction of
business at the meeting and also waives objections to consideration of a
particular matter at the meeting which is not within the purpose or purposes
described in the notice of meeting unless he objects to consideration of the
matter when it is presented.
SECTION 6. QUORUM. At all meetings of the shareholders, the
holders of record of a majority of the shares of Common Stock, par value
69-4/9 cents per share, of the corporation and the shares of Class B Common
Stock, par value 69-4/9 cents per share, of the corporation, taken together
as a single group, entitled to vote at such meeting and present in person or
by proxy, shall constitute a quorum for the transaction of business, unless a
greater or different quorum is required by law or the articles of
incorporation. Once a quorum has been duly convened, the quorum shall not be
deemed broken by the departure of any shareholder or his proxy. In the
absence of a quorum, a majority in interest of those present may adjourn the
meeting by resolution to a date, place and time fixed therein and no further
notice thereof shall be required unless a new record date is fixed for the
adjourned meeting, which new record date shall be fixed if the meeting is
adjourned to a date more than one hundred twenty days after the date fixed
for the original meeting. At any such adjourned meeting at which a quorum
may be present, any business may be transacted which might have been
transacted at the meeting as originally called.
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SECTION 7. ORGANIZATION. At all meetings of the shareholders, the
chairman of the board, or in his absence, then the president, shall preside
as chairman of the meeting. In the absence of both the chairman and the
president, then a person chosen by the shareholders present in person or by
proxy at the meeting shall preside as chairman of the meeting and until a
permanent chairman is chosen, any officer of the corporation or any
management proxy for the meeting may preside as temporary chairman of the
meeting. The secretary of the corporation, or, in his absence, then an
assistant secretary, shall act as secretary at all meetings of the
shareholders. If neither the secretary nor any assistant secretary is
present at the meeting, then the temporary chairman of the meeting may
appoint a temporary secretary of the meeting and the permanent chairman may
appoint the permanent secretary of the meeting, which secretary shall be an
officer of the corporation or a management proxy.
SECTION 8. VOTING. At each annual or special meeting of the
shareholders, (a) each holder of Common Stock, par value 69-4/9 cents per
share, of the corporation shall be entitled to one (1) vote for each share of
such Common Stock held by such holder of record and registered in his name on
the books of the corporation on the date fixed by the resolution of the board
of directors as the record date for the determination of the shareholders
entitled to notice of and to vote at such meeting, and (b) each holder of
Class B Common Stock, par value 69-4/9 cents per share, of the corporation
shall be entitled to ten (10) votes for each share of such Class B Common
Stock held by such holder of record and registered in his name on the books
of the corporation on the date fixed by the resolution of the board of
directors as the record date for the determination of the shareholders
entitled to notice of and to vote at such meeting. Such vote may be given by
such shareholder in person or by his proxy appointed by an instrument in
writing executed by such shareholder or his duly authorized attorney, and
delivered to the inspectors of election, if any, or to the secretary. No
proxy shall be valid after eleven months from its date, unless otherwise
provided therein. At all meetings of the shareholders, unless otherwise
required by law or the articles of incorporation, if a quorum is present, all
matters shall be decided by a majority of the votes cast, except that in the
election of directors those nominees receiving a plurality of the votes cast
shall be elected as directors. Upon demand of twenty-five percentum of the
shareholders present in person or by proxy and entitled to vote, the vote on
any particular matter shall be taken by ballot. The vote in the election of
directors shall at all times be by ballot. Except as herein required, all
votes shall be taken in the manner prescribed by the chairman of the meeting.
In any vote by ballot, each ballot shall be signed by the shareholder or his
attorney in fact or his duly appointed proxy.
SECTION 9. VOTING LIST. At least ten days before any meeting of
the shareholders, the corporation or its transfer agent shall make a complete
list of the shareholders entitled to vote at any meeting of the shareholders
or any adjournment thereof, with the address of and number of shares held by
each on the record date, which list shall, for a period of ten days prior to
such meeting, be kept on file at the registered office or principal place of
business of the corporation or at the office of the transfer agent or
registrar and shall be subject to inspection as may be required by law. Such
list shall also be produced and kept open at the time and place of the
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meeting and shall be open to inspection of any shareholder or his attorney in
fact or his proxy during the whole time of the meeting for the purposes
thereof.
SECTION 10. INSPECTORS OF ELECTIONS. In advance of any meeting of
shareholders, the chairman of the board or the president shall appoint one or
more inspectors to act at the meeting and make a written report thereof. No
candidate for election as a director shall be appointed or shall act as an
inspector. The appointing officer may designate one or more alternate or
substitute inspectors as provided by law. Before entering upon the discharge
of his duties, each inspector shall take and sign an oath faithfully to
execute the duties of inspector with strict impartiality and according to the
best of his ability. The inspectors shall (i) ascertain the number of shares
outstanding and the voting power of each, (ii) determine the shares
represented at the meeting and the validity of proxies and ballots, (iii)
count all votes and ballots, (iv) determine and retain for a reasonable
period a record of the disposition of any challenges made to any
determination by the inspectors, (v) certify their determination of the
number of shares represented at the meeting and their count of all votes and
ballots, and (vi) perform such other duties as may be assigned to them by the
presiding officer. The inspectors may appoint other persons or entities to
assist them in the performance of their duties.
SECTION 11. INTERPRETATION OF MAJORITY, ETC. Each reference in
these by-laws to a majority or other proportion of shares shall be
interpreted to mean a majority or other proportion of the votes entitled to
be cast.
ARTICLE II
BOARD OF DIRECTORS
SECTION 1. GENERAL POWERS. All corporate powers shall be exercised
by or under authority of, and the business and affairs of the corporation
managed under the direction of, the board of directors, subject to any
limitation under law or set forth in the articles of incorporation.
SECTION 2. NUMBER. The board of directors is authorized from time
to time to prescribe the number of directors which the corporation shall
have, provided however, that the prescribed number of directors shall be not
less than three (3) nor more than fifteen (15) directors.
SECTION 3. TERM OF OFFICE AND QUALIFICATION. Each director, unless
he resigns or is removed by the shareholders as hereinafter provided, shall
hold office until the next annual meeting of shareholders following his
election. Despite the expiration of his term, a director shall continue in
office until his successor is elected and qualified or the then prescribed
number of directors is decreased to eliminate his position as of the end of
his term. No decrease in the number of directors shall shorten the term of
an incumbent director unless he shall be removed from office by the
shareholders as provided in these by-laws.
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SECTION 4. ELECTION OF DIRECTORS. (a) At all meetings of the
shareholders for the election of directors at which a quorum is present,
directors shall be elected by a plurality of the votes cast. Such election
shall be held by ballot.
(b) Only persons who are nominated in accordance with the
procedures set forth in this paragraph (b) shall be eligible for election as
directors of the corporation. Nominations of persons for election to the
board of directors may be made at a meeting of shareholders by the board of
directors or by any shareholder of the corporation entitled to vote in the
election of directors at the meeting who complies with the notice procedures
set forth in this paragraph (b). Any nomination by a shareholder must be
made by written notice to the secretary delivered or mailed to and received
at the principal executive offices of the corporation (i) not less than 60
days nor more than 90 days prior to the meeting, or (ii) if less than 70
days' notice of the meeting or prior public disclosure of the date of the
meeting is given or made to shareholders, not later than the close of
business on the tenth day following the day on which the notice of the
meeting was mailed or, if earlier, the day on which such public disclosure
was made. A shareholder's notice to the secretary shall set forth (x) as to
each person whom the shareholder proposes to nominate for election or
re-election as a director: (1) the name, age, business address and residence
address of such person, (2) the principal occupation or employment of such
person, (3) the class and number of shares of stock of the corporation which
are beneficially owned by such person (for the purposes of the regulations
under Sections 13 and 14 of the Securities Exchange Act of 1934, as amended),
and (4) any other information relating to such person that would be required
to be disclosed in solicitations of proxies for the election of such person
as a director of the corporation pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended, and such person's written
consent to being named in any proxy statement as a nominee and to serving as
a director if elected; and (y) as to the shareholder giving notice (5) the
name and address, as they appear on the corporation's records, of such
shareholder and (6) the class and number of shares of stock of the
corporation which are beneficially owned by such shareholder (determined as
provided in clause (x)(3) above). At the request of the board of directors
any person nominated by the board of directors for election as a director
shall furnish to the secretary that information required to be set forth in a
shareholder's notice of nomination which pertains to the nominee. The
chairman of the meeting at which a shareholder nomination is presented shall,
if the facts warrant, determine and declare to the meeting that such
nomination was not made in accordance with the procedures prescribed by this
paragraph (b), and, in such event, the defective nomination shall be
disregarded.
SECTION 5. ORGANIZATION. At all meetings of the board of
directors, the chairman of the board, or, in his absence, then the president,
or, in the absence of both of them, then any director selected by the board
of directors shall act as chairman. The secretary of the corporation, or, in
his absence, then an assistant secretary, shall act as secretary at all
meetings of the board of directors, but if neither the secretary nor any
assistant secretary be present, then the chairman of the meeting may appoint
any director or officer of the corporation to act as secretary of the meeting.
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SECTION 6. VACANCIES. Vacancies in the board of directors may be
filled for the unexpired portion of the term by a majority vote of all of the
remaining directors, though less than a quorum, at any regular meeting of the
board or at a special meeting called for that purpose. Vacancies in the
board of directors may also be filled by the shareholders at any special
meeting of the shareholders called for such purpose. A vacancy caused by the
resignation of a director specifying a later effective date may be filled
before the effective date provided that the successor does not take office
until the effective date.
SECTION 7. PLACE OF MEETING, ETC. The board of directors may hold
its meetings at such place or places in the Commonwealth of Virginia, or
outside the Commonwealth of Virginia, as shall be specified in the notice of
meeting.
SECTION 8. TELEPHONIC MEETINGS. Subject to other order of the
board of directors, any member of the board of directors or of any committee
of the board of directors may participate in or conduct any meeting of the
board or of a committee of the board by conference telephone or other means
of communication by which all directors participating in the meeting may
simultaneously hear each other during the meeting and participation by such
means shall constitute presence in person at such meeting. Subject to other
order of the board, the foregoing shall constitute board permission to any
director to participate in or conduct board and committee meetings in such
manner.
SECTION 9. ANNUAL MEETING. Each newly elected board of directors
shall hold its annual meeting as soon as practicable following the annual
meeting of the shareholders, for the purpose of organization, the election of
officers, and the transaction of other business. The provisions of Section
10 of this ARTICLE II concerning regular meetings of the board of directors
shall be applicable to the annual meeting of the board of directors.
SECTION 10. REGULAR MEETINGS. Regular meetings of the board of
directors shall be held quarterly at such day, hour, and place as the board
of directors may from time to time determine and notice thereof need not be
given if the day, hour, and place thereof had been fixed at a previous
meeting. If the board shall not have fixed the date, time and place of any
regular meeting, such regular meeting may be called and notice thereof given
as hereinafter provided for in Section 11 of this ARTICLE II for special
meetings of the board. Notwithstanding the foregoing, if any director was not
a director at the time the date, time and place of such meeting was fixed by
the board of directors, such new director shall be entitled to receive notice
of such meeting in the manner herein prescribed for special meetings.
SECTION 11. SPECIAL MEETINGS. Special meetings of the board of
directors shall be held whenever called by any one or more of the directors.
Oral or written notice of the date, time and place of any special meeting of
the board shall be given in any manner permitted by law by the secretary, or
in his absence, by an assistant secretary, to each director, not later than
the day before the day on which the meeting is to be held. Written notices
may be addressed to the director's residence or usual place of business or
any other address prescribed from time to time by such director. Notices
given by mail correctly addressed and postage prepaid shall be
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effective on the earliest of : (i ) the date of receipt; ( ii) the date
shown on the return receipt signed by or on behalf of the director if given
by certified mail return receipt requested; or (iii) five days after deposit
in the United States mail, as evidenced by the postmark. Notices given in
any other manner shall be effective as prescribed by law. Notices of special
meetings need not state the purposes of the meeting unless required by law.
SECTION 12. WAIVER OF NOTICE. Any director, before or after the
time of the meeting, may waive any required notice of the meeting by written
waiver signed by him and filed with the minutes or corporate records.
Attendance at a meeting by a director shall waive any required notice of
meeting to him unless, at the beginning of the meeting or promptly upon his
arrival, he objects to the holding of the meeting or the transaction of
business at the meeting and does not thereafter vote for or assent to action
taken at the meeting.
SECTION 13. QUORUM AND MANNER OF ACTING. A majority of the then
prescribed number of directors shall constitute a quorum for the transaction
of business at any meeting of the board of directors. In the absence of a
quorum, a majority of the directors present may adjourn the meeting from time
to time until a quorum be had. Notice of any such adjourned meeting need not
be given. The affirmative vote of a majority of the directors present at any
such meeting at which a quorum is present shall be the act of the board of
directors, except as set forth in ARTICLE III and in SECTION 1 of ARTICLE IX.
A director who is present at a meeting of the board or of any committee of
the board when action is taken is deemed to have assented to such action
unless he objects at the beginning of the meeting or promptly upon arrival to
holding it or transacting specified business at the meeting or he votes
against, or abstains from, the action taken.
SECTION 14. REMOVAL AND RESIGNATION. One or more or all of the
directors may be removed with or without cause at any time by vote of a
majority of the votes entitled to be cast at any special meeting of
shareholders called expressly for such purpose, a quorum being present. Any
director may resign at any time by written resignation delivered to the board
of directors, its chairman, the president or the secretary. Such resignation
shall take effect at the time specified therein or, if no time be so
specified, at the time of delivery. The acceptance of a resignation shall
not be necessary to make it effective, unless expressly so provided in such
resignation.
SECTION 15. ORDER OF BUSINESS. At all meetings of the board of
directors business may be transacted in such order as the chairman of the
meeting may determine, subject to different order of the board of directors.
SECTION 16. MINUTES OF MEETINGS. A written record shall be made of
all action taken by the board of directors.
SECTION 17. COMPENSATION. The board of directors shall have the
right to determine the compensation of directors and of members of any
committee of the board, which
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compensation may include fixed fees, attendance fees and/or reimbursement for
travel expenses.
ARTICLE III
COMMITTEES
SECTION 1. HOW CONSTITUTED AND POWERS. The board of directors, by
the vote of majority of the then prescribed number of directors may create
one or more standing committees and special committees and appoint members of
the board of directors to serve on them. Each committee shall consist of two
directors or such greater number of directors as may be prescribed by the
board of directors by like vote. Each committee, to the extent prescribed by
the board of directors by a like vote, shall have and may exercise all the
powers of the board of directors in the management of the business and
affairs of the corporation which may lawfully be delegated to a committee.
The board of directors by like vote may abolish any standing committee or
special committee or modify the powers of such committee.
SECTION 2. STANDING COMMITTEE; TERM OF MEMBERS. Any executive
committee or audit committee created by the board of directors shall be a
standing committee. The board of directors is authorized to create
additional standing committees by specifically designating them as standing
committees. Members of standing committees shall hold office until the annual
meeting of the board of directors following their appointment. Despite the
expiration of his term, a member of a standing committee shall continue in
office until his successor is elected and qualifies or the board of
directors, by affirmative vote of the then prescribed number of directors,
decreases the prescribed number of members of the committee to eliminate his
office as of the end of his term. Notwithstanding the foregoing, the term of
office of any member of a committee shall terminate if he resigns, is removed
as a member, ceases to be a director or the committee of which he is a member
is abolished.
SECTION 3. SPECIAL COMMITTEES; TERM OF MEMBERS. Except for the
standing committees provided for in SECTION 2 of this ARTICLE III, committees
created by the board of directors shall be special committees which shall
terminate upon the expiration of the term or completion of the purpose for
which such committee was created and the term of office of the members
thereof shall then expire. Except as aforesaid, the provisions of the
by-laws concerning the term of office of members of standing committees shall
be applicable to members of special committees.
SECTION 4. ORGANIZATION, ETC. Each committee shall choose its own
chairman, unless the chairman is designated by the board of directors. The
chairman, or in his absence any member chosen by the members present, shall
act as chairman of any meeting of the committee. Each committee shall keep a
written record of its acts and proceedings and report the same from time to
time to the board of directors. The secretary of the corporation, or in his
absence an assistant secretary, shall act as secretary at each meeting of the
committee, but if neither the secretary nor any assistant secretary is
present, the chairman of the meeting may appoint any
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member of the committee as secretary of the meeting. Each committee may
adopt rules and regulations for its governance which are not inconsistent
with law or these by-laws or any resolution of the board.
SECTION 5. TIME AND PLACE OF MEETINGS; TELEPHONIC MEETINGS.
Meetings of each committee may be held at any place within or without the
Commonwealth of Virginia at a day, hour, and place designated in the notice
of meeting or by resolution of the committee. Meetings of any committee may
be called by any member of such committee. Members of any committee may
participate in or conduct meetings by conference telephone or other means of
communication by which all directors participating in the meeting may
simultaneously hear each other during the meeting.
SECTION 6. NOTICE OF MEETING. Notice of regular and special
meetings of a committee shall be given in the manner provided in these
by-laws for the giving of notice of regular and special meetings,
respectively, of the board of directors, and notice of meeting may be waived
in the manner herein provided for waiver of notice of meetings of the board
of directors.
SECTION 7. QUORUM AND MANNER OF ACTING. A majority of the
prescribed number of members of any committee shall constitute a quorum of
such committee. The affirmative vote of a majority of the members present
shall constitute the act of the committee if a quorum is present. All other
provisions of these by-laws concerning quorum and voting of the board of
directors and conduct of business by unanimous written consent in lieu of
meeting shall be applicable to committees of the board. The members of a
committee shall act only as a committee and the individual members shall have
no powers as such.
SECTION 8. REMOVAL AND RESIGNATION. Any member of a committee may
be removed by the board of directors, with or without cause at any time, by
vote a majority of the then prescribed number of directors. Any member of a
committee may resign in the manner prescribed in these by-laws for
resignation of directors.
SECTION 9. VACANCIES. Any vacancy in any committee may be filled by
vote of a majority of the then prescribed number of directors.
ARTICLE IV
OFFICERS
SECTION 1. REQUIRED OFFICERS. The required officers of the
corporation shall be a chairman of the board, a president, a vice-president,
and a secretary and such other officers as may from time to time be required
by resolution of the board of directors. The same person may simultaneously
hold more than one of such required offices or any other offices.
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SECTION 2. ELECTION, TERM OF OFFICE AND QUALIFICATIONS OF REQUIRED
OFFICERS. All required officers of the corporation shall be chosen by the
board of directors at the annual meeting of the board. Each such officer
shall hold office at the pleasure of the board until the annual meeting of
the board following his election and his successor shall have been duly
elected and qualified unless he shall sooner resign. The chairman of the
board shall be chosen from among the directors.
SECTION 3. OTHER OFFICERS. The board of directors may from time to
time appoint such other officers as the board may deem necessary or
advisable, to hold office during the pleasure of the board for such term as
may be prescribed by the board or if no term is prescribed, then for the term
specified in Section 2 of this ARTICLE IV, including additional
vice-presidents, a treasurer, a controller, assistant secretaries, assistant
treasurers and assistant controllers. Each of the chairman of the board and
the president is also authorized to appoint any officers other than required
officers. The same person may simultaneously hold more than one of such
additional offices or any other offices.
SECTION 4. POWERS AND DUTIES OF OFFICERS. The officers of the
corporation shall have the powers and duties prescribed by these by-laws
and/or, to the extent not inconsistent therewith, as may be assigned to them
by the board of directors, the chairman of the board, the president or in any
other manner provided in these by-laws.
SECTION 5. REMOVAL AND RESIGNATION. Any officer of the corporation
may be removed, either with or without cause, by the board of directors. The
chairman of the board or the president, with or without cause, may remove any
officer appointed by such officer. Any officer may resign at any time by
written resignation delivered to the board of directors, the chairman of the
board, the president or the secretary which shall take effect at the time
specified therein or, if no time be so specified, at the time of its receipt
by the corporation. The acceptance of a resignation shall not be necessary
to make it effective, unless expressly so provided in such resignation.
SECTION 6. VACANCIES. If any vacancy shall occur among the
officers of the corporation, such vacancy may be filled by the board of
directors, except that the chairman of the board or the president may fill
vacancies in any office except required offices.
SECTION 7. CHAIRMAN OF THE BOARD. The chairman of the board shall
be the chief executive officer of the corporation, shall have general
direction of the business, affairs and property of the corporation, its
officers, agents and employees, and over its several offices, and shall have
all powers and duties as pertain to his office. The chairman of the board,
at his option, may from time to time use the title of "chief executive
officer" in addition to or in lieu of his title of "chairman of the board."
In the absence of the president, he shall perform the duties of the president
or delegate such duties to one or more vice presidents. He shall preside at
all meetings of the shareholders and of the board of directors. He shall see
to it that all orders and resolutions of the board of directors and of its
committees are carried into effect, and he shall have power to sign all
contracts and agreements authorized by the board of directors or its
committees, unless
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they otherwise direct, and shall have the power to sign, or delegate to any
other officer the power to sign, any contracts or agreements which do not
require approval of the board. He may appoint and remove, from time to time,
such agents and employees of the corporation as he may deem proper, in the
management of its property and affairs and to prescribe the powers and duties
of such agents and employees, or may authorize any other officer, agent or
employee to do so, provided however, that, without prior approval of the
board of directors, no agent or employee shall be authorized to perform the
duties or powers of officers or be granted a general power of attorney to act
for the corporation. He shall from time to time report to the board of
directors and its committees on all matters within his knowledge which the
interests of the corporation may require to be brought to their notice.
SECTION 8. PRESIDENT. The president shall be the chief operating
officer of the corporation and shall have all powers and duties as pertain to
his office. The president, at his option, may from time to time use the
title of "chief operating officer" in addition to or in lieu of his title of
"president." He shall exercise all the powers and discharge all the duties
of the chairman of the board during the latter's absence or inability to act.
He shall have power to sign all contracts and agreements authorized by the
board of directors or its committees, unless they otherwise direct, and shall
have the power to sign or delegate to any other officer the power to sign,
any contracts or agreements which do not require approval of the board. He
may appoint and remove, from time to time, such agents and employees of the
corporation as he may deem proper, in the management of its property and
affairs, and to prescribe the powers and duties of such agents and employees,
or may authorize any other officer, agent or employee to do so, provided
however, that, without prior approval of the board of directors, no agent or
employee shall be authorized to perform the duties or powers of officers or
be granted a general power of attorney to act for the corporation. He shall
from time to time report to the board of directors and its committees and to
the chairman of the board on all matters within his knowledge which the
interest of the corporation may require to be brought to their notice.
SECTION 9. VICE-PRESIDENTS. The board of directors, the chairman
or the president shall be authorized, in their discretion, to designate the
titles, priority and function of the vice-presidents, including authority to
designate an executive vice-president. In the absence or inability to act of
both the chairman of the board and the president, then such vice-president as
the board of directors or the chairman of the board or the president may
designate for the purpose (but in the absence of such designation then the
executive vice-president, if any, and then the vice-presidents in order of
designated priority or, if none, then in order of seniority of service as
vice-president) shall have the powers and discharge the duties of the
chairman of the board and the president, provided however, no vice president
shall have the power to appoint or remove any officer. The vice-presidents
shall report to such officers of the corporation as the chairman of the board
shall designate. The vice-presidents shall from time to time report to the
board of directors, its committees, the chairman of the board and the
president on all matters within their knowledge which the interest of the
corporation may require to be brought to their notice.
SECTION 10. SECRETARY. The secretary shall have responsibility for
the preparation and maintenance of custody of the minutes of all meetings of the
shareholders and the board of
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directors. He shall be responsible for authenticating records of the
corporation. He shall keep in safe custody the seal of the corporation and
he may affix such seal to any instrument duly executed on behalf of the
corporation. The secretary shall supervise the transfer agent in its keeping
of the stock records and shall have custody of such other books and papers as
the board of directors, its committees, the chairman of the board or the
president may direct. He shall attend to the giving and serving of all
notices of meetings of the shareholders, board of directors and committees,
and of all formal notices required to be given to the New York Stock
Exchange, and shall also have such other powers and perform such other duties
as pertain to his office.
SECTION 11. ASSISTANT SECRETARY. In the absence or disability of
the secretary, or at the request of the secretary, an assistant secretary, if
any, shall perform the duties of the secretary and, when so acting, shall
have all the powers of, and be subject to all the restrictions upon, the
secretary, provided however, if there be more than one assistant secretary,
the board of directors, the chairman of the board, the president or the
secretary may designate the assistant secretary who is to perform any or all
of the duties of the secretary in such instances.
SECTION 12. TREASURER. The treasurer, if any, shall have charge of
the funds, securities, receipts and disbursements of the corporation. He
shall deposit all moneys and other valuable effects in the name and to the
credit of the corporation in such banks or trust companies or with such
bankers or other depositories as the board of directors may from time to time
designate. He shall render to the chairman of the board, the president, the
board of directors, to any committee, and to any other officers of the
corporation designated by the chairman of the board, whenever any of them
shall require him so to do, an account of the financial condition of the
corporation and all of his transactions as treasurer. He shall keep correct
books of account of all its business and transactions. If required by the
board of directors, he shall give a bond in such sum and on such conditions
and with such surety as the board of directors may designate, for the
faithful performance of the duties of his office and the restoration to the
corporation, at the expiration of his term of office, or, in case of his
death, resignation or removal from office, of all books, papers, vouchers,
money or other property of whatever kind in his possession belonging to the
corporation. He shall also have such other powers and perform such other
duties as pertain to his office. Notwithstanding the foregoing, any duties
of the treasurer may be assigned to any other officer by the board of
directors, the chairman of the board or the president.
SECTION 13. ASSISTANT TREASURER. In the absence or disability of
the treasurer, or at the request of the treasurer, an assistant treasurer, if
any, shall perform the duties of the treasurer and, when so acting, shall
have all the powers of, and be subject to all restrictions upon, the
treasurer, provided however, if there be more than one assistant treasurer,
the board of directors, the chairman of the board, the president or the
treasurer may designate the assistant treasurer who is to perform any or all
of the duties of the treasurer in such instances.
SECTION 14. THE CONTROLLER. The controller, if any, shall maintain
adequate records of all assets, liabilities and transactions of the
corporation and shall have adequate audits thereof currently and regularly
made and shall have such other powers and duties as pertain to this office.
In conjunction with other officers, he shall initiate and enforce measures
and
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procedures whereby the business of this corporation shall be conducted with
the maximum safety, efficiency and economy. He shall report to the board of
directors, its committees, the chairman of the board, the president, and to
such other officers designated by the chairman of the board. His duties and
powers shall extend to all subsidiary corporations. Notwithstanding the
foregoing, any duties of the controller may be assigned to any officer of the
corporation by the board of directors, the chairman of the board or the
president.
SECTION 15. ASSISTANT CONTROLLER. In the absence or disability of
the controller, or at the request of the controller, an assistant controller,
if any, shall perform the duties of the controller and, when so acting, shall
have all the powers of, and be subject to all restrictions upon, the
controller, provided however, if there be more than one assistant controller,
the board of directors, the chairman of the board, the president, or the
controller may designate the assistant controller who is to perform any or
all of the duties of the controller in such instances. Each assistant
controller shall also perform such other duties as from time to time may be
assigned to him by the board of directors, the chairman of the board or the
president.
ARTICLE V
CONTRACTS, LOANS, BANK ACCOUNTS AND SECURITIES
SECTION 1. CONTRACTS. The board of directors may authorize any
officer, officers, agent or agents to enter into and to execute contracts on
behalf of the corporation under such conditions and restrictions as they may
impose. Such authority may be general or confined to specific instances.
Nothing herein shall be deemed to prohibit any officer from entering into or
executing contracts on behalf of the corporation in the ordinary course of
business which do not require approval of the board and the execution of
which are within the scope of his normal duties and authority.
SECTION 2. LOANS. The board of directors may authorize any officer
or officers to effect loans and advances at any time for the corporation from
any bank, trust company, insurance company, or other institution, or from any
person, firm, association, or corporation and, in connection with such loans
and advances, to make, execute and deliver promissory notes or other
evidences of indebtedness of the corporation under such conditions and
restrictions as the board of directors may impose, and, except as otherwise
provided in the articles of incorporation, to pledge, hypothecate or transfer
any and all property of the corporation of every type and description, as
security for the payment of loans, advances, indebtedness and liabilities of
the corporation, and to that end to transfer, endorse, assign, convey and
deliver the same in the name of the corporation. Such authority may be
general or confined to specific instances.
SECTION 3. BANK ACCOUNTS; CHECKS. All checks, drafts and funds
payable to or held by the corporation shall be deposited from time to time to
the credit of the corporation in such banks or trust companies as may be
selected by, or in accordance with authority granted by, the board of
directors. All checks, drafts or orders for the payment of money, drawn on
such accounts shall be signed by such officer or officers, agent or agents to
whom the board of
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directors shall delegate such authority, and under such conditions and
restrictions as the board of directors may impose. Such authority may be
general or confined to specific instances.
SECTION 4. SECURITIES. The board of directors may authorize any
officer or officers to open brokerage accounts in the name and on behalf of
the corporation and may further authorize securities held by the corporation
in such accounts to be registered in street name or in the name of a nominee.
All endorsements, assignments, stock powers, proxies, consents, waivers, or
other instruments for the transfer or voting of securities held by the
corporation, or the taking of any other action as a shareholder of any other
corporation, shall be executed by such officer, officers, agent or agents to
whom the board of directors shall delegate such authority, and under such
restrictions as the board of directors may impose. Such power may be general
or confined to specific instances. In the absence of any contrary direction
of the board of directors, any right of the corporation as a shareholder of
any other corporation, except subsidiaries of the corporation, to grant
proxies, to vote shares and to give consents and waivers as a shareholder,
may be exercised by the chairman of the board or the president.
ARTICLE VI
SHARES AND THEIR TRANSFER
SECTION 1. ISSUE, REGISTRATION AND TRANSFER OF SHARES; TRANSFER
AGENT AND REGISTRAR. The board of directors shall provide for the issue,
registration and transfer of the shares of the corporation, and may prescribe
the form of the certificates evidencing shares of the corporation or
authorize the issue of any or all of its shares without certificates. The
board of directors may appoint a transfer agent and/or registrar for any or
all of the shares of the corporation. Unless otherwise provided by the board
of directors, every owner of shares of the corporation shall be entitled to a
certificate certifying the number of shares owned by him, in form prescribed
by the board of directors. Share certificates shall be signed by any two
officers designated by the board of directors, except that if such
certificate is countersigned by a transfer agent or registered by a registrar
appointed by the board of directors, other than the corporation or its
employees, the signatures of any such officer or assistant officer may be by
facsimile. In case any officer who has signed or whose facsimile signature
has been used on a share certificate has ceased to be an officer before the
certificate has been delivered, such share certificate shall, nevertheless,
be valid. Each certificate evidencing shares of the corporation shall bear
the seal of the corporation or a facsimile thereof. There shall be kept by
the corporation, or by the transfer agent of the corporation if one is
appointed, records containing the names, alphabetically arranged, of all
persons who are shareholders of the corporation, showing their places of
residence and the number, class and series of shares held by them
respectively. The board of directors is authorized to prescribe rules and
regulations pertaining to the issue, registration, and transfer of shares and
the share records. So long as any shares of the corporation are listed on a
securities exchange, the rules and regulations of such exchange pertaining to
transfer agents and registrars for such listed shares and for the issue,
registration and transfer of listed shares and of certificates representing
such listed shares shall be complied with.
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SECTION 2. RECORD DATES. The board of directors may, by resolution
in lieu of closing the share transfer books of the corporation, fix in
advance a date, not more than seventy days preceding the date of any meeting
of shareholders or the date for the payment of any dividend, or the date for
the allotment of rights, or the date when any change or conversion or
exchange of shares of the corporation shall go into effect, or the date on
which any other proper action, requiring a determination of shareholders, is
to be taken, as a record date for the determination of the shareholders
entitled to notice of and to vote at any such meeting, or to receive payment
of any such dividend, or to receive any such allotment of rights, or to
exercise the rights in respect of any such change, conversion or exchange of
shares, etc., and in such case such shareholders, and only such shareholders
as shall be shareholders of record on the date so fixed, shall be entitled to
such notice of and to vote at such meeting, or to receive payment of such
dividend, or to receive such allotment of rights, or to exercise such rights
in respect of any such change, conversion or exchange of shares, etc., with
respect to the shares held by them of record on such date, notwithstanding
any transfer of any shares on the share transfer books of the corporation or
issue of any unissued shares after any such record date fixed as aforesaid.
If the board of directors shall fail to fix the record date for any such
transaction, the date of the authorization by the board of such transaction
shall be the record date. Any determination made hereunder of shareholders
entitled to vote at any meeting of shareholders shall apply to any
adjournment thereof unless a new record date is fixed for such meeting which
new record date shall be fixed if the meeting is adjourned to a date more
than one hundred twenty days after the date fixed for the original meeting.
The share transfer books shall not be closed if such closure would contravene
the rules and regulations of the New York Stock Exchange.
SECTION 3. ADDRESSES OF SHAREHOLDERS. Every shareholder shall
furnish the corporation or the transfer agent, if any, with a current address
at which notices of meetings and all other corporate notices may be served
upon or mailed to him.
SECTION 4. LOST AND DESTROYED CERTIFICATES. The board of directors
may direct a new certificate or certificates evidencing shares of the
corporation to be issued in the place of any certificate or certificates
theretofore issued and alleged to have been lost or destroyed; but the board
of directors, when authorizing such issue of a new certificate or
certificates, may in their discretion require the owner of the shares
represented by the certificate so lost or destroyed, or his legal
representative to furnish proof by, affidavit or otherwise, to the
satisfaction of the board of directors and transfer agent as to the ownership
of the shares represented by such certificate alleged to have been lost or
destroyed and the facts which tend to prove its loss or destruction. They
may also require him to give notice of such loss or destruction to the New
York Stock Exchange and by publication or otherwise as they may direct, and
to execute and deliver to the corporation or its transfer agent, a bond, with
or without sureties, in such sum as they may direct, indemnifying the
corporation and its transfer agent against any claim that may be made against
it by reason of the issue of such certificate, and against all other
liability in the premises. The board of directors, however, may, in their
discretion, refuse to authorize the issuance of any such new certificate,
except pursuant to legal proceedings.
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ARTICLE VII
SEAL
The board of directors shall authorize a suitable seal or seals,
which shall be in the form of a circle, and shall bear the words "Tootsie
Roll Industries, Inc." and the words and figures "Virginia, 1919."
ARTICLE VIII
FISCAL YEAR
The fiscal year of the corporation shall be fixed from time to time
by the board of directors.
ARTICLE IX
AMENDMENTS
SECTION 1. BY DIRECTORS. All by-laws shall be subject to
alteration, amendment or repeal, and new by-laws may be made, by the vote of
a majority of the then prescribed number of directors, except as otherwise
provided by law.
SECTION 2. BY SHAREHOLDERS. Any by-laws made by the board of
directors may be altered, amended or repealed, and new by-laws made, by the
shareholders of the corporation and the shareholders may prescribe that any
by-law made by them shall not be altered, amended or repealed by the
directors.
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EXHIBIT 10.12
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RESTATEMENT OF SPLIT DOLLAR AGREEMENT (SPECIAL TRUST)
RESTATEMENT, made and entered into by and between Tootsie Roll
Industries, Inc., a Virginia corporation (the "Corporation"), and Wendy J.
Gordon, not individually, but as trustee of the Gordon Family 1993 Special
Trust (the "Owner").
WHEREAS, the Corporation and the Owner entered into a Split Dollar
Agreement dated July 10, 1993 covering policies of insurance on the joint
lives of Melvin J. Gordon and Ellen R. Gordon and policies of insurance on
the sole life of Ellen R. Gordon (the "Agreement"); and
WHEREAS, Melvin J. Gordon and Ellen R. Gordon (individually, an
"Employee," and collectively, the "Employees") continue to be employed by the
Corporation in which capacity their services have contributed to the
successful operation of the Corporation, and the Corporation and its board of
directors believe it is in the best interest of the Corporation to retain the
services of the Employees; and
WHEREAS, the Corporation and the Owner desire to restate and
continue the Agreement and to expand the Agreement to cover three additional
policies of insurance owned by the Owner on the sole life of Ellen R. Gordon,
such additional policies and the original policies subject to the Agreement
(the "policies") are listed on the attached Amended Schedule A; and
WHEREAS, the Corporation and the Owner agree to make all the
policies subject to this restated split dollar agreement; and
WHEREAS, the Owner agrees to assign each additional policy to the
Corporation as collateral for the premium payments to be made by the
Corporation under this restated agreement by an instrument of collateral
assignment (the "assignment"), to record such assignment with the respective
issuing insurance company, and to maintain in full force and effect the
collateral assignments for the original policies.
NOW, THEREFORE, in consideration of the premises, and the services
to be rendered to the Corporation by the Employees, and for other good and
valuable consideration, receipt of which is hereby acknowledged, the
Corporation and the Owner hereby mutually covenant and agree as follows:
ARTICLE I
PAYMENT OF PREMIUMS AND ECONOMIC BENEFIT
1.1. As long as this restated agreement is in force, as to each policy,
the Owner and the Corporation agree to pay the amounts and in the manner set
forth below.
1.2. On or before the anniversary date of the policy, the Owner shall pay
to the insurance company issuing the policy (the "Insurer") an amount equal
to the economic benefit as to the policy that would be taxable as gross
income for federal income tax purposes to one or both of the Employees but
for the payment by the Owner of such amount. The Owner shall have the
option, exercisable upon 30 days' written notice delivered to the
Corporation, to pay a greater amount to the Corporation.
1.3. For purposes of Section 1.2 above, the economic benefit that would
be taxable to one or both of the Employees shall be computed in accordance
with Revenue Rulings 64-328, 1964-2 C.B. 11, and 66-110, 1966-1 C.B 12, and
the Corporation shall be responsible for computing such amount. The
Corporation will advise the Owner of the amount payable by the Owner pursuant
to Section 1.2, and the Owner shall pay that amount directly to the Insurer.
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1.4. On or before the anniversary date of the policy, the Corporation
shall pay to the Insurer the balance of the annual premium, if any, as to the
policy in excess of the amount payable by the Owner pursuant to Section 1.2
above.
ARTICLE II
POLICY OWNERSHIP
2.1. The Owner shall be the sole owner and beneficiary of each policy.
The Owner agrees to assign each policy to the Corporation as collateral for
the Corporation's payment of premiums hereunder, and the Corporation shall
have those rights granted to it under the assignments and this restated
agreement. As between the Owner and the Corporation, this restated agreement
shall take precedence over any provisions of the assignments in case of a
conflict between the terms of this restated agreement and the assignments.
ARTICLE III
DEATH OF EMPLOYEES
3.1. As to each policy on the joint lives of the Employees, on the death
of the last to die of the Employees while this restated agreement is in
force, the Owner will pay to the Corporation an amount equal to the aggregate
of (a) the total premiums paid by the Corporation on the policy from the date
of this restated agreement to the date of death of the last to die of the
Employees, reduced by all distributions from the policy made to the
Corporation during that time and (b) an amount equal to the total premiums
paid by the Corporation from the date of the Agreement to the date of this
restated agreement, reduced by the total payments made to the Corporation by
the Owner during that time (the "Corporation's Interest" and, in the
assignment relating to the policy, the "Assignee's Interest").
3.2. As to each policy on the sole life of Ellen R. Gordon, on the death
of Ellen R. Gordon while this restated agreement is in force, the Owner will
pay to the Corporation an amount equal to the aggregate of (a) the total
premiums paid by the Corporation on the policy from the date of this restated
agreement to the date of death of Ellen R. Gordon, reduced by all
distributions from the policy made to the Corporation during that time and
(b) an amount equal to the total premiums paid by the Corporation from the
date of the Agreement to the date of this restated agreement, reduced by the
total payments made to the Corporation by the Owner during that time (the
"Corporation's Interest" and, in the assignment relating to the policy, the
"Assignee's Interest").
ARTICLE IV
TERMINATION OF RESTATED AGREEMENT
4.1. As to each policy, this restated agreement shall automatically
terminate upon the happening of any of the following events:
(a) As to each policy on the joint lives of the Employees, at
the option of the Corporation, if both the Employees terminate
employment for any reason other than the death of both Employees. An
Employee shall be deemed to be employed by the Corporation during any
period of temporary or permanent disability.
(b) As to each policy on the sole life of Ellen R. Gordon, at
the option of the Corporation, if Ellen R. Gordon terminates
employment for any reason other than her death.
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Ellen R. Gordon shall be deemed to be employed by the Corporation during
any period of temporary or permanent disability.
(c) At the surrender, lapse or termination of the policy.
(d) Upon delivery by the Owner of written notice of such
termination to the Corporation.
(e) Upon failure of the Owner to make a payment required by
Section 1.2 above.
(f) Upon agreement of the parties.
4.2. In the event of a termination under Section 4.1 above, the
Corporation shall be entitled to receive from the Owner within 120 days after
such termination as to a policy on the joint lives of the Employees, an
amount equal to the amount the Corporation would have been entitled to
receive at the death of the last to die of the Employees under Section 3.1
determined as if such death occurred on the date of such termination (the
"termination amount"), or as to a policy on the sole life of Ellen R. Gordon,
an amount equal to the amount the Corporation would be entitled to receive at
the death of Ellen R. Gordon under Section 3.2 determined as if her death
occurred on the date of such termination (the "termination amount").
4.3. If full payment of the termination amount is not received by the
Corporation pursuant to Section 4.2 above within the 120-day period, the
remaining amount owed by the Owner to the Corporation shall be deemed to be
in default (the "default amount"). Thereafter, the Owner, at the Owner's
option, immediately shall:
(a) Pay the default amount to the Corporation; or
(b) Transfer complete ownership of the policy to the
Corporation.
ARTICLE V
OTHER PROVISIONS
5.1. The Corporation agrees that it will not merge or consolidate with
another corporation or organization, or permit its business activities to be
taken over by any other organization unless and until the succeeding or
continuing corporation or other organization shall expressly assume the
rights and obligations of the Corporation herein set forth.
5.2. This restated agreement will be governed by and construed in
accordance with the laws of Illinois, where it is made and to be performed.
It sets forth the entire agreement between the parties concerning the subject
matter thereof, and any amendment or discharge will be made only in writing.
This restated agreement will bind and benefit the parties and their legal
representatives and successors.
5.3. This restated agreement shall not be deemed to constitute a contract
of employment between the Corporation and either of the Employees, nor shall
any provision restrict the right of the Corporation to discharge either of
the Employees, or restrict the right of either of the Employees to terminate
employment.
5.4. For the purposes of the Employee Retirement Income Security Act of
1974 (ERISA), the Corporation will be the "Named Fiduciary" and Plan
Administrator of the split dollar life insurance plan (the "Plan") for which
this restated agreement is hereby designated the written plan instrument.
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5.5. The Corporation's board of directors may authorize a person or group
of persons to fulfill the responsibilities of the Corporation as Plan
Administrator. The Named Fiduciary or the Plan Administrator may employ
others to render advice with regard to its responsibilities under the Plan.
The Named Fiduciary may also allocate fiduciary responsibilities to others
and may exercise any other powers necessary for the discharge of its duties
to the extent not in conflict with ERISA.
5.6. The following Claims Procedure shall control the determination of
benefit payments under the Plan:
(a) Filing of Claim for Benefits
Any person or entity ("Claimant") entitled to benefits under the Plan
or under a policy will file a claim request with the Plan
Administrator with respect to benefits under the Plan and with the
"Insurer" (defined below) with respect to benefits under the policy.
The Plan Administrator will, upon written request of a Claimant, make
available copies of any claim forms or instructions provided by the
Insurer or advise the Claimant where copies of such forms or
instructions may be obtained.
(b) Denial of Claim
A claim for Benefits under the Plan will be denied if the Corporation
determines that the Claimant is not entitled to receive benefits under
the Plan. Notice of a denial shall be furnished to the Claimant
within a reasonable period of time after receipt of the Claim for
Benefit by the Plan Administrator. In the case of benefits which are
provided under the policy, the initial decision on the claims will be
made by the Insurer.
(c) Content of Notice
The Plan Administrator shall provide to every Claimant who is denied a
Claim for Benefits written notice setting forth, in a manner
calculated to be understood by the Claimant, the following:
(i) The specific reason or reasons for the denial;
(ii) Specific reference to pertinent Plan provisions on
which the denial is based:
(iii) A description of any additional material or
information necessary for the Claimant to perfect the claim, and
an explanation of why such material or information is necessary;
and
(iv) An explanation of the Plan's Claim Review Procedure as
set forth below.
(d) Review Procedure
The purpose of the Review Procedure is to provide a method by which a
Claimant may have a reasonable opportunity to appeal a denial of a
Claim to the Named Fiduciary for a full and fair review. To
accomplish that purpose, the Claimant or his duly authorized
representative:
(i) May require a review upon written application to the
Named Fiduciary;
(ii) May review pertinent Plan documents; and
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(iii) May submit issues and comments in writing.
A Claimant (or his duly authorized representative) shall request a
review by filing a written application for review with the Named
Fiduciary at any time within 60 days after receipt by the Claimant of
written notice of the denial of his claim.
(e) Decision on Review
A decision on review of a denied claim shall be made in the following
manner:
(i) The decision on review shall be made by the Named
Fiduciary, who may in his discretion hold a hearing on the denied
claim. Such decision shall be made promptly, and not later than
60 days after receipt of the request for review, unless special
circumstances (such as the need to hold a hearing) require an
extension of time for processing, in which case a decision shall
be rendered as soon as possible, but not later than 120 days
after receipt of the request for review.
(ii) The decision on review shall be in writing and shall
include specific reasons for the decision, written in a manner
calculated to be understood by the Claimant, and specific
references to the pertinent Plan provisions upon which the
decision is based.
5.7. This restated agreement may be amended or modified in whole or in part
by the Owner and the Corporation in writing at any time.
5.8. Notwithstanding the provisions of this restated agreement, each
Insurer is hereby authorized to act in accordance with the terms of its
respective policy as if this restated agreement did not exist, and the
payment or other performance of the contractual obligations by the Insurer,
in accordance with the terms of such policy, shall completely discharge the
Insurer from all claims, suits and demands of all persons whatsoever.
* * *
IN WITNESS WHEREOF, the parties hereto have signed this
restatement on January 31, 1997.
TOOTSIE ROLL INDUSTRIES, INC.
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AMENDED SCHEDULE A (SPECIAL TRUST)
Name Policy No.
---- ----------
Policies on the Joint Lives of Melvin and Ellen Gordon
- ------------------------------------------------------
Guardian 3733408
John Hancock 80042963
Mass Mutual 8858899
New York Life 44956816
Principal Mutual 6450780
Policies on the Sole Life of Ellen Gordon
- -----------------------------------------
Security Life 1526881
Sun Life 9293268Z
Mass Mutual 0027876
New York Life 63542913
Pacific Mutual VP60429270
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COLLATERAL ASSIGNMENT (SPLIT DOLLAR)
1. Wendy J. Gordon, Virginia L. Gordon, Karen Gordon Mills, and Lisa J.
Gordon, not individually but as trustees of the Gordon Family 1993 Special
Trust (the "Assignor"), hereby assigns, transfers and sets over to Tootsie
Roll Industries, Inc., a Virginia corporation (the "Assignee"), to the extent
of the amounts defined in and owing from time to time from Assignor to
Assignee under that certain Split Dollar Agreement dated July 10, 1993, as
restated, between Assignor and Assignee (the "Assignee's Interest"), Policy
No. VP60429270 issued by Pacific Mutual Life Insurance Company on the life of
Ellen R. Gordon, subject to all the terms and conditions of the policy and to
all superior liens, if any, which the insurer may have against the policy.
The Assignor by this instrument agrees and the Assignee by the acceptance of
this assignment agrees to the conditions and provisions herein set forth.
1. It is expressly agreed that only the following specific rights are
included in this assignment and may be exercised solely by the Assignee:
(f) The right to obtain, upon surrender of the policy by the
Assignor, an amount of the cash surrender proceeds up to the amount of the
Assignee's Interest in the policy.
(g) The right to collect, upon the death of the insured, the net
proceeds of the policy up to the amount of the Assignee's Interest in the
policy.
2. The insurer hereby is authorized to recognize the Assignee's claim
to rights hereunder without investigating the reason for any action taken by
the Assignee, or the giving of any notice, or the application to be made by
the Assignee of any amounts to be paid to the Assignee. The sole signature
of the Assignee shall be sufficient for the exercise of its rights under the
policy and the sole receipt of the Assignee for any sums received shall be a
full discharge and release therefor to the insurer.
Dated: March 8, 1997.
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Wendy J. Gordon, not individually, but as trustee
Assignor
Virginia L. Gordon, not individually, but as trustee
Assignor
Karen Gordon Mills, not individually, but as trustee
Assignor
Lisa J. Gordon, not individually, but as trustee
Assignor
Accepted an executed counterpart of this Collateral Assignment as of the
date last above written.
PACIFIC MUTUAL LIFE INSURANCE
COMPANY
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COLLATERAL ASSIGNMENT (SPLIT DOLLAR)
1. Wendy J. Gordon, Virginia L. Gordon, Karen Gordon Mills, and Lisa
J. Gordon, not individually but as trustees of the Gordon Family 1993 Special
Trust (the "Assignor"), hereby assigns, transfers and sets over to Tootsie
Roll Industries, Inc., a Virginia corporation (the "Assignee"), to the extent
of the amounts defined in and owing from time to time from Assignor to
Assignee under that certain Split Dollar Agreement dated July 10, 1993, as
restated, between Assignor and Assignee (the "Assignee's Interest"), Policy
No. 63542913 issued by New York Life Insurance Company on the life of Ellen
R. Gordon, subject to all the terms and conditions of the policy and to all
superior liens, if any, which the insurer may have against the policy. The
Assignor by this instrument agrees and the Assignee by the acceptance of this
assignment agrees to the conditions and provisions herein set forth.
2. It is expressly agreed that only the following specific rights are
included in this assignment and may be exercised solely by the Assignee:
(a) The right to obtain, upon surrender of the policy by the
Assignor, an amount of the cash surrender proceeds up to the amount
of the Assignee's Interest in the policy.
(b) The right to collect, upon the death of the insured, the
net proceeds of the policy up to the amount of the Assignee's
Interest in the policy.
3. The insurer hereby is authorized to recognize the Assignee's claim
to rights hereunder without investigating the reason for any action taken by
the Assignee, or the giving of any notice, or the application to be made by
the Assignee of any amounts to be paid to the Assignee. The sole signature
of the Assignee shall be sufficient for the exercise of its rights under the
policy and the sole receipt of the Assignee for any sums received shall be a
full discharge and release therefor to the insurer.
Dated: March 8, 1997.
-43-
<PAGE>
Wendy J. Gordon, not individually, but as trustee
Assignor
Virginia L. Gordon, not individually, but as trustee
Assignor
Karen Gordon Mills, not individually, but as trustee
Assignor
Lisa J. Gordon, not individually, but as trustee
Assignor
Accepted an executed counterpart of this Collateral Assignment as of the
date last above written.
NEW YORK LIFE INSURANCE COMPANY
-44-
<PAGE>
COLLATERAL ASSIGNMENT (SPLIT DOLLAR)
1. Wendy J. Gordon, Virginia L. Gordon, Karen Gordon Mills, and Lisa J.
Gordon, not individually but as trustees of the Gordon Family 1993 Special
Trust (the "Assignor"), hereby assigns, transfers and sets over to Tootsie
Roll Industries, Inc., a Virginia corporation (the "Assignee"), to the extent
of the amounts defined in and owing from time to time from Assignor to
Assignee under that certain Split Dollar Agreement dated July 10, 1993, as
restated, between Assignor and Assignee (the "Assignee's Interest"), Policy
No. 0027876 issued by Massachusetts Mutual Life Insurance Company on the life
of Ellen R. Gordon, subject to all the terms and conditions of the policy and
to all superior liens, if any, which the insurer may have against the policy.
The Assignor by this instrument agrees and the Assignee by the acceptance of
this assignment agrees to the conditions and provisions herein set forth.
2. It is expressly agreed that only the following specific rights are
included in this assignment and may be exercised solely by the Assignee:
(a) The right to obtain, upon surrender of the policy by the
Assignor, an amount of the cash surrender proceeds up to the amount of the
Assignee's Interest in the policy.
(b) The right to collect, upon the death of the insured, the net
proceeds of the policy up to the amount of the Assignee's Interest in the
policy.
3. The insurer hereby is authorized to recognize the Assignee's claim to
rights hereunder without investigating the reason for any action taken by the
Assignee, or the giving of any notice, or the application to be made by the
Assignee of any amounts to be paid to the Assignee. The sole signature of the
Assignee shall be sufficient for the exercise of its rights under the policy and
the sole receipt of the Assignee for the amount of any sums received shall be a
full discharge and release therefor to the insurer.
Dated: March 8, 1997.
-45-
<PAGE>
Wendy J. Gordon, not individually, but as trustee
Assignor
Virginia L. Gordon, not individually, but as trustee
Assignor
Karen Gordon Mills, not individually, but as trustee
Assignor
Lisa J. Gordon, not individually, but as trustee
Assignor
Accepted an executed counterpart of this Collateral Assignment as of the
date last above written.
MASSACHUSETTSMUTUAL LIFE INSURANCE
COMPANY
-46-
<PAGE>
<TABLE>
<S> <C>
CORPORATE PROFILE
Tootsie Roll Industries, Inc. has been engaged in the
manufacture and sale of candy for over 100 years. Our products
are primarily sold under the familiar brand names Tootsie Roll,
Tootsie Roll 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 view our well known brands as prized assets to be
aggressively advertised and promoted to each new generation of
consumers.
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.
</TABLE>
MELVIN
J. GORDON, CHAIRMAN AND CHIEF EXECUTIVE OFFICER AND
ELLEN
R. GORDON, PRESIDENT AND CHIEF OPERATING OFFICER.
<TABLE>
<S> <C>
We seek to outsource functions where appropriate and to
vertically integrate operations where it is financially
advantageous to do so.
We maintain a conservative financial posture in the deployment
and management of our assets.
</TABLE>
1
<PAGE>
TO OUR SHAREHOLDERS
We are pleased to report that Tootsie Roll celebrated its 100th Anniversary in
1996 with another year of impressive results.
Sales grew to a record $341 million, representing an increase of $28 million or
9% over the prior year. This marks the twentieth consecutive year that the
company has achieved record sales.
Sales growth was driven by continued growth in mass merchandisers and other
select trade classes with our existing products, and another strong Halloween
season. The strength of our core business was augmented by several new products
and the continuing success of marketing efforts such as seasonal packs and line
extensions. These offerings give consumers added opportunities to purchase our
many well established brands in contemporary formats.
Earnings reached $47 million, representing an increase of 17% over 1995. This
was our fifteenth consecutive year of record earnings achievement. Earnings
growth resulted from increased sales, higher investment income and our
unyielding efforts to increase efficiency and productivity in all aspects of our
operations. Earnings per share also increased by 17% to a record $2.05 per
share.
These successful operating results further strengthened our financial position
during the year. At year end our cash and marketable securities, net of interest
bearing debt, reached $137 million. Thus we are well positioned to respond
quickly to growth opportunities that may arise. In this regard, we are
continuing our historical precedent of building cash reserves to pursue
strategic acquisitions.
Capital expenditures during the year were nearly $10 million, our cash dividend
rate was increased by 19% and our thirty-second consecutive 3% stock dividend
was distributed in April.
While 1996 was indeed satisfactory from a financial standpoint, equally
gratifying was the widespread and complimentary media attention drawn by the
celebration of our 100th Anniversary. Many favorable reports were carried by a
variety of sources including news articles by Associated Press and others, and
several features appeared on national television.
We were also reminded of the special heritage of our brands by over 20,000
letters received from consumers, many conveying special personal sentiments
about Tootsie Roll. We wish to thank all of our customers and consumers, along
with our many loyal employees, suppliers, sales brokers and shareholders who
have helped us protect and greatly reinforce this heritage over the years and
made 1996 a truly "Happy Birthday."
Melvin J. Gordon
Chairman of the Board and
Chief Executive Officer
Ellen R. Gordon
President and
Chief Operating Officer
2
<PAGE>
OPERATING REPORT
- ------------------------------------------------------------------------
Marketing and Sales
Sales increased $28 million or 9% in 1996. This growth is attributable mainly to
gains in many of our core product lines, and by successful new product
introductions and niche marketing efforts.
Sales of core brands benefited from expanded distribution in mass merchandisers
and other select trade classes, along with another good Halloween selling
period. Targeted promotions such as shippers, bonus bags and combo packs
supplemented our turn items and helped to further strengthen our position both
in the trade and with consumers as a supplier of high value/high quality branded
confections.
Also contributing to increased sales was further growth in our Christmas,
Valentine's Day and Easter seasonal lines. In this market segment opportunities
were developed by targeting appropriate price points with festively wrapped
items selected from each of our major lines. Such items are attractive to
consumers both in visual presentation and in value. They have also become
popular with retailers by consistently achieving a high sell through.
New products contributed to increased sales in 1996. The most notable of these
was our Caramel Apple Pop. This tasty combination of sour apple hard candy and
milk caramel gained extensive regional distribution and continued to generate a
large number of favorable consumer letters.
Charms' brand was expanded by the addition of Soda Fountain Pops featuring
traditional soda pop flavors packed in an eye-catching gravity-fed dispenser.
Also at Charms, the Super Blow Pop was introduced in a larger size with newly
designed packaging and was well received by the trade.
Advertising and Public Relations
The public relations response to events associated with our 100th Anniversary
was extraordinary. Printed media coverage began with widespread publication of
the "Chocolaty, Chewy Candy Quiz" which whimsically highlighted significant
facts and historical milestones of the company in a multiple choice question
format. Coverage became even more extensive as Associated Press beamed word of
our birthday celebration to hundreds of national and regional newspapers across
the country, and USA Today highlighted the company in a prominent feature
article.
National television audiences learned of our centennial from an appearance by
the "Mr. Tootsie Roll" character on Oprah Winfrey's 'Notable Anniversaries'
Show, a special feature on ABC's World News Tonight with Peter Jennings and a
longer segment on ABC's World News Now. Many local television and radio stations
picked up on this theme and gave favorable coverage to our anniversary as well.
The 100th Anniversary motif was carried to the product level with a collector's
tin commemorating the event and by the application of an attractive logo to the
label of several major Tootsie Roll brand items. This nostalgic promotion
reminded consumers of the long history and heritage of our flagship brand.
Another logo applied to packages of Tootsie Rolls, Tootsie Pops and Junior Mints
highlighted the low fat content of these items. This was further amplified by
numerous 'low fat' references in print media, including an article on Tootsie
Rolls in Self Magazine.
In addition, the 'low fat' message was beamed toward adults via some of our
television advertising flights. Others carried the more traditional themes of
"How Many Licks" and "Everything I Think I See Becomes a Tootsie Roll to Me"
which were directed toward younger audiences.
Through this combination of advertising and extensive media coverage in 1996,
consumer awareness of our timeless brands became greater than ever.
Manufacturing
Again in 1996, investments were made throughout our manufacturing facilities to
increase capacity, reduce costs and improve product quality. In Chicago, new
cutting and wrapping equipment was installed and several projects to increase
efficiency were completed.
In Covington, new cooking, forming and wrapping equipment
- --------------------------------------------------------------------------------
3
<PAGE>
- ------------------------------------------------------------------------
was installed, and a key material handling operation was automated.
A number of cost reduction projects were completed at other domestic facilities
and the efficiencies sought through the modernization program at our Mexican
facility were augmented by reconfiguration and consolidation in our warehousing
network there.
While we continue to seek optimal production methods across all of our
manufacturing facilities, the capital investment process at the company entails
a rigorous review process to ensure that all such investments are financially
justified.
Physical Distribution
Consistent with our practice of conducting ongoing reviews of each significant
aspect of our operation, in 1996 we thoroughly reevaluated evolving distribution
patterns and improved our warehousing and distribution system.
These modifications benefited both our customers and the company. Our customers
realized more rapid order fulfillment while the consolidation of a number of
smaller distribution points into several larger centralized locations resulted
in lower operating and freight cost for the company.
We also purchased hardware and software to initiate the first phase of a new
automated inventory tracking system in our Chicago facility. It is anticipated
that this series of projects, when completed, will result in increased operating
efficiency through more timely and accurate tracking of inventories.
Purchasing
Market conditions continued to put cost pressure on a number of key ingredients
and supplies. Adverse spring weather in the Midwest was disruptive to the grains
and oilseed crops, and, coupled with strong export demand earlier in the year,
produced record high corn prices in the United States during the summer.
Increased prices were seen also in dairy products due to higher feed grain
prices, and in sugar due to a poor sugar beet crop and strong domestic demand.
The effect of these cost pressures was largely mitigated by the company's
commodity hedging program through which prices may be locked in advance at
acceptable levels to insulate the company from unfavorable short term market
fluctuations.
Packaging costs, which peaked in 1995, fell slightly in 1996 as continued
strength in the domestic economy was partially offset by some weakness in
foreign demand. We negotiated supply contracts to mitigate short term
fluctuations in the price of certain packaging items.
The extreme cold of the winter of 1995/96 created higher demand for natural gas
and increased the price of this commodity throughout 1996. This, too, was
controlled to some extent through hedging activities.
International
Our foreign operations performed well in 1996. Mexican sales and profits
increased despite adverse economic conditions in that country. This was largely
due to a focus on holding or growing volume while regaining margin lost in the
currency devaluations of 1994 and 1995.
Our product offerings in Mexico were expanded with the addition of several new
products and line extensions. Also, operating efficiencies were realized from
modifications made in our warehousing system there and as a result of production
modernization initiatives implemented in 1995.
In Canada significant sales growth was realized through expanding distribution
in the mass merchandisers, drugstore and warehouse club trade classes as well as
through new product introductions. In addition, we continued to export our well
known brands to many foreign countries.
- ------------------------------------------------------------------------
4
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(in thousands except per share, percentage and ratio figures)
- --------------------------------------------------------------------------------
FINANCIAL REVIEW
This financial review discusses the company's financial condition, results of
operations, liquidity and capital resources. It should be read in conjunction
with the Consolidated Financial Statements and related footnotes following this
discussion.
FINANCIAL CONDITION
Record operating results achieved in 1996 further strengthened our financial
condition as sales and net earnings reached new highs.
Cash flow generated by operations was used to retire $20,000 of interest bearing
debt, to fund $9,791 of capital expenditures, to pay $6,211 in cash dividends
and to purchase investments.
The cash dividend rate was increased by 19% in 1996 which marked the
fifty-fourth consecutive year in which the company has paid cash dividends. It
was also the thirty-second consecutive year in which a 3% stock dividend was
distributed to shareholders.
Investments in marketable securities increased by $42,572 and account for the
majority of the $43,686 increase in the company's working capital which ended
the year at $153,329.
Our financial position in 1996 versus 1995, measured by commonly used financial
ratios, is as follows: the current ratio rose from 3.0:1 to 4.2:1, the quick
ratio rose from 2.3:1 to 3.4:1 and current liabilities to net worth fell from
20.3% to 15.4% due to an increase in investments and a $20,000 reduction in
notes payable. This latter event also resulted in a decrease in debt to equity
from 10.1% to 2.4%.
Shareholders equity increased by 15.0% and ended the year at $312,881.
The company's financial condition results from a conservative financial posture
and our history of successful operations. It provides a healthy base from which
to finance future growth opportunities. In this regard, the company is
aggressively seeking acquisitions to complement our existing operations.
RESULTS OF OPERATIONS
1996 vs. 1995
1996 represented our twentieth consecutive year of record sales. Sales reached
$340,909, an increase of 9.0% over 1995 sales of $312,660. Increases were seen
in each quarter. While the third quarter continues to be our largest selling
period, another successful Halloween season drove double digit sales gains in
both the third quarter and fourth quarter of 1996.
Sales throughout the year were favorably impacted by successful promotional
programs and broadened distribution in mass merchandisers and other select trade
classes with our core products. These efforts were augmented by niche marketing
strategies including seasonal packs, line extensions and new product offerings.
Foreign sales grew 19.9% in 1996. Increases in Mexico were attributable to both
price increases and volume growth. Canadian sales gains were achieved by
increased distribution in mass merchandisers and other
- --------------------------------------------------------------------------------
5
<PAGE>
- --------------------------------------------------------------------------------
trade classes as well as new product introductions to that market.
Cost of goods sold as a percentage of sales decreased from 53.3% to 52.4%, the
same level as in 1994. This reflected an easing of the packaging cost increases
seen in 1995 as well as higher operating efficiencies due to increased
production volume. Consequently, gross margin, which was $162,420 or 11.3%
higher than in 1995, improved as a percentage of sales from 46.7% to 47.6%.
Gross margins as a percent of sales have historically been lower in the third
and fourth quarters due to the seasonal nature of our business and to the
product mix sold at that time of the year. This occurred again in 1996.
Operating expenses, comprised of marketing, selling, advertising, physical
distribution, general and administrative expenses and goodwill amortization, as
a percentage of sales were 26.7%, a decrease of .3% versus 1995. This
improvement is due to distribution and warehousing efficiencies and effective
expense control programs aimed at keeping costs in check. Earnings from
operations were $71,532, or 21.0% of sales in 1996 versus 19.6% in 1995,
reflecting the combined effects of an increased gross margin percentage and
lower operating costs as a percentage of sales.
Other income increased to $3,566, primarily due to increased investment income.
The effective tax rate of 37.1% was comparable to that of 1995.
Consolidated net earnings rose 16.9% to a new company record of $47,207, or
$2.05 per share from the previous record of $40,368, or $1.75 per share in 1995.
This represents an improvement in earnings as a percent of sales to 13.8% and
the fifteenth consecutive year of record earnings for the company.
1995 vs. 1994
1995 represented the nineteenth consecutive year of record sales for the
company. Sales of $312,660 were up 5.3% over 1994 sales of $296,932. The third
quarter remained our largest sales period due to Halloween, and surpassed levels
attained in previous years.
Domestic sales gains were partially offset by declines in US dollar sales of our
Mexican subsidiary, resulting from the devaluation of the Mexican peso at the
end of 1994 and throughout 1995. However, unit volume there increased over 1994
reflecting another strong Christmas selling season.
Sales by our Canadian operation were up over 1994. Contributing factors included
distribution gains and a successful new product introduction there.
Cost of goods sold, as a percentage of sales, increased from 52.4% to 53.3%
reflecting higher packaging material costs and increases in the cost of some
significant ingredients. These factors were driven by increased world wide
demand and, in the case of ingredient increases, by adverse weather conditions
in the United States and elsewhere in the world.
Direct labor remained roughly constant as a percentage of sales while overhead
declined
- --------------------------------------------------------------------------------
6
<PAGE>
- --------------------------------------------------------------------------------
somewhat due to modest cost inflation, continuing expense control and increased
production volumes in relation to fixed costs.
Gross margin dollars grew by 3.2% to $145,922 in 1995, but declined slightly as
a percentage of sales to 46.7% from 47.6% due to the factors cited above. Gross
margin percent was lower in the third and fourth quarters due to the seasonal
nature of our business and the product mix sold at that time of year.
Operating expenses declined as a percentage of sales slightly from 27.4% to
27.1% and partially offset the lower gross margin percentage. Consequently,
earnings from operations were $61,403, or 19.6% of sales in 1995 versus 20.2% in
1994.
Other income increased by $1,456, primarily due to increased investment income.
The effective tax rate declined from 38.0% to 37.0%.
Consolidated net earnings rose 6.4% to a new company record of $40,368, or $1.75
per share. 1995 was the fourteenth consecutive year of record earnings
achievement for the company.
Liquidity and Capital Resources
Cash flows from operating activities increased to $76,710 in 1996 from $50,851
in 1995 and $40,495 in 1994. Higher profits and depreciation were augmented by
decreases in accounts receivable and inventory and increases in accounts payable
and accrued liabilities.
Cash flows from investing activities in 1996 reflect a net increase of $42,572
in investments. Capital expenditures were $9,791, $4,640 and $8,179 in 1996,
1995 and 1994, respectively.
Cash flows from financing activities consist of the repayment of $20,000 that
was borrowed to purchase our Chicago facility in 1993. Cash dividends of $6,211
were also paid in 1996, the fifty-fourth year in which we have paid cash
dividends.
Our operating results and financial condition are expressed in the following
financial statements.
- --------------------------------------------------------------------------------
7
<PAGE>
CONSOLIDATED STATEMENT OF
EARNINGS AND RETAINED EARNINGS
TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES
(in thousands except per share data)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the year ended December 31,
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Net sales................................................................. $340,909 $312,660 $296,932
Cost of goods sold........................................................ 178,489 166,738 155,565
------------ ------------ ------------
Gross margin.............................................................. 162,420 145,922 141,367
------------ ------------ ------------
Operating expenses:
Marketing, selling and advertising.................................... 50,642 46,436 44,974
Distribution and warehousing.......................................... 22,509 22,049 20,682
General and administrative............................................ 15,031 13,328 13,017
Amortization of the excess of cost over acquired net tangible
assets............................................................... 2,706 2,706 2,706
------------ ------------ ------------
90,888 84,519 81,379
------------ ------------ ------------
Earnings from operations.................................................. 71,532 61,403 59,988
Other income, net......................................................... 3,566 2,635 1,179
------------ ------------ ------------
Earnings before income taxes.............................................. 75,098 64,038 61,167
Provision for income taxes................................................ 27,891 23,670 23,236
------------ ------------ ------------
Net earnings.............................................................. 47,207 40,368 37,931
Retained earnings at beginning of year.................................... 121,477 107,763 96,647
------------ ------------ ------------
168,684 148,131 134,578
------------ ------------ ------------
Deduct:
Cash dividends ($.28, $.23 and $.20 per share)........................ 6,372 5,383 4,580
Stock dividends....................................................... 25,960 21,271 22,235
------------ ------------ ------------
32,332 26,654 26,815
------------ ------------ ------------
Retained earnings at end of year.......................................... $136,352 $121,477 $107,763
------------ ------------ ------------
------------ ------------ ------------
Earnings per share........................................................ $ 2.05 $ 1.75 $ 1.65
------------ ------------ ------------
------------ ------------ ------------
Average common and class B common shares outstanding...................... 23,004 23,004 23,004
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
(The accompanying notes are an integral part of these statements.)
- --------------------------------------------------------------------------------
8
<PAGE>
CONSOLIDATED STATEMENT OF
FINANCIAL POSITION
TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES
(in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS December 31,
1996 1995
------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents............................................................... $ 45,659 $ 47,524
Investments............................................................................. 98,498 55,926
Accounts receivable, less allowances of $1,885 and $1,774............................... 21,207 23,553
Inventories:
Finished goods and work-in-process.................................................. 20,359 19,585
Raw materials and supplies.......................................................... 9,950 12,625
Prepaid expenses........................................................................ 3,001 2,813
Deferred income taxes................................................................... 2,839 2,923
------------ ------------
Total current assets............................................................ 201,513 164,949
------------ ------------
PROPERTY, PLANT AND EQUIPMENT, at cost:
Land.................................................................................... 6,895 6,900
Buildings............................................................................... 29,304 28,259
Machinery and equipment................................................................. 117,130 111,660
------------ ------------
153,329 146,819
Less--Accumulated depreciation.......................................................... 71,642 64,820
------------ ------------
81,687 81,999
------------ ------------
OTHER ASSETS:
Excess of cost over acquired net tangible assets, net of accumulated
amortization of $15,378 and $12,672................................................... 93,256 95,962
Other assets............................................................................ 15,000 10,906
------------ ------------
108,256 106,868
------------ ------------
$391,456 $353,816
------------ ------------
------------ ------------
</TABLE>
(The accompanying notes are an integral part of these statements.)
- --------------------------------------------------------------------------------
9
<PAGE>
(in thousands except per share data)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY December 31,
1996 1995
------------ ------------
<S> <C> <C>
CURRENT LIABILITIES:
Notes payable to banks.................................................................. $ -- $ 20,000
Accounts payable........................................................................ 8,560 5,912
Dividends payable....................................................................... 1,668 1,424
Accrued liabilities..................................................................... 28,240 21,532
Income taxes payable.................................................................... 9,716 6,438
------------ ------------
Total current liabilities....................................................... 48,184 55,306
------------ ------------
NONCURRENT LIABILITIES:
Deferred income taxes................................................................... 9,268 8,911
Postretirement health care and life insurance benefits.................................. 5,636 5,386
Industrial development bonds............................................................ 7,500 7,500
Other long term liabilities............................................................. 7,987 4,527
------------ ------------
Total noncurrent liabilities.................................................... 30,391 26,324
------------ ------------
SHAREHOLDERS' EQUITY:
Common stock, $.69-4/9 par value--
25,000 shares authorized--
15,617 and 15,109, respectively, issued............................................... 10,845 10,492
Class B common stock, $.69-4/9 par value--
10,000 shares authorized--
7,387 and 7,234, respectively, issued................................................. 5,130 5,024
Capital in excess of par value.......................................................... 171,589 146,171
Retained earnings, per accompanying statement........................................... 136,352 121,477
Foreign currency translation adjustment account......................................... (11,035) (10,978)
------------ ------------
312,881 272,186
------------ ------------
$391,456 $353,816
------------ ------------
------------ ------------
</TABLE>
- --------------------------------------------------------------------------------
10
<PAGE>
CONSOLIDATED STATEMENT OF
CASH FLOWS
TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES
(in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the year ended December 31,
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings.......................................................... $47,207 $40,368 $37,931
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation and amortization..................................... 12,068 10,794 10,478
Loss on retirement of fixed assets................................ 714 8 190
Changes in operating assets and liabilities:
Accounts receivable........................................... 2,314 (3,740) (5,158)
Inventories................................................... 1,879 (3,829) (1,091)
Prepaid expenses and other assets............................. (4,253) (3,915) (3,952)
Accounts payable and accrued liabilities...................... 9,362 4,389 (107)
Income taxes payable and deferred............................. 3,718 5,122 1,075
Postretirement health care and life insurance benefits........ 250 393 495
Other long term liabilities................................... 3,460 1,375 778
Other......................................................... (9) (114) (144)
------------ ------------ ------------
Net cash provided by operating activities............................. 76,710 50,851 40,495
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.................................................. (9,791) (4,640) (8,179)
Purchase of held to maturity securities............................... (47,221) (45,313) (72,394)
Maturity of held to maturity securities............................... 16,523 35,409 81,650
Purchase of available for sale securities............................. (35,883) -- --
Sale and maturity of available for sale securities.................... 24,008 -- --
------------ ------------ ------------
Net cash provided by (used in) investing activities................... (52,364) (14,544) 1,077
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuances of notes payable............................................ -- -- 25,000
Repayments of notes payable........................................... (20,000) -- (47,000)
Borrowings under line of credit agreements, net of repayments......... -- -- (535)
Dividends paid in cash................................................ (6,211) (5,292) (4,514)
------------ ------------ ------------
Net cash used in financing activities................................. (26,211) (5,292) (27,049)
------------ ------------ ------------
Increase (decrease) in cash and cash equivalents.......................... (1,865) 31,015 14,523
Cash and cash equivalents at beginning of year............................ 47,524 16,509 1,986
------------ ------------ ------------
Cash and cash equivalents at end of year.................................. $45,659 $47,524 $16,509
------------ ------------ ------------
------------ ------------ ------------
Supplemental cash flow information:
Income taxes paid..................................................... $23,969 $18,573 $22,817
------------ ------------ ------------
------------ ------------ ------------
Interest paid......................................................... $ 1,015 $ 1,548 $ 1,798
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
(The accompanying notes are an integral part of these statements.)
- --------------------------------------------------------------------------------
11
<PAGE>
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. As of January 1, 1994, the company adopted the
provisions of Statement of Financial Accounting Standards (SFAS) No. 115,
"Accounting For Certain Investments in Debt and Equity Securities." In
accordance with SFAS 115, the company's debt and equity securities are now
considered as either held to maturity or available for sale. 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, where material, are
excluded from earnings and are reported as a separate component of stockholders'
equity, net of applicable taxes, until realized.
Inventories:
Inventories are stated at cost, not in excess of market. The cost of domestic
inventories ($24,305 and $28,641 at December 31, 1996 and 1995, respectively)
has been determined by the last-in, first-out (LIFO) method. The excess of
current cost over LIFO cost of inventories approximates $5,161 and $4,739 at
December 31, 1996 and 1995, respectively. The cost of foreign inventories
($6,004 and $3,569 at December 31, 1996 and 1995, 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 price, on a short-term basis, of certain future
ingredient purchases which are integral to the company's manufacturing process
and 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. Open contracts at
December 31, 1996 and 1995 were not material.
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 5 to 35 years for
both buildings and machinery and equipment. For income tax purposes the company
uses accelerated methods on all properties.
Carrying value of long-lived assets:
Effective January 1, 1996, the company adopted SFAS No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of." 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 a write down.
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.
Excess of cost over acquired net tangible assets:
The excess of cost over the acquired net tangible assets of operating
companies 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:
Management has designated the local currency as the functional currency for
the Company's Mexican operations. Accordingly, the net effect of translating the
Mexican operation's financial statements is reported in a separate component of
shareholders' equity. Effective January 1, 1997, management determined that the
Mexican economy was hyper-inflationary. Accordingly, the US dollar will now be
used as the functional currency, and translation gains and losses will be
included in the determination of future earnings.
NOTE 2--ACCRUED LIABILITIES:
Accrued liabilities are comprised of the following:
<TABLE>
<CAPTION>
December 31,
--------------------
1996 1995
--------- ---------
<S> <C> <C>
Compensation and employee benefits.................... $ 7,892 $ 6,027
Commissions........................................... 980 1,017
Advertising and promotions............................ 10,592 7,346
Workers' compensation................................. 1,305 1,409
Other................................................. 7,471 5,733
--------- ---------
$ 28,240 $ 21,532
--------- ---------
--------- ---------
</TABLE>
NOTE 3--INCOME TAXES:
The domestic and foreign components of pretax income are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Domestic................................... $ 71,660 $ 61,894 $ 58,439
Foreign.................................... 3,438 2,144 2,728
--------- --------- ---------
$ 75,098 $ 64,038 $ 61,167
--------- --------- ---------
--------- --------- ---------
</TABLE>
12
<PAGE>
The provision for income taxes is comprised of the following:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Current:
Federal.................................. $ 23,907 $ 19,849 $ 18,096
Foreign.................................. 375 844 1,455
State.................................... 3,167 2,425 2,407
--------- --------- ---------
27,449 23,118 21,958
--------- --------- ---------
Deferred:
Federal.................................. (322) 517 1,972
Foreign.................................. 802 (25) (963)
State.................................... (38) 60 269
--------- --------- ---------
442 552 1,278
--------- --------- ---------
$ 27,891 $ 23,670 $ 23,236
--------- --------- ---------
--------- --------- ---------
</TABLE>
Deferred income taxes are comprised of the following:
<TABLE>
<CAPTION>
December 31,
--------------------
1996 1995
--------- ---------
<S> <C> <C>
Workers' compensation................................... $ 448 $ 484
Reserve for returns..................................... 407 407
Reserve for uncollectible accounts...................... 445 361
Other accrued expenses.................................. 1,295 1,846
VEBA funding............................................ (452) (530)
Other, net.............................................. 696 355
--------- ---------
Net current deferred income tax asset................... $ 2,839 $ 2,923
--------- ---------
--------- ---------
</TABLE>
<TABLE>
<CAPTION>
December 31,
--------------------
1996 1995
--------- ---------
<S> <C> <C>
Depreciation............................................ $ 9,078 $ 8,696
Post employment benefits................................ (1,935) (1,847)
Deductible goodwill..................................... 3,617 2,844
Deferred compensation................................... (2,478) (1,237)
DISC commissions........................................ 1,148 1,183
Other, net.............................................. (162) (728)
--------- ---------
Net long-term deferred income tax liability............. $ 9,268 $ 8,911
--------- ---------
--------- ---------
</TABLE>
The effective income tax rate differs from the statutory rate as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
U.S. statutory rate............................ 35.0% 35.0% 35.0%
State income taxes, net........................ 2.8 2.6 2.8
Amortization of excess of cost over acquired
net tangible assets........................... 0.6 0.7 0.7
Other, net..................................... (1.3) (1.3) (0.5)
--- --- ---
Effective income tax rate...................... 37.1% 37.0% 38.0%
--- --- ---
--- --- ---
</TABLE>
The company has not provided for U.S. federal or foreign withholding taxes on
$2,205 of foreign subsidiaries' undistributed earnings as of December 31, 1996
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 are 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:
<TABLE>
<CAPTION>
Class B
Common Stock Common Stock Capital in
-------------------- ------------------------ excess of
Amount Amount par value
Shares --------- ----------- -----------
--------- Shares
(000's) -----------
(000's)
<S> <C> <C> <C> <C> <C>
Balance at
January 1, 1994......... 7,069 $ 4,909 3,465 $ 2,406 $ 111,108
Issuance of 3%
stock dividend.......... 211 147 103 71 21,889
Conversion of Class B
common shares to common
shares.................. 26 18 (26) (18) --
--------- --------- ----- ----------- -----------
Balance at
December 31, 1994....... 7,306 5,074 3,542 2,459 132,997
Issuance of 3%
stock dividend.......... 218 152 105 73 20,932
Issuance of 2-for-1
stock split............. 7,542 5,237 3,630 2,521 (7,758)
Conversion of Class B
common shares to
common shares........... 43 29 (43) (29) --
--------- --------- ----- ----------- -----------
Balance at
December 31, 1995....... 15,109 10,492 7,234 5,024 146,171
Issuance of 3% stock
dividend................ 449 312 212 147 25,418
Conversion of Class B
common shares to common
shares.................. 59 41 (59) (41) --
--------- --------- ----- ----------- -----------
Balance at
December 31, 1996....... 15,617 $ 10,845 7,387 $ 5,130 $ 171,589
--------- --------- ----- ----------- -----------
--------- --------- ----- ----------- -----------
</TABLE>
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 three
percent stock dividends and the two-for-one stock split distributed in 1995.
In January, 1997, the company repurchased 75,000 shares of its Common Stock
for $2,938.
NOTE 5--NOTES PAYABLE AND INDUSTRIAL DEVELOPMENT BONDS:
In 1993, the company entered into two 3-year term notes aggregating $20,000
the proceeds of which were used to purchase the company's Chicago manufacturing
facility and headquarters. These term notes bore interest payable monthly at
3.55% and matured in September, 1996.
At December 31, 1995, the company had outstanding an interest rate swap
agreement with a notional amount of $20,000. Under the agreement, which expired
in August 1996, the company exchanged a fixed rate of 4.24% for a variable rate
adjusted monthly based upon 30 day LIBOR (5.69% at December 31, 1995). The
company accounted for the agreement using hedge accounting.
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,
13
<PAGE>
1996 and 1995, interest was calculated under the floating option (3.7% and 5.1%,
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 March
1999, carries an annual fee of 32 1/2 basis points on the outstanding principal
amount of the bonds.
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 1996, 1995 and 1994 approximated $1,814, $1,524 and $1,426,
respectively. The company also maintains certain profit sharing and
savings-investment plans. Company contributions in 1996, 1995 and 1994 to these
plans were $485, $441 and $420, respectively.
The company also contributes to multi-employer defined benefit pension plans
for its union employees. Such contributions aggregated $436, $416 and $352 in
1996, 1995 and 1994, 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 accrual for the accumulated postretirement benefit obligation at December
31, 1996 and 1995 consists of the following:
<TABLE>
<CAPTION>
December 31,
--------------------
1996 1995
--------- ---------
<S> <C> <C>
Retirees............................................ $ 1,325 $ 1,372
Active employees.................................... 4,311 4,014
--------- ---------
$ 5,636 $ 5,386
--------- ---------
--------- ---------
</TABLE>
Net periodic postretirement benefit cost for 1996, 1995 and 1994 included the
following components:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Service cost--benefits attributed to
service during the period.............................. $ 263 $ 273 $ 318
Interest cost on the accumulated postretirement
benefit obligation..................................... 190 250 291
--------- --------- ---------
Net periodic postretirement benefit cost................. $ 453 $ 523 $ 609
--------- --------- ---------
--------- --------- ---------
</TABLE>
For measurement purposes, a 9.0% annual rate of increase in the per capita
cost of covered health care benefits was assumed for 1996; 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. To illustrate, increasing the assumed health care cost trend rates by
1 percentage point in each year would increase the accumulated postretirement
benefit obligation as of December 31, 1996 by approximately $524 and the
aggregate of the service and interest cost components of net periodic
postretirement benefit cost for the year then ended by approximately $189. The
weighted-average discount rate used in determining the accumulated
postretirement benefit obligation was 7.25% at both December 31, 1996 and 1995.
NOTE 7--OTHER INCOME, NET:
Other income (expense) is comprised of the following:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Interest income................................ $ 3,887 $ 3,161 $ 1,288
Interest expense............................... (1,498) (1,515) (1,649)
Dividend income................................ 1,386 1,753 1,509
Foreign exchange losses........................ (50) (654) (225)
Royalty income................................. 92 214 149
Miscellaneous, net............................. (251) (324) 107
--------- --------- ---------
$ 3,566 $ 2,635 $ 1,179
--------- --------- ---------
--------- --------- ---------
</TABLE>
NOTE 8--COMMITMENTS:
During 1993 and 1994, the company entered into operating leases for certain
manufacturing equipment which provided the company with the option to terminate
the lease in 1996 and to purchase the equipment at its fair market value. The
company exercised this option and purchased the equipment for $5,401 on January
2, 1996.
Rental expense aggregated $439, $2,538 and $2,314 in 1996, 1995 and 1994,
respectively.
Future operating lease commitments are not significant.
NOTE 9--DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS:
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate that
value:
Cash and cash equivalents and investments
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.
Notes payable and industrial development bonds
The fair values of the company's notes payable and industrial development
bonds are estimated based on the quoted market prices for the same or similar
issues.
Interest rate swap agreement
The fair value of the company's interest rate swap agreement was calculated
using a valuation model based on well recognized financial principles and
current market information to provide a reasonable approximation of fair value.
Fair value
The estimated fair values of the company's financial instruments are as
follows:
<TABLE>
<CAPTION>
1996 1995
------------------------ ------------------------
Carrying Carrying
Amount Fair Value Amount Fair Value
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Cash and cash equivalents............. $ 45,659 $ 45,659 $ 47,524 $ 47,524
Investments held to maturity.......... 86,622 89,164 55,926 57,730
Investments available for sale........ 11,876 11,876 -- --
Notes payable and
industrial development bonds........ 7,500 7,500 27,500 27,500
Interest rate swap agreement.......... -- -- -- (181)
</TABLE>
14
<PAGE>
A summary of the aggregate fair value, gross unrealized gains, gross unrealized
losses and amortized cost basis of the company's investment portfolio is as
follows:
<TABLE>
<CAPTION>
December 31, 1996
----------------------------------------------
Unrealized
Amortized Fair ----------------------
Held to Maturity: Cost Value Gains Losses
- ----------------------------------------- ----------- --------- --------- -----------
<S> <C> <C> <C> <C>
Unit investment trusts of preferred
stocks.................................. $ 13,242 $ 14,853 $ 1,611 $ --
Tax-free commercial paper................ 2,900 2,900 -- --
Municipal bonds.......................... 56,776 56,761 -- (15)
Unit investment trusts of municipal
bonds................................... 1,200 1,762 562 --
US gov't/gov't agency obligations........ 10,199 10,197 -- (2)
Other.................................... 2,176 2,563 387 --
Private export funding securities........ 3,029 3,028 -- (1)
----------- --------- --------- -----------
$ 89,522 $ 92,064 $ 2,560 $ (18)
----------- --------- --------- -----------
----------- --------- --------- -----------
<CAPTION>
Available for Sale:
- -----------------------------------------
<S> <C> <C> <C> <C>
Municipal Bonds.......................... $ 22,164 $ 22,164
----------- ---------
----------- ---------
</TABLE>
<TABLE>
<CAPTION>
December 31, 1995
----------------------------------------------
Unrealized
Amortized Fair ----------------------
Held to Maturity: Cost Value Gains Losses
- ----------------------------------------- ----------- --------- --------- -----------
<S> <C> <C> <C> <C>
Unit investment trusts of preferred
stocks.................................. $ 6,744 $ 7,943 $ 1,206 ($ 7)
Tax-free commercial paper................ 21,763 21,763 -- --
Municipal bonds.......................... 37,360 37,394 42 (8)
Unit investment trusts of municipal
bonds................................... 2,873 3,451 624 (46)
US gov't/gov't agency obligations........ 12,680 12,673 1 (8)
Other.................................... 17 17 -- --
Private export funding securities........ 513 513 -- --
----------- --------- --------- -----------
$ 81,950 $ 83,754 $ 1,873 ($ 69)
----------- --------- --------- -----------
----------- --------- --------- -----------
</TABLE>
Held to maturity securities of $2,900 and $26,024 and available for sale
securities of $10,288 and $0 were included in cash and cash equivalents at
December 31, 1996 and 1995, respectively.
Gross realized gains and losses on the sale of available for sale securities in
1996 and 1995 were not significant.
NOTE 10--GEOGRAPHIC AREA AND SALES INFORMATION:
Summary of sales, net earnings and assets by geographic area
<TABLE>
<CAPTION>
1996 1995 1994
------------------------------ ------------------------------ ------------------------------
Mexico Mexico Mexico
United and Consoli- United and Consoli- United and Consoli-
States Canada dated States Canada dated States Canada dated
--------- -------- --------- --------- -------- --------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Sales to unaffiliated customers... $315,131 $25,778 $340,909 $290,590 $22,070 $312,660 $268,582 $28,350 $296,932
--------- --------- ---------
--------- --------- ---------
Sales between geographic areas.... 1,888 3,152 1,747 2,055 1,382 2,204
--------- -------- --------- -------- --------- --------
$317,019 $28,930 $292,337 $24,125 $269,964 $30,554
--------- -------- --------- -------- --------- --------
--------- -------- --------- -------- --------- --------
Net earnings...................... $ 44,946 $ 2,261 $ 47,207 $ 39,044 $ 1,324 $ 40,368 $ 36,139 $ 1,792 $ 37,931
Total assets...................... $373,925 $17,531 $391,456 $339,718 $14,098 $353,816 $297,981 $12,102 $310,083
Net assets........................ $298,565 $14,316 $312,881 $260,273 $11,913 $272,186 $229,066 $11,395 $240,461
</TABLE>
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 16.2%, 16.0% and 16.8%
of total net sales during the years ended December 31, 1996, 1995 and 1994,
respectively.
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
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 statement of 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, 1996 and
1995, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles. 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 generally accepted auditing
standards 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.
Chicago, Illinois
February 12, 1997
15
<PAGE>
QUARTERLY FINANCIAL DATA
TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
(Thousands of dollars except per share data)
1996 First Second Third Fourth Total
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------
Net sales....................................................... $63,265 $72,511 $128,658 $76,475 $340,909
Gross margin.................................................... 30,687 35,292 60,415 36,026 162,420
Net earnings.................................................... 8,118 9,327 19,143 10,619 47,207
Net earnings per share.......................................... .35 .41 .83 .46 2.05
1995
- -----------------------------------------------------------------------------------------------------------------------
Net sales....................................................... $60,269 $68,774 $116,472 $67,145 $312,660
Gross margin.................................................... 29,566 33,056 52,517 30,783 145,922
Net earnings.................................................... 7,319 8,326 16,232 8,491 40,368
Net earnings per share.......................................... .32 .36 .70 .37 1.75
1994
- -----------------------------------------------------------------------------------------------------------------------
Net sales....................................................... $56,370 $62,891 $111,014 $66,657 $296,932
Gross margin.................................................... 28,121 31,306 51,195 30,745 141,367
Net earnings.................................................... 6,962 7,860 15,386 7,723 37,931
Net earnings per share.......................................... .30 .34 .67 .34 1.65
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 11, 1995.
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
1996-1995 QUARTERLY SUMMARY OF TOOTSIE ROLL INDUSTRIES, INC. STOCK PRICE
AND DIVIDENDS PER SHARE
<TABLE>
<CAPTION>
STOCK PRICES* DIVIDENDS**
1996 1995
- ------------------------------------------------------
Hi Lo Hi Lo 1996 1995
- ------------------------------------------------------ -------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1st Qtr... 40-1/2 36-1/2 33-1/2 30-1/16 1st Qtr........ $ .0607 $ .0519
2nd Qtr... 36-3/4 34-1/2 35-1/8 31-3/8 2nd Qtr........ $ .0725 $ .0607
3rd Qtr... 35-7/8 34-1/8 40-1/8 34-1/8 3rd Qtr........ $ .0725 $ .0607
4th Qtr... 40-1/4 34-3/8 39-3/4 34-1/8 4th Qtr........ $ .0725 $ .0607
NOTE: In addition to the above cash dividends, a
3% stock dividend was issued on 4/23/96 and
4/21/95.
**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 11, 1995.
Estimated Number of shareholders at 12/31/96 ... 9,500
</TABLE>
16
<PAGE>
FIVE YEAR SUMMARY OF EARNINGS AND FINANCIAL HIGHLIGHTS
TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES
(Thousands of dollars except per share, percentage and ratio figures)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(See Management's Comments starting on page 5) 1996 1995 1994 1993 1992
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Sales and Earnings Data
Net sales........................................ $ 340,909 $ 312,660 $ 296,932 $ 259,593 $ 245,424
Gross margin..................................... 162,420 145,922 141,367 125,615 118,301
Interest expense................................. 1,498 1,515 1,649 642 440
Provision for income taxes....................... 27,891 23,670 23,236 22,268 19,890
Net earnings..................................... 47,207 40,368 37,931 35,442 32,032
% of sales................................... 13.8% 12.9% 12.8% 13.7% 13.1%
% of shareholders' equity.................... 15.1% 14.8% 15.8% 16.7% 17.6%
Per Common Share Data (1)
Net sales........................................ $ 14.82 $ 13.59 $ 12.91 $ 11.28 $ 10.67
Net earnings..................................... 2.05 1.75 1.65 1.54 1.39
Shareholders' equity............................. 13.60 11.83 10.45 9.23 7.90
Cash dividends................................... .28 .23 .20 .16 .13
Stock dividends.................................. 3% 3% 3% 3% 3%
Additional Financial Data
Working capital.................................. $ 153,329 $ 109,643 $ 92,626 $ 61,052 $ 110,714
Current ratio.................................... 4.2 3.0 4.5 2.2 5.9
Net cash provided by operating activities........ 76,710 50,851 40,495 33,397 35,623
Property, plant & equipment additions (2)........ 9,791 4,640 8,179 52,492 10,956
Net property, plant & equipment.................. 81,687 81,999 85,648 86,699 40,257
Total assets..................................... 391,456 353,816 310,083 303,940 224,470
Long term debt................................... 7,500 7,500 27,500 27,500 7,500
Shareholders' equity............................. 312,881 272,186 240,461 212,343 181,704
Average shares outstanding (1)................... 23,004 23,004 23,004 23,004 23,004
<FN>
(1) Adjusted for stock dividends and the 2-for-1 stock split effective July 11,
1995.
(2) 1993 includes $44,500 relating to the Cambridge Brands acquisition and the
purchase of the Chicago office and plant facilities.
</TABLE>
- --------------------------------------------------------------------------------
17
<PAGE>
<TABLE>
<S> <C>
BOARD OF DIRECTORS
Melvin J. Chairman of the Board
Gordon(1) and
Chief Executive Officer
Ellen R. President and Chief
Gordon(1) Operating Officer
Charles W. Retired Banker
Seibert(2)(3)
William Secretary; Consultant
Touretz(1) to the Company
Lana Jane President, Paul Brent
Lewis-Brent(2)(3) Designer, Inc.
(1)Member of the Executive Committee
(2)Member of the Audit Committee
(3)Member of the Compensation
Committee
OFFICERS
Melvin J. Chairman of the Board
Gordon and
Chief Executive Officer
Ellen R. President and Chief
Gordon Operating Officer
G. Howard Vice President, Finance
Ember, Jr. & Asst. Secy.
John W. Vice President,
Newlin, Jr. Manufacturing
Thomas E. Vice President,
Corr Marketing & Sales
James M. Vice President,
Hunt Physical Distribution
Barry P. Treasurer
Bowen
William Secretary
Touretz
Daniel P. Controller
Drechney
OFFICES, PLANTS
Executive 7401 S. Cicero Ave.
Offices Chicago, Illinois 60629
Plants Chicago, Illinois
Covington, Tennessee
Cambridge,
Massachusetts
New York, New York
Mexico City, Mexico
Foreign Mexico City, Mexico
Sales Etobicoke, Ontario
Offices
</TABLE>
<TABLE>
<S> <C>
SUBSIDIARIES
Arrendadora Gorvac Tootsie Roll
S.A. de C.V. Central Europe
C.G. L.P., Inc. Ltd.
C.G.C. Corporation The Tootsie Roll
C.G.P., Inc. Company, Inc.
Cambridge Brands, Tootsie Roll
Inc. Management, Inc.
Cambridge Brands Tootsie Roll
Mfg., Inc. Mfg., Inc.
Cambridge Brands Tootsie
Services, Inc. Rolls--Latin
Cella's America, Inc.
Confections, Inc. Tootsie Roll
Charms Company Worldwide Ltd.
Charms L.P. The Sweets Mix
Charms Marketing Company, Inc.
Company TRI de Latino
Henry Eisen America S.A. de
Advertising C.V.
Agency, Inc. TRI Finance,
J.T. Company, Inc. Inc.
Tootsie Roll of TRI
Canada Ltd. International
Co.
TRI-Mass., Inc.
TRI Sales Co.
Tutsi S.A. de
C.V.
World Trade &
Marketing Ltd.
</TABLE>
<TABLE>
<S> <C>
OTHER INFORMATION
Stock New York Stock Exchange,
Exchange Inc. (Since 1922)
Stock Ticker Symbol: TR
Identification CUSIP No. 890516 10-7
Stock ChaseMellon Shareholder
Transfer Services, L.L.C.
Agent Overpeck Centre
and Stock 85 Challenger Road
Registrar Ridgefield Park, NJ 07660
1-800-851-9677
Independent Price Waterhouse LLP
Accountants 200 East Randolph Drive
Chicago, IL 60601
General Becker Ross Stone
Counsel DeStefano & Klein
317 Madison Avenue
New York, NY 10017
Annual May 5, 1997
Meeting Mutual Building, Room
1200
909 East Main Street
Richmond, VA 23219
</TABLE>
M Printed on recycled paper.
18
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
STATEMENTS OF FINANCIAL POSITION AND CONSOLIDATED STATEMENTS OF EARNINGS AND
RETAINED EARNINGS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINACIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 45,659
<SECURITIES> 98,498
<RECEIVABLES> 23,092
<ALLOWANCES> 1,885
<INVENTORY> 30,309
<CURRENT-ASSETS> 201,513
<PP&E> 153,329
<DEPRECIATION> 71,642
<TOTAL-ASSETS> 391,456
<CURRENT-LIABILITIES> 48,184
<BONDS> 7,500
0
0
<COMMON> 15,975
<OTHER-SE> 296,906
<TOTAL-LIABILITY-AND-EQUITY> 391,456
<SALES> 340,909
<TOTAL-REVENUES> 340,909
<CGS> 178,488
<TOTAL-COSTS> 90,888
<OTHER-EXPENSES> (3,566)
<LOSS-PROVISION> 476
<INTEREST-EXPENSE> 1,498
<INCOME-PRETAX> 75,098
<INCOME-TAX> 27,891
<INCOME-CONTINUING> 47,207
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 47,207
<EPS-PRIMARY> 2.05
<EPS-DILUTED> 2.05
</TABLE>