<PAGE>
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, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ________________ TO ________________
COMMISSION FILE NUMBER 1-1361
TOOTSIE ROLL INDUSTRIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
VIRGINIA 22-1318955
- --------------------------------------------------------------------------------
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
7401 SOUTH CICERO AVENUE, CHICAGO, ILLINOIS 60629
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER: (773) 838-3400
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
- --------------------------------------------------------------------------------
COMMON STOCK - PAR VALUE $.69-4/9 PER SHARE NEW YORK STOCK EXCHANGE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
<PAGE>
CLASS B COMMON STOCK - PAR VALUE $.69-4/9 PER SHARE
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO
SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS.
YES X NO
----- -----
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO
ITEM 405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE
CONTAINED, TO THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR
INFORMATION STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM
10-K OR ANY AMENDMENT TO THIS FORM 10-K.
<PAGE>
As of March 10, 1998, 15,861,321 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 $706,814,360.
As of March 10, 1998, 7,536,480 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 7,536,480 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 10, 1998 (based upon the closing price
of the stock on the New York Stock Exchange on such date) would have been
approximately $771,606,399. 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, 1997 (the "1997 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, 1998 in connection with the
Company's 1998 Annual Meeting of Shareholders (the "1998 Proxy Statement")
are 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") has been engaged in the manufacture and sale of candy for
over 100 years. This is the only industry segment in which the Company
operates and is its only line of business. The majority of the Company's
products are sold under the familiar registered trademarks TOOTSIE ROLL,
TOOTSIE ROLL POPS, CHILD'S PLAY, TOOTSIE CARAMEL APPLE POPS, CHARMS,
BLOW-POP, BLUE RAZZ, ZIP-A-DEE-DOO-DA-POPS, CELLA'S, MASON DOTS, MASON CROWS,
JUNIOR MINT, CHARLESTON CHEW, SUGAR DADDY AND SUGAR BABIES. The Company
acquired the last four of these trademarks in 1993 along with the
manufacturing assets of the former Chocolate/Caramel Division of Warner
Lambert.
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. Although accurate
statistics are not available, the Company believes it is among the ten
largest domestic manufacturers in this field. In the markets in which the
Company competes, the main forms of competition comprise brand recognition as
well as a fair price for our products at various retail price points.
The Company did not have a material backlog of firm orders at the
end of the calendar years 1996 or 1997.
Packaging materials and ingredients used by the Company are readily
obtainable from a number of suppliers at competitive prices. Packaging
material costs, including films, cartons, corrugated containers and waxed
paper, were favorable in 1997. The Company continues to seek competitive
bids to leverage the high volume of annual purchases it makes of these items
and to lower per unit costs. The Company has engaged in hedging transactions
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.
<PAGE>
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 15.9%,
16.2% and 16.0% of total net sales during the years ended December 31, 1997,
1996 and 1995, respectively.
For a summary of sales, net earnings and assets of the Company by
geographic area and additional information regarding the foreign subsidiaries
of the Company, see Note 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, 1997 (the "1997 Report") and on Page 4 of the 1997 Report under
the section entitled "International." Note 10 and the aforesaid section are
incorporated herein by reference. Portions of the 1997 Report are filed as
an exhibit to this report.
ITEM 2. PROPERTIES.
The Company owns its principal plant and offices which are located
in Chicago, Illinois in a building consisting of approximately 2,200,000
square feet. The Company utilizes approximately 1,800,000 square feet for
offices, manufacturing and warehousing facilities and leases, or has
available to lease to third parties, approximately 400,000 square feet.
In addition to owning the principal plant and warehousing
facilities mentioned above, the Company leases manufacturing and warehousing
facilities at a second location in Chicago which comprises 138,000 square
feet. The lease is renewable by the Company every five years through June,
2011. The Company also periodically leases additional warehousing space at
this second location as needed on a month to month basis.
<PAGE>
Cella's Confections, Inc., a subsidiary, owns a facility in New
York City, containing approximately 60,000 square feet. This facility
consists of manufacturing, warehousing and office space on three floors
containing approximately 48,000 square feet with a below surface level of
approximately 12,000 square feet.
Charms L.P., a subsidiary, owns a facility in Covington, Tennessee,
containing approximately 285,000 square feet of manufacturing, warehousing
and office space.
Cambridge Brands, Inc., a subsidiary, owns a facility in Cambridge,
Massachusetts, containing approximately 142,000 square feet. The facility
consists of manufacturing, warehousing and office space on five floors.
The Company also owns a facility in Mexico City, Mexico, consisting
of approximately 57,000 square feet plus parking lot and yard area comprising
approximately 25,000 square feet. The facility consists of manufacturing,
warehousing and office space.
The Company owns substantially all of the production machinery and
equipment located in the plants in Chicago, New York, Covington (Tennessee),
Cambridge (Massachusetts) and Mexico City. The Company considers that all of
its facilities are well maintained, in good operating condition and
adequately insured.
ITEM 3. LEGAL PROCEEDINGS.
There are no material pending legal proceedings known to the
Company to which the Company or any of its subsidiaries is a party or of
which any of their property is the subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of the Company's shareholders
through the solicitation of proxies or otherwise during the fourth quarter of
1997.
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.
<PAGE>
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 10, 1998, 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 "1997-1996 Quarterly
Summary of Tootsie Roll Industries, Inc. Stock Prices and Dividends" which
appears on Page 16 of the 1997 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 1997 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 1997
Report. This section is incorporated herein by reference and filed as an
exhibit to this report.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not Applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements, together with the report thereon of Price
Waterhouse LLP dated February 11, 1998, appearing on Pages 8-15 of the 1997
Report and the Quarterly Financial Data on Page 16 of the 1997 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 1997 Report is not to be deemed filed as part of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
<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 1998
Annual Meeting of Shareholders (the "1998 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 1998 Proxy Statement, which section is incorporated herein by
reference. The 1998 Proxy Statement will be filed with the Securities and
Exchange Commission on or before April 30, 1998.
The following table sets forth the information with respect to the
executive officers of the Company:
<TABLE>
<CAPTION>
NAME POSITION (1) AGE
----------------------------------------------------- ---
<S> <C> <C>
Melvin J. Gordon* Chairman of the Board
and Chief Executive Officer (2) 78
Ellen R. Gordon* President and Chief
Operating Officer (2) 66
G. Howard Ember Jr. Vice President/Finance 45
John W. Newlin Jr. Vice President/Manufacturing 61
Thomas E. Corr Vice President/Marketing and
Sales 49
James M. Hunt Vice President/Distribution 55
Barry P. Bowen Treasurer 42
</TABLE>
*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 seven 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 five 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 seven
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.
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION.
See the information set forth in the section entitled "Executive
Compensation and Other Information" of the Company's 1998 Proxy Statement.
Except for the "Report on Executive Compensation" and "Performance Graph," this
section of the 1998 Proxy Statement is incorporated herein by reference. See
the last paragraph of the section entitled "Election of Directors" of the 1998
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 1998 Proxy Statement. These sections of the 1998 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, 1997
Consolidated Statements of Cash Flows for the three years ended
December 31, 1997
Consolidated Statements of Financial Position at December 31,
1997 and 1996
Notes to Consolidated Financial Statements
<PAGE>
(2) Financial Statement Schedules:
Report of Independent Accountants on Financial Statement
Schedules
Schedule of Valuation and Qualifying Accounts for the three years
ended December 31, 1997.
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, 1997.
<PAGE>
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: /s/ Melvin J. Gordon
Melvin J. Gordon, Chairman
of the Board of Directors
and Chief Executive Officer
Date: MARCH 26, 1998
-------------------------
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.
<TABLE>
<S> <C> <C>
/s/ Melvin J. Gordon Chairman of the Board
----------------------- of Directors and Chief
Melvin J. Gordon Executive Officer
(principal executive
officer) March 26, 1998
/s/ Ellen R. Gordon Director, President
----------------------- and Chief Operating
Ellen R. Gordon Officer March 26, 1998
Director March 26, 1998
-----------------------
Charles W. Seibert
/s/ William Touretz Director and Secretary March 26, 1998
-----------------------
William Touretz
Director March 26, 1998
-----------------------
Lana Jane Lewis-Brent
/s/ G. Howard Ember Jr. Vice President, Finance
----------------------- (principal financial
G. Howard Ember Jr. officer and principal
accounting officer) March 26, 1998
</TABLE>
<PAGE>
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 11, 1998 appearing on Page 15 of the 1997 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 11, 1998
<PAGE>
FINANCIAL SCHEDULE
----------------------
<PAGE>
TOOTSIE ROLL INDUSTRIES, INC.
AND SUBSIDIARY COMPANIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
DECEMBER 31, 1997, 1996 AND 1995
<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> <C>
1997:
Reserve for bad debts $ 1,626,000 $ 338,982 $ 153,982 (1) $ 1,811,000
Reserve for cash
discounts 259,000 7,360,132 7,345,132 (2) 274,000
----------- ----------- ------------ ------------
$ 1,885,000 $ 7,699,114 $ 7,499,114 $ 2,085,000
----------- ----------- ------------ -----------
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
----------- ----------- ------------ -----------
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
----------- ----------- ------------ -----------
</TABLE>
(1) Accounts receivable written off net of recoveries and exchange rate
movements.
(2) Allowances to customers.
<PAGE>
INDEX TO EXHIBITS
2.1 Asset Sale Agreement dated September 29, 1993 between Warner-Lambert
Company and the Company, including a list of omitted exhibits and
schedules. Incorporated by reference to Exhibit 2 to the Company's
Report on Form 8-K dated October 15, 1993; Commission File No. 1-1361.
The Company hereby agrees to provide the Commission, upon request,
copies of any omitted exhibits or schedules required by Item 601(b)(2)
of Regulation S-K.
3.1 Restated Articles of Incorporation. Incorporated by reference to
Exhibit 3.1 of the Company's Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 1997; Commission File No. 1-1361.
3.2 Amended and Restated By-Laws. Incorporated by reference to Exhibit
3.2 of the Company's Annual Report on Form 10-K for the year ended
December 31, 1996; Commission File No. 1-1361.
3.3 Specimen Class B Common Stock Certificate. Incorporated by reference
to Exhibit 1.1 of the Company's Registration Statement on Form 8-A
dated February 29, 1988.
10.5* 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
of 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.
<PAGE>
10.12* Restatement of Split Dollar Agreement (Special Trust) between the
Company and the trustee of the Gordon Family 1993 Special Trust dated
January 31, 1997. Incorporated by reference to Exhibit 10.12 of the
Company's Annual Report on Form 10-K for the year ended December 31,
1996; Commission File No. 1-1361.
10.21* Executive Split Dollar Insurance and Collateral Assignment Agreement
between the Company and G. Howard Ember Jr. dated July 30, 1994.
Incorporated by reference to Exhibit 10.21 of the Company's Annual
Report on Form 10-K for the year ended December 31, 1994; Commission
File No. 1-1361.
10.22* Executive Split Dollar Insurance and Collateral Assignment Agreement
between the Company and John W. Newlin dated July 30, 1994.
Incorporated by reference to Exhibit 10.22 of the Company's Annual
Report on Form 10-K for the year ended December 31, 1994; Commission
File No. 1-1361.
10.23* Executive Split Dollar Insurance and Collateral Assignment Agreement
between the Company and Thomas E. Corr dated July 30, 1994.
Incorporated by reference to Exhibit 10.23 of the Company's Annual
Report on Form 10-K for the year ended December 31, 1994; Commission
File No. 1-1361.
10.24* Executive Split Dollar Insurance and Collateral Assignment Agreement
between the Company and James Hunt dated July 30, 1994. Incorporated
by reference to Exhibit 10.24 of the Company's Annual Report on Form
10-K for the year ended December 31, 1994; Commission File No. 1-1361.
10.25* Form of Change In Control Agreement dated August, 1997 between the
Company and certain executive officers.
10.26* Executive Split Dollar Insurance and Collateral Assignment Agreement
between the Company and Barry Bowen dated April 1, 1997.
13 The following items incorporated by reference herein from the
Company's 1997 Annual Report to Shareholders for the year ended
December 31, 1997 (the "1997 Report"), are filed as Exhibits to this
report:
(i) Information under the section entitled "International" set
forth on Page 4 of the 1997 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 1997 Report;
(iii) Consolidated Statements of Earnings and Retained Earnings
for the three years ended December 31, 1997 set forth on
Page 8 of the 1997 Report;
(iv) Consolidated Statements of Financial Position at December 31,
1997 and 1996 set forth on Pages 9-10 of the 1997 Report;
(v) Consolidated Statements of Cash Flow for the three years ended
December 31, 1997 set forth on Page 11 of the 1997 Report;
<PAGE>
(vi) Notes to Consolidated Financial Statements set forth on
Pages 12-15 of the 1997 Report;
(vii) Report of Independent Accountants set forth on Page 15 of
the 1997 Report;
(viii) Quarterly Financial Data set forth on Page 16 of the 1997
Report;
(ix) Information under the section entitled "1997-1996 Quarterly
Summary of Tootsie Roll Industries, Inc. Stock Prices and
Dividends" set forth on Page 16 of the 1997 Report; and
(x) Information under the section entitled "Five Year Summary of
Earnings and Financial Highlights" set forth on Page 17 of
the 1997 Report.
21 List of Subsidiaries of the Company.
27 Financial Data Schedule
______________________________________
*Executive compensation plan or arrangement.
<PAGE>
CHANGE IN CONTROL AGREEMENT
THIS AGREEMENT is entered into as of the ___ day of August, 1997 by
and between Tootsie Roll Industries, Inc., a Virginia corporation, and
__________ (the "Executive").
W I T N E S S E T H
WHEREAS, the Executive currently serves as a key employee of the
Company (as defined in Section 1) and his services and knowledge are valuable to
the Company in connection with the management of one or more of the Company's
principal operating facilities, divisions, departments or subsidiaries; and
WHEREAS, the Board (as defined in Section 1) has determined that it is
in the best interests of the Company and its shareholders to secure the
Executive's continued services and to ensure the Executive's continued
dedication and objectivity in the event of any threat or occurrence of, or
negotiation or other action that could lead to, or create the possibility of, a
Change in Control (as defined in Section 1) of the Company, without concern as
to whether the Executive might be hindered or distracted by personal
uncertainties and risks created by any such possible Change in Control, and to
encourage the Executive's full attention and dedication to the Company, the
Board has authorized the Company to enter into this Agreement.
NOW, THEREFORE, for and in consideration of the premises and the
mutual covenants and agreements herein contained, the Company and the Executive
hereby agree as follows:
1. DEFINITIONS. As used in this Agreement, the following terms
shall have the respective meanings set forth below:
(a) "Board" means the Board of Directors of the Company.
(b) "CAP Plan" means the Company's Career Achievement Plan or any
successor plan.
(c) "Cause" means (1) a material breach by the Executive of those
duties and responsibilities of the Executive which do not differ in any material
respect from the duties and responsibilities of the Executive during the 90-day
period immediately prior to a Change in Control (other than as a result of
incapacity due to physical or mental illness) which is demonstrably willful and
deliberate on the Executive's part, which is committed in bad faith or without
reasonable belief that such breach is in the best interests of the Company and
which is not remedied in a reasonable period of time after receipt of written
notice from the Company specifying such breach or (2) the
<PAGE>
commission by the Executive of a felony involving moral turpitude.
(d) "Change in Control" means the following, which definition shall
be used solely to define one of the conditions precedent to the payment of
compensation to the Executive pursuant to the terms of this Agreement and shall
have no legal significance for any other purpose:
(1) the acquisition by any individual, entity or group (a "Person"),
including any "person" within the meaning of Section 13(d)(3) or 14(d)(2) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), of beneficial
ownership within the meaning of Rule 13d-3 promulgated under the Exchange Act,
of both (x) 35% or more of the combined voting power of the then outstanding
securities of the Company entitled to vote generally in the election of
directors (the "Outstanding Company Voting Securities") and (y) combined voting
power of the Outstanding Company Voting Securities equal to or in excess of the
combined voting power of the Outstanding Company Voting Securities held by the
Gordon Family (as hereinafter defined); PROVIDED, HOWEVER, that the following
acquisitions shall not constitute a Change in Control: (A) any acquisition
directly from the Company, (B) any acquisition by the Company, (C) any
acquisition by an employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the Company, (D) any
acquisition by any corporation pursuant to a reorganization, merger or
consolidation involving the Company, if, immediately after such reorganization,
merger or consolidation, each of the conditions described in clauses (i), (ii)
and (iii) of subsection (3) of this Section (1)(d) shall be satisfied or (E) any
acquisition by any member of the Gordon Family; and PROVIDED FURTHER that, for
purposes of clause (B), if any Person (other than the Company or any employee
benefit plan (or related trust) sponsored or maintained by the Company or any
corporation controlled by the Company or any member of the Gordon Family) shall,
by reason of an acquisition of Outstanding Company Voting Securities by the
Company, become the beneficial owner of (x) 35% or more of the Outstanding
Company Voting Securities and (y) combined voting power of the Outstanding
Company Voting Securities equal to or in excess of the combined voting power of
the Outstanding Company Voting Securities held by the Gordon Family, and such
Person shall, after such acquisition of Outstanding Company Voting Securities by
the Company, become the beneficial owner of any additional Outstanding Company
Voting Securities and such beneficial ownership is publicly announced, such
additional beneficial ownership shall constitute a Change in Control;
(2) individuals who, as of the date hereof, constitute the Board
(the "Incumbent Board") cease for any reason to constitute at least a majority
of such Board; PROVIDED,
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HOWEVER, that any individual who becomes a director of the Company subsequent
to the date hereof whose election, or nomination for election by the
Company's shareholders, was approved either by the vote of at least a
majority of the directors then comprising the Incumbent Board or by the vote
of at least a majority of the combined voting power of the Outstanding
Company Voting Securities held by the Gordon Family shall be deemed to have
been a member of the Incumbent Board; and PROVIDED FURTHER, that no
individual who was initially elected as a director of the Company as a result
of an actual or threatened election contest, as such terms are used in Rule
14a-11 of Regulation 14A promulgated under the Exchange Act, or any other
actual or threatened solicitation of proxies or consents by or on behalf of
any Person other than the Board or the Gordon Family shall be deemed to have
been a member of the Incumbent Board;
(3) approval by the shareholders of the Company of a reorganization,
merger or consolidation unless, in any such case, immediately after such
reorganization, merger or consolidation, (i) more than 50% of the combined
voting power of the then outstanding securities of the corporation resulting
from such reorganization, merger or consolidation entitled to vote generally in
the election of directors is then beneficially owned, directly or indirectly, by
all or substantially all of the individuals or entities who were the beneficial
owners, respectively, of the Outstanding Company Voting Securities immediately
prior to such reorganization, merger or consolidation, (ii) no Person (other
than the Company, any employee benefit plan (or related trust) sponsored or
maintained by the Company or the corporation resulting from such reorganization,
merger or consolidation (or any corporation controlled by the Company) and any
Person which beneficially owned, immediately prior to such reorganization,
merger or consolidation, directly or indirectly, 35% or more of the Outstanding
Company Voting Securities) beneficially owns, directly or indirectly, (x) 35% or
more of the combined voting power of the then outstanding securities of such
corporation entitled to vote generally in the election of directors and
(y) combined voting power of the then outstanding securities of such corporation
equal to or in excess of the combined voting power of the then outstanding
securities of such corporation held by the Gordon Family and (iii) at least a
majority of the members of the board of directors of the corporation resulting
from such reorganization, merger or consolidation were members of the Incumbent
Board at the time of the execution of the initial agreement or action of the
Board providing for such reorganization, merger or consolidation; or
(4) approval by the shareholders of the Company of (i) a plan of
complete liquidation or dissolution of the Company or (ii) the sale or other
disposition of all or substantially all of the assets of the Company other than
to a corporation with
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respect to which, immediately after such sale or other disposition, (A) more
than 50% of the combined voting power of the then outstanding securities
thereof entitled to vote generally in the election of directors is then
beneficially owned, directly or indirectly, by all or substantially all of
the individuals and entities who were the beneficial owners, respectively, of
the Outstanding Company Voting Securities immediately prior to such sale or
other disposition, (B) no Person (other than the Company, any employee
benefit plan (or related trust) sponsored or maintained by the Company or
such corporation (or any corporation controlled by the Company) and any
Person which beneficially owned, immediately prior to such sale or other
disposition, directly or indirectly, 35% or more of the Outstanding Company
Voting Securities) beneficially owns, directly or indirectly, (x) 35% or more
of the combined voting power of the then outstanding securities thereof
entitled to vote generally in the election of directors and (y) combined
voting power of the then outstanding securities thereof equal to or in excess
of the combined voting power of the then outstanding securities thereof held
by the Gordon Family and (C) at least a majority of the members of the board
of directors thereof were members of the Incumbent Board at the time of the
execution of the initial agreement or action of the Board providing for such
sale or other disposition.
(e) "Company" means Tootsie Roll Industries, Inc., a Virginia
corporation.
(f) "Date of Termination" means (1) the effective date on which the
Executive's employment by the Company terminates as specified in a prior written
notice by the Company or the Executive, as the case may be, to the other,
delivered pursuant to Section 11 or (2) if the Executive's employment by the
Company terminates by reason of death, the date of death of the Executive.
(g) "Excess Benefit Plan" means the Company's Excess Benefit Plan or
any successor plan.
(h) "Good Reason" means, without the Executive's express written
consent, the occurrence of any of the following events after a Change in
Control:
(1) either of (i) the assignment to the Executive of any duties which
constitute in any material respect a reduction in the level of the Executive's
position(s), duties, responsibilities or status with the Company immediately
prior to such Change in Control or (ii) any removal or involuntary termination
of the Executive from the Company otherwise than as expressly permitted by this
Agreement or any failure to re-elect the Executive to any position with the
Company held by the Executive immediately prior to such Change in Control;
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(2) a reduction by the Company in the Executive's rate of annual base
salary as in effect immediately prior to such Change in Control or as the same
may be increased from time to time thereafter;
(3) any requirement of the Company that the Executive be based more
than 50 miles from the facility where the Executive is located at the time of
the Change in Control;
(4) the failure of the Company to (i) continue in effect any employee
benefit plan or compensation plan in which the Executive is participating
immediately prior to such Change in Control, unless the Executive is permitted
to participate in other plans providing the Executive with substantially
comparable benefits, or the taking of any action by the Company which would
adversely affect the Executive's participation in or materially reduce the
Executive's benefits under any such plan, including annual incentive bonuses and
including awards under the CAP Plan, it being understood that if the amount of
an award to the Executive under the CAP Plan is not at least equal to the
average of the amounts of the awards (excluding the special 100-year anniversary
award) to the Executive in respect of the three fiscal years of the Company
immediately preceding the fiscal year in which such Change in Control occurs, a
material reduction in the Executive's benefits under the CAP Plan shall be
deemed to have occurred, (ii) provide the Executive and the Executive's
dependents welfare benefits in accordance with the plans, practices, programs
and policies of the Company and its affiliated companies in effect for the
Executive immediately prior to such Change in Control or as in effect generally
at any time thereafter with respect to other peer executives of the Company and
its affiliated companies, (iii) provide fringe benefits in accordance with the
plans, practices, programs and policies of the Company and its affiliated
companies in effect for the Executive immediately prior to such Change in
Control or as in effect generally at any time thereafter with respect to other
peer executives of the Company and its affiliated companies, or (iv) provide the
Executive with paid vacation in accordance with the plans, policies, programs
and practices of the Company and its affiliated companies as in effect for the
Executive immediately prior to such Change in Control or as in effect generally
at any time thereafter with respect to other peer executives of the Company and
its affiliated companies; or
(5) the failure of the Company to obtain the assumption agreement
from any successor as contemplated in Section 11(b).
For purposes of this Agreement, any good faith determination of Good
Reason made by the Executive shall be conclusive; PROVIDED, HOWEVER, that an
isolated, insubstantial and inadvertent action taken in good faith and which is
remedied
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by the Company promptly after receipt of notice thereof given by the
Executive shall not constitute Good Reason.
(i) "Gordon Family" means Melvin J. Gordon, Ellen R. Gordon, any
descendant of Melvin J. Gordon and Ellen R. Gordon or the spouse of any such
descendant (collectively, the "Gordon Family Group"), any trust, partnership or
other entity for the benefit of any member of the Gordon Family Group, the
estate of any member of the Gordon Family Group or any charitable organization
established by any member of the Gordon Family Group or by any ancestor of Ellen
R. Gordon or Melvin J. Gordon.
(j) "Nonqualifying Termination" means a termination of the
Executive's employment (1) by the Company for Cause, (2) by the Executive for
any reason other than a Good Reason, (3) as a result of the Executive's death or
(4) by the Company due to the Executive's absence from his duties with the
Company on a full-time basis for at least 180 consecutive days as a result of
the Executive's incapacity due to physical or mental illness.
(k) "Pension Plan" means the Company's Pension Plan or any successor
plan.
(l) "Profit Sharing Plan" means the Company's Profit Sharing Plan or
any successor plan.
(m) "Termination Period" means the period of time beginning with a
Change in Control and ending on the earlier to occur of (1) two years following
such Change in Control and (2) the Executive's death.
2. OBLIGATIONS OF THE EXECUTIVE. The Executive agrees that in the
event any person or group attempts a Change in Control, he shall not voluntarily
leave the employ of the Company without Good Reason (a) until such attempted
Change in Control terminates or (b) if a Change in Control shall occur, until 90
days following such Change in Control. For purposes of the foregoing subsection
(a), Good Reason shall be determined as if a Change in Control had occurred when
such attempted Change in Control became known to the Board.
3. PAYMENTS UPON TERMINATION OF EMPLOYMENT.
(a) If during the Termination Period the employment of the Executive
shall terminate, other than by reason of a Nonqualifying Termination, then the
Company shall pay to the Executive (or the Executive's beneficiary or estate)
within 30 days following the Date of Termination, as compensation for services
rendered to the Company:
(1) a cash amount equal to the sum of (i) the Executive's base salary
from the Company and its affiliated
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companies through the Date of Termination, to the extent not theretofore
paid, (ii) the higher of the Executive's bonus paid or payable, including by
reason of any deferral, to the Executive by the Company or its affiliated
companies in respect of the fiscal year immediately preceding the fiscal year
in which the Change in Control occurs, or the Executive's average annual
bonus paid or payable, including by reason of any deferral, to the Executive
by the Company and its affiliated companies in respect of the three fiscal
years of the Company immediately preceding the fiscal year in which the
Change in Control occurs, in either case multiplied by a fraction, the
numerator of which is the number of days in the fiscal year in which the
Change in Control occurs through the Date of Termination and the denominator
of which is 365 or 366, as applicable, and (iii) any compensation previously
deferred by the Executive (together with any interest and earnings thereon)
and any accrued vacation pay, in each case to the extent not theretofore
paid; plus
(2) a lump-sum cash amount (subject to any applicable payroll or
other taxes required to be withheld pursuant to Section 5) in an amount equal to
(i) three (3) times the Executive's highest annual base salary from the Company
and its affiliated companies in effect during the 12-month period prior to the
Date of Termination, plus (ii) the higher of three (3) times the Executive's
bonus paid or payable, including by reason of any deferral, to the Executive by
the Company and its affiliated companies in respect of the fiscal year
immediately preceding the fiscal year in which the Change in Control occurs, or
three (3) times the Executive's average annual bonus paid or payable, including
by reason of any deferral, to the Executive by the Company and its affiliated
companies in respect of the three fiscal years of the Company immediately
preceding the fiscal year in which the Change in Control occurs; PROVIDED,
HOWEVER, that any amount paid pursuant to this Section 3(a)(2) shall be paid in
lieu of any other amount of severance relating to salary or bonus continuation
to be received by the Executive upon termination of employment of the Executive
under any severance plan, policy or arrangement of the Company.
(b)(1) In addition to the payments to be made pursuant to paragraph
(a) of this Section 3, if on the Date of Termination the Executive shall not be
fully vested in his accrued benefits under the Pension Plan, the Excess Benefit
Plan or the Profit Sharing Plan, the Company shall pay to the Executive within
30 days following the Date of Termination a lump sum cash amount equal to his
unvested accrued benefits under the Pension Plan, the Excess Benefit Plan and
the Profit Sharing Plan as of such date.
(2) In addition to the payments to be made pursuant to paragraph (a)
of this Section 3, if on the Date of Termination any award granted to the
Executive under the CAP Plan shall not
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be fully vested, the Company shall pay to the Executive within 30 days
following the Date of Termination a lump sum cash amount equal to the value
of the unvested portion of such award, assuming that all conditions to the
payment of the maximum amount under such award shall have been satisfied.
(3) If during the Termination Period the employment of the Executive
shall terminate, other than by reason of a Nonqualifying Termination, for a
period of three years commencing on the Date of Termination, the Company shall
continue to keep in full force and effect all policies of medical, accident,
disability and life insurance with respect to the Executive and his dependents
with the same level of coverage, upon the same terms and otherwise to the same
extent as such policies shall have been in effect immediately prior to the Date
of Termination or, if more favorable to the Executive, as provided generally
with respect to other peer executives of the Company and its affiliated
companies, and the Company and the Executive shall share the costs of the
continuation of such insurance coverage in the same proportion as such costs
were shared immediately prior to the Date of Termination. Benefits otherwise
receivable under this Section 3(b)(3) shall be reduced to the extent comparable
benefits are actually received by or made available to the Executive without
cost during the thirty-six (36) month period following the Date of Termination
(and any such benefits actually received by the Executive shall be reported to
the Company by the Executive).
(c) If during the Termination Period the employment of the Executive
shall terminate by reason of a Nonqualifying Termination, then the Company shall
pay to the Executive within 30 days following the Date of Termination, a cash
amount equal to the sum of (1) the Executive's base salary from the Company
through the Date of Termination, to the extent not theretofore paid and (2) any
compensation previously deferred by the Executive (together with any interest
and earnings thereon) and any accrued vacation pay, in each case to the extent
not theretofore paid.
4. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY. (a) Anything in this
Agreement to the contrary notwithstanding, in the event it shall be determined
that any payment or distribution by the Company or its affiliated companies to
or for the benefit of the Executive (whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise, but
determined without regard to any additional payments required under this Section
4) (a "Payment") would be subject to the excise tax imposed by Section 4999 of
the Internal Revenue Code of 1986, as amended (the "Code"), or any interest or
penalties are incurred by the Executive with respect to such excise tax (such
excise tax, together with any such interest and penalties, are hereinafter
collectively referred to
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as the "Excise Tax"), then the Executive shall be entitled to receive an
additional payment (a "Gross-Up Payment") in an amount such that after
payment by the Executive of all taxes (including any interest or penalties
imposed with respect to such taxes), including, without limitation, any
income taxes (and any interest and penalties imposed with respect thereto)
and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an
amount of the Gross-Up Payment equal to the Excise Tax imposed upon the
Payments.
(b) Subject to the provisions of Section 4(c), all determinations
required to be made under this Section 4, including whether and when a Gross-Up
Payment is required and the amount of such Gross-Up Payment and the assumptions
to be utilized in arriving at such determination, shall be made by the Company's
public accounting firm (the "Accounting Firm") which shall provide detailed
supporting calculations both to the Company and the Executive within 15 business
days of the receipt of notice from the Executive that there has been a Payment,
or such earlier time as is requested by the Company. In the event that the
Accounting Firm is serving as accountant or auditor for the individual, entity
or group effecting the Change in Control, the Executive shall appoint another
nationally recognized public accounting firm to make the determinations required
hereunder (which accounting firm shall then be referred to as the Accounting
Firm hereunder). All fees and expenses of the Accounting Firm shall be borne
solely by the Company. Any Gross-Up Payment, as determined pursuant to this
Section 4, shall be paid by the Company to the Executive within five days of the
receipt of the Accounting Firm's determination. If the Accounting Firm
determines that no Excise Tax is payable by the Executive, it shall furnish the
Executive with a written opinion that failure to report the Excise Tax on the
Executive's applicable federal income tax return would not result in the
imposition of a negligence or similar penalty. Any determination by the
Accounting Firm shall be binding upon the Company and the Executive. As a
result of the uncertainty in the application of Section 4999 of the Code at the
time of the initial determination by the Accounting Firm hereunder, it is
possible that Gross-Up Payments which will not have been made by the Company
should have been made ("Underpayment"), consistent with the calculations
required to be made hereunder. In the event that the Company exhausts its
remedies pursuant to Section 4(c) and the Executive thereafter is required to
make a payment of any Excise Tax, the Accounting Firm shall determine the amount
of the Underpayment that has occurred and any such Underpayment shall be
promptly paid by the Company to or for the benefit of the Executive.
(c) The Executive shall notify the Company in writing of any claim by
the Internal Revenue Service that, if successful, would require the payment by
the Company of the Gross-Up Payment. Such notification shall be given as soon
as practicable but no
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later than 10 business days after the Executive is informed in writing of
such claim and shall apprise the Company of the nature of such claim and the
date on which such claim is requested to be paid. The Executive shall not
pay such claim prior to the expiration of the 30-day period following the
date on which the Executive gives such notice to the Company (or such shorter
period ending on the date that any payment of taxes with respect to such
claim is due). If the Company notifies the Executive in writing prior to the
expiration of such period that it desires to contest such claim, the
Executive shall:
(1) give the Company any information reasonably requested by the
Company relating to such claim,
(2) take such action in connection with contesting such claim as the
Company shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to such claim by
an attorney reasonably selected by the Company,
(3) cooperate with the Company in good faith in order effectively to
contest such claim, and
(4) permit the Company to participate in any proceedings relating to
such claim;
PROVIDED, HOWEVER, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions
of this Section 4(c), the Company shall control all proceedings taken in
connection with such contest and, at its sole option, may pursue or forgo any
and all administrative appeals, proceedings, hearings and conferences with the
taxing authority in respect of such claim and may, at its sole option, either
direct the Executive to pay the tax claimed and sue for a refund or contest the
claim in any permissible manner, and the Executive agrees to prosecute such
contest to a determination before any administrative tribunal, in a court of
initial jurisdiction and in one or more appellate courts, as the Company shall
determine; PROVIDED FURTHER, that if the Company directs the Executive to pay
such claim and sue for a refund, the Company shall advance the amount of such
payment to the Executive on an interest-free basis and shall indemnify and hold
the Executive harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with respect to
such advance or with respect to any imputed income with respect to such advance;
and PROVIDED FURTHER, that any extension of the statute of
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limitations relating to payment of taxes for the taxable year of the
Executive with respect to which such contested amount is claimed to be due is
limited solely to such contested amount. Furthermore, the Company's control
of the contest shall be limited to issues with respect to which a Gross-Up
Payment would be payable hereunder and the Executive shall be entitled to
settle or contest, as the case may be, any other issue raised by the Internal
Revenue Service or any other taxing authority.
(d) If, after the receipt by the Executive of an amount advanced by
the Company pursuant to Section 4(c), the Executive becomes entitled to receive,
and receives, any refund with respect to such claim, the Executive shall
(subject to the Company's complying with the requirements of Section 4(c))
promptly pay to the Company the amount of such refund (together with any
interest paid or credited thereon after taxes applicable thereto). If, after
the receipt by the Executive of an amount advanced by the Company pursuant to
Section 4(c), a determination is made that the Executive shall not be entitled
to any refund with respect to such claim and the Company does not notify the
Executive in writing of its intent to contest such denial of refund prior to the
expiration of 30 days after such determination, then such advance shall be
forgiven and shall not be required to be repaid and the amount of such advance
shall offset, to the extent thereof, the amount of Gross-Up Payment required to
be paid.
5. WITHHOLDING TAXES. The Company may withhold from all payments
due to the Executive (or his beneficiary or estate) hereunder all taxes which,
by applicable federal, state, local or other law, the Company is required to
withhold therefrom.
6. REIMBURSEMENT OF EXPENSES. If any contest or dispute shall arise
under this Agreement involving termination of the Executive's employment with
the Company or involving the failure or refusal of the Company to perform fully
in accordance with the terms hereof, the Company shall reimburse the Executive,
on a current basis, for all legal fees and expenses, if any, incurred by the
Executive in connection with such contest or dispute, together with interest in
an amount equal to the Prime Rate as published in the "Money Rates" section of
THE WALL STREET JOURNAL, but in no event higher than the maximum legal rate
permissible under applicable law, such interest to accrue from the date the
Company receives the Executive's statement for such fees and expenses through
the date of payment thereof; PROVIDED, HOWEVER, that in the event the resolution
of any such contest or dispute includes a finding denying, in total, the
Executive's claims in such contest or dispute, the Executive shall be required
to reimburse the Company, over a period of 12 months from the date of such
resolution, for all sums advanced to the Executive pursuant to this Section 6.
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7. OPERATIVE EVENT. Notwithstanding any provision herein to the
contrary, no amounts shall be payable hereunder unless and until there is a
Change in Control at a time when the Executive is employed by the Company and a
subsequent termination of employment of the Executive.
8. NONCOMPETITION; NONSOLICITATION. (a) The Executive acknowledges
that in the course of his employment with the Company he has become familiar
with trade secrets and other confidential information concerning the Company and
that his services are of special, unique and extraordinary value to the Company.
(b) The Executive agrees that if during the Termination Period the
employment of the Executive shall terminate, other than by reason of a
Nonqualifying Termination, and the Executive shall receive payments from the
Company pursuant to Sections 3(a) and 3(b), then for a period of one year
following the Date of Termination (the "Noncompetition Period") he shall not in
any manner, directly or indirectly, through any person, firm or corporation,
alone or as a member of a partnership or as an officer, director, stockholder,
investor or employee of or consultant to any other corporation or enterprise or
otherwise, engage or be engaged, or assist any other person, firm, corporation
or enterprise in engaging or being engaged, in any business being conducted by
the Company as of the Date of Termination in any geographic area in which the
Company is then conducting such business.
(c) The Executive further agrees that during the Noncompetition
Period he shall not (i) in any manner, directly or indirectly, induce or attempt
to induce any employee of the Company or any of its subsidiaries to terminate or
abandon his or her employment for any purpose whatsoever, or (ii) in connection
with any business to which Section 8(b) applies, call on, service, solicit or
otherwise do business with any customer of the Company.
(d) Nothing in this Section 8 shall prohibit the Executive from being
(i) a stockholder in a mutual fund or a diversified investment company or (ii) a
passive owner of not more than two percent (2%) of the outstanding stock of any
class of a corporation, any securities of which are publicly traded, so long as
the Executive has no active participation in the business of such corporation.
(e) If, at any time of enforcement of this Section 8, a court holds
that the restrictions stated herein are unreasonable under circumstances then
existing, the parties hereto agree that the maximum period, scope or
geographical area reasonable under such circumstances shall be substituted for
the stated period, scope or area and that the court shall be allowed
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to revise the restrictions contained herein to cover the maximum period,
scope and area permitted by law.
(f) The Executive acknowledges that the Company would be damaged
irreparably in the event that any provision of this Section 8 were not performed
in accordance with its terms or were otherwise breached and that money damages
would be an inadequate remedy for any such nonperformance or breach.
Accordingly, the Company and its successors or permitted assigns shall be
entitled, in addition to other rights and remedies existing in their favor, to
seek an injunction or injunctions to prevent any breach or threatened breach of
any of such provisions and to enforce such provisions specifically (without
posting a bond or other security).
9. TERMINATION OF AGREEMENT. (a) This Agreement shall be effective
on the date hereof and shall continue until terminated by the Company as
provided in paragraph (b) of this Section 9; PROVIDED, HOWEVER, that this
Agreement shall terminate in any event upon the first to occur of (i) the
Executive's death and (ii) termination of the Executive's employment with the
Company prior to a Change in Control.
(b) The Company shall have the right prior to a Change in Control, in
its sole discretion, pursuant to action by the Board, to approve the termination
of this Agreement, which termination shall not become effective until the date
fixed by the Board for such termination, which date shall be at least 120 days
after notice thereof is given by the Company to the Executive in accordance with
Section 12; PROVIDED, HOWEVER, that no such action shall be taken by the Board
during any period of time when the Board has knowledge that any person has taken
steps reasonably calculated to effect a Change in Control until, in the opinion
of the Board, such person has abandoned or terminated its efforts to effect a
Change in Control; and PROVIDED FURTHER, that in no event shall this Agreement
be terminated in the event of a Change in Control.
10. SCOPE OF AGREEMENT. Nothing in this Agreement shall be deemed to
entitle the Executive to continued employment with the Company or its
subsidiaries, and if the Executive's employment with the Company shall terminate
prior to a Change in Control, then the Executive shall have no further rights
under this Agreement; PROVIDED, HOWEVER, that any termination of the Executive's
employment following a Change in Control shall be subject to all of the
provisions of this Agreement.
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11. SUCCESSORS; BINDING AGREEMENT.
(a) This Agreement shall not be terminated by any merger or
consolidation of the Company whereby the Company is or is not the surviving or
resulting corporation or as a result of any transfer of all or substantially all
of the assets of the Company. In the event of any such merger, consolidation or
transfer of assets, the provisions of this Agreement shall be binding upon the
surviving or resulting corporation or the person or entity to which such assets
are transferred.
(b) The Company agrees that concurrently with any merger,
consolidation or transfer of assets referred to in paragraph (a) of this Section
11, it will cause any successor or transferee unconditionally to assume, by
written instrument delivered to the Executive (or his beneficiary or estate),
all of the obligations of the Company hereunder. Failure of the Company to
obtain such assumption prior to the effectiveness of any such merger,
consolidation or transfer of assets shall be a breach of this Agreement and
shall entitle the Executive to compensation and other benefits from the Company
in the same amount and on the same terms as the Executive would be entitled
hereunder if the Executive's employment were terminated following a Change in
Control other than by reason of a Nonqualifying Termination. For purposes of
implementing the foregoing, the date on which any such merger, consolidation or
transfer becomes effective shall be deemed the Date of Termination.
(c) This Agreement shall inure to the benefit of and be enforceable
by the Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If the Executive shall
die while any amounts would be payable to the Executive hereunder had the
Executive continued to live, all such amounts, unless otherwise provided herein,
shall be paid in accordance with the terms of this Agreement to such person or
persons appointed in writing by the Executive to receive such amounts or, if no
person is so appointed, to the Executive's estate.
12. NOTICE. (a) For purposes of this Agreement, all notices and
other communications required or permitted hereunder shall be in writing and
shall be deemed to have been duly given when delivered or five days after
deposit in the United States mail, certified and return receipt requested,
postage prepaid, addressed (1) if to the Executive, to his address as set forth
in the records of the Company, and if to the Company, to Tootsie Roll
Industries, Inc., 7401 South Cicero Avenue, Chicago, Illinois 60629, attention
President with a copy to the Secretary, or (2) to such other address as either
party may have furnished to the other in writing in accordance herewith, except
that notices of change of address shall be effective only upon receipt.
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(b) A written notice of the Executive's Date of Termination by the
Company or the Executive, as the case may be, to the other, shall (i) indicate
the specific termination provision in this Agreement relied upon, (ii) to the
extent applicable, set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Executive's employment under
the provision so indicated and (iii) specify the termination date (which date
shall be not less than 15 days after the giving of such notice). The failure by
the Executive or the Company to set forth in such notice any fact or
circumstance which contributes to a showing of Good Reason or Cause shall not
waive any right of the Executive or the Company hereunder or preclude the
Executive or the Company from asserting such fact or circumstance in enforcing
the Executive's or the Company's rights hereunder.
13. FULL SETTLEMENT; RESOLUTION OF DISPUTES. (a) The Company's
obligation to make any payments provided for in this Agreement and otherwise to
perform its obligations hereunder shall not be affected by any set-off,
counterclaim, recoupment, defense or other claim, right or action which the
Company may have against the Executive or others. In no event shall the
Executive be obligated to seek other employment or take any other action by way
of mitigation of the amounts payable to the Executive under any of the
provisions of this Agreement and, such amounts shall not be reduced whether or
not the Executive obtains other employment.
(b) If there shall be any dispute between the Company and the
Executive in the event of any termination of the Executive's employment, then,
unless and until there is a final, nonappealable judgment by a court of
competent jurisdiction declaring that such termination was for Cause, that the
determination by the Executive of the existence of Good Reason was not made in
good faith, or that the Company is not otherwise obligated to pay any amount or
provide any benefit to the Executive and his dependents or other beneficiaries,
as the case may be, under paragraphs (a) and (b) of Section 3, the Company shall
pay all amounts, and provide all benefits, to the Executive and his dependents
or other beneficiaries, as the case may be, that the Company would be required
to pay or provide pursuant to paragraphs (a) and (b) of Section 3 as though such
termination were by the Company without Cause or by the Executive with Good
Reason; PROVIDED, HOWEVER, that the Company shall not be required to pay any
disputed amounts pursuant to this paragraph except upon receipt of an
undertaking by or on behalf of the Executive to repay all such amounts to which
the Executive is ultimately adjudged by such court not to be entitled.
14. EMPLOYMENT WITH SUBSIDIARIES. Employment with the Company for
purposes of this Agreement shall include employment with any corporation or
other entity in which the Company has a
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direct or indirect ownership interest of 50% or more of the total combined
voting power of the then outstanding securities of such corporation or other
entity entitled to vote generally in the election of directors.
15. GOVERNING LAW; VALIDITY. The interpretation, construction and
performance of this Agreement shall be governed by and construed and enforced in
accordance with the internal laws of the State of Illinois without regard to the
principle of conflicts of laws. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which other provisions shall remain in
full force and effect.
16. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original and all of which
together shall constitute one and the same instrument.
17. MISCELLANEOUS. No provision of this Agreement may be modified or
waived unless such modification or waiver is agreed to in writing and signed by
the Executive and by a duly authorized officer of the Company. No waiver by
either party hereto at any time of any breach by the other party hereto of, or
compliance with, any condition or provision of this Agreement to be performed by
such other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. Failure by the
Executive or the Company to insist upon strict compliance with any provision of
this Agreement or to assert any right the Executive or the Company may have
hereunder, including, without limitation, the right of the Executive to
terminate employment for Good Reason, shall not be deemed to be a waiver of such
provision or right or any other provision or right of this Agreement. The
rights of, and benefits payable to, the Executive, his estate or his
beneficiaries pursuant to this Agreement are in addition to any rights of, or
benefits payable to, the Executive, his estate or his beneficiaries under any
other employee benefit plan or compensation program of the Company.
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<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by a duly authorized officer of the Company and the Executive has
executed this Agreement as of the day and year first above written.
TOOTSIE ROLL INDUSTRIES, INC.
By:
--------------------------------
Ellen R. Gordon, President
and Chief Operating Officer
EXECUTIVE
----------------------------------
Subscribed and Sworn to before me
this ___ day of August, 1997.
- ---------------------------------
Notary Public
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<PAGE>
TOOTSIE ROLL INDUSTRIES, INC.
EXECUTIVE SPLIT DOLLAR INSURANCE AGREEMENT
AGREEMENT, between Tootsie Roll Industries, Inc., a Virginia
corporation (the "Corporation"), and Joy L. Bowen as Trustee of the Barry Bowen
Insurance Trust (the "Trust").
WHEREAS, Barry Bowen (the "Employee") is presently employed by the
Corporation, his services have contributed to the successful operation of the
Corporation, and the Corporation's board of directors believes it is in the best
interest of the Corporation to retain the services of the Employee; and
WHEREAS, the Corporation wishes to assist the Trust (the "Owner") in
paying for life insurance on the Employee's life and has determined that this
assistance can best be provided under a split dollar arrangement for Policy No.
1A2322777-0 issued by Pacific Mutual Life Insurance Company (the "policy") owned
by the Trust on the Employee's life;
NOW, THEREFORE, in consideration of the premises, and the services to
be rendered to the Corporation by the Employee, 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
I.1. As long as this agreement is in force, the Owner and the
Corporation agree to pay the amounts and in the manner set forth below.
I.2. The Owner shall pay each year to the Corporation an amount equal
to the economic benefit that would be taxable as gross income for federal
income tax purposes to the Employee 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.
I.3. For purposes of Section 1.2 above, the economic benefit that would
be taxable to the Employee 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 Corporation.
I.4. In order to facilitate the payment of premiums on the policy, the
Owner and the Corporation agree that the Corporation will forward to the
Insurer the entire premiums due on the policy, if any.
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ARTICLE II -- POLICY OWNERSHIP AND RESTRICTIONS
II.1. The Owner shall be the sole owner of the policy. The
Corporation's payment of premiums hereunder shall constitute a liability of
the Owner subject to repayment as provided herein.
II.2. The Owner agrees to assign the policy to the Corporation as
collateral for such liabilities and the Corporation shall have those rights
granted to it under the assignment and this agreement. The Owner agrees that
while this agreement is in force, the Owner may not borrow or withdraw from
or surrender any part of the policy prior to the 15th anniversary of this
agreement. As between the Owner and the Corporation, this agreement shall
take precedence over any provision of the assignment in case of a conflict
between the terms of this agreement and the assignment.
ARTICLE III -- DEATH OF EMPLOYEE
III.1. On the Employee's death while this agreement is in force, the
Owner will pay to the Corporation an amount equal to the sum of (i) the
terminal reserve value of the policy plus unearned premiums on the date the
policy is transferred to the Owner (the "current value") and (ii) the total
premiums paid by the Corporation from the date of this agreement to the date
of the Employee's death, reduced by the total payments made to the
Corporation by the Owner pursuant to Section 1.2 above.
ARTICLE IV -- TERMINATION OF AGREEMENT
IV.1. This agreement shall automatically terminate upon the happening
of any of the following events:
(a) At the option of the Corporation, if the Employee terminates
employment for any reason other than death or a "change of control"
(defined below). The Employee shall be deemed to be employed by the
Corporation during any period in which he is "permanently disabled"
(defined below).
(b) At the surrender, lapse or termination of the policy.
(c) Upon delivery by the Owner of written notice of such
termination to the Corporation.
(d) Upon failure of the Owner to make a payment required by
Section 1.2 above.
(e) Upon agreement of the parties.
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<PAGE>
IV.2. In the event of a termination under Section 4.1(a) above, the
Owner will pay to the Corporation not later than the 15th anniversary of this
agreement an amount equal to the lesser of (i) the cash surrender value of
the policy on the date of such termination, not reduced by any loan or
withdrawal and not less than the current value or (ii) the amount the
Corporation would have been entitled to receive at the Employee's death under
Section 3.1 determined as if such death occurred on the date of such
termination (the "repayment amount"). The Owner acknowledges that, until
the repayment amount has been paid in full to the Corporation, the Owner must
continue to pay the amounts required under Section 1.2 above notwithstanding
the termination of the Employee's employment and the termination of the
Corporation's obligation to pay further premiums.
IV.3. In the event of any other termination under Section 4.1 above,
the Owner will pay the repayment amount to the Corporation within 60 days
after such termination.
ARTICLE V -- OTHER PROVISIONS
V.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.
V.2. This 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
agreement will bind and benefit the parties and their legal representatives
and successors.
V.3. This agreement shall not be deemed to constitute a contract of
employment between the Corporation and the Employee, nor shall any provision
restrict the right of the Corporation to discharge the Employee, or restrict
the Employee's right to terminate employment.
V.4. The provisions required by the Employee Retirement Income Security
Act of 1974 (ERISA) are attached as Exhibit B.
V.5. The Owner may assign his interest in this agreement at any time by
filing with the Corporation the statement attached as Exhibit C signed by his
assignee. This agreement may be amended or modified in whole or in part by
the Owner and the Corporation in writing at any time.
V.6. A "change of control" of the Corporation shall occur when: (1)
any person, including a "group," as described in Section 13(d)(3) of the
Securities Exchange Act of 1934, as amended, acquires after the effective
date of this agreement the beneficial ownership of, and the right to vote,
shares having the right to cast at least 20% of the votes permitted to be
cast in any election of members to the Corporation's board of directors; or
(2) as the result of
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<PAGE>
any tender or exchange offer, substantial purchase of the Corporation's
equity securities, merger, consolidation, sale of assets or contested
election, or any combination of the foregoing transactions, the persons who
were directors of the Corporation immediately prior to such transaction or
transactions do not constitute a majority of the Corporation's board of
directors (or of the board of directors of any successor to or assignee of
the Corporation) immediately after the next meeting of stockholders of the
Corporation (or any successor or assignee) following such transaction; except
that no event described in clause (1) or (2) above shall constitute a "change
of control" if immediately after such event Melvin J. Gordon, Ellen R.
Gordon, their descendants (and spouses of such descendants) and any trusts or
estates in which such persons have an interest own, directly or indirectly,
shares having the right to cast at least 50% of the votes permitted to be
cast in any election of members of the Corporation's board of directors. The
Employee shall be deemed to be "permanently disabled" if he is unable to
perform his stated duties with the Corporation by reason of illness, accident
or other incapacity and is not engaged in any occupation or employment for
wage or profit for which he is reasonably qualified by education, training,
or experience; provided however, that in the event the Corporation maintains
a long-term disability plan in which the Employee is entitled to receive
benefits, the Employee shall be deemed to be permanently disabled when he
suffers a physical illness, injury or other impairment in respect to which he
is entitled to receive benefits under such long-term disability plan.
V.7. Notwithstanding the provisions of this agreement, the life
insurance company (the "Insurer") which has issued the policy is hereby
authorized to act in accordance with the terms of the policy as if this
agreement did not exist, and the payment or other performance of the
contractual obligations by the Insurer, in accordance with the terms of the
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 agreement on
April 1, 1997.
/s/ Joy L. Bowen, Trustee
--------------------------------------------------------
Joy L. Bowen, Trustee of the Barry Bowen Insurance Trust
TOOTSIE ROLL INDUSTRIES, INC.
By /s/ Ellen R. Gordon
-----------------------------------------------------
As its President
----------------------------------------------
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EXHIBIT A (BARRY BOWEN)
COLLATERAL ASSIGNMENT
1. Joy Bowen, as Trustee of the Barry Bowen Insurance 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 the
Executive Split Dollar Insurance Agreement dated April 1, 1997, between the
Assignor and the Assignee (the "Assignee's Interest"), Policy No. 1A2322777-0
issued by Pacific Mutual Life Insurance Company on the life of Barry Bowen,
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 prohibit the Assignor's borrowing or withdrawal from
or surrender of any part of the policy prior to the 15th anniversary of the
Executive Split Dollar Insurance Agreement.
(b) 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.
(c) The right to collect, upon the insured's death, 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: April 1, 1997.
/s/ Joy Bowen, Trustee
--------------------------------------------------------
Assignor
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<PAGE>
TOOTSIE ROLL INDUSTRIES, INC.
Assignee
By /s/ Ellen R. Gordon
-----------------------------------------------------
Its President
-------------------------------------------------
Accepted an executed counterpart of this Collateral Assignment as of the
date last above written.
PACIFIC MUTUAL LIFE INSURANCE COMPANY
By
-----------------------------------------------------
Its
-------------------------------------------------
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EXHIBIT B (BARRY P. BOWEN)
SUMMARY PLAN DESCRIPTION
IMPORTANT NAMES, ADDRESS, AND NUMBERS
The name of the Plan is: Executive Split Dollar Insurance Agreement.
The name and address of the employer ("Corporation") that sponsors the
Plan:
Tootsie Roll Industries, Inc.
7401 South Cicero Avenue
Chicago, Illinois 60629
The Corporation's Employer Identification Number is 22-1318955.
The Plan Administrator is the Corporation.
The agent for service of legal process is the Plan Administrator and the
address for service is the one shown above.
The Plan keeps its records on a 12-month cycle that ends on December 31st
of each year.
TYPE OF PLAN
The Plan consists of separate agreements between the Corporation and key
executives of the Corporation. As its name implies, the Plan is a life
insurance plan intended to provide an insured death benefit for participants who
die while employed by the Corporation. Under the Plan the Corporation pays part
of the premium for the insurance and will receive back the amount defined in the
Plan when the participant dies. The excess of the policy proceeds over that
amount payable to the Corporation is the participant's death benefit.
ADMINISTRATION
The Plan is administered by the Corporation and by the life insurance
company which provides the life insurance policies used by the Plan.
CLAIMS PROCEDURE
The participant must make a claim for plan benefits by delivering a
written request to the Plan Administrator. Upon receipt of such request the
Plan Administrator may require the claimant to complete such forms and
provide such additional information as may be reasonably necessary to
establish the claimant's right to a benefit under the Plan. However,
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in the case of a death benefit claim, the beneficiary designated by the
participant must file a claim with the life insurance company.
If you file a claim for benefits other than death benefits and your
claim is denied for any reason, you or your beneficiary will be notified that
the claim has been denied and such notification will set forth the specific
reasons for the denial. The notification will be furnished to you or your
beneficiary within 90 days after the day you submit your claim to the
committee. Within 60 days after receiving the notification, you or your
beneficiary may apply to the committee for a full and fair review of the
decision denying the claim. You will be notified of the committee's decision
within 60 days of your request for review. Any decision made by the
committee in good faith is final and binding.
A claim for a death benefit must follow the procedures established by
the life insurance company which may include time deadlines. If a
participant makes a written request to the Plan Administrator, the Plan
Administrator will either provide copies of forms or instructions required by
the life insurance company to make a claim or tell the participant's
beneficiary how to obtain them. The life insurance company will notify the
beneficiary if the claim is denied and will explain the procedures it has for
reviewing any claims which it denies.
STATEMENTS OF ERISA RIGHTS
As a participant in the Plan, you are entitled to certain rights and
protections under the Employee Retirement Income Security Act of 1974. ERISA
provides that all plan participants shall be entitled to:
(a) Examine, without charge, at the Plan Administrator's office
all plan documents, including insurance contracts.
(b) Obtain copies of all plan documents and other plan
information upon written request to the Plan Administrator. The
Administrator may make a reasonable charge for the copies.
(c) File suit in a federal court, if any materials requested are
not received within 30 days of the participant's request, unless the
materials were not sent because of matters beyond the control of the
Administrator. The court may require the Plan Administrator to pay up
to $100 for each day's delay until the materials are received.
In addition to creating rights for plan participants, ERISA imposes
obligations upon the persons who are responsible for the operation of the
employee benefit plan. These persons are referred to as "fiduciaries" in the
law. Fiduciaries must act solely in the interest of the plan participants
and they must exercise prudence in the performance of their plan duties.
Fiduciaries who violate ERISA may be removed and required to make good any
losses they have caused the Plan. Your employer may not fire you or
discriminate against you to prevent you from obtaining a welfare benefit or
exercising your rights under ERISA. If you
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are improperly denied a welfare benefit in full or in part, you have a right
to file suit in a federal or a state court. If plan fiduciaries are misusing
the plan's money, you have a right to file suit in a federal court or request
assistance from the U.S. Department of Labor. If you are successful in your
lawsuit, the court may, if it so decides, require the other party to pay your
legal costs, including attorney's fees.
If you have any questions about this statement or your rights under ERISA,
you should contact the Plan Administrator or the nearest Area Office of the U.S.
Labor-Management Service Administration, Department of Labor.
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EXHIBIT C (BARRY BOWEN)
ASSIGNMENT AND ACCEPTANCE
Subject to all of the terms and provisions of the Executive Split Dollar
Insurance Agreement dated April 1, 1997, between Joy Bowen, as Trustee of the
Barry Bowen Insurance Trust (the "Trust") and Tootsie Roll Industries, Inc. (the
"Plan"), the undersigned does hereby assign, transfer and set over to [Assignee]
(the "Assignee") the Trust's entire interest in the Plan.
The Assignee accepts the foregoing Assignment and agrees to be bound by all
of the terms and provisions of the Plan.
DATED: April 1, 1997
/s/ Joy Bowen, Trustee
--------------------------------------------------------
Joy Bowen, as Trustee of the Barry Bowen Insurance Trust
/s/ Ellen R. Gordon, President
--------------------------------------------------------
[Assignee]
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The introduction of the revised "How Many Licks?" ad was accompanied by
extensive media coverage. First introduced in 1969, this theme has proven to be
one of the most memorable and longest running tag lines in advertising history.
The appeal of this message is evidenced by the many thousands of letters we have
received from consumers who are sure they have discovered just how many licks it
does take, and who wish to share their findings with us. Our president,
responded to numerous invitations from popular radio and TV programs and news
papers to comment on this phenomenon and promote our products to broad
audiences.
The company also benefited from numerous positive articles about the company
appearing in national media and local newspapers throughout the country such as
CNN, Forbes and USA Today. Also, we continue to receive an outpouring of
complimentary letters from loyal consumers who have enjoyed our products
throughout the years.
Manufacturing
The very favorable earnings increases experienced in 1997 reflect, in part,
productivity gains in our manufacturing operations. These gains are attributable
not only to increased economies of scale due to relatively higher production
volume but also to the "payback" realized from past investments in more
efficient and more highly automated manufacturing equipment.
Such investments remain an ongoing priority of the company. A number of
significant projects of this type were undertaken in 1997, designed to increase
product quality, efficiency and production capacity.
In our domestic plants, packaging equipment that operates at higher speeds and
with greater precision was added and we expanded cooking, cooling, cutting and
wrapping capacity for several items that have experienced continuing growth over
the past several years. We also reengineered a significant manufacturing line
and some key ingredient blending operations to generate productivity
improvements. Further modernization efforts were made at our plant in Mexico as
well.
We achieved other operating efficiencies through the investment in human
capital. Our engineers and operations managers continue to share "best practice"
methodologies across facilities and processes in order to ensure optimal
corporate-wide results. This team approach is fostered by senior management
initiatives and performance awards that recognize company-wide as well as
individual accomplishments. Ingenuity and team performance are rewarded in all
levels of management.
Warehousing and Distribution
Efficiencies from higher sales volumes were amplified in our warehousing and
distribution operations. Improvements made through past reengineering efforts in
these operations bore fruit as we were able to multiply lower unit distribution
costs across higher sales volumes and attain savings in excess of earlier
projections.
We continued the implementation of newly automated inventory tracking systems
and completed several key phases of this project in Chicago, with promising
results.
Purchasing
Commodity prices were generally favorable in 1997 and the markets for our key
ingredients were stable. The fluctuations that did occur had been largely
mitigated by timely fixed price contracts we had previously entered into and by
ongoing hedging activities.
Packaging material costs, including films, cartons, corrugated containers and
waxed paper, were also favorable. We continued to seek competitive bids to
leverage the high volume of annual purchases we make of these items and lower
our per unit costs.
International
Our Mexican and Canadian subsidiaries both reported sales increases over the
prior year. In Mexico, an especially strong fourth quarter was posted reflecting
another solid Christmas selling season. This was bolstered by the introduction
of a successful new line extension item.
In Canada, we continued to see profitable sales growth due to distribution gains
across multiple trade classes. Our export sales to other world markets continue
despite currency devaluations in many countries.
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4
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(in thousands except per share, percentage and ratio figures)
- --------------------------------------------------------------------------------
[GRAPH]
[GRAPH]
FINANCIAL REVIEW
This financial review discusses the company's financial condition, results of
operations, liquidity and capital resources. It should be read in conjunction
with the Consolidated Financial Statements and related footnotes following
hereafter.
FINANCIAL CONDITION
Our financial condition was further strengthened by the record operating results
we achieved in 1997. Net earnings for the year increased by 28.5% to $60,682 and
shareholders' equity grew by 12.2 % to $351,163. Cash and investments in
marketable securities increased by $37,861 during the year.
Cash generated from operating activities was used to fund share repurchases of
$14,401, capital expenditures of $8,611 and cash dividends of $7,303. The cash
dividend rate was increased by 17.2% in 1997, which marked the fifty-fifth
consecutive year in which cash dividends have been paid.
A 3% stock dividend was also distributed to shareholders during the year. This
was the thirty-third consecutive year that a stock dividend has been
distributed.
Our financial position in 1997 compared to 1996, measured by commonly used
financial ratios, is as follows: the current ratio fell from 4.2:1 to 3.9:1.
This reflects the classification of $39,738 of our investments in marketable
securities at year end as non-current due to their maturity dates. For the same
reason, working capital of $153,355 remained approximately even with the prior
year figure of $153,329.
Current liabilities to net worth remained comparable at 15.3% vs. 15.4% as did
debt to equity at 2.1% vs. 2.4%. The company continues to finance its operations
with funds generated from operations rather than with borrowed funds.
Our history of successful operations, coupled with our conservative financial
posture, has left us well positioned to respond quickly to future growth
opportunities that may arise. In this regard, the company is aggressively
seeking acquisitions to complement our existing operations.
RESULTS OF OPERATIONS
1997 vs. 1996
1997 was our twenty-first consecutive year of record sales achievement. Sales of
$375,594 were up 10.2% over 1996 sales of $340,909 and increases were seen in
each quarter. The third quarter, driven by Halloween sales, continued to be our
largest selling period and surpassed levels attained in previous years.
Halloween sales also carried over and drove a double digit sales increase in the
fourth quarter.
Throughout the year, sales were favorably impacted by successful promotional
programs as we continued to broaden distribution in mass merchandisers and other
select trade classes with our core product offerings. Line extensions, new
products and seasonal packs all contributed to added sales.
Sales growth occurred in our two most significant foreign operations as well. In
Mexico, the introduction of a new assortment complemented the already strong
business we have developed for the Christmas holiday season in that market.
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5
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[GRAPH]
[GRAPH]
Sales growth in our Canadian operation is attributable to further distribution
gains in the mass merchandiser and grocery trade classes. Also, the Bunch Pop,
an attractive cluster of seven Tootsie Pops priced to deliver good consumer
value, was successfully introduced.
Cost of goods sold, as a percentage of sales, decreased from 52.4% to 50.1%.
This improvement reflects lower costs for certain packaging and ingredients as
well as higher production efficiencies associated with increased volumes in
relation to fixed costs. The company continues to focus on cost control
throughout all levels of its operations.
Gross margin dollars grew by 15.3% to $187,281, and increased as a percent of
sales from 47.6% to 49.9%, due to the factors cited above. Gross margins in the
third and fourth quarters continue to be somewhat lower due to the seasonal
nature of our business and to the product mix sold in those quarters.
Operating expenses, comprised of marketing, selling, advertising, physical
distribution, general and administrative expenses and goodwill amortization, as
a percentage of sales, declined slightly from 26.7% to 25.9%. This improvement
is due to distribution and warehousing efficiencies and effective expense
control programs aimed at holding down costs. Earnings from operations increased
by 25.9% to $90,087, or 24.0% of sales, as a result of favorable gross margins
and operating expenses.
Other income increased by $1,708 to $5,274, primarily reflecting lower interest
expense and higher interest income due to lower average borrowings and increased
investments in marketable securities, respectively. As a majority of our
interest income is not subject to federal income tax, the effective tax rate
declined from 37.1% to 36.4%.
Consolidated net earnings rose to a new company record of $60,682. Earnings per
share increased 30% to $2.58 from the previous record of $1.99 reached in 1996.
Our net earnings as a percent of sales increased to 16.2% from 13.8%. 1997 was
the sixteenth consecutive year of record earnings achievement for the company.
1996 vs. 1995
1996 represented our twentieth consecutive year of record sales. Reaching
$340,909, sales increased 9.0% over 1995 sales of $312,660. While the third
quarter continued to be our largest selling period, another successful Halloween
season drove double digit sales gains in both the third quarter and fourth
quarters of 1996.
Sales gains were attributable to successful promotional programs and broadened
distribution in mass merchandisers and other trade classes. These efforts were
augmented by niche marketing strategies including seasonal packs, line
extensions and new product offerings.
Foreign sales also grew 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 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%. This
reflected an easing of
- --------------------------------------------------------------------------------
6
<PAGE>
- --------------------------------------------------------------------------------
[GRAPH]
[GRAPH]
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 were again lower in the third and fourth quarters due to the
seasonality and product mix factors cited above.
Operating expenses as a percentage of sales were 26.7%, a decrease of .3% versus
1995 and reflective of our ongoing expense control measures. 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
$1.99 per share, from the previous record of $40,368, or $1.70 per share in
1995. This represented the fifteenth consecutive year of record earnings for the
company.
Liquidity and Capital Resources
The company's financial resources grew during the year as cash and marketable
securities increased by $37,861 to a year end total $182,018. This total
includes marketable securities which have maturities greater than one year and
are not classified as current.
Cash flows from operating activities were $68,176 in 1997, $76,710 in 1996 and
$50,851 in 1995. Higher profits and depreciation in 1997 were offset by
increases in accounts receivable and inventory and by the timing of tax
payments.
Cash flows from investing activities in 1997 reflect a net increase of $23,087
in investments in marketable securities and capital expenditures of $8,611,
$9,791 and $4,640 in 1997, 1996 and 1995, respectively.
Cash flows from financing activities consist of share purchases of $14,401 in
1997, the pay-off of a $20,000 note in 1996 and cash dividends of $7,303, $6,211
and $5,292 in 1997, 1996 and 1995, respectively. 1997 was the fifty-fifth
consecutive year in which we have paid cash dividends.
Year 2000 Conversion
The company recognizes the need to ensure that its operations will not be
adversely impacted by software failures arising from calculations using the year
2000 date. Accordingly, we have established a process for evaluating and
managing the risks and costs associated with this problem.
We believe that these risks and costs will be minimal for the financial and
operational systems we use, and do not expect year 2000 compliance to have a
material impact on the company or its operations.
The results of these operations and our financial condition are expressed in the
following financial statements.
- --------------------------------------------------------------------------------
7
<PAGE>
CONSOLIDATED STATEMENT OF
EARNINGS AND RETAINED EARNINGS
TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
(in thousands except per share data)
- --------------------------------------------------------------------------------------------------------------------
For the year ended December 31,
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Net sales................................................................. $375,594 $340,909 $312,660
Cost of goods sold........................................................ 188,313 178,489 166,738
------------ ------------ ------------
Gross margin.............................................................. 187,281 162,420 145,922
------------ ------------ ------------
Operating expenses:
Marketing, selling and advertising.................................... 53,693 50,642 46,436
Distribution and warehousing.......................................... 24,019 22,509 22,049
General and administrative............................................ 16,776 15,031 13,328
Amortization of the excess of cost over acquired net tangible
assets............................................................... 2,706 2,706 2,706
------------ ------------ ------------
97,194 90,888 84,519
------------ ------------ ------------
Earnings from operations.................................................. 90,087 71,532 61,403
Other income, net......................................................... 5,274 3,566 2,635
------------ ------------ ------------
Earnings before income taxes.............................................. 95,361 75,098 64,038
Provision for income taxes................................................ 34,679 27,891 23,670
------------ ------------ ------------
Net earnings.............................................................. 60,682 47,207 40,368
Retained earnings at beginning of year.................................... 136,352 121,477 107,763
------------ ------------ ------------
197,034 168,684 148,131
------------ ------------ ------------
Deduct:
Cash dividends ($.32, $.27 and $.23 per share)........................ 7,472 6,372 5,383
Stock dividends....................................................... 30,438 25,960 21,271
------------ ------------ ------------
37,910 32,332 26,654
------------ ------------ ------------
Retained earnings at end of year.......................................... $159,124 $136,352 $121,477
------------ ------------ ------------
------------ ------------ ------------
Earnings per share........................................................ $ 2.58 $ 1.99 $ 1.70
------------ ------------ ------------
------------ ------------ ------------
Average common and class B common shares outstanding...................... 23,542 23,690 23,690
------------ ------------ ------------
------------ ------------ ------------
(The accompanying notes are an integral part of these statements.)
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
8
<PAGE>
CONSOLIDATED STATEMENT OF
FINANCIAL POSITION
TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
(in thousands)
- ------------------------------------------------------------------------------------------------------------------------
ASSETS December 31,
1997 1996
------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents............................................................... $ 60,433 $ 45,659
Investments............................................................................. 81,847 98,498
Accounts receivable, less allowances of $2,085 and $1,885............................... 23,319 21,207
Inventories:
Finished goods and work-in-process.................................................. 22,938 20,359
Raw materials and supplies.......................................................... 13,721 9,950
Prepaid expenses........................................................................ 2,910 3,001
Deferred income taxes................................................................... 1,793 2,839
------------ ------------
Total current assets............................................................ 206,961 201,513
------------ ------------
PROPERTY, PLANT AND EQUIPMENT, at cost:
Land.................................................................................... 6,895 6,895
Buildings............................................................................... 22,100 29,304
Machinery and equipment................................................................. 122,430 117,130
------------ ------------
151,425 153,329
Less--Accumulated depreciation.......................................................... 73,061 71,642
------------ ------------
78,364 81,687
------------ ------------
OTHER ASSETS:
Excess of cost over acquired net tangible assets, net of accumulated
amortization of $18,085 and $15,378................................................... 90,549 93,256
Investments............................................................................. 39,738 --
Other assets............................................................................ 21,130 15,000
------------ ------------
151,417 108,256
------------ ------------
$436,742 $391,456
------------ ------------
------------ ------------
(The accompanying notes are an integral part of these statements.)
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
(in thousands except per share data)
- ------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY December 31,
1997 1996
------------ ------------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable................................................................. $ 11,624 $ 8,560
Dividends payable................................................................ 1,930 1,668
Accrued liabilities.............................................................. 32,793 28,240
Income taxes payable............................................................. 7,259 9,716
------------ ------------
Total current liabilities................................................ 53,606 48,184
------------ ------------
NONCURRENT LIABILITIES:
Deferred income taxes............................................................ 8,650 9,268
Postretirement health care and life insurance benefits........................... 5,904 5,636
Industrial development bonds..................................................... 7,500 7,500
Other long term liabilities...................................................... 9,919 7,987
------------ ------------
Total noncurrent liabilities............................................. 31,973 30,391
------------ ------------
SHAREHOLDERS' EQUITY:
Common stock, $.69-4/9 par value--
50,000 shares authorized--
15,851 and 15,617, respectively, issued........................................ 11,008 10,845
Class B common stock, $.69-4/9 par value--
20,000 shares authorized--
7,547 and 7,387, respectively, issued.......................................... 5,241 5,130
Capital in excess of par value................................................... 187,259 171,589
Retained earnings, per accompanying statement.................................... 159,124 136,352
Foreign currency translation adjustment account.................................. (11,052) (11,035)
Unrealized loss on marketable securities......................................... (417) --
------------ ------------
351,163 312,881
------------ ------------
$436,742 $391,456
------------ ------------
------------ ------------
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE>
CONSOLIDATED STATEMENT OF
CASH FLOWS
TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
(in thousands)
- ------------------------------------------------------------------------------------------------------------------------
For the year ended December 31,
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings.......................................................... $60,682 $47,207 $40,368
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation and amortization..................................... 12,819 12,068 10,794
Loss on retirement of fixed assets................................ 26 714 8
Changes in operating assets and liabilities:
Accounts receivable........................................... (2,327) 2,314 (3,740)
Inventories................................................... (6,463) 1,879 (3,829)
Prepaid expenses and other assets............................. (6,622) (4,253) (3,915)
Accounts payable and accrued liabilities...................... 9,624 9,362 4,389
Income taxes payable and deferred............................. (2,049) 3,718 5,122
Postretirement health care and life insurance benefits........ 269 250 393
Other long term liabilities................................... 1,932 3,460 1,375
Other......................................................... 285 (9) (114)
------------ ------------ ------------
Net cash provided by operating activities............................. 68,176 76,710 50,851
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.................................................. (8,611) (9,791) (4,640)
Purchase of held to maturity securities............................... (68,982) (47,221) (45,313)
Maturity of held to maturity securities............................... 27,473 16,523 35,409
Purchase of available for sale securities............................. (304,910) (35,883) --
Sale and maturity of available for sale securities.................... 323,332 24,008 --
------------ ------------ ------------
Net cash used in investing activities................................. (31,698) (52,364) (14,544)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of notes payable........................................... -- (20,000) --
Shares repurchased and retired........................................ (14,401) -- --
Dividends paid in cash................................................ (7,303) (6,211) (5,292)
------------ ------------ ------------
Net cash used in financing activities................................. (21,704) (26,211) (5,292)
------------ ------------ ------------
Increase (decrease) in cash and cash equivalents.......................... 14,774 (1,865) 31,015
Cash and cash equivalents at beginning of year............................ 45,659 47,524 16,509
------------ ------------ ------------
Cash and cash equivalents at end of year.................................. $60,433 $45,659 $47,524
------------ ------------ ------------
------------ ------------ ------------
Supplemental cash flow information:
Income taxes paid..................................................... $36,716 $23,969 $18,573
------------ ------------ ------------
------------ ------------ ------------
Interest paid......................................................... $ 389 $ 1,015 $ 1,548
------------ ------------ ------------
------------ ------------ ------------
(The accompanying notes are an integral part of these statements.)
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
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. In accordance with the Statement of Financial
Accounting Standards (SFAS) No. 115, "Accounting For Certain Investments in Debt
and Equity Securities," the company's debt and equity securities are 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 ($30,530 and $24,305 at December 31, 1997 and 1996, respectively)
has been determined by the last-in, first-out (LIFO) method. The excess of
current cost over LIFO cost of inventories approximates $4,918 and $5,161 at
December 31, 1997 and 1996, respectively. The cost of foreign inventories
($6,129 and $6,004 at December 31, 1997 and 1996, 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, 1997 and 1996 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 an evaluation.
Postretirement health care and life insurance benefits:
The company provides certain postretirement health care and life insurance
benefits. The cost of these postretirement benefits is accrued during employees'
working careers.
Income taxes:
The company uses the liability method of computing deferred income taxes.
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:
Prior to January 1, 1997, management designated the local currency as the
functional currency for the company's Mexican operations. Accordingly, the net
effect of translating the Mexican operations' financial statements was reported
in a separate component of shareholders' equity. During 1997, management
determined that the Mexican economy was hyper-inflationary. Accordingly, the US
dollar is now used as the functional currency, and translation gains and losses
are included in the determination of 1997 earnings.
Earnings per Share:
On December 31, 1997, the company adopted SFAS No. 128, "Earnings per Share."
A dual presentation of basic and diluted earnings per share is not required due
to the lack of potentially dilutive securities under the company's simple
capital structure. Therefore, all earnings per share amounts represent basic
earnings per share.
NOTE 2--ACCRUED LIABILITIES:
Accrued liabilities are comprised of the following:
<TABLE>
<CAPTION>
December 31,
--------------------
1997 1996
--------- ---------
<S> <C> <C>
Compensation and employee benefits.................... $ 8,853 $ 7,892
Customer returns...................................... 4,684 4,158
Taxes, other than income.............................. 1,936 1,754
Advertising and promotions............................ 6,939 6,434
Other................................................. 10,381 8,002
--------- ---------
$ 32,793 $ 28,240
--------- ---------
--------- ---------
</TABLE>
NOTE 3--INCOME TAXES:
The domestic and foreign components of pretax income are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Domestic................................... $ 93,318 $ 71,660 $ 61,894
Foreign.................................... 2,043 3,438 2,144
--------- --------- ---------
$ 95,361 $ 75,098 $ 64,038
--------- --------- ---------
--------- --------- ---------
</TABLE>
12
<PAGE>
The provision for income taxes is comprised of the following:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Current:
Federal.................................. $ 29,764 $ 23,907 $ 19,849
Foreign.................................. 626 375 844
State.................................... 3,836 3,167 2,425
--------- --------- ---------
34,226 27,449 23,118
--------- --------- ---------
Deferred:
Federal.................................. 738 (322) 517
Foreign.................................. (368) 802 (25)
State.................................... 83 (38) 60
--------- --------- ---------
453 442 552
--------- --------- ---------
$ 34,679 $ 27,891 $ 23,670
--------- --------- ---------
--------- --------- ---------
</TABLE>
Deferred income taxes are comprised of the following:
<TABLE>
<CAPTION>
December 31,
--------------------
1997 1996
--------- ---------
<S> <C> <C>
Workers' compensation................................... $ 428 $ 448
Reserve for returns..................................... 407 407
Reserve for uncollectible accounts...................... 537 445
Other accrued expenses.................................. 1,107 1,295
VEBA funding............................................ (387) (452)
Other, net.............................................. (299) 696
--------- ---------
Net current deferred income tax asset................... $ 1,793 $ 2,839
--------- ---------
--------- ---------
</TABLE>
<TABLE>
<CAPTION>
December 31,
--------------------
1997 1996
--------- ---------
<S> <C> <C>
Depreciation............................................ $ 8,930 $ 9,078
Post retirement benefits................................ (2,045) (1,935)
Deductible goodwill..................................... 4,390 3,617
Deferred compensation................................... (3,441) (2,478)
DISC commissions........................................ 1,553 1,148
Foreign subsidiary tax loss carryforward................ (1,470) (1,750)
Other, net.............................................. 733 1,588
--------- ---------
Net long-term deferred income tax liability............. $ 8,650 $ 9,268
--------- ---------
--------- ---------
</TABLE>
At December 31, 1997, gross deferred tax assets and gross deferred tax
liabilities are $12,147 and $19,004, respectively.
The effective income tax rate differs from the statutory rate as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
U.S. statutory rate............................ 35.0% 35.0% 35.0%
State income taxes, net........................ 2.7 2.8 2.6
Amortization of excess of cost over acquired
net tangible assets........................... 0.5 0.6 0.7
Other, net..................................... (1.8) (1.3) (1.3)
--- --- ---
Effective income tax rate...................... 36.4% 37.1% 37.0%
--- --- ---
--- --- ---
</TABLE>
The company has not provided for U.S. federal or foreign withholding taxes on
$4,073 of foreign subsidiaries' undistributed earnings as of December 31, 1997
because such earnings are considered to be permanently reinvested. When excess
cash has accumulated in the company's foreign subsidiaries and it is
advantageous for tax or foreign exchange reasons, subsidiary earnings may be
remitted, and income taxes will be provided on such amounts. It is not
practicable to determine the amount of income taxes that would be payable upon
remittance of the undistributed earnings.
NOTE 4--SHARE CAPITAL AND CAPITAL IN EXCESS OF PAR VALUE:
<TABLE>
<CAPTION>
Class B
Common Stock Common Stock Capital in
-------------------- ------------------------ excess of
Shares Amount Shares Amount par value
--------- --------- ----------- ----------- -----------
(000's) (000's)
<S> <C> <C> <C> <C> <C>
Balance at
January 1, 1995......... 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
Issuance of 3% stock
dividend................ 465 323 221 153 29,868
Conversion of Class B
common shares to common
shares.................. 61 42 (61) (42) --
Purchase and retirement
of common shares........ (292) (202) -- -- (14,198)
--------- --------- ----- ----------- -----------
Balance at
December 31, 1997....... 15,851 $ 11,008 7,547 $ 5,241 $ 187,259
--------- --------- ----- ----------- -----------
--------- --------- ----- ----------- -----------
</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 annual
three percent stock dividends and the two-for-one stock split distributed in
1995.
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.
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,
1997 and 1996, interest was calculated under the floating option (3.8% and 3.7%,
respectively) which requires monthly payments of interest. Principal on the
bonds is due in its entirety in the year 2027.
In connection with the issuance of the bonds, the company entered into a
letter of credit agreement with a bank for the amount of principal outstanding
plus 48 days' accrued interest. The letter of credit, which expires in March
2000, carries an annual fee of 32 1/2 basis points on the outstanding principal
amount of the bonds.
13
<PAGE>
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 1997, 1996 and 1995 approximated $2,153, $1,814 and $1,524,
respectively. The company also maintains certain profit sharing and
savings-investment plans. Company contributions in 1997, 1996 and 1995 to these
plans were $540, $485 and $441, respectively.
The company also contributes to multi-employer defined benefit pension plans
for its union employees. Such contributions aggregated $609, $436 and $416 in
1997, 1996 and 1995, 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, 1997 and 1996 consists of the following:
<TABLE>
<CAPTION>
December 31,
--------------------
1997 1996
--------- ---------
<S> <C> <C>
Retirees............................................ $ 1,532 $ 1,325
Active employees--nonvested......................... 2,692 2,692
Unrecognized net gain............................... 1,680 1,619
--------- ---------
Accrued postretirement liability.................... $ 5,904 $ 5,636
--------- ---------
--------- ---------
</TABLE>
Net periodic postretirement benefit cost for 1997, 1996 and 1995 included the
following components:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Service cost--benefits attributed to
service during the period.............................. $ 251 $ 263 $ 273
Interest cost on the accumulated postretirement
benefit obligation..................................... 285 277 313
Amortization of unrecognized net gain.................... (101) (87) (63)
--------- --------- ---------
Net periodic postretirement benefit cost................. $ 435 $ 453 $ 523
--------- --------- ---------
--------- --------- ---------
</TABLE>
For measurement purposes, an 8.5% annual rate of increase in the per capita
cost of covered health care benefits was assumed for 1997; 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, 1997 by approximately $582 and the
aggregate of the service and interest cost components of net periodic
postretirement benefit cost for the year then ended by approximately $92. The
weighted-average discount rate used in determining the accumulated
postretirement benefit obligation was 6.75% and 7.25% at December 31, 1997 and
1996, respectively.
NOTE 7--OTHER INCOME, NET:
Other income (expense) is comprised of the following:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Interest income................................ $ 5,764 $ 3,887 $ 3,161
Interest expense............................... (483) (1,498) (1,515)
Dividend income................................ 999 1,386 1,753
Foreign exchange losses........................ (447) (50) (654)
Royalty income................................. 312 92 214
Miscellaneous, net............................. (871) (251) (324)
--------- --------- ---------
$ 5,274 $ 3,566 $ 2,635
--------- --------- ---------
--------- --------- ---------
</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 $477, $439 and $2,538 in 1997, 1996 and 1995,
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.
Industrial development bonds
The fair value of the company's industrial development bonds approximates
their carrying value because they have a floating interest rate.
Fair value
The estimated fair values of the company's financial instruments are as
follows:
<TABLE>
<CAPTION>
1997 1996
------------------------ ------------------------
Carrying Carrying
Amount Fair Value Amount Fair Value
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Cash and cash equivalents............. $ 60,433 $ 60,433 $ 45,659 $ 45,659
Investments held to maturity.......... 95,086 97,000 86,622 89,164
Investments available for sale........ 26,499 26,499 11,876 11,876
Industrial development bonds.......... 7,500 7,500 7,500 7,500
</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 by major
security type is as follows:
<TABLE>
<CAPTION>
December 31, 1997
----------------------------------------------
Unrealized
Amortized Fair ----------------------
Held to Maturity: Cost Value Gains Losses
- ----------------------------------------- ----------- --------- --------- -----------
<S> <C> <C> <C> <C>
Unit investment trusts of preferred
stocks.................................. $ 4,724 $ 6,794 $ 2,070 $ --
Tax-free commercial paper................ 15,300 15,300 -- --
Municipal bonds.......................... 87,456 87,218 -- (238)
Unit investment trusts of municipal
bonds................................... 1,103 1,484 381 --
US gov't/gov't agency obligations........ 1,803 1,803 -- --
Other.................................... -- -- -- --
Private export funding securities........ -- -- -- --
----------- --------- --------- -----------
$ 110,386 $ 112,599 $ 2,451 $ (238)
----------- --------- --------- -----------
----------- --------- --------- -----------
<CAPTION>
Available for Sale:
- -----------------------------------------
<S> <C> <C> <C> <C>
Municipal Bonds.......................... $ 37,587 $ 37,484 $ -- $ (103)
Mutual funds............................. 7,796 7,482 -- (314)
----------- --------- --------- -----------
$ 45,383 $ 44,966 $ -- $ (417)
----------- --------- --------- -----------
----------- --------- --------- -----------
</TABLE>
<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>
Held to maturity securities of $15,300 and $2,900 and available for sale
securities of $18,467 and $10,288 were included in cash and cash equivalents at
December 31, 1997 and 1996, respectively.
Gross realized gains and losses on the sale of available for sale securities in
1997 and 1996 were not significant.
NOTE 10--GEOGRAPHIC AREA AND SALES INFORMATION:
Summary of sales, net earnings and assets by geographic area
<TABLE>
<CAPTION>
1997 1996 1995
------------------------------ ------------------------------ ------------------------------
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... $346,487 $29,107 $375,594 $315,131 $25,778 $340,909 $290,590 $22,070 $312,660
--------- --------- ---------
--------- --------- ---------
Sales between geographic areas.... 1,694 3,314 1,888 3,152 1,747 2,055
--------- -------- --------- -------- --------- --------
$348,181 $32,421 $317,019 $28,930 $292,337 $24,125
--------- -------- --------- -------- --------- --------
--------- -------- --------- -------- --------- --------
Net earnings...................... $ 58,898 $ 1,784 $ 60,682 $ 44,946 $ 2,261 $ 47,207 $ 39,044 $ 1,324 $ 40,368
Total assets...................... $414,629 $22,113 $436,742 $373,925 $17,531 $391,456 $339,718 $14,098 $353,816
Net assets........................ $332,410 $18,753 $351,163 $298,565 $14,316 $312,881 $260,273 $11,913 $272,186
</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 15.9%, 16.2% and 16.0%
of total net sales during the years ended December 31, 1997, 1996 and 1995,
respectively.
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS [LOGO]
To the Board of Directors and Shareholders of Tootsie Roll Industries, Inc.
In our opinion, the accompanying consolidated statement of financial position
and the related consolidated 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, 1997 and
1996, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997, 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.
[SIGNATURE]
Chicago, Illinois
February 11, 1998
15
<PAGE>
QUARTERLY FINANCIAL DATA
TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
(Thousands of dollars except per share data)
1997 First Second Third Fourth Total
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------
Net sales....................................................... $66,258 $82,287 $140,645 $86,404 $375,594
Gross margin.................................................... 33,323 41,382 69,746 42,830 187,281
Net earnings.................................................... 9,751 12,507 24,695 13,729 60,682
Net earnings per share.......................................... .41 .53 1.05 .59 2.58
1996
- -----------------------------------------------------------------------------------------------------------------------
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.......................................... .34 .39 .81 .45 1.99
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.......................................... .31 .35 .68 .36 1.70
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>
1997-1996 QUARTERLY SUMMARY OF TOOTSIE ROLL INDUSTRIES, INC. STOCK PRICE
AND DIVIDENDS PER SHARE
<TABLE>
<CAPTION>
STOCK PRICES* DIVIDENDS**
1997 1996
- ------------------------------------------------------
Hi Lo Hi Lo 1997 1996
- ------------------------------------------------------ -------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1st Qtr... 46-3/4 37-3/4 40-1/2 36-1/2 1st Qtr........ $ .0704 $ .0577
2nd Qtr... 49-7/8 44-1/2 36-3/4 34-1/2 2nd Qtr........ $ .0825 $ .0704
3rd Qtr... 50-7/8 45-3/4 35-7/8 34-1/8 3rd Qtr........ $ .0825 $ .0704
4th Qtr... 64-7/8 51 40-1/4 34-3/8 4th Qtr........ $ .0825 $ .0704
*NYSE -- Composite Quotations NOTE: In addition to the above cash dividends, a
3% stock dividend was issued on 4/22/97 and
Estimated Number of shareholders at 12/31/97 ... 9,500 4/23/96.
**Cash dividends are restated to reflect 3% stock
dividends.
</TABLE>
16
<PAGE>
FIVE YEAR SUMMARY OF EARNINGS AND FINANCIAL HIGHLIGHTS
TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
(Thousands of dollars except per share,
percentage and ratio figures)
- ------------------------------------------------------------------------------------------------------------------------
(See Management's Comments starting on page 5) 1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Sales and Earnings Data
Net sales........................................ $ 375,594 $ 340,909 $ 312,660 $ 296,932 $ 259,593
Gross margin..................................... 187,281 162,420 145,922 141,367 125,615
Interest expense................................. 483 1,498 1,515 1,649 642
Provision for income taxes....................... 34,679 27,891 23,670 23,236 22,268
Net earnings..................................... 60,682 47,207 40,368 37,931 35,442
% of sales................................... 16.2% 13.8% 12.9% 12.8% 13.7%
% of shareholders' equity.................... 17.3% 15.1% 14.8% 15.8% 16.7%
Per Common Share Data (1)
Net sales........................................ $ 15.95 $ 14.39 $ 13.20 $ 12.53 $ 10.96
Net earnings..................................... 2.58 1.99 1.70 1.60 1.50
Shareholders' equity............................. 15.01 13.21 11.49 10.15 8.96
Cash dividends................................... .32 .27 .23 .19 .16
Stock dividends.................................. 3% 3% 3% 3% 3%
Additional Financial Data
Working capital.................................. $ 153,355 $ 153,329 $ 109,643 $ 92,626 $ 61,052
Current ratio.................................... 3.9 4.2 3.0 4.5 2.2
Net cash provided by operating activities........ 68,176 76,710 50,851 40,495 33,397
Property, plant & equipment additions (2)........ 8,611 9,791 4,640 8,179 52,492
Net property, plant & equipment.................. 78,364 81,687 81,999 85,648 86,699
Total assets..................................... 436,742 391,456 353,816 310,083 303,940
Long term debt................................... 7,500 7,500 7,500 27,500 27,500
Shareholders' equity............................. 351,163 312,881 272,186 240,461 212,343
Average shares outstanding (1)................... 23,542 23,690 23,690 23,690 23,690
<FN>
(1) Adjusted for annual 3% 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>
SUBSIDIARIES
Arrendadora Gorvac S.A. de C.V. Tootsie Roll Central Europe Ltd.
C.G. L.P., Inc. The Tootsie Roll Company, Inc.
C.G.C. Corporation Tootsie Roll Management, Inc.
C.G.P., Inc. Tootsie Roll Mfg., Inc.
Cambridge Brands, Inc. Tootsie Rolls--Latin America, Inc.
Cambridge Brands Mfg., Inc. Tootsie Roll Worldwide Ltd.
Cambridge Brands Services, Inc. The Sweets Mix Company, Inc.
Cella's Confections, Inc. TRI de Latino America S.A. de C.V.
Charms Company TRI Finance, Inc.
Charms L.P. TRI International Co.
Charms Marketing Company TRI-Mass., Inc.
Henry Eisen Advertising Agency, Inc. TRI Sales Co.
J.T. Company, Inc. Tutsi S.A. de C.V.
Tootsie Roll of Canada Ltd. World Trade & Marketing Ltd.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 60,433
<SECURITIES> 81,847
<RECEIVABLES> 25,404
<ALLOWANCES> 2,085
<INVENTORY> 36,659
<CURRENT-ASSETS> 206,961
<PP&E> 151,425
<DEPRECIATION> 73,061
<TOTAL-ASSETS> 436,742
<CURRENT-LIABILITIES> 53,606
<BONDS> 7,500
0
0
<COMMON> 16,249
<OTHER-SE> 334,914
<TOTAL-LIABILITY-AND-EQUITY> 436,742
<SALES> 375,594
<TOTAL-REVENUES> 375,594
<CGS> 188,313
<TOTAL-COSTS> 97,194
<OTHER-EXPENSES> 5,624
<LOSS-PROVISION> 339
<INTEREST-EXPENSE> 350
<INCOME-PRETAX> 95,361
<INCOME-TAX> 34,679
<INCOME-CONTINUING> 60,682
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 60,682
<EPS-PRIMARY> 2.58
<EPS-DILUTED> 2.58
</TABLE>
