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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X]
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR
[ ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________________ TO _________________
COMMISSION FILE NUMBER 1-1361
- -------------------------------------------------------------------------------
TOOTSIE ROLL INDUSTRIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
- -------------------------------------------------------------------------------
VIRGINIA 22-1318955
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION
7401 SOUTH CICERO AVENUE, CHICAGO, ILLINOIS 60629
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER: (773) 838-3400
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- -----------------------
COMMON STOCK - PAR VALUE $.69-4/9 PER SHARE NEW YORK STOCK EXCHANGE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
-----------------------------------------------------------
CLASS B COMMON STOCK - PAR VALUE $.69-4/9 PER SHARE
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO _______
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
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As of March 7, 2000, 32,440,569 shares of Common Stock, par value $.69-4/9 per
share, were outstanding and the aggregate market value of the Common Stock
(based upon the closing price of the stock on the New York Stock Exchange on
such date) held by non-affiliates was approximately $532,831,511. As of March 7,
2000, 15,692,649 shares of Class B Common Stock, par value $.69-4/9 per share,
were outstanding. Class B Common Stock is not traded on any exchange, is
restricted as to transfer or other disposition, but is convertible into Common
Stock on a share-for-share basis. Upon such conversion, the resulting shares of
Common Stock are freely transferable and publicly traded. Assuming all
15,692,649 shares of outstanding Class B Common Stock were converted into Common
Stock, the aggregate market value of Common Stock held by non-affiliates on
March 7, 2000 (based upon the closing price of the stock on the New York Stock
Exchange on such date) would have been approximately $574,992,334. Determination
of stock ownership by non-affiliates was made solely for the purpose of this
requirement, and the Registrant is not bound by these determinations for any
other purpose.
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of the Company's Annual Report to Shareholders for
the year ended December 31, 1999 (the "1999 Report") are incorporated by
reference in Parts I and II of this report.
2. Portions of the Company's Definitive Proxy Statement which
will be distributed on or before April 29, 2000 in connection with the Company's
2000 Annual Meeting of Shareholders (the "2000 Proxy Statement") are
incorporated by reference in Part III of this report.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
ITEM 1. Business.................................................................................................1
ITEM 2. Properties...............................................................................................2
ITEM 3. Legal Proceedings........................................................................................3
ITEM 4. Submission of Matters to a Vote of Security Holders......................................................3
ITEM 5. Market for Registrant's Common Equity and Related Stockholder Matters....................................4
ITEM 6. Selected Financial Data..................................................................................4
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations....................4
ITEM 8. Financial Statements and Supplementary Data..............................................................5
ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.....................5
ITEM 10. Directors and Executive Officers of the Registrant......................................................5
ITEM 11. Executive Compensation..................................................................................6
ITEM 12. Security Ownership of Certain Beneficial Owners and Management..........................................6
ITEM 13. Certain Relationships and Related Transactions..........................................................6
ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.........................................6
</TABLE>
-i-
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PART I
ITEM 1. BUSINESS.
Tootsie Roll Industries, Inc. and its consolidated
subsidiaries (the "Company") have been engaged in the manufacture and sale of
candy for over 100 years. This is the only industry segment in which the Company
operates and is its only line of business. The majority of the Company's
products are sold under the registered trademarks TOOTSIE ROLL, TOOTSIE ROLL
POPS, CHILD'S PLAY, CARAMEL APPLE POPS, CHARMS, BLOW-POP, BLUE RAZZ,
ZIP-A-DEE-DOO-DA POPS, CELLA'S, MASON DOTS, MASON CROWS, JUNIOR MINT, CHARLESTON
CHEW, SUGAR DADDY AND SUGAR BABIES. The Company acquired the last four of these
trademarks in 1993 along with the manufacturing assets of the former
Chocolate/Caramel Division of Warner Lambert Company.
The Company's products are marketed in a variety of packages
designed to be suitable for display and sale in different types of retail
outlets. They are distributed through approximately 100 candy and grocery
brokers and by the Company itself to approximately 15,000 customers throughout
the United States. These customers include wholesale distributors of candy and
groceries, supermarkets, variety stores, chain grocers, drug chains, discount
chains, cooperative grocery associations, warehouse and membership club stores,
vending machine operators, and fund-raising charitable organizations.
The Company's principal markets are in the United States,
Canada and Mexico. The Company's Mexican plant supplies a very small percentage
of the products marketed in the United States and Canada.
The Company has advertised nationally for many years. Although
nearly all advertising media have been used at one time or another, at present
most of the Company's advertising expenditures are for the airing of network and
syndicated television and cable and spot television in major markets throughout
the country.
The domestic candy business is highly competitive. The Company
competes primarily with other manufacturers of bar candy and candy of the type
sold in variety, grocery and convenience stores. Although accurate statistics
are not available, the Company believes it is among the ten largest domestic
manufacturers in this field. In the markets in which the Company competes, the
main forms of competition comprise brand recognition as well as a fair price for
our products at various retail price points.
The Company did not have a material backlog of firm orders at
the end of the calendar years 1999 or 1998.
Packaging materials and ingredients used by the Company are
readily obtainable from a number of suppliers at competitive prices. Packaging
material costs, including films, cartons, corrugated containers and waxed paper,
were stable in 1999. The Company continues to seek competitive bids to leverage
the high volume of annual purchases it makes of these items and to lower per
unit costs. The Company has engaged in hedging transactions primarily in sugar
and
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corn syrup and may do so in the future if and when advisable. From time to time
the Company changes the size of certain of its products, which are usually sold
at standard retail prices, to reflect significant changes in raw material costs.
The Company does not hold any material patents, licenses,
franchises or concessions. The Company's major trademarks are registered in the
United States and in many other countries. Continued trademark protection is of
material importance to the Company's business as a whole.
The Company does not expend significant amounts of money on
research or development activities.
The Company's compliance with Federal, State and local
regulations which have been enacted or adopted regulating the discharge of
materials into the environment, or otherwise relating to the protection of the
environment, has not had a material effect on the capital expenditures, earnings
or competitive position of the Company nor does the Company anticipate any such
material effects from presently enacted or adopted regulations.
The Company employs approximately 1,750 persons.
The Company has found that its sales normally maintain a
consistent level throughout the year except for a substantial upsurge in the
third quarter which reflects sales associated with Halloween. In anticipation of
this high sales period, the Company generally begins its Halloween inventory
build up in the second quarter of each year. The Company historically offers
extended credit terms for sales made under Halloween sales programs. Each year,
after Halloween receivables have been collected, the Company invests such funds
in various temporary cash investments.
Revenues from a major customer aggregated approximately 17.9%,
17.2% and 15.9% of total net sales during the years ended December 31, 1999,
1998 and 1997, respectively.
For a summary of sales, net earnings and assets of the Company
by geographic area and additional information regarding the foreign subsidiaries
of the Company, see Note 11 of the Notes to Consolidated Financial Statements on
Page 15 of the Company's Annual Report to Shareholders for the year ended
December 31, 1999 (the "1999 Report") and on Page 4 of the 1999 Report under the
section entitled "International." Note 11 and the aforesaid section are
incorporated herein by reference. Portions of the 1999 Report are filed as an
exhibit to this report.
ITEM 2. PROPERTIES.
The Company owns its principal plant and offices which are
located in Chicago, Illinois in a building consisting of approximately 2,200,000
square feet. The Company utilizes approximately 1,800,000 square feet for
offices, manufacturing and warehousing facilities and leases, or has available
to lease to third parties, approximately 400,000 square feet.
2
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In addition to owning the principal plant and warehousing
facilities mentioned above, the Company leases manufacturing and warehousing
facilities at a second location in Chicago which comprises 138,000 square feet.
The lease is renewable by the Company every five years through June, 2011. The
Company also periodically leases additional warehousing space at this second
location as needed on a month to month basis.
Cella's Confections, Inc., a subsidiary, owns a facility in
New York, New York, containing approximately 60,000 square feet. This facility
consists of manufacturing, warehousing and office space on three floors
containing approximately 48,000 square feet with a below surface level of
approximately 12,000 square feet.
Charms L.P., a subsidiary, owns a facility in Covington,
Tennessee, containing approximately 485,000 square feet of manufacturing,
warehousing and office space.
Cambridge Brands, Inc., a subsidiary, owns a facility in
Cambridge, Massachusetts, containing approximately 142,000 square feet. The
facility consists of manufacturing, warehousing and office space on five floors.
The Company also owns a facility in Mexico City, Mexico,
consisting of approximately 57,000 square feet plus a parking lot and yard area
comprising approximately 25,000 square feet. The facility consists of
manufacturing, warehousing and office space.
The Company owns substantially all of the production machinery
and equipment located in the plants in Chicago, New York, Covington (Tennessee),
Cambridge (Massachusetts) and Mexico City. The Company considers that all of its
facilities are well maintained, in good operating condition and adequately
insured.
ITEM 3. LEGAL PROCEEDINGS.
There are no material pending legal proceedings known to the
Company to which the Company or any of its subsidiaries is a party or of which
any of their property is the subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of the Company's
shareholders through the solicitation of proxies or otherwise during the fourth
quarter of 1999.
ADDITIONAL ITEM. EXECUTIVE OFFICERS OF THE REGISTRANT.
See the information on Executive Officers set forth in the
table in Part III, Item 10, Page 6 of this report, which is incorporated herein
by reference.
3
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock is traded on the New York Stock
Exchange. The Company's Class B Common Stock is subject to restrictions on
transferability and no market exists for such shares of Class B Common Stock.
The Class B Common Stock is convertible at the option of the holder into shares
of Common Stock on a share for share basis. As of March 7, 2000, there were
approximately 5,800 holders of record of Common and Class B Common Stock. For
information on the market price of, and dividends paid with respect to, the
Company's Common Stock, see the section entitled "1999-1998 Quarterly Summary of
Tootsie Roll Industries, Inc. Stock Prices and Dividends" which appears on Page
16 of the 1999 Report. This section is incorporated herein by reference and
filed as an exhibit to this report.
ITEM 6. SELECTED FINANCIAL DATA.
See the section entitled "Five Year Summary of Earnings and
Financial Highlights" which appears on Page 17 of the 1999 Report. This section
is incorporated herein by reference and filed as an exhibit to this report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
See the section entitled "Management's Discussion and Analysis
of Financial Condition and Results of Operations" on Pages 5-7 of the 1999
Report. This section is incorporated herein by reference and filed as an exhibit
to this report.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company's products are manufactured from several key raw
materials, including sugar, corn syrup, edible oils and cocoa, and finished
products incorporate packaging materials such as waxed paper, printed films,
cartons and corrugated boxes. Although these items are expected to remain in
adequate supply, spot market prices can be influenced by external factors such
as weather conditions and crop yields, as well as by factors such as industry
capacity and the general balance of supply and demand.
Where deemed advisable, the Company utilizes a variety of
hedging strategies and fixed price contracts to mitigate its exposure to
short-term price fluctuations. In the long term, the Company has latitude to
adjust product weights or take other measures to compensate for fluctuations in
raw material prices. At December 31, 1999, the Company had open contracts to
purchase approximately twelve months of its expected sugar usage.
The Company may also, when it deems advisable to do so, hedge
certain foreign currency cash flows, particularly with respect to large
equipment purchase commitments. Inasmuch as the Company has low levels of debt,
and invests in securities with maturities of up to
4
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three years, the majority of which are held to maturity, its exposure to
interest rate fluctuations is not material.
See Note 1 of the Notes of Consolidated Financial Statements
on Page 12 of the 1999 Report, which is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements, together with the report thereon of
PricewaterhouseCoopers LLP dated February 11, 2000, appearing on Pages 8-15 of
the 1999 Report and the Quarterly Financial Data on Page 16 of the 1999 Report
are incorporated by reference in this report. With the exception of the
aforementioned information and the information incorporated in Items 1, 5, 6 and
7, the 1999 Report is not to be deemed filed as part of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
See the information with respect to the Directors of the
Company which is set forth in the section entitled "Election of Directors" of
the Company's Definitive Proxy Statement to be used in connection with the
Company's 2000 Annual Meeting of Shareholders (the "2000 Proxy Statement").
Except for the last paragraph of this section relating to the compensation of
Directors, this section is incorporated herein by reference. See the information
in the section entitled "Section 16(a) Beneficial Ownership Reporting
Compliance" of the Company's 2000 Proxy Statement, which section is incorporated
herein by reference. The 2000 Proxy Statement will be filed with the Securities
and Exchange Commission on or before April 29, 2000.
The following table sets forth the information with respect to
the executive officers of the Company:
NAME POSITION (1) AGE
- ---- ------------ -----
Melvin J. Gordon* Chairman of the Board and
Chief Executive Officer (2) 80
Ellen R. Gordon* President and Chief
Operating Officer (2) 68
G. Howard Ember Jr. Vice President/Finance 47
John W. Newlin Jr. Vice President/Manufacturing 63
5
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Thomas E. Corr Vice President/Marketing and
Sales 51
James M. Hunt Vice President/Distribution 57
Barry P. Bowen Treasurer 44
*A member of the Board of Directors of the Company
(1) Mr. and Mrs. Gordon and Messrs. Newlin, Corr, Ember and Bowen have served
in the positions set forth in the table as their principal occupations for
more than the past eight years. Mr. Hunt has served in his position for the
past seven years and in the fifteen years prior to that, served the Company
in the positions of Director of Distribution and Assistant Vice President
of Distribution. Mr. and Mrs. Gordon have also served as President and Vice
President, respectively of HDI Investment Corp., a family investment
company.
(2) Melvin J. Gordon and Ellen R. Gordon are husband and wife.
ITEM 11. EXECUTIVE COMPENSATION.
See the information set forth in the section entitled
"Executive Compensation and Other Information" of the Company's 2000 Proxy
Statement. Except for the "Report on Executive Compensation" and "Performance
Graph," this section of the 2000 Proxy Statement is incorporated herein by
reference. See the last paragraph of the section entitled "Election of
Directors" of the 2000 Proxy Statement, which paragraph is incorporated herein
by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
For information with respect to the beneficial ownership of
the Company's Common Stock and Class B Common Stock by the beneficial owners of
more than 5% of said shares and by the management of the Company, see the
sections entitled "Ownership of Common Stock and Class B Common Stock by Certain
Beneficial Owners" and "Ownership of Common Stock and Class B Common Stock by
Management" of the 2000 Proxy Statement. These sections of the 2000 Proxy
Statement are incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K.
(a) Financial Statements.
6
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The following financial statements and schedules are filed as
part of this report:
(1) Financial Statements (filed herewith as part of Exhibit 13):
Report of Independent Accountants
Consolidated Statements of Earnings, Comprehensive Earnings and
Retained Earnings for the three years ended December 31, 1999
Consolidated Statements of Cash Flows for the three years ended
December 31, 1999
Consolidated Statements of Financial Position at December 31,
1999 and 1998
Notes to Consolidated Financial Statements
(2) Financial Statement Schedule:
Report on Independent Accountants on Financial Statement Schedule
For the three years ended December 31, 1999 - Valuation and
Qualifying Accounts
All other schedules are omitted because they are not applicable
or the required information is shown in the financial statements
or notes thereto.
(3) Exhibits required by Item 601 of Regulation S-K:
See Index to Exhibits which appears following Financial Schedule
II.
No reports on Form 8-K were filed during the year ended December
31, 1999.
7
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FORWARD-LOOKING INFORMATION
From time to time, in the Company's statements and written reports, including
this report, the Company discusses its expectations regarding future performance
by making certain "forward-looking statements." These forward-looking statements
are based on currently available competitive, financial and economic data and
management's views and assumptions regarding future events. Such forward-looking
statements are inherently uncertain, and actual results may differ materially
from those expressed or implied herein. Consequently, the Company wishes to
caution readers not to place undue reliance on any forward-looking statements.
In connection with the "safe harbor provisions" of the Private Securities
Litigation Reform Act of 1995, the Company notes the following factors which,
among others, could cause future results to differ materially from the
forward-looking statements, expectations and assumptions expressed or implied
herein. Among the factors that could impact the Company's ability to achieve its
stated goals are the following: (i) significant competitive activity, including
advertising, promotional and price competition, and changes in consumer demand
for the Company's products; (ii) fluctuations in the cost and availability of
various raw materials; and (iii) inherent risks in the marketplace associated
with new product introductions, including uncertainties about trade and consumer
acceptance. In addition, the Company's results may be affected by general
factors, such as economic conditions, political developments, currency exchange
rates, interest and inflation rates, accounting standards, taxes, and laws and
regulations affecting the Company in markets where it competes.
8
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SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the
Securities Exchange Act of 1934, Tootsie Roll Industries, Inc., has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
TOOTSIE ROLL INDUSTRIES, INC.
By: MELVIN J. GORDON
--------------------------------------
Melvin J. Gordon, Chairman
of the Board of Directors
and Chief Executive Officer
Date: MARCH 23, 2000
------------------------------------
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
MELVIN J. GORDON Chairman of the Board
- ---------------------- of Directors and Chief
Melvin J. Gordon Executive Officer (principal
executive officer) March 23, 2000
ELLEN R. GORDON Director, President
- ---------------------- and Chief Operating Officer March 23, 2000
Ellen R. Gordon
CHARLES W. SEIBERT Director March 23, 2000
- ----------------------
Charles W. Seibert
LANA JANE LEWIS-BRENT Director March 23, 2000
- ---------------------
Lana Jane Lewis-Brent
G. HOWARD EMBER JR. Vice President, Finance
- --------------------- (principal financial
G. Howard Ember Jr. officer and principal
accounting officer) March 23, 2000
9
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REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors of
Tootsie Roll Industries, Inc.
Our audits of the consolidated financial statements referred
to in our report dated February 11, 2000 appearing in the 1999 Annual Report to
Shareholders of Tootsie Roll Industries, Inc. (which report and consolidated
financial statements are incorporated by reference in this Annual Report on Form
10-K) also included an audit of the financial statement schedule listed in Item
14(a)(2) of this Form 10-K. In our opinion, this financial statement schedule
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.
PricewaterhouseCoopers LLP
Chicago, Illinois
February 11, 2000
<PAGE>
TOOTSIE ROLL INDUSTRIES, INC.
AND SUBSIDIARY COMPANIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND END OF
DESCRIPTION OF YEAR EXPENSES DEDUCTIONS(1) YEAR
- ----------- ---------- ---------- ------------- ------------
<S> <C> <C> <C> <C>
1999:
Reserve for bad debts $1,898,000 $ 275,289 $ 422,289 $1,751,000
Reserve for cash discounts 286,000 7,116,112 7,121,112 281,000
---------- ---------- ------------- ------------
$2,184,000 $7,391,401 $7,543,401 $2,032,000
---------- ---------- ------------- ------------
1998:
Reserve for bad debts $1,811,000 $ 275,920 $188,920 $1,898,000
Reserve for cash discounts 274,000 7,599,163 7,587,163 286,000
---------- ---------- ------------- ------------
$ 2,085,000 $ 7,875,083 $ 7,776,083 $ 2,184,000
---------- ---------- ------------- ------------
1997:
Reserve for bad debts $ 1,626,000 $ 338,982 $153,982 $1,811,000
Reserve for cash discounts 259,000 7,360,132 7,345,132 274,000
---------- ---------- ------------- ------------
$1,885,000 $ 7,699,114 $ 7,499,114 $ 2,085,000
---------- ---------- ------------- ------------
</TABLE>
(1) Deductions against reserve for bad debts consist of accounts receivable
written off net of recoveries and exchange rate movements. Deductions against
reserve for cash discounts consist of allowances to customers.
<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 Amendment to Restated Articles of Incorporation.
3.3 Amended and Restated By-Laws. Incorporated by reference to Exhibit 3.2
of the Company's Annual Report on Form 10-K for the year ended
December 31, 1996; Commission File No. 1-1361.
3.4 Specimen Class B Common Stock Certificate. Incorporated by reference
to Exhibit 1.1 of the Company's Registration Statement on Form 8-A
dated February 29, 1988.
10.8.1* Excess Benefit Plan. Incorporated by reference to Exhibit 10.8.1 of
the Company's Annual Report on Form 10-K for the year ended December
31, 1990; Commission File No. 1-1361.
10.8.2* Amended and Restated Career Achievement Plan of the Company.
Incorporated by reference to Exhibit 10.8.2 of the Company's Annual
Report on Form 10-K for the year ended December 31, 1998; Commission
File No. 1-1361.
10.8.3* Amendment to the Amended and Restated Career Achievement Plan of the
Company.
10.12* Restatement of Split Dollar Agreement (Special Trust) between the
Company and the trustee of the Gordon Family 1993 Special Trust dated
January 31, 1997. Incorporated by reference to Exhibit 10.12 of the
Company's Annual Report on Form 10-K for the year ended December 31,
1996; Commission File No. 1-1361.
10.21* Executive Split Dollar Insurance and Collateral Assignment Agreement
between the Company and G. Howard Ember Jr. dated July 30, 1994.
Incorporated by reference to Exhibit 10.21 of the Company's Annual
Report on Form 10-K for the year ended December 31, 1994; Commission
File No. 1-1361.
10.22* Executive Split Dollar Insurance and Collateral Assignment Agreement
between the Company and John W. Newlin dated July 30, 1994.
Incorporated by reference
<PAGE>
to Exhibit 10.22 of the Company's Annual Report on Form 10-K for the
year ended December 31, 1994; Commission File No. 1-1361.
10.23* Executive Split Dollar Insurance and Collateral Assignment Agreement
between the Company and Thomas E. Corr dated July 30, 1994.
Incorporated by reference to Exhibit 10.23 of the Company's Annual
Report on Form 10-K for the year ended December 31, 1994; Commission
File No. 1-1361.
10.24* Executive Split Dollar Insurance and Collateral Assignment Agreement
between the Company and James Hunt dated July 30, 1994. Incorporated
by reference to Exhibit 10.24 of the Company's Annual Report on Form
10-K for the year ended December 31, 1994; Commission File No. 1-1361.
10.25* Form of Change In Control Agreement dated August, 1997 between the
Company and certain executive officers. Incorporated by reference to
Exhibit 10.25 of the Company's Annual Report on Form 10-K for the year
ended December 31, 1997; Commission File No. 1-1361.
10.26* Executive Split Dollar Insurance and Collateral Assignment Agreement
between the Company and Barry Bowen dated April 1, 1997. Incorporated
by reference to Exhibit 10.26 of the Company's Annual Report on Form
10-K for the year ended December 31, 1997; Commission File No. 1-1361.
10.27* Amendment to Split Dollar Agreement (Special Trust) dated April 2,
1998 between the Company and the trustee of the Gordon Family 1993
Special Trust, together with related Collateral Assignments.
Incorporated by reference to Exhibit 10.27 of the Company's Annual
Report on Form 10-K for the year ended December 31, 1998; Commission
File No. 1-1361.
13 The following items incorporated by reference herein from the
Company's 1999 Annual Report to Shareholders for the year ended
December 31, 1999 (the "1999 Report"), are filed as Exhibits to this
report:
(i) Information under the section entitled "International" set
forth on Page 4 of the 1999 Report;
(ii) Information under the section entitled "Management's
Discussion and Analysis of Financial Condition and Results
of Operations" set forth on Pages 5-7 of the 1999 Report;
(iii) Consolidated Statements of Earnings, Comprehensive Earnings
and Retained Earnings for the three years ended December 31,
1999 set forth on Page 8 of the 1999 Report;
(iv) Consolidated Statements of Financial Position at December
31, 1999 and 1998 set forth on Pages 9-10 of the 1999
Report;
<PAGE>
(v) Consolidated Statements of Cash Flow for the three years
ended December 31, 1999 set forth on Page 11 of the 1999
Report;
(vi) Notes to Consolidated Financial Statements set forth on
Pages 12-15 of the 1999 Report;
(vii) Report of Independent Accountants set forth on Page 15 of
the 1999 Report;
(viii) Quarterly Financial Data set forth on Page 16 of the 1999
Report;
(ix) Information under the section entitled "1999-1998 Quarterly
Summary of Tootsie Roll Industries, Inc. Stock Prices and
Dividends" set forth on Page 16 of the 1999 Report; and
(x) Information under the section entitled "Five Year Summary of
Earnings and Financial Highlights" set forth on Page 17 of
the 1999 Report.
21 List of Subsidiaries of the Company.
27 Financial Data Schedule.
- --------------------------------------
*Executive compensation plan or arrangement.
<PAGE>
EXHIBIT 3.2
ARTICLES OF AMENDMENT
OF THE ARTICLES OF INCORPORATION OF
TOOTSIE ROLL INDUSTRIES, INC.
MAY 3, 1999
1. The name of the corporation is Tootsie Roll Industries,
Inc.
2. The text of the amendment, which replaces in its entirety
Paragraph 1 of Article FOURTH of the articles of incorporation of this
corporation, is as follows:
1. AUTHORIZED SHARES. The total number of shares of all classes of
capital stock which the corporation shall have authority to issue is
160 million (160,000,000), consisting of 120 million (120,000,000)
shares of Common Stock, par value 69-4/9 cents per share ("Common
Stock"), and 40 million (40,000,000) shares of Class B Common Stock,
par value 69-4/9 cents per share ("Class B Common Stock").
3. The amendment to this articles of incorporation was adopted
on May 3, 1999.
4. The amendment to the articles of incorporation was proposed
by the board of directors and submitted to the shareholders in accordance with
the Virginia Stock Corporation Act. The outstanding shares of Common Stock and
of Class B Common Stock, each class being entitled to vote as a separate voting
group, were entitled to vote on the amendment to the articles of incorporation.
Each outstanding share of Common Stock was entitled to one vote. Each
outstanding share of Class B Common Stock was entitled to ten votes. The results
of the shareholder vote are summarized below:
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF SHARES TOTAL OF UNDISPUTED
OUTSTANDING AND VOTES CAST FOR THE
CLASS OF STOCK ENTITLED TO VOTE AMENDMENT
-------------- ---------------- -------------------
<S> <C> <C>
Common Stock 32,475,205 26,832,563
Class B Common Stock 15,386,015 148,189,540
</TABLE>
The number of votes cast by each voting group in favor of the
amendment of the articles of incorporation was sufficient for approval by that
voting group.
Tootsie Roll Industries, Inc.
By: ELLEN R. GORDON
---------------------------------
Ellen R. Gordon
Its President
2
<PAGE>
EXHIBIT 10.8.3
TOOTSIE ROLL INDUSTRIES, INC.
RESOLUTIONS OF THE BOARD OF DIRECTORS
FEBRUARY 21, 2000
===============================================================================
WHEREAS, Tootsie Roll Industries, Inc. ("Company") maintains
the Tootsie Roll Industries, Inc. Career Achievement Plan ("Plan");
WHEREAS, pursuant to the provisions of Section 9(f) of the
Plan, the Board of Directors of the Company has the authority to amend the Plan,
subject to certain restrictions; and
WHEREAS, amendment of the Plan is now considered desirable;
NOW, THEREFORE, IT IS RESOLVED that the Plan be, and it hereby
is, amended effective as of the date this Resolution is adopted, by substituting
the following for Section 5(e) of the Plan:
"5(e). FORFEITURE OF CAREER ACHIEVEMENT ACCOUNT.
Notwithstanding any provision of this plan to the contrary, a
participant will forfeit all rights to any amounts previously credited
after January 2, 1999, if, after the termination of the participant's
employment, the participant engages in any activities in violation of
Section 7 hereof or fails to enter into the agreement described in
Section 7 hereof as provided in such Section 7."
<PAGE>
CORPORATE PROFILE
Tootsie Roll Industries, Inc. has been engaged in the manufacture and sale of
candy for 103 years. Our products are primarily sold under the familiar brand
names, Tootsie Roll, Tootsie Roll Pops, Caramel Apple Pops, Child's Play,
Charms, Blow Pop, Blue Razz, Cella's, Mason Dots, Mason Crows, Junior Mints,
Charleston Chew, Sugar Daddy and Sugar Babies.
CORPORATE PRINCIPLES
We believe that the differences among companies are attributable to the
caliber of their people, and therefore we strive to attract and retain
superior people for each job.
We believe that an open family atmosphere at work combined with professional
management fosters cooperation and enables each individual to maximize his or
her contribution to the company and realize the corresponding rewards.
We do not jeopardize long-term growth for immediate, short-term results.
We maintain a conservative financial posture in the deployment and management
of our assets.
We run a trim operation and continually strive to eliminate waste, minimize
cost and implement performance improvements.
We invest in the latest and most productive equipment to deliver the best
quality product to our customers at the lowest cost.
We seek to outsource functions where appropriate and to vertically integrate
operations where it is financially advantageous to do so.
We view our well known brands as prized assets to be aggressively advertised
and promoted to each new generation of consumers.
[PHOTO]
MELVIN J. GORDON, CHAIRMAN AND CHIEF EXECUTIVE OFFICER AND
ELLEN R. GORDON, PRESIDENT AND CHIEF OPERATING OFFICER.
[TOOTSIE ROLL LOGO]
1
<PAGE>
TO OUR SHAREHOLDERS
- ------------------------------------------------------------------------
We are pleased to report that 1999 was another year of record performance for
Tootsie Roll Industries. Sales for the year were $397 million, an increase of
$8 million or 2% over the prior year. Net earnings were $71 million, an
increase of $4 million or 6% over the prior year. Earnings per share were up
by an even greater 7% due to the lower number of average shares outstanding
this year than last year.
This year represented the twenty-third consecutive year in which the company
posted record sales and the eighteenth consecutive year in which record
earnings were achieved. Milestones such as these reflect both the enduring
strength of our many fine brands and the company's continuing commitment to
bottom line performance.
Other notable events during 1999 were:
- The quarterly cash dividend rate increased by 23%.
- 756,700 of the company's common shares were repurchased on the open
market.
- Capital expenditures were accelerated to support the
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
December 31,
1999 1998
<S> <C> <C>
- -------------------------------------------------------------------------------------------------------
<CAPTION>
(in thousands except per share data)
Net Sales. $396,750 $388,659
<S> <C> <C>
Net Earnings................................................ 71,310 67,526
Working Capital............................................. 168,423 175,155
Net Property, Plant and Equipment........................... 95,897 83,024
Shareholders' Equity........................................ 430,646 396,457
Average Shares Outstanding*................................. 48,974 49,482
Per Share Items*
Net Earnings.............................................. $1.46 $1.36
Shareholders' Equity...................................... 8.88 8.05
Cash Dividends Paid....................................... .24 .19
- -------------------------------------------------------------------------------------------------------
</TABLE>
*Based on average shares outstanding adjusted for stock dividends and 2-for-1
stock split.
- --------------------------------------------------------------------------------
current and future needs of the company.
Despite the considerable financial resources committed to these activities,
the company's balance sheet strengthened further during 1999. We remain ready
to respond quickly to future growth opportunities as they arise.
Sales and Marketing
Our strategy for sales growth is threefold: first, we look for ways to expand
the sales of existing products; second, we try to introduce new products and
product line extensions; and, third, we seek to acquire brands that will
integrate well with our business. We reviewed several possible acquisitions
during 1999, increased our distribution and added both new products and
product line extensions to our well-known brands.
Gains experienced in our core brands were the result of another strong
Halloween sales period and continued implementation of targeted promotional
programs such as shippers, combo packs and bonus packages throughout the year.
One such promotion that was particularly successful in the Tootsie Roll line
during 1999 was our "Family Learning Fun Pack" computer software offer. This
on-pack, self-liquidating promotion featured a customized CD-ROM consisting
of three of today's most highly rated educational software programs-a $60
retail value for $4.99. This promotion was carried on over 60 million
specially marked packages of our most popular products and reinforced the
attributes of "family fun at a good value" that these brands convey to
consumers. The promotion also helped to increase the shelf turns that make
our products perennial favorites in the retail trade.
Another successful promotion was our "Y2K compliant" Tootsie Roll Milennium
Bank, a whimsical twist on our popular line of fun banks. Filled with chewy
Tootsie Roll Midgees, this special Y2K bank came in three assorted designs,
each featuring upscale gold foil graphics along with a unique millennium
message, and made a perfect gift to commemorate the new millennium.
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
[PICTURE]
- -------------------------------------------------------------------------------
2
<PAGE>
- ------------------------------------------------------------------------
As is customary for the company, the third quarter was our highest selling
period in 1999 due to Halloween shipments. Our bagged goods, including
variety packs containing popular assortments of the company's offerings,
helped increase Halloween sales, particularly among the mass merchandise,
drug and warehouse club classes of trade.
Other seasonal sales gains came from our Valentine's Day, Easter and
Christmas bagged goods. During 1999, we redesigned the packaging graphics
throughout these lines to give them a fresh and appealing look on store
shelves. Positive sales trends indicate that these changes were rewarded with
increased popularity among consumers.
The Charms line benefited from continued growth of the Super Blow Pop, a 1.35
ounce version of our popular gum-filled confection. The introduction of Way 2
Sour Blow Pops added to growth in the Charms division. This new pop delivers
three intense taste sensations that appeal to today's kids: a super sour
outer candy shell, followed by a sweet inner candy shell, and, finally, a
super sour bubble gum center. Distinguished by high impact neon colored
graphics and blended into an assortment of five popular flavors, this product
is available as count goods, in bags and in both the regular and the "super"
1.35 ounce size, and has been an instant success.
[PICTURE]
Another new item in the Charms line that was introduced in 1999 is
S'Moresels. Reminiscent of the popular treat long-enjoyed at campfires,
S'Moresels combine a chewy marshmallow nougat center, crunchy bits of graham
cracker and chocolatey goodness into a convenient and promising new
confection.
[PICTURE]
During 1999, we also updated the Charms flat pop line by modifying the
product mix to keep up with today's taste preferences and by rejuvenating the
packaging graphics to incorporate more contemporary design elements.
These marketing efforts are typical of our focus of maintaining the identity
and vitality of our core brands while searching for evolutionary ways to
update and extend these franchises to new items and new distribution
opportunities.
Advertising and Public Relations
As we have done for many years, we again employed television as the chief
medium to convey our advertising messages. Children and adults in selected
spot and cable markets were targeted with the famous "How Many Licks?" and
"That's a Blow Pop!" themes during the peak sales season. At other times
during the year, adults watching talk, game and adventure shows were
encouraged to enjoy our popular Caramel Apple Pops, or to satisfy their
children's urges for a chocolatey candy treat with Tootsie Rolls and Tootsie
Pops, two of our delicious, low fat confections.
Our website, "tootsie.com," was enhanced by the addition of an interactive
children's game. The site also serves as a vehicle from which Tootsie fans
can obtain not only historical and product information, but also current
information about our financial performance and other developments through
the periodic posting of press releases.
Junior Mints celebrated its 50(th) anniversary during 1999. Named after the
popular 1949 Broadway production "Junior Miss," this unique mint with the
creamy center has endured as one of America's favorite confections. This
occasion was commemorated by another in our series of collectable tins, this
one featuring a 50th anniversary banner in a festive Christmas motif, and by
extensive press coverage and a series of radio interviews on top rated
morning programs.
[PICTURE]
Manufacturing and Distribution
Capital investments of $20 million were made during the year to increase
productive capacity,
- ------------------------------------------------------------------------
3
<PAGE>
- ------------------------------------------------------------------------improve
product quality or reduce cost. For many years we have viewed such
investments as being vital to maintaining our stature as one of the
industry's most efficient competitors. We believe that the wisdom of this
strategy is evident in the 18% after-tax profit margin the company delivered
in 1999.
In addition, our new distribution facility in Covington, Tennessee, was
brought on line in time for our peak storage and shipping period. This
facility features the leading edge inventory tracking and control technology
that we have deployed throughout our operations.
Purchasing
Prices for certain of our major raw materials increased somewhat, while
packaging and minor ingredient costs remained stable in 1999. Costs reflected
generally moderate inflationary pressure domestically and reasonable
worldwide demand. We continue to utilize hedging strategies, where we deem it
appropriate to do so, as a means of insulating the company from unpredictable
spot market fluctuations and to lock in prices for major commodities when
they are at attractive levels.
All purchases, such as corrugated and film, are competitively bid. This
policy enables us to leverage the high volumes of those items that we buy
annually and further control our costs.
Information Technology
During 1999, we continued to deploy leading edge data processing technology.
Whether in transaction processing, production control or electronic
communications, data management has been another long standing priority of
the company.
During 1999, we installed a current version of the enterprise resource
planning (ERP) software we use, and completed our extensive preparations for
the transition to the Year 2000. As a result of these initiatives, we can
happily report that the company did not experience any business disruptions
from Year 2000 issues.
International
1999 was also a good year for the international dimension of the company. In
Mexico, stabilizing local economic conditions and aggressive new marketing
programs resulted in sales increases. The absence of currency devaluations
experienced during 1998, along with the new production efficiences from the
capital investments we have made in recent years, increased the profitability
of this operation. In this regard, we completed another phase of the
modernization program in our Mexican plant during 1999.
Sales growth in Canada came from general distribution gains, further growth
in the Charms line, including the introduction of Way 2 Sour Blow Pops, and
another strong Halloween. Our distribution in the mass merchandise, drug and
warehouse club trade classes continues to grow in this market.
Positive sales trends developed in several other international markets where
strong local distribution relationships have been formed.
Dividends
We distributed our thirty-fifth consecutive 3% stock dividend in April and
increased the quarterly cash dividend rate by 23% in July. Also, 1999 was the
fifty-seventh consecutive year in which the company has paid cash dividends.
After considering the payment of dividends, the construction of a new
distribution center and cash invested in other fixed asset additions, our
balance sheet strengthened further during the year. With considerable
financial reserves, we remain watchful for appropriate strategic acquisitions
and other growth opportunities.
In Conclusion....
Record results were achieved in 1999 in spite of several unprecedented events
in the industry. Consolidation in the sales brokerage community and several
significant business combinations in the retail industry required us to forge
new relationships and to adapt our offerings to meet changing retail
philosophies.
Achieving records such as those Tootsie Roll established during 1999 required
contributions from many constituencies. In this regard, we extend our sincere
appreciation to our customers and consumers, along with our many loyal
employees, suppliers, sales brokers and shareholders, for making 1999 another
record year.
[SIGNATURE]
Melvin J Gordon
Chairman of the Board and
Chief Executive Officer
[SIGNATURE]
Ellen R. Gordon
President and
Chief Operating Officer
- --------------------------------------------------------------------------------
4
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(in thousands except per share, percentage and ratio figures)
- --------------------------------------------------------------------------------
[GRAPH]
[GRAPH]
FINANCIAL REVIEW
This financial review discusses the company's financial condition, results of
operations, liquidity and capital resources. It should be read in conjunction
with the Consolidated Financial Statements and related footnotes that follow
this discussion.
FINANCIAL CONDITION
Our financial condition was further strengthened by the record operating
results we achieved in 1999. Net earnings for the year increased 5.6% to
$71,310 and shareholders' equity grew by 8.6% to $430,646. Cash and
investments in marketable securities increased by $23,501 during the year.
Cash generated from operating activities was used to fund share repurchases
of $26,869, capital expenditures of $20,283 and cash dividends of $11,313.
Adjusting for stock dividends, the quarterly cash dividend rate was increased
by 22.6% in 1999, which marked the fifty-seventh consecutive year in which
cash dividends have been paid.
A 3% stock dividend was also distributed to shareholders during the year.
This was the thirty-fifth consecutive year that a stock dividend has been
distributed.
Our financial position in 1999 compared to 1998, measured by commonly used
financial ratios, is as follows: the current ratio fell from 4.3:1 to 4.0:1.
This reflects an increase in the investments in marketable securities that
are classified as non-current due to their maturity dates. For the same
reason, working capital also declined by $6,732 to $168,423.
Current liabilities to net worth remained comparable at 13.0% versus 13.5% in
the prior year, as did debt to equity at 1.7% versus 1.9%. The company
continues to finance its operations with funds generated from operations
rather than with borrowed funds.
Our history of successful operations, coupled with our conservative financial
posture, has left us well positioned to respond quickly to future growth
opportunities that may arise. In this regard, the company is aggressively
seeking acquisitions to complement our existing operations.
RESULTS OF OPERATIONS
1999 vs. 1998
1999 was our twenty-third consecutive year of record sales achievement. Sales
of $396,750 were up 2.1% over 1998 sales of $388,659. The third quarter,
driven by Halloween sales, continued to be our largest selling period and
surpassed levels attained in previous years. Also in 1999, the timing of
certain Halloween shipments had a favorable effect on the third quarter and a
corresponding unfavorable impact on the fourth quarter as compared to the
prior year.
Throughout the year, sales were favorably impacted by successful promotional
programs as we continued to broaden distribution in mass merchandisers and
other select trade classes with our core product offerings. Line extensions,
new products and seasonal packs all contributed to added sales.
Sales growth occurred in our two most significant foreign operations as well.
In Mexico, stabilizing local conditions and aggressive new marketing and
promotional programs complemented the already strong business we have
developed for the Christmas holiday season in that market.
Sales growth in our Canadian operation is attributable to another strong
Halloween season coupled with further distribution gains in the mass
merchandiser and grocery trade classes. Also, the new Way 2 Sour Blow Pop was
successfully introduced in this market.
- ------------------------------------------------------------------------
5
<PAGE>
- ------------------------------------------------------------------------
[GRAPH]
[GRAPH]
Cost of goods sold, as a percentage of sales, remained steady at 48.5% versus
48.3%. This reflects generally stable cost levels for packaging and minor
ingredients, although certain of our raw material costs did increase
somewhat. These increases were largely offset by higher production
efficiencies associated with increased volumes in relation to fixed costs.
The company continues to focus on cost control throughout all levels of its
operations.
Gross margin dollars grew by 1.6% to $204,189, and remained steady as a
percent of sales at 51.5% versus 51.7% in 1998, due to the factors cited
above. Gross margins as a percent of sales in the third and fourth quarters
continue to be somewhat lower due to the seasonal nature of our business and
to the product mix sold in those quarters.
Operating expenses, comprised of marketing, selling, advertising, physical
distribution, general and administrative expenses and goodwill amortization,
as a percentage of sales, declined slightly from 25.7% to 25.1%. This
improvement is due to effective expense control programs aimed at holding
down costs. Earnings from operations increased by 3.2% to $104,519, or 26.3%
of sales, as a result of favorable gross margins and operating expenses.
Other income increased by $2,130 to $6,928, primarily reflecting
significantly lower foreign exchange losses in Mexico where local economic
conditions have improved. Also, interest expense was lower and interest
income was higher due to lower average borrowings and increased investments
in marketable securities during 1999. Interest income was also higher in 1999
due to higher interest rates. As a majority of our interest income is not
subject to federal income tax, the effective tax rate declined from 36.3% to
36.0%.
Consolidated net earnings rose 5.6% to a new company record of $71,310.
Earnings per share increased by 7.4% to $1.46 from the previous record of
$1.36 reached in 1998. Earnings per share increased by a greater percent than
net earnings due to lower average shares outstanding during 1999 as a result
of share repurchases made during the year.
Our net earnings as a percent of sales increased to 18.0% from 17.4%. 1999
was the eighteenth consecutive year of record earnings achievement for the
company.
"Comprehensive earnings" is a way to look at earnings whereby traditionally
reported net earnings must be adjusted by items that are normally recorded
directly to the equity accounts. By this measure, our earnings are $72,893 or
6.5% higher than in 1998.
1998 vs. 1997
1998 represented the twenty-second consecutive year of record sales. Sales
reached $388,659, an increase of 3.5% over 1997 sales of $375,594. Increases
were seen in each quarter, and the third quarter, which was driven by another
successful Halloween season, continued to be our largest selling period.
Sales throughout the year were favorably impacted by successful promotional
programs. Increases were seen in all major trade classes and in all major
domestic brands. Line extensions, new products and seasonal packs also
contributed to sales gains.
Domestic sales growth was partially offset by declines in the sales of our
Mexican subsidiary due to currency devaluations and difficult local market
conditions. Sales in our Canadian operation increased due to distribution
gains, seasonal sales growth at Halloween and a new product introduction.
These increases were also partially offset by adverse currency translation.
Cost of goods sold, as a percentage of sales, decreased from 50.1% to 48.3%.
This reflected favorable ingredient
- --------------------------------------------------------------------------------
6
<PAGE>
- ------------------------------------------------------------------------
[GRAPH]
[GRAPH]
costs and increased operating efficiencies associated with higher production
volumes coupled with stable packaging and labor costs. Consequently, gross
margin, which was $201,042 or 7.3% higher than in 1997, improved as a
percentage of sales from 49.9% to 51.7%.
Gross margins as a percent of sales have historically been lower in the third
and fourth quarters of the year due to the seasonal nature of our business
and the product mix sold at that time of year. This occurred again in 1998.
Operating expenses as a percent of sales were 25.7% in 1998, a decrease of
.2% versus 1997. This improvement is due to effective expense control
programs aimed at keeping costs in check. Earnings from operations were
$101,265 or 26.1% of sales versus 24.0% in 1997, reflecting the combined
effects of an increased gross margin percentage and lower operating costs as
a percent of sales.
Other income decreased to $4,798, due to exchange losses from Mexico,
partially offset by higher investment income.
Earnings per share rose 11.5% to a new company record of $1.36 or $67,526
from the previous record of $1.22 or $60,682 in 1997. This represents an
improvement in earnings as a percent of sales to 17.4% and the seventeenth
consecutive year of record earnings for the company.
Comprehensive earnings were $68,472 or 13.7% higher than in 1997.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows from operating activities were $72,935, $77,735 and $68,176 in
1999, 1998 and 1997, respectively. The decrease in 1999 was principally
attributable to an increase in prepaid expenses and other assets, partially
offset by higher net earnings and increases in income taxes payable and
deferred. Also, depreciation expense was lower in 1999 because some equipment
became fully depreciated during 1998, and due to foreign currency translation.
The increase in 1998 was attributable to higher net earnings than in 1997,
augmented by other receivables, inventory, deferred compensation and other
liabilities and income taxes payable and deferred. This was partially offset
by accounts receivable and accounts payable and accrued liabilities.
Cash flows from investing activities reflect net increases in marketable
securities of $6,710, $19,951 and $23,087 as well as capital expenditures of
$20,283, $14,878 and $8,611 in 1999, 1998 and 1997, respectively.
Cash flows from financing activities reflect share repurchases of $26,869,
$13,445 and $14,401 in 1999, 1998 and 1997, respectively. In 1998 there was a
short term borrowing which was subsequently repaid during that same year.
Cash dividends of $11,313 were paid in 1999, the fifty-seventh consecutive
year in which we have paid cash dividends.
Year 2000 Conversion
During 1998 and 1999 the company undertook an extensive program to ensure
that its operations would not be adversely impacted by software failures
arising from calculations using the year 2000 date. This program entailed a
thorough evaluation of the risks and costs associated with this problem, a
plan to remediate "Y2K" problems that were identified, and the development of
contingency plans.
Since the majority of systems used throughout the company were found to be
year 2000 compliant, this program was precautionary in nature and did not
have a material impact on the company or its operations, and the company did
not experience any significant business disruptions on January 1, 2000.
The results of our operations and our financial condition are expressed in
the following financial statements.
- ------------------------------------------------------------------------
7
<PAGE>
CONSOLIDATED STATEMENT OF
EARNINGS, COMPREHENSIVE EARNINGS AND RETAINED EARNINGS
TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES
(in thousands except per share data)
- --------------------------------------------------------------------------------
<TABLE>
For the year ended December 31,
1999 1998
---------------- ----------------
<S> <C> <C>
Net sales................................................... $396,750 $388,659
Cost of goods sold.......................................... 192,561 187,617
---------------- ----------------
Gross margin................................................ 204,189 201,042
---------------- ----------------
Selling, marketing and administrative expenses.............. 96,964 97,071
Amortization of intangible assets........................... 2,706 2,706
---------------- ----------------
Earnings from operations.................................... 104,519 101,265
Other income, net........................................... 6,928 4,798
---------------- ----------------
Earnings before income taxes................................ 111,447 106,063
Provision for income taxes.................................. 40,137 38,537
---------------- ----------------
Net earnings................................................ $ 71,310 $ 67,526
================ ================
Net earnings................................................ $ 71,310 $ 67,526
Other comprehensive earnings (loss), net of tax
Unrealized gains (losses) on securities................. 930 976
Foreign currency translation adjustments................ 653 (30)
---------------- ----------------
Other comprehensive earnings (loss)..................... 1,583 946
---------------- ----------------
Comprehensive earnings...................................... $ 72,893 $ 68,472
================ ================
Retained earnings at beginning of year...................... $164,652 $159,124
Net earnings............................................ 71,310 67,526
Cash dividends ($.24, $.19 and $.15 per share).......... (11,654) (9,484)
Stock dividends......................................... (65,689) (52,514)
---------------- ----------------
Retained earnings at end of year............................ $158,619 $164,652
================ ================
Earnings per share.......................................... $ 1.46 $ 1.36
================ ================
Average common and class B common shares outstanding........ 48,974 49,482
================ ================
<S> <C>
For the year
ended December
31,
1997
----------------
Net sales................................................... $375,594
Cost of goods sold.......................................... 188,313
----------------
Gross margin................................................ 187,281
----------------
Selling, marketing and administrative expenses.............. 94,488
Amortization of intangible assets........................... 2,706
----------------
Earnings from operations.................................... 90,087
Other income, net........................................... 5,274
----------------
Earnings before income taxes................................ 95,361
Provision for income taxes.................................. 34,679
----------------
Net earnings................................................ $ 60,682
================
Net earnings................................................ $ 60,682
Other comprehensive earnings (loss), net of tax
Unrealized gains (losses) on securities................. (417)
Foreign currency translation adjustments................ (17)
----------------
Other comprehensive earnings (loss)..................... (434)
----------------
Comprehensive earnings...................................... $ 60,248
================
Retained earnings at beginning of year...................... $136,352
Net earnings............................................ 60,682
Cash dividends ($.24, $.19 and $.15 per share).......... (7,472)
Stock dividends......................................... (30,438)
----------------
Retained earnings at end of year............................ $159,124
================
Earnings per share.......................................... $ 1.22
================
Average common and class B common shares outstanding........ 49,725
================
</TABLE>
(The accompanying notes are an integral part of these statements.)
- --------------------------------------------------------------------------------
8
<PAGE>
CONSOLIDATED STATEMENT OF
FINANCIAL POSITION
TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES
(in thousands)
- --------------------------------------------------------------------------------
<TABLE>
ASSETS December 31,
1999 1998
---------------- ----------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents............................... $ 88,504 $ 80,744
Investments............................................. 71,002 83,176
Accounts receivable trade, less allowances of $2,032 and
$2,184................................................. 19,032 19,110
Other receivables....................................... 5,716 3,324
Inventories:
Finished goods and work-in-process.................. 20,689 21,395
Raw materials and supplies.......................... 14,396 15,125
Prepaid expenses........................................ 3,124 3,081
Deferred income taxes................................... 2,069 2,584
---------------- ----------------
Total current assets............................ 224,532 228,539
---------------- ----------------
PROPERTY, PLANT AND EQUIPMENT, at cost:
Land.................................................... 7,981 7,774
Buildings............................................... 30,330 22,226
Machinery and equipment................................. 145,789 133,601
---------------- ----------------
184,100 163,601
Less--Accumulated depreciation.......................... 88,203 80,577
---------------- ----------------
95,897 83,024
---------------- ----------------
OTHER ASSETS:
Intangible assets, net of accumulated amortization of
$23,497 and $20,791.................................... 85,137 87,843
Investments............................................. 87,167 59,252
Cash surrender value of life insurance and other
assets................................................. 36,683 28,765
---------------- ----------------
208,987 175,860
---------------- ----------------
$529,416 $487,423
================ ================
</TABLE>
(The accompanying notes are an integral part of these statements.)
- --------------------------------------------------------------------------------
9
<PAGE>
(in thousands except per share data)
- --------------------------------------------------------------------------------
<TABLE>
LIABILITIES AND SHAREHOLDERS' EQUITY December 31,
1999 1998
---------------- ----------------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable........................................ $ 12,845 $ 12,450
Dividends payable....................................... 3,035 2,514
Accrued liabilities..................................... 31,945 31,297
Income taxes payable.................................... 8,284 7,123
---------------- ----------------
Total current liabilities....................... 56,109 53,384
---------------- ----------------
NONCURRENT LIABILITIES:
Deferred income taxes................................... 9,520 9,014
Postretirement health care and life insurance
benefits............................................... 6,557 6,145
Industrial development bonds............................ 7,500 7,500
Deferred compensation and other liabilities............. 19,084 14,923
---------------- ----------------
Total noncurrent liabilities.................... 42,661 37,582
---------------- ----------------
SHAREHOLDERS' EQUITY:
Common stock, $.69-4/9 par value--
120,000 and 50,000 shares authorized--
32,854 and 32,439, respectively, issued............... 22,815 22,527
Class B common stock, $.69-4/9 par value--
40,000 and 20,000 shares authorized--
15,707 and 15,422, respectively, issued............... 10,908 10,710
Capital in excess of par value.......................... 249,236 210,064
Retained earnings, per accompanying statement........... 158,619 164,652
Accumulated other comprehensive earnings................ (8,940) (10,523)
Treasury stock (at cost)--
50 shares and 25 shares, respectively................. (1,992) (973)
---------------- ----------------
430,646 396,457
---------------- ----------------
$529,416 $487,423
================ ================
</TABLE>
- -------------------------------------------------------------------------------
10
<PAGE>
CONSOLIDATED STATEMENT OF
CASH FLOWS
TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES
(in thousands)
- -------------------------------------------------------------------------------
<TABLE>
For the year ended December 31,
1999 1998
---------------- ----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings............................................ $71,310 $67,526
Adjustments to reconcile net earnings to net cash
provided
by operating activities:
Depreciation and amortization....................... 9,979 12,807
(Gain) loss on retirement of fixed assets........... (43) 118
Changes in operating assets and liabilities:
Accounts receivable............................. 400 (915)
Other receivables............................... (2,392) 1,358
Inventories..................................... 1,592 (106)
Prepaid expenses and other assets............... (15,672) (7,723)
Accounts payable and accrued liabilities........ 968 (596)
Income taxes payable and deferred............... 2,232 (625)
Postretirement health care and life insurance
benefits....................................... 412 241
Deferred compensation and other liabilities..... 4,162 5,004
Other........................................... (13) 646
---------------- ----------------
Net cash provided by operating activities............... 72,935 77,735
---------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.................................... (20,283) (14,878)
Purchase of held to maturity securities................. (238,949) (259,112)
Maturity of held to maturity securities................. 235,973 240,195
Purchase of available for sale and trading securities... (117,694) (217,799)
Sale and maturity of available for sale and trading
securities............................................. 113,960 216,765
---------------- ----------------
Net cash used in investing activities................... (26,993) (34,829)
---------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of notes payable............................... -- 7,000
Repayments of notes payable............................. -- (7,000)
Treasury stock purchases................................ (1,019) (973)
Shares repurchased and retired.......................... (25,850) (12,472)
Dividends paid in cash.................................. (11,313) (9,150)
---------------- ----------------
Net cash used in financing activities................... (38,182) (22,595)
---------------- ----------------
Increase in cash and cash equivalents....................... 7,760 20,311
Cash and cash equivalents at beginning of year.............. 80,744 60,433
---------------- ----------------
Cash and cash equivalents at end of year.................... $88,504 $80,744
================ ================
Supplemental cash flow information:
Income taxes paid....................................... $38,827 $40,000
================ ================
Interest paid........................................... $ 453 $ 803
================ ================
<S> <C>
For the year
ended December
31,
1997
----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings............................................ $60,682
Adjustments to reconcile net earnings to net cash
provided
by operating activities:
Depreciation and amortization....................... 12,819
(Gain) loss on retirement of fixed assets........... 26
Changes in operating assets and liabilities:
Accounts receivable............................. 199
Other receivables............................... (2,526)
Inventories..................................... (6,463)
Prepaid expenses and other assets............... (6,622)
Accounts payable and accrued liabilities........ 9,624
Income taxes payable and deferred............... (2,049)
Postretirement health care and life insurance
benefits....................................... 269
Deferred compensation and other liabilities..... 1,932
Other........................................... 285
----------------
Net cash provided by operating activities............... 68,176
----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.................................... (8,611)
Purchase of held to maturity securities................. (68,982)
Maturity of held to maturity securities................. 27,473
Purchase of available for sale and trading securities... (304,910)
Sale and maturity of available for sale and trading
securities............................................. 323,332
----------------
Net cash used in investing activities................... (31,698)
----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of notes payable............................... --
Repayments of notes payable............................. --
Treasury stock purchases................................ --
Shares repurchased and retired.......................... (14,401)
Dividends paid in cash.................................. (7,303)
----------------
Net cash used in financing activities................... (21,704)
----------------
Increase in cash and cash equivalents....................... 14,774
Cash and cash equivalents at beginning of year.............. 45,659
----------------
Cash and cash equivalents at end of year.................... $60,433
================
Supplemental cash flow information:
Income taxes paid....................................... $36,716
================
Interest paid........................................... $ 389
================
</TABLE>
(The accompanying notes are an integral part of these statements.)
- -------------------------------------------------------------------------------
11
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ($ IN THOUSANDS EXCEPT PER SHARE
DATA)
TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES:
Basis of consolidation:
The consolidated financial statements include the accounts of Tootsie Roll
Industries, Inc. and its wholly-owned subsidiaries (the company), which are
primarily engaged in the manufacture and sale of candy products. All
significant intercompany transactions have been eliminated.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Revenue recognition:
Revenues are recognized when products are shipped. Accounts receivable are
unsecured.
Cash and cash equivalents:
The company considers temporary cash investments with an original maturity
of three months or less to be cash equivalents.
Investments:
Investments consist of various marketable securities with maturities of
generally less than one year. In accordance with Statement of Financial
Accounting Standards (SFAS) No. 115, "Accounting For Certain Investments in
Debt and Equity Securities," the company's debt and equity securities are
considered as either held to maturity, available for sale or trading. Held to
maturity securities represent those securities that the company has both the
positive intent and ability to hold to maturity and are carried at amortized
cost. Available for sale securities represent those securities that do not
meet the classification of held to maturity, are not actively traded and are
carried at fair value. Unrealized gains and losses on these securities are
excluded from earnings and are reported as a separate component of
shareholders' equity, net of applicable taxes, until realized. Trading
securities relate to deferred compensation arrangements and are carried at
fair value.
Inventories:
Inventories are stated at cost, not in excess of market. The cost of
domestic inventories ($29,111 and $31,307 at December 31, 1999 and 1998,
respectively) has been determined by the last-in, first-out (LIFO) method.
The excess of current cost over LIFO cost of inventories approximates $5,008
and $5,016 at December 31, 1999 and 1998, respectively. The cost of foreign
inventories ($5,974 and $5,213 at December 31, 1999 and 1998, respectively)
has been determined by the first-in, first-out (FIFO) method. From time to
time, the company enters into commodity futures and option contracts in order
to fix the future price of certain key ingredients which may be subject to
price volatility (primarily sugar and corn syrup). Gains or losses, if any,
resulting from these contracts are considered as a component of the cost of
the ingredients being hedged. At December 31, 1999 the company had open
contracts to purchase most of its expected 2000 sugar usage. Property, plant
and equipment:
Depreciation is computed for financial reporting purposes by use of both
the straight-line and accelerated methods based on useful lives of 20 to 35
years for buildings and 12 to 20 years for machinery and equipment. For
income tax purposes the company uses accelerated methods on all properties.
Depreciation expense was $7,663, $10,101 and $9,947 in 1999, 1998 and 1997,
respectively.
Carrying value of long-lived assets:
In the event that facts and circumstances indicate that the company's
long-lived assets may be impaired, an evaluation of recoverability would be
performed. Such an evaluation entails comparing the estimated future
undiscounted cash flows associated with the asset to the asset's carrying
amount to determine if a write down to market value or discounted cash flow
value is required. The company considers that no circumstances exist that
would require such an evaluation.
Postretirement health care and life insurance benefits:
The company provides certain postretirement health care and life insurance
benefits. The cost of these postretirement benefits is accrued during
employees' working careers.
Income taxes:
The company uses the liability method of computing deferred income taxes.
Intangible assets:
Intangible assets represent the excess of cost over the acquired net
tangible assets of operating companies and is amortized on a straight-line
basis over a 40 year period. The company assesses the recoverability of its
intangible assets using undiscounted future cash flows.
Foreign currency translation:
During 1997, management determined that the Mexican economy was
hyper-inflationary. Accordingly, the US dollar was used as the functional
currency for the company's Mexican operations, and translation gains and
losses were included in the determination of 1997 and 1998 earnings.
Effective January 1, 1999, management determined that the Mexican economy was
no longer hyper-inflationary and designated the local currency as the
functional currency. Accordingly, the net effect of translating the Mexican
operations' financial statements was reported in a separate component of
shareholders' equity during 1999.
Comprehensive earnings:
Comprehensive earnings includes net earnings, foreign currency translation
adjustments and unrealized gains/losses on marketable securities.
Earnings per share:
A dual presentation of basic and diluted earnings per share is not required
due to the lack of potentially dilutive securities under the company's simple
capital structure. Therefore, all earnings per share amounts represent basic
earnings per share.
NOTE 2--ACCRUED LIABILITIES:
Accrued liabilities are comprised of the following:
<TABLE>
<CAPTION>
December 31,
----------------------
1999 1998
-------- -------
<S> <C> <C>
Compensation.......................................... $ 8,993 $ 8,433
Other employee benefits............................... 4,067 4,143
Taxes, other than income.............................. 2,248 2,460
Advertising and promotions............................ 8,508 8,451
Other................................................. 8,129 7,810
------- -------
$31,945 $31,297
======= =======
</TABLE>
NOTE 3--INCOME TAXES:
The domestic and foreign components of pretax income are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
--------- -------- -------
<S> <C> <C> <C>
Domestic................................ $110,052 $106,667 $93,318
Foreign................................. 1,395 (604) 2,043
-------- -------- -------
$111,447 $106,063 $95,361
======== ======== =======
</TABLE>
12
<PAGE>
The provision for income taxes is comprised of the following:
<TABLE>
<CAPTION>
1999 1998 1997
-------- ------- -------
<S> <C> <C> <C>
Current:
Federal.................................. $34,290 $34,373 $29,764
Foreign.................................. 783 618 626
State.................................... 4,294 4,286 3,836
------- ------- -------
39,367 39,277 34,226
------- ------- -------
Deferred:
Federal.................................. 1,039 (250) 738
Foreign.................................. (388) (479) (368)
State.................................... 119 (11) 83
------- ------- -------
770 (740) 453
------- ------- -------
$40,137 $38,537 $34,679
======= ======= =======
</TABLE>
Deferred income taxes are comprised of the following:
<TABLE>
<CAPTION>
December 31,
----------------------
1999 1998
-------- -------
<S> <C> <C>
Workers' compensation................................... $ 396 $ 413
Reserve for uncollectible accounts...................... 467 547
Other accrued expenses.................................. 1,214 1,137
VEBA funding............................................ (347) (478)
Other, net.............................................. 339 965
------- -------
Net current deferred income tax asset................... $ 2,069 $ 2,584
======= =======
</TABLE>
<TABLE>
<CAPTION>
December 31,
---------------------
1999 1998
-------- ------
<S> <C> <C>
Depreciation............................................. $10,563 $9,371
Postretirement benefits.................................. (2,220) (2,132)
Deductible goodwill...................................... 5,647 5,176
Deferred compensation.................................... (4,947) (4,244)
Accrued commissions...................................... 2,011 1,729
Foreign subsidiary tax loss carryforward................. (1,898) (1,428)
Other, net............................................... 364 542
------- ------
Net long-term deferred income tax liability.............. $ 9,520 $9,014
======= ======
</TABLE>
At December 31, 1999, gross deferred tax assets and gross deferred tax
liabilities are $14,897 and $22,348, respectively.
The effective income tax rate differs from the statutory rate as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- ----- -----
<S> <C> <C> <C>
U.S. statutory rate............................ 35.0% 35.0% 35.0%
State income taxes, net........................ 2.6 2.6 2.7
Amortization of intangible assets.............. 0.4 0.4 0.5
Other, net..................................... (2.0) (1.7) (1.8)
---- ---- ----
Effective income tax rate...................... 36.0% 36.3% 36.4%
==== ==== ====
</TABLE>
The company has not provided for U.S. federal or foreign withholding taxes
on $4,303 of foreign subsidiaries' undistributed earnings as of December 31,
1999 because such earnings are considered to be permanently reinvested. When
excess cash has accumulated in the company's foreign subsidiaries and it is
advantageous for tax or foreign exchange reasons, subsidiary earnings may be
remitted, and income taxes will be provided on such amounts. It is not
practicable to determine the amount of income taxes that would be payable
upon remittance of the undistributed earnings.
NOTE 4--SHARE CAPITAL AND CAPITAL IN EXCESS OF PAR VALUE:
<TABLE>
<CAPTION>
Class B Capital in
Common Stock Common Stock Treasury Stock excess
----------------- ----------------- ----------------- of par
Shares Amount Shares Amount Shares Amount value
------- ------- ------- ------- ------- ------- ----------
(000's) (000's) (000's)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at
January 1, 1997..............
15,617 $10,845 7,387 $ 5,130 -- $ -- $171,589
Issuance of 3% stock
dividend..................... 465 323 221 153 -- -- 29,868
Conversion of Class B common
shares to common shares...... 61 42 (61) (42) -- -- --
Purchase and retirement of
common shares................ (292) (202) -- -- -- -- (14,198)
------ ------- ------ ------- --- ------- --------
Balance at
December 31, 1997............ 15,851 11,008 7,547 5,241 -- -- 187,259
Issuance of 3% stock
dividend..................... 473 329 225 156 -- -- 51,780
Purchase of shares for the
treasury..................... -- -- -- -- (20) (973) --
Issuance of 2-for-1 stock
split........................ 16,305 11,323 7,748 5,381 (5) -- (16,704)
Conversion of Class B common
shares to common shares...... 98 68 (98) (68) -- -- --
Purchase and retirement of
common shares................ (288) (201) -- -- -- -- (12,271)
------ ------- ------ ------- --- ------- --------
Balance at
December 31, 1998............ 32,439 22,527 15,422 10,710 (25) (973) 210,064
Issuance of 3% stock
dividend..................... 971 674 461 320 (1) -- 64,514
Purchase of shares for the
treasury..................... -- -- -- -- (24) (1,019) --
Conversion of Class B common
shares to common shares...... 176 122 (176) (122) -- -- --
Purchase and retirement of
common shares................ (732) (508) -- -- -- -- (25,342)
------ ------- ------ ------- --- ------- --------
Balance at December 31, 1999.. 32,854 $22,815 15,707 $10,908 (50) $(1,992) $249,236
====== ======= ====== ======= === ======= ========
</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 1998.
NOTE 5--NOTES PAYABLE AND INDUSTRIAL DEVELOPMENT BONDS:
During 1992, the company entered into an industrial development bond
agreement with the City of Covington, Tennessee. The bond proceeds of $7.5
million were used to finance the expansion of the company's existing
facilities. Interest is payable at various times during the year based upon
the interest calculation option (fixed, variable or floating) selected by the
company. As of December 31, 1999 and 1998, interest was calculated under the
floating option (4.7% and 3.7%, respectively) which requires monthly payments
of interest. Principal on the bonds is due in its entirety in the year 2027.
In connection with the issuance of the bonds, the company entered into a
letter of credit agreement with a bank for the amount of principal
outstanding plus 48 days' accrued interest. The letter of credit, which
expires in January 2001, carries an annual fee of 32 1/2 basis points on the
outstanding principal amount of the bonds.
13
<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 1999, 1998 and 1997 approximated $2,062, $1,951 and
$2,153, respectively. The company also maintains certain profit sharing and
savings-investment plans. Company contributions in 1999, 1998 and 1997 to
these plans were $616, $582 and $540, respectively.
The company also contributes to multi-employer defined benefit pension
plans for its union employees. Such contributions aggregated $713, $680 and
$609 in 1999, 1998 and 1997, respectively. The relative position of each
employer associated with the multi-employer plans with respect to the
actuarial present value of benefits and net plan assets is not determinable
by the company.
Postretirement health care and life insurance benefit plans: The company
provides certain postretirement health care and life insurance benefits for
corporate office and management employees. Employees become eligible for
these benefits if they meet minimum age and service requirements and if they
agree to contribute a portion of the cost. The company has the right to
modify or terminate these benefits. The company does not fund postretirement
health care and life insurance benefits in advance of payments for benefit
claims.
The changes in the accumulated postretirement benefit obligation at
December 31, 1999 and 1998 consist of the following:
<TABLE>
<CAPTION>
December 31,
-----------------------
1999 1998
-------- ------
<S> <C> <C>
Benefit obligation, beginning of year............... $6,163 $5,904
Net periodic postretirement benefit cost............ 531 438
Benefits paid....................................... (137) (197)
------ ------
Benefit obligation, end of year..................... $6,557 $6,145
====== ======
</TABLE>
Net periodic postretirement benefit cost included the following components:
<TABLE>
<CAPTION>
1999 1998 1997
-------- ---- ----
<S> <C> <C> <C>
Service cost--benefits attributed to
service during the period............................. $306 $258 $251
Interest cost on the accumulated postretirement
benefit obligation.................................... 302 279 285
Amortization of unrecognized net gain................... (77) (99) (101)
---- ---- ----
Net periodic postretirement benefit cost................ $531 $438 $435
==== ==== ====
</TABLE>
For measurement purposes, an 8.0% annual rate of increase in the per capita
cost of covered health care benefits was assumed for 1999; the rate was
assumed to decrease gradually to 5.5% for 2004 and remain at that level
thereafter. The health care cost trend rate assumption has a significant
effect on the amounts reported. The weighted-average discount rate used in
determining the accumulated postretirement benefit obligation was 7.25% and
6.25% at December 31, 1999 and 1998, respectively.
Increasing or decreasing the health care trend rates by one percentage
point in each year would have the following effect:
<TABLE>
<CAPTION>
1% Increase 1% Decrease
------------ ------------
<S> <C> <C>
Effect on postretirement benefit obligation....... $646 $(530)
Effect on total of service and interest cost
components...................................... $117 $ (92)
</TABLE>
NOTE 7--OTHER INCOME, NET:
Other income (expense) is comprised of the following:
<TABLE>
<CAPTION>
1999 1998 1997
-------- ------ ------
<S> <C> <C> <C>
Interest income................................ $7,449 $6,934 $5,764
Interest expense............................... (453) (756) (483)
Dividend income................................ 611 822 999
Foreign exchange losses........................ (126) (2,140) (447)
Royalty income................................. 263 155 312
Miscellaneous, net............................. (816) (217) (871)
------ ------ ------
$6,928 $4,798 $5,274
====== ====== ======
</TABLE>
NOTE 8--COMMITMENTS:
Rental expense aggregated $457, $432 and $477 in 1999, 1998 and 1997,
respectively.
Future operating lease commitments are not significant.
NOTE 9--COMPREHENSIVE INCOME:
Components of accumulated other comprehensive earnings (loss) are shown as
follows:
<TABLE>
<CAPTION>
Accumulated
Foreign Unrealized Other
Currency Gains (Losses) Comprehensive
Items on Securities Earnings/(Loss)
--------- -------------- ---------------
<S> <C> <C> <C>
Balance at January 1, 1997............ $(11,035) $ -- $(11,035)
Change during period.................. (17) (417) (434)
-------- ------- --------
Balance at December 31, 1997.......... (11,052) (417) (11,469)
Change during period.................. (30) 976 946
-------- ------- --------
Balance at December 31, 1998.......... (11,082) 559 (10,523)
Change during period.................. 653 930 1,583
-------- ------- --------
Balance at December 31, 1999.......... $(10,429) $ 1,489 $ (8,940)
======== ======= ========
</TABLE>
The individual tax effects of each component of other comprehensive
earnings for the year ended December 31, 1999 are shown as follows:
<TABLE>
<CAPTION>
Before
Tax Tax Net-of-Tax
Amount Expense Tax Amount
-------- ------- ----------
<S> <C> <C> <C>
Foreign currency translation adjustment......... $ 653 $ -- $ 653
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising
during 1999.................................. 1,504 (556) 948
Less: reclassification adjustment for gains
(losses) realized in earnings................ 28 (10) 18
------ ----- ------
Net unrealized gains........................ 1,476 (546) 930
------ ----- ------
Other comprehensive earnings.................... $2,129 $(546) $1,583
====== ===== ======
</TABLE>
NOTE 10--DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS:
Carrying amount and fair value:
The carrying amount approximates fair value of cash and cash equivalents
because of the short maturity of those instruments. The fair values of
investments are estimated based on quoted market prices. The fair value of
the company's industrial development bonds approximates their carrying value
because they have a floating interest rate. The carrying amount and estimated
fair values of the company's financial instruments are as follows:
<TABLE>
<CAPTION>
1999 1998
--------------------- -------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
--------- --------- -------- --------
<S> <C> <C> <C> <C>
Cash and cash equivalents............ $ 88,504 $ 88,504 $80,744 $80,744
Investments held to maturity......... 110,245 111,151 106,415 109,182
Investments available for sale....... 37,390 37,390 28,214 28,214
Investments in trading securities.... 10,534 10,534 7,799 7,799
Industrial development bonds......... 7,500 7,500 7,500 7,500
</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, 1999 December 31, 1998
----------------------------------------------- -------------------------------------------------
Unrealized Unrealized
Amortized Fair -------------------- Amortized --------------------
Held to Maturity: Cost Value Gains Losses Cost Fair Value Gains Losses
- ----------------- ---------- -------- -------- -------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Unit investment trusts of
preferred stocks.......... $ 2,592 $ 4,618 $ 2,026 $ -- $ 3,626 $ 5,978 $ 2,352 $ --
Tax-free commercial paper... -- -- -- -- 8,250 8,250 -- --
Municipal bonds............. 109,256 108,160 -- (1,096) 96,828 97,266 438 --
Unit investment trusts of
municipal bonds........... 959 935 -- (24) 979 956 -- (23)
Private export funding
securities................ 4,933 4,933 -- -- 4,982 4,982 -- --
--------- -------- ------- ------- --------- --------- ------- -----
$ 117,740 $118,646 $ 2,026 $(1,120) $ 114,665 $ 117,432 $ 2,790 $ (23)
========= ======== ======= ======= ========= ========= ======= =====
Available for Sale:
- -------------------
Municipal bonds............. $ 40,930 $ 40,603 $ -- $ (327) $ 39,397 $ 39,264 $ -- $(133)
Mutual funds................ 3,007 5,698 2,691 -- 3,007 4,028 1,021 --
--------- -------- ------- ------- --------- --------- ------- -----
$ 43,937 $ 46,301 $ 2,691 $ (327) $ 42,404 $ 43,292 $ 1,021 $(133)
========= ======== ======= ======= ========= ========= ======= =====
</TABLE>
Held to maturity securities of $7,495 and $8,250 and available for sale
securities of $8,911 and $15,078 were included in cash and cash equivalents
at December 31, 1999 and 1998, respectively. There were no securities with
maturities greater than three years and gross realized gains and losses on
the sale of available for sale securities in 1999 and 1998 were not
significant.
NOTE 11--GEOGRAPHIC AREA AND SALES INFORMATION:
Summary of sales, net earnings and assets by geographic area
<TABLE>
<CAPTION>
1999 1998
-------------------------------------- -----------------------------------
Mexico Mexico
United and Consoli- United and Consoli-
States Canada dated States Canada dated
--------- -------- --------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Sales to unaffiliated customers.... $365,975 $30,775 $396,750 $363,569 $25,090 $388,659
======== ========
Sales between geographic areas..... 3,787 1,794 2,805 4,374
-------- ------- -------- -------
$369,762 $32,569 $366,374 $29,464
======== ======= ======== =======
Net earnings....................... $ 69,917 $ 1,393 $ 71,310 $ 68,521 $ (995) $ 67,526
Total assets....................... $505,152 $24,264 $529,416 $467,265 $20,158 $487,423
Net assets......................... $409,160 $21,486 $430,646 $378,892 $17,565 $396,457
<CAPTION>
1997
-----------------------------------
Mexico
United and Consoli-
States Canada dated
-------- ------- --------
<S> <C> <C> <C>
Sales to unaffiliated customers.... $346,487 $29,107 $375,594
========
Sales between geographic areas..... 1,694 3,314
-------- -------
$348,181 $32,421
======== =======
Net earnings....................... $ 58,898 $ 1,784 $ 60,682
Total assets....................... $414,629 $22,113 $436,742
Net assets......................... $332,410 $18,753 $351,163
</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 17.9%, 17.2% and
15.9% of total net sales during the years ended December 31, 1999, 1998 and
1997, respectively.
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS [LOGO]
To the Board of Directors and Shareholders of Tootsie Roll Industries, Inc.
In our opinion, the accompanying consolidated statement of financial position
and the related consolidated statements of earnings, comprehensive earnings
and retained earnings and of cash flows present fairly, in all material
respects, the financial position of Tootsie Roll Industries, Inc. and its
subsidiaries at December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1999, in conformity with accounting principles generally
accepted in the United States. These financial statements are the
responsibility of the Company's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted
our audits of these statements in accordance with auditing standards
generally accepted in the United States, which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
[SIGNATURE]
Chicago, Illinois
February 11, 2000
15
<PAGE>
QUARTERLY FINANCIAL DATA
TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
(Thousands of dollars except per share data)
1999 First Second Third Fourth Total
<S> <C> <C> <C> <C> <C>
------------------------------------------------------------------------------------------------------------------------
Net sales................................ $74,200 $88,265 $152,667 $81,618 $396,750
Gross margin............................. 38,815 45,902 77,651 41,821 204,189
Net earnings............................. 12,325 14,751 29,283 14,951 71,310
Net earnings per share................... .25 .30 .60 .31 1.46
1998
------------------------------------------------------------------------------------------------------------------------
Net sales................................ $69,701 $85,931 $144,230 $88,797 $388,659
Gross margin............................. 36,966 45,133 73,251 45,692 201,042
Net earnings............................. 11,217 13,910 27,216 15,183 67,526
Net earnings per share................... .22 .28 .55 .31 1.36
1997
------------------------------------------------------------------------------------------------------------------------
Net sales................................ $66,258 $82,287 $140,645 $86,404 $375,594
Gross margin............................. 33,323 41,382 69,746 42,830 187,281
Net earnings............................. 9,751 12,507 24,695 13,729 60,682
Net earnings per share................... .20 .25 .50 .27 1.22
Net earnings per share is based upon average outstanding shares as adjusted for 3% stock dividends
issued during the second quarter of each year and the 2-for-1 stock split effective July 13, 1998.
------------------------------------------------------------------------------------------------------------------------
</TABLE>
1999-1998 QUARTERLY SUMMARY OF TOOTSIE ROLL INDUSTRIES, INC. STOCK PRICE
AND DIVIDENDS PER SHARE
<TABLE>
STOCK PRICES* DIVIDENDS**
1999 1998
-------------------------------------------------------------
High Low High Low 1999
------------------------------------------------------------- ----------------------------
<S> <C> <C> <C> <C> <C> <C>
1st Qtr..... 46-15/16 39-3/4 38-13/32 29-27/32 1st Qtr............ $.0510
2nd Qtr..... 46-3/4 38-1/8 40-3/4 34-31/32 2nd Qtr............ $.0625
3rd Qtr..... 39-7/16 30 47-1/4 33-3/4 3rd Qtr............ $.0625
4th Qtr..... 33-7/16 29-13/16 42-7/8 34-1/8 4th Qtr............ $.0625
NOTE: In addition to the
above cash dividends, a 3%
stock dividend was issued on
4/21/99 and 4/22/98.
**Cash dividends are
restated to reflect 3% stock
dividends and the 2-for-1
stock split.
*NYSE -- Composite Quotations adjusted for the 2-for-1 stock split
effective July 13, 1998
Estimated Number of shareholders at 12/31/99 ........................ 9,500
<S> <C> <C>
-----
1998
---------------------
------------------------------------------
1st Qtr..... $.0389
2nd Qtr..... $.0510
3rd Qtr..... $.0510
4th Qtr..... $.0510
dividends and the
2-for-1 stock split.
</TABLE>
16
<PAGE>
FIVE YEAR SUMMARY OF EARNINGS AND FINANCIAL HIGHLIGHTS
TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES
(Thousands of dollars except per share, percentage and ratio figures)
- --------------------------------------------------------------------------------
<TABLE>
(See Management's Comments starting on page 5) 1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Sales and Earnings Data
Net sales........................................ $ 396,750 $ 388,659 $ 375,594
Gross margin..................................... 204,189 201,042 187,281
Interest expense................................. 453 756 483
Provision for income taxes....................... 40,137 38,537 34,679
Net earnings..................................... 71,310 67,526 60,682
% of sales................................... 18.0% 17.4% 16.2%
% of shareholders' equity.................... 16.6% 17.0% 17.3%
Per Common Share Data (1)
Net sales........................................ $ 8.10 $ 7.85 $ 7.55
Net earnings..................................... 1.46 1.36 1.22
Shareholders' equity............................. 8.88 8.05 7.08
Cash dividends declared.......................... .24 .19 .15
Stock dividends.................................. 3% 3% 3%
Additional Financial Data
Working capital.................................. $ 168,423 $ 175,155 $ 153,355
Net cash provided by operating activities........ 72,935 77,735 68,176
Net cash used in (provided by) investing
activities...................................... 26,993 34,829 31,698
Net cash used in financing activities............ 38,182 22,595 21,704
Property, plant & equipment additions............ 20,283 14,878 8,611
Net property, plant & equipment.................. 95,897 83,024 78,364
Total assets..................................... 529,416 487,423 436,742
Long term debt................................... 7,500 7,500 7,500
Shareholders' equity............................. 430,646 396,457 351,163
Average shares outstanding (1)................... 48,974 49,482 49,725
<S> <C> <C>
(See Management's Comments starting on page 5) 1996 1995
----------- -----------
Sales and Earnings Data
Net sales........................................ $ 340,909 $ 312,660
Gross margin..................................... 162,420 145,922
Interest expense................................. 1,498 1,515
Provision for income taxes....................... 27,891 23,670
Net earnings..................................... 47,207 40,368
% of sales................................... 13.8% 12.9%
% of shareholders' equity.................... 15.1% 14.8%
Per Common Share Data (1)
Net sales........................................ $ 6.84 $ 6.27
Net earnings..................................... .95 .81
Shareholders' equity............................. 6.27 5.46
Cash dividends declared.......................... .13 .11
Stock dividends.................................. 3% 3%
Additional Financial Data
Working capital.................................. $ 153,329 $ 109,643
Net cash provided by operating activities........ 76,710 50,851
Net cash used in (provided by) investing
activities...................................... 52,364 14,544
Net cash used in financing activities............ 26,211 5,292
Property, plant & equipment additions............ 9,791 4,640
Net property, plant & equipment.................. 81,687 81,999
Total assets..................................... 391,456 353,816
Long term debt................................... 7,500 7,500
Shareholders' equity............................. 312,881 272,186
Average shares outstanding (1)................... 49,873 49,873
</TABLE>
(1) Adjusted for annual 3% stock dividends and the 2-for-1 stock splits
effective July 13, 1998 and July 11, 1995.
17
<PAGE>
<TABLE>
<S> <C>
BOARD OF DIRECTORS
Melvin J. Gordon(1) Chairman of the Board and
Chief Executive Officer
Ellen R. Gordon(1) President and Chief Operating Officer
Charles W. Seibert(2)(3) Retired Banker
Lana Jane President, Paul Brent Designer, Inc.
Lewis-Brent(2)(3)
(1)Member of the Executive Committee
(2)Member of the Audit Committee
(3)Member of the Compensation Committee
OFFICERS
Melvin J. Gordon Chairman of the Board and
Chief Executive Officer
Ellen R. Gordon President and Chief Operating Officer
G. Howard Ember, Jr. Vice President, Finance & Asst. Secy.
John W. Newlin, Jr. Vice President, Manufacturing
Thomas E. Corr Vice President, Marketing & Sales
James M. Hunt Vice President, Physical Distribution
Barry P. Bowen Treasurer & Asst. Secy.
Daniel P. Drechney Controller
OFFICES, PLANTS
Executive Offices 7401 S. Cicero Ave.
Chicago, Illinois 60629
www.tootsie.com
Plants Chicago, Illinois
Covington, Tennessee
Cambridge, Massachusetts
New York, New York
Mexico City, Mexico
Foreign Sales Offices Mexico City, Mexico
Mississauga, Ontario
</TABLE>
<TABLE>
<S> <C>
SUBSIDIARIES
C.C. L.P., Inc. The Tootsie Roll Company, Inc.
C.G.C. Corporation Tootsie Roll Management, Inc.
C.G.P., Inc. Tootsie Roll Mfg., Inc.
Cambridge Brands, Inc. Tootsie Rolls--Latin America,
Cambridge Brands Mfg., Inc. Inc.
Cambridge Brands Services, Inc. Tootsie Roll Worldwide Ltd.
Cella's Confections, Inc. The Sweets Mix Company, Inc.
Charms Company TRI de Latino America S.A. de
Charms L.P. C.V.
Charms Marketing Company TRI Finance, Inc.
Henry Eisen Advertising Agency, Inc. TRI International Co.
J.T. Company, Inc. TRI-Mass., Inc.
Tootsie Roll of Canada Ltd. TRI Sales Co.
Tootsie Roll Central Europe Ltd. Tutsi S.A. de C.V.
World Trade & Marketing Ltd.
</TABLE>
<TABLE>
<S> <C>
OTHER INFORMATION
Stock Exchange New York Stock Exchange, Inc.
(Since 1922)
Stock Identification Ticker Symbol: TR
CUSIP No. 890516 10-7
Stock Transfer Agent ChaseMellon Shareholder Services, L.L.C.
and Stock Registrar Overpeck Centre
85 Challenger Road
Ridgefield Park, NJ 07660
1-800-851-9677
www.chasemellon.com
Independent PricewaterhouseCoopers LLP
Accountants 200 East Randolph Drive
Chicago, IL 60601
General Counsel Becker Ross Stone DeStefano & Klein
317 Madison Avenue
New York, NY 10017
Annual Meeting May 1, 2000
Mutual Building, Room 1200
909 East Main Street
[LOGO] Richmond, VA 23219
</TABLE>
[RECYCLED LOGO] Printed on recycled paper.
18
<PAGE>
EXHIBIT 21
LIST OF SUBSIDIARIES OF THE COMPANY
<TABLE>
<CAPTION>
NAME JURISDICTION OF INCORPORATION
- ---- -----------------------------
<S> <C>
C.G. L.P., Inc. Delaware
C.G.C. Corporation Delaware
C.G.P., Inc. Delaware
Cambridge Brands, Inc. Delaware
Cambridge Brands Mfg., Inc. Delaware
Cambridge Brands Services, Inc. Delaware
Cella's Confections, Inc. Virginia
Charms Company Delaware
Charms L.P. Delaware
Charms Marketing Company Illinois
Henry Elsen Advertising Agency, Inc. New Jersey
J.T. Company, Inc. Delaware
O'Tec Industries, Inc. Delaware
Tootsie Roll of Canada Ltd. Canada
Tootsie Roll Central Europe Ltd. Delaware
The Tootsie Roll Company, Inc. Illinois
Tootsie Roll Management, Inc. Illinois
Tootsie Roll Mfg., Inc. Illinois
Tootsie Rolls - Latin America, Inc. Delaware
Tootsie Roll Worldwide Ltd. Illinois
The Sweets Mix Company, Inc. Illinois
TRI de Latino America S.A. de C.V. Mexico
TRI Finance, Inc. Delaware
TRI International Co. Illinois
TRI-Mass., Inc. Massachusetts
TRI Sales Co. Delaware
Tutsi S.A. de C.V. Mexico
World Trade & Marketing Ltd. British West Indies
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from consolidated
statements of financial position and consolidated statement of earnings and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 88,504
<SECURITIES> 71,002
<RECEIVABLES> 21,064
<ALLOWANCES> 2,032
<INVENTORY> 35,085
<CURRENT-ASSETS> 224,532
<PP&E> 184,100
<DEPRECIATION> 88,203
<TOTAL-ASSETS> 529,416
<CURRENT-LIABILITIES> 56,109
<BONDS> 7,500
0
0
<COMMON> 33,723
<OTHER-SE> 396,923
<TOTAL-LIABILITY-AND-EQUITY> 529,416
<SALES> 396,750
<TOTAL-REVENUES> 396,750
<CGS> 192,561
<TOTAL-COSTS> 99,670
<OTHER-EXPENSES> (7,381)
<LOSS-PROVISION> 275
<INTEREST-EXPENSE> 453
<INCOME-PRETAX> 111,447
<INCOME-TAX> 40,137
<INCOME-CONTINUING> 71,310
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 71,310
<EPS-BASIC> 1.46
<EPS-DILUTED> 1.46
</TABLE>
