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, 1998
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)
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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 New York Stock Exchange
$.69-4/9 Per Share
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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.
As of March 9, 1999, 32,474,713 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 $881,089,780. As of March 9, 1999, 15,386,543 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 15,386,543 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 9, 1999 (based upon the closing price of the stock on the New York Stock Exchange on such date) would have been approximately $956,643,206. 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, 1998 (the "1998 Report") are incorporated by reference in Parts I and II of this report.
2. Portions of the Company's Definitive Proxy Statement which will be distributed on or before April 30, 1999 in connection with the Company's 1999 Annual Meeting of Shareholders (the "1999 Proxy Statement") are incorporated by reference in Part III of this report.
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, TOOTSIE CARAMEL APPLE POPS, CHARMS, BLOW-POP, BLUE RAZZ, ZIP-A-DEE-DOO-DA POPS, CELLA'S, MASON DOTS, MASON CROWS, JUNIOR MINT, CHARLESTON CHEW, SUGAR DADDY AND SUGAR BABIES. The Company acquired the last four of these trademarks in 1993 along with the manufacturing assets of the former Chocolate/Caramel Division of Warner Lambert 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 TV and cable and spot television in major markets throughout the country.
The domestic candy business is highly competitive. The Company competes primarily with other manufacturers of bar candy and candy of the type sold in variety, grocery and convenience stores. Although accurate statistics are not available, the Company believes it is among the ten largest domestic manufacturers in this field. In the markets in which the Company competes, the main forms of competition comprise brand recognition as well as a fair price for our products at various retail price points.
The Company did not have a material backlog of firm orders at the end of the calendar years 1997 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 favorable in 1998. The Company continues to seek competitive bids to leverage the high volume of annual purchases it makes of these items and to lower per unit costs. The Company has engaged in hedging transactions primarily in sugar and corn and may do so in the future if and when advisable. From time to time the Company changes the size of certain of its products, which are usually sold at standard retail prices, to reflect significant changes in raw material costs.
The Company does not hold any material patents, licenses, franchises or concessions. The Company's major trademarks are registered in the United States and in many other countries. Continued trademark protection is of material importance to the Company's business as a whole.
The Company does not expend significant amounts on research or development activities.
Compliance with Federal, State and local regulations which have been enacted or adopted regulating the discharge of materials into the environment, or otherwise relating to the protection of the environment, has not had a material effect on the capital expenditures, earnings or competitive position of the Company nor does the Company anticipate any such material effects from presently enacted or adopted regulations.
The Company employs approximately 1,750 persons.
The Company has found that its sales normally maintain a consistent level throughout the year except for a substantial upsurge in the third quarter which reflects sales associated with Halloween. In anticipation of this high sales period, the Company generally begins its Halloween inventory build up in the second quarter of each year. The Company historically offers extended credit terms for sales made under Halloween sales programs. Each year, after Halloween receivables have been paid, the Company invests funds in various temporary cash investments.
Revenues from a major customer aggregated approximately 17.2%, 15.9% and 16.2% of total net sales during the years ended December 31, 1998, 1997 and 1996, 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, 1998 (the "1998 Report") and on Page 4 of the 1998 Report under the section entitled "International." Note 11 and the aforesaid section are incorporated herein by reference. Portions of the 1998 Report are filed as an exhibit to this report.
ITEM 2. PROPERTIES.
The Company owns its principal plant and offices which are located in Chicago, Illinois in a building consisting of approximately 2,200,000 square feet. The Company utilizes approximately 1,800,000 square feet for offices, manufacturing and warehousing facilities and leases, or has available to lease to third parties, approximately 400,000 square feet.
In addition to owning the principal plant and warehousing facilities mentioned above, the Company leases manufacturing and warehousing facilities at a second location in Chicago which comprises 138,000 square feet. The lease is renewable by the Company every five years through June, 2011. The Company also periodically leases additional warehousing space at this second location as needed on a month to month basis.
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 285,000 square feet of manufacturing, warehousing and office space, with an additional 200,000 square feet of warehousing space under construction.
Cambridge Brands, Inc., a subsidiary, owns a facility in Cambridge, Massachusetts, containing approximately 142,000 square feet. The facility consists of manufacturing, warehousing and office space on five floors.
The Company also owns a facility in Mexico City, Mexico, consisting of approximately 57,000 square feet plus parking lot and yard area comprising approximately 25,000 square feet. The facility consists of manufacturing, warehousing and office space.
The Company owns substantially all of the production machinery and equipment located in the plants in Chicago, New York, Covington (Tennessee), Cambridge (Massachusetts) and Mexico City. The Company considers that all of its facilities are well maintained, in good operating condition and adequately insured.
ITEM 3. LEGAL PROCEEDINGS.
There are no material pending legal proceedings known to the Company to which the Company or any of its subsidiaries is a party or of which any of their property is the subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of the Company's shareholders through the solicitation of proxies or otherwise during the fourth quarter of 1998.
ADDITIONAL ITEM. EXECUTIVE OFFICERS OF THE REGISTRANT.
See the information on Executive Officers set forth in the table in Part III, Item 10, Page 6 of this report, which is incorporated herein by reference.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The Company's Common Stock is traded on the New York Stock Exchange. The Company's Class B Common Stock is subject to restrictions on transfer and no market exists for such shares of Class B Common Stock. The Class B Common Stock is convertible at the option of the holder into shares of Common Stock on a share for share basis. As of March 9, 1999, there were approximately 9,500 holders of record of Common and Class B Common Stock. For information on the market price of, and dividends paid with respect to, the Company's Common Stock, see the section entitled "1998-1997 Quarterly Summary of Tootsie Roll Industries, Inc. Stock Prices and Dividends" which appears on Page 16 of the 1998 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 1998 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 1998 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, 1998, the Company had open contracts to purchase approximately eighteen 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 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 1998 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 9, 1999, appearing on Pages 8-15 of the 1998 Report and the Quarterly Financial Data on Page 16 of the 1998 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 1998 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 1999 Annual Meeting of Shareholders (the "1999 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 1999 Proxy Statement, which section is incorporated herein by reference. The 1999 Proxy Statement will be filed with the Securities and Exchange Commission on or before April 30, 1999.
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) 79
Ellen R. Gordon* President and Chief
Operating Officer (2) 67
G. Howard Ember Jr. Vice President/Finance 46
John W. Newlin Jr. Vice President/Manufacturing 62
Thomas E. Corr Vice President/Marketing and
Sales 50
James M. Hunt Vice President/Distribution 56
Barry P. Bowen Treasurer 43
*A member of the Board of Directors of the Company.
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(1) Mr. and Mrs. Gordon and Messrs. Newlin and Corr have served in the positions set forth in the table as their principal occupations for more than the past eight years. Mr. Ember has served in his position for the past eight years, and in the seven years prior to that, served the Company in the position of Treasurer and Assistant Vice President of Finance. Mr. Hunt has served in his position for the past six years and in the fifteen years prior to that, served the Company in the positions of Director of Distribution and Assistant Vice President of Distribution. Mr. Bowen has served in his position for the past eight years. Mr. and Mrs. Gordon have also served as President and Vice President, respectively of HDI Investment Corp., a family investment company.
(2) Melvin J. Gordon and Ellen R. Gordon are husband and wife.
ITEM 11. EXECUTIVE COMPENSATION.
See the information set forth in the section entitled "Executive Compensation and Other Information" of the Company's 1999 Proxy Statement. Except for the "Report on Executive Compensation" and "Performance Graph," this section of the 1999 Proxy Statement is incorporated herein by reference. See the last paragraph of the section entitled "Election of Directors" of the 1999 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 1999 Proxy Statement. These sections of the 1999 Proxy Statement are incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K.
(a) Financial Statements.
The following financial statements and schedules are filed as part of this report:
(1) Financial Statements (filed herewith as part of Exhibit 13):
Report of Independent Accountants
Consolidated Statements of Earnings, Comprehensive Earnings and Retained Earnings for the three years ended December 31, 1998
Consolidated Statements of Cash Flows for the three years ended December 31, 1998
Consolidated Statements of Financial Position at December 31, 1998 and 1997
Notes to Consolidated Financial Statements
(2) Financial Statement Schedules:
Report of Independent Accountants on Financial Statement Schedules
For the three years ended December 31, 1998-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, 1998.
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. 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;
(iii) inherent risks in the marketplace associated with new product
introductions, including uncertainties about trade and consumer acceptance;
and (iv) the Company's ability, and its suppliers' and customers' ability, to
adequately address Year 2000 issues. 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.
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, Tootsie Roll Industries, Inc., has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
TOOTSIE ROLL INDUSTRIES, INC.
By: /s/ Melvin J. Gordon
---------------------------
Melvin J. Gordon, Chairman
of the Board of Directors
and Chief Executive Officer
Date: March 29, 1999
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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.
/s/ Melvin J. Gordon Chairman of the Board
--------------------- of Directors and Chief
Melvin J. Gordon Executive Officer
(principal executive
officer) March 29, 1999
/s/ Ellen R. Gordon Director, President
--------------------- and Chief Operating
Ellen R. Gordon Officer March 29, 1999
/s/ Charles W. Seibert Director March 29, 1999
----------------------
Charles W. Seibert
/s/ Lana Jane Lewis-Brent Director March 29, 1999
-------------------------
Lana Jane Lewis-Brent
/s/ G. Howard Ember Jr. Vice President, Finance
----------------------- (principal financial
G. Howard Ember Jr. officer and principal
accounting officer) March 29, 1999
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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 9, 1999 appearing on Page 15 of the 1998 Annual Report to Shareholders of Tootsie Roll Industries, Inc. (which report and consolidated financial statements are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the financial statement schedule listed in Item 14(a) of this Form 10-K. In our opinion, this financial statement schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements.
/s/ PricewaterhouseCoopers LLP Chicago, Illinois February 9, 1999 |
FINANCIAL SCHEDULE
TOOTSIE ROLL INDUSTRIES, INC.
AND SUBSIDIARY COMPANIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
DECEMBER 31, 1998, 1997 AND 1996
Additions
Balance at charged to Balance at
beginning costs and End of
Description of Year expenses Deductions Year
----------- ---------- ---------- ---------- ----------
1998:
Reserve for bad debts $ 1,811,000 $ 275,920 $ 188,920 (1) $ 1,898,000
Reserve for cash 274,000 7,599,163 7,587,163 (2) 286,000
discounts ----------- ----------- ----------- ------------
$ 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) $ 1,811,000
Reserve for cash 259,000 7,360,132 7,345,132 (2) 274,000
discounts ----------- ----------- ----------- ------------
$ 1,885,000 $ 7,699,114 $ 7,499,114 $ 2,085,000
----------- ----------- ----------- ------------
1996:
Reserve for bad debts $ 1,446,000 $ 476,204 $ 296,204 (1) $ 1,626,000
Reserve for cash 328,000 6,767,016 6,836,016 (2) 259,000
discounts ----------- ----------- ----------- ------------
$ 1,774,000 $ 7,243,220 $ 7,132,220 $ 1,885,000
----------- ----------- ----------- ------------
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(1) Accounts receivable written off net of recoveries and exchange rate movements.
(2) Allowances to customers.
INDEX TO EXHIBITS
2.1 Asset Sale Agreement dated September 29, 1993 between Warner-Lambert
Company and the Company, including a list of omitted exhibits and
schedules. Incorporated by reference to Exhibit 2 to the Company's
Report on Form 8-K dated October 15, 1993; Commission File
No. 1-1361.
The Company hereby agrees to provide the Commission, upon
request, copies of any omitted exhibits or schedules required by
Item 601(b)(2) of Regulation S-K.
3.1 Restated Articles of Incorporation. Incorporated by reference to
Exhibit 3.1 of the Company's Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 1997; Commission File No. 1-1361.
3.2 Amended and Restated By-Laws. Incorporated by reference to
Exhibit 3.2 of the Company's Annual Report on Form 10-K for the year
ended December 31, 1996; Commission File No. 1-1361.
3.3 Specimen Class B Common Stock Certificate. Incorporated by reference
to Exhibit 1.1 of the Company's Registration Statement on Form 8-A
dated February 29, 1988.
10.5* Tootsie Roll Industries, Inc. Bonus Incentive Plan. Incorporated
by reference to Exhibit A to the Company's Proxy Statement dated
March 27, 1997; Commission File No. 1-1361.
10.8.1* Excess Benefit Plan. Incorporated by reference to Exhibit 10.8.1
of the Company's Annual Report on Form 10-K for the year ended
December 31, 1990; Commission File No. 1-1361.
10.8.2* Amended and Restated Career Achievement Plan of the Company.
10.12* Restatement of Split Dollar Agreement (Special Trust) between the
Company and the trustee of the Gordon Family 1993 Special Trust dated
January 31, 1997. Incorporated by reference to Exhibit 10.12 of the
Company's Annual Report on Form 10-K for the year ended December 31,
1996; Commission File No. 1-1361.
10.21* Executive Split Dollar Insurance and Collateral Assignment Agreement
between the Company and G. Howard Ember Jr. dated July 30, 1994.
Incorporated by reference to Exhibit 10.21 of the Company's Annual
Report on Form 10-K for the year ended December 31, 1994; Commission
File No. 1-1361.
10.22* Executive Split Dollar Insurance and Collateral Assignment Agreement
between the Company and John W. Newlin dated July 30, 1994.
Incorporated by reference to Exhibit 10.22 of the Company's Annual
Report on Form 10-K for the year ended December 31, 1994; Commission
File No. 1-1361.
10.23* Executive Split Dollar Insurance and Collateral Assignment Agreement
between the Company and Thomas E. Corr dated July 30, 1994.
Incorporated by reference to Exhibit 10.23 of the Company's Annual
Report on Form 10-K for the year ended December 31, 1994; Commission
File No. 1-1361.
10.24* Executive Split Dollar Insurance and Collateral Assignment Agreement
between the Company and James Hunt dated July 30, 1994. Incorporated
by reference to Exhibit 10.24 of the Company's Annual Report on
Form 10-K for the year ended December 31, 1994; Commission File
No. 1-1361.
10.25* Form of Change In Control Agreement dated August, 1997 between the
Company and certain executive officers. Incorporated by reference to
Exhibit 10.25 of the Company's Annual Report on Form 10-K for the
year ended December 31, 1997; Commission File No. 1-1361.
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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.
13 The following items incorporated by reference herein from the
Company's 1998 Annual Report to Shareholders for the year ended
December 31, 1998 (the "1998 Report"), are filed as Exhibits to this
report:
(i) Information under the section entitled "International" set
forth on Page 4 of the 1998 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 1998 Report;
(iii) Consolidated Statements of Earnings, Comprehensive Earnings
and Retained Earnings for the three years ended December 31,
1998 set forth on Page 8 of the 1998 Report;
(iv) Consolidated Statements of Financial Position at December 31,
1998 and 1997 set forth on Pages 9-10 of the 1998 Report;
(v) Consolidated Statements of Cash Flow for the three years ended
December 31, 1998 set forth on Page 11 of the 1998 Report;
(vi) Notes to Consolidated Financial Statements set forth on
Pages 12-15 of the 1998 Report;
(vii) Report of Independent Accountants set forth on Page 15 of the
1998 Report;
(viii) Quarterly Financial Data set forth on Page 16 of the 1998
Report;
(ix) Information under the section entitled "1998-1997 Quarterly
Summary of Tootsie Roll Industries, Inc. Stock Prices and
Dividends" set forth on Page 16 of the 1998 Report; and
(x) Information under the section entitled "Five Year Summary of
Earnings and Financial Highlights" set forth on Page 17 of the
1998 Report.
21 List of Subsidiaries of the Company.
27 Financial Data Schedule.
--------------------------------------
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*Executive compensation plan or arrangement.
TOOTSIE ROLL INDUSTRIES, INC.
CAREER ACHIEVEMENT PLAN
(As Amended and Restated Effective as of March 30, 1999)
1. PURPOSE. The purpose of the Career Achievement Plan (the "Plan") of Tootsie Roll Industries, Inc. (the "Company") is to promote the financial interests and growth of the Company by increasing motivation on the part of its senior officers and key employees by creating an incentive for them to remain in the long term employ of the Company and to work to the best of their abilities for the achievement of the Company's strategic growth objectives.
2. PARTICIPATION. Participation in the Plan will be limited to those senior officers and other key employees of the Company as the Board of Directors (the "Board") in its sole discretion shall designate from time to time to be eligible to receive Career Achievement Awards hereunder. The Board may, in its sole discretion, delegate to the Administrative Committee (as defined in Section 8) the power to designate those key employees of the Company who shall be selected for participation in this Plan, provided that the Board reserves the sole right to determine participation with respect to any key employee of the Company who is required to comply with the requirements of Section 16 of the Securities Exchange Act of 1934, as amended (the "Exchange Act").
3. CAREER ACHIEVEMENT AWARDS. As of the date determined by the Board for any calendar year during the term of the Plan, the Board may, but shall not be required to, grant an award to any or all of the participants of the Plan. Each such award (a "Career
Achievement Award") shall be for a fixed dollar amount, and shall be calculated based on such formulas or other criteria as may be established by the Board in its sole discretion. Each Career Achievement Award shall be communicated in a written notice to the affected participant setting forth the amount thereof. Such notice shall be provided to the participant as soon as practicable after the amount of the Career Achievement Award has been determined by the Board. Except as otherwise provided in Section 5 hereof, once an award has been communicated to a participant pursuant to this Section 3, such award may not be canceled, reduced or diminished in any manner without the written consent of the participant. The Board may, in its sole discretion, delegate to the Administrative Committee its powers and duties under this Section 3 with respect to any participant herein other than a participant who is required to comply with the requirements of Section 16 of the Exchange Act.
4. CAREER ACHIEVEMENT ACCOUNT.
(a) ESTABLISHMENT OF ACCOUNTS. There shall be established
on the books of the Company a Career Achievement Account in the name of each
participant in the Plan. Career Achievement Awards made under the Plan shall
be credited to a participant's Career Achievement Account as of the January
1st specified in the written notice of the award delivered to the
participant. Each participant's Career Achievement Account shall consist of
the aggregate amount of such Career Achievement Awards credited thereto, and
earnings and losses on such amounts determined in the manner prescribed by
Section 4(b). Nothing contained in this Section 4 shall require the Company
to invest any assets of the Company in
any particular investment vehicle, or to set aside any assets to provide for the payment of benefits hereunder.
(b) CAREER ACHIEVEMENT ACCOUNT EARNINGS AND LOSSES. (1) DEEMED INVESTMENT OF ACCOUNT. For bookkeeping purposes only, each participant may from time to time direct that the balance of his or her Career Achievement Account be deemed to be invested in certain investment alternatives described in Section 4(b)(2). Each such direction made by the participant shall be effective until a new direction is filed by him or her with the Company. If the participant fails to direct the manner in which any portion of his or her Career Achievement Account is deemed to be invested, the balance credited to such account shall be deemed to be invested in any investment alternative designated by the Board in its sole discretion. The Board shall prescribe rules governing a participant's deemed investment direction of his or her Career Achievement Account hereunder, including, but not limited to, the time and manner pursuant to which a participant may provide deemed investment directions to the Company, and the frequency at which a participant may make changes with respect to such investment directions as they relate to the existing balance of his or her Career Achievement Account as well as to future Career Achievement Awards. Although the Company might actually invest assets of the Company according to a participant's investment directions, it is not required to do so nor to set aside an amount equal to all or any portion of a Participant's Career Achievement Account. The balance in the participant's Career Achievement Account shall be increased by gains or decreased by losses that would be realized
or paid by the Company as if assets of the Company in an amount equal to such balance were actually invested in the investment alternatives specified by the participant.
(2) INVESTMENT ALTERNATIVES. The Company shall make available a number of investment alternatives for purposes of determining the deemed earnings to be credited and the deemed losses to be debited to a participant's Career Achievement Account under Section 4(b)(1). Such investment alternatives shall be designated from time to time by the Board, including, but not limited to, (i) for periods prior to a participant's termination of employment, an investment alternative the performance of which is based on the yield of the Moody's Seasoned Bond Index, (ii) for periods after a participant's termination of employment, an investment alternative the performance of which is based on the yield on five-year United States Treasury Notes and (iii) for all periods hereunder, investment alternatives the performance of which is based on publicly traded mutual funds. The Company also may make available for all periods hereunder an investment alternative the performance of which is based on the price of the Company's common stock (referred to herein as the "Company Stock Alternative"). Each participant's proportional interest in the Company Stock Alternative shall be represented by units of participation, each of which shall be equivalent to one share of common stock of the Company. The Board shall prescribe rules relating to the deemed investment of a participant's Career Achievement Account among the available investment alternatives, including, but not limited to, a maximum limitation on the amount that a participant can direct to be deemed invested in any particular investment alternative, restrictions on a participant's ability to direct a deemed transfer from any particular investment
alternative to another, and the manner in which any deemed cash dividends that are paid with respect to a participant's units of participation in the Company Stock Alternative shall deemed to be invested.
(3) DELEGATION OF POWERS. The Board may, in its sole discretion, delegate to the Administrative Committee its powers and duties under this Section 4(b).
5. PAYMENT OF CAREER ACHIEVEMENT ACCOUNT UPON TERMINATION OF EMPLOYMENT. A participant's Career Achievement Account shall be paid to the participant, shall be paid to the participant's designated beneficiary in the event of the participant's death, or shall be forfeited, depending upon the time and circumstances of the participant's termination of employment, as provided below:
(a) TERMINATION OF EMPLOYMENT OTHER THAN FOR RETIREMENT, DEATH OR DISABILITY. Subject to Sections 5(c), 5(d), 5(e) and 5(f) hereof, if a participant's employment with the Company terminates other than as a result of the participant's retirement, death or permanent disability, the participant shall be entitled to receive, on the "date of distribution", a lump sum payment equal to the "vested" portion of the participant's Career Achievement Account as of the date of termination of employment (as such "vested" portion is determined below), plus any earnings credited, and minus any losses debited, to the participant's account under Section 4(b)(2) following such date of termination of employment. For purposes of this Section 5(a), the "date of distribution" means the later of (i) the first anniversary of the date of
the participant's termination of employment or (ii) sixty (60) days after the earlier of the participant's 65th birthday or his or her death. The portion of a participant's Career Achievement Account which has not "vested" as of the date of the participant's termination of employment shall be forfeited, and the participant shall not be entitled to any payment of such forfeited amount or any earnings or losses thereon.
The "vested" portion of a participant's Career Achievement
Account as of the date of termination shall equal the aggregate of the "vested"
portions of each Career Achievement Award previously granted to the participant.
The"vested" portion of each Career Achievement Award shall be separately
determined and shall equal the product of the Career Achievement Award (plus any
earnings previously credited, and minus any losses previously debited, to the
participant's account with respect to such Career Achievement Award under
Section 4(b) hereof) multiplied by the Vested Percentage of such award. The
Vested Percentage of a Career Achievement Award shall be determined according to
the number of the participant's consecutive full calendar years of employment
with the Company beginning with the calendar year in which such award was
credited to the participant's Career Achievement Account and ending with the
calendar year immediately prior to the year in which termination occurs,
pursuant to the following table:
Years of Continuous Vested
Employment Percentage
------------------- ----------
1 20%
2 40%
3 60%
4 80%
5 or more 100%
|
For purposes of this Section 5(a), if a participant first becomes an employee of the Company during the calendar year in which a Career Achievement Award is credited to such participant's account, such year shall count as a full calendar year of employment.
(b) TERMINATION OF EMPLOYMENT BY REASON OF RETIREMENT, DEATH
OR DISABILITY. Subject to Sections 5(d), 5(e) and 5(f) hereof, if a
participant's employment with the Company terminates by reason of the
participant's retirement, death or permanent disability, the Company shall pay
to the participant or the beneficiary designated by the participant pursuant to
Section 9(a) hereof, as the case may be, a lump sum amount equal to the full
balance of the participant's Career Achievement Account as of the date of
termination, plus any earnings credited, and minus any losses debited, to the
participant's account under Section 4(b)(2) following such termination of
employment. Such payment shall be made not later than sixty (60) days after the
date of the participant's termination of employment. For purposes of this Plan,
(i) a participant shall be considered to have retired if the participant's
employment with the Company terminates on or after the participant's 65th birthday and (ii) a participant shall be deemed to be permanently disabled if such participant is unable to perform his or her stated duties with the Company by reason of illness, accident or other incapacity and is not engaged in any occupation or employment for wage or profit for which he or she is reasonably qualified by education, training or experience, provided however, that in the event the Company maintains a long-term disability plan in which the participant is entitled to receive benefits, the participant shall be deemed to be permanently disabled when he or she suffers a physical illness, injury or other impairment in respect to which the participant is entitled to receive benefits under such long-term disability plan.
(c) TERMINATION OF EMPLOYMENT FOR CAUSE. Notwithstanding any provision of this Plan to the contrary, if the Board, in its sole discretion, shall determine that the participant's employment with the Company was terminated for "cause" (as defined below), the participant's Career Achievement Account shall be forfeited in its entirety, and the participant shall not be entitled to any payments under this Plan. For purposes of this Plan, "cause" shall mean any act or conduct by a participant that consists of or constitutes fraud, theft, dishonesty, alcohol or drug use on the job, willful injury to or destruction of the Company's property or property of any person dealing with the Company, any act or conduct injurious to the goodwill of the Company or its relations with its customers or any other person dealing with the Company or derogatory of any of the Company's methods or products, any violation of the duty imposed upon employees by contract or by law in their relationship with
the Company, or engaging in any activities described in Section 7(1), 7(2), 7(3) or 7(4) hereof.
(d) ELECTION OF ALTERNATIVE PAYMENT OPTION. Notwithstanding Sections 5(a) and 5(b), a Participant may elect to receive payment of the balance of his or her Career Achievement Account in the form of annual installment payments in lieu of a lump sum distribution. The participant may elect that such installment payments be made over any whole number of years not less than two nor more than ten. The first such installment payment shall be made at the same time as the lump sum payment described in Section 5(a) or 5(b), as the case may be, would have been made. The amount of each installment payment shall be equal to the balance of the Participant's Career Achievement Account determined as near as practicable to the date of payment, divided by the number of annual installment payments remaining to be made. For the period during which such installment payments are being made until the date as near as practicable to the date on which the final installment payment is made, a participant's remaining Career Achievement Account shall continue to be adjusted for earnings and losses pursuant to Section 4(b) hereof.
A participant may change his or her distribution election under this Section 5(d) from time to time. The failure to elect the annual installment payment option, or the revocation of an installment payment option, shall be treated as a deemed election to receive payment in the form of a lump sum. Notwithstanding any provision contained herein to the contrary, no election of an annual installment payment option, change of any such installment
payment option, or revocation of an installment payment option shall be effective if it is made during the one-year period ending on the date of the participant's termination of employment on account of retirement or otherwise.
Notwithstanding any provision contained herein to the contrary, payment to a participant's beneficiary in the event of the participant's death shall be made only in the form of a lump sum payment. In the case of a participant who had commenced receiving installment payments prior to the date of his or her death, such lump sum payment shall be equal to the remaining balance of the participant's Career Achievement Account, and shall be paid as soon as administratively practicable after the date of the participant's death.
(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 to his or her Career Achievement
Account 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.
(f) FURTHER DEFERRAL. To the extent determined by the Board in its sole discretion, the Board shall have the authority (i) to delay any payments otherwise due under this Plan to the extent necessary to avoid a limitation on the deductibility of compensation paid to a participant pursuant to Section 162(m) of the Internal Revenue Code of 1986, or any
successor provision, and (ii) to take such action as it shall deem appropriate
to specifically approve or delay any payments otherwise due under this Plan to a
participant who is subject to Section 16 of the Exchange Act in order to enable
such participant to comply with such Section 16. To the extent any payments
under this Plan are deferred under this Section 5(f), such amounts shall
continue to be adjusted for earnings and losses pursuant to Section 4(b) hereof,
and shall be paid at such time or from time to time to the extent such payments
would not cause or increase a limitation on deductibility under such Section
162(m), or would not result in a participant subject to Section 16 of the
Exchange Act failing to comply with such Section 16, as the case may be.
6. IMMEDIATE DISTRIBUTION OF CAREER ACHIEVEMENT ACCOUNTS UPON CHANGE OF CONTROL OF THE COMPANY. Notwithstanding any provision of this Plan to the contrary, and provided that the participant enters into the agreement described in Section 7 hereof as provided in such Section 7, the Company shall pay the entire balance of a participant's Career Achievement Account to such participant in a lump sum payment within three business days after the occurrence of a "change of control" of the Company. A "change of control" of the Company shall occur when: (1) any person, including a "group," as described in Section 13(d)(3) of the Exchange Act, acquires after the effective date of this Plan the beneficial ownership of, and the right to vote, shares having the right to cast at least twenty percent (20%) of the votes permitted to be cast in any election of members to the Board; or (2) as the result of any tender or exchange offer, substantial purchase of the Company's equity securities, merger, consolidation, sale of assets or contested election, or any combination of the foregoing
transactions, the persons who were directors of the Company immediately prior to such transaction or transactions do not constitute a majority of the Board (or of the board of directors of any successor to or assignee of the Company) immediately after the next meeting of stockholders of the Company (or any successor or assignee) following such transaction; except that no event described in clause (1) or (2) above shall constitute a "change of control" if immediately after such event Melvin J. Gordon, Ellen R. Gordon, their descendants (and spouses of such descendants) and any trusts or estates in which such persons have an interest own, directly or indirectly, shares having the right to cast at least fifty percent (50%) of the votes permitted to be cast in any election of members of the Board.
7. NONCOMPETITION. As a condition to the payment of any portion of the participant's Career Achievement Account following a change of control of the Company pursuant to Section 6 or upon the participant's termination of employment with the Company pursuant to Section 5 (other than by reason of the participant's death), the participant shall be required to enter into an agreement with the Company which provides that, for the period commencing on the effective date of the change of control of the Company or the effective date of the participant's termination of employment with the Company, as the case may be, and ending on the first anniversary of the participant's termination of employment with the Company, the participant will not:
(1) directly or indirectly engage in, own, manage, operate, participate in, render advice to or have any interest in any person, firm, corporation, or business
(whether as an owner, partner, employee, officer, director, agent, security holder, creditor, consultant, or otherwise) that engages in any activity which is the same as, similar to, or competitive with any activity then, or within the prior twelve (12) months, engaged in by the Company or any affiliate of the Company; or
(2) directly or indirectly solicit for employment or employ or become employed by any person then, or within the prior twelve (12) months, employed by the Company or any affiliate of the Company, or request, influence or advise any person who is or shall be employed by or is in the service of the Company or any affiliate of the Company to leave such employment or service of the Company or any affiliate of the Company; or
(3) directly or indirectly influence or advise any competitor of or anyone intending to compete with the Company or any affiliate of the Company to employ or otherwise engage the services of any person who is or shall be employed by or is in the service of the Company or any affiliate of the Company; or
(4) directly or indirectly solicit or accept any business which is the same as, similar to or competitive with that of the Company or any affiliate of the Company from customers of the Company or any affiliate of the Company or request, induce or advise customers of the Company or any affiliate of the Company to withdraw, curtail or cancel their business with the Company or any affiliate of the Company.
For purposes of this Plan, the term "affiliate" means any entity engaged in the same or similar business as the Company or a related business, which is controlled by or under common control with the Company.
8. ADMINISTRATION OF THE PLAN.
(a) POWERS AND DUTIES OF THE BOARD. The Plan shall be administered and interpreted by the Board. The Board shall, subject to the terms of the Plan, make or refrain from making Career Achievement Awards, determine the amount of Career Achievement Awards, establish rules and regulations for the administration of the Plan, impose conditions with respect to competitive employment or other activities with respect to any such award, and establish the written form to be used to evidence such awards pursuant to Section 3 hereof. The Board shall have full authority to construe and interpret the terms and provisions of the Plan, to adopt, alter and repeal such administrative rules, guidelines and practices governing this Plan and to perform all acts, including the delegation of its administrative responsibilities as it shall, from time to time, deem advisable, and to otherwise supervise the administration of this Plan. All such rules, regulations and interpretations relating to the Plan which are adopted by the Board shall be conclusive and binding on all parties. The Board may correct any defect, supply any omission or reconcile any inconsistency in the Plan or in any award granted hereunder, in the manner and to the extent it shall deem necessary to carry the Plan into effect.
(b) ADMINISTRATIVE COMMITTEE. The Board may, in its sole discretion, appoint a committee of two or more employees of the Company which shall be designated the
"Administrative Committee." The Administrative Committee shall have such powers and responsibilities under this Plan as shall be delegated to such committee by the Board from time to time pursuant to resolutions adopted by the Board. The Board, in its sole discretion, may remove any member of the Administrative Committee at any time, may appoint additional employees of the Company to be members of the Administrative Committee from time to time, and may fill any vacancies that arise upon the death, resignation or removal of any member of the Administrative Committee. The Board also shall have the power, in its sole discretion, to discontinue the existence of the Administrative Committee at any time and assume any powers and duties which it previously delegated to such committee.
9. MISCELLANEOUS.
(a) DESIGNATION OF BENEFICIARY. In the event of the death of a participant, the amount payable under Section 5 hereof shall, unless the participant shall designate to the contrary as provided below, thereafter be made to such person or persons who, as of the date payment is to be made under this Plan, would receive distribution of the participant's account balance under the terms of the Tootsie Roll Employee's Pension Plan. Notwithstanding the preceding sentence, a participant may specifically designate the person or persons (who may be designated successively or contingently) to receive payments under this Plan following the participant's death by filing a written beneficiary designation with the Company during the participant's lifetime. Such beneficiary designation shall be in such form as may be prescribed by the Company and may be amended from time to time or may be revoked by the participant pursuant to written instruments filed with the Company during his or her lifetime.
Beneficiaries designated by a participant may be any natural or legal person or persons, including a fiduciary, such as a trustee of a trust or the legal representative of an estate. Unless otherwise provided by the beneficiary designation filed by a participant, if all of the persons so designated die before a participant on the occurrence of a contingency not contemplated in such beneficiary designation, then the amount payable under this Plan shall be paid to the person or persons determined in accordance with the first sentence of this Section 9(a).
(b) ASSETS. No assets shall be segregated or earmarked in respect of any Career Achievement Award or Career Achievement Account and no participant shall have any right to assign, transfer, pledge or hypothecate his or her interest, or any portion thereof, in his or her Career Achievement Account. The Plan and the crediting of Career Achievement Accounts hereunder shall not constitute a trust and shall be structured solely for the purpose of recording an unsecured contractual obligation. All amounts payable pursuant to the terms of this Plan shall be paid from the general assets of the Company.
(c) REPORTS. Until a participant's entire Career Achievement Account shall have been paid in full or forfeited, the Company will furnish to the participant a report, at least annually, setting forth transactions in such account and the status of such account with respect to the vested and unvested portions thereof and the earnings and losses related thereto.
(d) ACCELERATION OF VESTING AND PAYMENT. Notwithstanding any other provision of this Plan to the contrary, the Board, in its sole discretion, is empowered to accelerate the vesting and to accelerate the payment of all or a portion of a participant's Career Achievement Account for any reason the Board may determine to be appropriate. Neither the Company nor the Board shall have any obligation to make any such acceleration for any reason whatsoever.
(e) LIABILITY. No member of the Board or of the Administrative Committee shall be liable for any act or action hereunder, whether of omission or commission, by any other member or employee or by any agent to whom duties in connection with the administration of the Plan have been delegated or, except in circumstances involving such member's bad faith, gross negligence or fraud, for anything done or omitted to be done by such member. The Company will fully indemnify and hold each member of the Board and of the Administrative Committee harmless from any liability hereunder, except in circumstances involving such member's bad faith, gross negligence or fraud. The Company, the Board or the Administrative Committee may consult with legal counsel, who may be counsel for the Company, with respect to its obligations or duties hereunder, or with respect to any action or proceeding or any question of law, and shall not be liable with respect to any action taken or omitted by it in good faith pursuant to the advice of such counsel.
(f) AMENDMENT OR TERMINATION. Notwithstanding any other provision of this Plan, the Board may at any time, and from time to time, amend, in whole or in part, any
or all of the provisions of the Plan, or suspend or terminate it entirely,
retroactively or otherwise; provided, however that any such amendment,
suspension or termination may not, without the participant's consent, adversely
affect any Career Achievement Awards previously credited to the participant's
account prior to the effective date of such amendment, suspension or
termination. Notwithstanding the foregoing, upon any termination of this Plan,
the Board may in its sole discretion accelerate the vesting and payment of the
entire balance of all Career Achievement Accounts as of the date of termination
of this Plan. The Plan shall remain in effect until terminated pursuant to this
Section 9(f).
(g) EXPENSES. The Company will bear all expenses incurred by it in administering this Plan.
(h) WITHHOLDING. The Company shall have the right to deduct from any payment to be made pursuant to this Plan or to otherwise require prior to the payment of any amount hereunder, payment by the participant of any Federal, state or local taxes required by law to be withheld.
(i) NO OBLIGATION. The designation by the Board or the Administrative Committee of an individual as a participant in any year shall not require the Board or the Administrative Committee to designate such person to receive a Career Achievement Award in any other year. Neither this Plan nor any Career Achievement Awards made hereunder shall create any obligation on the Company to continue any other existing award plans or policies or
to establish or continue any other programs, plans or policies of any kind. Neither this Plan nor any Career Achievement Award made pursuant to this Plan shall give any participant or other employee any right with respect to continuance of employment by the Company or any of its affiliates or of any specific aggregate amount of compensation, nor shall there be a limitation in any way on the right of the Company or any of its affiliates by which an employee is employed to terminate such employee at any time for any reason whatsoever, nor shall this Plan nor any Career Achievement Award made hereunder create a contract of employment.
(j) NO ASSIGNMENT; RESOLUTION OF DISPUTES. Except as otherwise permitted under Section 9(a), no right or interest in any Career Achievement Account under this Plan shall be assignable or transferable, and no right or interest of any participant in any Career Achievement Account hereunder shall be subject to any lien, obligation or liability of such participant. In the event any conflicting demands are made upon the Company with respect to any payments due as a result of this Plan, provided that the Company shall not have received prior written notice that said conflicting demands have been finally settled by court adjudication, arbitration, joint order or otherwise, the Company may pay to the participant any and all amounts due hereunder and thereupon the Company shall stand fully relieved and discharged of any further duties or liabilities under this Plan.
(k) GOVERNING LAW. This Plan and all actions taken in connection herewith shall be governed and construed in accordance with the laws of the State of Illinois (regardless of the law that might otherwise govern under applicable Illinois principles of conflict of laws).
AMENDMENT OF SPLIT DOLLAR AGREEMENT (SPECIAL TRUST)
AMENDMENT, made and entered into by and between Tootsie Roll Industries, Inc., a Virginia corporation (the "Corporation"), and Wendy J. Gordon, not individually, but as trustee of the Gordon Family 1993 Special Trust (the "Owner").
WHEREAS, the Corporation and the Owner entered into a Split Dollar Agreement dated July 10, 1993 and restated on March 8, 1997 covering policies of insurance on the joint lives of Melvin J. Gordon and Ellen R. Gordon and policies of insurance on the sole life of Ellen R. Gordon (the "Agreement"); and
WHEREAS, Melvin J. Gordon and Ellen R. Gordon (the "Employees") continue to be employed by the Corporation in which capacity their services have contributed to the successful operation of the Corporation, and the Corporation and its board of directors believe it is in the best interest of the Corporation to retain the services of the Employees; and
WHEREAS, the Corporation and the Owner desire to amend the Agreement to cover four additional policies of insurance owned by the Owner on the sole life of Ellen R. Gordon, such additional policies and the original policies subject to the Agreement are listed on the attached Amended Schedule A; and
WHEREAS, the Corporation and the Owner agree to make such additional policies subject to the Agreement; and
WHEREAS, the Owner agrees to assign each additional policy to the Corporation as collateral for the premium payments to be made by the Corporation under the Agreement by an instrument of collateral assignment and to record such assignment with the respective issuing insurance company.
NOW, THEREFORE, in consideration of the premises, and the services to be rendered to the Corporation by the Employees, and for other good and valuable consideration, receipt of which is hereby acknowledged, the Corporation and the Owner hereby mutually covenant and agree as follows:
1. The Corporation and the Owner agree to make each additional policy subject to the Agreement.
2. The Owner agrees to assign each additional policy to the Corporation as collateral for the premium payments to be made by the Corporation under the Agreement by an instrument of collateral assignment and to record such assignment with the respective issuing insurance company.
3. The Corporation and the Owner reaffirm and readopt the remaining provisions of the Agreement.
IN WITNESS WHEREOF, the parties hereto have signed this amendment on April 2, 1998.
/s/ Wendy J. Gordon not individually, but as trustee |
TOOTSIE ROLL INDUSTRIES, INC.
AMENDED SCHEDULE A (SPECIAL TRUST)
Name Policy No.
---- ----------
Policies on the Joint Lives of Melvin and Ellen Gordon
------------------------------------------------------
Guardian 3733408
John Hancock 80042963
Mass Mutual 8858899
New York Life 44956816
Principal Mutual 6450780
Policies on the Sole Life of Ellen Gordon
-----------------------------------------
Security Life 1526881
Sun Life 9293268Z
Mass Mutual 0027876
New York Life 63542913
Pacific Life VP60429270
Additional Policies on the Sole Life of Ellen Gordon
----------------------------------------------------
Hartford VL9217582
John Hancock 50467001
Mass Mutual 0030191
Pacific Life VP60625910
|
COLLATERAL ASSIGNMENT (SPLIT DOLLAR)
1. Wendy J. Gordon, not individually but as trustee of the Gordon Family 1993 Special Trust (the "Assignor"), hereby assigns, transfers and sets over to Tootsie Roll Industries, Inc., a Virginia corporation (the "Assignee"), to the extent of the amounts defined in and owing from time to time from Assignor to Assignee under that certain Split Dollar Agreement dated July 10, 1993, as restated and amended, between Assignor and Assignee (the "Assignee's Interest"), Policy No. VP60625910 issued by Pacific Life Insurance Company on the life of Ellen R. Gordon, subject to all the terms and conditions of the policy and to all superior liens, if any, which the insurer may have against the policy. The Assignor by this instrument agrees and the Assignee by the acceptance of this assignment agrees to the conditions and provisions herein set forth.
2. It is expressly agreed that only the following specific rights are included in this assignment and may be exercised solely by the Assignee:
(a) The right to obtain, upon surrender of the policy by the Assignor, an amount of the cash surrender proceeds up to the amount of the Assignee's Interest in the policy.
(b) The right to collect, upon the death of the insured, the net proceeds of the policy up to the amount of the Assignee's Interest in the policy.
3. The insurer hereby is authorized to recognize the Assignee's claim to rights hereunder without investigating the reason for any action taken by the Assignee, or the giving of any notice, or the application to be made by the Assignee of any amounts to be paid to the Assignee. The sole signature of the Assignee shall be sufficient for the exercise of its rights under the policy and the sole receipt of the Assignee for the amount of any sums received shall be a full discharge and release therefor to the insurer.
Dated: April 2, 1998.
/s/ Wendy J. Gordon, not individually,
but as trustee Assignor
TOOTSIE ROLL INDUSTRIES, INC.
Assignee
|
Accepted an executed counterpart of this Collateral Assignment as of the date last above written.
PACIFIC LIFE INSURANCE COMPANY
By
Its
COLLATERAL ASSIGNMENT (SPLIT DOLLAR)
1. Wendy J. Gordon, not individually but as trustee of the Gordon Family 1993 Special Trust (the "Assignor"), hereby assigns, transfers and sets over to Tootsie Roll Industries, Inc., a Virginia corporation (the "Assignee"), to the extent of the amounts defined in and owing from time to time from Assignor to Assignee under that certain Split Dollar Agreement dated July 10, 1993, as restated and amended, between Assignor and Assignee (the "Assignee's Interest"), Policy No. VL9217582 issued by Hartford Life and Annuity Insurance Company on the life of Ellen R. Gordon, subject to all the terms and con ditions of the policy and to all superior liens, if any, which the insurer may have against the policy. The Assignor by this instrument agrees and the Assignee by the acceptance of this assignment agrees to the conditions and provisions herein set forth.
2. It is expressly agreed that only the following specific rights are included in this assignment and may be exercised solely by the Assignee:
(a) The right to obtain, upon surrender of the policy by the Assignor, an amount of the cash surrender proceeds up to the amount of the Assignee's Interest in the policy.
(b) The right to collect, upon the death of the insured, the net proceeds of the policy up to the amount of the Assignee's Interest in the policy.
3. The insurer hereby is authorized to recognize the Assignee's claim to rights hereunder without investigating the reason for any action taken by the Assignee, or the giving of any notice, or the application to be made by the Assignee of any amounts to be paid to the Assignee. The sole signature of the Assignee shall be sufficient for the exercise of its rights under the policy and the sole receipt of the Assignee for the amount of any sums received shall be a full discharge and release therefor to the insurer.
Dated: April 14, 1998.
/s/ Wendy J. Gordon, not individually,
but as trustee Assignor
TOOTSIE ROLL INDUSTRIES, INC.
Assignee
|
Accepted an executed counterpart of this Collateral Assignment as of the date last above written.
HARTFORD LIFE AND ANNUITY
INSURANCE COMPANY
By
Its
COLLATERAL ASSIGNMENT (SPLIT DOLLAR)
1. Wendy J. Gordon, not individually but as trustee of the Gordon Family 1993 Special Trust (the "Assignor"), hereby assigns, transfers and sets over to Tootsie Roll Industries, Inc., a Virginia corporation (the "Assignee"), to the extent of the amounts defined in and owing from time to time from Assignor to Assignee under that certain Split Dollar Agreement dated July 10, 1993, as restated and amended, between Assignor and Assignee (the "Assignee's Interest"), Policy No. 0030191 issued by Massachusetts Mutual Life Insurance Company on the life of Ellen R. Gordon, subject to all the terms and con ditions of the policy and to all superior liens, if any, which the insurer may have against the policy. The Assignor by this instrument agrees and the Assignee by the acceptance of this assignment agrees to the conditions and provisions herein set forth.
2. It is expressly agreed that only the following specific rights are included in this assignment and may be exercised solely by the Assignee:
(a) The right to obtain, upon surrender of the policy by the Assignor, an amount of the cash surrender proceeds up to the amount of the Assignee's Interest in the policy.
(b) The right to collect, upon the death of the insured, the net proceeds of the policy up to the amount of the Assignee's Interest in the policy.
3. The insurer hereby is authorized to recognize the Assignee's claim to rights hereunder without investigating the reason for any action taken by the Assignee, or the giving of any notice, or the application to be made by the Assignee of any amounts to be paid to the Assignee. The sole signature of the Assignee shall be sufficient for the exercise of its rights under the policy and the sole receipt of the Assignee for the amount of any sums received shall be a full discharge and release therefor to the insurer.
Dated: April 2, 1998.
/s/ Wendy J. Gordon, not individually,
but as trustee Assignor
TOOTSIE ROLL INDUSTRIES, INC.
Assignee
|
Accepted an executed counterpart of this Collateral Assignment as of the date last above written.
MASSACHUSETTS MUTUAL LIFE INSURANCE
COMPANY
By
Its
COLLATERAL ASSIGNMENT (SPLIT DOLLAR)
1. Wendy J. Gordon, not individually but as trustee of the Gordon Family 1993 Special Trust (the "Assignor"), hereby assigns, transfers and sets over to Tootsie Roll Industries, Inc., a Virginia corporation (the "Assignee"), to the extent of the amounts defined in and owing from time to time from Assignor to Assignee under that certain Split Dollar Agreement dated July 10, 1993, as restated and amended, between Assignor and Assignee (the "Assignee's Interest"), Policy No. 50467001 issued by John Hancock Variable Life Insurance Company on the life of Ellen R. Gordon, subject to all the terms and con ditions of the policy and to all superior liens, if any, which the insurer may have against the policy. The Assignor by this instrument agrees and the Assignee by the acceptance of this assignment agrees to the conditions and provisions herein set forth.
2. It is expressly agreed that only the following specific rights are included in this assignment and may be exercised solely by the Assignee:
(a) The right to obtain, upon surrender of the policy by the Assignor, an amount of the cash surrender proceeds up to the amount of the Assignee's Interest in the policy.
(b) The right to collect, upon the death of the insured, the net proceeds of the policy up to the amount of the Assignee's Interest in the policy.
3. The insurer hereby is authorized to recognize the Assignee's claim to rights hereunder without investigating the reason for any action taken by the Assignee, or the giving of any notice, or the application to be made by the Assignee of any amounts to be paid to the Assignee. The sole signature of the Assignee shall be sufficient for the exercise of its rights under the policy and the sole receipt of the Assignee for the amount of any sums received shall be a full discharge and release therefor to the insurer.
Dated: April 7, 1998.
/s/ Wendy J. Gordon, not individually,
but as trustee Assignor
TOOTSIE ROLL INDUSTRIES, INC.
Assignee
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Accepted an executed counterpart of this Collateral Assignment as of the date last above written.
JOHN HANCOCK VARIABLE LIFE
INSURANCE COMPANY
By
Its
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"TOOTSIE CARAMEL APPLE POPS -- SO GOOD, ONLY THE STICK WILL REMAIN."
Marketing and Sales
Sales reached a new record high in 1998, driven by continued growth in our core brands. These increases resulted from successfully targeted promotions such as shipper displays, combo packs and bonus bags.
Sales growth was also realized from a shift to larger sized bags which reflect a continuing trend in the trade toward a higher "ring" or selling price per item. This trend meshes well with our products which continue to offer quality, branded confections that are attractive values.
Another trend that emerged recently is the popularity of multi-packs which feature popular bars or boxed goods in 5 and 10 count lay-down packs. Incremental sales were realized by launching snack-size Tootsie Roll and Charleston Chew bars and mini-boxes of Junior Mints and Dots in this new format. We also extended our popular Caramel Apple Pop to several new pack configurations, including a unique bulk display that incorporates a real wooden apple basket!
As is customary for our company, the third quarter was again our highest selling period due to Halloween and back-to-school programs. Halloween was led by continuing strength in our bagged goods, particularly in the larger sized assortments that have become well established consumer favorites during the past several years. We also experienced Halloween growth from the introduction of several new and larger pack sizes for existing items that we felt could become even more popular among trick-or-treaters.
New product growth included Wicked Red-berry Blow Pop, a mouth-watering strawberry-kiwi flavored Blow Pop in a bold, eye catching wrapper and Caramel-A- Lot, a blend of luscious caramel and chewy nougat wrapped in chocolaty goodness. In addition, several promising new items were developed for introduction in early 1999.
Advertising and Public Relations
Television was again the chief medium used to advertise our products to broad audiences of children and adults in 1998. Numerous placements in selected spot and cable markets featured our classic "How Many Licks?" theme, as well as two new commercials that were developed and introduced during the year.
The first of these new commercials, "Caramel Apple Pops," tempts consumers with the message that this remarkable pop is "so good only the stick will remain," while "Chocolate Attack" encourages mothers to quell their youngsters' chocolate cravings with delicious, low-fat Tootsie Rolls and Tootsie Pops. Both of these messages were economically delivered in ten and fifteen second formats on popular talk, game and adventure shows to maximize their reach.
Also in 1998 we launched the company's first web site on the internet. Both children and adults can now enhance their cyber travels by visiting "tootsie.com" to learn interesting facts about Tootsie Roll Industries, its history and its products in an enjoyable, user friendly environment. Whether curious about Clara Hirshfield (the original "Tootsie"), looking for our latest financial release or seeking an answer to the famous question "How many licks does it take to get to the Tootsie Roll center of a Tootsie Pop?," "tootsie.com" has something of interest for every Tootsie Roll fan.
The introduction of our web site was but one of the many positive mentions we received in the press and on television news programs last year. The company was also favorably reviewed in Forbes' Annual Report on American Industry.
We again received thousands of positive letters from our loyal consumers during the year. These serve as a constant reminder that each of the millions of Tootsie Rolls, Tootsie Pops and other popular confections we produce each day can make a life-long impression.
Continuing capital investments and operating improvements were made throughout the company in 1998 to support growth, increase efficiency or improve quality.
We added production capacity to meet growing demand for the products we make in Chicago, Illinois and Covington, Tennessee. We also reengineered several key processes at these plants to increase efficiency and reduce cost, and began the first of several infrastructure enhancements that are needed to support expanding production.
Also in support of our continued growth, we acquired land adjacent to our Covington, Tennessee plant and have commenced construction of a new regional distribution center there. This center will incorporate the automated inventory tracking systems that we have successfully implemented in Chicago, utilizing advanced technology to maximize control and minimize out of stock situations.
PURCHASING
Markets for the key commodities and ingredients we use remained stable or declined slightly in 1998 as adverse economic conditions in many markets continued to dampen world-wide demand. Further, our ongoing hedging program and fixed price contracts helped to insulate us from those price fluctuations that did occur in spot markets.
The cost of the various packaging materials we use remained stable during the year. Also, leveraging the high volume of annual purchases we make of these items, competitive bidding was again successfully utilized to further control cost.
INFORMATION TECHNOLOGY
During 1998 we completed an extensive review of the information systems we utilize throughout the company and determined that the vast majority of these systems--indeed those most critical to our operations--are "Y2K" compliant by design. Our initial testing has confirmed this, and final testing is scheduled for completion by the middle of 1999.
Y2K issues were identified in our systems in Mexico and the necessary corrective programming changes have been written and implemented. Final testing of these changes is scheduled to be completed by mid year, as are the other minor program corrections that were identified in several secondary domestic systems.
We view information technology as an indispensable tool with which we can streamline an ever-expanding variety of functions and tasks. In this regard, during 1998 we completed the initial phases of automating a number of operations that had previously been handled manually. Completion of the final phases of these projects is scheduled for 1999, and we expect that these and other information technology applications will yield ongoing efficiencies.
INTERNATIONAL
Our Canadian subsidiary reported increased sales and profits in 1998, both due to growth in seasonal sales at Halloween and to distribution gains throughout the year. Also, the Super Blow Pop was introduced in that market during the year with promising results.
Our Mexican operations had a difficult year due to currency devaluations and increased competitive pressures on top of generally soft local market conditions for confectionery. On the positive side, the latest phase of our plant modernization program was completed there, which will increase productivity and enhance our competitive position in Mexico. These improvements will enable us to respond more quickly to local competition with efficiently produced, high quality products. Our Tutsi Pop still remains the local favorite.
Sales trends in other international markets were positive as we continue to export our well known items to many markets throughout the world.
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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
The sound financial condition in which we entered 1998 was further strengthened by our record operating results for the year. Net earnings for the year increased by 11.3% to a record $67,526. Shareholders' equity increased by 12.9% to $396,457 and cash and investments increased by $41,154 to $223,172, the result of continued strong cash flow from operating activities.
Cash flow from operating activities was also used to fund capital expenditures of $14,878, share repurchases of $13,445 and cash dividends of $9,150. The cash dividend rate was increased by 31% during 1998, the fifty-sixth 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-fourth consecutive year that a stock dividend has been distributed.
As a consequence of the successful operations of this past year, our financial position remains such that we can respond to future growth opportunities that may arise with internally generated funds. In this regard, we continue to reinvest in our own operations as well as to pursue acquisitions that would complement those operations.
Our financial position in 1998, versus 1997, measured by commonly used financial ratios, is as follows: the current ratio rose from 3.9:1 to 4.3:1 due to increased cash and equivalents at the end of 1998. Current liabilities to net worth declined from 15.3% to 13.5% and debt to equity fell from 2.1% to 1.9%, both due to the increase in the company's net worth during the year.
These statistics reflect both the company's history of successful operations and its conservative financial posture.
RESULTS OF OPERATIONS
1998 vs. 1997
1998 represented the company's 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 that have been introduced in recent years 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 the effects of adverse currency translation.
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Cost of goods sold, as a percentage of sales, decreased from 50.1% to 48.3%. This reflected favorable ingredient 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 margin as a percent of sales has 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.
Selling, marketing and administrative expenses, as a percent of sales were 25.0% 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. Inasmuch as most of this investment income is not subject to federal income taxes, the effective tax rate declined from 36.4% in 1997 to 36.3% in 1998.
Consolidated net earnings rose 11.9% to a new company record of $1.41 per share, or $67,526, from the previous record of $1.26, 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" is a newly required disclosure whereby traditionally reported net earnings must be adjusted by items that are normally recorded directly to the equity accounts. By this measure, our 1998 earnings were $68,472 or 13.7% higher than in 1997.
1997 vs. 1996
1997 was our twenty-first consecutive year of record sales achievement. Sales of $375,594 were up 10.2% over 1996 sales of $340,909 and increases were seen in each quarter. The third quarter, driven by Halloween sales, continued to be our largest selling period. Halloween sales also carried over and drove a double digit sales increase in the fourth quarter.
Throughout the year, sales were favorably impacted by successful promotional programs as we continued to broaden distribution in mass merchandisers and other select trade classes with our core product offerings. Line extensions, new products and seasonal packs all contributed to added sales.
Sales growth occurred in our two most significant foreign operations as well. In Mexico, the introduction of a new assortment complemented the already strong business we have developed for the Christmas holiday season in that market.
Sales growth in our Canadian operation was attributable to further distribution gains in the mass merchandiser and grocery trade classes and to a successful new product introduction.
Cost of goods sold, as a percentage of sales, decreased from 52.4% to 50.1%. This improvement reflected lower costs for certain packaging and ingredients as well as higher production efficiencies associated with increased volumes in relation to fixed costs.
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Gross margin dollars grew by 15.3% to $187,281, and increased as a percent of sales from 47.6% to 49.9%, due to the factors cited above. Gross margins in the third and fourth quarters continued to be somewhat lower due to the seasonal nature of our business and to the product mix sold in those quarters.
Selling, marketing and administrative expenses, as a percent of sales, declined from 25.9% to 25.2%. This improvement was due to distribution and warehousing efficiencies and to effective expense control programs aimed at holding down costs. Earnings from operations increased by 25.9% to $90,087, or 24.0% of sales, as a result of favorable gross margins and operating expenses.
Other income increased by $1,708 to $5,274, primarily reflecting lower interest expense and higher interest income due to lower average borrowings and increased investments in marketable securities, respectively. As a majority of our interest income is not subject to federal income tax, the effective tax rate declined from 37.1% to 36.4%.
Consolidated net earnings rose to a new company record of $60,682. Earnings per share increased 30% to $1.26 from the previous record of $.97 reached in 1996. Our net earnings as a percent of sales increased to 16.2% from 13.8%. 1997 was the sixteenth consecutive year of record earnings achievement for the company.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows from operating activities increased to $77,735 in 1998 from $68,176 in 1997 and $76,710 in 1996. The increase in 1998 is attributable to higher net earnings augmented by other receivables, inventory, deferred compensation and other liabilities and income taxes payable and deferred, partially offset by accounts receivable and accounts payable and accrued liabilities.
Cash flows from investing activities reflect net increases in marketable securities of $19,951, $23,087 and $42,573, as well as capital expenditures of $14,878, $8,611 and $9,791 in 1998, 1997 and 1996, respectively.
Cash flows from financing activities in 1998 reflect a short-term borrowing and the subsequent repayment thereof during the year as well as share repurchases of $13,445 and $14,401 in 1998 and 1997, respectively. Cash dividends of $9,150 were paid in 1998, the fifty-sixth in which we have paid cash dividends.
YEAR 2000 CONVERSION
The company recognizes the need to ensure that its operations will not be adversely impacted by software failures arising from calculations using the year 2000 date. Accordingly, we have established a process for evaluating and managing the risks and costs associated with this problem.
We have completed an internal review of our financial and operational systems and have begun final testing of these systems to ensure that they are Year 2000 compliant. Likewise, we have surveyed significant vendors and customers to determine the status of their systems with respect to this issue. We believe that the risks and costs of year 2000 compliance will be minimal for the systems we use, and do not expect this issue to have a material impact on the company or its operations.
The results of these operations and our financial condition are expressed in the following financial statements.
For the year ended December 31,
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1998 1997 1996
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Net sales............................................... $388,659 $375,594 $340,909
Cost of goods sold...................................... 187,617 188,313 178,489
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Gross margin............................................ 201,042 187,281 162,420
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Selling, marketing and administrative expenses.......... 97,071 94,488 88,182
Amortization of intangible assets....................... 2,706 2,706 2,706
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Earnings from operations................................ 101,265 90,087 71,532
Other income, net....................................... 4,798 5,274 3,566
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Earnings before income taxes............................ 106,063 95,361 75,098
Provision for income taxes.............................. 38,537 34,679 27,891
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Net earnings............................................ $ 67,526 $ 60,682 $ 47,207
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Net earnings............................................ $ 67,526 $ 60,682 $ 47,207
Other comprehensive earnings, net of tax
Unrealized gains (losses) on securities............. 976 (417) --
Foreign currency translation adjustments............ (30) (17) (57)
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Other comprehensive earnings........................ 946 (434) (57)
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Comprehensive earnings.................................. $ 68,472 $ 60,248 $ 47,150
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Retained earnings at beginning of year.................. $159,124 $136,352 $121,477
Net earnings........................................ 67,526 60,682 47,207
Cash dividends ($.20, $.16 and $.13 per share)...... (9,484) (7,472) (6,372)
Stock dividends..................................... (52,514) (30,438) (25,960)
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Retained earnings at end of year........................ $164,652 $159,124 $136,352
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Earnings per share...................................... $ 1.41 $ 1.26 $ .97
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Average common and class B common shares outstanding.... 48,051 48,294 48,442
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ASSETS December 31,
1998 1997
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CURRENT ASSETS:
Cash and cash equivalents.................................................. $ 80,744 $ 60,433
Investments................................................................ 83,176 81,847
Accounts receivable trade, less allowances of $2,184 and $2,085............ 19,110 18,636
Other receivables.......................................................... 3,324 4,683
Inventories:
Finished goods and work-in-process..................................... 21,395 22,938
Raw materials and supplies............................................. 15,125 13,721
Prepaid expenses........................................................... 3,081 2,910
Deferred income taxes...................................................... 2,584 1,793
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Total current assets............................................... 228,539 206,961
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PROPERTY, PLANT AND EQUIPMENT, at cost:
Land....................................................................... 7,774 6,895
Buildings.................................................................. 22,226 22,100
Machinery and equipment.................................................... 133,601 122,430
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163,601 151,425
Less--Accumulated depreciation............................................. 80,577 73,061
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83,024 78,364
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OTHER ASSETS:
Intangible assets, net of accumulated amortization of $20,791 and $18,085.. 87,843 90,549
Investments................................................................ 59,252 39,738
Cash surrender value of life insurance and other assets.................... 28,765 21,130
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175,860 151,417
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$487,423 $436,742
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LIABILITIES AND SHAREHOLDERS' EQUITY December 31,
1998 1997
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CURRENT LIABILITIES:
Accounts payable......................................... $ 12,450 $ 11,624
Dividends payable........................................ 2,514 1,930
Accrued liabilities...................................... 31,297 32,793
Income taxes payable..................................... 7,123 7,259
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Total current liabilities........................ 53,384 53,606
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NONCURRENT LIABILITIES:
Deferred income taxes.................................... 9,014 8,650
Postretirement health care and life insurance benefits... 6,145 5,904
Industrial development bonds............................. 7,500 7,500
Deferred compensation and other liabilities.............. 14,923 9,919
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Total noncurrent liabilities..................... 37,582 31,973
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SHAREHOLDERS' EQUITY:
Common stock, $.69-4/9 par value--
50,000 shares authorized--
32,439 and 15,851, respectively, issued................ 22,527 11,008
Class B common stock, $.69-4/9 par value--
20,000 shares authorized--
15,422 and 7,547, respectively, issued................. 10,710 5,241
Capital in excess of par value........................... 210,064 187,259
Retained earnings, per accompanying statement............ 164,652 159,124
Accumulated other comprehensive earnings................. (10,523) (11,469)
Treasury stock (at cost)--
25 shares and 0 shares, respectively................... (973) --
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396,457 351,163
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$487,423 $436,742
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For the year ended December 31,
1998 1997 1996
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings.......................................................... $67,526 $60,682 $47,207
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation and amortization..................................... 12,807 12,819 12,068
Loss on retirement of fixed assets................................ 118 26 714
Changes in operating assets and liabilities:
Accounts receivable........................................... (915) 199 2,355
Other receivables............................................. 1,358 (2,526) (41)
Inventories................................................... (106) (6,463) 1,879
Prepaid expenses and other assets............................. (7,723) (6,622) (4,253)
Accounts payable and accrued liabilities...................... (596) 9,624 9,362
Income taxes payable and deferred............................. (625) (2,049) 3,718
Postretirement health care and life insurance benefits........ 241 269 250
Deferred compensation and other liabilities................... 5,004 1,932 3,460
Other......................................................... 646 285 (9)
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Net cash provided by operating activities............................. 77,735 68,176 76,710
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.................................................. (14,878) (8,611) (9,791)
Purchase of held to maturity securities............................... (259,112) (68,982) (47,221)
Maturity of held to maturity securities............................... 240,195 27,473 16,523
Purchase of available for sale and trading securities................. (217,799) (304,910) (35,883)
Sale and maturity of available for sale and trading securities........ 216,765 323,332 24,008
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Net cash used in investing activities................................. (34,829) (31,698) (52,364)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of notes payable............................................. 7,000 -- --
Repayments of notes payable........................................... (7,000) -- (20,000)
Treasury stock purchases.............................................. (973) -- --
Shares repurchased and retired........................................ (12,472) (14,401) --
Dividends paid in cash................................................ (9,150) (7,303) (6,211)
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Net cash used in financing activities................................. (22,595) (21,704) (26,211)
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Increase (decrease) in cash and cash equivalents.......................... 20,311 14,774 (1,865)
Cash and cash equivalents at beginning of year............................ 60,433 45,659 47,524
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Cash and cash equivalents at end of year.................................. $80,744 $60,433 $45,659
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Supplemental cash flow information:
Income taxes paid..................................................... $40,000 $36,716 $23,969
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Interest paid......................................................... $ 803 $ 389 $ 1,015
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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, where material, 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 ($31,307 and $30,530 at December 31, 1998 and 1997, respectively) has been determined by the last-in, first-out (LIFO) method. The excess of current cost over LIFO cost of inventories approximates $5,016 and $4,918 at December 31, 1998 and 1997, respectively. The cost of foreign inventories ($5,213 and $6,129 at December 31, 1998 and 1997, 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, 1998 the company had open contracts to purchase approximately eighteen months of its expected 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 $10,101, $9,947 and $9,839 in 1998, 1997 and 1996, 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:
Prior to January 1, 1997, management designated the local currency as the functional currency for the company's Mexican operations. Accordingly, the net effect of translating the Mexican operations' financial statements was reported in a separate component of shareholders' equity. During 1997, management determined that the Mexican economy was hyper-inflationary. Accordingly, the US dollar is now used as the functional currency, and translation gains and losses are included in the determination of 1997 and 1998 earnings.
COMPREHENSIVE EARNINGS
Effective January 1, 1998, the company adopted SFAS No. 130, "Reporting Comprehensive Income." Accordingly, net income, foreign currency translation adjustments and unrealized gains/ losses on marketable securities are presented in the accompanying Statement of Earnings, Comprehensive Earnings and Retained Earnings. The adoption of SFAS No. 130 had no impact on shareholders' equity and prior year financial statements have been reclassified to conform to its requirements.
EARNINGS PER SHARE:
On December 31, 1997, the company adopted SFAS No. 128, "Earnings per Share." A dual presentation of basic and diluted earnings per share is not required due to the lack of potentially dilutive securities under the company's simple capital structure. Therefore, all earnings per share amounts represent basic earnings per share.
NOTE 2--ACCRUED LIABILITIES:
Accrued liabilities are comprised of the following:
December 31,
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1998 1997
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Compensation.......................................... $ 8,433 $ 6,114
Other employee benefits............................... 4,143 5,490
Taxes, other than income.............................. 2,460 2,494
Advertising and promotions............................ 8,451 6,939
Other................................................. 7,810 11,756
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$ 31,297 $ 32,793
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NOTE 3--INCOME TAXES:
The domestic and foreign components of pretax income are as follows:
1998 1997 1996
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Domestic................................. $ 106,667 $ 93,318 $ 71,660
Foreign.................................. (604) 2,043 3,438
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$ 106,063 $ 95,361 $ 75,098
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The provision for income taxes is comprised of the following:
1998 1997 1996
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Current:
Federal.................................. $ 34,373 $ 29,764 $ 23,907
Foreign.................................. 618 626 375
State.................................... 4,286 3,836 3,167
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39,277 34,226 27,449
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Deferred:
Federal.................................. (250) 738 (322)
Foreign.................................. (479) (368) 802
State.................................... (11) 83 (38)
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(740) 453 442
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$ 38,537 $ 34,679 $ 27,891
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Deferred income taxes are comprised of the following:
December 31,
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1998 1997
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Workers' compensation................................... $ 413 $ 428
Reserve for uncollectible accounts...................... 547 537
Other accrued expenses.................................. 1,137 1,107
VEBA funding............................................ (478) (387)
Other, net.............................................. 965 108
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Net current deferred income tax asset................... $ 2,584 $ 1,793
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December 31,
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1998 1997
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Depreciation............................................ $ 9,371 $ 8,930
Post retirement benefits................................ (2,132) (2,045)
Deductible goodwill..................................... 5,176 4,390
Deferred compensation................................... (4,244) (3,441)
DISC commissions........................................ 1,729 1,553
Foreign subsidiary tax loss carryforward................ (1,428) (1,470)
Other, net.............................................. 542 733
--------- ---------
Net long-term deferred income tax liability............. $ 9,014 $ 8,650
--------- ---------
--------- ---------
|
At December 31, 1998, gross deferred tax assets and gross deferred tax liabilities are $13,465 and $19,895, respectively.
The effective income tax rate differs from the statutory rate as follows:
1998 1997 1996
---------- ---------- ----------
U.S. statutory rate............................ 35.0% 35.0% 35.0%
State income taxes, net........................ 2.6 2.7 2.8
Amortization of intangible assets.............. 0.4 0.5 0.6
Other, net..................................... (1.7) (1.8) (1.3)
---- ---- ----
Effective income tax rate...................... 36.3% 36.4% 37.1%
---- ---- ----
---- ---- ----
|
The company has not provided for U.S. federal or foreign withholding taxes on $3,034 of foreign subsidiaries' undistributed earnings as of December 31, 1998 because such earnings are considered to be permanently reinvested. When excess cash has accumulated in the company's foreign subsidiaries and it is advantageous for tax or foreign exchange reasons, subsidiary earnings may be remitted, and income taxes will be provided on such amounts. It is not practicable to determine the amount of income taxes that would be payable upon remittance of the undistributed earnings.
NOTE 4--SHARE CAPITAL AND CAPITAL IN EXCESS OF PAR VALUE:
Class B
Common Stock Common Stock Treasury Stock Capital in
----------------- ----------------- ---------------------- excess of
Shares Amount Shares Amount Shares Amount par value
------- -------- ------- ------- ------- -------- ----------
(000's) (000's) (000's)
Balance at
January 1, 1996.............. 15,109 $ 10,492 7,234 $ 5,024 -- $ -- $ 146,171
Issuance of 3% stock
dividend..................... 449 312 212 147 -- -- 25,418
Conversion of Class B common
shares to common shares...... 59 41 (59) (41) -- -- --
--
------ -------- ------ ------- -------- ---------
Balance at
December 31, 1996............ 15,617 10,845 7,387 5,130 -- -- 171,589
Issuance of 3% stock
dividend..................... 465 323 221 153 -- -- 29,868
Conversion of Class B common
shares to common shares...... 61 42 (61) (42) -- -- --
Purchase and retirement of
common shares................ (292) (202) -- -- -- -- (14,198)
--
------ -------- ------ ------ -------- ---------
Balance at
December 31, 1997............ 15,851 11,008 7,547 5,241 -- -- 187,259
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
------ -------- ------ -------- --- --------- ---------
------ -------- ------ -------- --- --------- ---------
|
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:
In 1993, the company entered into two 3-year term notes aggregating $20,000 the proceeds of which were used to purchase the company's Chicago manufacturing facility and headquarters. These term notes bore interest payable monthly at 3.55% and matured in September, 1996.
During 1992, the company entered into an industrial development bond agreement with the City of Covington, Tennessee. The bond proceeds of $7.5 million were used to finance the expansion of the company's existing facilities. Interest is payable at various times during the year based upon the interest calculation option (fixed, variable or floating) selected by the company. As of December 31, 1998 and 1997, interest was calculated under the floating option (3.7% and 3.8%, 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 2000, carries an annual fee of 32 1/2 basis points on the outstanding principal amount of the bonds.
NOTE 6--EMPLOYEE BENEFIT PLANS:
PENSION PLANS:
The company sponsors defined contribution pension plans covering certain
nonunion employees with over one year of credited service. The company's policy
is to fund pension costs accrued based on compensation levels. Total pension
expense for 1998, 1997 and 1996 approximated $1,951, $2,153 and $1,814,
respectively. The company also maintains certain profit sharing and
savings-investment plans. Company contributions in 1998, 1997 and 1996 to these
plans were $582, $540 and $485, respectively.
The company also contributes to multi-employer defined benefit pension plans for its union employees. Such contributions aggregated $680, $609 and $436 in 1998, 1997 and 1996, 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, 1998 and 1997 consist of the following:
December 31,
--------------------
1998 1997
--------- ---------
Benefit obligation, beginning of year............... $ 5,904 $ 5,636
Net periodic postretirement benefit cost............ 438 435
Benefits paid....................................... (197) (167)
--------- ---------
Benefit obligation, end of year..................... $ 6,145 $ 5,904
--------- ---------
--------- ---------
|
Net periodic postretirement benefit cost included the following components:
1998 1997 1996
--------- --------- ---------
Service cost--benefits attributed to
service during the period............................. $ 258 $ 251 $ 263
Interest cost on the accumulated postretirement
benefit obligation.................................... 279 285 277
Amortization of unrecognized net gain................... (99) (101) (87)
--------- --------- ---------
Net periodic postretirement benefit cost................ $ 438 $ 435 $ 453
--------- --------- ---------
--------- --------- ---------
|
For measurement purposes, an 8.5% annual rate of increase in the per capita cost of covered health care benefits was assumed for 1998; 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 6.25% and 6.75% at December 31, 1998 and 1997, respectively.
Increasing or decreasing the health care trend rates by one percentage point in each year would have the following effect:
1% Increase 1% Decrease
--------------- ---------------
Effect on postretirement benefit obligation....... $ 716 $ (580)
Effect on total of service and interest cost
components...................................... $ 98 $ (77)
|
NOTE 7--OTHER INCOME, NET:
Other income (expense) is comprised of the following:
1998 1997 1996
--------- --------- ---------
Interest income................................ $ 6,934 $ 5,764 $ 3,887
Interest expense............................... (756) (483) (1,498)
Dividend income................................ 822 999 1,386
Foreign exchange losses........................ (2,140) (447) (50)
Royalty income................................. 155 312 92
Miscellaneous, net............................. (217) (871) (251)
--------- --------- ---------
$ 4,798 $ 5,274 $ 3,566
--------- --------- ---------
--------- --------- ---------
|
NOTE 8--COMMITMENTS:
During 1993 and 1994, the company entered into operating leases for certain
manufacturing equipment which provided the company with the option to terminate
the lease in 1996 and to purchase the equipment at its fair market value. The
company exercised this option and purchased the equipment for $5,401 on January
2, 1996.
Rental expense aggregated $432, $477 and $439 in 1998, 1997 and 1996,
respectively.
Future operating lease commitments are not significant.
NOTE 9--COMPREHENSIVE INCOME:
Components of accumulated other comprehensive earnings are shown as follows:
Accumulated
Foreign Unrealized Other
Currency Gains (Losses) Comprehensive
Items on Securities Earnings
----------- ----------------- --------------
Balance at December 31, 1995.......... $ (10,978) $ -- $ (10,978)
Change during period.................. (57) -- (57)
----------- ------ --------------
Balance at December 31, 1996.......... (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)
----------- ------ --------------
----------- ------ --------------
|
The individual tax effects of each component of other comprehensive earnings for the year ended December 31, 1998 are shown as follows:
Before Tax
Tax (Expense) Net-of-Tax
Amount Benefit Tax Amount
----------- ----------- -------------
Foreign currency translation adjustment........ $ (30) $ -- $ (30)
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising
during 1998................................. 1,123 (262) 861
Less: reclassification adjustment for gains
(losses) realized in earnings............... 182 (67) 115
----------- ----- -----
Net unrealized gains....................... 1,305 (329) 976
----------- ----- -----
Other comprehensive earnings................... $ 1,275 $ (329) $ 946
----------- ----- -----
----------- ----- -----
|
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:
1998 1997
-------------------- ------------------------
CARRYING FAIR Carrying
AMOUNT VALUE Amount Fair Value
--------- --------- ----------- -----------
Cash and cash equivalents............ $ 80,744 $ 80,744 $ 60,433 $ 60,433
Investments held to maturity......... 106,415 109,182 95,086 97,000
Investments available for sale....... 28,214 28,214 22,010 22,010
Investments in trading securities.... 7,799 7,799 4,489 4,489
Industrial development bonds......... 7,500 7,500 7,500 7,500
|
A summary of the aggregate fair value, gross unrealized gains, gross unrealized losses and amortized cost basis of the company's investment portfolio by major security type is as follows:
DECEMBER 31, 1998
----------------------------------------------
UNREALIZED
AMORTIZED FAIR ----------------------
HELD TO MATURITY: COST VALUE GAINS LOSSES
----------------------------------------- ----------- --------- --------- -----------
UNIT INVESTMENT TRUSTS OF PREFERRED
STOCKS.................................. $ 3,626 $ 5,978 $ 2,352 $ --
TAX-FREE COMMERCIAL PAPER................ 8,250 8,250 -- --
MUNICIPAL BONDS.......................... 96,828 97,266 438 --
UNIT INVESTMENT TRUSTS OF MUNICIPAL
BONDS................................... 979 956 -- (23)
US GOV'T/GOV'T AGENCY OBLIGATIONS........ -- -- -- --
PRIVATE EXPORT FUNDING SECURITIES........ 4,982 4,982 -- --
----------- --------- --------- -----------
$ 114,665 $ 117,432 $ 2,790 $ (23)
----------- --------- --------- -----------
----------- --------- --------- -----------
AVAILABLE FOR SALE:
-----------------------------------------
MUNICIPAL BONDS.......................... $ 39,397 $ 39,264 $ -- $ (133)
MUTUAL FUNDS............................. 3,007 4,028 1,021 --
----------- --------- --------- -----------
$ 42,404 $ 43,292 $ 1,021 $ (133)
----------- --------- --------- -----------
----------- --------- --------- -----------
|
December 31, 1997
----------------------------------------------
Unrealized
Amortized Fair ----------------------
Held to Maturity: Cost Value Gains Losses
------------------------------------------ ----------- --------- --------- -----------
Unit investment trusts of preferred
stocks................................... $ 4,724 $ 6,794 $ 2,070 $ --
Tax-free commercial paper................. 15,300 15,300 -- --
Municipal bonds........................... 87,456 87,218 -- (238)
Unit investment trusts of municipal
bonds.................................... 1,103 1,484 381 --
US gov't/gov't agency obligations......... 1,803 1,803 -- --
----------- --------- --------- -----
$ 110,386 $ 112,599 $ 2,451 $ (238)
----------- --------- --------- -----
----------- --------- --------- -----
Available for Sale:
------------------------------------------
Municipal bonds........................... $ 37,587 $ 37,484 $ -- $ (103)
Mutual funds.............................. 3,307 2,993 -- (314)
----------- --------- --------- -----
$ 40,894 $ 40,477 $ -- $ (417)
----------- --------- --------- -----
----------- --------- --------- -----
|
Held to maturity securities of $8,250 and $15,300 and available for sale securities of $15,078 and $18,467 were included in cash and cash equivalents, and held to maturity securities with maturities greater than one year were $51,453 and $35,249 at December 31, 1998 and 1997, 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 1998 and 1997 were not significant.
NOTE 11--GEOGRAPHIC AREA AND SALES INFORMATION:
SUMMARY OF SALES, NET EARNINGS AND ASSETS BY GEOGRAPHIC AREA
1998 1997 1996
------------------------------ ------------------------------ ------------------------------
MEXICO Mexico Mexico
UNITED AND CONSOLI- United and Consoli- United and Consoli-
STATES CANADA DATED States Canada dated States Canada dated
--------- -------- --------- --------- -------- --------- --------- -------- ---------
Sales to unaffiliated customers... $363,569 $25,090 $388,659 $346,487 $29,107 $375,594 $315,131 $25,778 $340,909
--------- --------- ---------
--------- --------- ---------
Sales between geographic areas.... 2,339 4,374 1,694 3,314 1,888 3,152
--------- -------- --------- -------- --------- --------
$365,908 $29,464 $348,181 $32,421 $317,019 $28,930
--------- -------- --------- -------- --------- --------
--------- -------- --------- -------- --------- --------
Net earnings...................... $ 68,270 $ (744) $ 67,526 $ 58,898 $ 1,784 $ 60,682 $ 44,946 $ 2,261 $ 47,207
Total assets...................... $467,265 $20,158 $487,423 $414,629 $22,113 $436,742 $373,925 $17,531 $391,456
Net assets........................ $379,106 $17,351 $396,457 $332,410 $18,753 $351,163 $298,565 $14,316 $312,881
|
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 17.2%, 15.9% and 16.2% of total net sales during the years ended December 31, 1998, 1997 and 1996, respectively.
REPORT OF INDEPENDENT ACCOUNTANTS [LOGO]
To the Board of Directors and Shareholders of Tootsie Roll Industries, Inc.
In our opinion, the accompanying consolidated statement of financial position and the related consolidated statement of earnings, 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, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above.
[SIGNATURE]
Chicago, Illinois
February 9, 1999
QUARTERLY FINANCIAL DATA
TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES
(Thousands of dollars except per share data)
1998 First Second Third Fourth Total
----------------------------------------------------------------------------------------
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............. .23 .29 .57 .32 1.41
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 .26 .51 .29 1.26
1996
----------------------------------------------------------------------------------------
Net sales.......................... $63,265 $72,511 $128,658 $76,475 $340,909
Gross margin....................... 30,687 35,292 60,415 36,026 162,420
Net earnings....................... 8,118 9,327 19,143 10,619 47,207
Net earnings per share............. .17 .19 .39 .22 .97
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.
-----------------------------------------------------------------------------------------------------------------------
|
1998-1997 QUARTERLY SUMMARY OF TOOTSIE ROLL INDUSTRIES, INC. STOCK PRICE AND DIVIDENDS PER SHARE
STOCK PRICES* DIVIDENDS**
1998 1997
------------------------------------------------------
HIGH LOW High Low 1998 1997
------------------------------------------------------ ---------------------------------
1st Qtr... 38-13/32 29-27/32 23-3/8 18-7/8 1st Qtr........ $.0401 $.0344
2nd Qtr... 40-3/4 34-31/32 24-15/16 22-1/4 2nd Qtr........ $.0525 $.0402
3rd Qtr... 47-1/4 33-3/4 25-7/16 22-7/8 3rd Qtr........ $.0525 $.0402
4th Qtr... 42-7/8 34-1/8 32-7/16 25-1/2 4th Qtr........ $.0525 $.0401
*NYSE -- Composite Quotations adjusted for the 2-for-1 NOTE: In addition to the above cash
stock split effective July 13,1998 dividends, a 3% stock dividend was
issued on 4/22/98 and 4/22/97.
Estimated Number of shareholders at 12/31/98 ... 9,500 **Cash dividends are restated to reflect
3% stock dividends and the 2-for-1 stock
split.
|
(See Management's Comments starting on page 5) 1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
Sales and Earnings Data
Net sales........................................ $ 388,659 $ 375,594 $ 340,909 $ 312,660 $ 296,932
Gross margin..................................... 201,042 187,281 162,420 145,922 141,367
Interest expense................................. 756 483 1,498 1,515 1,649
Provision for income taxes....................... 38,537 34,679 27,891 23,670 23,236
Net earnings..................................... 67,526 60,682 47,207 40,368 37,931
% of sales................................... 17.4% 16.2% 13.8% 12.9% 12.8%
% of shareholders' equity.................... 17.0% 17.3% 15.1% 14.8% 15.8%
Per Common Share Data (1)
Net sales........................................ $ 8.09 $ 7.78 $ 7.04 $ 6.45 $ 6.13
Net earnings..................................... 1.41 1.26 .97 .83 .78
Shareholders' equity............................. 8.29 7.29 6.46 5.62 4.96
Cash dividends declared.......................... .20 .16 .13 .11 .09
Stock dividends.................................. 3% 3% 3% 3% 3%
Additional Financial Data
Working capital.................................. $ 175,155 $ 153,355 $ 153,329 $ 109,643 $ 92,626
Current ratio.................................... 4.3 3.9 4.2 3.0 4.5
Net cash provided by operating activities........ 77,735 68,176 76,710 50,851 40,495
Net cash used in (provided by) investing
activities...................................... 34,829 31,698 52,364 14,544 (1,077)
Net cash used in financing activities............ 22,595 21,704 26,211 5,292 27,049
Property, plant & equipment additions............ 14,878 8,611 9,791 4,640 8,179
Net property, plant & equipment.................. 83,024 78,364 81,687 81,999 85,648
Total assets..................................... 487,423 436,742 391,456 353,816 310,083
Long term debt................................... 7,500 7,500 7,500 7,500 27,500
Shareholders' equity............................. 396,457 351,163 312,881 272,186 240,461
Average shares outstanding (1)................... 48,051 48,294 48,442 48,442 48,442
(1) Adjusted for annual 3% stock dividends and the 2-for-1 stock splits
effective July 13, 1998 and July 11, 1995.
|
EXHIBIT 21
LIST OF SUBSIDIARIES OF THE COMPANY
NAME JURISDICTION OF INCORPORATION ---- ----------------------------- Arrendadora Gorvac S.A. de C.V. Mexico 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 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 |
| ARTICLE 5 |
| THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED STATEMENTS OF FINANCIAL POSITION AND CONSOLIDATED STATEMENTS OF EARNINGS, COMPREHENSIVE EARNINGS AND RETAINED EARNINGS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. |
| MULTIPLIER: 1,000 |
| PERIOD TYPE | 12 MOS |
| FISCAL YEAR END | DEC 31 1998 |
| PERIOD START | JAN 01 1998 |
| PERIOD END | DEC 31 1998 |
| CASH | 80,744 |
| SECURITIES | 83,176 |
| RECEIVABLES | 21,294 |
| ALLOWANCES | 2,184 |
| INVENTORY | 36,520 |
| CURRENT ASSETS | 228,539 |
| PP&E | 163,601 |
| DEPRECIATION | 80,577 |
| TOTAL ASSETS | 487,423 |
| CURRENT LIABILITIES | 53,384 |
| BONDS | 7,500 |
| PREFERRED MANDATORY | 0 |
| PREFERRED | 0 |
| COMMON | 33,237 |
| OTHER SE | 363,220 |
| TOTAL LIABILITY AND EQUITY | 487,423 |
| SALES | 388,659 |
| TOTAL REVENUES | 388,659 |
| CGS | 187,617 |
| TOTAL COSTS | 99,777 |
| OTHER EXPENSES | (5,513) |
| LOSS PROVISION | 276 |
| INTEREST EXPENSE | 715 |
| INCOME PRETAX | 106,063 |
| INCOME TAX | 38,537 |
| INCOME CONTINUING | 67,526 |
| DISCONTINUED | 0 |
| EXTRAORDINARY | 0 |
| CHANGES | 0 |
| NET INCOME | 67,526 |
| EPS PRIMARY | 1.41 |
| EPS DILUTED | 1.41 |