-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, MRGY74seSKinC2SnbMFCFOL3mKZYC3GpZu3R32CZ+wh1Uv3AhvvXKGakbcrrzZ9u Dhzte2MDA06OsviaR/TbFA== 0000912057-95-001743.txt : 199507120000912057-95-001743.hdr.sgml : 19950711 ACCESSION NUMBER: 0000912057-95-001743 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19941231 FILED AS OF DATE: 19950327 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: TOOTSIE ROLL INDUSTRIES INC CENTRAL INDEX KEY: 0000098677 STANDARD INDUSTRIAL CLASSIFICATION: SUGAR & CONFECTIONERY PRODUCTS [2060] IRS NUMBER: 221318955 STATE OF INCORPORATION: VA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-01361 FILM NUMBER: 95523610 BUSINESS ADDRESS: STREET 1: 7401 S CICERO AVE CITY: CHICAGO STATE: IL ZIP: 60629 BUSINESS PHONE: 3128383400 FORMER COMPANY: FORMER CONFORMED NAME: SWEETS CO OF AMERICA INC DATE OF NAME CHANGE: 19660921 10-K405 1 10-K - ------------------------------------------------------------------------------- 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, 1994 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 of other jurisdiction (IRS Employer Identification No.) of Incorporation or organization) 7401 South Cicero Avenue, Chicago, Illinois 60629 (Address of principal executive offices) (ZIP Code) Registrant's Telephone Number: (312) 838-3400 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered ------------------------------------------ ----------------------- Common Stock - Par Value $.69-4/9 Per Share New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: Class B Common Stock - Par Value $.69-4/9 Per Share --------------------------------------------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ------- ------- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. X ------- - ------------------------------------------------------------------------------- As of March 10, 1995, 7,313,555 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 $308,000,000. As of March 10, 1995, 3,530,908 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 3,530,908 shares of outstanding Class B Common Stock were converted into Common Stock, the aggregate market value of Common Stock held by non-affiliates on March 10, 1995 (based upon the closing price of the stock on the New York Stock Exchange on such date) would have been approximately $365,000,000. 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, 1994 (the "1994 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, 1995 in connection with the Company's 1995 Annual Meeting of Shareholders (the "1995 Proxy Statement") is incorporated by reference in Part III of this report. Cover Page 2 of 2 pages PART I ITEM 1. BUSINESS. Tootsie Roll Industries, Inc. and its consolidated subsidiaries (the "Company") are engaged in the manufacture and sale of candy. This is the only industry segment in which the Company operates and is its only line of business. A majority of the Company's products are sold under the registered trademarks "Tootsie," "Tootsie Roll," or "Tootsie Pop." The principal product of the Company is the familiar "Tootsie Roll," a chocolate-flavored candy of a chewy consistency, which is sold in several sizes and which is also used as a center for other products in the line including "Tootsie Pops," a spherical fruit or chocolate-flavored shell of hard candy with a center of "Tootsie Roll" candy on a paper safety stick. The Company and its predecessors have manufactured the "Tootsie Roll" product to substantially the same formula and sold it under the same name for almost 100 years. The Company's products also include "Tootsie Roll Flavor Rolls" and "Tootsie Frooties," multiflavored candies of chewy consistency. The Company also manufactures and sells molded candy drop products under the registered trademark "Mason" and "Tootsie," including "Mason Dots," and "Mason Crows." The Company's wholly owned subsidiary, Cella's Confections Inc., produces a chocolate covered cherry under the registered trademark "Cella's." In 1988, the Company acquired the Charms Company. This candy manufacturer produces lollipops, including bubble gum-filled lollipops, and hard candy. The majority of the Company's products are sold under the registered trademarks "Charms," "Blow-Pop," "Blue Razz," and "Zip-A-Dee-Doo-Da-Pops." In 1993, the Company acquired Cambridge Brands, Inc. which was the former Chocolate/Caramel Division of Warner Lambert. Cambridge Brands, Inc. manufactures various confectionery products under the registered trademarks "Junior Mint," "Charleston Chew," "Sugar Babies," and "Sugar Daddy". The Company's products are marketed in a variety of packages designed to be suitable for display and sale in different types of retail outlets and vending machines and fund-raising religious and charitable organizations. 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 religious and 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 on 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 the sixth largest domestic manufacturer. In the markets in which the Company competes, the main forms of competition comprise brand recognition as well as a fair price for our products at various retail price points. Sale of candy products may be influenced to some extent by discussions of and effect on dental health and weight. The Company did not have a material backlog of firm orders at the end of the calendar years 1994 or 1993. All raw materials used by the Company are readily obtainable from a number of suppliers at competitive prices. The average cost of most major raw materials remained relatively stable in the first half of 1994. However, as a result of the capacity of packaging material suppliers coming under pressure during the second half of 1994 due to strong export demand for U.S. materials, prices for paper, board, foil and other materials increased dramatically. The Company was protected to some degree from these increases by having previously negotiated fixed price contracts for many of the materials. It is not possible to project future changes in the price of raw materials. The Company has engaged in hedging transactions in sugar, corn and other commodities 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 provisions 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 1,700 persons. 2 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 in anticipation of Halloween. In anticipation of this high sales period, the Company generally begins its Halloween inventory build up in the second quarter of each year. The Company historically offers extended credit terms for sales made under Halloween sales programs. Each year, after Halloween receivables have been collected, the Company invests funds in various temporary cash investments. Revenues from a major customer of the Company aggregated approximately 16.8%, 13.6% and 12.5% of total net sales during the years ended December 31, 1994, 1993 and 1992, 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, 1994 (the "1994 Report") and on Page 4 of the 1994 Report under the section entitled "International." Note 11 and the aforesaid section are incorporated herein by reference. Portions of the 1994 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 80,600 square feet. The lease is renewable by the Company every five years through June, 2011. The Company also periodically leases additional warehousing space at this second location as needed on a month to month basis. Cella's Confections, Inc., a subsidiary, owns a facility in New York City, containing approximately 43,000 square feet. This facility consists of manufacturing, warehousing and office space on three floors containing approximately 33,200 square feet with a below surface level of approximately 9,800 square feet. Charms Company, a subsidiary, owns a facility in Covington, Tennessee, containing approximately 267,000 square feet of manufacturing, warehousing and office space. Cambridge Brands, Inc., a subsidiary, owns a facility in Cambridge, Massachusetts, containing approximately 145,000 square feet. The facility consists of manufacturing, warehousing and office space on five floors. The Company also owns property and a plant with manufacturing, warehousing and office space in Mexico City, Mexico, consisting of approximately 57,000 square feet plus parking lot and yard area comprising approximately 25,000 square feet. 3 The Company owns the production machinery and equipment located in the plants in Chicago, New York, Covington (Tennessee), Cambridge (Massachusetts) and Mexico City, except for approximately $7 million of equipment in Covington, Tennessee, under an operating lease. 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 1994. 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. 4 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. The Company's Common Shares are traded on the New York Stock Exchange. The Company's Class B Common Shares are subject to restrictions on transfer and no market exists for such shares. The Class B Common Shares are convertible at the option of the holder into Common Shares on a share for share basis. As of March 10, 1995, there were approximately 9,500 holders of record of Common and Class B Common Shares. For information on the market price of, and dividends paid with respect to, the Company's Common Shares, see the section entitled "1994-1993 Quarterly Summary of Tootsie Roll Industries, Inc. Stock Price and Dividends Per Share" which appears on Page 16 of the 1994 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 1994 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 1994 Report. This section is incorporated herein by reference and filed as an exhibit to this report. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The financial statements, together with the report thereon of Price Waterhouse LLP dated February 15, 1995, appearing on Pages 8-15 of the 1994 Report and the Quarterly Financial Data on Page 16 of the 1994 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 1994 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. 5 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 1995 Annual Meeting of Shareholders (the "1995 Proxy Statement"). Except for the last paragraph of this section relating to the compensation of Directors, this section is incorporated herein by reference. The 1995 Proxy Statement will be filed with the Securities and Exchange Commission on or before April 30, 1995. 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) 75 Ellen R. Gordon* President and Chief Operating Officer (2) 63 G. Howard Ember Jr. Vice President/Finance 42 John W. Newlin Jr. Vice President/Manufacturing 58 Thomas E. Corr Vice President/Marketing and Sales 46 James M. Hunt Vice President/Distribution 52 *A member of the Board of Directors of the Company. 1) Mr. and Mrs. Gordon and Messrs. Newlin and Corr have served in the positions set forth in the table as their principal occupations for more than the past five years. Mr. Ember has served in his position for the past four years, and in the seven years prior to that, has served the Company in the position of Treasurer and Assistant Vice President of Finance. Mr. Hunt has served in his position for the past two years and in the fifteen years prior to that, has served the Company in the positions of Director of Distribution and Assistant Vice President of Distribution. Mr. and Mrs. Gordon have also served as President and Vice President, respectively, of HDI Investment Corp., a family investment company. 2) Melvin J. Gordon and Ellen R. Gordon are husband and wife. 6 ITEM 11. EXECUTIVE COMPENSATION. See the information set forth in the section entitled "Executive Compensation and Other Information" of the Company's 1995 Proxy Statement. Except for the "Report on Executive Compensation" and "Performance Graph," this section of the 1995 Proxy Statement is incorporated herein by reference. See the last paragraph of the section entitled "Election of Directors" of the 1995 Proxy Statement, which paragraph is incorporated herein by reference. The 1995 Proxy Statement will be filed with the Securities and Exchange Commission on or before April 30, 1995. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. For information with respect to the beneficial ownership of the Company's Common Shares and Class B Common Shares 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 1995 Proxy Statement. These sections of the 1995 Proxy Statement are incorporated herein by reference. The 1995 Proxy Statement will be filed with the Securities and Exchange Commission on or before April 30, 1995. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. Daniel G. Ross, a director of the Company through May 1994, is a member of the law firm of Becker, Ross, Stone, DeStefano & Klein, which has served as general counsel to the Company for many years. Mr. Ross retired as of the 1994 annual meeting of shareholders in May 1994. 7 PART IV Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (a) Financial Statements. The following financial statements and schedules are filed as part of this report: (1) Financial Statements (filed herewith as part of Exhibit 13): Report of Independent Accountants Consolidated Statements of Earnings and Retained Earnings for the three years ended December 31, 1994 Consolidated Statements of Cash Flows for the three years ended December 31, 1994 Consolidated Statements of Financial Position at December 31, 1994 and 1993 Notes to Consolidated Financial Statements (2) Financial Statement Schedule: Report of Independent Accountants on Financial Statement Schedules Valuation and Qualifying Accounts for the three years ended December 31, 1994 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 X. No reports on Form 8-K were filed during the quarter ended December 31, 1994. 8 SIGNATURES Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, Tootsie Roll Industries, Inc. has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. TOOTSIE ROLL INDUSTRIES, INC. By /s/ MELVIN J. GORDON ---------------------------- Melvin J. Gordon, Chairman of the Board of Directors and Chief Executive Officer Date: March 28, 1995 ------------------------- 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 March 28, 1995 - -------------------- of Directors and Chief Melvin J. Gordon Executive Office (principal executive officer) /s/ ELLEN R. GORDON Director, President, March 28, 1995 - -------------------- and Chief Operating Ellen R. Gordon Officer Director March 28, 1995 - -------------------- Charles W. Seibert /s/ WILLIAM TOURETZ Director & Secretary March 28, 1995 - -------------------- William Touretz Director March 28, 1995 - -------------------- Lana Jane Lewis-Brent /s/ G.HOWARD EMBER JR Vice President, Finance March 28, 1995 - --------------------- (principal financial G. Howard Ember Jr. officer and principal accounting officer) 9 REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE To the Board of Directors and Shareholders of Tootsie Roll Industries, Inc. Our audits of the consolidated financial statements referred to in our report dated February 15, 1995 appearing on Page 15 of the 1994 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. PRICE WATERHOUSE LLP Chicago, Illinois February 15, 1995 10 FINANCIAL SCHEDULE 11 TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARY COMPANIES
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS DECEMBER 31, 1994, 1993 AND 1992 Additions Balance at charged to Balance at beginning costs and end of Classification of year expenses Deductions year - -------------- ---------- ---------- ---------- ---------- 1994: Reserve for bad debts $ 1,835,000 $ 350,935 $ 1,012,935 (1) $ 1,173,000 Reserve for cash discounts 240,000 5,972,711 5,919,711 (2) 293,000 ---------- ---------- ---------- ---------- $ 2,075,000 $ 6,323,646 $ 6,932,646 $ 1,466,000 ---------- ---------- ---------- ---------- 1993: Reserve for bad debts $ 1,110,000 $ 894,790 $ 169,790 (1) $ 1,835,000 Reserve for cash discounts 109,000 4,962,551 4,831,551 (2) 240,000 ---------- ---------- ---------- ---------- $ 1,219,000 $ 5,857,341 $ 5,001,341 $ 2,075,000 ---------- ---------- ---------- ---------- 1992: Reserve for bad debts $ 981,000 $ 939,448 $ 810,448 (1) $ 1,110,000 Reserve for cash discounts 118,000 4,557,058 4,566,058 (2) 109,000 ---------- ---------- ---------- ---------- $ 1,099,000 $ 5,496,506 $ 5,376,506 $ 1,219,000 ---------- ---------- ---------- ---------- (1) Accounts receivable written off net of recoveries and exchange rate movements. (2) Allowances to customers.
12 INDEX TO EXHIBITS 2.1 Asset Sale Agreement dated September 29, 1993 between Warner-Lambert Company and the Company, including a list of omitted exhibits and schedules. Incorporated by reference to Exhibit 2 to the Company's Report on Form 8-K dated October 15, 1993; Commission File No. 1-1361. The Company hereby agrees to provide the Commission, upon request, copies of any omitted exhibits or schedules required by Item 601(b)(2) of Regulation S-K. 3.1 Articles of Incorporation. Incorporated by reference to Exhibit 2.1 to Company's Registration Statement on Form 8-A dated February 29, 1988. 3.1.1 Articles of Amendment of the Articles of Incorporation dated May 2, 1988. Incorporated by reference to Exhibit 3.1.1 of the Company's Annual Report on Form 10-K for the year ended December 31, 1988; Commission File No. 1-1361. 3.1.2 Articles of Amendment of the Articles of Incorporation dated May 7, 1990. Incorporated by reference to Exhibit 3.1.2 of the Company's Annual Report on Form 10-K for the year ended December 31, 1990; Commission File No. 1-1361. 3.2 By-Laws. Incorporated by reference to Exhibit 2.2 to Company's Registration Statement of Form 8-A dated February 29, 1988. 3.3 Specimen Class B Common Stock Certificate. Incorporated by reference to Exhibit 1.1 to Company's Registration Statement on Form 8-A dated February 29, 1988. 10.5* Consultation Agreement between the Company and William Touretz dated December 21, 1979. Incorporated by reference to Exhibit 10.5 of the Company's Annual Report on Form 10-K for the year ended December 31, 1992; Commission File No. 1-1361. 13 10.5.1* Modification Agreement between the Company and William Touretz dated as of December 5, 1984. Incorporated by reference to Exhibit 10.5.1 to the Company's Annual Report on Form 10-K for the year ended December 31, 1984; Commission File No. 1-1361. 10.5.2* Modification Agreement between the Company and William Touretz dated as of December 13, 1985. Incorporated by reference to Exhibit 10.5.2 of the Company's Annual Report on Form 10-K for the year ended December 31, 1985; Commission File No. 1-1361. 10.5.3* Modification Agreement between the Company and William Touretz dated as of December 17, 1986. Incorporated by reference to Exhibit 10.5.3 of the Company's Annual Report on Form 10-K for the year ended December 31, 1986; Commission File No. 1-1361. 10.8.1* Excess Benefit Plan. Incorporated by reference to Exhibit 10.8.1 of the Company's Annual Report on Form 10-K for the year ended December 31, 1990; Commission File No. 1-1361. 10.8.2* Career Achievement Plan of the Company. Incorporated by reference to Exhibit 10.8.2 of the Company's Annual Report on Form 10-K for the year ended December 31, 1993; Commission File No. 1-1361. 10.12* Split Dollar Agreements (Special Trust and Daughters Revocable Trust) between the Company and trustee of Trust dated July 10, 1993. Incorporated by reference to Exhibit 10.12 of the Company's Annual Report on Form 10-K for the year ended December 31, 1993; 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. 10.22* Executive Split Dollar Insurance and Collateral Assignment Agreement between the Company and John W. Newlin dated July 30, 1994. 14 10.23* Executive Split Dollar Insurance and Collateral Assignment Agreement between the Company and Thomas E. Corr dated July 30, 1994. 10.24* Executive Split Dollar Insurance and Collateral Assignment Agreement between the Company and James Hunt dated July 30, 1994. 13 The following items incorporated by reference herein from the Company's 1994 Annual Report to Shareholders for the year ended December 31, 1994 (the "1994 Report"), are filed as Exhibits to this report: (i) Information under the section entitled "International" set forth on Page 4 of the 1994 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 1994 Report; (iii) Consolidated Statements of Earnings and Retained Earnings for the three years ended December 31, 1994 set forth on Page 8 of the 1994 Report; (iv) Consolidated Statements of Financial Position at December 31, 1994 and 1993 set forth on Pages 9-10 of the 1994 Report; (v) Consolidated Statements of Cash Flow for the three years ended December 31, 1994 set forth on Page 11 of the 1994 Report; (vi) Notes to Consolidated Financial Statements set forth on Pages 12-15 of the 1994 Report; (vii) Report of Independent Accountants set forth on Page 15 of the 1994 Report; (viii) Quarterly Financial Data set forth on Page 16 of the 1994 Report; 15 (ix) Information under the section entitled "1994-1993 Quarterly Summary of Tootsie Roll Industries, Inc. Stock Prices and Dividends" set forth on Page 16 of the 1994 Report; and (x) Information under the section entitled "Five Year Summary of Earnings and Financial Highlights" set forth on Page 17 of the 1994 Report. 21 List of Subsidiaries of the Company. - ----------------------------- *Executive compensation plan or arrangement. 16 EX-10.21 2 EXHIBIT 10.21 EXHIBIT 10.21 TOOTSIE ROLL INDUSTRIES, INC. EXECUTIVE SPLIT DOLLAR INSURANCE AGREEMENT AGREEMENT, between Tootsie Roll Industries, Inc., a Virginia corporation (the "Corporation"), and G. Howard Ember, Jr. WHEREAS, G. Howard Ember, Jr. (the "Employee") is presently employed by the Corporation, his services have contributed to the successful operation of the Corporation, and the Corporation's board of directors believes it is in the best interest of the Corporation to retain the services of the Employee; and WHEREAS, the Corporation is desirous of transferring to G. Howard Ember, Jr. (the "Owner") Policy No. 1A2252333-0 issued by Pacific Mutual Life Insurance Company on the Employee's life (the "policy") now owned by the Corporation pursuant to this "split dollar" arrangement, subject to the Owner's agreement to assign the policy to the Corporation as collateral for the "current value" (defined below) of the policy and the premium payments to be made by the Corporation under this agreement by an instrument of collateral assignment attached as Exhibit A (the "assignment") and to record the assignment with the "Insurer" (defined below). NOW, THEREFORE, in consideration of the premises, and the services to be rendered to the Corporation by the Employee, and for other good and valuable consideration, receipt of which is hereby acknowledged, the Corporation and the Owner hereby mutually covenant and agree as follows: ARTICLE I -- PAYMENT OF PREMIUMS AND ECONOMIC BENEFIT 1.1 As long as this agreement is in force, the Owner and the Corporation agree to pay the amounts and in the manner set forth below. 1.2 The Owner shall pay each year to the Corporation an amount equal to the economic benefit that would be taxable as gross income for federal income tax purposes to the Employee but for the payment by the Owner of such amount. The Owner shall have the option, exercisable upon 30 days' written notice delivered to the Corporation, to pay a greater amount to the Corporation. 1.3 For purposes of Section 1.2 above, the economic benefit that would be taxable to the Employee shall be computed in accordance with Revenue Rulings 64-328, 1964-2 C.B. 11, and 66-110, 1966-1 C.B. 12, and the Corporation shall be responsible for computing such amount. The Corporation will advise the Owner of the amount payable by the Owner pursuant to Section 1.2, and the Owner shall pay that amount directly to the Corporation. 1.4 In order to facilitate the payment of premiums on the policy, the Owner and the Corporation agree that the Corporation will forward to the Insurer the entire premiums due on the policy, if any. ARTICLE II -- POLICY OWNERSHIP AND RESTRICTIONS 2.1 The Owner shall be the sole owner of the policy. The Corporation's payment of premiums hereunder shall constitute a liability of the Owner subject to repayment as provided herein. 2.2 The Owner agrees to assign the policy to the Corporation as collateral for such liabilities and the Corporation shall have those rights granted to it under the assignment and this agreement. The Owner agrees that while this agreement is in force, the Owner may not borrow or withdraw from or surrender any part of the policy prior to the 15th anniversary of this agreement. As between the Owner and the Corporation, this agreement shall take precedence over any provision of the assignment in case of a conflict between the terms of this agreement and the assignment. ARTICLE III -- DEATH OF EMPLOYEE 3.1 On the Employee's death while this agreement is in force, the Owner will pay to the Corporation an amount equal to the sum of (i) the terminal reserve value of the policy plus unearned premiums on the date the policy is transferred to the Owner (the "current value") and (ii) the total premiums paid by the Corporation from the date of this agreement to the date of the Employee's death, reduced by the total payments made to the Corporation by the Owner pursuant to Section 1.2 above. ARTICLE IV -- TERMINATION OF AGREEMENT 4.1 This agreement shall automatically terminate upon the happening of any of the following events: (a) At the option of the Corporation, if the Employee terminates employment for any reason other than death or a "change of control" (defined below). The Employee shall be deemed to be employed by the Corporation during any period in which he is "permanently disabled" (defined below). (b) At the surrender, lapse or termination of the policy. (c) Upon delivery by the Owner of written notice of such termination to the Corporation. (d) Upon failure of the Owner to make a payment required by Section 1.2 above. (e) Upon agreement of the parties. 4.2 In the event of a termination under Section 4.1(a) above, the Owner will pay to the Corporation not later than the 15th anniversary of this agreement an amount equal to the lesser of (i) the cash surrender value of the policy on the date of such termination, not reduced by any loan or withdrawal and not less than the current value or (ii) the amount the Corporation would have been entitled to receive at the Employee's death under Section 3.1 determined as if such death occurred on the date of such termination (the "repayment amount"). The Owner acknowledges that, until the repayment amount has been paid in full to the Corporation, the Owner must continue to pay the amounts required under Section 1.2 above notwithstanding the termination of the Employee's employment and the termination of the Corporation's obligation to pay further premiums. 4.3 In the event of any other termination under Section 4.1 above, the Owner will pay the repayment amount to the Corporation within 60 days after such termination. ARTICLE V -- OTHER PROVISIONS 5.1 The Corporation agrees that it will not merge or consolidate with another corporation or organization, or permit its business activities to be taken over by any other organization unless and until the succeeding or continuing corporation or other organization shall expressly assume the rights and obligations of the Corporation herein set forth. 5.2 This agreement will be governed by and construed in accordance with the laws of Illinois, where it is made and to be performed. It sets forth the entire agreement between the parties concerning the subject matter thereof, and any amendment or discharge will be made only in writing. This agreement will bind and benefit the parties and their legal representatives and successors. 5.3 This agreement shall not be deemed to constitute a contract of employment between the Corporation and the Employee, nor shall any provision restrict the right of the Corporation to discharge the Employee, or restrict the Employee's right to terminate employment. 5.4 The provisions required by the Employee Retirement Income Security Act of 1974 (ERISA). 5.5 The Owner may assign his interest in this agreement at any time by filing with the Corporation the statement attached as Exhibit C signed by his assignee. This agreement may be amended or modified in whole or in part by the Owner and the Corporation in writing at any time. 5.6 A "change of control" of the Corporation shall occur when: (1) any person, including a "group," as described in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended, acquires after the effective date of this agreement the beneficial ownership of, and the right to vote, shares having the right to cast at least 20% of the votes permitted to be cast in any election of members to the Corporation's board of directors; or (2) as the result of any tender or exchange offer, substantial purchase of the Corporation's equity securities, merger, consolidation, sale of assets or contested election, or any combination of the foregoing transactions, the persons who were directors of the Corporation immediately prior to such transaction or transactions do not constitute a majority of the Corporation's board of directors (or of the board of directors of any successor to or assignee of the Corporation) immediately after the next meeting of stockholders of the Corporation (or any successor or assignee) following such transaction; except that no event described in clause (1) or (2) above shall constitute a "change of control" if immediately after such event Melvin J. Gordon, Ellen R. Gordon, their descendants (and spouses of such descendants) and any trusts or estates in which such persons have an interest own, directly or indirectly, shares having the right to cast at least 50% of the votes permitted to be cast in any election of members of the Corporation's board of directors. The Employee shall be deemed to be "permanently disabled" if he is unable to perform his stated duties with the Corporation by reason of illness, accident or other incapacity and is not engaged in any occupation or employment for wage or profit for which he is reasonably qualified by education, training, or experience; provided however, that in the event the Corporation maintains a long-term disability plan in which the Employee is entitled to receive benefits, the Employee shall be deemed to be permanently disabled when he suffers a physical illness, injury or other impairment in respect to which he is entitled to receive benefits under such long-term disability plan. 5.7 Notwithstanding the provisions of this agreement, the life insurance company (the "Insurer") which has issued the policy is hereby authorized to act in accordance with the terms of the policy as if this agreement did not exist, and the payment or other performance of the contractual obligations by the Insurer, in accordance with the terms of the policy, shall completely discharge the Insurer from all claims, suits and demands of all persons whatsoever. IN WITNESS WHEREOF, the parties hereto have signed this agreement on July 30, 1994. G. Howard Ember, Jr. TOOTSIE ROLL INDUSTRIES, INC. EXHIBIT A (G. HOWARD EMBER) COLLATERAL ASSIGNMENT 1. G. Howard Ember (the "Assignor"), hereby assigns, transfers and sets over to Tootsie Roll Industries, Inc., a Virginia corporation (the "Assignee"), to the extent of the amounts defined in and owing from time to time from Assignor to Assignee under the Executive Split Dollar Insurance Agreement dated July 30, 1994, between the Assignor and the Assignee (the "Assignee's Interest"), Policy No. 1A2252333-0 issued by Pacific Mutual Life Insurance Company on the life of G. Howard Ember, Jr., subject to all the terms and conditions of the policy and to all superior liens, if any, which the insurer may have against the policy. The Assignor by this instrument agrees and the Assignee by the acceptance of this assignment agrees to the conditions and provisions herein set forth. 2. It is expressly agreed that only the following specific rights are included in this assignment and may be exercised solely by the Assignee: (a) The right to prohibit the Assignor's borrowing or withdrawal from or surrender of any part of the policy prior to the 15th anniversary of the Executive Split Dollar Insurance Agreement. (b) The right to obtain, upon surrender of the policy by the Assignor, an amount of the cash surrender proceeds up to the amount of the Assignee's Interest in the policy. (c) The right to collect, upon the insured's death, the net proceeds of the policy up to the amount of the Assignee's Interest in the policy. 3. The insurer hereby is authorized to recognize the Assignee's claim to rights hereunder without investigating the reason for any action taken by the Assignee, or the giving of any notice, or the application to be made by the Assignee of any amounts to be paid to the Assignee. The sole signature of the Assignee shall be sufficient for the exercise of its rights under the policy and the sole receipt of the Assignee for any sums received shall be a full discharge and release therefor to the insurer. Dated: July 30, 1994. G. Howard Ember Jr. Assignor TOOTSIE ROLL INDUSTRIES, INC. Assignee Accepted an executed counterpart of this Collateral Assignment as of the date last above written. PACIFIC MUTUAL LIFE INSURANCE COMPANY EX-10.22 3 EXHIBIT 10.22 EXHIBIT 10.22 TOOTSIE ROLL INDUSTRIES, INC. EXECUTIVE SPLIT DOLLAR INSURANCE AGREEMENT AGREEMENT, between Tootsie Roll Industries, Inc., a Virginia corporation (the "Corporation"), and John W. Newlin. WHEREAS, John W. Newlin (the "Employee") is presently employed by the Corporation, his services have contributed to the successful operation of the Corporation, and the Corporation's board of directors believes it is in the best interest of the Corporation to retain the services of the Employee; and WHEREAS, the Corporation is desirous of transferring to John W. Newlin (the "Owner") Policy No. 1A2276857-0 issued by Pacific Mutual Life Insurance Company on the Employee's life (the "policy") now owned by the Corporation pursuant to this "split dollar" arrangement, subject to the Owner's agreement to assign the policy to the Corporation as collateral for the "current value" (defined below) of the policy and the premium payments to be made by the Corporation under this agreement by an instrument of collateral assignment attached as Exhibit A (the "assignment") and to record the assignment with the "Insurer" (defined below). NOW, THEREFORE, in consideration of the premises, and the services to be rendered to the Corporation by the Employee, and for other good and valuable consideration, receipt of which is hereby acknowledged, the Corporation and the Owner hereby mutually covenant and agree as follows: ARTICLE I -- PAYMENT OF PREMIUMS AND ECONOMIC BENEFIT 1.1. As long as this agreement is in force, the Owner and the Corporation agree to pay the amounts and in the manner set forth below. 1.2. The Owner shall pay each year to the Corporation an amount equal to the economic benefit that would be taxable as gross income for federal income tax purposes to the Employee but for the payment by the Owner of such amount. The Owner shall have the option, exercisable upon 30 days' written notice delivered to the Corporation, to pay a greater amount to the Corporation. 1.3. For purposes of Section 1.2 above, the economic benefit that would be taxable to the Employee shall be computed in accordance with Revenue Rulings 64-328, 1964-2 C.B. 11, and 66-110, 1966-1 C.B. 12, and the Corporation shall be responsible for computing such amount. The Corporation will advise the Owner of the amount payable by the Owner pursuant to Section 1.2, and the Owner shall pay that amount directly to the Corporation. 1.4. In order to facilitate the payment of premiums on the policy, the Owner and the Corporation agree that the Corporation will forward to the Insurer the entire premiums due on the policy, if any. ARTICLE II -- POLICY OWNERSHIP AND RESTRICTIONS 2.1. The Owner shall be the sole owner of the policy. The Corporation's payment of premiums hereunder shall constitute a liability of the Owner subject to repayment as provided herein. 2.2. The Owner agrees to assign the policy to the Corporation as collateral for such liabilities and the Corporation shall have those rights granted to it under the assignment and this agreement. The Owner agrees that while this agreement is in force, the Owner may not borrow or withdraw from or surrender any part of the policy prior to the 15th anniversary of this agreement. As between the Owner and the Corporation, this agreement shall take precedence over any provision of the assignment in case of a conflict between the terms of this agreement and the assignment. ARTICLE III -- DEATH OF EMPLOYEE 3.1. On the Employee's death while this agreement is in force, the Owner will pay to the Corporation an amount equal to the sum of (i) the terminal reserve value of the policy plus unearned premiums on the date the policy is transferred to the Owner (the "current value") and (ii) the total premiums paid by the Corporation from the date of this agreement to the date of the Employee's death, reduced by the total payments made to the Corporation by the Owner pursuant to Section 1.2 above. ARTICLE IV -- TERMINATION OF AGREEMENT 4.1. This agreement shall automatically terminate upon the happening of any of the following events: (a) At the option of the Corporation, if the Employee terminates employment for any reason other than death or a "change of control" (defined below). The Employee shall be deemed to be employed by the Corporation during any period in which he is "permanently disabled" (defined below). (b) At the surrender, lapse or termination of the policy. (c) Upon delivery by the Owner of written notice of such termination to the Corporation. (d) Upon failure of the Owner to make a payment required by Section 1.2 above. (e) Upon agreement of the parties. 4.2. In the event of a termination under Section 4.1(a) above, the Owner will pay to the Corporation not later than the 15th anniversary of this agreement an amount equal to the lesser of (i) the cash surrender value of the policy on the date of such termination, not reduced by any loan or withdrawal and not less than the current value or (ii) the amount the Corporation would have been entitled to receive at the Employee's death under Section 3.1 determined as if such death occurred on the date of such termination (the "repayment amount"). The Owner acknowledges that, until the repayment amount has been paid in full to the Corporation, the Owner must continue to pay the amounts required under Section 1.2 above notwithstanding the termination of the Employee's employment and the termination of the Corporation's obligation to pay further premiums. 4.3. In the event of any other termination under Section 4.1 above, the Owner will pay the repayment amount to the Corporation within 60 days after such termination. ARTICLE V -- OTHER PROVISIONS 5.1. The Corporation agrees that it will not merge or consolidate with another corporation or organization, or permit its business activities to be taken over by any other organization unless and until the succeeding or continuing corporation or other organization shall expressly assume the rights and obligations of the Corporation herein set forth. 5.2. This agreement will be governed by and construed in accordance with the laws of Illinois, where it is made and to be performed. It sets forth the entire agreement between the parties concerning the subject matter thereof, and any amendment or discharge will be made only in writing. This agreement will bind and benefit the parties and their legal representatives and successors. 5.3. This agreement shall not be deemed to constitute a contract of employment between the Corporation and the Employee, nor shall any provision restrict the right of the Corporation to discharge the Employee, or restrict the Employee's right to terminate employment. 5.4. The provisions required by the Employee Retirement Income Security Act of 1974 (ERISA). 5.5. The Owner may assign his interest in this agreement at any time by filing with the Corporation the statement attached as Exhibit C signed by his assignee. This agreement may be amended or modified in whole or in part by the Owner and the Corporation in writing at any time. 5.6. A "change of control" of the Corporation shall occur when: (1) any person, including a "group," as described in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended, acquires after the effective date of this agreement the beneficial ownership of, and the right to vote, shares having the right to cast at least 20% of the votes permitted to be cast in any election of members to the Corporation's board of directors; or (2) as the result of any tender or exchange offer, substantial purchase of the Corporation's equity securities, merger, consolidation, sale of assets or contested election, or any combination of the foregoing transactions, the persons who were directors of the Corporation immediately prior to such transaction or transactions do not constitute a majority of the Corporation's board of directors (or of the board of directors of any successor to or assignee of the Corporation) immediately after the next meeting of stockholders of the Corporation (or any successor or assignee) following such transaction; except that no event described in clause (1) or (2) above shall constitute a "change of control" if immediately after such event Melvin J. Gordon, Ellen R. Gordon, their descendants (and spouses of such descendants) and any trusts or estates in which such persons have an interest own, directly or indirectly, shares having the right to cast at least 50% of the votes permitted to be cast in any election of members of the Corporation's board of directors. The Employee shall be deemed to be "permanently disabled" if he is unable to perform his stated duties with the Corporation by reason of illness, accident or other incapacity and is not engaged in any occupation or employment for wage or profit for which he is reasonably qualified by education, training, or experience; provided however, that in the event the Corporation maintains a long-term disability plan in which the Employee is entitled to receive benefits, the Employee shall be deemed to be permanently disabled when he suffers a physical illness, injury or other impairment in respect to which he is entitled to receive benefits under such long-term disability plan. 5.7. Notwithstanding the provisions of this agreement, the life insurance company (the "Insurer") which has issued the policy is hereby authorized to act in accordance with the terms of the policy as if this agreement did not exist, and the payment or other performance of the contractual obligations by the Insurer, in accordance with the terms of the policy, shall completely discharge the Insurer from all claims, suits and demands of all persons whatsoever. IN WITNESS WHEREOF, the parties hereto have signed this agreement on July 30, 1994. John W. Newlin TOOTSIE ROLL INDUSTRIES, INC. EXHIBIT A (JOHN W. NEWLIN) COLLATERAL ASSIGNMENT 1. John W. Newlin (the "Assignor"), hereby assigns, transfers and sets over to Tootsie Roll Industries, Inc., a Virginia corporation (the "Assignee"), to the extent of the amounts defined in and owing from time to time from Assignor to Assignee under the Executive Split Dollar Insurance Agreement dated 30, 1994, between the Assignor and the Assignee (the "Assignee's Interest"), Policy No. 1A2276857-0 issued by Pacific Mutual Life Insurance Company on the life of John W. Newlin, subject to all the terms and conditions of the policy and to all superior liens, if any, which the insurer may have against the policy. The Assignor by this instrument agrees and the Assignee by the acceptance of this assignment agrees to the conditions and provisions herein set forth. 2. It is expressly agreed that only the following specific rights are included in this assignment and may be exercised solely by the Assignee: (a) The right to prohibit the Assignor's borrowing or withdrawal from or surrender of any part of the policy prior to the 15th anniversary of the Executive Split Dollar Insurance Agreement. (b) The right to obtain, upon surrender of the policy by the Assignor, an amount of the cash surrender proceeds up to the amount of the Assignee's Interest in the policy. (c) The right to collect, upon the insured's death, the net proceeds of the policy up to the amount of the Assignee's Interest in the policy. 3. The insurer hereby is authorized to recognize the Assignee's claim to rights hereunder without investigating the reason for any action taken by the Assignee, or the giving of any notice, or the application to be made by the Assignee of any amounts to be paid to the Assignee. The sole signature of the Assignee shall be sufficient for the exercise of its rights under the policy and the sole receipt of the Assignee for any sums received shall be a full discharge and release therefor to the insurer. Dated: July 30, 1994. John W. Newlin, Assignor TOOTSIE ROLL INDUSTRIES, INC. Assignee Accepted an executed counterpart of this Collateral Assignment as of the date last above written. PACIFIC MUTUAL LIFE INSURANCE COMPANY EX-10.23 4 EXHIBIT 10.23 EXHIBIT 10.23 TOOTSIE ROLL INDUSTRIES, INC. EXECUTIVE SPLIT DOLLAR INSURANCE AGREEMENT AGREEMENT, between Tootsie Roll Industries, Inc., a Virginia corporation (the "Corporation"), and Thomas E. Corr. WHEREAS, Thomas E. Corr (the "Employee") is presently employed by the Corporation, his services have contributed to the successful operation of the Corporation, and the Corporation's board of directors believes it is in the best interest of the Corporation to retain the services of the Employee; and WHEREAS, the Corporation is desirous of transferring to Thomas E. Corr (the "Owner") Policy No. 1A2277915-0 issued by Pacific Mutual Life Insurance Company on the Employee's life (the "policy") now owned by the Corporation pursuant to this "split dollar" arrangement, subject to the Owner's agreement to assign the policy to the Corporation as collateral for the "current value" (defined below) of the policy and the premium payments to be made by the Corporation under this agreement by an instrument of collateral assignment attached as Exhibit A (the "assignment") and to record the assignment with the "Insurer" (defined below). NOW, THEREFORE, in consideration of the premises, and the services to be rendered to the Corporation by the Employee, and for other good and valuable consideration, receipt of which is hereby acknowledged, the Corporation and the Owner hereby mutually covenant and agree as follows: ARTICLE I -- PAYMENT OF PREMIUMS AND ECONOMIC BENEFIT 1.1. As long as this agreement is in force, the Owner and the Corporation agree to pay the amounts and in the manner set forth below. 1.2. The Owner shall pay each year to the Corporation an amount equal to the economic benefit that would be taxable as gross income for federal income tax purposes to the Employee but for the payment by the Owner of such amount. The Owner shall have the option, exercisable upon 30 days' written notice delivered to the Corporation, to pay a greater amount to the Corporation. 1.3. For purposes of Section 1.2 above, the economic benefit that would be taxable to the Employee shall be computed in accordance with Revenue Rulings 64-328, 1964-2 C.B. 11, and 66-110, 1966-1 C.B. 12, and the Corporation shall be responsible for computing such amount. The Corporation will advise the Owner of the amount payable by the Owner pursuant to Section 1.2, and the Owner shall pay that amount directly to the Corporation. 1.4. In order to facilitate the payment of premiums on the policy, the Owner and the Corporation agree that the Corporation will forward to the Insurer the entire premiums due on the policy, if any. ARTICLE II -- POLICY OWNERSHIP AND RESTRICTIONS 2.1. The Owner shall be the sole owner of the policy. The Corporation's payment of premiums hereunder shall constitute a liability of the Owner subject to repayment as provided herein. 2.2. The Owner agrees to assign the policy to the Corporation as collateral for such liabilities and the Corporation shall have those rights granted to it under the assignment and this agreement. The Owner agrees that while this agreement is in force, the Owner may not borrow or withdraw from or surrender any part of the policy prior to the 15th anniversary of this agreement. As between the Owner and the Corporation, this agreement shall take precedence over any provision of the assignment in case of a conflict between the terms of this agreement and the assignment. ARTICLE III -- DEATH OF EMPLOYEE 3.1. On the Employee's death while this agreement is in force, the Owner will pay to the Corporation an amount equal to the sum of (i) the terminal reserve value of the policy plus unearned premiums on the date the policy is transferred to the Owner (the "current value") and (ii) the total premiums paid by the Corporation from the date of this agreement to the date of the Employee's death, reduced by the total payments made to the Corporation by the Owner pursuant to Section 1.2 above. ARTICLE IV -- TERMINATION OF AGREEMENT 4.1. This agreement shall automatically terminate upon the happening of any of the following events: (a) At the option of the Corporation, if the Employee terminates employment for any reason other than death or a "change of control" (defined below). The Employee shall be deemed to be employed by the Corporation during any period in which he is "permanently disabled" (defined below). (b) At the surrender, lapse or termination of the policy. (c) Upon delivery by the Owner of written notice of such termination to the Corporation. (d) Upon failure of the Owner to make a payment required by Section 1.2 above. (e) Upon agreement of the parties. 4.2. In the event of a termination under Section 4.1(a) above, the Owner will pay to the Corporation not later than the 15th anniversary of this agreement an amount equal to the lesser of (i) the cash surrender value of the policy on the date of such termination, not reduced by any loan or withdrawal and not less than the current value or (ii) the amount the Corporation would have been entitled to receive at the Employee's death under Section 3.1 determined as if such death occurred on the date of such termination (the "repayment amount"). The Owner acknowledges that, until the repayment amount has been paid in full to the Corporation, the Owner must continue to pay the amounts required under Section 1.2 above notwithstanding the termination of the Employee's employment and the termination of the Corporation's obligation to pay further premiums. 4.3. In the event of any other termination under Section 4.1 above, the Owner will pay the repayment amount to the Corporation within 60 days after such termination. ARTICLE V -- OTHER PROVISIONS 5.1. The Corporation agrees that it will not merge or consolidate with another corporation or organization, or permit its business activities to be taken over by any other organization unless and until the succeeding or continuing corporation or other organization shall expressly assume the rights and obligations of the Corporation herein set forth. 5.2. This agreement will be governed by and construed in accordance with the laws of Illinois, where it is made and to be performed. It sets forth the entire agreement between the parties concerning the subject matter thereof, and any amendment or discharge will be made only in writing. This agreement will bind and benefit the parties and their legal representatives and successors. 5.3. This agreement shall not be deemed to constitute a contract of employment between the Corporation and the Employee, nor shall any provision restrict the right of the Corporation to discharge the Employee, or restrict the Employee's right to terminate employment. 5.4. The provisions required by the Employee Retirement Income Security Act of 1974 (ERISA). 5.5. The Owner may assign his interest in this agreement at any time by filing with the Corporation the statement attached as Exhibit C signed by his assignee. This agreement may be amended or modified in whole or in part by the Owner and the Corporation in writing at any time. 5.6. A "change of control" of the Corporation shall occur when: (1) any person, including a "group," as described in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended, acquires after the effective date of this agreement the beneficial ownership of, and the right to vote, shares having the right to cast at least 20% of the votes permitted to be cast in any election of members to the Corporation's board of directors; or (2) as the result of any tender or exchange offer, substantial purchase of the Corporation's equity securities, merger, consolidation, sale of assets or contested election, or any combination of the foregoing transactions, the persons who were directors of the Corporation immediately prior to such transaction or transactions do not constitute a majority of the Corporation's board of directors (or of the board of directors of any successor to or assignee of the Corporation) immediately after the next meeting of stockholders of the Corporation (or any successor or assignee) following such transaction; except that no event described in clause (1) or (2) above shall constitute a "change of control" if immediately after such event Melvin J. Gordon, Ellen R. Gordon, their descendants (and spouses of such descendants) and any trusts or estates in which such persons have an interest own, directly or indirectly, shares having the right to cast at least 50% of the votes permitted to be cast in any election of members of the Corporation's board of directors. The Employee shall be deemed to be "permanently disabled" if he is unable to perform his stated duties with the Corporation by reason of illness, accident or other incapacity and is not engaged in any occupation or employment for wage or profit for which he is reasonably qualified by education, training, or experience; provided however, that in the event the Corporation maintains a long-term disability plan in which the Employee is entitled to receive benefits, the Employee shall be deemed to be permanently disabled when he suffers a physical illness, injury or other impairment in respect to which he is entitled to receive benefits under such long-term disability plan. 5.7. Notwithstanding the provisions of this agreement, the life insurance company (the "Insurer") which has issued the policy is hereby authorized to act in accordance with the terms of the policy as if this agreement did not exist, and the payment or other performance of the contractual obligations by the Insurer, in accordance with the terms of the policy, shall completely discharge the Insurer from all claims, suits and demands of all persons whatsoever. IN WITNESS WHEREOF, the parties hereto have signed this agreement on July 30, 1994. Thomas E. Corr TOOTSIE ROLL INDUSTRIES, INC. EXHIBIT A (THOMAS E. CORR) COLLATERAL ASSIGNMENT 1. Thomas E. Corr (the "Assignor"), hereby assigns, transfers and sets over to Tootsie Roll Industries, Inc., a Virginia corporation (the "Assignee"), to the extent of the amounts defined in and owing from time to time from Assignor to Assignee under the Executive Split Dollar Insurance Agreement dated July 30, 1994, between the Assignor and the Assignee (the "Assignee's Interest"), Policy No. 1A2277915-0 issued by Pacific Mutual Life Insurance Company on the life of Thomas E. Corr, subject to all the terms and conditions of the policy and to all superior liens, if any, which the insurer may have against the policy. The Assignor by this instrument agrees and the Assignee by the acceptance of this assignment agrees to the conditions and provisions herein set forth. 2. It is expressly agreed that only the following specific rights are included in this assignment and may be exercised solely by the Assignee: (a) The right to prohibit the Assignor's borrowing or withdrawal from or surrender of any part of the policy prior to the 15th anniversary of the Executive Split Dollar Insurance Agreement. (b) The right to obtain, upon surrender of the policy by the Assignor, an amount of the cash surrender proceeds up to the amount of the Assignee's Interest in the policy. (c) The right to collect, upon the insured's death, the net proceeds of the policy up to the amount of the Assignee's Interest in the policy. 3. The insurer hereby is authorized to recognize the Assignee's claim to rights hereunder without investigating the reason for any action taken by the Assignee, or the giving of any notice, or the application to be made by the Assignee of any amounts to be paid to the Assignee. The sole signature of the Assignee shall be sufficient for the exercise of its rights under the policy and the sole receipt of the Assignee for any sums received shall be a full discharge and release therefor to the insurer. Dated: July 30, 1994. Thomas E. Corr, Assignor TOOTSIE ROLL INDUSTRIES, INC. Assignee Accepted an executed counterpart of this Collateral Assignment as of the date last above written. PACIFIC MUTUAL LIFE INSURANCE COMPANY EX-10.24 5 EXHIBIT 10.24 EXHIBIT 10.24 TOOTSIE ROLL INDUSTRIES, INC. EXECUTIVE SPLIT DOLLAR INSURANCE AGREEMENT AGREEMENT, between Tootsie Roll Industries, Inc., a Virginia corporation (the "Corporation"), and James M. Hunt. WHEREAS, James M. Hunt (the "Employee") is presently employed by the Corporation, his services have contributed to the successful operation of the Corporation, and the Corporation's board of directors believes it is in the best interest of the Corporation to retain the services of the Employee; and WHEREAS, the Corporation is desirous of transferring to James M. Hunt (the "Owner") Policy No. 1A2282449-0 issued by Pacific Mutual Life Insurance Company on the Employee's life (the "policy") now owned by the Corporation pursuant to this "split dollar" arrangement, subject to the Owner's agreement to assign the policy to the Corporation as collateral for the "current value" (defined below) of the policy and the premium payments to be made by the Corporation under this agreement by an instrument of collateral assignment attached as Exhibit A (the "assignment") and to record the assignment with the "Insurer" (defined below). NOW, THEREFORE, in consideration of the premises, and the services to be rendered to the Corporation by the Employee, and for other good and valuable consideration, receipt of which is hereby acknowledged, the Corporation and the Owner hereby mutually covenant and agree as follows: ARTICLE I -- PAYMENT OF PREMIUMS AND ECONOMIC BENEFIT 1.1. As long as this agreement is in force, the Owner and the Corporation agree to pay the amounts and in the manner set forth below. 1.2. The Owner shall pay each year to the Corporation an amount equal to the economic benefit that would be taxable as gross income for federal income tax purposes to the Employee but for the payment by the Owner of such amount. The Owner shall have the option, exercisable upon 30 days' written notice delivered to the Corporation, to pay a greater amount to the Corporation. 1.3. For purposes of Section 1.2 above, the economic benefit that would be taxable to the Employee shall be computed in accordance with Revenue Rulings 64-328, 1964-2 C.B. 11, and 66-110, 1966-1 C.B. 12, and the Corporation shall be responsible for computing such amount. The Corporation will advise the Owner of the amount payable by the Owner pursuant to Section 1.2, and the Owner shall pay that amount directly to the Corporation. 1.4. In order to facilitate the payment of premiums on the policy, the Owner and the Corporation agree that the Corporation will forward to the Insurer the entire premiums due on the policy, if any. ARTICLE II -- POLICY OWNERSHIP AND RESTRICTIONS 2.1. The Owner shall be the sole owner of the policy. The Corporation's payment of premiums hereunder shall constitute a liability of the Owner subject to repayment as provided herein. 2.2. The Owner agrees to assign the policy to the Corporation as collateral for such liabilities and the Corporation shall have those rights granted to it under the assignment and this agreement. The Owner agrees that while this agreement is in force, the Owner may not borrow or withdraw from or surrender any part of the policy prior to the 15th anniversary of this agreement. As between the Owner and the Corporation, this agreement shall take precedence over any provision of the assignment in case of a conflict between the terms of this agreement and the assignment. ARTICLE III -- DEATH OF EMPLOYEE 3.1. On the Employee's death while this agreement is in force, the Owner will pay to the Corporation an amount equal to the sum of (i) the terminal reserve value of the policy plus unearned premiums on the date the policy is transferred to the Owner (the "current value") and (ii) the total premiums paid by the Corporation from the date of this agreement to the date of the Employee's death, reduced by the total payments made to the Corporation by the Owner pursuant to Section 1.2 above. ARTICLE IV -- TERMINATION OF AGREEMENT 4.1. This agreement shall automatically terminate upon the happening of any of the following events: (a) At the option of the Corporation, if the Employee terminates employment for any reason other than death or a "change of control" (defined below). The Employee shall be deemed to be employed by the Corporation during any period in which he is "permanently disabled" (defined below). (b) At the surrender, lapse or termination of the policy. (c) Upon delivery by the Owner of written notice of such termination to the Corporation. (d) Upon failure of the Owner to make a payment required by Section 1.2 above. (e) Upon agreement of the parties. 4.2. In the event of a termination under Section 4.1(a) above, the Owner will pay to the Corporation not later than the 15th anniversary of this agreement an amount equal to the lesser of (i) the cash surrender value of the policy on the date of such termination, not reduced by any loan or withdrawal and not less than the current value or (ii) the amount the Corporation would have been entitled to receive at the Employee's death under Section 3.1 determined as if such death occurred on the date of such termination (the "repayment amount"). The Owner acknowledges that, until the repayment amount has been paid in full to the Corporation, the Owner must continue to pay the amounts required under Section 1.2 above notwithstanding the termination of the Employee's employment and the termination of the Corporation's obligation to pay further premiums. 4.3. In the event of any other termination under Section 4.1 above, the Owner will pay the repayment amount to the Corporation within 60 days after such termination. ARTICLE V -- OTHER PROVISIONS 5.1. The Corporation agrees that it will not merge or consolidate with another corporation or organization, or permit its business activities to be taken over by any other organization unless and until the succeeding or continuing corporation or other organization shall expressly assume the rights and obligations of the Corporation herein set forth. 5.2. This agreement will be governed by and construed in accordance with the laws of Illinois, where it is made and to be performed. It sets forth the entire agreement between the parties concerning the subject matter thereof, and any amendment or discharge will be made only in writing. This agreement will bind and benefit the parties and their legal representatives and successors. 5.3. This agreement shall not be deemed to constitute a contract of employment between the Corporation and the Employee, nor shall any provision restrict the right of the Corporation to discharge the Employee, or restrict the Employee's right to terminate employment. 5.4. The provisions required by the Employee Retirement Income Security Act of 1974 (ERISA). 5.5. The Owner may assign his interest in this agreement at any time by filing with the Corporation the statement attached as Exhibit C signed by his assignee. This agreement may be amended or modified in whole or in part by the Owner and the Corporation in writing at any time. 5.6. A "change of control" of the Corporation shall occur when: (1) any person, including a "group," as described in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended, acquires after the effective date of this agreement the beneficial ownership of, and the right to vote, shares having the right to cast at least 20% of the votes permitted to be cast in any election of members to the Corporation's board of directors; or (2) as the result of any tender or exchange offer, substantial purchase of the Corporation's equity securities, merger, consolidation, sale of assets or contested election, or any combination of the foregoing transactions, the persons who were directors of the Corporation immediately prior to such transaction or transactions do not constitute a majority of the Corporation's board of directors (or of the board of directors of any successor to or assignee of the Corporation) immediately after the next meeting of stockholders of the Corporation (or any successor or assignee) following such transaction; except that no event described in clause (1) or (2) above shall constitute a "change of control" if immediately after such event Melvin J. Gordon, Ellen R. Gordon, their descendants (and spouses of such descendants) and any trusts or estates in which such persons have an interest own, directly or indirectly, shares having the right to cast at least 50% of the votes permitted to be cast in any election of members of the Corporation's board of directors. The Employee shall be deemed to be "permanently disabled" if he is unable to perform his stated duties with the Corporation by reason of illness, accident or other incapacity and is not engaged in any occupation or employment for wage or profit for which he is reasonably qualified by education, training, or experience; provided however, that in the event the Corporation maintains a long-term disability plan in which the Employee is entitled to receive benefits, the Employee shall be deemed to be permanently disabled when he suffers a physical illness, injury or other impairment in respect to which he is entitled to receive benefits under such long-term disability plan. 5.7. Notwithstanding the provisions of this agreement, the life insurance company (the "Insurer") which has issued the policy is hereby authorized to act in accordance with the terms of the policy as if this agreement did not exist, and the payment or other performance of the contractual obligations by the Insurer, in accordance with the terms of the policy, shall completely discharge the Insurer from all claims, suits and demands of all persons whatsoever. IN WITNESS WHEREOF, the parties hereto have signed this agreement on July 30, 1994. James M. Hunt TOOTSIE ROLL INDUSTRIES, INC. EXHIBIT A (JAMES M. HUNT) COLLATERAL ASSIGNMENT 1. James M. Hunt (the "Assignor"), hereby assigns, transfers and sets over to Tootsie Roll Industries, Inc., a Virginia corporation (the "Assignee"), to the extent of the amounts defined in and owing from time to time from Assignor to Assignee under the Executive Split Dollar Insurance Agreement dated July 30, 1994, between the Assignor and the Assignee (the "Assignee's Interest"), Policy No. 1A2282449-0 issued by Pacific Mutual Life Insurance Company on the life of James M. Hunt, subject to all the terms and conditions of the policy and to all superior liens, if any, which the insurer may have against the policy. The Assignor by this instrument agrees and the Assignee by the acceptance of this assignment agrees to the conditions and provisions herein set forth. 1. It is expressly agreed that only the following specific rights are included in this assignment and may be exercised solely by the Assignee: (a) The right to prohibit the Assignor's borrowing or withdrawal from or surrender of any part of the policy prior to the 15th anniversary of the Executive Split Dollar Insurance Agreement. (b) The right to obtain, upon surrender of the policy by the Assignor, an amount of the cash surrender proceeds up to the amount of the Assignee's Interest in the policy. (c) The right to collect, upon the insured's death, the net proceeds of the policy up to the amount of the Assignee's Interest in the policy. 2. The insurer hereby is authorized to recognize the Assignee's claim to rights hereunder without investigating the reason for any action taken by the Assignee, or the giving of any notice, or the application to be made by the Assignee of any amounts to be paid to the Assignee. The sole signature of the Assignee shall be sufficient for the exercise of its rights under the policy and the sole receipt of the Assignee for any sums received shall be a full discharge and release therefor to the insurer. Dated: July 30, 1994. James M. Hunt Assignor TOOTSIE ROLL INDUSTRIES, INC. Assignee Accepted an executed counterpart of this Collateral Assignment as of the date last above written. PACIFIC MUTUAL LIFE INSURANCE COMPANY EX-13 6 EXHIBIT 13 EXHIBIT 13 (PORTIONS OF ANNUAL REPORT) OPERATING REPORT - ------------------------------------------------------------------------ International Our Mexican and Canadian subsidiaries each reported increased sales and profits over the prior year. In Mexico, an especially strong fourth quarter was posted, reflecting another successful Christmas selling season. The majority of our Mexican sales were recorded prior to the large devaluation of the peso that occurred during the last two weeks of December, 1994. At the year-end exchange rate our 1994 Mexican sales would have translated into approximately $9 million fewer U.S. dollars. Stabilization of the peso in the future or anticipated peso selling price increases for our goods could tend to offset this sales decline somewhat in 1995. The peso devaluation had the further effect of reducing the stated U.S. dollar value of our net Mexican assets by approximately $5 million. In accordance with generally accepted accounting principles, whereby all assets and liabilities are translated at the year-end exchange rate, this amount was recorded as a direct reduction in shareholders' equity. Canadian sales growth came from distribution gains for existing products and the new chocolate/ caramel product lines. We also completed the realignment of our broker network there. Our sales office in the Far East continued to expand and refine distribution and to test and advertise our products in various countries in the Pacific Rim, however, development of sales in this region is costly and will be approached cautiously. The company is exploring markets throughout the world with great interest. Our President, Ellen R. Gordon, was recently appointed by the President of the United States to the President's Export Council. - -------------------------------------------------------------------------------- 3 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (in thousands except per share, percentage and ratio figures) - -------------------------------------------------------------------------------- FINANCIAL REVIEW This financial review discusses the company's financial condition, results of operations, liquidity and capital resources. It should be read in conjunction with the Consolidated Financial Statements and related footnotes beginning on pages 8 and 12, respectively. FINANCIAL CONDITION We further strengthened our financial condition in 1994 by achieving record operating results. Net earnings grew from $35,442 in 1993 to $37,931 in 1994, a 7.0% increase. As a result of using cash from operations to pay off short-term debt, working capital grew from $61,052 to $92,626, an increase of 51.7%. Cash from operations was also used to fund $8,179 of capital expenditures and for the payment of $4,514 in dividends. This represented an increase of 22.4% in dividends paid over the prior year and marked the fifty-second consecutive year that cash dividends have been paid. A 3% stock dividend was also distributed to shareholders in 1994. This was the thirtieth consecutive year that a stock dividend has been distributed. The improvement in our financial position in 1994 over 1993 is reflected in the following ratios: current ratio rose from 2.2:1 to 4.5:1; quick ratio rose from 1.5:1 to 3.2:1; current liabilities to net worth decreased from 24.0% to 10.9% and debt to equity fell from 23.6% to 11.4%. Shareholders' equity increased by 13.2% to $240,461. These statistics are indicative of the company's conservative financial posture in the deployment of its assets. RESULTS OF OPERATIONS 1994 vs. 1993 1994 represented the eighteenth consecutive year of record sales. Reaching $296,932, 1994 net sales were up 14.4% over 1993 sales of $259,593. The highest quarter, both in terms of sales dollars and in terms of dollar and percentage increase over the prior year, was the third quarter with traditionally strong Back to School and Halloween promotions. The sales increase in 1994 was due largely to the full year impact of the new chocolate/caramel brands, Junior Mints, Charleston Chew, Sugar Daddy and Sugar Babies. Sales for these brands were, however, lower than they had been in the twelve months preceding the acquisition, as we kept with our plan of emphasizing profitable sales. Other factors contributing to sales increases were a strong year in Mexico and growth in other established Tootsie Roll brands, offset by decreases in several newer, trend setting items which returned to more normal sales levels from their previous year peaks. Cost of goods sold as a percentage of sales increased slightly from 51.6% to 52.4%, reflecting higher ingredient and packaging costs and increased indirect costs. Consequently, gross margin, which was $141,367 or 12.5% higher than 1993, declined slightly as a percentage of sales from 48.4% to 47.6%. Gross margins have historically been lower in the fourth quarter due to the seasonal nature of our business and to the product mix - -------------------------------------------------------------------------------- 5 - -------------------------------------------------------------------------------- sold at that time of year. This effect was lessened in 1994, with improved margins on foreign operations and due to changing sales patterns resulting from the new chocolate/caramel brands. Operating expenses, comprising marketing, selling, physical distribution, general and administrative expenses and goodwill amortization, as a percentage of sales, were 27.4%, a decrease of .4% versus 1993. While the synergies realized through integrating the chocolate/ caramel brands caused marketing and administrative costs to decline as a percent of sales, increased use of refrigerated storage and transportation caused per unit distribution costs to increase. Goodwill amortization was also higher as a result of the chocolate/caramel brands acquisition. Other income declined by $3,014 due to lower investment income and higher interest expense. These changes had been anticipated and were the result of financing the chocolate/caramel brands acquisition and the purchase of our Chicago plant, both of which occurred toward the end of 1993. The 1994 effective tax rate was comparable to that of 1993 at 38.0% versus 38.6%. Consolidated net earnings rose 7.0% to a new company record of $37,931 or $3.50 per share in 1994 from the previous record of $35,442 or $3.27 per share in 1993. This represents the thirteenth consecutive year of record earnings achievement. 1993 vs. 1992 Net sales increased in 1993 to $259,593, a record level for the seventeenth consecutive year and 5.8% over 1992 sales of $245,424. Factors contributing to sales growth during the year were the chocolate/caramel brands acquisition in October, 1993, continued success of our traditional product lines, favorable results with seasonal lines and line extensions, as well as growth in our Mexican and Canadian subsidiaries. Sales remained at the highest level in the third quarter due to successful Halloween and Back to School promotions, but declined in the fourth quarter from the prior year level due to softness in certain market segments, partially offset by sales of the new chocolate/caramel brands. Cost of goods sold, as a percentage of sales, was consistent with 1992 at 51.6% versus 51.8%. Raw material prices remained stable throughout the year and productivity improvements continued to mitigate modest changes in the cost of other factors of production. Gross margin grew by 6.2% to $125,615 because of increased sales and as a percentage of sales it remained constant at 48.4% versus 48.2% in 1992. Fourth quarter gross margin was lower than that of the other three quarters due to seasonality and sales mix factors. Operating expenses declined slightly as a percentage of sales to 27.8% from 28.7% in the prior year. This favorable result demonstrates the effect of expense control programs that keep costs in check. The effective tax rate was comparable to the 1992 rate at 38.6% versus 38.3% and other income, consisting primarily of interest and dividend income, - -------------------------------------------------------------------------------- 6 - -------------------------------------------------------------------------------- remained essentially even with the prior year as the decrease in our short-term investment portfolio to partially finance the acquisition, did not occur until later in the year. Consolidated earnings rose 10.6% to $35,442, a record high for the twelfth consecutive year. Liquidity and Capital Resources Cash flows from operating activities increased by $7,098 to $40,495 in 1994 from $33,397 in 1993 and $35,623 in 1992. Higher profits and depreciation and amortization in 1994 were partially offset by increases in working capital. Cash flows from investing activities in 1994 reflect a net reduction in our investment portfolio, which was applied toward the repayment of debt. Capital expenditures were $19,813 lower in 1994 than in 1993 which had included the purchase of our Chicago plant, the Cambridge acquisition and the Charms expansion. Cash flows from financing activities in 1994 include a net reduction of $22,601 in interest bearing debt. These borrowings had occurred in 1993 in connection with the purchase of the chocolate/caramel business. Cash dividends were declared and paid in 1994 for the fifty-second consecutive year. Cash dividends declared were increased by 21.5% to $.42 per share during 1994. Our operating results and financial condition are expressed in the following financial statements. - -------------------------------------------------------------------------------- 7 CONSOLIDATED STATEMENT OF EARNINGS AND RETAINED EARNINGS TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES (in thousands except per share data) - --------------------------------------------------------------------------------
For the year ended December 31, 1994 1993 1992 ------------ ------------ ------------ Net sales................................................................. $296,932 $259,593 $245,424 Cost of goods sold........................................................ 155,565 133,978 127,123 ------------ ------------ ------------ Gross margin.............................................................. 141,367 125,615 118,301 ------------ ------------ ------------ Operating expenses: Marketing, selling and advertising.................................... 44,974 40,096 38,958 Distribution and warehousing.......................................... 20,682 17,655 16,959 General and administrative............................................ 13,017 12,837 13,186 Amortization of the excess of cost over acquired net tangible assets............................................................... 2,706 1,510 1,265 ------------ ------------ ------------ 81,379 72,098 70,368 ------------ ------------ ------------ Earnings from operations.................................................. 59,988 53,517 47,933 Other income, net (Note 8)................................................ 1,179 4,193 3,989 ------------ ------------ ------------ Earnings before income taxes.............................................. 61,167 57,710 51,922 Provision for income taxes (Notes 1 and 4)................................ 23,236 22,268 19,890 ------------ ------------ ------------ Net earnings.............................................................. 37,931 35,442 32,032 Retained earnings at beginning of year.................................... 96,647 90,285 83,507 ------------ ------------ ------------ 134,578 125,727 115,539 ------------ ------------ ------------ Deduct (Note 5): Cash dividends ($.42, $.35 and $.27 per share)........................ 4,580 3,769 2,947 Stock dividends....................................................... 22,235 25,311 22,307 ------------ ------------ ------------ 26,815 29,080 25,254 ------------ ------------ ------------ Retained earnings at end of year.......................................... $107,763 $ 96,647 $ 90,285 ------------ ------------ ------------ ------------ ------------ ------------ Earnings per common share................................................. $ 3.50 $ 3.27 $ 2.95 ------------ ------------ ------------ ------------ ------------ ------------ Average common and class B common shares outstanding (Note 5)............. 10,848 10,848 10,848 ------------ ------------ ------------ ------------ ------------ ------------
(The accompanying notes are an integral part of these statements.) - -------------------------------------------------------------------------------- 8 CONSOLIDATED STATEMENT OF FINANCIAL POSITION TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES (in thousands) - --------------------------------------------------------------------------------
ASSETS December 31, 1994 1993 ------------ ------------ CURRENT ASSETS: Cash and cash equivalents (Notes 1 and 10).............................................. $ 16,509 $ 1,986 Investments held to maturity (Notes 1 and 10)........................................... 45,861 54,217 Accounts receivable, less allowances of $1,466 and $2,075............................... 22,087 20,656 Inventories (Note 1): Finished goods and work-in-process.................................................. 16,704 17,186 Raw materials and supplies.......................................................... 12,464 12,108 Prepaid expenses........................................................................ 3,094 3,667 Deferred income taxes (Notes 1 and 4)................................................... 2,168 2,094 ------------ ------------ Total current assets............................................................ 118,887 111,914 ------------ ------------ PROPERTY, PLANT AND EQUIPMENT, at cost (Note 1): Land.................................................................................... 6,672 4,231 Buildings............................................................................... 26,982 25,347 Machinery and equipment................................................................. 109,438 107,685 Leasehold improvements.................................................................. 6 10 ------------ ------------ 143,098 137,273 Less--Accumulated depreciation and amortization......................................... 57,450 50,574 ------------ ------------ 85,648 86,699 ------------ ------------ OTHER ASSETS: Excess of cost over acquired net tangible assets, net of accumulated amortization of $9,966 and $7,260 (Notes 1 and 2)..................................... 98,668 101,375 Other assets............................................................................ 6,880 3,952 ------------ ------------ 105,548 105,327 ------------ ------------ $310,083 $303,940 ------------ ------------ ------------ ------------
(The accompanying notes are an integral part of these statements.) - -------------------------------------------------------------------------------- 9 (in thousands except per share data) - --------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY December 31, 1994 1993 ------------ ------------ CURRENT LIABILITIES: Notes payable to banks (Notes 2, 6 and 10).............................................. $ -- $ 22,601 Accounts payable........................................................................ 6,124 6,259 Dividends payable....................................................................... 1,219 1,026 Accrued liabilities (Note 3)............................................................ 17,046 17,919 Income taxes payable.................................................................... 1,872 3,057 ------------ ------------ Total current liabilities....................................................... 26,261 50,862 ------------ ------------ NONCURRENT LIABILITIES: Deferred income taxes (Notes 1 and 4)................................................... 7,716 6,364 Postretirement health care and life insurance benefits (Notes 1 and 7).................. 4,993 4,498 Industrial Development Bonds (Notes 6 and 10)........................................... 7,500 7,500 Term notes payable (Notes 6 and 10)..................................................... 20,000 20,000 Other long term liabilities............................................................. 3,152 2,373 ------------ ------------ Total noncurrent liabilities.................................................... 43,361 40,735 ------------ ------------ SHAREHOLDERS' EQUITY (Notes 1 and 5): Common stock, $.69-4/9 par value-- 25,000 shares authorized-- 7,306 and 7,069, respectively, issued................................................. 5,074 4,909 Class B common stock, $.69-4/9 par value-- 10,000 shares authorized-- 3,542 and 3,465, respectively, issued................................................. 2,459 2,406 Capital in excess of par value.......................................................... 132,997 111,108 Retained earnings, per accompanying statement........................................... 107,763 96,647 Foreign currency translation adjustment account (Note 1)................................ (7,832) (2,727) ------------ ------------ 240,461 212,343 ------------ ------------ COMMITMENTS (Note 9)........................................................................ -- -- ------------ ------------ $310,083 $303,940 ------------ ------------ ------------ ------------
- -------------------------------------------------------------------------------- 10 CONSOLIDATED STATEMENT OF CASH FLOWS TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES (in thousands) - --------------------------------------------------------------------------------
For the year ended December 31, 1994 1993 1992 ------------ ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings.......................................................... $37,931 $35,442 $32,032 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization..................................... 10,478 8,814 6,071 Loss on retirement of fixed assets................................ 190 34 152 Translation loss.................................................. -- -- 124 Changes in operating assets and liabilities: Accounts receivable........................................... (5,158) (7,941) 113 Inventories................................................... (1,091) (2,727) (3,443) Prepaid expenses and other assets............................. (3,952) (2,827) (724) Accounts payable and accrued liabilities...................... (107) 3,179 2,964 Income taxes payable and deferred............................. 1,075 214 (3,536) Postretirement health care and life insurance benefits........ 495 522 450 Other long-term liabilities................................... 778 (432) 1,420 Other......................................................... (144) (881) -- ------------ ------------ ------------ Net cash provided by operating activities............................. 40,495 33,397 35,623 ------------ ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of Cambridge Brands....................................... -- (81,317) -- Capital expenditures.................................................. (8,179) (27,992) (10,956) Investment purchases.................................................. (72,394) (22,854) (86,357) Investment sales...................................................... 81,650 61,096 52,752 ------------ ------------ ------------ Net cash provided by (used in) investing activities................... 1,077 (71,067) (44,561) ------------ ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Issuances of industrial development bonds and notes payable........... 25,000 92,000 7,500 Repayments of notes payable........................................... (47,000) (50,000) -- Borrowings under line of credit agreements, net of repayments......... (535) 348 -- Dividends paid in cash................................................ (4,514) (3,687) (2,965) ------------ ------------ ------------ Net cash provided by (used in) financing activities................... (27,049) 38,661 4,535 ------------ ------------ ------------ Increase (decrease) in cash and cash equivalents.......................... 14,523 991 (4,403) Cash and cash equivalents at beginning of year............................ 1,986 995 5,398 ------------ ------------ ------------ Cash and cash equivalents at end of year.................................. $16,509 $ 1,986 $ 995 ------------ ------------ ------------ ------------ ------------ ------------ Supplemental cash flow information: Income taxes paid..................................................... $22,817 $22,111 $23,733 ------------ ------------ ------------ ------------ ------------ ------------ Interest paid......................................................... $ 1,798 $ 653 $ 116 ------------ ------------ ------------ ------------ ------------ ------------
(The accompanying notes are an integral part of these statements.) - -------------------------------------------------------------------------------- 11 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ($ IN THOUSANDS EXCEPT PER SHARE DATA) TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES NOTE 1--SIGNIFICANT ACCOUNTING POLICIES: Basis of consolidation: The consolidated financial statements include the accounts of Tootsie Roll Industries, Inc. and its wholly-owned subsidiaries (the company), which are primarily engaged in the manufacture and sale of candy products. All significant intercompany transactions have been eliminated. Revenue recognition: Revenues are recognized when products are shipped. Accounts receivable are unsecured. Cash and cash equivalents: The company considers temporary cash investments with a maturity of three months or less to be cash equivalents. Investments: Investments consist of various marketable securities that have maturities of less than one year. As of January 1, 1994, the company has adopted the provisions of Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting For Certain Investments in Debt and Equity Securities" which requires the company to classify each of its debt and equity securities into one of three categories: held to maturity, available for sale or trading. The company has concluded that its investments should be classified as held to maturity due to the existence of positive intent and ability to hold these securities to maturity. Accordingly, all investments have been measured at amortized cost in the statement of financial position. There was no effect on the company's consolidated financial statements from adoption of this statement. Inventories: Inventories are stated at cost, not in excess of market. The cost of domestic inventories ($26,571 and $26,500 at December 31, 1994 and 1993, respectively) has been determined by the last-in, first-out (LIFO) method. The excess of current cost over LIFO cost of inventories approximates $4,005 and $4,316 at December 31, 1994 and 1993, respectively. The cost of foreign inventories ($2,597 and $2,794 at December 31, 1994 and 1993, respectively) has been determined by the first-in, first-out (FIFO) method. From time to time, the company enters into commodity futures and option contracts in order to fix the price, on a short-term basis, of certain future ingredient purchases which are integral to the company's manufacturing process and which may be subject to price volatility (primarily sugar and corn syrup). Gains or losses, if any, resulting from these contracts are considered as a component of the cost of the ingredients being hedged. Open contracts at December 31, 1994 and 1993 were not material. Property, plant and equipment: Depreciation is computed for financial reporting purposes by use of both the straight-line and accelerated methods based on useful lives of 5 to 35 years for both buildings and machinery and equipment. For income tax purposes the company uses accelerated methods on all properties. 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 in accordance with SFAS No. 106, "Employers' Accounting for Postretirement Benefits other than Pensions." Income taxes: The company uses the liability method of computing deferred income taxes in accordance with SFAS No. 109 "Accounting For Income Taxes." Excess of cost over acquired net tangible assets: The excess of cost over the acquired net tangible assets of operating companies is amortized on a straight-line basis over a 40 year period. The company assesses the recoverability of its intangible assets using undiscounted future cash flows. Foreign currency translation: During 1992 management classified Mexico as a hyper-inflationary economy, as defined by SFAS No. 52, "Foreign Currency Translation." Under this classification, the dollar is used as the functional currency, and translation gains and losses are included in the determination of earnings. A translation loss of $124 related to the company's Mexican operations was charged to expense in 1992. Effective January 1, 1993 management determined that the Mexican economy was no longer hyper-inflationary. Accordingly, the local currency is used as the functional currency and the net effect of translating the Mexican operation's financial statements is reported in a separate component of shareholders' equity. NOTE 2--ACQUISITION: On October 15, 1993, the company purchased certain tangible and intangible assets of a candy manufacturer (Cambridge Brands) for approximately $81,300. Funds for the acquisition were provided from $9,300 of the company's own funds and $72,000 in bank borrowings (Note 6). The acquisition was accounted for as a purchase and the net assets and the results of operations and cash flows of Cambridge Brands have been included in the company's consolidated financial statements from October 15, 1993. The following unaudited pro forma information shows the results of the company's operations as though the purchase of Cambridge Brands had been consummated as of the beginning of each year:
1993 1992 --------- --------- Net sales........................................... $ 306,584 $ 303,576 Net earnings........................................ 36,592 32,763 Net earnings per common share....................... 3.37 3.02
The pro forma results of operations are not necessarily indicative of the actual results of operations that would have occurred had the purchase actually been made at the beginning of periods presented or of future operations. NOTE 3--ACCRUED LIABILITIES: Accrued liabilities are comprised of the following:
December 31, -------------------- 1994 1993 --------- --------- Compensation and employee benefits.................... $ 5,512 $ 5,989 Commissions........................................... 736 856 Advertising and promotions............................ 4,766 4,413 Workers' compensation................................. 1,271 973 Other................................................. 4,761 5,688 --------- --------- $ 17,046 $ 17,919 --------- --------- --------- ---------
12 NOTE 4--INCOME TAXES: The domestic and foreign components of pretax income are as follows:
1994 1993 1992 --------- --------- --------- Domestic................................... $ 58,439 $ 56,159 $ 48,450 Foreign.................................... 2,728 1,551 3,472 --------- --------- --------- $ 61,167 $ 57,710 $ 51,922 --------- --------- --------- --------- --------- ---------
The provision for income taxes is comprised of the following:
1994 1993 1992 --------- --------- --------- Current: Federal.................................. $ 18,096 $ 19,052 $ 17,820 Foreign.................................. 1,455 534 1,073 State.................................... 2,407 2,406 2,469 --------- --------- --------- 21,958 21,992 21,362 --------- --------- --------- Deferred: Federal.................................. 1,972 514 (1,318) Foreign.................................. (963) (281) (25) State.................................... 269 43 (129) --------- --------- --------- 1,278 276 (1,472) --------- --------- --------- $ 23,236 $ 22,268 $ 19,890 --------- --------- --------- --------- --------- ---------
Deferred income taxes are comprised of the following:
December 31, -------------------- 1994 1993 --------- --------- Workers' compensation................................... $ 435 $ 331 Reserve for returns..................................... 438 445 Reserve for uncollectible accounts...................... 174 230 Other accrued expenses.................................. 1,842 1,705 VEBA funding............................................ (756) (526) Other, net.............................................. 35 (91) --------- --------- Net current deferred income tax asset................... $ 2,168 $ 2,094 --------- --------- --------- ---------
December 31, -------------------- 1994 1993 --------- --------- Depreciation............................................ $ 7,229 $ 6,878 Post employment benefits................................ (1,709) (1,536) Deductible goodwill..................................... 2,071 1,342 Deferred compensation................................... (739) (473) DISC commissions........................................ 849 724 Other, net.............................................. 15 (571) --------- --------- Net long-term deferred income tax liability............. $ 7,716 $ 6,364 --------- --------- --------- ---------
The effective income tax rate differs from the statutory rate as follows:
1994 1993 1992 ---------- ---------- ---------- U.S. statutory rate............................ 35.0% 35.0% 34.0% State income taxes, net........................ 2.8 2.8 3.0 Amortization of excess of cost over acquired net tangible assets........................... 0.7 0.7 0.8 Other, net..................................... (0.5) 0.1 0.5 --- --- --- Effective income tax rate...................... 38.0% 38.6% 38.3% --- --- --- --- --- ---
The company has not provided for U.S. federal or foreign withholding taxes on $2,701 of foreign subsidiaries' undistributed earnings as of December 31, 1994 because such earnings are considered to be permanently reinvested. When excess cash has accumulated in the company's foreign subsidiaries and it is advantageous for tax or foreign exchange reasons, subsidiary earnings may be remitted, and income taxes are provided on such amounts. It is not practicable to determine the amount of income taxes that would be payable upon remittance of the undistributed earnings. NOTE 5--SHARE CAPITAL AND CAPITAL IN EXCESS OF PAR VALUE:
Class B Common Stock Common Stock Capital in ------------------------ ------------------------ excess of Amount Amount par value Shares ----------- ----------- ----------- ----------- Shares (000's) ----------- (000's) Balance at January 1, 1992........ 6,554 $ 4,552 3,378 $ 2,346 $ 64,200 Issuance of 3% stock dividend......... 197 136 100 69 21,962 Conversion of Class B common shares to common shares................. 83 58 (83) (58) -- ----- ----------- ----- ----------- ----------- Balance at December 31, 1992...... 6,834 4,746 3,395 2,357 86,162 Issuance of 3% stock dividend......... 204 142 101 70 24,946 Conversion of Class B common shares to common shares................. 31 21 (31) (21) -- ----- ----------- ----- ----------- ----------- Balance at December 31, 1993...... 7,069 4,909 3,465 2,406 111,108 Issuance of 3% stock dividend......... 211 147 103 71 21,889 Conversion of Class B common shares to common shares................. 26 18 (26) (18) -- ----- ----------- ----- ----------- ----------- Balance at December 31, 1994...... 7,306 $ 5,074 3,542 $ 2,459 $ 132,997 ----- ----------- ----- ----------- ----------- ----- ----------- ----- ----------- -----------
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 the three percent stock dividend distributed in 1994. NOTE 6--NOTES PAYABLE AND INDUSTRIAL DEVELOPMENT BONDS: In October 1993, the company executed notes payable with three banks in the aggregate amount of $72,000 to provide funds for the acquisition of Cambridge Brands (Note 2). As of December 31, 1994 these notes have been repaid. Additionally, 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 bear interest payable monthly at 3.55% and mature entirely in 1996. At December 31, 1994, the company had outstanding a three year interest rate swap agreement with a notional amount of $20,000. Under the agreement, the company exchanged a fixed rate of 4.24% for a variable rate adjusted monthly based upon 30 day LIBOR (6% at December 31, 1994). The company anticipates the counterparty to the swap agreement (a large financial institution) will fully perform on its obligations. The company accounts for the agreement using hedge accounting, and does not anticipate any circumstances, such as the early repayment of the underlying debt, which would cause a change in the accounting method used. 13 During 1992, the company entered into an industrial development bond agreement with the City of Covington, Tennessee. The bond proceeds of $7.5 million are being 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, 1994 and 1993, interest was calculated under the floating option (4.1% and 3.4%, respectively) which requires monthly payments of interest. Principal on the bonds is due in its entirety in the year 2027. At December 31, 1994 and 1993, unexpended bond proceeds of $162 and $1,061 were restricted for use on the capital expenditure projects discussed above. These funds, which are included as other assets in the accompanying consolidated balance sheet, are invested in short-term securities until expended. In connection with the issuance of the bonds, the company entered into a letter of credit agreement with a bank for the amount of principal outstanding plus 48 days' accrued interest. The letter of credit, which expires in March 1996, carries an annual fee of 32 1/2 basis points on the outstanding principal amount of the bonds. NOTE 7--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 1994, 1993 and 1992 approximated $1,426, $1,202 and $1,075, respectively. The company also maintains certain profit sharing and savings-investment plans. Company contributions in 1994, 1993 and 1992 to these plans were $420, $321 and $291, respectively. The company also contributes to multi-employer defined benefit pension plans for its union employees. Such contributions aggregated $352, $407 and $474 in 1994, 1993 and 1992, 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 and terminate these benefits and increase future participant contributions. The company does not fund postretirement health care and life insurance benefits in advance of payments for benefit claims. The accrual for the accumulated postretirement benefit obligation at December 31, 1994 and 1993 consists of the following:
December 31, -------------------- 1994 1993 --------- --------- Retirees............................................ $ 1,287 $ 1,285 Active employees.................................... 3,706 3,213 --------- --------- $ 4,993 $ 4,498 --------- --------- --------- ---------
Net periodic postretirement benefit cost for 1994, 1993 and 1992 included the following components:
1994 1993 1992 --------- --------- --------- Service cost--benefits attributed to service during the period.............................. $ 318 $ 241 $ 246 Interest cost on the accumulated postretirement benefit obligation..................................... 291 259 288 --------- --------- --------- Net periodic postretirement benefit cost................. $ 609 $ 500 $ 534 --------- --------- --------- --------- --------- ---------
For measurement purposes, a 13.5% annual rate of increase in the per capita cost of covered health care benefits was assumed for 1995; the rate was assumed to decrease gradually to 6.5% for 2002 and remain at that level thereafter. The health care cost trend rate assumption has a significant effect on the amounts reported. To illustrate, increasing the assumed health care cost trend rates by 1 percentage point in each year would increase the accumulated postretirement benefit obligation as of December 31, 1994 by approximately $485 and the aggregate of the service and interest cost components of net periodic postretirement benefit cost for the year then ended by approximately $116. The weighted-average discount rate used in determining the accumulated postretirement benefit obligation was 8% and 7% at December 31, 1994 and 1993, respectively. NOTE 8--OTHER INCOME, NET: Other income (expense) is comprised of the following:
1994 1993 1992 --------- --------- --------- Interest income................................ $ 1,288 $ 1,975 $ 2,376 Interest expense............................... (1,649) (642) (440) Dividend income................................ 1,509 1,992 1,624 Foreign exchange losses........................ (225) (4) (155) Royalty income................................. 149 634 289 Miscellaneous, net............................. 107 238 295 --------- --------- --------- $ 1,179 $ 4,193 $ 3,989 --------- --------- --------- --------- --------- ---------
NOTE 9--COMMITMENTS: Future minimum rental commitments under non-cancelable operating leases are $2,395, $222, $42, $42 and $53 in the years 1995, 1996, 1997, 1998 and thereafter, respectively. During 1993 and 1994, the company entered into operating leases for certain manufacturing equipment. These leases expire in 1998 but provide the company with the option to terminate the lease in 1996 and to purchase the equipment at its fair market value. Rental expense aggregated $2,314, $1,015, and $1,243 in 1994, 1993 and 1992, respectively. NOTE 10--DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS: The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value: Cash and cash equivalents and investments The carrying amount approximates fair value of cash and cash equivalents because of the short maturity of those instruments. The fair values of investments are estimated based on quoted market prices. Notes payable and industrial development bonds The fair values of the company's notes payable and industrial development bonds are estimated based on the quoted market prices for the same or similar issues. Interest rate swap agreement The fair value of the company's interest rate swap agreement is calculated using a valuation model based on well recognized financial principles and current market information to provide a reasonable approximation of fair value. Fair value The estimated fair values of the company's financial instruments are as follows:
1994 1993 ------------------------ ------------------------ Carrying Carrying Amount Fair Value Amount Fair Value ----------- ----------- ----------- ----------- Cash and cash equivalents............. $ 16,509 $ 16,509 $ 1,986 $ 1,986 Investments held to maturity.......... 45,861 47,073 54,217 56,272 Notes payable and industrial development bonds........ 27,500 27,500 50,101 50,101 Interest rate swap agreement.......... 0 (1,214) 0 2,279
14 A summary of the aggregate fair value, gross unrealized holding gains, gross unrealized losses and amortized cost basis of the company's investments held to maturity by major security type is as follows:
December 31, 1994 ---------------------------------------------- Unrealized Amortized Fair ---------------------- Cost Value Gains Losses ----------- --------- --------- ----------- Unit investment trusts of preferred stocks.................................. $ 7,836 $ 8,653 $ 849 ($ 32) Tax-free commercial paper................ 9,996 10,000 4 -- Municipal bonds.......................... 11,773 11,711 1 (63) Unit investment trusts of municipal bonds................................... 4,547 5,033 546 (60) US gov't/gov't agency obligations........ 9,901 9,872 -- (29) Private export funding securities........ 1,808 1,804 -- (4) ----------- --------- --------- ----------- $ 45,861 $ 47,073 $ 1,400 ($ 188) ----------- --------- --------- ----------- ----------- --------- --------- -----------
December 31, 1993 ---------------------------------------------- Unrealized Amortized Fair ---------------------- Cost Value Gains Losses ----------- --------- --------- ----------- Unit investment trusts of preferred stocks................................... $ 11,250 $ 12,698 $ 1,482 ($ 34) Tax-free commercial paper................. 19,803 19,802 5 (6) Municipal bonds........................... 14,314 14,428 114 -- Unit investment trusts of municipal bonds.................................... 7,139 7,633 650 (156) Private export funding securities......... 1,711 1,711 -- -- ----------- --------- --------- ----------- $ 54,217 $ 56,272 $ 2,251 ($ 196) ----------- --------- --------- ----------- ----------- --------- --------- -----------
NOTE 11--GEOGRAPHIC AREA AND SALES INFORMATION: Summary of sales, net earnings and assets by geographic area
1994 1993 1992 ------------------------------ ------------------------------ ------------------------------ 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... $268,582 $28,350 $296,932 $234,460 $25,133 $259,593 $225,001 $20,423 $245,424 --------- --------- --------- --------- --------- --------- Sales between geographic areas.... 1,382 2,204 2,186 3,219 806 1,649 --------- -------- --------- -------- --------- -------- $269,964 $30,554 $236,646 $28,352 $225,807 $22,072 --------- -------- --------- -------- --------- -------- --------- -------- --------- -------- --------- -------- Net earnings...................... $ 36,139 $ 1,792 $ 37,931 $ 34,144 $ 1,298 $ 35,442 $ 29,478 $ 2,554 $ 32,032 Total assets...................... $297,981 $12,102 $310,083 $288,506 $15,434 $303,940 $211,099 $13,371 $224,470 Net assets........................ $229,066 $11,395 $240,461 $199,862 $12,481 $212,343 $171,838 $ 9,866 $181,704
Total assets are those assets associated with or used directly in the respective geographic area, excluding intercompany advances and investments. Major customer Revenues from a major customer aggregated approximately 16.8%, 13.6% and 12.5% of total net sales during the years ended December 31, 1994, 1993 and 1992, respectively. - -------------------------------------------------------------------------------- REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders of Tootsie Roll Industries, Inc. In our opinion, the accompanying consolidated statement of financial position and the related consolidated statement of earnings and retained earnings and of cash flows present fairly, in all material respects, the financial position of Tootsie Roll Industries, Inc. and its subsidiaries at December 31, 1994 and 1993, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1994, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. Chicago, Illinois February 15, 1995 15 QUARTERLY FINANCIAL DATA TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES
(Thousands of dollars except per share data) 1994 First Second Third Fourth Total - ----------------------------------------------------------------------------------------------------------------------- Net sales....................................................... $56,370 $62,891 $111,014 $66,657 $296,932 Gross margin.................................................... 28,121 31,306 51,195 30,745 141,367 Net earnings.................................................... 6,962 7,860 15,386 7,723 37,931 Net earnings per share.......................................... .64 .72 1.42 .72 3.50 1993 - ----------------------------------------------------------------------------------------------------------------------- Net sales....................................................... $50,017 $53,923 $93,239 $62,414 $259,593 Gross margin.................................................... 25,281 27,232 45,318 27,784 125,615 Net earnings.................................................... 6,696 7,345 14,380 7,021 35,442 Net earnings per share.......................................... .62 .68 1.32 .65 3.27 1992 - ----------------------------------------------------------------------------------------------------------------------- Net sales....................................................... $42,798 $51,494 $86,856 $64,276 $245,424 Gross margin.................................................... 21,691 26,104 41,979 28,527 118,301 Net earnings.................................................... 5,563 6,733 13,076 6,660 32,032 Net earnings per share.......................................... .51 .62 1.21 .61 2.95 Net earnings per share is based upon average outstanding shares as adjusted for 3% stock dividends issued during the second quarter of each year. - -----------------------------------------------------------------------------------------------------------------------
1994-1993 QUARTERLY SUMMARY OF TOOTSIE ROLL INDUSTRIES, INC. STOCK PRICE AND DIVIDENDS PER SHARE
STOCK PRICES* DIVIDENDS* 1994 1993 ---------------------------------------------------- Hi Lo Hi Lo 1994 1993 ---------------------------------------------------- ------------------------------------------------------ 1st Qtr... 76-1/2 69-1/4 83-3/8 74 1st Qtr............. $ .0923 $ .0707 2nd Qtr... 70 59-1/8 82-1/2 71-1/8 2nd Qtr............. $ .1100 $ .0923 3rd Qtr... 63-3/4 59-1/2 74-1/4 65 3rd Qtr............. $ .1100 $ .0923 4th Qtr... 63-3/4 54-1/8 79-1/4 69-1/4 4th Qtr............. $ .1100 $ .0923 NOTE: In addition to the above cash dividends, a 3% stock dividend was issued on 4/22/94 and 4/22/93. *Cash dividends are restated to reflect 3% stock dividends. *NYSE -- Composite Quotations. Estimated Number of shareholders at 12/31/94 ... 9,500
16 FIVE YEAR SUMMARY OF EARNINGS AND FINANCIAL HIGHLIGHTS TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES (Thousands of dollars except per share, percentage and ratio figures) - --------------------------------------------------------------------------------
(See Management's Comments starting on page 5) 1994 1993 1992 1991 1990 --------- --------- --------- --------- --------- Sales and Earnings Date Net Sales........................................ $ 296,932 $ 259,593 $ 245,424 $ 207,875 $ 194,299 Gross Margin..................................... 141,367 125,615 118,301 100,595 91,094 Interest Expense................................. 1,649 642 440 196 527 Provision for Income Taxes....................... 23,236 22,268 19,890 17,641 14,563 Earnings before cumulative effect of accounting changes......................................... 37,931 35,442 32,032 26,533 22,556 Cumulative effect of accounting changes (1)...... -- -- -- (1,038) -- Net Earnings..................................... 37,931 35,442 32,032 25,495 22,556 % of Sales................................... 12.8% 13.7% 13.1% 12.3% 11.6% % of Shareholders' Equity.................... 15.8% 16.7% 17.6% 16.7% 17.4% Per Common Share Data (2) Net Sales........................................ $ 27.37 $ 23.93 $ 22.62 $ 19.16 $ 17.91 Earnings before cumulative effect of accounting changes......................................... 3.50 3.27 2.95 2.45 2.08 Cumulative effect of accounting changes (1)...... -- -- -- (.10) -- Net Earnings..................................... 3.50 3.27 2.95 2.35 2.08 Shareholders' Equity............................. 22.17 19.57 16.75 14.08 11.97 Cash Dividends................................... .42 .35 .27 .23 .20 Stock Dividends.................................. 3% 3% 3% 3% 3% Additional Financial Data Working Capital.................................. $ 92,626 $ 61,052 $ 110,714 $ 80,569 $ 55,378 Current Ratio.................................... 4.5 2.2 5.9 4.8 3.5 Net Cash Provided by Operating Activities........ 40,495 33,397 35,623 35,826 26,685 Property, Plant & Equipment Additions (3)........ 8,179 52,492 10,956 3,985 5,155 Net Property, Plant & Equipment.................. 85,648 86,699 40,257 34,019 32,099 Total Assets..................................... 310,083 303,940 224,470 184,427 159,702 Long Term Debt................................... 27,500 27,500 7,500 -- -- Shareholders' Equity............................. 240,461 212,343 181,704 152,759 129,845 Average Shares Outstanding (2)................... 10,848 10,848 10,848 10,848 10,848 (1) Reflects adoption of new accounting standards for income taxes and postretirement health care and life insurance benefits (see Notes 1, 4 and 7 to financial statements). (2) Adjusted for stock dividends. (3) 1993 includes $44,500 relating to the Cambridge Brands acquisition and the purchase of the Chicago office and plant facilities.
- -------------------------------------------------------------------------------- 17 EX-21 7 EXHIBIT 21 EXHIBIT 21 SUBSIDIARIES OF TOOTSIE ROLL INDUSTRIES, INC. AND STATE OF INCORPORATION Arrendadora Gorvac S.A. De C.V. Mexico City, Mexico C.G.C. Corporation Delaware Cambridge Brands, Inc. Delaware Cambridge Mfg., Inc. Delaware Cambridge Services, Inc. Delaware Cella's Confections, Inc. Virginia Charms Company Delaware Charms Marketing Company Illinois Henry Eisen 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. Ilinois TRI de Latino America Mexico TRI-Finance, Inc. Delaware TRI International Co. Illinois TRI-MASS, Inc. Massachusetts TRI Sales Co. Delaware Tutsi S.A. de C.V. Mexico City, Mexico World Trade & Marketing Ltd. Grand Cayman, BWI EX-27 8 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED STATEMENTS OF FINANCIAL POSITION AND CONSOLIDATED STATEMENTS OF EARNINGS AND RETAINED EARNINGS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 12-MOS DEC-31-1994 JAN-01-1994 DEC-31-1994 16509 45861 23553 1466 29168 118887 143098 57450 310083 26261 7500 7533 0 0 232928 310083 296932 296932 155565 81379 (1179) 351 1649 61167 23236 37931 0 0 0 37931 3.50 3.50
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