10-K

QuickLinks -- Click here to rapidly navigate through this document

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

(Mark One)

ý
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2002

OR

o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                                      to                                     

Commission file number 1-1361

TOOTSIE ROLL INDUSTRIES, INC.
(Exact name of Registrant as specified in its charter)

Virginia	22-1318955
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)

7401 South Cicero Avenue, Chicago, Illinois 60629
(Address of principal executive offices) (Zip Code)

Registrant's Telephone Number: (773) 838-3400

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Name of each exchange on which registered
Common Stock—Par Value $.694/9 Per Share	New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:
Class B Common Stock—Par Value $.69⁴/9 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 ý                  No o

        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. o

        Indicate by check mark whether the register is an accelerated filer (as defined in Exchange Act Rule 12b-2).

Yes ý                  No o

        As of March 4, 2003, there were outstanding 33,941,173 shares of Common Stock par value $.69⁴/9 per share, and 16,756,572 shares of Class B Common Stock par value $.69⁴/9 per share.

        As of June 30, 2002, 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 $744,830,127. 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 16,756,572 shares of outstanding Class B Common Stock were converted into Common Stock, the aggregate market value of Common Stock held by non-affiliates on June 30, 2002 (based upon the closing price of the stock on the New York Stock Exchange on such date) would have been approximately $791,600,476. 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, 2002 (the "2002 Report") are incorporated by reference in Parts I and II of this report.

        2.      Portions of the Company's Definitive Proxy Statement for the Company's 2003 Annual Meeting of Shareholders (the "2003 Proxy Statement") are incorporated by reference in Part III of this report.

TABLE OF CONTENTS

ITEM 1.	Business.	1
ITEM 2.	Properties.	3
ITEM 3.	Legal Proceedings.	3
ITEM 4.	Submission of Matters to a Vote of Security Holders.	3
ITEM 5.	Market for Registrant's Common Equity and Related Stockholder Matters.	4
ITEM 6.	Selected Financial Data.	4
ITEM 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations.	4
ITEM 8.	Financial Statements and Supplementary Data.	4
ITEM 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.	4
ITEM 10.	Directors and Executive Officers of the Registrant.	5
ITEM 11.	Executive Compensation.	5
ITEM 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.	5
ITEM 13.	Controls and Procedures.	6
ITEM 14.	Exhibits, Financial Statement Schedule and Reports on Form 8-K.	6

i

Forward-Looking Information

        From time to time, in the Company's statements and written reports, including this report, the Company discusses its expectations regarding future performance by making certain "forward-looking statements." These forward-looking statements are based on currently available competitive, financial and economic data and management's views and assumptions regarding future events. Such forward-looking statements are inherently uncertain, and actual results may differ materially from those expressed or implied herein. Consequently, the Company wishes to caution readers not to place undue reliance on any forward-looking statements. In connection with the "safe harbor provisions" of the Private Securities Litigation Reform Act of 1995, the Company notes the following factors which, among others, could cause future results to differ materially from the forward-looking statements, expectations and assumptions expressed or implied herein. Among the factors that could impact the Company's ability to achieve its stated goals are the following: (i) significant competitive activity, including advertising, promotional and price competition, and changes in consumer demand for the Company's products; (ii) fluctuations in the cost and availability of various raw materials; and (iii) inherent risks in the marketplace associated with new product introductions, including uncertainties about trade and consumer acceptance. In addition, the Company's results may be affected by general factors, such as economic conditions, political developments, currency exchange rates, interest and inflation rates, accounting standards, taxes, and laws and regulations affecting the Company in markets where it competes.

PART I

ITEM 1.    Business.

        Tootsie Roll Industries, Inc. and its consolidated subsidiaries (the "Company") have been engaged in the manufacture and sale of candy for over 100 years. This is the only industry segment in which the Company operates and is its only line of business. The majority of the Company's products are sold under the registered trademarks TOOTSIE ROLL, TOOTSIE ROLL POPS, CHILD'S PLAY, CARAMEL APPLE POPS, CHARMS, BLOW-POP, BLUE RAZZ, ZIP-A-DEE-DOO-DA POPS, CELLA'S, MASON DOTS, MASON CROWS, JUNIOR MINT, CHARLESTON CHEW, SUGAR DADDY, SUGAR BABIES, ANDES AND FLUFFY STUFF. The Company acquired the trademarks for Junior Mint, Charleston Chew, Sugar Daddy and Sugar Babies in 1993 along with the manufacturing assets of the former Chocolate/Caramel Division of Warner Lambert Company. In 2000, the Company acquired the trademarks for Andes and Fluffy Stuff along with their corresponding manufacturing assets for an aggregate purchase price of $74,293,000.

        The Company's products are marketed in a variety of packages designed to be suitable for display and sale in different types of retail outlets. They are distributed through approximately 100 candy and grocery brokers and by the Company itself to approximately 15,000 customers throughout the United States. These customers include wholesale distributors of candy and groceries, supermarkets, variety stores, dollar stores, chain grocers, drug chains, discount chains, cooperative grocery associations, warehouse and membership club stores, vending machine operators, the U. S. military and fund-raising charitable organizations.

        The Company's principal markets are in the United States, Canada and Mexico. The Company's Mexican plant supplies a very small percentage of the products marketed in the United States and Canada.

        The domestic candy business is highly competitive. The Company competes primarily with other manufacturers of bar candy and bagged candy of the type sold in the above mentioned stores. Although accurate statistics are not available, the Company believes it is among the ten largest domestic manufacturers in this field. In the markets in which the Company competes, the main forms of

1

competition comprise brand recognition as well as a fair price for our products at various retail price points.

        The Company did not have a material backlog of firm orders at the end of the calendar years 2002 or 2001.

        Packaging materials and ingredients used by the Company are readily obtainable from a number of suppliers at competitive prices. Cocoa supplies from the Ivory Coast, the world's largest producer, were disrupted by civil war driving prices to a 17 year high. Corn prices increased due to weather-related crop reductions in the U.S., and the USDA imposed marketing allotments on sugar which in turn increased the domestic price of both raw and refined sugar. Packaging material costs, including films, cartons, corrugated containers and waxed paper, also increased in 2002. The Company continues to seek competitive bids to leverage the high volume of annual purchases it makes of these items and to lower per unit costs. The Company has engaged in hedging transactions, primarily in sugar and corn syrup, and may do so in the future if and when advisable. From time to time, the Company changes the size of certain of its products, which are usually sold at standard prices, to reflect significant changes in raw material costs.

        The Company does not hold any material patents, licenses, franchises or concessions. The Company's major trademarks are registered in the United States and in many other countries. Continued trademark protection is of material importance to the Company's business as a whole.

        The Company does not expend significant amounts of money on research or development activities.

        The Company's compliance with Federal, State and local regulations which have been enacted or adopted regulating the discharge of materials into the environment, or otherwise relating to the protection of the environment, has not had a material effect on the capital expenditures, earnings or competitive position of the Company nor does the Company anticipate any such material effects from presently enacted or adopted regulations.

        The Company employs approximately 1,950 persons.

        The Company has found that its sales normally maintain a consistent level throughout the year except for a substantial upsurge in the third quarter which reflects sales associated with Halloween. In anticipation of this high sales period, the Company generally begins its Halloween inventory build up in the second quarter of each year. The Company historically offers extended credit terms for sales made under Halloween sales programs. Each year, after Halloween receivables have been collected, the Company invests such funds in various temporary cash investments.

        Revenues from a major customer aggregated approximately 19.6%, 16.9% and 17.8% of total net sales during the years ended December 31, 2002, 2001 and 2000, 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 13 of the Notes to Consolidated Financial Statements on Page 19 of the Company's Annual Report to Shareholders for the year ended December 31, 2002 (the "2002 Report") and on Page 5 of the 2002 Report under the section entitled "International." Note 13 and the aforesaid section are incorporated herein by reference. Portions of the 2002 Report are filed as an exhibit to this report.

        Information regarding the Company's annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to these reports, will be made available, free of charge, upon written request to Tootsie Roll Industries, Inc., 7401 South Cicero Avenue, Chicago, Illinois 60629, Attention: G. Howard Ember Jr., Vice President/Finance and Assistant Secretary. The Company does not make such reports available on its website at www.tootsie.com

2

because it believes that they are readily available from the Securities Exchange Commission at www.sec.gov, and because the Company provides them free of charge upon request.

ITEM 2.    Properties.

        The Company owns its principal plant and offices which are located in Chicago, Illinois in a building consisting of approximately 2,225,000 square feet. The Company utilizes approximately 2,025,000 square feet for offices, manufacturing and warehousing facilities and leases, or has available to lease to third parties, approximately 200,000 square feet.

        In addition to owning the principal plant and warehousing facilities mentioned above, the Company leases manufacturing and warehousing facilities at a second location in Chicago which comprises 138,000 square feet. The lease is renewable by the Company every five years through June, 2011. The Company also periodically leases additional warehousing space at this second location as needed on a month to month basis.

        The Company's other principal manufacturing facilities, all of which are owned, are:

Location	Square Feet(a)
New York, New York	60,000
Covington, Tennessee	685,000
Cambridge, Massachusetts	142,000
Delevan, Wisconsin	162,000
Mexico City, Mexico	90,000

(a)

Square footage is approximate and includes production, warehousing and office space.

        The Company owns substantially all of the production machinery and equipment located in its plants and 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 2002.

ADDITIONAL ITEM.    Executive Officers of the Registrant.

        See the information on Executive Officers set forth in the table in Part III, Item 10, Page 6 of this report, which is incorporated herein by reference.

3

PART II

ITEM 5.    Market for Registrant's Common Equity and Related Stockholder Matters.

        The Company's Common Stock is traded on the New York Stock Exchange. The Company's Class B Common Stock is subject to restrictions on transferability and no market exists for such shares of Class B Common Stock. The Class B Common Stock is convertible at the option of the holder into shares of Common Stock on a share for share basis. As of March 4, 2003, there were approximately 5,000 holders of record of Common and Class B Common Stock. For information on the market price of, and dividends paid with respect to, the Company's Common Stock, see the section entitled "2002-2001 Quarterly Summary of Tootsie Roll Industries, Inc. Stock Price and Dividends Per Share" which appears on Page 20 of the 2002 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 21 of the 2002 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 6-8 of the 2002 Report. This section is incorporated herein by reference and filed as an exhibit to this report.

ITEM 7A.    Quantitative and Qualitative Disclosures About Market Risk.

        See the section entitled "Quantitative and Qualitative Disclosure of Market Risk" in the "Management's Discussion and Analysis of Financial Condition and Results of Operations" on page 8 of the 2002 Report. This section is incorporated herein by reference and filed as an exhibit to this report.

        See Note 1 of the Notes of Consolidated Financial Statements on Page 13 of the 2002 Report, which is incorporated herein by reference.

ITEM 8.    Financial Statements and Supplementary Data.

        The financial statements, together with the report thereon of PricewaterhouseCoopers LLP dated February 10, 2003, appearing on Pages 9-19 of the 2002 Report and the Quarterly Financial Data on Page 20 of the 2002 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 2002 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.

4

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 2003 Annual Meeting of Shareholders (the "2003 Proxy Statement"). Except for the last paragraph of this section relating to the compensation of Directors, this section is incorporated herein by reference. See the information in the section entitled "Section 16(a) Beneficial Ownership Reporting Compliance" of the Company's 2003 Proxy Statement, which section is incorporated herein by reference.

        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)	83
Ellen R. Gordon*	President and Chief Operating Officer(2)	71
G. Howard Ember Jr.	Vice President/Finance	50
John W. Newlin Jr.	Vice President/Manufacturing	66
Thomas E. Corr	Vice President/Marketing and Sales	54
James M. Hunt	Vice President/Distribution	60
Barry P. Bowen	Treasurer	47

*

A member of the Board of Directors of the Company

(1)

Mr. and Mrs. Gordon and Messrs. Newlin, Corr, Ember and Bowen have served in the positions set forth in the table as their principal occupations for more than the past ten years. Mr. Hunt has served in his position for the past ten years and in the fifteen years prior to that, served the Company in the positions of Director of Distribution and Assistant Vice President of Distribution. Mr. and Mrs. Gordon also serve as President and Vice President, respectively of HDI Investment Corp., a family investment company.

(2)

Melvin J. Gordon and Ellen R. Gordon are husband and wife.

ITEM 11.    Executive Compensation.

        See the information set forth in the section entitled "Executive Compensation and Other Information" of the Company's 2003 Proxy Statement. Except for the "Report on Executive Compensation" and "Performance Graph," this section of the 2003 Proxy Statement is incorporated herein by reference. See the last paragraph of the section entitled "Election of Directors" of the 2003 Proxy Statement, which paragraph is incorporated herein by reference.

ITEM 12.    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

        For information with respect to the beneficial ownership of the Company's Common Stock and Class B Common Stock by the beneficial owners of more than 5% of said shares and by the management of the Company, see the sections entitled "Ownership of Common Stock and Class B Common Stock by Certain Beneficial Owners" and "Ownership of Common Stock and Class B Common Stock by Management" of the 2003 Proxy Statement. These sections of the 2003 Proxy

5

Statement are incorporated herein by reference. The Company has no compensation plans under which equity securities of the Company are authorized for issuance to employees.

Certain Relationships and Related Transactions.

        See the section entitled "Certain Relationships and Related Transactions" of the 2003 Proxy Statement, which is incorporated herein by reference.

ITEM 13.    Controls And Procedures.

        Under the supervision and with the participation of management, the chief executive officer and chief financial officer of the Company have evaluated the effectiveness of the design and operation of the Company's disclosure controls and procedures within 90 days of the filing date of this annual report and, based on their evaluation, the chief executive officer and chief financial officer have concluded that these controls and procedures are effective. There were no significant changes in internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation. Disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures are also designed to ensure that information is accumulated and communicated to management, including the chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.

ITEM 14.    Exhibits, Financial Statement Schedule and Reports on Form 8-K.

(a)

Financial Statements.

The following financial statements and schedules are filed as part of this report:

(1)

Financial Statements (filed herewith as part of Exhibit 13):

Report of Independent Accountants

Consolidated Statements of Earnings, Comprehensive Earnings and Retained Earnings for the three years ended December 31, 2002

Consolidated Statements of Cash Flows for the three years ended December 31, 2002

Consolidated Statements of Financial Position at December 31, 2002 and 2001

Notes to Consolidated Financial Statements

(2)

Financial Statement Schedule:

Report on Independent Accountants on Financial Statement Schedule

For the three years ended December 31, 2002—Valuation and Qualifying Accounts

All other schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto.

(3)

Exhibits required by Item 601 of Regulation S-K:

See Index to Exhibits which appears following Financial Schedule II.

No reports on Form 8-K were filed during the quarter ended December 31, 2002.

6

SIGNATURES

        Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, Tootsie Roll Industries, Inc., has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

TOOTSIE ROLL INDUSTRIES, INC.
By:	MELVIN J. GORDON Melvin J. Gordon, Chairman of the Board of Directors and Chief Executive Officer
Date:	March 25, 2003

        Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

MELVIN J. GORDON Melvin J. Gordon	Chairman of the Board of Directors and Chief Executive Officer (principal executive officer)	March 25, 2003
ELLEN R. GORDON Ellen R. Gordon	Director, President and Chief Operating Officer	March 25, 2003
CHARLES W. SEIBERT Charles W. Seibert	Director	March 25, 2003
LANA JANE LEWIS-BRENT Lana Jane Lewis-Brent	Director	March 25, 2003
RICHARD P. BERGEMAN Richard P. Bergeman	Director	March 25, 2003
G. HOWARD EMBER, JR. G. Howard Ember, Jr.	Vice President, Finance (principal financial officer and principal accounting officer)	March 25, 2003

7

CERTIFICATIONS

I, Melvin J. Gordon, Chairman and Chief Executive Officer of Tootsie Roll Industries, Inc., certify that:

1.

I have reviewed this annual report on Form 10-K of Tootsie Roll Industries, Inc.;

2.

Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3.

Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4.

The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

(a)

designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

(b)

evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and

(c)

presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.

The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):

(a)

all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and

(b)

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

6.

The registrant's other certifying officer and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: March 25, 2003
	By:	/s/  MELVIN J. GORDON Melvin J. Gordon Chairman and Chief Executive Officer

CERTIFICATION

I, G. Howard Ember, Jr., Vice President/Finance and Chief Financial Officer of Tootsie Roll Industries, Inc., certify that:

1.

I have reviewed this annual report on Form 10-K of Tootsie Roll Industries, Inc.;

2.

Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3.

Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4.

The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

(a)

designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

(b)

evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and

(c)

presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.

The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):

(a)

all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and

(b)

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

6.

The registrant's other certifying officer and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: March 25, 2003
	By:	/s/  G. HOWARD EMBER, JR. G. Howard Ember, Jr. Vice President/Finance and Chief Financial Officer

REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE

To the Board of Directors of
Tootsie Roll Industries, Inc.:

        Our audits of the consolidated financial statements referred to in our report dated February 10, 2003 appearing in the 2002 Annual Report to Shareholders of Tootsie Roll Industries, Inc. (which report and consolidated financial statements are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the financial statement schedule listed in Item 14(a)(2) of this Form 10-K. In our opinion, this financial statement schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements.

PricewaterhouseCoopers LLP

Chicago, Illinois
February 10, 2003

TOOTSIE ROLL INDUSTRIES, INC.
AND SUBSIDIARY COMPANIES

SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS

DECEMBER 31, 2002, 2001 AND 2000

Description		Balance at beginning of year		Additions charged to costs and expenses		Deductions(1)		Balance at End of Year
2002:
	Reserve for bad debts	$	1,746,000	$	347,226	$	464,226	$	1,629,000
	Reserve for cash discounts		291,000		7,510,884		7,425,884		376,000
		$	2,037,000	$	7,858,110	$	7,890,110	$	2,005,000
2001:
	Reserve for bad debts	$	1,799,000	$	364,678	$	417,678	$	1,746,000
	Reserve for cash discounts		348,000		7,227,905		7,284,905		291,000
		$	2,147,000	$	7,592,583	$	7,702,583	$	2,037,000
2000:
	Reserve for bad debts	$	1,751,000	$	298,228	$	250,228	$	1,799,000
	Reserve for cash discounts		281,000		7,761,472		7,694,472		348,000
		$	2,032,000	$	8,059,700	$	7,944,700	$	2,147,000

(1)

Deductions against reserve for bad debts consist of accounts receivable written off net of recoveries and exchange rate movements. Deductions against reserve for cash discounts consist of allowances to customers.

INDEX TO EXHIBITS

2.1	Asset Sale Agreement dated September 29, 1993 between Warner-Lambert Company and the Company, including a list of omitted exhibits and schedules. Incorporated by reference to Exhibit 2 to the Company's Report on Form 8-K dated October 15, 1993; Commission File No. 1-1361.
	The Company hereby agrees to provide the Commission, upon request, copies of any omitted exhibits or schedules required by Item 601(b)(2) of Regulation S-K.
3.1	Restated Articles of Incorporation. Incorporated by reference to Exhibit 3.1 of the Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1997; Commission File No. 1-1361.
3.2	Amendment to Restated Articles of Incorporation. Incorporated by reference to Exhibit 3.2 of the Company's Annual Report on Form 10-K for the year ended December 31, 1999; Commission File No. 1-1361.
3.3	Amended and Restated By-Laws. Incorporated by reference to Exhibit 3.2 of the Company's Annual Report on Form 10-K for the year ended December 31, 1996; Commission File No. 1-1361.
3.4	Specimen Class B Common Stock Certificate. Incorporated by reference to Exhibit 1.1 of the Company's Registration Statement on Form 8-A dated February 29, 1988.
10.8.1*	Excess Benefit Plan. Incorporated by reference to Exhibit 10.8.1 of the Company's Annual Report on Form 10-K for the year ended December 31, 1990; Commission File No. 1-1361.
10.8.2*	Amended and Restated Career Achievement Plan of the Company. Incorporated by reference to Exhibit 10.8.2 of the Company's Annual Report on Form 10-K for the year ended December 31, 1998; Commission File No. 1-1361.
10.8.3*	Amendment to the Amended and Restated Career Achievement Plan of the Company. Incorporated by reference to Exhibit 10.8.3 of the Company's Annual Report on Form 10-K for the year ended December 31, 1999; Commission File No. 1-1361.
10.12*	Restatement of Split Dollar Agreement (Special Trust) between the Company and the trustee of the Gordon Family 1993 Special Trust dated January 31, 1997. Incorporated by reference to Exhibit 10.12 of the Company's Annual Report on Form 10-K for the year ended December 31, 1996; Commission File No. 1-1361.
10.21*	Executive Split Dollar Insurance and Collateral Assignment Agreement between the Company and G. Howard Ember Jr. dated July 30, 1994. Incorporated by reference to Exhibit 10.21 of the Company's Annual Report on Form 10-K for the year ended December 31, 1994; Commission File No. 1-1361.
10.22*	Executive Split Dollar Insurance and Collateral Assignment Agreement between the Company and John W. Newlin dated July 30, 1994. Incorporated by reference to Exhibit 10.22 of the Company's Annual Report on Form 10-K for the year ended December 31, 1994; Commission File No. 1-1361.
10.23*	Executive Split Dollar Insurance and Collateral Assignment Agreement between the Company and Thomas E. Corr dated July 30, 1994. Incorporated by reference to Exhibit 10.23 of the Company's Annual Report on Form 10-K for the year ended December 31, 1994; Commission File No. 1-1361.
10.24*	Executive Split Dollar Insurance and Collateral Assignment Agreement between the Company and James Hunt dated July 30, 1994. Incorporated by reference to Exhibit 10.24 of the Company's Annual Report on Form 10-K for the year ended December 31, 1994; Commission File No. 1-1361.

10.25*	Form of Change In Control Agreement dated August, 1997 between the Company and certain executive officers. Incorporated by reference to Exhibit 10.25 of the Company's Annual Report on Form 10-K for the year ended December 31, 1997; Commission File No. 1-1361.
10.26*	Executive Split Dollar Insurance and Collateral Assignment Agreement between the Company and Barry Bowen dated April 1, 1997. Incorporated by reference to Exhibit 10.26 of the Company's Annual Report on Form 10-K for the year ended December 31, 1997; Commission File No. 1-1361.
10.27*	Amendment to Split Dollar Agreement (Special Trust) dated April 2, 1998 between the Company and the trustee of the Gordon Family 1993 Special Trust, together with related Collateral Assignments. Incorporated by reference to Exhibit 10.27 of the Company's Annual Report on Form 10-K for the year ended December 31, 1998; Commission File No. 1-1361.
10.28*	Tootsie Roll Industries, Inc. Bonus Incentive Plan. Incorporated by reference to Exhibit A of the Company's Proxy Statement dated March 27, 1997; Commission File No. 1-1361.
10.29*	Tootsie Roll Industries, Inc. 2001 Bonus Incentive Plan. Incorporated by reference to Exhibit A of the Company's Proxy Statement dated March 30, 2001; Commission File No. 1-1361.
13	The following items incorporated by reference herein from the Company's 2002 Annual Report to Shareholders for the year ended December 31, 2002 (the "2002 Report"), are filed as Exhibits to this report:
	(i)	Information under the section entitled "International" set forth on Page 4 of the 2002 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 2002 Report;
	(iii)	Consolidated Statement of Earnings, Comprehensive Earnings and Retained Earnings for the three years ended December 31, 2002 set forth on Page 8 of the 2002 Report;
	(iv)	Consolidated Statement of Financial Position at December 31, 2002 and 2001 set forth on Pages 9-10 of the 2002 Report;
	(v)	Consolidated Statement of Cash Flows for the three years ended December 31, 2002 set forth on Page 11 of the 2002 Report;
	(vi)	Notes to Consolidated Financial Statements set forth on Pages 12-15 of the 2002 Report;
	(vii)	Report of Independent Accountants set forth on Page 15 of the 2002 Report;
	(viii)	Quarterly Financial Data set forth on Page 16 of the 2002 Report;
	(ix)	Information under the section entitled "2002-2001 Quarterly Summary of Tootsie Roll Industries, Inc. Stock Price and Dividends per Share" set forth on Page 16 of the 2002 Report; and
	(x)	Information under the section entitled "Five Year Summary of Earnings and Financial Highlights" set forth on Page 17 of the 2002 Report.
21	List of Subsidiaries of the Company.
99	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

*

Executive compensation plan or arrangement.

QuickLinks

TABLE OF CONTENTS
Forward-Looking Information
PART I

ITEM 1. Business.
ITEM 2. Properties.
ITEM 3. Legal Proceedings.
ITEM 4. Submission of Matters to a Vote of Security Holders.
ADDITIONAL ITEM. Executive Officers of the Registrant.

PART II

ITEM 5. Market for Registrant's Common Equity and Related Stockholder Matters.
ITEM 6. Selected Financial Data.
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk.
ITEM 8. Financial Statements and Supplementary Data.
ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

PART III

ITEM 10. Directors and Executive Officers of the Registrant.
ITEM 11. Executive Compensation.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
ITEM 13. Controls And Procedures.
ITEM 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K.

SIGNATURES
CERTIFICATIONS
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE
TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARY COMPANIES SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS DECEMBER 31, 2002, 2001 AND 2000
INDEX TO EXHIBITS

EX-13

QuickLinks -- Click here to rapidly navigate through this document

Corporate Profile

Tootsie Roll Industries, Inc. has been engaged in the manufacture and sale of candy for 106 years. Our products are primarily sold under the familiar brand names, Tootsie Roll, Tootsie Roll Pops, Caramel Apple Pops, Child's Play, Charms, Blow Pop, Blue Razz, Cella's chocolate covered cherries, Mason Dots, Mason Crows, Junior Mints, Charleston Chew, Sugar Daddy, Sugar Babies, Andes and Fluffy Stuff cotton candy.

Corporate Principles

We believe that the differences among companies are attributable to the caliber of their people, and therefore we strive to attract and retain superior people for each job.

We believe that an open family atmosphere at work combined with professional management fosters cooperation and enables each individual to maximize his or her contribution to the company and realize the corresponding rewards.

We do not jeopardize long-term growth for immediate, short-term results.

We maintain a conservative financial posture in the deployment and management of our assets.

We run a trim operation and continually strive to eliminate waste, minimize cost and implement performance improvements.

We invest in the latest and most productive equipment to deliver the best quality product to our customers at the lowest cost.

We seek to outsource functions where appropriate and to vertically integrate operations where it is financially advantageous to do so.

We view our well known brands as prized assets to be aggressively advertised and promoted to each new generation of consumers.

Melvin J. Gordon, Chairman and Chief Executive Officer and
Ellen R. Gordon, President and Chief Operating Officer.

1

To Our Shareholders

Sales in 2002 were $393 million compared to 2001 sales of $392 million. Sales in both years are now being reported net of certain consumer and trade promotion expenses as required under the new accounting rules.

We were encouraged by sales growth in many of our core brands and key markets during the year, but these gains were mitigated by generally weak domestic economic conditions, retail bankruptcies, overall competitive activity and lower Mexican sales.

Financial Highlights

	December 31,
	2002	2001
	(in thousands except per share data)
Net Sales	$393,185	$391,755
Net Earnings	66,388	65,687
Working Capital	161,852	188,250
Net Property, Plant and Equipment	128,869	132,575
Shareholders' Equity	526,740	508,461
Average Shares Outstanding*	51,553	51,947
Per Share Items*
Net Earnings	$1.29	$1.26
Cash Dividends Paid	.28	.27

*Adjusted for stock dividends.

Reported net earnings in 2002 were $66 million compared with prior year net earnings of $66 million. Earnings per share were $1.29 compared to $1.26 in 2001 reflecting the fewer shares outstanding in 2002.

In 2002, we adopted the new accounting rules that eliminated amortization of goodwill and intangibles. Without the favorable effect of this accounting change, and adjusting for the non-recurring items that occurred in 2001, earnings in 2002 would have

declined by $0.05 per share, principally due to higher ingredient costs and lower investment income.

Other key financial highlights of 2002 include:

•

Cash dividends were paid for the sixtieth consecutive year, and totaled $14 million.



•

The thirty-eighth consecutive annual stock dividend was distributed in April.



•

Capital projects totalling $14 million to increase efficiency, improve quality and to add capacity in support of growth items were approved, some of which will be expended in 2003.



•

948,600 of the company's common shares were repurchased on the open market for a total of $32 million.

The company's balance sheet strengthened during 2002 despite the considerable financial resources committed to these activities. Cash and investments in marketable securities grew by $16 million during the year. We remain fully prepared to respond to investment opportunities, such as product development, capital projects and suitable business

acquisitions, as they may arise, and are actively pursuing all of these channels of opportunity.

Sales and Marketing

We have long recognized the competitive advantage of having strong brands. The backdrop of 2002 was a persistently slow domestic economy and large retailer bankruptcies. Such conditions, along with intense competition for retail space and the consumer's hard-earned dollars, increasingly highlighted the value and staying power of our core brands, most of which grew in 2002.

Our sales gains were the result of continued implementation of targeted promotional programs such as shippers, combo packs and bonus bags throughout the year. These programs are popular with both retailers and consumers and reinforce the attributes of quality and value that are so closely associated with our products.

In 2002, we experienced another strong Halloween sales period. Our bagged goods, including the popular Child's Play mixed product assortment, continued to sell well through the mass merchandise, drug and warehouse club classes of trade.

2

Our flagship brand, Tootsie Roll, continued to emphasize its branded value positioning both to the trade and to consumers. One offering that highlights this strategy is our Bonus Bag promotion, which features 15% more candy for free. Not only does this promotion attract consumer attention, but the trade is pleased with the rapid shelf turns it generates.

      Tootsie Roll Midgee Bonus Bag

Line extensions represented another avenue of sales growth in 2002. Tootsie "Mini" Pops, a miniature replica of our famous Tootsie Pop—right down to the chewy, chocolatey Tootsie Roll center—were introduced in

      Tootsie Pop Miniatures

large bags for Halloween. Building on the instant success of this item, seasonal offerings of Tootsie Pop Miniatures for Easter and Valentine were added to the line toward the end of 2002.

            Andes new changemaker

We extended the Andes line into the change-maker market by introducing a special piece size in an airtight, fin-sealed wrapper, suitable for individual retail sale. For Christmas, Andes mints were embossed with festive wreaths, Christmas trees and snowmen to create an exciting seasonal line extension. Both of these new Andes items retain the characteristic rectangular, multi-layered appearance and delicious crème de menthe flavor that typify the brand.

Our traditional boxed "theater" line, consisting of Dots, Crows, Junior Mints, Sugar Babies and Charleston "Mini" Chews contributed to sales growth in 2002. This "top shelf" assortment of jumbo, reclosable boxes now features Dots in three delicious flavors: Original, Tropical and Wildberry.

      Junior Mints BIG BOX

The new "Big Box" of Junior Mints was another successful extension in the boxed category. This Big Box features vertically oriented graphics creating an exceptional consumer impression on the store shelf.

The newest addition to our Blow Pop line, Black Ice, was introduced in 2002. It features opaque crystalline hard candy surrounding a mysterious-looking black raspberry bubble gum center.

 Black Ice Blow Pops

We also introduced Fluffy Stuff Cotton Candy Pops in 2002. They are traditional flat pops with flavor and package graphics that mirror our Fluffy Stuff cotton candy.

      Fluffy Stuff Cotton Candy Pops

3

In response to rising packaging and ingredient costs, during the fourth quarter of 2002, we as well as others in the industry announced price increases that became effective in the first quarter of 2003. We believe that some of our fourth quarter sales growth was attributable to customer "buy-in" in anticipation of this increase.

U.S. Armed Forces

Our company has been honored by its long association with the military. Tootsie Rolls and Charms Squares have been included in military rations for many years, and in 2002 we had several new and gratifying contacts with the military.

In March, we took part in Operation Valentine, a morale-building mission for our soldiers in Afghanistan and elsewhere, by sending the troops more than 1 million pieces of candy.

Afghan child with Tootsie Rolls

The shipment was split between foot-long Tootsie Rolls, and limited edition Tootise Roll Midgees, in patriotic red, white and blue wrappers. This gift, which brought our soldiers a nostalgic reminder of home, was in turn shared with local children in those war-torn lands.

  A Bosnian child receives a sweet gift

In the fall of 2002, we were greatly honored by the Marine and Army survivors of the Korean War battle of the Chosin Reservoir. Temperatures during this famous battle fell to 36 degrees below zero, and the troops survived for many days on Tootsie Rolls and Charms Squares because their rations had frozen solid.

In recognition of the bond that this experience created between the company and these brave soldiers we were named honorary members of the "Chosin Few," the only civilians to have ever been so honored.

Advertising and Public Relations

Our products again received extensive cable television exposure on the Food Network's Unwrapped program. New segments featuring Andes Candies and Charms Dead Head pops were added to the series along with previous shows about Tootsie Pops and Blow Pops in a lollipop segment, Dots and Junior Mints in a piece about "movie candy," and Charleston Chew and Sugar Babies in a look at "retro" candy.

Exposure on this highly rated program, including periodic replays, is helpful in generating positive awareness of our products.

  Blow Pop Lollipop Shop

Also in 2002, the Betty Crocker "Creepy Spider Cupcake Kit," featured Dots in a colorful and creative Halloween baking set, and the "Blow Pop Lollipop Shop" from Natural Science Industries, marketed a play set that enables a child to make their very own Blow Pop with a real bubble gum center!

      Creepy Spider Cupcake Mix

Many articles and stories appeared in newspapers and magazines during the year commenting favorably on the company and its well-known products. Notably, Chief Executive Magazine ranked our Chairman and Chief Executive Officer as one of the best performing executives in the food, beverage and tobacco industries for the third consecutive year.

4

Manufacturing

Capital projects totalling $14 million were approved during the year to increase efficiency, improve quality and to support future growth. Most notably, during the year we commenced projects to significantly reengineer two major production lines. We view such ongoing investments in the company as being vital to maintaining our stature as one of the industry's most efficient producers.

We have stepped up our focus on the human element in our operations by providing targeted training to certain employee groups. This is designed to help them decrease costs and to eliminate unfavorable variances by modifying production activities to meet production needs more efficiently. We have also installed feedback systems to improve productivity and reduce or eliminate waste—a major priority within the company.

Purchasing

Although the Consumer Price Index only rose by 2.4% during the year, 2002 was a year of steady cost increases in many basic materials used by industry.

Of particular note in our industry, cocoa supplies from the Ivory Coast, the world's largest producer, were disrupted by civil war driving prices for this ingredient to a 17 year high.

Corn prices, and, in turn, corn syrup prices increased due to weather related crop reductions in the US. The domestic price of both raw and refined sugar increased due to USDA imposed marketing allotments.

In the area of packaging, printed film, which is made from plastic resins, rose during the year due to the rising price of oil. In addition the price of corrugated packaging increased as suppliers moved to cover their increased costs.

Although these cost increases affected our results in 2002, our hedging program shielded us from their full impact. We continue to use competitive bidding, hedging and forward purchase contracts to control costs and lock in prices at favorable levels when we feel it is prudent to do so.

Information Technology

The redevelopment of several core business applications was a major emphasis in 2002 and has neared completion. These new applications will give us state-of-the-art, web enabled tools which streamline current processes while they increase system flexibility to accommodate the ever-evolving requirements of our customers.

We also invested in additional processing and data storage hardware during the year. We view information technology as a key strategic tool, and are committed to deploying leading edge technology in this area.

International

Sales grew in Canada as volume gains more than offset devaluation of the Canadian dollar against the US dollar. Growth came from both expanded distribution of existing products and from new product introductions.

In Mexico, the focus in 2002 was on profitability rather than on volume. Accordingly, sales were lower but margins and operating income improved during the year.

Our export program through Tootsie Roll Worldwide continued to show growth during 2002. Our shipments increased during the year and actual in-market sales growth was encouraging.

New markets opened during the year have allowed us to expand our presence in untapped markets in Central America and the Middle East, while growth in some of our key Asian markets continued in 2002.

In Appreciation...

We wish to thank the many loyal employees, customers, suppliers, sales brokers and foreign distributors who have worked with us during these challenging times, as well as our shareholders who have been supportive through the many years.

We remain committed to growing our company in sales and in profitability and hope to extend the legacy of our famous brands to coming generations.

Melvin J. Gordon
Chairman of the Board and
Chief Executive Officer

Ellen R. Gordon
President and
Chief Operating Officer

5

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, market risks and critical accounting policies. It should be read in conjunction with the Consolidated Financial Statements and related footnotes that follow this discussion.

FINANCIAL CONDITION

Our financial condition remained strong in 2002, bolstered by our profitable operations during the year.

Shareholder equity increased to $526,740 from $508,461 in the prior year, reflecting net earnings of $66,388 partially offset by stock repurchases of $32,314 and cash dividends of $14,304. The company has paid cash dividends for sixty consecutive years.

Shareholders also received a 3% stock dividend in 2002, the thirty-eighth consecutive year that one has been distributed.

Working capital was $161,852 in 2002, $26,398 lower than in 2001 because the proceeds from maturing investments were used to purchase investments with maturities greater than one year, causing a shift from current to non-current assets. Total cash and investments grew to $262,745 from $246,292 in the prior year, an increase of $16,453.

The company continues to maintain a conservative financial posture. Aside from an immaterial amount of operating leases, the company has no off-balance sheet financing arrangements, and our simple financial structure does not utilize any "special purpose entities" or other obscure financing arrangements.

We have sufficient capital, generated principally from operations, to respond to investment opportunities as they may arise. Accordingly, we continue to seek appropriate acquisitions to complement our existing business.

RESULTS OF OPERATIONS

2002 vs. 2001

Net sales increased in 2002 to $393,185 from $391,755 in 2001. Many of our core brands showed growth throughout the year. However, these gains were partially offset by lower Mexican sales, retail bankruptcies, competitive pressure and weak economic conditions that dampened retail traffic.

Effective January 1, 2002, the company adopted the new accounting requirements that treat certain consumer and trade promotions as a reduction in net sales rather than as an operating expense. The effect of the above was to reduce both net sales and operating expenses by $29,990 and $31,741 in 2002 and 2001, respectively.

Sales remained at the highest level in the third quarter due to successful Halloween promotions, although sales through the first nine months of 2002 were lower than in 2001 due to factors cited above. Sales went ahead in the fourth quarter, although we believe that some of the sales increase in the fourth quarter can be attributed to customer "buy-in" in anticipation of a price increase that became effective in the first quarter of 2003.

Sales in our Canadian operation increased due to further gains in distribution and successful promotions, while sales in Mexico declined as a result of a concentration on margin improvement and local competitive pressure.

Cost of goods sold increased from 55.3% to 56.1% of sales. The increase in cost of goods sold is due to higher raw materials cost and product mix in 2002, partially offset by a non-recurring inventory write down of $1,100 pre-tax and a plant closing charge of $1,500 pre-tax in the third and fourth quarters, respectively, of 2001.

Due to the seasonal nature of our business and corresponding variations in product mix, gross margins were lower in the second half of the year than in the first half.

6

Selling, marketing and administrative expense, declined as a percentage of sales to 19.3% in 2002 from 19.8% in 2001, due to cost containment measures and lower advertising expenditures. Both numbers are net of the reclassification of promotional expenses, which have been accounted for as a reduction of sales.

Effective January 1, 2002, the company adopted the new accounting rules pertaining to acquired goodwill and intangibles. This had the effect of eliminating the amortization of such goodwill and intangibles, which was $3,778 in the prior year. Accordingly, earnings from operations increased from $93,944 to $96,669.

Other income, consisting primarily of interest income, net of interest expense, was $4,019 in 2002 versus $6,843 in 2001 due to lower interest rates in 2002 and an investment capital gain in 2001. The effective tax rate was 34.1% in 2002 as compared to 34.8% in 2001.

Consolidated net earnings were $66,388 and $65,687 and earnings per share were $1.29 and $1.26 in 2002 and 2001, respectively. Earnings per share increased by a greater percentage than did earnings due to share repurchases. Average shares outstanding were 51,553 and 51,947 in 2002 and 2001, respectively.

Comparative earnings per share were affected by the aforementioned investment capital gain of $962 or $.02 per share, net of income tax, and nonrecurring charges of $1,803 or $.03 per share, net of income tax, in 2001. Excluding the effects of these nonrecurring adjustments in 2001 and adjusting for the effects of goodwill amortization, net earnings per share for 2002 and 2001 were $1.29 and $1.34, respectively, a decrease of $.05 per share or 4%.

2001 vs. 2000

Sales in 2001 were $391,755 a decrease of 1% from the $396,816 sales of 2000. Halloween sales once again made the third quarter our highest selling period, although third quarter and nine month 2001 sales declined from the prior year periods due to unfavorable economic conditions and increased competitive pressures. These adverse factors were somewhat offset by successful marketing and promotional programs in certain trade classes, sales of new products and by sales of brands acquired during 2000.

Cost of goods sold was $216,657 or 55.3% of sales in 2001 as compared to $207,100 or 52.2% of sales in 2000. The increase in cost of goods sold is due to product mix, lower profit margins of the brands acquired in 2000, and higher overhead costs from multiple plant locations, including increased energy costs.

In addition, the nonrecurring inventory adjustment of $1,100 and plant closing charge of $1,500 added to cost of goods sold in the third and fourth quarters, respectively. These charges, coupled with the seasonality nature of our business and product mix, caused gross margins for third and fourth quarters to fall below the 44.7% of sales averaged over the entire year.

Selling, marketing and administrative expense, as a percent of sales increased from 19.0% in 2000 to 19.8% in 2001 due to higher distribution and delivery expenses relating to higher fuel costs, and higher customer deductions.

Amortization of intangibles increased from $3,420 in 2000 to $3,778 in 2001, reflecting a full year of amortization associated with the brands acquired during 2000. As a result of the lower sales and higher costs discussed above, earnings from operations declined from $110,729 to $93,944.

Other income was $6,843 in 2001 versus $7,079 in 2000, due to lower interest rates, partially offset by the investment capital gain. The effective tax rate was 34.8% in 2001 versus 35.7% in 2000.

Consolidated net earnings were $65,687 and $75,737 and earnings per share were $1.26 and $1.45 in 2001 and 2000, respectively. Average shares outstanding declined to 51,947 from 52,394 due to share repurchases.

7

LIQUIDITY AND CAPITAL RESOURCES

Cash flows from operating activities were $71,203 in 2002, $78,584 in 2001 and $82,591 in 2000. The decline in 2002 versus 2001 is attributable to higher accounts receivable and inventories, partially offset by higher accounts payable and accrued liabilities. The decline in 2001 versus 2000 was due to lower net earnings partially offset by lower accounts receivable and higher depreciation and amortization.

Cash flows from investing activities in 2002 reflect capital expenditures of $10,308 and a net increase in marketable securities of $14,996. In 2001, capital expenditures were $14,148 and marketable securities increased by $2,686. In 2000, capital expenditures were $16,189, $74,293 was used for the purchase of Fluffy Stuff and Andes Candies, and marketable securities decreased by $26,305, which was used to help finance the acquisitions.

Cash flows from financing activities reflect share repurchases of $32,314, $1,932 and $32,945 in 2002, 2001 and 2000, respectively. In 2000 there were short-term borrowings of $43,625 related to the Andes acquisition, which were subsequently repaid.

Cash dividends of $14,610, $14,168 and $13,091 were paid in 2002, 2001 and 2000, respectively. 2002 was the sixtieth consecutive year in which we have paid cash dividends.

QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET RISK

The company is exposed to various market risks, including fluctuations in the prices of ingredients and packaging material. At December 31, 2002 the company had open contracts to purchase approximately half of its expected 2003 and 2004 sugar usage. We also invest in securities with maturities of generally up to four years, the majority of which are held to maturity, which limits the company's exposure to interest rate fluctuations. There was no material change in the company's market risk during 2002.

CRITICAL ACCOUNTING POLICIES

Preparation of the company's financial statements involves judgements due to uncertainties affecting the application of accounting policies, and the likelihood that different amounts would be reported under different conditions or using different assumptions. In the opinion of management, the company does not have any individual accounting policy that is "critical." However, following is a summary of the more significant accounting policies and methods used.

Revenue recognition, customer incentive programs, advertising and marketing

Revenue, net of applicable provisions for discounts, returns, allowances, and certain advertising and promotional costs, is recognized upon delivery of products to customers. Provisions for bad debts are recorded as selling, marketing and administrative expense. Provisions for allowances are based upon the terms of programs offered to customers, historical trends of deductions and customer credit quality. Such provisions have not been significant to the company's financial position or results of operations.

Intangible assets

Effective January 1, 2002 the company adopted SFAS No. 142, whereby goodwill and other indefinite lived assets are not amortized, but are instead subjected to regular testing for impairment. The methodologies used to estimate fair value in such tests require the use of significant judgements and assumptions, including projected cash flows and discount rates. The company's intangible assets consist primarily of trademarks and goodwill, the values of which the company has determined are not impaired.

Investments

The company invests in certain high-quality debt securities primarily Aa or better rated municipal bonds. The accounting for such investments is outlined in Note 1. No credit losses have been incurred on these investments.

Guarantees

The Financial Accounting Standards Board issued Interpretation No. 45 "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness to Others" relating to the accounting for and disclosure of certain types of guarantees. The disclosure provisions are effective for financial statements with years ending after December 15, 2002. No disclosures were required for the company as a result of adoption of this standard, as it has no such guarantees outstanding.

Other Matters

In the opinion of management, other than contracts for raw materials, principally commodity hedges entered into in the ordinary course of business, the company does not have any significant contractual obligations or future commitments, and is not involved in any significant transactions with related parties.

The company provides split dollar life insurance benefits to certain executive officers and records an asset equal to the cumulative insurance premiums paid on the related policies. The company will fully recover the premiums paid under the terms of the plan. The Sarbanes-Oxley Act (the Act) amended the Securities Exchange Act of 1934 to generally prohibit both direct and indirect corporate loans to certain executive officers and directors of publicly traded companies, but does not directly address split dollar life insurance premiums. Accordingly, the company has ceased making premium payments with respect to existing policies while it evaluates the potential impact of the Act on the split dollar life insurance benefit plan. The cessation in insurance premiums has no impact on the amount recoverable of the split dollar life insurance asset, which was $58,263 at December 31, 2002.

8

CONSOLIDATED STATEMENT OF
Financial Position

TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES (in thousands)

Assets				December 31,
				2002	2001
CURRENT ASSETS:
	Cash and cash equivalents			$105,507	$106,532
	Investments			40,737	68,629
	Accounts receivable trade, less allowances of $2,005 and $2,037			22,686	20,403
	Other receivables			4,073	3,329
	Inventories:
		Finished goods and work-in-process		26,591	24,770
		Raw materials and supplies		17,054	16,392
	Prepaid expenses			3,819	4,269
	Deferred income taxes			4,481	1,772
			Total current assets	224,948	246,096
PROPERTY, PLANT AND EQUIPMENT, at cost:
	Land			8,297	8,354
	Buildings			43,948	43,613
	Machinery and equipment			196,706	189,528
				248,951	241,495
	Less—Accumulated depreciation			120,082	108,920
				128,869	132,575
OTHER ASSETS:
	Goodwill			38,151	38,151
	Trademarks			79,348	79,348
	Investments			116,501	71,131
	Split dollar officer life insurance			58,263	51,375
				292,263	240,005
				$646,080	$618,676

(The accompanying notes are an integral part of these statements.)

9

(in thousands except per share data)

Liabilities and Shareholders' Equity			December 31,
			2002		2001
CURRENT LIABILITIES:
	Accounts payable		$  12,505		$    9,223
	Dividends payable		3,579		3,536
	Accrued liabilities		35,825		34,295
	Income taxes payable		11,187		10,792
		Total current liabilities	63,096		57,846
NONCURRENT LIABILITIES:
	Deferred income taxes		19,654		16,792
	Postretirement health care and life insurance benefits		8,151		7,450
	Industrial development bonds		7,500		7,500
	Deferred compensation and other liabilities		20,939		20,627
		Total noncurrent liabilities	56,244		52,369
SHAREHOLDERS' EQUITY:
	Common stock, $.69-4/9 par value— 120,000 and 120,000 shares authorized— 34,248 and 34,139, respectively, issued		23,783		23,708
	Class B common stock, $.69-4/9 par value— 40,000 and 40,000 shares authorized— 16,759 and 16,319, respectively, issued		11,638		11,332
	Capital in excess of par value		355,658		323,981
	Retained earnings, per accompanying statement		148,705		161,345
	Accumulated other comprehensive earnings (loss)		(11,052	)	(9,913	)
	Treasury stock (at cost)— 55 shares and 53 shares, respectively		(1,992	)	(1,992	)
			526,740		508,461
			$646,080		$618,676

10

CONSOLIDATED STATEMENT OF
Earnings, Comprehensive Earnings and Retained Earnings

TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES (in thousands except per share data)

		For the year ended December 31,
		2002		2001		2000
Net sales		$393,185		$391,755		$396,816
Cost of goods sold		220,765		216,657		207,100
Gross margin		172,420		175,098		189,716
Selling, marketing and administrative expenses		75,751		77,376		75,567
Amortization of intangible assets		—		3,778		3,420
Earnings from operations		96,669		93,944		110,729
Other income, net		4,019		6,843		7,079
Earnings before income taxes		100,688		100,787		117,808
Provision for income taxes		34,300		35,100		42,071
Net earnings		$  66,388		$  65,687		$  75,737
Net earnings		$  66,388		$  65,687		$  75,737
Other comprehensive earnings (loss)		(1,139	)	277		(1,250	)
Comprehensive earnings		$  65,249		$  65,964		$  74,487
Retained earnings at beginning of year		$161,345		$180,123		$158,619
	Net earnings	66,388		65,687		75,737
	Cash dividends ($.28, $.27 and $.26 per share, respectively)	(14,304	)	(14,021	)	(13,350	)
	Stock dividends	(64,724	)	(70,444	)	(40,883	)
Retained earnings at end of year		$148,705		$161,345		$180,123
Earnings per share		$      1.29		$      1.26		$      1.45
Average common and class B common shares outstanding		51,553		51,947		52,394

(The accompanying notes are an integral part of these statements.)

11

CONSOLIDATED STATEMENT OF
Cash Flows

TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES (in thousands)

				For the year ended December 31,
				2002		2001		2000
CASH FLOWS FROM OPERATING ACTIVITIES:
	Net earnings			$  66,388		$  65,687		$  75,737
	Adjustments to reconcile net earnings to net cash provided by operating activities:
		Depreciation and amortization		12,354		16,700		13,314
		Gain on retirement of fixed assets		—		—		(46	)
		Purchase of trading securities		(2,481	)	(2,921	)	(2,290	)
		Changes in operating assets and liabilities, excluding acquisitions:
			Accounts receivable	(2,887	)	3,096		(4,460	)
			Other receivables	115		(2,100	)	4,486
			Inventories	(2,734	)	910		(768	)
			Prepaid expenses and other assets	(6,902	)	(8,857	)	(7,903	)
			Accounts payable and accrued liabilities	5,049		(224	)	(1,717	)
			Income taxes payable and deferred	485		4,402		5,691
			Postretirement health care and life insurance benefits	700		494		399
			Deferred compensation and other liabilities	312		1,206		337
			Other	804		191		(189	)
	Net cash provided by operating activities			71,203		78,584		82,591
CASH FLOWS FROM INVESTING ACTIVITIES:
	Acquisitions of businesses, net of cash acquired			—		—		(74,293	)
	Capital expenditures			(10,308	)	(14,148	)	(16,189	)
	Purchase of held to maturity securities			(262,229	)	(240,609	)	(154,032	)
	Maturity of held to maturity securities			250,345		228,397		176,576
	Purchase of available for sale securities			(35,217	)	(64,640	)	(78,993	)
	Sale and maturity of available for sale securities			32,105		74,166		82,754
	Net cash used in investing activities			(25,304	)	(16,834	)	(64,177	)
CASH FLOWS FROM FINANCING ACTIVITIES:
	Issuance of notes payable			—		—		43,625
	Repayments of notes payable			—		—		(43,625	)
	Shares repurchased and retired			(32,314	)	(1,932	)	(32,945	)
	Dividends paid in cash			(14,610	)	(14,168	)	(13,091	)
	Net cash used in financing activities			(46,924	)	(16,100	)	(46,036	)
Increase (decrease) in cash and cash equivalents				(1,025	)	45,650		(27,622	)
Cash and cash equivalents at beginning of year				106,532		60,882		88,504
Cash and cash equivalents at end of year				$105,507		$106,532		$  60,882
Supplemental cash flow information:
	Income taxes paid			$  34,099		$  30,490		$  35,750
	Interest paid			$        309		$      356		$    1,067

(The accompanying notes are an integral part of these statements.)

12

Notes to Consolidated Financial Statements
($ in thousands except per share data)
TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES

NOTE 1—SIGNIFICANT ACCOUNTING POLICIES:

Basis of consolidation:

    The consolidated financial statements include the accounts of Tootsie Roll Industries, Inc. and its wholly-owned subsidiaries (the company), which are primarily engaged in the manufacture and sale of candy products. All significant intercompany transactions have been eliminated.

    The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

    Certain reclassifications have been made to the prior year financial statements to conform to the current year presentation.

Revenue recognition and other accounting pronouncements:

    Revenues are recognized when products are shipped and delivered to customers. Shipping and handling costs of $28,579, $28,069, and $26,661 in 2002, 2001 and 2000, respectively, are included in selling, marketing and administrative expenses. Accounts receivable are unsecured. Revenues from a major customer aggregated approximately 19.6%, 16.9% and 17.8% of total net sales during the years ended December 31, 2002, 2001 and 2000, respectively.

    Emerging Issues Task Force Issue No. 00-25, "Vendor Income Statement Characterization of Consideration Paid to a Reseller of the Vendor's Products" and Issue No. 00-14, "Accounting for Certain Sales Incentives" require that cooperative advertising and certain sales incentives costs traditionally reported as selling, marketing and administrative expense be reclassified as a reduction of net sales beginning January 1, 2002. Prior period consolidated statements of earnings have been reclassified to reflect this change. As a result, $31,741 and $30,238 of such expenses were reclassified to a reduction of net sales for the years ended December 31, 2001 and 2000, respectively. These reclassifications did not affect the company's financial position, earnings from operations or net income.

    Effective January 1, 2001, the company adopted SFAS 133 "Accounting for Certain Derivative Instruments and Certain Hedging Activities" and the related SFAS 138 "Accounting for Certain Derivative Instruments and Certain Hedging Activities" with no material effect on the company's results of operations or financial position. These standards require that derivative instruments be recorded on the balance sheet at fair value, and that changes therein be recorded either in earnings or other comprehensive earnings, depending on whether the derivative is designated and effective as part of a hedge transaction and, if so, the type of hedge transaction. Gains and losses on derivative instruments reported in other comprehensive earnings are reclassified to earnings in the periods in which earnings are affected by the hedged item.

    From time to time, the company enters into commodities futures contracts that are intended and effective as hedges of market price risks associated with the anticipated purchase of certain raw materials (primarily sugar). To qualify as a hedge, the company evaluates a variety of characteristics of these transactions, including the probability that the anticipated transaction will occur. If the anticipated transaction were not to occur, the gain or loss would then be recognized in current earnings.

    To qualify for hedge accounting, financial instruments must maintain a high correlation with the item being hedged throughout the hedged period. The company does not engage in trading or other speculative use of derivative instruments. The company does assume the risk that counter parties may not be able to meet the terms of their contracts. The company does not expect any losses as a result of counter party defaults, and at December 31, 2002 had open contracts to purchase approximately half of its expected 2003 and 2004 sugar usage.

    The Financial Accounting Standards Board issued Interpretation No. 45 "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness to Others" relating to the accounting for and disclosure of certain types of guarantees. The disclosure provisions are effective for financial statements with years ending after December 15, 2002. No disclosures were required for the company as a result of adoption of this standard, as it has no such guarantees outstanding.

    During 2002, the Financial Accounting Standards Board finalized SFAS No. 146 "Accounting for Costs Associated with Exit or Disposal Activities" for exit and disposal activities that are initiated after December 31, 2002. This statement requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. The company does not expect adoption of this standard to have a material impact on its 2003 consolidated financial statements.

Cash and cash equivalents:

    The company considers temporary cash investments with an original maturity of three months or less to be cash equivalents.

13

Investments:

    Investments consist of various marketable securities with maturities of generally up to four years. The company classifies debt and equity securities as either held to maturity, available for sale or trading. Held to maturity securities represent those securities that the company has both the positive intent and ability to hold to maturity and are carried at amortized cost. Available for sale securities represent those securities that do not meet the classification of held to maturity, are not actively traded and are carried at fair value. Unrealized gains and losses on these securities are excluded from earnings and are reported as a separate component of shareholders' equity, net of applicable taxes, until realized. Trading securities relate to deferred compensation arrangements and are carried at fair value.

Inventories:

    Inventories are stated at cost, not in excess of market. The cost of domestic inventories ($40,064 and $35,982 at December 31, 2002 and 2001, respectively) has been determined by the last-in, first-out (LIFO) method. The excess of current cost over LIFO cost of inventories approximates $5,137 and $4,261 at December 31, 2002 and 2001, respectively. The cost of foreign inventories ($3,581 and $5,180 at December 31, 2002 and 2001, respectively) has been determined by the first-in, first-out (FIFO) method.

Property, plant and equipment:

    Depreciation is computed for financial reporting purposes by use of the straight-line method based on useful lives of 20 to 35 years for buildings and 5 to 20 years for machinery and equipment. Depreciation expense was $12,354, $14,148 and $10,069 in 2002, 2001 and 2000, respectively, including $744 relating to equipment disposals and $1,275 of equipment that was written down related to a plant closing in 2002 and 2001, respectively.

Carrying value of long-lived assets:

    Effective January 1, 2002, the company adopted SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." This statement requires that long-lived assets be reviewed for impairment as events or changes in circumstances occur indicating that the amount of the asset reflected in the company's balance sheet may not be recoverable. An estimate of undiscounted cash flows produced by the asset, or the appropriate group of assets, is compared to the carrying value to determine whether impairment exists. An impairment charge would then be recorded to write the carrying value down to its fair value. The determination of fair value involves the use of estimates of future cash flows that involve considerable management judgment and are based upon assumptions about expected future operating performance. The actual cash flows could differ from management's estimates due to changes in business conditions, operating performance, and economic conditions. No significant impairment charges were recorded by the company during 2002.

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. The company also provides split dollar life insurance benefits to certain executive officers. The company records an asset equal to the cumulative insurance premiums that will be recovered upon the death of a covered employee(s) or earlier under the terms of the plan. The Sarbanes-Oxley Act (the Act) amended the Securities Exchange Act of 1934 to generally prohibit corporate loans to certain executive officers and directors of publicly traded companies. This prohibition applies to both direct and indirect loans. Because the Act does not directly address split dollar life insurance premiums, the impact of the Act on the company's split dollar life insurance plan is not currently known. The company has ceased making premium payments with respect to existing policies and is considering the potential impact of the Act on the split dollar life insurance benefit plan. The cessation of insurance premiums has no impact on the amount recoverable of the split dollar life insurance asset.

Intangible assets:

    On January 1, 2002, the company adopted SFAS 142, "Goodwill and Other Intangible Assets." As a result of its adoption, the company has reclassified $79,348 and $38,151 from intangible assets to trademarks and goodwill, respectively. All trademarks have been assessed by management to have indefinite lives because they are expected to generate cash flows indefinitely. Thus, the company has ceased amortization expense on all trademarks and goodwill as of January 1, 2002.

    The company has identified its reporting units related to goodwill and completed its goodwill impairment tests as of January 1, 2002 which require that management compare the fair value of the reporting unit with its carrying value. The reporting units were not considered to be impaired. The company also completed its impairment test of the indefinite lived trademarks which required management to compare the fair value of the trademarks to the carrying value. The trademarks were not considered to be impaired.

    The impairment tests performed require that the company determine the fair market value of its reporting units for comparison to the carrying value of such net assets to assess whether an impairment exists. The methodologies used to estimate fair market value involve the use of estimates and assumptions, including projected revenues, earnings, cash flows and discount rates.

    In addition, the company is required to conduct an annual review of its goodwill and trademarks for potential impairment. In 2002, this review was completed and no impairment was found.

14

Comprehensive earnings:

    Comprehensive earnings includes net earnings, foreign currency translation adjustments and unrealized gains/losses on commodity contracts and marketable securities.

Earnings per share:

    A dual presentation of basic and diluted earnings per share is not required due to the lack of potentially dilutive securities under the company's simple capital structure. Therefore, all earnings per share amounts represent basic earnings per share.

NOTE 2—ACQUISITIONS:

    During 2000, the company acquired the assets of two confectionery companies for $74,293 in cash, which was funded through existing cash and $38,800 of short term borrowings. The acquisition cost has been allocated to the assets acquired and liabilities assumed based on their respective appraised values as follows:

Current assets	$	6,304
Property, plant and equipment		29,400
Intangible assets, primarily trademarks		39,546
Liabilities		(957	)
Total purchase price	$	74,293

    The acquisitions were accounted for by the purchase method. Accordingly, the operating results of the acquired businesses have been included in the consolidated financial statements since the date of acquisition. The operating results of the acquired businesses did not have a material effect on the company's financial statements.

NOTE 3—ACCRUED LIABILITIES:

    Accrued liabilities are comprised of the following:

	December 31,
	2002		2001
Compensation	$	11,211	$	10,516
Other employee benefits		4,666		4,375
Taxes, other than income		2,542		2,549
Advertising and promotions		10,894		9,777
Other		6,512		7,078
	$	35,825	$	34,295

NOTE 4—INCOME TAXES:

    The domestic and foreign components of pretax income are as follows:

	2002		2001		2000
Domestic	$	98,978	$	98,827	$	115,823
Foreign		1,710		1,960		1,985
	$	100,688	$	100,787	$	117,808

    The provision for income taxes is comprised of the following:

		2002			2001		2000
Current:
	Federal	$	32,303		$	27,588	$	33,908
	Foreign		553			749		426
	State		1,523			2,480		3,613
			34,379			30,817		37,947
Deferred:
	Federal		(286	)		4,011		3,500
	Foreign		176			52		346
	State		31			220		278
			(79	)		4,283		4,124
		$	34,300		$	35,100	$	42,071

    Deferred income taxes are comprised of the following:

	December 31,
	2002			2001
Workers' compensation	$	—		$	527
Reserve for uncollectible accounts		475			432
Other accrued expenses		3,629			1,199
VEBA funding		(469	)		(450	)
Other, net		846			64
Net current deferred income tax asset	$	4,481		$	1,772

	December 31,
	2002			2001
Depreciation	$	15,629		$	15,309
Postretirement benefits		(2,885	)		(2,570	)
Deductible goodwill and trademarks		10,908			9,036
Deferred compensation		(7,205	)		(6,595	)
Accrued DISC commissions		2,602			2,377
Foreign subsidiary tax loss carryforward		(411	)		(1,100	)
Other, net		1,016			335
Net long-term deferred income tax liability	$	19,654		$	16,792

15

    At December 31, 2002, gross deferred tax assets and gross deferred tax liabilities were $17,847 and $33,020, respectively. The deferred tax assets are shown net of valuation allowances of $2,014 and $1,897 at December 31, 2002 and December 31, 2001, respectively, relating to prepaid taxes in a foreign jurisdiction.

    The effective income tax rate differs from the statutory rate as follows:

	2002		2001		2000
U.S. statutory rate	35.0	%	35.0	%	35.0	%
State income taxes, net	1.0		1.8		2.2
Amortization of intangible assets	—		0.4		0.4
Exempt municipal bond interest	(1.8	)	(2.0	)	(1.8	)
Other, net	(0.1	)	(0.4	)	(0.1	)
Effective income tax rate	34.1	%	34.8	%	35.7	%

    The company has not provided for U.S. federal or foreign withholding taxes on $6,506 and $6,883 of foreign subsidiaries' undistributed earnings as of December 31, 2002 and December 31, 2001, respectively, because such earnings are considered to be permanently reinvested. It is not practicable to determine the amount of income taxes that would be payable upon remittance of the undistributed earnings.

NOTE 5—GOODWILL AND OTHER INTANGIBLE ASSETS:

    The company ceased amortizing its intangible assets in conjunction with the January 1, 2002 adoption of SFAS 142. The proforma effects of such adoption are as follows:

	2002		2001			2000
Reported net income	$	66,388	$	65,687		$	75,737
Add back: goodwill amortization		—		1,473			1,423
Add back: trademark amortization		—		2,305			1,996
Tax effect		—		(927	)		(793	)
Adjusted net income	$	66,388	$	68,538		$	78,363
Reported basic earnings per share	$	1.29	$	1.26		$	1.45
Goodwill amortization		—		.03			.03
Trademark amortization		—		.05			.04
Tax effect		—		(.02	)		(.02	)
Adjusted basic earnings per share	$	1.29	$	1.32		$	1.50

NOTE 6—SHARE CAPITAL AND CAPITAL IN EXCESS OF PAR VALUE:

						Class B Common Stock
	Common Stock										Treasury Stock
																Capital in excess of par value
	Shares		Amount			Shares		Amount			Shares		Amount
	(000's)					(000's)					(000's)
Balance at January 1, 2000	32,854		$	22,815		15,707		$	10,908		(50	)	$	(1,992	)	$	249,236
Issuance of 3% stock dividend	969			673		470			326		(2	)		—			39,742
Conversion of Class B common shares to common shares	121			84		(121	)		(84	)	—			—			—
Purchase and retirement of common shares	(958	)		(665	)	—			—		—			—			(32,280	)
Balance at December 31, 2000	32,986			22,907		16,056			11,150		(52	)		(1,992	)		256,698
Issuance of 3% stock dividend	986			685		480			333		(1	)		—			69,180
Conversion of Class B common shares to common shares	217			151		(217	)		(151	)	—			—			—
Purchase and retirement of common shares	(50	)		(35	)	—			—		—			—			(1,897	)
Balance at December 31, 2001	34,139			23,708		16,319			11,332		(53	)		(1,992	)		323,981
Issuance of 3% stock dividend	1,009			700		488			339		(2	)		—			63,332
Conversion of Class B common shares to common shares	48			33		(48	)		(33	)	—			—			—
Purchase and retirement of common shares	(948	)		(658	)	—			—		—			—			(31,655	)
Balance at December 31, 2002	34,248		$	23,783		16,759		$	11,638		(55	)	$	(1,992	)	$	355,658

    The Class B Common Stock has essentially the same rights as Common Stock, except that each share of Class B Common Stock has ten votes per share (compared to one vote per share of Common Stock), is not traded on any exchange, is restricted as to transfer and is convertible on a share-for-share basis, at any time and at no cost to the holders, into shares of Common Stock which are traded on the New York Stock Exchange.

    Average shares outstanding and all per share amounts included in the financial statements and notes thereto have been adjusted retroactively to reflect annual three percent stock dividends.

NOTE 7—INDUSTRIAL DEVELOPMENT BONDS:

    Industrial development bonds are due in 2027. The average floating interest rate was 1.5% and 3.0% in 2002 and 2001, respectively.

16

NOTE 8—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 2002, 2001 and 2000 approximated $2,867, $2,823 and $2,535, respectively. The company also maintains certain profit sharing and savings-investment plans. Company contributions in 2002, 2001 and 2000 to these plans were $709, $765 and $754, respectively.

    The company also contributes to multi-employer defined benefit pension plans for its union employees. Such contributions aggregated $1,055, $859 and $787 in 2002, 2001 and 2000, respectively. The relative position of each employer associated with the multi-employer plans with respect to the actuarial present value of benefits and net plan assets is not determinable by the company.

Postretirement health care and life insurance benefit plans:

    The company provides certain postretirement health care and life insurance benefits for corporate office and management employees. Employees become eligible for these benefits if they meet minimum age and service requirements and if they agree to contribute a portion of the cost. The company has the right to modify or terminate these benefits. The company does not fund postretirement health care and life insurance benefits in advance of payments for benefit claims.

    The changes in the accumulated postretirement benefit obligation at December 31, 2002 and 2001 consist of the following:

	December 31,
	2002			2001
Benefit obligation, beginning of year	$	7,450		$	6,956
Net periodic postretirement benefit cost		913			705
Benefits paid		(212	)		(211	)
Benefit obligation, end of year	$	8,151		$	7,450

    Net periodic postretirement benefit cost included the following components:

	2002			2001			2000
Service cost—benefits attributed to service during the period	$	462		$	351		$	286
Interest cost on the accumulated postretirement benefit obligation		481			422			341
Amortization of unrecognized net gain		(30	)		(68	)		(109	)
Net periodic postretirement benefit cost	$	913		$	705		$	518

    For measurement purposes, a 10.0% annual rate of increase in the per capita cost of covered health care benefits was assumed for 2002; the rate was assumed to decrease gradually to 5.5% for 2011 and remain at that level thereafter. The health care cost trend rate assumption has a significant effect on the amounts reported. The weighted-average discount rate used in determining the accumulated postretirement benefit obligation was 6.5% and 7.0% at December 31, 2002 and 2001, respectively.

    Increasing or decreasing the health care trend rates by one percentage point in each year would have the following effect:

	1% Increase		1% Decrease
Effect on postretirement benefit obligation	$	1,589	$	(1,293	)
Effect on total of service and interest cost components	$	167	$	(133	)

NOTE 9—OTHER INCOME, NET:

    Other income (expense) is comprised of the following:

	2002			2001			2000
Interest income	$	5,553		$	6,556		$	7,636
Interest expense		(309	)		(356	)		(866	)
Dividend income		3			55			421
Foreign exchange losses		(206	)		(177	)		(42	)
Royalty income		371			403			225
Miscellaneous, net		(1,393	)		362			(295	)
	$	4,019		$	6,843		$	7,079

NOTE 10—COMMITMENTS:

    Rental expense aggregated $941, $1,000 and $894 in 2002, 2001 and 2000, respectively.

    Future operating lease commitments are not significant.

17

NOTE 11—COMPREHENSIVE INCOME:

    Components of accumulated other comprehensive earnings (loss) are shown as follows:

	Foreign Currency			Unrealized Gains (Losses) on Securities			Unrealized Gains (Losses) on Derivatives			Accumulated Other Comprehensive Earnings/(Loss)
Balance at January 1, 2000	$	(10,429	)	$	1,489		$	0		$	(8,940	)
Change during period		(394	)		(856	)		—			(1,250	)
Balance at December 31, 2000		(10,823	)		633			0			(10,190	)
Change during period		846			(184	)		(385	)		277
Balance at December 31, 2001		(9,977	)		449			(385	)		(9,913	)
Change during period		(1,533	)		(465	)		859			(1,139	)
Balance at December 31, 2002	$	(11,510	)	$	(16	)	$	474		$	(11,052	)

    The individual tax effects of each component of other comprehensive earnings (loss) for the year ended December 31, 2002 are shown as follows:

			Before Tax Amount			Tax (Expense) Benefit			Net-of-Tax Tax Amount
Foreign currency translation adjustment			$	(1,533	)	$	—		$	(1,533	)
Unrealized gains (losses) on securities:
	Unrealized holding gains (losses) arising during 2002			(798	)		294			(504	)
	Less: reclassification adjustment for gains (losses) realized in earnings			(60	)		21			(39	)
		Net unrealized gains		(738	)		273			(465	)
Unrealized gains (losses) on derivatives:
	Unrealized holding gains (losses) arising during 2002			(65	)		24			(41	)
	Less: reclassification adjustment for gains (losses) realized in earnings			(1,429	)		529			(900	)
		Net unrealized gains		1,364			(505	)		859
Other comprehensive earnings			$	(907	)	$	(232	)	$	(1,139	)

NOTE 12—DISCLOSURES ABOUT THE FAIR VALUE AND CARRYING AMOUNT OF FINANCIAL INSTRUMENTS:

    The carrying amount approximates fair value of cash and cash equivalents because of the short maturity of those instruments. The fair values of investments are estimated based on quoted market prices. The fair value of the company's industrial development bonds approximates their carrying value because they have a floating interest rate. The carrying amount and estimated fair values of the company's financial instruments are as follows:

	2002				2001
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Cash and cash equivalents	$	105,507	$	105,507	$	106,532	$	106,532
Investments held to maturity		119,730		121,541		102,585		103,543
Investments available for sale		22,226		22,226		22,253		22,253
Investments in trading securities		15,281		15,281		14,922		14,922
Industrial development bonds		7,500		7,500		7,500		7,500

18

A summary of the aggregate fair value, gross unrealized gains, gross unrealized losses and amortized cost basis of the company's investment portfolio by major security type is as follows:

	December 31, 2002									December 31, 2001
					Unrealized									Unrealized
Held to Maturity:	Amortized Cost									Amortized Cost		Fair Value
			Fair Value		Gains		Losses							Gains		Losses
Municipal bonds	$	134,425	$	136,240	$	1,815	$	—		$	127,667	$	128,631	$	964	$	—
Unit investment trusts of municipal bonds		505		502		—		(3	)		918		910		—		(8	)
	$	134,930	$	136,742	$	1,815	$	(3	)	$	128,585	$	129,541	$	964	$	(8	)
Available for Sale:
Municipal bonds	$	24,281	$	24,275	$	—	$	(6	)	$	23,679	$	23,665	$	—	$	(14	)
Mutual funds		2,454		2,436		—		(18	)		2,454		3,179		725		—
	$	26,735	$	26,711	$	—	$	(24	)	$	26,133	$	26,844	$	725	$	(14	)

Held to maturity securities of $15,200 and $26,000 and available for sale securities of $4,485 and $4,591 were included in cash and cash equivalents at December 31, 2002 and 2001, respectively. There were no securities with maturities greater than four years and gross realized gains and losses on the sale of available for sale securities in 2002 and 2001 were not significant.

NOTE 13—SUMMARY OF SALES, NET EARNINGS AND ASSETS BY GEOGRAPHIC AREA:

	2002						2001						2000
	United States		Mexico and Canada		Consoli- dated		United States		Mexico and Canada		Consoli- dated		United States		Mexico and Canada		Consoli- dated
Sales to unaffiliated customers	$	365,920	$	27,265	$	393,185	$	362,290	$	29,465	$	391,755	$	366,213	$	30,603	$	396,816
Sales between geographic areas		4,978		2,892				3,649		2,731				3,626		3,343
	$	370,898	$	30,157			$	365,939	$	32,196			$	369,839	$	33,946
Net earnings	$	65,413	$	975	$	66,388	$	65,370	$	317	$	65,687	$	73,929	$	1,808	$	75,737
Total assets	$	627,436	$	18,644	$	646,080	$	596,303	$	22,373	$	618,676	$	540,697	$	21,745	$	562,442
Net assets	$	511,743	$	14,997	$	526,740	$	489,552	$	18,909	$	508,461	$	439,685	$	19,011	$	458,696

Total assets are those assets associated with or used directly in the respective geographic area, excluding intercompany advances and investments. United States sales include exports to countries other than Mexico and Canada.

Report of Independent Accountants

To the Board of Directors and Shareholders of Tootsie Roll Industries, Inc.:

In our opinion, the accompanying consolidated statements of financial position and the related consolidated statements of earnings, comprehensive earnings and retained earnings and of cash flows present fairly, in all material respects, the financial position of Tootsie Roll Industries, Inc. and its subsidiaries at December 31, 2002 and 2001, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2002 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, 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 our opinion.

As described in Notes 1 and 5 to the consolidated financial statements, the company changed the manner in which it accounts for its goodwill and other intangible assets upon adoption of Statement of Financial Standards No. 142, "Goodwill and Other Intangible Assets" on January 1, 2002.

Chicago, Illinois
February 10, 2003

19

Quarterly Financial Data (Unaudited)

TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES

	(Thousands of dollars except per share data)
2002	First	Second	Third	Fourth	Total
Net sales	$78,991	$77,131	$146,298	$90,765	$393,185
Gross margin	35,831	35,755	61,960	38,874	172,420
Net earnings	12,772	12,316	26,616	14,684	66,388
Net earnings per share	.25	.24	.51	.29	1.29
2001
Net sales	$75,858	$79,987	$148,456	$87,454	$391,755
Gross margin	36,194	36,623	65,979	36,302	175,098
Net earnings	12,385	13,902	27,010	12,390	65,687
Net earnings per share	.24	.27	.52	.23	1.26
2000
Net sales	$72,143	$83,506	$155,331	$85,836	$396,816
Gross margin	35,195	41,339	72,683	40,499	189,716
Net earnings	13,063	15,652	31,514	15,508	75,737
Net earnings per share	.25	.30	.60	.30	1.45

Net earnings per share is based upon average outstanding shares as adjusted for 3% stock dividends issued during the second quarter of each year. The sum of the per share amounts may not equal annual amounts due to rounding.

2002-2001 QUARTERLY SUMMARY OF TOOTSIE ROLL INDUSTRIES, INC. STOCK PRICE AND DIVIDENDS PER SHARE

STOCK PRICES*

	2002				2001
	High		Low		High		Low
1st Qtr	$	45.99	$	37.85	$	51.10	$	43.31
2nd Qtr	$	47.97	$	37.84	$	48.89	$	38.54
3rd Qtr	$	38.97	$	29.72	$	40.55	$	35.08
4th Qtr	$	31.96	$	29.51	$	39.44	$	36.35

*NYSE — Composite Quotations

Estimated Number of shareholders at December 31, 2002
25,000

DIVIDENDS

	2002		2001
1st Qtr	$	.0680	$	.0660
2nd Qtr	$	.0700	$	.0680
3rd Qtr	$	.0700	$	.0680
4th Qtr	$	.0700	$	.0680

NOTE: In addition to the above cash dividends, a 3% stock dividend was issued on April 17, 2002 and April 18, 2001. Cash dividends are restated to reflect 3% stock dividends.

20

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 6)
			2002			2001			2000			1999			1998
Sales and Earnings Data (2)
	Net sales		$	393,185		$	391,755		$	396,816		$	369,335		$	360,165
	Gross margin			172,420			175,098			189,716			176,774			172,548
	Interest expense			309			356			866			453			756
	Provision for income taxes			34,300			35,100			42,071			40,137			38,537
	Net earnings			66,388			65,687			75,737			71,310			67,526
		% of sales		16.9	%		16.8	%		19.1	%		19.3	%		18.7	%
		% of shareholders' equity		12.6	%		12.9	%		16.5	%		16.6	%		17.0	%
Per Common Share Data (1)(2)
	Net earnings		$	1.29		$	1.26		$	1.45		$	1.34		$	1.25
	Cash dividends declared			.28			.27			.26			.22			.18
	Stock dividends			3	%		3	%		3	%		3	%		3	%
Additional Financial Data
	Working capital		$	161,852		$	188,250		$	145,765		$	168,423		$	175,155
	Net cash provided by operating activities			71,203			78,584			82,591			72,935			77,735
	Net cash used in investing activities			25,304			16,834			64,177			26,993			34,829
	Net cash used in financing activities			46,924			16,100			46,036			38,182			22,595
	Property, plant & equipment additions			10,308			14,148			16,189			20,283			14,878
	Net property, plant & equipment			128,869			132,575			131,118			95,897			83,024
	Total assets			646,080			618,676			562,442			529,416			487,423
	Long term debt			7,500			7,500			7,500			7,500			7,500
	Shareholders' equity			526,740			508,461			458,696			430,646			396,457
	Average shares outstanding (1)			51,553			51,947			52,394			53,372			53,880

(1)

Adjusted for annual 3% stock dividends and the 2-for-1 stock split effective July 13, 1998.

(2)

Adjusted for the reclassification of certain selling, marketing and administrative expenses as a reduction of net sales.

21

Board of Directors
Melvin J. Gordon(1)	Chairman of the Board and Chief Executive Officer
Ellen R. Gordon(1)	President and Chief Operating Officer
Charles W. Seibert(2)(3)	Retired Banker
Lana Jane Lewis-Brent(2)(3)	President, Paul Brent Designer, Inc.
Richard P. Bergeman(2)(3)	Retired Senior Vice President, Bestfoods
(1)Member of the Executive Committee
(2)Member of the Audit Committee
(3)Member of the Compensation Committee
Officers
Melvin J. Gordon	Chairman of the Board and Chief Executive Officer
Ellen R. Gordon	President and Chief Operating Officer
G. Howard Ember, Jr.	Vice President, Finance & Asst. Secy.
John W. Newlin, Jr.	Vice President, Manufacturing
Thomas E. Corr	Vice President, Marketing & Sales
James M. Hunt	Vice President, Physical Distribution
Barry P. Bowen	Treasurer & Asst. Secy.
Daniel P. Drechney	Controller
Offices, Plants
Executive Offices	7401 S. Cicero Ave. Chicago, Illinois 60629 www.tootsie.com
Plants	Illinois Tennessee Massachusetts Wisconsin New York Mexico City
Foreign Sales Offices	Mexico City, Mexico Mississauga, Ontario

Subsidiaries

Andes Candies L.P. Andes Manufacturing LLC Andes Services LLC C.C. L.P., Inc. C.G.C. Corporation C.G.P., Inc. Cambridge Brands, Inc. Cambridge Brands Mfg., Inc. Cambridge Brands Services, Inc. Cella's Confections, Inc. Charms Company Charms L.P. Charms Marketing Company Henry Eisen Advertising Agency, Inc. J.T. Company, Inc. O'Tec Industries, Inc.

Tootsie Roll of Canada Ltd. Tootsie Roll Central Europe Ltd. The Tootsie Roll Company, Inc. Tootsie Roll Management, Inc. Tootsie Roll Mfg., Inc. Tootsie Rolls—Latin America, Inc. Tootsie Roll Worldwide Ltd. The Sweets Mix Company, Inc. TRI de Latino America S.A. de C.V. TRI Finance, Inc. TRI International Co. TRI-Mass., Inc. TRI Sales Co. TRI Sales Finance LLC Tutsi S.A. de C.V. World Trade & Marketing Ltd.

Other Information
Stock Exchange	New York Stock Exchange, Inc. (Since 1922)
Stock Identification	Ticker Symbol: TR CUSIP No. 890516 10-7
Stock Transfer Agent and Stock Registrar	Mellon Investor Services LLC Overpeck Centre 85 Challenger Road Ridgefield Park, NJ 07660 1-800-851-9677 www.melloninvestor.com
Independent Accountants	PricewaterhouseCoopers LLP One North Wacker Chicago, IL 60606
General Counsel	Becker Ross Stone DeStefano & Klein 317 Madison Avenue New York, NY 10017
Annual Meeting	May 5, 2003 Mutual Building, Room 1200 909 East Main Street Richmond, VA 23219

Printed on recycled paper.

22

QuickLinks

Corporate Profile
Corporate Principles
To Our Shareholders
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Consolidated Statement of Financial Position
Consolidated Statement of Earnings, Comprehensive Earnings and Retained Earnings
Consolidated Statement of Cash Flows
Notes to Consolidated Financial Statements
Report of Independent Accountants
Quarterly Financial Data (Unaudited)
Five Year Summary of Earnings and Financial Highlights

EX-21

QuickLinks -- Click here to rapidly navigate through this document

EXHIBIT 21

LIST OF SUBSIDIARIES OF THE COMPANY

Name	Jurisdiction of Incorporation
Andes Candies L.P.	Illinois
Andes Manufacturing LLC	Illinois
Andes Services LLC	Illinois
C.C. L.P., Inc.	Delaware
C.G.C. Corporation	Delaware
C.G.P., Inc.	Delaware
Cambridge Brands, Inc.	Delaware
Cambridge Brands Mfg., Inc.	Delaware
Cambridge Brands Services, Inc.	Delaware
Cella's Confections, Inc.	Virginia
Charms Company	Delaware
Charms L.P.	Delaware
Charms Marketing Company	Illinois
Henry Elsen Advertising Agency, Inc.	New Jersey
J.T. Company, Inc.	Delaware
O'Tec Industries, Inc.	Delaware
Tootsie Roll of Canada Ltd.	Canada
Tootsie Roll Central Europe Ltd.	Delaware
The Tootsie Roll Company, Inc.	Illinois
Tootsie Roll Management, Inc.	Illinois
Tootsie Roll Mfg., Inc.	Illinois
Tootsie Rolls—Latin America, Inc.	Delaware
Tootsie Roll Worldwide Ltd.	Illinois
The Sweets Mix Company, Inc.	Illinois
TRI de Latino America S.A. de C.V.	Mexico
TRI Finance, Inc.	Delaware
TRI International Co.	Illinois
TRI-Mass., Inc.	Massachusetts
TRI Sales Co.	Delaware
TRI Sales Finance LLC	Delaware
Tutsi S.A. de C.V.	Mexico
World Trade & Marketing Ltd.	British West Indies

QuickLinks

EXHIBIT 21

LIST OF SUBSIDIARIES OF THE COMPANY

EX-99

QuickLinks -- Click here to rapidly navigate through this document

Exhibit 99

Certificate Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

        Each of the undersigned officers of Tootsie Roll Industries, Inc. certifies that (i) the Annual Report on Form 10-K of Tootsie Roll Industries, Inc. for the year ended December 31, 2002 (the Form 10-K) fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and (ii) the information contained in the Form 10-K fairly presents, in all material respects, the financial condition and results of operations of Tootsie Roll Industries, Inc.

Dated: March 25, 2003	/s/ Melvin J. Gordon Melvin J. Gordon Chairman and Chief Executive Officer
Dated: March 25, 2003	/s/ G. Howard Ember, Jr G. Howard Ember, Jr. Vice President/Finance and Chief Financial Officer

QuickLinks

Exhibit 99