CORPORATE PROFILE
Tootsie Roll Industries, Inc. has been engaged in the manufacture and
sale of candy for 104 years. Our products are primarily sold under the
familiar brand names, Tootsie Roll, Tootsie Roll Pops, Caramel Apple
Pops, Child's Play, Charms, Blow Pop, Blue Razz, Cella's, Mason Dots,
Mason Crows, Junior Mints, Charleston Chew, Sugar Daddy, Sugar Babies,
Andes and Fluffy Stuff.
CORPORATE PRINCIPLES
We believe that the differences among companies are attributable to the
caliber of their people, and therefore we strive to attract and retain
superior people for each job.
We believe that an open family atmosphere at work combined with
professional management fosters cooperation and enables each individual
to maximize his or her contribution to the company and realize the
corresponding rewards.
We do not jeopardize long-term growth for immediate, short-term results.
We maintain a conservative financial posture in the deployment and
management of our assets.
We run a trim operation and continually strive to eliminate waste,
minimize cost and implement performance improvements.
We invest in the latest and most productive equipment to deliver the best
quality product to our customers at the lowest cost.
We seek to outsource functions where appropriate and to vertically
integrate operations where it is financially advantageous to do so.
We view our well known brands as prized assets to be aggressively
advertised and promoted to each new generation of consumers.
[PHOTO]
MELVIN J. GORDON, CHAIRMAN AND CHIEF EXECUTIVE OFFICER AND
ELLEN R. GORDON, PRESIDENT AND CHIEF OPERATING OFFICER.
[TOOTSIE ROLL LOGO]
1
TO OUR SHAREHOLDERS
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We are pleased to report that Tootsie Roll Industries once again posted record
operating results in 2000.
Sales reached $427 million, a record high for the twenty-fourth consecutive year
and an 8% increase over 1999 sales of $397 million. Sales growth is attributed
to a strong Halloween selling season and successful promotional programs, as
well as additional sales from businesses that were acquired during the year.
Earnings per share reached $1.53, an increase of 9% over 1999 earnings per share
of $1.41. Net earnings reached $76 million, an increase of 6% over 1999 net
earnings of $71 million. This was the nineteenth consecutive year of record
earnings. Earnings per share increased by a higher percentage than net earnings
due to the lower number of average shares outstanding in 2000.
The financial resources we have carefully cultivated through the years enabled
us to take several key actions in 2000:
- Cash dividends were paid for the fifty-eighth consecutive year, and
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FINANCIAL HIGHLIGHTS
December 31,
2000 1999
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(in thousands except per share data)
Net Sales................................................... $427,054 $396,750
Net Earnings................................................ 75,737 71,310
Working Capital............................................. 145,765 168,423
Net Property, Plant and
Equipment................................................ 131,118 95,897
Shareholders' Equity........................................ 458,696 430,646
Average Shares Outstanding*................................. 49,434 50,412
Per Share Items*
Net Earnings............................................... $1.53 $1.41
Shareholders' Equity....................................... 9.36 8.62
Cash Dividends Paid........................................ .27 .23
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*Based on average shares outstanding adjusted for stock dividends.
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the quarterly rate was increased by 15%.
- Our thirty sixth consecutive stock dividend was distributed.
- 957,450 of the company's common shares were repurchased in the open
market.
- Significant capital was invested in plant and equipment to improve
efficiency and to support future sales growth.
- Two branded candy businesses were acquired.
While we anticipate that the investments we undertook this year will contribute
to our operations in years to come, our financial position remains strong,
giving us the flexibility to react to new investment opportunities, including
acquisitions, which may arise in the future.
SALES AND MARKETING
Record sales levels reached in 2000 were largely the result of acquisitions and
continued execution of sales and marketing programs that have proven successful
in recent years. These efforts and the acquired product lines helped us gain
access to new distribution opportunities for our product lines. They also helped
us to sustain the traditionally high sell-through that makes our products
appealing to retailers and distributors alike across all trade classes.
A significant portion of our sales and marketing effort was again directed at
Halloween, which has long been our most significant selling period, and remained
so this year. Our bagged goods, including variety packs comprised of popular
product assortments offered at value oriented price points, continued to move
well through supermarket, mass merchandise, drug and warehouse club channels.
In the area of merchandising, we expanded our use of display ready cases at
Halloween and throughout the year. These cases are printed in vivid colors and
feature convenient, removable side panels that improve product visibility and
brand recognition at the retail level. We also expanded distribution of
freestanding floor displays, both with mixed assortments and with straight
goods. Specialized, retailer-oriented merchandising adaptations such as these
ensure that our venerable brands retain their place in the contemporary retail
environment.
Another way we have worked to retain a contemporary market for
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2
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our products is through product extensions. This year we introduced Wild Berry
Dots, a new flavor profile in the Dots line that features tart berry flavors
sprinkled with super-sour flavor crystals.
[PICTURE]
We also extended the Charleston Chew brand with the expansion of Mini Charleston
Chews, a bite-sized version that consumers can share with friends or save for
later in the convenient, recloseable box.
[PICTURE]
We have further grown our business through seasonal offerings of bagged goods at
Valentine's Day, Easter and Christmas. Festive graphics and attractive price
points increasingly make these holidays occasions for consumers to bring home
Tootsie Roll products. Additionally, sales in our seasonal line came from our
2000 Christmas tin, the latest in a collectable series. Collectable tins help to
create an important and nostalgic impression of our brands.
[PICTURE]
Lastly, sales growth in 2000 was positively impacted by two acquisitions
completed during the first half of the year.
ACQUISITIONS
Both children and adults have long enjoyed cotton candy at special events
such as fairs, carnivals and the circus. In February we acquired the assets
of a small manufacturer that, after many years of research and development,
perfected a way to mass produce commercial quantities of this
melt-in-your-mouth treat in attractive, shelf-stable packages. Sold under the
brand name Charms Fluffy Stuff, we hope to expand distribution of this unique
confection to the range of outlets and trade classes where our other products
are sold, and make Fluffy Stuff a special treat that is available every day.
This acquisition included a production facility in Maryland.
[PICTURE]
In May we acquired Andes Candies, a more familiar, but equally unique
confection, along with its production facility located in Wisconsin. Andes
products are easily recognizable for their attractive foil wrappers and
distinctive rectangular shape. The most popular flavor in the Andes line is
Cream de Menthe, a 50 year old confection. It consists of a thin layer of
refreshing green mint, sandwiched between two layers of chocolaty goodness and
is wrapped in green foil.
During the last half of the year we successfully absorbed both the Fluffy Stuff
and the Andes businesses into our own. Our sales and marketing organizations
quickly integrated both product lines and we are well along in the task of
developing appropriate promotional strategies for these new items.
[PICTURE]
ADVERTISING AND PUBLIC RELATIONS
We continued to utilize television to bring our advertising message to children
and adults during 2000. Network, spot and cable T. V. carried a variety of
targeted themes including the classic "How Many Licks?" featuring Tootsie Pops,
along with "That's a Blow Pop" and several other commercials that were run on
prominent cartoon, game and adventure shows.
Tootsie Rolls have been included in military rations for many years, and in 2000
we were honored to participate in a reunion marking the 50th anniversary of the
Korean War Battle of the Chosin Reservoir. This battle was noteworthy both
because our 15,000 Marine and Army troops were outnumbered by 120,000 Chinese
enemy troops and because of the harsh, 36 degree below zero temperatures our men
had to endure. Time and
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3
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again we heard poignant stories from Marine veterans who survived for days on
Tootsie Rolls and Charms squares because their regular food rations were frozen
solid. It was gratifying to participate in the events honoring the "Chosin Few"
brave survivors of one of the most famous military battles ever fought by the
U.S. armed forces.
Numerous articles and stories appeared during the year in recognition of the
company and its accomplishments. Most notably, our Chairman and Chief Executive
Officer was ranked as the top performing executive in the food/ beverage
category by Chief Executive magazine, and our President and Chief Operating
Officer shared her management insights in a number of publications including
Fortune and Executive Excellence magazines. Tootsie Roll was also honored as one
of the "100 Best Corporate Citizens" by Business Ethics magazine.
CAPITAL EXPENDITURES
Our capital expenditure program continues to focus on initiatives that increase
capacity, improve product quality, or reduce cost. Capital expenditures in 2000
were $16 million, encompassing a variety of projects including enhanced
environmental air control, additional kitchen capacity and state of the art
inspection systems to keep up with increased throughput.
Also during 2000 we completed our first headquarters expansion and renovation in
14 years and commenced construction to increase the size of our Tennessee
distribution center. Both of these projects provide infrastructure needed to
support the integration of recent acquisitions as well as general growth in our
business.
INFORMATION TECHNOLOGY
With the Year 2000 software issue behind us, we focused on two key initiatives
this year. First was the successful integration of the two acquisitions into our
business systems. Secondly, we commenced projects involving several critical
business applications. Although these do not impact our general operating
system, these subsystems must evolve in order to take full advantage of current
technologies and to keep pace with the ever-changing environment in which we do
business.
Methodologies that were quite acceptable even a few years ago can quickly become
outdated. We are committed to deploying leading edge practices and technologies
in every aspect of our operations and view our information technologies as a
prime strategic tool for future growth.
PURCHASING
Prices for key raw materials were generally favorable during the year, although
savings in this category were partially offset by increased costs for packaging
materials. Management tools such as our commodity hedging program and
competitive bidding process help to ensure that the company's purchases are
sourced as economically as possible.
Also during 2000 we successfully incorporated the purchasing of ingredients and
packaging for Andes and Fluffy Stuff into our centralized purchasing systems.
INTERNATIONAL
Sales grew in our Mexican operation as a result of marketing improvements,
successful promotions and strong second half seasonal sales. Profits increased
by an even greater percentage as a result of intensified cost control measures.
Canadian sales were steady, with continued strength in bagged items at
Halloween. Export sales grew due to the foreign sales of the companies acquired
and accelerated sales and marketing efforts in selected markets for our existing
core brands. We hope to build upon this base and develop synergies across
product lines to further improve international distribution.
IN APPRECIATION...
We wish to thank the many loyal employees, customers, suppliers, sales brokers
and foreign distributors with whom we work, as well as our shareholders who have
been supportive through the years. While we are pleased with the record results
achieved in 2000, we are committed to build upon them for the future.
[SIGNATURE]
Melvin J Gordon
Chairman of the Board and
Chief Executive Officer
[SIGNATURE]
Ellen R. Gordon
President and
Chief Operating Officer
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4
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(in thousands except per share, percentage and ratio figures)
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EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
NET SALES
Millions of dollars
1996 1997 1998 1999 2000
$341 $376 $389 $397 $427
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
NET EARNINGS
Millions of dollars
1996 1997 1998 1999 2000
$47.2 $60.7 $67.5 $71.3 $75.7
FINANCIAL REVIEW
This financial review discusses the company's financial condition, results of
operations, liquidity and capital resources. It should be read in conjunction
with the Consolidated Financial Statements and related footnotes that follow
this discussion.
FINANCIAL CONDITION
Our financial condition remained strong in 2000, bolstered by another year of
record profits. Net earnings rose from $71,310 in 1999 to $75,737 in 2000.
Shareholders' equity increased by 6.5% from $430,646 in 1999 to $458,696 in
2000, due principally to the addition of these earnings, partially offset by
stock repurchases of $32,945 and cash dividends declared of $13,350.
The company has paid cash dividends for fifty-eight consecutive years.
Shareholders also received a 3% stock dividend in 2000, the thirty-sixth
consecutive year that one has been distributed.
The company responded to several investment opportunities during the year. In
February we acquired substantially all of the assets of a small manufacturer of
shelf stable cotton candy. This product is sold under the brand name Charms
Fluffy Stuff and is suitable for national distribution.
In May we acquired substantially all of the assets of Andes Candies. Andes is
best known as the maker of Andes Creme de Menthe Thins, a three layered,
chocolaty rectangular mint sold nationally through a variety of outlets
including supermarkets, drug chains and mass merchandisers.
The combined $74,293 purchase price for these acquisitions was financed by a
combination of cash and short term borrowings, which were paid off prior to year
end. In addition, cash outflows during the year related to capital
expenditures were $16,189. The company continues to be financed principally by
funds generated from operations rather than with borrowed funds.
The investments made in 2000 are reflected in the following ratios: current
ratio declined from 4.0 to1 to 3.5 to 1; quick ratio declined from 3.2 to 1 to
2.7 to 1; current liabilities to net worth declined from 13.0% to 12.5% and debt
to equity remained negligible at 1.6% compared to 1.7% a year ago.
The company retains a conservative financial posture and sufficient capital
to respond to future investment opportunities. Accordingly, we continue to
seek appropriate acquisitions to complement our existing business.
RESULTS OF OPERATIONS
2000 vs. 1999
Net sales increased in 2000 to $427,054, a record level for the twenty-fourth
consecutive year and a 7.6% increase over 1999 sales of $396,750. Sales remained
at the highest level in the third quarter, due to successful Halloween and Back
to School promotions.
Other factors contributing to sales increases during the year were growth across
many of our core brands, gains in our seasonal lines, incremental business from
product line extensions, increases in certain international markets and sales
from acquired brands.
Comparing quarterly sales in 2000 to those of 1999, increases were seen in each
quarter. The third quarter showed the largest increase in dollar terms due to
Halloween, and the fourth quarter showed the greatest growth in percentage terms
due to $14,457 in sales from acquired brands. In the fourth quarter we
experienced both increased competitive pressures and general softness throughout
the segment of the industry in which we principally operate.
5
Cost of goods sold as a percentage of sales remained consistent at 48.5% in 2000
versus 48.5% in 1999. Raw material prices were generally favorable during the
year but were offset by higher packaging costs and product mix variations, some
of which are related to the acquired brands. The company continues to focus on
cost control throughout all levels of its operations.
Gross margin grew by 7.7% to $219,954 due to increased sales. As a percentage of
sales, gross margin remained constant at 51.5% in 2000 versus 51.5% in 1999.
Gross margins in the third and fourth quarters continue to be somewhat lower due
to the seasonal nature of our business and the product mix sold in those
quarters.
Operating expenses, comprised of marketing, selling, advertising, physical
distribution, general and administrative expenses, as a percentage of sales,
increased slightly from 24.4% to 24.8%. Amortization of intangible assets
increased from $2,706 to $3,420 reflecting the partial year impact of two
acquisitions. Earnings from operations increased from $104,519 to $110,729, a
5.9% increase.
Other income, consisting primarily of interest and dividend income net of
interest expense was, $7,079 versus $6,928 last year. The effective tax rate of
35.7% was comparable to the prior year rate of 36.0%.
Consolidated net earnings rose 6.2% to a new company record of $75,737. Our net
earnings were 17.7% of sales in 2000 and 18.0% of sales in 1999. Earnings per
share increased by 8.5% to a record $1.53 from the previous record of $1.41
reached in 1999. Earnings per share increased by a greater percentage than net
earnings due to lower average shares outstanding during 2000 as a result of
share repurchases made during the year.
2000 was the nineteenth year of record earnings achievement for the company.
1999 vs. 1998
1999 was our twenty-third consecutive year of record sales achievement. Sales of
$396,750 were up 2.1% over 1998 sales of $388,659. The third quarter, driven by
Halloween sales, continued to be our largest selling period and surpassed levels
attained in previous years. Also in 1999, the timing of certain Halloween
shipments had a favorable effect on the third quarter and a corresponding
unfavorable impact on the fourth quarter as compared to the prior year.
Throughout the year, sales were attributable to successful promotional programs
as we continued to broaden distribution in mass merchandisers and other select
trade classes with our core product offerings. Line extensions, new products and
seasonal packs all contributed to added sales.
Sales growth occurred in our two most significant foreign operations as well. In
Mexico, stabilizing local conditions and aggressive new marketing and
promotional programs complemented the already strong business we have developed
for the Christmas holiday season in that market.
Sales growth in our Canadian operation was attributable to another strong
Halloween season coupled with further distribution gains in the mass
merchandiser and grocery trade classes. Also, the new Way 2 Sour Blow Pop was
successfully introduced in this market.
Cost of goods sold, as a percentage of sales, remained steady at 48.5% versus
48.3%. This reflected generally stable cost levels for packaging and minor
ingredients, although certain of our raw material costs did increase somewhat.
These increases were largely offset by higher production efficiencies associated
with increased volumes in relation to fixed costs.
Gross margin dollars grew by 1.6% to $204,189, and remained steady as a
percent of sales at 51.5% versus 51.7% in 1998, due to the factors cited
above.
Operating expenses as a percentage of sales, declined slightly from 25.7% to
25.1%. This improvement was due to effective expense control programs aimed at
holding down costs. Earnings from operations increased by 3.2% to $104,519, or
26.3% of sales, as a result of favorable gross margins and operating expenses.
Other income increased by $2,130 to $6,928, primarily reflecting significantly
lower foreign exchange losses in Mexico where local economic conditions
improved. Also, interest expense was lower and interest income was higher due to
lower average borrowings and increased investments in marketable securities,
respectively, during 1999. Interest income was also higher in 1999 due to higher
interest rates. The effective tax rate was 36.0% in 1999 versus 36.3% in 1998.
Consolidated net earnings rose 5.6% to a new company record of $71,310. Earnings
per share increased by 6.0% to $1.41 from the previous record of $1.33 reached
in 1998. Earnings per share increased by a greater percent than net earnings due
to lower average shares outstanding during 1999 as a result of share repurchases
made during the year.
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6
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EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
NET EARNINGS
AS a % of Sales
1996 1997 1998 1999 2000
13.8 16.2 17.4 18.0 17.7
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
NET EARNINGS
Per Share
1996 1997 1998 1999 2000
$0.92 $1.19 $1.33 $1.41 $1.53
Our net earnings as a percent of sales increased to 18.0% from 17.4%. 1999 was
the eighteenth consecutive year of record earnings achievement for the company.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows from operating activities increased to $84,881 in 2000 from $72,935
in 1999 and $77,735 in 1998. The increase in 2000 was principally attributable
to higher net earnings, and the additional depreciation and amortization related
to the acquired businesses.
In 1999, the decrease in cash flows from operating activities was principally
attributable to increases in other receivables and prepaid expenses and other
assets. Also, depreciation expense was lower in 1999 due to foreign currency
translation.
Cash flows from investing activities in 2000 reflect $74,293 for the purchase of
Fluffy Stuff and Andes Candies, capital expenditures of $16,189 and a net
decrease in marketable securities of $24,015 which was used to help finance
those expenditures.
In 1999 capital expenditures were $20,283 and there was a net increase in
marketable securities of $6,710. In 1998, capital expenditures were $14,878
and there was a net increase in marketable securities of $19,951.
Cash flows from financing activities reflect share repurchases of $32,945,
$26,869 and $13,445 in 2000, 1999 and 1998, respectively. Short term borrowings
in 2000 were primarily related to the Andes acquisition which were subsequently
repaid. In 1998 there was also a short term borrowing which was subsequently
repaid during that same year.
Cash dividends of $13,091, $11,313 and $9,150 were paid in 2000, 1999 and 1998,
respectively. The increase in 2000 was 15.7% over 1999 and 2000 represented the
fifty-eighth consecutive year in which we have paid cash dividends.
QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET RISK AND OTHER MATTERS
The company is exposed to various market risks, including fluctuations in sugar,
corn, edible oils, cocoa and packaging costs. The company also invests in
securities with maturities of up to three years, the majority of which are held
to maturity, which limits the company's exposure to interest rate fluctuations.
There has been no material change in the company's market risks during 2000.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial
Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging
Activities (SFAS No. 133). SFAS No. 133 establishes accounting and reporting
standards requiring that every derivative instrument be recorded in the balance
sheet as either an asset or liability measured at its fair value. The company
has concluded that adoption of SFAS No. 133 will not have a material impact on
the company's results of operations.
The results of our operations and our financial condition are expressed in the
following financial statements.
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8
CONSOLIDATED STATEMENT OF
EARNINGS, COMPREHENSIVE EARNINGS AND RETAINED EARNINGS
TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES
(in thousands except per share data)
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For the year ended December 31,
2000 1999 1998
---------------- ---------------- ----------------
Net sales.............................. $427,054 $396,750 $388,659
Cost of goods sold..................... 207,100 192,561 187,617
---------------- ---------------- ----------------
Gross margin........................... 219,954 204,189 201,042
---------------- ---------------- ----------------
Selling, marketing and administrative
expenses............................. 105,805 96,964 97,071
Amortization of intangible assets...... 3,420 2,706 2,706
---------------- ---------------- ----------------
Earnings from operations............... 110,729 104,519 101,265
Other income, net...................... 7,079 6,928 4,798
---------------- ---------------- ----------------
Earnings before income taxes........... 117,808 111,447 106,063
Provision for income taxes............. 42,071 40,137 38,537
---------------- ---------------- ----------------
Net earnings........................... $ 75,737 $ 71,310 $ 67,526
================ ================ ================
Net earnings........................... $ 75,737 $ 71,310 $ 67,526
Other comprehensive earnings (loss),
net of tax
Unrealized gains (losses) on
securities....................... (856) 930 976
Foreign currency translation
adjustments...................... (394) 653 (30)
---------------- ---------------- ----------------
Other comprehensive earnings
(loss)........................... (1,250) 1,583 946
---------------- ---------------- ----------------
Comprehensive earnings................. $ 74,487 $ 72,893 $ 68,472
================ ================ ================
Retained earnings at beginning of
year................................. $158,619 $164,652 $159,124
Net earnings....................... 75,737 71,310 67,526
Cash dividends ($.27, $.23 and $.19
per share)....................... (13,350) (11,654) (9,484)
Stock dividends.................... (40,883) (65,689) (52,514)
---------------- ---------------- ----------------
Retained earnings at end of year....... $180,123 $158,619 $164,652
================ ================ ================
Earnings per share..................... $ 1.53 $ 1.41 $ 1.33
================ ================ ================
Average common and class B common
shares outstanding................... 49,434 50,412 50,920
================ ================ ================
(The accompanying notes are an integral part of these statements.)
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8
CONSOLIDATED STATEMENT OF
FINANCIAL POSITION
TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES
(in thousands)
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ASSETS December 31,
2000 1999
---------------- ----------------
CURRENT ASSETS:
Cash and cash equivalents............................... $ 60,882 $ 88,504
Investments............................................. 71,605 71,002
Accounts receivable trade, less allowances of $2,147 and
$2,032................................................. 23,568 19,032
Other receivables....................................... 1,230 5,716
Inventories:
Finished goods and work-in-process.................. 24,984 20,689
Raw materials and supplies.......................... 16,906 14,396
Prepaid expenses........................................ 2,685 3,124
Deferred income taxes................................... 1,351 2,069
---------------- ----------------
Total current assets............................ 203,211 224,532
---------------- ----------------
PROPERTY, PLANT AND EQUIPMENT, at cost:
Land.................................................... 8,327 7,981
Buildings............................................... 36,937 30,330
Machinery and equipment................................. 183,858 145,789
---------------- ----------------
229,122 184,100
Less--Accumulated depreciation.......................... 98,004 88,203
---------------- ----------------
131,118 95,897
---------------- ----------------
OTHER ASSETS:
Intangible assets, net of accumulated amortization of
$26,917 and $23,497.................................... 121,263 85,137
Investments............................................. 62,548 87,167
Cash surrender value of life insurance and other
assets................................................. 44,302 36,683
---------------- ----------------
228,113 208,987
---------------- ----------------
$562,442 $529,416
================ ================
(The accompanying notes are an integral part of these statements.)
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9
(in thousands except per share data)
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LIABILITIES AND SHAREHOLDERS' EQUITY December 31,
2000 1999
---------------- ----------------
CURRENT LIABILITIES:
Accounts payable........................................ $ 10,296 $ 12,845
Dividends payable....................................... 3,436 3,035
Accrued liabilities..................................... 33,336 31,945
Income taxes payable.................................... 10,378 8,284
---------------- ----------------
Total current liabilities....................... 57,446 56,109
---------------- ----------------
NONCURRENT LIABILITIES:
Deferred income taxes................................... 12,422 9,520
Postretirement health care and life insurance
benefits............................................... 6,956 6,557
Industrial development bonds............................ 7,500 7,500
Deferred compensation and other liabilities............. 19,422 19,084
---------------- ----------------
Total noncurrent liabilities.................... 46,300 42,661
---------------- ----------------
SHAREHOLDERS' EQUITY:
Common stock, $.69-4/9 par value--
120,000 and 120,000 shares authorized--
32,986 and 32,854, respectively, issued............... 22,907 22,815
Class B common stock, $.69-4/9 par value--
40,000 and 40,000 shares authorized--
16,056 and 15,707, respectively, issued............... 11,150 10,908
Capital in excess of par value.......................... 256,698 249,236
Retained earnings, per accompanying statement........... 180,123 158,619
Accumulated other comprehensive earnings (loss)......... (10,190) (8,940)
Treasury stock (at cost)--
52 shares and 50 shares, respectively................. (1,992) (1,992)
---------------- ----------------
458,696 430,646
---------------- ----------------
$562,442 $529,416
================ ================
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10
CONSOLIDATED STATEMENT OF
CASH FLOWS
TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES
(in thousands)
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For the year ended December 31,
2000 1999 1998
---------------- ---------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings....................... $75,737 $71,310 $67,526
Adjustments to reconcile net
earnings to net cash provided
by operating activities:
Depreciation and
amortization................. 13,314 9,979 12,807
(Gain) loss on retirement of
fixed assets................. (46) (43) 118
Changes in operating assets and
liabilities, excluding
acquisitions:
Accounts receivable........ (4,460) 400 (915)
Other receivables.......... 4,486 (2,392) 1,358
Inventories................ (768) 1,592 (106)
Prepaid expenses and other
assets................... (7,903) (15,672) (7,723)
Accounts payable and
accrued liabilities...... (1,717) 968 (596)
Income taxes payable and
deferred................. 5,691 2,232 (625)
Postretirement health care
and life insurance
benefits................. 399 412 241
Deferred compensation and
other liabilities........ 337 4,162 5,004
Other...................... (189) (13) 646
---------------- ---------------- ----------------
Net cash provided by operating
activities....................... 84,881 72,935 77,735
---------------- ---------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of businesses, net of
cash acquired.................... (74,293) -- --
Capital expenditures............... (16,189) (20,283) (14,878)
Purchase of held to maturity
securities....................... (156,322) (238,949) (259,112)
Maturity of held to maturity
securities....................... 176,576 235,973 240,195
Purchase of available for sale
securities....................... (78,993) (117,694) (217,799)
Sale and maturity of available for
sale securities.................. 82,754 113,960 216,765
---------------- ---------------- ----------------
Net cash used in investing
activities....................... (66,467) (26,993) (34,829)
---------------- ---------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of notes payable.......... 43,625 -- 7,000
Repayments of notes payable........ (43,625) -- (7,000)
Treasury stock purchases........... -- (1,019) (973)
Shares repurchased and retired..... (32,945) (25,850) (12,472)
Dividends paid in cash............. (13,091) (11,313) (9,150)
---------------- ---------------- ----------------
Net cash used in financing
activities....................... (46,036) (38,182) (22,595)
---------------- ---------------- ----------------
Increase (decrease) in cash and cash
equivalents.......................... (27,622) 7,760 20,311
Cash and cash equivalents at beginning
of year.............................. 88,504 80,744 60,433
---------------- ---------------- ----------------
Cash and cash equivalents at end of
year................................. $60,882 $88,504 $80,744
================ ================ ================
Supplemental cash flow information:
Income taxes paid.................. $35,750 $38,827 $40,000
================ ================ ================
Interest paid...................... $ 1,067 $ 453 $ 803
================ ================ ================
(The accompanying notes are an integral part of these statements.)
- --------------------------------------------------------------------------------
11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ($ IN THOUSANDS EXCEPT PER SHARE
DATA)
TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF CONSOLIDATION:
The consolidated financial statements include the accounts of Tootsie Roll
Industries, Inc. and its wholly-owned subsidiaries (the company), which are
primarily engaged in the manufacture and sale of candy products. All significant
intercompany transactions have been eliminated.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
REVENUE RECOGNITION AND OTHER ACCOUNTING PRONOUNCEMENTS:
Revenues are recognized when products are shipped and delivered to customers.
Shipping and handling costs of $26,661, $24,260 and $24,342 in 2000, 1999, 1998,
respectively, are included in selling, marketing and administrative expenses.
Accounts receivable are unsecured. The Company adopted Securities and Exchange
Commission Staff Accounting Bulletin No. 101, which clarifies the existing
guidance on the recognition, presentation and disclosure of revenue in the
financial statements, during the fourth quarter of 2000 with no material effect
on its financial position or results of operations.
As of January 1, 2001, the Company adopted Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" (SFAS No. 133), which was issued by the Financial Accounting
Standards Board in 1998. The adoption of SFAS No. 133 will not have a material
effect on the Company's results of operations or financial position.
CASH AND CASH EQUIVALENTS:
The company considers temporary cash investments with an original maturity of
three months or less to be cash equivalents.
INVESTMENTS:
Investments consist of various marketable securities with maturities of
generally less than one year. In accordance with Statement of Financial
Accounting Standards (SFAS) No. 115, "Accounting For Certain Investments in Debt
and Equity Securities," the company's debt and equity securities are considered
as either held to maturity, available for sale or trading. Held to maturity
securities represent those securities that the company has both the positive
intent and ability to hold to maturity and are carried at amortized cost.
Available for sale securities represent those securities that do not meet the
classification of held to maturity, are not actively traded and are carried at
fair value. Unrealized gains and losses on these securities are excluded from
earnings and are reported as a separate component of shareholders' equity, net
of applicable taxes, until realized. Trading securities relate to deferred
compensation arrangements and are carried at fair value.
INVENTORIES:
Inventories are stated at cost, not in excess of market. The cost of domestic
inventories ($37,505 and $29,111 at December 31, 2000 and 1999, respectively)
has been determined by the last-in, first-out (LIFO) method. The excess of
current cost over LIFO cost of inventories approximates $2,993 and $5,008 at
December 31, 2000 and 1999, respectively. The cost of foreign inventories
($4,385 and $5,974 at December 31, 2000 and 1999, respectively) has been
determined by the first-in, first-out (FIFO) method.
From time to time, the company enters into commodity futures and option
contracts in order to fix the future price of certain key ingredients which may
be subject to price volatility (primarily sugar and corn syrup). Gains or
losses, if any, resulting from these contracts are considered as a component of
the cost of the ingredients being hedged. At December 31, 2000 the company had
open contracts to purchase most of its expected 2001 sugar usage.
PROPERTY, PLANT AND EQUIPMENT:
Depreciation is computed for financial reporting purposes by use of both the
straight-line and accelerated methods based on useful lives of 20 to 35 years
for buildings and 12 to 20 years for machinery and equipment. For income tax
purposes the company uses accelerated methods on all properties. Depreciation
expense was $10,069, $7,663 and $10,101 in 2000, 1999 and 1998, respectively.
CARRYING VALUE OF LONG-LIVED ASSETS:
In the event that facts and circumstances indicate that the company's
long-lived assets may be impaired, an evaluation of recoverability would be
performed. Such an evaluation entails comparing the estimated future
undiscounted cash flows associated with the asset to the asset's carrying amount
to determine if a write down to market value or discounted cash flow value is
required. The company considers that no circumstances exist that would require
such an evaluation.
POSTRETIREMENT HEALTH CARE AND LIFE INSURANCE BENEFITS:
The company provides certain postretirement health care and life insurance
benefits. The cost of these postretirement benefits is accrued during employees'
working careers.
INCOME TAXES:
The company uses the liability method of computing deferred income taxes.
INTANGIBLE ASSETS:
Intangible assets represent the excess of cost over the acquired net tangible
assets of operating companies and is amortized on a straight-line basis over a
15 to 40 year period. The company assesses the recoverability of its intangible
assets using undiscounted future cash flows.
FOREIGN CURRENCY TRANSLATION:
During 1997, management determined that the Mexican economy was
hyper-inflationary. Accordingly, the US dollar was used as the functional
currency for the company's Mexican operations, and translation gains and losses
were included in the determination of 1998 earnings. Effective January 1, 1999,
management determined that the Mexican economy was no longer hyper-inflationary
and designated the local currency as the functional currency. Accordingly, the
net effect of translating the Mexican operations' financial statements was
reported in a separate component of shareholders' equity beginning on
January 1, 1999.
COMPREHENSIVE EARNINGS:
Comprehensive earnings includes net earnings, foreign currency translation
adjustments and unrealized gains/losses on marketable securities.
EARNINGS PER SHARE:
A dual presentation of basic and diluted earnings per share is not required
due to the lack of potentially dilutive securities under the company's simple
capital structure. Therefore, all earnings per share amounts represent basic
earnings per share.
NOTE 2--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
=======
12
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,
----------------------
2000 1999
-------- -------
Compensation.......................................... $10,069 $ 8,993
Other employee benefits............................... 4,107 4,067
Taxes, other than income.............................. 2,174 2,248
Advertising and promotions............................ 9,038 8,508
Other................................................. 7,948 8,129
------- -------
$33,336 $31,945
======= =======
NOTE 4--INCOME TAXES:
The domestic and foreign components of pretax income are as follows:
2000 1999 1998
--------- -------- --------
Domestic............................... $115,823 $110,052 $106,667
Foreign................................ 1,985 1,395 (604)
-------- -------- --------
$117,808 $111,447 $106,063
======== ======== ========
The provision for income taxes is comprised of the following:
2000 1999 1998
-------- ------- -------
Current:
Federal.................................. $33,908 $34,290 $34,373
Foreign.................................. 426 783 618
State.................................... 3,613 4,294 4,286
------- ------- -------
37,947 39,367 39,277
------- ------- -------
Deferred:
Federal.................................. 3,500 1,039 (250)
Foreign.................................. 346 (388) (479)
State.................................... 278 119 (11)
------- ------- -------
4,124 770 (740)
------- ------- -------
$42,071 $40,137 $38,537
======= ======= =======
Deferred income taxes are comprised of the following:
December 31,
----------------------
2000 1999
-------- -------
Workers' compensation................................... $ 405 $ 396
Reserve for uncollectible accounts...................... 455 467
Other accrued expenses.................................. 1,397 1,214
VEBA funding............................................ (370) (347)
Other, net.............................................. (536) 339
------- -------
Net current deferred income tax asset................... $ 1,351 $ 2,069
======= =======
December 31,
----------------------
2000 1999
-------- -------
Depreciation........................................... $12,076 $10,563
Postretirement benefits................................ (2,345) (2,220)
Deductible goodwill.................................... 7,855 5,647
Deferred compensation.................................. (6,174) (4,947)
Accrued commissions.................................... 2,232 2,011
Foreign subsidiary tax loss carryforward............... (521) (1,898)
Other, net............................................. (701) 364
------- -------
Net long-term deferred income tax liability............ $12,422 $ 9,520
======= =======
At December 31, 2000, gross deferred tax assets and gross deferred tax
liabilities were $14,876 and $25,947, respectively.
The effective income tax rate differs from the statutory rate as follows:
2000 1999 1998
-------- ----- -----
U.S. statutory rate............................ 35.0% 35.0% 35.0%
State income taxes, net........................ 2.2 2.6 2.6
Amortization of intangible assets.............. 0.4 0.4 0.4
Other, net..................................... (1.9) (2.0) (1.7)
---- ---- ----
Effective income tax rate...................... 35.7% 36.0% 36.3%
==== ==== ====
The company has not provided for U.S. federal or foreign withholding taxes on
$5,864 of foreign subsidiaries' undistributed earnings as of December 31, 2000
because such earnings are considered to be permanently reinvested. When excess
cash has accumulated in the company's foreign subsidiaries and it is
advantageous for tax or foreign exchange reasons, subsidiary earnings may be
remitted, and income taxes will be provided on such amounts. It is not
practicable to determine the amount of income taxes that would be payable upon
remittance of the undistributed earnings.
NOTE 5--SHARE CAPITAL AND CAPITAL IN EXCESS OF PAR VALUE:
Class B Capital in
Common Stock Common Stock Treasury Stock excess
----------------- ----------------- ----------------- of par
Shares Amount Shares Amount Shares Amount value
------- ------- ------- ------- ------- ------- ----------
(000's) (000's) (000's)
Balance at January 1, 1998.... 15,851 $11,008 7,547 $ 5,241 -- $ -- $187,259
Issuance of 3% stock
dividend..................... 473 329 225 156 -- -- 51,780
Purchase of shares for the
treasury..................... -- -- -- -- (20) (973) --
Issuance of 2-for-1 stock
split........................ 16,305 11,323 7,748 5,381 (5) -- (16,704)
Conversion of Class B common
shares to common shares...... 98 68 (98) (68) -- -- --
Purchase and retirement of
common shares................ (288) (201) -- -- -- -- (12,271)
------ ------- ------ ------- --- ------- --------
Balance at December 31, 1998.. 32,439 22,527 15,422 10,710 (25) (973) 210,064
Issuance of 3% stock
dividend..................... 971 674 461 320 (1) -- 64,514
Purchase of shares for the
treasury..................... -- -- -- -- (24) (1,019) --
Conversion of Class B common
shares to common shares...... 176 122 (176) (122) -- -- --
Purchase and retirement of
common shares................ (732) (508) -- -- -- -- (25,342)
------ ------- ------ ------- --- ------- --------
Balance at December 31, 1999.. 32,854 22,815 15,707 10,908 (50) (1,992) 249,236
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
====== ======= ====== ======= === ======= ========
The Class B Common Stock has essentially the same rights as Common Stock,
except that each share of Class B Common Stock has ten votes per share (compared
to one vote per share of Common Stock), is not traded on any exchange, is
restricted as to transfer and is convertible on a share-for-share basis, at any
time and at no cost to the holders, into shares of Common Stock which are traded
on the New York Stock Exchange.
Average shares outstanding and all per share amounts included in the financial
statements and notes thereto have been adjusted retroactively to reflect annual
three percent stock dividends and the two-for-one stock split distributed in
1998.
NOTE 6--INDUSTRIAL DEVELOPMENT BONDS:
Interest on industrial development bonds is payable at various times during
the year based upon the interest calculation option (fixed, variable or
floating) selected by the company. As of December 31, 2000 and 1999, interest
was calculated under the floating option (4.7% in each of these years) which
requires monthly payments of interest. Principal on the bonds is due in its
entirety in the year 2027.
In connection with the issuance of the bonds, the company entered into a
letter of credit agreement with a bank for the amount of principal outstanding
plus 48 days' accrued interest. The
13
letter of credit, which expires in January 2002, carries an annual fee of
32 1/2 basis points on the outstanding principal amount of the bonds.
NOTE 7--EMPLOYEE BENEFIT PLANS:
PENSION PLANS:
The company sponsors defined contribution pension plans covering certain
nonunion employees with over one year of credited service. The company's policy
is to fund pension costs accrued based on compensation levels. Total pension
expense for 2000, 1999 and 1998 approximated $2,535, $2,062 and $1,951,
respectively. The company also maintains certain profit sharing and
savings-investment plans. Company contributions in 2000, 1999 and 1998 to these
plans were $754, $616 and $582, respectively.
The company also contributes to multi-employer defined benefit pension plans
for its union employees. Such contributions aggregated $787, $713 and $680 in
2000, 1999 and 1998, 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, 2000 and 1999 consist of the following:
December 31,
-----------------------
2000 1999
-------- ------
Benefit obligation, beginning of year............... $6,557 $6,163
Net periodic postretirement benefit cost............ 518 531
Benefits paid....................................... (119) (137)
------ ------
Benefit obligation, end of year..................... $6,956 $6,557
====== ======
Net periodic postretirement benefit cost included the following components:
2000 1999 1998
-------- ---- ----
Service cost--benefits attributed to
service during the period............................. $286 $306 $258
Interest cost on the accumulated postretirement
benefit obligation.................................... 341 302 279
Amortization of unrecognized net gain................... (109) (77) (99)
---- ---- ----
Net periodic postretirement benefit cost................ $518 $531 $438
==== ==== ====
For measurement purposes, an 7.5% annual rate of increase in the per capita
cost of covered health care benefits was assumed for 2000; the rate was assumed
to decrease gradually to 5.5% for 2004 and remain at that level thereafter. The
health care cost trend rate assumption has a significant effect on the amounts
reported. The weighted-average discount rate used in determining the accumulated
postretirement benefit obligation was 7.25% at December 31, 2000 and 1999.
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....... $800 $(657)
Effect on total of service and interest cost
components...................................... $109 $ (87)
NOTE 8--OTHER INCOME, NET:
Other income (expense) is comprised of the following:
2000 1999 1998
-------- ------ ------
Interest income................................ $7,636 $7,449 $6,934
Interest expense............................... (866) (453) (756)
Dividend income................................ 421 611 822
Foreign exchange losses........................ (42) (126) (2,140)
Royalty income................................. 225 263 155
Miscellaneous, net............................. (295) (816) (217)
------ ------ ------
$7,079 $6,928 $4,798
====== ====== ======
NOTE 9--COMMITMENTS:
Rental expense aggregated $580, $457 and $432 in 2000, 1999 and 1998,
respectively.
Future operating lease commitments are not significant.
NOTE 10--COMPREHENSIVE INCOME:
Components of accumulated other comprehensive earnings (loss) are shown as
follows:
Accumulated
Foreign Unrealized Other
Currency Gains (Losses) Comprehensive
Items on Securities Earnings/(Loss)
--------- -------------- ---------------
Balance at January 1, 1998............ $(11,052) $ (417) $(11,469)
Change during period.................. (30) 976 946
-------- ------- --------
Balance at December 31, 1998.......... (11,082) 559 (10,523)
Change during period.................. 653 930 1,583
-------- ------- --------
Balance at December 31, 1999.......... (10,429) 1,489 (8,940)
Change during period.................. (394) (856) (1,250)
-------- ------- --------
Balance at December 31, 2000.......... $(10,823) $ 633 $(10,190)
======== ======= ========
The individual tax effects of each component of other comprehensive earnings
(loss) for the year ended December 31, 2000 are shown as follows:
Before Tax
Tax (Expense) Net-of-Tax
Amount Benefit Tax Amount
-------- --------- ----------
Foreign currency translation adjustment........ $ (394) $ -- $ (394)
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising
during 2000................................ (914) 339 (575)
Less: reclassification adjustment for gains
(losses) realized in earnings.............. 446 (165) 281
------- ----- -------
Net unrealized gains....................... (1,360) 504 (856)
------- ----- -------
Other comprehensive earnings................... $(1,754) $ 504 $(1,250)
======= ===== =======
NOTE 11--DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS:
CARRYING AMOUNT AND FAIR VALUE:
The carrying amount approximates fair value of cash and cash equivalents
because of the short maturity of those instruments. The fair values of
investments are estimated based on quoted market prices. The fair value of the
company's industrial development bonds approximates their carrying value because
they have a floating interest rate. The carrying amount and estimated fair
values of the company's financial instruments are as follows:
2000 1999
--------------------- -------------------
CARRYING FAIR Carrying Fair
AMOUNT VALUE Amount Value
--------- --------- -------- --------
Cash and cash equivalents........... $ 60,882 $ 60,882 $ 88,504 $ 88,504
Investments held to maturity........ 98,164 100,127 110,245 111,151
Investments available for sale...... 22,565 22,565 37,390 37,390
Investments in trading securities... 13,424 13,424 10,534 10,534
Industrial development bonds........ 7,500 7,500 7,500 7,500
14
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, 2000 December 31, 1999
------------------------------------------------ -------------------------------------------------
UNREALIZED Unrealized
AMORTIZED FAIR -------------------- Amortized --------------------
Held to Maturity: COST VALUE GAINS LOSSES Cost Fair Value Gains Losses
- ----------------- ---------- --------- -------- -------- ---------- ---------- -------- --------
Unit investment trusts of
preferred stocks......... $ 1,462 $ 3,381 $ 1,919 $ -- $ 2,592 $ 4,618 $ 2,026 $ --
Municipal bonds............ 97,744 97,807 63 -- 109,256 108,160 -- (1,096)
Unit investment trusts of
municipal bonds.......... 941 932 -- (9) 959 935 -- (24)
Private export funding
securities............... 4,115 4,104 -- (11) 4,933 4,933 -- --
--------- --------- ------- ------- --------- --------- ------- -------
$ 104,262 $ 106,224 $ 1,982 $ (20) $ 117,740 $ 118,646 $ 2,026 $(1,120)
========= ========= ======= ======= ========= ========= ======= =======
Available for Sale:
- -------------------
Municipal bonds............ $ 32,487 $ 32,221 $ -- $ (266) $ 40,930 $ 40,603 $ -- $ (327)
Mutual funds............... 2,454 3,724 1,270 -- 3,007 5,698 2,691 --
--------- --------- ------- ------- --------- --------- ------- -------
$ 34,941 $ 35,945 $ 1,270 $ (266) $ 43,937 $ 46,301 $ 2,691 $ (327)
========= ========= ======= ======= ========= ========= ======= =======
Held to maturity securities of $6,097 and $7,495 and available for sale
securities of $13,380 and $8,911 were included in cash and cash equivalents at
December 31, 2000 and 1999, respectively. There were no securities with
maturities greater than three years and gross realized gains and losses on the
sale of available for sale securities in 2000 and 1999 were not significant.
NOTE 12--GEOGRAPHIC AREA AND SALES INFORMATION:
SUMMARY OF SALES, NET EARNINGS AND ASSETS BY GEOGRAPHIC AREA
2000 1999
-------------------------------------- -----------------------------------
MEXICO Mexico
UNITED AND CONSOLI- United and Consoli-
STATES CANADA DATED States Canada dated
--------- -------- --------- -------- ------- --------
Sales to unaffiliated customers.... $394,545 $32,509 $427,054 $365,975 $30,775 $396,750
======== ========
Sales between geographic areas..... 3,626 3,343 3,787 1,794
-------- ------- -------- -------
$398,171 $35,852 $369,762 $32,569
======== ======= ======== =======
Net earnings....................... $ 73,929 $ 1,808 $ 75,737 $ 69,917 $ 1,393 $ 71,310
Total assets....................... $540,697 $21,745 $562,442 $505,152 $24,264 $529,416
Net assets......................... $439,685 $19,011 $458,696 $409,160 $21,486 $430,646
1998
-----------------------------------
Mexico
United and Consoli-
States Canada dated
-------- ------- --------
Sales to unaffiliated customers.... $363,569 $25,090 $388,659
========
Sales between geographic areas..... 2,805 4,374
-------- -------
$366,374 $29,464
======== =======
Net earnings....................... $ 68,521 $ (995) $ 67,526
Total assets....................... $467,265 $20,158 $487,423
Net assets......................... $378,892 $17,565 $396,457
Total assets are those assets associated with or used directly in the respective
geographic area, excluding intercompany advances and investments.
MAJOR CUSTOMER
Revenues from a major customer aggregated approximately 17.8%, 17.9% and 17.2%
of total net sales during the years ended December 31, 2000, 1999 and 1998,
respectively.
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS [LOGO]
To the Board of Directors and Shareholders of Tootsie Roll Industries, Inc.
In our opinion, the accompanying consolidated statement of financial position
and the related consolidated statements of earnings, comprehensive earnings and
retained earnings and of cash flows present fairly, in all material respects,
the financial position of Tootsie Roll Industries, Inc. and its subsidiaries at
December 31, 2000 and 1999, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 2000 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 expressed above.
[SIGNATURE]
Chicago, Illinois
February 12, 2001
15
QUARTERLY FINANCIAL DATA (UNAUDITED)
TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES
(Thousands of dollars except per share data)
2000 First Second Third Fourth Total
------------------------------------------------------------------------------------------------------------------------
Net sales................................ $78,015 $90,376 $165,873 $92,790 $427,054
Gross margin............................. 41,067 48,209 83,225 47,453 219,954
Net earnings............................. 13,063 15,652 31,514 15,508 75,737
Net earnings per share................... .26 .32 .64 .31 1.53
1999
------------------------------------------------------------------------------------------------------------------------
Net sales................................ $74,200 $88,265 $152,667 $81,618 $396,750
Gross margin............................. 38,815 45,902 77,651 41,821 204,189
Net earnings............................. 12,325 14,751 29,283 14,951 71,310
Net earnings per share................... .24 .29 .58 .30 1.41
1998
------------------------------------------------------------------------------------------------------------------------
Net sales................................ $69,701 $85,931 $144,230 $88,797 $388,659
Gross margin............................. 36,966 45,133 73,251 45,692 201,042
Net earnings............................. 11,217 13,910 27,216 15,183 67,526
Net earnings per share................... .22 .28 .53 .30 1.33
Net earnings per share is based upon average outstanding shares as adjusted for 3% stock dividends
issued during the second quarter of each year.
------------------------------------------------------------------------------------------------------------------------
2000-1999 QUARTERLY SUMMARY OF TOOTSIE ROLL INDUSTRIES, INC. STOCK PRICE
AND DIVIDENDS PER SHARE
STOCK PRICES* DIVIDENDS
2000 1999
-----------------------------------------------------------------------------------
HIGH LOW High Low 2000
----------------------------------------------------------------------------------- ----------------------------
1st Qtr..... 32-7/8 28-5/16 46-15/16 39-3/4 1st Qtr............ $.0608
2nd Qtr..... 38 30-3/8 46-3/4 38-1/8 2nd Qtr............ $.0700
3rd Qtr..... 42-7/16 34-7/8 39-7/16 30 3rd Qtr............ $.0700
4th Qtr..... 47-13/16 35-5/8 33-7/16 29-13/16 4th Qtr............ $.0700
*NYSE -- Composite Quotations
Estimated Number of shareholders at December 31, 2000 ....................... 9,500
DIVIDENDS
1999
------------ ---------------------
1st Qtr..... $.0495
2nd Qtr..... $.0607
3rd Qtr..... $.0608
4th Qtr..... $.0608
NOTE: In addition to the
above cash dividends, a 3%
stock dividend was issued on
April 19, 2000 and April 21,
1999. Cash dividends are
restated to reflect 3% stock
dividends.
18
FIVE YEAR SUMMARY OF EARNINGS AND FINANCIAL HIGHLIGHTS
TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES
(Thousands of dollars except per share, percentage and ratio figures)
- --------------------------------------------------------------------------------
(See Management's Comments
starting on page 5) 2000 1999 1998 1997
----------- ----------- ----------- -----------
Sales and Earnings Data
Net sales................. $ 427,054 $ 396,750 $ 388,659 $ 375,594
Gross margin.............. 219,954 204,189 201,042 187,281
Interest expense.......... 866 453 756 483
Provision for income
taxes................... 42,071 40,137 38,537 34,679
Net earnings.............. 75,737 71,310 67,526 60,682
% of sales............ 17.7% 18.0% 17.4% 16.2%
% of shareholders'
equity.............. 16.5% 16.6% 17.0% 17.3%
Per Common Share Data (1)
Net sales................. $ 8.64 $ 7.87 $ 7.63 $ 7.34
Net earnings.............. 1.53 1.41 1.33 1.19
Shareholders' equity...... 9.36 8.62 7.82 6.88
Cash dividends declared... .27 .23 .19 .15
Stock dividends........... 3% 3% 3% 3%
Additional Financial Data
Working capital........... $ 145,765 $ 168,423 $ 175,155 $ 153,355
Net cash provided by
operating activities.... 84,881 72,935 77,735 68,176
Net cash used in investing
activities.............. 66,467 26,993 34,829 31,698
Net cash used in financing
activities.............. 46,036 38,182 22,595 21,704
Property, plant &
equipment additions..... 16,189 20,283 14,878 8,611
Net property, plant &
equipment............... 131,118 95,897 83,024 78,364
Total assets.............. 562,442 529,416 487,423 436,742
Long term debt............ 7,500 7,500 7,500 7,500
Shareholders' equity...... 458,696 430,646 396,457 351,163
Average shares outstanding
(1)..................... 49,434 50,412 50,920 51,163
1996
-----------
Sales and Earnings Data
Net sales................. $ 340,909
Gross margin.............. 162,420
Interest expense.......... 1,498
Provision for income
taxes................... 27,891
Net earnings.............. 47,207
% of sales............ 13.8%
% of shareholders'
equity.............. 15.1%
Per Common Share Data (1)
Net sales................. $ 6.64
Net earnings.............. .92
Shareholders' equity...... 6.10
Cash dividends declared... .12
Stock dividends........... 3%
Additional Financial Data
Working capital........... $ 153,329
Net cash provided by
operating activities.... 76,710
Net cash used in investing
activities.............. 52,364
Net cash used in financing
activities.............. 26,211
Property, plant &
equipment additions..... 9,791
Net property, plant &
equipment............... 81,687
Total assets.............. 391,456
Long term debt............ 7,500
Shareholders' equity...... 312,881
Average shares outstanding
(1)..................... 51,310
(1) Adjusted for annual 3% stock dividends and the 2-for-1 stock split
effective July 13, 1998.
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BOARD OF DIRECTORS
Melvin J. Gordon(1) Chairman of the Board and
Chief Executive Officer
Ellen R. Gordon(1) President and Chief Operating Officer
Charles W. Seibert(2)(3) Retired Banker
Lana Jane President, Paul Brent Designer, Inc.
Lewis-Brent(2)(3)
Richard P. Retired Senior Vice President, Bestfoods
Bergeman(2)(3)
(1)Member of the Executive Committee
(2)Member of the Audit Committee
(3)Member of the Compensation Committee
OFFICERS
Melvin J. Gordon Chairman of the Board and
Chief Executive Officer
Ellen R. Gordon President and Chief Operating Officer
G. Howard Ember, Jr. Vice President, Finance & Asst. Secy.
John W. Newlin, Jr. Vice President, Manufacturing
Thomas E. Corr Vice President, Marketing & Sales
James M. Hunt Vice President, Physical Distribution
Barry P. Bowen Treasurer & Asst. Secy.
Daniel P. Drechney Controller
OFFICES, PLANTS
Executive Offices 7401 S. Cicero Ave.
Chicago, Illinois 60629
www.tootsie.com
Plants Illinois
Tennessee
Massachusetts
Wisconsin
Maryland
New York
Mexico City
Foreign Sales Offices Mexico City, Mexico
Mississauga, Ontario
SUBSIDIARIES
Andes Candies L.P. Tootsie Roll of Canada Ltd.
Andes Manufacturing LLC Tootsie Roll Central Europe Ltd.
Andes Services LLC The Tootsie Roll Company, Inc.
C.C. L.P., Inc. Tootsie Roll Management, Inc.
C.G.C. Corporation Tootsie Roll Mfg., Inc.
C.G.P., Inc. Tootsie Rolls--Latin America,
Cambridge Brands, Inc. Inc.
Cambridge Brands Mfg., Inc. Tootsie Roll Worldwide Ltd.
Cambridge Brands Services, Inc. The Sweets Mix Company, Inc.
Cella's Confections, Inc. TRI de Latino America S.A. de
Charms Company C.V.
Charms L.P. TRI Finance, Inc.
Charms Marketing Company TRI International Co.
Henry Eisen Advertising Agency, Inc. TRI-Mass., Inc.
J.T. Company, Inc. TRI Sales Co.
O'Tec Industries, Inc. 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 Mellon Investor Services LLC
and Stock Registrar Overpeck Centre
85 Challenger Road
Ridgefield Park, NJ 07660
1-800-851-9677
www.mellon-investor.com
Independent PricewaterhouseCoopers LLP
Accountants 200 East Randolph Drive
Chicago, IL 60601
General Counsel Becker Ross Stone DeStefano & Klein
317 Madison Avenue
New York, NY 10017
Annual Meeting May 7, 2001
Mutual Building, Room 1200
909 East Main Street
[LOGO] Richmond, VA 23219
M Printed on recycled paper.
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