EXHIBIT 28(a)
CAMBRIDGE BRANDS DIVISION
OF WARNER-LAMBERT COMPANY
FINANCIAL STATEMENTS
DECEMBER 31, 1992 AND
OCTOBER 15, 1993
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Shareholders of Tootsie Roll Industries, Inc.
In our opinion, the accompanying balance sheets and the related statements of
operations and changes in divisional equity and of cash flows present fairly, in
all material respects, the financial position of Cambridge Brands Division (a
business unit of Warner-Lambert) at December 31, 1992 and October 15, 1993, and
the results of its operations and its cash flows for the year ended December 31,
1992 and the period ended October 15, 1993 in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
Cambridge Brands Division is a member of a group of affiliated companies and, as
disclosed in Notes 1 and 4 to the financial statements, has extensive
transactions and relationships with members of the group. Because of these
relationships, it is possible that the terms of these transactions are not the
same as those that would result from transactions among wholly unrelated
parties.
PRICE WATERHOUSE
Chicago, Illinois
December 10, 1993
CAMBRIDGE BRANDS DIVISION
OF WARNER-LAMBERT COMPANY
BALANCE SHEETS
(dollars in thousands)
December 31, October 15,
1992 1993
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ASSETS
Current Assets:
Cash $ 67 $ 61
Accounts receivable trade, net of
allowance 2,635 7,083
Inventories 2,021 2,074
Prepaid expenses and deferred charges 751 864
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Total current assets 5,474 10,082
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Property, Plant and Equipment:
Buildings and improvements 5,129 5,468
Machinery and equipment 13,748 14,140
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18,877 19,608
Less - accumulated depreciation (5,782) (6,778)
Land 2,475 2,475
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Total property, plant and equipment 15,570 15,305
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Intangible assets, net of accumulated
amortization of $13,229 and $14,397 49,320 48,152
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Total Assets $70,364 $73,539
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LIABILITIES AND DIVISIONAL EQUITY
Current liabilities:
Accounts payable $ 599 $ 587
Accrued salary and wages 463 481
Other accrued expenses 1,098 1,401
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Total current liabilities 2,160 2,469
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Divisional equity 68,204 71,070
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Total Liabilities and Divisional Equity $70,364 $73,539
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The accompanying notes are an integral part of this statement.
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CAMBRIDGE BRANDS DIVISION
OF WARNER-LAMBERT COMPANY
STATEMENTS OF OPERATIONS
AND CHANGES IN DIVISIONAL EQUITY
(dollars in thousands)
For the year For the
ended period ended
December 31, 1992 October 15, 1993
----------------- ----------------
Gross sales $60,560 $48,562
Less - discounts and returns 2,408 1,571
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Net sales 58,152 46,991
Cost of goods sold 31,093 22,959
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Gross profit 27,059 24,032
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Operating expenses:
Distribution 3,054 2,478
Selling, advertising and
promotion 16,261 14,016
Administrative 1,986 1,861
Amortization of intangible assets 1,402 1,169
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Total operating expenses 22,703 19,524
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Income before income taxes 4,356 4,508
Income tax provision 2,217 2,236
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Net income 2,139 2,272
Net transfers (to) from Warner-Lambert (4,311) 594
Divisional Equity at beginning of period 70,376 68,204
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Divisional Equity at end of period $68,204 $71,070
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The accompanying notes are an integral part of this statement.
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CAMBRIDGE BRANDS DIVISION
OF WARNER-LAMBERT COMPANY
STATEMENTS OF CASH FLOWS
(dollars in thousands)
For the year For the
ended period ended
December 31, 1992 October 15, 1993
----------------- ----------------
Cash flows from operating activities:
Net Income $ 2,139 $ 2,272
Adjustments to reconcile net income
to net cash from operating activities:
Depreciation and amortization 2,887 2,163
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5,026 4,435
Changes in operating assets and liabilities:
Accounts receivable (567) (4,448)
Prepaid expenses (61) (53)
Inventories 1,344 (113)
Accounts payable (665) (12)
Accrued expenses 283 321
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Net cash from operating activities 5,360 130
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Cash flows from financing activities:
Net transfers (to) from Warner-Lambert (4,311) 594
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Net cash (used by) from financing activities (4,311) 594
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Cash flows from investing activities:
Purchase of property, plant and equipment (1,052) (730)
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Net cash used by investing activities (1,052) (730)
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Net decrease in cash (3) (6)
Cash at beginning of period 70 67
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Cash at end of period $ 67 $ 61
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The accompanying notes are an integral part of this statement.
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CAMBRIDGE BRANDS DIVISION
OF WARNER-LAMBERT COMPANY
NOTES TO FINANCIAL STATEMENTS
(dollars in thousands)
NOTE 1 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
DESCRIPTION OF THE BUSINESS AND BASIS OF PRESENTATION
In October 1993, Tootsie Roll Industries, Inc. entered into an agreement to
purchase certain assets of the Cambridge Brands Division (the Division), a
business unit of Warner-Lambert Company (the Company). The Division, which
operates a production facility located in Cambridge, Massachusetts, manufactures
and markets confectionery products under the brand names Junior Mints, Sugar
Daddies, Sugar Babies, Pom-Poms and Charleston Chews.
The accompanying financial statements reflect the financial position and results
of operations of the Division as if the Division had been operating as a
separate company. The assets, liabilities and results of operations
specifically related to the Division have been included in the financial
statements. Certain corporate, general and administrative expenses of Warner-
Lambert have been allocated to the Division (discussed in Note 4) on a basis,
which in the opinion of management, is reasonable. However, such expenses are
not necessarily indicative of, and it is not practical for management to
estimate the level of, expenses which might have been incurred had the Division
been operating as a separate company.
REVENUE RECOGNITION
Revenue is recognized upon shipment of product. The Division recognizes
estimated discounts and product returns at the time of sale.
INVENTORIES
Inventories are recorded at the lower of cost or market using the first-in,
first-out (FIFO) method.
PREPAID EXPENSES AND DEFERRED CHARGES
Prepaid expenses and deferred charges consist primarily of spare parts for the
maintenance of production machinery. These are valued at cost and expensed when
utilized.
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PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are carried at cost. Depreciation is computed
over the estimated useful lives, generally ranging from 5 to 31.5 years, of the
related asset on the straight line basis. Expenditures which substantially
increase value or extend useful lives are capitalized. Expenditures for
maintenance and repairs are expensed as incurred.
INTANGIBLE ASSETS
Intangible assets consist of goodwill and trademarks arising from Warner-
Lambert's acquisition of the Cambridge Brands in 1985 and are amortized using
the straight line basis over 40 years.
INCOME TAXES
For Federal and State income tax purposes, taxable income of the Division is
included in the consolidated tax returns of Warner-Lambert. Income taxes have
been provided herein in accordance with Statement of Financial Accounting
Standards No. 109 - "Accounting for Income Taxes" as if the Division had filed
separate federal and state income tax returns. The liabilities for current and
deferred income taxes have been recognized as a component of divisional equity
in the accompanying financial statements.
EARNINGS PER SHARE
Since there is no separate capitalization or shares of stock attributed to the
Division upon which a per share calculation can be based, historical per share
data has not been presented in the accompanying financial statements.
NOTE 2 - ACCOUNTS RECEIVABLE:
Accounts receivable primarily consist of trade balances due from customers other
than Warner-Lambert. Accounts receivable consist of the following:
December 31, October 15,
1992 1993
---- ----
Accounts receivable $2,771 $7,268
Allowance for doubtful accounts (136) (185)
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$2,635 $7,083
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Interdivisional accounts receivable are settled through Warner-Lambert's
interdivisional accounting system and, accordingly, the accounts receivable
balance does not include interdivisional accounts receivable from or payable to
other Warner-Lambert business units.
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Accounts receivable from sales to substantially all customers are unsecured.
The Company utilizes a centralized billing and accounts receivable. Accordingly,
accounts receivable for the Division cannot be specifically identified. The
accounts receivable balance in the accompanying financial statements represents
an allocation based on the Company's overall ratio of accounts receivable to
sales.
NOTE 3 - INVENTORIES
Inventories consist of the following:
December 31, October 15,
1992 1993
---- ----
Raw materials $ 282 $ 293
Finishing supplies 288 293
Work in process 43 47
Finished goods 1,408 1,441
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$2,021 $2,074
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NOTE 4 - DIVISIONAL EQUITY, ALLOCATIONS AND TRANSACTIONS WITH WARNER-LAMBERT
Warner-Lambert controls all aspects of cash management for the Division with
respect to intercompany sales and receivables and accounts payable. The net
cumulative interdivisional balances are presented as a component of divisional
equity. Warner-Lambert does not impute interest on these balances or net
divisional equity.
In addition to intercompany cash transactions, divisional equity, as reported in
the accompanying financial statements, includes the sum of accumulated net
income for the Division and allocations from Warner-Lambert.
Allocations from Warner-Lambert include costs incurred by Warner-Lambert on
behalf of the Division and include, among other charges, general and
administrative costs and advertising expenses. These charges are allocated to
the Division based on a formula which utilizes certain measures of volume.
In the opinion of management, the expense allocations were made on a reasonable
and consistent basis; however, they are not necessarily indicative of the level
of expenses which might have been incurred on a stand-alone basis. The amounts
that would have been or will be incurred on a separate company basis could
differ from the amounts allocated due to economies of scale, differences in
management approach, or changes in the number of employees and related systems
and expenses.
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Warner-Lambert expense allocations are reported in the accompanying financial
statements as follows:
For the year For the period
ended ended
December 31, October 15,
1992 1993
------------ ------------
Discounts $1,139 $ 906
Distribution 697 544
Selling, advertising and promotion 5,394 4,552
Administrative 1,928 1,731
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$9,158 $7,733
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NOTE 5 - PENSION PLANS:
PENSION BENEFITS
Employees of the Division participate in a pension plan sponsored by Warner-
Lambert. Funds are contributed to a trustee as necessary to provide for current
service and for any unfunded projected benefit obligation over a reasonable
period. Retirement benefits are based on years of service and generally on the
average compensation earned in the last years of service. Total pension expense
under this plan allocated to the Division was $47 and $58 for the periods ended
December 31, 1992 and October 15, 1993, respectively.
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