OPERATING REPORT
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[PHOTO]

"TOOTSIE CARAMEL APPLE POPS -- SO GOOD, ONLY THE STICK WILL REMAIN."

Marketing and Sales

Sales reached a new record high in 1998, driven by continued growth in our core
brands. These increases resulted from successfully targeted promotions such as
shipper displays, combo packs and bonus bags.

Sales growth was also realized from a shift to larger sized bags which reflect a
continuing trend in the trade toward a higher "ring" or selling price per item.
This trend meshes well with our products which continue to offer quality,
branded confections that are attractive values.

Another trend that emerged recently is the popularity of multi-packs which
feature popular bars or boxed goods in 5 and 10 count lay-down packs.
Incremental sales were realized by launching snack-size Tootsie Roll and
Charleston Chew bars and mini-boxes of Junior Mints and Dots in this new format.
We also extended our popular Caramel Apple Pop to several new pack
configurations, including a unique bulk display that incorporates a real wooden
apple basket!

As is customary for our company, the third quarter was again our highest selling
period due to Halloween and back-to-school programs. Halloween was led by
continuing strength in our bagged goods, particularly in the larger sized
assortments that have become well established consumer favorites during the past
several years. We also experienced Halloween growth from the introduction of
several new and larger pack sizes for existing items that we felt could become
even more popular among trick-or-treaters.

New product growth included Wicked Red-berry Blow Pop, a mouth-watering
strawberry-kiwi flavored Blow Pop in a bold, eye catching wrapper and Caramel-A-
Lot, a blend of luscious caramel and chewy nougat wrapped in chocolaty goodness.
In addition, several promising new items were developed for introduction in
early 1999.

Advertising and Public Relations

Television was again the chief medium used to advertise our products to broad
audiences of children and adults in 1998. Numerous placements in selected spot
and cable markets featured our classic "How Many Licks?" theme, as well as two
new commercials that were developed and introduced during the year.

The first of these new commercials, "Caramel Apple Pops," tempts consumers with
the message that this remarkable pop is "so good only the stick will remain,"
while "Chocolate Attack" encourages mothers to quell their youngsters' chocolate
cravings with delicious, low-fat Tootsie Rolls and Tootsie Pops. Both of these
messages were economically delivered in ten and fifteen second formats on
popular talk, game and adventure shows to maximize their reach.

Also in 1998 we launched the company's first web site on the internet. Both
children and adults can now enhance their cyber travels by visiting
"tootsie.com" to learn interesting facts about Tootsie Roll Industries, its
history and its products in an enjoyable, user friendly environment. Whether
curious about Clara Hirshfield (the original "Tootsie"), looking for our latest
financial release or seeking an answer to the famous question "How many licks
does it take to get to the Tootsie Roll center of a Tootsie Pop?," "tootsie.com"
has something of interest for every Tootsie Roll fan.

The introduction of our web site was but one of the many positive mentions we
received in the press and on television news programs last year. The company was
also favorably reviewed in Forbes' Annual Report on American Industry.

We again received thousands of positive letters from our loyal consumers during
the year. These serve as a constant reminder that each of the millions of
Tootsie Rolls, Tootsie Pops and other popular confections we produce each day
can make a life-long impression.

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MANUFACTURING AND DISTRIBUTION

Continuing capital investments and operating improvements were made throughout
the company in 1998 to support growth, increase efficiency or improve quality.

We added production capacity to meet growing demand for the products we make in
Chicago, Illinois and Covington, Tennessee. We also reengineered several key
processes at these plants to increase efficiency and reduce cost, and began the
first of several infrastructure enhancements that are needed to support
expanding production.

Also in support of our continued growth, we acquired land adjacent to our
Covington, Tennessee plant and have commenced construction of a new regional
distribution center there. This center will incorporate the automated inventory
tracking systems that we have successfully implemented in Chicago, utilizing
advanced technology to maximize control and minimize out of stock situations.

PURCHASING

Markets for the key commodities and ingredients we use remained stable or
declined slightly in 1998 as adverse economic conditions in many markets
continued to dampen world-wide demand. Further, our ongoing hedging program and
fixed price contracts helped to insulate us from those price fluctuations that
did occur in spot markets.

The cost of the various packaging materials we use remained stable during the
year. Also, leveraging the high volume of annual purchases we make of these
items, competitive bidding was again successfully utilized to further control
cost.

INFORMATION TECHNOLOGY

During 1998 we completed an extensive review of the information systems we
utilize throughout the company and determined that the vast majority of these
systems--indeed those most critical to our operations--are "Y2K" compliant by
design. Our initial testing has confirmed this, and final testing is scheduled
for completion by the middle of 1999.

Y2K issues were identified in our systems in Mexico and the necessary corrective
programming changes have been written and implemented. Final testing of these
changes is scheduled to be completed by mid year, as are the other minor program
corrections that were identified in several secondary domestic systems.

We view information technology as an indispensable tool with which we can
streamline an ever-expanding variety of functions and tasks. In this regard,
during 1998 we completed the initial phases of automating a number of operations
that had previously been handled manually. Completion of the final phases of
these projects is scheduled for 1999, and we expect that these and other
information technology applications will yield ongoing efficiencies.

INTERNATIONAL

Our Canadian subsidiary reported increased sales and profits in 1998, both due
to growth in seasonal sales at Halloween and to distribution gains throughout
the year. Also, the Super Blow Pop was introduced in that market during the year
with promising results.

Our Mexican operations had a difficult year due to currency devaluations and
increased competitive pressures on top of generally soft local market conditions
for confectionery. On the positive side, the latest phase of our plant
modernization program was completed there, which will increase productivity and
enhance our competitive position in Mexico. These improvements will enable us to
respond more quickly to local competition with efficiently produced, high
quality products. Our Tutsi Pop still remains the local favorite.

Sales trends in other international markets were positive as we continue to
export our well known items to many markets throughout the world.

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(in thousands except per share, percentage and ratio figures)
- -------------------------------------------------------------------------------

[CHART]

FINANCIAL REVIEW

This financial review discusses the company's financial condition, results of
operations, liquidity and capital resources. It should be read in conjunction
with the Consolidated Financial Statements and related footnotes that follow
this discussion.

FINANCIAL CONDITION

The sound financial condition in which we entered 1998 was further strengthened
by our record operating results for the year. Net earnings for the year
increased by 11.3% to a record $67,526. Shareholders' equity increased by 12.9%
to $396,457 and cash and investments increased by $41,154 to $223,172, the
result of continued strong cash flow from operating activities.

Cash flow from operating activities was also used to fund capital expenditures
of $14,878, share repurchases of $13,445 and cash dividends of $9,150. The cash
dividend rate was increased by 31% during 1998, the fifty-sixth consecutive year
in which cash dividends have been paid.

A 3% stock dividend was also distributed to shareholders during the year. This
was the thirty-fourth consecutive year that a stock dividend has been
distributed.

As a consequence of the successful operations of this past year, our financial
position remains such that we can respond to future growth opportunities that
may arise with internally generated funds. In this regard, we continue to
reinvest in our own operations as well as to pursue acquisitions that would
complement those operations.

Our financial position in 1998, versus 1997, measured by commonly used financial
ratios, is as follows: the current ratio rose from 3.9:1 to 4.3:1 due to
increased cash and equivalents at the end of 1998. Current liabilities to net
worth declined from 15.3% to 13.5% and debt to equity fell from 2.1% to 1.9%,
both due to the increase in the company's net worth during the year.

These statistics reflect both the company's history of successful operations and
its conservative financial posture.

RESULTS OF OPERATIONS

1998 vs. 1997

1998 represented the company's twenty-second consecutive year of record sales.
Sales reached $388,659, an increase of 3.5% over 1997 sales of $375,594.
Increases were seen in each quarter, and the third quarter, which was driven by
another successful Halloween season, continued to be our largest selling period.

Sales throughout the year were favorably impacted by successful promotional
programs. Increases were seen in all major trade classes and in all major
domestic brands. Line extensions, new products and seasonal packs that have been
introduced in recent years also contributed to sales gains.

Domestic sales growth was partially offset by declines in the sales of our
Mexican subsidiary due to currency devaluations and difficult local market
conditions. Sales in our Canadian operation increased due to distribution gains,
seasonal sales growth at Halloween and a new product introduction. These
increases were also partially offset by the effects of adverse currency
translation.

- --------------------------------------------------------------------------------

[CHART]

Cost of goods sold, as a percentage of sales, decreased from 50.1% to 48.3%.
This reflected favorable ingredient costs and increased operating efficiencies
associated with higher production volumes, coupled with stable packaging and
labor costs. Consequently, gross margin, which was $201,042 or 7.3% higher than
in 1997, improved as a percentage of sales from 49.9% to 51.7%.

Gross margin as a percent of sales has historically been lower in the third and
fourth quarters of the year due to the seasonal nature of our business and the
product mix sold at that time of year. This occurred again in 1998.

Selling, marketing and administrative expenses, as a percent of sales were 25.0%
in 1998, a decrease of .2% versus 1997. This improvement is due to effective
expense control programs aimed at keeping costs in check. Earnings from
operations were $101,265 or 26.1% of sales versus 24.0% in 1997, reflecting the
combined effects of an increased gross margin percentage and lower operating
costs as a percent of sales.

Other income decreased to $4,798, due to exchange losses from Mexico, partially
offset by higher investment income. Inasmuch as most of this investment income
is not subject to federal income taxes, the effective tax rate declined from
36.4% in 1997 to 36.3% in 1998.

Consolidated net earnings rose 11.9% to a new company record of $1.41 per share,
or $67,526, from the previous record of $1.26, or $60,682, in 1997. This
represents an improvement in earnings as a percent of sales to 17.4% and the
seventeenth consecutive year of record earnings for the company.

"Comprehensive earnings" is a newly required disclosure whereby traditionally
reported net earnings must be adjusted by items that are normally recorded
directly to the equity accounts. By this measure, our 1998 earnings were $68,472
or 13.7% higher than in 1997.

1997 vs. 1996

1997 was our twenty-first consecutive year of record sales achievement. Sales of
$375,594 were up 10.2% over 1996 sales of $340,909 and increases were seen in
each quarter. The third quarter, driven by Halloween sales, continued to be our
largest selling period. Halloween sales also carried over and drove a double
digit sales increase in the fourth quarter.

Throughout the year, sales were favorably impacted by successful promotional
programs as we continued to broaden distribution in mass merchandisers and other
select trade classes with our core product offerings. Line extensions, new
products and seasonal packs all contributed to added sales.

Sales growth occurred in our two most significant foreign operations as well. In
Mexico, the introduction of a new assortment complemented the already strong
business we have developed for the Christmas holiday season in that market.

Sales growth in our Canadian operation was attributable to further distribution
gains in the mass merchandiser and grocery trade classes and to a successful new
product introduction.

Cost of goods sold, as a percentage of sales, decreased from 52.4% to 50.1%.
This improvement reflected lower costs for certain packaging and ingredients as
well as higher production efficiencies associated with increased volumes in
relation to fixed costs.

- --------------------------------------------------------------------------------
6

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[CHART]

Gross margin dollars grew by 15.3% to $187,281, and increased as a percent of
sales from 47.6% to 49.9%, due to the factors cited above. Gross margins in the
third and fourth quarters continued to be somewhat lower due to the seasonal
nature of our business and to the product mix sold in those quarters.

Selling, marketing and administrative expenses, as a percent of sales, declined
from 25.9% to 25.2%. This improvement was due to distribution and warehousing
efficiencies and to effective expense control programs aimed at holding down
costs. Earnings from operations increased by 25.9% to $90,087, or 24.0% of
sales, as a result of favorable gross margins and operating expenses.

Other income increased by $1,708 to $5,274, primarily reflecting lower interest
expense and higher interest income due to lower average borrowings and increased
investments in marketable securities, respectively. As a majority of our
interest income is not subject to federal income tax, the effective tax rate
declined from 37.1% to 36.4%.

Consolidated net earnings rose to a new company record of $60,682. Earnings per
share increased 30% to $1.26 from the previous record of $.97 reached in 1996.
Our net earnings as a percent of sales increased to 16.2% from 13.8%. 1997 was
the sixteenth consecutive year of record earnings achievement for the company.

LIQUIDITY AND CAPITAL RESOURCES

Cash flows from operating activities increased to $77,735 in 1998 from $68,176
in 1997 and $76,710 in 1996. The increase in 1998 is attributable to higher net
earnings augmented by other receivables, inventory, deferred compensation and
other liabilities and income taxes payable and deferred, partially offset by
accounts receivable and accounts payable and accrued liabilities.

Cash flows from investing activities reflect net increases in marketable
securities of $19,951, $23,087 and $42,573, as well as capital expenditures of
$14,878, $8,611 and $9,791 in 1998, 1997 and 1996, respectively.

Cash flows from financing activities in 1998 reflect a short-term borrowing and
the subsequent repayment thereof during the year as well as share repurchases of
$13,445 and $14,401 in 1998 and 1997, respectively. Cash dividends of $9,150
were paid in 1998, the fifty-sixth in which we have paid cash dividends.

YEAR 2000 CONVERSION

The company recognizes the need to ensure that its operations will not be
adversely impacted by software failures arising from calculations using the year
2000 date. Accordingly, we have established a process for evaluating and
managing the risks and costs associated with this problem.

We have completed an internal review of our financial and operational systems
and have begun final testing of these systems to ensure that they are Year 2000
compliant. Likewise, we have surveyed significant vendors and customers to
determine the status of their systems with respect to this issue. We believe
that the risks and costs of year 2000 compliance will be minimal for the systems
we use, and do not expect this issue to have a material impact on the company or
its operations.

The results of these operations and our financial condition are expressed in the
following financial statements.

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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,
-------------------------------
1998 1997 1996
------------ ------------ ------------

Net sales............................................... $388,659 $375,594 $340,909
Cost of goods sold...................................... 187,617 188,313 178,489
------------ ------------ ------------
Gross margin............................................ 201,042 187,281 162,420
------------ ------------ ------------
Selling, marketing and administrative expenses.......... 97,071 94,488 88,182
Amortization of intangible assets....................... 2,706 2,706 2,706
------------ ------------ ------------
Earnings from operations................................ 101,265 90,087 71,532
Other income, net....................................... 4,798 5,274 3,566
------------ ------------ ------------
Earnings before income taxes............................ 106,063 95,361 75,098
Provision for income taxes.............................. 38,537 34,679 27,891
------------ ------------ ------------
Net earnings............................................ $ 67,526 $ 60,682 $ 47,207
------------ ------------ ------------
------------ ------------ ------------

Net earnings............................................ $ 67,526 $ 60,682 $ 47,207
Other comprehensive earnings, net of tax
Unrealized gains (losses) on securities............. 976 (417) --
Foreign currency translation adjustments............ (30) (17) (57)
------------ ------------ ------------
Other comprehensive earnings........................ 946 (434) (57)
------------ ------------ ------------
Comprehensive earnings.................................. $ 68,472 $ 60,248 $ 47,150
------------ ------------ ------------
------------ ------------ ------------

Retained earnings at beginning of year.................. $159,124 $136,352 $121,477
Net earnings........................................ 67,526 60,682 47,207
Cash dividends ($.20, $.16 and $.13 per share)...... (9,484) (7,472) (6,372)
Stock dividends..................................... (52,514) (30,438) (25,960)
------------ ------------ ------------
Retained earnings at end of year........................ $164,652 $159,124 $136,352
------------ ------------ ------------
------------ ------------ ------------
Earnings per share...................................... $ 1.41 $ 1.26 $ .97
------------ ------------ ------------
------------ ------------ ------------
Average common and class B common shares outstanding.... 48,051 48,294 48,442
------------ ------------ ------------
------------ ------------ ------------

(The accompanying notes are an integral part of these statements.)
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CONSOLIDATED STATEMENT OF
FINANCIAL POSITION
TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES
(in thousands)
- --------------------------------------------------------------------------------

ASSETS December 31,
1998 1997
------------ ------------

CURRENT ASSETS:
Cash and cash equivalents.................................................. $ 80,744 $ 60,433
Investments................................................................ 83,176 81,847
Accounts receivable trade, less allowances of $2,184 and $2,085............ 19,110 18,636
Other receivables.......................................................... 3,324 4,683
Inventories:
Finished goods and work-in-process..................................... 21,395 22,938
Raw materials and supplies............................................. 15,125 13,721
Prepaid expenses........................................................... 3,081 2,910
Deferred income taxes...................................................... 2,584 1,793
---------- ------------
Total current assets............................................... 228,539 206,961
---------- ------------
PROPERTY, PLANT AND EQUIPMENT, at cost:
Land....................................................................... 7,774 6,895
Buildings.................................................................. 22,226 22,100
Machinery and equipment.................................................... 133,601 122,430
---------- ------------
163,601 151,425
Less--Accumulated depreciation............................................. 80,577 73,061
---------- ------------
83,024 78,364
---------- ------------
OTHER ASSETS:
Intangible assets, net of accumulated amortization of $20,791 and $18,085.. 87,843 90,549
Investments................................................................ 59,252 39,738
Cash surrender value of life insurance and other assets.................... 28,765 21,130
---------- ------------
175,860 151,417
---------- ------------
$487,423 $436,742
---------- ------------
---------- ------------

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

(in thousands except per share data)
- --------------------------------------------------------------------------------

LIABILITIES AND SHAREHOLDERS' EQUITY December 31,
1998 1997
------------ ------------

CURRENT LIABILITIES:
Accounts payable......................................... $ 12,450 $ 11,624
Dividends payable........................................ 2,514 1,930
Accrued liabilities...................................... 31,297 32,793
Income taxes payable..................................... 7,123 7,259
------------ ------------
Total current liabilities........................ 53,384 53,606
------------ ------------
NONCURRENT LIABILITIES:
Deferred income taxes.................................... 9,014 8,650
Postretirement health care and life insurance benefits... 6,145 5,904
Industrial development bonds............................. 7,500 7,500
Deferred compensation and other liabilities.............. 14,923 9,919
------------ ------------
Total noncurrent liabilities..................... 37,582 31,973
------------ ------------
SHAREHOLDERS' EQUITY:
Common stock, $.69-4/9 par value--
50,000 shares authorized--
32,439 and 15,851, respectively, issued................ 22,527 11,008
Class B common stock, $.69-4/9 par value--
20,000 shares authorized--
15,422 and 7,547, respectively, issued................. 10,710 5,241
Capital in excess of par value........................... 210,064 187,259
Retained earnings, per accompanying statement............ 164,652 159,124
Accumulated other comprehensive earnings................. (10,523) (11,469)
Treasury stock (at cost)--
25 shares and 0 shares, respectively................... (973) --
------------ ------------
396,457 351,163
------------ ------------
$487,423 $436,742
------------ ------------
------------ ------------

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CONSOLIDATED STATEMENT OF
CASH FLOWS
TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES
(in thousands)
- --------------------------------------------------------------------------------

For the year ended December 31,
1998 1997 1996
------------ ------------ ------------

CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings.......................................................... $67,526 $60,682 $47,207
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation and amortization..................................... 12,807 12,819 12,068
Loss on retirement of fixed assets................................ 118 26 714
Changes in operating assets and liabilities:
Accounts receivable........................................... (915) 199 2,355
Other receivables............................................. 1,358 (2,526) (41)
Inventories................................................... (106) (6,463) 1,879
Prepaid expenses and other assets............................. (7,723) (6,622) (4,253)
Accounts payable and accrued liabilities...................... (596) 9,624 9,362
Income taxes payable and deferred............................. (625) (2,049) 3,718
Postretirement health care and life insurance benefits........ 241 269 250
Deferred compensation and other liabilities................... 5,004 1,932 3,460
Other......................................................... 646 285 (9)
---------- ------------ ------------
Net cash provided by operating activities............................. 77,735 68,176 76,710
---------- ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.................................................. (14,878) (8,611) (9,791)
Purchase of held to maturity securities............................... (259,112) (68,982) (47,221)
Maturity of held to maturity securities............................... 240,195 27,473 16,523
Purchase of available for sale and trading securities................. (217,799) (304,910) (35,883)
Sale and maturity of available for sale and trading securities........ 216,765 323,332 24,008
---------- ------------ ------------
Net cash used in investing activities................................. (34,829) (31,698) (52,364)
---------- ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of notes payable............................................. 7,000 -- --
Repayments of notes payable........................................... (7,000) -- (20,000)
Treasury stock purchases.............................................. (973) -- --
Shares repurchased and retired........................................ (12,472) (14,401) --
Dividends paid in cash................................................ (9,150) (7,303) (6,211)
---------- ------------ ------------
Net cash used in financing activities................................. (22,595) (21,704) (26,211)
---------- ------------ ------------
Increase (decrease) in cash and cash equivalents.......................... 20,311 14,774 (1,865)
Cash and cash equivalents at beginning of year............................ 60,433 45,659 47,524
---------- ------------ ------------
Cash and cash equivalents at end of year.................................. $80,744 $60,433 $45,659
---------- ------------ ------------
---------- ------------ ------------
Supplemental cash flow information:
Income taxes paid..................................................... $40,000 $36,716 $23,969
---------- ------------ ------------
---------- ------------ ------------
Interest paid......................................................... $ 803 $ 389 $ 1,015
---------- ------------ ------------
---------- ------------ ------------

(The accompanying notes are an integral part of these statements.)
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ IN THOUSANDS EXCEPT PER SHARE DATA)

TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES

NOTE 1--SIGNIFICANT ACCOUNTING POLICIES:

BASIS OF CONSOLIDATION:

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

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

REVENUE RECOGNITION:

Revenues are recognized when products are shipped. Accounts receivable are
unsecured.

CASH AND CASH EQUIVALENTS:

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

INVESTMENTS:

Investments consist of various marketable securities with maturities of
generally less than one year. In accordance with Statement of Financial
Accounting Standards (SFAS) No. 115, "Accounting For Certain Investments in Debt
and Equity Securities," the company's debt and equity securities are considered
as either held to maturity, available for sale or trading. Held to maturity
securities represent those securities that the company has both the positive
intent and ability to hold to maturity and are carried at amortized cost.
Available for sale securities represent those securities that do not meet the
classification of held to maturity, are not actively traded and are carried at
fair value. Unrealized gains and losses on these securities, where material, are
excluded from earnings and are reported as a separate component of shareholders'
equity, net of applicable taxes, until realized. Trading securities relate to
deferred compensation arrangements and are carried at fair value.

INVENTORIES:

Inventories are stated at cost, not in excess of market. The cost of domestic
inventories ($31,307 and $30,530 at December 31, 1998 and 1997, respectively)
has been determined by the last-in, first-out (LIFO) method. The excess of
current cost over LIFO cost of inventories approximates $5,016 and $4,918 at
December 31, 1998 and 1997, respectively. The cost of foreign inventories
($5,213 and $6,129 at December 31, 1998 and 1997, respectively) has been
determined by the first-in, first-out (FIFO) method.

From time to time, the company enters into commodity futures and option
contracts in order to fix the future price of certain key ingredients which may
be subject to price volatility (primarily sugar and corn syrup). Gains or
losses, if any, resulting from these contracts are considered as a component of
the cost of the ingredients being hedged. At December 31, 1998 the company had
open contracts to purchase approximately eighteen months of its expected sugar
usage.

PROPERTY, PLANT AND EQUIPMENT:

Depreciation is computed for financial reporting purposes by use of both the
straight-line and accelerated methods based on useful lives of 20 to 35 years
for buildings and 12 to 20 years for machinery and equipment. For income tax
purposes the company uses accelerated methods on all properties. Depreciation
expense was $10,101, $9,947 and $9,839 in 1998, 1997 and 1996, respectively.

CARRYING VALUE OF LONG-LIVED ASSETS:

In the event that facts and circumstances indicate that the company's
long-lived assets may be impaired, an evaluation of recoverability would be
performed. Such an evaluation entails comparing the estimated future
undiscounted cash flows associated with the asset to the asset's carrying amount
to determine if a write down to market value or discounted cash flow value is
required. The company considers that no circumstances exist that would require
such an evaluation.

POSTRETIREMENT HEALTH CARE AND LIFE INSURANCE BENEFITS:

The company provides certain postretirement health care and life insurance
benefits. The cost of these postretirement benefits is accrued during employees'
working careers.

INCOME TAXES:

The company uses the liability method of computing deferred income taxes.

INTANGIBLE ASSETS:

Intangible assets represent the excess of cost over the acquired net tangible
assets of operating companies and is amortized on a straight-line basis over a
40 year period. The company assesses the recoverability of its intangible assets
using undiscounted future cash flows.

FOREIGN CURRENCY TRANSLATION:

Prior to January 1, 1997, management designated the local currency as the
functional currency for the company's Mexican operations. Accordingly, the net
effect of translating the Mexican operations' financial statements was reported
in a separate component of shareholders' equity. During 1997, management
determined that the Mexican economy was hyper-inflationary. Accordingly, the US
dollar is now used as the functional currency, and translation gains and losses
are included in the determination of 1997 and 1998 earnings.

COMPREHENSIVE EARNINGS

Effective January 1, 1998, the company adopted SFAS No. 130, "Reporting
Comprehensive Income." Accordingly, net income, foreign currency translation
adjustments and unrealized gains/ losses on marketable securities are presented
in the accompanying Statement of Earnings, Comprehensive Earnings and Retained
Earnings. The adoption of SFAS No. 130 had no impact on shareholders' equity and
prior year financial statements have been reclassified to conform to its
requirements.

EARNINGS PER SHARE:

On December 31, 1997, the company adopted SFAS No. 128, "Earnings per Share."
A dual presentation of basic and diluted earnings per share is not required due
to the lack of potentially dilutive securities under the company's simple
capital structure. Therefore, all earnings per share amounts represent basic
earnings per share.

NOTE 2--ACCRUED LIABILITIES:

Accrued liabilities are comprised of the following:

December 31,
--------------------
1998 1997
--------- ---------

Compensation.......................................... $ 8,433 $ 6,114
Other employee benefits............................... 4,143 5,490
Taxes, other than income.............................. 2,460 2,494
Advertising and promotions............................ 8,451 6,939
Other................................................. 7,810 11,756
--------- ---------
$ 31,297 $ 32,793
--------- ---------
--------- ---------

NOTE 3--INCOME TAXES:

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

1998 1997 1996
--------- --------- ---------

Domestic................................. $ 106,667 $ 93,318 $ 71,660
Foreign.................................. (604) 2,043 3,438
--------- --------- ---------
$ 106,063 $ 95,361 $ 75,098
--------- --------- ---------
--------- --------- ---------

The provision for income taxes is comprised of the following:

1998 1997 1996
--------- --------- ---------

Current:
Federal.................................. $ 34,373 $ 29,764 $ 23,907
Foreign.................................. 618 626 375
State.................................... 4,286 3,836 3,167
--------- --------- ---------
39,277 34,226 27,449
--------- --------- ---------
Deferred:
Federal.................................. (250) 738 (322)
Foreign.................................. (479) (368) 802
State.................................... (11) 83 (38)
--------- --------- ---------
(740) 453 442
--------- --------- ---------
$ 38,537 $ 34,679 $ 27,891
--------- --------- ---------
--------- --------- ---------

Deferred income taxes are comprised of the following:

December 31,
--------------------
1998 1997
--------- ---------

Workers' compensation................................... $ 413 $ 428
Reserve for uncollectible accounts...................... 547 537
Other accrued expenses.................................. 1,137 1,107
VEBA funding............................................ (478) (387)
Other, net.............................................. 965 108
--------- ---------
Net current deferred income tax asset................... $ 2,584 $ 1,793
--------- ---------
--------- ---------

December 31,
--------------------
1998 1997
--------- ---------

Depreciation............................................ $ 9,371 $ 8,930
Post retirement benefits................................ (2,132) (2,045)
Deductible goodwill..................................... 5,176 4,390
Deferred compensation................................... (4,244) (3,441)
DISC commissions........................................ 1,729 1,553
Foreign subsidiary tax loss carryforward................ (1,428) (1,470)
Other, net.............................................. 542 733
--------- ---------
Net long-term deferred income tax liability............. $ 9,014 $ 8,650
--------- ---------
--------- ---------

At December 31, 1998, gross deferred tax assets and gross deferred tax
liabilities are $13,465 and $19,895, respectively.

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

1998 1997 1996
---------- ---------- ----------

U.S. statutory rate............................ 35.0% 35.0% 35.0%
State income taxes, net........................ 2.6 2.7 2.8
Amortization of intangible assets.............. 0.4 0.5 0.6
Other, net..................................... (1.7) (1.8) (1.3)
---- ---- ----
Effective income tax rate...................... 36.3% 36.4% 37.1%
---- ---- ----
---- ---- ----

The company has not provided for U.S. federal or foreign withholding taxes on
$3,034 of foreign subsidiaries' undistributed earnings as of December 31, 1998
because such earnings are considered to be permanently reinvested. When excess
cash has accumulated in the company's foreign subsidiaries and it is
advantageous for tax or foreign exchange reasons, subsidiary earnings may be
remitted, and income taxes will be provided on such amounts. It is not
practicable to determine the amount of income taxes that would be payable upon
remittance of the undistributed earnings.

NOTE 4--SHARE CAPITAL AND CAPITAL IN EXCESS OF PAR VALUE:

Class B
Common Stock Common Stock Treasury Stock Capital in
----------------- ----------------- ---------------------- excess of
Shares Amount Shares Amount Shares Amount par value
------- -------- ------- ------- ------- -------- ----------
(000's) (000's) (000's)

Balance at
January 1, 1996.............. 15,109 $ 10,492 7,234 $ 5,024 -- $ -- $ 146,171
Issuance of 3% stock
dividend..................... 449 312 212 147 -- -- 25,418
Conversion of Class B common
shares to common shares...... 59 41 (59) (41) -- -- --
--
------ -------- ------ ------- -------- ---------
Balance at
December 31, 1996............ 15,617 10,845 7,387 5,130 -- -- 171,589

Issuance of 3% stock
dividend..................... 465 323 221 153 -- -- 29,868
Conversion of Class B common
shares to common shares...... 61 42 (61) (42) -- -- --
Purchase and retirement of
common shares................ (292) (202) -- -- -- -- (14,198)
--
------ -------- ------ ------ -------- ---------
Balance at
December 31, 1997............ 15,851 11,008 7,547 5,241 -- -- 187,259
Issuance of 3% stock
dividend..................... 473 329 225 156 -- -- 51,780
Purchase of shares for the
treasury..................... -- -- -- -- (20) (973) --
Issuance of 2-for-1 stock
split........................ 16,305 11,323 7,748 5,381 (5) -- (16,704)
Conversion of Class B common
shares to common shares...... 98 68 (98) (68) -- -- --
Purchase and retirement of
common shares................ (288) (201) -- -- -- -- (12,271)
--
------ -------- ------ -------- -------- ---------
Balance at
December 31, 1998............ 32,439 $ 22,527 15,422 $ 10,710 (25) $ (973) $ 210,064
------ -------- ------ -------- --- --------- ---------
------ -------- ------ -------- --- --------- ---------

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

Average shares outstanding and all per share amounts included in the financial
statements and notes thereto have been adjusted retroactively to reflect annual
three percent stock dividends and the two-for-one stock split distributed in
1998.

NOTE 5--NOTES PAYABLE AND INDUSTRIAL DEVELOPMENT BONDS:

In 1993, the company entered into two 3-year term notes aggregating $20,000
the proceeds of which were used to purchase the company's Chicago manufacturing
facility and headquarters. These term notes bore interest payable monthly at
3.55% and matured in September, 1996.

During 1992, the company entered into an industrial development bond agreement
with the City of Covington, Tennessee. The bond proceeds of $7.5 million were
used to finance the expansion of the company's existing facilities. Interest is
payable at various times during the year based upon the interest calculation
option (fixed, variable or floating) selected by the company. As of December 31,
1998 and 1997, interest was calculated under the floating option (3.7% and 3.8%,
respectively) which requires monthly payments of interest. Principal on the
bonds is due in its entirety in the year 2027.

In connection with the issuance of the bonds, the company entered into a
letter of credit agreement with a bank for the amount of principal outstanding
plus 48 days' accrued interest. The letter of credit, which expires in January
2000, carries an annual fee of 32 1/2 basis points on the outstanding principal
amount of the bonds.

NOTE 6--EMPLOYEE BENEFIT PLANS:
PENSION PLANS:
The company sponsors defined contribution pension plans covering certain
nonunion employees with over one year of credited service. The company's policy
is to fund pension costs accrued based on compensation levels. Total pension
expense for 1998, 1997 and 1996 approximated $1,951, $2,153 and $1,814,
respectively. The company also maintains certain profit sharing and
savings-investment plans. Company contributions in 1998, 1997 and 1996 to these
plans were $582, $540 and $485, respectively.

The company also contributes to multi-employer defined benefit pension plans
for its union employees. Such contributions aggregated $680, $609 and $436 in
1998, 1997 and 1996, respectively. The relative position of each employer
associated with the multi-employer plans with respect to the actuarial present
value of benefits and net plan assets is not determinable by the company.

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

The changes in the accumulated postretirement benefit obligation at December
31, 1998 and 1997 consist of the following:

December 31,
--------------------
1998 1997
--------- ---------

Benefit obligation, beginning of year............... $ 5,904 $ 5,636
Net periodic postretirement benefit cost............ 438 435
Benefits paid....................................... (197) (167)
--------- ---------
Benefit obligation, end of year..................... $ 6,145 $ 5,904
--------- ---------
--------- ---------

Net periodic postretirement benefit cost included the following components:

1998 1997 1996
--------- --------- ---------

Service cost--benefits attributed to
service during the period............................. $ 258 $ 251 $ 263
Interest cost on the accumulated postretirement
benefit obligation.................................... 279 285 277
Amortization of unrecognized net gain................... (99) (101) (87)
--------- --------- ---------
Net periodic postretirement benefit cost................ $ 438 $ 435 $ 453
--------- --------- ---------
--------- --------- ---------

For measurement purposes, an 8.5% annual rate of increase in the per capita
cost of covered health care benefits was assumed for 1998; the rate was assumed
to decrease gradually to 5.5% for 2004 and remain at that level thereafter. The
health care cost trend rate assumption has a significant effect on the amounts
reported. The weighted-average discount rate used in determining the accumulated
postretirement benefit obligation was 6.25% and 6.75% at December 31, 1998 and
1997, respectively.

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

1% Increase 1% Decrease
--------------- ---------------

Effect on postretirement benefit obligation....... $ 716 $ (580)
Effect on total of service and interest cost
components...................................... $ 98 $ (77)

NOTE 7--OTHER INCOME, NET:
Other income (expense) is comprised of the following:

1998 1997 1996
--------- --------- ---------

Interest income................................ $ 6,934 $ 5,764 $ 3,887
Interest expense............................... (756) (483) (1,498)
Dividend income................................ 822 999 1,386
Foreign exchange losses........................ (2,140) (447) (50)
Royalty income................................. 155 312 92
Miscellaneous, net............................. (217) (871) (251)
--------- --------- ---------
$ 4,798 $ 5,274 $ 3,566
--------- --------- ---------
--------- --------- ---------

NOTE 8--COMMITMENTS:
During 1993 and 1994, the company entered into operating leases for certain
manufacturing equipment which provided the company with the option to terminate
the lease in 1996 and to purchase the equipment at its fair market value. The
company exercised this option and purchased the equipment for $5,401 on January
2, 1996.

Rental expense aggregated $432, $477 and $439 in 1998, 1997 and 1996,
respectively.
Future operating lease commitments are not significant.

NOTE 9--COMPREHENSIVE INCOME:
Components of accumulated other comprehensive earnings are shown as follows:

Accumulated
Foreign Unrealized Other
Currency Gains (Losses) Comprehensive
Items on Securities Earnings
----------- ----------------- --------------

Balance at December 31, 1995.......... $ (10,978) $ -- $ (10,978)
Change during period.................. (57) -- (57)
----------- ------ --------------
Balance at December 31, 1996.......... (11,035) -- (11,035)
Change during period.................. (17) (417) (434)
----------- ------ --------------
Balance at December 31, 1997.......... (11,052) (417) (11,469)
CHANGE DURING PERIOD.................. (30) 976 946
----------- ------ --------------
BALANCE AT DECEMBER 31, 1998.......... $ (11,082) $ 559 $ (10,523)
----------- ------ --------------
----------- ------ --------------

The individual tax effects of each component of other comprehensive earnings
for the year ended December 31, 1998 are shown as follows:

Before Tax
Tax (Expense) Net-of-Tax
Amount Benefit Tax Amount
----------- ----------- -------------

Foreign currency translation adjustment........ $ (30) $ -- $ (30)
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising
during 1998................................. 1,123 (262) 861
Less: reclassification adjustment for gains
(losses) realized in earnings............... 182 (67) 115
----------- ----- -----
Net unrealized gains....................... 1,305 (329) 976
----------- ----- -----
Other comprehensive earnings................... $ 1,275 $ (329) $ 946
----------- ----- -----
----------- ----- -----

NOTE 10--DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS:

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

1998 1997
-------------------- ------------------------
CARRYING FAIR Carrying
AMOUNT VALUE Amount Fair Value
--------- --------- ----------- -----------

Cash and cash equivalents............ $ 80,744 $ 80,744 $ 60,433 $ 60,433
Investments held to maturity......... 106,415 109,182 95,086 97,000
Investments available for sale....... 28,214 28,214 22,010 22,010
Investments in trading securities.... 7,799 7,799 4,489 4,489
Industrial development bonds......... 7,500 7,500 7,500 7,500

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

DECEMBER 31, 1998
----------------------------------------------
UNREALIZED
AMORTIZED FAIR ----------------------
HELD TO MATURITY: COST VALUE GAINS LOSSES
- ----------------------------------------- ----------- --------- --------- -----------

UNIT INVESTMENT TRUSTS OF PREFERRED
STOCKS.................................. $ 3,626 $ 5,978 $ 2,352 $ --
TAX-FREE COMMERCIAL PAPER................ 8,250 8,250 -- --
MUNICIPAL BONDS.......................... 96,828 97,266 438 --
UNIT INVESTMENT TRUSTS OF MUNICIPAL
BONDS................................... 979 956 -- (23)
US GOV'T/GOV'T AGENCY OBLIGATIONS........ -- -- -- --
PRIVATE EXPORT FUNDING SECURITIES........ 4,982 4,982 -- --
----------- --------- --------- -----------
$ 114,665 $ 117,432 $ 2,790 $ (23)
----------- --------- --------- -----------
----------- --------- --------- -----------

AVAILABLE FOR SALE:
- -----------------------------------------

MUNICIPAL BONDS.......................... $ 39,397 $ 39,264 $ -- $ (133)
MUTUAL FUNDS............................. 3,007 4,028 1,021 --
----------- --------- --------- -----------
$ 42,404 $ 43,292 $ 1,021 $ (133)
----------- --------- --------- -----------
----------- --------- --------- -----------

December 31, 1997
----------------------------------------------
Unrealized
Amortized Fair ----------------------
Held to Maturity: Cost Value Gains Losses
- ------------------------------------------ ----------- --------- --------- -----------

Unit investment trusts of preferred
stocks................................... $ 4,724 $ 6,794 $ 2,070 $ --
Tax-free commercial paper................. 15,300 15,300 -- --
Municipal bonds........................... 87,456 87,218 -- (238)
Unit investment trusts of municipal
bonds.................................... 1,103 1,484 381 --
US gov't/gov't agency obligations......... 1,803 1,803 -- --
----------- --------- --------- -----
$ 110,386 $ 112,599 $ 2,451 $ (238)
----------- --------- --------- -----
----------- --------- --------- -----

Available for Sale:
- ------------------------------------------

Municipal bonds........................... $ 37,587 $ 37,484 $ -- $ (103)
Mutual funds.............................. 3,307 2,993 -- (314)
----------- --------- --------- -----
$ 40,894 $ 40,477 $ -- $ (417)
----------- --------- --------- -----
----------- --------- --------- -----

Held to maturity securities of $8,250 and $15,300 and available for sale
securities of $15,078 and $18,467 were included in cash and cash equivalents,
and held to maturity securities with maturities greater than one year were
$51,453 and $35,249 at December 31, 1998 and 1997, respectively. There were no
securities with maturities greater than three years and gross realized gains and
losses on the sale of available for sale securities in 1998 and 1997 were not
significant.

NOTE 11--GEOGRAPHIC AREA AND SALES INFORMATION:
SUMMARY OF SALES, NET EARNINGS AND ASSETS BY GEOGRAPHIC AREA

1998 1997 1996
------------------------------ ------------------------------ ------------------------------
MEXICO Mexico Mexico
UNITED AND CONSOLI- United and Consoli- United and Consoli-
STATES CANADA DATED States Canada dated States Canada dated
--------- -------- --------- --------- -------- --------- --------- -------- ---------

Sales to unaffiliated customers... $363,569 $25,090 $388,659 $346,487 $29,107 $375,594 $315,131 $25,778 $340,909
--------- --------- ---------
--------- --------- ---------
Sales between geographic areas.... 2,339 4,374 1,694 3,314 1,888 3,152
--------- -------- --------- -------- --------- --------
$365,908 $29,464 $348,181 $32,421 $317,019 $28,930
--------- -------- --------- -------- --------- --------
--------- -------- --------- -------- --------- --------
Net earnings...................... $ 68,270 $ (744) $ 67,526 $ 58,898 $ 1,784 $ 60,682 $ 44,946 $ 2,261 $ 47,207
Total assets...................... $467,265 $20,158 $487,423 $414,629 $22,113 $436,742 $373,925 $17,531 $391,456
Net assets........................ $379,106 $17,351 $396,457 $332,410 $18,753 $351,163 $298,565 $14,316 $312,881

Total assets are those assets associated with or used directly in the respective
geographic area, excluding intercompany advances and investments.

MAJOR CUSTOMER

Revenues from a major customer aggregated approximately 17.2%, 15.9% and 16.2%
of total net sales during the years ended December 31, 1998, 1997 and 1996,
respectively.

- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS [LOGO]
To the Board of Directors and Shareholders of Tootsie Roll Industries, Inc.

In our opinion, the accompanying consolidated statement of financial position
and the related consolidated statement of earnings, comprehensive earnings and
retained earnings and of cash flows present fairly, in all material respects,
the financial position of Tootsie Roll Industries, Inc. and its subsidiaries at
December 31, 1998 and 1997, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1998, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.

[SIGNATURE]

Chicago, Illinois
February 9, 1999

QUARTERLY FINANCIAL DATA
TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES

(Thousands of dollars except per share data)
1998 First Second Third Fourth Total

- ----------------------------------------------------------------------------------------
Net sales.......................... $69,701 $85,931 $144,230 $88,797 $388,659
Gross margin....................... 36,966 45,133 73,251 45,692 201,042
Net earnings....................... 11,217 13,910 27,216 15,183 67,526
Net earnings per share............. .23 .29 .57 .32 1.41

1997
- ----------------------------------------------------------------------------------------
Net sales.......................... $66,258 $82,287 $140,645 $86,404 $375,594
Gross margin....................... 33,323 41,382 69,746 42,830 187,281
Net earnings....................... 9,751 12,507 24,695 13,729 60,682
Net earnings per share............. .20 .26 .51 .29 1.26

1996
- ----------------------------------------------------------------------------------------
Net sales.......................... $63,265 $72,511 $128,658 $76,475 $340,909
Gross margin....................... 30,687 35,292 60,415 36,026 162,420
Net earnings....................... 8,118 9,327 19,143 10,619 47,207
Net earnings per share............. .17 .19 .39 .22 .97

Net earnings per share is based upon average outstanding shares as adjusted for 3% stock
dividends issued during the second quarter of each year and the 2-for-1 stock split
effective July 13, 1998.

- -----------------------------------------------------------------------------------------------------------------------

1998-1997 QUARTERLY SUMMARY OF TOOTSIE ROLL INDUSTRIES, INC. STOCK PRICE
AND DIVIDENDS PER SHARE

STOCK PRICES* DIVIDENDS**
1998 1997
- ------------------------------------------------------
HIGH LOW High Low 1998 1997
- ------------------------------------------------------ ---------------------------------

1st Qtr... 38-13/32 29-27/32 23-3/8 18-7/8 1st Qtr........ $.0401 $.0344
2nd Qtr... 40-3/4 34-31/32 24-15/16 22-1/4 2nd Qtr........ $.0525 $.0402
3rd Qtr... 47-1/4 33-3/4 25-7/16 22-7/8 3rd Qtr........ $.0525 $.0402
4th Qtr... 42-7/8 34-1/8 32-7/16 25-1/2 4th Qtr........ $.0525 $.0401

*NYSE -- Composite Quotations adjusted for the 2-for-1 NOTE: In addition to the above cash
stock split effective July 13,1998 dividends, a 3% stock dividend was
issued on 4/22/98 and 4/22/97.
Estimated Number of shareholders at 12/31/98 ... 9,500 **Cash dividends are restated to reflect
3% stock dividends and the 2-for-1 stock
split.

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) 1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------

Sales and Earnings Data
Net sales........................................ $ 388,659 $ 375,594 $ 340,909 $ 312,660 $ 296,932
Gross margin..................................... 201,042 187,281 162,420 145,922 141,367
Interest expense................................. 756 483 1,498 1,515 1,649
Provision for income taxes....................... 38,537 34,679 27,891 23,670 23,236
Net earnings..................................... 67,526 60,682 47,207 40,368 37,931
% of sales................................... 17.4% 16.2% 13.8% 12.9% 12.8%
% of shareholders' equity.................... 17.0% 17.3% 15.1% 14.8% 15.8%

Per Common Share Data (1)
Net sales........................................ $ 8.09 $ 7.78 $ 7.04 $ 6.45 $ 6.13
Net earnings..................................... 1.41 1.26 .97 .83 .78
Shareholders' equity............................. 8.29 7.29 6.46 5.62 4.96
Cash dividends declared.......................... .20 .16 .13 .11 .09
Stock dividends.................................. 3% 3% 3% 3% 3%

Additional Financial Data
Working capital.................................. $ 175,155 $ 153,355 $ 153,329 $ 109,643 $ 92,626
Current ratio.................................... 4.3 3.9 4.2 3.0 4.5
Net cash provided by operating activities........ 77,735 68,176 76,710 50,851 40,495
Net cash used in (provided by) investing
activities...................................... 34,829 31,698 52,364 14,544 (1,077)
Net cash used in financing activities............ 22,595 21,704 26,211 5,292 27,049
Property, plant & equipment additions............ 14,878 8,611 9,791 4,640 8,179
Net property, plant & equipment.................. 83,024 78,364 81,687 81,999 85,648
Total assets..................................... 487,423 436,742 391,456 353,816 310,083
Long term debt................................... 7,500 7,500 7,500 7,500 27,500
Shareholders' equity............................. 396,457 351,163 312,881 272,186 240,461
Average shares outstanding (1)................... 48,051 48,294 48,442 48,442 48,442

(1) Adjusted for annual 3% stock dividends and the 2-for-1 stock splits
effective July 13, 1998 and July 11, 1995.

- --------------------------------------------------------------------------------