ANSWER THE QUESTIONS IN THE PHOTO BELOW

For the year ended December 31, 2016, Tootsie Roll Industries reported net earmings of $67,319 thousand, yet it included $67,510 thousand in retained earnings 1. Explain what the difference represents. 2. When reviewing the financial statements explain how the four financial statements are linked together. Explain by using numbers found on these reports dated 12/31/16 Five Year Summary of Earnings and Financial Highlights (Thousands of dollars except per share, percentage and ratio figures) 2016 2015 2014 2013 201 Sales and Eamings Data Net product sales Product gross margin Interest expense Provision for income taxes Net earnings attributable to Tootsie Roll 517,373 $ 536,692 $ 539,895 $ 539,627 $ 545,985 197,083 196,602198,962188,667180,412 137 30,593 26,451 28,434 23,634 22,160 105 76 92 Industries, Inc 67,510% 6612 9 % 63298 % 60843 % 52,004 % of net product sales % of shareholders' equity Per Common Share Data (1(2) 13.0 % 9.5 % 12.3 % 9.5 % 11.7 % 9.2 % 11.3% 8.9% 95%1 8.0 % Net earnings attributable to Tootsie Roll Industries, Inc Cash dividends declared Stock dividends $ 1.08 $ 1.04 0.99 S 0.94 0.32 0.79 0.82 0.36 0.35 0.32 3% 3% 3 % Additional Financial Data (1) Working capital Net cash provided by operating activities98,550 Net cash provided by (used in) investing s 235,739 S 221,744 $ 200,162 $ 179,990 $ 136,476 88,769 109,823 101,418 91,073 activities Net cash used in financing activities Property, plant & equipment additions (51,884) (8,523) (30,459) (47,963) (40,435) (51,387) (53,912 (44,664) (37,425) (76,234) 8,886 180,905 184,586 190,081 196,916201,290 920,101 908,983 910,386 888,409 846,737 7,500 16,090 10,704 15,752 et property, plant&equipment Total assets Long-term debt Total Tootsie Roll Industries, Inc 7,500 7,500 7,500 7,500 shareholders' equity Average shares outstanding 711,364 698,183 690,809 680,305 649,815 62,239 63,256 64,173 65,010 65,859 (1) Per common share data and average shares outstanding adjusted for annual 3% stock dividends. (2) The fourth quarter 2012 includes a S0.50 special dividend. of the Company's Notes to Consolidated Financial Statements. Shareholders' equity increased from $698,183 at December 31, 2015 to $711,364 as of December 31, 2016, principally reflecting 2016 net earnings of $67,510, less cash dividends of $22,266, share repurchases of $29,093, and an increase in accumulated other comprehensive loss, primarily foreign translation, of $2,882 during 2016. The Company has a relatively straight-forward financial structure and has historically maintained a conservative financial CONSOLIDATED STATEMENTS OF Earnings and Retained Earnings TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES (in thousands except per share data) Net prodduct sales Rental and royalty revenue Total revenue 320,290 340,090 340,933 947 321 309 340979341.880 Product cost of goods sold 889 Rental and royalty cost Total costs 196,602 198,962 197,083 08 Product gross margin Rental and royaity gross margin 13 Total gross margin Selling, marketing and administrative expenses Earnings from operations Other income, net Earnings before income taxes Provision for income taxes 107 377 108,051 117722 4 91.082 28.434 438) 66,089 S 63,298 Less: Net earnings (loss) attributable to noncontrolling Net earnings attributable to Tootsie Roll Industries, Inc. per share Average number of shares outstanding S 1.08 S 1.04 s 0.99 62.239 63,256 64.173 52,349 $ 64,927 $ 73,109 Retained earnings at beginning of period 66,08963,298 Net earnings a sh dividends Stock dividends (22,209) (21,308) (19,199) (53,817)(57,359) (52,281 S 43,833 S 52,349 S 64,927 Retained earnings at end of period (The accompanying notes are an integral part of these statements.) Selected Financial Data. Five Year Summary of Earnings and Financial Highlights (Thousands of dollars exce 2016 2015 Sales and Earnings Data $ 517,373 $ 536,692 s Net product sales Product gross margin Interest expense Provision for income taxes 197,083 196,60 105 30,593 26,451 Net earnings attributable to Tootsie Roll Industries, Inc. 67,510 66,089 % of net product sales 13.0 % 95% 12.3 % 95% % of shareholders' equity Per Common Share Data (I)(2) Net earnings attributable to Tootsie Roll Industries, Inc. Cash dividends declared Stock dividends S 1.08 S 1.04 S 0.36 0.35 3% Additional Financial Data (1) Working capital Net cash provided by operating activities Net cash provided by (used in) investing S 235,739 221,744 S 98,550 91,073 activities Net cash used in financing activities Property, plant&equipment additions Net property, plant & equipment Total assets Long-term debt Total Tootsie Roll Industries, Inc. (51,884) (8,523) (51,387) (53,912) 15,534 180,905 184,586 920,101 908,983 7,500 16,090 7,500 shareholders' equity Average shares outstanding 711,364 698,183 62,239 63,256 (1) Per common share data and average shares outstanding adjusted for annu (2) The fourth quarter 2012 includes a $0.50 special dividend. CONSOLIDATED STATEMENTS OF Cash Flows TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES ended December 3 ASH FLOWS FROM OPERATING ACTIVITIES: 67319 S 66,127 S Adjustments to reconcile net earnings to net cash provided by operating activities: 19,627 20,388 255 Depreciation Deferred income taxes Net loss on step acquisition Amortization of marketable security premiums Changes in operating assets and liabilities 199 2,830 3,105 (8,929) 1,119 7,530 11,593 3,839 Accounts receivable 6,869 Other receivables 4,183 2,999 (2,061) (5,797) (1,216) 3,125 Inventories Prepaid expenses and other assets Accounts payable and accrued liabilities (115) Income taxes payable (903) Postretirement health care benefits 12,936 Deferred compensation and other liabilities Net cash provided by operating activities 98,550 91,073 CASH FLOWS FROM INVESTING ACTIVITIES Net cash acquired in step acquisition Change in restricted cash Capital expenditures Purchases of trading securities Sales of trading securities Purchase of available for sale securities Sale and maturity of available for sale securities Net cash used in investing activities ,149 (16,090)(15,534) 4,569) (4,095) 6,644 (81,835) (61,951) 49,177 (29,093)(33,004 (22,266) (20,775 13 (53,91 CASH FLOWS FROM FINANCING ACTIVITIES Shares purchased and retired Dividends paid in cash Proceeds from bank loans Repayment of bank loans Net cash used in financing activities 2,760 2.788 51,387 Effect of exchange rate changes on cash 7,000 Increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year 126,145 100 S 119,145 S 126 S 36,365 S 34 S S 61,671 S Supplemental cash flow information: Income taxes paid Interest paid Stock dividend issued The accompanying notes are an integral part of these statements.)