Broadening Your Perspective 8-1

The financial statements of Tootsie Roll are presented below.

TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF

Earnings, Comprehensive Earnings and Retained Earnings (in thousands except per share data)For the year ended December 31,201120102009Net product sales

$528,369$517,149$495,592Rental and royalty revenue4,1364,2993,739Total revenue532,505521,448499,331Product cost of goods sold365,225349,334319,775Rental and royalty cost1,0381,088852Total costs366,263350,422320,627Product gross margin163,144167,815175,817Rental and royalty gross margin3,0983,2112,887Total gross margin166,242171,026178,704Selling, marketing and administrative expenses108,276106,316103,755Impairment charges14,000Earnings from operations57,96664,71060,949Other income (expense), net2,9468,3582,100Earnings before income taxes60,91273,06863,049Provision for income taxes16,97420,0059,892Net earnings$43,938$53,063$53,157Net earnings$43,938$53,063$53,157Other comprehensive earnings (loss)(8,740)1,1832,845Comprehensive earnings$35,198$54,246$56,002Retained earnings at beginning of year.$135,866$147,687$144,949Net earnings43,93853,06353,157Cash dividends(18,360)(18,078)(17,790)Stock dividends(47,175)(46,806)(32,629)Retained earnings at end of year$114,269$135,866$147,687Earnings per share$0.76$0.90$0.89Average Common and Class B Common shares outstanding

57,89258,68559,425(The accompanying notes are an integral part of these statements.)

CONSOLIDATED STATEMENTS OF

Financial Position

TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES (in thousands except per share data)AssetsDecember 31,20112010CURRENT ASSETS:Cash and cash equivalents$78,612$115,976Investments10,8957,996Accounts receivable trade, less allowances of $1,731 and $1,53141,89537,394Other receivables3,3919,961Inventories:Finished goods and work-in-process42,67635,416Raw materials and supplies29,08421,236Prepaid expenses5,0706,499Deferred income taxes578689Total current assets212,201235,167PROPERTY, PLANT AND EQUIPMENT, at cost:Land21,93921,696Buildings107,567102,934Machinery and equipment322,993307,178Construction in progress2,5989,243455,097440,974LessAccumulated depreciation242,935225,482Net property, plant and equipment212,162215,492OTHER ASSETS:Goodwill73,23773,237Trademarks175,024175,024Investments96,16164,461Split dollar officer life insurance74,20974,441Prepaid expenses3,2126,680Equity method investment3,9354,254Deferred income taxes7,7159,203Total other assets433,493407,300Total assets$857,856$857,959Liabilities and Shareholders EquityDecember 31,20112010CURRENT LIABILITIES:Accounts payable$10,683$9,791Dividends payable4,6034,529Accrued liabilities43,06944,185Total current liabilities58,35558,505NONCURRENT LIABILITES:Deferred income taxes43,52147,865Postretirement health care and life insurance benefits26,10820,689Industrial development bonds7,5007,500Liability for uncertain tax positions8,3459,835Deferred compensation and other liabilities48,09246,157Total noncurrent liabilities133,566132,046SHAREHOLDERS EQUITY:Common stock, $.69-4/9 par value120,000 shares authorized36,479 and 36,057 respectively, issued25,33325,040Class B common stock, $.69-4/9 par value40,000 shares authorized21,025 and 20,466 respectively, issued14,60114,212Capital in excess of par value533,677505,495Retained earnings, per accompanying statement114,269135,866Accumulated other comprehensive loss(19,953)(11,213)Treasury stock (at cost)71 shares and 69 shares, respectively(1,992)(1,992)Total shareholders equity665,935667,408Total liabilities and shareholders equity$857,856$857,959

TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF

Cash Flows (in thousands)

For the year ended December 31,201120102009CASH FLOWS FROM OPERATING ACTIVITIES:Net earnings$43,938$53,063$53,157Adjustments to reconcile net earnings to net cash provided by operating activities:Depreciation19,22918,27917,862Impairment charges

14,000Impairment of equity method investment

4,400Loss from equity method investment

194342233Amortization of marketable security premiums

1,267522320Changes in operating assets and liabilities:

Accounts receivable

(5,448)717(5,899)Other receivables

3,963(2,373)(2,088)Inventories

(15,631)(1,447)455Prepaid expenses and other assets

5,1064,9365,203Accounts payable and accrued liabilities

842,180(2,755)Income taxes payable and deferred

(5,772)2,322(12,543)Postretirement health care and life insurance benefits

2,0221,4291,384Deferred compensation and other liabilities

2,1462,5252,960Others

(708)310305Net cash provided by operating activities50,39082,80576,994CASH FLOWS FROM INVESTING ACTIVITIES:Capital expenditures

(16,351)(12,813)(20,831)Net purchase of trading securities

(3,234)(2,902)(1,713)Purchase of available for sale securities

(39,252)(9,301)(11,331)Sale and maturity of available for sale securities

7,6808,20817,511Net cash used in investing activities

(51,157)(16,808)(16,364)CASH FLOWS FROM FINANCING ACTIVITIES:Shares repurchased and retired

(18,190)(22,881)(20,723)Dividends paid in cash

(18,407)(18,130)(17,825)Net cash used in financing activities

(36,597)(41,011)(38,548)Increase (decrease) in cash and cash equivalents(37,364)24,98622,082Cash and cash equivalents at beginning of year115,97690,99068,908Cash and cash equivalents at end of year$78,612$115,976$90,990Supplemental cash flow informationIncome taxes paid

$16,906$20,586$22,364Interest paid

$38$49$182Stock dividend issued

$47,053$46,683$32,538(The accompanying notes are an integral part of these statements.)

Five Year Summary of Earning and Financial Hightlights

TOOTISE ROLL. INDUSTRY, INC. AND SUBSIDIARIES

(Thousands of dollars except per share, percentage and ratio figures) 20112010200920082007Sales and Earnings DataNet product sales$528,369$517,149$495,592$492,051$492,742Product gross margin163,144167,815175,817158,055165,456Interest expenses121142243378535Provision for income taxes16,97420,0059,89216,34725,401Net earnings43,93853,06353,15738,88052,175% of net product sales8.3%10.3%10.7%7.9%10.6%% of shareholders' equity6.6%8.0%8.1%6.1%8.1%Per Common Share DataNet earnings$0.76$0.90$0.89$0.65$0.85Cash dvidends declared0.320.320.320.320.32Stock dividends3%3%3%3%3%Additional Financial DataWorking capital$153,846$176,662$154,409$129,694$142,163Net cash provided by opreating activities50,39082,80576,99457,33390,148Net cash provided by (used by) investing activities(51,157)(16,808)(16,364)(7,565)(43,429)Net cash used in financing activities(36,597)(41,011)(38,548)(38,666)(44,842)Property, plant & equipment additions16,35112,81320,83134,35514,767Net property, plant & equipment212,162215,492220,721217,628201,401Total assets857,856857,959836,844813,252813,134Long-term debt7,5007,5007,5007,5007,500Shareholders' equity665,935667,408654,244636,847640,204Average shares outstanding57,89258,68559,42560,15261,580

Notes to Consolidated Financial Statements ($ in thousands)

Revenue recognition:

Products are sold to customers based on accepted purchase orders which include quantity, sales price and other relevant terms of sale. Revenue, net of applicable provisions for discounts, returns, allowances and certain advertising and promotional costs, is recognized when products are delivered to customers and collectability is reasonably assured. Shipping and handling costs of $45,850, $43,034, and $38,628 in 2011, 2010 and 2009, respectively, are included in selling, marketing and administrative expenses. Accounts receivable are unsecured. Revenues from a major customer aggregated approximately 23.3%, 21.4% and 22.9% of net product sales during the years ended December 31, 2011, 2010 and 2009, respectively.

SEGMENT AND GEOGRAPHIC INFORMATION:The Company operates as a single reportable segments encompassing the manufacturing and sale of confectionery products. Its principal manufacturing operations are located in the United States and Canada, and its principal market is in the United States. The Company also manufactures and sells confectionery products in Mexico, and exports products to Canada and countries worldwide.The following geographic data includes net product sales summarized on the basis of the customer location and long-lived assets based on their location:201120102009Net product sales:United states$487,185$471,714$455,517Foreign41,18445,43540,075$528,369$517,149$495,592Long-lived assets:United states$170,173$172,087$176,044Foreign41,98943,40544,677$212,162$215,492$220,721

Calculate the accounts receivable turnover and average collection period for 2011. (Use Net Product Sales. Assume all sales were credit sales.) (Round answers to 1 decimal place, e.g. 15.2.)

Accounts receivable turnover

timesAverage collection period

days