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, 2011 2010 2009 Net product sales $528,369 $517,149 $495,592 Rental and royalty revenue 4,136 4,299 3,739 Total revenue 532,505 521,448 499,331 Product cost of goods sold 365,225 349,334 319,775 Rental and royalty cost 1,038 1,088 852 Total costs 366,263 350,422 320,627 Product gross margin 163,144 167,815 175,817 Rental and royalty gross margin 3,098 3,211 2,887 Total gross margin 166,242 171,026 178,704 Selling, marketing and administrative expenses 108,276 106,316 103,755 Impairment charges 14,000 Earnings from operations 57,966 64,710 60,949 Other income (expense), net 2,946 8,358 2,100 Earnings before income taxes 60,912 73,068 63,049 Provision for income taxes 16,974 20,005 9,892 Net earnings $43,938 $53,063 $53,157 Net earnings $43,938 $53,063 $53,157 Other comprehensive earnings (loss) (8,740 ) 1,183 2,845 Comprehensive earnings $35,198 $54,246 $56,002 Retained earnings at beginning of year. $135,866 $147,687 $144,949 Net earnings 43,938 53,063 53,157 Cash 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 $147,687 Earnings per share $0.76 $0.90 $0.89 Average Common and Class B Common shares outstanding 57,892 58,685 59,425 (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) Assets December 31, 2011 2010 CURRENT ASSETS: Cash and cash equivalents $78,612 $115,976 Investments 10,895 7,996 Accounts receivable trade, less allowances of $1,731 and $1,531 41,895 37,394 Other receivables 3,391 9,961 Inventories: Finished goods and work-in-process 42,676 35,416 Raw materials and supplies 29,084 21,236 Prepaid expenses 5,070 6,499 Deferred income taxes 578 689 Total current assets 212,201 235,167 PROPERTY, PLANT AND EQUIPMENT, at cost: Land 21,939 21,696 Buildings 107,567 102,934 Machinery and equipment 322,993 307,178 Construction in progress 2,598 9,243 455,097 440,974 LessAccumulated depreciation 242,935 225,482 Net property, plant and equipment 212,162 215,492 OTHER ASSETS: Goodwill 73,237 73,237 Trademarks 175,024 175,024 Investments 96,161 64,461 Split dollar officer life insurance 74,209 74,441 Prepaid expenses 3,212 6,680 Equity method investment 3,935 4,254 Deferred income taxes 7,715 9,203 Total other assets 433,493 407,300 Total assets $857,856 $857,959 Liabilities and Shareholders Equity December 31, 2011 2010 CURRENT LIABILITIES: Accounts payable $10,683 $9,791 Dividends payable 4,603 4,529 Accrued liabilities 43,069 44,185 Total current liabilities 58,355 58,505 NONCURRENT LIABILITES: Deferred income taxes 43,521 47,865 Postretirement health care and life insurance benefits 26,108 20,689 Industrial development bonds 7,500 7,500 Liability for uncertain tax positions 8,345 9,835 Deferred compensation and other liabilities 48,092 46,157 Total noncurrent liabilities 133,566 132,046 SHAREHOLDERS EQUITY: Common stock, $.69-4/9 par value120,000 shares authorized36,479 and 36,057 respectively, issued 25,333 25,040 Class B common stock, $.69-4/9 par value40,000 shares authorized21,025 and 20,466 respectively, issued 14,601 14,212 Capital in excess of par value 533,677 505,495 Retained earnings, per accompanying statement 114,269 135,866 Accumulated other comprehensive loss (19,953 ) (11,213 ) Treasury stock (at cost)71 shares and 69 shares, respectively (1,992 ) (1,992 ) Total shareholders equity 665,935 667,408 Total 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, 2011 2010 2009 CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings $43,938 $53,063 $53,157 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation 19,229 18,279 17,862 Impairment charges 14,000 Impairment of equity method investment 4,400 Loss from equity method investment 194 342 233 Amortization of marketable security premiums 1,267 522 320 Changes 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 ) 455 Prepaid expenses and other assets 5,106 4,936 5,203 Accounts payable and accrued liabilities 84 2,180 (2,755 ) Income taxes payable and deferred (5,772 ) 2,322 (12,543 ) Postretirement health care and life insurance benefits 2,022 1,429 1,384 Deferred compensation and other liabilities 2,146 2,525 2,960 Others (708 ) 310 305 Net cash provided by operating activities 50,390 82,805 76,994 CASH 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 7,680 8,208 17,511 Net 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 ) 24,986 22,082 Cash and cash equivalents at beginning of year 115,976 90,990 68,908 Cash and cash equivalents at end of year $78,612 $115,976 $90,990 Supplemental cash flow information Income taxes paid $16,906 $20,586 $22,364 Interest paid $38 $49 $182 Stock 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) 2011 2010 2009 2008 2007 Sales and Earnings Data Net product sales $528,369 $517,149 $495,592 $492,051 $492,742 Product gross margin 163,144 167,815 175,817 158,055 165,456 Interest expenses 121 142 243 378 535 Provision for income taxes 16,974 20,005 9,892 16,347 25,401 Net earnings 43,938 53,063 53,157 38,880 52,175 % of net product sales 8.3 % 10.3 % 10.7 % 7.9 % 10.6 % % of shareholders' equity 6.6 % 8.0 % 8.1 % 6.1 % 8.1 % Per Common Share Data Net earnings $0.76 $0.90 $0.89 $0.65 $0.85 Cash dvidends declared 0.32 0.32 0.32 0.32 0.32 Stock dividends 3 % 3 % 3 % 3 % 3 % Additional Financial Data Working capital $153,846 $176,662 $154,409 $129,694 $142,163 Net cash provided by opreating activities 50,390 82,805 76,994 57,333 90,148 Net cash provided by (used by) investing activities (51,157 ) (16,808 ) (16,364 ) (7,565 ) (43,429 ) Net cash used in financing activities (36,597 ) (41,011 ) (38,548 ) (38,666 ) (44,842 ) Property, plant & equipment additions 16,351 12,813 20,831 34,355 14,767 Net property, plant & equipment 212,162 215,492 220,721 217,628 201,401 Total assets 857,856 857,959 836,844 813,252 813,134 Long-term debt 7,500 7,500 7,500 7,500 7,500 Shareholders' equity 665,935 667,408 654,244 636,847 640,204 Average shares outstanding 57,892 58,685 59,425 60,152 61,580 Notes to Consolidated Financial Statements ($ 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: 2011 2010 2009 Net product sales: United states $487,185 $471,714 $455,517 Foreign 41,184 45,435 40,075 $528,369 $517,149 $495,592 Long-lived assets: United states $170,173 $172,087 $176,044 Foreign 41,989 43,405 44,677 $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 Entry field with incorrect answer now contains modified data times Average collection period Entry field with incorrect answer now contains modified data days