Cash Flows TOOTSIE ROLL INDUSTRIES, INC

Annual Report 2011 Merrill Corp - Tootsie Roll 10-K Tier 2 ED [AUX] | 105123 | 29-Feb-12 11:39 | 11-31190-1.ba | Sequence: 1 CHKSUM Content: 58733 Layout: 48046 Graphics: 17590 CLEAN

Corporate Profile Tootsie Roll Industries, Inc. has been engaged in the manufacture and sale of confectionery products for 115 years. Our products are primarily sold under the familiar brand names: Tootsie Roll, Tootsie Roll Pops, Caramel Apple Pops, Child’s Play, Charms, Blow Pop, Blue Razz, Cella’s chocolate covered cherries, Tootsie Dots, Tootsie Crows, Junior Mints, Junior Caramels, Charleston Chew, Sugar Daddy, Sugar Babies, Andes, Fluffy Stuff cotton candy, Dubble Bubble, Razzles, Cry Baby, Nik-L-Nip and EI Bubble.

Melvin J. Gordon, Chairman and Chief Executive Officer and Ellen R. Gordon, President and Chief Operating Officer.

Corporate Principles We believe that the differences among companies are attributable to We run a trim operation and continually strive to eliminate waste, the caliber of their people, and therefore we strive to attract and minimize cost and implement performance improvements. retain superior people for each job. We invest in the latest and most productive equipment to deliver the We believe that an open family atmosphere at work combined with best quality product to our customers at the lowest cost. professional management fosters cooperation and enables each individual to maximize his or her contribution to the Company and We seek to outsource functions where appropriate and to vertically realize the corresponding rewards. integrate operations where it is financially advantageous to do so. We view our well known brands as prized assets to be aggressively We do not jeopardize long-term growth for immediate, short-term advertised and promoted to each new generation of consumers. results. We conduct business with the highest ethical standards and integrity We maintain a conservative financial posture in the deployment and which are codified in the Company’s “Code of Business Conduct and management of our assets. Ethics.”

JOB: 11-31190-1 CYCLE#;BL#: 8; 0 TRIM: 11" x 8.5" COMPOSITE COLORS: Black, Cyan, Magenta, Yellow, ~HTML color, ~HTML color 2, ~note-color 2, ~note-color 3 GRAPHICS: Gordon_new_fpo_4c_photo.eps, Tootsie_roll_candy_logo.eps V1.5 Merrill Corp - Tootsie Roll 10-K Tier 2 ED [AUX] | 105123 | 29-Feb-12 11:39 | 11-31190-1.bc | Sequence: 1 CHKSUM Content: 4558 Layout: 51574 Graphics: No Graphics CLEAN

To Our Shareholders

Net product sales in 2011 were a by adjusting prices in response to Highlights in 2011 include: the high percentage of sell-throughs record $528 million, surpassing the rising costs, we are mindful of the and attractive margins of our items previous record of $517 million set competitive value positioning of our • $16 million was invested in are appealing to the trade. This was in 2010. The Company had another products in the market place. We capital expenditures for property, evident once again in 2011. We strong Halloween selling season also remain true to the principles plant and equipment. used carefully targeted promotional and sales gains were achieved enumerated on the facing page, • Cash dividends were paid for the initiatives to help move our across many of our core brands. which have guided the Company for sixty-ninth consecutive year. products into distribution and to Sales benefited from successful many years. subsequently move them off the promotional programs, new • Our forty-seventh consecutive retail shelf. Our diverse portfolio of We focus in particular on the distribution and selected price annual 3% stock dividend was highly recognizable brands remains principles of taking a long-term increases. distributed. popular across all channels of perspective, reinvesting in our trade. Net earnings in 2011 were $44 million operations and our brands and • 708,235 shares of our common compared to $53 million in 2010. maintaining a conservative financial stock were repurchased in the Our broad range of offerings The decline in net earnings is posture. We believe that these open market for an aggregate includes something for virtually primarily due to significantly higher principles have served the price of $18 million. every major consumer raw material and packaging costs Company and its shareholders well demographic, which we continue to in 2011. While we endeavor to over the years and we remain • The above actions were taken refine and evolve to meet changing maintain the Company’s profitability committed to them. entirely with internally generated consumer preferences and the funds, and the Company remains demands of the trade in today’s essentially debt free. fluctuating market place. We remain vigilant in keeping our products Financial Highlights As of December 31, 2011, the contemporary even as they retain Company had $186 million in cash their iconic character. December 31, and investments. These financial 2011 2010 resources enable us to continue Halloween is a major selling season (in thousands except per share data) distributing cash dividends to our in our primary market, the United shareholders, repurchasing our States, for a number of product stock on the open market and categories including candy. It is a Net Product Sales ...... $528,369 $517,149 reinvesting in operating assets and magical time of fun, family Net Earnings ...... 43,938 53,063 in our brands, including new togetherness, gatherings and products. We are also prepared to parties, evoking feelings of Working Capital ...... 153,846 176,662 consider and respond to excitement and nostalgia. Our sales Net Property, Plant and appropriate business acquisition in the third quarter are centered on Equipment ...... 212,162 215,492 opportunities as they may arise. this popular holiday and are nearly double those of any other quarter Shareholders’ Equity ...... 665,935 667,408 Sales and Marketing during the year. Average Shares Outstanding* . . . . . 57,892 58,685 Consumers have many tempting In 2011, we posted strong Per Share Items* choices in the candy aisle and Halloween sales in the grocery, retailers are highly selective as to mass merchandiser, warehouse Net Earnings ...... $0.76 $0.90 the products they stock. We have club, dollar store and drug store Cash Dividends Paid ...... 32 .32 found that consumers respond well classes of trade. Our line of

to the many high quality/high value packaged goods, including straight *Adjusted for stock dividends. brands in our portfolio. Additionally, goods as well as large bags of

Child’s Play and other mixed Raspberry Cremes. These delicious of luscious caramel on a real The Dubble Bubble Nostalgic Big assortments, are offered in a morsels feature a luscious, creamy wooden stick packaged in the Bar was a new addition to the number of merchandising raspberry center encased in a thin familiar yellow and red Sugar Dubble Bubble line in 2011. The presentations and are especially shell of pure dark chocolate. A Daddy wrapper and shape. The wrapper features nostalgic popular during this season. Other perfect snacking indulgence for Giant Sugar Daddy makes a fun gift graphics and is made of foil for traditional merchandising people on the go! or an all-day good treat. lasting freshness. The Big Bar is a presentations such as shippers, foot-long rope of bubble blowing pallet packs and display ready fun. cases contributed to Halloween sales.

Outside of Halloween, we continued Dubble Bubble Big Bar our position of leadership in the theater box category. This category Our popular line of novelty fun is no longer limited to the “big banks grew with the addition of two screen” venue and has developed new items in 2011. The Dubble Giant Sugar Daddy into a major format for everyday Raspberry Cremes Bubble bank was launched in a candy purchases. Two new patriotic red, white and blue motif We also extended our market The Andes line was expanded with offerings in this important category and the Tootsie Roll bank took on a leadership position in the lollipop a delicious new seasonal offering. were added to our line in 2011. nostalgic tone with old-fashioned category with the introduction of Andes Mint Truffles are beautifully graphics at a price point that makes Tear Jerkers Mini Pops. This packaged in a festive Christmas- Blow Pop Minis, bite-sized candy it an old-fashioned value. All of our exciting new addition to our themed red box highlighted with tablets, each with a real Blow Pop banks feature a slotted lid so when bagged line packs a super sour gold ornaments and featuring a bubble gum center, were extended the candy is gone you can begin to punch into each pop! The decorative green foil tree topper. into the theater box format. Popular save for the next one. Fun you can assortment includes six tangy The individually wrapped treats and portable, this “Blow Pop with feature a delicious truffle mint bank on! no stick!” includes four of the most flavors in a laydown bag with eye catching graphics and great center that melts in your mouth. popular Blow Pop flavors in each Perfect for holiday gift giving! box, enveloped in a protective consumer appeal. Pucker up! sealed pouch for added freshness. Blow Pop Minis continue to be a sales growth driver.

Dubble Bubble Patriotic and Tootsie Roll Nostalgic Banks

Tear Jerker Mini Pops Advertising and Public Relations As big as we are in the lollipop Having been described as “elegant Blow Pop Minis’ New Theater Box category, in 2011 we introduced our in its simplicity” for more than biggest entry ever in the category– 40 years the Tootsie Pop “How Another winning addition to our the Giant Sugar Daddy! This Many Licks?” television ad has theater box line was Tootsie Roll novelty item consists of a full pound Andes Mint Truffles presented viewers with both an

JOB: 11-31190-1 CYCLE#;BL#: 8; 0 TRIM: 11" x 8.5" COMPOSITE COLORS: Black, ~note-color 2, ~note-color 3 GRAPHICS: andes_mint_truffles_k_photo.eps, blow_pos_minis_k_photo.eps, db_tr_gum_k_photo.eps, dubble_bubble_k_photo.eps, giant_sugar_daddy_k_photo.eps, raspberry_cremes_k_photo.eps, tear_jerkers_mini_k_photo.eps V1.5 Merrill Corp - Tootsie Roll 10-K Tier 2 ED [AUX] | 105123 | 29-Feb-12 11:39 | 11-31190-1.bc | Sequence: 2 Merrill Corp - Tootsie Roll 10-K Tier 2 ED [AUX] | 105123 | 29-Feb-12 11:39 | 11-31190-1.bc | Sequence: 3 CHKSUM Content: 47174 Layout: 13607 Graphics: 24997 CLEAN CHKSUM Content: 58132 Layout: 29610 Graphics: 6250 CLEAN

Child’s Play and other mixed Raspberry Cremes. These delicious of luscious caramel on a real The Dubble Bubble Nostalgic Big intriguing challenge and a clear moms with kids. Featuring our own upward commodity and packaging Export sales to other countries were assortments, are offered in a morsels feature a luscious, creamy wooden stick packaged in the Bar was a new addition to the concept of the product and its “Mr. Owl” character, banner ads, materials price environment. lower in 2011, though we continue number of merchandising raspberry center encased in a thin familiar yellow and red Sugar Dubble Bubble line in 2011. The value proposition to several online video ads, and search ads to believe that the broad assortment presentations and are especially shell of pure dark chocolate. A Daddy wrapper and shape. The wrapper features nostalgic generations of consumers. In 2011, directed consumers to the brands’ Operations and Supply Chain of well-known brands that we offer popular during this season. Other perfect snacking indulgence for Giant Sugar Daddy makes a fun gift graphics and is made of foil for citedthis by Jeremyad was Siegelshowcased in his popularin an exhibit WeFacebook also undertook pages. a comprehensive There, Information Technology and will,We believeover the that long our run, well appealknown to We continue to invest capital and traditional merchandising people on the go! or an all-day good treat. lasting freshness. The Big Bar is a bookat ‘‘The the ChicagoFuture for Museum Investors’’ of as studyconsumers to examine could our supplysend Halloween chain in consumersproducts, including in a variety the additions of foreign of Internalresources Controls in projects that support presentations such as shippers, foot-long rope of bubble blowing havingBroadcast delivered Communications. the fourth highest 2005.e-cards The focus featuring was onour brands, play marketsDubble Bubble and venues. and other Accordingly, Concord returncited by to Jeremyour shareholders Siegel in hisamong popular all reengineering We also undertook the network a comprehensive and Informationevolving customer/consumer Technology and brands,We believe offers that a ourcompelling well known and pallet packs and display ready fun. customized games and share weproducts, continue including to actively the additions cultivate of survivingbook ‘‘The S Future & P 500 for firms Investors’’ from the as patternsstudy to ofexamine distribution, our supply As a resultchain ofin Internalpreferences Controls and distribution broad assortment of items that can cases contributed to Halloween The iconic ad, featuring the wise photos and stories with their Our principal information technology theseDubble opportunities Bubble and other in over Concord originalhaving deliveredindex first the published fourth highest in 1957, this2005. study, The focuscertain was changes on were patterns, promote growing product be extended to additional foreign sales. old Mr. Owl advising a young boy reengineeringFacebook friends.the network and efforts during 2005 were in support 40brands, foreign offers countries. a compelling and andreturn the to highest our shareholders among food among all implemented in 2005 and other lines, improve quality and maximize markets. that indeed three licks was all it patterns of distribution, As a result of of the Concord integration and the broad assortment of items that can Outside of Halloween, we continued companies.surviving S &We P 500place firms a high from value the recommendationsAdditionally, several that arose of our from products Ourefficiency principal across information our operations. technology It Dubble Bubble Big Bar took before the inevitable crunch! this study, certain changes were supply chain reengineering projects. be extended to additional foreign our position of leadership in the onoriginal ethics, index corporate first published leadership in 1957,and thiswere study featured are expected in special to be interest effortsis our during goal to 2005 be thewere low in costsupport In Appreciation when he bit his way to the middle of implemented in 2005 and other The former involved migrating markets. theater box category. This category Our popular line of novelty fun creatingand the highestshareholder among value food over the implementedprograms earlyon the in History2006. We Channel, ofproducer the Concord in the integration categories and in the which In Appreciation the Tootsie Pop, was culled from recommendations that arose from Concord onto all of our financial and We wish to express our is no longer limited to the “big banks grew with the addition of two long-term,companies. and We are place gratified a high to value anticipatethe Travel cost Channel savings, andlower the Food supplywe compete. chain reengineering As technology projects. over 100,000 spots in the museum’sthis study are expected to be business systems, while the latter appreciation to our many loyal screen” venue and has developed new items in 2011. The Dubble receiveon ethics, distinctions corporate such leadership as these. and inventoriesChannel. and These even programs better customer are quite Theadvances, former involved we are migratingconstantly on the Giant Sugar Daddy archives and was selected as one implemented early in 2006. We required programming modifications employees,WeIn Appreciationwish to thank customers, our loyal suppliers, into a major format for everyday Raspberry Cremes Bubble bank was launched in a creating shareholder value over the fulfillmentpopular as with a result viewing of this audiences project. and Concordlookout ontofor new all of cost our savingfinancial process and of the 100 best commercials over anticipate cost savings, lower to support the business process salesemployees, brokers customers, and distributors suppliers, candy purchases. Two new patriotic red, white and blue motif long-term, and are gratified to are often repeated, generating businessenhancements systems, as while they the become latter We also extended our market The Andes line was expanded with In onethe of last the sixmore decades. unusual stories inventories and even better customer changes that were made. throughoutsales brokers, the foreign world distributorsfor their offerings in this important category and the Tootsie Roll bank took on a receive distinctions such as these. extensive recurring exposure and requiredfeasible programming and financially modifications justified. We wish to thank our loyal leadership position in the lollipop a delicious new seasonal offering. we learned of in 2005, our El Bubble Asfulfillment in all aspects as a result of our of business,this project. we supportand fellow during shareholders the past for year. their We were added to our line in 2011. Andes Mint Truffles are beautifully nostalgic tone with old-fashioned The ad has led to an inestimable interest in the featured brands. to support the business process employees, customers, suppliers, category with the introduction of bubble gum cigars were used by keep a sharp focus on cost WeWe consider have also state made of the a majorart alsomany thank years our of support.fellow shareholders We are also graphics at a price point that makes In onenumber of the ofmore experiments unusual stories and trials, changes that were made. sales brokers, foreign distributors Tear Jerkers Mini Pops. This packaged in a festive Christmas- astronaut Mike Fincke to celebrate containment. Capital projects, informationcommitment technology to information to be a key forgrateful their tosupport the many in today’s consumers who Blow Pop Minis, bite-sized candy it an old-fashioned value. All of our we learnedranging of from in 2005, innovative our El Bubblelicking As Purchasingin all aspects of our business, we and fellow shareholders for their exciting new addition to our themed red box highlighted with the birth of his daughter, Tarali process reengineering and employee strategictechnology, tool to and deliver in 2011 information the final challengingbuy and use businessour products environment. for tablets, each with a real Blow Pop banks feature a slotted lid so when bubblemachines gum cigars built were by physics used by students keep a sharp focus on cost many years of support. We are also bagged line packs a super sour gold ornaments and featuring a Paulina. While El Bubble has long trainingThe marketsand development for the majority are all vitalof the andWephase considersupport of a processstatecomprehensive of therefinements art Wemaking remain them committed a lasting part to the of pursuit bubble gum center, were extended the candy is gone you can begin to astronautthat counted Mike Fincke strokes to celebrate with scientific containment. Capital projects, Americana.grateful to the many consumers who punch into each pop! The decorative green foil tree topper. been a fun and safe way to componentsCompany’s of keythis ingredients,process. thatinformationenterprise enable technologythe resource Company planningto beto remaina key of excellence in every aspect of our into the theater box format. Popular save for the next one. Fun you can the birth of his daughter, Tarali process reengineering and employee buy and use our products for assortment includes six tangy The individually wrapped treats commemorateprecision, suchto informal a special personal including corn syrup, edible oils, competitivestrategicsystem toolwas in to implemented.today’s deliver rapidly information business in order to ensure the and portable, this “Blow Pop with feature a delicious truffle mint bank on! Paulina.licking While trials El Bubblecommunicated has long to us in training and development are all vital and support process refinements making them a lasting part of flavors in a laydown bag with eye occasion, this marked the first time a gum base, cocoa powder and evolvingInvestment business in leading environment. edge It is Company’sAmericana. success both in the no stick!” includes four of the most center that melts in your mouth. beenmany a fun thousandsand safe way of consumerto components of this process. that enable the Company to remain popular Blow Pop flavors in each catching graphics and great baby was born to an astronaut while Purchasingsugar, rose sharply to record or alsoequipment a key component and technology of our internal is one of near term and far into the future. consumer appeal. Pucker up! Perfect for holiday gift giving! incommemorate orbit-andletters. theDespite suchfirst time, athis special massiveto our amount near record levels in 2011. controlcompetitiveour key system, corporate in today’s which principles wasrapidly and we box, enveloped in a protective occasion,of research, this marked the provocative the first time a evolving business environment. It is sealed pouch for added freshness. knowledge, that one of our products Likewise, the cost of many of our successfullybelieve it has tested resulted and audited in the wasbaby questionbrought was born aboard posed to an theastronautby internationalthe announcer: while AlthoughPurchasingprinciple 2005 packaging was another materials, year of duringalsoCompany’s a key2005, component our success second ofand yearour profitability internalof Blow Pop Minis continue to be a in orbit-and“How many the first licks time, does to ourit take to get control system, which was sales growth driver. space station! generallyincluding low corrugated,inflation as measured film and wax complianceover many with years. the requirements of knowledge,to the Tootsie that one Roll of ourcenter products of a by paper,the Consumer increased Price over Index, 2010. we These Sectionsuccessfully 404 oftested the Sarbanes-Oxleyand audited Melvin J. Gordon Although 2005 was another year of was Tootsiebrought Pop?”aboard remains the international unanswered. experiencedinput cost cost increases pressure were in certain well in Act.duringInternational 2005, our second year of MelvinChairman J. Gordonof the Board and spaceSo, station! as the commercial states, “the generally low inflation as measured compliance with the requirements of ChairmanChief Executive of the Officer Board and Manufacturing and Distribution ingredients,excess of packaging, the price increases we world may never know.” transportation,by implementedthe Consumer fuel inPrice and 2011. Index,energy. we We SectionSales in 404 Mexico of the declinedSarbanes-Oxley somewhat ChiefMelvin Executive J. Gordon Officer experienced cost pressure in certain Chairman of the Board and Dubble Bubble Patriotic and Tootsie Roll continue to use hedging programs to Act.and operating income also declined, ingredients, packaging, International Chief Executive Officer Nostalgic Banks ManufacturingThis message and has Distribution been extended moderateCompetitive short-term bidding, commodity selective as price increases taken during the Duringto social2005 we media, continued and inworking 2011 the transportation,hedging and fuel forward and energy. purchasing We as year were not sufficient to recover on key projects that were initiated in price fluctuations and to use Tear Jerker Mini Pops Company continued to bring new continuewell as to leveraging use hedging our programs high volume to cost increases. Our export sales to Advertising and Public Relations prior years, including the competitive bidding, volume OurInternational international sales increased Duringusers 2005 into we the continued Tootsie workingRoll and purchasingmoderateof purchases short-term and other are commodity somemeans of to the the Canadian market decreased Ellen R. Gordon As big as we are in the lollipop Having been described as “elegant reengineering and start up of a during 2005 as a result of a full year on keyTootsie projects Pops that franchises were initiated with in a mitigatepricemeans fluctuations costs we useto theand to fullest manageto use extent costs to due to inventory reductions by a President and category, in 2011 we introduced our in its simplicity” for more than major production line. We also of Concord foreign sales in addition Ellen R. Gordon Blow Pop Minis’ New Theater Box priordigital years, mediaincluding campaign the targeting possible.competitivethe greatest bidding, extent volume possible in an Ourdistributor. international sales increased Chief Operating Officer biggest entry ever in the category– 40 years the Tootsie Pop “How approved several new projects to to a strong year in Mexico. We President and reengineering and start up of a purchasing and other means to during 2005 as a result of a full year Another winning addition to our the Giant Sugar Daddy! This Many Licks?” television ad has expand capacity in support of manufacture and sell products in Chief Operating Officer major production line. We also mitigate costs to the fullest extent of Concord foreign sales in addition Ellen R. Gordon theater box line was Tootsie Roll novelty item consists of a full pound Andes Mint Truffles presented viewers with both an growing product categories in Wepossible. also completed the integration of Mexico under the Tutsi trademark. additionapproved to several ongoing new efforts projects to to procurement activities related to Weto a also strong sell year Tootsie, in Mexico. Charms We and President and Chief Operating Officer streamlineexpand capacity and automate in support existing of Concord into our bidding processes Concordmanufacture products and sell to Canadaproducts and in 3 processesgrowing product at all ofcategories our plants, in in andWe alsopurchasing completed and the MRP integration systems of overMexico 75 underother countriesthe Tutsi trademark.in Europe, 4 orderaddition to realizeto ongoing cost effortssavings. to duringprocurement 2005. activities related to AsiaWe also and sellSouth Tootsie, and CentralCharms America. and streamline and automate existing Concord into our bidding processes Concord products to Canada and processes at all of our plants, in and purchasing and MRP systems over 75 other countries in Europe, JOB: 11-31190-1 CYCLE#;BL#: 8; 0 TRIM: 11" x 8.5" COMPOSITE JOB: 11-31190-1 CYCLE#;BL#: 8; 0 TRIM: 11" x 8.5" COMPOSITE COLORS: Black, ~note-color 2, ~note-color 3 GRAPHICS: andes_mint_truffles_k_photo.eps, blow_pos_minis_k_photo.eps, db_tr_gum_k_photo.eps, dubble_bubble_k_photo.eps, giant_sugar_daddy_k_photo.eps, COLORS:order to Black, realize ~note-color cost savings. 2, ~note-color 3 GRAPHICS:during ellen_r_gordon_sig.eps, 2005. melvin_j_gordon_sig.eps AsiaV1.5 and South and Central America. raspberry_cremes_k_photo.eps, tear_jerkers_mini_k_photo.eps V1.5 4

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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)

FINANCIAL REVIEW 2011, the Company’s aggregate short-term investments are compensation expenses principally cash, cash equivalents and expected to be adequate to meet result from changes in the market This financial review discusses the investments, including all long-term the Company’s overall financing value of investments and investment Company’s financial condition, investments in marketable needs, including capital income from trading securities results of operations, liquidity and securities, was $185,668 compared expenditures, in 2012. Periodically, relating to compensation deferred capital resources, significant to $188,433 at December 31, 2010, the Company considers possible in previous years and are not accounting policies and estimates, a decrease of $2,765. The acquisitions, and if the Company reflective of current operating new accounting pronouncements, aforementioned includes $41,768 were to pursue and complete such results. Adjusting for the market risks and other matters. It and $38,504 in trading securities as an acquisition, that could result in aforementioned, product cost of should be read in conjunction with of December 31, 2011 and 2010, bank borrowings or other financing. goods sold increased from $348,564 the Consolidated Financial respectively. The Company invests in 2010 to $365,181 in 2011, an Statements and related footnotes in trading securities to provide an Results of Operations increase of $16,617 or 4.8%. As a that follow this discussion. economic hedge for its deferred percent of net product sales, these compensation liabilities, as further 2011 vs. 2010 adjusted costs increased from FINANCIAL CONDITION discussed herein and in Note 7 to 67.4% in 2010 to 69.1% in 2011, an Net product sales were $528,369 in The Company’s overall financial the Consolidated Financial increase of 1.7% as a percent of 2011 compared to $517,149 in position remains very strong as a Statements. net product sales. The Company 2010, an increase of $11,220 or result of its 2011 net product sales, was adversely affected by Shareholders’ equity decreased 2.2%. This increase principally net earnings and related cash flows significantly higher input costs, from $667,408 at December 31, reflects sales price increases provided by operating activities. including approximately $17,300 2010 to $665,935 as of during 2011 which were required to and $2,800 of unit cost increases in During 2011, the Company’s net December 31, 2011, principally recover some of our rising input ingredients and packaging product sales increased from reflecting 2011 net earnings of costs as discussed below. Although materials, respectively, in 2011 $517,149 in 2010 to $528,369 in $43,938, less cash dividends and price increases were made compared to 2010. The Company 2011, an increase of $11,220 or share repurchases of $18,407 and throughout 2011, most became generally experienced significant 2.2%. Cash flows from operating $18,190, respectively, and $8,740 effective during mid-fourth quarter cost increases in sugar, corn syrup, activities totaled $50,390 in 2011 of other comprehensive loss which 2011 after the Company’s large pre- cocoa, edible oils, dairy and gum compared to $82,805 in 2010. The is summarized in Note 12 to the Halloween selling season, and base inputs resulting in higher cost Company used its 2011 cash flows Consolidated Financial Statements. therefore, a substantial portion of of goods sold as a percentage of to pay cash dividends of $18,407, the benefits of such price increases sales. purchase and retire $18,190 of its The Company has a relatively will be realized in 2012. outstanding shares, and make straight-forward financial structure Selling, marketing and capital expenditures of $16,351. and has historically maintained a Product cost of goods sold were administrative expenses were conservative financial position. $365,225 in 2011 compared to $108,276 in 2011 compared to The Company’s net working capital Except for an immaterial amount of $349,334 in 2010, an increase of $106,316 in 2010, an increase of was $153,846 at December 31, operating leases, the Company has $15,891 or 4.5%. Product cost of $1,960 or 1.8%. Selling, marketing 2011 compared to $176,662 at no special financing arrangements goods sold includes $44 and $770 and administrative expenses reflect December 31, 2010 reflecting a or “off-balance sheet” special in certain deferred compensation a $15 decrease and $2,594 increase $37,364 decrease in cash and cash purpose entities. Cash flows from expenses in 2011 and 2010, in certain deferred compensation equivalents. As of December 31, operations plus maturities of respectively. These deferred expenses in 2011 and 2010,

JOB: 11-31190-1 CYCLE#;BL#: 8; 0 TRIM: 11" x 8.5" COMPOSITE COLORS: Black, ~note-color 2, ~note-color 3 GRAPHICS: none V1.5 Merrill Corp - Tootsie Roll 10-K Tier 2 ED [AUX] | 105123 | 29-Feb-12 11:39 | 11-31190-1.ca | Sequence: 1 Merrill Corp - Tootsie Roll 10-K Tier 2 ED [AUX] | 105123 | 29-Feb-12 11:39 | 11-31190-1.ca | Sequence: 2 CHKSUM Content: 27753 Layout: 56164 Graphics: No Graphics CLEAN CHKSUM Content: 31797 Layout: 34706 Graphics: No Graphics CLEAN

Management’s Discussion and Analysis of Financial

Condition and Results of Operations respectively. These deferred recoverable from future cash flows. in 2011 and 2010, respectively. As respective years as discussed (in thousands except per share, percentage and ratio figures) compensation expenses principally No impairments were recorded in discussed above, these deferred above. Foreign exchange gains in result from changes in the market 2011 or 2010. compensation expenses relate to 2011 decreased $1,992 which FINANCIAL REVIEW 2011, the Company’s aggregate short-term investments are compensation expenses principally value of investments and investment changes in deferred compensation includes a decrease in net realized income from trading securities The fair values of indefinite lived liabilities resulting from gains on foreign currency hedging. cash, cash equivalents and expected to be adequate to meet result from changes in the market intangible assets are primarily This financial review discusses the investments, including all long-term the Company’s overall financing value of investments and investment relating to compensation deferred corresponding changes in the Other income (expense), net also Company’s financial condition, in previous years and are not assessed using the present value of market value of trading securities includes the operating losses of investments in marketable needs, including capital income from trading securities estimated future cash flows. results of operations, liquidity and securities, was $185,668 compared expenditures, in 2012. Periodically, relating to compensation deferred reflective of current operating results. and related investment income that $194 and $342 for 2011 and 2010, capital resources, significant Adjusting for the aforementioned, Management believes that all hedge these liabilities. Adjusting respectively, relating to the to $188,433 at December 31, 2010, the Company considers possible in previous years and are not assumptions used for the accounting policies and estimates, a decrease of $2,765. The acquisitions, and if the Company reflective of current operating selling, marketing and administrative for these deferred compensation Company’s equity method new accounting pronouncements, expenses increased from $103,722 impairment tests are consistent with expenses, operating earnings were investment in two 50% owned aforementioned includes $41,768 were to pursue and complete such results. Adjusting for the those utilized by market market risks and other matters. It and $38,504 in trading securities as an acquisition, that could result in aforementioned, product cost of in 2010 to $108,291 in 2011, an $57,995 and $68,074 in 2011 and foreign companies. should be read in conjunction with increase of $4,569 or 4.4%. As a participants performing similar 2010, respectively, a decrease of of December 31, 2011 and 2010, bank borrowings or other financing. goods sold increased from $348,564 valuations. The Company’s fair the Consolidated Financial respectively. The Company invests in 2010 to $365,181 in 2011, an percent of net product sales, these $10,079 or 14.8%. This decrease As of December 31, 2011 and Statements and related footnotes adjusted expenses increased value estimates based on these in earnings from operations in trading securities to provide an Results of Operations increase of $16,617 or 4.8%. As a assumptions were used to prepare 2010, the Company’s long-term that follow this discussion. economic hedge for its deferred percent of net product sales, these slightly from 20.1% of net product principally reflects significantly investments include $7,453 and sales in 2010 to 20.5% of net projected financial information higher ingredient costs and compensation liabilities, as further 2011 vs. 2010 adjusted costs increased from $6,775 ($13,550 original cost), FINANCIAL CONDITION product sales in 2011. which it believes to be reasonable. resulting lower gross profit discussed herein and in Note 7 to 67.4% in 2010 to 69.1% in 2011, an Actual future results may differ from respectively, of Jefferson County Net product sales were $528,369 in margins, as well as higher freight Alabama Sewer Revenue The Company’s overall financial the Consolidated Financial increase of 1.7% as a percent of Selling, marketing and administrative those projections and the 2011 compared to $517,149 in and delivery expenses as Refunding Warrants, originally position remains very strong as a Statements. net product sales. The Company expenses include $45,849 and differences could be material. 2010, an increase of $11,220 or discussed above. purchased with an insurance- result of its 2011 net product sales, was adversely affected by $43,034 of freight, delivery and Holding all other assumptions Shareholders’ equity decreased 2.2%. This increase principally backed AAA rating. This is an net earnings and related cash flows significantly higher input costs, warehousing expenses in 2011 and constant at the test date, a 100 Management believes the from $667,408 at December 31, reflects sales price increases including approximately $17,300 auction rate security (ARS) that is provided by operating activities. 2010 to $665,935 as of 2010, respectively. These expenses basis point increase in the discount comparisons presented in the during 2011 which were required to and $2,800 of unit cost increases in increased from 8.3% of net product rate or a 100 basis point decrease preceding paragraphs after classified as an available for sale During 2011, the Company’s net December 31, 2011, principally recover some of our rising input ingredients and packaging security. Representatives of reflecting 2011 net earnings of sales in 2010 to 8.7% of net product in the royalty rate would reduce the adjusting for changes in deferred product sales increased from costs as discussed below. Although materials, respectively, in 2011 sales in 2011, principally reflecting fair value of certain trademarks by compensation are more reflective of Jefferson County and the bond $517,149 in 2010 to $528,369 in $43,938, less cash dividends and price increases were made compared to 2010. The Company holders were unable to reach a share repurchases of $18,407 and an 8.7% increase in freight and approximately 16% and 11%, the underlying operations of the 2011, an increase of $11,220 or throughout 2011, most became generally experienced significant delivery costs for trucking carriers respectively. Individually, a 100 Company. settlement agreement, and 2.2%. Cash flows from operating $18,190, respectively, and $8,740 effective during mid-fourth quarter cost increases in sugar, corn syrup, therefore the County filed for of other comprehensive loss which including higher fuel surcharges for basis point increase in the discount activities totaled $50,390 in 2011 2011 after the Company’s large pre- cocoa, edible oils, dairy and gum diesel fuel. rate would indicate a potential Other income (expense), net was bankruptcy in 2011. Due to adverse compared to $82,805 in 2010. The is summarized in Note 12 to the Halloween selling season, and base inputs resulting in higher cost $2,946 in 2011 compared to $8,358 events related to Jefferson County Consolidated Financial Statements. impairment of approximately $2,000 Company used its 2011 cash flows therefore, a substantial portion of of goods sold as a percentage of The Company believes that the as of December 31, 2011; however, in 2010, a decrease of $5,412. This and its bond insurance carrier, to pay cash dividends of $18,407, the benefits of such price increases sales. carrying values of its trademarks decrease principally reflects a Financial Guaranty Insurance The Company has a relatively if the royalty rate were decreased purchase and retire $18,190 of its will be realized in 2012. and goodwill have indefinite lives as by 100 basis points no potential $3,335 decrease in net gains and Company (FGIC), as well as events outstanding shares, and make straight-forward financial structure Selling, marketing and they are expected to generate cash related investment income on in the credit markets, the auctions and has historically maintained a Product cost of goods sold were administrative expenses were impairment would be indicated as capital expenditures of $16,351. flows indefinitely. In accordance of December 31, 2011. trading securities of $29 and $3,364 for this ARS failed in 2008 through conservative financial position. $365,225 in 2011 compared to $108,276 in 2011 compared to with current accounting guidance, in 2011 and 2010 which is 2011 (and subsequent to The Company’s net working capital Except for an immaterial amount of $349,334 in 2010, an increase of $106,316 in 2010, an increase of goodwill and indefinite-lived Earnings from operations were discussed above. These trading December 31, 2011). As such, the was $153,846 at December 31, operating leases, the Company has $15,891 or 4.5%. Product cost of $1,960 or 1.8%. Selling, marketing intangible assets are assessed at $57,966 in 2011 compared to securities were substantially offset Company estimated the fair value of 2011 compared to $176,662 at no special financing arrangements goods sold includes $44 and $770 and administrative expenses reflect least annually for impairment as of $64,710 in 2010, a decrease of by a like amount of expense in this ARS as of December 31, 2011 December 31, 2010 reflecting a or “off-balance sheet” special in certain deferred compensation a $15 decrease and $2,594 increase December 31 or whenever events $6,744. Earnings from operations aggregate product cost of goods and 2010 utilizing a valuation model $37,364 decrease in cash and cash purpose entities. Cash flows from expenses in 2011 and 2010, in certain deferred compensation or circumstances indicate that the includes $29 and $3,364 in certain sold and selling, marketing, and with Level 3 inputs, as defined by equivalents. As of December 31, operations plus maturities of respectively. These deferred expenses in 2011 and 2010, carrying values may not be deferred compensation expenses administrative expenses in the guidance and discussed in Note 10

5 6

JOB: 11-31190-1 CYCLE#;BL#: 8; 0 TRIM: 11" x 8.5" COMPOSITE JOB: 11-31190-1 CYCLE#;BL#: 8; 0 TRIM: 11" x 8.5" COMPOSITE COLORS: Black, ~note-color 2, ~note-color 3 GRAPHICS: none V1.5 COLORS: Black, ~note-color 2, ~note-color 3 GRAPHICS: none V1.5 Merrill Corp - Tootsie Roll 10-K Tier 2 ED [AUX] | 105123 | 29-Feb-12 11:39 | 11-31190-1.ca | Sequence: 3 CHKSUM Content: 19979 Layout: 5344 Graphics: No Graphics CLEAN

to the Consolidated Financial financial condition of FGIC, as well a decrease of $.14 or 15.6%. unit cost increases in 2010 Statements. This valuation model as the conditions in the auction rate Earnings per share benefited from compared to 2009. However, considered, among others items, securities market, may take more the reduction in average shares packaging material unit costs recent third-party trading and sales than twelve months to resolve. outstanding resulting from favorably decreased by prices, the credit risk of the Future evaluations of the fair value purchases of the Company’s approximately $800 in 2010. The municipality and collateral of this ARS could also result in common stock (the “Common Company generally experienced underlying the ARS, the credit risk additional other-than-temporary Stock”) in the open market by the significant cost increases in sugar, of the bond insurer, interest rates, classification of declines in market Company. Average shares cocoa, edible oils and dairy inputs, and the amount and timing of value, and therefore result in outstanding decreased from 58,685 however, the Company experienced expected future cash flows additional charges to earnings. The in 2010 to 57,892 in 2011. favorable declines in corn syrup. including assumptions about the Company continues to receive all market expectation of the next contractual interest payments on 2010 vs. 2009 Selling, marketing and successful auction or a restructured this ARS on a timely basis, it is administrative expenses were security that is likely to be issued as insured by FGIC and the Company Net product sales were $517,149 in $106,316 in 2010 compared to a result of the municipality’s has the intent and ability to hold this 2010 compared to $495,592 in $103,755 in 2009, an increase of bankruptcy. ARS until recovery of its amortized 2009, an increase of $21,557 or $2,561 or 2.5%. Selling, marketing cost basis. The Company is not 4.3%. This increase principally and administrative expenses reflect During the fourth quarter of 2008, currently able to predict the reflects organic growth in volume, a $932 decrease in certain deferred the Company determined that the outcome of this bankruptcy, or the including product line extensions. compensation expense in 2010 market decline in fair value of its amount and timing of net proceeds compared to 2009. This decrease Jefferson County ARS became it may ultimately recover. Product cost of goods sold were reflects changes in the market other-than-temporarily impaired, as $349,334 in 2010 compared to value of investments in trading defined, and recorded a pre-tax The consolidated effective tax rate $319,775 in 2009, an increase of securities and related investment impairment of $5,140. During 2011 was 27.9% and 27.4% in 2011 and $29,559 or 9.2%. Product cost of income relating to compensation and 2010, the Company further 2010, respectively. At December 31, goods sold reflects a $228 deferred in previous years and is evaluated this investment and 2011, the Company has decrease in certain deferred not reflective of current operating concluded that additional increases approximately $66,740 of foreign compensation expenses in 2010 results. Adjusting for the and (declines) in the market value subsidiary tax loss carry-forwards compared to 2009. This decrease aforementioned, selling, marketing were temporary because it was not expiring in future years 2014 through principally results from changes in and administrative expenses related to further credit impairment 2031. The Company has concluded the market value of investments in increased from $100,230 in 2009 to and recorded $678 and $(935), that it is more-likely-than-not that it trading securities relating to $103,722 in 2010, an increase of respectively, as adjustments to would realize the deferred tax compensation deferred in previous $3,492 or 3.5%. As a percent of net accumulated other comprehensive assets relating to such tax years and is not reflective of current product sales, these expenses gain (loss). The Company has operating loss carry-forwards operating results. Adjusting for the decreased slightly from 20.2% of classified this ARS as non-current because it is expected that aforementioned, product cost of net product sales in 2009 to 20.1% and has included it in long-term sufficient levels of taxable income goods sold as a percentage of net of net product sales in 2010. investments on the Consolidated will be generated during the product sales increased from Statements of Financial Position at carry-forward periods. 64.3% in 2009 to 67.4% in 2010, an Selling, marketing and December 31, 2011 and 2010 increase of 3.1% as a percent of net administrative expenses include because the Company believes that Net earnings were $43,938 in 2011 product sales. The Company was $43,034 and $38,628 of freight, the current financial conditions, compared to $53,063 in 2010, and adversely affected by significantly delivery and warehousing expenses including bankruptcy filing, of earnings per share were $.76 and higher input costs, including in 2010 and 2009, respectively. Jefferson County and the stressed $.90 in 2011 and 2010, respectively, approximately $16,600 of ingredient These expenses increased from

JOB: 11-31190-1 CYCLE#;BL#: 8; 0 TRIM: 11" x 8.5" COMPOSITE COLORS: Black, ~note-color 2, ~note-color 3 GRAPHICS: none V1.5 Merrill Corp - Tootsie Roll 10-K Tier 2 ED [AUX] | 105123 | 29-Feb-12 11:39 | 11-31190-1.ca | Sequence: 3 Merrill Corp - Tootsie Roll 10-K Tier 2 ED [AUX] | 105123 | 29-Feb-12 11:39 | 11-31190-1.ca | Sequence: 4 CHKSUM Content: 19979 Layout: 5344 Graphics: No Graphics CLEAN CHKSUM Content: 12793 Layout: 7518 Graphics: No Graphics CLEAN

to the Consolidated Financial financial condition of FGIC, as well a decrease of $.14 or 15.6%. unit cost increases in 2010 7.8% of net product sales in 2009 to adjusting for changes in deferred $7,710 ($13,550 original cost), outstanding resulting from Common Statements. This valuation model as the conditions in the auction rate Earnings per share benefited from compared to 2009. However, 8.3% of net product sales in 2010, compensation are more reflective of respectively, of Jefferson County Stock purchases in the open market considered, among others items, securities market, may take more the reduction in average shares packaging material unit costs primarily due to increases in the underlying operations of the Alabama Sewer Revenue by the Company. Average shares recent third-party trading and sales than twelve months to resolve. outstanding resulting from favorably decreased by warehousing expenses and an Company. Refunding Warrants. The Company outstanding decreased from 59,425 prices, the credit risk of the Future evaluations of the fair value purchases of the Company’s approximately $800 in 2010. The 11.3% increase in freight and estimated the fair value of this ARS in 2009 to 58,685 in 2010. municipality and collateral of this ARS could also result in common stock (the “Common Company generally experienced delivery costs for trucking carriers Other income (expense), net was as of December 31, 2010 and 2009 underlying the ARS, the credit risk additional other-than-temporary Stock”) in the open market by the significant cost increases in sugar, including higher surcharges for $8,358 in 2010 compared to $2,100 utilizing a valuation model with in 2009, an increase of $6,258. This LIQUIDITY AND CAPITAL of the bond insurer, interest rates, classification of declines in market Company. Average shares cocoa, edible oils and dairy inputs, diesel fuel. Level 3 inputs, as defined by RESOURCES and the amount and timing of value, and therefore result in outstanding decreased from 58,685 however, the Company experienced increase principally reflects a pre- guidance. During 2010 and 2009, expected future cash flows additional charges to earnings. The in 2010 to 57,892 in 2011. favorable declines in corn syrup. Earnings from operations were tax impairment charge of $4,400 in the Company recorded $935 and Cash flows from operating activities including assumptions about the Company continues to receive all $64,710 in 2010 compared to 2009 to write down to market value $700, respectively, as a charge to were $50,390, $82,805 and $76,994 $60,949 in 2009, a decrease of the Company’s equity method market expectation of the next contractual interest payments on 2010 vs. 2009 Selling, marketing and accumulated other comprehensive in 2011, 2010 and 2009, successful auction or a restructured this ARS on a timely basis, it is administrative expenses were $3,761. Earnings from operations investment combined with a $3,139 loss. respectively. The $32,415 decrease reflect a $3,364 increase in certain increase in foreign exchange gains security that is likely to be issued as insured by FGIC and the Company Net product sales were $517,149 in $106,316 in 2010 compared to in cash flows from operating deferred compensation expenses in in 2010. The increase in foreign The consolidated effective tax rate a result of the municipality’s has the intent and ability to hold this 2010 compared to $495,592 in $103,755 in 2009, an increase of activities from 2010 to 2011 2010 compared to a $4,524 exchange gains consists primarily was 27.4% and 15.7% in 2010 and bankruptcy. ARS until recovery of its amortized 2009, an increase of $21,557 or $2,561 or 2.5%. Selling, marketing primarily reflects the 2011 decrease increase in 2009. As discussed of net realized gains on foreign 2009, respectively. The increase in cost basis. The Company is not 4.3%. This increase principally and administrative expenses reflect in net earnings, increased accounts above, these deferred currency hedging. Other income the effective income tax rate from During the fourth quarter of 2008, currently able to predict the reflects organic growth in volume, a $932 decrease in certain deferred receivables and inventories, and by compensation expenses relate to (expense), net also includes gains the prior year reflects the release of the Company determined that the outcome of this bankruptcy, or the including product line extensions. compensation expense in 2010 decreases in income taxes payable market decline in fair value of its amount and timing of net proceeds compared to 2009. This decrease changes in deferred compensation on trading securities and related Canadian income tax valuation and deferred. Jefferson County ARS became it may ultimately recover. Product cost of goods sold were reflects changes in the market liabilities resulting from investment income of $3,364 and allowances during 2009. Prior to other-than-temporarily impaired, as $349,334 in 2010 compared to value of investments in trading corresponding changes in the $4,524 in 2010 and 2009, fourth quarter 2009, Canadian During 2008 the Company defined, and recorded a pre-tax The consolidated effective tax rate $319,775 in 2009, an increase of securities and related investment market value of trading securities respectively. These trading income tax valuation allowances contributed $16,050 to a VEBA trust impairment of $5,140. During 2011 was 27.9% and 27.4% in 2011 and $29,559 or 9.2%. Product cost of income relating to compensation and related investment income that securities gains principally reflect were recorded against Canadian to fund the estimated future costs of and 2010, the Company further 2010, respectively. At December 31, goods sold reflects a $228 deferred in previous years and is hedge these liabilities. Adjusting for market appreciation in the equity deferred tax assets as a result of certain employee health, welfare evaluated this investment and 2011, the Company has decrease in certain deferred not reflective of current operating these changes in deferred markets and related investment losses generated in 2009 and prior and other benefits. The Company concluded that additional increases approximately $66,740 of foreign compensation expenses in 2010 results. Adjusting for the compensation, and excluding the income in the respective years and years. Because management used the funds, as well as and (declines) in the market value subsidiary tax loss carry-forwards compared to 2009. This decrease aforementioned, selling, marketing non-recurring $14,000 non-cash were substantially offset by a like determined that the Canadian net investment income in this VEBA were temporary because it was not expiring in future years 2014 through principally results from changes in and administrative expenses impairment charge in 2009 relating amount of expense in aggregate operating loss (NOL) carry-forward trust, to pay the actual cost of such related to further credit impairment 2031. The Company has concluded the market value of investments in increased from $100,230 in 2009 to to trademarks, operating earnings product cost of goods sold and benefits were more-likely-than-not benefits during 2010, 2011 and will and recorded $678 and $(935), that it is more-likely-than-not that it trading securities relating to $103,722 in 2010, an increase of were $68,074 and $79,473 in 2010 selling, marketing, and realizable as of December 31, continue to do so through 2012. At respectively, as adjustments to would realize the deferred tax compensation deferred in previous $3,492 or 3.5%. As a percent of net and 2009, respectively, a decrease administrative expenses in the 2009, the Company reversed December 31, 2011, the VEBA trust accumulated other comprehensive assets relating to such tax years and is not reflective of current product sales, these expenses of $11,399 or 14.3%. This decrease respective years as discussed approximately $10,700 of valuation held $6,424 of aggregate cash, gain (loss). The Company has operating loss carry-forwards operating results. Adjusting for the decreased slightly from 20.2% of in earnings from operations above. Other income (expense), net allowances as a credit to income cash equivalents and investments; classified this ARS as non-current because it is expected that aforementioned, product cost of net product sales in 2009 to 20.1% principally reflects significantly also includes the operating losses tax expense as of December 31, this asset value is included in and has included it in long-term sufficient levels of taxable income goods sold as a percentage of net of net product sales in 2010. higher ingredient costs and of $342 and $233 for 2010 and 2009. prepaid expenses in the Company’s investments on the Consolidated will be generated during the product sales increased from resulting lower gross profit margins, 2009, respectively, relating to the current and other long-term assets. as well as higher freight and Company’s equity method Net earnings were $53,063 in 2010 Statements of Financial Position at carry-forward periods. 64.3% in 2009 to 67.4% in 2010, an Selling, marketing and compared to $53,157 in 2009, and Cash flows from investing activities December 31, 2011 and 2010 increase of 3.1% as a percent of net administrative expenses include delivery expenses as discussed investment in two 50% owned above. foreign companies. earnings per share were $.90 and reflect capital expenditures of because the Company believes that Net earnings were $43,938 in 2011 product sales. The Company was $43,034 and $38,628 of freight, $.89 in 2010 and 2009, respectively, $16,351, $12,813, and $20,831 in the current financial conditions, compared to $53,063 in 2010, and adversely affected by significantly delivery and warehousing expenses Management believes the As of December 31, 2010 and an increase of $.01 or 1%. Earnings 2011, 2010 and 2009, respectively, including bankruptcy filing, of earnings per share were $.76 and higher input costs, including in 2010 and 2009, respectively. comparisons presented in the 2009, the Company’s long-term per share benefited from the including $3,025 related to the 2011 Jefferson County and the stressed $.90 in 2011 and 2010, respectively, approximately $16,600 of ingredient These expenses increased from preceding paragraphs after investments include $6,775 and reduction in average shares purchase of warehouse space and

7 8

JOB: 11-31190-1 CYCLE#;BL#: 8; 0 TRIM: 11" x 8.5" COMPOSITE JOB: 11-31190-1 CYCLE#;BL#: 8; 0 TRIM: 11" x 8.5" COMPOSITE COLORS: Black, ~note-color 2, ~note-color 3 GRAPHICS: none V1.5 COLORS: Black, ~note-color 2, ~note-color 3 GRAPHICS: none V1.5 Merrill Corp - Tootsie Roll 10-K Tier 2 ED [AUX] | 105123 | 29-Feb-12 11:39 | 11-31190-1.ca | Sequence: 5 CHKSUM Content: 22276 Layout: 61148 Graphics: No Graphics CLEAN

land planned for future use. The different from previous estimates, Intangible assets manufactured or sold in foreign 2011, 2010 and 2009 capital the revisions are included in the countries, operational efficiencies, additions include $727, $1,682 and Company’s results of operations for The Company’s intangible assets cost savings initiatives, and $2,326, respectively, relating to the period in which the actual consist primarily of acquired competitive factors. Although the computer systems and related amounts become known. The trademarks and goodwill. In majority of the Company’s implementation. Company’s significant accounting accordance with accounting trademarks relate to well policies are discussed in Note 1 to guidance, goodwill and other established brands with a long The Company had no bank the Consolidated Financial indefinite-lived assets are not history of consumer acceptance, borrowing or repayments in 2009, Statements. amortized, but are instead projected cash flows are inherently 2010, or 2011, and had no subjected to annual testing for uncertain. A change in the outstanding bank borrowings as of Following is a summary and impairment unless certain triggering assumptions underlying the December 31, 2010 or 2011. discussion of the more significant events or circumstances are noted. impairment analysis, including but accounting policies which The Company performs its annual Financing activities include not limited to a reduction in management believes to have a impairment testing as of projected cash flows, the use of a Common Stock purchases and significant impact on the December 31. The Company may retirements of $18,190, $22,881, different discount rate to discount Company’s operating results, utilize third-party professional future cash flows or a different and $20,723 in 2011, 2010 and financial position, cash flows and valuation firms to assist in the 2009, respectively. Cash dividends royalty rate applied to the footnote disclosure. determination of valuation of certain Company’s trademarks, could of $18,407, $18,130, and $17,825 intangibles. were paid in 2011, 2010 and 2009, cause impairment in the future. Revenue recognition respectively. The increase in cash The impairment test is performed Customer incentive programs, dividends each year reflects the Revenue, net of applicable by comparing the carrying value of advertising and marketing annual 3% stock dividend issued in provisions for discounts, returns, the asset with its estimated fair each of these years less the effects allowances and certain advertising value, which is calculated using Advertising and marketing costs of Common Stock purchases and and promotional costs, is estimates, including discounted are recorded in the period to which retirements. recognized when products are projected future cash flows. If the such costs relate. The Company delivered to customers based on a carrying value exceeds the fair does not defer the recognition of SIGNIFICANT ACCOUNTING customer purchase order, and value, the second step of the any amounts on its consolidated POLICIES AND ESTIMATES collectability is reasonably assured. process is necessary. The second balance sheet with respect to such The accounting for promotional step measures the difference costs. Customer incentives and Preparation of the Company’s costs is discussed under between the carrying value and other promotional costs are financial statements involves “Customer incentive programs, implied fair value of goodwill. These recorded at the time of sale based judgments and estimates due to advertising and marketing” below. projected future cash flows are upon incentive program terms and uncertainties affecting the dependent on a number of factors historical utilization statistics, which application of accounting policies, Provisions for bad debts are including the execution of business are generally consistent from year and the likelihood that different recorded as selling, marketing and plans, achievement of projected to year. amounts would be reported under administrative expenses. Write-offs sales, including but not limited to different conditions or using of bad debts did not exceed 0.1% future price increases, projected The liabilities associated with these different assumptions. The of net product sales in each of operating margins, and projected programs are reviewed quarterly Company bases its estimates on 2011, 2010 and 2009, and capital expenditures. Such and adjusted if utilization rates historical experience and other accordingly, have not been operating results are also differ from management’s original assumptions, as discussed herein, significant to the Company’s dependent upon future ingredient estimates. Such adjustments have that it believes are reasonable. If financial position or results of and packaging material costs, not historically been material to the actual amounts are ultimately operations. exchange rates for products Company’s operating results.

JOB: 11-31190-1 CYCLE#;BL#: 8; 0 TRIM: 11" x 8.5" COMPOSITE COLORS: Black, ~note-color 2, ~note-color 3 GRAPHICS: none V1.5 Merrill Corp - Tootsie Roll 10-K Tier 2 ED [AUX] | 105123 | 29-Feb-12 11:39 | 11-31190-1.ca | Sequence: 5 Merrill Corp - Tootsie Roll 10-K Tier 2 ED [AUX] | 105123 | 29-Feb-12 11:39 | 11-31190-1.ca | Sequence: 6 CHKSUM Content: 22276 Layout: 61148 Graphics: No Graphics CLEAN CHKSUM Content: 42874 Layout: 58084 Graphics: No Graphics CLEAN

land planned for future use. The different from previous estimates, Intangible assets manufactured or sold in foreign Split dollar officer life insurance temporary differences between a temporary impairment based on for fiscal years beginning after 2011, 2010 and 2009 capital the revisions are included in the countries, operational efficiencies, financial and income tax reporting accounting guidance. December 15, 2011 and additions include $727, $1,682 and Company’s results of operations for The Company’s intangible assets cost savings initiatives, and The Company provides split dollar using tax rates in effect for the subsequent interim periods. The consist primarily of acquired $2,326, respectively, relating to the period in which the actual competitive factors. Although the life insurance benefits to certain years in which the differences are Other matters Company is currently assessing the computer systems and related amounts become known. The trademarks and goodwill. In majority of the Company’s executive officers and records an expected to reverse. The Company impact, if any, on the consolidated implementation. Company’s significant accounting accordance with accounting trademarks relate to well asset principally equal to the records valuation allowances in In the opinion of management, financial statements. policies are discussed in Note 1 to guidance, goodwill and other established brands with a long cumulative premiums paid. The situations where the realization of other than contracts for foreign The Company had no bank the Consolidated Financial indefinite-lived assets are not history of consumer acceptance, Company will fully recover these deferred tax assets, including those currency forwards and raw In June 2011, the FASB issued ASU borrowing or repayments in 2009, Statements. amortized, but are instead projected cash flows are inherently premiums in future years under the relating to net operating tax losses, materials, including currency and 2011-05, “Presentation of 2010, or 2011, and had no subjected to annual testing for uncertain. A change in the terms of the plan. The Company is not more-likely-than-not; and the commodity hedges and Comprehensive Income.” ASU outstanding bank borrowings as of Following is a summary and impairment unless certain triggering assumptions underlying the retains a collateral assignment of Company adjusts and releases such outstanding purchase orders for 2011-05 requires us to present December 31, 2010 or 2011. discussion of the more significant events or circumstances are noted. impairment analysis, including but the cash surrender values and valuation allowances when realization packaging, ingredients, supplies, components of other accounting policies which The Company performs its annual policy death benefits payable to and operational services, all comprehensive income and of net Financing activities include not limited to a reduction in becomes more-likely-than-not as management believes to have a impairment testing as of insure recovery of these premiums. entered into in the ordinary course income in one continuous statement Common Stock purchases and projected cash flows, the use of a defined by accounting guidance. significant impact on the December 31. The Company may of business, the Company does not of comprehensive income or in two retirements of $18,190, $22,881, different discount rate to discount The Company periodically reviews Company’s operating results, utilize third-party professional Valuation of long-lived assets have any significant contractual separate, but consecutive, and $20,723 in 2011, 2010 and future cash flows or a different assumptions and estimates of the financial position, cash flows and valuation firms to assist in the obligations or future commitments. statements. The option to report 2009, respectively. Cash dividends royalty rate applied to the Company’s probable tax obligations footnote disclosure. determination of valuation of certain Long-lived assets, primarily The Company’s outstanding other comprehensive income within of $18,407, $18,130, and $17,825 Company’s trademarks, could and effects on its liability for intangibles. property, plant and equipment are contractual commitments as of the statement of equity has been were paid in 2011, 2010 and 2009, cause impairment in the future. uncertain tax positions, using Revenue recognition reviewed for impairment as events informed judgment which may December 31, 2011, all of which removed. This new presentation of respectively. The increase in cash The impairment test is performed or changes in business Customer incentive programs, include the use of third-party are generally normal and recurring comprehensive income will be dividends each year reflects the Revenue, net of applicable by comparing the carrying value of circumstances occur indicating that advertising and marketing consultants, advisors and legal in nature, are summarized in the effective for fiscal years beginning annual 3% stock dividend issued in provisions for discounts, returns, the asset with its estimated fair the carrying value of the asset may counsel, and historical experience. chart on page 13. after December 15, 2011 and each of these years less the effects allowances and certain advertising value, which is calculated using Advertising and marketing costs not be recoverable. The estimated estimates, including discounted subsequent interim periods. of Common Stock purchases and and promotional costs, is are recorded in the period to which cash flows produced by assets or RECENT ACCOUNTING retirements. projected future cash flows. If the recognized when products are such costs relate. The Company asset groups, are compared to the Valuation of investments PRONOUNCEMENTS In September 2011, the FASB issued delivered to customers based on a carrying value exceeds the fair does not defer the recognition of asset carrying value to determine ASU 2011-08, “Testing Goodwill for SIGNIFICANT ACCOUNTING customer purchase order, and value, the second step of the any amounts on its consolidated whether impairment exists. Such Investments, primarily municipal In May 2011, the Financial Impairment”. The revised standard POLICIES AND ESTIMATES collectability is reasonably assured. process is necessary. The second balance sheet with respect to such estimates involve considerable bonds, mutual funds and equity Accounting Standards Board (FASB) is intended to simplify how entities The accounting for promotional step measures the difference costs. Customer incentives and management judgment and are method investments are reviewed issued Accounting Standards test goodwill for impairment. Under Preparation of the Company’s costs is discussed under between the carrying value and other promotional costs are based upon assumptions about for impairment at each reporting Update (ASU) 2011-04, “Fair Value certain circumstances, a two-step financial statements involves “Customer incentive programs, implied fair value of goodwill. These recorded at the time of sale based expected future operating period by comparing the carrying Measurement (Topic 820): impairment test may be judgments and estimates due to advertising and marketing” below. projected future cash flows are upon incentive program terms and performance. As a result, actual value or amortized cost to the fair Amendments to Achieve Common unnecessary. The revised standard uncertainties affecting the dependent on a number of factors historical utilization statistics, which cash flows could differ from market value. The Company may Fair Value Measurement and is effective for annual and interim application of accounting policies, Provisions for bad debts are including the execution of business are generally consistent from year management’s estimates due to utilize third-party professional Disclosure Requirements in U.S. goodwill impairment tests performed and the likelihood that different recorded as selling, marketing and plans, achievement of projected to year. changes in business conditions, valuation firms as necessary to GAAP and International Financial for fiscal years beginning after amounts would be reported under administrative expenses. Write-offs sales, including but not limited to operating performance, and assist in the determination of the Reporting Standards (IFRS).” ASU December 15, 2011. The Company different conditions or using of bad debts did not exceed 0.1% future price increases, projected The liabilities associated with these economic and competitive value of investments using a 2011-04 represents converged currently believes there will be no different assumptions. The of net product sales in each of operating margins, and projected programs are reviewed quarterly conditions. valuation model with Level 3 inputs guidance between U.S. GAAP and impact on its consolidated financial Company bases its estimates on 2011, 2010 and 2009, and capital expenditures. Such and adjusted if utilization rates as defined. In the event that an IFRS resulting in common statements. historical experience and other accordingly, have not been operating results are also differ from management’s original Income taxes investment security’s fair value is requirements for measuring fair assumptions, as discussed herein, significant to the Company’s dependent upon future ingredient estimates. Such adjustments have below carrying value or amortized value and for disclosing information In September 2011, FASB issued that it believes are reasonable. If financial position or results of and packaging material costs, not historically been material to the Deferred income taxes are cost, the Company will record an about fair value measurements. ASU 2011-09, “Compensation- actual amounts are ultimately operations. exchange rates for products Company’s operating results. recognized for future tax effects of other-than-temporary impairment or This new guidance will be effective Retirement Benefits-Multiemployer

9 10

JOB: 11-31190-1 CYCLE#;BL#: 8; 0 TRIM: 11" x 8.5" COMPOSITE JOB: 11-31190-1 CYCLE#;BL#: 8; 0 TRIM: 11" x 8.5" COMPOSITE COLORS: Black, ~note-color 2, ~note-color 3 GRAPHICS: none V1.5 COLORS: Black, ~note-color 2, ~note-color 3 GRAPHICS: none V1.5 Merrill Corp - Tootsie Roll 10-K Tier 2 ED [AUX] | 105123 | 29-Feb-12 11:39 | 11-31190-1.ca | Sequence: 7 CHKSUM Content: 1924 Layout: 35314 Graphics: No Graphics CLEAN

Plans” which amends the guidance the U.S. dollar relative to dollar- compensate for adverse unrealized gains and losses on in ASC 715-80. The amendments in denominated commodities in world fluctuations in commodity costs. such contracts are deferred as a ASU 2011-09 provide additional markets. The Company believes The Company, as well as component of accumulated other disclosure requirements for entities that its competitors face the same competitors in the confectionery comprehensive loss and are which participate in multi-employer or similar challenges. industry, have taken actions, recognized as a component of pension plans. The purpose of the including price increases and product cost of goods sold when new disclosures is to provide In order to address the impact of selective product weight declines the related inventory is sold. financial statement users with rising input and other costs, the (indirect price increases) to mitigate information about an employer’s Company periodically reviews each rising input costs for ingredients, The potential change in fair value of level of participation in and the item in its product portfolio to energy, freight and delivery. commodity and foreign currency financial health of significant plans. ascertain if price increases, weight Although management seeks to derivative instruments held by the The new disclosures are effective declines (indirect price increases) substantially recover cost increases Company at December 31, 2011, for annual periods ending after or other actions should be taken. over the long-term, there is risk that assuming a 10% change in the December 15, 2011. There will be These reviews include an price increases and weight underlying contract price, was no impact on the Company’s evaluation of the risk factors relating declines cannot be fully passed on $1,761. The analysis only includes consolidated financial statements to market place acceptance of such to customers and, to the extent they commodity and foreign currency as the changes relate only to changes and their potential effect are passed on, they could derivative instruments and, additional disclosures. on future sales volumes. In addition, adversely affect customer and therefore, does not consider the the estimated cost of packaging consumer acceptance and offsetting effect of changes in the modifications associated with price of the underlying commodity MARKET RISKS resulting sales volume. weight changes is evaluated. The or foreign currency. This amount is Company also maintains ongoing not significant compared with the The Company is exposed to market cost reduction and productivity The Company utilizes commodity risks related to commodity prices, futures contracts and commodity net earnings and shareholders’ improvement programs under equity of the Company. interest rates, investments in which cost savings initiatives are options contracts as well as annual marketable securities, equity price encouraged and progress supply agreements to hedge and and foreign exchange. monitored. The Company is not plan for anticipated purchases of Interest rates able to accurately predict the certain ingredients, including sugar, The Company’s ability to forecast outcome of these cost savings in order to mitigate commodity cost Interest rate risks primarily relate to the direction and scope of changes initiatives and their effects on its fluctuation. The Company also may the Company’s investments in tax to its major input costs is impacted future results. purchase forward foreign exchange exempt marketable securities, by significant volatility in crude oil, contracts to hedge its costs of including ARS, with maturities or sugar, corn, soybean and edible manufacturing certain products in Commodity future and foreign auction dates of generally up to oils, cocoa and dairy products currency forward contracts Canada for sale and distribution in three years. markets. The prices of these the United States, and periodically commodities are influenced by Commodity price risks relate to does so for purchases of The majority of the Company’s changes in global demand, ingredients, primarily sugar, cocoa, equipment or raw materials from investments, which are classified as changes in weather and crop chocolate, corn syrup, dextrose, foreign suppliers. Such commodity available for sale, have historically yields, changes in governments’ soybean and edible oils, milk, whey futures, commodity options and been held until they mature, which farm policies, including mandates and gum base ingredients. The currency forward contracts are limits the Company’s exposure to for ethanol and bio-fuels, and Company believes its competitors cash flow hedges and are effective interest rate fluctuations. The environmental matters, including face similar risks, and the industry as hedges as defined by accompanying chart summarizes global warming, and fluctuations in has historically adjusted prices to accounting guidance. The the maturities of the Company’s

JOB: 11-31190-1 CYCLE#;BL#: 8; 0 TRIM: 11" x 8.5" COMPOSITE COLORS: Black, ~note-color 2, ~note-color 3 GRAPHICS: none V1.5 Merrill Corp - Tootsie Roll 10-K Tier 2 ED [AUX] | 105123 | 29-Feb-12 11:39 | 11-31190-1.ca | Sequence: 7 Merrill Corp - Tootsie Roll 10-K Tier 2 ED [AUX] | 105123 | 29-Feb-12 11:39 | 11-31190-1.ca | Sequence: 8 CHKSUM Content: 1924 Layout: 35314 Graphics: No Graphics CLEAN CHKSUM Content: 14751 Layout: 53378 Graphics: No Graphics CLEAN

Plans” which amends the guidance the U.S. dollar relative to dollar- compensate for adverse unrealized gains and losses on investments in debt securities at years, and future outcomes are less periodically purchases and holds such as Halloween; (iv) the effect in ASC 715-80. The amendments in denominated commodities in world fluctuations in commodity costs. such contracts are deferred as a December 31, 2011. predictable than in the past. Canadian dollars to facilitate the of acquisitions on the Company’s ASU 2011-09 provide additional markets. The Company believes The Company, as well as component of accumulated other risk management of these currency results of operations and financial Less than 1 year ...... $10,854 disclosure requirements for entities that its competitors face the same competitors in the confectionery comprehensive loss and are Equity price changes. condition; (v) the effect of changes which participate in multi-employer or similar challenges. industry, have taken actions, recognized as a component of 1 – 2 years ...... 17,753 in foreign currencies on the pension plans. The purpose of the including price increases and product cost of goods sold when 2 – 3 years ...... 29,133 Equity price risk relates to the From time to time, the Company Company’s foreign subsidiaries new disclosures is to provide In order to address the impact of selective product weight declines the related inventory is sold. Over 3 years ...... 7,504 Company’s investments in mutual may use foreign exchange forward operating results, and the effect of rising input and other costs, the funds which are principally used to financial statement users with (indirect price increases) to mitigate Total ...... $65,244 contracts and derivative the fluctuation of the Canadian information about an employer’s Company periodically reviews each rising input costs for ingredients, The potential change in fair value of fund and hedge the Company’s instruments to mitigate its exposure dollar on products manufactured in item in its product portfolio to level of participation in and the energy, freight and delivery. commodity and foreign currency The Company’s outstanding debt at deferred compensation liabilities. At to foreign exchange risks, as well Canada and marketed and sold in ascertain if price increases, weight financial health of significant plans. Although management seeks to derivative instruments held by the December 31, 2011 and 2010 was December 31, 2011, the Company as those related to firm the United States in U.S. dollars; declines (indirect price increases) The new disclosures are effective substantially recover cost increases Company at December 31, 2011, $7,500 in an industrial revenue has investments in mutual funds, commitments to purchase (vi) the Company’s reliance on third or other actions should be taken. for annual periods ending after over the long-term, there is risk that assuming a 10% change in the bond in which interest rates reset classified as trading securities, of equipment from foreign vendors. As party vendors for various goods and These reviews include an December 15, 2011. There will be price increases and weight underlying contract price, was each week based on the current $41,768. Any change in the fair of December 31, 2011, the services, including commodities evaluation of the risk factors relating no impact on the Company’s declines cannot be fully passed on $1,761. The analysis only includes market rate. Therefore, the value of these trading securities is Company held foreign exchange used for ingredients that are to market place acceptance of such consolidated financial statements to customers and, to the extent they commodity and foreign currency Company does not believe that it completely offset by a forward contracts with a fair value primarily grown or sourced from changes and their potential effect as the changes relate only to are passed on, they could derivative instruments and, has significant interest rate risk with corresponding change in the of $205. foreign locations; (vii) the Company’s on future sales volumes. In addition, additional disclosures. adversely affect customer and therefore, does not consider the respect to its interest bearing debt. respective hedged deferred ability to successfully implement the estimated cost of packaging consumer acceptance and offsetting effect of changes in the compensation liability. new production processes and modifications associated with RISK FACTORS resulting sales volume. price of the underlying commodity Investment in marketable securities lines, and new computer software MARKET RISKS weight changes is evaluated. The or foreign currency. This amount is Foreign currency systems; (viii) the effect of changes Company also maintains ongoing As stated above, the Company The Company’s operations and not significant compared with the in assumptions, including discount The Company is exposed to market cost reduction and productivity The Company utilizes commodity invests primarily in tax exempt Foreign currency risk principally financial results are subject to a net earnings and shareholders’ rates, sales growth and profit risks related to commodity prices, improvement programs under futures contracts and commodity marketable securities, including relates to the Company’s foreign number of risks and uncertainties equity of the Company. margins and the capability to pass interest rates, investments in which cost savings initiatives are options contracts as well as annual ARS, with maturities or auction operations in Canada and Mexico, that could adversely affect the along higher ingredient and other marketable securities, equity price encouraged and progress supply agreements to hedge and dates generally up to three years. as well as periodic purchase Company’s operating results and input costs through price increases, and foreign exchange. monitored. The Company is not plan for anticipated purchases of Interest rates The Company utilizes professional commitments of machinery and financial condition. Significant risk relating to the Company’s able to accurately predict the certain ingredients, including sugar, money managers and maintains equipment from foreign sources. factors, without limitations that impairment testing and analysis of The Company’s ability to forecast outcome of these cost savings in order to mitigate commodity cost Interest rate risks primarily relate to investment policy guidelines which could impact the Company, are the its goodwill and trademarks; the direction and scope of changes initiatives and their effects on its fluctuation. The Company also may the Company’s investments in tax emphasize quality and liquidity in Certain of the Company’s Canadian following: (i) significant competitive (ix) changes in the confectionery to its major input costs is impacted future results. purchase forward foreign exchange exempt marketable securities, order to minimize the potential loss manufacturing costs, including activity, including advertising, marketplace including actions by significant volatility in crude oil, contracts to hedge its costs of including ARS, with maturities or exposures that could result in the local payroll and plant operations, promotional and price competition, sugar, corn, soybean and edible manufacturing certain products in and a portion of its packaging and and changes in consumer demand taken by major retailers and Commodity future and foreign auction dates of generally up to event of a default or other adverse customers; (x) customer, consumer oils, cocoa and dairy products currency forward contracts Canada for sale and distribution in three years. event, including failed auctions. ingredients are sourced in for the Company’s products; markets. The prices of these the United States, and periodically Canadian dollars. The Company (ii) fluctuations in the cost and and competitor response to commodities are influenced by Commodity price risks relate to does so for purchases of The majority of the Company’s However, given events in the may purchase Canadian forward availability of commodities and marketing programs and price and changes in global demand, ingredients, primarily sugar, cocoa, equipment or raw materials from investments, which are classified as municipal bond and ARS markets, contracts to receive Canadian ingredients, and packaging product weight adjustments, and changes in weather and crop chocolate, corn syrup, dextrose, foreign suppliers. Such commodity available for sale, have historically including failed auctions, the dollars at a specified date in the materials, and the ability to recover new products; (xi) dependence on yields, changes in governments’ soybean and edible oils, milk, whey futures, commodity options and been held until they mature, which Company continues to monitor future and uses its Canadian dollar cost increases through product significant customers, including farm policies, including mandates and gum base ingredients. The currency forward contracts are limits the Company’s exposure to these investments and markets, as collections on Canadian sales as a sales price increases; (iii) inherent the volume and timing of their for ethanol and bio-fuels, and Company believes its competitors cash flow hedges and are effective interest rate fluctuations. The well as its investment policies. partial hedge of its overall risks in the marketplace, including purchases, and availability of shelf environmental matters, including face similar risks, and the industry as hedges as defined by accompanying chart summarizes Nonetheless, the financial markets Canadian manufacturing uncertainties about trade and space; (xii) increases in energy global warming, and fluctuations in has historically adjusted prices to accounting guidance. The the maturities of the Company’s have been experiencing obligations sourced in Canadian consumer acceptance of price costs, including freight and delivery, unprecedented events in recent dollars. The Company also increases and seasonal events that cannot be passed along to

11 12

JOB: 11-31190-1 CYCLE#;BL#: 8; 0 TRIM: 11" x 8.5" COMPOSITE JOB: 11-31190-1 CYCLE#;BL#: 8; 0 TRIM: 11" x 8.5" COMPOSITE COLORS: Black, ~note-color 2, ~note-color 3 GRAPHICS: none V1.5 COLORS: Black, ~note-color 2, ~note-color 3 GRAPHICS: none V1.5 Merrill Corp - Tootsie Roll 10-K Tier 2 ED [AUX] | 105123 | 29-Feb-12 11:39 | 11-31190-1.ca | Sequence: 9 CHKSUM Content: 25418 Layout: 16745 Graphics: No Graphics CLEAN

customers through increased identified by the use of words such Open Contractual Commitments as of December 31, 2011 prices due to competitive reasons; as “anticipated,” “believe,” (xiii) any significant labor stoppages, “expect,” “intend,” “estimate,” Less than 1 to 3 3 to 5 More than strikes or production interruptions; “project,” and other words of similar Payable in Total 1 Year Years Years 5 Years (xiv) changes in governmental laws meaning in connection with a Commodity and regulations including taxes and discussion of future operating or hedges ...... $ 4,557 $ 4,538 $ 19 $ — $ — tariffs; (xv) the adverse effects financial performance and are Foreign currency should the Company either subject to certain factors, risks, voluntarily or involuntarily recall its hedges ...... 13,044 13,044 — — — trends and uncertainties that could Purchase product(s) from the marketplace; cause actual results and (xvi) the risk that the market value obligations . . . . 10,373 10,373 — — — achievements to differ materially Interest bearing of Company’s investments could from those expressed in the decline including being classified debt ...... 7,500 — — — 7,500 forward-looking statements. Such Operating leases . 3,926 1,047 1,836 1,043 — as “other-than-temporary” as factors, risks, trends and defined; (xvii) the Company’s Total ...... $39,400 $29,002 $1,855 $1,043 $7,500 uncertainties which in some dependence on its enterprise instances are beyond the resource planning computer system Company’s control, include the Note: Commodity hedges and foreign currency hedges reflect the to manage its supply chain and overall competitive environment in amounts at which the Company will settle the related contracts. The customer deliveries, and the risk the Company’s industry, changes in above amounts exclude deferred income tax liabilities of $43,521, that the Company’s information assumptions and judgments liabilities for uncertain tax positions of $8,345, postretirement health technology systems fail to perform discussed above under the care and life insurance benefits of $26,108 and deferred compensation adequately or the Company is heading “Significant Accounting and other liabilities of $48,092 because the timing of payments relating unable to protect such information to these items cannot be reasonably determined. Policies and Estimates”, and factors technology systems against data identified and referred to above corruption, cyber-based attacks or network security breaches; and under the heading “Risk Factors.” (xviii) the potential effects of current and future macroeconomic The risk factors identified and conditions and geopolitical events. referred to above are believed to be significant factors, but not Forward-looking statements necessarily all of the significant factors that could cause actual This discussion and certain other results to differ from those sections contain forward-looking expressed in any forward-looking statements that are based largely statement. Readers are cautioned on the Company’s current not to place undue reliance on such expectations and are made forward-looking statements, which pursuant to the safe harbor are made only as of the date of this provision of the Private Securities report. The Company undertakes Litigation Reform Act of 1995. no obligation to update such Forward-looking statements can be forward-looking statements.

JOB: 11-31190-1 CYCLE#;BL#: 8; 0 TRIM: 11" x 8.5" COMPOSITE COLORS: Black, ~note-color 2, ~note-color 3 GRAPHICS: none V1.5 Merrill Corp - Tootsie Roll 10-K Tier 2 ED [AUX] | 105123 | 29-Feb-12 11:39 | 11-31190-1.ca | Sequence: 9 Merrill Corp - Tootsie Roll 10-K Tier 2 ED [AUX] | 105123 | 29-Feb-12 11:39 | 11-31190-1.da | Sequence: 1 CHKSUM Content: 25418 Layout: 16745 Graphics: No Graphics CLEAN CHKSUM Content: 7460 Layout: 10130 Graphics: No Graphics CLEAN

CONSOLIDATED STATEMENTS OF Earnings, Comprehensive Earnings and Retained Earnings customers through increased identified by the use of words such TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES (in thousands except per share data) Open Contractual Commitments as of December 31, 2011 prices due to competitive reasons; as “anticipated,” “believe,” (xiii) any significant labor stoppages, “expect,” “intend,” “estimate,” Less than 1 to 3 3 to 5 More than For the year ended December 31, strikes or production interruptions; “project,” and other words of similar Payable in Total 1 Year Years Years 5 Years (xiv) changes in governmental laws meaning in connection with a Commodity 2011 2010 2009 and regulations including taxes and discussion of future operating or hedges ...... $ 4,557 $ 4,538 $ 19 $ — $ — tariffs; (xv) the adverse effects financial performance and are Foreign currency should the Company either subject to certain factors, risks, Net product sales ...... $528,369 $517,149 $495,592 voluntarily or involuntarily recall its hedges ...... 13,044 13,044 — — — trends and uncertainties that could Rental and royalty revenue ...... 4,136 4,299 3,739 product(s) from the marketplace; Purchase cause actual results and obligations . . . . 10,373 10,373 — — — Total revenue ...... 532,505 521,448 499,331 (xvi) the risk that the market value achievements to differ materially Interest bearing Product cost of goods sold ...... 365,225 349,334 319,775 of Company’s investments could from those expressed in the decline including being classified debt ...... 7,500 — — — 7,500 Rental and royalty cost ...... 1,038 1,088 852 forward-looking statements. Such Operating leases . 3,926 1,047 1,836 1,043 — as “other-than-temporary” as factors, risks, trends and Total costs ...... 366,263 350,422 320,627 defined; (xvii) the Company’s Total ...... $39,400 $29,002 $1,855 $1,043 $7,500 uncertainties which in some Product gross margin ...... 163,144 167,815 175,817 dependence on its enterprise instances are beyond the Rental and royalty gross margin ...... 3,098 3,211 2,887 resource planning computer system Note: Commodity hedges and foreign currency hedges reflect the Company’s control, include the Total gross margin ...... 166,242 171,026 178,704 to manage its supply chain and overall competitive environment in amounts at which the Company will settle the related contracts. The Selling, marketing and administrative expenses ...... 108,276 106,316 103,755 customer deliveries, and the risk the Company’s industry, changes in above amounts exclude deferred income tax liabilities of $43,521, that the Company’s information Impairment charges ...... — — 14,000 assumptions and judgments liabilities for uncertain tax positions of $8,345, postretirement health technology systems fail to perform discussed above under the care and life insurance benefits of $26,108 and deferred compensation Earnings from operations ...... 57,966 64,710 60,949 adequately or the Company is 2,946 heading “Significant Accounting and other liabilities of $48,092 because the timing of payments relating Other income (expense), net ...... 8,358 2,100 unable to protect such information Policies and Estimates”, and factors to these items cannot be reasonably determined. Earnings before income taxes ...... 60,912 73,068 63,049 technology systems against data identified and referred to above Provision for income taxes ...... 16,974 20,005 9,892 corruption, cyber-based attacks or under the heading “Risk Factors.” Net earnings ...... $ 43,938 $ 53,063 $ 53,157 network security breaches; and (xviii) the potential effects of current and future macroeconomic The risk factors identified and Net earnings ...... $ 43,938 $ 53,063 $ 53,157 conditions and geopolitical events. referred to above are believed to be Other comprehensive earnings (loss) ...... (8,740) 1,183 2,845 significant factors, but not Comprehensive earnings ...... $ 35,198 $ 54,246 $ 56,002

Forward-looking statements necessarily all of the signiﬁcant factors that could cause actual Retained earnings at beginning of year ...... $135,866 $147,687 $144,949 This discussion and certain other results to differ from those Net earnings ...... 43,938 53,063 53,157 sections contain forward-looking expressed in any forward-looking Cash dividends ...... (18,360) (18,078) (17,790) statements that are based largely statement. Readers are cautioned Stock dividends ...... (47,175) (46,806) (32,629) not to place undue reliance on such on the Company’s current Retained earnings at end of year ...... $114,269 $135,866 $147,687 expectations and are made forward-looking statements, which Earnings per share ...... $ 0.76 $ 0.90 $ 0.89 pursuant to the safe harbor are made only as of the date of this provision of the Private Securities report. The Company undertakes Average Common and Class B Common shares outstanding ...... 57,892 58,685 59,425 Litigation Reform Act of 1995. no obligation to update such Forward-looking statements can be forward-looking statements.

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

13 14

JOB: 11-31190-1 CYCLE#;BL#: 8; 0 TRIM: 11" x 8.5" COMPOSITE JOB: 11-31190-1 CYCLE#;BL#: 8; 0 TRIM: 11" x 8.5" COMPOSITE COLORS: Black, ~note-color 2, ~note-color 3 GRAPHICS: none V1.5 COLORS: Black, ~note-color 2, ~note-color 3 GRAPHICS: none V1.5 Merrill Corp - Tootsie Roll 10-K Tier 2 ED [AUX] | 105123 | 29-Feb-12 11:39 | 11-31190-1.da | Sequence: 2 CHKSUM Content: 46195 Layout: 10650 Graphics: No Graphics CLEAN

CONSOLIDATED STATEMENTS OF Financial Position TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES (in thousands)

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 21,619 Buildings ...... 107,567 102,934 Machinery and equipment ...... 322,993 307,178 Construction in progress ...... 2,598 9,243 455,097 440,974 Less—Accumulated 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

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

JOB: 11-31190-1 CYCLE#;BL#: 8; 0 TRIM: 11" x 8.5" COMPOSITE COLORS: Black, ~note-color 2, ~note-color 3 GRAPHICS: none V1.5 Merrill Corp - Tootsie Roll 10-K Tier 2 ED [AUX] | 105123 | 29-Feb-12 11:39 | 11-31190-1.da | Sequence: 2 Merrill Corp - Tootsie Roll 10-K Tier 2 ED [AUX] | 105123 | 29-Feb-12 11:39 | 11-31190-1.da | Sequence: 3 CHKSUM Content: 46195 Layout: 10650 Graphics: No Graphics CLEAN CHKSUM Content: 16862 Layout: 38711 Graphics: No Graphics CLEAN

CONSOLIDATED STATEMENTS OF Financial Position TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES (in thousands) (in thousands except per share data)

Assets December 31, Liabilities and Shareholders’ Equity December 31, 2011 2010 2011 2010

CURRENT ASSETS: CURRENT LIABILITIES: Cash and cash equivalents ...... $ 78,612 $115,976 Accounts payable ...... $ 10,683 $ 9,791 Investments ...... 10,895 7,996 Dividends payable ...... 4,603 4,529 Accounts receivable trade, less allowances of $1,731 and $1,531 ...... 41,895 37,394 Accrued liabilities ...... 43,069 44,185 Other receivables ...... 3,391 9,961 Inventories: Total current liabilities ...... 58,355 58,505 Finished goods and work-in-process ...... 42,676 35,416 NONCURRENT LIABILITES: Raw materials and supplies ...... 29,084 21,236 Deferred income taxes ...... 43,521 47,865 Prepaid expenses ...... 5,070 6,499 Postretirement health care and life insurance beneﬁts ...... 26,108 20,689 Deferred income taxes ...... 578 689 Industrial development bonds ...... 7,500 7,500 Total current assets ...... 212,201 235,167 Liability for uncertain tax positions ...... 8,345 9,835 Deferred compensation and other liabilities ...... 48,092 46,157 PROPERTY, PLANT AND EQUIPMENT, at cost: Land ...... 21,939 21,619 Total noncurrent liabilities ...... 133,566 132,046 Buildings ...... 107,567 102,934 SHAREHOLDERS’ EQUITY: Machinery and equipment ...... 322,993 307,178 Common stock, $.69-4/9 par value— Construction in progress ...... 2,598 9,243 120,000 shares authorized— 455,097 440,974 36,479 and 36,057, respectively, issued ...... 25,333 25,040 Less—Accumulated depreciation ...... 242,935 225,482 Class B common stock, $.69-4/9 par value— Net property, plant and equipment ...... 212,162 215,492 40,000 shares authorized— 21,025 and 20,466, respectively, issued ...... 14,601 14,212 OTHER ASSETS: Capital in excess of par value ...... 533,677 505,495 Goodwill ...... 73,237 73,237 Retained earnings, per accompanying statement ...... 114,269 135,866 Trademarks ...... 175,024 175,024 Accumulated other comprehensive loss ...... (19,953) (11,213) 96,161 Investments ...... 64,461 Treasury stock (at cost)— Split dollar ofﬁcer life insurance ...... 74,209 74,441 71 shares and 69 shares, respectively ...... (1,992) (1,992) Prepaid expenses ...... 3,212 6,680 Equity method investment ...... 3,935 4,254 Total shareholders’ equity ...... 665,935 667,408 Deferred income taxes ...... 7,715 9,203 Total liabilities and shareholders’ equity ...... $857,856 $857,959

Total other assets ...... 433,493 407,300 Total assets ...... $857,856 $857,959

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

15 16

JOB: 11-31190-1 CYCLE#;BL#: 8; 0 TRIM: 11" x 8.5" COMPOSITE JOB: 11-31190-1 CYCLE#;BL#: 8; 0 TRIM: 11" x 8.5" COMPOSITE COLORS: Black, ~note-color 2, ~note-color 3 GRAPHICS: none V1.5 COLORS: Black, ~note-color 2, ~note-color 3 GRAPHICS: none V1.5 Merrill Corp - Tootsie Roll 10-K Tier 2 ED [AUX] | 105123 | 29-Feb-12 11:39 | 11-31190-1.da | Sequence: 4 CHKSUM Content: 2894 Layout: 49487 Graphics: No Graphics CLEAN

CONSOLIDATED STATEMENTS OF Cash Flows TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES (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 Other ...... (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 purchases 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 purchased 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.)

JOB: 11-31190-1 CYCLE#;BL#: 8; 0 TRIM: 11" x 8.5" COMPOSITE COLORS: Black, ~note-color 2, ~note-color 3 GRAPHICS: none V1.5 Merrill Corp - Tootsie Roll 10-K Tier 2 ED [AUX] | 105123 | 29-Feb-12 11:39 | 11-31190-1.da | Sequence: 4 Merrill Corp - Tootsie Roll 10-K Tier 2 ED [AUX] | 105123 | 29-Feb-12 11:40 | 11-31190-1.ea | Sequence: 1 CHKSUM Content: 2894 Layout: 49487 Graphics: No Graphics CLEAN CHKSUM Content: 23682 Layout: 32448 Graphics: No Graphics CLEAN

CONSOLIDATED STATEMENTS OF Notes to Consolidated Financial Statements ($ in thousands except per share data) Cash Flows TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES (in thousands) NOTE 1—SIGNIFICANT ACCOUNTING POLICIES: From time to time, the Company enters into commodity futures, commodity options contracts and foreign currency forward contracts. Commodity futures and options are intended and are For the year ended December 31, Basis of consolidation: effective as hedges of market price risks associated with the anticipated purchase of certain raw materials (primarily sugar). Foreign currency forward contracts are intended and are 2011 2010 2009 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 effective as hedges of the Company’s exposure to the variability of cash flows, primarily related CASH FLOWS FROM OPERATING ACTIVITIES: manufacture and sales of candy products. All significant intercompany transactions have been to the foreign exchange rate changes of products manufactured in Canada and sold in the Net earnings ...... $ 43,938 $ 53,063 $ 53,157 eliminated. United States, and periodic equipment purchases from foreign suppliers denominated in a Adjustments to reconcile net earnings to net cash provided by operating activities: foreign currency. The Company does not engage in trading or other speculative use of derivative Depreciation ...... 19,229 18,279 17,862 The preparation of financial statements in conformity with generally accepted accounting instruments. Further information regarding derivative instruments and hedging activities is Impairment charges ...... — — 14,000 principles in the United States of America requires management to make estimates and included in Note 11 to the Consolidated Financial Statements. Impairment of equity method investment ...... — — 4,400 assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent Loss from equity method investment ...... 194 342 233 assets and liabilities at the date of the financial statements and the reported amounts of revenues Inventories: Amortization of marketable security premiums ...... 1,267 522 320 and expenses during the reporting period. Actual results could differ from those estimates. Inventories are stated at cost, not to exceed market. The cost of substantially all of the Changes in operating assets and liabilities: Company’s inventories ($67,339 and $52,863 at December 31, 2011 and 2010, respectively) Accounts receivable ...... (5,448) 717 (5,899) Revenue recognition: has been determined by the last-in, first-out (LIFO) method. The excess of current cost over Other receivables ...... 3,963 (2,373) (2,088) Inventories ...... (15,631) (1,447) 455 Products are sold to customers based on accepted purchase orders which include quantity, LIFO cost of inventories approximates $24,043 and $19,379 at December 31, 2011 and 2010, Prepaid expenses and other assets ...... 5,106 4,936 5,203 sales price and other relevant terms of sale. Revenue, net of applicable provisions for discounts, respectively. The cost of certain foreign inventories ($4,421 and $3,789 at December 31, 2011 Accounts payable and accrued liabilities ...... 84 2,180 (2,755) returns, allowances and certain advertising and promotional costs, is recognized when products and 2010, respectively) has been determined by the first-in, first-out (FIFO) method. Rebates, Income taxes payable and deferred ...... (5,772) 2,322 (12,543) are delivered to customers and collectability is reasonably assured. Shipping and handling discounts and other cash consideration received from vendors related to inventory purchases Postretirement health care and life insurance benefits ...... 2,022 1,429 1,384 costs of $45,850, $43,034, and $38,628 in 2011, 2010 and 2009, respectively, are included in is reflected as a reduction in the cost of the related inventory item, and is therefore reflected in Deferred compensation and other liabilities ...... 2,146 2,525 2,960 selling, marketing and administrative expenses. Accounts receivable are unsecured. Revenues cost of sales when the related inventory item is sold. Other ...... (708) 310 305 from a major customer aggregated approximately 23.3%, 21.4% and 22.9% of net product Property, plant and equipment: Net cash provided by operating activities ...... 50,390 82,805 76,994 sales during the years ended December 31, 2011, 2010 and 2009, respectively. CASH FLOWS FROM INVESTING ACTIVITIES: Depreciation is computed for financial reporting purposes by use of the straight-line method Capital expenditures ...... (16,351) (12,813) (20,831) Cash and cash equivalents: based on useful lives of 20 to 35 years for buildings and 5 to 20 years for machinery and Net purchases of trading securities ...... (3,234) (2,902) (1,713) equipment. Depreciation expense was $19,229, $18,279 and $17,862 in 2011, 2010 and 2009, The Company considers temporary cash investments with an original maturity of three months respectively. Purchase of available for sale securities ...... (39,252) (9,301) (11,331) or less to be cash equivalents. Sale and maturity of available for sale securities ...... 7,680 8,208 17,511 Carrying value of long-lived assets: Net cash used in investing activities ...... (51,157) (16,808) (16,364) Investments: The Company reviews long-lived assets to determine if there are events or circumstances CASH FLOWS FROM FINANCING ACTIVITIES: Investments consist of various marketable securities with maturities of generally up to three indicating that the amount of the asset reflected in the Company’s balance sheet may not be Shares purchased and retired ...... (18,190) (22,881) (20,723) Dividends paid in cash ...... (18,407) (18,130) (17,825) years. The Company classifies debt and equity securities as either available for sale or trading. recoverable. When such indicators are present, the Company compares the carrying value of Available for sale securities are not actively traded by the Company and are carried at fair value. the long-lived asset, or asset group, to the future undiscounted cash flows of the underlying Net cash used in financing activities ...... (36,597) (41,011) (38,548) The Company follows current fair value measurement guidance and unrealized gains and losses assets to determine if an impairment exists. If applicable, an impairment charge would be Increase (decrease) in cash and cash equivalents ...... (37,364) 24,986 22,082 on these securities are excluded from earnings and are reported as a separate component of recorded to write down the carrying value to its fair value. The determination of fair value involves Cash and cash equivalents at beginning of year ...... 115,976 90,990 68,908 shareholders’ equity, net of applicable taxes, until realized or other than temporarily impaired. the use of estimates of future cash flows that involve considerable management judgment and Cash and cash equivalents at end of year ...... $ 78,612 $115,976 $ 90,990 Trading securities relate to deferred compensation arrangements and are carried at fair value are based upon assumptions about expected future operating performance. The actual cash Supplemental cash flow information: with gains or losses included in other income (expense), net. The Company invests in trading flows could differ from management’s estimates due to changes in business conditions, Income taxes paid ...... $ 16,906 $ 20,586 $ 22,364 securities to economically hedge changes in its deferred compensation liabilities. operating performance, and economic conditions. No impairment charges of long-lived assets were recorded by the Company during 2011, 2010 and 2009. Interest paid ...... $ 38 $ 49 $ 182 The Company regularly reviews its investments to determine whether a decline in fair value Stock dividend issued ...... $ 47,053 $ 46,683 $ 32,538 below the cost basis is other than temporary. If the decline in fair value is judged to be other Postretirement health care and life insurance benefits: than temporary, the cost basis of the security is written down to fair value and the amount of the The Company provides certain postretirement health care and life insurance benefits. The write-down is included in other income (expense), net. Further information regarding the fair cost of these postretirement benefits is accrued during employees’ working careers. The value of the Company’s investments is included in Note 10 to the Consolidated Financial Company also provides split dollar life benefits to certain executive officers. The Company Statements. records an asset equal to the cumulative insurance premiums paid that will be recovered upon the death of covered employees or earlier under the terms of the plan. No premiums were paid Derivative instruments and hedging activities: in 2011, 2010 and 2009. Authoritative guidance requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of derivative instruments Goodwill and intangible assets: and related gains and losses, and disclosures about credit-risk-related contingent features in In accordance with authoritative guidance, goodwill and intangible assets with indefinite lives derivative agreements. are not amortized, but rather tested for impairment at least annually unless certain interim (The accompanying notes are an integral part of these statements.)

17 18

JOB: 11-31190-1 CYCLE#;BL#: 8; 0 TRIM: 11" x 8.5" COMPOSITE JOB: 11-31190-1 CYCLE#;BL#: 8; 0 TRIM: 11" x 8.5" COMPOSITE COLORS: Black, ~note-color 2, ~note-color 3 GRAPHICS: none V1.5 COLORS: Black, ~note-color 2, ~note-color 3 GRAPHICS: none V1.5 Merrill Corp - Tootsie Roll 10-K Tier 2 ED [AUX] | 105123 | 29-Feb-12 11:40 | 11-31190-1.ea | Sequence: 2 CHKSUM Content: 48954 Layout: 17792 Graphics: No Graphics CLEAN

triggering events or circumstances require more frequent testing. All trademarks have been The Class B Common Stock has essentially the same rights as Common Stock, except that assessed by management to have indefinite lives because they are expected to generate cash each share of Class B Common Stock has ten votes per share (compared to one vote per share flows indefinitely. The Company has completed its annual impairment testing of its goodwill of Common Stock), is not traded on any exchange, is restricted as to transfer and is convertible and trademarks at December 31 of each of the years presented. As of December 31, 2009, on a share-for-share basis, at any time and at no cost to the holders, into shares of Common management ascertained that certain trademarks were impaired, and recorded a pre-tax charge Stock which are traded on the New York Stock Exchange. of $14,000. No impairments of intangibles were recorded in 2011 and 2010. Use of estimates: This determination is made by comparing the carrying value of the asset with its estimated fair value, which is calculated using estimates including discounted projected future cash flows. If The preparation of consolidated financial statements in conformity with accounting principles the carrying value of goodwill exceeds the fair value, a second step would measure the carrying generally accepted in the U.S. requires management to make estimates and assumptions that value and implied fair value of goodwill. Management believes that all assumptions used for the affect the amounts reported. Estimates are used when accounting for sales discounts, allowances impairment tests are consistent with those utilized by market participants performing similar and incentives, product liabilities, assets recorded at fair value, income taxes, depreciation, valuations. amortization, employee benefits, contingencies and intangible asset and liability valuations. For instance, in determining the annual post-employment benefit costs, the Company estimates the Income taxes: cost of future health care benefits. Actual results may or may not differ from those estimates. Deferred income taxes are recorded and recognized for future tax effects of temporary differences between financial and income tax reporting. The Company records valuation Retrospective application of change in accounting principle: allowances in situations where the realization of deferred tax assets is not more-likely-than-not. During the fourth quarter of fiscal 2011, the Company changed the method used to compute Federal income taxes are provided on the portion of income of foreign subsidiaries that is the LIFO value of its domestic inventories. The change was largely driven by the fact that the expected to be remitted to the U.S. and become taxable, but not on the portion that is Company has made changes in the business model over the last several years to achieve considered to be permanently invested in the foreign subsidiary. efficiencies in manufacturing, distribution and marketing processes and therefore combined multiple LIFO pools into a single LIFO pool to better reflect these changes. The Company has Foreign currency translation: applied this change retrospectively, adjusting all prior periods presented. The cumulative effect The U.S. dollar is used as the functional currency where a substantial portion of the subsidiary’s of the change on retained earnings as of January 1, 2009, was a reduction of $174, with offsets business is indexed to the U.S. dollar or where its manufactured products are principally sold to inventories and deferred taxes. For 2010, inventories and deferred income taxes reflect in the U.S. All other foreign subsidiaries use the local currency as their functional currency. decreases of $2,424 and $878, respectively. For 2010 and 2009, product cost of goods sold Where the U.S. dollar is used as the functional currency, foreign currency remeasurements are increased $1,021 and $1,130, respectively; provision for income taxes decreased $370 and recorded as a charge or credit to other income (expense), net in the statement of earnings. $409, respectively. Where the foreign local currency is used as the functional currency, translation adjustments are recorded as a separate component of accumulated other comprehensive (loss). Recent accounting pronouncements: Equity method investment: In May 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2011-04, “Fair Value Measurement (Topic 820): Amendments to Achieve Common The Company’s 50% interest in two foreign companies is accounted for using the equity Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International Financial method. The Company records an increase in its investment to the extent of its share of earnings, Reporting Standards (IFRS).” ASU 2011-04 represents converged guidance between U.S. and reduces its investment to the extent of losses and dividends received. No dividends were GAAP and IFRS resulting in common requirements for measuring fair value and for disclosing paid in 2011, 2010 and 2009. information about fair value measurements. This new guidance will be effective for fiscal years As of December 31, 2009, management determined that the fair value of the asset was less beginning after December 15, 2011 and subsequent interim periods. The Company is currently than the carrying value. As a result, the Company recorded a pre-tax impairment charge of assessing the impact, if any, on the consolidated financial statements. $4,400 in the fourth quarter 2009, resulting in an adjusted carrying value of $4,961 as of In June 2011, the FASB issued ASU 2011-05, “Presentation of Comprehensive Income.” December 31, 2009. The fair value was primarily assessed using the present value of estimated ASU 2011-05 requires the Company to present components of other comprehensive income future cash flows. No impairments were recorded in 2011 and 2010. and of net income in one continuous statement of comprehensive income, or in two separate, Comprehensive earnings: but consecutive statements. The option to report other comprehensive income within the statement of equity has been removed. This new presentation of comprehensive income will be Comprehensive earnings includes net earnings, foreign currency translation adjustments and effective for fiscal years beginning after December 15, 2011 and subsequent interim periods. unrealized gains/losses on commodity and/or foreign currency hedging contracts, available for sale securities and certain postretirement benefit obligations. In September 2011, the FASB issued ASU 2011-08, “Testing Goodwill for Impairment”. The revised standard is intended to simplify how entities test goodwill for impairment. Under certain Earnings per share: circumstances, a two-step impairment test may be unnecessary. The revised standard is A dual presentation of basic and diluted earnings per share is not required due to the lack of effective for annual and interim goodwill impairment tests performed for fiscal years beginning potentially dilutive securities under the Company’s simple capital structure. Therefore, all after December 15, 2011. The Company currently believes there will be no impact on its earnings per share amounts represent basic earnings per share. consolidated financial statements.

JOB: 11-31190-1 CYCLE#;BL#: 8; 0 TRIM: 11" x 8.5" COMPOSITE COLORS: Black, ~note-color 2, ~note-color 3 GRAPHICS: none V1.5 Merrill Corp - Tootsie Roll 10-K Tier 2 ED [AUX] | 105123 | 29-Feb-12 11:40 | 11-31190-1.ea | Sequence: 2 Merrill Corp - Tootsie Roll 10-K Tier 2 ED [AUX] | 105123 | 29-Feb-12 11:40 | 11-31190-1.ea | Sequence: 3 CHKSUM Content: 48954 Layout: 17792 Graphics: No Graphics CLEAN CHKSUM Content: 60988 Layout: 40072 Graphics: No Graphics CLEAN

triggering events or circumstances require more frequent testing. All trademarks have been The Class B Common Stock has essentially the same rights as Common Stock, except that In September 2011, FASB issued ASU 2011-09, “Compensation-Retirement Benefits- Significant components of the Company’s net deferred tax liability at year end were as follows: assessed by management to have indefinite lives because they are expected to generate cash each share of Class B Common Stock has ten votes per share (compared to one vote per share Multiemployer Plans” which amends the guidance in ASC 715-80. The amendments in December 31, flows indefinitely. The Company has completed its annual impairment testing of its goodwill of Common Stock), is not traded on any exchange, is restricted as to transfer and is convertible ASU 2011-09 provide additional disclosure requirements for entities which participate in multi- 2011 2010 and trademarks at December 31 of each of the years presented. As of December 31, 2009, on a share-for-share basis, at any time and at no cost to the holders, into shares of Common employer pension plans. The purpose of the new disclosures is to provide financial statement Deferred tax assets: management ascertained that certain trademarks were impaired, and recorded a pre-tax charge Stock which are traded on the New York Stock Exchange. users with information about an employer’s level of participation in and the financial health of Accrued customer promotions ...... $ 1,920 $ 1,634 of $14,000. No impairments of intangibles were recorded in 2011 and 2010. significant plans. The new disclosures are effective for annual periods ending after Deferred compensation ...... 15,593 11,602 Use of estimates: December 15, 2011. There will be no impact on the Company’s consolidated financial Postretirement benefits ...... 9,139 6,596 This determination is made by comparing the carrying value of the asset with its estimated fair statements as the changes relate only to additional disclosures. Other accrued expenses ...... 6,347 5,475 value, which is calculated using estimates including discounted projected future cash flows. If The preparation of consolidated financial statements in conformity with accounting principles Foreign subsidiary tax loss carry forward ...... 16,406 16,582 the carrying value of goodwill exceeds the fair value, a second step would measure the carrying generally accepted in the U.S. requires management to make estimates and assumptions that Tax credit carry forward ...... 841 978 value and implied fair value of goodwill. Management believes that all assumptions used for the affect the amounts reported. Estimates are used when accounting for sales discounts, allowances NOTE 2—ACCRUED LIABILITIES: Realized capital losses ...... 1,349 — Unrealized capital loss ...... 6,401 6,566 impairment tests are consistent with those utilized by market participants performing similar and incentives, product liabilities, assets recorded at fair value, income taxes, depreciation, Accrued liabilities are comprised of the following: amortization, employee benefits, contingencies and intangible asset and liability valuations. For 57,996 49,433 valuations. Valuation reserve ...... (2,190) (686) instance, in determining the annual post-employment benefit costs, the Company estimates the December 31, Total deferred tax assets ...... $55,806 $48,747 Income taxes: cost of future health care benefits. Actual results may or may not differ from those estimates. 2011 2010 Deferred income taxes are recorded and recognized for future tax effects of temporary Deferred tax liabilities: Retrospective application of change in accounting principle: Compensation ...... $ 8,817 $ 9,750 Depreciation ...... $35,103 $32,376 differences between financial and income tax reporting. The Company records valuation Other employee benefits ...... 2,004 2,030 Deductible goodwill and trademarks ...... 38,635 35,790 allowances in situations where the realization of deferred tax assets is not more-likely-than-not. During the fourth quarter of fiscal 2011, the Company changed the method used to compute Taxes, other than income ...... 1,954 1,966 Accrued export company commissions ...... 4,649 4,532 Federal income taxes are provided on the portion of income of foreign subsidiaries that is the LIFO value of its domestic inventories. The change was largely driven by the fact that the Advertising and promotions ...... 20,568 20,775 Employee benefit plans ...... 2,248 3,506 Inventory reserves ...... 1,733 1,871 expected to be remitted to the U.S. and become taxable, but not on the portion that is Company has made changes in the business model over the last several years to achieve Other ...... 9,726 9,664 considered to be permanently invested in the foreign subsidiary. Prepaid insurance ...... 289 377 efficiencies in manufacturing, distribution and marketing processes and therefore combined Accounts receivable ...... 733 624 multiple LIFO pools into a single LIFO pool to better reflect these changes. The Company has $43,069 $44,185 Foreign currency translation: Deferred gain on sale of real estate ...... 7,644 7,644 applied this change retrospectively, adjusting all prior periods presented. The cumulative effect Total deferred tax liabilities ...... $91,034 $86,720 The U.S. dollar is used as the functional currency where a substantial portion of the subsidiary’s of the change on retained earnings as of January 1, 2009, was a reduction of $174, with offsets NOTE 3—INDUSTRIAL DEVELOPMENT BONDS: Net deferred tax liability ...... $35,228 $37,973 business is indexed to the U.S. dollar or where its manufactured products are principally sold to inventories and deferred taxes. For 2010, inventories and deferred income taxes reflect Industrial development bonds are due in 2027. The average floating interest rate was 0.3% in the U.S. All other foreign subsidiaries use the local currency as their functional currency. decreases of $2,424 and $878, respectively. For 2010 and 2009, product cost of goods sold and 0.4% in 2011 and 2010, respectively. See Note 10 to the Consolidated Financial Statements At December 31, 2011, the Company recognized $3,854 of benefits related to capital loss Where the U.S. dollar is used as the functional currency, foreign currency remeasurements are increased $1,021 and $1,130, respectively; provision for income taxes decreased $370 and for fair value disclosures. carry forwards. The carry forward losses will begin to expire in 2013. A valuation allowance has recorded as a charge or credit to other income (expense), net in the statement of earnings. $409, respectively. been established for the carry forward losses to reduce the future income tax benefits to Where the foreign local currency is used as the functional currency, translation adjustments are NOTE 4—INCOME TAXES: amounts expected to be realized. recorded as a separate component of accumulated other comprehensive (loss). Recent accounting pronouncements: The domestic and foreign components of pretax income are as follows: At December 31, 2011 the Company recognized $841 of benefits related to foreign subsidiary Equity method investment: In May 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2011-04, “Fair Value Measurement (Topic 820): Amendments to Achieve Common 2011 tax credit carry forwards. The carry forward credits expire in 2017. A valuation allowance has 2010 2009 The Company’s 50% interest in two foreign companies is accounted for using the equity Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International Financial been established for the carry forward losses to reduce the future income tax benefits to Domestic ...... $56,651 $59.308 $68,649 method. The Company records an increase in its investment to the extent of its share of earnings, Reporting Standards (IFRS).” ASU 2011-04 represents converged guidance between U.S. amounts expected to be realized. 4,261 and reduces its investment to the extent of losses and dividends received. No dividends were Foreign ...... 13,760 (5,600) GAAP and IFRS resulting in common requirements for measuring fair value and for disclosing At December 31, 2011, the tax benefits of foreign subsidiary tax loss carry forwards expiring paid in 2011, 2010 and 2009. information about fair value measurements. This new guidance will be effective for fiscal years $60,912 $73,068 $63,049 by year are as follows: $697 in 2014, $2,672 in 2015, $366 in 2026, $640 in 2027, $6,578 in As of December 31, 2009, management determined that the fair value of the asset was less beginning after December 15, 2011 and subsequent interim periods. The Company is currently 2028, $4,681 in 2029 and $772 in 2031. than the carrying value. As a result, the Company recorded a pre-tax impairment charge of assessing the impact, if any, on the consolidated financial statements. The provision for income taxes is comprised of the following: $4,400 in the fourth quarter 2009, resulting in an adjusted carrying value of $4,961 as of 2011 Certain out of period items have been included in the 2011 provision that are immaterial In June 2011, the FASB issued ASU 2011-05, “Presentation of Comprehensive Income.” 2010 2009 December 31, 2009. The fair value was primarily assessed using the present value of estimated ASU 2011-05 requires the Company to present components of other comprehensive income individually and in the aggregate. The effective income tax rate differs from the statutory rate future cash flows. No impairments were recorded in 2011 and 2010. Current: as follows: and of net income in one continuous statement of comprehensive income, or in two separate, Federal ...... $15,568 $10,251 $ 21,836 2011 2010 2009 Comprehensive earnings: but consecutive statements. The option to report other comprehensive income within the Foreign ...... 559 806 500 statement of equity has been removed. This new presentation of comprehensive income will be State ...... 863 1,455 1,665 U.S. statutory rate ...... 35.0% 35.0% 35.0% Comprehensive earnings includes net earnings, foreign currency translation adjustments and effective for fiscal years beginning after December 15, 2011 and subsequent interim periods. State income taxes, net ...... 1.2 1.1 1.7 unrealized gains/losses on commodity and/or foreign currency hedging contracts, available for 16,990 12,512 24,001 Exempt municipal bond interest ...... (0.5) (0.4) (0.7) sale securities and certain postretirement benefit obligations. In September 2011, the FASB issued ASU 2011-08, “Testing Goodwill for Impairment”. The Foreign tax rates ...... (0.4) (2.0) (4.9) Deferred: revised standard is intended to simplify how entities test goodwill for impairment. Under certain Release of prior period valuation allowances ...... — — (13.3) Federal ...... (1,230) 5,622 (432) Earnings per share: circumstances, a two-step impairment test may be unnecessary. The revised standard is Qualified domestic production activities deduction ...... (2.5) (2.6) (2.0) 1,221 A dual presentation of basic and diluted earnings per share is not required due to the lack of effective for annual and interim goodwill impairment tests performed for fiscal years beginning Foreign ...... 2,518 (12,987) Tax credits receivable ...... (0.4) (0.2) (0.4) State ...... (7) (647) (690) (1.7) potentially dilutive securities under the Company’s simple capital structure. Therefore, all after December 15, 2011. The Company currently believes there will be no impact on its Adjustment of deferred tax balances ...... — — Reserve for uncertain tax benefits ...... (0.6) (2.3) 1.3 earnings per share amounts represent basic earnings per share. consolidated financial statements. (16) 7,493 (14,109) Other, net ...... (2.2) (1.2) (1.0) $16,974 $20,005 $ 9,892 Effective income tax rate ...... 27.9% 27.4% 15.7%

19 20

JOB: 11-31190-1 CYCLE#;BL#: 8; 0 TRIM: 11" x 8.5" COMPOSITE JOB: 11-31190-1 CYCLE#;BL#: 8; 0 TRIM: 11" x 8.5" COMPOSITE COLORS: Black, ~note-color 2, ~note-color 3 GRAPHICS: none V1.5 COLORS: Black, ~note-color 2, ~note-color 3 GRAPHICS: none V1.5 Merrill Corp - Tootsie Roll 10-K Tier 2 ED [AUX] | 105123 | 29-Feb-12 11:40 | 11-31190-1.ea | Sequence: 4 CHKSUM Content: 11395 Layout: 371 Graphics: No Graphics CLEAN

In connection with the acquisition in 2004 of Concord Confections, a Canadian subsidiary, The Company is subject to taxation in the U.S. and various state and foreign jurisdictions. the Company established an inter-company financing structure which included a loan from the The Company remains subject to examination by U.S. federal and state and foreign tax U.S. parent to the Canadian subsidiary. By December of 2006, significant operating losses had authorities for the years 2008 through 2010. With few exceptions, the Company is no longer accumulated in Canada and management determined that the realization of the net operating subject to examinations by tax authorities for the year 2007 and prior. loss carry forward benefits was not more-likely-than-not, and provided a full tax valuation The Company is currently subject to a U.S. federal examination for tax year 2009. The field allowance. Consistent with relevant accounting guidance, these benefits continued to be work has not yet concluded and the Company is unable to determine the outcome at this time. reserved through 2008 and through the third quarter of 2009. The Company’s Canadian subsidiary is currently subject to examination by the Canada Revenue Agency for tax years 2005 and 2006. The Company is unable to determine the In December of 2008, a new U.S./Canada income tax treaty (Treaty) was ratified which outcome of the examination at this time. In addition, the Company is currently subject to various effectively denies certain inter-company interest benefits to the U.S. shareholder of a Canadian state tax examinations. One of the state examinations has been effectively settled and the company. Accordingly, in December of 2009, the Company decided to recapitalize its Canadian corresponding liability for unrecognized tax benefits has been reduced. Although the Company operations effective January 1, 2010. During the fourth quarter of 2009, the Company considered is unable to determine the ultimate outcome of the ongoing examinations, the Company all of the evidence and relevant accounting guidance related to this recapitalization and based believes that its liability for uncertain tax positions relating to these jurisdictions for such years on reasonable assumptions, the Company concluded that it was more-likely-than-not that it is adequate. would realize substantially all of the deferred tax assets related to the Canadian net operating Beginning in 2008, statutory income tax rates in Canada will be reduced five percentage loss carry forward benefits because it is expected that sufficient levels of income will be points with the final rate reduction coming in 2014. Accordingly in 2009, the Company’s generated in the foreseeable future. As a result, the Company released $8.4 million of prior Canadian subsidiary has revalued its deferred tax assets and liabilities based on the rate in period valuation allowances and $2.3 million of allowances that were provided through the first effect for the year the differences are expected to reverse. nine months of 2009. The Treaty also introduced a phase out of the withholding tax on payments from Canada to NOTE 5—SHARE CAPITAL AND CAPITAL IN EXCESS OF PAR VALUE: the U.S. allowing the Company to qualify for a zero percent withholding rate in 2010 if certain requirements of the Treaty were met. On January 4, 2010, the Canadian subsidiary repaid Capital in accrued interest to its U.S. parent in a manner consistent with these requirements. As a result, Class B Excess Common Stock Common Stock Treasury Stock $1.5 million of withholding taxes accrued for 2007 and 2008 and through the third quarter of of Par 2009 were released in the fourth quarter of 2009. Shares Amount Shares Amount Shares Amount Value The Company has not provided for U.S. federal or foreign withholding taxes on $6,410 and (000’s) (000’s) (000’s) $4,787 of foreign subsidiaries’ undistributed earnings as of December 31, 2011 and Balance at January 1, 2009 ...... 35,658 $24,762 19,357 $13,442 (65) $(1,992) $470,927 December 31, 2010, respectively, because such earnings are considered to be permanently Issuance of 3% stock dividend ...... 1,064 739 580 403 (2) — 31,396 reinvested. It is not practicable to determine the amount of income taxes that would be payable Conversion of Class B common shares to upon remittance of the undistributed earnings. common shares ...... 18 12 (18) (12) — — — Purchase and retirement of common The Company recognizes interest and penalties related to unrecognized tax benefits in the shares ...... (938) (651) — — — — (20,073) provision for income taxes on the Consolidated Statements of Earnings. Balance at December 31, 2009 ...... 35,802 24,862 19,919 13,833 (67) (1,992) 482,250 At December 31, 2011 and 2010, the Company had unrecognized tax benefits of $6,804 and Issuance of 3% stock dividend ...... 1,070 743 597 414 (2) — 45,526 $8,138, respectively. Included in this balance is $4,199 and $4,949, respectively, of Conversion of Class B common shares to unrecognized tax benefits that, if recognized, would favorably affect the annual effective income common shares ...... 50 35 (50) (35) — — — tax rate. As of December 31, 2011 and 2010, $1,541 and $1,697, respectively, of interest and Purchase and retirement of common penalties were included in the liability for uncertain tax positions. shares ...... (865) (600) — — — — (22,281) A reconciliation of the beginning and ending balances of the total amounts of unrecognized Balance at December 31, 2010 ...... 36,057 25,040 20,466 14,212 (69) (1,992) 505,495 tax benefits is as follows: Issuance of 3% stock dividend ...... 1,077 748 612 426 (2) — 45,880 Conversion of Class B common shares to 2011 2010 2009 common shares ...... 53 37 (53) (37) — — — Unrecognized tax benefits at January 1 ...... $8,138 $14,370 $13,069 Purchase and retirement of common (708) (492) — — — — (17,698) Increases in tax positions for the current year ...... 320 632 2,661 shares ...... Reductions in tax positions for lapse of statute of limitations ...... (668) (1,122) (514) Balance at December 31, 2011 ...... 36,479 $25,333 21,025 $14,601 (71) $(1,992) $533,677 Reductions in tax positions for withdrawal of positions previously taken . . — (5,256) — (986) Reductions in tax positions for effective settlements ...... (486) (846) Average shares outstanding and all per share amounts included in the financial statements and Unrecognized tax benefits at December 31 ...... $6,804 $ 8,138 $14,370 notes thereto have been adjusted retroactively to reflect annual three percent stock dividends.

JOB: 11-31190-1 CYCLE#;BL#: 8; 0 TRIM: 11" x 8.5" COMPOSITE COLORS: Black, ~note-color 2, ~note-color 3 GRAPHICS: none V1.5 Merrill Corp - Tootsie Roll 10-K Tier 2 ED [AUX] | 105123 | 29-Feb-12 11:40 | 11-31190-1.ea | Sequence: 4 Merrill Corp - Tootsie Roll 10-K Tier 2 ED [AUX] | 105123 | 29-Feb-12 11:40 | 11-31190-1.ea | Sequence: 5 CHKSUM Content: 11395 Layout: 371 Graphics: No Graphics CLEAN CHKSUM Content: 11567 Layout: 45860 Graphics: No Graphics CLEAN

In connection with the acquisition in 2004 of Concord Confections, a Canadian subsidiary, The Company is subject to taxation in the U.S. and various state and foreign jurisdictions. While the Company does not have a formal or publicly announced Company Common Stock the actuarial present value of benefits and net plan assets is not determinable by the Company. the Company established an inter-company financing structure which included a loan from the The Company remains subject to examination by U.S. federal and state and foreign tax purchase program, the Company’s board of directors periodically authorizes a dollar amount The Company’s annual contributions do not exceed 5% of total contributions to the Plan. U.S. parent to the Canadian subsidiary. By December of 2006, significant operating losses had authorities for the years 2008 through 2010. With few exceptions, the Company is no longer for such share purchases. subject to examinations by tax authorities for the year 2007 and prior. Deferred compensation: accumulated in Canada and management determined that the realization of the net operating Based upon this policy, shares were purchased and retired as follows: The Company sponsors three deferred compensation plans for selected executives and other loss carry forward benefits was not more-likely-than-not, and provided a full tax valuation The Company is currently subject to a U.S. federal examination for tax year 2009. The field Total Number of Shares employees: (i) the Excess Benefit Plan, which restores retirement benefits lost due to IRS allowance. Consistent with relevant accounting guidance, these benefits continued to be work has not yet concluded and the Company is unable to determine the outcome at this time. Year Purchased (000’s) Average Price Paid Per Share limitations on contributions to tax-qualified plans, (ii) the Supplemental Plan, which allows eligible reserved through 2008 and through the third quarter of 2009. The Company’s Canadian subsidiary is currently subject to examination by the Canada 2011 ...... 708 $25.64 employees to defer the receipt of eligible compensation until designated future dates and Revenue Agency for tax years 2005 and 2006. The Company is unable to determine the 2010 ...... 865 $26.41 (iii) the Career Achievement Plan, which provides a deferred annual incentive award to selected In December of 2008, a new U.S./Canada income tax treaty (Treaty) was ratified which outcome of the examination at this time. In addition, the Company is currently subject to various 2009 ...... 938 $22.05 executives. Participants in these plans earn a return on amounts due them based on several effectively denies certain inter-company interest benefits to the U.S. shareholder of a Canadian state tax examinations. One of the state examinations has been effectively settled and the investment options, which mirror returns on underlying investments (primarily mutual funds). company. Accordingly, in December of 2009, the Company decided to recapitalize its Canadian corresponding liability for unrecognized tax benefits has been reduced. Although the Company NOTE 6—OTHER INCOME (EXPENSE), NET: The Company economically hedges its obligations under the plans by investing in the actual operations effective January 1, 2010. During the fourth quarter of 2009, the Company considered is unable to determine the ultimate outcome of the ongoing examinations, the Company underlying investments. These investments are classified as trading securities and are carried all of the evidence and relevant accounting guidance related to this recapitalization and based believes that its liability for uncertain tax positions relating to these jurisdictions for such years Other income (expense), net is comprised of the following: 2011 2010 2009 at fair value. At December 31, 2011 and 2010, these investments totaled $41,768 and $38,504, on reasonable assumptions, the Company concluded that it was more-likely-than-not that it is adequate. respectively. All gains and losses and related investment income in these investments, which would realize substantially all of the deferred tax assets related to the Canadian net operating Interest and dividend income ...... $1,087 $ 879 $ 1,439 Beginning in 2008, statutory income tax rates in Canada will be reduced five percentage Gains (losses) on trading securities relating to are recorded in other income (expense), net, are equally offset by corresponding increases loss carry forward benefits because it is expected that sufficient levels of income will be points with the final rate reduction coming in 2014. Accordingly in 2009, the Company’s deferred compensation plans ...... 29 3,364 4,524 and decreases in the Company’s deferred compensation liabilities. generated in the foreseeable future. As a result, the Company released $8.4 million of prior Canadian subsidiary has revalued its deferred tax assets and liabilities based on the rate in Interest expense ...... (121) (142) (243) period valuation allowances and $2.3 million of allowances that were provided through the first effect for the year the differences are expected to reverse. Impairment of equity method investment ...... — — (4,400) Postretirement health care and life insurance benefit plans: nine months of 2009. Equity method investment loss ...... (194) (342) (233) Foreign exchange gains (losses) ...... 2,098 4,090 951 The Company provides certain postretirement health care and life insurance benefits for The Treaty also introduced a phase out of the withholding tax on payments from Canada to NOTE 5—SHARE CAPITAL AND CAPITAL IN EXCESS OF PAR VALUE: Capital gains (losses) ...... (227) (28) (38) corporate office and management employees based upon their age, years of service, date of the U.S. allowing the Company to qualify for a zero percent withholding rate in 2010 if certain Miscellaneous, net ...... 274 537 100 hire and if they agree to contribute a portion of the cost as determined by the Company. The requirements of the Treaty were met. On January 4, 2010, the Canadian subsidiary repaid Capital in $2,946 $8,358 $ 2,100 Company has the right to modify or terminate these benefits and does not fund postretirement accrued interest to its U.S. parent in a manner consistent with these requirements. As a result, Class B Excess health care and life insurance benefits in advance of payments for benefit claims. The Common Stock Common Stock Treasury Stock $1.5 million of withholding taxes accrued for 2007 and 2008 and through the third quarter of of Par As of December 31, 2009, management determined that the carrying value of an equity Company is currently contemplating changes to its postretirement health care and life 2009 were released in the fourth quarter of 2009. Shares Amount Shares Amount Shares Amount Value method investment was impaired as a result of accumulated losses from operations and review insurance benefits with the intention of reducing the Company’s cost of providing such benefits. of future expectations. The Company recorded a pre-tax impairment charge of $4,400 resulting These changes are likely to include increasing retiree premium contributions, reducing and The Company has not provided for U.S. federal or foreign withholding taxes on $6,410 and (000’s) (000’s) (000’s) in an adjusted carrying value of $4,961 as of December 31, 2009. The fair value was primarily eliminating certain benefits, and taking steps to ensure that the Company does not become $4,787 of foreign subsidiaries’ undistributed earnings as of December 31, 2011 and Balance at January 1, 2009 ...... 35,658 $24,762 19,357 $13,442 (65) $(1,992) $470,927 assessed using the present value of estimated future cash flows. subject to the excise tax on high value coverage instituted by the Patient Protection and December 31, 2010, respectively, because such earnings are considered to be permanently Issuance of 3% stock dividend ...... 1,064 739 580 403 (2) — 31,396 Conversion of Class B common shares to Affordability Act. The Company is not presently able to determine the effects of such changes reinvested. It is not practicable to determine the amount of income taxes that would be payable NOTE 7—EMPLOYEE BENEFIT PLANS: on its financial statements. upon remittance of the undistributed earnings. common shares ...... 18 12 (18) (12) — — — Purchase and retirement of common Amounts recognized in accumulated other comprehensive loss (pre-tax) at December 31, The Company recognizes interest and penalties related to unrecognized tax benefits in the Pension plans: shares ...... (938) (651) — — — — (20,073) 2011 are as follows: provision for income taxes on the Consolidated Statements of Earnings. The Company sponsors defined contribution pension plans covering certain non-union Balance at December 31, 2009 ...... 35,802 24,862 19,919 13,833 (67) (1,992) 482,250 employees with over one year of credited service. The Company’s policy is to fund pension Prior service credit ...... $ (626) At December 31, 2011 and 2010, the Company had unrecognized tax benefits of $6,804 and Issuance of 3% stock dividend ...... 1,070 743 597 414 (2) — 45,526 costs accrued based on compensation levels. Total pension expense for 2011, 2010 and 2009 Net actuarial loss ...... 8,255 $8,138, respectively. Included in this balance is $4,199 and $4,949, respectively, of Conversion of Class B common shares to approximated $4,011, $4,196 and $4,178, respectively. The Company also maintains certain Net amount recognized in accumulated other comprehensive loss ...... $7,629 unrecognized tax benefits that, if recognized, would favorably affect the annual effective income common shares ...... 50 35 (50) (35) — — — profit sharing and retirement savings-investment plans. Company contributions in 2011, 2010 tax rate. As of December 31, 2011 and 2010, $1,541 and $1,697, respectively, of interest and Purchase and retirement of common The estimated actuarial loss and prior service credit to be amortized from accumulated other and 2009 to these plans were $1,024, $1,043 and $1,011, respectively. penalties were included in the liability for uncertain tax positions. shares ...... (865) (600) — — — — (22,281) comprehensive income into net periodic benefit cost during 2012 are $1,146 and $(125), Balance at December 31, 2010 ...... 36,057 25,040 20,466 14,212 (69) (1,992) 505,495 The Company also contributes to multi-employer defined benefit pension plan for certain of respectively. A reconciliation of the beginning and ending balances of the total amounts of unrecognized its union employees under a collective bargaining agreement which expires on September 30, Issuance of 3% stock dividend ...... 1,077 748 612 426 (2) — 45,880 The changes in the accumulated postretirement benefit obligation at December 31, 2011 and tax benefits is as follows: 2012, as follows: Conversion of Class B common shares to 2010 consist of the following: 2011 2010 2009 common shares ...... 53 37 (53) (37) — — — Plan name: Bakery and Confectionery Union and Industry International Pension Fund December 31 Unrecognized tax benefits at January 1 ...... $8,138 $14,370 $13,069 Purchase and retirement of common Employer Identification Number and plan number: 52-6118572, plan number 001 shares ...... (708) (492) — — — — (17,698) 2011 2010 Increases in tax positions for the current year ...... 320 632 2,661 Funded Status as of the most recent year available: 86.51% funded as of January 1, 2010 Benefit obligation, beginning of year ...... $20,689 $16,674 Reductions in tax positions for lapse of statute of limitations ...... (668) (1,122) (514) Balance at December 31, 2011 ...... 36,479 $25,333 21,025 $14,601 (71) $(1,992) $533,677 The Company’s contributions to such plan: $2,046, $1,923 and $1,633 in 2011, 2010 and Reductions in tax positions for withdrawal of positions previously taken . . — (5,256) — Service cost ...... 831 696 2009, respectively 1,117 Reductions in tax positions for effective settlements ...... (986) (486) (846) Interest cost ...... 958 Average shares outstanding and all per share amounts included in the financial statements and Plan status: Not in reorganization and not insolvent as of December 31, 2010 Actuarial loss ...... 3,898 2,714 Unrecognized tax benefits at December 31 ...... $6,804 $ 8,138 $14,370 notes thereto have been adjusted retroactively to reflect annual three percent stock dividends. Although the Company has been advised that the plan is currently in an underfunded status, Benefits paid ...... (427) (353) Benefit obligation, end of year ...... $26,108 $20,689 the relative position of each employer associated with the multi-employer plan with respect to

21 22

JOB: 11-31190-1 CYCLE#;BL#: 8; 0 TRIM: 11" x 8.5" COMPOSITE JOB: 11-31190-1 CYCLE#;BL#: 8; 0 TRIM: 11" x 8.5" COMPOSITE COLORS: Black, ~note-color 2, ~note-color 3 GRAPHICS: none V1.5 COLORS: Black, ~note-color 2, ~note-color 3 GRAPHICS: none V1.5 Merrill Corp - Tootsie Roll 10-K Tier 2 ED [AUX] | 105123 | 29-Feb-12 11:40 | 11-31190-1.ea | Sequence: 6 CHKSUM Content: 42961 Layout: 13734 Graphics: No Graphics CLEAN

Net periodic postretirement benefit cost included the following components: NOTE 10—FAIR VALUE MEASUREMENTS: 2011 2010 2009 Current accounting guidance defines fair value as the price that would be received in the Service cost—benefits attributed to service during the period ...... $ 831 $ 696 $ 704 sale of an asset or paid to transfer a liability in an orderly transaction between market participants Interest cost on the accumulated postretirement benefit obligation . . . 1,117 958 853 at the measurement date. Guidance requires disclosure of the extent to which fair value is used Net amortization ...... 501 128 140 to measure financial assets and liabilities, the inputs utilized in calculating valuation Net periodic postretirement benefit cost ...... $2,449 $1,782 $1,697 measurements, and the effect of the measurement of significant unobservable inputs on earnings, or changes in net assets, as of the measurement date. Guidance establishes a For measurement purposes, the 2012 annual rate of increase in the per capita cost of covered three-level valuation hierarchy based upon the transparency of inputs utilized in the health care benefits was assumed to be 8.2% for pre-age 65 retirees, post 65 retirees and for measurement and valuation of financial assets or liabilities as of the measurement date. Level 1 prescription drugs; these rates were assumed to decrease gradually to 5.0% for 2019 and inputs include quoted prices for identical instruments and are the most observable. Level 2 remain at that level thereafter. The health care cost trend rate assumption has a significant inputs include quoted prices for similar assets and observable inputs such as interest rates, effect on the amounts reported. The weighted-average discount rate used in determining the foreign currency exchange rates, commodity rates and yield curves. Level 3 inputs are not accumulated postretirement benefit obligation was 4.31% and 5.47% at December 31, 2011 observable in the market and include management’s own judgments about the assumptions and 2010, respectively. market participants would use in pricing the asset or liability. The use of observable and Increasing or decreasing the health care trend rates by one percentage point in each year unobservable inputs is reflected in the hierarchy assessment disclosed in the table below. would have the following effect: As of December 31, 2011 and 2010, the Company held certain financial assets that are 1% Increase 1% Decrease required to be measured at fair value on a recurring basis. These included derivative hedging Postretirement benefit obligation ...... $6,247 $(4,277) instruments related to the foreign currency forward contracts and purchase of certain raw Total of service and interest cost components ...... $ 484 $ (320) materials, investments in trading securities and available for sale securities, including an auction The Company estimates future benefit payments will be $574, $710, $882, $993 and $1,095 rate security (ARS). The Company’s available for sale and trading securities principally consist in 2012 through 2016, respectively, and a total of $7,002 in 2017 through 2020. The future of municipal bonds and mutual funds that are publicly traded. benefit payments are net of the annual Medicare Part D subsidy of approximately $1,094 The following tables present information about the Company’s financial assets measured at beginning in 2012. fair value as of December 31, 2011 and 2010, and indicate the fair value hierarchy and the valuation techniques utilized by the Company to determine such fair value: NOTE 8—COMMITMENTS: Estimated Fair Value December 31, 2011 Total Input Levels Used Rental expense aggregated $1,042, $1,152 and $1,180 in 2011, 2010 and 2009, respectively. Fair Value Level 1 Level 2 Level 3 Future operating lease commitments are not significant. Cash and equivalents ...... $ 78,612 $ 78,612 $ — $ — NOTE 9—SEGMENT AND GEOGRAPHIC INFORMATION: Auction rate security ...... 7,453 — — 7,453 Available-for-sale securities, excluding the auction rate security ...... 57,835 — 57,835 — The Company operates as a single reportable segment encompassing the manufacture and Foreign currency forward contracts ...... 205 — 205 — sale of confectionery products. Its principal manufacturing operations are located in the United Commodity futures contracts ...... 203 203 — — States and Canada, and its principal market is the United States. The Company also Commodity options contracts ...... — — — — manufactures and sells confectionery products in Mexico, and exports products to Canada Trading securities ...... 41,768 41,768 — — and other countries worldwide. Total assets measured at fair value ...... $186,076 $120,583 $58,040 $7,453

The following geographic data includes net product sales summarized on the basis of the Estimated Fair Value December 31, 2010 customer location and long-lived assets based on their physical location: Total Input Levels Used 2011 2010 2009 Fair Value Level 1 Level 2 Level 3 Net product sales: Cash and equivalents ...... $115,976 $115,976 $ — $ — United States ...... $487,185 $471,714 $455,517 Auction rate security ...... 6,775 — — 6,775 Foreign ...... 41,184 45,435 40,075 Available-for-sale securities, excluding the $528,369 $517,149 $495,592 auction rate security ...... 27,178 — 27,178 — Foreign currency forward contracts ...... 942 — 942 — Long-lived assets: Commodity futures contracts ...... 2,310 2,310 — — United States ...... $170,173 $172,087 $176,044 Commodity options contracts ...... 5,369 5,369 — — Foreign ...... 41,989 43,405 44,677 Trading securities ...... 38,504 38,504 — — $212,162 $215,492 $220,721 Total assets measured at fair value ...... $197,054 $162,159 $28,120 $6,775

JOB: 11-31190-1 CYCLE#;BL#: 8; 0 TRIM: 11" x 8.5" COMPOSITE COLORS: Black, ~note-color 2, ~note-color 3 GRAPHICS: none V1.5 Merrill Corp - Tootsie Roll 10-K Tier 2 ED [AUX] | 105123 | 29-Feb-12 11:40 | 11-31190-1.ea | Sequence: 6 Merrill Corp - Tootsie Roll 10-K Tier 2 ED [AUX] | 105123 | 29-Feb-12 11:40 | 11-31190-1.ea | Sequence: 7 CHKSUM Content: 42961 Layout: 13734 Graphics: No Graphics CLEAN CHKSUM Content: 26934 Layout: 18980 Graphics: No Graphics CLEAN

Net periodic postretirement benefit cost included the following components: NOTE 10—FAIR VALUE MEASUREMENTS: Available for sale securities which utilize Level 2 inputs consist primarily of municipal bonds, The $7,500 carrying amount of the Company’s industrial revenue development bonds at 2011 2010 2009 which are valued based on quoted market prices or alternative pricing sources with reasonable December 31, 2011 and 2010 approximates its estimated fair value as the bonds have a floating Current accounting guidance defines fair value as the price that would be received in the levels of price transparency. interest rate. Service cost—benefits attributed to service during the period ...... $ 831 $ 696 $ 704 sale of an asset or paid to transfer a liability in an orderly transaction between market participants Interest cost on the accumulated postretirement benefit obligation . . . 1,117 958 853 at the measurement date. Guidance requires disclosure of the extent to which fair value is used A summary of the aggregate fair value, gross unrealized gains, gross unrealized losses, In addition to assets and liabilities that are recorded at fair value on a recurring basis, guidance Net amortization ...... 501 128 140 to measure financial assets and liabilities, the inputs utilized in calculating valuation realized losses and amortized cost basis of the Company’s investment portfolio by major security requires the Company to record assets and liabilities at fair value on a nonrecurring basis Net periodic postretirement benefit cost ...... $2,449 $1,782 $1,697 type is as follows: generally as a result of impairment charges. Assets measured at fair value on a nonrecurring measurements, and the effect of the measurement of significant unobservable inputs on earnings, or changes in net assets, as of the measurement date. Guidance establishes a December 31, 2011 basis during 2009 are summarized below: For measurement purposes, the 2012 annual rate of increase in the per capita cost of covered three-level valuation hierarchy based upon the transparency of inputs utilized in the Amortized Fair Unrealized Realized Twelve Months Ended December 31, 2009 health care benefits was assumed to be 8.2% for pre-age 65 retirees, post 65 retirees and for measurement and valuation of financial assets or liabilities as of the measurement date. Level 1 Available for Sale: Cost Value Gains Losses Losses prescription drugs; these rates were assumed to decrease gradually to 5.0% for 2019 and Pre-Impairment 2009 Level Used to Determine inputs include quoted prices for identical instruments and are the most observable. Level 2 Auction rate security ...... $ 8,410 $ 7,453 $ — $ (957) $— remain at that level thereafter. The health care cost trend rate assumption has a significant Cost Impairment New Cost New Cost Basis inputs include quoted prices for similar assets and observable inputs such as interest rates, Municipal bonds ...... 57,389 57,791 402 — — effect on the amounts reported. The weighted-average discount rate used in determining the Basis Charge Basis Level 1 Level 2 Level 3 foreign currency exchange rates, commodity rates and yield curves. Level 3 inputs are not Mutual funds ...... 45 44 — (1) — accumulated postretirement benefit obligation was 4.31% and 5.47% at December 31, 2011 Equity method investment . . . . . $ 9,361 $ 4,400 $ 4,961 $— $— $ 4,961 observable in the market and include management’s own judgments about the assumptions $65,844 $65,288 $402 $ (958) $— and 2010, respectively. Trademarks ...... 189,024 14,000 175,024 — — 175,024 market participants would use in pricing the asset or liability. The use of observable and December 31, 2010 Total ...... $198,385 $18,400 $179,985 $— $— $179,985

Increasing or decreasing the health care trend rates by one percentage point in each year unobservable inputs is reflected in the hierarchy assessment disclosed in the table below. Amortized Fair Unrealized Realized would have the following effect: As of December 31, 2011 and 2010, the Company held certain financial assets that are Available for Sale: Cost Value Gains Losses Losses As discussed in Note 6, during the fourth quarter of 2009 the Company recognized an 1% Increase 1% Decrease required to be measured at fair value on a recurring basis. These included derivative hedging Auction rate security ...... $ 8,410 $ 6,775 $ — $(1,635) $— impairment of $4,400 in an equity method investment based on Level 3 inputs. Postretirement benefit obligation ...... $6,247 $(4,277) instruments related to the foreign currency forward contracts and purchase of certain raw Municipal bonds ...... 27,073 27,122 49 — — As discussed in Note 13, during the fourth quarter of 2009 the Company recognized a Mutual funds ...... 56 56 — — — Total of service and interest cost components ...... $ 484 $ (320) materials, investments in trading securities and available for sale securities, including an auction trademark impairment of $14,000 based on Level 3 inputs. rate security (ARS). The Company’s available for sale and trading securities principally consist $35,539 $33,953 $ 49 $(1,635) $— The Company estimates future benefit payments will be $574, $710, $882, $993 and $1,095 of municipal bonds and mutual funds that are publicly traded. NOTE 11—DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES: in 2012 through 2016, respectively, and a total of $7,002 in 2017 through 2020. The future As of December 31, 2011, the Company’s long-term investments included an auction rate benefit payments are net of the annual Medicare Part D subsidy of approximately $1,094 The following tables present information about the Company’s financial assets measured at security, Jefferson County Alabama Sewer Revenue Refunding Warrants, reported at a fair From time to time, the Company uses derivative instruments, including foreign currency beginning in 2012. fair value as of December 31, 2011 and 2010, and indicate the fair value hierarchy and the value of $7,453, after reflecting a $5,140 other-than-temporary impairment and a $957 valuation techniques utilized by the Company to determine such fair value: forward contracts, commodity futures contracts and commodity option contracts, to manage temporary, as defined, decline in market value against its $13,550 par value. This its exposures to foreign exchange and commodity prices. Commodity futures contracts and NOTE 8—COMMITMENTS: Estimated Fair Value December 31, 2011 other-than-temporary impairment was recorded in other income (expense), net in 2008. In 2008, most commodity option contracts are intended and effective as hedges of market price risks Total Input Levels Used Rental expense aggregated $1,042, $1,152 and $1,180 in 2011, 2010 and 2009, respectively. this auction rate security was determined to be other-than-temporarily impaired due to the associated with the anticipated purchase of certain raw materials (primarily sugar). Foreign Fair Value Level 1 Level 2 Level 3 duration and severity of the decline in fair value. The Company estimated the fair value of this Future operating lease commitments are not significant. currency forward contracts are intended and effective as hedges of the Company’s exposure Cash and equivalents ...... $ 78,612 $ 78,612 $ — $ — auction rate security utilizing a valuation model with Level 3 inputs. to the variability of cash flows, primarily related to the foreign exchange rate changes of products NOTE 9—SEGMENT AND GEOGRAPHIC INFORMATION: Auction rate security ...... 7,453 — — 7,453 manufactured in Canada and sold in the United States, and periodic equipment purchases Available-for-sale securities, excluding the This valuation model considered, among other items, the credit risk of the collateral underlying auction rate security ...... 57,835 — 57,835 — the auction rate security, the credit risk of the bond insurer, interest rates, and the amount and from foreign suppliers denominated in a foreign currency. The Company does not engage in The Company operates as a single reportable segment encompassing the manufacture and Foreign currency forward contracts ...... 205 — 205 — timing of expected future cash flows including the Company’s assumption about the market trading or other speculative use of derivative instruments. sale of confectionery products. Its principal manufacturing operations are located in the United Commodity futures contracts ...... 203 203 — — expectation of the next successful auction. See also the Management’s Discussion and Analysis States and Canada, and its principal market is the United States. The Company also The Company recognizes all derivative instruments as either assets or liabilities at fair value Commodity options contracts ...... — — — — of Financial Condition and Results of Operations regarding Jefferson County auction rate security. in the Consolidated Statements of Financial Position. Derivative assets are recorded in other manufactures and sells confectionery products in Mexico, and exports products to Canada Trading securities ...... 41,768 41,768 — — The Company classified this auction rate security as non-current and has included it in long-term receivables and derivative liabilities are recorded in accrued liabilities. The Company uses and other countries worldwide. Total assets measured at fair value ...... $186,076 $120,583 $58,040 $7,453 investments on the Consolidated Statements of Financial Position at December 31, 2011 and either hedge accounting or mark-to-market accounting for its derivative instruments. Derivatives The following geographic data includes net product sales summarized on the basis of the that qualify for hedge accounting are designated as cash flow hedges by formally documenting Estimated Fair Value December 31, 2010 2010 because the Company believes that the current condition of the auction rate security customer location and long-lived assets based on their physical location: Total Input Levels Used market may take more than twelve months to improve. the hedge relationships, including identification of the hedging instruments, the hedged items 2011 2010 2009 Fair Value Level 1 Level 2 Level 3 and other critical terms, as well as the Company’s risk management objectives and strategies The following table presents additional information about the Company’s financial instruments for undertaking the hedge transaction. Net product sales: Cash and equivalents ...... $115,976 $115,976 $ — $ — (all ARS) measured at fair value on a recurring basis using Level 3 inputs at December 31, United States ...... $487,185 $471,714 $455,517 Auction rate security ...... 6,775 — — 6,775 2011 and 2010: Changes in the fair value of the Company’s cash flow hedges are recorded in accumulated Foreign ...... 41,184 45,435 40,075 Available-for-sale securities, excluding the other comprehensive loss, net of tax, and are reclassified to earnings in the periods in which 2011 2010 $528,369 $517,149 $495,592 auction rate security ...... 27,178 — 27,178 — earnings are affected by the hedged item. Substantially all amounts reported in accumulated Foreign currency forward contracts ...... 942 — 942 — Balance at January 1 ...... $6,775 $7,710 Long-lived assets: other comprehensive loss for commodity derivatives are expected to be reclassified to cost of Commodity futures contracts ...... 2,310 2,310 — — Unrealized loss recognized in other comprehensive loss ...... 678 (935) $170,173 goods sold. Substantially all amounts reported in accumulated other comprehensive loss for United States ...... $172,087 $176,044 Commodity options contracts ...... 5,369 5,369 — — Balance at December 31 ...... $7,453 $6,775 foreign currency derivatives are expected to be reclassified to other income (expense), net. Foreign ...... 41,989 43,405 44,677 Trading securities ...... 38,504 38,504 — — $212,162 $215,492 $220,721 Total assets measured at fair value ...... $197,054 $162,159 $28,120 $6,775

23 24

JOB: 11-31190-1 CYCLE#;BL#: 8; 0 TRIM: 11" x 8.5" COMPOSITE JOB: 11-31190-1 CYCLE#;BL#: 8; 0 TRIM: 11" x 8.5" COMPOSITE COLORS: Black, ~note-color 2, ~note-color 3 GRAPHICS: none V1.5 COLORS: Black, ~note-color 2, ~note-color 3 GRAPHICS: none V1.5 Merrill Corp - Tootsie Roll 10-K Tier 2 ED [AUX] | 105123 | 29-Feb-12 11:40 | 11-31190-1.ea | Sequence: 8 CHKSUM Content: 30331 Layout: 11364 Graphics: No Graphics CLEAN

The following table summarizes the Company’s outstanding derivative contracts and their NOTE 12—COMPREHENSIVE EARNINGS (LOSS): effects on its Consolidated Statements of Financial Position at December 31, 2011 and 2010: The following table sets forth information with respect to accumulated other comprehensive December 31, 2011 earnings (loss): Notional Foreign Unrealized Gain (Loss) on Accumulated Amounts Assets Liabilities Currency Postretirement Other Derivatives designated as hedging instruments: Translation and Comprehensive Foreign currency forward contracts ...... $13,044 $ 205 $ — Adjustment Investments Derivatives Pension Beneﬁts Earnings (Loss) Commodity futures contracts ...... 4,557 341 (138) Balance at January 1, 2009 ...... $(14,292) $ 191 $ 220 $(1,360) $(15,241) Commodity option contracts ...... — — — Unrealized gains (losses) ...... 1,183 (709) 4,341 109 4,924 Total derivatives ...... $ 546 $(138) (Gains) losses reclassiﬁed to

net earnings ...... — — (1,015) — (1,015) December 31, 2010 Tax effect ...... (118) 263 (1,232) 23 (1,064) Notional Net of tax amount ...... 1,065 (446) 2,094 132 2,845 Amounts Assets Liabilities Balance at December 31, 2009 . . . . . (13,227) (255) 2,314 (1,228) (12,396) Derivatives designated as hedging instruments: Unrealized gains (losses) ...... 856 (1,179) 7,313 (3,007) 3,983 Foreign currency forward contracts ...... $ 3,572 $ 942 $ — (Gains) losses reclassiﬁed to Commodity futures contracts ...... 4,407 2,310 — net earnings ...... — — (2,651) — (2,651) Commodity option contracts ...... 10,344 5,481 (112) Tax effect ...... 135 435 (1,724) 1,005 (149) Total derivatives ...... $8,733 $(112) Net of tax amount ...... 991 (744) 2,938 (2,002) 1,183

Balance at December 31, 2010 . . . . . (12,236) (999) 5,252 (3,230) (11,213) The effects of derivative instruments on the Company’s Consolidated Statement of Earnings, Unrealized gains (losses) ...... (2,496) 1,030 (397) (3,092) (4,955) Comprehensive Earnings and Retained Earnings for years ended December 31, 2011 and (Gains) losses reclassified to 2010 are as follows: net earnings ...... — — (7,531) — (7,531) Tax effect ...... 46 (382) 2,933 1,149 3,746 For Year Ended December 31, 2011 Gain (Loss) Net of tax amount ...... (2,450) 648 (4,995) (1,943) (8,740) Gain (Loss) on Amount Excluded Balance at December 31, 2011 . . . . . $(14,686) $ (351) $ 257 $(5,173) $(19,953) Gain (Loss) Reclassified from from Effectiveness Recognized Accumulated OCI Testing Recognized in OCI into Earnings in Earnings NOTE 13—GOODWILL AND INTANGIBLE ASSETS: Foreign currency forward contracts ...... $ 317 $1,054 $— Commodity futures contracts ...... 4,674 6,782 — All of the Company’s intangible indefinite-lived assets are trademarks. Commodity option contracts ...... (5,388) (305) — The changes in the carrying amount of trademarks for 2011 and 2010 were as follows: Total ...... $ (397) $7,531 $— 2011 2010 For Year Ended December 31, 2010 Original cost ...... $193,767 $193,767 Gain (Loss) Accumulated impairment losses as of January 1 ...... (18,743) (18,743) Gain (Loss) on Amount Excluded Balance at January 1 ...... $175,024 $175,024 Gain (Loss) Reclassified from from Effectiveness Recognized Accumulated OCI Testing Recognized Current year impairment losses ...... — — in OCI into Earnings in Earnings Balance at December 31 ...... $175,024 $175,024

Foreign currency forward contracts ...... $ 467 $3,199 $— Accumulated impairment losses as of December 31 ...... $ (18,743) $ (18,743) Commodity futures contracts ...... 2,120 (191) — Commodity option contracts ...... 4,726 (357) — As of December 31, 2009, management ascertained certain trademarks were impaired, and Total ...... $ 7,313 $2,651 $— recorded a pre-tax charge of $14,000. The principal driver of this impairment charge was an increase in the discount rate required by market participants. The fair value of indeﬁnite-lived For the years ended December 31, 2011 and 2010, the Company recognized a loss of $0 intangible assets was primarily assessed using the present value of estimated future cash ﬂows. and $1,613 in earnings, respectively, related to mark-to-market accounting for certain commodity option contracts. The Company has no accumulated impairment losses of goodwill.

JOB: 11-31190-1 CYCLE#;BL#: 8; 0 TRIM: 11" x 8.5" COMPOSITE COLORS: Black, ~note-color 2, ~note-color 3 GRAPHICS: none V1.5 Merrill Corp - Tootsie Roll 10-K Tier 2 ED [AUX] | 105123 | 29-Feb-12 11:40 | 11-31190-1.ea | Sequence: 8 Merrill Corp - Tootsie Roll 10-K Tier 2 ED [AUX] | 105123 | 29-Feb-12 11:40 | 11-31190-1.fa | Sequence: 1 CHKSUM Content: 30331 Layout: 11364 Graphics: No Graphics CLEAN CHKSUM Content: 235 Layout: 418 Graphics: 39708 CLEAN

Report of Independent Registered Public Accounting Firm

The following table summarizes the Company’s outstanding derivative contracts and their NOTE 12—COMPREHENSIVE EARNINGS (LOSS): To the Board of Directors and Shareholders of Tootsie Roll Industries, Inc.: effects on its Consolidated Statements of Financial Position at December 31, 2011 and 2010: The following table sets forth information with respect to accumulated other comprehensive December 31, 2011 earnings (loss): In our opinion, the accompanying consolidated statements of financial position and the related consolidated statements of earnings, comprehensive earnings and retained Notional Foreign Unrealized Gain (Loss) on Accumulated 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, 2011 and Amounts Assets Liabilities Currency Postretirement Other Derivatives designated as hedging instruments: Translation and Comprehensive December 31, 2010, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2011 in conformity with accounting Foreign currency forward contracts ...... $13,044 $ 205 $ — Adjustment Investments Derivatives Pension Benefits Earnings (Loss) principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial Commodity futures contracts ...... 4,557 341 (138) Balance at January 1, 2009 ...... $(14,292) $ 191 $ 220 $(1,360) $(15,241) reporting as of December 31, 2011, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Commodity option contracts ...... — — — Unrealized gains (losses) ...... 1,183 (709) 4,341 109 4,924 Total derivatives ...... $ 546 $(138) (Gains) losses reclassified to Treadway Commission (COSO). The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting

net earnings ...... — — (1,015) — (1,015) and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control over Financial Reporting on December 31, 2010 Tax effect ...... (118) 263 (1,232) 23 (1,064) page 27 of the 2011 Annual Report to Shareholders. Our responsibility is to express opinions on these financial statements and on the Company’s internal control over Notional Net of tax amount ...... 1,065 (446) 2,094 132 2,845 financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board Amounts Assets Liabilities Balance at December 31, 2009 . . . . . (13,227) (255) 2,314 (1,228) (12,396) Derivatives designated as hedging instruments: Unrealized gains (losses) ...... 856 (1,179) 7,313 (3,007) 3,983 (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material Foreign currency forward contracts ...... $ 3,572 $ 942 $ — (Gains) losses reclassified to misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, Commodity futures contracts ...... 4,407 2,310 — net earnings ...... — — (2,651) — (2,651) Commodity option contracts ...... 10,344 5,481 (112) Tax effect ...... 135 435 (1,724) 1,005 (149) on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by Total derivatives ...... $8,733 $(112) Net of tax amount ...... 991 (744) 2,938 (2,002) 1,183 management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of Balance at December 31, 2010 . . . . . (12,236) (999) 5,252 (3,230) (11,213) internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal The effects of derivative instruments on the Company’s Consolidated Statement of Earnings, Unrealized gains (losses) ...... (2,496) 1,030 (397) (3,092) (4,955) Comprehensive Earnings and Retained Earnings for years ended December 31, 2011 and (Gains) losses reclassified to control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our 2010 are as follows: net earnings ...... — — (7,531) — (7,531) audits provide a reasonable basis for our opinions. Tax effect ...... 46 (382) 2,933 1,149 3,746 For Year Ended December 31, 2011 Gain (Loss) Net of tax amount ...... (2,450) 648 (4,995) (1,943) (8,740) As discussed in Note 1 to the consolidated financial statements, the Company changed the manner in which it accounts for LIFO inventories in 2011. Gain (Loss) on Amount Excluded Balance at December 31, 2011 . . . . . $(14,686) $ (351) $ 257 $(5,173) $(19,953) Gain (Loss) Reclassified from from Effectiveness A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation Recognized Accumulated OCI Testing Recognized in OCI into Earnings in Earnings NOTE 13—GOODWILL AND INTANGIBLE ASSETS: of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes Foreign currency forward contracts ...... $ 317 $1,054 $— All of the Company’s intangible indefinite-lived assets are trademarks. those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the Commodity futures contracts ...... 4,674 6,782 — assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with Commodity option contracts ...... (5,388) (305) — The changes in the carrying amount of trademarks for 2011 and 2010 were as follows: Total ...... $ (397) $7,531 $— generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and 2011 2010 directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s For Year Ended December 31, 2010 Original cost ...... $193,767 $193,767 assets that could have a material effect on the financial statements. Gain (Loss) Accumulated impairment losses as of January 1 ...... (18,743) (18,743) Gain (Loss) on Amount Excluded Balance at January 1 ...... $175,024 $175,024 Gain (Loss) Reclassified from from Effectiveness Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to Recognized Accumulated OCI Testing Recognized Current year impairment losses ...... — — in OCI into Earnings in Earnings Balance at December 31 ...... $175,024 $175,024 future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or

Foreign currency forward contracts ...... $ 467 $3,199 $— Accumulated impairment losses as of December 31 ...... $ (18,743) $ (18,743) procedures may deteriorate. Commodity futures contracts ...... 2,120 (191) — Commodity option contracts ...... 4,726 (357) — As of December 31, 2009, management ascertained certain trademarks were impaired, and Total ...... $ 7,313 $2,651 $— recorded a pre-tax charge of $14,000. The principal driver of this impairment charge was an increase in the discount rate required by market participants. The fair value of indeﬁnite-lived For the years ended December 31, 2011 and 2010, the Company recognized a loss of $0 intangible assets was primarily assessed using the present value of estimated future cash ﬂows. and $1,613 in earnings, respectively, related to mark-to-market accounting for certain commodity option contracts. The Company has no accumulated impairment losses of goodwill.

Chicago, IL February 29, 2012

25 26

JOB: 11-31190-1 CYCLE#;BL#: 8; 0 TRIM: 11" x 8.5" COMPOSITE JOB: 11-31190-1 CYCLE#;BL#: 8; 0 TRIM: 11" x 8.5" COMPOSITE COLORS: Black, ~note-color 2, ~note-color 3 GRAPHICS: none V1.5 COLORS: Black, ~note-color 2, ~note-color 3 GRAPHICS: price_water_k_sig.eps V1.5 Merrill Corp - Tootsie Roll 10-K Tier 2 ED [AUX] | 105123 | 29-Feb-12 11:40 | 11-31190-1.fa | Sequence: 2 CHKSUM Content: 47831 Layout: 38946 Graphics: 28954 CLEAN

Performance Graph

The following performance graph COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN compares the cumulative total $140 shareholder return on the Company’s Common Stock for a $120 five-year period (December 31, $100 2006 to December 31, 2011) with the cumulative total return of $80 Standard & Poor’s 500 Stock Index (“S&P 500”) and the Dow Jones $60 Industry Food Index (“Peer Group,” which includes the Company), $40 assuming (i) $100 invested on $20 December 31 of the first year of the chart in each of the Company’s $0 Common Stock, S&P 500 and the 2006 2007 2008 2009 2010 2011 Dow Jones Industry Food Index and TR $100.00 $87.39 $85.13 $95.08 $104.87 $89.34 (ii) the reinvestment of dividends. DJ $100.00 $107.46 $80.58 $95.96 $107.08 $120.66 S&P $100.00 $105.49 $66.46 $84.05 $96.71 $98.75 Management’s Report on Internal Control Over Financial Reporting The management of Tootsie Roll Industries, Inc. is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in the Securities Exchange Act of 1934 (SEC) Rule 13a-15(f). Our management conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2011 as required by SEC Rule 13a-15(c). In making this assessment, we used the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Based on our evaluation under the COSO criteria, our management concluded that our internal control over financial reporting was effective as of December 31, 2011. The effectiveness of the Company’s internal control over financial reporting as of December 31, 2011 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears on page 26. Tootsie Roll Industries, Inc. Chicago, Illinois February 29, 2012

JOB: 11-31190-1 CYCLE#;BL#: 8; 0 TRIM: 11" x 8.5" COMPOSITE COLORS: Black, ~note-color 2, ~note-color 3 GRAPHICS: 31190-1_comparison_k_line.eps V1.5 Merrill Corp - Tootsie Roll 10-K Tier 2 ED [AUX] | 105123 | 29-Feb-12 11:40 | 11-31190-1.fa | Sequence: 2 Merrill Corp - Tootsie Roll 10-K Tier 2 ED [AUX] | 105123 | 29-Feb-12 11:40 | 11-31190-1.ga | Sequence: 1 CHKSUM Content: 47831 Layout: 38946 Graphics: 28954 CLEAN CHKSUM Content: 6384 Layout: 5750 Graphics: No Graphics CLEAN

Quarterly Financial Data (Unaudited) Performance Graph TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES

The following performance graph COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN (Thousands of dollars except per share data) compares the cumulative total $140 2011 First Second Third Fourth Year shareholder return on the Net product sales ...... $108,323 $104,884 $186,784 $128,378 $528,369 $120 Company’s Common Stock for a Product gross margin ...... 34,799 33,898 54,554 39,893 163,144 five-year period (December 31, $100 Net earnings ...... 8,330 6,486 18,855 10,267 43,938 2006 to December 31, 2011) with Net earnings per share ...... 0.14 0.11 0.33 0.18 0.76 the cumulative total return of $80 2010 Standard & Poor’s 500 Stock Index (“S&P 500”) and the Dow Jones $60 Net product sales ...... $103,244 $105,026 $191,045 $117,834 $517,149 Industry Food Index (“Peer Group,” Product gross margin ...... 34,909 35,450 61,649 35,807 167,815 Net earnings ...... 9,068 8,309 26,245 9,441 53,063 which includes the Company), $40 Net earnings per share ...... 0.15 0.14 0.45 0.16 0.90 assuming (i) $100 invested on $20 December 31 of the first year of the The results for the quarters presented reflect the retrospective application of a change in accounting principle for inventory valuation and the related chart in each of the Company’s $0 effects on product gross margin, net earnings and net earnings per share as discussed in Note 1 to the Consolidated Financial Statements. Product Common Stock, S&P 500 and the 2006 2007 2008 2009 2010 2011 gross margin reflects increases (decreases) of $517, $504, and $811 for the three quarters of 2011 and $(212), $ (216), $(375) and $(218) for the Dow Jones Industry Food Index and TR $100.00 $87.39 $85.13 $95.08 $104.87 $89.34 four quarters of 2010. Net earnings reflect increases (decreases) $330, $ 321, and $517 for the three quarters of 2011 and $(136), $(138), $(239) and (ii) the reinvestment of dividends. DJ $100.00 $107.46 $80.58 $95.96 $107.08 $120.66 $(138) for four quarters of 2010. Net earnings per share increased .01 per share for the third quarter of 2011 and decreased .01 per share for the first quarter of 2010. All other quarters remain unchanged as reported. S&P $100.00 $105.49 $66.46 $84.05 $96.71 $98.75 Net earnings per share is based upon average outstanding shares as adjusted for 3% stock dividends issued during the second quarter of each Management’s Report on Internal Control Over year and revision of net earnings as discussed above. The sum of the per share amounts may not equal annual amounts due to rounding. Financial Reporting 2011-2010 QUARTERLY SUMMARY OF TOOTSIE ROLL INDUSTRIES, INC. STOCK PRICES AND DIVIDENDS PER SHARE The management of Tootsie Roll Industries, Inc. is responsible for establishing and maintaining adequate internal control over financial reporting, as such STOCK PRICES* DIVIDENDS term is defined in the Securities Exchange Act of 1934 (SEC) Rule 13a-15(f). Our management conducted an evaluation of the effectiveness of the 2011 2010 2011 2010 Company’s internal control over financial reporting as of December 31, 2011 as required by SEC Rule 13a-15(c). In making this assessment, we used the High Low High Low 1st Qtr . . . . . $.08 $.08 criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the $.08 COSO criteria). Based on our evaluation under the COSO criteria, our management concluded that our internal control over financial reporting was effective 1st Qtr . . . . . $29.45 $27.06 $28.24 $25.88 2nd Qtr . . . . $.08 $29.68 $27.78 as of December 31, 2011. 2nd Qtr . . . . $28.04 $23.65 3rd Qtr . . . . . $.08 $.08 3rd Qtr . . . . . $29.80 $23.52 $25.95 $23.34 4th Qtr . . . . . $.08 $.08 The effectiveness of the Company’s internal control over financial reporting as of December 31, 2011 has been audited by PricewaterhouseCoopers LLP, 4th Qtr . . . . . $25.95 $22.85 $29.84 $24.64 NOTE: In addition to the above cash dividends, a 3% an independent registered public accounting firm, as stated in their report which appears on page 26. *NYSE - Closing Price stock dividend was issued on April 7, 2011 and Tootsie Roll Industries, Inc. Estimated Number of shareholders at February 2012: April 8, 2010. Cash dividends are restated to reflect Chicago, Illinois Common Stock ...... 18,000 3% stock dividends. February 29, 2012 Class B Common Stock ...... 5,000

27 28

JOB: 11-31190-1 CYCLE#;BL#: 8; 0 TRIM: 11" x 8.5" COMPOSITE JOB: 11-31190-1 CYCLE#;BL#: 8; 0 TRIM: 11" x 8.5" COMPOSITE COLORS: Black, ~note-color 2, ~note-color 3 GRAPHICS: 31190-1_comparison_k_line.eps V1.5 COLORS: Black, ~note-color 2, ~note-color 3 GRAPHICS: none V1.5 Merrill Corp - Tootsie Roll 10-K Tier 2 ED [AUX] | 105123 | 29-Feb-12 11:40 | 11-31190-1.ga | Sequence: 2 CHKSUM Content: 8661 Layout: 23835 Graphics: No Graphics CLEAN

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) 2011 2010 2009 2008 2007

Sales and Earnings Data (2)(3)(4)(5) 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 expense ...... 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 (1)(3)(4)(5) Net earnings ...... $ 0.76 $ 0.90 $ 0.89 $ 0.65 $ 0.85 Cash dividends declared ...... 0.32 0.32 0.32 0.32 0.32 Stock dividends ...... 3% 3% 3% 3% 3%

Additional Financial Data (1)(2)(3)(4)(5) Working capital ...... $153,846 $176,662 $154,409 $129,694 $142,163 Net cash provided by operating activities ...... 50,390 82,805 76,994 57,533 90,148 Net cash provided by (used in) 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

(1) Per Common share data and average shares outstanding adjusted for annual 3% stock dividends . (2) Certain reclassiﬁcations have been made to prior year numbers to conform to current year presentation. (3) The 2009 data included the release of tax valuation allowances, charges related to the impairment of an equity method investment and impairment charges related to certain trademarks as discussed in Notes 4, 6 and 13 to the Consolidated Financial Statements, respectively. (4) The 2008 data included a charge for the other-than-temporary impairment of an ARS. Further information is included in Note 10 to the Consolidated Financial Statements. (5) Reﬂects the increase (decrease) retrospective application of a change in accounting principle for inventory valuation for the following: 2010 2009 2008 2007 Product gross margin ...... $(1,021) $(1,130) $(682) $ 409 Provision for income taxes ...... (370) (409) (247) 148 Net earnings ...... (651) (721) (435) 261 Net earnings per share ...... (0.02) (0.02) — 0.01 Working capital ...... (2,424) (1,403) (273) 409 Total assets ...... (2,424) (1,403) (273) 409 Shareholders’ equity ...... (1,546) (895) (174) 261

JOB: 11-31190-1 CYCLE#;BL#: 8; 0 TRIM: 11" x 8.5" COMPOSITE COLORS: Black, ~note-color 2, ~note-color 3 GRAPHICS: none V1.5 Merrill Corp - Tootsie Roll 10-K Tier 2 ED [AUX] | 105123 | 29-Feb-12 11:40 | 11-31190-1.ga | Sequence: 2 Merrill Corp - Tootsie Roll 10-K Tier 2 ED [AUX] | 105123 | 29-Feb-12 11:40 | 11-31190-1.za | Sequence: 1 CHKSUM Content: 8661 Layout: 23835 Graphics: No Graphics CLEAN CHKSUM Content: 36742 Layout: 27686 Graphics: 12681 CLEAN

Five Year Summary of Earnings and Financial Highlights Board of Directors Subsidiaries TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES Melvin J. Gordon(1) Chairman of the Board and Andes Candies L.P. The Sweets Mix Company, Inc. (Thousands of dollars except per share, percentage and ratio figures) Chief Executive Officer Andes Manufacturing LLC Tootsie Roll Company, Inc. Andes Services LLC Tootsie Roll Industries, LLC (1) Ellen R. Gordon President and Chief Operating Officer C.C.L.P., INC. Tootsie Roll Management, Inc. 2011 C.G.P., INC. Tootsie Roll Mfg., LLC (See management’s comments starting on page 5) 2010 2009 2008 2007 (2)(3) Barre A. Seibert Retired First Vice President, Cambridge Brands Manufacturing, Inc. Tootsie Roll of Canada, ULC Washington Mutual Bank Cambridge Brands Services, Inc. Tootsie Roll Worldwide, Ltd. Sales and Earnings Data (2)(3)(4)(5) Cambridge Brands, Inc. Tootsie Rolls—Latin America Lana Jane Lewis-Brent(2)(3) President, Paul Brent Designer, Inc., Cella’s Confections, Inc. TRI de Latinoamerica S.A. de C.V. Net product sales ...... $528,369 $517,149 $495,592 $492,051 $492,742 an art publishing, design and licensing 163,144 Charms LLC TRI Finance, Inc. Product gross margin ...... 167,815 175,817 158,055 165,456 company Concord (GP) Inc. TRI International, Inc. Interest expense ...... 121 142 243 378 535 (2)(3) Concord Canada Holdings ULC TRI Sales Co. Provision for income taxes ...... 16,974 20,005 9,892 16,347 25,401 Richard P. Bergeman Retired Senior Vice President, Bestfoods Concord Confections Holdings USA, Inc. TRI-Mass, Inc. Net earnings ...... 43,938 53,063 53,157 38,880 52,175 (1)Executive Committee (2)Audit Committee (3)Compensation Committee Concord Partners LP Tutsi S.A. de C.V. JT Company, Inc. World Trade & Marketing Ltd. % 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% Officers Per Common Share Data (1)(3)(4)(5) Other Information Net earnings ...... $ 0.76 $ 0.90 $ 0.89 $ 0.65 $ 0.85 Melvin J. Gordon Chairman of the Board and Chief Executive Officer Stock Exchange New York Stock Exchange, Inc. Cash dividends declared ...... 0.32 0.32 0.32 0.32 0.32 (Since 1922) Stock dividends ...... 3% 3% 3% 3% 3% Ellen R. Gordon President and Chief Operating Officer Stock Identification Ticker Symbol: TR G. Howard Ember, Jr. Vice President, Finance & Chief CUSIP No. 890516 10-7 Additional Financial Data (1)(2)(3)(4)(5) Financial Officer Working capital ...... $153,846 $176,662 $154,409 $129,694 $142,163 Stock Transfer Agent and American Stock Transfer John W. Newlin, Jr. Vice President, Manufacturing Net cash provided by operating activities ...... 50,390 82,805 76,994 57,533 90,148 Stock Registrar and Trust Company Net cash provided by (used in) investing activities . . . . (51,157) (16,808) (16,364) (7,565) (43,429) Thomas E. Corr Vice President, Marketing & Sales Operations Center Net cash used in financing activities ...... (36,597) (41,011) (38,548) (38,666) (44,842) John P. Majors Vice President, Physical Distribution 6201 15th Avenue Property, plant & equipment additions ...... 16,351 12,813 20,831 34,355 14,767 Brooklyn, NY 11219 Barry P. Bowen Treasurer & Assistant Secretary Net property, plant & equipment ...... 212,162 215,492 220,721 217,628 201,401 1-800-710-0932 www.amstock.com Total assets ...... 857,856 857,959 836,844 813,252 813,134 Richard F. Berezewski Controller Long-term debt ...... 7,500 7,500 7,500 7,500 7,500 Independent Registered PricewaterhouseCoopers LLP Shareholders’ equity ...... 665,935 667,408 654,244 636,847 640,204 Offices, Plants Public Accounting Firm One North Wacker Average shares outstanding ...... 57,892 58,685 59,425 60,152 61,580 Chicago, IL 60606 Executive Offices 7401 S. Cicero Ave. General Counsel Becker Ross, LLP (1) Per Common share data and average shares outstanding adjusted for annual 3% stock dividends . (2) Certain reclassifications have been made to prior year numbers to conform to current year presentation. Chicago, Illinois 60629 317 Madison Avenue (3) The 2009 data included the release of tax valuation allowances, charges related to the impairment of an equity method investment and impairment charges related to certain trademarks as discussed www.tootsie.com New York, NY 10017 in Notes 4, 6 and 13 to the Consolidated Financial Statements, respectively. (4) The 2008 data included a charge for the other-than-temporary impairment of an ARS. Further information is included in Note 10 to the Consolidated Financial Statements. Plants/Warehouses Illinois Annual Meeting May 7, 2012 (5) Reflects the increase (decrease) retrospective application of a change in accounting principle for inventory valuation for the following: Tennessee Mutual Building, Room 1200 2010 2009 2008 2007 Massachusetts 909 East Main Street Product gross margin ...... $(1,021) $(1,130) $(682) $ 409 Pennsylvania Richmond, VA 23219 Provision for income taxes ...... (370) (409) (247) 148 Net earnings ...... (651) (721) (435) 261 Wisconsin Net earnings per share ...... (0.02) (0.02) — 0.01 Ontario, Canada Working capital ...... (2,424) (1,403) (273) 409 Mexico City, Mexico Total assets ...... (2,424) (1,403) (273) 409 Shareholders’ equity ...... (1,546) (895) (174) 261 Foreign Sales Offices Mexico City, Mexico Ontario, Canada Printed on recycled paper. 29 30

JOB: 11-31190-1 CYCLE#;BL#: 8; 0 TRIM: 11" x 8.5" COMPOSITE JOB: 11-31190-1 CYCLE#;BL#: 8; 0 TRIM: 11" x 8.5" COMPOSITE COLORS: Black, ~note-color 2, ~note-color 3 GRAPHICS: none V1.5 COLORS: Black, ~note-color 2, ~note-color 3 GRAPHICS: recycled_logo.eps, tr_listed_nyse_k_logo.eps V1.5 Tootsie Roll Industries, Inc.

Annual Report 2011