Tootsie Roll Industries, Inc
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Tootsie Roll Industries, Inc. Annual Report 2002 Corporate Profile Tootsie Roll Industries, Inc. has been engaged in the manufacture and sale of candy for 106 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, Mason Dots, Mason Crows, Junior Mints, Charleston Chew, Sugar Daddy, Sugar Babies, Andes and Fluffy Stuff cotton candy. Corporate Principles We believe that the differences among companies are attributable to the caliber of their people, and therefore we strive to attract and retain superior people for each job. We believe that an open family atmosphere at work combined with professional management fosters cooperation and enables each individual to maximize his or her contribution to the company and realize the corresponding rewards. We do not jeopardize long-term growth for immediate, short-term results. We maintain a conservative financial posture in the deployment and management of our assets. We run a trim operation and continually strive to eliminate waste, minimize cost and implement performance improvements. Melvin J. Gordon, Chairman and Chief Executive Officer and Ellen R. Gordon, President and Chief Operating Officer. We invest in the latest and most productive equipment to deliver the best quality product to our customers at the lowest cost. We seek to outsource functions where appropriate and to vertically integrate operations where it is financially advantageous to do so. We view our well known brands as prized assets to be aggressively advertised and promoted to each new generation of consumers. 1 To Our Shareholders Sales in 2002 were $393 million Reported net earnings in 2002 declined by $0.05 per share, acquisitions, as they may arise, compared to 2001 sales of were $66 million compared with principally due to higher ingredient and are actively pursuing all of $392 million. Sales in both years prior year net earnings of costs and lower investment these channels of opportunity. are now being reported net of $66 million. Earnings per share income. certain consumer and trade were $1.29 compared to $1.26 in promotion expenses as required 2001 reflecting the fewer shares Other key financial highlights of Sales and Marketing under the new accounting rules. outstanding in 2002. 2002 include: We were encouraged by sales In 2002, we adopted the new growth in many of our core brands accounting rules that eliminated · Cash dividends were paid We have long recognized the and key markets during the year, amortization of goodwill and for the sixtieth consecutive competitive advantage of having but these gains were mitigated by intangibles. Without the favorableyear, and totaled strong brands. The backdrop of generally weak domestic economic effect of this accounting change, $14 million. 2002 was a persistently slow conditions, retail bankruptcies, and adjusting for the non-recurring domestic economy and large overall competitive activity and items that occurred in 2001, · The thirty-eighth consecutive retailer bankruptcies. Such lower Mexican sales. earnings in 2002 would have annual stock dividend was conditions, along with intense distributed in April. competition for retail space and the consumer's hard-earned dollars, increasingly highlighted the Financial Highlights · Capital projects totalling $14 million to increase value and staying power of our December 31, efficiency, improve quality core brands, most of which grew 2002 2001 and to add capacity in in 2002. (in thousands except per share data) support of growth items were approved, some of Our sales gains were the result of which will be expended in continued implementation of Net Sales ................... $393,185 $391,755 2003. targeted promotional programs Net Earnings ................ 66,388 65,687 such as shippers, combo packs · 948,600 of the company's and bonus bags throughout the Working Capital .............. 161,852 188,250 common shares were year. These programs are popular repurchased on the open with both retailers and consumers Net Property, Plant and market for a total of and reinforce the attributes of Equipment ............... 128,869 132,575 $32 million. quality and value that are so Shareholders' Equity ........... 526,740 508,461 closely associated with our The company's balance sheet products. Average Shares Outstanding* .... 51,553 51,947 strengthened during 2002 despite the considerable financial Per Share Items* resources committed to these In 2002, we experienced another Net Earnings ............... $1.29 $1.26 activities. Cash and investments in strong Halloween sales period. Our marketable securities grew by bagged goods, including the Cash Dividends Paid .......... .28 .27 $16 million during the year. We popular Child's Play mixed product remain fully prepared to respond to assortment, continued to sell well investment opportunities, such as through the mass merchandise, *Adjusted for stock dividends. product development, capital drug and warehouse club classes projects and suitable business of trade. 2 Our flagship brand, Tootsie Roll, large bags for Halloween. Building Our traditional boxed ``theater'' The newest addition to our Blow continued to emphasize its on the instant success of this item,line, consisting of Dots, Crows, Pop line, Black Ice, was introduced branded value positioning both to seasonal offerings of Tootsie PopJunior Mints, Sugar Babies and in 2002. It features opaque the trade and to consumers. One Miniatures for Easter and ValentineCharleston ``Mini'' Chews crystalline hard candy surrounding offering that highlights this strategy were added to the line toward thecontributed to sales growth in a mysterious-looking black is our Bonus Bag promotion, which end of 2002.2002. This ``top shelf'' assortment raspberry bubble gum center. features 15% more candy for free. of jumbo, reclosable boxes now Not only does this promotion features Dots in three delicious attract consumer attention, but the flavors: Original, Tropical and trade is pleased with the rapid Wildberry. shelf turns it generates. Black Ice Blow Pops Tootsie Roll Midgee Bonus Bag We also introduced Fluffy Stuff Line extensions represented Andes new changemaker Cotton Candy Pops in 2002. They another avenue of sales growth in are traditional flat pops with flavor 2002. Tootsie ``Mini'' Pops, a and package graphics that mirror miniature replica of our famous our Fluffy Stuff cotton candy. Tootsie PopÐright down to the We extended the Andes line into chewy, chocolatey Tootsie Roll the change-maker market by centerÐwere introduced in introducing a special piece size in an airtight, fin-sealed wrapper, suitable for individual retail sale. Junior Mints BIG BOX For Christmas, Andes mints were embossed with festive wreaths, Christmas trees and snowmen to create an exciting seasonal line The new ``Big Box'' of Junior Mints extension. Both of these new was another successful extension Andes items retain the in the boxed category. This Big characteristic rectangular, multi- Box features vertically oriented layered appearance and delicious graphics creating an exceptional cremeÁ de menthe flavor that typify consumer impression on the store Tootsie Pop Miniatures the brand. shelf. Fluffy Stuff Cotton Candy Pops 3 In response to rising packaging The shipment was split between In recognition of the bond that this Also in 2002, the Betty Crocker and ingredient costs, during the foot-long Tootsie Rolls, and limited experience created between the ``Creepy Spider Cupcake Kit,'' fourth quarter of 2002, we as welledition Tootise Roll Midgees, in company and these brave soldiers featured Dots in a colorful and as others in the industry patriotic red, white and blue we were named honorary creative Halloween baking set, and announced price increases that wrappers. This gift, which brought members of the ``Chosin Few,'' the the ``Blow Pop Lollipop Shop'' from became effective in the first quarter our soldiers a nostalgic reminder only civilians to have ever been so Natural Science Industries, of 2003. We believe that some of of home, was in turn shared with honored. marketed a play set that enables a our fourth quarter sales growth local children in those war-torn child to make their very own Blow was attributable to customer lands. Advertising and Public Relations Pop with a real bubble gum ``buy-in'' in anticipation of this center! increase. Our products again received U.S. Armed Forces extensive cable television exposure on the Food Network's Unwrapped Our company has been honored by its long association with the program. New segments featuring military. Tootsie Rolls and Charms Andes Candies and Charms Dead Squares have been included in Head pops were added to the military rations for many years, and series along with previous shows in 2002 we had several new and about Tootsie Pops and Blow Pops gratifying contacts with the military. in a lollipop segment, Dots and Junior Mints in a piece about In March, we took part in ``movie candy,'' and Charleston Operation Valentine, a morale- Chew and Sugar Babies in a look building mission for our soldiers in at ``retro'' candy. Afghanistan and elsewhere, by sending the troops more than 1 million pieces of candy. Exposure on this highly rated program, including periodic replays, is helpful in generating Creepy Spider Cupcake Mix positive awareness of our A Bosnian child receives a sweet gift products. Many articles and stories appeared In the fall of 2002, we were greatly in newspapers and magazines honored by the Marine and Army during the year commenting survivors of the Korean War battle favorably on the company and its of the Chosin Reservoir. well-known products. Notably, Temperatures during this famous Chief Executive Magazine ranked battle fell to 36 degrees below our Chairman and Chief Executive zero, and the troops survived for Officer as one of the best many days on Tootsie Rolls and performing executives in the food, Charms Squares because their beverage and tobacco industries Afghan child with Tootsie Rollsrations had frozen solid. Blow Pop Lollipop Shop for the third consecutive year.