Tootsie Roll Industries, Inc. Annual Report 2014 Merrill Corp - Tootsie Roll 10-K ED [AUX] | 105914 | 02-Mar-15 09:16 | 15-2394-1.ba | Sequence: 1 CHKSUM Content: 6671 Layout: 7220 Graphics: 8844 CLEAN Melvin J. Gordon 1919 - 2015 On January 20, 2015, Melvin J. Gordon, Chairman of the Board of Directors and Chief Executive Officer of Tootsie Roll Industries, passed away at the age of 95 after a brief illness. Mr. Gordon joined the board of what was then Sweets Company of America in 1952 and was elevated to the roles of Chairman and CEO in 1962. Sales at that time were $25 million, profits were $1 million and our product line primarily consisted of Tootsie Rolls and Tootsie Pops. Mr. Gordon, a man of great vision and drive, reshaped the Company over his long tenure. Early on, he changed the Company’s name to Tootsie Roll Industries in recognition of the flagship brand and relocated the Company to a large, centrally located facility in Chicago which remains the Company’s headquarters and its largest plant. He expanded operations into Mexico and led the Company through a series of complementary acquisitions which added Dots, Crows, Cella’s, Charms, Blow Pop, Junior Mints, Charleston Chew, Sugar Daddy, Sugar Babies, Fluffy Stuff, Andes, Dubble Bubble, Cry Baby and Nik-L-Nip to our portfolio of well-known brands. Mr. Gordon embraced change and was quick to adopt rapidly evolving technological developments in manufacturing, material handling and information technology. He also directed the development of new products and package configurations to meet changing consumer preferences and evolving trade channels. Throughout his many years as Chairman, the Company saw great growth and success. Today Tootsie Roll is a leading confectioner with a diverse portfolio of well-known brands, seven plants across the United States, Canada and Mexico, and sales in many countries throughout the world. Mr. Gordon’s life represented the very highest values in business, wisdom, generosity, and integrity. His dedication to Tootsie Roll for over fifty years as Board Chair, his creativity, his optimism and his relentless determination to succeed were an inspiration to all who knew him. JOB: 15-2394-1 CYCLE#;BL#: 7; 0 TRIM: 11" x 8.5" COMPOSITE COLORS: Black, ~note-color 2, ~note-color 3 GRAPHICS: melvin_gordon_ED_4c_photo.eps V1.5 Merrill Corp - Tootsie Roll 10-K ED [AUX] | 105969 | 27-Feb-15 18:27 | 15-2394-1.ba | Sequence: 2 CHKSUM Content: 10175 Layout: 12193 Graphics: 6845 CLEAN Corporate Principles Corporate Profile We believe that the differences among companies are Tootsie Roll Industries, Inc. has been engaged in the attributable to the caliber of their people, and therefore we strive manufacture and sale of confectionery products for 118 years. to attract and retain superior people for each job. Our products are primarily sold under the familiar brand names: Tootsie Roll, Tootsie Roll Pops, Caramel Apple Pops, Child’s We believe that an open family atmosphere at work combined Play, Charms, Blow Pop, Blue Razz, Cella’s chocolate covered with professional management fosters cooperation and enables cherries, Tootsie Dots, Tootsie Crows, Junior Mints, Junior each individual to maximize his or her contribution to the Caramels, Charleston Chew, Sugar Daddy, Sugar Babies, Company and realize the corresponding rewards. Andes, Fluffy Stuff cotton candy, Dubble Bubble, Razzles, We do not jeopardize long-term growth for immediate, short-term Cry Baby, Nik-L-Nip and EI Bubble. 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. 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. Financial Highlights We view our well known brands as prized assets to be aggressively advertised and promoted to each new generation December 31, of consumers. 2014 2013 (in thousands except per share data) We conduct business with the highest ethical standards and integrity which are codified in the Company’s “Code of Business Net Product Sales . $539,895 $539,627 Conduct and Ethics.” Net Earnings Attributable to Tootsie Roll Industries, Inc. 63,298 60,849 Working Capital . 200,162 179,990 Net Property, Plant and Equipment . 190,081 196,916 Shareholders’ Equity . 690,809 680,305 Average Shares Outstanding* . 60,562 61,399 Per Share Items* Net Earnings Attributable to Tootsie Roll Industries, Inc. $1.05 $0.99 Cash Dividends Paid . 0.32 0.24 *Adjusted for stock dividends. JOB: 15-2394-1 CYCLE#;BL#: 6; 0 TRIM: 11" x 8.5" COMPOSITE COLORS: Black, ~note-color 2, ~note-color 3 GRAPHICS: Tootsie_roll_candy_lrg_logo.eps V1.5 Merrill Corp - Tootsie Roll 10-K ED [AUX] | 105969 | 27-Feb-15 18:27 | 15-2394-1.bc | Sequence: 1 CHKSUM Content: 17732 Layout: 5093 Graphics: 49934 CLEAN To Our Shareholders As a value oriented confectioner, poised to continue investing in our we deem it essential to be a low business, improving manufacturing cost producer. We actively pursue productivity and quality, supporting investments in the latest our brands, paying dividends and technology to keep us so. We take repurchasing common stock. We a long-term view of our business also continue to seek appropriate and enact only those measures complementary business that improve our operating results acquisitions. without jeopardizing the long-term strength of the Company and its Sales and Marketing well-known brands. Our diverse and highly recognizable In this regard, capital expenditures brand portfolio is popular across all were $10.7 million in 2014. In trade channels. We have a range of addition to new state of the art offerings suitable for virtually every material handling and packaging major consumer group and retail equipment at a number of our format. During 2014, we again used plants, a portion of this figure was carefully executed and channel- directed toward a significant specific promotions to drive sales. information technology project. We These targeted initiatives, directed remain committed to enhance both to the trade and to consumers, productivity through the deployment help to move our products into of leading edge business software. distribution and subsequently to move them off the retail shelf. We Ellen R. Gordon, Chairman and Chief Executive Officer During 2014, we paid cash find that emphasizing high dividends of 32 cents per share sell-through and attractive profit Net product sales in 2014 were The increase in earnings was and again distributed a 3% stock margins to the trade and a high $539.9 million, as compared to attributable to margin improvements dividend. This was the seventy- quality, attractive value to the 2013 net product sales of stemming from lower input costs in second consecutive year the consumer is a winning strategy. $539.6 million. Most of our core 2014. We are pleased that we are Company has paid cash dividends brands posted solid results, and making progress on restoring our and the fiftieth consecutive year Halloween has long been our Halloween was once again our margins to their historical levels that a stock dividend was largest selling period, with third largest selling season of the year. before the increases in commodity distributed. We also repurchased quarter sales nearly double those of any other quarter in the year. We Net earnings grew to $63.3 million and other input costs in past years. shares of common stock on the In order to achieve our profit goals open market. posted strong results last Halloween in 2014 from $60.8 million in 2013. in all major trade classes including and still deliver maximum value to Earnings per share were $1.05 in We ended 2014 with $224.0 million grocery, mass merchandisers, our consumers, we are challenged 2014, up from $0.99 in the 2013, in cash and investments net of warehouse clubs, dollar stores and due to the combination of higher to look for every feasible way to interest bearing debt and drug chains. Especially popular are earnings and fewer shares keep our operations lean and costs investments that hedge deferred our large bags of Child’s Play and outstanding in 2014. in check. compensation liabilities. We remain other mixed candy assortments, 1 JOB: 15-2394-1 CYCLE#;BL#: 6; 0 TRIM: 11" x 8.5" COMPOSITE COLORS: Black, ~note-color 2, ~note-color 3 GRAPHICS: ellen_gordon_ED_4c_photo.eps V1.5 Merrill Corp - Tootsie Roll 10-K ED [AUX] | 105969 | 27-Feb-15 18:27 | 15-2394-1.bc | Sequence: 2 CHKSUM Content: 47156 Layout: 59002 Graphics: 52142 CLEAN which are offered in a variety of pallet of Tootsie Rolls and Tootsie pack sizes and merchandising Pops in bonus bags. This display presentations including pallet has the dual attributes of increasing packs, off-shelf displays and display sales velocity for the retailer and ready cases. attractive feature pricing for the consumer. The candy marketplace is highly competitive and we are vigilant in keeping our products contemporary even as they remain iconic. Our product line undergoes continual refinement in order to retain its Dubble Bubble Fizzers appeal to ever-evolving preferences and life styles. Consumers have become increasingly concerned with Building on the success of our Lemon Lime Frooties protecting the environment, and Caramel Apple Pops, our Blow Pop manufacturers are seeking For Dots lovers, the next big thing is innovative ways to minimize line was expanded with the here—the BIG BOX! Featuring addition of Caramel Apple Blow packaging. One such solution that 20.5 ounces of delicious fruit we implemented in 2014 was in our Pops.