Tootsie Roll Industries, Inc. Annual Report 2004 Corporate Profile Tootsie Roll Industries, Inc. has been engaged in the manufacture and sale of confectionery products for 108 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, Fluffy Stuff cotton candy, Dubble Bubble, Razzles, Cry Baby, Nik-L-Nip and EI Bubble. 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. We invest in the latest and most productive equipment to deliver the best quality product to our customers at the lowest cost. 11MAR20050046 We seek to outsource functions where appropriate and to vertically integrate Melvin J. Gordon, Chairman and Chief Executive Officer and operations where it is financially advantageous to do so. Ellen R. Gordon, President and Chief Operating Officer. We view our well known brands as prized assets to be aggressively advertised and promoted to each new generation of consumers. We conduct business with the highest ethical standards and integrity which are codified in the Company’s ‘‘Code of Business Conduct and Ethics.’’ 1 To Our Shareholders Sales in 2004 increased to • Cash dividends were paid for without incurring undue leverage or Halloween was once again our $420 million compared to 2003 sales the sixty-second consecutive putting the company at financial risk. strongest sales period. Our bagged of $392 million. This represents a year, earning us recognition Of the $154 million borrowed in goods, in particular our popular new record level of sales for the as a ‘‘Dividend Aristocrat’’ by August in conjunction with the mixed bags assortments such as company. Standard & Poors and a Concord purchase, approximately Childs Play, continued to sell well ‘‘Dividend Achiever’’ by 40% or $62 million was paid back, through the mass merchandise, Net earnings in 2004 were Mergent. and cash and investments, net of drug, supermarket and warehouse $64 million as compared to interest bearing debt, was club venues. $65 million in 2003. On a per share • Our fortieth consecutive $86 million by year end. Outside of Halloween, our line of basis, earnings increased from $1.22 annual 3% stock dividend was We remain prepared to capitalize on ‘‘theater’’ products continued to in 2003 to $1.23 in 2004. The distributed in April. appropriate investment opportunities receive good consumer acceptance increase in earnings per share • Again this year, capital as they may arise. These may in the drug, mass merchandise, results from fewer shares expenditures were made for include initiatives to develop niche supermarket and dollar store trade outstanding in 2004 due to stock projects that will improve products, investment in strategically classes. This family of products repurchases. operating efficiencies and or economically prudent capital presents many of our most popular projects and pursuit of additional Other highlights of 2004 include: support growth. candies to consumers in large complementary business ‘‘theater sized’’ reclosable boxes with Our conservative financial posture acquisitions. We remain active in our • We purchased Concord attractive display panels. coupled with many years of evaluation of opportunities in each of Confections, the largest profitable operations enabled us to these areas. Brands featured in this line include acquisition in the company’s make these significant outlays four varieties of Dots as well as history. Sales and Marketing Crows, Sugar Babies, Mini-Charleston Chews and Junior Mints. In 2004 we We have long recognized the introduced a new item in the theater competitive advantage of having box format-Junior Caramels. These Financial Highlights strong brands which position us well boxed candies put the company in a against the continuing onslaught of strong position in regard to sales to low priced foreign imports, private December 31, theaters and to home video sections label imitators and branded 2004 2003 of self-service outlets. competition from other confectionery (in thousands except per share data) manufacturers. In 2004 we again offered focused Net Sales ................... $420,110 $392,656 promotional programs such as Net Earnings ................. 64,174 65,014 bonus bags, shippers and combo 9MAR200503533285 packs to high volume classes of Junior Caramels Working Capital ............... 110,376 180,818 trade. These programs reinforce the attributes of quality and value that Junior Caramels consist of delicious, Net Property, Plant and consumers expect and generate Equipment ................ 178,750 129,163 soft caramel centers enrobed in a high-turn, profitable use of shelf and shell of rich milk chocolate and Shareholders’ Equity ............ 570,179 536,581 floor space that retailers demand. polished to a beautiful shine. They We also successfully continued our were offered on a limited Average Shares Outstanding* ..... 52,366 53,305 sales initiatives in the growing dollar introductory basis in 2004, and met Per Share Items* store class of trade. Consumers who with enthusiastic consumer Net Earnings ................ $1.23 $1.22 frequent these outlets tend to be acceptance. National rollout is Cash Dividends Paid ........... .28 .27 value oriented in their purchasing planned for 2005. Junior Caramels decisions, and find that our brands are an excellent example of the type *Adjusted for stock dividends. deliver excellent quality at an of niche product extension we affordable price. continually seek. 2 We also brought out two popular on a brighter white, opaque Many other brands were included in Advertising and Public items from mixed assortments, and background. We also introduced the acquisition. Some of these are: Relations introduced them as stand-alone, Mean Green, an intensely lime ‘‘Limited Edition’’ goods. Packaged flavored translucent candy shell in foil bags to preserve freshness, surrounding a bright green, sour lime Our products again received Chocolate Tootsie Pops and Vanilla flavored bubble gum center. Its Tootsie Rolls gave consumers an distinctive packaging cautions extensive cable television exposure opportunity to indulge in their consumers to ‘‘Prepare to be Limed!’’ through special interest features. The personal favorite treats. Food Network’s Unwrapped program 9MAR200503554807 produced new segments on Fluffy Concord Confections Razzles—the magic dextrose candy Stuff Cotton Candy, Super Blow that turns into gum while you eat it. Pops and Tootsie Fruit Rolls. These are in addition to previous In keeping with our stated goal of Unwrapped shows that feature nearly making complimentary business all of our major brands. acquisitions, in August we 9MAR200503504806 purchased Concord Confections, Tootsie Rolls and Tootsie Pops were Limited Edition Tootsie Rolls and Tootsie maker of Dubble Bubble, to our Cry Baby—gum so Pops knowledge the largest maker of sour it can bring a spotlighted in ‘‘Snack Food Tech’’ on bubble gum in the world. This icon tear to your eye! Modern Marvels, the History Excitement about the Tootsie Pop brand comes in two primary formats. Channel’s signature series. That brand was further stimulated by the show, based on engineering addition of a sixth flavor to our 9MAR200504025149 accomplishments, explored the traditional five-flavor mix. Consumers snack food industry from early can now enjoy one of three discoveries to the present innovative tantalizing new ‘‘mystery’’ flavors, technologies employed today. watermelon, strawberry or blue raspberry, in every package they buy. Exposure on these highly rated shows, including periodic replays, generates positive awareness of our 9MAR200503495738 9MAR200503550208 products. Dubble Bubble Nik-L-Nip—chewable wax bottles We also utilized cable television to filled with tasty juice. ‘‘Chunk gum’’ is the familiar pink convey our classic ‘‘How Many colored, tutti-frutti flavored bubble Licks?’’ Tootsie Pops advertising gum wrapped in wax paper bearing Along with these and other brands, message. The 2004 campaign was the instantly recognizable red oval the Concord acquisition included its directed toward cartoon and family Dubble Bubble trademark. ‘‘Gum principal manufacturing facilities programs, and generated the balls’’ are brightly colored, located near Toronto. inevitable letters from many 9MAR200503541107 spherically shaped and come in consumers who succumbed to the many sizes and flavors, primarily for Our sales and marketing departments urge to convey just how many licks it Mean Green Blow Pops sale in gumball machines and tube are integrating Concord’s broad does take. Alas, the precise answer packs. Dubble Bubble is the market product assortment and developing remains elusive, lending credence to In the Blow pop line, we updated the leader in both