美國
證券交易委員會
華盛頓特區20549
表格
根據1934年證券交易所法案第13或15(d)條的季報告 |
截至2024年6月30日季度結束
或
|
過渡期從 到
委員會檔案編號
（根據其章程所指定的正式名稱）
（註冊地） | （聯邦稅號） |
（總部地址） | （郵政編碼） |
(註冊人的電話號碼，包括區號)
根據法案第12(b)條規定註冊的證券：
每個等級的標題： |
| 交易符號 |
| Yes |
請以選項方式表示，登記者是否（1）在過去12個月內根據1934年證券交易法第13或15(d)條的要求提交所有應提交的報告（或在登記者需要提交該等報告的更短時期內），以及（2）在過去90天內一直需遵守該等提交要求。
標示勾選是否申報過前述章節第232.405條S-t法規（本章節§232.405）規定的每一個互動式資料文件，在過去12個月內（或在其受要求提交該等文件的較短期間內的情形）
請用勾選符號指示註冊者是大型快速申報人、快速申報人、非快速申報人、較小型報告公司或新興成長公司。 詳見《交易所法》第120億2條中“大型快遞報告商”、“快速申報商”、“較小型報告事業”和“新興成長公司”的定義。
` | 加速進入文件 ☐ | 非加速申報者 ☐ | 較小的報告公司 | 新興成長型公司 |
如果一家新興成長型公司，請用勾選標記表示該申報人已選擇不使用根據證交所法案13(a)條款提供的任何新的或修訂過的財務會計準則的延長過渡期。 ◻
請勾選表示，申報人是否為一家空殼公司（如交易所法案第120億2條所定義）Yes
請指出發行人每一類普通股未來表現的股份數，截至最近可行日期（2024年9月30日）。
Class A普通股 | 流通股本 | |
普通股票，$0.694面額 | ||
B類普通股票，$0.694面額 |
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TOOTSIE ROLL INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(in thousands) (Unaudited)
September 30, 2024 | December 31, 2023 | September 30, 2023 | |||||||
ASSETS | |||||||||
CURRENT ASSETS: | |||||||||
Cash and cash equivalents |
| $ | |
| $ | |
| $ | |
Restricted cash | | | | ||||||
Investments | | | | ||||||
Accounts receivable trade, less allowances of $ | | | | ||||||
Other receivables | | | | ||||||
Inventories: | |||||||||
Finished goods and work-in-process | | | | ||||||
Raw materials and supplies | | | | ||||||
Prepaid expenses | | | | ||||||
Total current assets | | | | ||||||
PROPERTY, PLANT AND EQUIPMENT, at cost: | |||||||||
Land | | | | ||||||
Buildings | | | | ||||||
Machinery and equipment | | | | ||||||
Construction in progress | | | | ||||||
Operating lease right-of-use assets | | | | ||||||
| | | |||||||
Less - accumulated depreciation | | | | ||||||
Net property, plant and equipment | | | | ||||||
OTHER ASSETS: | |||||||||
Goodwill | | | | ||||||
Trademarks | | | | ||||||
Investments | | | | ||||||
Prepaid expenses and other assets | | | | ||||||
Deferred income taxes | | | | ||||||
Total other assets | | | | ||||||
Total assets | $ | | $ | | $ | | |||
(The accompanying notes are an integral part of these statements.)
3
(in thousands except per share data) (Unaudited)
September 30, 2024 | December 31, 2023 | September 30, 2023 | |||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||||
CURRENT LIABILITIES: | |||||||||
Accounts payable |
| $ | |
| $ | |
| $ | |
Bank loans | | | | ||||||
Dividends payable | | | | ||||||
Accrued liabilities | | | | ||||||
Postretirement health care benefits | | | | ||||||
Operating lease liabilities | | | | ||||||
Income taxes payable | | | | ||||||
Total current liabilities | | | | ||||||
NONCURRENT LIABILITIES: | |||||||||
Deferred income taxes | | | | ||||||
Postretirement health care benefits | | | | ||||||
Industrial development bonds | | | | ||||||
Liability for uncertain tax positions | | | | ||||||
Operating lease liabilities | | | | ||||||
Deferred compensation and other liabilities | | | | ||||||
Total noncurrent liabilities | | | | ||||||
TOOTSIE ROLL INDUSTRIES, INC. SHAREHOLDERS’ EQUITY: | |||||||||
Common stock, $ | | | | ||||||
Class B common stock, $ | | | | ||||||
Capital in excess of par value | | | | ||||||
Retained earnings | | | | ||||||
Accumulated other comprehensive loss | ( | ( | ( | ||||||
Treasury stock (at cost) - | ( | ( | ( | ||||||
Total Tootsie Roll Industries, Inc. shareholders’ equity | | | | ||||||
Noncontrolling interests | ( | ( | ( | ||||||
Total equity | | | | ||||||
Total liabilities and shareholders’ equity | $ | | $ | | $ | | |||
(The accompanying notes are an integral part of these statements.)
4
TOOTSIE ROLL INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF
EARNINGS AND RETAINED EARNINGS
(in thousands except per share amounts) (Unaudited)
Quarter Ended | Year to Date Ended | |||||||||||
September 30, 2024 | September 30, 2023 | September 30, 2024 | September 30, 2023 | |||||||||
Net product sales |
| $ | |
| $ | |
| $ | |
| $ | |
Rental and royalty revenue | | | | | ||||||||
Total revenue | | | | | ||||||||
Product cost of goods sold | | | | | ||||||||
Rental and royalty cost | | | | | ||||||||
Total costs | | | | | ||||||||
Product gross margin | | | | | ||||||||
Rental and royalty gross margin | | | | | ||||||||
Total gross margin | | | | | ||||||||
Selling, marketing and administrative expenses | | | | | ||||||||
Earnings from operations | | | | | ||||||||
Other income, net | | ( | | | ||||||||
Earnings before income taxes | | | | | ||||||||
Provision for income taxes | | | | | ||||||||
Net earnings | | | | | ||||||||
Less: net income (loss) attributable to noncontrolling interests | ( | ( | ( | ( | ||||||||
Net earnings attributable to Tootsie Roll Industries, Inc. | $ | | $ | | $ | | $ | | ||||
Net earnings attributable to Tootsie Roll Industries, Inc. per share | $ | $ | $ | $ | ||||||||
Dividends per share * | $ | $ | $ | $ | ||||||||
Average number of shares outstanding | | | | | ||||||||
Retained earnings at beginning of period | $ | | $ | | $ | | $ | | ||||
Net earnings attributable to Tootsie Roll Industries, Inc. | | | | | ||||||||
Cash dividends | ( | ( | ( | ( | ||||||||
Stock dividends | — | — | ( | ( | ||||||||
Retained earnings at end of period | $ | | $ | | $ | | $ | | ||||
*
(The accompanying notes are an integral part of these statements.)
5
TOOTSIE ROLL INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
(in thousands except per share amounts) (Unaudited)
Quarter Ended | Year to Date Ended | |||||||||||
September 30, 2024 | September 30, 2023 | September 30, 2024 | September 30, 2023 | |||||||||
Net earnings |
| $ | |
| $ | |
| $ | |
| $ | |
Other comprehensive income (loss), before tax: | ||||||||||||
Foreign currency translation adjustments | ( | ( | ( | | ||||||||
Pension and postretirement reclassification adjustments: | ||||||||||||
Unrealized gains (losses) for the period on postretirement and pension benefits | — | — | — | — | ||||||||
Less: reclassification adjustment for (gains) losses to net earnings | ( | ( | ( | ( | ||||||||
Unrealized gains (losses) on postretirement and pension benefits | ( | ( | ( | ( | ||||||||
Investments: | ||||||||||||
Unrealized gains (losses) for the period on investments | | | | | ||||||||
Less: reclassification adjustment for (gains) losses to net earnings | ( | — | ( | ( | ||||||||
Unrealized gains (losses) on investments | | | | | ||||||||
Derivatives: | ||||||||||||
Unrealized gains (losses) for the period on derivatives | | | | | ||||||||
Less: reclassification adjustment for (gains) losses to net earnings | | | | | ||||||||
Unrealized gains (losses) on derivatives | | | | | ||||||||
Total other comprehensive income (loss), before tax | | | | | ||||||||
Income tax benefit (expense) related to items of other comprehensive income | ( | ( | ( | ( | ||||||||
Total comprehensive earnings | | | | | ||||||||
Comprehensive earnings (loss) attributable to noncontrolling interests | ( | ( | ( | ( | ||||||||
Total comprehensive earnings attributable to Tootsie Roll Industries, Inc. | $ | | $ | | $ | | $ | | ||||
(The accompanying notes are an integral part of these statements.)
6
TOOTSIE ROLL INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands) (Unaudited)
Year to Date Ended | ||||||
September 30, 2024 | September 30, 2023 | |||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||
Net earnings |
| $ | |
| $ | |
Adjustments to reconcile net earnings to net cash provided by operating activities: | ||||||
Depreciation | | | ||||
Deferred income taxes | ( | | ||||
Amortization of marketable security premiums | | | ||||
Changes in operating assets and liabilities: | ||||||
Accounts receivable | ( | ( | ||||
Other receivables | | | ||||
Inventories | ( | ( | ||||
Prepaid expenses and other assets | | ( | ||||
Accounts payable and accrued liabilities | | | ||||
Income taxes payable | ( | | ||||
Postretirement health care benefits | ( | ( | ||||
Deferred compensation and other liabilities | | | ||||
Net cash provided by operating activities | | | ||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||
Capital expenditures | ( | ( | ||||
Purchases of trading securities | ( | ( | ||||
Sales of trading securities | | | ||||
Purchase of available for sale securities | ( | ( | ||||
Sale and maturity of available for sale securities | | | ||||
Net cash (used in) provided by investing activities | ( | | ||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||
Shares purchased and retired | ( | ( | ||||
Dividends paid in cash | ( | ( | ||||
Proceeds from bank loans | | | ||||
Repayment of bank loans | ( | ( | ||||
Net cash used in financing activities | ( | ( | ||||
Effect of exchange rate changes on cash | ( | | ||||
Increase (decrease) in cash and cash equivalents | | ( | ||||
Cash, cash equivalents and restricted cash at beginning of year | | | ||||
Cash, cash equivalents and restricted cash at end of quarter | $ | | $ | | ||
Supplemental cash flow information: | ||||||
Income taxes paid, net | $ | | $ | | ||
Interest paid | $ | | $ | | ||
Stock dividend issued | $ | | $ | | ||
(The accompanying notes are an integral part of these statements.)
7
TOOTSIE ROLL INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2024
(in thousands except per share amounts) (Unaudited)
Note 1 — Significant Accounting Policies
General Information
The foregoing data has been prepared from the unaudited financial records of Tootsie Roll Industries, Inc. (the “Company”). In the opinion of Management, all adjustments, which are of a normal recurring nature, and necessary for a fair statement of the results for the interim period have been reflected. Certain amounts previously reported have been reclassified to conform to the current year presentation. The financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial reporting and with the rules and regulations for reporting on Form 10-Q. Accordingly, they do not contain certain information and disclosures required by GAAP for comprehensive financial statements. These consolidated financial statements should be read in conjunction with the consolidated financial statements and the related notes included in the Company’s Form 10-K for the year ended December 31, 2023 (the “2023 Form 10-K”).
Results of operations for the period ended September 30, 2024 are not necessarily indicative of results to be expected for the year to end December 31, 2024 because of the seasonal nature of the Company’s operations. Historically, the third quarter has been the Company’s largest net product sales quarter due to pre-Halloween net product sales.
Revenue Recognition
The Company’s revenues, primarily net product sales resulting from the sale of goods, reflect the consideration to which the Company expects to be entitled generally based on customer purchase orders. The Company records revenue based on a five-step model in accordance with Accounting Standards Codification ("ASC") Topic 606. Adjustments for estimated customer cash discounts upon payment, discounts for price adjustments, product returns, allowances, and certain advertising and promotional costs, including consumer coupons, are variable consideration and are recorded as a reduction of net product sales revenue in the same period the related net product sales are recorded. Such estimates are calculated using historical averages adjusted for any expected changes due to current business conditions and experience. The Company identified changes in business conditions that changed Management’s estimated current and future liabilities and resulted in reducing Accrued liabilities. The change increased Net product sales by $
8
Leases
The Company identifies leases by evaluating its contracts to determine if the contract conveys the right to use an identified asset for a stated period of time in exchange for consideration. The Company considers whether it can control the underlying asset and have the right to obtain substantially all of the economic benefits or outputs from the asset. Leases with terms greater than 12 months are classified as either operating or finance leases at the commencement date. For these leases, we record the present value of the minimum lease payments over the lease term as a lease liability with an offsetting right-of-use asset that is then presented net of any deferred rent or lease incentives. The discount rate used to calculate the present value of the minimum lease payments is our incremental borrowing rate, as the rate implicit in the lease is generally not known or determinable. The lease term includes any noncancelable period for which the Company has the right to use the asset as well as any future periods to which the Company has the right and intent to extend the lease under the terms of the lease agreement. Currently, all capitalized leases are classified as operating leases and the Company records rental expense on a straight-line basis over the term of the lease.
Recent Accounting Pronouncements
In November 2023, the Financial Accounting Standards Board ("FASB") issued ASU No. 2023-07, Segment Reporting (Topic 280): "Improvements to Reportable Segment Disclosures". The amendments in this update affect reportable segment disclosure requirements and apply whether an entity presents one or more reportable segments in accordance with Topic 280. The amendments in this update are effective for annual periods and interim periods beginning after December 15, 2024.
In December 2023, the FASB issued ASU No. 2023-09, "Improvements to Income Tax Disclosures". The amendments in this update affect income tax disclosures primarily related to the rate reconciliation and income taxes paid information. The amendments in this update are effective for annual periods beginning after December 15, 2024.
In November 2024, the FASB issued ASU No. 2024-03, Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40). The amendments in this update require disclosure, in the notes to the financial statements, of specific expense categories present within expense captions presented on the face of the income statement within continuing operations of public business entities. The amendments in this update are effective for annual periods beginning after December 15, 2026 and interim periods beginning after December 15, 2027.
The Company is currently evaluating the potential effects of these amendments on its Consolidated Financial Statements and believes the adoption will not significantly impact the presentation of our financial condition, results of operations and disclosures.
Note 2 — Average Shares Outstanding
The average number of shares outstanding for nine months 2024 reflects aggregate stock purchases of
Note 3 — Income Taxes
The Company is subject to taxation in the U.S. and various state and foreign jurisdictions. The Company remains subject to examination by U.S. federal and state and foreign tax authorities for the years 2021 through 2023. The Company’s consolidated effective income tax rate was
9
NOTE 4—Share Capital and Capital In Excess of Par Value:
Capital in |
| ||||||||||||||||||
Class B | Excess |
| |||||||||||||||||
Common Stock | Common Stock | Treasury Stock | of Par |
| |||||||||||||||
| Shares |
| Amount |
| Shares |
| Amount |
| Shares |
| Amount |
| Value |
| |||||
(000’s) | (000’s) | (000’s) |
| ||||||||||||||||
Balance at June 30, 2024 |
| | $ | |
| | $ | |
| | $ | ( | $ | | |||||
Issuance of |
| — |
| — |
| — |
| — |
| — |
| — |
| — | |||||
Conversion of Class B common shares to common shares |
| |
| |
| ( |
| ( |
| — |
| — |
| — | |||||
Purchase and retirement of common shares and other |
| ( | ( |
| — | — |
| — | — | ( | |||||||||
Balance at September 30, 2024 |
| | $ | |
| | $ | |
| | $ | ( | $ | | |||||
Balance at June 30, 2023 |
| | $ | |
| | $ | |
| | $ | ( | $ | | |||||
Issuance of |
| — |
| — |
| — |
| — |
| — |
| — |
| — | |||||
Conversion of Class B common shares to common shares |
| — |
| — |
| — |
| — |
| — |
| — |
| — | |||||
Purchase and retirement of common shares and other |
| ( | ( |
| — | — |
| — | — | ( | |||||||||
Balance at September 30, 2023 |
| | $ | |
| | $ | |
| | $ | ( | $ | | |||||
Balance at December 31, 2023 | | $ | |
| | $ | |
| | $ | ( | $ | | ||||||
Issuance of |
| | |
| | |
| | — | | |||||||||
Conversion of Class B common shares to common shares |
| |
| |
| ( |
| ( |
| — |
| — |
| — | |||||
Purchase and retirement of common shares and other |
| ( | ( |
| — | — |
| — | — | ( | |||||||||
Balance at September 30, 2024 |
| | $ | |
| | $ | |
| | $ | ( | $ | | |||||
Balance at December 31, 2022 | | $ | |
| | $ | |
| | $ | ( | $ | | ||||||
Issuance of |
| | |
| | |
| | — | | |||||||||
Conversion of Class B common shares to common shares |
| |
| |
| ( |
| ( |
| — |
| — |
| — | |||||
Purchase and retirement of common shares and other |
| ( | ( |
| — | — |
| — | — | ( | |||||||||
Balance at September 30, 2023 |
| | $ | |
| | $ | |
| | $ | ( | $ | | |||||
Note 5 — Fair Value Measurements
Current accounting guidance defines fair value as the price that would be received on the sale of an asset, or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Guidance requires disclosure of the extent to which fair value is used to measure financial assets and liabilities, the inputs utilized in calculating valuation 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 three-level valuation hierarchy based upon the transparency of inputs utilized in the measurement and valuation of financial assets or liabilities as of the measurement date. Level 1 inputs include quoted prices for identical instruments and are the most observable. Level 2 inputs include quoted prices for similar assets and observable inputs such as interest rates, foreign currency exchange rates, commodity rates and yield curves. Level 3 inputs are not observable in the market and include Management’s own judgments about the assumptions market participants would use in pricing the asset or liability. The use of observable and unobservable inputs is reflected in the hierarchy assessment disclosed in the table below.
As of September 30, 2024, December 31, 2023 and September 30, 2023 the Company held certain financial assets that are required to be measured at fair value on a recurring basis. These included derivative hedging instruments related to the purchase of certain raw materials and foreign currencies, investments in trading securities and available
10
for sale securities. The Company’s available for sale securities principally consist of corporate and government bonds. While the Company generally holds its available for sale investments to maturity, the Company would sell prior to maturity if it was considered beneficial to do so for tax-planning strategies or if the Company required the funds to finance a significant reinvestment in the Company, including an acquisition. As such, the Company does not classify any investments as held to maturity which is restrictive under GAAP because the use of amortized cost must be justified for each security.
The fair value of the Company’s industrial revenue development bonds at September 30, 2024, December 31, 2023 and September 30, 2023 were valued using Level 2 inputs which approximates the carrying value of $
The following table presents information about the Company’s financial assets and liabilities measured at fair value as of September 30, 2024, December 31, 2023 and September 30, 2023 and indicate the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value:
Estimated Fair Value September 30, 2024 | ||||||||||||
Total | Input Levels Used | |||||||||||
Fair Value | Level 1 | Level 2 | Level 3 | |||||||||
Cash and cash equivalents |
| $ | |
| $ | |
| $ | — |
| $ | — |
Available for sale securities | | | | — | ||||||||
Foreign currency derivatives | | — | | — | ||||||||
Commodity derivatives | ( | ( | — | — | ||||||||
Trading securities | | | | — | ||||||||
Total assets measured at fair value | $ | | $ | | $ | | $ | — | ||||
Estimated Fair Value December 31, 2023 | ||||||||||||
Total | Input Levels Used | |||||||||||
Fair Value | Level 1 | Level 2 | Level 3 | |||||||||
Cash and cash equivalents |
| $ | |
| $ | |
| $ | — |
| $ | — |
Available for sale securities | |
| |
| | — | ||||||
Foreign currency derivatives | |
| — |
| | — | ||||||
Commodity derivatives | ( |
| ( |
| — | — | ||||||
Trading securities | |
| |
| | — | ||||||
Total assets measured at fair value | $ | | $ | | $ | | $ | — | ||||
Estimated Fair Value September 30, 2023 | ||||||||||||
Total | Input Levels Used | |||||||||||
Fair Value | Level 1 | Level 2 | Level 3 | |||||||||
Cash and cash equivalents |
| $ | |
| $ | |
| $ | — |
| $ | — |
Available for sale securities | | | | — | ||||||||
Foreign currency derivatives | ( | — | ( | — | ||||||||
Commodity derivatives | | | — | — | ||||||||
Trading securities | | | | — | ||||||||
Total assets measured at fair value | $ | | $ | | $ | | $ | — | ||||
11
Note 6 — Derivative Instruments and Hedging Activities
From time to time, the Company uses derivative instruments, including foreign currency forward contracts and commodity futures contracts, to manage its exposures to foreign exchange and commodity prices. Commodity futures contracts are intended and 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 effective as hedges of the Company’s exposure to the variability of cash flows, primarily related to the foreign exchange rate changes of products manufactured in Canada and sold in the United States, and periodic equipment purchases from foreign suppliers denominated in a foreign currency. The Company does not engage in trading or other speculative use of derivative instruments.
The Company recognizes all derivative instruments as either assets or liabilities at fair value in the Condensed Consolidated Statement of Financial Position. Derivative assets are recorded in other receivables and derivative liabilities are recorded in accrued liabilities. The Company uses hedge accounting for its foreign currency and commodity derivative instruments as discussed above. Derivatives that qualify for hedge accounting are designated as cash flow hedges by formally documenting the hedge relationships, including identification of the hedging instruments, the hedged items and other critical terms, as well as the Company’s risk management objectives and strategies for undertaking the hedge transaction.
Changes in the fair value of the Company’s cash flow hedges are recorded in accumulated other comprehensive loss, net of tax, and are reclassified to earnings in the periods in which earnings are affected by the hedged item. Substantially all amounts reported in accumulated other comprehensive loss for commodity derivatives are expected to be reclassified to cost of goods sold. Approximately $
The following table summarizes the Company’s outstanding derivative contracts and their effects on its Condensed Consolidated Statements of Financial Position at September 30, 2024, December 31, 2023 and September 30, 2023:
September 30, 2024 | |||||||||
Notional |
|
|
|
| |||||
Amounts | Assets | Liabilities | |||||||
Derivatives designated as hedging instruments: | |||||||||
Foreign currency derivatives | $ | | $ | | $ | - | |||
Commodity derivatives | | | ( | ||||||
Total derivatives | $ | | $ | ( | |||||
December 31, 2023 | |||||||||
Notional |
|
|
|
| |||||
Amounts | Assets | Liabilities | |||||||
Derivatives designated as hedging instruments: | |||||||||
Foreign currency derivatives | $ | | $ | | $ | — | |||
Commodity derivatives | |
| |
| ( | ||||
Total derivatives | $ | | $ | ( | |||||
September 30, 2023 | |||||||||
Notional |
|
|
|
| |||||
Amounts | Assets | Liabilities | |||||||
Derivatives designated as hedging instruments: | |||||||||
Foreign currency derivatives | $ | | $ | | $ | ( | |||
Commodity derivatives | | | — | ||||||
Total derivatives | $ | | $ | ( | |||||
12
The effects of derivative instruments on the Company’s Condensed Consolidated Statements of Earnings and Retained Earnings and the Condensed Consolidated Statements of Comprehensive Earnings for periods ended September 30, 2024 and September 30, 2023 are as follows:
For Quarter Ended September 30, 2024 | |||||||||
|
|
|
| Gain (Loss) | |||||
Gain (Loss) | on Amount Excluded | ||||||||
Gain (Loss) | Reclassified from | from Effectiveness | |||||||
Recognized | Accumulated OCI | Testing Recognized | |||||||
in OCI | into Earnings | in Earnings | |||||||
Foreign currency derivatives | $ | | $ | ( | $ | — | |||
Commodity derivatives | | ( | — | ||||||
Total | $ | | $ | ( | $ | — | |||
For Quarter Ended September 30, 2023 | |||||||||
|
|
|
| Gain (Loss) | |||||
Gain (Loss) | on Amount Excluded | ||||||||
Gain (Loss) | Reclassified from | from Effectiveness | |||||||
Recognized | Accumulated OCI | Testing Recognized | |||||||
in OCI | into Earnings | in Earnings | |||||||
Foreign currency derivatives | $ | ( | $ | ( | $ | — | |||
Commodity derivatives | | ( | — | ||||||
Total | $ | | $ | ( | $ | — | |||
For Year to Date Ended September 30, 2024 | |||||||||
|
|
|
| Gain (Loss) | |||||
Gain (Loss) | on Amount Excluded | ||||||||
Gain (Loss) | Reclassified from | from Effectiveness | |||||||
Recognized | Accumulated OCI | Testing Recognized | |||||||
in OCI | into Earnings | in Earnings | |||||||
Foreign currency derivatives | $ | ( | $ | ( | $ | — | |||
Commodity derivatives | | ( | — | ||||||
Total | $ | | $ | ( | $ | — | |||
For Year to Date Ended September 30, 2023 | |||||||||
|
|
|
| Gain (Loss) | |||||
Gain (Loss) | on Amount Excluded | ||||||||
Gain (Loss) | Reclassified from | from Effectiveness | |||||||
Recognized | Accumulated OCI | Testing Recognized | |||||||
in OCI | into Earnings | in Earnings | |||||||
Foreign currency derivatives | $ | ( | $ | ( | $ | — | |||
Commodity derivatives | | | — | ||||||
Total | $ | | $ | ( | $ | — | |||
Note 7 — Pension Plans
Beginning in 2012, the Company received periodic notices from the Bakery and Confectionery Union and Industry International Pension Fund (Plan), a multi-employer defined benefit pension plan for certain Company union employees, that the Plan’s actuary certified the Plan to be in “critical status”, as defined by the Pension Protection Act (PPA) and the Pension Benefit Guaranty Corporation (PBGC); and that a plan of rehabilitation was adopted by the trustees of the Plan in 2012. The Plan’s status was changed to “critical and declining status”, as defined by the PPA and PBGC, for the plan year beginning January 1, 2015, and this status has continued. In 2016, the Company received new notices that the Plan’s trustees adopted an updated Rehabilitation Plan effective January 1, 2016, and all annual
13
notices through 2024 have continued to classify the Plan in the “critical and declining status” category. That determination is based on certain assumptions including an assumption that all employers that negotiated a rehabilitation plan schedule remain on that schedule.
The Company has been advised that its withdrawal liability would have been $
The Company’s pension expense for this Plan for nine months 2024 and 2023 was $
In June 2024, the PBGC announced that it has approved the Plan’s application for Special Financial Assistance under the American Rescue Plan Act of 2021. The Plan was granted approximately $
14
Note 8 — Accumulated Other Comprehensive Earnings (Loss)
Accumulated Other Comprehensive Earnings (Loss) consists of the following components:
|
|
|
|
| Accumulated | |||||||||||||
Foreign | Foreign | Postretirement | Other | |||||||||||||||
Currency | Currency | Commodity | and Pension | Comprehensive | ||||||||||||||
Translation | Investments | Derivatives | Derivatives | Benefits | Earnings (Loss) | |||||||||||||
Balance at June 30, 2024 | $ | ( |
| $ | ( |
| $ | ( |
| $ | ( |
| $ | |
| $ | ( | |
Other comprehensive earnings (loss) before reclassifications | ( | | | | — | | ||||||||||||
Reclassifications from accumulated other comprehensive loss | — | ( | | | ( | | ||||||||||||
Other comprehensive earnings (loss) net of tax | ( | | | | ( | | ||||||||||||
Balance at September 30, 2024 | $ | ( | $ | | $ | | $ | ( | $ | | $ | ( | ||||||
Balance at June 30, 2023 | $ | ( |
| $ | ( |
| $ | |
| $ | ( |
| $ | |
| $ | ( | |
Other comprehensive earnings (loss) before reclassifications | ( | | ( | | — | | ||||||||||||
Reclassifications from accumulated other comprehensive loss | — | — | | | ( | ( | ||||||||||||
Other comprehensive earnings (loss) net of tax | ( | | ( | | ( | | ||||||||||||
Balance at September 30, 2023 | $ | ( | $ | ( | $ | ( | $ | | $ | | $ | ( | ||||||
Balance at December 31, 2023 |
| $ | ( | $ | ( | $ | | $ | ( | $ | | $ | ( | |||||
Other comprehensive earnings (loss) before reclassifications | ( | | ( | | — | | ||||||||||||
Reclassifications from accumulated other comprehensive loss | — | ( | | | ( | | ||||||||||||
Other comprehensive earnings (loss) net of tax | ( | | ( | | ( | | ||||||||||||
Balance at September 30, 2024 | $ | ( | $ | | $ | | $ | ( | $ | | $ | ( | ||||||
Balance at December 31, 2022 | $ | ( | $ | ( | $ | ( | $ | | $ | | $ | ( | ||||||
Other comprehensive earnings (loss) before reclassifications | | | ( | | — | | ||||||||||||
Reclassifications from accumulated other comprehensive loss | — | — | | ( | ( | ( | ||||||||||||
Other comprehensive earnings (loss) net of tax | | | | | ( | | ||||||||||||
Balance at September 30, 2023 | $ | ( | $ | ( | $ | ( | $ | | $ | | $ | ( | ||||||
15
The amounts reclassified from accumulated other comprehensive income (loss) consisted of the following:
Details about Accumulated Other | Quarter Ended | Year to Date Ended | Location of (Gain) Loss | |||||||||||
Comprehensive Income Components | September 30, 2024 | September 30, 2023 | September 30, 2024 | September 30, 2023 | Recognized in Earnings | |||||||||
Investments | $ | ( | $ | — | $ | ( | $ | ( | Other income, net | |||||
Foreign currency derivatives | | | | | Other income, net | |||||||||
Commodity derivatives | | | | ( | ||||||||||
Postretirement and pension benefits | ( | ( | ( | ( | Other income, net | |||||||||
Total before tax | | ( | | ( | ||||||||||
Tax (expense) benefit | ( | | ( | | ||||||||||
Net of tax | $ | | $ | ( | $ | | $ | ( | ||||||
Note 9 — Restricted Cash
Restricted cash comprises certain cash deposits of the Company’s Spanish subsidiary with international banks that are pledged as collateral for letters of credit and bank borrowings.
Note 10 — Bank Loans
Bank loans consist of short term (less than
Note 11 — Leases
The Company leases certain buildings, land and equipment that are classified as operating leases. These leases have remaining lease terms of up to approximately
The Company, as lessor, rents certain commercial real estate to third-party lessees. The September 30, 2024 and 2023 cost related to these leased properties was $
A lease with the Company as lessor commenced in the third quarter of 2024 when the tenant took occupancy as previously planned under an existing agreement. The lease has an initial term of
16
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This financial review discusses the Company’s financial condition, results of operations, liquidity and capital resources and other matters. Dollars are presented in thousands, except per share amounts. This review should be read in conjunction with the accompanying Condensed Consolidated Financial Statements and related notes included in this Form 10-Q and with the Company’s Consolidated Financial Statements and related notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the Company’s Form 10-K for the year ended December 31, 2023 (the “2023 Form 10-K”).
Net product sales were $223,891 in third quarter 2024 compared to $248,336 in third quarter 2023, a decrease of $24,445 or 9.8%. Nine months 2024 net product sales were $524,174 compared to $567,884 in nine months 2023, a decrease of $43,710 or 7.7%. Domestic (U.S.) net product sales in third quarter and nine months 2024 decreased 9.7% and 7.6%, respectively, compared to the corresponding periods in the prior year, and, foreign net product sales, including exports to foreign markets, decreased 11.2% and 8.4%, respectively, compared to the corresponding periods in the prior year. For the third quarter and nine months 2024, domestic sales represented 91.6% and 91.3%, respectively, of total consolidated net product sales. The Company faced a more challenging market in third quarter and nine months 2024 as customers and consumers became more resistant to higher price realization which was necessary to restore our margins. The Company expects this adverse sales trend to continue through the balance of 2024 and may continue into 2025. Third quarter and nine months 2024 sales were also adversely affected by the timing of certain sales between third and fourth quarters 2024 when compared to the prior year comparative quarterly periods.
Product cost of goods sold was $148,266 in third quarter 2024 compared to $164,163 in third quarter 2023, and nine months 2024 product cost of goods sold was $350,730 compared to $382,644 in nine months 2023. Product cost of goods sold includes $240 and $(89) of certain deferred compensation expenses (credits) in third quarter 2024 and 2023, respectively, and $727 and $397 of certain deferred compensation expenses in nine months 2024 and 2023, respectively. These deferred compensation expenses (credits) principally resulted from the changes in the market value of investments and investment income from trading securities relating to compensation deferred in previous years and are not reflective of current operating results. Adjusting for the aforementioned, product cost of goods sold decreased from $164,252 in third quarter 2023 to $148,026 in third quarter 2024, a decrease of $16,226 or 9.9%; and decreased from $382,247 in nine months 2023 to $350,003 in nine months 2024, a decrease of $32,244 or 8.4%. As a percentage of net product sales, adjusted product cost of goods sold was 66.1% in both third quarter 2024 and 2023; and adjusted product cost of goods sold was 66.8% and 67.3% in nine months 2024 and 2023, respectively, a favorable decrease of 0.5 percentage points. Third quarter and nine months 2024 gross profit margins benefited from higher price realization, improvements in plant manufacturing operating efficiencies, and more favorable packaging material unit costs. Although we did achieve improvement in gross profit margin, higher overall ingredient costs, and increases in labor, employee benefits, and certain plant manufacturing costs offset some of these benefits in third quarter and nine months 2024.
In response to increases in input costs in recent years, many companies in the consumer products industry have increased selling prices. We have implemented price increases as well during this period with the objective of improving sales price realization in order to recover our margin declines. We made progress in restoring our margins in 2023 and have continued to do so in 2024. However, cocoa and chocolate costs have been moving significantly higher in the market during 2024, and we expect that these increases, as well as increased costs for many of our other ingredients, will have adverse effects on our input costs and margins for the remainder of 2024 and in 2025. The Company uses the Last-In-First-Out (LIFO) method of accounting for inventory and costs of goods sold which results in lower current income taxes during such periods of increasing costs and higher inflation, but this method does charge the most current costs to cost of goods sold and thereby accelerates the realization of these higher costs. Although the Company continues to monitor its input costs, we are mindful of the effects and limits when passing on the above-discussed higher input costs to our customers as well as the final consumers of our products.
Selling, marketing and administrative expenses were $41,825 in third quarter 2024 compared to $39,300 in third quarter 2023, and nine months 2024 selling, marketing and administrative expenses were $115,783 compared to $114,656 in nine months 2023. Selling, marketing and administrative expenses include $4,560 and $(1,596) of certain deferred compensation expenses (credits) in third quarter 2024 and 2023, respectively; and $13,855 and $7,196 of certain deferred compensation expenses in nine months 2024 and 2023, respectively. As discussed above, these
17
expenses principally result from changes in the market value of investments and investment income from trading securities relating to compensation deferred in previous years and are not reflective of current operating results. Adjusting for the aforementioned deferred compensation expenses, selling, marketing and administrative expenses decreased from $40,896 in third quarter 2023 to $37,265 in third quarter 2024, a decrease of $3,631 or 8.9%; and selling, marketing and administrative expenses decreased from $107,460 in nine months 2023 to $101,928 in nine months 2024 a decrease of $5,532 or 5.1%. As a percentage of net product sales, adjusted selling, marketing and administrative expenses increased from 16.5% in third quarter 2023 to 16.6% in third quarter 2024, an unfavorable increase of 0.1 percentage points as a percent of net product sales; and adjusted selling, marketing and administrative expenses increased from 18.9% in nine months 2023 to 19.4% in nine months 2024, an unfavorable increase of 0.5 percentage points as a percent of net sales. These higher expenses as a percentage of sales reflect the adverse effects of lower sales as certain expenses are generally fixed and do not change significantly with changes in sales.
Selling, marketing and administrative expenses include $15,442 and $17,997 for customer freight, delivery and warehousing expenses in third quarter 2024 and 2023, respectively, a decrease of $2,555 or 14.2%; and $42,897 and $49,662 in nine months 2024 and 2023, respectively, a decrease of $6,765 or 13.6%. These expenses were 6.9% and 7.2% of net product sales in third quarter 2024 and 2023, respectively; and were 8.2% and 8.7% of net product sales in nine months 2024 and 2023, respectively. Customer freight and delivery unit costs, including the cost per pound shipped, was more favorable in nine months 2024 compared to the corresponding period in 2023. Increased over-the-road truck availability in 2024 relative to tight freight markets over the past few years has resulted in a more competitive market and resulting lower costs.
As outlined in Note 1 to the consolidated financial statements, the Company records revenue from net product sales based on accounting guidance. Adjustments for estimated customer cash discounts upon payment, discounts for price adjustments, product returns, allowances, and certain advertising and promotional costs, including consumer coupons, are variable considerations and are recorded as a reduction of net product sales revenue in the same period the related net product sales are recorded. These estimates are calculated using historical averages adjusted for any expected changes due to current business conditions and experience. The Company identified changes in business conditions that changed Management’s estimated current and future liabilities resulting in a $3,725 and $5,965 reduction in accrued liabilities and an increase in net product sales in third quarter and nine months 2024, respectively.
Earnings from operations were $35,244 in third quarter 2024 compared to $45,900 in third quarter 2023; and were $61,789 in nine months 2024 compared to $73,449 in nine months 2023. Earnings from operations include $4,800 and $(1,685) of certain deferred compensation expenses (credits) in third quarter 2024 and 2023, respectively; and include $14,582 and $7,593 of certain deferred compensation expenses in nine months 2024 and 2023, respectively, which is discussed above. Adjusting for these deferred compensation costs and expenses (credits), adjusted earnings from operations were $40,044 and $44,215 in third quarter 2024 and 2023, respectively, a decrease of $4,171 or 9.4%; and adjusted operating earnings were $76,371 and $81,042 in nine months 2024 and 2023, respectively, a decrease of $4,671 or 5.8%. As a percentage of net product sales, these adjusted operating earnings were 17.9% and 17.8% in third quarter 2024 and 2023, respectively, a favorable increase of 0.1 percentage points; and as a percentage of net product sales, these adjusted operating earnings were 14.6% and 14.3% in nine months 2024 and 2023, respectively, a favorable increase of 0.3 percentage points. Higher price realization, as well as a decrease in certain costs and expenses as discussed above, mitigated some of the adverse effects of lower sales volumes relating to third quarter and nine months 2024 adjusted operating earnings.
Other income (loss), net was $7,188 in third quarter 2024 compared to $(718) in third quarter 2023; and $21,120 in nine months 2024 compared to $8,866 in nine months 2023. Other income, net for third quarter 2024 and 2023 includes net gains (loss) and investment income of $4,800 and $(1,685), respectively, on trading securities which provide an economic hedge of the Company’s deferred compensation liabilities on trading securities; and other income, net for nine months 2024 and 2023 includes net gains and investment income of $14,582 and $7,593, respectively, on trading securities which provide an economic hedge of the Company’s deferred compensation liabilities on trading securities. The investment gains on trading securities in third quarter and nine months 2024 and 2023 reflect the overall changes in the equity markets during these periods. These changes in market values were substantially offset by a like amount of deferred compensation expense included in product cost of goods sold and selling, marketing, and administrative expenses in the respective periods as discussed above.
18
Management believes the comparisons presented in the preceding paragraphs, after adjusting for changes in deferred compensation, are useful to our investors and other users of our financial information in assessing the operations of the Company.
Other income (loss), net for third quarter 2024 and 2023 includes investment income on available for sale securities of $2,367and $1,227 in 2024 and 2023, respectively; and other income, net for nine months 2024 and 2023 includes investment income on available for sale securities of $6,344 and $3,534 in 2024 and 2023, respectively. The aforementioned increases in 2024 investment income on available for sale securities reflects the higher interest rate environment in 2024 as well as a higher average balance in the investment portfolio of available for sale securities in third quarter and nine months 2024 compared to the corresponding periods in the prior year. Other income (loss), net also includes pre-tax gains (loss) on foreign exchange of $6 and $(130) in third quarter 2024 and 2023, respectively; and $126 and $(2,189) in nine months 2024 and 2023, respectively, which contributed to improved net earnings in third quarter and nine months 2024 when compared to third quarter and nine months 2023. In addition, higher leasing revenue from the leasing of certain real estate to third parties contributed to higher net earnings in third quarter and nine months 2024.
The consolidated effective tax rates were 22.6% and 23.9% in third quarter 2024 and 2023, respectively; and 22.4% and 24.1% in nine months 2024 and 2023, respectively. The lower effective income tax rate in third quarter and nine months 2024 reflects a reduction in state income taxes and increases in federal income tax credits, which contributed to higher net earnings in third quarter and nine months 2024 compared to the corresponding periods in the prior year.
Net earnings attributable to Tootsie Roll Industries, Inc. were $32,844 (after $11 net loss attributed to non-controlling interests) in third quarter 2024 compared to $34,382 (after $5 net loss attributed to non-controlling interests) in third quarter 2023, and earnings per share were $0.46 and $0.48 in third quarter 2024 and 2023, respectively, a decrease of $0.02 per share, or 4.2%. Nine months 2024 net earnings attributable to Tootsie Roll Industries, Inc. were $64,318 (after $16 net loss attributed to non-controlling interests) compared to nine months 2023 net earnings of $62,509 (after $18 net loss attributed to non-controlling interests), and net earnings per share were $0.90 and $0.87 in nine months 2024 and nine months 2023, respectively, an increase of $0.03 per share or 3.4%. Earnings per share attributable to Tootsie Roll Industries, Inc. for third quarter and nine months 2024 benefited from the reduction in average shares outstanding resulting from purchases in the open market by the Company of its common stock during the preceding twelve months. Average shares outstanding decreased from 71,696 at third quarter 2023 to 71,379 at third quarter 2024, and from 72,049 in nine months 2023 to 71,402 in nine months 2024.
Goodwill and intangibles, principally trademarks, are assessed annually as of December 31 or whenever events or circumstances indicate that the carrying values may not be recoverable from future cash flows. The Company has not identified any triggering events, as defined, or other adverse information that would indicate a material impairment of its goodwill or intangibles in nine months 2024. Although Company management has not identified any trigging events at this time relating to its intangibles, factors outlined in the Company’s risk factors discussed on Form 10-K for the year ended December 31, 2023, could change this assessment in the future.
Beginning in 2012, the Company received periodic notices from the Bakery and Confectionery Union and Industry International Pension Fund (Plan), a multi-employer defined benefit pension plan for certain Company union employees, that the Plan’s actuary certified the Plan to be in “critical status”, as defined by the Pension Protection Act (PPA) and the Pension Benefit Guaranty Corporation (PBGC); and that a plan of rehabilitation was adopted by the trustees of the Plan in 2012. The Plan’s status was changed to “critical and declining status”, as defined by the PPA and PBGC, for the plan year beginning January 1, 2015, and this status has continued. In 2016, the Company received new notices that the Plan’s trustees adopted an updated Rehabilitation Plan effective January 1, 2016, and all annual notices through 2024 have continued to classify the Plan in the “critical and declining status” category.
Based on these updated notices, the Plan’s funded percentage (plan investment assets as a percentage of plan liabilities), as defined, were 47.0%, 49.3%, and 48.5% as of January 1, 2023, 2022, and 2021, respectively (these valuation dates are as of the beginning of each Plan year). These funded percentages are based on actuarial values, as defined, and do not reflect the actual market value of Plan investments as of these dates. If the market value of investments had been used as of January 1, 2023, the funded percentage would be 43.6% (not 47.0%). As of the January 1, 2023 valuation date (most recent valuation available), only 14% of Plan participants were current active employees, 55% were retired or separated from service and receiving benefits, and 31% were retired or separated from
19
service and entitled to future benefits. The number of current active employee Plan participants as of January 1, 2023 fell 1% from the previous year and 6% over the past two years. When compared to the Plan valuation date of January 1, 2011 (just prior to the Plan being certified to be in “critical status”), current active employee participants have declined 55%, whereas participants who were retired or separated from service and receiving benefits increased 3% and participants who were retired or separated from service and entitled to future benefits increased 6%.
The Company has been advised by the Plan that its withdrawal liability would have been $102,200, $96,000, and $104,300 if it had withdrawn from the Plan during 2023, 2022 and 2021, respectively (most recent information provided by the Plan). The aforementioned most recent increase in the withdrawal liability as advised by the Plan was primarily driven by the Plan’s unfavorable investment performance in 2022, which was partially offset by an increase in the PBGC interest rates used to value a portion of the liability. The Company’s relative share of the Plan’s contribution base, driven by employer withdrawals, has increased in the last several years, and management believes that this trend could continue indefinitely and add upward pressure on the Company’s withdrawal liability. Based on the above, management believes that the Company’s withdrawal liability will likely increase further in future years.
Based on the Company’s most recent actuarial estimates using the information provided by the Plan with respect to its 2023 withdrawal liability (based on most recent information provided to the Company) and certain provisions in ERISA and laws relating to withdrawal liability payments, management believes that the Company’s liability had the Company withdrawn in 2023 would likely be limited to twenty annual payments of $2,654 which have a present value in the range of $31,142 to $37,808 depending on the interest rate used to discount these payments. While the Company’s actuarial consultant did not believe that the Plan will suffer a future mass withdrawal (as defined) of participating employers, in the event of a mass withdrawal, the Company’s annual withdrawal payments would theoretically be payable in perpetuity. Based on the same actuarial estimates, had a mass withdrawal occurred in 2023, the present value of such perpetuities is in the range of $43,483 to $70,702 and would apply in the unlikely event that substantially all employers withdraw from the Plan. The aforementioned is based on a range of valuations and interest rates which the Company’s actuary has advised is provided under the statute. Should the Company actually withdraw from the Plan at a future date, a withdrawal liability, which could be higher than the above discussed amounts, could be payable to the Plan.
In fourth quarter 2020, the Plan Trustees advised the Company that the surcharges would no longer increase annually and therefore be “frozen” at the rates and amounts in effect as of December 31, 2020 provided that the local bargaining union and the Company executed a formal consent agreement by March 31, 2021. The Trustees advised that they have concluded that continuing increases in surcharges would likely have a long-term adverse effect on the solvency of the Plan. The Trustees concluded that further increases would result in increasing financial hardships and withdrawals of participating employers, and that this change will not have a material effect on the Plan’s insolvency date. In first quarter 2021, the local bargaining union and the Company executed this agreement which resulted in the “freezing” of such surcharges as of December 31, 2020.
The Company’s pension expense for this Plan for nine months 2024 and 2023 was $2,579 and $2,785, respectively. The aforementioned expense includes surcharges of $909 and $982 for nine months 2024 and 2023, respectively, as required under the amended plan of rehabilitation. The decrease in the nine months 2024 expense compared to nine months 2023 reflects the effects of lower sales volumes in nine months 2024, and corresponding reductions in lower production and labor hours worked. The Company’s twelve months pension expense for this Plan for 2023 and 2022 was $3,516 and $3,510, respectively, which includes surcharges of $1,239 and $1,237, respectively.
In June 2024, the PBGC announced that it had approved the Plan’s application for Special Financial Assistance under the American Rescue Plan Act of 2021. Company management understands that this legislation would provide financial assistance from the PBGC to shore up financially distressed multi-employer plans to ensure that they can remain solvent and continue to pay benefits to retirees through 2051 without any reduction in retiree benefits. The Plan advised the Company that it was granted approximately $3.4 billion in Special Financial Assistance funds and received those funds in July 2024. The Company’s actuary believes that it still remains unclear if the Plan can remain solvent through the targeted date of 2051 although as a requirement of the American Rescue Plan Act of 2021, the Plan must remain in “critical status” through 2051 regardless of solvency. The regulations under the aforementioned PBGC financial assistance could result in a higher withdrawal liability even with PBGC financial assistance since those regulations require use of settlement interest rates, as defined, and a phase-in of the Special Financial Assistance in determining the Company’s withdrawal liability. While it is uncertain how the requirements imposed by the Special
20
Financial Assistance will impact the Company’s withdrawal liability in the future, the Company’s actuary believes any withdrawal will continue to be limited to the twenty annual payments previously discussed and that those payments will not be affected by Special Financial Assistance regulation.
During second quarter 2023, the Company and the union concluded negotiations and entered into a new labor contract which expires in September 2027. Under terms of the union contract the Company is obligated to continue its participation in the Plan during the contract period. The Company is unable to determine the ultimate outcome of the above discussed multi-employer union pension matter and therefore is unable to determine the effects on its consolidated financial statements, but the ultimate outcome could have a material adverse effect on the Company’s consolidated results of operations or cash flows in one or more future periods. See also Note 7 of the Company’s Notes to Consolidated Financial Statements on Form 10-K for the year ended December 31, 2023.
The Company is focused on the longer term and therefore is continuing to make investments in plant manufacturing operations to meet new consumer and customer product demands, achieve product quality improvements, expand capacity in certain product lines, and increase operational efficiencies in order to provide genuine value to consumers.
LIQUIDITY AND CAPITAL RESOURCES
Net cash flows provided by operating activities were $70,102 and $39,606 in nine months 2024 and 2023, respectively, a favorable increase of $30,496. The $30,496 increase in cash flows from operating activities from 2024 to 2023 principally reflects benefits from changes in working capital, primarily more favorable changes in inventories and the timing of pre-payments during nine months 2024 compared to nine months 2023. The favorable changes in inventories reflect changes in the Company’s production plan in 2024, as well as the effects of lower sales demand for the rest of 2024, which trend is generally in line with the nine months 2024 sales results when compared to nine months 2023.
Net cash (used in) provided by investing activities was $(32,176) in nine months 2024 compared to $233 in nine months 2023. Cash flows used in investing activities reflect $82,391 and $65,616 of purchases of available for sale securities during nine months 2024 and 2023, respectively, and $65,578 and $86,259 of sales and maturities of available for sale securities during nine months 2024 and 2023, respectively. Nine months 2024 and 2023 investing activities include capital expenditures of $13,911 and $19,458, respectively. The Company is evaluating a plant expansion, including both the addition and replacement of certain processing and packaging lines, to better meet its higher level of projected demand for certain products on a timelier and more cost effective basis. The Company believes that this plant expansion would take place over the next five years, but most of the actual expenditures would likely occur during the next three years. Company management believes that the total cost of this expansion, including new machinery, equipment and food processing infrastructure, will approximate $70,000 to $80,000. All capital expenditures have been and are expected to be funded from the Company’s cash flow from operations and internal sources including available for sale securities.
The Company’s consolidated financial statements include bank borrowings of $1,078 and $1,018 at September 30, 2024 and 2023, respectively, all of which relate to its Spanish subsidiary. The Company had no other outstanding bank borrowings at September 30, 2024.
Financing activities include Company common stock purchases and retirements of $2,196 and $27,550 in nine months 2024 and 2023, respectively. Cash dividends of $19,062 and $18,825 were paid in nine months 2024 and 2023, respectively.
The Company’s current ratio (current assets divided by current liabilities) was 3.6 to 1 at September 30, 2024 compared to 3.6 to 1 at December 31, 2023 and 3.2 to 1 at September 30, 2023. Net working capital was $247,685 at September 30, 2024 compared to $245,763 and $230,426 at December 31, 2023 and September 30, 2023, respectively. Included in net working capital is cash and cash equivalents and short-term investments totaling $163,211 at September 30, 2024 compared to $171,422 and $135,400 at December 31, 2023 and September 30, 2023, respectively. In addition, long term investments, principally debt securities comprising corporate bonds, were $318,344 at September 30, 2024, as compared to $255,606 and $243,205 at December 31, 2023 and September 30, 2023, respectively. Aggregate cash and cash equivalents and short and long-term investments were $481,555, $427,028, and $378,605, at September 30, 2024, December 31, 2023 and September 30, 2023, respectively, including $103,875,
21
$87,800, and $79,754 at September 30, 2024, December 31, 2023 and September 30, 2023, respectively, relating to trading securities which are used as an economic hedge for the Company’s deferred compensation liabilities.
Investments in available for sale securities, primarily high quality corporate bonds that matured during nine months 2024 and 2023, were generally used in working capital or were replaced with debt securities of similar maturities. The net unrealized loss on available for sale investments was approximately $4,300 and $6,600 at September 30, 2024 and 2023, respectively, which principally reflects the increase in market interest rates since such securities were purchased. The Company expects to hold most of these securities to maturity and therefore does not expect to ultimately realize a substantial portion of the aforementioned unrealized losses (see also Item 3 below, QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK).
The Company periodically contributes to a VEBA trust, managed and controlled by the Company, to fund the estimated future costs of certain employee health, welfare and other benefits. The Company added $20,000 in additional funding to the VEBA trust in 2023. No contribution was made during nine months 2024. The Company expects to use these VEBA funds to pay the actual cost of such benefits through part or all of 2027. The VEBA trust held $16,345, $19,126 and $21,965 of aggregate cash and cash equivalents at September 30, 2024, December 31, 2023 and September 30, 2023, respectively. This asset value is included in prepaid expenses and long-term other assets in the Company’s Consolidated Statement of Financial Position. These assets are categorized as Level 2 within the fair value hierarchy.
ACCOUNTING PRONOUNCEMENTS
See Note 1 of the Company’s Condensed Consolidated Financial Statements.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
See Note 1 of the Company’s Condensed Consolidated Financial Statements for more information related to our use of estimates in the preparation of financial statements as well as information related to material changes in our significant accounting policies that were included in our 2023 Form 10-K.
FORWARD-LOOKING STATEMENTS
This discussion and certain other sections contain forward-looking statements that are based largely on the Company’s current expectations and are made pursuant to the safe harbor provision of the Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by the use of words such as “anticipated,” “believe,” “expect,” “intend,” “estimate,” “project,” “plan” and other words of similar meaning in connection with a discussion of future operating or financial performance and are subject to certain factors, risks, trends and uncertainties that could cause actual results and achievements to differ materially from those expressed in the forward-looking statements. Such factors, risks, trends and uncertainties, which in some instances are beyond the Company’s control, include the ability to recover increases in input costs through price increases and restoring margins, the overall competitive environment in the Company’s industry, successful distribution and sell-through during Halloween and other seasons, the availability of cocoa and chocolate at reasonable prices given that these markets are significantly elevated and volatile, and changes in assumptions, judgments and risk factors discussed in our Annual Report on Form 10-K for the year ended December 31, 2023.
The risk factors referred to above are believed to be significant factors, but not necessarily all of the significant factors that could cause actual results to differ from those expressed in any forward-looking statement. Readers are cautioned not to place undue reliance on such forward-looking statements, which are made only as of the date of this report. The Company undertakes no obligation to update such forward-looking statements.
22
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to various market risks, including fluctuations in and sufficient availability of sugar, corn syrup, edible oils, including palm oils, cocoa, chocolate, dextrose, milk and whey, gum-base input ingredients, packaging, and fuel costs principally relating to freight and delivery fuel surcharges. The Company generally enters into annual supply contracts and hedges certain commodities (primarily sugar) to control and plan for such cost changes. The Company has experienced significant increases in its ingredient and packaging costs in 2022 and 2023, and more recently, the cocoa and chocolate markets have moved to unprecedented highs. The Company has entered into longer-range supply contracts for its cocoa and chocolate needs in 2024 and much of 2025 in order to help ensure supply and reduce the risk of further increases in these ingredients. However, these extended cocoa and chocolate supply contracts are at significantly higher costs than in recent years. The cocoa market is experiencing unprecedented volatility and highs, and remains a risk for the intermediate term and possibly for a longer term.
The Company is exposed to exchange rate fluctuations in the Canadian dollar which is the currency used for a portion of the raw material and packaging material costs and all labor, benefits and local plant operating costs at its Canadian plants. The Company is exposed to exchange rate fluctuations in Mexico, Canada, and Spain where its subsidiaries sell products in their local currencies. The Company invests principally in corporate bonds (available for sale securities) with an average maturity of three to five years, to manage its interest rate risk. While the Company generally holds these investments to maturity, the Company would sell prior to maturity if it was considered beneficial to do so for tax-planning strategies, credit quality or if the Company required the funds to finance a significant reinvestment in the Company, including an acquisition.
The Company believes that the above discussed policies and programs limit the Company’s exposure to significant interest rate fluctuations. Other than the cocoa and chocolate market as discussed above, there have been no material changes in the Company’s market risks that would significantly affect the disclosures made in the Form 10-K for the year ended December 31, 2023.
ITEM 4. CONTROLS AND PROCEDURES
Under the supervision and with the participation of Management, the Chief Executive Officer and Chief Financial Officer of the Company have evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of September 30, 2024 and, based on their evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that these controls and procedures are effective. Disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures are also designed to ensure that information is accumulated and communicated to Management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
There has been no change in the Company’s internal control over financial reporting that occurred during the Company’s fiscal quarter ended September 30, 2024 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
23
PART II – OTHER INFORMATION
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES, USE OF PROCEEDS, AND ISSUER PURCHASE OF EQUITY SECURITIES
The following table summarizes the Company’s purchases of its common stock during the quarter ended September 30, 2024:
|
|
|
|
|
| (d) Approximate Dollar | |||
(a) Total | (c) Total Number of Shares | Value of Shares that | |||||||
Number of | (b) Average | Purchased as Part of | May Yet Be Purchased | ||||||
Shares | Price Paid per | Publicly Announced Plans | Under the Plans | ||||||
Period | Purchased | Share | Or Programs | or Programs | |||||
Jul 1 to Jul 31 | — | $ | — | Not Applicable | Not Applicable | ||||
Aug 1 to Aug 31 | 76,977 | 28.50 | Not Applicable | Not Applicable | |||||
Sep 1 to Sep 30 | — | — | Not Applicable | Not Applicable | |||||
Total | 76,977 | $ | 28.50 | Not Applicable | Not Applicable | ||||
While the Company does not have a formal or publicly announced stock purchase program, the Company’s board of directors periodically authorizes a dollar amount for share purchases. The treasurer executes share purchase transactions according to these guidelines.
24
ITEM 6. EXHIBITS
Exhibit 31.1 — Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit 31.2 — Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit 32 — Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Exhibit 101.INS - XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
Exhibit 101.SCH - XBRL Taxonomy Extension Schema Document.
Exhibit 101.CAL - XBRL Taxonomy Extension Calculation Linkbase Document.
Exhibit 101.LAB - XBRL Taxonomy Extension Label Linkbase Document.
Exhibit 101.PRE - XBRL Taxonomy Extension Presentation Linkbase Document.
Exhibit 101.DEF - XBRL Taxonomy Extension Definition Linkbase Document.
Exhibit 104 - Cover Page Interactive Data File – The cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
TOOTSIE ROLL INDUSTRIES, INC. | ||||
Date: | November 8, 2024 | BY: | /S/ ELLEN R. GORDON | |
Ellen R. Gordon | ||||
Chairman and Chief | ||||
Executive Officer | ||||
Date: | November 8, 2024 | BY: | /S/ G. HOWARD EMBER, JR. | |
G. Howard Ember, Jr. | ||||
Vice President Finance and | ||||
Chief Financial Officer | ||||
25