TOOTSIE ROLL INDUSTRIES INC [TR] Filings

10-Q 1 tr-20240930x10q.htm 10-Q

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2024

☐

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

COMMISSION FILE NUMBER 1-1361

Tootsie Roll Industries, Inc.

(Exact Name of Registrant as Specified in its Charter)


Virginia		22-1318955
(State of Incorporation)		(I.R.S. Employer Identification No.)


7401 South Cicero Avenue, Chicago, Illinois		60629
(Address of Principal Executive Offices)		(Zip Code)

773-838-3400

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class:	Trading Symbol	Name of each exchange on which registered:
Common Stock, par value $0.694 per share	TR	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files) Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☒

Accelerated filer ☐

Non-accelerated filer ☐

Smaller reporting company ☐

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date (September 30, 2024).


Class		Outstanding

Common Stock, $0.694 par value		41,146,432
Class B Common Stock, $0.694 par value		30,298,695

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TOOTSIE ROLL INDUSTRIES, INC.

SEPTEMBER 30, 2024

INDEX


		Page No.

Part I —	Financial Information

Item 1.	Financial Statements꞉

	Condensed Consolidated Statements of Financial Position	3-4

	Condensed Consolidated Statements of Earnings and Retained Earnings	5

	Condensed Consolidated Statements of Comprehensive Earnings	6

	Condensed Consolidated Statements of Cash Flows	7

	Notes to Condensed Consolidated Financial Statements	8-16

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17-23

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	23

Item 4.	Controls and Procedures	23

Part II —	Other Information

Item 2.	Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities	24

Item 6.	Exhibits	25

Signatures		25

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. See “Forward-Looking Statements” under Part I — Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Quarterly Report on Form 10-Q.

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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	$	91,711	$	75,915	$	47,320
Restricted cash		378		375		360
Investments		71,500		95,507		88,080
Accounts receivable trade, less allowances of $2,913 $2,245 and $3,302		72,519		55,568		80,118
Other receivables		5,386		9,165		5,563
Inventories:
Finished goods and work-in-process		54,411		51,240		61,876
Raw materials and supplies		40,182		43,681		45,716
Prepaid expenses		7,317		9,200		7,027
Total current assets		343,404		340,651		336,060

PROPERTY, PLANT AND EQUIPMENT, at cost:
Land		21,647		21,862		21,758
Buildings		144,856		144,949		143,013
Machinery and equipment		484,119		485,265		468,292
Construction in progress		23,812		11,277		21,163
Operating lease right-of-use assets		6,313		7,145		5,991
		680,747		670,498		660,217
Less - accumulated depreciation		459,617		447,520		442,796
Net property, plant and equipment		221,130		222,978		217,421

OTHER ASSETS:
Goodwill		73,237		73,237		73,237
Trademarks		175,024		175,024		175,024
Investments		318,344		255,606		243,205
Prepaid expenses and other assets		13,647		15,189		19,344
Deferred income taxes		1,431		1,706		1,617
Total other assets		581,683		520,762		512,427
Total assets	$	1,146,217	$	1,084,391	$	1,065,908

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

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(in thousands except per share data) (Unaudited)



	September 30, 2024		December 31, 2023		September 30, 2023

LIABILITIES AND SHAREHOLDERS’ EQUITY

CURRENT LIABILITIES:
Accounts payable	$	20,572	$	15,816	$	22,696
Bank loans		1,078		1,088		1,018
Dividends payable		6,426		6,250		6,261
Accrued liabilities		65,044		61,690		72,329
Postretirement health care benefits		665		665		658
Operating lease liabilities		1,382		1,289		1,073
Income taxes payable		552		8,090		1,599
Total current liabilities		95,719		94,888		105,634

NONCURRENT LIABILITIES:
Deferred income taxes		46,754		45,477		46,021
Postretirement health care benefits		9,644		9,653		9,321
Industrial development bonds		7,500		7,500		7,500
Liability for uncertain tax positions		2,595		2,777		3,818
Operating lease liabilities		5,240		6,018		5,002
Deferred compensation and other liabilities		108,935		94,971		85,045
Total noncurrent liabilities		180,668		166,396		156,707

TOOTSIE ROLL INDUSTRIES, INC. SHAREHOLDERS’ EQUITY:
Common stock, $0.694 par value - 120,000 shares authorized; 41,146, 39,999 and 40,172, respectively, issued		28,574		27,777		27,897
Class B common stock, $0.694 par value - 40,000 shares authorized; 30,299, 29,445 and 29,452, respectively, issued		21,041		20,448		20,453
Capital in excess of par value		800,087		737,453		742,948
Retained earnings		41,787		62,949		39,786
Accumulated other comprehensive loss		(19,336)		(23,213)		(25,218)
Treasury stock (at cost) - 105, 102 and 102 shares, respectively		(1,992)		(1,992)		(1,992)
Total Tootsie Roll Industries, Inc. shareholders’ equity		870,161		823,422		803,874
Noncontrolling interests		(331)		(315)		(307)
Total equity		869,830		823,107		803,567
Total liabilities and shareholders’ equity	$	1,146,217	$	1,084,391	$	1,065,908

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

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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	$	223,891	$	248,336	$	524,174	$	567,884
Rental and royalty revenue		2,043		1,516		5,671		4,205
Total revenue		225,934		249,852		529,845		572,089
Product cost of goods sold		148,266		164,163		350,730		382,644
Rental and royalty cost		599		489		1,543		1,340
Total costs		148,865		164,652		352,273		383,984
Product gross margin		75,625		84,173		173,444		185,240
Rental and royalty gross margin		1,444		1,027		4,128		2,865
Total gross margin		77,069		85,200		177,572		188,105
Selling, marketing and administrative expenses		41,825		39,300		115,783		114,656
Earnings from operations		35,244		45,900		61,789		73,449
Other income, net		7,188		(718)		21,120		8,866
Earnings before income taxes		42,432		45,182		82,909		82,315
Provision for income taxes		9,599		10,805		18,607		19,824
Net earnings		32,833		34,377		64,302		62,491
Less: net income (loss) attributable to noncontrolling interests		(11)		(5)		(16)		(18)
Net earnings attributable to Tootsie Roll Industries, Inc.	$	32,844	$	34,382	$	64,318	$	62,509

Net earnings attributable to Tootsie Roll Industries, Inc. per share	$	0.46	$	0.48	$	0.90	$	0.87
Dividends per share *	$	0.09	$	0.09	$	0.27	$	0.27

Average number of shares outstanding		71,379		71,696		71,402		72,049

Retained earnings at beginning of period	$	15,359	$	11,656	$	62,949	$	48,276
Net earnings attributable to Tootsie Roll Industries, Inc.		32,844		34,382		64,318		62,509
Cash dividends		(6,416)		(6,252)		(19,085)		(18,682)
Stock dividends		—		—		(66,395)		(52,317)
Retained earnings at end of period	$	41,787	$	39,786	$	41,787	$	39,786

*Does not include 3% stock dividend to shareholders of record on 3/6/24 and 3/6/23.

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

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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	$	32,833	$	34,377	$	64,302	$	62,491

Other comprehensive income (loss), before tax:
Foreign currency translation adjustments		(1,370)		(543)		(3,059)		1,895

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		(160)		(188)		(479)		(567)
Unrealized gains (losses) on postretirement and pension benefits		(160)		(188)		(479)		(567)

Investments:
Unrealized gains (losses) for the period on investments		6,470		746		7,453		2,915
Less: reclassification adjustment for (gains) losses to net earnings		(8)		—		(10)		(1)
Unrealized gains (losses) on investments		6,462		746		7,443		2,914

Derivatives:
Unrealized gains (losses) for the period on derivatives		1,010		2,078		490		1,608
Less: reclassification adjustment for (gains) losses to net earnings		481		33		1,694		76
Unrealized gains (losses) on derivatives		1,491		2,111		2,184		1,684

Total other comprehensive income (loss), before tax		6,423		2,126		6,089		5,926
Income tax benefit (expense) related to items of other comprehensive income		(1,885)		(646)		(2,212)		(975)
Total comprehensive earnings		37,371		35,857		68,179		67,442
Comprehensive earnings (loss) attributable to noncontrolling interests		(11)		(5)		(16)		(18)
Total comprehensive earnings attributable to Tootsie Roll Industries, Inc.	$	37,382	$	35,862	$	68,195	$	67,460

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

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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	$	64,302	$	62,491
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation		13,717		13,783
Deferred income taxes		(883)		21
Amortization of marketable security premiums		1,560		3,188
Changes in operating assets and liabilities:
Accounts receivable		(18,459)		(20,580)
Other receivables		4,118		20
Inventories		(1,132)		(22,437)
Prepaid expenses and other assets		3,581		(15,472)
Accounts payable and accrued liabilities		10,256		14,023
Income taxes payable		(7,719)		4,134
Postretirement health care benefits		(488)		(551)
Deferred compensation and other liabilities		1,249		986
Net cash provided by operating activities		70,102		39,606
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures		(13,911)		(19,458)
Purchases of trading securities		(1,934)		(1,526)
Sales of trading securities		482		574
Purchase of available for sale securities		(82,391)		(65,616)
Sale and maturity of available for sale securities		65,578		86,259
Net cash (used in) provided by investing activities		(32,176)		233
CASH FLOWS FROM FINANCING ACTIVITIES:
Shares purchased and retired		(2,196)		(27,550)
Dividends paid in cash		(19,062)		(18,825)
Proceeds from bank loans		2,885		2,922
Repayment of bank loans		(2,908)		(2,939)
Net cash used in financing activities		(21,281)		(46,392)
Effect of exchange rate changes on cash		(846)		598
Increase (decrease) in cash and cash equivalents		15,799		(5,955)
Cash, cash equivalents and restricted cash at beginning of year		76,290		53,635
Cash, cash equivalents and restricted cash at end of quarter	$	92,089	$	47,680
Supplemental cash flow information:
Income taxes paid, net	$	26,861	$	15,524
Interest paid	$	204	$	187
Stock dividend issued	$	66,243	$	86,433

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

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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 $3,725 and $5,965 in third quarter 2024 and nine months 2024, respectively. A net product sale is recorded when the Company delivers the product to the customer or, in certain instances, when the customer picks up the goods at the Company’s distribution center and thereby obtains control of such product. Amounts billed and due from our customers are classified as accounts receivable trade on the balance sheet and require payment on a short-term basis. Accounts receivable trade are unsecured. Shipping and handling costs of $15,442 and $17,997 in third quarter 2024 and 2023, respectively, and $42,897 and $49,662 in nine months 2024 and 2023, respectively, are included in selling, marketing and administrative expenses. Royalty income from sales-based licensing arrangements, pursuant to which revenue is recognized as the third-party licensee sales occur, and rental income are not considered revenue from contracts from customers and are presented separately from net product revenue as rental and royalty revenue.

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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 77 shares for $2,196, excluding excise taxes, and a 3% stock dividend of 2,075 shares distributed on April 5, 2024. The average number of shares outstanding for nine months 2023 reflects aggregate stock purchases of 747 shares for $27,550, excluding excise taxes, and a 3% stock dividend of 2,040 shares distributed on April 7, 2023.

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 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.

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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	41,213	$	28,620	30,309	$	21,048	105	$	(1,992)	$	802,253
Issuance of 3% stock dividend	—		—	—		—	—		—		—
Conversion of Class B common shares to common shares	10		7	(10)		(7)	—		—		—
Purchase and retirement of common shares and other	(77)		(53)	—		—	—		—		(2,166)
Balance at September 30, 2024	41,146	$	28,574	30,299	$	21,041	105	$	(1,992)	$	800,087

Balance at June 30, 2023	40,490	$	28,118	29,452	$	20,453	102	$	(1,992)	$	753,839
Issuance of 3% stock dividend	—		—	—		—	—		—		—
Conversion of Class B common shares to common shares	—		—	—		—	—		—		—
Purchase and retirement of common shares and other	(318)		(221)	—		—	—		—		(10,891)
Balance at September 30, 2023	40,172	$	27,897	29,452	$	20,453	102	$	(1,992)	$	742,948

Balance at December 31, 2023	39,999	$	27,777	29,445	$	20,448	102	$	(1,992)	$	737,453
Issuance of 3% stock dividend	1,196		830	882		613	3		—		64,800
Conversion of Class B common shares to common shares	28		20	(28)		(20)	—		—		—
Purchase and retirement of common shares and other	(77)		(53)	—		—	—		—		(2,166)
Balance at September 30, 2024	41,146	$	28,574	30,299	$	21,041	105	$	(1,992)	$	800,087

Balance at December 31, 2022	39,721	$	27,584	28,607	$	19,866	99	$	(1,992)	$	719,606
Issuance of 3% stock dividend	1,185		823	858		596	3		—		50,648
Conversion of Class B common shares to common shares	13		9	(13)		(9)	—		—		—
Purchase and retirement of common shares and other	(747)		(519)	—		—	—		—		(27,306)
Balance at September 30, 2023	40,172	$	27,897	29,452	$	20,453	102	$	(1,992)	$	742,948

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

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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 $7,500 for the respective periods. Interest rates on these bonds are reset weekly based on current market conditions.

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	$	91,711	$	91,711	$	—	$	—
Available for sale securities		285,968		4,135		281,833		—
Foreign currency derivatives		187		—		187		—
Commodity derivatives		(227)		(227)		—

TOOTSIE ROLL INDUSTRIES INC [TR] Filings

TOOTSIE ROLL INDUSTRIES INC [TROLB] Filings