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

OR

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, ChicagoIllinois

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

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.

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

   

$

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.)

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

   

$

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.)

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

   

$

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.)

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

   

$

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.)

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

   

$

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.)

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 $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.

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 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.

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

 

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

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 $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)