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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 June 30, 2023

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 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 (June 30, 2023).

Class

Outstanding

Common Stock, $0.694 par value

40,489,994

Class B Common Stock, $0.694 par value

29,452,448

TOOTSIE ROLL INDUSTRIES, INC.

JUNE 30, 2023

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

17-22

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 and Use of Proceeds

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)

June 30, 2023

December 31, 2022

June 30, 2022

ASSETS

CURRENT ASSETS:

Cash and cash equivalents

   

$

26,047

    

$

53,270

    

$

46,628

Restricted cash

371

365

355

Investments

83,165

96,128

76,462

Accounts receivable trade, less allowances of $2,488, $2,335 and $2,153

49,802

58,556

44,706

Other receivables

7,174

4,299

4,305

Inventories:

Finished goods and work-in-process

92,370

43,595

63,863

Raw materials and supplies

47,557

40,671

37,225

Prepaid expenses

8,105

12,144

7,213

Total current assets

314,591

309,028

280,757

PROPERTY, PLANT AND EQUIPMENT, at cost:

Land

21,782

21,715

21,691

Buildings

142,613

142,462

130,152

Machinery and equipment

468,721

467,977

446,438

Construction in progress

13,370

4,325

26,828

Operating lease right-of-use assets

6,291

4,703

7,019

652,777

641,182

632,128

Less - accumulated depreciation

438,456

429,139

419,998

Net property, plant and equipment

214,321

212,043

212,130

OTHER ASSETS:

Goodwill

73,237

73,237

73,237

Trademarks

175,024

175,024

175,024

Investments

252,459

247,528

258,075

Prepaid expenses and other assets

2,693

465

494

Deferred income taxes

1,664

1,454

1,397

Total other assets

505,077

497,708

508,227

Total assets

$

1,033,989

$

1,018,779

$

1,001,114

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

3

(in thousands except per share data) (Unaudited)

June 30, 2023

December 31, 2022

June 30, 2022

LIABILITIES AND SHAREHOLDERS’ EQUITY

CURRENT LIABILITIES:

Accounts payable

   

$

22,156

    

$

25,246

    

$

21,618

Bank loans

1,051

1,051

1,020

Dividends payable

6,303

6,154

6,210

Accrued liabilities

59,655

54,444

52,010

Postretirement health care benefits

658

658

616

Operating lease liabilities

1,172

791

1,000

Income taxes payable

-

1,790

-

Total current liabilities

90,995

90,134

82,474

NONCURRENT LIABILITIES:

Deferred income taxes

45,662

45,005

43,051

Postretirement health care benefits

9,304

9,303

12,601

Industrial development bonds

7,500

7,500

7,500

Liability for uncertain tax positions

3,913

3,747

3,584

Operating lease liabilities

5,182

3,952

6,019

Deferred compensation and other liabilities

86,359

76,256

76,870

Total noncurrent liabilities

157,920

145,763

149,625

TOOTSIE ROLL INDUSTRIES, INC. SHAREHOLDERS’ EQUITY:

Common stock, $0.694 par value - 120,000 shares authorized; 40,490, 39,721 and 40,379, respectively, issued

28,118

27,584

28,041

Class B common stock, $0.694 par value - 40,000 shares authorized; 29,452, 28,607 and 28,623, respectively, issued

20,453

19,866

19,877

Capital in excess of par value

753,839

719,606

746,026

Retained earnings

11,656

48,276

8,692

Accumulated other comprehensive loss

(26,698)

(30,169)

(31,368)

Treasury stock (at cost) - 102, 99 and 99 shares, respectively

(1,992)

(1,992)

(1,992)

Total Tootsie Roll Industries, Inc. shareholders’ equity

785,376

783,171

769,276

Noncontrolling interests

(302)

(289)

(261)

Total equity

785,074

782,882

769,015

Total liabilities and shareholders’ equity

$

1,033,989

$

1,018,779

$

1,001,114

(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

June 30, 2023

June 30, 2022

June 30, 2023

June 30, 2022

Net product sales

   

$

158,837

    

$

142,081

    

$

319,548

     

$

281,372

Rental and royalty revenue

1,308

1,359

2,689

2,705

Total revenue

160,145

143,440

322,237

284,077

Product cost of goods sold

107,075

95,402

218,481

187,752

Rental and royalty cost

460

386

851

765

Total costs

107,535

95,788

219,332

188,517

Product gross margin

51,762

46,679

101,067

93,620

Rental and royalty gross margin

848

973

1,838

1,940

Total gross margin

52,610

47,652

102,905

95,560

Selling, marketing and administrative expenses

37,857

20,674

75,356

47,747

Earnings from operations

14,753

26,978

27,549

47,813

Other income (loss), net

4,804

(11,137)

9,584

(16,153)

Earnings before income taxes

19,557

15,841

37,133

31,660

Provision for income taxes

4,837

3,860

9,019

7,660

Net earnings

14,720

11,981

28,114

24,000

Less: net loss attributable to noncontrolling interests

(6)

(8)

(13)

(16)

Net earnings attributable to Tootsie Roll Industries, Inc.

$

14,726

$

11,989

$

28,127

$

24,016

Net earnings attributable to Tootsie Roll Industries, Inc. per share

$

0.21

$

0.17

$

0.40

$

0.34

Dividends per share *

$

0.09

$

0.09

$

0.18

$

0.18

Average number of shares outstanding

70,089

70,985

70,156

71,029

Retained earnings at beginning of period

$

3,223

$

2,904

$

48,276

$

39,545

Net earnings attributable to Tootsie Roll Industries, Inc.

14,726

11,989

28,127

24,016

Cash dividends

(6,293)

(6,201)

(12,430)

(12,235)

Stock dividends

-

-

(52,317)

(42,634)

Retained earnings at end of period

$

11,656

$

8,692

$

11,656

$

8,692

*Does not include 3% stock dividend to shareholders of record on 3/6/23 and 3/7/22.

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

5

TOOTSIE ROLL INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE EARNINGS

(in thousands except per share amounts) (Unaudited)

Quarter Ended

Year to Date Ended

June 30, 2023

June 30, 2022

June 30, 2023

June 30, 2022

Net earnings

   

$

14,720

    

$

11,981

    

$

28,114

    

$

24,000

Other comprehensive income (loss), before tax:

Foreign currency translation adjustments

1,142

(106)

2,438

463

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

(189)

(206)

(379)

(413)

Unrealized gains (losses) on postretirement and pension benefits

(189)

(206)

(379)

(413)

Investments:

Unrealized gains (losses) for the period on investments

(325)

(2,440)

2,169

(8,287)

Less: reclassification adjustment for (gains) losses to net earnings

-

(5)

(1)

(10)

Unrealized gains (losses) on investments

(325)

(2,445)

2,168

(8,297)

Derivatives:

Unrealized gains (losses) for the period on derivatives

(565)

(229)

(470)

(8)

Less: reclassification adjustment for (gains) losses to net earnings

48

(148)

43

(277)

Unrealized gains (losses) on derivatives

(517)

(377)

(427)

(285)

Total other comprehensive income (loss), before tax

111

(3,134)

3,800

(8,532)

Income tax benefit (expense) related to items of other comprehensive income

250

733

(329)

2,177

Total comprehensive earnings

15,081

9,580

31,585

17,645

Comprehensive earnings (loss) attributable to noncontrolling interests

(6)

(8)

(13)

(16)

Total comprehensive earnings attributable to Tootsie Roll Industries, Inc.

$

15,087

$

9,588

$

31,598

$

17,661

(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

June 30, 2023

June 30, 2022

CASH FLOWS FROM OPERATING ACTIVITIES:

Net earnings

   

$

28,114

    

$

24,000

Adjustments to reconcile net earnings to net cash provided by operating activities:

Depreciation

9,205

8,451

Deferred income taxes

313

(233)

Amortization of marketable security premiums

2,325

2,792

Changes in operating assets and liabilities:

Accounts receivable

9,601

10,165

Other receivables

(3,338)

(745)

Inventories

(54,304)

(45,483)

Prepaid expenses and other assets

3,233

2,206

Accounts payable and accrued liabilities

353

3,214

Income taxes payable

(769)

(3,813)

Postretirement health care benefits

(378)

(431)

Deferred compensation and other liabilities

503

494

Net cash (used in) provided by operating activities

(5,142)

617

CASH FLOWS FROM INVESTING ACTIVITIES:

Capital expenditures

(10,723)

(10,194)

Purchases of trading securities

(1,358)

(1,112)

Sales of trading securities

528

205

Purchase of available for sale securities

(48,522)

(57,731)

Sale and maturity of available for sale securities

66,507

25,993

Net cash provided by (used in) investing activities

6,432

(42,839)

CASH FLOWS FROM FINANCING ACTIVITIES:

Shares purchased and retired

(16,548)

(5,023)

Dividends paid in cash

(12,531)

(12,237)

Proceeds from bank loans

1,997

2,182

Repayment of bank loans

(2,013)

(2,018)

Net cash used in financing activities

(29,095)

(17,096)

Effect of exchange rate changes on cash

588

75

Decrease in cash and cash equivalents

(27,217)

(59,243)

Cash, cash equivalents and restricted cash at beginning of year

53,635

106,226

Cash, cash equivalents and restricted cash at end of quarter

$

26,418

$

46,983

Supplemental cash flow information:

Income taxes paid/(received), net

$

9,521

$

11,415

Interest paid

$

120

$

13

Stock dividend issued

$

86,433

$

70,242

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

7

TOOTSIE ROLL INDUSTRIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2023

(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, 2022 (the “2022 Form 10-K”).

Results of operations for the period ended June 30, 2023 are not necessarily indicative of results to be expected for the year to end December 31, 2023 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. 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 $15,432 and $14,156 in second quarter 2023 and 2022, respectively, and $31,665 and $30,694 in first half 2023 and 2022, 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.

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.

8

Recently Adopted Accounting Pronouncements

As of the date of this report, there are no recent accounting pronouncements that have been adopted in the period nor any that have not yet been adopted that Management believes would have a material impact on the Company’s consolidated financial statements.

Note 2 — Average Shares Outstanding

The average number of shares outstanding for six months 2023 reflects aggregate stock purchases of 429 shares for $16,548, excluding excise taxes, and a 3% stock dividend of 2,040 shares distributed on April 7, 2023. The average number of shares outstanding for six months 2022 reflects aggregate stock purchases of 145 shares for $5,023 and a 3% stock dividend of 2,006 shares distributed on April 8, 2022.

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 2019 through 2021. The Company’s consolidated effective income tax rate was 24.7% and 24.4% in second quarter 2023 and 2022, respectively, and 24.3% and 24.2% in first half 2023 and 2022, 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 March 31, 2023

 

40,871

$

28,383

 

29,463

$

20,460

 

102

$

(1,992)

$

768,676

Issuance of 3% stock dividend

 

-

 

-

 

-

 

-

 

-

 

-

 

-

Conversion of Class B common shares to common shares

 

11

 

7

 

(11)

 

(7)

 

-

 

-

 

-

Purchase and retirement of common shares and other

 

(392)

 

(272)

 

-

 

-

 

-

 

-

 

(14,837)

Balance at June 30, 2023

 

40,490

$

28,118

 

29,452

$

20,453

 

102

$

(1,992)

$

753,839

Balance at March 31, 2022

 

40,487

$

28,116

 

28,626

$

19,879

 

99

$

(1,992)

$

749,819

Issuance of 3% stock dividend

 

-

 

-

 

-

 

-

 

-

 

-

 

-

Conversion of Class B common shares to common shares

 

4

 

3

 

(4)

 

(3)

 

-

 

-

 

-

Purchase and retirement of common shares and other

 

(112)

 

(78)

 

1

 

1

 

-

 

-

 

(3,793)

Balance at June 30, 2022

 

40,379

$

28,041

 

28,623

$

19,877

 

99

$

(1,992)

$

746,026

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

 

(429)

 

(298)

 

-

 

-

 

-

 

-

 

(16,415)

Balance at June 30, 2023

 

40,490

$

28,118

 

29,452

$

20,453

 

102

$

(1,992)

$

753,839

Balance at December 31, 2021

39,344

$

27,322

 

27,793

$

19,300

 

96

$

(1,992)

$

709,880

Issuance of 3% stock dividend

 

1,176

817

 

833

579

 

3

-

41,068

Conversion of Class B common shares to common shares

 

4

 

3

 

(4)

 

(3)

 

-

 

-

 

-

Purchase and retirement of common shares and other

 

(145)

 

(101)

 

1

 

1

 

-

 

-

 

(4,922)

Balance at June 30, 2022

 

40,379

$

28,041

 

28,623

$

19,877

 

99

$

(1,992)

$

746,026

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 June 30, 2023, December 31, 2022 and June 30, 2022, 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 for sale securities. The Company’s available for sale securities principally consist of corporate bonds but also include variable rate demand

10

notes. 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 June 30, 2023, December 31, 2022 and June 30, 2022 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 June 30, 2023, December 31, 2022 and June 30, 2022 and indicate the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value:

Estimated Fair Value June 30, 2023

Total

Input Levels Used

Fair Value

Level 1

Level 2