UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
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
(Exact Name of Registrant as Specified in its Charter)
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(Address of Principal Executive Offices) | (Zip Code) |
(Registrant’s Telephone Number, Including Area Code)
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.
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)
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.
` | 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. ◻
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Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date (March 31, 2022).
Class | Outstanding | |
Common Stock, $0.69-4/9 par value | ||
Class B Common Stock, $0.69-4/9 par value |
Securities registered pursuant to Section 12(b) of the Act:
Title of each class: |
| Trading Symbol |
| Name of each exchange on which registered: |
TOOTSIE ROLL INDUSTRIES, INC.
MARCH 31, 2022
INDEX
Page No. | ||
3-4 | ||
Condensed Consolidated Statements of Earnings and Retained Earnings | 5 | |
6 | ||
7 | ||
8-16 | ||
Management’s Discussion and Analysis of Financial Condition and Results of Operations | 16-21 | |
21 | ||
22 | ||
23 | ||
23 | ||
23 | ||
24 | ||
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)
March 31, 2022 | December 31, 2021 | March 31, 2021 | |||||||
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 | | | | ||||||
Split dollar officer life insurance | - | - | | ||||||
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)
March 31, 2022 | December 31, 2021 | March 31, 2021 | |||||||
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, $.69-4/9 par value - | | | | ||||||
Class B common stock, $.69-4/9 par value - | | | | ||||||
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 | ||||||
March 31, 2022 | March 31, 2021 | |||||
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 (loss), net | ( | | ||||
Earnings before income taxes | | | ||||
Provision for income taxes | | | ||||
Net earnings | | | ||||
Less: net earnings (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 STATEMENT OF COMPREHENSIVE EARNINGS
(in thousands except per share amounts) (Unaudited)
Quarter Ended | ||||||
March 31, 2022 | March 31, 2021 | |||||
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)
Quarter Ended | ||||||
March 31, 2022 | March 31, 2021 | |||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||
Net earnings |
| $ | |
| $ | |
Adjustments to reconcile net earnings to net cash used in 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 from (used in) 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/(received), 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
MARCH 31, 2022
(in thousands except per share amounts) (Unaudited)
Note 1 — Significant Accounting Policies
General Information
Foregoing data has been prepared from the unaudited financial records of Tootsie Roll Industries, Inc. (the “Company”) and in the opinion of Management all adjustments, which are of a normal recurring nature, 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. 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, 2021 (the “2021 Form 10-K”).
Results of operations for the period ended March 31, 2022 are not necessarily indicative of results to be expected for the year to end December 31, 2021 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.
On March 11, 2020, the World Health Organization designated the recent novel coronavirus ("COVID-19") as a global pandemic. The Company continues to actively monitor COVID-19 and its potential impact on our operations and financial results. The impact that COVID-19 will have on our consolidated financial statements throughout 2022 and beyond remains uncertain and ultimately will be dictated by the length and severity of the pandemic and Covid-19 variants, the pace of the “reopening” of the economy and economic recovery, and federal, state, local and foreign government actions taken in response. The effects of Covid-19 pandemic are unprecedented, and therefore the Company is unable to determine its effects on its net product sales and net earnings for the balance of 2022 and beyond.
Revenue Recognition
The Company’s revenues, primarily net product sales, principally 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 which became effective January 1, 2018. 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, 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 $
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
8
commencement date. For these leases, we capitalize the present value of the minimum lease payments over the lease term as a right-of-use asset with an offsetting lease liability. The discount rate used to calculate the present value of the minimum lease payments is typically 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. 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.
Recently Adopted Accounting Pronouncements
As of the date of this report, there are no recent accounting pronouncements 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 first quarter 2022 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 2018 through 2020. The Company’s consolidated effective income tax rate was
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 December 31, 2021 |
| | $ | |
| | $ | |
| | $ | ( | $ | | |||||
Issuance of |
| |
| |
| |
| |
| |
| — |
| | |||||
Purchase and retirement of common shares and other |
| ( |
| ( |
| — |
| — |
| — |
| — |
| ( | |||||
Balance at March 31, 2022 |
| | $ | |
| | $ | |
| | $ | ( | $ | | |||||
Balance at December 31, 2020 |
| | $ | |
| | $ | |
| | $ | ( | $ | | |||||
Issuance of |
| |
| |
| |
| |
| |
| — |
| | |||||
Purchase and retirement of common shares and other |
| ( |
| ( |
| - |
| — |
| — |
| — |
| ( | |||||
Balance at March 31, 2021 |
| | $ | |
| | $ | |
| | $ | ( | $ | | |||||
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
9
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 March 31, 2022, December 31, 2021 and March 31, 2021, 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.
The fair value of the Company’s industrial revenue development bonds at March 31, 2022, December 31, 2021 and March 31, 2021 were valued using Level 2 inputs which approximates the carrying value of $
10
The following table presents information about the Company’s financial assets and liabilities measured at fair value as of March 31, 2022, December 31, 2021 and March 31, 2021 and indicate the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value:
Estimated Fair Value March 31, 2022 | ||||||||||||
Total | Input Levels Used | |||||||||||
Fair Value | Level 1 | Level 2 | Level 3 | |||||||||
Cash and cash equivalents |
| $ | |
| $ | |
| $ | - |
| $ | - |
Available for sale securities | | | | - | ||||||||
Foreign currency forward contracts | | - | | - | ||||||||
Commodity futures contracts | | | - | - | ||||||||
Trading securities | | | | - | ||||||||
Total assets measured at fair value | $ | | $ | | $ | | $ | - | ||||
Estimated Fair Value December 31, 2021 | ||||||||||||
Total | Input Levels Used | |||||||||||
Fair Value | Level 1 | Level 2 | Level 3 | |||||||||
Cash and cash equivalents |
| $ | |
| $ | |
| $ | - |
| $ | - |
Available for sale securities | |
| |
| | - | ||||||
Foreign currency forward contracts | |
| — |
| | - | ||||||
Commodity futures contracts, net | |
| |
| — | - | ||||||
Trading securities | |
| |
| | - | ||||||
Total assets measured at fair value | $ | | $ | | $ | | $ | - | ||||
Estimated Fair Value March 31, 2021 | ||||||||||||
Total | Input Levels Used | |||||||||||
Fair Value | Level 1 | Level 2 | Level 3 | |||||||||
Cash and cash equivalents |
| $ | |
| $ | |
| $ | - |
| $ | - |
Available for sale securities | | | | - | ||||||||
Foreign currency forward contracts | | - | | - | ||||||||
Commodity futures contracts | | | - | - | ||||||||
Trading securities | | | | - | ||||||||
Total assets measured at fair value | $ | | $ | | $ | | $ | - | ||||
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
11
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 March 31, 2022, December 31, 2021 and March 31, 2021:
March 31, 2022 | |||||||||
Notional |
|
|
|
| |||||
Amounts | Assets | Liabilities | |||||||
Derivatives designated as hedging instruments: | |||||||||
Foreign currency forward contracts | $ | | $ | | $ | - | |||
Commodity futures contracts | | | - | ||||||
Total derivatives | $ | | $ | - | |||||
December 31, 2021 | |||||||||
Notional |
|
|
|
| |||||
Amounts | Assets | Liabilities | |||||||
Derivatives designated as hedging instruments: | |||||||||
Foreign currency forward contracts | $ | | $ | | $ | — | |||
Commodity futures contracts | |
| |
| ( | ||||
Total derivatives | $ | | $ | ( | |||||
March 31, 2021 | |||||||||
Notional |
|
|
|
| |||||
Amounts | Assets | Liabilities | |||||||
Derivatives designated as hedging instruments: | |||||||||
Foreign currency forward contracts | $ | | $ | | $ | - | |||
Commodity futures contracts | | | ( | ||||||
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 March 31, 2022 and March 31, 2021 are as follows:
For Quarter Ended March 31, 2022 | |||||||||
|
|
|
| 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 forward contracts | $ | | $ | | $ | - | |||
Commodity futures contracts | | | - | ||||||
Total | $ | | $ | | $ | - | |||
For Quarter Ended March 31, 2021 | |||||||||
|
|
|
| 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 forward contracts | $ | | $ | | $ | - | |||
Commodity futures contracts | | | - | ||||||
Total | $ | | $ | | $ | - | |||
13
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. Beginning in 2015, the Plan was reclassified to “critical and declining status”, as defined by the PPA and PBGC, for the plan year beginning January 1, 2015. A designation of “critical and declining status” implies that the Plan is expected to become insolvent in the next
The Company has been advised that its withdrawal liability would have been $
The amended rehabilitation plan, which continues, requires that employer contributions include
The Company is currently unable to determine the ultimate outcome of the above discussed matter and therefore is unable to determine the effects on its consolidated financial statements, but the ultimate outcome or the effects of any modifications to the current amended rehabilitation plan could be material to its consolidated results of operations or cash flows in one or more future periods.
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 December 31, 2021 |
| $ | ( | $ | ( | $ | | $ | | $ | | $ | ( | |||||
Other comprehensive earnings (loss) before reclassifications | | ( | | | - | ( | ||||||||||||
Reclassifications from accumulated other comprehensive loss | - | ( | ( | ( | ( | ( | ||||||||||||
Other comprehensive earnings (loss) net of tax | | ( | ( | | ( | ( | ||||||||||||
Balance at March 31, 2022 | $ | ( | $ | ( | $ | | $ | | $ | | $ | ( | ||||||
Balance at December 31, 2020 | $ | ( | $ | | $ | | $ | | $ | | $ | ( | ||||||
Other comprehensive earnings (loss) before reclassifications | ( | ( | | | - | ( | ||||||||||||
Reclassifications from accumulated other comprehensive loss | - | - | ( | ( | ( | ( | ||||||||||||
Other comprehensive earnings (loss) net of tax | ( | ( | ( | ( | ( | ( | ||||||||||||
Balance at March 31, 2021 | $ | ( | $ | | $ | | $ | | $ | | $ | ( | ||||||
The amounts reclassified from accumulated other comprehensive income (loss) consisted of the following:
Details about Accumulated Other | Quarter Ended | Location of (Gain) Loss | ||||||
Comprehensive Income Components | March 31, 2022 | March 31, 2021 | 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
15
operating activities. As of March 31, 2022 and 2021, operating lease right-of-use and operating lease were $
The Company, as lessor, rents certain commercial real estate to third-party lessees. The March 31, 2022 and 2021 cost related to these leased properties was $
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, 2021 (the “2021 Form 10-K”).
Net product sales were $139,291 in first quarter 2022 compared to $101,795 in first quarter 2021, an increase of $37,496 or 36.8%. Domestic (U.S.) net product sales in first quarter 2022 increased 38.7% compared to the corresponding period in the prior year, and, foreign net product sales, including exports to foreign markets, increased 17.6% compared to the corresponding period in the prior year. For the first quarter 2022, domestic sales represented 92.4% of total consolidated net product sales.
The growth in first quarter 2022 sales, driven by an overall increase in demand, is reflective of effective sales and marketing programs and the favorable effects of the continuing economic recovery from the adverse effects of the Covid-19 pandemic. The Company had continuing improvement in customer orders and sales throughout 2021 and into the first quarter 2022 as consumers returned to more activities which included planned purchases of the Company’s products for “sharing” and “give-a-way” occasions. Many of the Company’s products are consumed at group events, outings, and other gatherings which had been significantly curtailed or in some cases eliminated in response to the Covid-19 pandemic. First quarter 2022 sales benefited from the timing of some sales which were rescheduled from fourth quarter 2021 to first quarter 2022 due to supply chain and manufacturing delays that the Company experienced. First quarter 2022 sales also exceeded first quarter 2019 sales by 38% which provides a quarterly sales comparison prior to the pandemic.
Although higher first quarter 2022 sales contributed to improved net earnings compared to first quarter 2021, significantly higher input costs mitigated much of the benefits of these increased sales. When compared to first quarter 2021, first quarter 2022 gross profit margins and net earnings were adversely affected by significantly higher costs for ingredients, packaging materials, freight and delivery, and certain manufacturing supplies and services. We are currently experiencing some of the highest increases in our total input costs that we have seen in decades.
Product cost of goods sold were $92,350 in first quarter 2022 compared to $65,565 in first quarter 2021. Product cost of goods sold includes $(269) and $153 of certain deferred compensation expenses (credits) in first quarter 2022 and 2021, respectively. These deferred compensation expenses (credits) principally result 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 increased from $65,412 in first quarter 2021 to $92,619 in first quarter 2022, an increase of $27,207 or 41.6%. As a percentage of net product sales, adjusted product cost of goods sold was 66.5% and 64.3% in first quarter 2022 and
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2021, respectively, an unfavorable increase of 2.2 percentage points. First quarter 2022 adjusted product cost of goods sold as a percentage of sales were adversely affected by increasing costs for ingredients, packaging materials, and certain manufacturing supplies as discussed below.
The Company’s input unit costs moved significantly higher in first quarter 2022 as most of our supply contracts for ingredients and packaging materials expired at the end of 2021 and new supply agreements at much higher prices became effective in first quarter 2022. In certain instances, the Company recently increased its annual commitments for some ingredients from our suppliers to meet higher demand, however, certain markets are very tight and these increased commitments have and will continue to result in yet higher unit costs for these additional materials. Higher commodity markets, including the effects of the war in Ukraine, and limited availability of certain ingredients and materials, are driving up our costs for many key ingredients, packaging materials and many manufacturing supplies. The adverse effects of higher energy costs are also adding to our input costs for certain materials. We expect these higher input costs to continue through the balance of 2022.
We have experienced increased supply chain disruptions in 2022, with greater supplier lead times and some of our suppliers being unable to meet promised delivery dates, some of which is due to rail and truck delivery limitations and constraints. In some cases, the Company has been unable to secure timely delivery of additional ingredients and packaging materials to meet our higher demand in 2022, and therefore, has limited our customer sales order volumes of some products. The Company is continuing to focus on the supply chain and possible delays and disruptions, which continue to be less predictable than what we have experienced in the past. Although we are cautiously optimistic, it is possible that supply chain disruptions could result in the temporary shut-down of one or more manufacturing lines resulting in lost sales and profits in 2022. The Company has been able to meet substantially all of our labor needs to date for our seasonal increase in production and believe that we will meet this challenge in 2022, but again, the current tight labor market has created more uncertainty than in the past.
Certain cost and expense reductions, which include Company initiatives to reduce costs, mitigated some of the cost increase in adjusted product cost of goods sold in first quarter 2022 compared to the corresponding period in the prior year. 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, and increase operational efficiencies in order to provide genuine value to consumers.
Selling, marketing and administrative expenses were $27,073 in first quarter 2022 compared to $26,809 in first quarter 2021. Selling, marketing and administrative expenses include $(5,336) and $3,036 of certain deferred compensation expenses (credits) in first quarter 2022 and 2021, respectively. As discussed above, these expenses (credits) 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 (credits), selling, marketing and administrative expenses increased from $23,773 in first quarter 2021 to $32,409 in first quarter 2022, an increase of $8,636 or 36.3%. which principally reflects higher freight and delivery which is discussed below. As a percentage of net product sales, adjusted selling, marketing and administrative expenses decreased from 23.4% in first quarter 2021 to 23.3% in first quarter 2022, a favorable decrease of 0.1 percentage points as a percent of net product sales.
Selling, marketing and administrative expenses include $16,538 and $10,139 for customer freight, delivery and warehousing expenses in first quarter 2022 and 2021, respectively, an increase of $6,399 or 63.1%. These expenses were 11.9% and 10.0% of net product sales in first quarter 2022 and 2021, respectively. The aforementioned increase in first quarter 2022 reflects increasing costs for over-the-road carriers relating to customer freight and delivery, including higher diesel fuel prices which are passed on to us in higher fuel surcharges. Labor shortages in the trucking industry also are contributing to higher freight and delivery costs. We expect much of these higher freight and delivery costs to continue through the balance of 2022.
Earnings from operations were $20,835 in first quarter 2022 compared to $10,410 in first quarter 2021. Earnings from operations include $(5,605) and $3,189 of certain deferred compensation expenses (credits) in first quarter 2022 and 2021, respectively. Adjusting for these deferred compensation costs and expenses (credits), adjusted earnings from operations were $15,230 and $13,599 in first quarter 2022 and 2021, respectively, an increase of $1,631 or 12.0%. As a percentage of net product sales, these adjusted operating earnings were 10.9% and 13.4% in first quarter 2022 and 2021, respectively, an unfavorable decrease of 2.5 percentage points. The Company uses the Last-In-First-Out (LIFO)
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method of accounting for inventory and costs of goods sold which results in lower current income taxes during such periods of increasing costs, 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 LIFO method generally provides higher current income tax benefits, this acceleration of increasing costs does adversely impact reported results until such time as costs stabilize or decrease. Although higher first quarter 2022 sales contributed to improved operating earnings compared to the corresponding prior year periods, higher input costs, as discussed above, mitigated much of the benefits of increased sales.
In response to these higher input costs many companies in the consumer products industry have announced increases in selling prices. We have followed with price increases as well with the objective of improving sales price realization and restoring some of our margin declines. Price increases were phased in principally during fourth quarter 2021 and first quarter 2022, and additional price increases will be implemented in second quarter 2022 on some products where prices were not previously increased. Although our price increases generally reflect the overall price increases in our industry, they will not result in restoring our margins to historical levels. Although the Company continues to monitor these higher input costs and price increases in the industry, we are mindful of the effects and limits of passing on all of the above discussed higher input costs to consumers of our products.
Management believes the comparisons presented in the preceding paragraphs, after adjusting for changes in deferred compensation, are more reflective of the underlying operations of the Company.
Other income (loss), net was $(5,016) in first quarter 2022 compared to $3,816 in first quarter 2021. Other income, net for first quarter 2022 and 2021 includes net gains (losses) and investment income of $(5,605) and $3,189, respectively, on trading securities which provide an economic hedge of the Company’s deferred compensation liabilities. 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. Other income (loss), net for first quarter 2022 and 2021 includes investment income on available for sale securities of $556 and $716 in 2022 and 2021, respectively. Other income (loss), net also includes pre-tax gain (loss) on foreign exchange of $(152) and $33 in first quarter 2022 and 2021, respectively.
The consolidated effective tax rates were 24.0% and 24.3% in first quarter 2022 and 2021, respectively. The Company’s deferred income taxes at March 31, 2022 include approximately $30,000 of U.S. federal deferred income tax liabilities. Should certain proposed U.S. legislation to increase corporate income taxes become law, the Company would record non-cash charge to earnings to reflect the tax effect of higher federal corporate income taxes on its deferred income tax liability effective as of the date that such legislation becomes law.
Net earnings attributable to Tootsie Roll Industries, Inc. were $12,027 (after $8 net loss attributed to non-controlling interests) in first quarter 2022 compared to $10,767 (after $4 net loss attributed to non-controlling interests) in first quarter 2021, and earnings per share were $0.17 and $0.15 in first quarter 2022 and 2021, respectively, an increase of $0.02 per share, or 13.3%. Earnings per share attributable to Tootsie Roll Industries, Inc. for first quarter 2022 benefited from the reduction in average shares outstanding resulting from purchases in the open market by the Company of its common stock. Average shares outstanding decreased from 69,858 at first quarter 2021 to 69,039 at first quarter 2022.
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 first quarter 2022. Although Company management has not identified any trigging events at this time relating to its intangibles, the ultimate effects of the Covid-19 pandemic, including possible longer term effects on consumer lifestyles and behavior, could change this assessment in the future, as outlined in the Company’s risk factors discussed on Form 10-K for the year ended December 31, 2021.
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
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and PBGC, for the plan year beginning January 1, 2015, and this status continues to date. A designation of “critical and declining status” implies that the Plan is expected to become insolvent in the next 20 years.
Based on these updated notices, the Plan’s funded percentage (plan investment assets as a percentage of plan liabilities), as defined, were 48.5%, 48.3%, and 50.4% as of the most recent valuation dates available, January 1, 2021, 2020, and 2019, 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, 2021 the funded percentage would be 52.8% (not 48.5%). As of the January 1, 2021 valuation date (most recent valuation available), only 15% of Plan participants were current active employees, 54% were retired or separated from service and receiving benefits, and 31% were retired or separated from service and entitled to future benefits. The number of current active employee Plan participants as of January 1, 2021 fell 6% from the previous year and 10% 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 52%, 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 10%.
The Company has been advised that its withdrawal liability would have been $104,300, $99,300 and $99,800 if it had withdrawn from the Plan during 2021, 2020 and 2019, respectively. The Company’s relative share of the Plan’s contribution base, driven by employer withdrawals, has increased for the last several years, and management believes that this trend could continue indefinitely which will continue to add upward pressure on the Company’s withdrawal liability. Based on the above, including the Plan’s projected insolvency in the next 20 years, management believes that the Company’s withdrawal liability could increase further in future years.
Based on the Company’s updated actuarial study and certain provisions in ERISA and the law relating to withdrawal liability payments, management believes that the Company’s liability would likely be limited to twenty annual payments of $2,793 which have a present value in the range of $32,800 to $46,600 depending on the interest rate used to discount these payments. While the Company’s actuarial consultant does 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 Company’s updated actuarial study, the present value of such perpetuities is in the range of $45,764 to $142,447 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.
The Company’s union contract requires that the Company continue its participation in this Plan through September 2022, the expiration of this union contract. The amended rehabilitation plan, which also continues, required that employer contributions include 5% compounded annual surcharge increases each year for an unspecified period of time beginning in 2012 as well as certain plan benefit reductions. 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 Plan recently advised the Company that it will be applying for benefits available to financial troubled plans 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. Nonetheless, the Company’s actuary believes that given the Plan’s projected insolvency date of 2031 as well as other factors, that it still remains unclear if the Plan can remain solvent through the targeted date of 2051. The Company’s actuary also advised that the regulations under the aforementioned PBGC financial assistance could result in a higher withdrawal liability even with PBGC financial assistance. The Company is currently unable to determine the ultimate
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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 be material to its consolidated results of operations or cash flows in one or more future periods. See also Note 7 of the Company’s Note to Consolidated Financial Statements on Form 10-K for the year ended December 31, 2021.
The Company’s pension expense for this Plan for first quarter 2022 and 2021 was $763 and $604, respectively ($3,156 and $2,866 for twelve months 2021 and 2020, respectively). The aforementioned expense includes surcharges (reflecting the “frozen” surcharge rate) of $269 and $213 for first quarter 2022 and 2021, respectively ($1,112 and $1,010 for twelve months 2021 and 2020, respectively), as required under the amended plan of rehabilitation.
The Company continues to actively monitor the Covid-19 pandemic, including existing and developing variants and subvariants, and its potential impact on our operations and financial results, prioritizing employee health and safety. The effects of the Covid-19 pandemic are unprecedented, and therefore the Company is unable to determine the related effects on its sales and net earnings in 2022 and beyond. Because the Company has a sizable investment in marketable securities (see Liquidity and Capital Resources section below), the Company continues to be well positioned financially to respond to any further adverse effects of this pandemic in the short and intermediate-terms, as well as for a longer period of time, if necessary.
LIQUIDITY AND CAPITAL RESOURCES
Net cash flows provided by operating activities were $16,807 and $15,337 in first quarter 2022 and 2021, respectively, a favorable increase of $1,470. The $1,470 increase in cash flows from operating activities from 2021 to 2022 reflects the increase in net earnings as a result of higher revenue as discussed above, and higher production levels due to higher demand resulting in more cash used in inventories in first quarter 2022. In addition, changes in net cash flows in first quarter 2022 reflect the timing of sales and collections of accounts receivable and the timing of payments relating to accounts payable and accrued liabilities.
Net cash used in investing activities was $23,104 in first quarter 2022 compared to $26,528 in first quarter 2021. Cash flows used in investing activities reflect $25,148 and $30,031 of purchases of available for sale securities during first quarter 2022 and 2021, respectively, and $8,524 and $8,543 of sales and maturities of available for sale securities during first quarter 2022 and 2021, respectively. First quarter 2022 and 2021 investing activities include capital expenditures of $5,948 and $3,787, respectively. The Company has committed approximately $30,000 to a rehabilitation upgrade and expansion of one of its manufacturing plants in the U.S. The Company spent approximately $15,000, $6,000 and $2,000 in 2021, 2020 and 2019, respectively, on the aforementioned project and expects additional cash outlays for this project to approximate $7,000 in 2022. All capital expenditures have been or 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 $1,075 and $965 at March 31, 2022 and 2021, respectively, all of which relates to its Spanish subsidiary. The Company had no other outstanding bank borrowings at March 31, 2022.
Financing activities include Company common stock purchases and retirements of $1,152 and $7,423 in first quarter 2022 and 2021, respectively. Cash dividends of $12,075 and $11,874 were paid in first quarter 2022 and 2021, respectively.
The Company’s current ratio (current assets divided by current liabilities) was 3.4 to 1 at March 31, 2022 compared to 3.4 to 1 at December 31, 2021 and 4.4 to 1 at March 31, 2021. Net working capital was $195,402 at March 31, 2022 compared to $188,333 and $226,391 at December 31, 2021 and March 31, 2021, respectively. The aforementioned net working capital amounts are principally reflected in aggregate cash and cash equivalents and short-term investments of $145,527 at March 31, 2022 compared to $145,808 and $178,687 at December 31, 2021 and March 31, 2021, respectively. In addition, long term investments, principally debt securities comprising corporate bonds, were $276,780 at March 31, 2022, as compared to $291,175 and $243,749 at December 31, 2021 and March 31, 2021, respectively. Aggregate cash and cash equivalents and short and long-term investments were $422,307, $436,983, and $422,436, at March 31, 2022, December 31, 2021 and March 31, 2021, respectively. The aforementioned includes $84,662, $89,736, and $78,271 at March 31, 2022, December 31, 2021 and March 31, 2021, respectively, relating to
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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 first quarter 2022 and 2021 were generally used to purchase the Company’s common stock or were replaced with debt securities of similar maturities.
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 is currently using these VEBA funds to pay the actual cost of such benefits through most of 2022. The VEBA trust held $3,048, $3,941 and $7,543 of aggregate cash and cash equivalents at March 31, 2022, December 31, 2021 and March 31, 2021, 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.
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 overall competitive environment in the Company’s industry, supply chain disruptions, and changes in assumptions and judgments discussed above under the heading “Significant Accounting Policies and Estimates,” and factors identified and referred to above under the heading “Risk Factors” in this report and under the heading “Risk Factors” in the Company’s 2021 Form 10-K.
The risk factors identified and referred to above, including the effects of the Covid-19 pandemic and variants, 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE 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, 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 costs changes, however, the Company has experienced significant increases in its costs in 2022 as the Company’s prior 2021 supply contracts and hedges have expired. 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 in securities with maturity dates of up to approximately four years which are generally held to maturity and the average maturity of these investments is 2.0 to 2.5 years. The Company also invests in variable rate demand notes where interest rates are generally reset weekly. The Company believes that the above discussed guidelines limits the Company’s exposure to significant interest rate fluctuations. 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, 2021.
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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 March 31, 2022 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 March 31, 2022 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
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PART II — OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In the ordinary course of business, the Company is, from time to time, subject to a variety of active or threatened legal proceedings and claims. There are also potential claims and employer liability which could result in litigation, including defense costs, relating to the Covid-19 pandemic. While it is not possible to predict the outcome of such matters with certainty, in the Company’s opinion, both individually and in the aggregate, they are not expected to have a material effect on the Company’s financial condition, results of operations or cash flows.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The following table summarizes the Company’s purchases of its common stock during the quarter ended March 31, 2022:
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| Approximate Dollar | |||
(a) Total | 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 | |||||
Jan 1 to Jan 31 | - | $ | - | Not Applicable | Not Applicable | ||||
Feb 1 to Feb 28 | - | - | Not Applicable | Not Applicable | |||||
Mar 1 to Mar 31 | 33,068 | 34.79 | Not Applicable | Not Applicable | |||||
Total | 33,068 | $ | 34.79 | 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.
ITEM 6. EXHIBITS
Exhibits 31.1 — Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibits 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.
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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: | May 10, 2022 | BY: | /S/ELLEN R. GORDON | |
Ellen R. Gordon | ||||
Chairman and Chief | ||||
Executive Officer | ||||
Date: | May 10, 2022 | BY: | /S/G. HOWARD EMBER, JR. | |
G. Howard Ember, Jr. | ||||
Vice President Finance and | ||||
Chief Financial Officer | ||||
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