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 |
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SeptemberJune 30, 20172023
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
☐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)
| | |
7401 South Cicero Avenue, Chicago, Illinois | | 60629 |
(Address of Principal Executive Offices) | | (Zip Code) |
773-838-3400
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class: | Trading Symbol | Name of each exchange on which registered: | ||
Common Stock, par value $0.694 per share | | TR | | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post 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(June 30, 2017)2023).
| | |
Class | | Outstanding |
| | |
Common Stock, | |
|
Class B Common Stock, | |
|
TOOTSIE ROLL INDUSTRIES, INC.
SeptemberJUNE 30, 20172023
INDEX
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| | Page No. |
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| 3-4 | |
| | |
| Condensed Consolidated Statements of Earnings and Retained Earnings | 5 |
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| 6 | |
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| 7 | |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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23 | ||
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23 | ||
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24 | ||
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25 | ||
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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
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 |
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|
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| September 30, 2017 |
| December 31, 2016 |
| September 30, 2016 | |||
|
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|
ASSETS |
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CURRENT ASSETS: |
|
|
|
|
|
|
|
|
|
Cash & cash equivalents |
| $ | 49,512 |
| $ | 119,145 |
| $ | 94,239 |
Restricted cash |
|
| 400 |
|
| 382 |
|
| 409 |
Investments |
|
| 74,272 |
|
| 67,513 |
|
| 27,905 |
Trade accounts receivable, less allowances of $3,225, $1,884 & $3,274 |
|
| 95,341 |
|
| 42,964 |
|
| 81,718 |
Other receivables |
|
| 6,405 |
|
| 3,299 |
|
| 1,552 |
Inventories: |
|
|
|
|
|
|
|
|
|
Finished goods & work-in-process |
|
| 41,273 |
|
| 34,631 |
|
| 36,173 |
Raw material & supplies |
|
| 26,767 |
|
| 22,900 |
|
| 28,613 |
Prepaid expenses |
|
| 2,489 |
|
| 7,146 |
|
| 5,077 |
Deferred income taxes |
|
| - |
|
| 1,320 |
|
| 3,149 |
Total current assets |
|
| 296,459 |
|
| 299,300 |
|
| 278,835 |
|
|
|
|
|
|
|
|
|
|
PROPERTY, PLANT & EQUIPMENT, at cost: |
|
|
|
|
|
|
|
|
|
Land |
|
| 22,222 |
|
| 22,081 |
|
| 22,155 |
Buildings |
|
| 116,555 |
|
| 116,398 |
|
| 114,473 |
Machinery & equipment |
|
| 369,753 |
|
| 369,802 |
|
| 355,059 |
Construction in progress |
|
| 14,328 |
|
| 3,546 |
|
| 17,511 |
|
|
| 522,858 |
|
| 511,827 |
|
| 509,198 |
Less-accumulated depreciation |
|
| 344,809 |
|
| 330,922 |
|
| 326,609 |
Net property, plant and equipment |
|
| 178,049 |
|
| 180,905 |
|
| 182,589 |
|
|
|
|
|
|
|
|
|
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OTHER ASSETS: |
|
|
|
|
|
|
|
|
|
Goodwill |
|
| 73,237 |
|
| 73,237 |
|
| 73,237 |
Trademarks |
|
| 175,024 |
|
| 175,024 |
|
| 175,024 |
Investments |
|
| 193,991 |
|
| 164,665 |
|
| 189,956 |
Split dollar officer life insurance |
|
| 26,042 |
|
| 26,042 |
|
| 26,042 |
Prepaid expenses and other assets |
|
| 34 |
|
| 602 |
|
| 1,526 |
Deferred income taxes |
|
| - |
|
| 326 |
|
| 275 |
Total other assets |
|
| 468,328 |
|
| 439,896 |
|
| 466,060 |
Total assets |
| $ | 942,836 |
| $ | 920,101 |
| $ | 927,484 |
(The accompanying notes are an integral part of these statements.)
3
(in thousands except per share data) (Unaudited)
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| September 30, 2017 |
| December 31, 2016 |
| September 30, 2016 | |||
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LIABILITIES AND SHAREHOLDERS’ EQUITY |
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CURRENT LIABILITIES: |
|
|
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Accounts payable |
| $ | 14,037 |
| $ | 10,320 |
| $ | 13,366 |
Bank loans |
|
| 404 |
|
| 336 |
|
| 164 |
Dividends payable |
|
| 5,667 |
|
| 5,573 |
|
| 5,578 |
Accrued liabilities |
|
| 50,552 |
|
| 46,300 |
|
| 52,354 |
Postretirement health care |
|
| 513 |
|
| 513 |
|
| 448 |
Income taxes payable |
|
| 7,636 |
|
| - |
|
| 3,955 |
Deferred income taxes |
|
| - |
|
| 519 |
|
| 666 |
Total current liabilities |
|
| 78,809 |
|
| 63,561 |
|
| 76,531 |
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NONCURRENT LIABILITIES: |
|
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|
Deferred income taxes |
|
| 44,316 |
|
| 46,060 |
|
| 49,276 |
Bank loans |
|
| - |
|
| 230 |
|
| 283 |
Postretirement health care |
|
| 11,941 |
|
| 11,615 |
|
| 11,283 |
Industrial development bonds |
|
| 7,500 |
|
| 7,500 |
|
| 7,500 |
Liability for uncertain tax positions |
|
| 4,811 |
|
| 5,185 |
|
| 4,939 |
Deferred compensation and other liabilities |
|
| 80,936 |
|
| 74,412 |
|
| 72,119 |
Total noncurrent liabilities |
|
| 149,504 |
|
| 145,002 |
|
| 145,400 |
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|
TOOTSIE ROLL INDUSTRIES, INC. SHAREHOLDERS’ EQUITY: |
|
|
|
|
|
|
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|
Common stock, $.69-4/9 par value- 120,000 shares authorized; 38,046, 37,701 & 37,775, respectively, issued |
|
| 26,421 |
|
| 26,181 |
|
| 26,232 |
Class B common stock, $.69-4/9 par value- 40,000 shares authorized; 24,918, 24,221 & 24,226, respectively, issued |
|
| 17,304 |
|
| 16,820 |
|
| 16,824 |
Capital in excess of par value |
|
| 660,779 |
|
| 646,768 |
|
| 649,514 |
Retained earnings |
|
| 30,890 |
|
| 43,833 |
|
| 31,557 |
Accumulated other comprehensive loss |
|
| (18,921) |
|
| (20,246) |
|
| (16,805) |
Treasury stock (at cost)- 85, 83 & 83 shares, respectively |
|
| (1,992) |
|
| (1,992) |
|
| (1,992) |
Total Tootsie Roll Industries, Inc. shareholders’ equity |
|
| 714,481 |
|
| 711,364 |
|
| 705,330 |
Noncontrolling interests |
|
| 42 |
|
| 174 |
|
| 223 |
Total equity |
|
| 714,523 |
|
| 711,538 |
|
| 705,553 |
Total liabilities and shareholders’ equity |
| $ | 942,836 |
| $ | 920,101 |
| $ | 927,484 |
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 |
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| Quarter Ended |
| Year to Date Ended | ||||||||
|
| September 30, 2017 |
| September 30, 2016 |
| September 30, 2017 |
| September 30, 2016 | ||||
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Net product sales |
| $ | 182,173 |
| $ | 185,473 |
| $ | 390,495 |
| $ | 393,094 |
Rental and royalty revenue |
|
| 842 |
|
| 884 |
|
| 2,771 |
|
| 2,827 |
Total revenue |
|
| 183,015 |
|
| 186,357 |
|
| 393,266 |
|
| 395,921 |
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|
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|
|
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|
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|
Product cost of goods sold |
|
| 114,848 |
|
| 114,748 |
|
| 245,523 |
|
| 245,581 |
Rental and royalty cost |
|
| 240 |
|
| 235 |
|
| 757 |
|
| 782 |
Total costs |
|
| 115,088 |
|
| 114,983 |
|
| 246,280 |
|
| 246,363 |
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|
|
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|
|
|
|
|
|
Product gross margin |
|
| 67,325 |
|
| 70,725 |
|
| 144,972 |
|
| 147,513 |
Rental and royalty gross margin |
|
| 602 |
|
| 649 |
|
| 2,014 |
|
| 2,045 |
Total gross margin |
|
| 67,927 |
|
| 71,374 |
|
| 146,986 |
|
| 149,558 |
Selling, marketing and administrative expenses |
|
| 33,095 |
|
| 32,101 |
|
| 86,122 |
|
| 81,772 |
Earnings from operations |
|
| 34,832 |
|
| 39,273 |
|
| 60,864 |
|
| 67,786 |
Other income (loss), net |
|
| 4,121 |
|
| 1,943 |
|
| 8,565 |
|
| 4,147 |
Earnings before income taxes |
|
| 38,953 |
|
| 41,216 |
|
| 69,429 |
|
| 71,933 |
Provision for income taxes |
|
| 12,066 |
|
| 12,619 |
|
| 20,681 |
|
| 22,406 |
Net earnings |
|
| 26,887 |
|
| 28,597 |
|
| 48,748 |
|
| 49,527 |
Less: Net earnings (loss) attributable to noncontrolling interests |
|
| (46) |
|
| (40) |
|
| (131) |
|
| (142) |
Net earnings attributable to Tootsie Roll Industries, Inc. |
| $ | 26,933 |
| $ | 28,637 |
| $ | 48,879 |
| $ | 49,669 |
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Net earnings attributable to Tootsie Roll Industries, Inc. per share |
| $ | 0.43 |
| $ | 0.45 |
| $ | 0.77 |
| $ | 0.77 |
Dividends per share * |
| $ | 0.09 |
| $ | 0.09 |
| $ | 0.27 |
| $ | 0.27 |
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Average number of shares outstanding |
|
| 62,986 |
|
| 64,021 |
|
| 63,286 |
|
| 64,205 |
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Retained earnings at beginning of period |
| $ | 9,615 |
| $ | 8,491 |
| $ | 43,833 |
| $ | 52,349 |
Net earnings attributable to Tootsie Roll Industries, Inc. |
|
| 26,933 |
|
| 28,637 |
|
| 48,879 |
|
| 49,669 |
Cash dividends |
|
| (5,658) |
|
| (5,571) |
|
| (16,898) |
|
| (16,645) |
Stock dividends |
|
| - |
|
| - |
|
| (44,924) |
|
| (53,816) |
Retained earnings at end of period |
| $ | 30,890 |
| $ | 31,557 |
| $ | 30,890 |
| $ | 31,557 |
*Does not include 3% stock dividend to shareholders of record on 3/7/176/23 and 3/8/16.7/22.
(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.)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Quarter Ended |
| Year to Date Ended | ||||||||
|
| September 30, 2017 |
| September 30, 2016 |
| September 30, 2017 |
| September 30, 2016 | ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
| $ | 26,887 |
| $ | 28,597 |
| $ | 48,748 |
| $ | 49,527 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss), before tax: |
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments |
|
| (216) |
|
| (906) |
|
| 2,875 |
|
| (2,337) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension and postretirement reclassification adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains (losses) for the period on postretirement and pension benefits |
|
| 4 |
|
| - |
|
| 95 |
|
| - |
Less: reclassification adjustment for (gains) losses to net earnings |
|
| (366) |
|
| (411) |
|
| (1,097) |
|
| (1,232) |
Unrealized gains (losses) on postretirement and pension benefits |
|
| (362) |
|
| (411) |
|
| (1,002) |
|
| (1,232) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains (losses) for the period on investments |
|
| 121 |
|
| (289) |
|
| 500 |
|
| 710 |
Less: reclassification adjustment for (gains) losses to net earnings |
|
| - |
|
| - |
|
| - |
|
| 4 |
Unrealized gains (losses) on investments |
|
| 121 |
|
| (289) |
|
| 500 |
|
| 714 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives: |
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains (losses) for the period on derivatives |
|
| 19 |
|
| 1,288 |
|
| (1,735) |
|
| 4,411 |
Less: reclassification adjustment for (gains) losses to net earnings |
|
| 28 |
|
| (337) |
|
| (109) |
|
| 646 |
Unrealized gains (losses) on derivatives |
|
| 47 |
|
| 951 |
|
| (1,844) |
|
| 5,057 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive income (loss), before tax |
|
| (410) |
|
| (655) |
|
| 529 |
|
| 2,202 |
Income tax benefit (expense) related to items of other comprehensive income |
|
| 70 |
|
| (91) |
|
| 796 |
|
| (1,643) |
Total comprehensive earnings |
|
| 26,547 |
|
| 27,851 |
|
| 50,073 |
|
| 50,086 |
Comprehensive earnings (loss) attributable to noncontrolling interests |
|
| (46) |
|
| (40) |
|
| (131) |
|
| (142) |
Total comprehensive earnings attributable to Tootsie Roll Industries, Inc. |
| $ | 26,593 |
| $ | 27,891 |
| $ | 50,204 |
| $ | 50,228 |
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.)
6
7
TOOTSIE ROLL INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands) (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Year to Date Ended | ||||
|
| September 30, 2017 |
| September 30, 2016 | ||
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
Net earnings |
| $ | 48,748 |
| $ | 49,527 |
Adjustments to reconcile net earnings to net cash used in operating activities: |
|
|
|
|
|
|
Depreciation and amortization |
|
| 14,364 |
|
| 14,651 |
Deferred income taxes |
|
| 153 |
|
| 23 |
Amortization of marketable security premiums |
|
| 1,840 |
|
| 2,221 |
Changes in operating assets and liabilities: |
|
|
|
|
|
|
Accounts receivable |
|
| (51,270) |
|
| (31,367) |
Other receivables |
|
| (4,265) |
|
| 2,622 |
Inventories |
|
| (10,018) |
|
| (2,826) |
Prepaid expenses and other assets |
|
| 3,313 |
|
| 3,678 |
Accounts payable and accrued liabilities |
|
| 8,249 |
|
| 6,906 |
Income taxes payable |
|
| 8,706 |
|
| 3 |
Postretirement health care benefits |
|
| (677) |
|
| (902) |
Deferred compensation and other liabilities |
|
| (723) |
|
| 2,496 |
Net cash from operating activities |
|
| 18,420 |
|
| 47,032 |
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
Restricted cash |
|
| (17) |
|
| - |
Capital expenditures |
|
| (11,699) |
|
| (13,067) |
Purchases of trading securities |
|
| (3,387) |
|
| (3,064) |
Sales of trading securities |
|
| 3,544 |
|
| 645 |
Purchase of available for sale securities |
|
| (51,935) |
|
| (45,298) |
Sale and maturity of available for sale securities |
|
| 21,328 |
|
| 26,517 |
Net cash used in investing activities |
|
| (42,166) |
|
| (34,267) |
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
Shares purchased and retired |
|
| (30,027) |
|
| (26,293) |
Dividends paid in cash |
|
| (16,965) |
|
| (16,694) |
Proceeds from bank loans |
|
| 1,182 |
|
| 2,156 |
Repayment of bank loans |
|
| (1,345) |
|
| (2,339) |
Net cash used in financing activities |
|
| (47,155) |
|
| (43,170) |
Effect of exchange rate changes on cash |
|
| 1,268 |
|
| (1,501) |
Decrease in cash and cash equivalents |
|
| (69,633) |
|
| (31,906) |
Cash and cash equivalents at beginning of year |
|
| 119,145 |
|
| 126,145 |
Cash and cash equivalents at end of quarter |
| $ | 49,512 |
| $ | 94,239 |
Supplemental cash flow information: |
|
|
|
|
|
|
Income taxes paid, net |
| $ | 12,360 |
| $ | 22,622 |
Interest paid |
| $ | 49 |
| $ | 19 |
Stock dividend issued |
| $ | 69,739 |
| $ | 61,671 |
(The accompanying notes are an integral part of these statements.)
7
TOOTSIE ROLL INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SeptemberJUNE 30, 20172023
(in thousands except per share amounts) (Unaudited)
Note 1 — Significant Accounting Policies
General Information
ForegoingThe foregoing data has been prepared from the unaudited financial records of Tootsie Roll Industries, Inc. (the Company) and in“Company”). In the opinion of managementManagement, 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, 20162022 (the “2016“2022 Form 10-K”).
Results of operations for the period ended SeptemberJune 30, 20172023 are not necessarily indicative of results to be expected for the year to end December 31, 20172023 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.
Accounting PronouncementsRevenue Recognition
In May 2014,The Company’s revenues, primarily net product sales resulting from the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2014-09 that introduces a new five-step revenue recognition model in which an entity should recognize revenue to depict the transfersale of promised goods, or services to customers in an amount that reflectsreflect the consideration to which the entityCompany expects to be entitled generally based on customer purchase orders. The Company records revenue based on a five-step model in exchangeaccordance with Accounting Standards Codification ("ASC") Topic 606. Adjustments for those goods or services. This ASU also requires disclosures sufficientestimated 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 enable users to understand the nature, amount, timing,current business conditions and uncertainty of revenue and cash flows arising from contracts with customers, including qualitative and quantitative disclosures about contracts with customers, significant judgments and changes in judgments, and assets recognized from the costs to obtain or fulfill a contract. This standardexperience. A net product sale is effective for fiscal years beginning after December 15, 2017, including interim periods within that reporting period. Althoughrecorded when the Company is continuing its evaluation ofdelivers the new guidance, based upon the current status of the evaluation, the impact of adoption is not expected to be materialproduct to the consolidated financial statements. The Company will usecustomer or, in certain instances, when the modified retrospective methodcustomer picks up the goods at the Company’s distribution center and thereby obtains control of adoption in the first quarter of 2018.
In January 2016, the FASB issued ASU 2016-01 which modifies certain aspects of the recognition, measurement, presentation,such product. Amounts billed and disclosure of financial instruments. This standard is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017, and early adoption is permitted. The Company is currently evaluating the new guidance to determine the impact it may have on the consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02 which amends existing guidance to require lessees to recognize assets and liabilitiesdue from our customers are classified as accounts receivable trade on the balance sheet for the rights and obligations created by long-term leasesrequire 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 disclose additional quantitative and qualitative information about leasing arrangements. This ASU also provides clarifications surrounding the presentation of the effects of leases in the income statement and statement of cash flows. This guidance will be effective for the Company on January 1, 2019. The Company is currently evaluating this new guidance to determine the impact it will have on its consolidated financial statements.
In April 2016, the FASB issued ASU 2016-10, which contains amendments to the new revenue recognition standard on identifying performance obligations and accounting for licenses of intellectual property. The amendments related to identifying performance obligations clarify when a promised good or service is separately identifiable and allows entities to disregard items that are immaterial in the context of a contract. The licensing implementation amendments clarify how an entity should evaluate the nature of its promise in granting a license of intellectual property, which will determine whether revenue is recognized over time or at a point in time. This standard is effective for fiscal years beginning after December 15, 2017, including interim periods within that reporting period. 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 doesidentifies 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
have any significant licenses of intellectual property and is currently evaluating this new guidance to determine the impact it will have on its consolidated financial statements.
In August 2016, the FASB issued ASU 2016-15, which includes amendments addressing eight specific cash flow issues with the objective of reducing the existing diversity in practice. The effective date of the amendments to the standard is for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company is currently evaluating this new guidance to determine the impact it will have on its consolidated financial statements.
In March 2017, the FASB issued ASU 2017-07, which requires employers who offer defined benefit and postretirement benefit plans to report the service cost component in the same line item as other compensation costs arising from services rendered by employees during the reporting period. The other components of net benefit costs will be presented in the income statement separately from the service cost and outside of a subtotal of income from operations. In addition, only the service cost component may be eligible for capitalization where applicable. This guidance is effective for annual periods beginning after December 15, 2017. The Company is currently evaluating this new guidance to determine the impact it will have on its consolidated financial statements.
In August 2017, the FASB issued ASU 2017-12, guidance that amends hedge accounting. Under the new guidance, more hedging strategies will be eligible for hedge accounting and the application of hedge accounting is simplified. The new guidance amends presentation and disclosure requirements, and how effectiveness is assessed. The guidance is effective for fiscal years beginning after December 15, 2018, and interim periods within those years. Early adoption is permitted. The Company is currently evaluating the impact that the new guidance will have on its consolidated financial statements.
Recently Adopted Accounting Pronouncements
In November 2015,As of the FASB issued ASU 2015-17 which simplifiesdate of this report, there are no recent accounting pronouncements that have been adopted in the presentation of deferred income taxes by requiringperiod nor any that deferred tax assets and liabilities be classified as non-current in a classified statement of financial position. This guidance was adopted on January 1, 2017 on a prospective basis. Prior period balances have not yet been adjusted.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 ninesix months 20172023 reflects aggregate stock purchases of 809429 shares for $30,027$16,548, excluding excise taxes, and a 3% stock dividend of 1,8502,040 shares distributed on April 17, 2017.7, 2023. The average number of shares outstanding for ninesix months 20162022 reflects aggregate stock purchases of 740145 shares for $26,293$5,023 and a 3% stock dividend of 1,8192,006 shares distributed on April 8, 2016.2022.
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 20142019 through 2016. With few exceptions, the Company is no longer subject to examination by tax authorities for the year 2013 and prior.2021. The Company’s consolidated effective income tax rates were 31.0%rate was 24.7% and 30.6%24.4% in thirdsecond quarter 20172023 and 2016,2022, respectively, and 29.8%24.3% and 31.1%24.2% in nine months 2017first half 2023 and 2016,2022, respectively. The lower effective tax rate for nine months 2017 compared to nine months 2016 principally reflects certain benefits resulting from filing amended federal
9
NOTE 4—Share Capital and state income tax returns, including a state income tax carry forward.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 45 — 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,
9
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’sManagement’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 SeptemberJune 30, 2017,2023, December 31, 20162022 and SeptemberJune 30, 2016,2022, 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 and municipal bonds that are publicly traded andbut also include variable rate demand notes with interest rates that generally reset weekly and the security can be “put” back and sold weekly. Trading securities principally consist
10
The following table presents information about the Company’s financial assets and liabilities measured at fair value as of September 30, 2017, December 31, 2016 and September 30, 2016 and indicate the fair value hierarchy of the valuation techniques utilized bynotes. While the Company generally holds its available for sale investments to determinematurity, 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, fair value: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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Estimated Fair Value September 30, 2017 | ||||||||||
|
| Total |
| Input Levels Used | ||||||||
|
| Fair Value |
| Level 1 |
| Level 2 |
| Level 3 | ||||
Cash and cash equivalents |
| $ | 49,512 |
| $ | 49,512 |
| $ | - |
| $ | - |
Available for sale securities |
|
| 193,169 |
|
| 2,402 |
|
| 190,767 |
|
| - |
Foreign currency forward contracts |
|
| 147 |
|
| - |
|
| 147 |
|
| - |
Commodity futures contracts |
|
| (364) |
|
| (364) |
|
| - |
|
| - |
Trading securities |
|
| 75,094 |
|
| 75,094 |
|
| - |
|
| - |
Total assets measured at fair value |
| $ | 317,558 |
| $ | 126,644 |
| $ | 190,914 |
| $ | - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Estimated Fair Value December 31, 2016 | ||||||||||
|
|
| Total |
| Input Levels Used | |||||||
|
|
| Fair Value |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
Cash and cash equivalents |
| $ | 119,145 |
| $ | 119,145 |
| $ | - |
| $ | - |
Available for sale securities |
|
| 164,183 |
|
| 2,419 |
|
| 161,764 |
|
| - |
Foreign currency forward contracts |
|
| (119) |
|
| - |
|
| (119) |
|
| - |
Commodity futures contracts, net |
|
| 1,746 |
|
| 1,746 |
|
| - |
|
| - |
Trading securities |
|
| 67,995 |
|
| 67,995 |
|
| - |
|
| - |
Total assets measured at fair value |
| $ | 352,950 |
| $ | 191,305 |
| $ | 161,645 |
| $ | - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Estimated Fair Value September 30, 2016 | ||||||||||
|
|
| Total |
| Input Levels Used | |||||||
|
|
| Fair Value |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
Cash and cash equivalents |
| $ | 94,239 |
| $ | 94,239 |
| $ | - |
| $ | - |
Available for sale securities |
|
| 151,776 |
|
| 2,429 |
|
| 149,347 |
|
| - |
Foreign currency forward contracts |
|
| (532) |
|
| - |
|
| (532) |
|
| - |
Commodity futures contracts |
|
| 3,234 |
|
| 3,234 |
|
| - |
|
| - |
Trading securities |
|
| 66,085 |
|
| 66,085 |
|
| - |
|
| - |
Total assets measured at fair value |
| $ | 314,802 |
| $ | 165,987 |
| $ | 148,815 |
| $ | - |
The fair value of the Company’s industrial revenue development bonds at SeptemberJune 30, 2017,2023, December 31, 20162022 and SeptemberJune 30, 20162022 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:
10
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | Estimated Fair Value June 30, 2023 | ||||||||||
| | Total | | Input Levels Used | ||||||||
| | Fair Value | | Level 1 | | Level 2 | | Level 3 | ||||
Cash and cash equivalents |
| $ | 26,047 |
| $ | 26,047 |
| $ | - |
| $ | - |
Available for sale securities | | | 254,305 | | | 4,510 | | | 249,795 | | | - |
Foreign currency derivatives | | | 108 | | | - | | | 108 | | | - |
Commodity derivatives | | | (806) | | | (806) | | | - | | | - |
Trading securities | | | 81,319 | | | 65,065 | | | 16,254 | | | - |
Total assets measured at fair value | | $ | 360,973 | | $ | 94,816 | | $ | 266,157 | | $ | - |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | Estimated Fair Value December 31, 2022 | ||||||||||
| | | Total | | Input Levels Used | |||||||
| | | Fair Value | | | Level 1 | | | Level 2 | | | Level 3 |
Cash and cash equivalents |
| $ | 53,270 |
| $ | 53,270 |
| $ | - |
| $ | - |
Available for sale securities | | | 272,448 | |
| 1,889 | |
| 270,559 | | | - |
Foreign currency derivatives | | | (282) | |
| - | |
| (282) | | | - |
Commodity derivatives | | | 10 | |
| 10 | |
| - | | | - |
Trading securities | | | 71,208 | |
| 56,049 | |
| 15,159 | | | - |
Total assets measured at fair value | | $ | 396,654 | | $ | 111,218 | | $ | 285,436 | | $ | - |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | Estimated Fair Value June 30, 2022 | ||||||||||
| | | Total | | Input Levels Used | |||||||
| | | Fair Value | | | Level 1 | | | Level 2 | | | Level 3 |
Cash and cash equivalents |
| $ | 46,628 |
| $ | 46,628 |
| $ | - |
| $ | - |
Available for sale securities | | | 262,057 | | | 748 | | | 261,309 | | | - |
Foreign currency derivatives | | | 165 | | | - | | | 165 | | | - |
Commodity derivatives | | | 100 | | | 100 | | | - | | | - |
Trading securities | | | 72,480 | | | 56,964 | | | 15,516 | | | - |
Total assets measured at fair value | | $ | 381,430 | | $ | 104,440 | | $ | 276,990 | | $ | - |
11
Note 56 — Derivative Instruments and Hedging Activities
TheFrom time to time, the Company uses derivative instruments, including foreign currency forward contracts commodity futures contracts and commodity optionfutures contracts, to manage its exposures to foreign exchange and commodity prices. Commodity futures contracts and most commodity option 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.States, and periodic equipment purchases from foreign suppliers denominated in a foreign currency. The Company does not engage in trading or other speculative use of derivative instruments.
The Company recognizes all derivative instruments as either assets or liabilities at fair value in the Condensed Consolidated Statement of Financial Position. Derivative assets are recorded in other receivables and derivative liabilities are recorded in accrued liabilities. The Company uses hedge accounting for its foreign currency and commodity derivative instruments as discussed above. Derivatives that qualify for hedge accounting are designated as cash flow hedges by formally documenting the hedge relationships, including identification of the hedging instruments, the hedged items and other critical terms, as well as the Company’s risk management objectives and strategies for undertaking the hedge transaction.
Changes in the fair value of the Company’s cash flow hedges are recorded in accumulated other comprehensive loss, net of tax, and are reclassified to earnings in the periods in which earnings are affected by the hedged item. Substantially all amounts reported in accumulated other comprehensive loss for commodity derivatives are expected to be reclassified to cost of goods sold. Approximately 43%$(186), $(563) and $(57) of this accumulated comprehensive net gain (loss) is expected to be reclassified to net earnings in the next 12 months. Substantially all amounts2023, 2024 and 2025, respectively. Approximately $(15) and $123 reported in accumulated other comprehensive lossgain (loss) for foreign currency derivatives are expected to be reclassified to other income, net in the next 12 months.2023 and 2024, respectively.
The following table summarizes the Company’s outstanding derivative contracts and their effects on its Condensed Consolidated Statements of Financial Position at SeptemberJune 30, 2017,2023, December 31, 20162022 and SeptemberJune 30, 2016:2022:
|
|
|
|
|
|
| ||||||||||||
|
|
|
|
|
|
| ||||||||||||
|
| September 30, 2017 | ||||||||||||||||
|
| Notional |
|
|
|
| ||||||||||||
|
| Amounts |
| Assets |
| Liabilities | ||||||||||||
|
|
|
|
|
|
| ||||||||||||
| | | | | | | | |||||||||||
| | | | | | | | |||||||||||
| | June 30, 2023 | ||||||||||||||||
| | Notional |
|
|
|
| ||||||||||||
| | Amounts | | Assets | | Liabilities | ||||||||||||
Derivatives designated as hedging instruments: |
|
|
|
|
|
| | | | | | | | |||||
Foreign currency forward contracts |
| $ | 2,059 |
| $ | 147 |
| $ | - | |||||||||
Commodity futures contracts |
|
| 13,616 |
|
| 56 |
|
| (420) | |||||||||
Foreign currency derivatives | | $ | 12,021 | | $ | 154 | | $ | (46) | |||||||||
Commodity derivatives | | | 16,496 | | | 75 | | | (881) | |||||||||
Total derivatives |
|
|
|
| $ | 203 |
| $ | (420) | | | | | $ | 229 | | $ | (927) |
|
|
|
|
|
|
| ||||||||||||
|
| December 31, 2016 | ||||||||||||||||
|
| Notional |
|
|
|
| ||||||||||||
|
| Amounts |
| Assets |
| Liabilities | ||||||||||||
|
|
|
|
|
|
| ||||||||||||
| | | | | | | | |||||||||||
| | December 31, 2022 | ||||||||||||||||
| | Notional |
|
|
|
| ||||||||||||
| | Amounts | | Assets | | Liabilities | ||||||||||||
Derivatives designated as hedging instruments: |
|
|
|
|
|
| | | | | | | | |||||
Foreign currency forward contracts |
| $ | 2,357 |
| $ | - |
| $ | (119) | |||||||||
Commodity futures contracts |
|
| 10,811 |
|
| 1,932 |
|
| (186) | |||||||||
Foreign currency derivatives | | $ | 7,264 | | $ | - | | $ | (282) | |||||||||
Commodity derivatives | | | 189 | |
| 10 | |
| - | |||||||||
Total derivatives |
|
|
|
| $ | 1,932 |
| $ | (305) | | | | | $ | 10 | | $ | (282) |
|
|
|
|
|
|
|
| |||||||||||
|
| September 30, 2016 | ||||||||||||||||
|
| Notional |
|
|
|
| ||||||||||||
|
| Amounts |
| Assets |
| Liabilities | ||||||||||||
|
|
|
|
|
|
| ||||||||||||
| | | | | | | | |||||||||||
| | June 30, 2022 | ||||||||||||||||
| | Notional |
|
|
|
| ||||||||||||
| | Amounts | | Assets | | Liabilities | ||||||||||||
Derivatives designated as hedging instruments: |
|
|
|
|
|
| | | | | | | | |||||
Foreign currency forward contracts |
| $ | 5,684 |
| $ | - |
| $ | (532) | |||||||||
Commodity futures contracts |
|
| 11,047 |
|
| 3,256 |
|
| (22) | |||||||||
Foreign currency derivatives | | $ | 8,503 | | $ | 186 | | $ | (21) | |||||||||
Commodity derivatives | | | 2,185 | | | 111 | | | (11) | |||||||||
Total derivatives |
|
|
|
| $ | 3,256 |
| $ | (554) | | | | | $ | 297 | | $ | (32) |
11
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 SeptemberJune 30, 20172023 and SeptemberJune 30, 20162022 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For Quarter Ended September 30, 2017 | |||||||
|
|
|
|
|
| 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 |
| $ | 118 |
| $ | 55 |
| $ | - |
Commodity futures contracts |
|
| (99) |
|
| (83) |
|
| - |
Total |
| $ | 19 |
| $ | (28) |
| $ | - |
|
|
|
|
|
|
|
|
|
|
|
| For Quarter Ended September 30, 2016 | |||||||
|
|
|
|
|
| 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 |
| $ | (77) |
| $ | (456) |
| $ | - |
Commodity futures contracts |
|
| 1,365 |
|
| 793 |
|
| - |
Total |
| $ | 1,288 |
| $ | 337 |
| $ | - |
|
|
|
|
|
|
|
|
|
|
|
| For Year to Date Ended September 30, 2017 | |||||||
|
|
|
|
|
| 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 |
| $ | 266 |
| $ | 1 |
| $ | - |
Commodity futures contracts |
|
| (2,001) |
|
| 108 |
|
| - |
Total |
| $ | (1,735) |
| $ | 109 |
| $ | - |
|
|
|
|
|
|
|
|
|
|
|
| For Year to Date Ended September 30, 2016 | |||||||
|
|
|
|
|
| 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 |
| $ | 613 |
| $ | (1,482) |
| $ | - |
Commodity futures contracts |
|
| 3,798 |
|
| 836 |
|
| - |
Total |
| $ | 4,411 |
| $ | (646) |
| $ | - |
| | | | | | | | | |
| | | | | | | | | |
| | For Quarter Ended June 30, 2023 | |||||||
| |
|
|
|
| Gain (Loss) | |||
| | | | Gain (Loss) | | on Amount Excluded | |||
| | Gain (Loss) | | Reclassified from | | from Effectiveness | |||
| | Recognized | | Accumulated OCI | | Testing Recognized | |||
| | in OCI | | into Earnings | | in Earnings | |||
| | | | | | | | | |
Foreign currency derivatives | | $ | 292 | | $ | (48) | | $ | - |
Commodity derivatives | | | (857) | | | - | | | - |
Total | | $ | (565) | | $ | (48) | | $ | - |
| | | | | | | | | |
| | For Quarter Ended June 30, 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 derivatives | | $ | (149) | | $ | 86 | | $ | - |
Commodity derivatives | | | (80) | | | 62 | | | - |
Total | | $ | (229) | | $ | 148 | | $ | - |
| | | | | | | | | |
| | For Year to Date Ended June 30, 2023 | |||||||
| |
|
|
|
| Gain (Loss) | |||
| | | | Gain (Loss) | | on Amount Excluded | |||
| | Gain (Loss) | | Reclassified from | | from Effectiveness | |||
| | Recognized | | Accumulated OCI | | Testing Recognized | |||
| | in OCI | | into Earnings | | in Earnings | |||
| | | | | | | | | |
Foreign currency derivatives | | $ | 253 | | $ | (136) | | $ | - |
Commodity derivatives | | | (723) | | | 93 | | | - |
Total | | $ | (470) | | $ | (43) | | $ | - |
| | | | | | | | | |
| | For Year to Date Ended June 30, 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 derivatives | | $ | (73) | | $ | 188 | | $ | - |
Commodity derivatives | | | 65 | | | 89 | | | - |
Total | | $ | (8) | | $ | 277 | | $ | - |
13
Note 67 — Pension Plans
During 2017 and 2016,Beginning in 2012, the Company received updatedperiodic notices thatfrom the Bakery and Confectionery Union and Industry International Pension PlanFund (Plan), a multi-employer defined benefit pension plan for certain Company union employees, isthat the Plan’s actuary certified the Plan to be in “critical and declining 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 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 projectedexpected to become insolvent in 2030. the next 20 years. In 2016, the Company received new notices that the Plan’s trustees adopted an updated Rehabilitation Plan effective January 1, 2016, and all annual notices through 2023 have continued to classify the Plan in the “critical and declining status” category.
The Company has been advised that its withdrawal liability would have been $72,700$104,300, $99,300 and $99,800 if it had withdrawn from the Plan during 2016.2021, 2020 and 2019, respectively. The Plan has not yet provided an actuarial estimate of a withdrawal liability calculated as if the Company were to have withdrawn from the Plan during 2022. Should the Company actually withdraw from the Plan at a future date, aits withdrawal liability whichpayable under the Plan could be higher than the above discussed amount, could be payableamounts.
The Company’s pension expense for this Plan for first half 2023 and 2022 was $1,951 and $1,822, respectively. The aforementioned expense includes surcharges of $688 and $642 for first half 2023 and 2022, respectively, as required under the amended plan of rehabilitation. The Company’s twelve months pension expense for this Plan for 2022 and 2021 was $3,510 and $3,156, respectively, which includes surcharges of $1,237 and $1,112, respectively. From 2012 through 2020, the Company’s employer contributions were subject to annual 5% compounded surcharge increases. Beginning in 2021, the Plan ceased additional surcharges, but the prior surcharges remain in effect indefinitely.
During first quarter 2023, the Plan submitted an initial application to the Plan.
12
2021. The Plan withdrew the application in the second quarter of 2023 and intends to resubmit after resolving certain aspects identified through discussions with the PBGC. If the application is approved, the Special Financial Assistance funds the plan would receive are expected to have a material effect on the Plan’s assets. The Company’s actuary believes that it still remains unclear if the Plan can remain solvent through the targeted date of 2051 and 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 outcome of the above discussed mattermulti-employer union pension matters and therefore is unable to determine the effects on its consolidated financial statements, but the ultimate outcome orcould have a material adverse effect on the effects of any modifications to the current rehabilitation plan and new “hybrid plan” option discussed in Management’s Discussion and Analysis of Financial Condition and Results of Operations (Item 2) could be material to itsCompany’s consolidated results of operations or cash flows in one or more future periods. See also the Company’s Consolidated Financial Statements and related notes and Management’s Discussion and Analysis
14
Note 78 — 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 March 31, 2023 | | $ | (22,499) |
| $ | (6,919) |
| $ | (178) |
| $ | 39 |
| $ | 2,498 |
| $ | (27,059) |
Other comprehensive earnings (loss) before reclassifications | | | 1,142 | | | (247) | | | 221 | | | (648) | | | - | | | 468 |
Reclassifications from accumulated other comprehensive loss | | | - | | | - | | | 36 | | | - | | | (143) | | | (107) |
Other comprehensive earnings (loss) net of tax | | | 1,142 | | | (247) | | | 257 | | | (648) | | | (143) | | | 361 |
Balance at June 30, 2023 | | $ | (21,357) | | $ | (7,166) | | $ | 79 | | $ | (609) | | $ | 2,355 | | $ | (26,698) |
| | | | | | | | | | | | | | | | | | |
Balance at March 31, 2022 | | $ | (24,313) |
| $ | (5,722) |
| $ | 302 |
| $ | 184 |
| $ | 582 |
| $ | (28,967) |
Other comprehensive earnings (loss) before reclassifications | | | (106) | | | (1,849) | | | (113) | | | (61) | | | - | | | (2,129) |
Reclassifications from accumulated other comprehensive loss | | | - | | | (4) | | | (65) | | | (47) | | | (156) | | | (272) |
Other comprehensive earnings (loss) net of tax | | | (106) | | | (1,853) | | | (178) | | | (108) | | | (156) | | | (2,401) |
Balance at June 30, 2022 | | $ | (24,419) | | $ | (7,575) | | $ | 124 | | $ | 76 | | $ | 426 | | $ | (31,368) |
| | | | | | | | | | | | | | | | | | |
Balance at December 31, 2022 |
| $ | (23,795) | | $ | (8,809) | | $ | (215) | | $ | 8 | | $ | 2,642 | | $ | (30,169) |
Other comprehensive earnings (loss) before reclassifications | | | 2,438 | | | 1,643 | | | 192 | | | (547) | | | - | | | 3,726 |
Reclassifications from accumulated other comprehensive loss | | | - | | | - | | | 102 | | | (70) | | | (287) | | | (255) |
Other comprehensive earnings (loss) net of tax | | | 2,438 | | | 1,643 | | | 294 | | | (617) | | | (287) | | | 3,471 |
Balance at June 30, 2023 | | $ | (21,357) | | $ | (7,166) | | $ | 79 | | $ | (609) | | $ | 2,355 | | $ | (26,698) |
| | | | | | | | | | | | | | | | | | |
Balance at December 31, 2021 | | $ | (24,882) | | $ | (1,286) | | $ | 322 | | $ | 94 | | $ | 739 | | $ | (25,013) |
Other comprehensive earnings (loss) before reclassifications | | | 463 | | | (6,281) | | | (56) | | | 50 | | | - | | | (5,824) |
Reclassifications from accumulated other comprehensive loss | | | - | | | (8) | | | (142) | | | (68) | | | (313) | | | (531) |
Other comprehensive earnings (loss) net of tax | | | 463 | | | (6,289) | | | (198) | | | (18) | | | (313) | | | (6,355) |
Balance at June 30, 2022 | | $ | (24,419) | | $ | (7,575) | | $ | 124 | | $ | 76 | | $ | 426 | | $ | (31,368) |
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| Accumulated | |
|
| Foreign |
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|
| Foreign |
|
|
| Postretirement |
| Other | ||||||
|
| Currency |
|
|
| Currency |
| Commodity |
| and Pension |
| Comprehensive | ||||||
|
| Translation |
| Investments |
| Derivatives |
| Derivatives |
| Benefits |
| Earnings (Loss) | ||||||
Balance at December 31, 2016 |
| $ | (25,460) |
| $ | (697) |
| $ | (76) |
| $ | 1,114 |
| $ | 4,873 |
| $ | (20,246) |
Other comprehensive earnings (loss) before reclassifications |
|
| 2,875 |
|
| 319 |
|
| 170 |
|
| (1,276) |
|
| 6 |
|
| 2,094 |
Reclassifications from accumulated other comprehensive loss |
|
| - |
|
| - |
|
| - |
|
| (69) |
|
| (700) |
|
| (769) |
Other comprehensive earnings (loss) net of tax |
|
| 2,875 |
|
| 319 |
|
| 170 |
|
| (1,345) |
|
| (694) |
|
| 1,325 |
Balance at September 30, 2017 |
| $ | (22,585) |
| $ | (378) |
| $ | 94 |
| $ | (231) |
| $ | 4,179 |
| $ | (18,921) |
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| Accumulated | |
|
| Foreign |
|
|
| Foreign |
|
|
| Postretirement |
| Other | ||||||
|
| Currency |
|
|
| Currency |
| Commodity |
| and Pension |
| Comprehensive | ||||||
|
| Translation |
| Investments |
| Derivatives |
| Derivatives |
| Benefits |
| Earnings (Loss) | ||||||
Balance at December 31, 2015 |
| $ | (21,644) |
| $ | (605) |
| $ | (1,675) |
| $ | 173 |
| $ | 6,387 |
| $ | (17,364) |
Other comprehensive earnings (loss) before reclassifications |
|
| (2,337) |
|
| 451 |
|
| 391 |
|
| 2,424 |
|
| - |
|
| 929 |
Reclassifications from accumulated other comprehensive loss |
|
| - |
|
| 3 |
|
| 946 |
|
| (533) |
|
| (786) |
|
| (370) |
Other comprehensive earnings (loss) net of tax |
|
| (2,337) |
|
| 454 |
|
| 1,337 |
|
| 1,891 |
|
| (786) |
|
| 559 |
Balance at September 30, 2016 |
| $ | (23,981) |
| $ | (151) |
| $ | (338) |
| $ | 2,064 |
| $ | 5,601 |
| $ | (16,805) |
15
The amounts reclassified from accumulated other comprehensive income (loss) consisted of the following:
| | | | | | | | | | | | | | |
Details about Accumulated Other | | Quarter Ended | | Year to Date Ended | | Location of (Gain) Loss | ||||||||
Comprehensive Income Components | | June 30, 2023 | | June 30, 2022 | | June 30, 2023 | | June 30, 2022 | | Recognized in Earnings | ||||
Investments | | $ | - | | $ | (5) | | $ | (1) | | $ | (10) | | Other income, net |
Foreign currency derivatives | | | 48 | | | (86) | | | 136 | | | (188) | | Other income, net |
Commodity derivatives | | | - | | | (62) | | | (93) | | | (89) | | Product cost of goods sold |
Postretirement and pension benefits | | | (189) | | | (206) | | | (379) | | | (413) | | Other income, net |
Total before tax | | | (141) | | | (359) | | | (337) | | | (700) | | |
Tax (expense) benefit | | | 34 | | | 87 | | | 82 | | | 169 | | |
Net of tax | | $ | (107) | | $ | (272) | | $ | (255) | | $ | (531) | | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Details about Accumulated Other |
| Quarter Ended |
| Year to Date Ended |
| Location of (Gain) Loss | ||||||||
Comprehensive Income Components |
| September 30, 2017 |
| September 30, 2016 |
| September 30, 2017 |
| September 30, 2016 |
| Recognized in Earnings | ||||
Investments |
| $ | - |
| $ | - |
| $ | - |
| $ | 4 |
| Other income, net |
Foreign currency derivatives |
|
| (55) |
|
| 456 |
|
| (1) |
|
| 1,482 |
| Other income, net |
Commodity derivatives |
|
| 83 |
|
| (793) |
|
| (108) |
|
| (836) |
| Product cost of goods sold |
Postretirement and pension benefits |
|
| (187) |
|
| (209) |
|
| (560) |
|
| (628) |
| Selling, marketing and administrative expenses |
Postretirement and pension benefits |
|
| (179) |
|
| (202) |
|
| (537) |
|
| (604) |
| Product cost of goods sold |
Total before tax |
|
| (338) |
|
| (748) |
|
| (1,206) |
|
| (582) |
|
|
Tax (expense) benefit |
|
| 123 |
|
| 271 |
|
| 437 |
|
| 212 |
|
|
Net of tax |
| $ | (215) |
| $ | (477) |
| $ | (769) |
| $ | (370) |
|
|
13
Note 89 — Restricted Cash
Restricted cash comprises certain cash deposits of the Company’s majority-owned Spanish companiessubsidiary with international banks that are pledged as collateral for letters of credit and bank borrowings.
Note 910 — Bank Loans
Bank loans compriseconsist of short term (less than 120 days) borrowings by the Company’s majority-owned Spanish companies whichsubsidiary that are held by international banks. The weighted-average interest rate as of SeptemberJune 30, 20172023 and 20162022 was 1.9 %5.9% and 2.0%3.1%, respectively.
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 18 years. Operating lease cost totaled $367 and $277 in the second quarter of 2023 and 2022, respectively, and maturity dates range$602 and $556 for the first half of 2023 and 2022, respectively. Cash paid for operating lease liabilities is substantially the same as operating lease cost and is presented in cash flows from 1operating activities. As of June 30, 2023 and 2022, operating lease right-of-use assets were $6,291 and $7,019, respectively, and operating lease liabilities were $6,354 and $7,019, respectively. The weighted-average remaining lease term related to 2these operating leases was 12.5 years and 7.1 years as of June 30, 2023 and 2022, respectively. The weighted-average discount rate related to the Company’s operating leases was 3.4% and 2.0% as of June 30, 2023 and 2022, respectively. Maturities of the Company’s operating lease liabilities at June 30, 2023 are as follows: $549 in 2023 (rest of year), $781 in 2024, $712 in 2025, $431 in 2026, $320 in 2027 and $3,561 thereafter.
The Company, as lessor, rents certain commercial real estate to third-party lessees. The June 30, 2023 and 2022 cost related to these leased properties was $51,370 and $51,370, respectively, and the accumulated depreciation related to these leased properties was $17,432 and $16,373, respectively. Terms of such leases, including renewal options, may be extended for both periods.up to fifty-seven years, many of which provide for periodic adjustment of rent payments based on changes in consumer or other price indices. The Company recognizes lease income on a straight-line basis over the lease term. Lease income in second quarter and first half 2023 and 2022 was $1,222 and $1,245, respectively, and $2,443 and $2,458, respectively, and is classified in cash flows from operating activities.
On June 28, 2023, the Company, as lessor, entered into a lease agreement with a new tenant that will commence in the second quarter of 2024. The lease is for an industrial building the Company owns in Canada that is currently being leased under an agreement that will expire in the first quarter of 2024. The new lease has an initial term of 15 years and allows the tenant to extend for up to 10 years. The deferred impact of initial direct costs and any deferred rent adjustments, as they are recorded, are included in long term Prepaid expense and other assets on the Consolidated Statements of Financial Position
16
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This financial review discusses the Company’s financial condition, results of operations, liquidity and capital resources and other matters. Dollars are presented in thousands, except per share amounts. This review should be read in conjunction with the accompanying Condensed Consolidated Financial Statements and related notes included in this Form 10-Q and with the Company’s Consolidated Financial Statements and related notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the Company’s Form 10-K for the year ended December 31, 20162022 (the “2016“2022 Form 10-K”).
Net product sales were $182,173$158,837 in thirdsecond quarter 20172023 compared to $185,473$142,081 in thirdsecond quarter 2016, a decrease2022, an increase of $3,300$16,756 or 1.8%11.8%.Nine months 2017 First half 2023 net product sales were $390,495$319,548 compared to $393,094$281,372 in nine months 2016, a decreasefirst half 2022, an increase of $2,599$38,176 or 0.7%13.6%. Third quarterDomestic (U.S.) net product sales continue to be the Company’s largest quarterly sales period due to back-to-school and pre-Halloween seasonal sales. The timing of sales to certain customers had some adverse impact on thirdin second quarter and nine months 2017 salesfirst half 2023 increased 10.3% and 12.3%, respectively, compared to the corresponding periods in the prior year, and, foreign net product sales, including exports to foreign markets, increased 28.6% and 28.7%, respectively, compared to the corresponding periods. periods in the prior year. For the second quarter and first half 2023, domestic sales represented 90.8% and 91.2%, respectively, of total consolidated net product sales. Sales growth in second quarter and first half 2023 was driven by effective sales and marketing programs, including seasonal sales programs during this period. Higher sales price realization was the primary contributor to the sales increase in second quarter and first half 2023, however, higher sales volumes were also achieved in second quarter and first half 2023 compared to second quarter and first half 2022.
Although the increase in second quarter and first half 2023 sales contributed to improved net earnings, higher input costs significantly mitigated the benefits of these higher sales. Second quarter and first half 2023 gross profit margins were adversely affected by higher costs for ingredients, packaging materials, labor and employee fringe benefits, plant manufacturing repairs and maintenance, and many manufacturing supplies and services. We also incurred additional costs, including overtime and extended operating shifts for plant manufacturing, to meet our sales demands in 2023.
Our input unit costs moved significantly higher in second quarter and first half 2023 as most of our supply contracts for ingredients, packaging materials and manufacturing supplies and services expired at the end of 2022, and new supply agreements at higher prices became effective in early first quarter 2023. These higher costs in 2023 are incremental to the significant increase in input costs that we experienced last year in 2022 when compared to 2021. We believe that the increases in ingredients and packaging materials since 2021 are the greatest that we have experienced over a two-year period in over twenty years. Limited supply and continuing high demand for certain ingredients, as well as generally elevated commodity markets and overall inflation, have driven up our unit costs for many ingredients and materials in each of the past two years.The Company uses the Last-In-First-Out (LIFO) method of accounting for inventory and costs of goods sold which results in lower current income taxes during such periods of increasing costs and higher inflation, but this method does charge the most current costs to cost of goods sold and thereby accelerates the realization of these higher costs.
Product cost of goods sold were $114,848was $107,075 in thirdsecond quarter 20172023 compared to $114,748$95,402 in thirdsecond quarter 2016,2022, and nine months 2017first half 2023 product cost of goods sold were $245,523was $218,481 compared to $245,581$187,752 in nine months 2016.first half 2022. Product cost of goods sold includes $560$256 and $522$(865) of certain deferred compensation expenses (credits) in thirdsecond quarter 20172023 and 2016,2022, respectively, and $1,845$486 and $816$(1,134) of certain deferred compensation expenses (credits) in nine months 2017first half 2023 and 2016,2022, respectively. These deferred compensation expenses (credits) principally resultresulted 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 $114,226$96,267 in thirdsecond quarter 20162022 to $114,288$106,819 in thirdsecond quarter 2017,2023, an increase of $62$10,552 or 0.1%11.0%; but decreasedand increased from $244,765$188,886 in nine months 2016first half 2022 to $243,678$217,995 in nine months 2017, a decreasefirst half 2023, an increase of $1,087$29,109 or 0.4%15.4%. As a percentage of net product sales, adjusted product cost of goods sold was 62.7%67.3% and 61.6%67.8% in thirdsecond quarter 20172023 and 2016,2022, respectively, an unfavorable increasea favorable decrease of 1.1%;0.5 percentage points; and adjusted product cost of goods sold was 62.4%68.2% and 62.3%67.1% in nine months 2017first half 2023 and 2016,2022, respectively, an unfavorable increase of 0.1%. Adjusted1.1 percentage points. Second quarter and first half 2023 adjusted product cost of goods sold as a percentpercentage of sales reflectswas adversely affected by increasing costs for ingredients and packaging materials as discussed above, as well as for certain manufacturing supplies and services, plant utilities, and labor and benefits, including overtime and extended work shifts. Although the above discussed higher costs for ingredients and packaging materials adversely affected results for second quarter and first half 2023, higher sales and production volumes provided some benefit as certain plant manufacturing overhead costs
17
are generally fixed and do not change significantly when volume increases. In addition, certain cost and expense reductions initiated by the Company mitigated some of the cost increase in adjusted product cost of goods sold in second quarter and first half 2023 compared to the corresponding period in the prior year.
Our supply chain improved in first half 2023 compared to 2022. However, we remain focused on the supply chain in order to insure that we avoid delays and disruptions which could result in the temporary shut-down of one or more manufacturing lines resulting in lost sales and profits in 2023. Although the labor market is not as tight this year compared to a year ago, we continue to experience some labor challenges at some of our manufacturing plant locations. We did expand our work shifts and overtime in first half 2023 in order to increase production and inventory levels, and to help insure that we can meet our sales demands in 2023.
In response to higher costs butfor ingredients, packaging materials, and other input costs, many companies in the consumer products industry have increased selling prices during the 2021 through 2023 period. We have and continue to implement price increases as well with the objective of improving sales price realization in order to pass along some of these higher input costs and restore some of our margin declines. Price increases were mitigated by continuing improvementsphased in manufacturing operating efficiencies driven by capital improvementsprincipally beginning in second half 2021 and ongoing cost containment programs. Adjustedhave continued into 2023. We have made some progress in restoring our margins this year, but we have not as yet restored our margins to historical levels. As we look into 2024, we believe that our costs for ingredients will be even higher in 2024 than in 2023. Continuing increases in input costs and overall high inflation may not allow us to fully restore our margins to historical levels. Although the Company continues to monitor these higher input costs and price increases, we are mindful of goods sold in prior year third quarterthe effects and nine months 2016 were adversely affected bylimits of passing on all of these higher manufacturinginput costs relating to uncertainties surrounding certain changes in state and national product labeling.our customers as well as the final consumers of our products.
Selling, marketing and administrative expenses were $33,095$37,857 in thirdsecond quarter 20172023 compared to $32,101$20,674 in thirdsecond quarter 2016,2022, and nine months 2017first half 2023 selling, marketing and administrative expenses were $86,122$75,356 compared to $81,772$47,747 in nine months 2016.first half 2022. Selling, marketing and administrative expenses includes $1,717include $4,675 and $1,439$(11,693) of certain deferred compensation expenses (credits) in thirdsecond quarter 20172023 and 2016, respectively,2022, respectively; and $5,131$8,792 and $2,266$(17,029) of certain deferred compensation expenses (credits) in nine months 2017first half 2023 and 2016,2022, 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 $30,662$32,367 in thirdsecond quarter 20162022 to $31,378$33,182 in thirdsecond quarter 2017,2023, an increase of $716$815 or 2.3%2.5%; and adjusted selling, marketing and administrative expenses increased from $79,506$64,776 in nine months 2016first half 2022 to $80,991$66,564 in nine months 2017,first half 2023 an increase of $1,485$1,788 or 1.9%2.8%.
14
As a percentage of net product sales, adjusted selling, marketing and administrative expenses increaseddecreased from 16.5%22.8% in thirdsecond quarter 20162022 to 17.2%20.9% in 2017, an unfavorable increasesecond quarter 2023, a favorable decrease of 0.7%1.9 percentage points as a percent of net sales,product sales; and adjusted selling, marketing and administrative expenses increaseddecreased from 20.2%23.0% in nine months 2016first half 2022 to 20.7%20.8% in nine months 2017, an unfavorable increasefirst half 2023, a favorable decrease of 0.5%2.2 percentage points as a percent of net sales. These lower expenses as a percentage of sales reflect the benefits of higher sales, including higher price realization, against certain expenses that are generally fixed and do not change significantly with changes in sales.
Selling, marketing and administrative expenses include $12,699$15,432 and $11,620$14,156 for customer freight, delivery and warehousing expenses in thirdsecond quarter 20172023 and 2016,2022, respectively, an increase of $1,276 or 9.0%; and $31,775$31,665 and $30,265 for customer freight, delivery$30,694 in first half 2023 and warehousing expenses in nine months 2017 and 2016, respectively.2022, respectively, an increase of $971 or 3.2%. These expenses were 7.0%9.7% and 6.3%10.0% of net product sales in thirdsecond quarter 20172023 and 2016, respectively,2022, respectively; and 8.1%were 9.9% and 7.7%10.9% of net product sales in nine months 2017first half 2023 and 2016, respectively,2022, respectively. Customer freight and aredelivery unit costs, including the principal reasons for the above discussed increasescost per pound shipped, was more favorable in 2017 adjusted selling, marketing and administrative expenses. first half 2023 compared to first half 2022.
Earnings from operations were $34,832$14,753 in thirdsecond quarter 20172023 compared to $39,273$26,978 in thirdsecond quarter 2016,2022; and were $60,864$27,549 in nine months 2017first half 2023 compared to $67,786$47,813 in nine months 2016.first half 2022. Earnings from operations include $2,277$4,931 and $1,961$(12,558) of certain deferred compensation expenses (credits) in thirdsecond quarter 20172023 and 2016, respectively,2022, respectively; and include $6,976$9,278 and $3,082$(18,163) of certain deferred compensation expenses (credits) in nine months 2017first half 2023 and 2016,2022, respectively, which areis discussed above. Adjusting for these deferred compensation costs and expenses operating(credits), adjusted earnings from operations were $37,109$19,684 and $41,234$14,420 in thirdsecond quarter 20172023 and 2016,2022, respectively, a decreasean increase of $4,125$5,264 or 10.0%36.5%; and adjusted operating earnings were $67,840$36,827 and $70,868$29,650 in nine months 2017first half 2023 and 2016,2022, respectively, a decreasean increase of $3,028$7,177 or 4.3%24.2%. As a percentage of net product sales, these adjusted operating earnings were 20.4%12.4% and 22.2%10.1% in thirdsecond quarter 20172023 and 2016,2022, respectively, an unfavorable decreasea favorable increase of 1.8% as a2.3 percentage points;
18
and as a percentage of net product sales, these adjusted operating earnings were 17.4%11.5% and 18.0%10.5% in nine months 2017first half 2023 and 2016,2022, respectively, an unfavorable decrease of 0.6% as a percentage of net product sales. These declines in operating earnings principally reflect the adverse effects of lower sales, higher ingredient costs and increases in customer freight, delivery and warehousing expenses as discussed above. Management believes the presentation in this and the preceding paragraphs relating to amounts adjusted for deferred compensation expense are more reflective of the underlying operations of the Company.
Other income, net was $4,121 in third quarter 2017 compared to $1,943 in third quarter 2016, a favorable increase of $2,178;1.0 percentage points. Although higher second quarter and otherfirst half 2023 sales contributed to improved operating earnings compared to the corresponding prior year period, higher input costs, as discussed above, substantially offset much of the benefits of increased sales.
Other income (loss), net was $8,565$4,804 in nine months 2017second quarter 2023 compared to $4,147$(11,137) in nine months 2016, a favorable increase of $4,418.second quarter 2022; and $9,584 in first half 2023 compared to $(16,153) in first half 2022. Other income (loss), net for thirdsecond quarter 20172023 and 20162022 includes net gains (losses) and investment income of $2,277$4,931 and $1,961,$(12,558), respectively, on trading securities which provide an economic hedge of the Company’s deferred compensation liabilities; and other income, net for nine months 2017first half 2023 and 20162022 includes net gains (losses) and investment income of $6,976$9,278 and $3,082,$(18,163), respectively, on trading securities. The investment gains and (losses) on trading securities relating toin second quarter and first half 2023 and 2022 reflect the overall changes in the equity markets during these programs.periods. These changes in trading securitiesmarket values were substantially offset by a like amount of deferred compensation expense (credits) included in product cost of goods sold and selling, marketing, and administrative expenses in the respective periods as discussed above.
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 for second quarter 2023 and 2022 includes gains (losses)investment income on available for sale securities of $1,145 and $513 in 2023 and 2022, respectively; and other income, net for first half 2023 and 2022 includes investment income on available for sale securities of $2,308 and $1,069 in 2023 and 2022, respectively. Other income (loss), net also includes pre-tax gain (loss) on foreign exchange of $1,082$(1,315) and $(582)$662 in thirdsecond quarter 20172023 and 2016, respectively,2022, respectively; and $(527)$(2,060) and $(572)$510 in nine months 2017first half 2023 and 2016,2022, respectively.
The consolidated effective tax rates were 31.0%24.7% and 30.6%24.4% in thirdsecond quarter 20172023 and 2016, respectively,2022, respectively; and 29.8%24.3% and 31.1%24.2% in nine months 2017first half 2023 and 2016,2022, respectively. The lower effective tax rates for nine months 2017 compared to nine months 2016 principally reflect certain benefits resulting from filing amended federal and state income tax returns, including a state income tax carry forward benefit.
Net earnings attributable to Tootsie Roll Industries, Inc. were $26,933$14,726 (after $46$6 net loss attributed to non-controlling interests) in thirdsecond quarter 20172023 compared to $28,637$11,989 (after $40$8 net loss attributed to non-controlling interests) in thirdsecond quarter 2016,2022, and earnings per share were $0.43$0.21 and $0.45$0.17 in thirdsecond quarter 20172023 and 2016,2022, respectively, a decreasean increase of $0.02$0.04 per share, or 4%23.5%. Nine months 2017First half 2023 net earnings attributable to Tootsie Roll Industries, Inc. were $48,879$28,127 (after $131$13 net loss attributed to non-controlling interests) compared to nine months 2016first half 2022 net earnings of $49,669$24,016 (after $142$16 net earningsloss attributed to non-controlling interests), and net earnings per share were $0.77$0.40 and $0.34 in both nine months 2017first half 2023 and nine months 2016.first half 2022, respectively, an increase of $0.06 per share or 17.6%. Earnings per share attributable to Tootsie Roll Industries, Inc. for thirdsecond quarter and nine months 2017 did benefitfirst half 2023 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 64,021 in third70,985 at second quarter 20162022 to 62,986 in third70,089 at second quarter 2017,2023, and from 64,20571,029 in nine months 2016first half 2022 to 63,28670,156 in nine months 2017.first half 2023.
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
15
events, as defined, or other adverse information that would indicate a material impairment of its goodwill or intangibles in nine months 2017. There were also no impairmentsfirst half 2023. Although Company management has not identified any trigging events at this time relating to its intangibles, factors that may have longer term effects on consumer lifestyles and behavior, as outlined in the comparative nine months 2016 period or calendar 2016.Company’s risk factors discussed on Form 10-K for the year ended December 31, 2022, could change this assessment in the future.
Beginning in 2012, the Company received periodic notices from the Bakery and Confectionery Union and Industry International Pension PlanFund (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”, the “Red Zone”, 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 (and was further amended in 2016). During 2015, the Company received notices that the2012. The Plan’s status was changed to “critical and declining status”, as defined by the PPA and PBGC, for the plan year beginning January 1, 2015, and that the Plan was projectedthis status continues to have an accumulated funding deficiency for the 2017 through 2024 plan years.date. A designation of “critical and declining status” implies that the Plan is expected to become insolvent in the next 20 years. In April 2017,2016, the Company
19
received new notices that the Plan’s trustees adopted an updated Rehabilitation Plan remainseffective January 1, 2016, and all annual notices through 2023 have continued to classify the Plan in the “critical and declining status” and is projected to become insolvent in 13 years. These notices also advise that the Plan trustees are considering the reduction or elimination of certain retirement benefits and may seek assistance from the PBGC.category.
Based on these updated notices, the Plan’s funded percentagespercentage (plan investment assets as a percentage of plan liabilities), as defined, were 57.0%49.4%, 62.8%48.5%, and 65.1%48.3% as of January 1, 2016 (most recent valuation date available), 2015,2022, 2021, and 2014,2020, 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, 2016,2022 the funded percentage would be 53.0%56.7% (not 57.0%49.4%). As of the January 1, 20162022 valuation date (most recent valuation available), 20%only 14% of Plan participants were current active employees, 51%55% were retired or separated from service and receiving benefits, and 29%31% were retired or separated from service and entitled to future benefits. The number of current active employee Plan participants as of January 1, 20162022 fell 2%5% from the previous year and 4%10% over the past two years. When compared to the Plan valuation date of January 1, 2011 (five years earlier)(just prior to the Plan being certified to be in “critical status”), current active employeesemployee participants have declined 31%54%, whereas participants who were retired or separated from service and receiving benefits increased 6%3% and participants who were retired or separated from service and entitled to future benefits increased 8%. The bankruptcy of a major participating employer in the Plan contributed to the above discussed Plan results. The Internal Revenue Service recently issued updated mortality tables (increasing life expectancy) effective January 1, 2018 which will likely increase the Plan’s liabilities and further decrease the above discussed funding percentages.
The Company has been advised that its withdrawal liability would have been $72,700, $61,000$104,300, $99,300 and $56,400$99,800 if it had withdrawn from the Plan during 2016, 20152021, 2020 and 2014,2019, respectively. The increasePlan has not yet provided an actuarial estimate of a withdrawal liability calculated as if the Company were to have withdrawn from 2015 to 2016 principally reflects poor investment returns of the plan in 2015, a decrease in the PBGC interest rates, and a higherPlan during 2022. The Company’s relative share of the Plan’s unfunded vested benefits allocated tocontribution base, driven by employer withdrawals, has increased in the Company.last several years, and management believes that this trend could continue indefinitely and add upward pressure on the Company’s withdrawal liability. Based on the above, including the Company’s increase in such union labor hours to meet its higher product demand and the Plan’s projected insolvency in 13the next 20 years, management believes that the Company’s withdrawal liability will likely increase further in future years.
Based on the Company’s most recent actuarial studyestimates using the information provided by the Plan with respect to its 2021 withdrawal liability and certain provisions in ERISA and the lawlaws relating to withdrawal liability payments, management believes that the Company’s liability had the Company withdrawn in 2022 would likely be limited to twenty annual payments of $2,914$2,714 which have a present value in the range of $34,200$31,851 to $44,700.$43,741 depending on the interest rate used to discount these payments. While the Company’s actuarial consultant did not believe that the Plan will suffer a future mass withdrawal (as defined) of participating employers, in the event of a mass withdrawal, the Company’s annual withdrawal payments would theoretically be payable in perpetuity. Based on the same actuarial estimates, had a mass withdrawal occurred in 2022, the present value of such perpetuities is in the range of $44,472 to $115,808 and would apply in the unlikely event that substantially all employers withdraw from the Plan. The aforementioned is based on a range of valuationvaluations and interest rates which management understandsthe 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 existing labor contract with the local union commits the Company’s participation in this Plan. The Company’s labor contract expired on September 30, 2017 but has provisions for automatic extensions unless the one of the parties provides a 60 day notice that they will not extend. Both parties are currently continuing under this automatic extension provision. The amended rehabilitation plan, which also continues, requiresrequired 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 June 30, 2021. The Trustees advised that they have concluded that continuing increases in surcharges would likely have a long-term adverse effect on the solvency of the Plan. The Trustees concluded that further increases would result in increasing financial hardships and withdrawals of participating employers, and that this change will not have a material effect on the Plan’s insolvency date. In first quarter 2021, the local bargaining union and the Company executed this agreement which resulted in the “freezing” of such surcharges as of December 31, 2020.
The Company’s pension expense for this Plan for calendar years 2016first half 2023 and 20152022 was $2,541$1,951 and $2,574,$1,822, respectively. The aforementioned expense includes surcharges of $542$688 and $447 in calendar years 2016$642 for first half 2023 and 2015,2022, respectively, as required under the amended plan of rehabilitation as amended.rehabilitation. The Company’s twelve months pension expense for this Plan for nine months 20172022 and 20162021 was $2,064$3,510 and $1,959$3,156, respectively, which includes surcharges of $517$1,237 and $417$1,112, respectively. From 2012 through 2020, the Company’s employer contributions were subject to annual 5% compounded surcharge increases. Beginning in 2021, the Plan ceased additional surcharges, but the prior surcharges remain in effect indefinitely.
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20
During third quarter 2017,On March 1, 2023, the Plan representatives informedsubmitted an initial application to the CompanyPBGC for Special Financial Assistance under the American Rescue Plan Act of 2021. On June 13, 2023, the Plan advised us that they had received preliminary approvalwithdrew the application and intends to resubmit after resolving certain aspects identified through discussions with the PBGC. Company management understands that this legislation would provide financial assistance from the PBGC to shore up financially distressed multi-employer plans to ensure that would transformthey 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 within the next 20 years 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 Company withdrawal liability even with PBGC financial assistance.
During second quarter 2023, the Company and the union concluded negotiations and entered into a “hybrid plan”new five year contract which would comprise both an “old pool” and a “new pool” for participating employers. The “hybrid plan” would allow current participating employersexpires in September 2027 (prior contract expired in September 2022). Under terms of this new union contract the Company is obligated to enter a “new pool” and withdraw from the “old pool” if they agree to 30 years of additional annual installment payments to discharge their existing withdrawal liability of the “old pool”. The “new pool” option would provide certain protections from future withdrawal liabilities and reduced surcharges relating to future plan contributions, but would require employers to remain a participating employercontinue its participation in the “new pool” Plan for 30 years. The Plan believes that this “hybrid plan” as restructured will avoid insolvency. If the Company were to exercise this option, it would be required to make additional annual installment payments (which are in addition to the annual pension expense and surcharges discussed above) to the Plan of $2.1 million for 30 years ($63.0 million total) beginning in 2019, or a lump-sum payment of approximately $40.7 million in 2019.Plan. The Company is currently evaluating this proposal with its actuaries and legal counsel. If the Company were to decide to enter this “hybrid plan” agreement, it would record a charge to net after-tax earnings of approximately $25.6 million which reflects the aforementioned lump-sum pre-tax payment of $40.7 million (or the present value of the $2.1 million annual payments for 30 years discussed above), net of the Company’s estimated future income tax benefits.
The Company is currently unable to determine the ultimate outcome of the above discussed multi-employer union pension matter and therefore is unable to determine the effects on its consolidated financial statements, but the ultimate outcome orcould have a material adverse effect on the effects of any modifications to the current rehabilitation plan could be material to itsCompany’s 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, 2022
The Company is focused on the longer term and related notestherefore is continuing to make investments in plant manufacturing operations to meet new consumer and Management’s Discussioncustomer product demands, achieve product quality improvements, expand capacity in certain product lines, and Analysis of Financial Condition and Results of Operationsincrease operational efficiencies in the Company’s 2016 Form 10-K.order to provide genuine value to consumers.
LIQUIDITY AND CAPITAL RESOURCES
Net cash flows (used in) provided by operating activities were $18,420$(5,142) and $47,032$617 in nine months 2017first half 2023 and 2016,2022, respectively, aan unfavorable decrease of $28,612.$5,759. The $5,759 decrease in nine months 2017 cash flows from operating activities principallyfrom 2023 to 2022 reflects the timing of salessignificantly higher production and collections of account receivablesinventory levels, including the effects of seasonal (pre-Halloween)higher costs for materials as discussed above, resulting in more cash used in inventories in first half 2023. We have accelerated our production plans in 2023 to increase our production capacity to help insure that we can meet our 2023 sales payment terms, the effects of higher finished goods inventories at September 30, 2017 reflecting the timing ofdemands and customer deliveries, including pre-Halloween shipments during the comparative September and October periods, and changes2023 sales demands in other receivables primarily due to increased broker margin deposit requirements on commodity hedges.third quarter 2023.
Net cash provided by (used in) investing activities was $6,432 in first half 2023 compared to $(42,839) in first half 2022. Cash flows used in investing activities was $42,166 in nine months 2017 compared to $34,267 in nine months 2016. Cash flows from investing activities reflect $51,935$48,522 and $45,298$57,731 of purchases of available for sale securities during nine months 2017first half 2023 and 2016,2022, respectively, and $21,328$66,507 and $26,517$25,993 of sales and maturities of available for sale securities during nine months 2017first half 2023 and 2016,2022, respectively. Nine months 2017First half 2023 and 20162022 investing activities include capital expenditures of $11,699$10,723 and $13,067,$10,194, respectively. All capital expenditures in 2017have been or are expected to be funded from the Company’s cash flow from operations and internal sources. In addition, Company management has committed approximately $15,000 to a manufacturing plant rehabilitation upgrade and expansion of one of its manufacturing facilities in the U.S.A. Management anticipates capital outlayssources including available for this project to approximate $500 in 2017, $6,000 in 2018, $6,000 in 2019 and $2,500 in 2020.sale securities.
The Company’s consolidated financial statements include bank borrowings of $404$1,051 and $447$1,020 at SeptemberJune 30, 20172023 and 2016,2022, respectively, all of which relatesrelate to its two majority-owned and controlled Spanish companies.subsidiary. The Company had no other outstanding bank borrowings at SeptemberJune 30, 2017.2023.
Financing activities include Company common stock purchases and retirements of $30,027$16,548 and $26,293$5,023 in nine months 2017first half 2023 and 2016,2022, respectively. Cash dividends of $16,965$12,531 and $16,694$12,237 were paid in nine months 2017first half 2023 and 2016,2022, respectively.
The Company’s current ratio (current assets divided by current liabilities) was 3.83.5 to 1 at SeptemberJune 30, 20172023 compared to 4.73.4 to 1 at December 31, 20162022 and 3.63.4 to 1 at SeptemberJune 30, 2016.2022. Net working capital was $217,650$223,596 at SeptemberJune 30, 20172023 compared to $235,739$218,894 and $202,304$198,283 at December 31, 20162022 and SeptemberJune 30, 2016,2022, respectively.
The aforementioned Included in net working capital amounts are principally reflected in aggregateis cash and cash equivalents and short-term investments of $123,784totaling $109,212 at SeptemberJune 30, 20172023 compared to $186,658$149,398 and $122,144$123,090 at December 31, 2016
17
2022 and SeptemberJune 30, 2016,2022, respectively. In addition, long term investments, principally debt securities comprising corporate and municipal bonds, were $193,991$252,459 at SeptemberJune 30, 2017,2023, as compared to $164,665$247,528 and $189,956$258,075 at December 31, 20162022 and SeptemberJune 30, 2016,2022, respectively. Aggregate cash and cash equivalents and short and long-term investments were $317,775, $351,323,$361,671, $396,926, and $312,100,$381,165, at SeptemberJune 30, 2017,2023, December 31, 20162022 and SeptemberJune 30, 2016, respectively. The aforementioned includes $75,094, $67,995,2022, respectively, including $81,319, $71,208, and $66,085$72,480 at SeptemberJune 30, 2017,2023, December 31, 20162022 and SeptemberJune 30, 2016, 2022,
21
respectively, relating to trading securities which are used as an economic hedge for the Company’s deferred compensation liabilities.
Investments in available for sale securities, primarily high quality corporate and municipal bonds, variable rate demand notes, and other debt securities that matured during nine months 2017first half 2023 and 20162022 were generally used in working capital and to purchase the Company’s common stock, or were replaced with debt securities of similar maturities. The net unrealized loss on available for sale investments was approximately $7,200 and $7,600 at June 30 2023 and 2022, respectively, which principally reflects the increase in interest rates since such securities were purchased. The Company expects to hold these securities to maturity and therefore does not expect to ultimately realized the aforementioned unrealized losses (see also Item 3 below, QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK).
The Company periodically contributes to a VEBA trust, managed and controlled by the Company, to fund the estimated future costs of certain employee health, welfare and other benefits. The Company is currently using these VEBA funds to pay the actual cost of such benefits through mostpart or all of 2017.2023. The VEBA trust held $602, $3,027$1,942, $3,879 and $3,379$3,050 of aggregate cash and cash equivalents at SeptemberJune 30, 2017,2023, December 31, 20162022 and SeptemberJune 30, 2016,2022, respectively. The Company is currently reviewing the longer term funding needs for this VEBA and will likely add additional funding in third quarter 2023. 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 12 within the fair value hierarchy. The Company is planning to make a contribution to this VEBA in the range of $10,000 to $15,000 in fourth quarter 2017. This contribution would result in the prepayment of these employee benefits.
ACCOUNTINGACCOUNTING PRONOUNCEMENTS
See Note 1 of the Company’s condensed consolidated financial statements.Condensed Consolidated Financial Statements.
RISK FACTORS
There were no material changes to the risk factors disclosed in the Company’s 2016 Form 10-K.
FORWARD-LOOKING STATEMENTS
This discussion and certain other sections contain forward-looking statements that are based largely on the Company’s current expectations and are made pursuant to the safe harbor provision of the Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by the use of words such as “anticipated,” “believe,” “expect,” “intend,” “estimate,” “project,” “plan” and other words of similar meaning in connection with a discussion of future operating or financial performance and are subject to certain factors, risks, trends and uncertainties that could cause actual results and achievements to differ materially from those expressed in the forward-looking statements. Such factors, risks, trends and uncertainties, which in some instances are beyond the Company’s control, include high input costs, the overall competitive environment in the Company’s industry, successful distribution and sell-through during Halloween and other seasons, supply chain disruptions, availability of labor, and changes in assumptions, judgments and judgmentsrisk factors discussed above underin our Annual Report on Form 10-K for the heading “Significant Accounting Policies and Estimates,” and factors identified and referred to above under the heading “Risk Factors.”year ended December 31, 2022.
The risk factors identified and referred to above are believed to be significant factors, but not necessarily all of the significant factors that could cause actual results to differ from those expressed in any forward-looking statement. Readers are cautioned not to place undue reliance on such forward-looking statements, which are made only as of the date of this report. The Company undertakes no obligation to update such forward-looking statements.
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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, and gum-base input ingredients, and packaging, and fuel costs principally relating to freight and delivery fuel surcharges. The Company generally enters into annual supply contracts and hedges certain commodities (primarily sugar) to control and plan for such cost changes, however, the Company has experienced significant increases in its costs in 2023 as the Company’s prior 2022 supply contracts and many of its previous hedges have been utilized. 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 securitiescorporate bonds with maturities datesan average maturity of upthree to approximately threefive years which are generally held to maturity, and variable rate demand notes where interest rates are generally reset weekly, all of which limitsweekly. While the Company generally holds its 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. The Company believes that the above discussed policies and programs limit 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, 2016. 2022.
ITEM 4. CONTROLS AND PROCEDURES
Under the supervision and with the participation of management,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 SeptemberJune 30, 20172023 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,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 SeptemberJune 30, 20172023 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 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 SeptemberJune 30, 2017:2023:
| | | | | | | | | |
| | | | | | | | | |
| |
|
|
|
|
|
| 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 | |
| | | | | | | | | |
Apr 1 to Apr 30 | | - | | $ | - | | Not Applicable | | Not Applicable |
| | | | | | | | | |
May 1 to May 31 | | 184,165 | | | 38.37 | | Not Applicable | | Not Applicable |
| | | | | | | | | |
Jun 1 to Jun 30 | | 207,626 | | | 37.86 | | Not Applicable | | Not Applicable |
| | | | | | | | | |
Total | | 391,791 | | $ | 38.10 | | Not Applicable | | Not Applicable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 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 | |
|
|
|
|
|
|
|
|
|
|
Jul 1 to Jul 31 |
| 116,012 |
| $ | 35.78 |
| Not Applicable |
| Not Applicable |
|
|
|
|
|
|
|
|
|
|
Aug 1 to Aug 31 |
| 156,575 |
|
| 36.56 |
| Not Applicable |
| Not Applicable |
|
|
|
|
|
|
|
|
|
|
Sep 1 to Sep 30 |
| - |
|
| - |
| Not Applicable |
| Not Applicable |
|
|
|
|
|
|
|
|
|
|
Total |
| 272,587 |
| $ | 36.23 |
| 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.
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ExhibitsExhibit 31.1 — Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
ExhibitsExhibit 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.Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
Exhibit 101.SCH - XBRL Taxonomy Extension Schema Document.
Exhibit 101.CAL - XBRL Taxonomy Extension Calculation Linkbase Document.
Exhibit 101.LAB - XBRL Taxonomy Extension Label Linkbase Document.
Exhibit 101.PRE - XBRL Taxonomy Extension Presentation Linkbase Document.
Exhibit 101.DEF - XBRL Taxonomy Extension Definition Linkbase Document.
Exhibit 104 - Cover Page Interactive Data File – The cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | | | |
| | TOOTSIE ROLL INDUSTRIES, INC. | ||
| | | | |
Date: |
| | BY: | /S/ELLEN R. GORDON |
| | | Ellen R. Gordon | |
| | | Chairman and Chief | |
| | | Executive Officer | |
| | | | |
Date: |
| | BY: | /S/G. HOWARD EMBER, JR. |
| | | G. Howard Ember, Jr. | |
| | | Vice President Finance and | |
| | | Chief Financial Officer |
2025