Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2023March 31, 2024

OR

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

For the transition period from              to

COMMISSION FILE NUMBER 1-1361

Tootsie Roll Industries, Inc.

(Exact Name of Registrant as Specified in its Charter)

Virginia

22-1318955

(State of Incorporation)

(I.R.S. Employer Identification No.)

7401 South Cicero Avenue, Chicago, Illinois

60629

(Address of Principal Executive Offices)

(Zip Code)

773-838-3400

(Registrant’s Telephone Number, Including Area Code)

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

Title of each class:

    

Trading Symbol

    

Name of each exchange on which registered:

Common Stock, par value $0.694 per share

TR

New York Stock Exchange

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

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

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

`

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

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

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date (June 30, 2023)(March 31, 2024).

Class

Outstanding

Common Stock, $0.694 par value

40,489,99441,210,977

Class B Common Stock, $0.694 par value

29,452,44830,311,127

Table of Contents

TOOTSIE ROLL INDUSTRIES, INC.

JUNE 30, 2023MARCH 31, 2024

INDEX

Page No.

Part I —

Financial Information

Item 1.

Financial Statements꞉

Condensed Consolidated Statements of Financial Position

3-4

Condensed Consolidated Statements of Earnings and Retained Earnings

5

Condensed Consolidated Statements of Comprehensive Earnings

6

Condensed Consolidated Statements of Cash Flows

7

Notes to Condensed Consolidated Financial Statements

8-168-15

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

17-2215-20

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

2320

Item 4.

Controls and Procedures

2321

Part II —

Other Information

Item 2.

Unregistered Sales of Equity Securities, and Use of Proceeds, and Issuer Purchases of Equity Securities

2422

Item 6.

Exhibits

2523

Signatures

2523

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

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PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

TOOTSIE ROLL INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

(in thousands) (Unaudited)

June 30, 2023

December 31, 2022

June 30, 2022

March 31, 2024

December 31, 2023

March 31, 2023

ASSETS

CURRENT ASSETS:

Cash and cash equivalents

   

$

26,047

    

$

53,270

    

$

46,628

   

$

64,886

    

$

75,915

    

$

37,992

Restricted cash

371

365

355

367

375

369

Investments

83,165

96,128

76,462

94,475

95,507

85,880

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

49,802

58,556

44,706

Accounts receivable trade, less allowances of $2,543 $2,245 and $2,546

44,257

55,568

59,392

Other receivables

7,174

4,299

4,305

6,412

9,165

3,707

Inventories:

Finished goods and work-in-process

92,370

43,595

63,863

61,498

51,240

63,610

Raw materials and supplies

47,557

40,671

37,225

46,775

43,681

45,637

Prepaid expenses

8,105

12,144

7,213

9,870

9,200

7,909

Total current assets

314,591

309,028

280,757

328,540

340,651

304,496

PROPERTY, PLANT AND EQUIPMENT, at cost:

Land

21,782

21,715

21,691

21,864

21,862

21,752

Buildings

142,613

142,462

130,152

144,966

144,949

142,542

Machinery and equipment

468,721

467,977

446,438

485,012

485,265

468,202

Construction in progress

13,370

4,325

26,828

14,182

11,277

8,535

Operating lease right-of-use assets

6,291

4,703

7,019

6,896

7,145

4,631

652,777

641,182

632,128

672,920

670,498

645,662

Less - accumulated depreciation

438,456

429,139

419,998

451,829

447,520

433,718

Net property, plant and equipment

214,321

212,043

212,130

221,091

222,978

211,944

OTHER ASSETS:

Goodwill

73,237

73,237

73,237

73,237

73,237

73,237

Trademarks

175,024

175,024

175,024

175,024

175,024

175,024

Investments

252,459

247,528

258,075

278,953

255,606

252,888

Prepaid expenses and other assets

2,693

465

494

14,921

15,189

450

Deferred income taxes

1,664

1,454

1,397

1,687

1,706

1,574

Total other assets

505,077

497,708

508,227

543,822

520,762

503,173

Total assets

$

1,033,989

$

1,018,779

$

1,001,114

$

1,093,453

$

1,084,391

$

1,019,613

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

3

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(in thousands except per share data) (Unaudited)

June 30, 2023

December 31, 2022

June 30, 2022

March 31, 2024

December 31, 2023

March 31, 2023

LIABILITIES AND SHAREHOLDERS’ EQUITY

CURRENT LIABILITIES:

Accounts payable

   

$

22,156

    

$

25,246

    

$

21,618

   

$

17,200

    

$

15,816

    

$

21,706

Bank loans

1,051

1,051

1,020

1,050

1,088

1,060

Dividends payable

6,303

6,154

6,210

152

6,250

250

Accrued liabilities

59,655

54,444

52,010

55,026

61,690

52,928

Postretirement health care benefits

658

658

616

665

665

658

Operating lease liabilities

1,172

791

1,000

1,387

1,289

726

Income taxes payable

-

1,790

-

11,788

8,090

Total current liabilities

90,995

90,134

82,474

87,268

94,888

77,328

NONCURRENT LIABILITIES:

Deferred income taxes

45,662

45,005

43,051

45,486

45,477

45,612

Postretirement health care benefits

9,304

9,303

12,601

9,661

9,653

9,292

Industrial development bonds

7,500

7,500

7,500

7,500

7,500

7,500

Liability for uncertain tax positions

3,913

3,747

3,584

2,876

2,777

3,825

Operating lease liabilities

5,182

3,952

6,019

5,776

6,018

3,962

Deferred compensation and other liabilities

86,359

76,256

76,870

100,780

94,971

80,699

Total noncurrent liabilities

157,920

145,763

149,625

172,079

166,396

150,890

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

Common stock, $0.694 par value - 120,000 shares authorized; 41,211, 39,999 and 40,871, respectively, issued

28,619

27,777

28,383

Class B common stock, $0.694 par value - 40,000 shares authorized; 30,311, 29,445 and 29,463, respectively, issued

21,049

20,448

20,460

Capital in excess of par value

753,839

719,606

746,026

802,253

737,453

768,676

Retained earnings

11,656

48,276

8,692

6,147

62,949

3,223

Accumulated other comprehensive loss

(26,698)

(30,169)

(31,368)

(21,656)

(23,213)

(27,059)

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

(1,992)

(1,992)

(1,992)

Treasury stock (at cost) - 105, 102 and 102 shares, respectively

(1,992)

(1,992)

(1,992)

Total Tootsie Roll Industries, Inc. shareholders’ equity

785,376

783,171

769,276

834,420

823,422

791,691

Noncontrolling interests

(302)

(289)

(261)

(314)

(315)

(296)

Total equity

785,074

782,882

769,015

834,106

823,107

791,395

Total liabilities and shareholders’ equity

$

1,033,989

$

1,018,779

$

1,001,114

$

1,093,453

$

1,084,391

$

1,019,613

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

4

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TOOTSIE ROLL INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF

EARNINGS AND RETAINED EARNINGS

(in thousands except per share amounts) (Unaudited)

Quarter Ended

Year to Date Ended

Quarter Ended

June 30, 2023

June 30, 2022

June 30, 2023

June 30, 2022

March 31, 2024

March 31, 2023

Net product sales

   

$

158,837

    

$

142,081

    

$

319,548

     

$

281,372

    

$

151,464

     

$

160,711

Rental and royalty revenue

1,308

1,359

2,689

2,705

1,711

1,381

Total revenue

160,145

143,440

322,237

284,077

153,175

162,092

Product cost of goods sold

107,075

95,402

218,481

187,752

102,732

111,406

Rental and royalty cost

460

386

851

765

415

391

Total costs

107,535

95,788

219,332

188,517

103,147

111,797

Product gross margin

51,762

46,679

101,067

93,620

48,732

49,305

Rental and royalty gross margin

848

973

1,838

1,940

1,296

990

Total gross margin

52,610

47,652

102,905

95,560

50,028

50,295

Selling, marketing and administrative expenses

37,857

20,674

75,356

47,747

38,918

37,499

Earnings from operations

14,753

26,978

27,549

47,813

11,110

12,796

Other income (loss), net

4,804

(11,137)

9,584

(16,153)

Other income, net

9,032

4,780

Earnings before income taxes

19,557

15,841

37,133

31,660

20,142

17,576

Provision for income taxes

4,837

3,860

9,019

7,660

4,307

4,182

Net earnings

14,720

11,981

28,114

24,000

15,835

13,394

Less: net loss attributable to noncontrolling interests

(6)

(8)

(13)

(16)

Less: net income (loss) attributable to noncontrolling interests

1

(7)

Net earnings attributable to Tootsie Roll Industries, Inc.

$

14,726

$

11,989

$

28,127

$

24,016

$

15,834

$

13,401

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

$

0.21

$

0.17

$

0.40

$

0.34

$

0.22

$

0.19

Dividends per share *

$

0.09

$

0.09

$

0.18

$

0.18

$

0.09

$

0.09

Average number of shares outstanding

70,089

70,985

70,156

71,029

71,417

72,317

Retained earnings at beginning of period

$

3,223

$

2,904

$

48,276

$

39,545

$

62,949

$

48,276

Net earnings attributable to Tootsie Roll Industries, Inc.

14,726

11,989

28,127

24,016

15,834

13,401

Cash dividends

(6,293)

(6,201)

(12,430)

(12,235)

(6,241)

(6,137)

Stock dividends

-

-

(52,317)

(42,634)

(66,395)

(52,317)

Retained earnings at end of period

$

11,656

$

8,692

$

11,656

$

8,692

$

6,147

$

3,223

*Does not include 3% stock dividend to shareholders of record on 3/6/2324 and 3/7/22.6/23.

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

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TOOTSIE ROLL INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE EARNINGS

(in thousands except per share amounts) (Unaudited)

Quarter Ended

Year to Date Ended

Quarter Ended

June 30, 2023

June 30, 2022

June 30, 2023

June 30, 2022

March 31, 2024

March 31, 2023

Net earnings

   

$

14,720

    

$

11,981

    

$

28,114

    

$

24,000

    

$

15,835

    

$

13,394

Other comprehensive income (loss), before tax:

Foreign currency translation adjustments

1,142

(106)

2,438

463

320

1,296

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)

(160)

(190)

Unrealized gains (losses) on postretirement and pension benefits

(189)

(206)

(379)

(413)

(160)

(190)

Investments:

Unrealized gains (losses) for the period on investments

(325)

(2,440)

2,169

(8,287)

157

2,494

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

-

(5)

(1)

(10)

(1)

Unrealized gains (losses) on investments

(325)

(2,445)

2,168

(8,297)

157

2,493

Derivatives:

Unrealized gains (losses) for the period on derivatives

(565)

(229)

(470)

(8)

1,200

95

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

48

(148)

43

(277)

435

(5)

Unrealized gains (losses) on derivatives

(517)

(377)

(427)

(285)

1,635

90

Total other comprehensive income (loss), before tax

111

(3,134)

3,800

(8,532)

1,952

3,689

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

250

733

(329)

2,177

(395)

(579)

Total comprehensive earnings

15,081

9,580

31,585

17,645

17,392

16,504

Comprehensive earnings (loss) attributable to noncontrolling interests

(6)

(8)

(13)

(16)

1

(7)

Total comprehensive earnings attributable to Tootsie Roll Industries, Inc.

$

15,087

$

9,588

$

31,598

$

17,661

$

17,391

$

16,511

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

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Table of Contents

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

Quarter Ended

March 31, 2024

March 31, 2023

CASH FLOWS FROM OPERATING ACTIVITIES:

Net earnings

   

$

15,835

    

$

13,394

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

Depreciation

4,580

4,599

Deferred income taxes

(345)

10

Amortization of marketable security premiums

642

1,185

Changes in operating assets and liabilities:

Accounts receivable

11,378

(360)

Other receivables

2,626

645

Inventories

(13,262)

(24,432)

Prepaid expenses and other assets

(250)

1,033

Accounts payable and accrued liabilities

(3,414)

(4,845)

Income taxes payable

3,797

1,536

Postretirement health care benefits

(152)

(201)

Deferred compensation and other liabilities

(34)

(46)

Net cash provided by (used in) operating activities

21,401

(7,482)

CASH FLOWS FROM INVESTING ACTIVITIES:

Capital expenditures

(4,494)

(5,049)

Purchases of trading securities

(1,296)

(1,010)

Sales of trading securities

430

528

Purchase of available for sale securities

(27,297)

(14,848)

Sale and maturity of available for sale securities

12,655

25,874

Net cash (used in) provided by investing activities

(20,002)

5,495

CASH FLOWS FROM FINANCING ACTIVITIES:

Shares purchased and retired

(1,604)

Dividends paid in cash

(12,491)

(12,291)

Proceeds from bank loans

1,039

1,110

Repayment of bank loans

(1,055)

(1,115)

Net cash used in financing activities

(12,507)

(13,900)

Effect of exchange rate changes on cash

71

613

Decrease in cash and cash equivalents

(11,037)

(15,274)

Cash, cash equivalents and restricted cash at beginning of year

76,290

53,635

Cash, cash equivalents and restricted cash at end of quarter

$

65,253

$

38,361

Supplemental cash flow information:

Income taxes paid/(received), net

$

565

$

2,303

Interest paid

$

66

$

58

Stock dividend issued

$

66,243

$

86,433

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

7

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TOOTSIE ROLL INDUSTRIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2023MARCH 31, 2024

(in thousands except per share amounts) (Unaudited)

Note 1 — Significant Accounting Policies

General Information

The foregoing data has been prepared from the unaudited financial records of Tootsie Roll Industries, Inc. (the “Company”). In the opinion of Management, all adjustments, which are of a normal recurring nature, and necessary for a fair statement of the results for the interim period have been reflected. Certain amounts previously reported have been reclassified to conform to the current year presentation. The financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial reporting and with the rules and regulations for reporting on Form 10-Q. Accordingly, they do not contain certain information and disclosures required by GAAP for comprehensive financial statements. These consolidated financial statements should be read in conjunction with the consolidated financial statements and the related notes included in the Company’s Form 10-K for the year ended December 31, 20222023 (the “2022“2023 Form 10-K”).

Results of operations for the period ended June 30, 2023March 31, 2024 are not necessarily indicative of results to be expected for the year to end December 31, 20232024 because of the seasonal nature of the Company’s operations. Historically, the third quarter has been the Company’s largest net product sales quarter due to pre-Halloween net product sales.

Revenue Recognition

The Company’s revenues, primarily net product sales resulting from the sale of goods, reflect the consideration to which the Company expects to be entitled generally based on customer purchase orders. The Company records revenue based on a five-step model in accordance with Accounting Standards Codification ("ASC") Topic 606. Adjustments for estimated customer cash discounts upon payment, discounts for price adjustments, product returns, allowances, and certain advertising and promotional costs, including consumer coupons, are variable consideration and are recorded as a reduction of net product sales revenue in the same period the related net product sales are recorded. Such estimates are calculated using historical averages adjusted for any expected changes due to current business conditions and experience. A net product sale is recorded when the Company delivers the product to the customer or, in certain instances, when the customer picks up the goods at the Company’s distribution center and thereby obtains control of such product. Amounts billed and due from our customers are classified as accounts receivable trade on the balance sheet and require payment on a short-term basis. Accounts receivable trade are unsecured. Shipping and handling costs of $15,432$13,616 and $14,156 in second quarter 2023 and 2022, respectively, and $31,665 and $30,694$16,233 in first halfquarter 2024 and 2023, and 2022, respectively, are included in selling, marketing and administrative expenses. Royalty income from sales-based licensing arrangements, pursuant to which revenue is recognized as the third-party licensee sales occur, and rental income are not considered revenue from contracts from customers and are presented separately from net product revenue as rental and royalty revenue.

Leases

The Company identifies leases by evaluating its contracts to determine if the contract conveys the right to use an identified asset for a stated period of time in exchange for consideration. The Company considers whether it can control the underlying asset and have the right to obtain substantially all of the economic benefits or outputs from the asset. Leases with terms greater than 12 months are classified as either operating or finance leases at the commencement date.  For these leases, we record the present value of the minimum lease payments over the lease term as a lease liability with an offsetting right-of-use asset that is then presented net of any deferred rent or lease incentives. The discount rate used to calculate the present value of the minimum lease payments is our incremental borrowing rate, as the rate implicit in the lease is generally not known or determinable. The lease term includes any noncancelable period for which the Company has the right to use the asset as well as any future periods to which the Company has the right and intent to extend the lease under the terms of the lease agreement. Currently, all capitalized leases are classified as operating leases and the Company records rental expense on a straight-line basis over the term of the lease.

8

Table of Contents

Recently AdoptedRecent Accounting Pronouncements

In November 2023, the Financial Accounting Standards Board ("FASB") issued ASU No. 2023-07, Segment Reporting (Topic 280): "Improvements to Reportable Segment Disclosures". The amendments in this update affect reportable segment disclosure requirements and apply whether an entity presents one or more reportable segments in accordance with Topic 280. The amendments in this update are effective for annual periods and interim periods beginning after December 15, 2024.

As

In December 2023, the FASB issued ASU No. 2023-09, "Improvements to Income Tax Disclosures". The amendments in this update affect income tax disclosures primarily related to the rate reconciliation and income taxes paid information.  The amendments in this update are effective for annual periods beginning after December 15, 2024.

The Company is currently evaluating the potential effects of these amendments on its Consolidated Financial Statements and believes the dateadoption will not significantly impact the presentation of this report, there are no recent accounting pronouncements that have been adopted in the period nor any that have not yet been adopted that Management believes would have a material impact on the Company’s consolidatedour financial statements.condition, results of operations and disclosures.

Note 2 — Average Shares Outstanding

The average number of shares outstanding for six monthsfirst quarter 2024 reflects a 3% stock dividend of 2,075 shares distributed on April 5, 2024. The average number of shares outstanding for first quarter 2023 reflects aggregate stock purchases of 42937 shares for $16,548,$1,604, excluding excise taxes, and a 3% stock dividend of 2,040 shares distributed on April 7, 2023. The average number of shares outstanding for six months 2022 reflectsThere were no aggregate stock purchases of 145 shares for $5,023 and a 3% stock dividend of 2,006 shares distributed on April 8, 2022.during first quarter 2024.

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 20192020 through 2021.2022. The Company’s consolidated effective income tax rate was 24.7%21.4% and 24.4% in second quarter 2023 and 2022, respectively, and 24.3% and 24.2%23.8% in first halfquarter 2024 and 2023, and 2022, respectively.

9

Table of Contents

NOTE 4—Share Capital and Capital In Excess of Par Value:

Capital in

 

Capital in

 

Class B

Excess

 

Class B

Excess

 

Common Stock

Common Stock

Treasury Stock

of Par

 

Common Stock

Common Stock

Treasury Stock

of Par

 

    

Shares

    

Amount

    

Shares

    

Amount

    

Shares

    

Amount

    

Value

 

    

Shares

    

Amount

    

Shares

    

Amount

    

Shares

    

Amount

    

Value

 

(000’s)

(000’s)

(000’s)

 

(000’s)

(000’s)

(000’s)

 

Balance at March 31, 2023

 

40,871

$

28,383

 

29,463

$

20,460

 

102

$

(1,992)

$

768,676

Balance at December 31, 2023

 

39,999

$

27,777

 

29,445

$

20,448

 

102

$

(1,992)

$

737,453

Issuance of 3% stock dividend

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

1,196

 

830

 

882

 

613

 

3

 

 

64,800

Conversion of Class B common shares to common shares

 

11

 

7

 

(11)

 

(7)

 

-

 

-

 

-

 

16

 

12

 

(16)

 

(12)

 

 

 

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 March 31, 2024

 

41,211

$

28,619

 

30,311

$

21,049

 

105

$

(1,992)

$

802,253

Balance at December 31, 2022

39,721

$

27,584

 

28,607

$

19,866

 

99

$

(1,992)

$

719,606

 

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

 

1,185

 

823

 

858

 

596

 

3

 

 

50,648

Conversion of Class B common shares to common shares

 

13

 

9

 

(13)

 

(9)

 

-

 

-

 

-

 

2

 

2

 

(2)

 

(2)

 

 

 

Purchase and retirement of common shares and other

 

(429)

 

(298)

 

-

 

-

 

-

 

-

 

(16,415)

 

(37)

(26)

 

 

(1,578)

Balance at June 30, 2023

 

40,490

$

28,118

 

29,452

$

20,453

 

102

$

(1,992)

$

753,839

Balance at March 31, 2023

 

40,871

$

28,383

 

29,463

$

20,460

 

102

$

(1,992)

$

768,676

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

9

Table of Contents

Note 5 — Fair Value Measurements

Current accounting guidance defines fair value as the price that would be received on the sale of an asset, or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Guidance requires disclosure of the extent to which fair value is used to measure financial assets and liabilities, the inputs utilized in calculating valuation measurements, and the effect of the measurement of significant unobservable inputs on earnings, or changes in net assets, as of the measurement date. Guidance establishes a three-level valuation hierarchy based upon the transparency of inputs utilized in the measurement and valuation of financial assets or liabilities as of the measurement date. Level 1 inputs include quoted prices for identical instruments and are the most observable. Level 2 inputs include quoted prices for similar assets and observable inputs such as interest rates, foreign currency exchange rates, commodity rates and yield curves. Level 3 inputs are not observable in the market and include Management’s own judgments about the assumptions market participants would use in pricing the asset or liability. The use of observable and unobservable inputs is reflected in the hierarchy assessment disclosed in the table below.

As of June 30, 2023,March 31, 2024, December 31, 20222023 and June 30, 2022,March 31, 2023 the Company held certain financial assets that are required to be measured at fair value on a recurring basis. These included derivative hedging instruments related to the purchase of certain raw materials and foreign currencies, investments in trading securities and available for sale securities. The Company’s available for sale securities principally consist of corporate and government bonds. While the Company generally holds its available for sale investments to maturity, the Company would sell prior to maturity if it was considered beneficial to do so for tax-planning strategies or if the Company required the funds to finance a significant reinvestment in the Company, including an acquisition. As such, the Company does not classify any investments as held to maturity which is restrictive under GAAP because the use of amortized cost must be justified for each security.

The fair value of the Company’s industrial revenue development bonds but also include variable rate demandat March 31, 2024, December 31, 2023 and March 31, 2023 were valued using Level 2 inputs which approximates the carrying value of $7,500 for the respective periods. Interest rates on these bonds are reset weekly based on current market conditions.

10

Table of Contents

notes. While the Company generally holds its available for sale investments to maturity, the Company would sell prior to maturity if it was considered beneficial to do so for tax-planning strategies or if the Company required the funds to finance a significant reinvestment in the Company, including an acquisition. As such, the Company does not classify any investments as held to maturity which is restrictive under GAAP because the use of amortized cost must be justified for each security.

The fair value of the Company’s industrial revenue development bonds at June 30, 2023, December 31, 2022 and June 30, 2022 were valued using Level 2 inputs which approximates the carrying value of $7,500 for the respective periods. Interest rates on these bonds are reset weekly based on current market conditions.

The following table presents information about the Company’s financial assets and liabilities measured at fair value as of June 30, 2023,March 31, 2024, December 31, 20222023 and June 30, 2022March 31, 2023 and indicate the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value:

Estimated Fair Value June 30, 2023

Estimated Fair Value March 31, 2024

Total

Input Levels Used

Total

Input Levels Used

Fair Value

Level 1

Level 2

Level 3

Fair Value

Level 1

Level 2

Level 3

Cash and cash equivalents

   

$

26,047

    

$

26,047

    

$

-

    

$

-

   

$

64,886

    

$

64,886

    

$

    

$

Available for sale securities

254,305

4,510

249,795

-

277,471

4,038

273,433

Foreign currency derivatives

108

-

108

-

(29)

(29)

Commodity derivatives

(806)

(806)

-

-

(559)

(559)

-

Trading securities

81,319

65,065

16,254

-

95,957

78,362

17,595

Total assets measured at fair value

$

360,973

$

94,816

$

266,157

$

-

$

437,726

$

146,727

$

290,999

$

Estimated Fair Value December 31, 2022

Estimated Fair Value December 31, 2023

Total

Input Levels Used

Total

Input Levels Used

Fair Value

Level 1

Level 2

Level 3

Fair Value

Level 1

Level 2

Level 3

Cash and cash equivalents

   

$

53,270

    

$

53,270

    

$

-

    

$

-

   

$

75,915

    

$

75,915

    

$

    

$

Available for sale securities

272,448

 

1,889

 

270,559

-

263,313

 

4,084

 

259,229

Foreign currency derivatives

(282)

 

-

 

(282)

-

302

 

 

302

Commodity derivatives

10

 

10

 

-

-

(2,526)

 

(2,526)

 

Trading securities

71,208

 

56,049

 

15,159

-

87,800

 

70,681

 

17,119

Total assets measured at fair value

$

396,654

$

111,218

$

285,436

$

-

$

424,804

$

148,154

$

276,650

$

Estimated Fair Value June 30, 2022

Estimated Fair Value March 31, 2023

Total

Input Levels Used

Total

Input Levels Used

Fair Value

Level 1

Level 2

Level 3

Fair Value

Level 1

Level 2

Level 3

Cash and cash equivalents

   

$

46,628

    

$

46,628

    

$

-

    

$

-

   

$

37,992

    

$

37,992

    

$

    

$

Available for sale securities

262,057

748

261,309

-

262,729

4,583

258,146

Foreign currency derivatives

165

-

165

-

(233)

(233)

Commodity derivatives

100

100

-

-

51

51

Trading securities

72,480

56,964

15,516

-

76,039

59,952

16,087

Total assets measured at fair value

$

381,430

$

104,440

$

276,990

$

-

$

376,578

$

102,578

$

274,000

$

11

Table of Contents

Note 6 — Derivative Instruments and Hedging Activities

From time to time, the Company uses derivative instruments, including foreign currency forward contracts and commodity futures contracts, to manage its exposures to foreign exchange and commodity prices. Commodity futures contracts are intended and effective as hedges of market price risks associated with the anticipated purchase of certain raw materials (primarily sugar). Foreign currency forward contracts are intended and effective as hedges of the Company’s exposure to the variability of cash flows, primarily related to the foreign exchange rate changes of products manufactured in Canada and sold in the United States, and periodic equipment purchases from foreign suppliers denominated in a foreign currency. The Company does not engage in trading or other speculative use of derivative instruments.

The Company recognizes all derivative instruments as either assets or liabilities at fair value in the Condensed Consolidated Statement of Financial Position. Derivative assets are recorded in other receivables and derivative liabilities are recorded in accrued liabilities. The Company uses hedge accounting for its foreign currency and commodity derivative instruments as discussed above. Derivatives that qualify for hedge accounting are designated as cash flow hedges by formally documenting the hedge relationships, including identification of the hedging instruments, the hedged items and other critical terms, as well as the Company’s risk management objectives and strategies for undertaking the hedge transaction.

11

Table of Contents

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 $(186), $(563)$312, $217 and $(57)$30 of this accumulated comprehensive gain (loss)loss is expected to be reclassified to earnings in 2023, 2024, 2025 and 2025,2026, respectively. Approximately $(15) and $123$29 reported in accumulated other comprehensive gain (loss)loss for foreign currency derivatives areis expected to be reclassified to other income, net in 2023 and 2024, respectively.2024.  

The following table summarizes the Company’s outstanding derivative contracts and their effects on its Condensed Consolidated Statements of Financial Position at June 30, 2023,March 31, 2024, December 31, 20222023 and June 30, 2022:March 31, 2023:

June 30, 2023

March 31, 2024

Notional

    

    

    

    

Notional

    

    

    

    

Amounts

Assets

Liabilities

Amounts

Assets

Liabilities

Derivatives designated as hedging instruments:

Foreign currency derivatives

$

12,021

$

154

$

(46)

$

9,646

$

25

$

(54)

Commodity derivatives

16,496

75

(881)

24,413

211

(770)

Total derivatives

$

229

$

(927)

$

236

$

(824)

December 31, 2022

December 31, 2023

Notional

    

    

    

    

Notional

    

    

    

    

Amounts

Assets

Liabilities

Amounts

Assets

Liabilities

Derivatives designated as hedging instruments:

Foreign currency derivatives

$

7,264

$

-

$

(282)

$

16,337

$

302

$

Commodity derivatives

189

 

10

 

-

28,247

 

16

 

(2,542)

Total derivatives

$

10

$

(282)

$

318

$

(2,542)

June 30, 2022

March 31, 2023

Notional

    

    

    

    

Notional

    

    

    

    

Amounts

Assets

Liabilities

Amounts

Assets

Liabilities

Derivatives designated as hedging instruments:

Foreign currency derivatives

$

8,503

$

186

$

(21)

$

17,260

$

13

$

(246)

Commodity derivatives

2,185

111

(11)

189

51

Total derivatives

$

297

$

(32)

$

64

$

(246)

12

Table of Contents

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 June 30,March 31, 2024 and March 31, 2023 and June 30, 2022 are as follows:

For Quarter Ended June 30, 2023

For Quarter Ended March 31, 2024

    

    

    

    

Gain (Loss)

    

    

    

    

Gain (Loss)

Gain (Loss)

on Amount Excluded

Gain (Loss)

on Amount Excluded

Gain (Loss)

Reclassified from

from Effectiveness

Gain (Loss)

Reclassified from

from Effectiveness

Recognized

Accumulated OCI

Testing Recognized

Recognized

Accumulated OCI

Testing Recognized

in OCI

into Earnings

in Earnings

in OCI

into Earnings

in Earnings

Foreign currency derivatives

$

292

$

(48)

$

-

$

(358)

$

(26)

$

Commodity derivatives

(857)

-

-

1,558

(409)

Total

$

(565)

$

(48)

$

-

$

1,200

$

(435)

$

For Quarter Ended June 30, 2022

For Quarter Ended March 31, 2023

    

    

    

    

Gain (Loss)

    

    

    

    

Gain (Loss)

Gain (Loss)

on Amount Excluded

Gain (Loss)

on Amount Excluded

Gain (Loss)

Reclassified from

from Effectiveness

Gain (Loss)

Reclassified from

from Effectiveness

Recognized

Accumulated OCI

Testing Recognized

Recognized

Accumulated OCI

Testing Recognized

in OCI

into Earnings

in Earnings

in OCI

into Earnings

in Earnings

Foreign currency derivatives

$

(149)

$

86

$

-

$

(39)

$

(88)

$

Commodity derivatives

(80)

62

-

134

93

Total

$

(229)

$

148

$

-

$

95

$

5

$

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

Table of Contents

Note 7 — Pension Plans

Beginning in 2012, the Company has received periodic notices from the Bakery and Confectionery Union and Industry International Pension Fund (Plan), a multi-employer defined benefit pension plan for certain Company union employees, that the Plan’s actuary certified the Plan to be in “critical status”, as defined by the Pension Protection Act (PPA) and the Pension Benefit Guaranty Corporation (PBGC); and that a plan of rehabilitation was adopted by the trustees of the Plan in 2012. TheBeginning in the plan year January 1, 2015, the Plan was reclassified to “critical and declining status”, as defined by the PPA and PBGC, for the plan year beginning January 1, 2015.PBGC. A designation of “critical and declining status” implies that the Plan is expected to become insolvent in 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 $96,000, $104,300 $99,300 and $99,800$99,300 if it had withdrawn from the Plan during 2022, 2021 and 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, its withdrawal liability payable under the Plan could be higher than the above discussed amounts.

The Company’s pension expense for this Plan for first halfquarter 2024 and 2023 was $704 and 2022 was $1,951 and $1,822,$865, respectively. The aforementioned expense includes surcharges of $688$248 and $642$305 for first halfquarter 2024 and 2023, and 2022, respectively, as required under the amended plan of rehabilitation. The Company’s twelve months pension expense for this Plan for 2023 and 2022 was $3,516 and 2021 was $3,510, and $3,156, respectively, which includes surcharges of $1,237$1,239 and $1,112,$1,237, 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 advised the Plan submitted an initial applicationCompany that it is in the process of applying for benefits available to the PBGC for Special Financial Assistancefinancial troubled plans under the American Rescue Plan Act of 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 multi-employermulti-

13

Table of Contents

employer union pension matters and therefore is unable to determine the effects on its consolidated financial statements, but the ultimate outcome could have a material adverse effect on the Company’s consolidated results of operations or cash flows in one or more future periods.

14

Table of Contents

Note 8 — Accumulated Other Comprehensive Earnings (Loss)

Accumulated Other Comprehensive Earnings (Loss) consists of the following components:

    

    

    

    

    

Accumulated

    

    

    

    

    

Accumulated

Foreign

Foreign

Postretirement

Other

Foreign

Foreign

Postretirement

Other

Currency

Currency

Commodity

and Pension

Comprehensive

Currency

Currency

Commodity

and Pension

Comprehensive

Translation

Investments

Derivatives

Derivatives

Benefits

Earnings (Loss)

Translation

Investments

Derivatives

Derivatives

Benefits

Earnings (Loss)

Balance at March 31, 2023

$

(22,499)

    

$

(6,919)

    

$

(178)

    

$

39

    

$

2,498

    

$

(27,059)

Balance at December 31, 2023

    

$

(21,050)

$

(2,359)

$

228

$

(1,915)

$

1,883

$

(23,213)

Other comprehensive earnings (loss) before reclassifications

1,142

(247)

221

(648)

-

468

320

119

(271)

1,179

1,347

Reclassifications from accumulated other comprehensive loss

-

-

36

-

(143)

(107)

20

311

(121)

210

Other comprehensive earnings (loss) net of tax

1,142

(247)

257

(648)

(143)

361

320

119

(251)

1,490

(121)

1,557

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 March 31, 2024

$

(20,730)

$

(2,240)

$

(23)

$

(425)

$

1,762

$

(21,656)

Balance at December 31, 2022

    

$

(23,795)

$

(8,809)

$

(215)

$

8

$

2,642

$

(30,169)

$

(23,795)

$

(8,809)

$

(215)

$

8

$

2,642

$

(30,169)

Other comprehensive earnings (loss) before reclassifications

2,438

1,643

192

(547)

-

3,726

1,296

1,890

(29)

101

3,258

Reclassifications from accumulated other comprehensive loss

-

-

102

(70)

(287)

(255)

66

(70)

(144)

(148)

Other comprehensive earnings (loss) net of tax

2,438

1,643

294

(617)

(287)

3,471

1,296

1,890

37

31

(144)

3,110

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)

Balance at March 31, 2023

$

(22,499)

$

(6,919)

$

(178)

$

39

$

2,498

$

(27,059)

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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

Quarter Ended

Location of (Gain) Loss

Comprehensive Income Components

June 30, 2023

June 30, 2022

June 30, 2023

June 30, 2022

Recognized in Earnings

March 31, 2024

March 31, 2023

Recognized in Earnings

Investments

$

-

$

(5)

$

(1)

$

(10)

Other income, net

$

$

(1)

Other income, net

Foreign currency derivatives

48

(86)

136

(188)

Other income, net

26

88

Other income, net

Commodity derivatives

-

(62)

(93)

(89)

Product cost of goods sold

409

(93)

Product cost of goods sold

Postretirement and pension benefits

(189)

(206)

(379)

(413)

Other income, net

(160)

(190)

Other income, net

Total before tax

(141)

(359)

(337)

(700)

275

(196)

Tax (expense) benefit

34

87

82

169

(65)

48

Net of tax

$

(107)

$

(272)

$

(255)

$

(531)

$

210

$

(148)

Note 9 — Restricted Cash

Restricted cash comprises certain cash deposits of the Company’s Spanish subsidiary with international banks that are pledged as collateral for letters of credit and bank borrowings.

Note 10 — Bank Loans

Bank loans consist of short term (less than 120 days) borrowings by the Company’s Spanish subsidiary that are held by international banks. The weighted-average interest rate as of June 30,March 31, 2024 and 2023 was 6.8% and 2022 was 5.9% and 3.1%3.5%, respectively.

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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 1817 years. Operating lease cost totaled $367$375 and $277$235 in the secondfirst quarter of 20232024 and 2022, respectively, and $602 and $556 for the first half of 2023 and 2022, respectively.2023. Cash paid for operating lease liabilities is substantiallytotaled $268 and $218 in the same as operating lease costfirst quarter of 2024 and is presented in cash flows from operating activities.2023.  As of June 30,March 31, 2024 and 2023, and 2022, operating lease right-of-use assets were $6,291$6,896 and $7,019,$4,631, respectively, and operating lease liabilities were $6,354$7,163 and $7,019,$4,688, respectively. The weighted-average remaining lease term related to these operating leases was 12.510.9 years and 7.115.8 years as of June 30,March 31, 2024 and 2023, and 2022, respectively. The weighted-average discount rate related to the Company’s operating leases was 3.4%3.7% and 2.0%3.4% as of June 30,March 31, 2024 and 2023, and 2022, respectively. Maturities of the Company’s operating lease liabilities at June 30, 2023March 31, 2024 are as follows: $549$912 in 20232024 (rest of year), $781 in 2024, $712$1,054 in 2025, $431$791 in 2026, $320$709 in 2027, $316 in 2028 and $3,561$3,381 thereafter.

The Company, as lessor, rents certain commercial real estate to third-party lessees. The June 30,March 31, 2024 and 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$18,227 and $16,373,$17,168, respectively. Terms of such leases, including renewal options, may be extended for up to fifty-sevenfifty-six 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 secondfirst quarter 2024 and first half 2023 was $1,587 and 2022 was $1,222 and $1,245, respectively, and $2,443 and $2,458,$1,221, respectively, and is classified in cash flows from operating activities.

On June 28, 2023,A lease with the Company as lessor entered into a lease agreement withcommenced in April 2024 when a new tenant that will commence in the second quartertook occupancy 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.Canada. 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

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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, 20222023 (the “2022“2023 Form 10-K”).

Net product sales were $158,837$151,464 in secondfirst quarter 2024 compared to $160,711 in first quarter 2023, compared to $142,081 in second quarter 2022, an increasea decrease of $16,756$9,247 or 11.8%. First half 2023 net product sales were $319,548 compared to $281,372 in first half 2022, an increase of $38,176 or 13.6%5.8%. Domestic (U.S.) net product sales in secondfirst quarter and first half 2023 increased 10.3% and 12.3%, respectively,2024 decreased 7.2% compared to the corresponding periodsperiod in the prior year, and,however, foreign net product sales, including exports to foreign markets, increased 28.6% and 28.7%, respectively,9.8% compared to the corresponding periodsperiod in the prior year. For the secondfirst quarter and first half 2023,2024, domestic sales represented 90.8% and 91.2%, respectively,90.1% of total consolidated net product sales. Sales growthThe Company faced a more challenging market in secondfirst quarter 2024 as customers and first half 2023consumers became more resistant to higher price realization which was drivennecessary to restore our margins. First quarter 2024 sales were also adversely affected by effective sales and marketing programs, includingthe timing of seasonal sales, programs during this period. Higherprimarily for Easter, between first quarter 2024 and fourth quarter 2023 when compared to the prior year comparative quarterly periods. In addition, first quarter 2024 sales were impacted by customer inventory adjustments, which adversely affected customer orders and sales in first quarter 2024.

Product cost of goods sold was $102,732 in first quarter 2024 compared to $111,406 in first quarter 2023. Product cost of goods sold includes $365 and $230 of certain deferred compensation expenses in first quarter 2024 and 2023, respectively. These deferred compensation expenses principally resulted 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 decreased from $111,176 in first quarter 2023 to $102,367 in first quarter 2024, a decrease of $8,809 or 7.9%. As a percentage of net product sales, adjusted product cost of goods sold was 67.6% and 69.2% in first quarter 2024 and 2023, respectively, a favorable decrease of 1.6 percentage points. First quarter 2024 gross profit margins benefited from higher price realization and improvements in plant manufacturing operating efficiencies. Although we did achieve improvement in gross profit margin, higher overall ingredient costs and increases in labor, employee benefits, and certain manufacturing costs offset some of the benefits of higher sales price realization wasin first quarter 2024.  However,

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certain cost and expense reductions initiated by Company programs mitigated some of the primary contributorcost increase in adjusted product cost of goods sold in first quarter 2024 compared to the sales increasecorresponding period 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.prior year.

Our input unit costs movedfor ingredients, labor and benefits, and certain plant manufacturing costs continued to increase in first quarter 2024. Cocoa and chocolate costs have been moving significantly higher in second quarterthe market, and first half 2023 as most ofwe expect that these increases will have some adverse effects on 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 yearand margins in 2022 when compared to 2021. We believe that the increases in ingredients2024 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.2025. 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 was $107,075 in second quarter 2023 compared to $95,402 in second quarter 2022, and first half 2023 product cost of goods sold was $218,481 compared to $187,752 in first half 2022. Product cost of goods sold includes $256 and $(865) of certain deferred compensation expenses (credits) in second quarter 2023 and 2022, respectively, and $486 and $(1,134) of certain deferred compensation expenses (credits) in first half 2023 and 2022, respectively. These deferred compensation expenses (credits) principally resulted 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 $96,267 in second quarter 2022 to $106,819 in second quarter 2023, an increase of $10,552 or 11.0%; and increased from $188,886 in first half 2022 to $217,995 in first half 2023, an increase of $29,109 or 15.4%. As a percentage of net product sales, adjusted product cost of goods sold was 67.3% and 67.8% in second quarter 2023 and 2022, respectively, a favorable decrease of 0.5 percentage points; and adjusted product cost of goods sold was 68.2% and 67.1% in first half 2023 and 2022, respectively, an unfavorable increase of 1.1 percentage points. Second quarter and first half 2023 adjusted product cost of goods sold as a percentage of sales was 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

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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 higherincreases in input costs for ingredients, packaging materials, and other input costs,in recent years, many companies in the consumer products industry have increased selling prices during the 2021 through 2023 period.prices. We have and continue to implementimplemented price increases as well during this period with the objective of improving sales price realization in order to pass along some of these higher input costs and restore some ofrecover our margin declines. Price increases were phased in principally beginning in second half 2021 and have continued into 2023. We have made some progress in restoring our margins this year, but we have not as yet restored our marginsin 2023 and continue to historical levels. As we look into 2024, we believe that our costs for ingredients will be even higherdo so 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.2024. Although the Company continues to monitor these higherits input costs, and price increases, we are mindful of the effects and limits ofwhen passing on all of thesethe above-discussed higher input costs to our customers as well as the final consumers of our products.

Selling, marketing and administrative expenses were $37,857$38,918 in secondfirst quarter 20232024 compared to $20,674 in second quarter 2022, and first half 2023 selling, marketing and administrative expenses were $75,356 compared to $47,747$37,499 in first half 2022.quarter 2023. Selling, marketing and administrative expenses include $4,675$6,925 and $(11,693)$4,117 of certain deferred compensation expenses (credits) in second quarter 2023 and 2022, respectively; and $8,792 and $(17,029) of certain deferred compensation expenses (credits) in first halfquarter 2024 and 2023, and 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 increaseddecreased from $32,367$33,382 in second quarter 2022 to $33,182 in secondfirst quarter 2023 an increase of $815 or 2.5%; and selling, marketing and administrative expenses increased from $64,776to $31,993 in first half 2022 to $66,564 in first half 2023 an increasequarter 2024, a decrease of $1,788$1,389 or 2.8%4.2%. As a percentage of net product sales, adjusted selling, marketing and administrative expenses decreasedincreased from 22.8%20.8% in second quarter 2022 to 20.9% in secondfirst quarter 2023 a favorable decreaseto 21.1% in first quarter 2024, an unfavorable increase of 1.90.3 percentage points as a percent of net product sales; and adjusted selling, marketing and administrative expenses decreased from 23.0% in first half 2022 to 20.8% in first half 2023, a favorable decrease of 2.2 percentage points as a percent of net sales. These lowerhigher expenses as a percentage of sales reflect the benefitsadverse effects of higherlower sales including higher price realization, againstas certain expenses that are generally fixed and do not change significantly with changes in sales.

Selling, marketing and administrative expenses include $15,432$13,616 and $14,156$16,233 for customer freight, delivery and warehousing expenses in secondfirst quarter 2024 and 2023, and 2022, respectively, an increasea decrease of $1,276$2,617 or 9.0%; and $31,665 and $30,694 in first half 2023 and 2022, respectively, an increase of $971 or 3.2%16.1%. These expenses were 9.7%9.0% and 10.0% of net product sales in second quarter 2023 and 2022, respectively; and were 9.9% and 10.9%10.1% of net product sales in first halfquarter 2024 and 2023, and 2022, respectively. Customer freight and delivery unit costs, including the cost per pound shipped, was more favorable in first half 2023quarter 2024 compared to first half 2022.the corresponding period in 2023.Increased over-the-road truck availability in 2024 relative to tight freight markets over the past few years has resulted in a more competitive market and resulting lower costs.  

Earnings from operations were $14,753$11,110 in secondfirst quarter 20232024 compared to $26,978 in second quarter 2022; and were $27,549$12,796 in first half 2023 compared to $47,813 in first half 2022.quarter 2023. Earnings from operations include $4,931$7,290 and $(12,558)$4,347 of certain deferred compensation expenses (credits) in second quarter 2023 and 2022, respectively; and include $9,278 and $(18,163) of certain deferred compensation expenses (credits) in first halfquarter 2024 and 2023, and 2022, respectively, which is discussed above. Adjusting for these deferred compensation costs and expenses, (credits), adjusted earnings from operations were $19,684$18,400 and $14,420$17,143 in secondfirst quarter 20232024 and 2022,2023, respectively, an increase of $5,264$1,257 or 36.5%; and adjusted operating earnings were $36,827 and $29,650 in first half 2023 and 2022, respectively, an increase of $7,177 or 24.2%7.3%. As a percentage of net product sales, these adjusted operating earnings were 12.4%12.1% and 10.1%10.7% in secondfirst quarter 20232024 and 2022,2023, respectively, a favorable increase of 2.3 percentage points;

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and as a percentage of net product sales, these adjusted operating earnings were 11.5% and 10.5% in first half 2023 and 2022, respectively, a favorable increase of 1.01.4 percentage points. Although higher second quarterHigher price realization as well as reductions of certain costs and first half 2023 sales contributed to improved operating earnings compared to the corresponding prior year period, higher input costs,expense as discussed above, substantially offset muchwas the principal driver of the benefits of increased sales.aforementioned margin improvement in first quarter 2024 adjusted operating earnings.

Other income, (loss), net was $4,804$9,032 in secondfirst quarter 20232024 compared to $(11,137) in second quarter 2022; and $9,584$4,780 in first half 2023 compared to $(16,153) in first half 2022.quarter 2023. Other income, (loss), net for secondfirst quarter 20232024 and 20222023 includes net gains (losses) and investment income of $4,931$7,290 and $(12,558),$4,347, respectively, on trading securities which provide an economic hedge of the Company’s deferred compensation liabilities; and other income, net for first half 2023 and 2022 includes net gains (losses) and investment income of $9,278 and $(18,163), respectively,liabilities on trading securities. The investment gains and (losses) on trading securities in secondfirst quarter 2024 and first half 2023 and 2022 reflect the overall changes in the equity markets during these periods. These changes in market 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 reflectiveuseful to our investors and other users of our financial information in assessing the underlying operations of the Company.

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Other income, (loss), net for secondfirst quarter 20232024 and 20222023 includes investment income on available for sale securities of $1,145$1,862 and $513$1,163 in 2024 and 2023, and 2022, respectively; and other income, net for first half 2023 and 2022 includesrespectively. The aforementioned increases in 2024 investment income on available for sale securities reflects the higher interest rate environment in 2024 as well as a higher average balance in the investment portfolio of $2,308 and $1,069available for sale securities in 2023 and 2022, respectively.first quarter 2024 compared to first quarter 2023. Other income, (loss), net also includes pre-tax gain (loss)loss on foreign exchange of $(1,315)$20 and $662 in second quarter 2023 and 2022, respectively; and $(2,060) and $510$744 in first halfquarter 2024 and 2023, and 2022, respectively.respectively, which contributed to improved net earnings in first quarter 2024 when compared to first quarter 2023.

 

The consolidated effective tax rates were 24.7%21.4% and 24.4% in second quarter 2023 and 2022, respectively; and 24.3% and 24.2%23.8 in first halfquarter 2024 and 2023, and 2022, respectively. The lower effective income tax rate in first quarter 2024 reflects a reduction in state income taxes.

Net earnings attributable to Tootsie Roll Industries, Inc. were $14,726$15,834 (after $6$1 net income attributed to non-controlling interests) in first quarter 2024 compared to $13,401 (after $7 net loss attributed to non-controlling interests) in secondfirst quarter 2023, compared to $11,989 (after $8 net loss attributed to non-controlling interests) in second quarter 2022, and earnings per share were $0.21$0.22 and $0.17$0.19 in secondfirst quarter 20232024 and 2022,2023, respectively, an increase of $0.04$0.03 per share, or 23.5%. First half 2023 net earnings attributable to Tootsie Roll Industries, Inc. were $28,127 (after $13 net loss attributed to non-controlling interests) compared to first half 2022 net earnings of $24,016 (after $16 net loss attributed to non-controlling interests), and net earnings per share were $0.40 and $0.34 in first half 2023 and first half 2022, respectively, an increase of $0.06 per share or 17.6%15.8%. Earnings per share attributable to Tootsie Roll Industries, Inc. for secondfirst quarter and first half 20232024 benefited from the reduction in average shares outstanding resulting from purchases in the open market by the Company of its common stock.stock during the preceding twelve months. Average shares outstanding decreased from 70,98572,317 at second quarter 2022 to 70,089 at secondfirst quarter 2023 and from 71,029 into 71,417 at first half 2022 to 70,156 in first half 2023.quarter 2024.

Goodwill and intangibles, principally trademarks, are assessed annually as of December 31 or whenever events or circumstances indicate that the carrying values may not be recoverable from future cash flows. The Company has not identified any triggering events, as defined, or other adverse information that would indicate a material impairment of its goodwill or intangibles in first half 2023.quarter 2024. 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 Company’s risk factors discussed on Form 10-K for the year ended December 31, 2022,2023, 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 Fund (Plan), a multi-employer defined benefit pension plan for certain Company union employees, that the Plan’s actuary certified the Plan to be in “critical status”, as defined by the Pension Protection Act (PPA) and the Pension Benefit Guaranty Corporation (PBGC); and that a plan of rehabilitation was adopted by the trustees of the Plan in 2012. The Plan’s status was changed to “critical and declining status”, as defined by the PPA and PBGC, for the plan year beginning January 1, 2015, and this status continues to date. A designation of “critical and declining status” implies that the Plan is expected to become insolvent in the next 20 years. In 2016, the Company

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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.

Based on these updated notices, the Plan’s funded percentage (plan investment assets as a percentage of plan liabilities), as defined, were 49.4%, 48.5%, and 48.3% as of January 1, 2022, 2021, and 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, 2022, the funded percentage would be 56.7% (not 49.4%). As of the January 1, 2022 valuation date (most recent valuation available), only 14% of Plan participants were current active employees, 55% were retired or separated from service and receiving benefits, and 31% were retired or separated from service and entitled to future benefits. The number of current active employee Plan participants as of January 1, 2022 fell 5% from the previous year and 10% over the past two years. When compared to the Plan valuation date of January 1, 2011 (just prior to the Plan being certified to be in “critical status”), current active employee participants have declined 54%, whereas participants who were retired or separated from service and receiving benefits increased 3% and participants who were retired or separated from service and entitled to future benefits increased 8%.

The Company has been advised by the Plan that its withdrawal liability would have been $96,000, $104,300 $99,300 and $99,800$99,300 if it had withdrawn from the Plan during 2022, 2021 and 2020, and 2019, respectively.respectively (most recent information provided by the Plan). The Plan has not yet provided an actuarial estimate of aaforementioned most recent decrease in the withdrawal liability calculated as ifadvised by the Plan was primarily driven by an increase in the PBGC interest rates used to value a portion of the liability as well as the positive market value investment performance in 2021. Not all mortality and certain other assumption changes made in 2022 have been fully updated in the calculation of the Company’s withdrawal liability had the Company were to have withdrawn from the Plan during 2022. Updating these assumptions may result in a change in the Company’s withdrawal liability. The

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Company’s relative share of the Plan’s contribution base, driven by employer withdrawals, has increased in the 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 the 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 estimates using the information provided by the Plan with respect to its 20212022 withdrawal liability and certain provisions in ERISA and laws 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 $2,714 which have a present value in the range of $31,851 to $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 valuations and interest rates which the Company’s actuary has advised is provided under the statute. Should the Company actually withdraw from the Plan at a future date, a withdrawal liability, which could be higher than the above discussed amounts, could be payable to the Plan.

The amended rehabilitation plan, which also continues, required that employer contributions include 5% compounded annual surcharge increases each year for an unspecified period of time beginning in 2012 as well as certain plan benefit reductions. In fourth quarter 2020, the Plan Trustees advised the Company that the surcharges would no longer increase annually and therefore be “frozen” at the rates and amounts in effect as of December 31, 2020 provided that the local bargaining union and the Company executed a formal consent agreement by June 30,March 31, 2021. The Trustees advised that they have concluded that continuing increases in surcharges would likely have a long-term adverse effect on the solvency of the Plan. The Trustees concluded that further increases would result in increasing financial hardships and withdrawals of participating employers, and that this change will not have a material effect on the Plan’s insolvency date. In first quarter 2021, the local bargaining union and the Company executed this agreement which resulted in the “freezing” of such surcharges as of December 31, 2020.

The Company’s pension expense for this Plan for first halfquarter 2024 and 2023 was $704 and 2022 was $1,951 and $1,822,$865, respectively. The aforementioned expense includes surcharges of $688$248 and $642$305 for first halfquarter 2024 and 2023, and 2022, respectively, as required under the amended plan of rehabilitation. The Company’s twelve months pension expense for this Plan for 2023 and 2022 was $3,516 and 2021 was $3,510, and $3,156, respectively, which includes surcharges of $1,239 and $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.

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On March 1, 2023, theThe Plan advised that they have submitted an initial application to the PBGC for Special Financial Assistance under the American Rescue Plan Act of 2021. On June 13, 2023, the Plan advised us that they withdrew 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 they can remain solvent and continue to pay benefits to retirees through 2051 without any reduction in retiree benefits. Nonetheless, the Company’s actuary believes that given the Plan’s projected insolvency 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 new five yearlabor contract which expires in September 2027 (prior contract expired in September 2022).2027. Under terms of this newthe union contract the Company is obligated to continue its participation in the Plan.Plan during the contract period. The Company is 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 could have a material adverse effect on the Company’s consolidated results of operations or cash flows in one or more future periods. See also Note 7 of the Company’s NoteNotes to Consolidated Financial Statements on Form 10-K for the year ended December 31, 20222023

The Company is focused on the longer term and therefore is continuing to make investments in plant manufacturing operations to meet new consumer and customer product demands, achieve product quality improvements, expand capacity in certain product lines, and increase operational efficiencies in order to provide genuine value to consumers.

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LIQUIDITY AND CAPITAL RESOURCES

Net cash flows provided by (used in) provided by operating activities were $(5,142)$21,401 and $617$(7,482) in first halfquarter 2024 and 2023, and 2022, respectively, an unfavorable decreasea favorable increase of $5,759.$28,883. The $5,759 decrease$28,883 increase in cash flows from operating activities from 2024 to 2023 to 2022principally reflects significantly higher production and inventory levels, including the effects of higher costs for materialsnet earnings as discussed above resultingand benefits from changes in working capital, primarily more cash usedfavorable changes in accounts receivable and inventories induring first half 2023. We have accelerated our production plans in 2023quarter 2024 compared to increase our production capacity to help insure that we can meet our 2023 sales demands and customer deliveries, including pre-Halloween 2023 sales demands in thirdfirst quarter 2023. The more favorable changes in accounts receivable also reflect changes in the Company’s payment terms for seasonal sales.

Net cash (used in) provided by (used in) investing activities was $6,432$(20,002) in first half 2023quarter 2024 compared to $(42,839)$5,495 in first half 2022.quarter 2023. Cash flows used in investing activities reflect $48,522$27,297 and $57,731$14,848 of purchases of available for sale securities during first halfquarter 2024 and 2023, and 2022, respectively, and $66,507$12,655 and $25,993$25,874 of sales and maturities of available for sale securities during first halfquarter 2024 and 2023, and 2022, respectively. First halfquarter 2024 and 2023 and 2022 investing activities include capital expenditures of $10,723$4,494 and $10,194,$5,049, respectively. The Company is evaluating a plant expansion, including both the addition and replacement of certain processing and packaging lines, to better meet its higher level of projected demand for certain products on a timelier and more cost effective basis. The Company believes that any plant expansion would take place over the next five years, but most of the actual expenditures would likely occur during the next three years. Company management believes that the total cost of this expansion, including new machinery, equipment and food processing infrastructure, will approximate $70,000 to $80,000. All capital expenditures have been orand are expected to be funded from the Company’s cash flow from operations and internal sources including available for sale securities.

The Company’s consolidated financial statements include bank borrowings of $1,051$1,050 and $1,020$1,060 at June 30,March 31, 2024 and 2023, and 2022, respectively, all of which relate to its Spanish subsidiary. The Company had no other outstanding bank borrowings at June 30, 2023.March 31, 2024.

Financing activities include Company common stock purchases and retirements of $16,548$0 and $5,023$1,604 in first halfquarter 2024 and 2023, and 2022, respectively. Cash dividends of $12,531$12,491 and $12,237$12,291 were paid in first halfquarter 2024 and 2023, and 2022, respectively.

The Company’s current ratio (current assets divided by current liabilities) was 3.53.8 to 1 at June 30, 2023March 31, 2024 compared to 3.43.6 to 1 at December 31, 20222023 and 3.43.9 to 1 at June 30, 2022.March 31, 2023. Net working capital was $223,596$241,272 at June 30, 2023March 31, 2024 compared to $218,894$245,763 and $198,283$227,168 at December 31, 20222023 and June 30, 2022,March 31, 2023, respectively. Included in net working capital is cash and cash equivalents and short-term investments totaling $109,212$159,361 at June 30, 2023March 31, 2024 compared to $149,398$171,422 and $123,090$123,872 at December 31, 20222023 and June 30, 2022,March 31, 2023, respectively. In addition, long term investments, principally debt securities comprising corporate bonds, were $252,459$278,953 at June 30, 2023,March 31, 2024, as compared to $247,528$255,606 and $258,075$252,888 at December 31, 20222023 and June 30, 2022,March 31, 2023, respectively. Aggregate cash and cash equivalents and short and long-term investments were $361,671, $396,926,$438,314, $427,028, and $381,165,$376,760, at June 30, 2023,March 31, 2024, December 31, 20222023 and June 30, 2022,March 31, 2023, respectively, including $81,319, $71,208,$95,957, $87,800, and $72,480$76,039 at June 30, 2023,March 31, 2024, December 31, 20222023 and June 30, 2022,

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March 31, 2023, 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 bonds, that matured during first halfquarter 2024 and 2023 and 2022 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$2,200 and $7,600$6,900 at June 30March 31, 2024 and 2023, and 2022, respectively, which principally reflects the increase in market interest rates since such securities were purchased. The Company expects to hold most of these securities to maturity and therefore does not expect to ultimately realizedrealize a substantial portion of 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 added $20,000 in additional funding to the VEBA trust in 2023. No contribution was made during first quarter 2024. The Company is currently using these VEBA funds to pay the actual cost of such benefits through part or all of 2023.2027. The VEBA trust held $1,942, $3,879$19,258, $19,126 and $3,050$3,917 of aggregate cash and cash equivalents at June 30, 2023,March 31, 2024, December 31, 20222023 and June 30, 2022,March 31, 2023, 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

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Company’s Consolidated Statement of Financial Position. These assets are categorized as Level 2 within the fair value hierarchy.

ACCOUNTING PRONOUNCEMENTS

See Note 1 of the Company’s Condensed Consolidated Financial Statements.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

See Note 1 of the Company’s Condensed Consolidated Financial Statements for more information related to our use of estimates in the preparation of financial statements as well as information related to material changes in our significant accounting policies that were included in our 2023 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 highthe ability to recover increases in input costs through price increases and restoring margins, the overall competitive environment in the Company’s industry, successful distribution and sell-through during Halloween and other seasons, supply chain disruptions,the availability of labor,cocoa and chocolate at reasonable prices given that these markets are significantly elevated and volatile, and changes in assumptions, judgments and risk factors discussed in our Annual Report on Form 10-K for the year ended December 31, 2022.2023.

The risk factors 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, chocolate, dextrose, milk and whey, gum-base input ingredients, packaging, and fuel costs principally relating to freight and delivery fuel surcharges. The Company generally enters into annual supply contracts and hedges certain commodities (primarily sugar) to control and plan for such cost changes, however, thechanges. The Company has experienced significant increases in its ingredient and packaging costs in 2022 and 2023, asand more recently, the Company’s prior 2022cocoa and chocolate markets have moved to unprecedented highs. The Company has entered into longer-range supply contracts for its cocoa and manychocolate needs in 2024 and much of its previous hedges have been utilized. 2025 in order to insure supply and reduce the risk of further increases in these ingredients. Nonetheless, the cocoa market is experiencing unprecedented volatility and highs, and remains a risk for the intermediate term.

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 principally in corporate bonds (available for sale securities) with an average maturity of three to five years, and variableto manage its interest rate demand notes where interest rates are generally reset weekly.risk. While the Company generally holds itsthese 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.

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The Company believes that the above discussed policies and programs limit the Company’s exposure to significant interest rate fluctuations. ThereOther than the cocoa and chocolate market as discussed above, 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, 2022.2023.

ITEM 4. CONTROLS AND PROCEDURES

Under the supervision and with the participation of Management, the Chief Executive Officer and Chief Financial Officer of the Company have evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of June 30, 2023March 31, 2024 and, based on their evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that these controls and procedures are effective. Disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures are also designed to ensure that information is accumulated and communicated to Management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

There has been no change in the Company’s internal control over financial reporting that occurred during the Company’s fiscal quarter ended June 30, 2023March 31, 2024 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, AND ISSUER PURCHASE OF EQUITY SECURITIES

The following table summarizes the Company’s purchases of its common stock during the quarter ended June 30, 2023:March 31, 2024:

    

    

    

    

    

    

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

Jan 1 to Jan 31

$

Not Applicable

Not Applicable

Feb 1 to Feb 29

Not Applicable

Not Applicable

Mar 1 to Mar 31

Not Applicable

Not Applicable

Total

$

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. There were no stock purchases during first quarter 2024.

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ITEM 6. EXHIBITS

Exhibit 31.1 — Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Exhibit 31.2 — Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Exhibit 32 — Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Exhibit 101.INS - XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

Exhibit 101.SCH - XBRL Taxonomy Extension Schema Document.

Exhibit 101.CAL - XBRL Taxonomy Extension Calculation Linkbase Document.

Exhibit 101.LAB - XBRL Taxonomy Extension Label Linkbase Document.

Exhibit 101.PRE - XBRL Taxonomy Extension Presentation Linkbase Document.

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:

August 8, 2023May 9, 2024

BY:

/S/s/ ELLEN R. GORDON

Ellen R. Gordon

Chairman and Chief

Executive Officer

Date:

August 8, 2023May 9, 2024

BY:

/S/s/ G. HOWARD EMBER, JR.

G. Howard Ember, Jr.

Vice President Finance and

Chief Financial Officer

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