We could not find any results for:
Make sure your spelling is correct or try broadening your search.
Share Name | Share Symbol | Market | Type |
---|---|---|---|
Tootsie Roll Industries | NYSE:TR | NYSE | Common Stock |
Price Change | % Change | Share Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|
-0.18 | -0.61% | 29.43 | 29.80 | 29.41 | 29.73 | 61,695 | 01:00:00 |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
Amendment No. 1
(Mark One)
☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2022
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 or other jurisdiction of | (IRS Employer Identification No.) | |
incorporation or organization) |
7401 South Cicero Avenue, Chicago, Illinois 60629
(Address of principal executive offices) (Zip Code)
Registrant’s Telephone Number: (773) 838-3400
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol | Name of each exchange |
Common Stock — Par Value $.69-4/9 Per Share | TR | New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act: Class B Common Stock — Par Value $.69-4/9 Per Share
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
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). 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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of February 13, 2023, there were outstanding 39,684,473 shares of Common Stock par value $.69-4/9 per share, and 28,606,918 shares of Class B Common Stock par value $.69-4/9 per share.
As of June 30, 2022 the aggregate market value of the Common Stock (based upon the closing price of the stock on the New York Stock Exchange on such date) held by non-affiliates was approximately $611,433,000. Class B Common Stock is not traded on any exchange, is restricted as to transfer or other disposition, but is convertible into Common Stock on a share-for-share basis. Upon such conversion, the resulting shares of Common Stock are freely transferable and publicly traded. Assuming all 28,622,730 shares of outstanding Class B Common Stock were converted into Common Stock, the aggregate market value of Common Stock held by non-affiliates on June 30, 2021 (based upon the closing price of the stock on the New York Stock Exchange on such date) would have been approximately $768,227,000. Determination of stock ownership by non-affiliates was made solely for the purpose of this requirement, and the Registrant is not bound by these determinations for any other purpose.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company’s Definitive Proxy Statement for the Company’s Annual Meeting of Shareholders (the “Proxy Statement”) scheduled to be held on May 1, 2023 are incorporated by reference in Part III of this report.
Explanatory Note
Tootsie Roll Industries, Inc. and its consolidated subsidiaries (the “Company”) is filing this Amendment No. 1 on Form 10-K/A (the “Amendment No. 1”) to its Annual Report on Form 10-K for fiscal year ended December 31, 2022, which was filed with the Securities and Exchange Commission on March 1, 2023 (the “Original Filing”), for the sole purpose of including the auditor’s signature in the auditor’s opinion letter. The signature had been inadvertently omitted.
Except as expressly set forth in the Amendment, the Original Filing has not been amended, updated or otherwise modified. This Amendment No. 1 continues to speak as of the date of the Original Filing, and the Company has not updated the disclosures contained therein to reflect any events that occurred at a date subsequent to the date of the Original Filing. The filing of this Amendment No. 1 is not a representation that any statements contained in the Company’s Form 10-K are true and complete as of any date other than the date of the Original Filing. This Amendment No. 1 should be read in conjunction with the Original Filing.
In addition, the Company’s Chief Executive Officer and Chief Financial Officer have provided new certifications dated as of the date of this filing in connection with this Amendment No. 1 on Form 10-K/A (Exhibit 31.1, 31.2, and 32).
ITEM 8. Financial Statements and Supplementary Data.
Management’s Report on Internal Control Over Financial Reporting
The management of Tootsie Roll Industries, Inc. is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in the Securities Exchange Act of 1934 (SEC) Rule 13a-15(f). Company management conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2022 as required by SEC Rule 13a-15(c). In making this assessment, the Company used the criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Based on the Company’s evaluation under the COSO criteria, Company management concluded that its internal control over financial reporting was effective as of December 31, 2022.
The effectiveness of the Company’s internal control over financial reporting as of December 31, 2022 has been audited by Grant Thornton LLP (PCAOB ID: 248), an independent registered public accounting firm, as stated in their report which is included herein.
3
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
Tootsie Roll Industries, Inc.
Opinions on the financial statements and internal control over financial reporting
We have audited the accompanying consolidated financial position of Tootsie Roll Industries, Inc. (a Virginia corporation) and subsidiaries (the “Company”) as of December 31, 2022 and 2021, and the related consolidated statements of comprehensive earnings, earnings and retained earnings, and cash flows for each of the three years in the period ended December 31, 2022, and the related notes and financial statement schedule(s) included under Item 15(a) (collectively referred to as the “financial statements”). We also have audited the Company’s internal control over financial reporting as of December 31, 2022, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in the 2013 Internal Control—Integrated Framework issued by COSO.
Basis for opinions
The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and limitations of internal control over financial reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles,
4
and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical audit matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Trademark Impairment Assessment
As described in Note 1 and Note 12 to the consolidated financial statements, the Company’s consolidated trademark balance was $175 million at December 31, 2022 which is allocated to the Company’s brands that were purchased. Indefinite-lived trademarks are tested for impairment at least annually. For several trademarks, a
Step 0 approach is used to test for impairment based on relevant qualitative factors, as outlined within Accounting Standards Codifications (ASC) 350-20 and 350-30. For the fair value assessment of certain other trademarks where a Step 0 analysis was not considered appropriate, Step 1 impairment testing is performed annually using discounted cash flows, derived from projected revenue, operating margins and estimated discount rates. The determination of the fair value of the trademarks subjected to a Step 1 impairment test requires management to make significant estimates and assumptions related to forecasts of future revenues, operating margins and discount rates. As disclosed by management, changes in these assumptions could have a significant impact on either the fair value of the trademark, the amount of any trademark impairment charge, or both.
We identified the Step 1 trademark impairment assessment as a critical audit matter, as auditing management’s judgements regarding forecasts of future revenue, operating margin and discount rate involves a high degree of subjectivity.
Our audit procedures related to the Trademark Impairment Assessment included the following, among others:
● | Testing the operating effectiveness of controls relating to management’s impairment tests, including controls over the determination of the fair value of these specific trademarks. Through these tests, we evaluated management’s review controls over the financial projections, including reperformance and approval of the reasonableness of the key assumptions and inputs to the analysis, such as discount rates, growth rates, and key performance indicators such as sales forecast and operating margins. |
● | Testing management’s process for determining the fair value of the trademarks. We considered whether such assumptions were consistent with historical forecasts and operating results for the Company, as well as evidence obtained in other areas of the audit. Additionally, a sensitivity analysis was performed using a Capital Asset Pricing Model in order to evaluate whether the assumptions used in management’s model fell within reasonable ranges based on third-party industry market data. |
5
● | Utilizing a valuation specialist to assist in evaluating the reasonableness of and testing the methodology used in the Company’s discounted cash flow model for the trademarks and certain significant assumptions, including the discount rate. |
/s/ GRANT THORNTON LLP
We have served as the Company’s auditor since 2018.
Chicago, Illinois
March 1, 2023
6
CONSOLIDATED STATEMENTS OF
Earnings and Retained Earnings
TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES | (in thousands except per share data) |
For the year ended December 31, | ||||||||||
| 2022 |
| 2021 |
| 2020 | |||||
Net product sales | $ | 681,440 | $ | 566,043 | $ | 467,427 | ||||
Rental and royalty revenue |
| 5,530 |
| 4,733 |
| 3,636 | ||||
Total revenue |
| 686,970 |
| 570,776 |
| 471,063 | ||||
Product cost of goods sold |
| 452,552 |
| 370,105 |
| 299,710 | ||||
Rental and royalty cost |
| 1,687 |
| 1,430 |
| 992 | ||||
Total costs |
| 454,239 |
| 371,535 |
| 300,702 | ||||
Product gross margin |
| 228,888 |
| 195,938 |
| 167,717 | ||||
Rental and royalty gross margin |
| 3,843 |
| 3,303 |
| 2,644 | ||||
Total gross margin |
| 232,731 |
| 199,241 |
| 170,361 | ||||
Selling, marketing and administrative expenses |
| 121,976 |
| 132,108 |
| 112,117 | ||||
Earnings from operations |
| 110,755 |
| 67,133 |
| 58,244 | ||||
Other income (expense), net |
| (12,614) |
| 18,596 |
| 18,018 | ||||
Earnings before income taxes |
| 98,141 |
| 85,729 |
| 76,262 | ||||
Provision for income taxes |
| 22,249 |
| 20,421 |
| 17,288 | ||||
Net earnings |
| 75,892 |
| 65,308 |
| 58,974 | ||||
Less: net earnings (loss) attributable to noncontrolling interests |
| (45) |
| (18) |
| (21) | ||||
Net earnings attributable to Tootsie Roll Industries, Inc. | $ | 75,937 | $ | 65,326 | $ | 58,995 | ||||
Net earnings attributable to Tootsie Roll Industries, Inc. per share | $ | 1.10 | $ | 0.94 | $ | 0.84 | ||||
Average number of shares outstanding |
| 68,829 |
| 69,438 |
| 70,488 | ||||
Retained earnings at beginning of period | $ | 39,545 | $ | 32,312 | $ | 40,809 | ||||
Net earnings attributable to Tootsie Roll Industries, Inc. |
| 75,937 |
| 65,326 |
| 58,995 | ||||
Cash dividends |
| (24,571) |
| (24,061) |
| (23,739) | ||||
Stock dividends |
| (42,635) |
| (34,032) |
| (43,753) | ||||
Retained earnings at end of period | $ | 48,276 | $ | 39,545 | $ | 32,312 |
(The accompanying notes are an integral part of these statements.)
7
CONSOLIDATED STATEMENTS OF
Comprehensive Earnings
TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES | (in thousands) |
For the year ended December 31, | ||||||||||
| 2022 |
| 2021 |
| 2020 |
| ||||
Net earnings | $ | 75,892 | $ | 65,308 | $ | 58,974 | ||||
Other comprehensive income (loss), before tax: | ||||||||||
Foreign currency translation adjustments |
| 1,087 |
| (301) |
| (1,213) | ||||
Pension and postretirement reclassification adjustments: | ||||||||||
Unrealized gains (losses) for the period on postretirement and pension benefits |
| 3,338 |
| 448 |
| 467 | ||||
Less: reclassification adjustment for (gains) losses to net earnings |
| (826) |
| (1,405) |
| (1,349) | ||||
Unrealized gains (losses) on postretirement and pension benefits |
| 2,512 |
| (957) |
| (882) | ||||
Investments: | ||||||||||
Unrealized gains (losses) for the period on investments |
| (9,909) |
| (4,227) |
| 1,463 | ||||
Less: reclassification adjustment for (gains) losses to net earnings |
| (16) |
| (96) |
| — | ||||
Unrealized gains (losses) on investments |
| (9,925) |
| (4,323) |
| 1,463 | ||||
Derivatives: | ||||||||||
Unrealized gains (losses) for the period on derivatives |
| (251) |
| 1,423 |
| 1,259 | ||||
Less: reclassification adjustment for (gains) losses to net earnings |
| (570) |
| (2,593) |
| 325 | ||||
Unrealized gains (losses) on derivatives |
| (821) |
| (1,170) |
| 1,584 | ||||
Total other comprehensive income (loss), before tax |
| (7,147) |
| (6,751) |
| 952 | ||||
Income tax benefit (expense) related to items of other comprehensive income |
| 1,991 |
| 1,553 |
| (522) | ||||
Total comprehensive earnings | 70,736 | 60,110 | 59,404 | |||||||
Comprehensive earnings (loss) attributable to noncontrolling interests | (45) | (18) | (21) | |||||||
Total comprehensive earnings attributable to Tootsie Roll Industries, Inc. | $ | 70,781 | $ | 60,128 | $ | 59,425 |
(The accompanying notes are an integral part of these statements.)
8
CONSOLIDATED STATEMENTS OF | |
Financial Position | |
TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES | (in thousands) |
Assets
December 31, | |||||||
| 2022 |
| 2021 |
| |||
CURRENT ASSETS: | |||||||
Cash and cash equivalents | $ | 53,270 | $ | 105,840 | |||
Restricted cash | 365 | 386 | |||||
Investments |
| 96,128 |
| 39,968 | |||
Accounts receivable trade, less allowances of $2,335 and $2,281 |
| 58,556 |
| 54,921 | |||
Other receivables |
| 4,299 |
| 3,920 | |||
Inventories: | |||||||
Finished goods and work-in-process |
| 43,595 |
| 31,431 | |||
Raw materials and supplies |
| 40,671 |
| 24,074 | |||
Prepaid expenses |
| 12,144 |
| 7,761 | |||
Total current assets |
| 309,028 |
| 268,301 | |||
PROPERTY, PLANT AND EQUIPMENT, at cost: | |||||||
Land |
| 21,715 |
| 21,704 | |||
Buildings |
| 142,462 |
| 130,158 | |||
Machinery and equipment |
| 467,977 |
| 446,777 | |||
Construction in progress |
| 4,325 |
| 15,344 | |||
Operating lease right-of-use assets |
| 4,703 |
| 7,419 | |||
| 641,182 |
| 621,402 | ||||
Less — accumulated depreciation |
| 429,139 |
| 412,496 | |||
Net property, plant and equipment |
| 212,043 |
| 208,906 | |||
OTHER ASSETS: | |||||||
Goodwill |
| 73,237 |
| 73,237 | |||
Trademarks |
| 175,024 |
| 175,024 | |||
Investments |
| 247,528 |
| 291,175 | |||
Prepaid expenses and other assets |
| 465 |
| 603 | |||
Deferred income taxes |
| 1,454 |
| 1,372 | |||
Total other assets |
| 497,708 |
| 541,411 | |||
Total assets | $ | 1,018,779 | $ | 1,018,618 |
(The accompanying notes are an integral part of these statements.)
9
(in thousands except per share data)
Liabilities and Shareholders’ Equity
December 31, | |||||||
2022 |
| 2021 |
| ||||
CURRENT LIABILITIES: | |||||||
Accounts payable | $ | 25,246 | $ | 14,969 | |||
Bank loans | 1,051 | 939 | |||||
Dividends payable |
| 6,154 |
| 6,042 | |||
Accrued liabilities |
| 54,444 |
| 53,896 | |||
Postretirement health care benefits |
| 658 |
| 616 | |||
Operating lease liabilities | 791 | 1,072 | |||||
Income taxes payable | 1,790 |
| 2,434 | ||||
Total current liabilities |
| 90,134 |
| 79,968 | |||
NONCURRENT LIABILITIES: | |||||||
Deferred income taxes |
| 45,005 |
| 45,461 | |||
Postretirement health care benefits |
| 9,303 |
| 12,619 | |||
Industrial development bonds |
| 7,500 |
| 7,500 | |||
Liability for uncertain tax positions |
| 3,747 |
| 3,415 | |||
Operating lease liabilities | 3,952 | 6,347 | |||||
Deferred compensation and other liabilities |
| 76,256 |
| 94,511 | |||
Total noncurrent liabilities |
| 145,763 |
| 169,853 | |||
TOOTSIE ROLL INDUSTRIES, INC. SHAREHOLDERS’ EQUITY: | |||||||
Common stock, $.69-4/9 par value — 120,000 shares authorized — 39,721 and 39,344, respectively, issued |
| 27,584 |
| 27,322 | |||
Class B common stock, $.69-4/9 par value — 40,000 shares authorized — 28,607 and 27,793, respectively, issued |
| 19,866 |
| 19,300 | |||
Capital in excess of par value |
| 719,606 |
| 709,880 | |||
Retained earnings |
| 48,276 |
| 39,545 | |||
Accumulated other comprehensive loss |
| (30,169) |
| (25,013) | |||
Treasury stock (at cost) — 99 shares and 96 shares, respectively |
| (1,992) |
| (1,992) | |||
Total Tootsie Roll Industries, Inc. shareholders’ equity |
| 783,171 |
| 769,042 | |||
Noncontrolling interests | (289) | (245) | |||||
Total equity | 782,882 | 768,797 | |||||
Total liabilities and shareholders' equity | $ | 1,018,779 | $ | 1,018,618 |
(The accompanying notes are an integral part of these statements.)
10
CONSOLIDATED STATEMENTS OF | |||||||||||
Cash Flows | |||||||||||
TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES | (in thousands) | ||||||||||
For the year ended December 31, | ||||||||||
| 2022 |
| 2021 |
| 2020 |
| ||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||
Net earnings | $ | 75,892 | $ | 65,308 | $ | 58,974 | ||||
Adjustments to reconcile net earnings to net cash provided by operating activities: | ||||||||||
Depreciation |
| 17,668 |
| 17,570 |
| 18,184 | ||||
Deferred income taxes | 1,535 | (1,263) | (279) | |||||||
Amortization of marketable security premiums |
| 5,531 |
| 3,837 |
| 1,404 | ||||
Changes in operating assets and liabilities: | ||||||||||
Accounts receivable |
| (3,073) |
| (14,130) |
| 3,483 | ||||
Other receivables |
| (1,020) |
| (706) |
| 636 | ||||
Inventories |
| (28,415) |
| 3,940 |
| (770) | ||||
Prepaid expenses and other assets |
| 49 |
| 2,622 |
| 2,961 | ||||
Accounts payable and accrued liabilities |
| 10,329 |
| 10,010 |
| 3,849 | ||||
Income taxes payable |
| (4,565) |
| (1,296) |
| 3,012 | ||||
Postretirement health care benefits |
| (804) |
| (1,281) |
| (1,041) | ||||
Deferred compensation and other liabilities |
| (1,076) |
| 687 |
| (15,703) | ||||
Net cash provided by operating activities |
| 72,051 |
| 85,298 |
| 74,710 | ||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||
Capital expenditures |
| (23,356) |
| (31,426) |
| (17,970) | ||||
Repayment of premiums on split dollar life insurance policies | — | 2,514 | 23,527 | |||||||
Purchases of trading securities |
| (1,543) |
| (2,668) |
| (3,183) | ||||
Sales of trading securities | 2,806 | 968 |
| 18,058 | ||||||
Purchase of available for sale securities |
| (96,114) |
| (108,576) |
| (109,816) | ||||
Sale and maturity of available for sale securities |
| 49,618 |
| 47,289 |
| 98,885 | ||||
Net cash (used in) provided by investing activities |
| (68,589) |
| (91,899) |
| 9,501 | ||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||
Shares purchased and retired |
| (31,910) |
| (30,184) |
| (32,055) | ||||
Dividends paid in cash | (24,629) |
| (24,136) |
| (23,810) | |||||
Proceeds from bank loans | 3,989 | 3,792 | 3,902 | |||||||
Repayment of bank loans |
| (3,850) |
| (3,618) |
| (3,883) | ||||
Net cash used in financing activities |
| (56,400) |
| (54,146) |
| (55,846) | ||||
Effect of exchange rate changes on cash | 347 | (283) | (449) | |||||||
Increase (decrease) in cash and cash equivalents |
| (52,591) |
| (61,030) |
| 27,916 | ||||
Cash, cash equivalents and restricted cash at beginning of year |
| 106,226 |
| 167,256 |
| 139,340 | ||||
Cash, cash equivalents and restricted cash at end of year | $ | 53,635 | $ | 106,226 | $ | 167,256 | ||||
Supplemental cash flow information: | ||||||||||
Income taxes paid | $ | 23,884 | $ | 22,855 | $ | 14,503 | ||||
Interest paid | $ | 78 | $ | 6 | $ | 57 | ||||
Stock dividend issued | $ | 70,242 | $ | 64,667 | $ | 63,402 |
(The accompanying notes are an integral part of these statements.)
11
Notes to Consolidated Financial Statements ($ in thousands except per share data)
TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES
NOTE 1—SIGNIFICANT ACCOUNTING POLICIES:
Basis of consolidation:
The consolidated financial statements include the accounts of Tootsie Roll Industries, Inc. and its wholly-owned and majority-owned subsidiaries (the Company), which are primarily engaged in the manufacture and sales of candy products. Non-controlling interests relating to majority-owned subsidiaries are reflected in the consolidated financial statements and all significant intercompany transactions have been eliminated. Certain amounts previously reported have been reclassified to conform to the current year presentation. These reclassifications had no effect on previously reported net earnings.
The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Revenue recognition:
The Company’s revenues, primarily net product sales, principally result 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 product sales revenue in the same period the related product sales are recorded. Such estimates are calculated using historical averages adjusted for any expected changes due to current business conditions and experience. A net product sale is recorded when the Company delivers the product to the customer, or in certain instances, the customer picks up the goods at the Company’s distribution centers, and thereby obtains control of such product. Amounts billed and due from our customers are classified as accounts receivables trade on the balance sheet and require payment on a short-term basis. Accounts receivable are unsecured. Shipping and handling costs of $67,342, $55,289, and $42,593 in 2022, 2021 and 2020, respectively, are included in selling, marketing and administrative expenses. A minor amount of royalty income (less than 0.1% of our consolidated net sales) is also recognized from sales-based licensing arrangements, pursuant to which revenue is recognized as the third-party licensee sales occur. Rental income (less than 1% of our consolidated net sales) is not considered revenue from contracts from customers.
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 has 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, the Company capitalized the present value of the minimum lease payments over the lease terms as a right-of-use asset with an offsetting lease liability. The discount rate used to calculate the present value of the minimum lease payments is typically the Company’s incremental borrowing rate, as the rate implicit in the lease is generally not known or determinable. The lease term includes any noncancelable period for which the Company has the right to use the asset. Currently, all capitalized leases are classified as operating leases and the Company records lease expense on a straight-line basis over the term of the lease.
Cash and cash equivalents:
The Company considers short-term debt securities with an original maturity of three months or less to be cash equivalents. Substantially all cash and cash equivalents are held at a major U.S. money center bank or its foreign branches (Bank of America), or its investment broker affiliate (Merrill Lynch). The Company also holds certificates of deposit (CDs)
12
of U.S. banks selected by this investment broker based on their financial ratings; substantially all such CDs are invested in separate individual banks which are generally not in excess of the Federal Deposit Insurance Corporation (FDIC) limit of $250 per bank. The cash in the Company's U.S. banks (primarily Bank of America) is not fully insured by the FDIC due to the statutory limit of $250. The Company had approximately $5,191 and $4,577 of cash held by it is foreign subsidiaries, principally foreign branches of a U.S. bank (Bank of America), at December 31, 2022 and 2021, respectively. The Company's cash in its foreign bank accounts is also not fully insured.
Investments:
Investments consist of various marketable securities principally corporate bonds, with maturities of generally from
to five years, and variable rate demand notes with interest rates that are generally reset weekly and the security can be “put” back and sold weekly. The Company classifies debt and equity securities as either available for sale or trading. Available for sale debt securities are not actively traded by the Company and are carried at fair value. The Company follows current fair value measurement guidance and unrealized gains and losses on these securities are excluded from earnings and are reported as a separate component of shareholders’ equity, net of applicable taxes, until realized or impaired. Trading securities related to deferred compensation arrangements are carried at fair value with gains or losses included in other income, net. The Company invests in trading securities to economically hedge changes in its deferred compensation liabilities.The Company regularly reviews its investments to determine whether fair value is less than carrying value and, when necessary, makes qualitative assessments considering impairment indicators to evaluate whether investments are impaired. If impaired, the cost basis of the security is written down to fair value. Further information regarding the fair value of the Company’s investments is included in Note 9 of the Company’s Notes to Consolidated Financial Statements.
Derivative instruments and hedging activities:
From time to time, the Company enters into commodity futures and foreign currency forward contracts. Commodity futures are intended and are 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 are 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. Further information regarding derivative instruments and hedging activities is included in Note 10 of the Company’s Notes to Consolidated Financial Statements.
Inventories:
Inventories are stated at lower of cost or net realizable value. The cost of substantially all of the Company’s inventories ($77,083 and $51,355 at December 31, 2022 and 2021, respectively) has been determined by the last-in, first-out (LIFO) method. The excess of current cost over LIFO cost of inventories approximates $34,898 and $21,348 at December 31, 2022 and 2021, respectively. The cost of certain foreign inventories ($7,183 and $4,150 at December 31, 2022 and 2021 respectively) has been determined by the first-in, first-out (FIFO) method. Rebates, discounts and other cash consideration received from vendors related to inventory purchases is reflected as a reduction in the cost of the related inventory item, and is, therefore, reflected in cost of sales when the related inventory item is sold.
Property, plant and equipment:
Depreciation is computed for financial reporting purposes by use of the straight-line method based on useful lives of 20 to 50 years for buildings and 5 to 20 years for machinery and equipment. Depreciation expense was $17,668, $17,570 and $18,184 in 2022, 2021 and 2020, respectively.
13
Carrying value of long-lived assets:
The Company reviews long-lived assets to determine if there are events or circumstances indicating that the amount of the asset reflected in the Company’s balance sheet may not be recoverable. When such indicators are present, the Company compares the carrying value of the long-lived asset, or asset group, to the future undiscounted cash flows of the underlying assets to determine if impairment exists. If applicable, an impairment charge would be recorded to write down the carrying value to its fair value. The determination of fair value involves the use of estimates of future cash flows that involve considerable management judgment and are based upon assumptions about expected future operating performance. The actual cash flows could differ from management’s estimates due to changes in business conditions, operating performance, and economic conditions. No impairment charges of long-lived assets were recorded by the Company during 2022, 2021 or 2020.
Postretirement health care benefits:
The Company provides certain postretirement health care benefits to a group of “grandfathered” corporate office and management employees. The cost of these postretirement benefits is accrued during the employees’ working careers. See Note 7 of the Company’s Notes to Consolidated Financial Statements for additional information. The Company also provided split dollar life benefits to an executive officer. The Company recorded an asset equal to the cumulative insurance premiums paid that will be recovered upon the death of the covered executive officer or earlier under the terms of the plan. During 2021, the Company received $2,514 of previously paid premiums on these insurance policies which was recorded as a reduction to this asset and has now fully recovered all the premiums under the terms of the plan. No premiums were paid in 2022, 2021 or 2020.
Goodwill and indefinite-lived intangible assets:
In accordance with authoritative guidance, goodwill and intangible assets with indefinite lives are not amortized, but rather reviewed and tested for impairment at least annually unless certain interim triggering events or circumstances require more frequent testing. All trademarks have been assessed by management to have indefinite lives because they are expected to generate cash flows indefinitely. Management believes that all assumptions used for the impairment review and testing are consistent with those utilized by market participants performing similar valuations. No impairments of intangibles, including trademarks and goodwill, were recorded in 2022, 2021 or 2020.
Current accounting guidance provides entities an option of performing a qualitative assessment (a "step-zero" test) before performing a quantitative analysis. If the entity determines, on the basis of certain qualitative factors, that it is more-likely-than-not that the intangibles (goodwill and certain trademarks) are not impaired, the entity would not need to proceed to the two step impairment testing process (quantitative analysis) as prescribed in the guidance. During fourth quarter 2022 and 2021, the Company performed a “step zero” test of its goodwill and certain trademarks, and concluded that there was no impairment based on this guidance. For the fair value assessment of certain trademarks where the “step-zero” analysis was not considered appropriate, impairment testing was performed in fourth quarter 2022 and 2021 using discounted cash flows and estimated royalty rates. For these trademarks, holding all other assumptions constant at the test date in 2022, a 100 basis point increase in the discount rate or a 100 basis point decrease in the royalty rate would reduce the fair value of these trademarks by approximately 13% and 10%, respectively. Individually, a 100 basis point increase in the discount rate or a 100 basis point decrease in the royalty rate would not result in a potential impairment as of December 31, 2022.
Income taxes:
Deferred income taxes are recorded and recognized for future tax effects of temporary differences between financial and income tax reporting. The Company records valuation allowances in situations where the realization of deferred tax assets is not more-likely-than-not. The Company periodically reviews assumptions and estimates of the Company’s probable tax obligations and effects on its liability for uncertain tax positions, using informed judgment which may include the use of third-party consultants, advisors and legal counsel, as well as historical experience.
Further information regarding income tax matters are included in Note 4 of the Company’s Notes to Consolidated Financial Statements.
14
Foreign currency translation:
The U.S. dollar is used as the functional currency where a substantial portion of the subsidiary’s business is indexed to the U.S. dollar or where its manufactured products are principally sold in the U.S. All other foreign subsidiaries use the local currency as their functional currency. Where the U.S. dollar is used as the functional currency, foreign currency remeasurements are recorded as a charge or credit to other income, net in the statement of earnings. Where the foreign local currency is used as the functional currency, translation adjustments are recorded as a separate component of accumulated other comprehensive income (loss).
Restricted cash:
Restricted cash comprises certain cash deposits of the Company’s majority-owned Spanish subsidiary with international banks that are pledged as collateral for letters of credit and bank borrowings.
VEBA trust:
The Company maintains 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 made a $5,000 contribution to the VEBA trust in 2022 but no contributions were made to the trust in 2021 or 2020. The Company will continue using the VEBA trust funds to pay the actual cost of such benefits through most or possibly all of 2023. At December 31, 2022 and 2021, the VEBA trust held $3,879 and $3,941, respectively, of aggregate cash and cash equivalents. This asset value is included in prepaid expenses and long-term other assets in the Company’s Consolidated Statement of Financial Position. These assets are categorized as Level 1 within the fair value hierarchy.
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 December 31, 2022 and 2021 was 3.1% and 3.1%, respectively.
Comprehensive earnings:
Comprehensive earnings include net earnings, foreign currency translation adjustments and unrealized gains/losses on commodity and/or foreign currency hedging contracts, available for sale securities and certain postretirement benefit obligations.
Earnings per share:
A dual presentation of basic and diluted earnings per share is not required due to the lack of potentially dilutive securities under the Company’s simple capital structure. Therefore, all earnings per share amounts represent basic earnings per share.
The Class B common stock has essentially the same rights as common stock, except that each share of Class B common stock has ten votes per share (compared to one vote per share of common stock), is not traded on any exchange, is restricted as to transfer and is convertible on a share-for-share basis, at any time and at no cost to the holders, into shares of common stock which are traded on the New York Stock Exchange.
Use of estimates:
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the amounts reported. Estimates are used when accounting for sales discounts, allowances and incentives, product liabilities, assets recorded at fair value, income
15
taxes, depreciation, amortization, employee benefits, contingencies and intangible asset and liability valuations. Actual results may or may not differ from those estimates.
Recently adopted accounting pronouncements:
As of the date of this report, there are no recent accounting pronouncements that have not yet been adopted that Management believes would have a material impact on the Company’s consolidated financial statements.
NOTE 2—ACCRUED LIABILITIES:
Accrued liabilities are comprised of the following:
December 31, | |||||||
| 2022 |
| 2021 |
| |||
Compensation | $ | 12,801 | $ | 10,865 | |||
Other employee benefits |
| 6,893 |
| 8,640 | |||
Taxes, other than income |
| 4,078 |
| 3,574 | |||
Advertising and promotions |
| 21,220 |
| 22,547 | |||
Other |
| 9,452 |
| 8,270 | |||
$ | 54,444 | $ | 53,896 |
NOTE 3—INDUSTRIAL DEVELOPMENT BONDS:
Industrial development bonds are due in 2027. The average floating interest rate, which is reset weekly, was 1.3% and 0.7% in 2022 and 2021, respectively. See Note 9 of the Company’s Notes to Consolidated Financial Statements for fair value disclosures.
NOTE 4—INCOME TAXES:
The domestic and foreign components of pretax income are as follows:
| 2022 |
| 2021 |
| 2020 |
| ||||
Domestic | $ | 84,286 | $ | 77,434 | $ | 69,211 | ||||
Foreign |
| 13,855 |
| 8,295 |
| 7,051 | ||||
$ | 98,141 | $ | 85,729 | $ | 76,262 |
The provision for income taxes is comprised of the following:
16
Significant components of the Company’s net deferred tax liability at year end were as follows:
At December 31, 2022, the Company has benefits related to state tax credit carry-forwards expiring by year as follows: $50 in 2028, $130 in 2029, $212 in 2030, $225 in 2031, $238 in 2032, $211 in 2033, $235 in 2034, $274 in 2035, $235 in 2036 and $237 in 2037. The Company expects that not all the credits will be utilized before their expiration and has provided a valuation allowance for the estimated amounts that will expire. Such valuation allowances were $1,053 and $924 at December 31, 2022 and 2021, respectively.
At December 31, 2022, the amounts of the Company’s Spanish subsidiary loss carry-forwards expiring by year are as follows: $270 in 2026, $57 in 2027, $171 in 2028, $98 in 2029, $296 in 2030, $394 in 2031, $297 in 2032, $120 in 2033, $415 in 2034, $524 in 2035, $761 in 2036, $388 in 2037, $186 in 2038, $151 in 2039 and $369 in 2040. A full valuation allowance has been provided for all of these Spanish loss carry-forwards as the Company expects that the losses will not be utilized before their expiration.
The effective income tax rate differs from the statutory rate as follows:
17
As a result of the 2017 Tax Cuts and Jobs Act, the Company does not assert permanent reinvestment of its foreign subsidiaries earnings.
At December 31, 2022 and 2021, the Company had unrecognized tax benefits of $3,392 and $3,133, respectively. Included in this balance is $1,734 and $1,547, respectively, of unrecognized tax benefits that, if recognized, would favorably affect the annual effective income tax rate. As of December 31, 2022 and 2021, $355 and $282, respectively, of interest and penalties were included in the liability for uncertain tax positions.
A reconciliation of the beginning and ending balances of the total amounts of unrecognized tax benefits is as follows:
The Company recognizes interest and penalties related to unrecognized tax benefits in the provision for income taxes on the Consolidated Statements of Earnings and Retained Earnings.
The Company is subject to taxation in the U.S. and various state and foreign jurisdictions, primarily Canada and Mexico. The Company generally remains subject to examination by U.S. federal, state and foreign tax authorities for the years 2019 through 2021. With few exceptions, the Company is no longer subject to examinations by tax authorities for the years 2018 and prior.
NOTE 5—SHARE CAPITAL AND CAPITAL IN EXCESS OF PAR VALUE:
Capital in |
| ||||||||||||||||||
Class B | Excess |
| |||||||||||||||||
Common Stock | Common Stock | Treasury Stock | of Par |
| |||||||||||||||
| Shares |
| Amount |
| Shares |
| Amount |
| Shares |
| Amount |
| Value |
| |||||
(000’s) | (000’s) | (000’s) |
| ||||||||||||||||
Balance at December 31, 2019 |
| 38,836 |
| 26,969 |
| 26,287 |
| 18,254 |
| 90 |
| (1,992) |
| 696,059 | |||||
Issuance of 3% stock dividend |
| 1,157 |
| 804 |
| 787 |
| 547 |
| 3 |
| — |
| 42,244 | |||||
Conversion of Class B common shares to common shares |
| 62 |
| 43 |
| (62) |
| (43) |
| — |
| — |
| — | |||||
Purchase and retirement of common shares |
| (982) |
| (682) |
| — |
| — |
| — |
| — |
| (31,373) | |||||
Balance at December 31, 2020 |
| 39,073 |
| 27,134 |
| 27,012 |
| 18,758 |
| 93 |
| (1,992) |
| 706,930 | |||||
Issuance of 3% stock dividend |
| 1,163 |
| 807 |
| 810 |
| 562 |
| 3 |
| — |
| 32,495 | |||||
Conversion of Class B common shares to common shares |
| 29 |
| 20 |
| (29) |
| (20) |
| — |
| — |
| — | |||||
Purchase and retirement of common shares |
| (921) |
| (639) |
| — |
| — |
| — |
| — |
| (29,545) | |||||
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 |
| 19 |
| 13 |
| (19) |
| (13) |
| — |
| — |
| — | |||||
Purchase and retirement of common shares |
| (818) |
| (568) |
| — |
| — |
| — |
| — |
| (31,342) | |||||
Balance at December 31, 2022 |
| 39,721 | $ | 27,584 |
| 28,607 | $ | 19,866 |
| 99 | $ | (1,992) | $ | 719,606 |
18
Average shares outstanding and all per share amounts included in the financial statements and notes thereto have been adjusted retroactively to reflect annual three percent stock dividends.
While the Company does not have a formal or publicly announced Company common stock purchase program, the Company’s board of directors periodically authorizes a dollar amount for such share purchases.
Based upon this policy, shares were purchased and retired as follows:
| Total Number of Shares |
|
| |||
Year | Purchased (000’s) | Average Price Paid Per Share |
| |||
2022 |
| 818 | $ | 38.98 | ||
2021 |
| 921 | $ | 32.76 | ||
2020 |
| 982 | $ | 32.59 |
NOTE 6—OTHER INCOME, NET:
Other income, net is comprised of the following:
| 2022 |
| 2021 |
| 2020 |
| ||||
Interest and dividend income | $ | 2,641 | $ | 2,740 | $ | 4,005 | ||||
Gains (losses) on trading securities relating to deferred compensation plans |
| (17,263) |
| 14,207 |
| 12,519 | ||||
Interest expense |
| (104) |
| (46) |
| (164) | ||||
Foreign exchange gains |
| 1,307 |
| 667 |
| 534 | ||||
Capital gains (losses) |
| 121 |
| (286) |
| (6) | ||||
Miscellaneous, net |
| 684 |
| 1,314 |
| 1,130 | ||||
$ | (12,614) | $ | 18,596 | $ | 18,018 |
NOTE 7—EMPLOYEE BENEFIT PLANS:
Pension plans:
The Company sponsors a defined contribution pension plan covering certain non-union employees with over one year of credited service. The Company’s policy is to fund pension costs accrued based on compensation levels. Total expense for this plan for 2022, 2021 and 2020 approximated $2,682, $3,010 and $2,772, respectively. The Company also maintains certain defined contribution 401K profit sharing and retirement plans. Company contributions in 2022, 2021 and 2020 to these plans were $3,265, $3,201 and $2,766 respectively.
The Company also contributes to a multi-employer defined benefit pension plan for certain of its union employees under a collective bargaining agreement which is as follows:
Plan name: Bakery and Confectionery Union and Industry International Pension Fund (Plan)
Employer Identification Number and plan number: 52-6118572, plan number 001
Funded Status as of the most recent year available: 48.50% funded as of January 1, 2021
The Company’s contributions to such plan: $3,508, $3,118 and $2,850 in 2022, 2021 and 2020, respectively
Plan status: Critical and declining for the plan year beginning January 1, 2022 (most recent date information is available)
Beginning in 2012, the Company has received periodic notices from the 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
19
rehabilitation was adopted by the trustees of the Plan in 2012. Beginning in 2015, the Plan was reclassified to “critical and declining status”, as defined by the PPA and PBGC, for the plan year beginning January 1, 2015. A designation of “critical and declining status” implies that the Plan is expected to become insolvent in the next 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 2021 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 $104,300, $99,300 and $99,800 if it had withdrawn from the Plan during 2021, 2020 and 2019 respectively. The Plan will not have updated actuarial and withdrawal liability information until second quarter 2023. 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 continues, requires that employer contributions include 5% compounded annual surcharge increases each year for an unspecified period of time beginning January 2013 (in addition to the 5% interim surcharge initiated 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 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 consenting agreement by March 31, 2021. During 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 2022, 2021 and 2020 was $3,510, $3,156 and $2,866, respectively. The aforementioned expense includes surcharges of $1,237, $1,112 and $1,010 in 2022, 2021 and 2020, respectively, as required under the plan of rehabilitation, as amended.
The Company is currently unable to determine the ultimate outcome of the above discussed matter and therefore is unable to determine the effects on its consolidated financial statements, but the ultimate outcome or the effects of any modifications to the current rehabilitation plan could be material to its consolidated results of operations or cash flows in one or more future periods.
Deferred compensation:
The Company sponsors three deferred compensation plans for selected executives and other employees: (i) the Excess Benefit Plan, which restores retirement benefits lost due to IRS limitations on contributions to tax-qualified plans, (ii) the Supplemental Plan, which allows eligible employees to defer the receipt of eligible compensation until designated future dates and (iii) the Career Achievement Plan, which provides a deferred annual incentive award to selected executives. Participants in these plans earn a return on amounts due them based on several investment options, which mirror returns on underlying investments (primarily mutual funds). The Company economically hedges its obligations under the plans by investing in the actual underlying investments. These investments are classified as trading securities and are carried at fair value. At December 31, 2022 and 2021, these investments totaled $71,208 and $89,736, respectively. All gains and losses and related investment income from these investments, which are recorded in other income, net, are equally offset by corresponding increases and decreases in the Company’s deferred compensation liabilities.
Postretirement health care benefit plans:
The Company maintains a post-retirement health benefits plan for a group of “grandfathered” corporate employees. The plan, as amended in 2013, generally limited future annual cost increases in health benefits to 3%, restricted this benefit to current employees and retirees with long-term service with the Company, and eliminated all post-retirement benefits for future employees effective April 1, 2014. Post-retirement benefits liabilities (as amended) were $9,961 and $13,235 at December 31, 2022 and 2021, respectively.
Amounts recognized in accumulated other comprehensive loss (pre-tax) at December 31, 2022 are as follows:
Prior service credit |
| $ | — |
Net actuarial gain |
| (4,452) | |
Net amount recognized in accumulated other comprehensive loss | $ | (4,452) |
20
The changes in the accumulated postretirement benefit obligation at December 31, 2022 and 2021 consist of the following:
The actuarial (gain) in 2022 is attributable to an increase in the discount rate, resulting in a (gain). The actuarial (gain) in 2021 is attributable to an increase in the discount rate, resulting in a (gain), partially offset by updated mortality projections for the year ended December 31, 2021, resulting in a loss.
Net periodic postretirement benefit cost (income) included the following components:
The Company estimates future benefit payments will be $658, $663, $677, $688 and $696 in each year beginning in 2023 through 2027, respectively, and a total of $3,543 in 2028 through 2032.
NOTE 8—SEGMENT AND GEOGRAPHIC INFORMATION:
The Company operates as a single reportable segment encompassing the manufacture and sale of confectionery products. Its principal manufacturing operations are located in the United States and Canada, and its principal market is the United States. The Company also manufactures confectionery products in Mexico, primarily for sale in Mexico, and exports products to Canada and other countries worldwide.
The following geographic data includes net product sales summarized on the basis of the customer location and long-lived assets based on their physical location:
Sales revenues from Wal-Mart Stores, Inc. aggregated approximately 23.0%, 22.7%, and 23.5% of net product sales during the year ended December 31, 2022, 2021 and 2020, respectively. Sales revenues from Dollar Tree, Inc. (which includes Family Dollar which was acquired by Dollar Tree) aggregated approximately 12.4%, 12.1%, and 11.7% of net product sales during the year ended December 31, 2022, 2021 and 2020, respectively. Some of the aforementioned sales to Wal-Mart and Dollar Tree are sold to McLane Company, a large national grocery wholesaler, which services and
21
delivers certain of the Company’s products to Wal-Mart, Dollar Tree and other retailers in the U.S.A. Net product sales revenues from McLane, which includes these Wal-Mart and Dollar Tree sales as well as sales and deliveries to other Company customers, were 20.4% in 2022 and 21.0% in 2021 and 22.1% in 2020. At December 31, 2022 and 2021, the Company’s three largest customers discussed above accounted for approximately 37% and 36% of total accounts receivable, respectively.
NOTE 9—FAIR VALUE MEASUREMENTS:
Current accounting guidance defines fair value as the price that would be received in 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 December 31, 2022 and 2021, the Company held certain financial assets that are required to be measured at fair value on a recurring basis. These include derivative hedging instruments related to the foreign currency forward contracts and purchase of certain raw materials, investments in trading securities and available for sale securities. The Company’s available for sale and trading securities principally consist of corporate bonds and variable rate demand notes.
The fair value of the Company’s industrial revenue development bonds at December 31, 2022 and 2021 were valued using Level 2 inputs which approximates the carrying value of $7,500 for both periods. Interest rates on these bonds reset weekly based on current market conditions.
The following tables present information about the Company’s financial assets and liabilities measured at fair value as of December 31, 2022 and 2021, and indicate the fair value hierarchy and the valuation techniques utilized by the Company to determine such fair value:
Estimated Fair Value December 31, 2021 |
| ||||||||||||
Total | Input Levels Used |
| |||||||||||
| Fair Value |
| Level 1 |
| Level 2 |
| Level 3 |
| |||||
Cash and equivalents | $ | 105,840 | $ | 105,840 | $ | — | $ | — | |||||
Available for sale securities |
| 241,407 |
| 1,282 |
| 240,125 |
| — | |||||
Foreign currency derivatives |
| 426 |
| — |
| 426 |
| — | |||||
Commodity derivatives |
| 124 |
| 124 |
| — |
| — | |||||
Trading securities |
| 89,736 |
| 76,196 |
| 13,540 |
| — | |||||
Total assets measured at fair value | $ | 437,533 | $ | 183,442 | $ | 254,091 | $ | — |
Available for sale securities which utilize Level 2 inputs consist primarily of corporate bonds and variable rate demand notes, which are valued based on quoted market prices or alternative pricing sources with reasonable levels of price transparency.
22
A summary of the aggregate fair value, gross unrealized gains, gross unrealized losses, realized losses and amortized cost basis of the Company’s investment portfolio by major security type is as follows:
December 31, 2021 |
| |||||||||||||
Amortized | Fair | Unrealized |
| |||||||||||
Available for Sale: |
| Cost |
| Value |
| Gains |
| Losses |
|
| ||||
Municipal bonds | $ | 542 | $ | 536 | $ | — | $ | (6) | ||||||
Variable rate demand notes | — | — | — | — | ||||||||||
Corporate bonds |
| 238,045 |
| 236,332 |
| — |
| (1,713) | ||||||
Government securities |
| 1,271 |
| 1,282 | 11 |
| — | |||||||
Certificates of deposit |
| 3,246 | 3,257 | 11 | — | |||||||||
$ | 243,104 | $ | 241,407 | $ | 22 | $ | (1,719) |
NOTE 10—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 Consolidated Statements of Financial Position. Derivative assets are recorded in other receivables and derivative liabilities are recorded in accrued liabilities. The Company uses either hedge accounting or mark-to-market accounting for its derivative instruments. 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. As of December 31, 2022 and 2021, all derivative instruments are accounted for using hedge accounting.
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 $10 of this accumulated comprehensive gain is expected to be charged to earnings in 2023. Approximately $282 in accumulated other comprehensive loss for foreign currency derivatives is expected to be reclassified to other income, net in 2023.
23
The following table summarizes the Company’s outstanding derivative contracts and their effects on its Consolidated Statements of Financial Position at December 31, 2022 and 2021:
December 31, 2021 |
| |||||||||
| Notional |
|
|
| ||||||
Amounts | Assets | Liabilities |
| |||||||
Derivatives designated as hedging instruments: | ||||||||||
Foreign currency derivatives | $ | 6,729 | $ | 426 | $ | — | ||||
Commodity derivatives |
| 6,012 |
| 231 |
| (107) | ||||
Total derivatives | $ | 657 | $ | (107) |
The effects of derivative instruments on the Company’s Consolidated Statement of Earnings, Comprehensive Earnings and Retained Earnings for year ended December 31, 2022 and 2021 are as follows:
For Year Ended December 31, 2021 |
| |||||||||
|
|
| Gain (Loss) |
| ||||||
Gain (Loss) | on Amount Excluded |
| ||||||||
Gain (Loss) | Reclassified from | from Effectiveness |
| |||||||
Recognized | Accumulated OCI | Testing Recognized |
| |||||||
in OCI | into Earnings | in Earnings |
| |||||||
Foreign currency derivatives | $ | 93 | $ | 445 | $ | — | ||||
Commodity derivatives |
| 1,330 |
| 2,148 |
| — | ||||
Total | $ | 1,423 | $ | 2,593 | $ | — |
24
NOTE 11—ACCUMULATED OTHER COMPREHENSIVE LOSS:
The following table sets forth information with respect to accumulated other comprehensive earnings (loss):
|
|
|
|
| Accumulated | |||||||||||||
Foreign | Foreign | Postretirement | Other | |||||||||||||||
Currency | Currency | Commodity | and Pension | Comprehensive | ||||||||||||||
Translation | Investments | Derivatives | Derivatives | Benefits | Earnings (Loss) | |||||||||||||
Balance at December 31, 2020 | $ | (24,581) | $ | 1,992 | $ | 589 | $ | 713 | $ | 1,472 | $ | (19,815) | ||||||
Other comprehensive earnings (loss) before reclassifications | (301) | (3,205) | 70 | 1,009 | 332 | (2,095) | ||||||||||||
Reclassifications from accumulated other comprehensive loss | — | (73) | (337) | (1,628) | (1,065) | (3,103) | ||||||||||||
Other comprehensive earnings (loss) net of tax | (301) | (3,278) | (267) | (619) | (733) | (5,198) | ||||||||||||
Balance at December 31, 2021 | $ | (24,882) | $ | (1,286) | $ | 322 | $ | 94 | $ | 739 | $ | (25,013) | ||||||
Other comprehensive earnings (loss) before reclassifications | 1,087 | (7,511) | (368) | 177 | 2,529 | (4,086) | ||||||||||||
Reclassifications from accumulated other comprehensive loss | — | (12) | (169) | (263) | (626) | (1,070) | ||||||||||||
Other comprehensive earnings (loss) net of tax | 1,087 | (7,523) | (537) | (86) | 1,903 | (5,156) | ||||||||||||
Balance at December 31, 2022 | $ | (23,795) | $ | (8,809) | $ | (215) | $ | 8 | $ | 2,642 | $ | (30,169) |
The amounts reclassified from accumulated other comprehensive income (loss) consisted of the following:
NOTE 12—GOODWILL AND INTANGIBLE ASSETS:
All of the Company’s intangible indefinite-lived assets are trademarks.
The changes in the carrying amount of trademarks for 2022 and 2021 were as follows:
| 2022 |
| 2021 | ||||
Original cost | $ | 193,767 | $ | 193,767 | |||
Accumulated impairment losses as of January 1 |
| (18,743) |
| (18,743) | |||
Balance at January 1 | $ | 175,024 | $ | 175,024 | |||
Current year impairment losses |
|
| |||||
Balance at December 31 | $ | 175,024 | $ | 175,024 | |||
Accumulated impairment losses as of December 31 | $ | (18,743) | $ | (18,743) |
The fair value of indefinite-lived intangible assets was primarily assessed using the present value of estimated future cash flows and relief-from-royalty method.
25
The Company has no accumulated impairment losses of goodwill.
NOTE 13—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 19 years. Operating lease cost totaled $979 and $1,068 for twelve months 2022 and 2021, respectively. Cash paid for operating lease liabilities is substantially the same as operating lease cost and is presented in cash flows from operating activities. As of December 31, 2022 and 2021, operating lease right-of-use assets were $4,703 and $7,419, respectively, and operating lease liabilities were $4,743 and $7,419, respectively. The weighted-average remaining lease term related to these operating leases was 15.9 years and 16.9 years as of December 31, 2022 and 2021, respectively. The weighted-average discount rate related to the Company’s operating leases was 3.3% and 2.3% as of December 31, 2022 and 2021, respectively. Maturities of operating lease liabilities at December 31, 2022 are as follows: $654 in 2023, $154 in 2024, $159 in 2025, $153 in 2026 and $3,623 in 2027 through 2041.
The Company, as lessor, rents certain commercial real estate to third party lessees. The December 31, 2022 and 2021 cost related to these leased properties was $51,370 and $51,384, respectively, and the accumulated depreciation related to these leased properties was $16,903 and $15,844, respectively. Terms of certain such leases, including options, may be extended for up to approximately fifty-eight 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 the twelve months of 2022 and 2021 was $4,934 and $4,223, respectively, and is classified in cash flows from operating activities.
26
ITEM 15. Exhibits, Financial Statement Schedules.
INDEX TO EXHIBITS
27
32 | ||||
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. | |||
101.SCH | XBRL Taxonomy Extension Schema Document. | |||
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document. | |||
101.LAB | XBRL Taxonomy Extension Label Linkbase Document. | |||
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document. | |||
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document. | |||
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. |
*Management compensation plan or arrangement.
29
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, Tootsie Roll Industries, Inc., has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
TOOTSIE ROLL INDUSTRIES, INC. | ||
By: | /s/ Ellen R. Gordon | |
Ellen R. Gordon, Chairman of the Board of Directors and Chief Executive Officer | ||
Date: | March 8, 2023 |
30
1 Year Tootsie Roll Industries Chart |
1 Month Tootsie Roll Industries Chart |
It looks like you are not logged in. Click the button below to log in and keep track of your recent history.
Support: +44 (0) 203 8794 460 | support@advfn.com
By accessing the services available at ADVFN you are agreeing to be bound by ADVFN's Terms & Conditions