Docoh
Loading...

TR Tootsie Roll Industries

Filed: 5 May 21, 4:01pm

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 March 31, 2021

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)

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

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

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

`

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

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

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date (March 31, 2021).

Class

Outstanding

Common Stock, $0.69-4/9 par value

40,002,011

Class B Common Stock, $0.69-4/9 par value

27,821,488

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 $0.69-4/9 per share

TR

New York Stock Exchange

TOOTSIE ROLL INDUSTRIES, INC.

MARCH 31, 2021

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

8-15

Item 2.

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

16-21

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

21

Item 4.

Controls and Procedures

21

Part II —

Other Information

Item 1.

Legal Proceedings

22

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

22

Item 6.

Exhibits

22

Signatures

23

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. See “Forward-Looking Statements” under Part I — Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Quarterly Report on Form 10-Q.

2

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

TOOTSIE ROLL INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

(in thousands) (Unaudited)

March 31, 2021

December 31, 2020

March 31, 2020

ASSETS

CURRENT ASSETS:

Cash and cash equivalents

   

$

136,291

    

$

166,841

    

$

139,067

Restricted cash

399

415

373

Investments

42,396

42,090

77,510

Accounts receivable trade, less allowances of $1,672, $1,694 and $1,887

34,620

41,209

36,006

Other receivables

3,183

3,894

3,446

Inventories:

Finished goods and work-in-process

42,166

35,583

46,683

Raw materials and supplies

26,111

23,996

24,974

Prepaid expenses

7,166

6,844

6,231

Total current assets

292,332

320,872

334,290

PROPERTY, PLANT AND EQUIPMENT, at cost:

Land

21,711

21,738

21,627

Buildings

123,836

123,883

122,598

Machinery and equipment

421,364

422,506

414,526

Construction in progress

19,575

14,347

7,669

Operating lease right-of-use assets

653

���

858

1,388

587,139

583,332

567,808

Less - accumulated depreciation

399,566

396,004

381,850

Net property, plant and equipment

187,573

187,328

185,958

OTHER ASSETS:

Goodwill

73,237

73,237

73,237

Trademarks

175,024

175,024

175,024

Investments

243,749

220,020

153,287

Split dollar officer life insurance

2,514

2,514

26,042

Prepaid expenses and other assets

3,557

4,525

7,555

Deferred income taxes

1,005

1,038

534

Total other assets

499,086

476,358

435,679

Total assets

$

978,991

$

984,558

$

955,927

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

3

(in thousands except per share data) (Unaudited)

March 31, 2021

December 31, 2020

March 31, 2020

LIABILITIES AND SHAREHOLDERS’ EQUITY

CURRENT LIABILITIES:

Accounts payable

   

$

14,275

    

$

13,025

    

$

15,991

Bank loans

965

832

781

Dividends payable

168

5,948

160

Accrued liabilities

43,421

45,099

38,424

Postretirement health care benefits

544

544

598

Operating lease liabilities

611

780

1,063

Deferred compensation

-

-

16,751

Income taxes payable

5,957

3,793

3,418

Total current liabilities

65,941

70,021

77,186

NONCURRENT LIABILITIES:

Deferred income taxes

47,636

47,900

45,755

Postretirement health care benefits

12,947

12,943

13,206

Industrial development bonds

7,500

7,500

7,500

Liability for uncertain tax positions

3,483

3,351

3,697

Operating lease liabilities

42

78

325

Deferred compensation and other liabilities

82,856

79,665

56,737

Total noncurrent liabilities

154,464

151,437

127,220

TOOTSIE ROLL INDUSTRIES, INC. SHAREHOLDERS’ EQUITY:

Common stock, $.69-4/9 par value - 120,000 shares authorized; 40,002, 39,073 and 39,769, respectively, issued

27,779

27,134

27,617

Class B common stock, $.69-4/9 par value - 40,000 shares authorized; 27,821, 27,012 and 27,037, respectively, issued

19,320

18,758

18,776

Capital in excess of par value

732,165

706,930

729,673

Retained earnings

3,121

32,312

3,197

Accumulated other comprehensive loss

(21,577)

(19,815)

(25,539)

Treasury stock (at cost) - 96, 93 and 93 shares, respectively

(1,992)

(1,992)

(1,992)

Total Tootsie Roll Industries, Inc. shareholders’ equity

758,816

763,327

751,732

Noncontrolling interests

(230)

(227)

(211)

Total equity

758,586

763,100

751,521

Total liabilities and shareholders’ equity

$

978,991

$

984,558

$

955,927

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

4

TOOTSIE ROLL INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF

EARNINGS AND RETAINED EARNINGS

(in thousands except per share amounts) (Unaudited)

Quarter Ended

March 31, 2021

March 31, 2020

Net product sales

   

$

101,795

     

$

102,803

Rental and royalty revenue

1,434

958

Total revenue

103,229

103,761

Product cost of goods sold

65,565

66,443

Rental and royalty cost

445

302

Total costs

66,010

66,745

Product gross margin

36,230

36,360

Rental and royalty gross margin

989

656

Total gross margin

37,219

37,016

Selling, marketing and administrative expenses

26,809

16,272

Earnings from operations

10,410

20,744

Other income (loss), net

3,816

(5,494)

Earnings before income taxes

14,226

15,250

Provision for income taxes

3,463

3,274

Net earnings

10,763

11,976

Less: net earnings (loss) attributable to noncontrolling interests

(4)

(6)

Net earnings attributable to Tootsie Roll Industries, Inc.

$

10,767

$

11,982

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

$

0.16

$

0.17

Dividends per share *

$

0.09

$

0.09

Average number of shares outstanding

67,852

68,845

Retained earnings at beginning of period

$

32,312

$

40,809

Net earnings attributable to Tootsie Roll Industries, Inc.

10,767

11,982

Cash dividends

(5,925)

(5,841)

Stock dividends

(34,033)

(43,753)

Retained earnings at end of period

$

3,121

$

3,197

*Does not include 3% stock dividend to shareholders of record on 3/5/21 and 3/3/20.

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

5

TOOTSIE ROLL INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE EARNINGS

(in thousands except per share amounts) (Unaudited)

Quarter Ended

March 31, 2021

March 31, 2020

Net earnings

   

$

10,763

    

$

11,976

Other comprehensive income (loss), before tax:

Foreign currency translation adjustments

(397)

(3,674)

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

(351)

(338)

Unrealized gains (losses) on postretirement and pension benefits

(351)

(338)

Investments:

Unrealized gains (losses) for the period on investments

(1,155)

(1,091)

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

-

-

Unrealized gains (losses) on investments

(1,155)

(1,091)

Derivatives:

Unrealized gains (losses) for the period on derivatives

476

(961)

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

(771)

253

Unrealized gains (losses) on derivatives

(295)

(708)

Total other comprehensive income (loss), before tax

(2,198)

(5,811)

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

436

517

Total comprehensive earnings

9,001

6,682

Comprehensive earnings (loss) attributable to noncontrolling interests

(4)

(6)

Total comprehensive earnings attributable to Tootsie Roll Industries, Inc.

$

9,005

$

6,688

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

6

TOOTSIE ROLL INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands) (Unaudited)

Quarter Ended

March 31, 2021

March 31, 2020

CASH FLOWS FROM OPERATING ACTIVITIES:

Net earnings

   

$

10,763

    

$

11,976

Adjustments to reconcile net earnings to net cash used in operating activities:

Depreciation

4,365

4,647

Deferred income taxes

174

(1,013)

Amortization of marketable security premiums

739

217

Changes in operating assets and liabilities:

Accounts receivable

6,326

8,205

Other receivables

487

(197)

Inventories

(8,883)

(13,676)

Prepaid expenses and other assets

572

172

Accounts payable and accrued liabilities

(1,204)

1,422

Income taxes payable

2,295

2,983

Postretirement health care benefits

(347)

(276)

Deferred compensation and other liabilities

50

121

Net cash provided by operating activities

15,337

14,581

CASH FLOWS FROM INVESTING ACTIVITIES:

Capital expenditures

(3,787)

(3,737)

Purchases of trading securities

(1,835)

(2,287)

Sales of trading securities

582

380

Purchase of available for sale securities

(30,031)

(21,312)

Sale and maturity of available for sale securities

8,543

35,217

Net cash from (used in) investing activities

(26,528)

8,261

CASH FLOWS FROM FINANCING ACTIVITIES:

Shares purchased and retired

(7,423)

(8,809)

Dividends paid in cash

(11,874)

(11,703)

Proceeds from bank loans

1,070

928

Repayment of bank loans

(896)

(880)

Net cash used in financing activities

(19,123)

(20,464)

Effect of exchange rate changes on cash

(252)

(2,278)

Increase (Decrease) in cash and cash equivalents

(30,566)

100

Cash, cash equivalents and restricted cash at beginning of year

167,256

139,340

Cash, cash equivalents and restricted cash at end of quarter

$

136,690

$

139,440

Supplemental cash flow information:

Income taxes paid/(received), net

$

1,233

$

794

Interest paid

$

2

$

23

Stock dividend issued

$

64,667

$

63,402

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

7

TOOTSIE ROLL INDUSTRIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2021

(in thousands except per share amounts) (Unaudited)

Note 1 — Significant Accounting Policies

General Information

Foregoing data has been prepared from the unaudited financial records of Tootsie Roll Industries, Inc. (the “Company”) and in the opinion of Management all adjustments, which are of a normal recurring nature, necessary for a fair statement of the results for the interim period have been reflected. Certain amounts previously reported have been reclassified to conform to the current year presentation. These consolidated financial statements should be read in conjunction with the consolidated financial statements and the related notes included in the Company’s Form 10-K for the year ended December 31, 2020 (the “2020 Form 10-K”).

Results of operations for the period ended March 31, 2021 are not necessarily indicative of results to be expected for the year to end December 31, 2021 because of the seasonal nature of the Company’s operations. Historically, the third quarter has been the Company’s largest net product sales quarter due to pre-Halloween net product sales.

On March 11, 2020, the World Health Organization designated the recent novel coronavirus ("COVID-19") as a global pandemic. The Company continues to actively monitor COVID-19 and its potential impact on our operations and financial results. The impact that COVID-19 will have on our consolidated financial statements throughout 2021 and beyond remains uncertain and ultimately will be dictated by the length and severity of the pandemic and Covid-19 variants, the pace of the “reopening” of the economy and economic recovery, and federal, state, local and foreign government actions taken in response. The effects of Covid-19 pandemic are unprecedented, and therefore the Company is unable to determine its effects on its net product sales and net earnings for the balance of 2021 and beyond.

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 which became effective January 1, 2018. Adjustments for estimated customer cash discounts upon payment, discounts for price adjustments, product returns, allowances, and certain advertising and promotional costs, including consumer coupons, are variable consideration and are recorded as a reduction of net product sales revenue in the same period the related net product sales are recorded. Such estimates are calculated using historical averages adjusted for any expected changes due to current business conditions and experience. A net product sale is recorded when the Company delivers the product to the customer, or in certain instances, the customer picks up the goods at the Company’s distribution center, and thereby obtains control of such product. Amounts billed and due from our customers are classified as accounts receivable trade on the balance sheet and require payment on a short-term basis. Accounts receivable trade are unsecured. Shipping and handling costs of $10,139 and $10,672 in first quarter 2021 and 2020, respectively, are included in selling, marketing and administrative expenses. A minor amount of royalty income (less than 0.2% of our consolidated net product sales) is also recognized from sales-based licensing arrangements, pursuant to which revenue is recognized as the third-party licensee sales occur. Rental income (approximately 1% of our consolidated net product 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 have the right to obtain substantially all of the economic benefits or outputs from the asset. Leases with terms greater than 12 months are classified as either operating or finance leases at the

8

commencement date.  For these leases, we capitalize the present value of the minimum lease payments over the lease term as a right-of-use asset with an offsetting lease liability. The discount rate used to calculate the present value of the minimum lease payments is typically our incremental borrowing rate, as the rate implicit in the lease is generally not known or determinable. The lease term includes any noncancelable period for which the Company has the right to use the asset. Currently, all capitalized leases are classified as operating leases and the Company records rental expense on a straight-line basis over the term of the lease.

Recently Adopted Accounting Pronouncements

In March 2020, the FASB issued ASU 2020-04 which provides optional guidance for a limited time to ease the potential burden in accounting for reference rate reform. In January 2021, the FASB issued ASU 2021-1 which clarified the scope of ASU 2020-04. The new guidance provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts and hedging relationships that reference LIBOR or another reference rate expected to be discontinued due to reference rate reform. These amendments are effective immediately and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022. The Company adopted ASU 2020-04 and ASU 2021-1in first quarter 2021. The adoption of these ASU’s did not have a material impact on the Company’s consolidated financial statements.

In December 2019, the FASB issued ASU No. 2019-12 which is designed to simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. ASU No. 2019-12 is effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Company adopted ASU 2019-12 in first quarter 2021. The adoption of the ASU did not have a material impact on the Company’s consolidated financial statements.

Note 2 — Average Shares Outstanding

The average number of shares outstanding for first quarter 2021 reflects aggregate stock purchases of 234 shares for $7,423 and a 3% stock dividend of 1,970 shares distributed on April 2, 2021. The average number of shares outstanding for first quarter 2020 reflects aggregate stock purchases of 260 shares for $8,809 and a 3% stock dividend of 1,942 shares distributed on April 3, 2020.

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 2017 through 2019. The Company’s consolidated effective income tax rate was 24.3% and 21.5% in first quarter 2021 and 2020, respectively.

9

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

Capital in

 

Class B

Excess

 

Common Stock

Common Stock

Treasury Stock

of Par

 

    

Shares

    

Amount

    

Shares

    

Amount

    

Shares

    

Amount

    

Value

 

(000’s)

(000’s)

(000’s)

 

Balance at December 31, 2020

39,073

$

27,134

 

27,012

$

18,758

 

93

$

(1,992)

$

706,930

Issuance of 3% stock dividend

 

1,163

808

 

809

562

 

3

32,495

Conversion of Class B common shares to common shares

 

 

 

 

 

 

 

Purchase and retirement of common shares and other

 

(234)

 

(163)

 

 

 

 

 

(7,260)

Balance at March 31, 2021

 

40,002

$

27,779

 

27,821

$

19,320

 

96

$

(1,992)

$

732,165

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

803

 

786

547

 

3

42,243

Conversion of Class B common shares to common shares

 

36

 

25

 

(36)

 

(25)

 

 

 

Purchase and retirement of common shares and other

 

(260)

 

(180)

 

 

 

 

 

(8,629)

Balance at March 31, 2020

 

39,769

$

27,617

 

27,037

$

18,776

 

93

$

(1,992)

$

729,673

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 are reflected in the hierarchy assessment disclosed in the table below.

As of March 31, 2021, December 31, 2020 and March 31, 2020, the Company held certain financial assets that are required to be measured at fair value on a recurring basis. These included derivative hedging instruments related to the purchase of certain raw materials and foreign currencies, investments in trading securities and available for sale securities. The Company’s available for sale securities principally consist of corporate bonds.

10

The following table presents information about the Company’s financial assets and liabilities measured at fair value as of March 31, 2021, December 31, 2020 and March 31, 2020 and indicate the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value:

Estimated Fair Value March 31, 2021

Total

Input Levels Used

Fair Value

Level 1

Level 2

Level 3

Cash and cash equivalents

   

$

136,291

    

$

136,291

    

$

-

    

$

-

Available for sale securities

207,874

3,144

204,730

-

Foreign currency forward contracts

755

-

755

-

Commodity futures contracts

670

670

-

-

Trading securities

78,271

65,532

12,739

-

Total assets measured at fair value

$

423,861

$

205,637

$

218,224

$

-

Estimated Fair Value December 31, 2020

Total

Input Levels Used

Fair Value

Level 1

Level 2

Level 3

Cash and cash equivalents

   

$

166,841

    

$

166,841

    

$

-

    

$

-

Available for sale securities

188,282

3,149

185,133

-

Foreign currency forward contracts

778

-

778

-

Commodity futures contracts, net

941

941

-

-

Trading securities

73,828

61,431

 

12,397

-

Total assets measured at fair value

$

430,670

$

232,362

$

198,308

$

-

Estimated Fair Value March 31, 2020

Total

Input Levels Used

Fair Value

Level 1

Level 2

Level 3

Cash and cash equivalents

   

$

139,067

    

$

139,067

    

$

-

    

$

-

Available for sale securities

162,080

3,441

158,639

-

Foreign currency forward contracts

(93)

-

(93)

-

Commodity futures contracts

(480)

(480)

-

-

Trading securities

68,717

41,692

27,025

-

Total assets measured at fair value

$

369,291

$

183,720

$

185,571

$

-

The fair value of the Company’s industrial revenue development bonds at March 31, 2021, December 31, 2020 and March 31, 2020 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.

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

11

commodity derivative instruments as discussed above. Derivatives that qualify for hedge accounting are designated as cash flow hedges by formally documenting the hedge relationships, including identification of the hedging instruments, the hedged items and other critical terms, as well as the Company’s risk management objectives and strategies for undertaking the hedge transaction.

Changes in the fair value of the Company’s cash flow hedges are recorded in accumulated other comprehensive loss, net of tax, and are reclassified to earnings in the periods in which earnings are affected by the hedged item. Substantially all amounts reported in accumulated other comprehensive loss for commodity derivatives are expected to be reclassified to cost of goods sold. Approximately $670 of this accumulated comprehensive gain is expected to be reclassified to earnings in 2021. Approximately $324 and $431 reported in accumulated other comprehensive gain for foreign currency derivatives are expected to be reclassified to other income, net in 2021and 2022, respectively.  

The following table summarizes the Company’s outstanding derivative contracts and their effects on its Condensed Consolidated Statements of Financial Position at March 31, 2021, December 31, 2020 and March 31, 2020:

March 31, 2021

Notional

    

    

    

    

Amounts

Assets

Liabilities

Derivatives designated as hedging instruments:

Foreign currency forward contracts

$

5,593

$

755

$

-

Commodity futures contracts

4,362

675

(5)

Total derivatives

$

1,430

$

(5)

December 31, 2020

Notional

    

    

    

    

Amounts

Assets

Liabilities

Derivatives designated as hedging instruments:

Foreign currency forward contracts

$

6,391

$

778

$

Commodity futures contracts

4,010

 

941

 

Total derivatives

$

1,719

$

-

March 31, 2020

Notional

    

    

    

    

Amounts

Assets

Liabilities

Derivatives designated as hedging instruments:

Foreign currency forward contracts

$

11,342

$

117

$

(210)

Commodity futures contracts

3,955

1

(481)

Total derivatives

$

118

$

(691)

12

The effects of derivative instruments on the Company’s Condensed Consolidated Statements of Earnings and Retained Earnings and the Condensed Consolidated Statements of Comprehensive Earnings for periods ended March 31, 2021 and March 31, 2020 are as follows:

For Quarter Ended March 31, 2021

    

    

    

    

Gain (Loss)

Gain (Loss)

on Amount Excluded

Gain (Loss)

Reclassified from

from Effectiveness

Recognized

Accumulated OCI

Testing Recognized

in OCI

into Earnings

in Earnings

Foreign currency forward contracts

$

79

$

103

$

-

Commodity futures contracts

397

668

-

Total

$

476

$

771

$

-

For Quarter Ended March 31, 2020

    

    

    

    

Gain (Loss)

Gain (Loss)

on Amount Excluded

Gain (Loss)

Reclassified from

from Effectiveness

Recognized

Accumulated OCI

Testing Recognized

in OCI

into Earnings

in Earnings

Foreign currency forward contracts

$

(205)

$

(98)

$

-

Commodity futures contracts

(756)

(155)

-

Total

$

(961)

$

(253)

$

-

13

Note 7 — Pension Plans

Beginning in 2012, the Company received periodic notices from the Bakery, Confectionery, Tobacco Workers and Grain Millers International Union  Pension Plan (Plan), a multi-employer defined benefit pension plan for certain Company union employees, that the Plan’s actuary certified the Plan to be in “critical status”, as defined by the Pension Protection Act (PPA) and the Pension Benefit Guaranty Corporation (PBGC); and that a plan of rehabilitation was adopted by the trustees of the Plan in 2012. Beginning in 2015, the Company received new annual notices that 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 to date 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 $99,300, $99,800 and $81,600 if it had withdrawn from the Plan during 2020, 2019 and 2018, respectively. 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 first quarter 2021 and 2020 was $604 and $685, respectively ($2,866 and $2,961 for twelve months 2020 and 2019, respectively). The aforementioned expense includes surcharges of $213 and $241 for first quarter 2021 and 2020, respectively ($1,010 and $948 for twelve months 2020 and 2019, respectively), as required under the amended plan of rehabilitation.

The Company is currently unable to determine the ultimate outcome of the above discussed matter and therefore is unable to determine the effects on its consolidated financial statements, but the ultimate outcome or the effects of any modifications to the current amended rehabilitation plan could be material to its consolidated results of operations or cash flows in one or more future periods.

14

Note 8 — Accumulated Other Comprehensive Earnings (Loss)

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

    

    

    

    

    

Accumulated

Foreign

Foreign

Postretirement

Other

Currency

Currency

Commodity

and Pension

Comprehensive

Translation

Investments

Derivatives

Derivatives

Benefits

Earnings (Loss)

Balance at December 31, 2020

    

$

(24,581)

$

1,992

$

589

$

713

$

1,472

$

(19,815)

Other comprehensive earnings (loss) before reclassifications

(397)

(876)

61

301

-

(911)

Reclassifications from accumulated other comprehensive loss

-

-

(78)

(506)

(267)

(851)

Other comprehensive earnings (loss) net of tax

(397)

(876)

(17)

(205)

(267)

(1,762)

Balance at March 31, 2021

$

(24,978)

$

1,116

$

572

$

508

$

1,205

$

(21,577)

Balance at December 31, 2019

$

(23,368)

$

882

$

10

$

92

$

2,139

    

$

(20,245)

Other comprehensive earnings (loss) before reclassifications

(3,674)

(827)

(155)

(574)

-

(5,230)

Reclassifications from accumulated other comprehensive loss

-

-

74

118

(256)

(64)

Other comprehensive earnings (loss) net of tax

(3,674)

(827)

(81)

(456)

(256)

(5,294)

Balance at March 31, 2020

$

(27,042)

$

55

$

(71)

$

(364)

$

1,883

$

(25,539)

The amounts reclassified from accumulated other comprehensive income (loss) consisted of the following:

Details about Accumulated Other

Quarter Ended

Location of (Gain) Loss

Comprehensive Income Components

March 31, 2021

March 31, 2020

Recognized in Earnings

Investments

$

-

$

-

Other income, net

Foreign currency derivatives

(103)

98

Other income, net

Commodity derivatives

(668)

155

Product cost of goods sold

Postretirement and pension benefits

(351)

(338)

Other income, net

Total before tax

(1,122)

(85)

Tax (expense) benefit

271

21

Net of tax

$

(851)

$

(64)

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 March 31, 2021 and 2020 was 3.1% and 3.0%, respectively.

Note 11 — Leases

The Company leases certain buildings, land and equipment that are classified as operating leases. These leases have remaining lease terms of up to approximately 3 years.  In the first quarter of 2021 and 2020, operating lease cost and cash paid for operating lease liabilities totaled $258 and $236, respectively, which is classified in cash flows from

15

operating activities.  As of March 31, 2021 and 2020, operating lease right-of-use assets and operating lease liabilities were $653 and $1,388, respectively. The weighted-average remaining lease term related to these operating leases was 1.0 years and 1.6 years as of March 31, 2021 and 2020, respectively. The weighted-average discount rate related to the Company’s operating leases was 3.1% and 3.1% as of March 31, 2021 and 2020, respectively. Maturities of the Company’s operating lease liabilities at March 31, 2021 are as follows: $511 in 2021, $138 in 2022 and $4 in 2023.

The Company, as lessor, rents certain commercial real estate to third-party lessees. The March 31, 2021 and 2020 cost related to these leased properties was $51,402 and $36,368, respectively, and the accumulated depreciation related to these leased properties was $15,001 and $10,433, respectively. Terms of such leases, including renewal options, may be extended for up to sixty 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 first quarter 2021 and 2020 was $1,230 and $737, respectively, and is classified in cash flows from operating activities.

Note 12 — Contingencies

In the ordinary course of business, the Company is, from time to time, subject to a variety of active or threatened legal proceedings and claims. There are also potential claims and employer liability which could result in litigation, including defense costs, relating to the Covid-19 pandemic. While it is not possible to predict the outcome of such matters with certainty, in the Company’s opinion, both individually and in the aggregate, they are not expected to have a material effect on the Company’s financial condition, results of operations or cash flows.

ITEM 2. 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, 2020 (the “2020 Form 10-K”).

Net product sales were $101,795 in first quarter 2021 compared to $102,803 in first quarter 2020, a decrease of $1,008 or 1.0%. Domestic (U.S.) net product sales in first quarter 2021 declined 3.1% compared to the corresponding period in the prior year, however, foreign net product sales, including exports to foreign markets, increased compared to the corresponding period in the prior year. Although the Covid-19 pandemic continued to have some adverse effects on first quarter 2021 net sales, we are continuing to make progress as the economy “reopens”. In the first quarter 2021, the Covid-19 pandemic has continued to curtail and limit access to certain channels of trade where the Company has historically sold its products. Response to this pandemic has resulted in the disruption and changes in lifestyles, shopping habits, daily work routines, and consumer behaviors, all of which have adversely affected planned consumer purchases of the Company’s products for “sharing” and “give away” occasions. Many of the Company’s products are consumed at group events, outings, and other gatherings which have been significantly curtailed or in some cases eliminated due to concern of possible infection or spreading of the Covid-19 virus. Impulse purchases of Company products at retail outlets have also been adversely affected by these changes in consumer behavior. As the economy continues to “reopen” and these adverse effects subside, we have seen improvements in our sales and customer orders. Our second quarter 2021 customer order trend has shown favorable improvement compared to second quarter 2020 when the pandemic had a significant adverse effect on our sales.

Product cost of goods sold were $65,565 in first quarter 2021 compared to $66,443 in first quarter 2020. Product cost of goods sold includes $153 and $(319) of certain deferred compensation expenses (credits) in first quarter 2021 and 2020, respectively. These deferred compensation expenses (credits) principally result from the changes in the market value of investments and investment income from trading securities relating to compensation deferred in previous years and are not reflective of current operating results. Adjusting for the aforementioned, product cost of goods sold decreased from $66,762 in first quarter 2020 to $65,412 in first quarter 2021, a decrease of $1,350 or 2.0%. As a

16

percentage of net product sales, adjusted product cost of goods sold was 64.3% and 64.9% in first quarter 2021 and 2020, respectively, a favorable decrease of 0.6 percentage points. Certain cost and expense reductions, which include Company initiatives to reduce costs, contributed to the reduction of adjusted product cost of goods sold as a percentage of net product sales 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 demands, achieve product quality improvements, increase operational efficiencies and provide value to consumers.

Selling, marketing and administrative expenses were $26,809 in first quarter 2021 compared to $16,272 in first quarter 2020. Selling, marketing and administrative expenses include $3,036 and $(9,056) of certain deferred compensation expenses (credits) in first quarter 2021 and 2020, respectively. As discussed above, these expenses 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 decreased from $25,328 in first quarter 2020 to $23,773 in first quarter 2021, a decrease of $1,555 or 6.1%. As a percentage of net product sales, adjusted selling, marketing and administrative expenses decreased from 24.6% in first quarter 2020 to 23.4% in first quarter 2021, a favorable decrease of 1.2 percentage points as a percent of net product sales. The decrease in adjusted selling, marketing and administrative expenses as a percentage of net product sales in first quarter 2021 reflects the benefits of certain operational changes and expense reduction initiatives, as well as reduced business travel due to the Covid-19 pandemic. Selling, marketing and administrative expenses include $10,139 and $10,672 for customer freight, delivery and warehousing expenses in first quarter 2021 and 2020, respectively, a decrease of $533 or 5.0%. These expenses were 10.0% and 10.4% of net product sales in first quarter 2021 and 2020, respectively, which also contributed to the reduction in adjusted selling, marketing and administrative expenses as a percent of net product sales.

Earnings from operations were $10,410 in first quarter 2021 compared to $20,744 in first quarter 2020. Earnings from operations include $3,189 and $(9,375) of certain deferred compensation expenses (credits) in first quarter 2021 and 2020, respectively, which are discussed above. Adjusting for these deferred compensation costs, expenses and (credits), earnings from operations were $13,599 and $11,369 in first quarter 2021 and 2020, respectively, an increase of $2,230 or 19.6%. As a percentage of net product sales, these adjusted operating earnings were 13.4% and 11.1% in first quarter 2021 and 2020, respectively, a favorable increase of 2.3 percentage points. The increase in adjusted operating earnings in first quarter 2021 principally reflects the benefits of more favorable product cost of goods sold and related better gross profit margins, and reductions in selling, marketing and administrative expenses, excluding certain deferred compensation expenses (credits), as a percentage of net product sales as discussed above.

Management believes the comparisons presented in the preceding paragraphs, after adjusting for changes in deferred compensation, are more reflective of the underlying operations of the Company.

Other income (loss), net was $3,816 in first quarter 2021 compared to $(5,494) in first quarter 2020, a favorable increase of $9,310. Other income (loss), net for first quarter 2021 and 2020 includes net gains (losses) and investment income of $3,189 and $(9,375), respectively, on trading securities which provide an economic hedge of the Company’s deferred compensation liabilities. These changes in trading securities, including mutual fund investments in equity securities, reflect both the overall equity market downturn as of March 31, 2020 in response to Covid-19, and the overall equity market recovery as of March 31, 2021. 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. Other income (loss), net for first quarter 2021 and 2020 includes investment income on available for sale securities of $716 and $1,181 in 2021 and 2020, respectively. Other income (loss), net also includes pre-tax gains on foreign exchange of $33 and $2,510 in first quarter 2021 and 2020, respectively.

 

The consolidated effective tax rates were 24.3% and 21.5% in first quarter 2021 and 2020, respectively. Lower state income taxes contributed to the lower effective tax rate in first quarter 2020. On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act was signed into U.S. law. The CARES Act has provided a substantial stimulus and assistance package intended to address the economic impact of the Covid-19 pandemic, including tax relief and government loans, grants and investments. The Canadian government also enacted a stimulus program, Canadian Emergency Wage Subsidy (“CEWS”), to respond to the economic impact of Covid-19 during 2020. The Company’s financial results in first quarter 2021 did reflect some very limited benefits from these

17

government stimulus programs, however, no benefits were realized in first quarter 2020. The Company continues to monitor the effects and related benefits that may result from the above-discussed legislation, the American Rescue Plan Act of 2021 legislation passed in first quarter 2021, and other proposed and enacted stimulus legislation. Based on consultation with its tax advisors, the Company does not believe that it will be eligible for any significant benefits in 2021 under these stimulus programs.

Net earnings attributable to Tootsie Roll Industries, Inc. were $10,767 (after $4 net loss attributed to non-controlling interests) in first quarter 2021 compared to $11,982 (after $6 net loss attributed to non-controlling interests) in first quarter 2020, and earnings per share were $0.16 and $0.17 in first quarter 2021 and 2020, respectively, a decrease of $0.01 per share, or 5.9%. The prior year first quarter 2020 comparative net earnings benefitted from foreign exchange after-tax gains of approximately $1,900,000 ($2,510,000 pre- tax gain) or $0.03 per share, which significantly affects the comparison of 2021 results with 2020. Earnings per share attributable to Tootsie Roll Industries, Inc. for first quarter 2021 benefited from the reduction in average shares outstanding resulting from purchases in the open market by the Company of its common stock. Average shares outstanding decreased from 68,845 at first quarter 2020 to 67,852 at first quarter 2021.

Goodwill and intangibles, principally trademarks, are assessed annually as of December 31 or whenever events or circumstances indicate that the carrying values may not be recoverable from future cash flows. The Company has not identified any triggering events, as defined, or other adverse information that would indicate a material impairment of its goodwill or intangibles in first quarter 2021. The Company’s trademarks have indefinite lives and Company management believes that the adverse effects of the Covid-19 pandemic on net product sales are temporary and do not significantly affect our business model and long-term strategy. Therefore, we do not consider COVID-19 to be a triggering event to accelerate our annual impairments testing. There were no impairments in the comparative first quarter 2020 period or in calendar year 2020. Although Company management has not identified any trigging events at this time relating to its intangibles, the ultimate effects of the Covid-19 pandemic, including possible longer term effects on consumer lifestyles and behavior, could change this assessment in the future, as discussed below and as outlined in the Company’s risk factors discussed on Form 10-K for the year ended December 31, 2020.

Beginning in 2012, the Company received periodic notices from the Bakery, Confectionery, Tobacco Workers and Grain Millers International Union Pension Plan (Plan), a multi-employer defined benefit pension plan for certain Company union employees, that the Plan’s actuary certified the Plan to be in “critical status”, as defined by the Pension Protection Act (PPA) and the Pension Benefit Guaranty Corporation (PBGC); and that a plan of rehabilitation was adopted by the trustees of the Plan in 2012. Beginning in 2015, the Company received new annual notices that the Plan was reclassified to “critical and declining status”, as defined by the PPA and PBGC, for the plan year beginning January 1, 2015, and that the Plan was projected to have an accumulated funding deficiency for the 2017 through 2024 plan years. A designation of “critical and declining status” implies that the Plan is expected to become insolvent in the next 20 years. The Company has continued to receive annual notices each year (2016 to 2021) that this Plan remains in “critical and declining status” and is projected to become insolvent within the next 20 years. These notices have also advised that the Plan trustees were considering the reduction or elimination of certain retirement benefits and may seek assistance from the PBGC. Plans in “critical and declining status” may elect to suspend (or permanently) some benefits payable to all categories of participants, including retired participants, except retirees that are disabled or over the age of 80. Suspensions must be equally distributed and cannot drop below 110% of what would otherwise be guaranteed by the PBGC.  

 

Based on these updated notices, the Plan’s funded percentage (plan investment assets as a percentage of plan liabilities), as defined, were 48.3%, 50.4%, and 51.6% as of the most recent valuation dates available, January 1, 2020, 2019, and 2018, 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, 2020, the funded percentage would be 51.6% (not 48.3%). As of the January 1, 2020 valuation date (most recent valuation available), only 16% of Plan participants were current active employees, 53% 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, 2020 fell 4% from the previous year and 17% over the past two years. When compared to the Plan valuation date of January 1, 2011 (nine years earlier), current active employee participants have

18

declined 49%, whereas participants who were retired or separated from service and receiving benefits increased 4% and participants who were retired or separated from service and entitled to future benefits increased 12%.

The Company has been advised that its withdrawal liability would have been $99,300, $99,800 and $81,600 if it had withdrawn from the Plan during 2020, 2019 and 2018, respectively. The Company’s relative share of the Plan’s contribution base, driven by employer withdrawals, has increased for the last several years, and management believes that this trend could continue indefinitely which will continue to add upward pressure on the Company’s withdrawal liability. In addition, the overall reduction in interest rates in 2020, will increase the value of vested benefits and likely increase the Company’s withdrawal liability for 2021. Based on the above, including the Plan’s projected insolvency in the next 20 years, management believes that the Company’s withdrawal liability will likely increase in future years.

Based on the Company’s updated actuarial study and certain provisions in ERISA and the law relating to withdrawal liability payments, management believes that the Company’s liability would likely be limited to twenty annual payments of $2,958 which have a present value in the range of $34,700 to $49,300 depending on the interest rate used to discount these payments. While the Company’s actuarial consultant does not believe that the Plan will suffer a future mass withdrawal (as defined in the Plan) of participating employers, in the event of a mass withdrawal, the Company’s annual withdrawal payments would theoretically be payable in perpetuity. Based on the Company’s updated actuarial study, the present value of such perpetuities is in the range of $48,500 to $150,900 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 higher withdrawal liability than the above discussed amounts, could be payable to the Plan.

 

The Company and the union concluded a new labor contract in 2018 which requires the Company’s continued participation in this Plan through September 2022. The amended rehabilitation plan, which also continues, requires 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 and therefore be “frozen” at the rates and amounts in effect as of December 31, 2020 provided that the local bargaining union and the Company executed a formal consent agreement by March 31, 2021. The Trustees advised that they have concluded that continuing increases in surcharges would likely have a long-term adverse effect on the solvency of the Plan. The Trustees further concluded that additional 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. 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 first quarter 2021 and 2020 was $604 and $685, respectively ($2,866 and $2,961 for twelve months 2020 and 2019, respectively). The aforementioned expense includes surcharges of $213 and $241 for first quarter 2021 and 2020, respectively ($1,010 and $948 for twelve months 2020 and 2019, respectively), as required under the amended plan of rehabilitation.

Company Management understands that the U.S. American Rescue Plan Act of 2021 legislation passed in first quarter 2021 provides financial assistance to shore up struggling multi-employer plans for many future years. The Company continues to study this legislation to determine its effects on the Plan and Company withdrawal liability. The Company is currently unable to determine the ultimate outcome of the above discussed multi-employer union pension matter, including the effects of the American Rescue Plan legislation, and therefore is unable to determine the effects on its consolidated financial statements, but the ultimate outcome could be material to its consolidated results of operations or cash flows in one or more future periods. See also Note 7 in the Company’s Consolidated Financial Statements on Form 10-K for the year ended December 31, 2020.

The Company continues to actively monitor Covid-19 and its potential impact on our operations and financial results, prioritizing employee health and safety. Because the Company has a sizable investment in marketable securities (see Liquidity and Capital Resources section above) the Company continues to be well positioned financially to respond to any further adverse effects of this pandemic, and Covid-19 variants, in the short-term, as well as for a longer period of time if necessary.

19

LIQUIDITY AND CAPITAL RESOURCES

Net cash flows provided by operating activities were $15,337 and $14,581 in first quarter 2021 and 2020, respectively, a favorable increase of $756. The increase in first quarter 2021 cash flows from operating activities principally reflects changes in inventories partially offset by a decrease in accounts receivable which reflects the timing of net product sales and collections of accounts receivable trade, as well as changes in accounts payable and accrued liabilities, and income taxes payable in the comparative periods.

Net cash from (used in) investing activities was $(26,528) in first quarter 2021 compared to $8,261 in first quarter 2020. Cash flows used in investing activities reflect $30,031 and $21,312 of purchases of available for sale securities during first quarter 2021 and 2020, respectively, and $8,543 and $35,217 of sales and maturities of available for sale securities during first quarter 2021 and 2020, respectively. First quarter 2021 and 2020 investing activities include capital expenditures of $3,787 and $3,737, respectively. Company management has committed approximately $25,000 to a rehabilitation upgrade and expansion of one of its manufacturing plants in the U.S.A. The Company spent approximately $6,000 and $2,000 in 2020 and 2019, respectively. Company management expects cash outlays for this project to approximate $17,000 in 2021. All capital expenditures are 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 $965 and $781 at March 31, 2021 and 2020, respectively, all of which relates to its Spanish subsidiary. The Company had no other outstanding bank borrowings at March 31, 2021.

Financing activities include Company common stock purchases and retirements of $7,423 and $8,809 in first quarter 2021 and 2020, respectively. Cash dividends of $11,874 and $11,703 were paid in first quarter 2021 and 2020, respectively.

The Company’s current ratio (current assets divided by current liabilities) was 4.4 to 1 at March 31, 2021 compared to 4.6 to 1 at December 31, 2020 and 4.3 to 1 at March 31, 2020. Net working capital was $226,391 at March 31, 2021 compared to $250,851 and $257,104 at December 31, 2020 and March 31, 2020, respectively. The aforementioned net working capital amounts are principally reflected in aggregate cash and cash equivalents and short-term investments of $178,687 at March 31, 2021 compared to $208,931 and $216,577 at December 31, 2020 and March 31, 2020, respectively. In addition, long term investments, principally debt securities comprising corporate bonds, were $243,749 at March 31, 2021, as compared to $220,020 and $153,287 at December 31, 2020 and March 31, 2020, respectively. Aggregate cash and cash equivalents and short and long-term investments were $422,436, $428,951, and $369,864, at March 31, 2021, December 31, 2020 and March 31, 2020, respectively. The aforementioned includes $78,271, $73,828, and $68,717 at March 31, 2021, December 31, 2020 and March 31, 2020, 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 quarter 2021 and 2020 were generally used to purchase the Company’s common stock or were replaced with debt securities of similar maturities.

The Company periodically contributes to a VEBA trust, managed and controlled by the Company, to fund the estimated future costs of certain employee health, welfare and other benefits. The Company is currently using these VEBA funds to pay the actual cost of such benefits through most of 2022. The VEBA trust held $7,543, $8,272 and $11,762 of aggregate cash and cash equivalents at March 31, 2021, December 31, 2020 and March 31, 2020, respectively. This asset value is included in prepaid expenses and long-term other assets in the Company’s Consolidated Statement of Financial Position. These assets are categorized as Level 2 within the fair value hierarchy.

ACCOUNTING PRONOUNCEMENTS

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

FORWARD-LOOKING STATEMENTS

This discussion and certain other sections contain forward-looking statements that are based largely on the Company’s current expectations and are made pursuant to the safe harbor provision of the Private Securities Litigation Reform

20

Act of 1995. Forward-looking statements can be identified by the use of words such as “anticipated,” “believe,” “expect,” “intend,” “estimate,” “project,” “plan” and other words of similar meaning in connection with a discussion of future operating or financial performance and are subject to certain factors, risks, trends and uncertainties that could cause actual results and achievements to differ materially from those expressed in the forward-looking statements. Such factors, risks, trends and uncertainties, which in some instances are beyond the Company’s control, include the overall competitive environment in the Company’s industry, changes in assumptions and judgments discussed above under the heading “Significant Accounting Policies and Estimates,” and factors identified and referred to above under the heading “Risk Factors” in this report and under the heading “Risk Factors” in the Company’s 2020 Form 10-K.

The risk factors identified and referred to above, including the effects of the Covid-19 pandemic and variants, are believed to be significant factors, but not necessarily all of the significant factors that could cause actual results to differ from those expressed in any forward-looking statement. Readers are cautioned not to place undue reliance on such forward-looking statements, which are made only as of the date of this report. The Company undertakes no obligation to update such forward-looking statements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

The Company is exposed to various market risks, including fluctuations in and sufficient availability of sugar, corn syrup, edible oils, including palm oils, cocoa, dextrose, milk and whey, and gum-base input ingredients and packaging, and fuel costs principally relating to freight and delivery fuel surcharges. The Company is exposed to exchange rate fluctuations in the Canadian dollar which is the currency used for a portion of the raw material and packaging material costs and all labor, benefits and local plant operating costs at its Canadian plants. The Company is exposed to exchange rate fluctuations in Mexico, Canada, and Spain where its subsidiaries sell products in their local currencies. The Company invests in securities with maturities dates of up to approximately three years which are generally held to maturity, and variable rate demand notes where interest rates are generally reset weekly, all of which limits the Company’s exposure to interest rate fluctuations. There have been no material changes in the Company’s market risks that would significantly affect the disclosures made in the Form 10-K for the year ended December 31, 2020.

ITEM 4. CONTROLS AND PROCEDURES

Under the supervision and with the participation of Management, the Chief Executive Officer and Chief Financial Officer of the Company have evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of March 31, 2021 and, based on their evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that these controls and procedures are effective. Disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures are also designed to ensure that information is accumulated and communicated to Management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

There has been no change in the Company’s internal control over financial reporting that occurred during the Company’s fiscal quarter ended March 31, 2021 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

21

PART II — OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Information on legal proceedings is included in Note 12 to the Condensed Consolidated Financial Statements.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table summarizes the Company’s purchases of its common stock during the quarter ended March 31, 2021:

    

    

    

    

    

    

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

83,374

$

30.37

Not Applicable

Not Applicable

Feb 1 to Feb 28

37,500

30.94

Not Applicable

Not Applicable

Mar 1 to Mar 31

113,157

32.88

Not Applicable

Not Applicable

Total

234,031

$

31.67

Not Applicable

Not Applicable

While the Company does not have a formal or publicly announced stock purchase program, the Company’s board of directors periodically authorizes a dollar amount for share purchases. The treasurer executes share purchase transactions according to these guidelines.

ITEM 6. EXHIBITS

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

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

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

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

Exhibit 101.SCH - XBRL Taxonomy Extension Schema Document.

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

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

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

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.

22

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

TOOTSIE ROLL INDUSTRIES, INC.

Date:

May 5, 2021

BY:

/S/ELLEN R. GORDON

Ellen R. Gordon

Chairman and Chief

Executive Officer

Date:

May 5, 2021

BY:

/S/G. HOWARD EMBER, JR.

G. Howard Ember, Jr.

Vice President Finance and

Chief Financial Officer

23