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Tootsie Roll Industries(TR) - 2025 Q2 - Quarterly Report

PART I — FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS This section presents Tootsie Roll Industries, Inc.'s unaudited condensed consolidated financial statements, including the statements of financial position, earnings and retained earnings, comprehensive earnings, and cash flows, along with their accompanying notes Condensed Consolidated Statements of Financial Position This section provides a snapshot of the company's assets, liabilities, and equity at specific reporting dates, highlighting changes in financial structure Condensed Consolidated Statements of Financial Position (in thousands) | Metric (in thousands) | June 30, 2025 | December 31, 2024 | June 30, 2024 | | :-------------------- | :------------ | :---------------- | :------------ | | ASSETS | | | | | Cash and cash equivalents | $120,521 | $138,841 | $45,623 | | Total current assets | $364,766 | $333,605 | $323,877 | | Net property, plant and equipment | $222,878 | $219,803 | $220,735 | | Total assets | $1,181,456 | $1,147,181 | $1,102,601 | | LIABILITIES & EQUITY | | | | | Total current liabilities | $91,497 | $87,286 | $86,763 | | Total noncurrent liabilities | $197,197 | $189,486 | $174,744 | | Total equity | $892,762 | $870,409 | $841,094 | | Total liabilities and shareholders' equity | $1,181,456 | $1,147,181 | $1,102,601 | - Total assets increased to $1,181,456 thousand as of June 30, 2025, from $1,147,181 thousand at December 31, 2024, and $1,102,601 thousand at June 30, 20249 - Current assets saw an increase to $364,766 thousand at June 30, 2025, from $333,605 thousand at December 31, 2024, primarily driven by higher inventories (finished goods and work-in-process increased from $43,603 thousand to $81,838 thousand)9 - Total equity increased to $892,762 thousand at June 30, 2025, from $870,409 thousand at December 31, 2024, and $841,094 thousand at June 30, 202411 Condensed Consolidated Statements of Earnings and Retained Earnings This section details the company's revenues, expenses, and net earnings over specific periods, along with changes in retained earnings Condensed Consolidated Statements of Earnings and Retained Earnings (in thousands except per share) | Metric (in thousands except per share) | Quarter Ended June 30, 2025 | Quarter Ended June 30, 2024 | Year to Date Ended June 30, 2025 | Year to Date Ended June 30, 2024 | | :----------------------------------- | :-------------------------- | :-------------------------- | :------------------------------- | :------------------------------- | | Net product sales | $153,190 | $148,819 | $299,711 | $300,283 | | Total revenue | $155,088 | $150,736 | $303,543 | $303,911 | | Total gross margin | $56,483 | $50,475 | $108,933 | $100,503 | | Earnings from operations | $12,121 | $15,435 | $35,181 | $26,545 | | Net earnings attributable to Tootsie Roll Industries, Inc. | $17,544 | $15,640 | $35,602 | $31,474 | | Net earnings per share | $0.24 | $0.21 | $0.49 | $0.43 | | Dividends per share | $0.09 | $0.09 | $0.18 | $0.18 | - Net product sales increased by 2.9% to $153,190 thousand in Q2 2025 compared to Q2 2024, but decreased slightly by 0.2% to $299,711 thousand for the first half of 2025 compared to the first half of 202412 - Total gross margin increased by 11.9% in Q2 2025 and 8.4% in H1 2025, indicating improved profitability12 - Net earnings attributable to Tootsie Roll Industries, Inc. increased by 12.2% in Q2 2025 and 13.1% in H1 2025, with EPS rising from $0.21 to $0.24 in Q2 and from $0.43 to $0.49 in H112 Condensed Consolidated Statements of Comprehensive Earnings This section presents net earnings and other comprehensive income (loss) components, providing a complete view of changes in equity from non-owner sources Condensed Consolidated Statements of Comprehensive Earnings (in thousands) | Metric (in thousands) | Quarter Ended June 30, 2025 | Quarter Ended June 30, 2024 | Year to Date Ended June 30, 2025 | Year to Date Ended June 30, 2024 | | :-------------------- | :-------------------------- | :-------------------------- | :------------------------------- | :------------------------------- | | Net earnings | $17,530 | $15,634 | $35,571 | $31,469 | | Total other comprehensive income (loss), before tax | $3,251 | $(2,286) | $8,008 | $(334) | | Total comprehensive earnings attributable to Tootsie Roll Industries, Inc. | $20,333 | $13,422 | $42,006 | $30,813 | - Total comprehensive earnings attributable to Tootsie Roll Industries, Inc. significantly increased to $20,333 thousand in Q2 2025 from $13,422 thousand in Q2 2024, and to $42,006 thousand in H1 2025 from $30,813 thousand in H1 202414 - The increase in comprehensive earnings was largely driven by positive other comprehensive income before tax in 2025, primarily from foreign currency translation adjustments and unrealized gains on investments and derivatives, contrasting with losses in 202414 Condensed Consolidated Statements of Cash Flows This section outlines the cash inflows and outflows from operating, investing, and financing activities, illustrating the company's liquidity and solvency Condensed Consolidated Statements of Cash Flows (in thousands) | Metric (in thousands) | Year to Date Ended June 30, 2025 | Year to Date Ended June 30, 2024 | | :-------------------- | :------------------------------- | :------------------------------- | | Net cash (used in) provided by operating activities | $(4,935) | $8,777 | | Net cash provided by (used in) investing activities | $5,670 | $(25,918) | | Net cash used in financing activities | $(19,437) | $(12,646) | | Decrease in cash and cash equivalents | $(18,272) | $(30,303) | | Cash, cash equivalents and restricted cash at end of quarter | $120,921 | $45,987 | - Net cash used in operating activities was $(4,935) thousand in H1 2025, a significant decrease from $8,777 thousand provided in H1 2024, primarily due to changes in working capital, particularly accounts receivable and inventories1580 - Net cash provided by investing activities was $5,670 thousand in H1 2025, a favorable increase from $(25,918) thousand used in H1 2024, mainly reflecting a decline in purchases of available-for-sale securities1581 - Net cash used in financing activities increased to $(19,437) thousand in H1 2025 from $(12,646) thousand in H1 2024, driven by common stock purchases and retirements of $6,483 thousand in H1 20251583 Notes to Condensed Consolidated Financial Statements This section provides additional information and explanations for the figures presented in the condensed consolidated financial statements Note 1 — Significant Accounting Policies This note describes the key accounting principles and methods used in preparing the financial statements, including revenue recognition and segment reporting - The financial statements are unaudited and prepared in accordance with GAAP for interim financial reporting, and should be read with the 2024 Form 10-K16 - Results for the period ended June 30, 2025, are not necessarily indicative of full-year results due to the seasonal nature of operations, with the third quarter historically being the largest for net product sales due to pre-Halloween sales17 - Revenue recognition follows a five-step model, with adjustments for variable consideration (discounts, returns, promotions) recorded as a reduction of net product sales; changes in business conditions led to an increase in net product sales of $900 thousand in Q2 2025 and $1,400 thousand in H1 2025 due to a reduction in estimated liabilities for prior period obligations18 - The Company has one reportable segment, with the CEO focusing on consolidated net income (loss) for performance assessment and resource allocation20 - The Company is evaluating new FASB ASUs (2023-09 on Income Tax Disclosures and 2024-03 on Expense Disaggregation Disclosures) but believes their adoption will not significantly impact financial condition, results of operations, and disclosures2122 Note 2 — Average Shares Outstanding This note details the calculation of average shares outstanding, considering stock purchases and dividends for earnings per share computations - Average shares outstanding for H1 2025 reflect aggregate stock purchases of 209 thousand shares for $6,483 thousand and a 3% stock dividend of 2,118 thousand shares distributed on April 4, 202523 - For H1 2024, average shares outstanding reflected a 3% stock dividend of 2,075 thousand shares distributed on April 5, 2024, with no stock purchases during that period23 Note 3 — Income Taxes This note provides information on the company's effective income tax rates and the potential impact of new tax legislation Effective Income Tax Rate | Metric | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :----- | :------ | :------ | :------ | :------ | | Effective Income Tax Rate | 33.1% | 23.1% | 27.7% | 22.3% | - The Company's effective income tax rate increased in both Q2 2025 (to 33.1% from 23.1%) and H1 2025 (to 27.7% from 22.3%) compared to the prior year periods25 - The One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, introduces changes to U.S. tax policy, trade regulations, and federal spending; the Company is currently assessing its potential implications26 NOTE 4—Share Capital and Capital In Excess of Par Value This note outlines the composition of the company's share capital, including common and Class B common stock, and capital in excess of par value Share Capital and Capital In Excess of Par Value (Shares in 000's, amounts in thousands) | Metric (Shares in 000's) | June 30, 2025 | June 30, 2024 | December 31, 2024 | | :----------------------- | :------------ | :------------ | :---------------- | | Common Stock Shares | 41,808 | 41,213 | 40,789 | | Class B Common Stock Shares | 31,179 | 30,309 | 30,286 | | Capital in Excess of Par Value | $847,308 | $802,253 | $788,894 | - Common stock shares outstanding increased to 41,808 thousand at June 30, 2025, from 40,789 thousand at December 31, 2024, and 41,213 thousand at June 30, 202427 - Capital in excess of par value increased to $847,308 thousand at June 30, 2025, from $788,894 thousand at December 31, 2024, primarily due to the issuance of a 3% stock dividend27 Note 5 — Fair Value Measurements This note describes the valuation methodologies and inputs used for financial assets and liabilities measured at fair value on a recurring basis - The Company measures certain financial assets and liabilities at fair value on a recurring basis, including derivative hedging instruments, trading securities, and available-for-sale securities31 - Available-for-sale and trading securities primarily utilize Level 2 inputs (quoted market prices or alternative pricing sources with reasonable transparency) for valuation31 Assets Measured at Fair Value (in thousands) | Asset (in thousands) | Total Fair Value (June 30, 2025) | Level 1 | Level 2 | | :------------------- | :------------------------------- | :------ | :------ | | Cash and cash equivalents | $120,521 | $120,521 | $— | | Available for sale securities | $271,627 | $4,143 | $267,484 | | Trading securities | $112,009 | $95,499 | $16,510 | | Total assets measured at fair value | $503,766 | $219,533 | $284,233 | Note 6 — Derivative Instruments and Hedging Activities This note explains the company's use of derivative instruments to manage exposures to foreign currency and commodity price risks - The Company uses foreign currency forward contracts and commodity futures contracts to manage exposures to foreign exchange and commodity prices, primarily sugar35 - All derivative instruments are recognized as assets or liabilities at fair value and accounted for using hedge accounting, with changes in fair value recorded in accumulated other comprehensive loss3637 Derivative Instruments and Hedging Activities (in thousands) | Derivative Type (in thousands) | Notional Amounts (June 30, 2025) | Assets (June 30, 2025) | Liabilities (June 30, 2025) | | :----------------------------- | :------------------------------- | :--------------------- | :-------------------------- | | Foreign currency derivatives | $13,106 | $239 | $— | | Commodity derivatives | $12,527 | $85 | $(715) | - For H1 2025, total gain recognized in OCI from derivatives was $644 thousand, while total gain reclassified from accumulated OCI into earnings was $(1,949) thousand40 Note 7 — Pension Plans This note provides an update on the multi-employer defined benefit pension plan, including its critical status and potential withdrawal liability - The Bakery and Confectionery Union and Industry International Pension Fund, a multi-employer defined benefit plan, was reclassified to 'critical status' for 2024 (until 2051) after receiving approximately $3.4 billion in Special Financial Assistance in July 20244041 - The Company's withdrawal liability was estimated at $97,500 thousand for 2024, but the impact of the Special Financial Assistance on future withdrawal liability is uncertain and could result in a higher liability due to new PBGC regulations42 - Pension expense for this Plan was $1,744 thousand for H1 2025 (including $615 thousand in surcharges), slightly down from $1,770 thousand in H1 202443 Note 8 — Accumulated Other Comprehensive Earnings (Loss) This note details the components of accumulated other comprehensive earnings (loss), including foreign currency translation, investments, and derivatives Accumulated Other Comprehensive Earnings (Loss) (in thousands) | Component (in thousands) | Balance at June 30, 2025 | Balance at June 30, 2024 | | :----------------------- | :----------------------- | :----------------------- | | Foreign Currency Translation | $(23,405) | $(22,739) | | Investments | $4,552 | $(1,615) | | Foreign Currency Derivatives | $180 | $(34) | | Commodity Derivatives | $(477) | $(1,127) | | Postretirement and Pension Benefits | $2,136 | $1,641 | | Total Accumulated Other Comprehensive Earnings (Loss) | $(17,014) | $(23,874) | - Accumulated other comprehensive loss improved to $(17,014) thousand at June 30, 2025, from $(23,874) thousand at June 30, 2024, primarily due to positive changes in investments and foreign currency derivatives45 - Reclassifications from accumulated other comprehensive income (loss) to earnings for H1 2025 included $(61) thousand from investments, $229 thousand from foreign currency derivatives, $1,720 thousand from commodity derivatives, and $(410) thousand from postretirement and pension benefits46 Note 9 — Restricted Cash This note explains the nature and purpose of restricted cash balances, primarily for collateral related to the Spanish subsidiary - Restricted cash consists of cash deposits by the Company's Spanish subsidiary, pledged as collateral for letters of credit and bank borrowings47 Note 10 — Bank Loans This note provides details on short-term bank borrowings by the Spanish subsidiary, including their amounts and weighted-average interest rates - Bank loans, totaling $1,018 thousand at June 30, 2025, and $1,046 thousand at June 30, 2024, are short-term borrowings by the Spanish subsidiary48 - The weighted-average interest rate on these bank loans was 4.7% at June 30, 2025, down from 6.4% at June 30, 202448 Note 11 — Leases This note describes the company's operating lease arrangements as both a lessee and a lessor, including associated costs and income - The Company leases buildings, land, and equipment classified as operating leases, with remaining terms up to 16 years; operating lease cost was $366 thousand in Q2 2025 and $731 thousand in H1 202549 - Operating lease right-of-use assets were $5,554 thousand and liabilities were $5,901 thousand at June 30, 202549 - As a lessor, the Company rents commercial real estate, generating lease income of $1,826 thousand in Q2 2025 and $3,613 thousand in H1 202550 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This section provides management's perspective on the Company's financial performance, liquidity, and capital resources for the periods ended June 30, 2025, highlighting key drivers and external factors Net Product Sales This section analyzes the trends and drivers of net product sales, distinguishing between domestic and foreign market performance Net Product Sales (in thousands) | Metric (in thousands) | Q2 2025 | Q2 2024 | Change ($) | Change (%) | | :-------------------- | :----------- | :----------- | :----------- | :----------- | | Net product sales | $153,190 | $148,819 | $4,371 | 2.9% | | H1 2025 | $299,711 | $300,283 | $(572) | (0.2)% | | Domestic (U.S.) sales (Q2) | +4.6% | | | | | Foreign sales (Q2) | -16.8% | | | | | Domestic (U.S.) sales (H1) | +1.4% | | | | | Foreign sales (H1) | -16.5% | | | | - Domestic (U.S.) net product sales increased by 4.6% in Q2 2025 and 1.4% in H1 2025, while foreign net product sales decreased by 16.8% and 16.5% respectively52 - Domestic sales represented 93.8% of total consolidated net product sales in Q2 2025 and 92.6% in H1 202552 - The Company faced a challenging market with increased customer and consumer resistance to higher prices, despite successful marketing and sales programs contributing to higher Q2 2025 sales52 Product Cost of Goods Sold and Gross Margin This section examines the factors influencing the cost of goods sold and gross profit margins, including commodity prices and manufacturing efficiencies Product Cost of Goods Sold and Gross Margin (in thousands) | Metric (in thousands) | Q2 2025 | Q2 2024 | Change ($) | Change (%) | | :-------------------- | :----------- | :----------- | :----------- | :----------- | | Product cost of goods sold | $98,127 | $99,732 | $(1,605) | (1.6)% | | H1 2025 | $193,627 | $202,464 | $(8,837) | (4.4)% | | Adjusted product cost of goods sold (Q2) | $97,660 | $99,610 | $(1,950) | (2.0)% | | Adjusted product cost of goods sold (H1) | $193,315 | $201,977 | $(8,662) | (4.3)% | | Adjusted COGS as % of net product sales (Q2) | 63.8% | 66.9% | -3.1 pp | | | Adjusted COGS as % of net product sales (H1) | 64.5% | 67.3% | -2.8 pp | | - Product cost of goods sold decreased in both Q2 2025 and H1 2025, leading to improved gross profit margins due to higher price realization, plant manufacturing efficiencies, and cost reductions53 - Cocoa and chocolate prices remain significantly elevated, and the Company expects even higher unit costs in late 2025 and 2026 as older supply contracts expire54 - The use of the LIFO inventory method will result in lower current net earnings during periods of increasing costs and higher inflation, adversely affecting gross profit margins as cocoa and chocolate costs rise55 Selling, Marketing and Administrative Expenses This section discusses the changes and drivers of selling, marketing, and administrative expenses, including customer freight and warehousing costs Selling, Marketing and Administrative Expenses (in thousands) | Metric (in thousands) | Q2 2025 | Q2 2024 | Change ($) | Change (%) | | :-------------------- | :----------- | :----------- | :----------- | :----------- | | Selling, marketing and administrative expenses | $44,362 | $35,040 | $9,322 | 26.6% | | H1 2025 | $73,752 | $73,958 | $(206) | (0.3)% | | Adjusted selling, marketing and administrative expenses (Q2) | $33,959 | $32,670 | $1,289 | 3.9% | | Adjusted selling, marketing and administrative expenses (H1) | $66,808 | $64,663 | $2,145 | 3.3% | | Adjusted as % of net product sales (Q2) | 22.2% | 22.0% | +0.2 pp | | | Adjusted as % of net product sales (H1) | 22.3% | 21.5% | +0.8 pp | | - Adjusted selling, marketing and administrative expenses increased by 3.9% in Q2 2025 and 3.3% in H1 2025, primarily due to fixed costs not changing significantly with lower sales57 - Customer freight, delivery, and warehousing expenses decreased by 5.7% in Q2 2025 and 1.8% in H1 2025, with favorable unit costs in Q2 202558 Earnings from Operations This section analyzes the company's operating profitability, including adjustments for deferred compensation expenses, and the impact of gross margin improvements Earnings from Operations (in thousands) | Metric (in thousands) | Q2 2025 | Q2 2024 | Change ($) | Change (%) | | :-------------------- | :----------- | :----------- | :----------- | :----------- | | Earnings from operations | $12,121 | $15,435 | $(3,314) | (21.5)% | | H1 2025 | $35,181 | $26,545 | $8,636 | 32.5% | | Adjusted earnings from operations (Q2) | $22,991 | $17,927 | $5,064 | 28.2% | | Adjusted earnings from operations (H1) | $42,437 | $36,327 | $6,110 | 16.8% | | Adjusted as % of net product sales (Q2) | 15.0% | 12.0% | +3.0 pp | | | Adjusted as % of net product sales (H1) | 14.2% | 12.1% | +2.1 pp | | - Adjusted earnings from operations increased by 28.2% in Q2 2025 and 16.8% in H1 2025, primarily driven by improvements in gross profit margins60 - Management believes that comparisons adjusted for deferred compensation expenses are useful for assessing the Company's operations62 Other Income, Net This section details the components of other income, net, including investment income, gains on trading securities, insurance recoveries, and foreign exchange impacts Other Income, Net (in thousands) | Metric (in thousands) | Q2 2025 | Q2 2024 | Change ($) | Change (%) | | :-------------------- | :----------- | :----------- | :----------- | :----------- | | Other income, net | $14,072 | $4,900 | $9,172 | 187.2% | | H1 2025 | $14,021 | $13,932 | $89 | 0.6% | | Investment income from available for sale securities and cash equivalents (Q2) | $3,485 | $2,114 | $1,371 | 64.9% | | Investment income from available for sale securities and cash equivalents (H1) | $6,946 | $3,977 | $2,969 | 74.6% | - Other income, net, significantly increased in Q2 2025, primarily due to net gains and investment income on trading securities, which economically hedge deferred compensation liabilities61 - Investment income from available-for-sale securities and cash equivalents increased in 2025, reflecting a higher interest rate environment and higher average balances63 - Other income, net, also included an insurance recovery of $479 thousand in Q2 2025 and $1,307 thousand in H1 2025, and pre-tax foreign exchange losses of $(843) thousand in Q2 2025 and $(1,387) thousand in H1 202564 Effective Income Tax Rates This section explains the factors contributing to changes in the effective income tax rates, particularly the impact of deferred compensation Effective Income Tax Rate | Metric | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :----- | :------ | :------ | :------ | :------ | | Effective Income Tax Rate | 33.1% | 23.1% | 27.7% | 22.3% | - The effective income tax rates were higher in 2025 compared to 2024, primarily due to the adverse effect of certain deferred compensation that will not be deductible for income taxes when paid in future periods65 Net Earnings and Earnings Per Share This section analyzes the company's net earnings and earnings per share, considering the effects of stock purchases and overall profitability Net Earnings and Earnings Per Share (in thousands except per share) | Metric (in thousands except per share) | Q2 2025 | Q2 2024 | Change ($) | Change (%) | | :----------------------------------- | :----------- | :----------- | :----------- | :----------- | | Net earnings attributable to Tootsie Roll Industries, Inc. | $17,544 | $15,640 | $1,904 | 12.2% | | H1 2025 | $35,602 | $31,474 | $4,128 | 13.1% | | Net earnings per share (Q2) | $0.24 | $0.21 | $0.03 | 14.3% | | Net earnings per share (H1) | $0.49 | $0.43 | $0.06 | 14.0% | - Net earnings per share benefited from a reduction in average shares outstanding due to common stock purchases by the Company66 Goodwill and Intangibles This section confirms the annual assessment of goodwill and intangibles for impairment, with no material triggering events identified - Goodwill and intangibles (primarily trademarks) are assessed annually, and no triggering events or adverse information indicating material impairment were identified in Q2 or H1 202567 Pension Plan Update This section provides an update on the multi-employer pension plan's critical status, solvency concerns, and potential changes to withdrawal liability calculations - The multi-employer pension plan was reclassified to 'critical status' for 2024 (until 2051) after receiving $3.4 billion in Special Financial Assistance in July 202468 - The Company's actuary believes the Plan's solvency through 2051 remains unclear, and new PBGC regulations could result in a higher withdrawal liability, phased-in over time6970 - The Plan's funded percentage was 45.2% as of January 1, 2024 (actuarial value), with only 15% active employees and a 54% decline in active participants since 201171 - The estimated withdrawal liability for 2024 was $97,500 thousand, but this does not include the impact of the Special Financial Assistance, which is expected to alter the calculation72 - Pension expense for the Plan was $1,744 thousand for H1 2025, including frozen surcharges as per an agreement in Q1 202175 Tariffs and Plant Investments This section discusses the adverse financial impact of tariffs on various inputs and the company's ongoing strategic investments in manufacturing operations - Current tariffs are estimated to have an adverse annual effect of approximately $6,800 thousand on consolidated earnings from operations, impacting foreign-sourced ingredients, packaging, and manufacturing equipment78 - The Company is continuing investments in plant manufacturing operations to meet new consumer demands, improve product quality, expand capacity, and increase operational efficiencies79 Liquidity and Capital Resources This section assesses the company's ability to meet its financial obligations, focusing on cash flows from operating, investing, and financing activities, and working capital Cash Flow Summary (in thousands) | Metric (in thousands) | H1 2025 | H1 2024 | Change ($) | Change (%) | | :-------------------- | :----------- | :----------- | :----------- | :----------- | | Net cash (used in) provided by operating activities | $(4,935) | $8,777 | $(13,712) | (156.2)% | | Net cash provided by (used in) investing activities | $5,670 | $(25,918) | $31,588 | 121.9% | | Net cash used in financing activities | $(19,437) | $(12,646) | $(6,791) | (53.7)% | - The decrease in operating cash flows was primarily due to changes in working capital, particularly accounts receivable and inventory80 - Investing cash flows improved significantly due to a decline in purchases of available-for-sale securities; capital expenditures were $10,363 thousand in H1 2025, with a plant expansion project estimated at $95,000 to $100,000 thousand over the next five years81 - Financing activities included common stock purchases and retirements of $6,483 thousand in H1 2025 and cash dividends of $12,928 thousand83 Liquidity Metrics (in thousands) | Metric (in thousands) | June 30, 2025 | Dec 31, 2024 | June 30, 2024 | | :-------------------- | :------------ | :----------- | :------------ | | Current ratio | 4.0 to 1 | 3.8 to 1 | 3.7 to 1 | | Net working capital | $273,269 | $246,319 | $237,114 | | Aggregate cash and investments | $504,157 | $526,968 | $423,894 | - The Company's current ratio improved to 4.0 to 1 at June 30, 2025, from 3.8 to 1 at December 31, 2024, and net working capital increased to $273,269 thousand84 - The VEBA trust, used to fund employee health benefits, held $12,509 thousand in cash and cash equivalents at June 30, 2025, with no contribution made in H1 202586 Accounting Pronouncements This section directs readers to Note 1 for details on recent accounting pronouncements and their potential impact - Refer to Note 1 of the Condensed Consolidated Financial Statements for information on recent accounting pronouncements87 Critical Accounting Policies and Estimates This section refers readers to Note 1 and the 2024 Form 10-K for information on the company's critical accounting policies and estimates - Refer to Note 1 of the Condensed Consolidated Financial Statements and the 2024 Form 10-K for information on critical accounting policies and estimates88 Forward-Looking Statements This section cautions readers about the inherent risks and uncertainties associated with forward-looking statements and the company's policy on updating them - The report contains forward-looking statements subject to risks and uncertainties, including the effects of tariffs, ability to recover input cost increases, competitive environment, seasonal sales, cocoa and chocolate availability/prices, and changes in assumptions89 - Readers are cautioned not to place undue reliance on these statements, and the Company undertakes no obligation to update them91 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK This section details the Company's exposure to various market risks, including commodity price fluctuations (sugar, cocoa, chocolate), foreign exchange rates (Canadian dollar), and interest rates, and outlines mitigation strategies - The Company is exposed to market risks from fluctuations in commodity prices (sugar, corn syrup, edible oils, cocoa, chocolate, etc.), packaging, and fuel costs92 - Strategies include annual supply contracts and hedging certain commodities (primarily sugar); longer-range supply contracts for cocoa and chocolate have been entered into for 2025 and much of 2026, but at significantly higher costs due to unprecedented market volatility92 - Foreign exchange risk, particularly with the Canadian dollar, is managed through forward contracts; the Company also faces exchange rate fluctuations in Mexico, Canada, and Spain93 - Interest rate risk is managed by investing primarily in high-quality corporate bonds with an average maturity of three to five years93 - No material changes in market risks were identified, other than the elevated cocoa and chocolate market and tariffs, compared to the 2024 Form 10-K94 ITEM 4. CONTROLS AND PROCEDURES Management, including the CEO and CFO, evaluated the effectiveness of the Company's disclosure controls and procedures as of June 30, 2025, concluding they are effective, with no material changes to internal control over financial reporting - The Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective as of June 30, 202595 - No material changes occurred in the Company's internal control over financial reporting during the fiscal quarter ended June 30, 202596 PART II — OTHER INFORMATION ITEM 1A. RISK FACTORS This section updates the risk factors previously disclosed in the 2024 Form 10-K, specifically highlighting the potential adverse impact of tariffs and evolving food industry regulations - The imposition of tariffs and other surcharges on products, ingredients, packaging, and operating equipment could materially adversely affect the Company's business and operating results99 - The Company procures certain materials from outside the U.S. that are currently subject to tariffs, leading to higher costs in 202599 - Continued developments in food industry legislation and regulatory requirements, such as the FDA's intent to phase out petroleum-based synthetic dyes, could adversely affect the business100 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES, USE OF PROCEEDS, AND ISSUER PURCHASES OF EQUITY SECURITIES This section reports that the Company did not purchase any of its common stock during the quarter ended June 30, 2025, noting the board's periodic authorization for share purchases Issuer Purchases of Equity Securities | Period | Total Number of Shares Purchased | Average Price Paid per Share | | :------------ | :------------------------------- | :--------------------------- | | Apr 1 to Apr 30 | — | $— | | May 1 to May 31 | — | $— | | Jun 1 to Jun 30 | — | $— | | Total | — | $— | - The Company did not purchase any common stock during the quarter ended June 30, 2025101 - While there is no formal or publicly announced stock purchase program, the board of directors periodically authorizes a dollar amount for share purchases102 ITEM 6. EXHIBITS This section lists the exhibits filed with the Form 10-Q, including XBRL taxonomy documents and certifications from the Chief Executive Officer and Chief Financial Officer - Key exhibits include XBRL Taxonomy Extension documents (Calculation, Schema, Label, Presentation, Definition Linkbase Documents) and certifications from the CEO (Exhibit 31.1) and CFO (Exhibit 31.2) pursuant to the Sarbanes-Oxley Act102105 Signatures The Quarterly Report on Form 10-Q was signed on August 8, 2025, by Ellen R. Gordon, Chairman and Chief Executive Officer, and G. Howard Ember, Jr., Vice President Finance and Chief Financial Officer - The report was signed by Ellen R. Gordon, Chairman and Chief Executive Officer, and G. Howard Ember, Jr., Vice President Finance and Chief Financial Officer, on August 8, 2025103104105