Quarterly Report (10-q)

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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒

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

For the quarterly period ended September 30, 2022

☐

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 (September 30, 2022).


Class		Outstanding

Common Stock, $0.69-4/9 par value		40,293,792
Class B Common Stock, $0.69-4/9 par value		28,622,421

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

Table of Contents

TOOTSIE ROLL INDUSTRIES, INC.

SEPTEMBER 30, 2022

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	8-17

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17-23

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	24

Item 4.	Controls and Procedures	24

Part II —	Other Information

Item 1.	Legal Proceedings	25

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	25

Item 6.	Exhibits	25

Signatures		26

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.

Table of Contents

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

TOOTSIE ROLL INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

(in thousands) (Unaudited)



	September 30, 2022		December 31, 2021		September 30, 2021

ASSETS

CURRENT ASSETS:
Cash and cash equivalents	$	57,216	$	105,840	$	76,210
Restricted cash		332		386		393
Investments		88,510		39,968		39,491
Accounts receivable trade, less allowances of $2,949, $2,281 and $2,706		82,315		54,921		80,877
Other receivables		4,120		3,920		3,392
Inventories:
Finished goods and work-in-process		48,758		31,431		46,887
Raw materials and supplies		40,797		24,074		24,948
Prepaid expenses		2,018		7,761		5,706
Total current assets		324,066		268,301		277,904

PROPERTY, PLANT AND EQUIPMENT, at cost:
Land		21,673		21,704		21,710
Buildings		130,131		130,158		123,844
Machinery and equipment		446,487		446,777		421,233
Construction in progress		32,409		15,344		39,687
Operating lease right-of-use assets		4,746		7,419		7,617
		635,446		621,402		614,091
Less - accumulated depreciation		424,600		412,496		407,765
Net property, plant and equipment		210,846		208,906		206,326

OTHER ASSETS:
Goodwill		73,237		73,237		73,237
Trademarks		175,024		175,024		175,024
Investments		241,308		291,175		280,326
Prepaid expenses and other assets		480		603		1,614
Deferred income taxes		1,394		1,372		1,010
Total other assets		491,443		541,411		531,211
Total assets	$	1,026,355	$	1,018,618	$	1,015,441

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

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(in thousands except per share data) (Unaudited)



	September 30, 2022		December 31, 2021		September 30, 2021

LIABILITIES AND SHAREHOLDERS’ EQUITY

CURRENT LIABILITIES:
Accounts payable	$	30,728	$	14,969	$	24,512
Bank loans		949		939		956
Dividends payable		6,200		6,042		6,042
Accrued liabilities		60,330		53,896		57,597
Postretirement health care benefits		616		616		544
Operating lease liabilities		833		1,072		1,102
Income taxes payable		1,863		2,434		3,884
Total current liabilities		101,519		79,968		94,637

NONCURRENT LIABILITIES:
Deferred income taxes		41,351		45,461		45,441
Postretirement health care benefits		12,609		12,619		12,971
Industrial development bonds		7,500		7,500		7,500
Liability for uncertain tax positions		3,540		3,415		3,177
Operating lease liabilities		3,936		6,347		6,515
Deferred compensation and other liabilities		72,577		94,511		88,684
Total noncurrent liabilities		141,513		169,853		164,288

TOOTSIE ROLL INDUSTRIES, INC. SHAREHOLDERS’ EQUITY:
Common stock, $.69-4/9 par value - 120,000 shares authorized; 40,294, 39,344 and 39,332, respectively, issued		27,982		27,322		27,314
Class B common stock, $.69-4/9 par value - 40,000 shares authorized; 28,622, 27,793 and 27,805, respectively, issued		19,877		19,300		19,309
Capital in excess of par value		743,084		709,880		709,880
Retained earnings		29,078		39,545		25,546
Accumulated other comprehensive loss		(34,428)		(25,013)		(23,295)
Treasury stock (at cost) - 99, 96 and 96 shares, respectively		(1,992)		(1,992)		(1,992)
Total Tootsie Roll Industries, Inc. shareholders’ equity		783,601		769,042		756,762
Noncontrolling interests		(278)		(245)		(246)
Total equity		783,323		768,797		756,516
Total liabilities and shareholders’ equity	$	1,026,355	$	1,018,618	$	1,015,441

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

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TOOTSIE ROLL INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF

EARNINGS AND RETAINED EARNINGS

(in thousands except per share amounts) (Unaudited)



	Quarter Ended				Year to Date Ended
	September 30, 2022		September 30, 2021		September 30, 2022		September 30, 2021

Net product sales	$	211,888	$	183,090	$	493,260	$	399,445
Rental and royalty revenue		1,285		1,075		3,990		3,407
Total revenue		213,173		184,165		497,250		402,852
Product cost of goods sold		141,243		118,446		328,995		259,959
Rental and royalty cost		388		332		1,153		1,005
Total costs		141,631		118,778		330,148		260,964
Product gross margin		70,645		64,644		164,265		139,486
Rental and royalty gross margin		897		743		2,837		2,402
Total gross margin		71,542		65,387		167,102		141,888
Selling, marketing and administrative expenses		35,957		35,743		83,704		94,930
Earnings from operations		35,585		29,644		83,398		46,958
Other income (loss), net		(1,246)		1,750		(17,399)		11,810
Earnings before income taxes		34,339		31,394		65,999		58,768
Provision for income taxes		7,778		6,675		15,438		13,494
Net earnings		26,561		24,719		50,561		45,274
Less: net loss attributable to noncontrolling interests		(16)		(14)		(32)		(20)
Net earnings attributable to Tootsie Roll Industries, Inc.	$	26,577	$	24,733	$	50,593	$	45,294

Net earnings attributable to Tootsie Roll Industries, Inc. per share	$	0.39	$	0.36	$	0.73	$	0.65
Dividends per share *	$	0.09	$	0.09	$	0.27	$	0.27

Average number of shares outstanding		68,876		69,250		68,952		69,555

Retained earnings at beginning of period	$	8,692	$	6,846	$	39,545	$	32,312
Net earnings attributable to Tootsie Roll Industries, Inc.		26,577		24,733		50,593		45,294
Cash dividends		(6,191)		(6,033)		(18,426)		(18,027)
Stock dividends		-		-		(42,634)		(34,033)
Retained earnings at end of period	$	29,078	$	25,546	$	29,078	$	25,546

*Does not include 3% stock dividend to shareholders of record on 3/7/22 and 3/5/21.

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

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TOOTSIE ROLL INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE EARNINGS

(in thousands except per share amounts) (Unaudited)



	Quarter Ended				Year to Date Ended
	September 30, 2022		September 30, 2021		September 30, 2022		September 30, 2021

Net earnings	$	26,561	$	24,719	$	50,561	$	45,274

Other comprehensive income (loss), before tax:
Foreign currency translation adjustments		120		(495)		583		(302)

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		(207)		(352)		(620)		(1,055)
Unrealized gains (losses) on postretirement and pension benefits		(207)		(352)		(620)		(1,055)

Investments:
Unrealized gains (losses) for the period on investments		(3,321)		(653)		(11,608)		(2,182)
Less: reclassification adjustment for (gains) losses to net earnings		(4)		(39)		(14)		(92)
Unrealized gains (losses) on investments		(3,325)		(692)		(11,622)		(2,274)

Derivatives:
Unrealized gains (losses) for the period on derivatives		(542)		307		(550)		1,624
Less: reclassification adjustment for (gains) losses to net earnings		(121)		(922)		(398)		(2,487)
Unrealized gains (losses) on derivatives		(663)		(615)		(948)		(863)

Total other comprehensive income (loss), before tax		(4,075)		(2,154)		(12,607)		(4,494)
Income tax benefit (expense) related to items of other comprehensive income		1,015		400		3,192		1,014
Total comprehensive earnings		23,501		22,965		41,146		41,794
Comprehensive earnings (loss) attributable to noncontrolling interests		(16)		(14)		(32)		(20)
Total comprehensive earnings attributable to Tootsie Roll Industries, Inc.	$	23,517	$	22,979	$	41,178	$	41,814

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

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TOOTSIE ROLL INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands) (Unaudited)



	Year to Date Ended
	September 30, 2022		September 30, 2021
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings	$	50,561	$	45,274
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation		13,250		12,793
Deferred income taxes		(921)		(1,444)
Amortization of marketable security premiums		4,313		2,645
Changes in operating assets and liabilities:
Accounts receivable		(27,489)		(39,947)
Other receivables		(823)		(291)
Inventories		(34,012)		(12,440)
Prepaid expenses and other assets		5,886		3,980
Accounts payable and accrued liabilities		22,126		22,182
Income taxes payable		(446)		(83)
Postretirement health care benefits		(630)		(1,026)
Deferred compensation and other liabilities		(1,219)		510
Net cash provided by operating activities		30,596		32,153
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures		(17,552)		(22,930)
Repayment of premiums on split dollar life insurance policies		—		2,514
Purchases of trading securities		(1,292)		(2,108)
Sales of trading securities		2,567		582
Purchase of available for sale securities		(75,125)		(87,060)
Sale and maturity of available for sale securities		38,439		34,510
Net cash used in investing activities		(52,963)		(74,492)
CASH FLOWS FROM FINANCING ACTIVITIES:
Shares purchased and retired		(8,024)		(30,184)
Dividends paid in cash		(18,438)		(18,100)
Proceeds from bank loans		3,240		2,970
Repayment of bank loans		(3,102)		(2,798)
Net cash used in financing activities		(26,324)		(48,112)
Effect of exchange rate changes on cash		13		(202)
Decrease in cash and cash equivalents		(48,678)		(90,653)
Cash, cash equivalents and restricted cash at beginning of year		106,226		167,256
Cash, cash equivalents and restricted cash at end of quarter	$	57,548	$	76,603
Supplemental cash flow information:
Income taxes paid/(received), net	$	15,580	$	15,237
Interest paid	$	36	$	5
Stock dividend issued	$	70,242	$	64,667

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

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TOOTSIE ROLL INDUSTRIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2022

(in thousands except per share amounts) (Unaudited)

Note 1 — Significant Accounting Policies

General Information

The foregoing data has been prepared from the unaudited financial records of Tootsie Roll Industries, Inc. (the “Company”). In the opinion of Management, all adjustments, which are of a normal recurring nature, and necessary for a fair statement of the results for the interim period have been reflected. Certain amounts previously reported have been reclassified to conform to the current year presentation. 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, 2021 (the “2021 Form 10-K”).

Results of operations for the period ended September 30, 2022 are not necessarily indicative of results to be expected for the year to end December 31, 2022 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 2022 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 2022 and beyond.

Revenue Recognition

The Company’s revenues, primarily net product sales resulting from the sale of goods, reflect the consideration to which the Company expects to be entitled generally based on customer purchase orders. The Company records revenue based on a five-step model in accordance with Accounting Standards Codification ("ASC") Topic 606. Adjustments for estimated customer cash discounts upon payment, discounts for price adjustments, product returns, allowances, and certain advertising and promotional costs, including consumer coupons, are variable consideration and are recorded as a reduction of net product sales revenue in the same period the related net product sales are recorded. Such estimates are calculated using historical averages adjusted for any expected changes due to current business conditions and experience. A net product sale is recorded when the Company delivers the product to the customer or, in certain instances, when the customer picks up the goods at the Company’s distribution center and thereby obtains control of such product. Amounts billed and due from our customers are classified as accounts receivable trade on the balance sheet and require payment on a short-term basis. Accounts receivable trade are unsecured. Shipping and handling costs of $19,060 and $17,743 in third quarter 2022 and 2021, respectively, and $49,754 and $40,319 in nine months 2022 and 2021, respectively, are included in selling, marketing and administrative expenses. Royalty income from sales-based licensing arrangements, pursuant to which revenue is recognized as the third-party licensee sales occur,and rental income are not considered revenue from contracts from customers and are presented separately from net product revenue as rental and royalty revenue.

Leases

The Company identifies leases by evaluating its contracts to determine if the contract conveys the right to use an identified asset for a stated period of time in exchange for consideration. The Company considers whether it can control the underlying asset and have the right to obtain substantially all of the economic benefits or outputs from the asset. Leases with terms greater than 12 months are classified as either operating or finance leases at the commencement date. For these leases, we record the present value of the minimum lease payments over the lease term as a lease liability with an offsetting right-of-use asset that is then presented net of any deferred rent or lease

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incentives. 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 as well as any future periods to which the Company has the right and intent to extend the lease under the terms of the lease agreement. Currently, all capitalized leases are classified as operating leases and the Company records rental expense on a straight-line basis over the term of the lease.

Recently Adopted Accounting Pronouncements

As of the date of this report, there are no recent accounting pronouncements that have not yet been adopted that Management believes would have a material impact on the Company’s consolidated financial statements.

Note 2 — Average Shares Outstanding

The average number of shares outstanding for nine months 2022 reflects aggregate stock purchases of 230 shares for $8,024 and a 3% stock dividend of 2,006 shares distributed on April 8, 2022. The average number of shares outstanding for nine months 2021 reflects aggregate stock purchases of 921 shares for $30,184 and a 3% stock dividend of 1,970 shares distributed on April 2, 2021.

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 2019 through 2021. The Company’s consolidated effective income tax rate was 22.7% and 21.3% in third quarter 2022 and 2021, respectively, and 23.4% and 23.0% in nine months 2022 and 2021, respectively.

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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 June 30, 2022	40,379	$	28,041	28,623	$	19,877	99	$	(1,992)	$	746,026
Issuance of 3% stock dividend	—		—	—		—	—		—		—
Conversion of Class B common shares to common shares	—		—	—		—	—		—		—
Purchase and retirement of common shares and other	(85)		(59)	(1)		—	—		—		(2,942)
Balance at September 30, 2022	40,294	$	27,982	28,622	$	19,877	99	$	(1,992)	$	743,084

Balance at June 30, 2021	39,700	$	27,569	27,821	$	19,320	96	$	(1,992)	$	722,617
Issuance of 3% stock dividend	—		—	—		—	—		—		—
Conversion of Class B common shares to common shares	16		11	(16)		(11)	—		—		—
Purchase and retirement of common shares and other	(384)		(266)	—		—	—		—		(12,737)
Balance at September 30, 2021	39,332	$	27,314	27,805	$	19,309	96	$	(1,992)	$	709,880

Balance at December 31, 2021	39,344	$	27,322	27,793	$	19,300	96	$	(1,992)	$	709,880
Issuance of 3% stock dividend	1,176		817	833		579	3		—		41,068
Conversion of Class B common shares to common shares	4		3	(4)		(3)	—		—		—
Purchase and retirement of common shares and other	(230)		(160)	—		1	—		—		(7,864)
Balance at September 30, 2022	40,294	$	27,982	28,622	$	19,877	99	$	(1,992)	$	743,084

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	16		11	(16)		(11)	—		—		—
Purchase and retirement of common shares and other	(920)		(639)	—		—	—		—		(29,545)
Balance at September 30, 2021	39,332	$	27,314	27,805	$	19,309	96	$	(1,992)	$	709,880

Note 5 — Fair Value Measurements

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

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As of September 30, 2022, December 31, 2021 and September 30, 2021, 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.

The fair value of the Company’s industrial revenue development bonds at September 30, 2022, December 31, 2021 and September 30, 2021 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.

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The following table presents information about the Company’s financial assets and liabilities measured at fair value as of September 30, 2022, December 31, 2021 and September 30, 2021 and indicate the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value:



	Estimated Fair Value September 30, 2022
	Total		Input Levels Used
	Fair Value		Level 1		Level 2		Level 3
Cash and cash equivalents	$	57,216	$	57,216	$	—	$	—
Available for sale securities		262,159		742		261,417		—
Foreign currency forward contracts		(366)		—		(366)		—
Commodity futures contracts		(31)		(31)		—		—
Trading securities		67,659		52,900		14,759		—
Total assets measured at fair value	$	386,637	$	110,827	$	275,810	$	—


	Estimated Fair Value December 31, 2021
		Total	Input Levels Used
		Fair Value		Level 1		Level 2		Level 3
Cash and cash equivalents	$	105,840	$	105,840	$	-	$	—
Available for sale securities		241,407		1,282		240,125		—
Foreign currency forward contracts		426		—		426		—
Commodity futures contracts		124		124		—		—
Trading securities		89,736		76,196		13,540		—
Total assets measured at fair value	$	437,533	$	183,442	$	254,091	$	—


	Estimated Fair Value September 30, 2021
		Total	Input Levels Used
		Fair Value		Level 1		Level 2		Level 3
Cash and cash equivalents	$	76,210	$	76,210	$	-	$	—
Available for sale securities		235,912		2,313		233,599		—
Foreign currency forward contracts		504		—		504		—
Commodity futures contracts		352		352		—		—
Trading securities		83,905		70,762		13,143		—
Total assets measured at fair value	$	396,883	$	149,637	$	247,246	$	—

Note 6 — Derivative Instruments and Hedging Activities

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

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

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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 $31 of this accumulated comprehensive loss is expected to be reclassified to earnings in 2023. Approximately $41 and $325 reported in accumulated other comprehensive loss for foreign currency derivatives are expected to be reclassified to other income, net in 2022 and 2023, respectively.

The following table summarizes the Company’s outstanding derivative contracts and their effects on its Condensed Consolidated Statements of Financial Position at September 30, 2022, December 31, 2021 and September 30, 2021:



	September 30, 2022
	Notional
	Amounts		Assets		Liabilities
Derivatives designated as hedging instruments:
Foreign currency forward contracts	$	6,782	$	26	$	(392)
Commodity futures contracts		1,009		1		(32)
Total derivatives			$	27	$	(424)

	December 31, 2021
	Notional
	Amounts		Assets		Liabilities
Derivatives designated as hedging instruments:
Foreign currency forward contracts	$	6,729	$	426	$	—
Commodity futures contracts		6,012		231		(107)
Total derivatives			$	657	$	(107)

	September 30, 2021
	Notional
	Amounts		Assets		Liabilities
Derivatives designated as hedging instruments:
Foreign currency forward contracts	$	3,995	$	504	$	—
Commodity futures contracts		2,730		352		—
Total derivatives			$	856	$	—

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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 September 30, 2022 and September 30, 2021 are as follows:



	For Quarter Ended September 30, 2022
					Gain (Loss)
			Gain (Loss)		on Amount Excluded
	Gain (Loss)		Reclassified from		from Effectiveness
	Recognized		Accumulated OCI		Testing Recognized
	in OCI		into Earnings		in Earnings

Foreign currency forward contracts	$	(483)	$	48	$	—
Commodity futures contracts		(59)		73		—
Total	$	(542)	$	121	$	—

	For Quarter Ended September 30, 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	$	(107)	$	106	$	—
Commodity futures contracts		414		816		—
Total	$	307	$	922	$	—

	For Year to Date Ended September 30, 2022
					Gain (Loss)
			Gain (Loss)		on Amount Excluded
	Gain (Loss)		Reclassified from		from Effectiveness
	Recognized		Accumulated OCI		Testing Recognized
	in OCI		into Earnings		in Earnings

Foreign currency forward contracts	$	(556)	$	236	$	—
Commodity futures contracts		6		162		—
Total	$	(550)	$	398	$	—

	For Year to Date Ended September 30, 2021
					Gain (Loss)
			Gain (Loss)		on Amount Excluded
	Gain (Loss)		Reclassified from		from Effectiveness

Boards:

Quotes:

TR