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

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

For the quarterly period ended September 30, ~~2018~~2019

☐

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

☐~~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~~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, ~~2018)~~2019).


Class		Outstanding

Common Stock, ~~$.69 4/~~$0.69-4/9 par value		~~38,621,418~~39,019,205
Class B Common Stock, ~~$.69 4/~~$0.69-4/9 par value		~~25,599,198~~26,299,531

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, ~~2018~~2019

INDEX

~~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~~8-16

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	~~15-20~~17-21

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	20 22

Item 4.	Controls and Procedures	20 22

Part II —	Other Information

Item 1.	Legal Proceedings	2123
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	21 23

Item 6.	Exhibits	21 23

Signatures		22 24

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, 2018

December 31, 2017

September 30, 2017

ASSETS

CURRENT ASSETS:

Cash & cash equivalents

$
64,333

$
96,314

$
49,512
Restricted cash

393

406

400
Investments

68,373

41,606

74,272
Trade accounts receivable, less allowances of $2,873, $1,921 & $3,225

93,616

47,354

95,341
Other receivables

5,802

5,425

6,405
Inventories:

Finished goods & work-in-process

37,148

31,922

41,273
Raw material & supplies

26,172

22,905

26,767
Income taxes receivable and prepaid

-

12,974

-
Prepaid expenses

6,439

12,014

2,489
Total current assets

302,276

270,920

296,459

PROPERTY, PLANT & EQUIPMENT, at cost:

Land

21,968

21,962

22,222
Buildings

118,581

118,491

116,555
Machinery & equipment

381,522

381,665

369,753
Construction in progress

21,106

4,866

14,328

543,177

526,984

522,858
Less-accumulated depreciation

361,079

348,012

344,809
Net property, plant and equipment

182,098

178,972

178,049

OTHER ASSETS:

Goodwill

73,237

73,237

73,237
Trademarks

175,024

175,024

175,024
Investments

188,393

190,510

193,991
Split dollar officer life insurance

26,042

26,042

26,042
Prepaid expenses and other assets

13,249

15,817

34
Deferred income taxes

445

424

-
Total other assets

476,390

481,054

468,328
Total assets

$
960,764

$
930,946

$
942,836



	September 30, 2019		December 31, 2018		September 30, 2018

ASSETS

CURRENT ASSETS:
Cash and cash equivalents	$	87,400	$	110,899	$	64,333
Restricted cash		369		388		393
Investments		76,766		75,140		68,373
Accounts receivable trade, less allowances of $2,728, $1,820 and $2,873		88,241		49,777		93,616
Other receivables		3,616		2,941		5,802
Inventories:
Finished goods and work-in-process		41,627		32,159		37,148
Raw materials and supplies		28,783		22,365		26,172
Prepaid expenses		5,504		10,377		6,439
Total current assets		332,306		304,046		302,276

PROPERTY, PLANT AND EQUIPMENT, at cost:
Land		21,712		21,726		21,968
Buildings		121,802		121,780		118,581
Machinery and equipment		400,885		401,037		381,522
Construction in progress		15,497		3,408		21,106
Operating lease right-of-use assets		1,770		-		-
		561,666		547,951		543,177
Less - accumulated depreciation		374,924		361,850		361,079
Net property, plant and equipment		186,742		186,101		182,098

OTHER ASSETS:
Goodwill		73,237		73,237		73,237
Trademarks		175,024		175,024		175,024
Investments		178,808		170,409		188,393
Split dollar officer life insurance		26,042		26,042		26,042
Prepaid expenses and other assets		9,411		11,980		13,249
Deferred income taxes		522		522		445
Total other assets		463,044		457,214		476,390
Total assets	$	982,092	$	947,361	$	960,764

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

Table of Contents

(in thousands except per share data) (Unaudited)

September 30, 2018

December 31, 2017

September 30, 2017

LIABILITIES AND SHAREHOLDERS’ EQUITY

CURRENT LIABILITIES:

Accounts payable

$
18,637

$
11,928

$
14,037
Bank loans

190

440

404
Dividends payable

5,777

5,660

5,667
Accrued liabilities

45,787

45,157

50,552
Postretirement health care

603

603

513
Income taxes payable

3,516

-

7,636
Total current liabilities

74,510

63,788

78,809

NONCURRENT LIABILITIES:

Deferred income taxes

41,382

41,457

44,316
Postretirement health care

13,167

12,894

11,941
Industrial development bonds

7,500

7,500

7,500
Liability for uncertain tax positions

4,148

4,817

4,811
Deferred compensation and other liabilities

73,321

66,686

80,936
Total noncurrent liabilities

139,518

133,354

149,504

TOOTSIE ROLL INDUSTRIES, INC. SHAREHOLDERS’ EQUITY:

Common stock, $.69-4/9 par value- 120,000 shares authorized; 38,621, 37,960 & 38,046, respectively, issued

26,820

26,361

26,421
Class B common stock, $.69-4/9 par value- 40,000 shares authorized; 25,599, 24,891 & 24,918, respectively, issued

17,777

17,285

17,304
Capital in excess of par value

699,140

656,752

660,779
Retained earnings

27,356

57,225

30,890
Accumulated other comprehensive loss

(22,261)

(21,791)

(18,921)
Treasury stock (at cost)- 88, 85 & 85 shares, respectively

(1,992)

(1,992)

(1,992)
Total Tootsie Roll Industries, Inc. shareholders’ equity

746,840

733,840

714,481
Noncontrolling interests

(104)

(36)

42
Total equity

746,736

733,804

714,523
Total liabilities and shareholders’ equity

$
960,764

$
930,946

$
942,836



	September 30, 2019		December 31, 2018		September 30, 2018

LIABILITIES AND SHAREHOLDERS’ EQUITY

CURRENT LIABILITIES:
Accounts payable	$	18,020	$	11,817	$	18,637
Bank loans		768		373		190
Dividends payable		5,876		5,772		5,777
Accrued liabilities		44,982		42,849		45,787
Postretirement health care benefits		580		580		603
Operating lease liabilities		1,061		-		-
Income taxes payable		6,122		-		3,516
Total current liabilities		77,409		61,391		74,510

NONCURRENT LIABILITIES:
Deferred income taxes		44,867		43,941		41,382
Postretirement health care benefits		12,129		11,871		13,167
Industrial development bonds		7,500		7,500		7,500
Liability for uncertain tax positions		3,537		3,816		4,148
Operating lease liabilities		709		-		-
Deferred compensation and other liabilities		77,801		68,345		73,321
Total noncurrent liabilities		146,543		135,473		139,518

TOOTSIE ROLL INDUSTRIES, INC. SHAREHOLDERS’ EQUITY:
Common stock, $.69-4/9 par value - 120,000 shares authorized; 39,019, 38,544 and 38,621, respectively, issued		27,096		26,767		26,820
Class B common stock, $.69-4/9 par value - 40,000 shares authorized; 26,300, 25,584 and 25,599, respectively, issued		18,264		17,767		17,777
Capital in excess of par value		702,806		696,535		699,140
Retained earnings		32,107		33,767		27,356
Accumulated other comprehensive loss		(19,952)		(22,222)		(22,261)
Treasury stock (at cost) - 90, 88 and 88 shares, respectively		(1,992)		(1,992)		(1,992)
Total Tootsie Roll Industries, Inc. shareholders’ equity		758,329		750,622		746,840
Noncontrolling interests		(189)		(125)		(104)
Total equity		758,140		750,497		746,736
Total liabilities and shareholders’ equity	$	982,092	$	947,361	$	960,764

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

Table of Contents

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, 2018

September 30, 2017

September 30, 2018

September 30, 2017

Net product sales

$
181,505

$
182,173

$
387,987

$
390,495
Rental and royalty revenue

798

842

2,925

2,771
Total revenue

182,303

183,015

390,912

393,266

Product cost of goods sold

115,246

114,970

248,561

245,889
Rental and royalty cost

211

240

686

757
Total costs

115,457

115,210

249,247

246,646

Product gross margin

66,259

67,203

139,426

144,606
Rental and royalty gross margin

587

602

2,239

2,014
Total gross margin

66,846

67,805

141,665

146,620
Selling, marketing and administrative expenses

36,620

33,222

91,229

86,502
Earnings from operations

30,226

34,583

50,436

60,118
Other income (loss), net

2,987

4,370

6,871

9,311
Earnings before income taxes

33,213

38,953

57,307

69,429
Provision for income taxes

7,134

12,066

12,657

20,681
Net earnings

26,079

26,887

44,650

48,748
Less: Net earnings (loss) attributable to noncontrolling interests

(25)

(46)

(68)

(131)
Net earnings attributable to Tootsie Roll Industries, Inc.

$
26,104

$
26,933

$
44,718

$
48,879

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

$
0.41

$
0.42

$
0.70

$
0.75
Dividends per share *

$
0.09

$
0.09

$
0.27

$
0.27

Average number of shares outstanding

64,155

64,855

64,268

65,155

Retained earnings at beginning of period

$
7,020

$
9,615

$
57,225

$
43,833
Net earnings attributable to Tootsie Roll Industries, Inc.

26,104

26,933

44,718

48,879
Adopted ASU's (See Note 1)

-

-

2,726

-
Cash dividends

(5,768)

(5,658)

(17,164)

(16,898)
Stock dividends

-

-

(60,149)

(44,924)
Retained earnings at end of period

$
27,356

$
30,890

$
27,356

$
30,890



	Quarter Ended				Year to Date Ended
	September 30, 2019		September 30, 2018		September 30, 2019		September 30, 2018

Net product sales	$	181,913	$	181,505	$	388,953	$	387,987
Rental and royalty revenue		811		798		2,700		2,925
Total revenue		182,724		182,303		391,653		390,912
Product cost of goods sold		112,867		115,246		243,668		248,561
Rental and royalty cost		241		211		772		686
Total costs		113,108		115,457		244,440		249,247
Product gross margin		69,046		66,259		145,285		139,426
Rental and royalty gross margin		570		587		1,928		2,239
Total gross margin		69,616		66,846		147,213		141,665
Selling, marketing and administrative expenses		33,578		36,620		92,902		91,229
Earnings from operations		36,038		30,226		54,311		50,436
Other income (loss), net		1,846		2,987		10,916		6,871
Earnings before income taxes		37,884		33,213		65,227		57,307
Provision for income taxes		8,038		7,134		14,926		12,657
Net earnings		29,846		26,079		50,301		44,650
Less: net earnings (loss) attributable to noncontrolling interests		(8)		(25)		(64)		(68)
Net earnings attributable to Tootsie Roll Industries, Inc.	$	29,854	$	26,104	$	50,365	$	44,718

Net earnings attributable to Tootsie Roll Industries, Inc. per share	$	0.46	$	0.40	$	0.77	$	0.68
Dividends per share *	$	0.09	$	0.09	$	0.27	$	0.27

Average number of shares outstanding		65,344		66,069		65,598		66,182

Retained earnings at beginning of period	$	8,121	$	7,020	$	33,767	$	57,225
Net earnings attributable to Tootsie Roll Industries, Inc.		29,854		26,104		50,365		44,718
Adoption of ASU 2014-09 and 2018-02		-		-		-		2,726
Cash dividends		(5,868)		(5,768)		(17,519)		(17,164)
Stock dividends		-		-		(34,506)		(60,149)
Retained earnings at end of period	$	32,107	$	27,356	$	32,107	$	27,356

*Does not include 3% stock dividend to shareholders of record on 3/~~6/18~~5/19 and 3/~~7/17.~~6/18.

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

Table of Contents

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, 2018

September 30, 2017

September 30, 2018

September 30, 2017

Net earnings

$
26,079

$
26,887

$
44,650

$
48,748

Other comprehensive income (loss), before tax:

Foreign currency translation adjustments

1,164

(216)

1,102

2,875

Pension and postretirement reclassification adjustments:

Unrealized gains (losses) for the period on postretirement and pension benefits

-

4

-

95
Less: reclassification adjustment for (gains) losses to net earnings

(331)

(366)

(993)

(1,097)
Unrealized gains (losses) on postretirement and pension benefits

(331)

(362)

(993)

(1,002)

Investments:

Unrealized gains (losses) for the period on investments

209

121

(1,071)

500
Less: reclassification adjustment for (gains) losses to net earnings

-

-

-

-
Unrealized gains (losses) on investments

209

121

(1,071)

500

Derivatives:

Unrealized gains (losses) for the period on derivatives

(573)

19

(2,422)

(1,735)
Less: reclassification adjustment for (gains) losses to net earnings

795

28

1,630

(109)
Unrealized gains (losses) on derivatives

222

47

(792)

(1,844)

Total other comprehensive income (loss), before tax

1,264

(410)

(1,754)

529
Income tax benefit (expense) related to items of other comprehensive income

(24)

70

691

796
Total comprehensive earnings

27,319

26,547

43,587

50,073
Comprehensive earnings (loss) attributable to noncontrolling interests

(25)

(46)

(68)

(131)
Total comprehensive earnings attributable to Tootsie Roll Industries, Inc.

$
27,344

$
26,593

$
43,655

$
50,204



	Quarter Ended				Year to Date Ended
	September 30, 2019		September 30, 2018		September 30, 2019		September 30, 2018

Net earnings	$	29,846	$	26,079	$	50,301	$	44,650

Other comprehensive income (loss), before tax:
Foreign currency translation adjustments		(353)		1,164		243		1,102

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		(380)		(331)		(1,141)		(993)
Unrealized gains (losses) on postretirement and pension benefits		(380)		(331)		(1,141)		(993)

Investments:
Unrealized gains (losses) for the period on investments		364		209		3,016		(1,071)
Less: reclassification adjustment for (gains) losses to net earnings		34		-		34		-
Unrealized gains (losses) on investments		398		209		3,050		(1,071)

Derivatives:
Unrealized gains (losses) for the period on derivatives		(492)		(573)		115		(2,422)
Less: reclassification adjustment for (gains) losses to net earnings		390		795		648		1,630
Unrealized gains (losses) on derivatives		(102)		222		763		(792)

Total other comprehensive income (loss), before tax		(437)		1,264		2,915		(1,754)
Income tax benefit (expense) related to items of other comprehensive income		22		(24)		(645)		691
Total comprehensive earnings		29,431		27,319		52,571		43,587
Comprehensive earnings (loss) attributable to noncontrolling interests		(8)		(25)		(64)		(68)
Total comprehensive earnings attributable to Tootsie Roll Industries, Inc.	$	29,439	$	27,344	$	52,635	$	43,655

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

Table of Contents

TOOTSIE ROLL INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands) (Unaudited)



	Year to Date Ended
	September 30, 2019		September 30, 2018
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings	$	50,301	$	44,650
Adjustments to reconcile net earnings to net cash used in operating activities:
Depreciation		14,112		13,933
Deferred income taxes		279		(443)
Amortization of marketable security premiums		976		1,351
Changes in operating assets and liabilities:
Accounts receivable		(38,516)		(45,881)
Other receivables		(702)		(649)
Inventories		(15,867)		(8,333)
Prepaid expenses and other assets		3,384		8,268
Accounts payable and accrued liabilities		10,635		10,932
Income taxes payable		9,863		15,821
Postretirement health care benefits		(883)		(720)
Deferred compensation and other liabilities		2,594		2,051
Net cash provided by operating activities		36,176		40,980
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures		(14,151)		(16,812)
Purchases of trading securities		(2,835)		(3,807)
Sales of trading securities		362		817
Purchase of available for sale securities		(49,999)		(65,098)
Sale and maturity of available for sale securities		51,580		45,379
Net cash used in investing activities		(15,043)		(39,521)
CASH FLOWS FROM FINANCING ACTIVITIES:
Shares purchased and retired		(27,232)		(16,650)
Dividends paid in cash		(17,592)		(17,208)
Proceeds from bank loans		2,662		1,264
Repayment of bank loans		(2,233)		(1,506)
Net cash used in financing activities		(44,395)		(34,100)
Effect of exchange rate changes on cash		(256)		647
Decrease in cash and cash equivalents		(23,518)		(31,994)
Cash, cash equivalents and restricted cash at beginning of year		111,287		96,720
Cash, cash equivalents and restricted cash at end of quarter	$	87,769	$	64,726
Supplemental cash flow information:
Income taxes paid/(received), net	$	5,182	$	(2,811)
Interest paid	$	95	$	81
Stock dividend issued	$	70,557	$	60,538

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

Table of Contents

TOOTSIE ROLL INDUSTRIES, INC.

~~CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS~~

~~(in thousands) (Unaudited)~~

Year to Date Ended

September 30, 2018

September 30, 2017
CASH FLOWS FROM OPERATING ACTIVITIES:

Net earnings

$
44,650

$
48,748
Adjustments to reconcile net earnings to net cash used in operating activities:

Depreciation and amortization

13,933

14,364
Deferred income taxes

(443)

153
Amortization of marketable security premiums

1,351

1,840
Changes in operating assets and liabilities:

Accounts receivable

(45,881)

(51,270)
Other receivables

(649)

(4,265)
Inventories

(8,333)

(10,018)
Prepaid expenses and other assets

8,268

3,313
Accounts payable and accrued liabilities

10,932

8,249
Income taxes payable

15,821

8,706
Postretirement health care benefits

(720)

(677)
Deferred compensation and other liabilities

2,051

(723)
Net cash from operating activities

40,980

18,420
CASH FLOWS FROM INVESTING ACTIVITIES:

Capital expenditures

(16,812)

(11,699)
Purchases of trading securities

(3,807)

(3,387)
Sales of trading securities

817

3,544
Purchase of available for sale securities

(65,098)

(51,935)
Sale and maturity of available for sale securities

45,379

21,328
Net cash used in investing activities

(39,521)

(42,149)
CASH FLOWS FROM FINANCING ACTIVITIES:

Shares purchased and retired

(16,650)

(30,027)
Dividends paid in cash

(17,208)

(16,965)
Proceeds from bank loans

1,264

1,182
Repayment of bank loans

(1,506)

(1,345)
Net cash used in financing activities

(34,100)

(47,155)
Effect of exchange rate changes on cash

647

1,269
Decrease in cash and cash equivalents

(31,994)

(69,615)
Cash, cash equivalents and restricted cash at beginning of year

96,720

119,527
Cash, cash equivalents and restricted cash at end of quarter

$
64,726

$
49,912
Supplemental cash flow information:

Income taxes paid/(received), net

$
(2,811)

$
12,360
Interest paid

$
81

$
49
Stock dividend issued

$
60,538

$
69,739

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

~~Table of Contents~~

~~TOOTSIE ROLL INDUSTRIES, INC.~~

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~September~~SEPTEMBER 30, ~~2018~~2019

(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, ~~2017~~2018 (the ~~“2017~~“2018 Form 10-K”).

Results of operations for the period ended September 30, ~~2018~~2019 are not necessarily indicative of results to be expected for the year to end December 31, ~~2018~~2019 because of the seasonal nature of the Company’s operations. Historically, the third quarter has been the Company’s largest sales quarter due to pre-Halloween sales.

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 product sales revenue in the same period the related product sales are recorded. Such estimates are calculated using historical averages adjusted for any expected changes due to current business conditions and experience. A net product sale is recorded when the Company delivers the product to the customer, or in certain instances, the customer picks up the goods at the Company’s distribution center, and thereby obtains control of such product. Amounts billed and due from our customers are classified as accounts ~~receivables~~receivable trade on the balance sheet and require payment on a short-term basis. Accounts receivable trade are unsecured. Shipping and handling costs of $14,536 and $14,698 in third quarter 2019 and 2018, respectively, and $36,753 and $36,304 in nine months 2019 and 2018, respectively, are included in selling, marketing and administrative expenses. ~~We also recognize a~~ A minor amount of royalty income (less than 0.2% of our consolidated net sales) is also recognized from sales-based licensing arrangements, pursuant to which revenue is recognized as the third-party licensee sales occur. Rental income (less than 1% of our consolidated net sales) is not considered revenue from contracts from customers. ~~See “Recently Adopted Accounting Pronouncements”~~

Leases

The Company identifies leases by evaluating our contracts to determine if the contract conveys the right to use an identified asset for ~~further discussion.~~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 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 we have 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.

Table of Contents

Recently Adopted Accounting Pronouncements

~~In May 2014,~~At the ~~FASB issued ASU 2014-09, (ASC Topic 606)~~beginning of 2019, the Company adopted Accounting Standards Update No. 2016-02 (ASU 2016-02), Leases (Subtopic 842), which ~~supersedes nearly~~requires lessees to recognize all ~~existing revenue~~leases with a term greater than 12 months on the balance sheet as right-of-use assets and lease liabilities. Upon adoption, the impact was the recognition ~~guidance. Subsequent to the issuance~~ of ~~ASC Topic~~ ~~606, the FASB clarified~~$1,482 in right-of-use assets and ~~amended the guidance through several Accounting Standard Updates; hereinafter the collection of revenue guidance is referred to as “ASC~~ ~~606”. The core principle of ASC~~ 606 is that revenue should be recognized to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchangelease liabilities for ~~those goods or services.~~operating leases. The Company adopted ASU ~~2014-09~~2016-02 utilizing the current-period adjustment method and related amendments (ASC 606) as of January 1, 2018 using the modified retrospective method. As a result of adoption, the cumulative impact to retained earnings at January 1, 2018 was a net after-tax increase of $3,319 ($4,378 pre-tax). The adoption principally changed the timing of recognition of certain trade promotions and related adjustments thereto which affect net product sales. Thedid not recast comparative ~~information has not been restated and continues to be reported under the accounting standards in effect for those periods. The Company expects the impact of the~~periods upon adoption of the new ~~standard~~standard. In addition, we elected certain practical expedients which permitted us to ~~be immaterial~~notreassess whether existing contracts are or contain leases, to ~~its net income on an ongoing basis. Revenue continues~~not reassess the lease classification of any existing leases, to ~~be recognized at a point in time~~not reassess initial direct costs for ~~product sales when products are delivered~~any existing leases, and to ~~or picked up by the customer as discussed above.~~

~~Table of Contents~~

In February 2018, the FASB issued ASU 2018-02 which provides financial statement preparers with an option to reclassify stranded tax effects within Accumulated Other Comprehensive Income (AOCI) to retained earnings in each period in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act (or portion thereof) is recorded. The guidance is effectivenot separate lease components for all ~~organizations for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted, including adoption in any interim period.~~classes of underlying assets. The amendments should be applied either in the period adopted or retrospectively to each period (or periods) in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act is recognized. The Company early adopted ASU 2018-02 on January 1, 2018 with a $593 cumulative-effect adjustment from AOCI to decrease retained earnings related to certain tax effects of unrealized gains and losses on available-for-sale securities and other post-retirement benefits. No other income tax effects related to the application of the Tax Cuts and Jobs Act were reclassified from AOCI to retained earnings.

In March 2018, the FASB issued ASU 2018-05 which adds various Securities and Exchange Commission (“SEC”) paragraphs pursuant to the issuance of the December 2017 SEC Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (“SAB 118”), which was effective immediately. The SEC issued SAB 118 to address concerns about reporting entities’ ability to timely comply with the accounting requirements to recognize all of the effects of the Tax Cuts and Jobs Act in the period of enactment. SAB 118 allows disclosure that timely determination of some or all of the income tax effects from the Tax Cuts and Jobs Act are incomplete by the due date of the financial statements and if possible to provide a reasonable estimate. The Company has accounted for the tax effects of the Tax Cuts and Jobs Act under the guidance of SAB 118, on a provisional basis. The accounting for certain income tax effects is incomplete, but the Company has determined reasonable estimates for those effects and has recorded provisional amounts in the condensed consolidated financial statements as of September 30, 2018 and December 31, 2017.

~~In January 2016, the FASB issued ASU 2016-01, as amended by ASU 2018-03, issued in February 2018~~, which among other changes in accounting and disclosure requirements, replaces the cost method of accounting for non-marketable equity securities with a model for recognizing impairments and observable price changes, and also eliminates the available-for-sale classification for marketable equity securities. The Company adopted this guidance as of January 1, 2018. The Company does not have any non-marketable securities, and therefore, the adoption of this ~~guidance did not have any impact on its consolidated financial statements.~~

~~In August 2016, the FASB issued~~ ASU 2016-15, which clarifies how entities should classify certain cash receipts and cash payments on the statement of cash flows. The standard will be effective for fiscal years beginning after December 15, 2017, including interim periods within those years. The Company retrospectively adopted this guidance effective January 1, 2018. The Company’s adoption of this guidance did not have a material impact on ~~its~~the Company’s consolidated financial statements.

~~In November 2016, the FASB issued ASU 2016-18~~which requires amounts generally described as restricted cash and restricted cash equivalents be included with cash and cash equivalents when reconciling the total beginning and ending amounts for the periods shown on the statement of cash flows. The standard is effective for fiscal years beginning after December 15, 2017, including interim periods within those years using a retrospective transition method to each period presented. The Company retrospectively adopted this guidance as of January 1, 2018. The Company’s adoption of this guidance did not have a material impact on its consolidated financial statements.

In March 2017, the FASB issued ASU 2017-07 which requires companies with other postretirement employee benefit plans to present the service cost component of net periodic benefit cost in the same income statement line item as other compensation costs. The other components of net periodic benefit cost will be presented separately and not included in operating income. The standard will be effective for fiscal years beginning after December 15, 2017, including interim periods within those years. The Company retrospectively adopted this guidance effective January 1, 2018. The Company’s adoption of this guidance did not have a material impact on its consolidated financial statements.

~~Table of Contents~~

~~Recently Issued Accounting Pronouncements - Not Yet Adopted~~

In February 2016, the FASB issued ASU 2016-02 which amends existing guidance to require lessees to recognize assets and liabilities on the balance sheet for the rights and obligations created by long-term leases and to disclose additional quantitative and qualitative information about leasing arrangements. This ASU also provides clarifications surrounding the presentation of the effects of leases in the income statement and statement of cash flows. This guidance will be effective for the Company on January 1, 2019. The Company owns substantially all of its personal property and real estate. However, the Company expects the new lease standard to increase its total assets and liabilities. The Company is currently evaluating the magnitude of the impact that this guidance will have on its consolidated financial statements upon adoption.

In August 2017, the FASB issued ASU 2017-12, guidance that amends hedge accounting. Under the new guidance, more hedging strategies ~~will be~~are eligible for hedge accounting and the application of hedge accounting is simplified. The new guidance amends presentation and disclosure requirements, and how effectiveness is assessed. The guidance is effective for fiscal years beginning after December 15, 2018, and interim periods within those years. ~~Early adoption is permitted.~~On January 1, 2019, the Company adopted ASU 2017-12. The ~~Company has completed its initial assessment and does not expect~~ adoption of this ~~guidance to~~ASU did not have a material impact on the Company’s consolidated financial statements.

Recently Issued Accounting Pronouncements - Not Yet Adopted

In June 2016, the FASB issued ASU No. 2016-13, which replaces the current incurred loss impairment method with a new method that reflects expected credit losses. Under this new model an entity would recognize an impairment allowance equal to its current estimate of credit losses on financial assets measured at amortized cost. This guidance is effective for fiscal years beginning after December 15, 2019, with early adoption permitted. The Company is currently evaluating the impact this guidance will have on its consolidated financial statements.

Note 2 — Average Shares Outstanding

The average number of shares outstanding for nine months 2019 reflects aggregate stock purchases of 726 shares for $27,232 and a 3% stock dividend of 1,914 shares distributed on April 5, 2019. The average number of shares outstanding for nine months 2018 reflects aggregate stock purchases of 502 shares for $16,650 and a 3% stock dividend of 1,869 shares distributed on April 6, 2018. ~~The average number of shares outstanding for nine months 2017 reflects stock purchases of 809 shares for $30,027 and a 3% stock dividend of 1,847 shares distributed on April 17, 2017.~~

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 2015 through 2017. ~~With few exceptions, the Company is no longer subject to examination by tax authorities for the year 2014 and prior.~~ The Company’s consolidated effective income tax ~~rates were~~rate was 21.2% and 21.5% ~~and 31.0%~~ in third quarter ~~2018~~2019 and ~~2017,~~2018, respectively, and ~~22.1%~~22.9% and ~~29.8%~~22.1% in nine months ~~2018~~2019 and ~~2017,~~2018, respectively. The ~~lower effective~~higher tax rate in ~~third quarter and~~ nine months ~~2018 compared to third quarter and nine months 2017~~2019 principally reflects ~~the lower U.S. federal statutory~~higher state income tax ~~rate~~expense.

Table of ~~21% effective for 2018.~~Contents

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

The Company believes it has obtained and analyzed all reasonably available information necessary to record the effects of the change in tax law and considers its accounting for the effects of the 2017 Tax Reform Act to be provisional as of September 30, 2018. The ultimate impact may differ from these provisional amounts, possibly materially, due to, among other things, additional regulatory guidance that may be issued by the Internal Revenue Service, and actions the Company may take as a result of the Tax Reform Act.


										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, 2019	39,233	$	27,245	26,302	$	18,264	90	$	(1,992)	$	710,703
Issuance of 3% stock dividend	—		—	—		—	—		—		—
Conversion of Class B common shares to common shares	2		—	(2)		—	—		—		—
Purchase and retirement of common shares and other	(216)		(149)	—		—	—		—		(7,897)
Balance at September 30, 2019	39,019	$	27,096	26,300	$	18,264	90	$	(1,992)	$	702,806

Balance at June 30, 2018	38,645	$	26,837	25,605	$	17,781	88	$	(1,992)	$	699,965
Issuance of 3% stock dividend	—		—	—		—	—		—		—
Conversion of Class B common shares to common shares	6		5	(6)		(5)	—		—		—
Purchase and retirement of common shares and other	(30)		(22)	-		1	—		—		(825)
Balance at September 30, 2018	38,621	$	26,820	25,599	$	17,777	88	$	(1,992)	$	699,140

Balance at December 31, 2018	38,544	$	26,767	25,584	$	17,767	88	$	(1,992)	$	696,535
Issuance of 3% stock dividend	1,150		798	767		532	2		—		32,999
Conversion of Class B common shares to common shares	51		35	(51)		(35)	—		—		—
Purchase and retirement of common shares and other	(726)		(504)	—		—	—		—		(26,728)
Balance at September 30, 2019	39,019	$	27,096	26,300	$	18,264	90	$	(1,992)	$	702,806

Balance at December 31, 2017	37,960	$	26,361	24,891	$	17,285	85	$	(1,992)	$	656,752
Issuance of 3% stock dividend	1,125		781	746		519	3		—		58,689
Conversion of Class B common shares to common shares	38		27	(38)		(27)	—		—		—
Purchase and retirement of common shares and other	(502)		(349)	—		—	—		—		(16,301)
Balance at September 30, 2018	38,621	$	26,820	25,599	$	17,777	88	$	(1,992)	$	699,140

Note 45 — 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.

Table of Contents

As of September 30, ~~2018,~~2019, December 31, ~~2017~~2018 and September 30, ~~2017,~~2018, the Company held certain financial assets that are required to be measured at fair value on a recurring basis. These included derivative hedging instruments related to the purchase of certain raw materials and foreign currencies, investments in trading securities and available for sale securities. The Company’s available for sale securities principally consist of ~~corporate and~~ municipal bonds ~~that are publicly traded~~ and variable rate demand notes and obligations with interest rates that generally reset weekly and the security can be “put” back and sold weekly. Trading securities principally consist of equity mutual funds that are publicly traded.notes.

The following table presents information about the Company’s financial assets and liabilities measured at fair value as of September 30, ~~2018,~~2019, December 31, ~~2017~~2018 and September 30, ~~2017~~2018 and indicate the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value:



	Estimated Fair Value September 30, 2018
	Total		Input Levels Used
	Fair Value		Level 1		Level 2		Level 3


									Estimated Fair Value September 30, 2019
									Total		Input Levels Used
									Fair Value		Level 1		Level 2		Level 3
Cash and cash equivalents	$	64,333	$	64,333	$	-	$	-	$	87,400	$	87,400	$	-	$	-
Available for sale securities		189,172		732		188,440		-		183,784		3,584		180,200		-
Foreign currency forward contracts		177		-		177		-		(122)		-		(122)		-
Commodity futures contracts		(859)		(859)		-		-		(108)		(108)		-		-
Trading securities		67,594		67,594		-		-		71,790		71,790		-		-
Total assets measured at fair value	$	320,417	$	131,800	$	188,617	$	-	$	342,744	$	162,666	$	180,078	$	-


	Estimated Fair Value December 31, 2017
		Total	Input Levels Used
		Fair Value		Level 1		Level 2		Level 3


									Estimated Fair Value December 31, 2018
										Total	Input Levels Used
										Fair Value		Level 1		Level 2		Level 3
Cash and cash equivalents	$	96,314	$	96,314	$	-	$	-	$	110,899	$	110,899	$	-	$	-
Available for sale securities		171,596		1,200		170,396		-		183,289		3,000		180,289		-
Foreign currency forward contracts		79		-		79		-		(407)		-		(407)		-
Commodity futures contracts, net		32		32		-		-		(587)		(587)		-		-
Trading securities		60,520		60,520		-		-		62,260		62,260		-		-
Total assets measured at fair value	$	328,541	$	158,066	$	170,475	$	-	$	355,454	$	175,572	$	179,882	$	-


	Estimated Fair Value September 30, 2017
		Total	Input Levels Used
		Fair Value		Level 1		Level 2		Level 3


									Estimated Fair Value September 30, 2018
										Total	Input Levels Used
										Fair Value		Level 1		Level 2		Level 3
Cash and cash equivalents	$	49,512	$	49,512	$	-	$	-	$	64,333	$	64,333	$	-	$	-
Available for sale securities		193,169		2,402		190,767		-		189,172		732		188,440		-
Foreign currency forward contracts		147		-		147		-		177		-		177		-
Commodity futures contracts		(364)		(364)		-		-		(859)		(859)		-		-
Trading securities		75,094		75,094		-		-		67,594		67,594		-		-
Total assets measured at fair value	$	317,558	$	126,644	$	190,914	$	-	$	320,417	$	131,800	$	188,617	$	-

The fair value of the Company’s industrial revenue development bonds at September 30, ~~2018,~~2019, December 31, ~~2017~~2018 and September 30, ~~2017~~2018 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.

Table of Contents

Note 56 — Derivative Instruments and Hedging Activities

~~The~~From time to time, the Company uses derivative instruments, including foreign currency forward contracts ~~commodity futures contracts~~ and commodity ~~option~~futures contracts to manage its exposures to foreign exchange and commodity prices. Commodity futures ~~contracts and most commodity option~~ 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.~~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.~~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.

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 ~~$816 of this accumulated comprehensive loss is expected to be reclassified as a charge to earnings in 2019 and $43~~$108 of this accumulated comprehensive loss is expected to be reclassified as a charge to earnings in 2020. Approximately ~~$90~~$38 and ~~$87~~$84 reported in accumulated other comprehensive loss for foreign currency derivatives are expected to be reclassified to other income, net in 2019 and 2020, 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, ~~2018,~~2019, December 31, ~~2017~~2018 and September 30, ~~2017:~~2018:



	September 30, 2018
	Notional
	Amounts		Assets		Liabilities



							September 30, 2019
							Notional
							Amounts		Assets		Liabilities

Derivatives designated as hedging instruments:
Foreign currency forward contracts	$	11,050	$	177	$	-	$	8,294	$	-	$	(122)
Commodity futures contracts		8,285		3		(862)		4,726		26		(134)
Total derivatives			$	180	$	(862)			$	26	$	(256)

	December 31, 2017
	Notional
	Amounts		Assets		Liabilities


							December 31, 2018
							Notional
							Amounts		Assets		Liabilities

Derivatives designated as hedging instruments:
Foreign currency forward contracts	$	919	$	79	$	-	$	11,050	$	-	$	(407)
Commodity futures contracts		13,840		284		(252)		9,580		92		(679)
Total derivatives			$	363	$	(252)			$	92	$	(1,086)

	September 30, 2017
	Notional
	Amounts		Assets		Liabilities


							September 30, 2018
							Notional
							Amounts		Assets		Liabilities

Derivatives designated as hedging instruments:
Foreign currency forward contracts	$	2,059	$	147	$	-	$	11,050	$	177	$	-
Commodity futures contracts		13,616		56		(420)		8,285		3		(862)
Total derivatives			$	203	$	(420)			$	180	$	(862)

Table of Contents

The effects of derivative instruments on the Company’s Condensed Consolidated Statements of Earnings and Retained Earnings and the Condensed Consolidated Statements of Comprehensive Earnings for periods ended September 30, ~~2018~~2019 and September 30, ~~2017~~2018 are as follows:



	For Quarter Ended September 30, 2018
					Gain (Loss)
			Gain (Loss)		on Amount Excluded
	Gain (Loss)		Reclassified from		from Effectiveness
	Recognized		Accumulated OCI		Testing Recognized
	in OCI		into Earnings		in Earnings



							For Quarter Ended September 30, 2019
											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	$	177	$	-	$	-	$	(138)	$	(33)	$	-
Commodity futures contracts		(750)		(795)		-		(354)		(357)		-
Total	$	(573)	$	(795)	$	-	$	(492)	$	(390)	$	-

	For Quarter Ended September 30, 2017
					Gain (Loss)
			Gain (Loss)		on Amount Excluded
	Gain (Loss)		Reclassified from		from Effectiveness
	Recognized		Accumulated OCI		Testing Recognized
	in OCI		into Earnings		in Earnings


							For Quarter Ended September 30, 2018
											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	$	118	$	55	$	-	$	177	$	-	$	-
Commodity futures contracts		(99)		(83)		-		(750)		(795)		-
Total	$	19	$	(28)	$	-	$	(573)	$	(795)	$	-

	For Year to Date Ended September 30, 2018
					Gain (Loss)
			Gain (Loss)		on Amount Excluded
	Gain (Loss)		Reclassified from		from Effectiveness
	Recognized		Accumulated OCI		Testing Recognized
	in OCI		into Earnings		in Earnings


							For Year to Date Ended September 30, 2019
											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	$	166	$	67	$	-	$	252	$	(33)	$	-
Commodity futures contracts		(2,588)		(1,697)		-		(137)		(615)		-
Total	$	(2,422)	$	(1,630)	$	-	$	115	$	(648)	$	-

	For Year to Date Ended September 30, 2017
					Gain (Loss)
			Gain (Loss)		on Amount Excluded
	Gain (Loss)		Reclassified from		from Effectiveness
	Recognized		Accumulated OCI		Testing Recognized
	in OCI		into Earnings		in Earnings


							For Year to Date Ended September 30, 2018
											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	$	266	$	1	$	-	$	166	$	67	$	-
Commodity futures contracts		(2,001)		108		-		(2,588)		(1,697)		-
Total	$	(1,735)	$	109	$	-	$	(2,422)	$	(1,630)	$	-

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Note 67 — Pension Plans

~~During 2018 and 2017,~~From 2012 to 2014, the Company received ~~updated~~periodic notices ~~that~~from the Bakery, Confectionery, Tobacco Workers and ~~Confectionery~~Grain Millers International Union ~~and Industry International~~ Pension Plan (Plan), a multi-employer defined benefit pension plan for certain Company union employees, isthat the Plan’s actuary certified the Plan to be in “critical ~~and declining~~ 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 fourth quarter 2012. Since 2015, the Company has received annual notices that the Plan is ~~projected~~in “critical and declining status”, as defined by the PPA and PBGC, and that amendments to the rehabilitation plan were adopted. A designation of “critical and declining status” implies that the Plan is expected to become insolvent in the next 20 years. The Plan’s trustees project that the Plan will be insolvent in 2030.

The Company has been advised that its withdrawal liability would have been $81,600, $82,200 and $72,700 if it had withdrawn from the Plan during ~~2017.~~2018, 2017 and 2016, respectively. Subsequent to September 30, 2019, the Company requested and was advised by the Plan that its withdrawal liability would be $99,800 if it withdrew from the Plan during 2019. Should the Company actually withdraw from the Plan at a future date, a withdrawal liability, which could be higher than the above discussed ~~amount,~~amounts, could be payable to the Plan.

~~Table~~The amended rehabilitation plan requires that employer contributions include 5% compounded annual surcharge increases each year for an unspecified period of ~~Contents~~

time beginning January 2013 (in addition to the 5% interim surcharge initiated in June 2012) as well as certain plan benefit reductions. The Company’s pension expense for this Plan for nine months 2019 and 2018 was $2,307 and $2,201, respectively ($2,836 and $2,617 for twelve months 2018 and 2017, respectively). The aforementioned expense includes surcharges of $738 and $630 for nine months 2019 and 2018, respectively ($811 and $656 for twelve months 2018 and 2017, 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 ~~or other Plan restructuring changes discussed in Management’s Discussion and Analysis of Financial Condition and Results of Operations (Item 2)~~ could be material to its consolidated results of operations or cash flows in one or more future periods. ~~See also the Company’s Consolidated Financial Statements and related notes and Management’s Discussion and Analysis~~

Table of ~~Financial Condition and Results of Operations incorporated into the Company’s 2017 Form 10-K.~~Contents

Note 78 — 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)


																							Accumulated
													Foreign				Foreign				Postretirement		Other
													Currency				Currency		Commodity		and Pension		Comprehensive
													Translation		Investments		Derivatives		Derivatives		Benefits		Earnings (Loss)
Balance at June 30, 2019													$	(23,563)	$	494	$	(13)	$	(84)	$	3,629	$	(19,537)
Other comprehensive earnings (loss) before reclassifications														(353)		278		(105)		(268)		-		(448)
Reclassifications from accumulated other comprehensive loss														-		26		25		270		(288)		33
Other comprehensive earnings (loss) net of tax														(353)		304		(80)		2		(288)		(415)
Balance at September 30, 2019													$	(23,916)	$	798	$	(93)	$	(82)	$	3,341	$	(19,952)

Balance at June 30, 2018													$	(24,324)	$	(2,027)	$	-	$	(685)	$	3,535	$	(23,501)
Other comprehensive earnings (loss) before reclassifications														1,164		158		134		(568)		-		888
Reclassifications from accumulated other comprehensive loss														-		-		-		602		(250)		352
Other comprehensive earnings (loss) net of tax														1,164		158		134		34		(250)		1,240
Adoption of ASU 2018-02														-		-		-		-		-		-
Balance at September 30, 2018													$	(23,160)	$	(1,869)	$	134	$	(651)	$	3,285	$	(22,261)

Balance at December 31, 2018													$	(24,159)	$	(1,516)	$	(309)	$	(444)	$	4,206	$	(22,222)
Other comprehensive earnings (loss) before reclassifications														243		2,288		191		(104)		-		2,618
Reclassifications from accumulated other comprehensive loss														-		26		25		466		(865)		(348)
Other comprehensive earnings (loss) net of tax														243		2,314		216		362		(865)		2,270
Balance at September 30, 2019													$	(23,916)	$	798	$	(93)	$	(82)	$	3,341	$	(19,952)

Balance at December 31, 2017	$	(24,262)	$	(889)	$	51	$	20	$	3,289	$	(21,791)	$	(24,262)	$	(889)	$	51	$	20	$	3,289	$	(21,791)
Other comprehensive earnings (loss) before reclassifications		1,102		(812)		125		(1,961)		-		(1,546)		1,102		(812)		125		(1,961)		-		(1,546)
Reclassifications from accumulated other comprehensive loss		-		-		(51)		1,286		(752)		483		-		-		(51)		1,286		(752)		483
Other comprehensive earnings (loss) net of tax		1,102		(812)		74		(675)		(752)		(1,063)		1,102		(812)		74		(675)		(752)		(1,063)
Adoption of ASU 2018-02 (See Note 1)		-		(168)		9		4		748		593
Adoption of ASU 2018-02														-		(168)		9		4		748		593
Balance at September 30, 2018	$	(23,160)	$	(1,869)	$	134	$	(651)	$	3,285	$	(22,261)	$	(23,160)	$	(1,869)	$	134	$	(651)	$	3,285	$	(22,261)

											Accumulated
	Foreign				Foreign				Postretirement		Other
	Currency				Currency		Commodity		and Pension		Comprehensive
	Translation		Investments		Derivatives		Derivatives		Benefits		Earnings (Loss)
Balance at December 31, 2016	$	(25,460)	$	(697)	$	(76)	$	1,114	$	4,873	$	(20,246)
Other comprehensive earnings (loss) before reclassifications		2,875		319		170		(1,276)		6		2,094
Reclassifications from accumulated other comprehensive loss		-		-		-		(69)		(700)		(769)
Other comprehensive earnings (loss) net of tax		2,875		319		170		(1,345)		(694)		1,325
Balance at September 30, 2017	$	(22,585)	$	(378)	$	94	$	(231)	$	4,179	$	(18,921)

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



Details about Accumulated Other	Quarter Ended				Year to Date Ended				Location of (Gain) Loss	Quarter Ended				Year to Date Ended				Location of (Gain) Loss
Comprehensive Income Components	September 30, 2018		September 30, 2017		September 30, 2018		September 30, 2017		Recognized in Earnings	September 30, 2019		September 30, 2018		September 30, 2019		September 30, 2018		Recognized in Earnings
Investments										$	34	$	-	$	34	$	-	Other income, net
Foreign currency derivatives	$	-	$	(55)	$	(67)	$	(1)	Other income, net		33		-		33		(67)	Other income, net
Commodity derivatives		795		83		1,697		(108)	Product cost of goods sold		357		795		615		1,697	Product cost of goods sold
Postretirement and pension benefits		(331)		(366)		(993)		(1,097)	Other income, net		(380)		(331)		(1,141)		(993)	Other income, net
Total before tax		464		(338)		637		(1,206)			44		464		(459)		637
Tax (expense) benefit		(112)		123		(154)		437			(11)		(112)		111		(154)
Net of tax	$	352	$	(215)	$	483	$	(769)		$	33	$	352	$	(348)	$	483

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Note 89 — Restricted Cash

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

Note 910 — Bank Loans

Bank loans ~~comprise~~consist of short term (less than 120 days) borrowings by the Company’s ~~majority-owned~~ Spanish ~~companies which~~subsidiary that are held by international banks. The weighted-average interest rate as of September 30, 2019 and 2018 was 3.0% and 2.0%, respectively.

Note 11 — Leases

The Company leases certain buildings, land and equipment that are classified as operating leases. Our leases have remaining lease terms of up to approximately 3 years. In the third quarter and nine months of 2019, our operating lease cost and cash paid for operating lease liabilities totaled $411 and $746, respectively, which is classified in cash flows from operating activities. As of September 30, 2019, operating lease right-of-use assets and operating lease liabilities were both $1,770. The weighted-average remaining lease term related to our operating leases was 1.9 years as of September 30, 2019. The weighted-average discount rate related to our operating leases was 3.1% as of September 30, 2019. Maturities of our operating lease liabilities at September 30, 2019 are as follows: $236 in 2019, $934 in 2020, $540 in 2021, and $60 in 2022.

The Company, as lessor, rents certain commercial real estate to third party lessees. The cost and accumulated depreciation related to these leased properties were $36,362 and $10,071, respectively, as of September 30, 2019. 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 third quarter and nine months 2019 was $733 and $2,232, respectively, and is classified in cash flows from operating activities.

Note 1012 — 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. 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.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This financial review discusses the Company’s financial condition, results of operations, liquidity and capital resources and other matters. Dollars are presented in thousands, except per share amounts. This review should be read in conjunction with the accompanying Condensed Consolidated Financial Statements and related notes included in this Form 10-Q and with the Company’s Consolidated Financial Statements and related notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the Company’s Form 10-K for the year ended December 31, ~~2017~~2018 (the ~~“2017~~“2018 Form 10-K”).

Net product sales were $181,913 in third quarter 2019 compared to $181,505 in third quarter 2018, ~~compared to $182,173 in third quarter 2017, a decrease~~an increase of ~~$668~~$408 or ~~0.4%~~0.2%. Nine months ~~2018~~2019 net product sales were ~~$387,987~~$388,953 compared to ~~$390,495~~$387,987 in nine months ~~2017, a decrease~~2018, an increase of ~~$2,508~~$966 or ~~0.6%~~0.2%. ~~The~~Third quarter and nine months 2019 net product sales include increases in domestic sales of 0.7% and 0.7%, respectively. Lower foreign net product sales adversely affected reported consolidated net product sales in both third quarter and nine months 2019 compared to the corresponding periods in 2018. A stronger U.S. dollar and the related translation of foreign sales also adversely affected third quarter and nine months sales in 2019 compared to the corresponding periods in the prior year. Net product sales, including foreign sales, were unfavorably impacted by the timing of certain sales ~~between second and third quarter~~ in the comparative ~~2018 and 2017~~ periods ~~caused~~because certain comparative sales in third quarter 2018 were shipped and delivered in fourth quarter 2019. Third quarter and nine months 2019 net product sales benefited from higher price realization which allowed the Company to ~~edge lower than third quarter 2017 net~~recover some product ~~sales.~~ margin decline resulting from increasing input costs.

Product cost of goods sold were $112,867 in third quarter 2019 compared to $115,246 in third quarter 2018, ~~compared to $114,970 in third quarter 2017,~~ and nine months ~~2018~~2019 product cost of goods sold were ~~$248,561~~$243,668 compared to ~~$245,889~~$248,561 in nine months ~~2017.~~2018. Product cost of goods sold includes ~~$83~~$8 and ~~$560~~$83 of certain deferred compensation expenses in third quarter ~~2018~~2019 and ~~2017,~~2018, respectively, and ~~$150~~$254 and ~~$1,845~~$150 of certain deferred compensation expenses in nine months ~~2018~~2019 and ~~2017,~~2018, respectively. These deferred compensation expenses 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 ~~increased~~declined from ~~$114,410 in third quarter 2017 to~~ $115,163 in third quarter 2018 ~~an increase~~to $112,859 in third quarter 2019, a decrease of ~~$753~~$2,304 or ~~0.7%~~2.0%; and ~~increased~~declined from ~~$244,044 in nine months 2017 to~~ $248,411 in nine months 2018 ~~an increase~~to $243,414 in nine months 2019, a decrease of ~~$4,367~~$4,997 or ~~1.8%~~2.0%. As a percentage of net product sales, adjusted product cost of goods sold was ~~63.5%~~62.0% and ~~62.8%~~63.5% in third quarter 2019 and 2018, ~~and 2017,~~ respectively, ~~an unfavorable increase~~a favorable decrease of ~~0.7~~1.5 percentage points; and adjusted product cost of goods sold was ~~64.0%~~62.6% and ~~62.5%~~64.0% in nine months 2019 and 2018, ~~and 2017,~~ respectively, ~~an unfavorable increase~~a favorable decrease of ~~1.5~~1.4 percentage points. ~~Increases~~Higher price realization contributed to the aforementioned favorable decrease in ~~wages and employee healthcare and other benefit costs, principally resulting from unfavorable experience under Company self-insurance programs, added to third quarter and nine months 2018 product~~ cost of goods ~~sold. Increases in plant manufacturing overhead costs, including higher repairs and maintenance, also contributed higher~~sold as a percentage of net product cost ~~of goods sold~~ in third quarter and nine months ~~2018.~~2019.

Costs relating to quality improvements in product packaging and start-up of new manufacturing packaging lines, which were substantially phased into service during the second and third quarters of 2018, also had an unfavorable impact on product cost of goods sold and resulting lower gross profit margins in third quarter and nine months 2018 compared to third quarter and nine months 2017. The Company is continuing its investments in its plant manufacturing operations ~~and products~~ to meet new consumer and customer demands, achieve quality improvements, toand increase

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~~consumer product acceptance, and realize~~ operational ~~efficiencies and cost reductions. Manufacturing~~efficiencies. Plant efficiencies driven by capital investments and ongoing cost containment programs ~~mitigated some~~contributed to the improved gross profit margins discussed above. The prior year 2018 product cost of ~~these higher costs~~goods sold was adversely affected by the implementation and ~~expenses discussed above.~~start-up of new manufacturing packaging lines and resulting operational inefficiencies as well as unfavorable experience from certain employee benefit self-insurance programs.

Selling, marketing and administrative expenses were $33,578 in third quarter 2019 compared to $36,620 in third quarter 2018, ~~compared to $33,222 in third quarter 2017,~~ and nine months ~~2018~~2019 selling, marketing and administrative expenses were ~~$91,229~~$92,909 compared to ~~$86,502~~$91,229 in nine months ~~2017.~~2018. Selling, marketing and administrative expenses ~~includes~~include $213 and $2,267 ~~and $1,717~~ of certain deferred compensation expenses in third quarter 2019 and 2018, respectively, and ~~2017,~~$6,803 and $4,215 ~~and $5,131~~ of certain deferred compensation expenses in nine months ~~2018~~2019 and ~~2017,~~2018, 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, selling, marketing and administrative expenses ~~increased~~decreased from ~~$31,505 in third quarter 2017 to~~ $34,353 in third quarter 2018 ~~an increase~~to $33,365 in third quarter 2019, a decrease of ~~$2,848~~$988 or ~~9.0%~~2.9%; and selling, marketing and administrative expenses ~~increased~~decreased from ~~$81,371 in nine months 2017 to~~ $87,014 in nine months 2018 ~~an increase~~to $86,099 in nine months 2019, a decrease of ~~$5,643~~$915 or ~~6.9%~~1.1%. As a percentage of net product sales, adjusted selling, marketing and administrative expenses ~~increased~~decreased from ~~17.3% in third quarter 2017 to~~ 18.9% in third quarter 2018 ~~an unfavorable increase~~to 18.3% in third quarter 2019, a favorable decrease of ~~1.6~~ 0.6

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percentage points as a percent of net sales, and adjusted selling, marketing and administrative expenses ~~increased~~decreased from ~~20.8% in nine months 2017 to~~ 22.4% in nine months 2018 ~~an unfavorable increase~~to 22.1% in nine months 2019, a favorable decrease of ~~1.6~~0.3 percentage points as a percent of net sales. The ~~increase~~decrease in adjusted selling, marketing and administrative expenses in third quarter and nine months ~~2018~~2019 principally reflects ~~higher freight, delivery~~decreases in general and ~~warehousing~~administrative expenses, ~~which are discussed below, as well as increases in~~primarily legal and professional fees, ~~expenses.~~ in 2019 when compared to the corresponding periods in 2018.

Selling, marketing and administrative expenses include ~~$14,698~~$14,536 and ~~$12,762~~$14,698 for customer freight, delivery and warehousing expenses in third quarter 2019 and 2018, respectively, a decrease of $162 or 1.1%, and ~~2017,~~expenses were $36,753 and $36,304 in nine months 2019 and 2018, respectively, an increase of ~~$1,936~~$449 or ~~15.2%~~1.2%. These expenses were ~~$36,304~~8.0% and $31,857 in nine months 2018 and 2017, respectively, an increase of $4,447 or 14.0%. These increases in customer freight, delivery and warehousing expenses were the principal drivers of higher selling, marketing and administrative expenses in third quarter and nine months 2018. These expenses were 8.1% ~~and 7.0%~~ of net product sales in third quarter ~~2018~~2019 and ~~2017,~~2018, respectively, and were 9.4% ~~and 8.2%~~ of net product sales in both nine months ~~2018~~2019 and 2017, respectively. Increased freight and delivery expenses reflect higher freight rates principally due to increases in fuel costs and the continuing imbalance between supply and demand for over-the-road truck delivery. Much of this imbalance is being driven by a nationwide driver shortage as well as new federal regulations which require increased monitoring of a driver’s allowed driving time using electronic monitoring technology. Although the Company is taking steps to mitigate these higher freight and delivery costs, management believes that these higher input costs reflect a structural change in the transportation industry and are likely to continue. 2018.

Earnings from operations were $36,038 in third quarter 2019 compared to $30,226 in third quarter 2018, and were $54,311 in nine months 2019 compared to ~~$34,583 in third quarter 2017, and were~~ $50,436 in nine months ~~2018 compared to $60,118 in nine months 2017.~~2018. Earnings from operations include ~~$2,350~~$221 and ~~$2,277~~$2,350 of certain deferred compensation expenses in third quarter ~~2018~~2019 and ~~2017,~~2018; respectively, and include ~~$4,365~~$7,057 and ~~$6,976~~$4,365 of certain deferred compensation expenses in nine months ~~2018~~2019 and ~~2017,~~2018, respectively, which are discussed above. Adjusting for these deferred compensation costs and expenses, ~~operating~~ earnings from operations were ~~$32,576~~$36,259 and ~~$36,860~~$32,576 in third quarter 2019 and 2018, ~~and 2017,~~ respectively, ~~a decrease~~an increase of ~~$4,284~~$3,683 or ~~11.6%~~11.3%; and adjusted operating earnings were ~~$54,801~~$61,368 and ~~$67,094~~$54,801 in nine months 2019 and 2018, ~~and 2017,~~ respectively, ~~a decrease~~an increase of ~~$12,293~~$6,567 or ~~18.3%~~12.0%. As a percentage of net product sales, these adjusted operating earnings were ~~18.0%~~19.9% and ~~20.2%~~17.9% in third quarter 2019 and 2018, ~~and 2017,~~ respectively, ~~an unfavorable decrease~~a favorable increase of ~~2.2~~2.0 percentage points as a percentage of net product sales; and as a percentage of net product sales, these adjusted operating earnings were ~~14.1%~~15.8% and ~~17.2%~~14.1% in nine months 2019 and 2018, ~~and 2017,~~ respectively, ~~an unfavorable decrease~~a favorable increase of ~~3.1~~1.7 percentage points as a percentage of net product sales. ~~This decline~~The improvement in ~~operating~~adjusted earnings from operations principally reflects ~~increases in customer freight~~the benefits of higher price realization as well as the reduction and ~~delivery expenses~~containment of certain costs and ~~product costs of goods sold~~expense as discussed above.

Management believes the ~~presentation~~comparisons presented in ~~this and~~ the preceding paragraphs, ~~relating to amounts adjusted~~after adjusting for changes in deferred compensation, ~~expense~~ are more reflective of the underlying operations of the Company.

It has been the historical experience in the confectionary industry that sale price increases are enacted when input costs and expense increases result in the erosion of margins. Company management believes that most companies and U.S. suppliers of branded confectionary products have recently announced selective sales price increases or product weight declines (indirect price increase). The Company has recently announced price increases that are effective January 1, 2019 for selective products and certain retail price points, and believes that these actions will mitigate some

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of the higher input costs and expenses, including freight and delivery, which are discussed above. The Company has not yet determined the amount of price realization that will ultimately result from this action.

Other income, net was $1,846 in third quarter 2019 compared to $2,987 in third quarter 2018, ~~compared to $4,370 in third quarter 2017,~~ an unfavorable decrease of ~~$1,383;~~$1,141; and other income, net, was $10,916 in nine months 2019 compared to $6,871 in nine months 2018, ~~compared to $9,311 in nine months 2017, an unfavorable decrease~~a favorable increase of ~~$2,440.~~$4,045. Other income, net for third quarter ~~2018~~2019 and ~~2017~~2018 includes net gains and investment income of ~~$2,350~~$221 and ~~$2,277,~~$2,350, respectively, on trading securities which provide an economic hedge of the Company’s deferred compensation liabilities; and other income, net for nine months ~~2018~~2019 and ~~2017~~2018 includes net gains and investment income of ~~$4,365~~$7,057 and ~~$6,976,~~$4,365, respectively, on trading ~~securities relating to these programs.~~securities. These changes in trading securities were substantially offset by a like amount of deferred compensation expense included in product cost of goods sold and selling, marketing, and administrative expenses in the respective periods as discussed above. Other income, net for third quarter 2019 and 2018 includes investment income on available for sale securities of $1,160 and $799 in 2019 and 2018, respectively; and other income, net for nine months 2019 and 2018 includes investment income on available for sale securities of $3,341 and $2,520 in 2019 and 2018, respectively. Other income, net also includes gains (losses) on foreign exchange of ~~$(506)~~$181 and ~~$1,082~~$(506) in third quarter ~~2018~~2019 and ~~2017,~~2018, respectively, and ~~$(783)~~$(265) and ~~$(527)~~$(783) in nine months 2019 and 2018, ~~and 2017,~~ respectively.

The consolidated effective tax rates were ~~21.5%~~21.2% and ~~31.0%~~21.5% in third quarter ~~2018~~2019 and ~~2017,~~2018, respectively, and ~~22.1%~~22.9% and ~~29.8%~~22.1% in nine months ~~2018~~2019 and ~~2017,~~2018, respectively. The ~~lower effective~~higher tax ~~rate~~rates in ~~third quarter and~~ nine months ~~2018 compared~~2019 principally reflect higher state and foreign income tax expense, including the effects of certain international tax provisions relating to ~~third quarter and nine months 2017 principally reflects the lower U.S. federal statutory tax rate of 21% effective as of January 1, 2018 resulting from~~ U.S. tax reform legislation ~~enacted in December 2017. As discussed in Note 3,~~that became effective at the ~~Company believes it has obtained and analyzed all reasonably available information necessary to record the effects~~beginning of ~~the change in tax law and considers its accounting for the effects of tax reform to be provisional as of September 30,~~ 2018. ~~The ultimate impact may differ from these provisional amounts, possibly materially, due to, among other things, additional regulatory guidance that may be issued.~~

Net earnings attributable to Tootsie Roll Industries, Inc. were $29,854 (after $8 net loss attributed to non-controlling interests) in third quarter 2019 compared to $26,104 (after $25 net loss attributed to non-controlling interests) in third quarter 2018, ~~compared to $26,933 (after $46 net loss attributed to non-controlling interests) in third quarter 2017,~~ and earnings per share were ~~$0.41~~$0.46 and ~~$0.42~~$0.40 in third quarter 2019 and 2018, ~~and 2017,~~ respectively, ~~a decrease~~an increase of ~~$0.01~~$0.06 per share, or ~~2.4%~~15.0%. Nine months ~~2018~~2019 net earnings attributable to Tootsie Roll Industries, Inc. were ~~$44,718~~$50,365 (after ~~$68~~$64 net loss attributed to non-controlling interests) compared to nine months ~~2017~~2018 net earnings of ~~$48,879~~$44,718 (after ~~$131~~$68 net loss attributed to non-controlling interests), and net earnings per share were ~~$0.70~~$0.77 and ~~$0.75~~$0.68 in nine months ~~2018~~2019 and nine months ~~2017,~~2018, respectively, ~~a decrease~~an increase of ~~$0.05~~$0.09 per share or ~~6.7%~~13.2%. Earnings per share attributable to Tootsie Roll Industries, Inc. for third quarter and nine months ~~2018~~2019 did benefit from the

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reduction in average shares outstanding resulting from purchases in the open market by the Company of its common stock. Average shares outstanding decreased from ~~64,855 in third quarter 2017 to 64,155~~66,069 in third quarter 2018 to 65,344 in third quarter 2019, and from ~~65,155~~66,182 in nine months ~~2017~~2018 to ~~64,268~~65,598 in nine months ~~2018.~~2019.

Goodwill and intangibles 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 nine months ~~2018.~~2019. There were also no impairments in the comparative nine months ~~2017~~2018 period or in calendar ~~2017.~~year 2018.

As more fully discussed in Note 1, the Company adopted the new accounting revenue recognition guidance (ASC 606) effective January 1, 2018. As a result of adoption, the cumulative impact to retained earnings at January 1, 2018 was a net after-tax increase of $3,319 ($4,378 pre-tax). The adoption principally changed the timing of recognition of certain trade promotions and related adjustments thereto which affect net product sales. The comparative 2017 information has not been restated and continues to be reported under the accounting standards in effect for such period. The Company expects the impact of the adoption of the new standard to be immaterial to its net income in calendar 2018 and future years. Revenue for net product sales continues to be recognized at a point in time when products are delivered to or picked up by the customer, as designated by customers’ purchase orders, as discussed in Note 1.

~~Beginning in~~From 2012 to 2014, the Company received periodic annual notices from the Bakery, Confectionery, Tobacco Workers and ~~Confectionery~~Grain Millers International Union ~~and Industry International~~ 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”, ~~the “Red Zone”,~~ as defined by the Pension Protection Act (PPA) and the Pension Benefit Guaranty Corporation (PBGC), and that ~~a plan~~plans of rehabilitation ~~was~~were adopted by the trustees of the Plan ~~in 2012 (and was further amended in 2016). During~~during these years. In 2015, the ~~Company received notices that the Plan’s~~Plan��s status was changed to “critical and declining status”, as defined by the PPA and PBGC, for the

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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.~~2015. A designation of “critical and declining status” implies that the Plan is expected to become insolvent in the next 20 ~~years. In April 2018,~~years, and the Plan is projected to become insolent in 2030. During second quarter 2019, the Company received ~~new~~ updated notices that the Plan remains in “critical and declining ~~status” and is currently projected to become insolvent in 2030.~~status for the plan year beginning January 1, 2019. These new notices also ~~advise~~advised that the Plan trustees ~~have updated the Rehabilitation Plan and are~~were considering the reduction or elimination of certain retirement benefits ~~as well as other plan restructuring that requires certain government approvals, with the goal of avoiding insolvency, but~~and may ~~ultimately~~ seek assistance from the PBGC. Plans in “critical and declining status” may elect to suspend (temporarily 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 ~~annual~~ notices, the Plan’s funded ~~percentages~~percentage (plan investment assets as a percentage of plan liabilities), as defined, were 51.6%, 54.7%, ~~57.0%~~ and ~~62.8%~~57.0% as of the most recent valuation dates available, January 1, 2018, 2017, ~~(most recent valuation date available),~~and 2016, ~~and 2015,~~ 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, ~~2017,~~2018, the funded percentage would be ~~52.5%~~54.2% (not ~~54.7%~~51.6%). As of the January 1, ~~2017~~2018 valuation date (most recent valuation available), ~~19%~~only 18% of Plan participants were current active employees, 52% were retired or separated from service and receiving benefits, and ~~29%~~30% were retired or separated from service and entitled to future benefits. The ~~number of current active employee Plan participants as of January 1, 2017 fell 8% from the previous year and 9% over the past two years. When compared to~~Company understands that the Plan ~~valuation date~~is currently exploring additional restructuring measures which include incentives to participating employers in exchange for providing additional future cash contributions as well as suspension of January 1, 2011 (six years earlier), current active employees participants have declined 36%, whereas participants who were retired or separated from service and receiving benefits increased 6% and participants who were retired or separated from service and entitled to future benefits increased 8%. The bankruptcy of a major participating employer in the Plan contributed to the above discussed Plan results. The Internal Revenue Service issued updated mortality tables (increasing life expectancy) effective January 1, 2018 which will likely increase the Plan’s liabilities and further decrease the above discussed funding percentages.certain retirement benefits.

The Company has been advised by the Plan that its withdrawal liability would have been $81,600, $82,200, ~~$72,700,~~ and ~~$61,000~~$72,700 if it had withdrawn from the Plan during 2018, 2017 ~~2016~~ and ~~2015,~~2016, respectively. The decrease from 2017 to 2018 was driven by an increase ~~from 2016 to 2017 principally reflects~~in the PBGC interest rate, resulting in a decrease in the ~~PBGC interest rates, a decrease in the Plan’s assets~~value of vested benefits, and an increase in the Plan’s ~~unfunded vested benefits during 2016 with~~assets, as well as some decrease in the Plan’s affected benefits; however, the aforementioned was offset by effects of the Company comprising ~~an increasing proportion~~a larger share of the Plan’s ~~employer~~ contribution base. The Company’s relative share of the Plan’s contribution base has increased over the last several years, and management believes that this trend could continue indefinitely which will add upward pressure on the Company’s withdrawal liability. Subsequent to September 30, 2019, the Company requested and was advised by the Plan that its withdrawal liability would be $99,800 if it withdrew from the Plan during 2019. The Company has not yet made any analysis or evaluation as to the drivers which contributed to this increase in the Company’s withdrawal liability. Based on the above, including the Plan’s projected insolvency in the year 2030, management believes that the Company’s withdrawal liability ~~will likely~~could increase further in future years.

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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 $3,059 which have a present value in the range of $35,900 to $46,900 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) 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 $50,100 to $105,000 and would apply in the unlikely event that substantially all employers withdraw from the Plan. The aforementioned is based on a range of ~~valuation~~valuations and interest rates which ~~management understands~~the Company’s actuary has advised is provided under the statute. Should the Company actually withdraw from the Plan at a future date, a withdrawal liability, which could be higher than the above discussed amounts, could be payable to the Plan.

The ~~Company and the union have recently concluded a new~~Company’s current labor contract ~~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. The Company’s pension expense for this Plan for calendar 2017 and 2016 was $2,617 and $2,541, respectively. The aforementioned expense includes surcharges of $656 and $542 in 2017 and 2016, respectively, as required under the plan of rehabilitation as amended. The Company’s pension expense for this Plan for nine months 2019 and 2018 was $2,307 and ~~2017 was~~ $2,201, ~~and $2,064~~ respectively, which includes surcharges of ~~$630~~$738 and ~~$517~~$630, respectively.

~~Earlier this year, the~~The U.S. Congress ~~formed a joint select committee~~has continued to ~~address the insolvency crisis affecting many~~explore and discuss various solutions, including financial assistance, for multi-employer pension ~~plans. The select committee is evaluating low-interest loans with government guarantees to these~~ plans ~~in order to provide long-term solvency to troubled multi-employer pension plans.~~(HR 397, the Butch Lewis Act). The Company is currently unable to determine the ultimate outcome of the above discussed multi-employer union pension matter and therefore is unable to determine the effects on its consolidated financial statements, but the ultimate outcome or the effects of any modifications to the current or future rehabilitation plans or other changes, including a mass withdrawal of participating employers which would trigger the payment of the Company’s withdraw liability discussed above, could be material to its consolidated results of operations or cash flows in one or more future periods. See also the Company’s Consolidated Financial Statements and related notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Company’s ~~2017~~2018 Form 10-K.

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LIQUIDITY AND CAPITAL RESOURCES

Net cash flows provided by operating activities were ~~$40,980~~$36,176 and ~~$18,420~~$40,980 in nine months 2019 and 2018, ~~and 2017,~~ respectively, ~~a favorable increase~~an unfavorable decrease of ~~$22,560.~~$4,804. The ~~increase~~decrease in nine months ~~2018~~2019 cash flows from operating activities principally reflects changes in inventories and related timing of sales and production in the third and fourth quarter periods, as well as the timing of sales and collections of ~~account receivables, the~~accounts receivable trade. The timing of payments ~~(and refunds) of~~relating to income taxes ~~as well as lower income tax rates in 2018 as discussed above, and changes in accounts~~ payable and ~~accrued liabilities,~~ prepaid expenses and other assets, and other receivables. The changes in accounts payable and accrued liabilities principally reflect the timing of purchases of packaging and ingredient inventory and vender payments. The change in prepaid expenses and other assets is primarily the resultalso had some adverse impact on cash flows from ~~the timing of payments for certain expenses, and the change in other receivables is primarily due to decreased broker margin deposit requirements on commodity sugar hedges.~~operating activities.

Net cash used in investing activities was $15,043 in nine months 2019 compared to $39,521 in nine months ~~2018 compared to $42,149 in nine months 2017.~~2018. Cash flows from investing activities reflect ~~$65,098~~$49,999 and ~~$51,935~~$65,098 of purchases of available for sale securities during nine months ~~2018~~2019 and ~~2017,~~2018, respectively, and ~~$45,379~~$51,580 and ~~$21,328~~$45,379 of sales and maturities of available for sale securities during nine months ~~2018~~2019 and ~~2017,~~2018, respectively. Nine months ~~2018~~2019 and ~~2017~~2018 investing activities include capital expenditures of ~~$16,812~~$14,151 and ~~$11,699,~~$16,812, respectively. All capital expenditures in ~~2018~~2019 are expected to be funded from the Company’s cash flow from operations and internal sources. The ~~increase in~~higher capital expenditures in the prior year’s nine months 2018 reflects the purchase of new packaging lines at several manufacturing plants. ~~In addition,~~ Company management has committed approximately $17,000 to a manufacturing plant rehabilitation upgrade and expansion of one of its manufacturing facilities in the U.S. Management expects the projected cash outlays for this project to be approximately ~~$800 in 2018, $10,000~~$3,000 in 2019, ~~$3,100~~$6,000 in 2020 and ~~$3,100~~$8,000 in 2021.

The Company’s consolidated financial statements include bank borrowings of ~~$190~~$768 and ~~$404~~$190 at September 30, ~~2018~~2019 and ~~2017,~~2018, respectively, all of which relates to its ~~two majority-owned and controlled~~ Spanish ~~companies.~~subsidiary. The Company had no other outstanding bank borrowings at September 30, ~~2018.~~2019.

Financing activities include Company common stock purchases and retirements of ~~$16,650~~$27,232 and ~~$30,027~~$16,650 in nine months ~~2018~~2019 and ~~2017,~~2018, respectively. Cash dividends of ~~$17,208~~$17,592 and ~~$16,965~~$17,208 were paid in nine months ~~2018~~2019 and ~~2017,~~2018, respectively.

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The Company’s current ratio (current assets divided by current liabilities) was 4.3 to 1 at September 30, 2019 compared to 5.0 to 1 at December 31, 2018 and 4.1 to 1 at September 30, ~~2018 compared to 4.2 to 1 at December 31, 2017 and 3.8 to 1 at September 30, 2017.~~2018. Net working capital was ~~$227,766~~$254,897 at September 30, ~~2018~~2019 compared to ~~$207,132~~$242,655 and ~~$217,650~~$227,766 at December 31, ~~2017~~2018 and September 30, ~~2017,~~2018, respectively. The aforementioned net working capital amounts are principally reflected in aggregate cash and cash equivalents and short-term investments of ~~$132,706~~$164,166 at September 30, ~~2018~~2019 compared to ~~$137,920~~$186,039 and ~~$123,784~~$132,706 at December 31, ~~2017~~2018 and September 30, ~~2017,~~2018, respectively. In addition, long term investments, principally debt securities comprising corporate and municipal bonds were ~~$188,393~~$178,808 at September 30, ~~2018,~~2019, as compared to ~~$190,510~~$170,409 and ~~$193,991~~$188,393 at December 31, ~~2017~~2018 and September 30, ~~2017,~~2018, respectively. Aggregate cash and cash equivalents and short and long-term investments were ~~$321,099, $328,430,~~$342,974, $356,448, and ~~$317,775,~~$321,099, at September 30, ~~2018,~~2019, December 31, ~~2017~~2018 and September 30, ~~2017,~~2018, respectively. The aforementioned includes ~~$67,594, $60,520,~~$71,790, $62,260, and ~~$75,094~~$67,594 at September 30, ~~2018,~~2019, December 31, ~~2017~~2018 and September 30, ~~2017,~~2018, respectively, relating to trading securities which are used as an economic hedge for the Company’s deferred compensation liabilities. Investments in corporate and municipal bonds, variable rate demand notes, and other debt securities that matured during nine months ~~2018~~2019 and ~~2017~~2018 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 ~~$17,152, $19,713~~$13,594, $15,921 and ~~$602~~$17,152 of aggregate cash and cash equivalents at September 30, ~~2018,~~2019, December 31, ~~2017~~2018 and September 30, ~~2017,~~2018, respectively. ~~The Company contributed $20,024 to this VEBA trust in fourth quarter 2017.~~ 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 21 within the fair value hierarchy.

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ACCOUNTING PRONOUNCEMENTS

~~ACCOUNTING PRONOUNCEMENTS~~

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

RISK FACTORS

There were no material changes to the risk factors disclosed in the Company’s ~~2017~~2018 Form 10-K.

FORWARD-LOOKING STATEMENTS

This discussion and certain other sections contain forward-looking statements that are based largely on the Company’s current expectations and are made pursuant to the safe harbor provision of the Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by the use of words such as “anticipated,” “believe,” “expect,” “intend,” “estimate,” “project,” “plan” and other words of similar meaning in connection with a discussion of future operating or financial performance and are subject to certain factors, risks, trends and uncertainties that could cause actual results and achievements to differ materially from those expressed in the forward-looking statements. Such factors, risks, trends and uncertainties, which in some instances are beyond the Company’s control, include 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 ~~2017~~2018 Form 10-K.

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

~~statements.~~

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

The Company is exposed to various market risks, including fluctuations in and sufficient availability of sugar, corn syrup, edible oils, including palm oils, cocoa, 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, ~~2017.~~ 2018.

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 September 30, ~~2018~~2019 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 September 30, ~~2018~~2019 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II — OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Information on legal proceedings is included in Note 1012to 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 September 30, ~~2018:~~2019:

Approximate Dollar

(a) Total

Value of Shares that

Number of

(b) Average

Purchased as Part of

May Yet Be Purchased

Price Paid per

Publicly Announced Plans

Under the Plans

Approximate Dollar

(a) Total

Value of Shares that

Number of

(b) Average

Purchased as Part of

May Yet Be Purchased

Price Paid per

Publicly Announced Plans

Under the Plans

Period

Purchased

Or Programs

or Programs

Purchased

Or Programs

or Programs

Jul 1 to Jul 31

Not Applicable

68,038

37.48

Not Applicable

Aug 1 to Aug 31

Not Applicable

49,246

37.21

Not Applicable

Sep 1 to Sep 30

29,445

28.68

Not Applicable

98,900

36.96

Not Applicable

Total

29,445

28.68

Not Applicable

216,184

37.18

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.~~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.

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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:	November ~~9, 2018~~8, 2019	BY:	/S/ELLEN R. GORDON
			Ellen R. Gordon
			Chairman and Chief
			Executive Officer

Date:	November ~~9, 2018~~8, 2019	BY:	/S/G. HOWARD EMBER, JR.
			G. Howard Ember, Jr.
			Vice President Finance and
			Chief Financial Officer

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