Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

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

For the quarterly period ended September 30, 20182019

OR

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)

VIRGINIAVirginia

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

38,621,41839,019,205

Class B Common Stock, $.69 4/$0.69-4/9 par value

25,599,19826,299,531

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, 20182019

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

8-158-16

Item 2.

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

15-2017-21

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.

2


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.)

3


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.)

4


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 3/6/185/19 and 3/7/17.6/18.

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

5


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.)

6

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.)

6


7

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.)

7


Table of Contents

TOOTSIE ROLL INDUSTRIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SeptemberSEPTEMBER 30, 20182019

(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, 20172018 (the “2017“2018 Form 10-K”).

Results of operations for the period ended September 30, 20182019 are not necessarily indicative of results to be expected for the year to end December 31, 20182019 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 receivablesreceivable 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.

8

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 nearlyrequires lessees to recognize all existing revenueleases 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 2014-092016-02 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 theperiods upon adoption of the new standardstandard.  In addition, we elected certain practical expedients which permitted us to be immaterialnotreassess whether existing contracts are or contain leases, to its net income on an ongoing basis. Revenue continuesnot reassess the lease classification of any existing leases, to be recognized at a point in timenot reassess initial direct costs for product sales when products are deliveredany existing leases, and to or picked up by the customer as discussed above.

8


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 itsthe Company’s consolidated financial statements.

In November 2016, the FASB issued ASU 2016-18which 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.

9


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 beare 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 toASU 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 wererate was 21.2% and 21.5% and 31.0% in third quarter 20182019 and 2017,2018, respectively, and 22.1%22.9% and 29.8%22.1% in nine months 20182019 and 2017,2018, respectively. The lower effectivehigher tax rate in third quarter and nine months 2018 compared to third quarter and nine months 20172019 principally reflects the lower U.S. federal statutoryhigher state income tax rateexpense.

9

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.

10


Table of Contents

As of September 30, 2018,2019, December 31, 20172018 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, 20172018 and September 30, 20172018 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, 20172018 and September 30, 20172018 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.

11


Table of Contents

Note 56 — Derivative Instruments and Hedging Activities

TheFrom time to time, the Company uses derivative instruments, including foreign currency forward contracts commodity futures contracts and commodity optionfutures 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, 20172018 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)

12


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, 20182019 and September 30, 20172018 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)

$

-

13

Table of Contents

Note 67 — Pension Plans

During 2018 and 2017,From 2012 to 2014, the Company received updatedperiodic notices thatfrom the Bakery, Confectionery, Tobacco Workers and ConfectioneryGrain 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 projectedin “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.

13


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

14

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)

15

Table of Contents

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

14


Note 89 — Restricted Cash

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

Note 910 — Bank Loans

Bank loans compriseconsist of short term (less than 120 days) borrowings by the Company’s majority-owned Spanish companies whichsubsidiary 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, 20172018 (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 decreasean increase of $668$408 or 0.4%0.2%. Nine months 20182019 net product sales were $387,987$388,953 compared to $390,495$387,987 in nine months 2017, a decrease2018, an increase of $2,508$966 or 0.6%0.2%. TheThird 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 causedbecause 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 netrecover 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 20182019 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 20182019 and 2017,2018, respectively, and $150$254 and $1,845$150 of certain deferred compensation expenses in nine months 20182019 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 increaseddeclined from $114,410 in third quarter 2017 to $115,163 in third quarter 2018 an increaseto $112,859 in third quarter 2019, a decrease of $753$2,304 or 0.7%2.0%; and increaseddeclined from $244,044 in nine months 2017 to $248,411 in nine months 2018 an increaseto $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 increasea favorable decrease of 0.71.5 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 increasea favorable decrease of 1.51.4 percentage points. IncreasesHigher 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 highersold 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. Manufacturingefficiencies. Plant efficiencies driven by capital investments and ongoing cost containment programs mitigated somecontributed to the improved gross profit margins discussed above. The prior year 2018 product cost of these higher costsgoods 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 20182019 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 includesinclude $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 20182019 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 increaseddecreased from $31,505 in third quarter 2017 to $34,353 in third quarter 2018 an increaseto $33,365 in third quarter 2019, a decrease of $2,848$988 or 9.0%2.9%; and selling, marketing and administrative expenses increaseddecreased from $81,371 in nine months 2017 to $87,014 in nine months 2018 an increaseto $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 increaseddecreased from 17.3% in third quarter 2017 to 18.9% in third quarter 2018 an unfavorable increaseto 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 increaseddecreased from 20.8% in nine months 2017 to 22.4% in nine months 2018 an unfavorable increaseto 22.1% in nine months 2019, a favorable decrease of 1.60.3 percentage points as a percent of net sales. The increasedecrease in adjusted selling, marketing and administrative expenses in third quarter and nine months 20182019 principally reflects higher freight, deliverydecreases in general and warehousingadministrative expenses, which are discussed below, as well as increases inprimarily 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 $36,3048.0% 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 20182019 and 2017,2018, respectively, and were 9.4% and 8.2% of net product sales in both nine months 20182019 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 20182019 and 2017,2018; respectively, and include $4,365$7,057 and $6,976$4,365 of certain deferred compensation expenses in nine months 20182019 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 decreasean 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 decreasean 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 decreasea favorable increase of 2.22.0 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 decreasea favorable increase of 3.11.7 percentage points as a percentage of net product sales. This declineThe improvement in operatingadjusted earnings from operations principally reflects increases in customer freightthe benefits of higher price realization as well as the reduction and delivery expensescontainment of certain costs and product costs of goods soldexpense as discussed above.

Management believes the presentationcomparisons presented in this and the preceding paragraphs, relating to amounts adjustedafter 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 decreasea favorable increase of $2,440.$4,045. Other income, net for third quarter 20182019 and 20172018 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 20182019 and 20172018 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 20182019 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 20182019 and 2017,2018, respectively, and 22.1%22.9% and 29.8%22.1% in nine months 20182019 and 2017,2018, respectively. The lower effectivehigher tax raterates in third quarter and nine months 2018 compared2019 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 effectsbeginning 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 decreasean increase of $0.01$0.06 per share, or 2.4%15.0%. Nine months 20182019 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 20172018 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 20182019 and nine months 2017,2018, respectively, a decreasean 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 20182019 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 64,15566,069 in third quarter 2018 to 65,344 in third quarter 2019, and from 65,15566,182 in nine months 20172018 to 64,26865,598 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 20172018 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 inFrom 2012 to 2014, the Company received periodic annual notices from the Bakery, Confectionery, Tobacco Workers and ConfectioneryGrain 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 planplans of rehabilitation waswere adopted by the trustees of the Plan in 2012 (and was further amended in 2016). Duringduring these years. In 2015, the Company received notices that the Plan’sPlan���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 adviseadvised that the Plan trustees have updated the Rehabilitation Plan and arewere 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, butand 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 percentagespercentage (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, 20172018 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 toCompany understands that the Plan valuation dateis 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 reflectsin the PBGC interest rate, resulting in a decrease in the PBGC interest rates, a decrease in the Plan’s assetsvalue of vested benefits, and an increase in the Plan’s unfunded vested benefits during 2016 withassets, as well as some decrease in the Plan’s affected benefits; however, the aforementioned was offset by effects of the Company comprising an increasing proportiona 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 likelycould 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 valuationvaluations and interest rates which management understandsthe 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 newCompany’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, theThe U.S. Congress formed a joint select committeehas continued to address the insolvency crisis affecting manyexplore 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 20172018 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 increasean unfavorable decrease of $22,560.$4,804. The increasedecrease in nine months 20182019 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, theaccounts receivable trade. The timing of payments (and refunds) ofrelating 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 20182019 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 20182019 and 2017,2018, respectively. Nine months 20182019 and 20172018 investing activities include capital expenditures of $16,812$14,151 and $11,699,$16,812, respectively. All capital expenditures in 20182019 are expected to be funded from the Company’s cash flow from operations and internal sources. The increase inhigher 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, 20182019 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 20182019 and 2017,2018, respectively. Cash dividends of $17,208$17,592 and $16,965$17,208 were paid in nine months 20182019 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, 20182019 compared to $207,132$242,655 and $217,650$227,766 at December 31, 20172018 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, 20182019 compared to $137,920$186,039 and $123,784$132,706 at December 31, 20172018 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, 20172018 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, 20172018 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, 20172018 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 20182019 and 20172018 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, 20172018 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 20172018 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 20172018 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, 20182019 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, 20182019 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

 

 

 

Shares

 

Value of Shares that

 

Number of

 

(b) Average

 

Purchased as Part of

 

May Yet Be Purchased

 

Shares

 

Price Paid per

 

Publicly Announced Plans

 

Under the Plans

    

    

    

    

    

    

Approximate Dollar

(a) Total

Shares

Value of Shares that

Number of

(b) Average

Purchased as Part of

May Yet Be Purchased

Shares

Price Paid per

Publicly Announced Plans

Under the Plans

Period

 

Purchased

 

Share

 

Or Programs

 

or Programs

Purchased

Share

Or Programs

or Programs

 

 

 

 

 

 

 

 

 

Jul 1 to Jul 31

 

 -

 

$

 -

 

Not Applicable

 

Not Applicable

68,038

$

37.48

Not Applicable

Not Applicable

 

 

 

 

 

 

 

 

Aug 1 to Aug 31

 

 -

 

 -

 

Not Applicable

 

Not Applicable

49,246

37.21

Not Applicable

Not Applicable

 

 

 

 

 

 

 

 

Sep 1 to Sep 30

 

29,445

 

28.68

 

Not Applicable

 

Not Applicable

98,900

36.96

Not Applicable

Not Applicable

 

 

 

 

 

 

 

 

Total

 

29,445

 

$

28.68

 

Not Applicable

 

Not Applicable

216,184

$

37.18

Not Applicable

Not Applicable

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

ITEM 6. EXHIBITS

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

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

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

Exhibit 101.INS - XBRL Instance Document.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, 20188, 2019

BY:

/S/ELLEN R. GORDON

Ellen R. Gordon

Chairman and Chief

Executive Officer

Date:

November 9, 20188, 2019

BY:

/S/G. HOWARD EMBER, JR.

G. Howard Ember, Jr.

Vice President Finance and

Chief Financial Officer

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