UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒

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

For the quarterly period ended ~~June 30, 2019~~March 31, 2020

☐

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

For the transition period from to

COMMISSION FILE NUMBER 1-1361

Tootsie Roll Industries, Inc.

(Exact Name of Registrant as Specified in its Charter)


Virginia		22-1318955
(State of Incorporation)		(I.R.S. Employer Identification No.)


7401 South Cicero Avenue, Chicago, Illinois		60629
(Address of Principal Executive Offices)		(Zip Code)

773-838-3400

(Registrant’s Telephone Number, Including Area Code)

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

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

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

Large accelerated filer ☒

Accelerated filer ☐

Non-accelerated filer ☐

Smaller reporting company ☐

Emerging growth company ☐

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

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date ~~(June 30, 2019)~~(March 31, 2020).


Class		Outstanding

Common Stock, $0.69-4/9 par value		~~39,233,318~~39,769,401
Class B Common Stock, $0.69-4/9 par value		~~26,301,602~~27,037,401

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

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TOOTSIE ROLL INDUSTRIES, INC.

~~JUNE 30, 2019~~MARCH 31, 2020

INDEX


		Page No.

Part I —	Financial Information

Item 1.	Financial Statements꞉

	Condensed Consolidated Statements of Financial Position	3-4

	Condensed Consolidated Statements of Earnings and Retained Earnings	5

	Condensed Consolidated Statements of Comprehensive Earnings	6

	Condensed Consolidated Statements of Cash Flows	7

	Notes to Condensed Consolidated Financial Statements	~~8-17~~8-15

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	~~18-22~~16-21

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2221

Item 4.	Controls and Procedures	2321

Part II —	Other Information

Item 1.	Legal Proceedings	2423

Item 1A.	Risk Factors	23

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	24

Item 6.	Exhibits	2425

Signatures		25

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.

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PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

TOOTSIE ROLL INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

(in thousands) (Unaudited)



	March 31, 2020		December 31, 2019		March 31, 2019

ASSETS

CURRENT ASSETS:
Cash and cash equivalents	$	139,067	$	138,960	$	77,670
Restricted cash		373		380		380
Investments		77,510		100,444		81,986
Accounts receivable trade, less allowances of $1,887, $1,949 and $1,696		36,006		45,044		43,868
Other receivables		3,446		3,418		3,282
Inventories:
Finished goods and work-in-process		46,683		35,909		40,004
Raw materials and supplies		24,974		23,179		25,675
Prepaid expenses		6,231		5,996		7,111
Total current assets		334,290		353,330		279,976

PROPERTY, PLANT AND EQUIPMENT, at cost:
Land		21,627		21,740		21,727
Buildings		122,598		122,843		121,788
Machinery and equipment		414,526		416,625		401,375
Construction in progress		7,669		4,427		7,349
Operating lease right-of-use assets		1,388		1,580		1,370
		567,808		567,215		553,609
Less - accumulated depreciation		381,850		378,760		366,601
Net property, plant and equipment		185,958		188,455		187,008

OTHER ASSETS:
Goodwill		73,237		73,237		73,237
Trademarks		175,024		175,024		175,024
Investments		153,287		153,031		187,218
Split dollar officer life insurance		26,042		26,042		26,042
Prepaid expenses and other assets		7,555		8,056		11,469
Deferred income taxes		534		689		530
Total other assets		435,679		436,079		473,520
Total assets	$	955,927	$	977,864	$	940,504

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

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(in thousands except per share data) (Unaudited)

June 30, 2019

December 31, 2018

June 30, 2018

ASSETS

CURRENT ASSETS:

Cash & cash equivalents

$
57,857

$
110,899

$
38,334
Restricted cash

385

388

396
Investments

82,703

75,140

65,211
Accounts receivable trade, less allowances of $1,652, $1,820 & $1,819

36,824

49,777

37,222
Other receivables

3,224

2,941

6,420
Inventories:

Finished goods & work-in-process

62,333

32,159

63,548
Raw material & supplies

30,011

22,365

28,029
Income taxes receivable and prepaid

-

-

13,873
Prepaid expenses

7,752

10,377

7,132
Total current assets

281,089

304,046

260,165

PROPERTY, PLANT & EQUIPMENT, at cost:

Land

21,735

21,726

21,945
Buildings

121,841

121,780

118,478
Machinery & equipment

401,153

401,037

380,778
Construction in progress

11,362

3,408

17,726
Operating lease right-of-use assets

1,258

-

-

557,349

547,951

538,927
Less-accumulated depreciation

370,619

361,850

356,152
Net property, plant and equipment

186,730

186,101

182,775

OTHER ASSETS:

Goodwill

73,237

73,237

73,237
Trademarks

175,024

175,024

175,024
Investments

195,359

170,409

192,181
Split dollar officer life insurance

26,042

26,042

26,042
Prepaid expenses and other assets

10,507

11,980

13,870
Deferred income taxes

536

522

421
Total other assets

480,705

457,214

480,775
Total assets

$
948,524

$
947,361

$
923,715

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

~~Table of Contents~~

~~(in thousands except per share data) (Unaudited)~~



	June 30, 2019		December 31, 2018		June 30, 2018		March 31, 2020		December 31, 2019		March 31, 2019

LIABILITIES AND SHAREHOLDERS’ EQUITY

CURRENT LIABILITIES:
Accounts payable	$	14,326	$	11,817	$	16,700	$	15,991	$	12,720	$	13,520
Bank loans		686		373		420		781		747		755
Dividends payable		5,901		5,772		5,783		160		5,861		176
Accrued liabilities		38,077		42,849		37,808		38,424		41,611		37,302
Postretirement health care		580		580		603
Current portion of operating lease liabilities		717		-		-
Postretirement health care benefits								598		598		580
Operating lease liabilities								1,063		1,062		716
Deferred compensation								16,751		16,945		-
Income taxes payable								3,418		-		-
Total current liabilities		60,287		61,391		61,314		77,186		79,544		53,049

NONCURRENT LIABILITIES:
Deferred income taxes		45,001		43,941		41,241		45,755		47,295		44,553
Postretirement health care		12,030		11,871		13,062
Postretirement health care benefits								13,206		13,145		11,954
Industrial development bonds		7,500		7,500		7,500		7,500		7,500		7,500
Liability for uncertain tax positions		4,001		3,816		4,902		3,697		4,240		3,901
Non-current portion of operating lease liabilities		541		-		-
Operating lease liabilities								325		518		654
Deferred compensation and other liabilities		76,539		68,345		69,665		56,737		65,973		74,233
Total noncurrent liabilities		145,612		135,473		136,370		127,220		138,671		142,795

TOOTSIE ROLL INDUSTRIES, INC. SHAREHOLDERS’ EQUITY:
Common stock, $.69-4/9 par value- 120,000 shares authorized; 39,233, 38,544 & 38,645, respectively, issued		27,245		26,767		26,837
Class B common stock, $.69-4/9 par value- 40,000 shares authorized; 26,302, 25,584 & 25,605, respectively, issued		18,264		17,767		17,781
Common stock, $.69-4/9 par value - 120,000 shares authorized; 39,769, 38,836 and 39,418, respectively, issued								27,617		26,969		27,374
Class B common stock, $.69-4/9 par value - 40,000 shares authorized; 27,037, 26,287 and 26,342, respectively, issued								18,776		18,254		18,293
Capital in excess of par value		710,703		696,535		699,965		729,673		696,059		719,212
Retained earnings		8,121		33,767		7,020		3,197		40,809		2,459
Accumulated other comprehensive loss		(19,537)		(22,222)		(23,501)		(25,539)		(20,245)		(20,518)
Treasury stock (at cost)- 90, 88 & 88 shares, respectively		(1,992)		(1,992)		(1,992)
Treasury stock (at cost) - 93, 90 and 90 shares, respectively								(1,992)		(1,992)		(1,992)
Total Tootsie Roll Industries, Inc. shareholders’ equity		742,804		750,622		726,110		751,732		759,854		744,828
Noncontrolling interests		(179)		(125)		(79)		(211)		(205)		(168)
Total equity		742,625		750,497		726,031		751,521		759,649		744,660
Total liabilities and shareholders’ equity	$	948,524	$	947,361	$	923,715	$	955,927	$	977,864	$	940,504

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

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TOOTSIE ROLL INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF

EARNINGS AND RETAINED EARNINGS

(in thousands except per share amounts) (Unaudited)



	Quarter Ended				Year to Date Ended				Year to Date Ended
	June 30, 2019		June 30, 2018		June 30, 2019		June 30, 2018		March 31, 2020		March 31, 2019

Net product sales	$	106,021	$	105,623	$	207,040	$	206,482	$	102,803	$	101,019
Rental and royalty revenue		931		1,186		1,889		2,127		958		958
Total revenue		106,952		106,809		208,929		208,609		103,761		101,977

Product cost of goods sold		65,945		67,481		130,801		133,315		66,443		64,856
Rental and royalty cost		276		208		531		475		302		255
Total costs		66,221		67,689		131,332		133,790		66,745		65,111

Product gross margin		40,076		38,142		76,239		73,167		36,360		36,163
Rental and royalty gross margin		655		978		1,358		1,652		656		703
Total gross margin		40,731		39,120		77,597		74,819		37,016		36,866
Selling, marketing and administrative expenses		28,216		28,752		59,324		54,609		16,272		31,108
Earnings from operations		12,515		10,368		18,273		20,210		20,744		5,758
Other income (loss), net		3,053		3,363		9,070		3,884		(5,494)		6,017
Earnings before income taxes		15,568		13,731		27,343		24,094		15,250		11,775
Provision for income taxes		4,024		3,261		6,888		5,523		3,274		2,864
Net earnings		11,544		10,470		20,455		18,571	��	11,976		8,911
Less: Net earnings (loss) attributable to noncontrolling interests		(12)		(19)		(56)		(43)
Less: net earnings (loss) attributable to noncontrolling interests										(6)		(44)
Net earnings attributable to Tootsie Roll Industries, Inc.	$	11,556	$	10,489	$	20,511	$	18,614	$	11,982	$	8,955

Net earnings attributable to Tootsie Roll Industries, Inc. per share	$	0.18	$	0.16	$	0.31	$	0.28	$	0.18	$	0.13
Dividends per share *	$	0.09	$	0.09	$	0.18	$	0.18	$	0.09	$	0.09

Average number of shares outstanding		65,559		66,104		65,722		66,232		66,875		67,814

Retained earnings at beginning of period	$	2,459	$	2,306	$	33,767	$	57,225	$	40,809	$	33,767
Net earnings attributable to Tootsie Roll Industries, Inc.		11,556		10,489		20,511		18,614		11,982		8,955
Adopted ASU's (See Note 1)		-		-		-		2,726
Cash dividends		(5,894)		(5,775)		(11,651)		(11,396)		(5,841)		(5,757)
Stock dividends		-		-		(34,506)		(60,149)		(43,753)		(34,506)
Retained earnings at end of period	$	8,121	$	7,020	$	8,121	$	7,020	$	3,197	$	2,459

*Does not include 3% stock dividend to shareholders of record on 3/~~5/19~~3/20 and 3/~~6/18.~~5/19.

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

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TOOTSIE ROLL INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE EARNINGS

(in thousands except per share amounts) (Unaudited)



	Quarter Ended				Year to Date Ended				Quarter Ended
	June 30, 2019		June 30, 2018		June 30, 2019		June 30, 2018		March 31, 2020		March 31, 2019

Net earnings	$	11,544	$	10,470	$	20,455	$	18,571	$	11,976	$	8,911

Other comprehensive income (loss), before tax:
Foreign currency translation adjustments		205		(1,674)		596		(62)		(3,674)		391

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)		(761)		(662)		(338)		(381)
Unrealized gains (losses) on postretirement and pension benefits		(380)		(331)		(761)		(662)		(338)		(381)

Investments:
Unrealized gains (losses) for the period on investments		1,185		(30)		2,652		(1,280)		(1,091)		1,467
Less: reclassification adjustment for (gains) losses to net earnings		-		-		-		-		-		-
Unrealized gains (losses) on investments		1,185		(30)		2,652		(1,280)		(1,091)		1,467

Derivatives:
Unrealized gains (losses) for the period on derivatives		57		(377)		607		(1,849)		(961)		550
Less: reclassification adjustment for (gains) losses to net earnings		162		548		258		835		253		96
Unrealized gains (losses) on derivatives		219		171		865		(1,014)		(708)		646

Total other comprehensive income (loss), before tax		1,229		(1,864)		3,352		(3,018)		(5,811)		2,123
Income tax benefit (expense) related to items of other comprehensive income		(248)		46		(667)		715		517		(419)
Total comprehensive earnings		12,525		8,652		23,140		16,268		6,682		10,615
Comprehensive earnings (loss) attributable to noncontrolling interests		(12)		(19)		(56)		(43)		(6)		(44)
Total comprehensive earnings attributable to Tootsie Roll Industries, Inc.	$	12,537	$	8,671	$	23,196	$	16,311	$	6,688	$	10,659

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

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TOOTSIE ROLL INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands) (Unaudited)



	Year to Date Ended				Year to Date Ended
	June 30, 2019		June 30, 2018		March 31, 2020		March 31, 2019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings	$	20,455	$	18,571	$	11,976	$	8,911
Adjustments to reconcile net earnings to net cash used in operating activities:
Depreciation and amortization		9,334		9,154
Depreciation						4,647		4,666
Deferred income taxes		393		(472)		(1,013)		149
Amortization of marketable security premiums		694		888		217		353
Changes in operating assets and liabilities:
Accounts receivable		13,038		10,038		8,205		5,927
Other receivables		(242)		(1,308)		(197)		(267)
Inventories		(37,692)		(36,818)		(13,676)		(11,100)
Prepaid expenses and other assets		1,529		6,786		172		983
Accounts payable and accrued liabilities		(167)		8		1,422		(2,770)
Income taxes payable		2,750		(814)		2,983		2,930
Postretirement health care benefits		(602)		(586)		(276)		(150)
Deferred compensation and other liabilities		1,531		948		121		924
Net cash from operating activities		11,021		6,395
Net cash provided by operating activities						14,581		10,556
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures		(9,945)		(11,662)		(3,737)		(4,683)
Purchases of trading securities		(2,641)		(3,562)		(2,287)		(2,360)
Sales of trading securities		362		817		380		362
Purchase of available for sale securities		(33,558)		(49,742)		(21,312)		(20,919)
Sale and maturity of available for sale securities		12,120		27,057		35,217		5,379
Net cash used in investing activities		(33,662)		(37,092)
Net cash from (used in) investing activities						8,261		(22,221)
CASH FLOWS FROM FINANCING ACTIVITIES:
Shares purchased and retired		(19,186)		(15,803)		(8,809)		(10,519)
Dividends paid in cash		(11,699)		(11,435)		(11,703)		(11,530)
Proceeds from bank loans		1,911		1,264		928		941
Repayment of bank loans		(1,594)		(1,255)		(880)		(544)
Net cash used in financing activities		(30,568)		(27,229)		(20,464)		(21,652)
Effect of exchange rate changes on cash		164		(64)		(2,278)		80
Decrease in cash and cash equivalents		(53,045)		(57,990)
Increase (Decrease) in cash and cash equivalents						100		(33,237)
Cash, cash equivalents and restricted cash at beginning of year		111,287		96,720		139,340		111,287
Cash, cash equivalents and restricted cash at end of quarter	$	58,242	$	38,730	$	139,440	$	78,050
Supplemental cash flow information:
Income taxes paid/(received), net	$	4,226	$	6,661	$	794	$	(20)
Interest paid	$	65	$	54	$	23	$	31
Stock dividend issued	$	70,557	$	60,538	$	63,402	$	70,557

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

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TOOTSIE ROLL INDUSTRIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~JUNE 30, 2019~~MARCH 31, 2020

(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~~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, ~~2018~~2019 (the ~~“2018~~“2019 Form 10-K”).

Results of operations for the period ended ~~June 30, 2019~~March 31, 2020 are not necessarily indicative of results to be expected for the year to end December 31, ~~2019~~2020 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.

Due to the adverse effects of the Covid-19 pandemic on the overall economy, the Company has experienced a significant decline in customer orders and sales in second quarter 2020, and expects this trend to adversely affect net earnings in second quarter 2020 and may affect the third and fourth quarters in 2020 as well. The effects of Covid-19 are unprecedented, and therefore the Company is unable to ascertain the effects on its sales and net earnings for the balance of 2020.

Revenue Recognition

The Company’s revenues, primarily net product sales, principally result from the sale of goods, reflect the consideration to which the Company expects to be entitled generally based on customer purchase orders. The Company records revenue based on a five-step model in accordance with Accounting Standards Codification ("ASC") Topic 606 which became effective January, 1, 2018. Adjustments for estimated customer cash discounts upon payment, discounts for price adjustments, product returns, allowances, and certain advertising and promotional costs, including consumer coupons, are variable consideration and are recorded as a reduction of product sales revenue in the same period the related product sales are recorded. Such estimates are calculated using historical averages adjusted for any expected changes due to current business conditions and experience. A net product sale is recorded when the Company delivers the product to the customer, or in certain instances, the customer picks up the goods at the Company’s distribution center, and thereby obtains control of such product. Amounts billed and due from our customers are classified as accounts ~~receivables~~receivable trade on the balance sheet and require payment on a short-term basis. Accounts receivable trade are unsecured. Shipping and handling costs of ~~$11,185~~$10,672 and ~~$11,386 in second quarter 2019 and 2018, respectively, and $22,217 and $21,606~~$11,032 in first ~~half~~quarter 2020 and 2019, ~~and 2018,~~ respectively, are included in selling, marketing and administrative expenses. 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.

Leases

The Company identifies leases by evaluating our contracts to determine if the contract conveys the right to use an identified asset for a stated period of time in exchange for consideration. The Company considers whether it can control the underlying asset and have the right to obtain substantially all of the economic benefits or outputs from the asset. Leases with terms greater than 12 months are classified as either operating or finance leases at the commencement date. For these leases, we 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

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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.

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Recently Adopted Accounting Pronouncements

AtIn June 2016, the ~~beginning of 2019,~~FASB issued ASU No. 2016-13, (ASC Topic 326) which replaces the ~~Company adopted Accounting Standards Update No. 2016-02 (ASU 2016-02), Leases (Subtopic 842), which requires lessees to recognize all leases~~current incurred loss impairment method with a ~~term greater than 12 months~~new method that reflects expected credit losses. Subsequent to the issuance of ASC Topic 326, the FASB clarified and amended guidance through several Accounting Standard Updates; hereinafter the collection of credit loss guidance is referred to as “ASC Topic 326”. Under this new guidance an entity would recognize an impairment allowance equal to its current estimate of credit losses on ~~the balance sheet as right-of-use~~financial assets ~~and lease liabilities~~. ~~Upon adoption, the impact was the recognition of $1,482 in right-of-use assets and lease liabilities for operating leases.~~measured at amortized cost. The Company adopted ASU ~~2016-02 utilizing the current-period adjustment method~~2016-13 and ~~did not recast comparative periods upon adoption of the new standard. In addition, we elected certain practical expedients which permitted us to not~~reassess whether existing contracts are or contain leases, to not reassess the lease classification of any existing leases, to not reassess initial direct costs for any existing leases, and to not separate lease components for all classes of underlying assets.related amendments (ASC Topic 326) on January 1, 2020. The adoption of this ~~ASU did not have a material impact on the Company’s consolidated financial statements.~~

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

Recently Issued Accounting Pronouncements - Not Yet Adopted

In ~~June 2016,~~December 2019, the FASB issued ASU No. ~~2016-13,~~2019-12 which ~~replaces~~is designed to simplify 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~~accounting for income taxes by removing certain exceptions to ~~its current estimate of credit losses on financial assets measured at amortized cost. This guidance~~the general principles in Topic 740. ASU No. 2019-12 is effective for fiscal years beginning after December 15, ~~2019, with~~2020, including interim periods within those fiscal years; this ASU allows for early adoption ~~permitted.~~in any interim period after issuance of the update. The Company is currently ~~evaluating~~assessing the impact this ~~guidance~~ASU will have on its consolidated financial statements.

In March 2020, the FASB issued ASU 2020-04 which provides optional guidance for a limited time to ease the potential burden in accounting for reference rate reform. The new guidance provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts and hedging relationships that reference LIBOR or another reference rate expected to be discontinued due to reference rate reform. These amendments are effective immediately and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022. We are currently evaluating our contracts and the optional expedients provided by the new standard.

Note 2 — Average Shares Outstanding

The average number of shares outstanding for ~~six months~~first quarter 2020 reflects aggregate stock purchases of 260 shares for $8,809 and a 3% stock dividend of 1,942 shares distributed on April 3, 2020. The average number of shares outstanding for first quarter 2019 reflects aggregate stock purchases of ~~510~~285 shares for ~~$19,186~~$10,519 and a 3% stock dividend of 1,914 shares distributed on April 5, 2019. ~~The average number of shares outstanding for six months 2018 reflects aggregate stock purchases of 472 shares for $15,803 and a 3% stock dividend of 1,869 shares distributed on April 6, 2018.~~

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~~2016 through ~~2017.~~2018. The Company’s consolidated effective income tax rate was ~~25.8%~~21.5% and ~~23.7% in second quarter 2019 and 2018, respectively, and 25.2% and 22.9%~~24.3% in first ~~half~~quarter 2020 and 2019, ~~and 2018,~~ respectively. The ~~higher~~lower tax ~~rates~~rate in ~~2019~~first quarter 2020 principally ~~reflect higher~~reflects lower state ~~and foreign~~ income tax ~~expense, including the effects of certain international tax provisions relating to U.S. tax reform legislation that became effective at the beginning of 2018.~~expense.

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


										Capital in											Capital in
				Class B						Excess					Class B						Excess
	Common Stock			Common Stock			Treasury Stock			of Par		Common Stock			Common Stock			Treasury Stock			of Par
	Shares	Amount		Shares	Amount		Shares	Amount		Value		Shares	Amount		Shares	Amount		Shares	Amount		Value
	(000’s)			(000’s)			(000’s)					(000’s)			(000’s)			(000’s)
Balance at March 31, 2019	39,418	$	27,374	26,342	$	18,293	90	$	(1,992)	$	719,212
Balance at December 31, 2019												38,836	$	26,969	26,287	$	18,254	90	$	(1,992)	$	696,059
Issuance of 3% stock dividend	—		—	—		—	—		—		—	1,157		803	786		547	3		—		42,243
Conversion of Class B common shares to common shares	40		29	(40)		(29)	—		—		—	36		25	(36)		(25)	—		—		—
Purchase and retirement of common shares	(225)		(158)	—		—	—		—		(8,509)
Balance at June 30, 2019	39,233	$	27,245	26,302	$	18,264	90	$	(1,992)	$	710,703

Balance at March 31, 2018	38,724	$	26,891	25,637	$	17,804	88	$	(1,992)	$	703,194
Issuance of 3% stock dividend	—		—	—		—	—		—		—
Conversion of Class B common shares to common shares	32		23	(32)		(23)	—		—		—
Purchase and retirement of common shares	(111)		(77)	-		—	—		—		(3,229)
Balance at June 30, 2018	38,645	$	26,837	25,605	$	17,781	88	$	(1,992)	$	699,965
Purchase and retirement of common shares and other												(260)		(180)	—		—	—		—		(8,629)
Balance at March 31, 2020												39,769	$	27,617	27,037	$	18,776	93	$	(1,992)	$	729,673

Balance at December 31, 2018	38,544	$	26,767	25,584	$	17,767	88	$	(1,992)	$	696,535	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	1,150		798	767		532	2		—		32,999
Conversion of Class B common shares to common shares	49		35	(49)		(35)	—		—		—	9		6	(9)		(6)	—		—		—
Purchase and retirement of common shares	(510)		(355)	—		—	—		—		(18,831)
Balance at June 30, 2019	39,233	$	27,245	26,302	$	18,264	90	$	(1,992)	$	710,703

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		518	3		—		58,689
Conversion of Class B common shares to common shares	32		22	(32)		(22)	—		—		—
Purchase and retirement of common shares	(472)		(327)	—		—	—		—		(15,476)
Balance at June 30, 2018	38,645	$	26,837	25,605	$	17,781	88	$	(1,992)	$	699,965
Purchase and retirement of common shares and other												(285)		(197)	—		—	—		—		(10,322)
Balance at March 31, 2019												39,418	$	27,374	26,342	$	18,293	90	$	(1,992)	$	719,212

Note 5 — Fair Value Measurements

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

As of March 31, 2020, December 31, 2019 and March 31, 2019, the Company held certain financial assets that are required to be measured at fair value on a recurring basis. These included derivative hedging instruments related to the purchase of certain raw materials and foreign currencies, investments in trading securities and available for sale securities. The Company’s available for sale securities principally consist of corporate bonds.

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As of June 30, 2019, December 31, 2018 and June 30, 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 municipal bonds and variable rate demand notes.

The following table presents information about the Company’s financial assets and liabilities measured at fair value as of ~~June 30, 2019,~~March 31, 2020, December 31, ~~2018~~2019 and ~~June 30, 2018~~March 31, 2019 and indicate the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value:



	Estimated Fair Value June 30, 2019								Estimated Fair Value March 31, 2020
	Total		Input Levels Used						Total		Input Levels Used
	Fair Value		Level 1		Level 2		Level 3		Fair Value		Level 1		Level 2		Level 3
Cash and cash equivalents	$	57,857	$	57,857	$	-	$	-	$	139,067	$	139,067	$	-	$	-
Available for sale securities		206,687		3,078		203,609		-		162,080		3,441		158,639		-
Foreign currency forward contracts		(17)		-		(17)		-		(93)		-		(93)		-
Commodity futures contracts		(112)		(112)		-		-		(480)		(480)		-		-
Trading securities		71,375		71,375		-		-		68,717		41,692		27,025		-
Total assets measured at fair value	$	335,790	$	132,198	$	203,592	$	-	$	369,291	$	183,720	$	185,571	$	-


	Estimated Fair Value December 31, 2018								Estimated Fair Value December 31, 2019
		Total	Input Levels Used							Total	Input Levels Used
		Fair Value		Level 1		Level 2		Level 3		Fair Value		Level 1		Level 2		Level 3
Cash and cash equivalents	$	110,899	$	110,899	$	-	$	-	$	138,960	$	138,960	$	-	$	-
Available for sale securities		183,289		3,000		180,289		-		177,292		3,588		173,704		-
Foreign currency forward contracts		(407)		-		(407)		-		14		-		14		-
Commodity futures contracts, net		(587)		(587)		-		-		121		121		-		-
Trading securities		62,260		62,260		-		-		76,183		48,260		27,923		-
Total assets measured at fair value	$	355,454	$	175,572	$	179,882	$	-	$	392,570	$	190,929	$	201,641	$	-


	Estimated Fair Value June 30, 2018								Estimated Fair Value March 31, 2019
		Total	Input Levels Used							Total	Input Levels Used
		Fair Value		Level 1		Level 2		Level 3		Fair Value		Level 1		Level 2		Level 3
Cash and cash equivalents	$	38,334	$	38,334	$	-	$	-	$	77,670	$	77,670	$	-	$	-
Available for sale securities		192,392		-		192,392		-		199,944		3,041		196,903		-
Foreign currency forward contracts		-		-		-		-		(197)		-		(197)		-
Commodity futures contracts		(904)		(904)		-		-		(151)		(151)		-		-
Trading securities		65,000		65,000		-		-		69,260		42,866		26,394		-
Total assets measured at fair value	$	294,822	$	102,430	$	192,392	$	-	$	346,526	$	123,426	$	223,100	$	-

The fair value of the Company’s industrial revenue development bonds at ~~June 30, 2019,~~March 31, 2020, December 31, ~~2018~~2019 and ~~June 30, 2018~~March 31, 2019 were valued using Level 2 inputs which approximates the carrying value of $7,500 for the respective periods. Interest rates on these bonds are reset weekly based on current market conditions.

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Note 6 — Derivative Instruments and Hedging Activities

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

The Company recognizes all derivative instruments as either assets or liabilities at fair value in the Condensed Consolidated Statement of Financial Position. Derivative assets are recorded in other receivables and derivative liabilities are recorded in accrued liabilities. The Company uses hedge accounting for its foreign currency and commodity derivative instruments as discussed above. Derivatives that qualify for hedge accounting are designated

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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 ~~$191~~$331 and $149 of this accumulated comprehensive loss is expected to be reclassified as a charge to earnings in ~~2019~~2020 and ~~$(79) of this accumulated comprehensive loss is expected to be reclassified as a gain to earnings in 2020.~~2021, respectively. Approximately $4$(175), $47 and ~~$13~~$35 reported in accumulated other comprehensive ~~loss~~gain (loss) for foreign currency derivatives are expected to be reclassified to other income, net in ~~2019~~2020, 2021 and ~~2020,~~2022, respectively.

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The following table summarizes the Company’s outstanding derivative contracts and their effects on its Condensed Consolidated Statements of Financial Position at ~~June 30, 2019,~~March 31, 2020, December 31, ~~2018~~2019 and ~~June 30, 2018:~~March 31, 2019:



	June 30, 2019						March 31, 2020
	Notional						Notional
	Amounts		Assets		Liabilities		Amounts		Assets		Liabilities

Derivatives designated as hedging instruments:
Foreign currency forward contracts	$	11,050	$	-	$	(17)	$	11,342	$	117	$	(210)
Commodity futures contracts		6,911		120		(232)		3,955		1		(481)
Total derivatives			$	120	$	(249)			$	118	$	(691)

	December 31, 2018						December 31, 2019
	Notional						Notional
	Amounts		Assets		Liabilities		Amounts		Assets		Liabilities

Derivatives designated as hedging instruments:
Foreign currency forward contracts	$	11,050	$	-	$	(407)	$	5,533	$	14	$	—
Commodity futures contracts		9,580		92		(679)		7,147		205		(84)
Total derivatives			$	92	$	(1,086)			$	219	$	(84)

	June 30, 2018						March 31, 2019
	Notional						Notional
	Amounts		Assets		Liabilities		Amounts		Assets		Liabilities

Derivatives designated as hedging instruments:
Foreign currency forward contracts	$	-	$	-	$	-	$	11,050	$	-	$	(197)
Commodity futures contracts		9,058		11		(915)		7,158		213		(364)
Total derivatives			$	11	$	(915)			$	213	$	(561)

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The effects of derivative instruments on the Company’s Condensed Consolidated Statements of Earnings and Retained Earnings and the Condensed Consolidated Statements of Comprehensive Earnings for periods ended ~~June 30,~~March 31, 2020 and March 31, 2019 ~~and June 30, 2018~~ are as follows:



	For Quarter Ended June 30, 2019						For Quarter Ended March 31, 2020
					Gain (Loss)						Gain (Loss)
			Gain (Loss)		on Amount Excluded				Gain (Loss)		on Amount Excluded
	Gain (Loss)		Reclassified from		from Effectiveness		Gain (Loss)		Reclassified from		from Effectiveness
	Recognized		Accumulated OCI		Testing Recognized		Recognized		Accumulated OCI		Testing Recognized
	in OCI		into Earnings		in Earnings		in OCI		into Earnings		in Earnings

Foreign currency forward contracts	$	180	$	-	$	-	$	(205)	$	(98)	$	-
Commodity futures contracts		(123)		(162)		-		(756)		(155)		-
Total	$	57	$	(162)	$	-	$	(961)	$	(253)	$	-

	For Quarter Ended June 30, 2018						For Quarter Ended March 31, 2019
					Gain (Loss)						Gain (Loss)
			Gain (Loss)		on Amount Excluded				Gain (Loss)		on Amount Excluded
	Gain (Loss)		Reclassified from		from Effectiveness		Gain (Loss)		Reclassified from		from Effectiveness
	Recognized		Accumulated OCI		Testing Recognized		Recognized		Accumulated OCI		Testing Recognized
	in OCI		into Earnings		in Earnings		in OCI		into Earnings		in Earnings

Foreign currency forward contracts	$	-	$	20	$	-	$	210	$	-	$	-
Commodity futures contracts		(377)		(568)		-		340		(96)		-
Total	$	(377)	$	(548)	$	-	$	550	$	(96)	$	-

	For Year to Date Ended June 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	$	390	$	-	$	-
Commodity futures contracts		217		(258)		-
Total	$	607	$	(258)	$	-

	For Year to Date Ended June 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	$	(11)	$	67	$	-
Commodity futures contracts		(1,838)		(902)		-
Total	$	(1,849)	$	(835)	$	-

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Note 7 — Pension Plans

~~From~~Beginning in 2012, ~~to 2014,~~ the Company received periodic notices from the Bakery, Confectionery, Tobacco Workers and Grain Millers International Union Pension Plan (Plan), a multi-employer defined benefit pension plan for certain Company union employees, that the Plan’s actuary certified the Plan to be in “critical status”, the “Red Zone”, 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~~During 2015, the Company ~~has~~ received ~~annual~~new notices that the Plan ~~is in~~was reclassified to “critical and declining status”, as defined by the PPA and PBGC, ~~and that amendments to~~for the ~~rehabilitation~~ plan ~~were adopted.~~year beginning January 1, 2015. A designation of “critical and declining status” implies that the Plan is expected to become insolvent in the next 20 years. ~~The~~In 2016, the Company received new notices that the Plan’s trustees ~~project that~~adopted an updated Rehabilitation Plan effective January 1, 2016, and all annual notices through 2020 have continued to classify the Plan ~~will be insolvent~~ in ~~2030.~~the “critical and declining status” category.

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

The amended rehabilitation plan requires that employer contributions include 5% compounded annual surcharge increases each year for an unspecified period of time beginning January 2013 (in addition to the 5% interim surcharge initiated in June 2012) as well as certain plan benefit reductions. The Company’s pension expense for this Plan for first ~~half~~quarter 2020 and 2019 was $685 and $574, respectively ($2,961 and $2,836 for twelve months 2019 and 2018, ~~was $1,548 and $1,517, respectively ($2,836 and $2,617 for twelve months 2018 and 2017,~~ respectively). The aforementioned expense includes surcharges of ~~$496~~$241 and ~~$434~~$184 for first ~~half~~quarter 2020 and 2019, ~~and 2018,~~ respectively ($~~811~~948 and ~~$656~~$811 for twelve months ~~2018~~2019 and ~~2017,~~2018, respectively), as required under the amended plan of rehabilitation.

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

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Note 8 — Accumulated Other Comprehensive Earnings (Loss)

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



											Accumulated												Accumulated
	Foreign				Foreign				Postretirement		Other		Foreign				Foreign				Postretirement		Other
	Currency				Currency		Commodity		and Pension		Comprehensive		Currency				Currency		Commodity		and Pension		Comprehensive
	Translation		Investments		Derivatives		Derivatives		Benefits		Earnings (Loss)		Translation		Investments		Derivatives		Derivatives		Benefits		Earnings (Loss)
Balance at March 31, 2019	$	(23,768)	$	(404)	$	(150)	$	(114)	$	3,918	$	(20,518)
Balance at December 31, 2019													$	(23,368)	$	882	$	10	$	92	$	2,139	$	(20,245)
Other comprehensive earnings (loss) before reclassifications		205		898		137		(94)		-		1,146		(3,674)		(827)		(155)		(574)		-		(5,230)
Reclassifications from accumulated other comprehensive loss		-		-		-		124		(289)		(165)		-		-		74		118		(256)		(64)
Other comprehensive earnings (loss) net of tax		205		898		137		30		(289)		981		(3,674)		(827)		(81)		(456)		(256)		(5,294)
Balance at June 30, 2019	$	(23,563)	$	494	$	(13)	$	(84)	$	3,629	$	(19,537)

Balance at March 31, 2018	$	(22,650)	$	(2,005)	$	16	$	(830)	$	3,786	$	(21,683)
Other comprehensive earnings (loss) before reclassifications		(1,674)		(22)		(1)		(286)		-		(1,983)
Reclassifications from accumulated other comprehensive loss		-		-		(15)		431		(251)		165
Other comprehensive earnings (loss) net of tax		(1,674)		(22)		(16)		145		(251)		(1,818)
Adoption of ASU 2018-02		-		-		-		-		-		-
Balance at June 30, 2018	$	(24,324)	$	(2,027)	$	-	$	(685)	$	3,535	$	(23,501)
Balance at March 31, 2020													$	(27,042)	$	55	$	(71)	$	(364)	$	1,883	$	(25,539)

Balance at December 31, 2018	$	(24,159)	$	(1,516)	$	(309)	$	(444)	$	4,206	$	(22,222)	$	(24,159)	$	(1,516)	$	(309)	$	(444)	$	4,206	$	(22,222)
Other comprehensive earnings (loss) before reclassifications		596		2,010		296		164		-		3,066		391		1,112		159		258		-		1,920
Reclassifications from accumulated other comprehensive loss		-		-		-		196		(577)		(381)		-		-		-		72		(288)		(216)
Other comprehensive earnings (loss) net of tax		596		2,010		296		360		(577)		2,685		391		1,112		159		330		(288)		1,704
Balance at June 30, 2019	$	(23,563)	$	494	$	(13)	$	(84)	$	3,629	$	(19,537)

Balance at December 31, 2017	$	(24,262)	$	(889)	$	51	$	20	$	3,289	$	(21,791)
Other comprehensive earnings (loss) before reclassifications		(62)		(970)		(9)		(1,393)		-		(2,434)
Reclassifications from accumulated other comprehensive loss		-		-		(51)		684		(502)		131
Other comprehensive earnings (loss) net of tax		(62)		(970)		(60)		(709)		(502)		(2,303)
Adoption of ASU 2018-02		-		(168)		9		4		748		593
Balance at June 30, 2018	$	(24,324)	$	(2,027)	$	-	$	(685)	$	3,535	$	(23,501)
Balance at March 31, 2019													$	(23,768)	$	(404)	$	(150)	$	(114)	$	3,918	$	(20,518)

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


Details about Accumulated Other	Quarter Ended				Year to Date Ended				Location of (Gain) Loss	Quarter Ended				Location of (Gain) Loss
Comprehensive Income Components	June 30, 2019		June 30, 2018		June 30, 2019		June 30, 2018		Recognized in Earnings	March 31, 2020		March 31, 2019		Recognized in Earnings
Foreign currency derivatives	$	-	$	(20)	$	-	$	(67)	Other income, net	$	98	$	-	Other income, net
Commodity derivatives		162		568		258		902	Product cost of goods sold		155		96	Product cost of goods sold
Postretirement and pension benefits		(380)		(331)		(761)		(662)	Other income, net		(338)		(381)	Other income, net
Total before tax		(218)		217		(503)		173			(85)		(285)
Tax (expense) benefit		53		(52)		122		(42)			21		69
Net of tax	$	(165)	$	165	$	(381)	$	131		$	(64)	$	(216)

Note 9 — Restricted Cash

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

Note 10 — Bank Loans

Bank loans consist of short term (less than 120 days) borrowings by the Company’s Spanish subsidiary that are held by international banks. The weighted-average interest rate as of ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~ was 3.0% and ~~2.0%~~1.9%, respectively.

Note 11 — Leases

The Company leases certain buildings, land and equipment that are classified as operating leases. ~~Our~~These leases have remaining lease terms of up to approximately 3 years. In the ~~second~~first quarter of 2020and ~~first half of~~ 2019 ~~our~~, operating lease cost and cash paid for operating lease liabilities totaled ~~$168~~$236 and ~~$335,~~$167, respectively, which is classified in cash flows from

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operating activities. As of ~~June 30,~~March 31, 2020 and March 31 2019, operating lease right-of-use assets and operating lease liabilities were both ~~$1,258.~~$1,388 and $1,370, respectively. The weighted-average remaining lease term related to ~~our~~these operating leases was ~~1.9~~1.6 years and 2.1 years as of ~~June 30, 2019.~~March 31, 2020 and March 31, 2019, respectively. The weighted-average discount rate related to ~~our~~the Company’s operating leases was 3.1% as of ~~June 30,~~March 31, 2020 and 2019. Maturities of our operating lease liabilities at ~~June 30, 2019~~March 31, 2020 are as follows: ~~$319 in 2019, $578~~$632 in 2020, ~~$300~~$695 in 2021, ~~and~~ $61 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 ~~$36,385~~$36,368 and ~~$9,890,~~$10,433, respectively, as of ~~June 30,~~March 31, 2020 and were $36,371 and $9,709, respectively, as of March 31, 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 ~~second~~first quarter 2020 and ~~first half~~ 2019 was ~~$751~~$737 and ~~$1,500,~~$749, respectively, and is classified in cash flows from operating activities.

Note 12 — Contingencies

In the ordinary course of business, the Company is, from time to time, subject to a variety of active or threatened legal proceedings and claims. 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, ~~2018~~2019 (the ~~“2018~~“2019 Form 10-K”).

Net product sales were ~~$106,021~~$102,803 in ~~second~~first quarter ~~2019~~2020 compared to ~~$105,623~~$101,019 in ~~second~~first quarter ~~2018,~~2019, an increase of ~~$398~~$1,784 or ~~0.4%~~1.8%. First ~~half 2019 net product sales were $207,040 compared to $206,482 in first half 2018, an increase of $558 or 0.3%. Second~~ quarter ~~and first half 2019~~2020 net product sales include increases in domestic sales of ~~approximately 1.6%~~3.0%. Successful marketing and ~~0.8%, respectively.~~sales programs as well as higher price realization contributed to the increase in net product sales in first quarter 2020 compared to first quarter 2019. Lower foreign net product sales adversely affected reported consolidated net product sales in ~~both second~~first quarter ~~and first half 2019~~2020 compared to the corresponding ~~periods~~period in ~~2018. Foreign net product sales were unfavorably impacted by the timing of certain sales in the comparative periods as well as a~~2019. A stronger U.S. dollar and the related translation of foreign ~~sales. Second quarter and first half 2019 net product~~ sales also ~~benefited from higher price realization which allowed~~adversely affected first quarter sales in 2020 compared to the ~~Company to recover some product margin decline resulting from increasing input costs.~~corresponding period in the prior year

Product cost of goods sold were ~~$65,945~~$66,443 in ~~second~~first quarter ~~2019~~2020 compared to ~~$67,481 in second quarter 2018, and first half 2019 product cost of goods sold were $130,801 compared to $133,315~~$64,856 in first ~~half 2018.~~quarter 2019. Product cost of goods sold includes ~~$66~~$(319) and ~~$53~~$180 of certain deferred compensation expenses ~~in second quarter 2019 and 2018, respectively, and $246 and $67 of certain deferred compensation expenses~~(credits) in first ~~half~~quarter 2020 and 2019, ~~and 2018,~~ respectively. These deferred compensation expenses (credits) principally result from the changes in the market value of investments and investment income from trading securities relating to compensation deferred in previous years and are not reflective of current operating results. Adjusting for the aforementioned, product cost of goods sold ~~decreased~~increased from ~~$67,428~~$64,676 in ~~second quarter 2018 to $65,879 in second~~first quarter 2019 ~~a decrease of $1,549 or 2.3%; and decreased from $133,248~~to $66,762 in first ~~half 2018 to $130,555 in first half 2019, a decrease~~quarter 2020, an increase of ~~$2,693~~$2,086 or ~~2.0%~~3.2%. As a percentage of net product sales, adjusted product cost of goods sold was ~~62.1%~~64.9% and ~~63.8% in second quarter 2019 and 2018, respectively, a favorable decrease of 1.7 percentage points; and adjusted product cost of goods sold was 63.1% and 64.5%~~64.0% in first ~~half~~quarter 2020 and 2019, ~~and 2018,~~ respectively, ~~a favorable decrease~~an unfavorable increase of ~~1.4~~0.9 percentage points. Higher ~~price realization contributed to~~plant manufacturing overhead costs were the ~~aforementioned favorable decrease in~~principal drivers of this cost ~~of goods sold as a percentage of net product cost in second quarter and first half 2019.~~

increase. The Company is continuing its investments in its plant manufacturing operations to meet new consumer and customer demands, achieve quality improvements, and increase operational efficiencies. ~~Plant efficiencies driven by capital~~Capital investments and ongoing cost containment programs ~~contributed~~did contribute to ~~the improved gross profit margins discussed above. The prior year 2018 product~~certain efficiencies and cost of goods sold was adversely affected by the implementation and start-up of new manufacturing packaging lines and resulting operational inefficiencies as well as unfavorable experience from certain Company employee benefit self-insurance programs.reductions.

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Selling, marketing and administrative expenses were ~~$28,216~~$16,272 in ~~second~~first quarter ~~2019~~2020 compared to ~~$28,752 in second quarter 2018, and first half 2019 selling, marketing and administrative expenses were $59,324 compared to $54,609~~$31,108 in first ~~half 2018.~~quarter 2019. Selling, marketing and administrative expenses include ~~$1,767~~$(9,056) and ~~$1,551~~$4,823 of certain deferred compensation expenses ~~in second quarter 2019 and 2018, respectively, and $6,590 and $1,948 of certain deferred compensation expenses~~(credits) in first ~~half~~quarter 2020 and 2019, ~~and 2018,~~ respectively. As discussed above, these expenses (credits) principally result from changes in the market value of investments and investment income from trading securities relating to compensation deferred in previous years, and are not reflective of current operating results. Adjusting for the aforementioned deferred compensation expenses (credits), selling, marketing and administrative expenses decreased from ~~$27,201~~$26,285 in ~~second~~first quarter ~~2018~~2019 to ~~$26,449~~$25,328 in ~~second~~first quarter ~~2019,~~2020, a decrease of ~~$752~~$957 or ~~2.8%; and selling, marketing and administrative expenses increased from $52,661 in first half 2018 to $52,734 in first half 2019, an increase of $73 or 0.1%~~3.6%. As a percentage of net product sales, adjusted selling, marketing and administrative expenses decreased from ~~25.8%~~26.0% in ~~second~~first quarter ~~2018~~2019 to ~~25.0%~~24.6% in ~~second~~first quarter ~~2019,~~2020, a favorable decrease of ~~0.8~~1.4 percentage points ~~as a percent of net sales, and selling, marketing and administrative expenses were 25.5% in both first half 2018 and 2019~~ as a percent of net sales. The decrease in adjusted selling, marketing and administrative

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expenses in ~~second~~first quarter ~~2019~~2020 principally reflects decreases in ~~customer~~ freight and delivery expenses as well as reductions in overall general and ~~warehousing, and legal and professional fees~~administrative expenses in ~~the second quarter 2019,~~2020 when compared to ~~second quarter 2018.~~the corresponding periods in 2019.

Selling, marketing and administrative expenses include ~~$11,185~~$10,672 and ~~$11,386~~$11,032 for customer freight, delivery and warehousing expenses in ~~second~~first quarter ~~2019~~2020 and ~~2018,~~2019, respectively, a decrease of ~~$201~~$360 or ~~1.8%~~3.3%. These expenses were ~~$22,217~~10.4% and $21,606 in first half 2019 and 2018, respectively, an increase of $611 or 2.8%. These expenses were 10.5% and 10.8% of net product sales in second quarter 2019 and 2018, respectively, and were 10.7% and 10.5%10.9% of net product sales in first ~~half~~quarter 2020 and 2019, ~~and 2018,~~ respectively. Although freight and delivery expenses remain elevated compared to historical levels, we experienced some moderation and declines in customer freight and delivery rates in second quarter 2019 compared to second quarter 2018.

Earnings from operations were ~~$12,515~~$20,744 in ~~second~~first quarter ~~2019~~2020 compared to ~~$10,368 in second quarter 2018, and were $18,273~~$5,758 in first ~~half 2019 compared to $20,210 in first half 2018.~~quarter 2019. Earnings from operations include ~~$1,833~~$(9,375) and ~~$1,604~~$5,003 of certain deferred compensation expenses ~~in second quarter 2019 and 2018; respectively, and include $6,836 and $2,015 of certain deferred compensation expenses~~(credits) in first ~~half 2019~~quarter 2020 and ~~2018,~~2019; respectively, which are discussed above. Adjusting for these deferred compensation costs, expenses and ~~expenses,~~(credits), earnings from operations were ~~$14,348~~$11,369 and ~~$11,972~~$10,761 in ~~second~~first quarter ~~2019~~2020 and ~~2018,~~2019, respectively, an increase of ~~$2,376~~$608 or ~~19.8%; and adjusted operating earnings were $25,109 and $22,225 in first half 2019 and 2018, respectively, an increase of $2,884 or 13.0%~~5.7%. As a percentage of net product sales, these adjusted operating earnings were ~~13.5%~~11.1% and ~~11.3%~~10.7% in ~~second~~first quarter ~~2019~~2020 and ~~2018,~~2019, respectively, a favorable increase of 2.2 percentage points as a percentage of net product sales; and as a percentage of net product sales, these adjusted operating earnings were 12.1% and 10.8% in first half 2019 and 2018, respectively, a favorable increase of 1.30.4 percentage points as a percentage of net product sales. The improvement in adjusted earnings from operations principally reflects the benefits of increased sales, including higher price realization, as well as the reduction and containment of certain costs and expense as discussed above.

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

Other income (loss), net was ~~$3,053~~$(5,494) in ~~second~~first quarter ~~2019~~2020 compared to ~~$3,363~~$6,017 in ~~second~~first quarter ~~2018,~~2019, an unfavorable decrease of ~~$310; and other income, net, was $9,070 in first half 2019 compared to $3,884 in first half 2018, a favorable increase of $5,186.~~$11,511. Other income, net for ~~second~~first quarter ~~2019~~2020 and ~~2018~~2019 includes net (losses) gains and investment income of ~~$1,833~~$(9,375) and ~~$1,604,~~$5,003, respectively, on trading securities which provide an economic hedge of the Company’s deferred compensation ~~liabilities; and other income, net for first half 2019 and 2018 includes net gains and investment income of $6,836 and $2,015, respectively, on trading securities.~~liabilities. 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 ~~second~~first quarter ~~2019~~2020 and ~~2018~~2019 includes investment income on available for sale securities of ~~$1,109~~$1,181 and ~~$873~~$1,071 in ~~2019~~2020 and ~~2018, respectively; and other income, net for first half~~ 2019, ~~and 2018 includes investment income on available for sale securities of $2,181 and $1,720 in 2019 and 2018,~~ respectively. Other income (loss), net also includes gains (losses) on foreign exchange of ~~$(211)~~$2,510 and ~~$627 in second quarter 2019 and 2018, respectively, and $(446) and $(277)~~$(235) in first ~~half~~quarter 2020 and 2019, ~~and 2018,~~ respectively.

The consolidated effective tax rates were ~~25.8%~~21.5% and ~~23.7% in second quarter 2019 and 2018, respectively, and 25.2% and 22.9%~~24.3% in first ~~half~~quarter 2020 and 2019, ~~and 2018,~~ respectively. ~~These higher~~The lower tax rates in ~~2019~~first quarter 2020 principally reflect ~~higher~~lower state ~~and foreign~~ income tax ~~expense,~~expense. On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act was signed into law. The CARES Act provides a substantial stimulus and assistance package intended to address the impact of the Covid-19 pandemic, including tax relief and government loans, grants and investments. The CARES Act did not have a material impact on our consolidated financial statements for first quarter 2020. We continue to monitor any effects that may result from the ~~effects of certain international tax provisions relating to U.S. tax reform legislation that became effective at the beginning of 2018.~~CARES Act.

Net earnings attributable to Tootsie Roll Industries, Inc. were ~~$11,556~~$11,982 (after ~~$12~~$6 net loss attributed to non-controlling interests) in ~~second~~first quarter ~~2019~~2020 compared to ~~$10,489~~$8,955 (after ~~$19~~$44 net loss attributed to non-controlling interests) in ~~second~~first quarter ~~2018,~~2019, and earnings per share were $0.18 and ~~$0.16~~$0.13 in ~~second~~first quarter ~~2019~~2020 and ~~2018,~~2019, respectively, an increase of ~~$0.02~~$0.05 per share, or ~~12.5%~~38.5%. First ~~half 2019~~quarter 2020 net earnings ~~attributable to Tootsie Roll Industries, Inc. were $20,511 (after $56 net loss attributed to non-controlling interests) compared to first half 2018 net earnings~~benefited from after-tax foreign exchange gains of ~~$18,614 (after $43 net loss attributed to non-controlling interests), and net earnings per share were $0.31 and $0.28 in first half 2019 and first half 2018, respectively, an increase of~~approximately $1,900 or $0.03 per ~~share or 10.7%.~~share. Earnings per share attributable to Tootsie Roll Industries, Inc. for ~~second~~first quarter ~~and first half 2019 did benefit~~2020 also benefited from the reduction in average shares outstanding resulting from purchases in the open market by the Company of its common stock. Average shares outstanding decreased from 67,814 at first quarter 2019 to 66,875 at first quarter 2020.

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~~stock. Average shares outstanding decreased from 66,104 in second quarter 2018 to 65,559 in second quarter 2019, and from 66,232 in first half 2018 to 65,722 in first half 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 first ~~half 2019.~~quarter 2020. There were also no impairments in the comparative first ~~half 2018~~quarter 2019 period or in calendar year ~~2018.~~2019. Although Company management has not identified any trigging events relating to its intangibles, primarily indefinite lived trademarks, the ultimate effects of the Covid-19 pandemic could change this assessment in the future, as discussed below and as outlined in the Company’s risk factors discussed on Form 10-K for the year ended December 31, 2019.

~~As more fully discussed~~Beginning 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. 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.

~~From~~ 2012, ~~to 2014,~~ the Company received periodic ~~annual~~ notices from the Bakery, Confectionery, Tobacco Workers and Grain Millers International Union Pension Plan (Plan), a multi-employer defined benefit pension plan for certain Company union employees, that the Plan’s actuary certified the Plan to be in “critical status”, the “Red Zone”, as defined by the Pension Protection Act (PPA) and the Pension Benefit Guaranty Corporation (PBGC); and that ~~plans~~a plan of rehabilitation ~~were~~was adopted by the trustees of the Plan ~~during these years. In~~in 2012. During 2015, the Company received notices that the Plan’s status was changed to “critical and declining status”, as defined by the PPA and PBGC, for the plan year beginning January 1, ~~2015.~~2015, and that the Plan was projected to have an accumulated funding deficiency for the 2017 through 2024 plan years. A designation of “critical and declining status” implies that the Plan is expected to become insolvent in the next 20 ~~years, and the Plan is projected~~years. The Company has continued to ~~become insolent in 2030. During second quarter 2019, the Company received updated~~receive annual notices each year (2016 through 2020) that ~~the~~this Plan remains in “critical and declining ~~status for~~status” and is projected to become insolvent within the ~~plan year beginning January 1, 2019.~~next 20 years. These ~~new~~ notices have also advised that the Plan trustees were considering the reduction or elimination of certain retirement benefits and may seek assistance from the PBGC. Plans in “critical and declining status” may elect to suspend (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 notices, the Plan’s funded percentage (plan investment assets as a percentage of plan liabilities), as defined, were ~~51.6%~~50.4%, ~~54.7%~~51.6%, and ~~57.0%~~54.7% as of the most recent valuation dates available, January 1, 2019, 2018, ~~2017,~~ and ~~2016,~~2017, 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, ~~2018,~~2020 the funded percentage would be ~~54.2%~~48.8% (not ~~51.6%~~50.4%). Given the recent declines in the equity markets due to the Covid-19 pandemic, the current funded percentage is likely much lower than the aforementioned 48.8%. As of the January 1, ~~2018~~2019 valuation date (most recent valuation available), only ~~18%~~16% of Plan participants were current active employees, ~~52%~~53% were retired or separated from service and receiving benefits, and ~~30%~~31% were retired or separated from service and entitled to future benefits. The number of current active employee Plan participants as of January 1, 2019 fell 14% from the previous year and 17% over the past two years. When compared to the Plan valuation date of January 1, 2011 (seven years earlier), current active employee participants have declined 47%, whereas participants who were retired or separated from service and receiving benefits increased 4% and participants who were retired or separated from service and entitled to future benefits increased 14%. The Company understands that the Plan is ~~currently exploring~~continuing to explore additional restructuring measures which include incentives to participating employers in exchange for providing additional future cash contributions as well as suspension of certain retirement benefits.

The Company has been advised that its withdrawal liability would have been $99,800, $81,600, ~~$82,200,~~ and ~~$72,700~~$82,200 if it had withdrawn from the Plan during 2019, 2018 ~~2017~~ and ~~2016,~~2017, respectively. The ~~decrease~~increase from ~~2017~~2018 to ~~2018~~2019 was ~~driven by an increase in the PBGC interest rate, resulting in~~mainly attributable to a decrease in the ~~value of vested benefits, and an increase in the~~ Plan’s assets during 2018, net of market returns, and the withdrawal of a large contributing employer where their actual withdrawal payments (likely over 20 years as ~~well as some decrease in the Plan’s affected benefits; however, the aforementioned was offset by effects of the Company comprising a larger share of the Plan’s contribution base.~~discussed below) are not enough to fully fund their actual withdrawal liability. The Company’s relative share of the Plan’s contribution base, driven by employer withdrawals, has increased ~~over~~for the last several years, and ~~management~~Management believes that this trend could continue indefinitely which will add upward pressure on the Company’s withdrawal liability. Based on the above, including the Plan’s projected insolvency in the year 2030, ~~management~~Management believes that the Company’s withdrawal liability could increase further in future years.

Based on the Company’s updated actuarial study and certain provisions in ERISA and the law relating to withdrawal liability payments, ~~management~~Management believes that the Company’s liability would likely be limited to twenty annual payments of ~~$3,059~~$3,045 which have a present value in the range of ~~$35,900~~$35,700 to ~~$46,900~~$46,700 depending on the interest rate

2018

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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~~$49,900 to ~~$105,000~~$104,500 and would apply in the unlikely event that substantially all employers withdraw from the Plan. The aforementioned is based on a range of valuations and interest rates which the Company’s actuary has advised is provided under the statute. Should the Company actually withdraw from the Plan at a future date, a withdrawal liability, which could be higher than the above discussed amounts, could be payable to the Plan.

The ~~Company’s current~~Company and the union concluded a new labor contract in 2018 which requires the Company’s continued participation in this Plan through September 2022. The amended rehabilitation plan, which also continues, requires that employer contributions include 5% compounded annual surcharge increases each year for an unspecified period of time beginning in 2012 as well as certain plan benefit reductions. The Company’s pension expense for this Plan for first ~~half~~quarter 2020 and 2019 was $685 and ~~2018 was $1,548 and $1,517,~~$574, respectively, which includes surcharges of ~~$496~~$241 and ~~$434,~~$184, respectively, as required under the amended rehabilitation plan. Such surcharges for calendar years 2019 and 2018 were $948 and $811, respectively.

The ~~U.S.~~Company understands that the U.S Congress ~~has continued~~and the U.S Senate have proposed various legislation, including the “Butch Lewis Act,” that would provide varying degrees of assistance to ~~explore~~troubled multi-employer plans similar to this Plan, including long-term low interest loans to troubled multi-employer plans. Certain provisions proposed would change the withdrawal liability rules which could increase the Company’s obligation in the event that the Company withdrew from this Plan, resulting in higher annual payment amounts and ~~discuss various solutions, including financial assistance,~~payments for ~~multi-employer pension plans (HR 397,~~a longer period of time in excess of the ~~Butch Lewis Act).~~maximum twenty year period discussed above. 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 could be material to its consolidated results of operations or cash flows in one or more future periods. See also Note 7 in the Company’s Consolidated Financial Statements ~~and related notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations in~~on Form 10-K for the ~~Company’s 2018 Form 10-K.~~year ended December 31, 2019.

LIQUIDITY AND CAPITAL RESOURCES

Net cash flows provided by operating activities were ~~$11,021~~$14,581 and ~~$6,395~~$10,556 in first ~~half~~quarter 2020 and 2019, ~~and 2018,~~ respectively, a favorable increase of ~~$4,626.~~$4,025. The increase in first ~~half 2019~~quarter 2020 cash flows from operating activities principally reflects ~~higher~~increased net earnings, ~~in first half 2019,~~the timing of payments relating to accounts payable and accrued liabilities as well as the timing of sales and collections of accounts receivable trade. Increased production and resulting higher inventories in first quarter 2020 had some adverse impact on cash flows from operating activities. This higher production and inventories were planned in the ~~timing of payments relating~~event that the Company might have to ~~income taxes payable, prepaid expenses and other assets.~~shut-down one or more manufacturing plant operations in response to the Covid-19 pandemic, which is further discussed below.

Net cash ~~used in~~from (used in) investing activities was ~~$33,662~~$8,261 in first ~~half 2019~~quarter 2020 compared to ~~$37,092~~$(22,221) in first ~~half 2018.~~quarter 2019. Cash flows from (used in) investing activities reflect ~~$33,5~~58$21,312 and ~~$49,742~~$20,919 of purchases of available for sale securities during first ~~half~~quarter 2020 and 2019, ~~and 2018,~~ respectively, and ~~$12,120~~$35,217 and ~~$27,057~~$5,379 of sales and maturities of available for sale securities during first ~~half~~quarter 2020 and 2019, ~~and 2018,~~ respectively. First ~~half~~quarter 2020 and 2019 ~~and 2018~~ investing activities include capital expenditures of ~~$9,945~~$3,737 and ~~$11,662,~~$4,683, respectively. Company Management has committed approximately $25,000 to a rehabilitation upgrade and expansion of one of its manufacturing plants in the U.S.A. The Company spent approximately $2,400 in 2019, and Management’s projected cash outlays for this project are approximately $12,600 in 2020 and $10,000 in 2021. All capital expenditures ~~in 2019~~ are ~~expected~~ to be funded from the Company’s cash flow from operations and internal sources. The increase in capital expenditures in the prior year’s first half 2018 reflects the purchase of new packaging lines at several manufacturing plants. In addition, Company management has committed approximately $16,000 to a manufacturing plant rehabilitation upgrade and expansion of one of its manufacturing facilities in the U.S. Management expects the projected cash outlayssources including available for ~~this project to be approximately $4,000 in 2019, $9,000 in 2020 and $3,000 in 2021.~~sale securities.

The Company’s consolidated financial statements include bank borrowings of ~~$686~~$781 and ~~$420~~$755 at ~~June 30,~~March 31, 2020 and 2019, ~~and 2018,~~ respectively, all of which relates to its Spanish subsidiary. The Company had no other outstanding bank borrowings at ~~June 30, 2019.~~March 31, 2020.

Financing activities include Company common stock purchases and retirements of ~~$19,186~~$8,809 and ~~$15,803~~$10,519 in first ~~half~~quarter 2020 and 2019, ~~and 2018,~~ respectively. Cash dividends of ~~$11,699~~$11,703 and ~~$11,435~~$11,530 were paid in first ~~half~~quarter 2020 and 2019, ~~and 2018,~~ respectively.

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The Company’s current ratio (current assets divided by current liabilities) was ~~4.7~~4.3 to 1 at ~~June 30, 2019~~March 31, 2020 compared to ~~5.0~~4.4 to 1 at December 31, ~~2018~~2019 and ~~4.2~~5.3 to 1 at ~~June 30, 2018.~~March 31, 2019. Net working capital was ~~$220,802~~$257,104 at ~~June 30, 2019~~March 31, 2020 compared to ~~$242,655~~$273,786 and ~~$198,851~~$226,927 at December 31, ~~2018~~2019 and ~~June 30, 2018,~~March 31, 2019, respectively. The aforementioned net working capital amounts are principally reflected in aggregate cash and cash equivalents and short-term investments of ~~$140,560~~$216,577 at ~~June 30, 2019~~March 31, 2020 compared to ~~$186,039~~$239,404 and ~~$103,545~~$159,656 at December 31, ~~2018~~2019 and ~~June 30, 2018,~~March 31, 2019, respectively. In addition, long term investments, principally debt securities comprising corporate ~~and municipal~~ bonds were ~~$195,359~~$153,287 at ~~June 30, 2019,~~March 31, 2020, as compared to ~~$170,409~~$153,031 and ~~$192,181~~$187,218 at December 31, ~~2018~~2019 and ~~June 30,~~

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~~2018,~~March 31, 2019, respectively. Aggregate cash and cash equivalents and short and long-term investments were ~~$335,919, $356,448,~~$369,864, $392,435, and ~~$295,726,~~$346,874, at ~~June 30, 2019,~~March 31, 2020, December 31, ~~2018~~2019 and ~~June 30, 2018,~~March 31, 2019, respectively. The aforementioned includes ~~$71,375, $62,260,~~$68,717, $76,183, and ~~$65,000~~$69,260 at ~~June 30, 2019,~~March 31, 2020, December 31, ~~2018~~2019 and ~~June 30, 2018,~~March 31, 2019, respectively, relating to trading securities which are used as an economic hedge for the Company’s deferred compensation liabilities. Investments in available for sale securities, primarily high quality corporate ~~and municipal~~ bonds, ~~variable rate demand notes, and other debt securities~~ that matured during first ~~half~~quarter 2020 and 2019 ~~and 2018~~ were generally used to purchase the Company’s common stock or were replaced with debt securities of similar maturities.

The Company periodically contributes to a VEBA trust, managed and controlled by the Company, to fund the estimated future costs of certain employee health, welfare and other benefits. The Company is currently using these VEBA funds to pay the actual cost of such benefits through most of 2022. The VEBA trust held ~~$14,674, $15,921~~$11,762, $12,085 and ~~$17,825~~$15,522 of aggregate cash and cash equivalents at ~~June 30, 2019,~~March 31, 2020, December 31, ~~2018~~2019 and ~~June 30, 2018,~~March 31, 2019, respectively. This asset value is included in prepaid expenses and long-term other assets in the Company’s Consolidated Statement of Financial Position. These assets are categorized as Level 1 within the fair value hierarchy.

COVID-19 PANDEMIC

The Covid-19 pandemic, and resulting “shelter in place” and closures of “nonessential” businesses by many state and local governments, as well as foreign governments, has had a significant adverse impact on the overall economy. The aforementioned has resulted in the curtailment or complete closing of certain trade channels where our products are distributed as well as resulting changes in consumer behavior and shopping habits. Many of the Company’s products are larger confectionary products where a high value is provided to consumers, and such products are often consumed at many “sharing” and “give-a-way” events and activities. However, many of these consumption occasions as well as impulse purchases of our products have been significantly affected or completely curtailed by “shelter in place” mandates, public health guidelines, and consumer fears of returning to their previous lifestyles. As a result, the Company has experienced a very significant decline in its customer orders and sales to date in second quarter 2020 compared to second quarter 2019, and the Company expects this trend to have a material adverse effect on sales and net earnings in second quarter 2020. The effects of this pandemic are unprecedented and its future effects including the “reopening up the economy” are very uncertain. The Company is not able to predict the effects of this pandemic on the second half of 2020 and beyond. However, the Company believes that the pandemic will likely have some adverse effect on its sales and earnings in second half 2020.

Although the Company has not yet experienced any significant disruptions to its business, the Covid-19 pandemic could also result in the following:

●

Disruption to supply chain resulting in the unavailability or untimely delivery of raw materials and supplies as well as key services by third parties for the manufacture and distribution of products.

●

Disruption to manufacturing due to plant closures which could result in a lack of labor and supervision because of employee Covid-19 positive tests or related quarantine of employees, excessive sickness, fears or unwillingness of employees to come to work, union demands and resistance to work, or closures mandated by local, state or federal governmental authorities.

●

Disruption to shipping and delivery of inventory, supplies and products to distribution centers and customers where third-party carriers are used.

●

Changes in consumer attitudes and participation in key holidays and seasonal events, including Halloween which has historically comprised approximately 50% of third quarter sales.

●

Deteriorating economic conditions, which are discussed in the Company Risk Factors on Form 10-K for the year ended December 31, 2019, including high unemployment, declining consumer confidence and spending, and effects of lower GDP, any of which could change the demand for one or more of our products.

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The safety of our employees is our highest priority and therefore the Company has taken many steps to provide our employees with a safe and healthy work environment, including increased sanitation, social distancing measures at all Company locations, having office employees work remotely, curtailing visitors at Company locations, and limiting all airline and other travel by employees. Because the Company has a sizable investment in marketable securities (see Liquidity and Capital Resources section above) it is well positioned financially to respond to the adverse effects of this pandemic in the short-term, as well as for a longer period of time if necessary.

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 2018 Form 10-K.~~

FORWARD-LOOKING STATEMENTS

This discussion and certain other sections contain forward-looking statements that are based largely on the Company’s current expectations and are made pursuant to the safe harbor provision of the Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by the use of words such as “anticipated,” “believe,” “expect,” “intend,” “estimate,” “project,” “plan” and other words of similar meaning in connection with a discussion of future operating or financial performance and are subject to certain factors, risks, trends and uncertainties that could cause actual results and achievements to differ materially from those expressed in the forward-looking statements. Such factors, risks, trends and uncertainties, which in some instances are beyond the Company’s control, include the overall competitive environment in the Company’s industry, changes in assumptions and judgments discussed above under the heading “Significant Accounting Policies and Estimates,” and factors identified and referred to above under the heading “Risk Factors” in this report and under the heading “Risk Factors” in the Company’s ~~2018~~2019 Form 10-K.

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

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

The Company is exposed to various market risks, including fluctuations in and sufficient availability of sugar, corn syrup, edible oils, including palm oils, cocoa, dextrose, milk and whey, and gum-base input ingredients and packaging, and fuel costs principally relating to freight and delivery fuel surcharges. The Company is exposed to exchange rate fluctuations in the Canadian dollar which is the currency used for a portion of the raw material and packaging material costs and all labor, benefits and local plant operating costs at its Canadian plants. The Company is exposed to exchange rate fluctuations in Mexico, Canada, and Spain where its subsidiaries sell products in their local currencies. The Company invests in securities with maturities dates of up to approximately three years which are generally held to maturity, and variable rate demand notes where interest rates are generally reset weekly, all of which limits the Company’s exposure to interest rate fluctuations. There have been no material changes in the Company’s market risks that would significantly affect the disclosures made in the Form 10-K for the year ended December 31, ~~2018.~~2019.

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ITEM 4. CONTROLS AND PROCEDURES

Under the supervision and with the participation of ~~management,~~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 ~~June 30, 2019~~March 31, 2020 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

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procedures are also designed to ensure that information is accumulated and communicated to ~~management,~~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 ~~June 30, 2019~~March 31, 2020 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 12 to the Condensed Consolidated Financial Statements.

ITEM 1A. RISK FACTORS

The following additional risk factor relates to the Covid-19 pandemic and should be read in conjunction with the risk factors previously disclosed in Part I, Item 1A, “Risk Factors,” of our 2019 Annual Report on Form 10-K (the "2019 Form 10-K") filed with the SEC. The developments described in this additional risk factor have been expanded upon, and in some cases heightened certain of the risks disclosed in the risk factor section of our 2019 Form 10-K. Except as described herein, the Company is not aware of any material changes with respect to the risk factors disclosed in our 2019 Form 10-K.

Supplemental Risk Factor

Our financial results may be negatively impacted by changes in confectionary trade practices and consumer patterns, operational challenges associated with the actual or perceived effects of a disease or pandemic outbreak, and public health concerns such as the Covid-19 pandemic.

Our business and financial results are impacted by consumer spending levels, impulse purchases, shopping habits and behaviors, consumer activities, events and traditions where confectionary products are consumed, the availability of our products at retail, including at large retail customers, and our ability to manufacture and distribute products to our customers and consumers in an effective and efficient manner. The fear of exposure or actual effects of a disease, such as the Covid-19 pandemic, could negatively impact our overall business and financial results. Specific factors that may impact our operations, some of which have had an unfavorable impact on our operations as a result of Covid-19, include, but are not limited to:

●

Significant reductions in demand for one or more of our products - Changes in demand may be caused by, among other things, the temporary inability of consumers to purchase our products due to illness, quarantine, travel restrictions, financial hardship, “shelter in place” directives, or overall fear to return to past behaviors. Shifts in demand for one or more of our products, changes in trade and distribution patterns, or changes in consumer buying habits, if prolonged, could negatively impact our results.

●

The inability to meet our customers’ needs and achieve efficient production of finished products - Disruptions in our manufacturing operations or supply arrangements caused by the loss or disruption of essential manufacturing materials, supplies and services, transportation resources, workforce availability, or other manufacturing and distribution capability could have significant adverse effects on our business and financial results.

●

Significant adverse changes in the political conditions and government mandates or directives - In markets in which we manufacture, sell or distribute our products, governmental or regulatory actions, closures or other restrictions such as quarantine or travel restrictions, that limit or close our manufacturing, distribution or office facilities, or otherwise prevent our third-party suppliers, sales brokers, or customers from achieving the level of operations necessary for the production, distribution, sale, and support of our products, could negatively impact our results.

●

Risk related to Halloween and other seasonal sales - The Company’s sales are highest during the Halloween season which has historically comprised approximately 50% of third quarter sales. Changes in consumer behavior, traditions, behaviors, and interest in Halloween activities and events, or changes mandated or recommended by government or health officials, as well as negative media coverage, could significantly affect the Company’s seasonal sales.

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●

Risk of impairment of goodwill or indefinite-lived intangible assets - Significant changes in product demand could adversely affect our long-term sales and cash flows of certain products and brands, and their related trademarks, which could result in an impairment and write-down of certain trademarks or other indefinite lived intangibles. Other long-lived assets are likewise tested for impairment upon the occurrence of a triggering event, which could also result in a write-down.

●

Risks relating to increase in unfunded liability in multi-employer pension plan and effects on the Company withdrawal liability - The Company participates in a multi-employer pension plan (Plan) which is currently in “critical and declining status”, as defined by applicable law, and the Company is subject to a significant withdrawal liability (see also Note 7 of the Company’s Notes to Consolidated Financial Statements and Management’s Discussion and Analysis). If recent declines in the equity markets are sustained, the adverse effects on the Plan’s investments would likely increase the Plan’s unfunded status and the Company’s withdrawal liability. In addition, other adverse effects, such as increases in participating employer withdrawals from the Plan, would also likely increase the Company’s withdrawal liability.

With respect to the Covid-19 pandemic, the situation remains fluid and could possibly result in additional material adverse effects on the Company and its financial results. The Company's efforts to manage and mitigate these factors may be unsuccessful, and the effectiveness of these efforts depends on many factors beyond our control, including the duration and severity the Covid-19 pandemic, as well as actions taken to contain its spread and mitigate public health effects.

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 ~~June 30, 2019:~~March 31, 2020:

Approximate Dollar

(a) Total

Value of Shares that

(a) Total

Value of Shares that

Number of

(b) Average

Purchased as Part of

May Yet Be Purchased

Number of

(b) Average

Purchased as Part of

May Yet Be Purchased

Price Paid per

Publicly Announced Plans

Under the Plans

Price Paid per

Publicly Announced Plans

Under the Plans

Period

Purchased

Or Programs

or Programs

Purchased

Or Programs

or Programs

Apr 1 to Apr 30

75,714

37.81

Not Applicable

Jan 1 to Jan 31

30,610

34.27

Not Applicable

May 1 to May 31

68,955

39.43

Not Applicable

Feb 1 to Feb 29

74,842

34.31

Not Applicable

Jun 1 to Jun 30

80,686

38.12

Not Applicable

Mar 1 to Mar 31

154,846

33.47

Not Applicable

Total

225,355

38.42

Not Applicable

260,298

33.80

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.

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ITEM 6. EXHIBITS

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

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

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

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

Exhibit 101.SCH - XBRL Taxonomy Extension Schema Document.

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

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

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

Exhibit 101.DEF - XBRL Taxonomy Extension Definition Linkbase Document.

Exhibit 104 - Cover Page Interactive Data File – The cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

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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:	~~August~~May 8, ~~2019~~2020	BY:	/S/ELLEN R. GORDON
			Ellen R. Gordon
			Chairman and Chief
			Executive Officer

Date:	~~August~~May 8, ~~2019~~2020	BY:	/S/G. HOWARD EMBER, JR.
			G. Howard Ember, Jr.
			Vice President Finance and
			Chief Financial Officer