Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2019
OR
☐
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).
Class
Outstanding
Common Stock, $0.69-4/9 par value
39,233,318
Class B Common Stock, $0.69-4/9 par value
26,301,602
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
TOOTSIE ROLL INDUSTRIES, INC.
JUNE 30, 2019
INDEX
Page No.
Part I —
Financial Information
Item 1.
Financial Statements꞉
Condensed Consolidated Statements of Financial Position
3-4
Condensed Consolidated Statements of Earnings and Retained Earnings
5
Condensed Consolidated Statements of Comprehensive Earnings
6
Condensed Consolidated Statements of Cash Flows
7
Notes to Condensed Consolidated Financial Statements
8-17
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
18-22
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
22
Item 4.
Controls and Procedures
23
Part II —
Other Information
Legal Proceedings
24
Unregistered Sales of Equity Securities and Use of Proceeds
Item 6.
Exhibits
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.
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(in thousands) (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
Trademarks
175,024
195,359
170,409
192,181
Split dollar officer life insurance
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.)
3
(in thousands except per share data) (Unaudited)
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable
14,326
11,817
16,700
Bank loans
686
373
420
Dividends payable
5,901
5,772
5,783
Accrued liabilities
38,077
42,849
37,808
Postretirement health care
580
603
Current portion of operating lease liabilities
717
Total current liabilities
60,287
61,391
61,314
NONCURRENT LIABILITIES:
45,001
43,941
41,241
12,030
11,871
13,062
Industrial development bonds
7,500
Liability for uncertain tax positions
4,001
3,816
4,902
Non-current portion of operating lease liabilities
541
Deferred compensation and other liabilities
76,539
68,345
69,665
Total noncurrent liabilities
145,612
135,473
136,370
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
Capital in excess of par value
710,703
696,535
699,965
Retained earnings
8,121
33,767
7,020
Accumulated other comprehensive loss
(19,537)
(22,222)
(23,501)
Treasury stock (at cost)- 90, 88 & 88 shares, respectively
(1,992)
Total Tootsie Roll Industries, Inc. shareholders’ equity
742,804
750,622
726,110
Noncontrolling interests
(179)
(125)
(79)
Total equity
742,625
750,497
726,031
Total liabilities and shareholders’ equity
4
CONDENSED CONSOLIDATED STATEMENTS OF
EARNINGS AND RETAINED EARNINGS
(in thousands except per share amounts) (Unaudited)
Quarter Ended
Year to Date Ended
Net product sales
106,021
105,623
207,040
206,482
Rental and royalty revenue
931
1,186
1,889
2,127
Total revenue
106,952
106,809
208,929
208,609
Product cost of goods sold
65,945
67,481
130,801
133,315
Rental and royalty cost
276
208
531
475
Total costs
66,221
67,689
131,332
133,790
Product gross margin
40,076
38,142
76,239
73,167
Rental and royalty gross margin
655
978
1,358
1,652
Total gross margin
40,731
39,120
77,597
74,819
Selling, marketing and administrative expenses
28,216
28,752
59,324
54,609
Earnings from operations
12,515
10,368
18,273
20,210
Other income (loss), net
3,053
3,363
9,070
3,884
Earnings before income taxes
15,568
13,731
27,343
24,094
Provision for income taxes
4,024
3,261
6,888
5,523
Net earnings
11,544
10,470
20,455
18,571
Less: Net earnings (loss) attributable to noncontrolling interests
(12)
(19)
(56)
(43)
Net earnings attributable to Tootsie Roll Industries, Inc.
11,556
10,489
20,511
18,614
Net earnings attributable to Tootsie Roll Industries, Inc. per share
0.18
0.16
0.31
0.28
Dividends per share *
0.09
Average number of shares outstanding
65,559
66,104
65,722
66,232
Retained earnings at beginning of period
2,459
2,306
57,225
Adopted ASU's (See Note 1)
2,726
Cash dividends
(5,894)
(5,775)
(11,651)
(11,396)
Stock dividends
(34,506)
(60,149)
Retained earnings at end of period
*Does not include 3% stock dividend to shareholders of record on 3/5/19 and 3/6/18.
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE EARNINGS
Other comprehensive income (loss), before tax:
Foreign currency translation adjustments
205
(1,674)
596
(62)
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)
Unrealized gains (losses) on postretirement and pension benefits
Investments:
Unrealized gains (losses) for the period on investments
1,185
(30)
2,652
(1,280)
Unrealized gains (losses) on investments
Derivatives:
Unrealized gains (losses) for the period on derivatives
57
(377)
607
(1,849)
162
548
258
835
Unrealized gains (losses) on derivatives
219
171
865
(1,014)
Total other comprehensive income (loss), before tax
1,229
(1,864)
3,352
(3,018)
Income tax benefit (expense) related to items of other comprehensive income
(248)
46
(667)
715
Total comprehensive earnings
12,525
8,652
23,140
16,268
Comprehensive earnings (loss) attributable to noncontrolling interests
Total comprehensive earnings attributable to Tootsie Roll Industries, Inc.
12,537
8,671
23,196
16,311
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
CASH FLOWS FROM OPERATING ACTIVITIES:
Adjustments to reconcile net earnings to net cash used in operating activities:
Depreciation and amortization
9,334
9,154
393
(472)
Amortization of marketable security premiums
694
888
Changes in operating assets and liabilities:
Accounts receivable
13,038
10,038
(242)
(1,308)
Inventories
(37,692)
(36,818)
1,529
6,786
Accounts payable and accrued liabilities
(167)
8
Income taxes payable
2,750
(814)
Postretirement health care benefits
(602)
(586)
1,531
948
Net cash from operating activities
11,021
6,395
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures
(9,945)
(11,662)
Purchases of trading securities
(2,641)
(3,562)
Sales of trading securities
362
817
Purchase of available for sale securities
(33,558)
(49,742)
Sale and maturity of available for sale securities
12,120
27,057
Net cash used in investing activities
(33,662)
(37,092)
CASH FLOWS FROM FINANCING ACTIVITIES:
Shares purchased and retired
(19,186)
(15,803)
Dividends paid in cash
(11,699)
(11,435)
Proceeds from bank loans
1,911
1,264
Repayment of bank loans
(1,594)
(1,255)
Net cash used in financing activities
(30,568)
(27,229)
Effect of exchange rate changes on cash
164
(64)
Decrease in cash and cash equivalents
(53,045)
(57,990)
Cash, cash equivalents and restricted cash at beginning of year
111,287
96,720
Cash, cash equivalents and restricted cash at end of quarter
58,242
38,730
Supplemental cash flow information:
Income taxes paid/(received), net
4,226
6,661
Interest paid
65
54
Stock dividend issued
70,557
60,538
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 — Significant Accounting Policies
General Information
Foregoing data has been prepared from the unaudited financial records of Tootsie Roll Industries, Inc. (the Company) and in the opinion of management all adjustments, which are of a normal recurring nature, necessary for a fair statement of the results for the interim period have been reflected. Certain amounts previously reported have been reclassified to conform to the current year presentation. These consolidated financial statements should be read in conjunction with the consolidated financial statements and the related notes included in the Company’s Form 10-K for the year ended December 31, 2018 (the “2018 Form 10-K”).
Results of operations for the period ended June 30, 2019 are not necessarily indicative of results to be expected for the year to end December 31, 2019 because of the seasonal nature of the Company’s operations. Historically, the third quarter has been the Company’s largest sales quarter due to pre-Halloween sales.
Revenue Recognition
The Company’s revenues, primarily net product sales, principally result from the sale of goods, reflect the consideration to which the Company expects to be entitled generally based on customer purchase orders. The Company records revenue based on a five-step model in accordance with Accounting Standards Codification ("ASC") Topic 606 which became effective January, 1, 2018. Adjustments for estimated customer cash discounts upon payment, discounts for price adjustments, product returns, allowances, and certain advertising and promotional costs, including consumer coupons, are variable consideration and are recorded as a reduction of product sales revenue in the same period the related product sales are recorded. Such estimates are calculated using historical averages adjusted for any expected changes due to current business conditions and experience. A net product sale is recorded when the Company delivers the product to the customer, or in certain instances, the customer picks up the goods at the Company’s distribution center, and thereby obtains control of such product. Amounts billed and due from our customers are classified as accounts receivables trade on the balance sheet and require payment on a short-term basis. Accounts receivable are unsecured. Shipping and handling costs of $11,185 and $11,386 in second quarter 2019 and 2018, respectively, and $22,217 and $21,606 in first half 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 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.
Recently Adopted Accounting Pronouncements
At the beginning of 2019, the Company adopted Accounting Standards Update No. 2016-02 (ASU 2016-02), Leases (Subtopic 842), which requires lessees to recognize all leases with a term greater than 12 months on the balance sheet as right-of-use assets and lease liabilities. Upon adoption, the impact was the recognition of $1,482 in right-of-use assets and lease liabilities for operating leases. The Company adopted ASU 2016-02 utilizing the current-period adjustment method 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. 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 ASU did not have a material impact on the Company’s consolidated financial statements.
Recently Issued Accounting Pronouncements - Not Yet Adopted
In June 2016, the FASB issued ASU No. 2016-13, which replaces the current incurred loss impairment method with a new method that reflects expected credit losses. Under this new model an entity would recognize an impairment allowance equal to its current estimate of credit losses on financial assets measured at amortized cost. This guidance is effective for fiscal years beginning after December 15, 2019, with early adoption permitted. The Company is currently evaluating the impact this guidance will have on its consolidated financial statements.
Note 2 — Average Shares Outstanding
The average number of shares outstanding for six months 2019 reflects aggregate stock purchases of 510 shares for $19,186 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 through 2017. The Company’s consolidated effective income tax rate was 25.8% and 23.7% in second quarter 2019 and 2018, respectively, and 25.2% and 22.9% in first half 2019 and 2018, respectively. The higher tax rates in 2019 principally reflect higher 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.
9
NOTE 4—Share Capital and Capital In Excess of Par Value:
Capital in
Class B
Excess
Common Stock
Treasury Stock
of Par
Shares
Amount
Value
(000’s)
Balance at March 31, 2019
39,418
27,374
26,342
18,293
90
719,212
Issuance of 3% stock dividend
—
Conversion of Class B common shares to common shares
40
29
(40)
(29)
Purchase and retirement of common shares
(225)
(158)
(8,509)
Balance at June 30, 2019
39,233
26,302
Balance at March 31, 2018
38,724
26,891
25,637
17,804
88
703,194
32
(32)
(23)
(111)
(77)
(3,229)
Balance at June 30, 2018
38,645
25,605
Balance at December 31, 2018
38,544
25,584
1,150
798
767
532
32,999
49
35
(49)
(35)
(510)
(355)
(18,831)
Balance at December 31, 2017
37,960
26,361
24,891
17,285
85
656,752
1,125
781
746
518
58,689
(22)
(327)
(15,476)
Note 5 — Fair Value Measurements
Current accounting guidance defines fair value as the price that would be received on the sale of an asset, or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Guidance requires disclosure of the extent to which fair value is used to measure financial assets and liabilities, the inputs utilized in calculating valuation measurements, and the effect of the measurement of significant unobservable inputs on earnings, or changes in net assets, as of the measurement date. Guidance establishes a three-level valuation hierarchy based upon the transparency of inputs utilized in the measurement and valuation of financial assets or liabilities as of the measurement date. Level 1 inputs include quoted prices for identical instruments and are the most observable. Level 2 inputs include quoted prices for similar assets and observable inputs such as interest rates, foreign currency exchange rates, commodity rates and yield curves. Level 3 inputs are not observable in the market and include management’s own judgments about the assumptions market participants would use in pricing the asset or liability. The use of observable and unobservable inputs is reflected in the hierarchy assessment disclosed in the table below.
10
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, December 31, 2018 and June 30, 2018 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
Total
Input Levels Used
Fair Value
Level 1
Level 2
Level 3
Cash and cash equivalents
Available for sale securities
206,687
3,078
203,609
Foreign currency forward contracts
(17)
Commodity futures contracts
(112)
Trading securities
71,375
Total assets measured at fair value
335,790
132,198
203,592
Estimated Fair Value December 31, 2018
183,289
3,000
180,289
(407)
Commodity futures contracts, net
(587)
62,260
355,454
175,572
179,882
Estimated Fair Value June 30, 2018
192,392
(904)
65,000
294,822
102,430
The fair value of the Company’s industrial revenue development bonds at June 30, 2019, December 31, 2018 and June 30, 2018 were valued using Level 2 inputs which approximates the carrying value of $7,500 for the respective periods. Interest rates on these bonds are reset weekly based on current market conditions.
11
Note 6 — Derivative Instruments and Hedging Activities
From time to time, the Company uses derivative instruments, including foreign currency forward contracts and commodity futures contracts to manage its exposures to foreign exchange and commodity prices. Commodity futures contracts are intended and effective as hedges of market price risks associated with the anticipated purchase of certain raw materials (primarily sugar). Foreign currency forward contracts are intended and effective as hedges of the Company’s exposure to the variability of cash flows, primarily related to the foreign exchange rate changes of products manufactured in Canada and sold in the United States, and periodic equipment purchases from foreign suppliers denominated in a foreign currency. The Company does not engage in trading or other speculative use of derivative instruments
The Company recognizes all derivative instruments as either assets or liabilities at fair value in the Condensed Consolidated Statement of Financial Position. Derivative assets are recorded in other receivables and derivative liabilities are recorded in accrued liabilities. The Company uses hedge accounting for its foreign currency and commodity derivative instruments as discussed above. Derivatives that qualify for hedge accounting are designated as cash flow hedges by formally documenting the hedge relationships, including identification of the hedging instruments, the hedged items and other critical terms, as well as the Company’s risk management objectives and strategies for undertaking the hedge transaction.
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 of this accumulated comprehensive loss is expected to be reclassified as a charge to earnings in 2019 and $(79) of this accumulated comprehensive loss is expected to be reclassified as a gain to earnings in 2020. Approximately $4 and $13 reported in accumulated other comprehensive loss for foreign currency derivatives are expected to be reclassified to other income, net in 2019 and 2020, respectively.
12
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, December 31, 2018 and June 30, 2018:
Notional
Amounts
Assets
Liabilities
Derivatives designated as hedging instruments:
11,050
6,911
120
(232)
Total derivatives
(249)
9,580
92
(679)
(1,086)
9,058
(915)
13
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, 2019 and June 30, 2018 are as follows:
For Quarter Ended June 30, 2019
Gain (Loss)
on Amount Excluded
Reclassified from
from Effectiveness
Recognized
Accumulated OCI
Testing Recognized
in OCI
into Earnings
in Earnings
180
(123)
(162)
For Quarter Ended June 30, 2018
20
(568)
(548)
For Year to Date Ended June 30, 2019
390
217
(258)
For Year to Date Ended June 30, 2018
(11)
67
(1,838)
(902)
(835)
14
Note 7 — Pension Plans
From 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” as defined by the Pension Protection Act (PPA) and the Pension Benefit Guaranty Corporation (PBGC); and that a plan of rehabilitation was adopted by the trustees of the Plan in fourth quarter 2012. Since 2015, the Company has received annual notices that the Plan is in “critical and declining status”, as defined by the PPA and PBGC, and that amendments to the rehabilitation plan were adopted. A designation of “critical and declining status” implies that the Plan is expected to become insolvent in the next 20 years. The Plan’s trustees project that the Plan will be insolvent in 2030.
The Company has been advised that its withdrawal liability would have been $81,600, $82,200 and $72,700 if it had withdrawn from the Plan during 2018, 2017 and 2016, 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 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 and $434 for first half 2019 and 2018, respectively ($811 and $656 for twelve months 2018 and 2017, respectively), as required under the amended plan of rehabilitation.
The Company is currently unable to determine the ultimate outcome of the above discussed matter and therefore is unable to determine the effects on its consolidated financial statements, but the ultimate outcome or the effects of any modifications to the current rehabilitation plan could be material to its consolidated results of operations or cash flows in one or more future periods.
15
Note 8 — Accumulated Other Comprehensive Earnings (Loss)
Accumulated Other Comprehensive Earnings (Loss) consists of the following components:
Accumulated
Foreign
Postretirement
Other
Currency
Commodity
and Pension
Comprehensive
Translation
Derivatives
Benefits
Earnings (Loss)
(23,768)
(404)
(150)
(114)
3,918
(20,518)
Other comprehensive earnings (loss) before reclassifications
898
137
(94)
1,146
Reclassifications from accumulated other comprehensive loss
124
(289)
(165)
Other comprehensive earnings (loss) net of tax
30
981
(23,563)
494
(13)
(84)
3,629
(22,650)
(2,005)
16
(830)
3,786
(21,683)
(1)
(286)
(1,983)
(15)
431
(251)
165
(16)
145
(1,818)
Adoption of ASU 2018-02
(24,324)
(2,027)
(685)
3,535
(24,159)
(1,516)
(309)
(444)
4,206
2,010
296
3,066
196
(577)
(381)
360
2,685
(24,262)
(889)
51
3,289
(21,791)
(970)
(9)
(1,393)
(2,434)
(51)
684
(502)
131
(60)
(709)
(2,303)
(168)
748
593
The amounts reclassified from accumulated other comprehensive income (loss) consisted of the following:
Details about Accumulated Other
Location of (Gain) Loss
Comprehensive Income Components
Recognized in Earnings
Foreign currency derivatives
(20)
(67)
Other income, net
Commodity derivatives
568
902
Postretirement and pension benefits
Total before tax
(218)
(503)
173
Tax (expense) benefit
53
(52)
122
(42)
Net of tax
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, 2019 and 2018 was 3.0% and 2.0%, respectively.
Note 11 — Leases
The Company leases certain buildings, land and equipment that are classified as operating leases. Our leases have remaining lease terms of up to approximately 3 years. In the second quarter and first half of 2019, our operating lease cost and cash paid for operating lease liabilities totaled $168 and $335, respectively, which is classified in cash flows from operating activities. As of June 30, 2019, operating lease right-of-use assets and operating lease liabilities were both $1,258. The weighted-average remaining lease term related to our operating leases was 1.9 years as of June 30, 2019. The weighted-average discount rate related to our operating leases was 3.1% as of June 30, 2019. Maturities of our operating lease liabilities at June 30, 2019 are as follows: $319 in 2019, $578 in 2020, $300 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 and $9,890, respectively, as of June 30, 2019. Terms of such leases, including renewal options, may be extended for up to sixty years, many of which provide for periodic adjustment of rent payments based on changes in consumer or other price indices. The Company recognizes lease income on a straight-line basis over the lease term. Lease income in second quarter and first half 2019 was $751 and $1,500, 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.
17
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 (the “2018 Form 10-K”).
Net product sales were $106,021 in second quarter 2019 compared to $105,623 in second quarter 2018, an increase of $398 or 0.4%. 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 net product sales include increases in domestic sales of approximately 1.6% and 0.8%, respectively. Lower foreign net product sales adversely affected reported consolidated net product sales in both second quarter and first half 2019 compared to the corresponding periods in 2018. Foreign net product sales were unfavorably impacted by the timing of certain sales in the comparative periods as well as 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 the Company to recover some product margin decline resulting from increasing input costs.
Product cost of goods sold were $65,945 in second quarter 2019 compared to $67,481 in second quarter 2018, and first half 2019 product cost of goods sold were $130,801 compared to $133,315 in first half 2018. Product cost of goods sold includes $66 and $53 of certain deferred compensation expenses in second quarter 2019 and 2018, respectively, and $246 and $67 of certain deferred compensation expenses in first half 2019 and 2018, respectively. These deferred compensation expenses principally result from the changes in the market value of investments and investment income from trading securities relating to compensation deferred in previous years and are not reflective of current operating results. Adjusting for the aforementioned, product cost of goods sold decreased from $67,428 in second quarter 2018 to $65,879 in second quarter 2019, a decrease of $1,549 or 2.3%; and decreased from $133,248 in first half 2018 to $130,555 in first half 2019, a decrease of $2,693 or 2.0%. As a percentage of net product sales, adjusted product cost of goods sold was 62.1% 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% in first half 2019 and 2018, respectively, a favorable decrease of 1.4 percentage points. Higher price realization contributed to the aforementioned favorable decrease in cost of goods sold as a percentage of net product cost in second quarter and first half 2019.
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 investments and ongoing cost containment programs contributed to the improved gross profit margins discussed above. The prior year 2018 product 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.
Selling, marketing and administrative expenses were $28,216 in second quarter 2019 compared to $28,752 in second quarter 2018, and first half 2019 selling, marketing and administrative expenses were $59,324 compared to $54,609 in first half 2018. Selling, marketing and administrative expenses include $1,767 and $1,551 of certain deferred compensation expenses in second quarter 2019 and 2018, respectively, and $6,590 and $1,948 of certain deferred compensation expenses in first half 2019 and 2018, respectively. As discussed above, these expenses principally result from changes in the market value of investments and investment income from trading securities relating to compensation deferred in previous years, and are not reflective of current operating results. Adjusting for the aforementioned deferred compensation expenses, selling, marketing and administrative expenses decreased from $27,201 in second quarter 2018 to $26,449 in second quarter 2019, a decrease of $752 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%. As a percentage of net product sales, adjusted selling, marketing and administrative expenses decreased from 25.8% in second quarter 2018 to 25.0% in second quarter 2019, a favorable decrease of 0.8 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
18
expenses in second quarter 2019 principally reflects decreases in customer freight, delivery and warehousing, and legal and professional fees in the second quarter 2019, compared to second quarter 2018.
Selling, marketing and administrative expenses include $11,185 and $11,386 for customer freight, delivery and warehousing expenses in second quarter 2019 and 2018, respectively, a decrease of $201 or 1.8%. These expenses were $22,217 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% of net product sales in first half 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 in second quarter 2019 compared to $10,368 in second quarter 2018, and were $18,273 in first half 2019 compared to $20,210 in first half 2018. Earnings from operations include $1,833 and $1,604 of certain deferred compensation expenses in second quarter 2019 and 2018; respectively, and include $6,836 and $2,015 of certain deferred compensation expenses in first half 2019 and 2018, respectively, which are discussed above. Adjusting for these deferred compensation costs and expenses, earnings from operations were $14,348 and $11,972 in second quarter 2019 and 2018, respectively, an increase of $2,376 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%. As a percentage of net product sales, these adjusted operating earnings were 13.5% and 11.3% in second quarter 2019 and 2018, 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 1.3 percentage points as a percentage of net product sales. The improvement in adjusted earnings from operations principally reflects the benefits of 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, net was $3,053 in second quarter 2019 compared to $3,363 in second quarter 2018, 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. Other income, net for second quarter 2019 and 2018 includes net gains and investment income of $1,833 and $1,604, 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. 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 quarter 2019 and 2018 includes investment income on available for sale securities of $1,109 and $873 in 2019 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, net also includes gains (losses) on foreign exchange of $(211) and $627 in second quarter 2019 and 2018, respectively, and $(446) and $(277) in first half 2019 and 2018, respectively.
The consolidated effective tax rates were 25.8% and 23.7% in second quarter 2019 and 2018, respectively, and 25.2% and 22.9% in first half 2019 and 2018, respectively. These higher tax rates in 2019 principally reflect higher 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.
Net earnings attributable to Tootsie Roll Industries, Inc. were $11,556 (after $12 net loss attributed to non-controlling interests) in second quarter 2019 compared to $10,489 (after $19 net loss attributed to non-controlling interests) in second quarter 2018, and earnings per share were $0.18 and $0.16 in second quarter 2019 and 2018, respectively, an increase of $0.02 per share, or 12.5%. First half 2019 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 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 $0.03 per share or 10.7%. Earnings per share attributable to Tootsie Roll Industries, Inc. for second quarter and first half 2019 did benefit from the reduction in average shares outstanding resulting from purchases in the open market by the Company of its common
19
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. There were also no impairments in the comparative first half 2018 period or in calendar year 2018.
As more fully discussed in Note 1, the Company adopted the new accounting revenue recognition guidance (ASC 606) effective January 1, 2018. As a result of adoption, the cumulative impact to retained earnings at January 1, 2018 was a net after-tax increase of $3,319 ($4,378 pre-tax). The adoption principally changed the timing of recognition of certain trade promotions and related adjustments thereto which affect net product sales. 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”, as defined by the Pension Protection Act (PPA) and the Pension Benefit Guaranty Corporation (PBGC) and that plans of rehabilitation were adopted by the trustees of the Plan during these years. In 2015, 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. 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 to become insolent in 2030. During second quarter 2019, the Company received updated notices that the Plan remains in “critical and declining status for the plan year beginning January 1, 2019. These new notices 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%, 54.7%, and 57.0% as of the most recent valuation dates available, January 1, 2018, 2017, and 2016, 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, the funded percentage would be 54.2% (not 51.6%). As of the January 1, 2018 valuation date (most recent valuation available), only 18% of Plan participants were current active employees, 52% were retired or separated from service and receiving benefits, and 30% were retired or separated from service and entitled to future benefits. The Company understands that the Plan is currently exploring additional restructuring measures which include incentives to participating employers in exchange for providing additional future cash contributions as well as suspension of certain retirement benefits.
The Company has been advised that its withdrawal liability would have been $81,600, $82,200, and $72,700 if it had withdrawn from the Plan during 2018, 2017 and 2016, respectively. The decrease from 2017 to 2018 was driven by an increase in the PBGC interest rate, resulting in a decrease in the value of vested benefits, and an increase in the Plan’s assets, 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. The Company’s relative share of the Plan’s contribution base has increased over the last several years, and management believes that this trend could continue indefinitely which will add upward pressure on the Company’s withdrawal liability. Based on the above, including the Plan’s projected insolvency in the year 2030, 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 believes that the Company’s liability would likely be limited to twenty annual payments of $3,059 which have a present value in the range of $35,900 to $46,900 depending on the interest rate
used to discount these payments. While the Company’s actuarial consultant does not believe that the Plan will suffer a future mass withdrawal (as defined) of participating employers, in the event of a mass withdrawal, the Company’s annual withdrawal payments would theoretically be payable in perpetuity. Based on the Company’s updated actuarial study, the present value of such perpetuities is in the range of $50,100 to $105,000 and would apply in the unlikely event that substantially all employers withdraw from the Plan. The aforementioned is based on a range of 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 labor contract requires the Company’s continued participation in this Plan through September 2022. The amended rehabilitation plan 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 2019 and 2018 was $1,548 and $1,517, respectively, which includes surcharges of $496 and $434, respectively.
The U.S. Congress has continued to explore and discuss various solutions, including financial assistance, for multi-employer pension plans (HR 397, the Butch Lewis Act). The Company is currently unable to determine the ultimate outcome of the above discussed multi-employer union pension matter and therefore is unable to determine the effects on its consolidated financial statements, but the ultimate outcome could be material to its consolidated results of operations or cash flows in one or more future periods. See also the Company’s Consolidated Financial Statements and related notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Company’s 2018 Form 10-K.
LIQUIDITY AND CAPITAL RESOURCES
Net cash flows provided by operating activities were $11,021 and $6,395 in first half 2019 and 2018, respectively, a favorable increase of $4,626. The increase in first half 2019 cash flows from operating activities principally reflects higher net earnings in first half 2019, the timing of sales and collections of accounts receivable and the timing of payments relating to income taxes payable, prepaid expenses and other assets.
Net cash used in investing activities was $33,662 in first half 2019 compared to $37,092 in first half 2018. Cash flows from investing activities reflect $33,558 and $49,742 of purchases of available for sale securities during first half 2019 and 2018, respectively, and $12,120 and $27,057 of sales and maturities of available for sale securities during first half 2019 and 2018, respectively. First half 2019 and 2018 investing activities include capital expenditures of $9,945 and $11,662, respectively. 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 outlays for this project to be approximately $4,000 in 2019, $9,000 in 2020 and $3,000 in 2021.
The Company’s consolidated financial statements include bank borrowings of $686 and $420 at June 30, 2019 and 2018, respectively, all of which relates to its Spanish subsidiary. The Company had no other outstanding bank borrowings at June 30, 2019.
Financing activities include Company common stock purchases and retirements of $19,186 and $15,803 in first half 2019 and 2018, respectively. Cash dividends of $11,699 and $11,435 were paid in first half 2019 and 2018, respectively.
The Company’s current ratio (current assets divided by current liabilities) was 4.7 to 1 at June 30, 2019 compared to 5.0 to 1 at December 31, 2018 and 4.2 to 1 at June 30, 2018. Net working capital was $220,802 at June 30, 2019 compared to $242,655 and $198,851 at December 31, 2018 and June 30, 2018, respectively. The aforementioned net working capital amounts are principally reflected in aggregate cash and cash equivalents and short-term investments of $140,560 at June 30, 2019 compared to $186,039 and $103,545 at December 31, 2018 and June 30, 2018, respectively. In addition, long term investments, principally debt securities comprising corporate and municipal bonds were $195,359 at June 30, 2019, as compared to $170,409 and $192,181 at December 31, 2018 and June 30,
21
2018, respectively. Aggregate cash and cash equivalents and short and long-term investments were $335,919, $356,448, and $295,726, at June 30, 2019, December 31, 2018 and June 30, 2018, respectively. The aforementioned includes $71,375, $62,260, and $65,000 at June 30, 2019, December 31, 2018 and June 30, 2018, respectively, relating to trading securities which are used as an economic hedge for the Company’s deferred compensation liabilities. Investments in corporate and municipal bonds, variable rate demand notes, and other debt securities that matured during first half 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 and $17,825 of aggregate cash and cash equivalents at June 30, 2019, December 31, 2018 and June 30, 2018, 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.
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 Form 10-K.
The risk factors identified and referred to above are believed to be significant factors, but not necessarily all of the significant factors that could cause actual results to differ from those expressed in any forward-looking statement. Readers are cautioned not to place undue reliance on such forward-looking statements, which are made only as of the date of this report. The Company undertakes no obligation to update such forward-looking statements.
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.
ITEM 4. CONTROLS AND PROCEDURES
Under the supervision and with the participation of management, the Chief Executive Officer and Chief Financial Officer of the Company have evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of June 30, 2019 and, based on their evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that these controls and procedures are effective. Disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures are also designed to ensure that information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
There has been no change in the Company’s internal control over financial reporting that occurred during the Company’s fiscal quarter ended June 30, 2019 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II — OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Information on legal proceedings is included in Note 12 to the Condensed Consolidated Financial Statements.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The following table summarizes the Company’s purchases of its common stock during the quarter ended June 30, 2019:
Approximate Dollar
(a) Total
Value of Shares that
Number of
(b) Average
Purchased as Part of
May Yet Be Purchased
Price Paid per
Publicly Announced Plans
Under the Plans
Period
Purchased
Share
Or Programs
or Programs
Apr 1 to Apr 30
75,714
37.81
Not Applicable
May 1 to May 31
68,955
39.43
Jun 1 to Jun 30
80,686
38.12
225,355
38.42
While the Company does not have a formal or publicly announced stock purchase program, the Company’s board of directors periodically authorizes a dollar amount for share purchases. The treasurer executes share purchase transactions according to these guidelines.
ITEM 6. EXHIBITS
Exhibits 31.1 — Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibits 31.2 — Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit 32 — Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Exhibit 101.INS - XBRL Instance Document - 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.
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.
Date:
August 8, 2019
BY:
/S/ELLEN R. GORDON
Ellen R. Gordon
Chairman and Chief
Executive Officer
/S/G. HOWARD EMBER, JR.
G. Howard Ember, Jr.
Vice President Finance and
Chief Financial Officer