Tootsie Roll Industries(TR) - 2019 Q2 - Quarterly Report

Part I Item 1. Financial Statements This section presents Tootsie Roll Industries' unaudited condensed consolidated financial statements and related notes Condensed Consolidated Statements of Financial Position Total assets increased to $948.5 million as of June 30, 2019, with equity rising to $742.6 million Condensed Consolidated Statements of Financial Position (in thousands) | Account | June 30, 2019 | December 31, 2018 | June 30, 2018 | | :--- | :--- | :--- | :--- | | Total current assets | $281,089 | $304,046 | $260,165 | | Total assets | $948,524 | $947,361 | $923,715 | | Total current liabilities | $60,287 | $61,391 | $61,314 | | Total liabilities | $205,899 | $196,864 | $197,684 | | Total equity | $742,625 | $750,497 | $726,031 | Condensed Consolidated Statements of Earnings and Retained Earnings Net product sales remained flat, while net earnings increased 10.2% to $11.6 million (Q2) and $20.5 million (H1) Key Earnings Data (in thousands, except per share amounts) | Metric | Q2 2019 | Q2 2018 | YTD 2019 | YTD 2018 | | :--- | :--- | :--- | :--- | :--- | | Net product sales | $106,021 | $105,623 | $207,040 | $206,482 | | Earnings from operations | $12,515 | $10,368 | $18,273 | $20,210 | | Net earnings attributable to Tootsie Roll | $11,556 | $10,489 | $20,511 | $18,614 | | Net earnings per share | $0.18 | $0.16 | $0.31 | $0.28 | Condensed Consolidated Statements of Comprehensive Earnings Total comprehensive earnings significantly increased to $12.5 million (Q2) and $23.2 million (YTD) due to investment gains Comprehensive Earnings (in thousands) | Metric | Q2 2019 | Q2 2018 | YTD 2019 | YTD 2018 | | :--- | :--- | :--- | :--- | :--- | | Net earnings | $11,544 | $10,470 | $20,455 | $18,571 | | Total other comprehensive income (loss), before tax | $1,229 | $(1,864) | $3,352 | $(3,018) | | Total comprehensive earnings attributable to Tootsie Roll | $12,537 | $8,671 | $23,196 | $16,311 | Condensed Consolidated Statements of Cash Flows Net cash from operations increased, while investing and financing activities led to a $53.0 million net decrease in cash Cash Flow Summary - Year to Date Ended June 30 (in thousands) | Activity | 2019 | 2018 | | :--- | :--- | :--- | | Net cash from operating activities | $11,021 | $6,395 | | Net cash used in investing activities | $(33,662) | $(37,092) | | Net cash used in financing activities | $(30,568) | $(27,229) | | Decrease in cash and cash equivalents | $(53,045) | $(57,990) | Notes to Condensed Consolidated Financial Statements Notes detail accounting policies, tax rates, derivative use, and a multi-employer pension plan's critical status - The company adopted a new lease accounting standard (ASU 2016-02) in 2019, recognizing $1.48 million in right-of-use assets and lease liabilities[23] - The consolidated effective income tax rate increased to 25.2% in the first half of 2019 from 22.9% in the first half of 2018, mainly due to higher state and foreign income tax expenses[27] - The company participates in a multi-employer pension plan that is in 'critical and declining status' and is projected to be insolvent in 2030. The estimated withdrawal liability was $81.6 million if the company had withdrawn during 2018[38][39] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses flat sales, increased operating earnings, strong liquidity, and risks from a critical pension plan - First half 2019 net product sales increased 0.3% to $207.0 million, driven by an 0.8% increase in domestic sales and higher price realization, partially offset by lower foreign sales[51] - Adjusted operating earnings for the first half of 2019 increased 13.0% to $25.1 million, reflecting improved gross margins from higher pricing and plant efficiencies[58] - The company's multi-employer pension plan remains in 'critical and declining status' with projected insolvency in 2030. The estimated withdrawal liability was $81.6 million for 2018, and management believes this liability could increase in future years[67][69] - Net cash from operating activities increased to $11.0 million in H1 2019 from $6.4 million in H1 2018, due to higher net earnings and favorable working capital changes[74] Quantitative and Qualitative Disclosures About Market Risk The company faces market risks from commodity prices, packaging, fuel, and foreign exchange rates, with no material changes - Key market risks include price fluctuations for raw materials (sugar, cocoa, oils), packaging, and fuel[85] - The company is exposed to foreign exchange rate fluctuations, particularly with the Canadian dollar, Mexican peso, and Spanish euro[85] - No material changes in market risks were reported compared to the Form 10-K for the year ended December 31, 2018[86] Controls and Procedures Disclosure controls and procedures were effective as of June 30, 2019, with no material changes to internal controls - Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of June 30, 2019[87] - No changes occurred during the quarter that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[88] Part II — Other Information Legal Proceedings Current legal proceedings are not expected to materially affect the company's financial condition or operations - Information on legal proceedings is referenced in Note 12 of the financial statements, which states that current proceedings are not expected to have a material impact[91][49] Unregistered Sales of Equity Securities and Use of Proceeds The company purchased 225,355 shares of common stock at an average of $38.42 per share in Q2 2019 Common Stock Purchases - Q2 2019 | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | Apr 1 to Apr 30 | 75,714 | $37.81 | | May 1 to May 31 | 68,955 | $39.43 | | Jun 1 to Jun 30 | 80,686 | $38.12 | | Total | 225,355 | $38.42 | Exhibits This section lists exhibits filed, including XBRL data and CEO/CFO certifications - Exhibits filed include CEO and CFO certifications pursuant to Section 302 and Section 906 of the Sarbanes-Oxley Act[96] - The filing includes various XBRL documents for interactive data[94][95][96] Signatures The report was duly signed by the Chairman and CEO, and Vice President Finance and CFO on August 8, 2019 - The report was duly signed on August 8, 2019, by Ellen R. Gordon, Chairman and Chief Executive Officer, and G. Howard Ember, Jr., Vice President Finance and Chief Financial Officer[99]