tr-Current Folio-10Q

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 March 31, 2015

 

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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files) Yes   No 

 

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

 

 

 

 

Large accelerated filer

 

Accelerated filer

 

 

 

Non-accelerated filer

 

Smaller reporting company

 

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 (March 31, 2015).

 

 

 

 

Class

 

Outstanding

 

 

 

Common Stock, $.69 4/9 par value

 

38,257,206

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

 

23,570,596

 

 

 

 

 


 

Table of Contents

TOOTSIE ROLL INDUSTRIES, INC.

 

March 31, 2015

 

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

 

 

 

 

Condensed Consolidated Statements of Comprehensive Earnings

 

 

 

 

Condensed Consolidated Statements of Cash Flows

 

 

 

 

Notes to Condensed Consolidated Financial Statements

8-14

 

 

 

Item 2. 

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

15-19

 

 

 

Item 3. 

Quantitative and Qualitative Disclosures About Market Risk

19 

 

 

 

Item 4. 

Controls and Procedures

19 

 

 

 

Part II — 

Other Information

 

 

 

 

Item 2. 

Unregistered Sales of Equity Securities and Use of Proceeds

20 

 

 

 

Item 6. 

Exhibits

20 

 

 

Signatures 

21 

 

 

Certifications

25-27

 

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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Table of Contents

PART I - FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

TOOTSIE ROLL INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

(in thousands)  (UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2015

 

December 31, 2014

 

March 29, 2014

 

 

 

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

 

 

 

Cash & cash equivalents

   

$

85,430 

    

$

100,108 

    

$

51,179 

Investments

 

 

52,530 

 

 

39,450 

 

 

37,772 

Trade accounts receivable, less allowances of $1,976,  $1,968 & $2,068

 

 

41,511 

 

 

43,253 

 

 

45,292 

Other receivables

 

 

3,965 

 

 

3,577 

 

 

3,925 

Inventories:

 

 

 

 

 

 

 

 

 

Finished goods & work-in-process

 

 

52,591 

 

 

44,549 

 

 

50,354 

Raw material & supplies

 

 

28,262 

 

 

25,830 

 

 

29,913 

Prepaid expenses

 

 

6,198 

 

 

6,060 

 

 

5,962 

Deferred income taxes

 

 

7,094 

 

 

1,794 

 

 

2,955 

 

 

 

 

 

 

 

 

 

 

Total current assets

 

 

277,581 

 

 

264,621 

 

 

227,352 

 

 

 

 

 

 

 

 

 

 

PROPERTY, PLANT & EQUIPMENT, at cost:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Land

 

 

22,251 

 

 

22,360 

 

 

22,540 

Buildings

 

 

113,199 

 

 

113,279 

 

 

111,409 

Machinery & equipment

 

 

350,497 

 

 

350,929 

 

 

342,217 

Construction in progress

 

 

3,645 

 

 

1,641 

 

 

5,393 

 

 

 

489,592 

 

 

488,209 

 

 

481,559 

Less-accumulated depreciation

 

 

302,877 

 

 

298,128 

 

 

284,724 

Net property, plant and equipment

 

 

186,715 

 

 

190,081 

 

 

196,835 

 

 

 

 

 

 

 

 

 

 

OTHER ASSETS:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Goodwill

 

 

73,237 

 

 

73,237 

 

 

73,237 

Trademarks

 

 

175,024 

 

 

175,024 

 

 

175,024 

Investments

 

 

156,053 

 

 

163,579 

 

 

163,865 

Split dollar officer life insurance

 

 

33,632 

 

 

33,632 

 

 

40,296 

Prepaid expenses

 

 

5,889 

 

 

6,927 

 

 

9,375 

Restricted cash

 

 

1,225 

 

 

1,589 

 

 

1,805 

Deferred income taxes

 

 

1,575 

 

 

1,696 

 

 

4,121 

Total other assets

 

 

446,635 

 

 

455,684 

 

 

467,723 

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

910,931 

 

$

910,386 

 

$

891,910 

 

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

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(in thousands except per share data) (UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2015

 

December 31, 2014

 

March 29, 2014

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

   

$

14,432 

    

$

11,641 

    

$

14,566 

Bank loans

 

 

179 

 

 

124 

 

 

226 

Dividends payable

 

 

130 

 

 

4,814 

 

 

115 

Accrued liabilities

 

 

43,551 

 

 

46,482 

 

 

45,038 

Postretirement health care and life insurance benefits

 

 

328 

 

 

328 

 

 

319 

Income taxes payable

 

 

2,807 

 

 

1,070 

 

 

3,783 

Deferred compensation

 

 

14,284 

 

 

 -

 

 

 -

Total current liabilities

 

 

75,711 

 

 

64,459 

 

 

64,047 

 

 

 

 

 

 

 

 

 

 

NONCURRENT LIABILITIES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deferred income taxes

 

 

51,844 

 

 

47,356 

 

 

54,072 

Bank loans

 

 

484 

 

 

694 

 

 

1,011 

Postretirement health care and life insurance benefits

 

 

12,154 

 

 

11,983 

 

 

8,999 

Industrial development bonds

 

 

7,500 

 

 

7,500 

 

 

7,500 

Liability for uncertain tax positions

 

 

8,453 

 

 

8,584 

 

 

9,826 

Deferred compensation and other liabilities

 

 

66,678 

 

 

78,674 

 

 

70,238 

Total noncurrent liabilities

 

 

147,113 

 

 

154,791 

 

 

151,646 

 

 

 

 

 

 

 

 

 

 

TOOTSIE ROLL INDUSTRIES, INC. SHAREHOLDERS’ EQUITY:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock, $.69-4/9 par value- 120,000 shares authorized; 38,257,  37,285 & 37,861, respectively, issued

 

 

26,567 

 

 

25,892 

 

 

26,293 

Class B common stock, $.69-4/9 par value- 40,000 shares authorized; 23,571,  22,887 & 22,915, respectively, issued

 

 

16,368 

 

 

15,894 

 

 

15,913 

Capital in excess of par value

 

 

650,724 

 

 

599,186 

 

 

615,922 

Retained earnings

 

 

11,922 

 

 

64,927 

 

 

25,694 

Accumulated other comprehensive loss

 

 

(15,758)

 

 

(13,098)

 

 

(6,153)

Treasury stock (at cost)- 80,  78 & 78 shares, respectively

 

 

(1,992)

 

 

(1,992)

 

 

(1,992)

Total Tootsie Roll Industries, Inc. shareholders’ equity

 

 

687,831 

 

 

690,809 

 

 

675,677 

Noncontrolling interests

 

 

276 

 

 

327 

 

 

540 

Total equity

 

 

688,107 

 

 

691,136 

 

 

676,217 

Total liabilities and shareholders’ equity

 

$

910,931 

 

$

910,386 

 

$

891,910 

 

(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

 

 

March 31, 2015

 

March 29, 2014

 

 

 

 

 

 

 

Net product sales

   

$

105,477 

     

$

106,812 

Rental and royalty revenue

 

 

844 

 

 

970 

 

 

 

 

 

 

 

Total revenue

 

 

106,321 

 

 

107,782 

 

 

 

 

 

 

 

Product cost of goods sold

 

 

67,145 

 

 

66,865 

Rental and royalty cost

 

 

228 

 

 

258 

 

 

 

 

 

 

 

Total costs

 

 

67,373 

 

 

67,123 

 

 

 

 

 

 

 

Product gross margin

 

 

38,332 

 

 

39,947 

Rental and royalty gross margin

 

 

616 

 

 

712 

 

 

 

 

 

 

 

Total gross margin

 

 

38,948 

 

 

40,659 

 

 

 

 

 

 

 

Selling, marketing and administrative expenses

 

 

25,984 

 

 

25,631 

 

 

 

 

 

 

 

Earnings from operations

 

 

12,964 

 

 

15,028 

 

 

 

 

 

 

 

Other income, net

 

 

473 

 

 

1,666 

 

 

 

 

 

 

 

Earnings before income taxes

 

 

13,437 

 

 

16,694 

Provision for income taxes

 

 

4,334 

 

 

7,337 

Net earnings

 

 

9,103 

 

 

9,357 

Less: Net loss attributable to noncontrolling interests

 

 

51 

 

 

224 

Net earnings attributable to Tootsie Roll Industries, Inc.

 

 

9,154 

 

 

9,581 

 

 

 

 

 

 

 

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

 

$

0.15 

 

$

0.15 

Dividends per share *

 

$

0.08 

 

$

0.08 

 

 

 

 

 

 

 

Average number of shares outstanding

 

 

61,831 

 

 

62,610 

 

 

 

 

 

 

 

Retained earnings at beginning of period

 

$

64,927 

 

$

73,109 

Net earnings attributable to Tootsie Roll Industries, Inc.

 

 

9,154 

 

 

9,581 

Cash dividends

 

 

(4,800)

 

 

(4,715)

Stock dividends

 

 

(57,359)

 

 

(52,281)

 

 

 

 

 

 

 

Retained earnings at end of period

 

$

11,922 

 

$

25,694 

 


*Does not include 3% stock dividend to shareholders of record on 4/10/15 and 4/4/14.

 

(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

 

 

March 31, 2015

 

March 29, 2014

 

 

 

 

 

 

 

Net earnings

   

$

9,103 

    

$

9,357 

 

 

 

 

 

 

 

Other comprehensive income (loss), before tax:

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

(1,159)

 

 

(1,318)

 

 

 

 

 

 

 

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

 

 

(363)

 

 

(451)

Unrealized gains (losses) on postretirement and pension benefits

 

 

(363)

 

 

(451)

 

 

 

 

 

 

 

Investments:

 

 

 

 

 

 

Unrealized gains (losses) for the period on investments

 

 

371 

 

 

(216)

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

 

 

 -

 

 

 -

Unrealized gains (losses) on investments

 

 

371 

 

 

(216)

 

 

 

 

 

 

 

Derivatives:

 

 

 

 

 

 

Unrealized gains (losses) for the period on derivatives

 

 

(3,037)

 

 

(833)

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

 

 

675 

 

 

437 

Unrealized gains (losses) on derivatives

 

 

(2,362)

 

 

(396)

 

 

 

 

 

 

 

Total other comprehensive income (loss), before tax

 

 

(3,513)

 

 

(2,381)

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

 

 

853 

 

 

866 

Total comprehensive earnings

 

 

6,443 

 

 

7,842 

Comprehensive earnings attributable to noncontrolling interests

 

 

51 

 

 

224 

Total comprehensive earnings attributable to Tootsie Roll Industries, Inc.

 

$

6,494 

 

$

8,066 

 

 (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

 

 

March 31, 2015

 

March 29, 2014

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

Net earnings

   

$

9,103 

    

$

9,357 

Adjustments to reconcile net earnings to net cash used in operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

5,050 

 

 

5,124 

Loss on step acquisition

 

 

 -

 

 

529 

Amortization of marketable security premiums

 

 

791 

 

 

829 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

1,450 

 

 

(3,088)

Other receivables

 

 

(404)

 

 

563 

Inventories

 

 

(10,847)

 

 

(16,663)

Prepaid expenses and other assets

 

 

888 

 

 

534 

Accounts payable and accrued liabilities

 

 

(968)

 

 

1,544 

Income taxes payable and deferred

 

 

2,041 

 

 

3,787 

Postretirement health care and life insurance benefits

 

 

(192)

 

 

(309)

Deferred compensation and other liabilities

 

 

109 

 

 

441 

Net cash from operating activities

 

 

7,021 

 

 

2,648 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

Net cash acquired in step acquisition

 

 

 -

 

 

161 

Restricted cash

 

 

175 

 

 

179 

Capital expenditures

 

 

(2,418)

 

 

(2,138)

Net sales (purchases) of trading securities

 

 

(2,072)

 

 

80 

Purchase of available for sale securities

 

 

(9,107)

 

 

(25,034)

Sale and maturity of available for sale securities

 

 

6,622 

 

 

4,410 

Net cash used in investing activities

 

 

(6,800)

 

 

(22,342)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

Shares purchased and retired

 

 

(4,544)

 

 

(7,864)

Dividends paid in cash

 

 

(9,613)

 

 

(9,458)

Repayment of bank loans

 

 

(52)

 

 

(73)

Net cash used in financing activities

 

 

(14,209)

 

 

(17,395)

Effect of exchange rate changes on cash

 

 

(690)

 

 

(15)

Decrease in cash and cash equivalents

 

 

(14,678)

 

 

(37,104)

Cash and cash equivalents at beginning of year

 

 

100,108 

 

 

88,283 

Cash and cash equivalents at end of quarter

 

$

85,430 

 

$

51,179 

Supplemental cash flow information:

 

 

 

 

 

 

Income taxes paid, net

 

$

2,410 

 

$

1,419 

Interest paid

 

$

11 

 

$

30 

Stock dividend issued

 

$

57,230 

 

$

52,165 

 

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

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TOOTSIE ROLL INDUSTRIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2015

(in thousands except per share amounts) (UNAUDITED)

 

Note 1 — Significant Accounting Policies

 

General Information

 

Foregoing data has been prepared from the unaudited financial records of Tootsie Roll Industries, Inc. (the Company) and in the opinion of management all adjustments, which are of a normal recurring nature, necessary for a fair statement of the results for the interim period have been reflected. Certain amounts previously reported have been reclassified to conform to the current year presentation. These consolidated financial statements should be read in conjunction with the consolidated financial statements and the related notes included in the Company’s 2014 Annual Report on Form 10-K.

 

Results of operations for first quarter 2015 are not necessarily indicative of results to be expected for the year to end December 31, 2015 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.

 

The results of the Company’s two less than wholly owned Spanish companies are consolidated and a noncontrolling interest has been recorded. (See Note 10.)

 

Accounting Pronouncements

 

In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2014-09 that introduces a new five-step revenue recognition model in which an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This ASU also requires disclosures sufficient to enable users to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers, including qualitative and quantitative disclosures about contracts with customers, significant judgments and changes in judgments, and assets recognized from the costs to obtain or fulfill a contract. This standard is effective for fiscal years beginning after December 15, 2017, including interim periods within that reporting period. The Company is currently evaluating the new guidance to determine the impact it may have on the condensed consolidated financial statements.

 

In August 2014, the FASB issued ASU 2014-15 which provides guidance about management's responsibility to evaluate whether there is substantial doubt about an entity's ability to continue as a going concern and to provide related footnote disclosures. This guidance will be effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. We do not expect the adoption of this guidance to have a significant impact on our condensed consolidated financial statements.

 

Note 2 — Average Shares Outstanding

 

The average number of shares outstanding for year to date ended March 31, 2015 reflect stock purchases of 143 shares for $4,544 and a 3% stock dividend distributed on April 10, 2015. The average number of shares outstanding for year to date ended March 29, 2014 reflect stock purchases of 257 shares for $7,864 and a 3% stock dividend distributed on April 4, 2014.

 

 

 

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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 2011  through 2013. With few exceptions, including an audit examination of the Companies amended U.S income tax returns for 2009 and 2010, the Company is no longer subject to examination by tax authorities for the year 2010 and prior. The consolidated effective tax rates were 32.3% and 43.9% in first quarter 2015 and 2014, respectively. The higher effective income tax rate in first quarter 2014 reflects the reversal of deferred tax assets of $2,350 in first quarter 2014 relating to the step acquisition of the Spanish companies as discussed in Note 10.

 

Note 4 — 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.

 

As of March 31, 2015, December 31, 2014 and March 29, 2014, 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, including an auction rate security. The Company’s available for sale and trading securities principally consist of municipal bonds and mutual funds that are publicly traded.

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The following table presents information about the Company’s financial assets and liabilities measured at fair value as of March 31, 2015, December 31, 2014 and March 29, 2014, and indicate the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Estimated Fair Value March 31, 2015

 

 

Total

 

Input Levels Used

 

 

Fair Value

 

Level 1

 

Level 2

 

Level 3

Cash and cash equivalents

   

$

85,430 

    

$

85,430 

    

$

 -

    

$

 -

Available for sale securities

 

 

133,412 

 

 

2,461 

 

 

130,951 

 

 

 -

Foreign currency forward contracts

 

 

(3,328)

 

 

 -

 

 

(3,328)

 

 

 -

Commodity futures contracts

 

 

(1,709)

 

 

(1,709)

 

 

 -

 

 

 -

Trading securities

 

 

75,171 

 

 

75,171 

 

 

 -

 

 

 -

Total assets measured at fair value

 

$

288,976 

 

$

161,353 

 

$

127,623 

 

$

 -

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Estimated Fair Value December 31, 2014

 

 

 

Total

 

Input Levels Used

 

 

 

Fair Value

 

 

Level 1

 

 

Level 2

 

 

Level 3

Cash and cash equivalents

   

$

100,108 

    

$

100,108 

    

$

 -

    

$

 -

Available for sale securities

 

 

131,347 

 

 

2,446 

 

 

128,901 

 

 

 -

Foreign currency forward contracts

 

 

(1,939)

 

 

 -

 

 

(1,939)

 

 

 -

Commodity futures contracts, net

 

 

(737)

 

 

(737)

 

 

 -

 

 

 -

Trading securities

 

 

71,682 

 

 

71,682 

 

 

 -

 

 

 -

Total assets measured at fair value

 

$

300,461 

 

$

173,499 

 

$

126,962 

 

$

 -

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Estimated Fair Value March 29, 2014

 

 

 

Total

 

Input Levels Used

 

 

 

Fair Value

 

 

Level 1

 

 

Level 2

 

 

Level 3

Cash and cash equivalents

   

$

51,179 

    

$

51,179 

    

$

 -

    

$

 -

Available for sale securities

 

 

138,225 

 

 

 -

 

 

138,225 

 

 

 -

Foreign currency forward contracts

 

 

(1,613)

 

 

 -

 

 

(1,613)

 

 

 -

Commodity futures contracts

 

 

388 

 

 

388 

 

 

 -

 

 

 -

Trading securities

 

 

63,412 

 

 

63,412 

 

 

 -

 

 

 -

Total assets measured at fair value

 

$

251,591 

 

$

114,979 

 

$

136,612 

 

$

 -

 

The fair value of the Company’s industrial revenue development bonds at March 31, 2015, December 31, 2014 and March  29, 2014 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.

 

 

Note 5 — Derivative Instruments and Hedging Activities

 

From time to time, the Company uses derivative instruments, including foreign currency forward contracts, commodity futures contracts and commodity option contracts, to manage its exposures to foreign exchange and commodity prices. Commodity futures contracts and most commodity option contracts are intended and effective as hedges of market price risks associated with the anticipated purchase of certain raw materials (primarily sugar). Foreign currency forward contracts are intended and effective as hedges of the Company’s exposure to the variability of cash flows, primarily related to the foreign exchange rate changes of products manufactured in Canada and sold in the United States. 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 either hedge accounting or mark-to-market

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accounting for its derivative instruments. 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. Substantially all amounts reported in accumulated other comprehensive loss for foreign currency derivatives are expected to be reclassified to other income, net.

 

The following table summarizes the Company’s outstanding derivative contracts and their effects on its Condensed Consolidated Statements of Financial Position at March 31, 2015, December 31, 2014 and March 29, 2014:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2015

 

 

Notional

    

    

    

    

 

 

Amounts

 

Assets

 

Liabilities

 

 

 

 

 

 

 

 

 

 

Derivatives designated as hedging instruments:

 

 

 

 

 

 

 

 

 

Foreign currency forward contracts

 

$

23,443 

 

$

 -

 

$

(3,328)

Commodity futures contracts

 

 

15,966 

 

 

31 

 

 

(1,740)

Total derivatives designated as hedging instruments

 

 

 

 

 

31 

 

 

(5,068)

Derivatives not designated as hedging instruments:

 

 

 

 

 

 

 

 

 

Commodity futures contracts

 

 

 -

 

 

 -

 

 

 -

Total derivatives not designated as hedging instruments

 

 

 

 

 

 -

 

 

 -

Total derivatives

 

 

 

 

$

31 

 

$

(5,068)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2014

 

 

Notional

    

    

    

    

 

 

Amounts

 

Assets

 

Liabilities

 

 

 

 

 

 

 

 

 

 

Derivatives designated as hedging instruments:

 

 

 

 

 

 

 

 

 

Foreign currency forward contracts

 

$

27,603 

 

$

 -

 

$

(1,939)

Commodity futures contracts

 

 

5,422 

 

 

23 

 

 

(760)

Total derivatives designated as hedging instruments

 

 

 

 

 

23 

 

 

(2,699)

Derivatives not designated as hedging instruments:

 

 

 

 

 

 

 

 

 

Commodity futures contracts

 

 

 

 

 

 -

 

 

 -

Total derivatives not designated as hedging instruments

 

 

 

 

 

 -

 

 

 -

Total derivatives

 

 

 

 

$

23 

 

$

(2,699)

 

 

 

 

 

 

 

 

 

 

 

 

March 29, 2014

 

 

Notional

    

    

    

    

 

 

Amounts

 

Assets

 

Liabilities

 

 

 

 

 

 

 

 

 

 

Derivatives designated as hedging instruments:

 

 

 

 

 

 

 

 

 

Foreign currency forward contracts

 

$

44,665 

 

$

 -

 

$

(1,613)

Commodity futures contracts

 

 

5,154 

 

 

382 

 

 

 -

Total derivatives designated as hedging instruments

 

 

 

 

 

382 

 

 

(1,613)

Derivatives not designated as hedging instruments:

 

 

 

 

 

 

 

 

 

Commodity futures contracts

 

 

195 

 

 

 

 

 -

Total derivatives not designated as hedging instruments

 

 

 

 

 

 

 

 -

Total derivatives

 

 

 

 

$

388 

 

$

(1,613)

 

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The effects of derivative instruments on the Company’s Condensed Consolidated Statement of Earnings and Retained Earnings and the Condensed Consolidated Statement of Comprehensive Earnings for periods ended March 31, 2015 and March 29, 2014 are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For Quarter Ended March 31, 2015

 

 

    

    

    

    

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

 

$

(1,903)

 

$

(513)

 

$

 -

Commodity futures contracts

 

 

(1,134)

 

 

(162)

 

 

 -

Total

 

$

(3,037)

 

$

(675)

 

$

 -

 

 

 

 

 

 

 

 

 

 

 

 

For Quarter Ended March 29, 2014

 

 

    

    

    

    

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

 

$

(1,191)

 

$

(262)

 

$

 -

Commodity futures contracts

 

 

358 

 

 

(175)

 

 

 -

Total

 

$

(833)

 

$

(437)

 

$

 -

 

 

 

 

 

 

 

 

 

 

 

During the quarters ended March 31, 2015 and March 29, 2014, the Company recognized losses of $0 and $6 respectively, related to mark-to-market accounting for certain commodity option and future contracts.

 

Note 6 — Pension Plans

 

Beginning in 2012, the Company received notices from the Bakery, Confectionery, Tobacco Workers and Grain Millers International Union (BC&T) Pension Plan (Plan), a multi-employer defined benefit pension plan for certain Company union employees. The notices indicated 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. The rehabilitation plan, which continues, 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. Under the plan of rehabilitation, the Plan is projected to emerge from critical status sometime beyond a 30 year projection period. In the event that a plan does not have the financial resources to ultimately pay benefits at a level specified by law, then it must apply to the PBGC for government financial assistance. The Trustees have advised that neither the PPA nor regulatory guidance currently defines the rehabilitation standards for a plan that is not designed to emerge from critical status within the prescribed 10-year rehabilitation period. Recently enacted legislation (Multiemployer Pension Reform Act of 2014) may also affect the future of this Plan.

 

The Company was previously advised by the Plan that if the Company had withdrawn from the Plan during 2012 its estimated withdrawal liability would have been $37,200. The Company was recently advised by the Plan that its withdrawal liability would have been $56,400 if it had withdrawn from the Plan during 2014. The increase from 2012 to 2014 principally reflects changes in key actuarial assumptions, principally the effects of a lower interest rates proscribed by PBGC which were partially used to determine the present value of vested benefits, and a change to a more conservative mortality table. 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.

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Pension expense, including surcharges as discussed above, for the BC&T Plan for first quarter 2015 and 2014 was $552 and $579, respectively. The aforementioned includes surcharge increases of $96 and $72 in first quarter 2015 and 2014, respectively, related to contribution increases under the plan of rehabilitation.

 

Subsequent to the end of first quarter 2015, the Company received new notices that the Plan is in “critical and declining status”, as defined by the PPA and PBGC, for the plan year beginning January 1, 2015, and that the Plan is projected to have an accumulated funding deficiency for the 2017 through 2024 plan years. The recent notices advised that the Plan’s actuarially determined asset values would fund 65.11%,  66.41% and 66.86% of its liabilities as of its January 1, 2014, 2013, and 2012 plan valuation dates, respectively. The aforementioned funding percentages are based on actuarially determined asset valuations which differ from the market values of the Plan’s assets on these dates. Based on the market values of the Plan’s investments, its funded percentages were 60.2% and 55.3% as of January 1, 2014 and 2013, respectively. The notice also indicates that as of the January 1, 2014 valuation date, 20.8% of plan participants were active participants working for a participating employer, 51.4% were retired and receiving benefits, and 27.8% were retired or separated from service and entitled to future benefits.

 

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 in one or more future periods. See also the Company’s consolidated financial statements and related notes and Management and Discussion and Analysis and Results of Operations incorporated into the Company’s Annual Report on Form 10-K for the year ended December 31, 2014 (the “2014 Form 10-K”).

 

Note 7 — Accumulated Other Comprehensive Earnings (Loss)

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

Accumulated

 

 

Foreign

 

 

 

Foreign

 

 

 

Postretirement

 

Other

 

 

Currency

 

 

 

Currency

 

Commodity

 

and Pension

 

Comprehensive

 

 

Translation

 

Investments

 

Derivatives

 

Derivatives

 

Benefits

 

Earnings (Loss)

Balance at December 31, 2014

    

$

(17,499)

    

$

(332)

    

$

(1,236)

    

$

(470)

    

$

6,439 

    

$

(13,098)

Other comprehensive earnings (loss) before reclassifications

 

 

(1,159)

 

 

237 

 

 

(1,214)

 

 

(722)

 

 

 -

 

 

(2,858)

Reclassifications from accumulated other comprehensive loss

 

 

 -

 

 

 -

 

 

327 

 

 

103 

 

 

(232)

 

 

198 

Other comprehensive earnings (loss) net of tax

 

 

(1,159)

 

 

237 

 

 

(887)

 

 

(619)

 

 

(232)

 

 

(2,660)

Balance at March 31, 2015

 

$

(18,658)

 

$

(95)

 

$

(2,123)

 

$

(1,089)

 

$

6,207 

 

$

(15,758)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

Accumulated

 

 

Foreign

 

 

 

Foreign

 

 

 

Postretirement

 

Other

 

 

Currency

 

 

 

Currency

 

Commodity

 

and Pension

 

Comprehensive

 

 

Translation

 

Investments

 

Derivatives

 

Derivatives

 

Benefits

 

Earnings (Loss)

Balance at December 31, 2013

 

$

(13,527)

    

$

54 

    

$

(436)

    

$

(96)

    

$

9,367 

 

$

(4,638)

Other comprehensive earnings (loss) before reclassifications

 

 

(837)

 

 

(138)

 

 

(760)

 

 

229 

 

 

 -

 

 

(1,506)

Reclassifications from accumulated other comprehensive loss

 

 

 -

 

 

 -

 

 

167 

 

 

112 

 

 

(288)

 

 

(9)

Other comprehensive earnings (loss) net of tax

 

 

(837)

 

 

(138)

 

 

(593)

 

 

341 

 

 

(288)

 

 

(1,515)

Balance at March 29, 2014

 

$

(14,364)

 

$

(84)

 

$

(1,029)

 

$

245 

 

$

9,079 

 

$

(6,153)

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Details about Accumulated Other

 

Quarter Ended

 

 

Comprehensive Income Components

 

March 31, 2015

 

March 29, 2014

 

Location of (Gain) Loss Recognized in Earnings

Foreign currency derivatives

 

$

513 

 

$

262 

 

Other income, net

Commodity derivatives

 

 

162 

 

 

175