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 June  30, 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 (June  30, 2015).

 

 

 

 

Class

 

Outstanding

 

 

 

Common Stock, $.69 4/9 par value

 

38,029,047

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

 

23,564,199

 

 

 

 

 


 

Table of Contents

TOOTSIE ROLL INDUSTRIES, INC.

 

June  30, 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

8-15

 

 

 

Item 2. 

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

16-21

 

 

 

Item 3. 

Quantitative and Qualitative Disclosures About Market Risk

21 

 

 

 

Item 4. 

Controls and Procedures

21 

 

 

 

Part II — 

Other Information

 

 

 

 

Item 2. 

Unregistered Sales of Equity Securities and Use of Proceeds

22 

 

 

 

Item 6. 

Exhibits

22 

 

 

Signatures 

23 

 

 

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.

2


 

Table of Contents

PART I - FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

TOOTSIE ROLL INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

(in thousands)  (UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2015

 

December 31, 2014

 

June 28, 2014

 

 

 

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

 

 

 

Cash & cash equivalents

   

$

87,005

    

$

100,108

    

$

57,091

Restricted cash

 

 

1,272

 

 

 -

 

 

 -

Investments

 

 

51,210

 

 

39,450

 

 

38,995

Trade accounts receivable, less allowances of $2,019,  $1,968 & $1,806

 

 

27,909

 

 

43,253

 

 

25,698

Other receivables

 

 

3,673

 

 

3,577

 

 

2,240

Inventories:

 

 

 

 

 

 

 

 

 

Finished goods & work-in-process

 

 

70,598

 

 

44,549

 

 

73,747

Raw material & supplies

 

 

31,357

 

 

25,830

 

 

29,651

Prepaid expenses

 

 

6,310

 

 

6,060

 

 

7,200

Deferred income taxes

 

 

7,130

 

 

1,794

 

 

3,186

Total current assets

 

 

286,464

 

 

264,621

 

 

237,808

 

 

 

 

 

 

 

 

 

 

PROPERTY, PLANT & EQUIPMENT, at cost:

 

 

 

 

 

 

 

 

 

Land

 

 

22,262

 

 

22,360

 

 

22,536

Buildings

 

 

113,181

 

 

113,279

 

 

111,418

Machinery & equipment

 

 

349,588

 

 

350,929

 

 

341,672

Construction in progress

 

 

8,639

 

 

1,641

 

 

9,148

 

 

 

493,670

 

 

488,209

 

 

484,774

Less-accumulated depreciation

 

 

306,629

 

 

298,128

 

 

289,248

Net property, plant and equipment

 

 

187,041

 

 

190,081

 

 

195,526

 

 

 

 

 

 

 

 

 

 

OTHER ASSETS:

 

 

 

 

 

 

 

 

 

Goodwill

 

 

73,237

 

 

73,237

 

 

73,237

Trademarks

 

 

175,024

 

 

175,024

 

 

175,024

Investments

 

 

158,111

 

 

163,579

 

 

162,275

Split dollar officer life insurance

 

 

30,813

 

 

33,632

 

 

40,296

Prepaid expenses

 

 

4,930

 

 

6,927

 

 

8,753

Restricted cash

 

 

 -

 

 

1,589

 

 

1,791

Deferred income taxes

 

 

1,616

 

 

1,696

 

 

4,030

Total other assets

 

 

443,731

 

 

455,684

 

 

465,406

Total assets

 

$

917,236

 

$

910,386

 

$

898,740

 

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

3


 

Table of Contents

(in thousands except per share data) (UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2015

 

December 31, 2014

 

June 28, 2014

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

 

 

 

Accounts payable

   

$

15,494

    

$

11,641

    

$

14,040

Bank loans

 

 

153

 

 

124

 

 

151

Dividends payable

 

 

5,544

 

 

4,814

 

 

4,856

Accrued liabilities

 

 

46,891

 

 

46,482

 

 

44,598

Postretirement health care and life insurance benefits

 

 

328

 

 

328

 

 

111

Income taxes payable

 

 

550

 

 

1,070

 

 

 -

Liability for uncertain tax positions

 

 

1,001

 

 

 -

 

 

 -

Deferred compensation

 

 

14,347

 

 

 -

 

 

 -

Total current liabilities

 

 

84,308

 

 

64,459

 

 

63,756

 

 

 

 

 

 

 

 

 

 

NONCURRENT LIABILITIES:

 

 

 

 

 

 

 

 

 

Deferred income taxes

 

 

52,154

 

 

47,356

 

 

54,503

Bank loans

 

 

467

 

 

694

 

 

930

Postretirement health care and life insurance benefits

 

 

12,319

 

 

11,983

 

 

9,338

Industrial development bonds

 

 

7,500

 

 

7,500

 

 

7,500

Liability for uncertain tax positions

 

 

6,639

 

 

8,584

 

 

9,977

Deferred compensation and other liabilities

 

 

67,558

 

 

78,674

 

 

74,028

Total noncurrent liabilities

 

 

146,637

 

 

154,791

 

 

156,276

 

 

 

 

 

 

 

 

 

 

TOOTSIE ROLL INDUSTRIES, INC. SHAREHOLDERS’ EQUITY:

 

 

 

 

 

 

 

 

 

Common stock, $.69-4/9 par value- 120,000 shares authorized; 38,029,  37,285 & 37,777, respectively, issued

 

 

26,409

 

 

25,892

 

 

26,234

Class B common stock, $.69-4/9 par value- 40,000 shares authorized; 23,564,  22,887 & 22,910, respectively, issued

 

 

16,364

 

 

15,894

 

 

15,909

Capital in excess of par value

 

 

643,429

 

 

599,186

 

 

613,467

Retained earnings

 

 

17,454

 

 

64,927

 

 

29,870

Accumulated other comprehensive loss

 

 

(15,809)

 

 

(13,098)

 

 

(5,252)

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

 

 

(1,992)

 

 

(1,992)

 

 

(1,992)

Total Tootsie Roll Industries, Inc. shareholders’ equity

 

 

685,855

 

 

690,809

 

 

678,236

Noncontrolling interests

 

 

436

 

 

327

 

 

472

Total equity

 

 

686,291

 

 

691,136

 

 

678,708

Total liabilities and shareholders’ equity

 

$

917,236

 

$

910,386

 

$

898,740

 

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

4


 

Table of Contents

TOOTSIE ROLL INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF

EARNINGS AND RETAINED EARNINGS

(in thousands except per share amounts)    (UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter Ended

 

Year to Date Ended

 

 

June 30, 2015

 

June 28, 2014

 

June 30, 2015

 

June 28, 2014

 

 

 

 

 

 

 

 

 

 

 

 

 

Net product sales

   

$

107,528

    

$

104,061

    

$

213,005

     

$

210,873

Rental and royalty revenue

 

 

908

 

 

869

 

 

1,752

 

 

1,839

Total revenue

 

 

108,436

 

 

104,930

 

 

214,757

 

 

212,712

 

 

 

 

 

 

 

 

 

 

 

 

 

Product cost of goods sold

 

 

68,733

 

 

66,182

 

 

135,878

 

 

133,047

Rental and royalty cost

 

 

230

 

 

223

 

 

458

 

 

481

Total costs

 

 

68,963

 

 

66,405

 

 

136,336

 

 

133,528

 

 

 

 

 

 

 

 

 

 

 

 

 

Product gross margin

 

 

38,795

 

 

37,879

 

 

77,127

 

 

77,826

Rental and royalty gross margin

 

 

678

 

 

646

 

 

1,294

 

 

1,358

Total gross margin

 

 

39,473

 

 

38,525

 

 

78,421

 

 

79,184

Selling, marketing and administrative expenses

 

 

25,839

 

 

28,296

 

 

51,823

 

 

53,927

Earnings from operations

 

 

13,634

 

 

10,229

 

 

26,598

 

 

25,257

Other income, net

 

 

1,321

 

 

3,033

 

 

1,794

 

 

4,699

Earnings before income taxes

 

 

14,955

 

 

13,262

 

 

28,392

 

 

29,956

Provision for income taxes

 

 

3,735

 

 

4,305

 

 

8,069

 

 

11,642

Net earnings

 

 

11,220

 

 

8,957

 

 

20,323

 

 

18,314

Less: Net (earnings) loss attributable to noncontrolling interests

 

 

(161)

 

 

69

 

 

(110)

 

 

293

Net earnings attributable to Tootsie Roll Industries, Inc.

 

$

11,059

 

$

9,026

 

$

20,213

 

$

18,607

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

$

0.18

 

$

0.14

 

$

0.33

 

$

0.30

Dividends per share *

 

$

0.09

 

$

0.08

 

$

0.16

 

$

0.16

 

 

 

 

 

 

 

 

 

 

 

 

 

Average number of shares outstanding

 

 

61,611

 

 

62,455

 

 

61,717

 

 

62,538

 

 

 

 

 

 

 

 

 

 

 

 

 

Retained earnings at beginning of period

 

$

11,922

 

$

25,694

 

$

64,927

 

$

73,109

Net earnings attributable to Tootsie Roll Industries, Inc.

 

 

11,059

 

 

9,026

 

 

20,213

 

 

18,607

Cash dividends

 

 

(5,527)

 

 

(4,850)

 

 

(10,327)

 

 

(9,565)

Stock dividends

 

 

 -

 

 

 -

 

 

(57,359)

 

 

(52,281)

Retained earnings at end of period

 

$

17,454

 

$

29,870

 

$

17,454

 

$

29,870

 


*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.)

5


 

Table of Contents

TOOTSIE ROLL INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE EARNINGS

(in thousands except per share amounts) (UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter Ended

 

Year to Date Ended

 

 

June 30, 2015

 

June 28, 2014

 

June 30, 2015

 

June 28, 2014

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings

   

$

11,220

    

$

8,957

    

$

20,323

    

$

18,314

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss), before tax:

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

(552)

 

 

138

 

 

(1,711)

 

 

(1,180)

 

 

 

 

 

 

 

 

 

 

 

 

 

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)

 

 

(726)

 

 

(902)

Unrealized gains (losses) on postretirement and pension benefits

 

 

(363)

 

 

(451)

 

 

(726)

 

 

(902)

 

 

 

 

 

 

 

 

 

 

 

 

 

Investments:

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gains (losses) for the period on investments

 

 

(371)

 

 

185

 

 

 -

 

 

(31)

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

 

 

 -

 

 

 -

 

 

 -

 

 

 -

Unrealized gains (losses) on investments

 

 

(371)

 

 

185

 

 

 -

 

 

(31)

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives:

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gains (losses) for the period on derivatives

 

 

522

 

 

1,388

 

 

(2,515)

 

 

555

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

 

 

999

 

 

73

 

 

1,674

 

 

510

Unrealized gains (losses) on derivatives

 

 

1,521

 

 

1,461

 

 

(841)

 

 

1,065

 

 

 

 

 

 

 

 

 

 

 

 

 

Total other comprehensive income (loss), before tax

 

 

235

 

 

1,333

 

 

(3,278)

 

 

(1,048)

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

 

 

(286)

 

 

(432)

 

 

567

 

 

434

Total comprehensive earnings

 

 

11,169

 

 

9,858

 

 

17,612

 

 

17,700

Comprehensive earnings attributable to noncontrolling interests

 

 

(161)

 

 

69

 

 

(110)

 

 

293

Total comprehensive earnings attributable to Tootsie Roll Industries, Inc.

 

$

11,008

 

$

9,927

 

$

17,502

 

$

17,993

 

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

6


 

Table of Contents

TOOTSIE ROLL INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)   (UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year to Date Ended

 

 

June 30, 2015

 

June 28, 2014

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

Net earnings

   

$

20,323

    

$

18,314

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

 

 

 

 

 

 

Depreciation and amortization

 

 

10,178

 

 

10,189

Loss on step acquisition

 

 

 -

 

 

529

Amortization of marketable security premiums

 

 

1,531

 

 

1,689

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

15,112

 

 

16,520

Other receivables

 

 

(65)

 

 

3,710

Inventories

 

 

(31,950)

 

 

(39,770)

Prepaid expenses and other assets

 

 

4,543

 

 

1,063

Accounts payable and accrued liabilities

 

 

3,306

 

 

348

Income taxes payable and deferred

 

 

(1,395)

 

 

(1,119)

Postretirement health care and life insurance benefits

 

 

(390)

 

 

(421)

Deferred compensation and other liabilities

 

 

1,260

 

 

1,764

Net cash from operating activities

 

 

22,453

 

 

12,816

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

Net cash acquired in step acquisition

 

 

 -

 

 

161

Restricted cash

 

 

235

 

 

193

Capital expenditures

 

 

(6,805)

 

 

(5,895)

Net sales (purchases) of trading securities

 

 

(2,362)

 

 

(2,627)

Purchase of available for sale securities

 

 

(17,204)

 

 

(27,331)

Sale and maturity of available for sale securities

 

 

13,531

 

 

11,566

Net cash used in investing activities

 

 

(12,605)

 

 

(23,933)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

Shares purchased and retired

 

 

(11,991)

 

 

(10,381)

Dividends paid in cash

 

 

(9,736)

 

 

(9,567)

Repayment of bank loans

 

 

(158)

 

 

(228)

Net cash used in financing activities

 

 

(21,885)

 

 

(20,176)

Effect of exchange rate changes on cash

 

 

(1,066)

 

 

101

Decrease in cash and cash equivalents

 

 

(13,103)

 

 

(31,192)

Cash and cash equivalents at beginning of year

 

 

100,108

 

 

88,283

Cash and cash equivalents at end of quarter

 

$

87,005

 

$

57,091

Supplemental cash flow information:

 

 

 

 

 

 

Income taxes paid, net

 

$

9,421

 

$

10,496

Interest paid

 

$

12

 

$

31

Stock dividend issued

 

$

57,220

 

$

52,165

 

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

7


 

Table of Contents

 

 

TOOTSIE ROLL INDUSTRIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June  30, 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 the period ended June 30, 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 June  30, 2015 reflect stock purchases of 378 shares for $11,991 and a 3% stock dividend distributed on April 10, 2015. The average number of shares outstanding for year to date ended June  28, 2014 reflect stock purchases of 347 shares for $10,381 and a 3% stock dividend distributed on April 4, 2014.

 

 

 

8


 

Table of Contents

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 25.0% and 32.5% in second quarter 2015 and 2014, respectively, and 28.4%. and 38.9% in first half 2015 and 2014, respectively. The lower effective tax rates in second quarter and first half 2015 principally reflect a $1,066 release of an uncertain income tax liability and resulting income tax benefit due to a decision by a foreign court issued in second quarter 2015, and 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 June  30, 2015, December 31, 2014 and June 28, 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. The Company’s available for sale and trading securities principally consist of municipal bonds and mutual funds that are publicly traded.

9


 

Table of Contents

The following table presents information about the Company’s financial assets and liabilities measured at fair value as of June  30, 2015, December 31, 2014 and June 28, 2014 and indicate the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Estimated Fair Value June 30, 2015

 

 

Total

 

Input Levels Used

 

 

Fair Value

 

Level 1

 

Level 2

 

Level 3

Cash and cash equivalents

   

$

87,005

    

$

87,005

    

$

 -

    

$

 -

Available for sale securities

 

 

133,491

 

 

2,454

 

 

131,037

 

 

 -

Foreign currency forward contracts

 

 

(2,494)

 

 

 -

 

 

(2,494)

 

 

 -

Commodity futures contracts

 

 

(1,022)

 

 

(1,022)

 

 

 -

 

 

 -

Trading securities

 

 

75,830

 

 

75,830

 

 

 -

 

 

 -

Total assets measured at fair value

 

$

292,810

 

$

164,267

 

$

128,543

 

$

 -

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 June 28, 2014

 

 

 

Total

 

Input Levels Used

 

 

 

Fair Value

 

 

Level 1

 

 

Level 2

 

 

Level 3

Cash and cash equivalents

   

$

57,091

    

$

57,091

    

$

 -

    

$

 -

Available for sale securities

 

 

132,688

 

 

 -

 

 

132,688

 

 

 -

Foreign currency forward contracts

 

 

81

 

 

 -

 

 

81

 

 

 -

Commodity futures contracts

 

 

150

 

 

150

 

 

 -

 

 

 -

Trading securities

 

 

68,582

 

 

68,582

 

 

 -

 

 

 -

Total assets measured at fair value

 

$

258,592

 

$

125,823

 

$

132,769

 

$

 -

 

The fair value of the Company’s industrial revenue development bonds at June  30, 2015, December 31, 2014 and June  28, 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

10


 

Table of Contents

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 June 30, 2015, December 31, 2014 and June 28, 2014:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2015

 

 

Notional

    

    

    

    

 

 

Amounts

 

Assets

 

Liabilities

 

 

 

 

 

 

 

 

 

 

Derivatives designated as hedging instruments:

 

 

 

 

 

 

 

 

 

Foreign currency forward contracts

 

$

19,283

 

$

 -

 

$

(2,494)

Commodity futures contracts

 

 

12,799

 

 

86

 

 

(1,108)

Total derivatives designated as hedging instruments

 

 

 

 

 

86

 

 

(3,602)

Derivatives not designated as hedging instruments:

 

 

 

 

 

 

 

 

 

Commodity futures contracts

 

 

 -

 

 

 -

 

 

 -

Total derivatives not designated as hedging instruments

 

 

 

 

 

 -

 

 

 -

Total derivatives

 

 

 

 

$

86

 

$

(3,602)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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)

 

 

 

 

 

 

 

 

 

 

 

 

June 28, 2014

 

 

Notional

    

    

    

    

 

 

Amounts

 

Assets

 

Liabilities

 

 

 

 

 

 

 

 

 

 

Derivatives designated as hedging instruments:

 

 

 

 

 

 

 

 

 

Foreign currency forward contracts

 

$

38,978

 

$

534

 

$

(453)

Commodity futures contracts

 

 

5,563

 

 

192

 

 

(42)

Total derivatives designated as hedging instruments

 

 

 

 

 

726

 

 

(495)

Derivatives not designated as hedging instruments:

 

 

 

 

 

 

 

 

 

Commodity futures contracts

 

 

 -

 

 

 -

 

 

 -

Total derivatives not designated as hedging instruments

 

 

 

 

 

 -

 

 

 -

Total derivatives

 

 

 

 

$

726

 

$

(495)

 

11


 

Table of Contents

The effects of derivative instruments on the Company’s Condensed Consolidated Statements of Earnings and Retained Earnings and the Condensed Consolidated Statements of Comprehensive Earnings for periods ended June 30, 2015 and June 28, 2014 are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For Quarter Ended June 30, 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

 

$

326

 

$

(508)

 

$

 -

Commodity futures contracts

 

 

196

 

 

(491)

 

 

 -

Total

 

$

522

 

$

(999)

 

$

 -

 

 

 

 

 

 

 

 

 

 

 

 

For Quarter Ended June 28, 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

 

$

1,505

 

$

(189)

 

$

 -

Commodity futures contracts

 

 

(117)

 

 

116

 

 

 -

Total

 

$

1,388

 

$

(73)

 

$

 -

 

 

 

 

 

 

 

 

 

 

 

 

For Year to Date Ended June 30, 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

 

$

(1,577)

 

$

(1,021)

 

$

 -

Commodity futures contracts

 

 

(938)

 

 

(653)

 

 

 -

Total

 

$

(2,515)

 

$

(1,674)

 

$

 -

 

 

 

 

 

 

 

 

 

 

 

 

For Year to Date Ended June 28, 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

 

$

314

 

$

(451)

 

$

 -

Commodity futures contracts

 

 

241

 

 

(59)

 

 

 -

Total

 

$

555

 

$

(510)

 

$

 -

 

During the quarters and years to date ended June 30, 2015 and June 28, 2014, the Company recognized losses of $0 and $6, and $0 and $20 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

12


 

Table of Contents

(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. Pension expense, including surcharges as discussed above, for the BC&T Plan for first half 2015 and 2014 was $1,349 and $1,354, respectively. The aforementioned includes surcharge of $234 and $179 in first half 2015 and 2014, respectively, related to contribution increases under the plan of rehabilitation.

 

During second 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’s existing labor contract with the local BC&T commits the Company’s participation in this Plan through third quarter 2017. 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. See also the Company’s Condensed Consolidated Financial Statements and related notes and Management’s Discussion and Analysis of Financial Condition 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”).

 

13


 

Table of Contents

Note 7 — Accumulated Other Comprehensive Earnings (Loss)

 

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