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, 2016

 

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, 2016).

 

 

 

 

Class

 

Outstanding

 

 

 

Common Stock, $.69 4/9 par value

 

38,282,506

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

 

24,244,622

 

 

 

 

 


 

Table of Contents

TOOTSIE ROLL INDUSTRIES, INC.

 

March 31, 2016

 

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

15-18

 

 

 

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

19 

 

 

 

Item 6. 

Exhibits

20 

 

 

Signatures 

20 

 

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. See “Forward-Looking Statements” under Part I — Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Quarterly Report on Form 10-Q.

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PART I - FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

TOOTSIE ROLL INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

(in thousands) (Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2016

 

December 31, 2015

 

March 31, 2015

 

 

 

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

 

 

 

Cash & cash equivalents

   

$

95,057

    

$

126,145

    

$

85,430

Restricted cash

 

 

414

 

 

395

 

 

 -

Investments

 

 

38,750

 

 

42,155

 

 

52,530

Trade accounts receivable, less allowances of $2,224, $2,225 & $1,976

 

 

40,448

 

 

51,010

 

 

41,511

Other receivables

 

 

2,693

 

 

2,772

 

 

3,965

Inventories:

 

 

 

 

 

 

 

 

 

Finished goods & work-in-process

 

 

39,315

 

 

35,032

 

 

52,591

Raw material & supplies

 

 

29,721

 

 

27,231

 

 

28,262

Prepaid expenses

 

 

5,724

 

 

5,935

 

 

6,198

Deferred income taxes

 

 

3,152

 

 

3,131

 

 

7,094

Total current assets

 

 

255,274

 

 

293,806

 

 

277,581

 

 

 

 

 

 

 

 

 

 

PROPERTY, PLANT & EQUIPMENT, at cost:

 

 

 

 

 

 

 

 

 

Land

 

 

22,223

 

 

22,188

 

 

22,251

Buildings

 

 

114,581

 

 

114,562

 

 

113,199

Machinery & equipment

 

 

355,611

 

 

357,627

 

 

350,497

Construction in progress

 

 

13,492

 

 

5,158

 

 

3,645

 

 

 

505,907

 

 

499,535

 

 

489,592

Less-accumulated depreciation

 

 

317,869

 

 

314,949

 

 

302,877

Net property, plant and equipment

 

 

188,038

 

 

184,586

 

 

186,715

 

 

 

 

 

 

 

 

 

 

OTHER ASSETS:

 

 

 

 

 

 

 

 

 

Goodwill

 

 

73,237

 

 

73,237

 

 

73,237

Trademarks

 

 

175,024

 

 

175,024

 

 

175,024

Investments

 

 

176,483

 

 

152,930

 

 

156,053

Split dollar officer life insurance

 

 

26,042

 

 

26,042

 

 

33,632

Prepaid expenses

 

 

2,041

 

 

3,050

 

 

5,889

Restricted cash

 

 

 -

 

 

 -

 

 

1,225

Deferred income taxes

 

 

310

 

 

308

 

 

1,575

Total other assets

 

 

453,137

 

 

430,591

 

 

446,635

Total assets

 

$

896,449

 

$

908,983

 

$

910,931

 

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

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(in thousands except per share data) (Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2016

 

December 31, 2015

 

March 31, 2015

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

 

 

 

Accounts payable

   

$

12,933

    

$

11,322

    

$

14,432

Bank loans

 

 

489

 

 

231

 

 

179

Dividends payable

 

 

144

 

 

5,486

 

 

130

Accrued liabilities

 

 

43,273

 

 

50,117

 

 

43,551

Postretirement health care and life insurance benefits

 

 

328

 

 

448

 

 

328

Income taxes payable

 

 

1,935

 

 

4,436

 

 

2,807

Deferred compensation

 

 

668

 

 

22

 

 

14,284

Total current liabilities

 

 

59,770

 

 

72,062

 

 

75,711

 

 

 

 

 

 

 

 

 

 

NONCURRENT LIABILITIES:

 

 

 

 

 

 

 

 

 

Deferred income taxes

 

 

48,240

 

 

47,594

 

 

51,844

Bank loans

 

 

364

 

 

383

 

 

484

Postretirement health care and life insurance benefits

 

 

11,052

 

 

10,952

 

 

12,154

Industrial development bonds

 

 

7,500

 

 

7,500

 

 

7,500

Liability for uncertain tax positions

 

 

4,983

 

 

5,101

 

 

8,453

Deferred compensation and other liabilities

 

 

67,051

 

 

66,843

 

 

66,678

Total noncurrent liabilities

 

 

139,190

 

 

138,373

 

 

147,113

 

 

 

 

 

 

 

 

 

 

TOOTSIE ROLL INDUSTRIES, INC. SHAREHOLDERS’ EQUITY:

 

 

 

 

 

 

 

 

 

Common stock, $.69-4/9 par value- 120,000 shares authorized; 38,283, 37,382 & 38,257, respectively, issued

 

 

26,585

 

 

25,960

 

 

26,567

Class B common stock, $.69-4/9 par value- 40,000 shares authorized; 24,245, 23,542 & 23,571, respectively, issued

 

 

16,836

 

 

16,348

 

 

16,368

Capital in excess of par value

 

 

668,864

 

 

622,882

 

 

650,724

Retained earnings

 

 

2,972

 

 

52,349

 

 

11,922

Accumulated other comprehensive loss

 

 

(16,101)

 

 

(17,364)

 

 

(15,758)

Treasury stock (at cost)- 83, 80 & 80 shares, respectively

 

 

(1,992)

 

 

(1,992)

 

 

(1,992)

Total Tootsie Roll Industries, Inc. shareholders’ equity

 

 

697,164

 

 

698,183

 

 

687,831

Noncontrolling interests

 

 

325

 

 

365

 

 

276

Total equity

 

 

697,489

 

 

698,548

 

 

688,107

Total liabilities and shareholders’ equity

 

$

896,449

 

$

908,983

 

$

910,931

 

(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, 2016

 

March 31, 2015

 

 

 

 

 

 

 

Net product sales

   

$

103,362

     

$

105,477

Rental and royalty revenue

 

 

1,033

 

 

844

Total revenue

 

 

104,395

 

 

106,321

 

 

 

 

 

 

 

Product cost of goods sold

 

 

65,824

 

 

67,145

Rental and royalty cost

 

 

302

 

 

228

Total costs

 

 

66,126

 

 

67,373

 

 

 

 

 

 

 

Product gross margin

 

 

37,538

 

 

38,332

Rental and royalty gross margin

 

 

731

 

 

616

Total gross margin

 

 

38,269

 

 

38,948

Selling, marketing and administrative expenses

 

 

24,053

 

 

25,984

Earnings from operations

 

 

14,216

 

 

12,964

Other income (loss), net

 

 

(35)

 

 

473

Earnings before income taxes

 

 

14,181

 

 

13,437

Provision for income taxes

 

 

4,325

 

 

4,334

Net earnings

 

 

9,856

 

 

9,103

Less: Net earnings (loss) attributable to noncontrolling interests

 

 

(40)

 

 

(51)

Net earnings attributable to Tootsie Roll Industries, Inc.

 

$

9,896

 

$

9,154

 

 

 

 

 

 

 

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

 

$

0.16

 

$

0.14

Dividends per share *

 

$

0.09

 

$

0.08

 

 

 

 

 

 

 

Average number of shares outstanding

 

 

62,499

 

 

63,645

 

 

 

 

 

 

 

Retained earnings at beginning of period

 

$

52,349

 

$

64,927

Net earnings attributable to Tootsie Roll Industries, Inc.

 

 

9,896

 

 

9,154

Cash dividends

 

 

(5,457)

 

 

(4,800)

Stock dividends

 

 

(53,816)

 

 

(57,359)

Retained earnings at end of period

 

$

2,972

 

$

11,922

 


*Does not include 3% stock dividend to shareholders of record on 3/8/16 and 3/10/15.

 

(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, 2016

 

March 31, 2015

 

 

 

 

 

 

 

Net earnings

   

$

9,856

    

$

9,103

 

 

 

 

 

 

 

Other comprehensive income (loss), before tax:

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

205

 

 

(1,159)

 

 

 

 

 

 

 

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

 

 

(411)

 

 

(363)

Unrealized gains (losses) on postretirement and pension benefits

 

 

(411)

 

 

(363)

 

 

 

 

 

 

 

Investments:

 

 

 

 

 

 

Unrealized gains (losses) for the period on investments

 

 

490

 

 

371

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

 

 

4

 

 

 -

Unrealized gains (losses) on investments

 

 

494

 

 

371

 

 

 

 

 

 

 

Derivatives:

 

 

 

 

 

 

Unrealized gains (losses) for the period on derivatives

 

 

961

 

 

(3,037)

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

 

 

613

 

 

675

Unrealized gains (losses) on derivatives

 

 

1,574

 

 

(2,362)

 

 

 

 

 

 

 

Total other comprehensive income (loss), before tax

 

 

1,862

 

 

(3,513)

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

 

 

(599)

 

 

853

Total comprehensive earnings

 

 

11,119

 

 

6,443

Comprehensive earnings (loss) attributable to noncontrolling interests

 

 

(40)

 

 

(51)

Total comprehensive earnings attributable to Tootsie Roll Industries, Inc.

 

$

11,159

 

$

6,494

 

(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, 2016

 

March 31, 2015

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

Net earnings

   

$

9,856

    

$

9,103

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

 

 

 

 

 

 

Depreciation and amortization

 

 

5,152

 

 

5,050

Deferred income taxes

 

 

671

 

 

132

Amortization of marketable security premiums

 

 

748

 

 

791

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

10,627

 

 

1,450

Other receivables

 

 

109

 

 

(404)

Inventories

 

 

(6,706)

 

 

(10,847)

Prepaid expenses and other assets

 

 

1,353

 

 

888

Accounts payable and accrued liabilities

 

 

(4,406)

 

 

(968)

Income taxes payable

 

 

(2,619)

 

 

1,909

Postretirement health care and life insurance benefits

 

 

(312)

 

 

(192)

Deferred compensation and other liabilities

 

 

507

 

 

109

Net cash from operating activities

 

 

14,980

 

 

7,021

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

Restricted cash

 

 

1

 

 

175

Capital expenditures

 

 

(8,376)

 

 

(2,418)

Purchases of trading securities

 

 

(2,485)

 

 

(2,573)

Sales of trading securities

 

 

613

 

 

501

Purchase of available for sale securities

 

 

(23,348)

 

 

(9,107)

Sale and maturity of available for sale securities

 

 

4,871

 

 

6,622

Net cash used in investing activities

 

 

(28,724)

 

 

(6,800)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

Shares purchased and retired

 

 

(6,576)

 

 

(4,544)

Dividends paid in cash

 

 

(10,943)

 

 

(9,613)

Proceeds from bank loans

 

 

809

 

 

 -

Repayment of bank loans

 

 

(612)

 

 

(52)

Net cash used in financing activities

 

 

(17,322)

 

 

(14,209)

Effect of exchange rate changes on cash

 

 

(22)

 

 

(690)

Decrease in cash and cash equivalents

 

 

(31,088)

 

 

(14,678)

Cash and cash equivalents at beginning of year

 

 

126,145

 

 

100,108

Cash and cash equivalents at end of quarter

 

$

95,057

 

$

85,430

Supplemental cash flow information:

 

 

 

 

 

 

Income taxes paid, net

 

$

6,352

 

$

2,410

Interest paid

 

$

1

 

$

11

Stock dividend issued

 

$

61,671

 

$

57,230

 

(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, 2016

(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 2015 Annual Report on Form 10-K.

 

Results of operations for the period ended March 31, 2016 are not necessarily indicative of results to be expected for the year to end December 31, 2016 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.

 

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 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. The Company does not expect the adoption of this guidance to have a significant impact on the consolidated financial statements.

 

In November 2015, the FASB issued ASU 2015-17 which requires that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. The current requirement that deferred tax liabilities and assets of a tax-paying component of an entity be offset and presented as a single amount is not affected by the amendments in the standard. This standard is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016. Early adoption is permitted and the standard may be applied either retrospectively or on a prospective basis to all deferred tax assets and liabilities. The Company is currently evaluating the new guidance to determine the impact it may have on the consolidated financial statements.

 

In January 2016, the FASB issued ASU 2016-01 which modifies certain aspects of the recognition, measurement, presentation, and disclosure of financial instruments. This standard is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017, and early adoption is permitted. The Company is currently evaluating the new guidance to determine the impact it may have on the consolidated financial statements.

 

In February 2016, the FASB issued ASU 2016-02 which amends existing guidance to require lessees to recognize assets and liabilities on the balance sheet for the rights and obligations created by long-term leases and to disclose

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additional quantitative and qualitative information about leasing arrangements. This ASU also provides clarifications surrounding the presentation of the effects of leases in the income statement and statement of cash flows. This guidance will be effective for the Company on January 1, 2019. The Company is currently evaluating this new guidance to determine the impact it will have on its consolidated financial statements.

 

In April 2016, the FASB issued ASU 2016-10, which contains amendments to the new revenue recognition standard on identifying performance obligations and accounting for licenses of intellectual property. The amendments related to identifying performance obligations clarify when a promised good or service is separately identifiable and allows entities to disregard items that are immaterial in the context of a contract. The licensing implementation amendments clarify how an entity should evaluate the nature of its promise in granting a license of intellectual property, which will determine whether revenue is recognized over time or at a point in time. This new standard has the same effective date and transition requirements as ASU 2014-09. The Company is currently evaluating this new guidance to determine the impact it will have on its consolidated financial statements.

 

Note 2 — Average Shares Outstanding

 

The average number of shares outstanding for year to date ended March 31, 2016 reflect stock purchases of 214 shares for $6,576 and a 3% stock dividend distributed on April 8, 2016. 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.

 

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 2013 through 2014. With few exceptions, the Company is no longer subject to examination by tax authorities for the year 2012 and prior. The consolidated effective tax rates were 30.5% and 32.3% in first quarter 2016 and 2015, respectively. The lower effective tax rate in first quarter 2016 compared to first quarter 2015 reflects the effective settlement of certain income tax audits during first quarter 2016.

 

 

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, 2016, December 31, 2015 and March 31, 2015, 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 corporate and municipal bonds 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, 2016, December 31, 2015 and March 31, 2015 and indicate the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Estimated Fair Value March 31, 2016

 

 

Total

 

Input Levels Used

 

 

Fair Value

 

Level 1

 

Level 2

 

Level 3

Cash and cash equivalents

   

$

95,057

    

$

95,057

    

$

 -

    

$

 -

Available for sale securities

 

 

152,724

 

 

2,441

 

 

150,283

 

 

 -

Foreign currency forward contracts

 

 

(1,350)

 

 

 -

 

 

(1,350)

 

 

 -

Commodity futures contracts

 

 

569

 

 

569

 

 

 -

 

 

 -

Trading securities

 

 

62,509

 

 

62,509

 

 

 -

 

 

 -

Total assets measured at fair value

 

$

309,509

 

$

160,576

 

$

148,933

 

$

 -

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Estimated Fair Value December 31, 2015

 

 

 

Total

 

Input Levels Used

 

 

 

Fair Value

 

 

Level 1

 

 

Level 2

 

 

Level 3

Cash and cash equivalents

   

$

126,145

    

$

126,145

    

$

 -

    

$

 -

Available for sale securities

 

 

134,501

 

 

2,430

 

 

132,071

 

 

 -

Foreign currency forward contracts

 

 

(2,626)

 

 

 -

 

 

(2,626)

 

 

 -

Commodity futures contracts, net

 

 

271

 

 

271

 

 

 -

 

 

 -

Trading securities

 

 

60,584

 

 

60,584

 

 

 -

 

 

 -

Total assets measured at fair value

 

$

318,875

 

$

189,430

 

$

129,445

 

$

 -

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

$

 -

 

The fair value of the Company’s industrial revenue development bonds at March 31, 2016, December 31, 2015 and March 31, 2015 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

 

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 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

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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, 2016, December 31, 2015 and March 31, 2015:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2016

 

 

Notional

    

    

    

    

 

 

Amounts

 

Assets

 

Liabilities

 

 

 

 

 

 

 

 

 

 

Derivatives designated as hedging instruments:

 

 

 

 

 

 

 

 

 

Foreign currency forward contracts

 

$

12,339

 

$

 -

 

$

(1,350)

Commodity futures contracts

 

 

12,029

 

 

648

 

 

(79)

Total derivatives

 

 

 

 

$

648

 

$

(1,429)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2015

 

 

Notional

    

    

    

    

 

 

Amounts

 

Assets

 

Liabilities

 

 

 

 

 

 

 

 

 

 

Derivatives designated as hedging instruments:

 

 

 

 

 

 

 

 

 

Foreign currency forward contracts

 

$

15,668

 

$

 -

 

$

(2,626)

Commodity futures contracts

 

 

13,202

 

 

484

 

 

(213)

Total derivatives

 

 

 

 

$

484

 

$

(2,839)

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

$

31

 

$

(5,068)

 

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The effects of derivative instruments on the Company’s Condensed Consolidated Statements of Earnings and Retained Earnings and the Condensed Consolidated Statements of Comprehensive Earnings for periods ended March 31, 2016 and March 31, 2015 are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For Quarter Ended March 31, 2016

 

 

    

    

    

    

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

 

$

670

 

$

(606)

 

$

 -

Commodity futures contracts

 

 

291

 

 

(7)

 

 

 -

Total

 

$

961

 

$

(613)

 

$

 -

 

 

 

 

 

 

 

 

 

 

 

 

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)

 

$

 -

 

 

 

 

 

 

 

 

 

 

 

 

 

Note 6 — Pension Plans

 

During 2015 and 2016, the Company received updated notices that 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, is in “critical and declining status”, as defined by the Pension Protection Act (PPA) and the Pension Benefit Guaranty Corporation (PBGC), and that the Plan is projected to become insolvent in 14 years. The Company has been advised that its withdrawal liability would have been $61,000 if it had withdrawn from the Plan during 2015. 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 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, 2015.

 

 

 

 

 

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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, 2015

    

$

(21,644)

    

$

(605)

    

$

(1,675)

    

$

173

    

$

6,387

    

$

(17,364)

Other comprehensive earnings (loss) before reclassifications

 

 

205

 

 

312

 

 

427

 

 

187

 

 

 -

 

 

1,131

Reclassifications from accumulated other comprehensive loss

 

 

 -

 

 

3

 

 

387

 

 

4

 

 

(262)

 

 

132

Other comprehensive earnings (loss) net of tax

 

 

205

 

 

315

 

 

814

 

 

191

 

 

(262)

 

 

1,263

Balance at March 31, 2016

 

$

(21,439)

 

$

(290)

 

$

(861)

 

$

364

 

$

6,125

 

$

(16,101)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

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)

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Details about Accumulated Other

 

Quarter Ended

 

 

Comprehensive Income Components

 

March 31, 2016

 

March 31, 2015

 

Location of (Gain) Loss Recognized in Earnings

Investments

 

$

4

 

$

 -

 

Other income, net

Foreign currency derivatives

 

 

606

 

 

513

 

Other income, net

Commodity derivatives

 

 

7

 

 

162

 

Product cost of goods sold

Postretirement and pension benefits

 

 

(210)

 

 

(185)

 

Selling, marketing and administrative expenses

Postretirement and pension benefits

 

 

(201)

 

 

(178)

 

Product cost of goods sold

Total before tax

 

 

206

 

 

312

 

 

Tax (expense) benefit

 

 

(74)

 

 

(114)

 

 

Net of tax

 

$

132

 

$

198

 

 

 

 

 

 

Note 8 — Restricted Cash

 

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

 

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Note 9 — Bank Loans

 

Long term bank loans comprise borrowings by the Company’s majority-owned Spanish companies which are held by international banks. The average weighted interest rate at March 31, 2016 and March 31, 2015 was 2.2 % and 2.5%, respectively, and maturity dates range from 2 to 3 years for both periods. Short term bank loans also relate to the Company’s majority-owned Spanish companies.

 

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

This financial review discusses the Company’s financial condition, results of operations, liquidity and capital resources, new accounting pronouncements 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 Condensed 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, 2015 (the “2015 Form 10-K”).

 

Net product sales were $103,362 in first quarter 2016 compared to $105,477 in first quarter 2015, a decrease of $2,115 or 2.0%. First quarter 2016 sales were adversely affected by $1,202 of lower export sales from the U.S. to foreign markets, and $630 of lower sales by foreign subsidiaries. Because much of these sales were made in foreign currencies, a stronger U.S. dollar and currency translation contributed $829 to these lower foreign sales in first quarter 2016. 

 

Product cost of goods sold were $65,824 in first quarter 2016 compared to $67,145 in first quarter 2015. Product cost of goods sold includes $13 and $332 of certain deferred compensation expenses in first quarter 2016 and 2015, 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 $66,813 in first quarter 2015 to $65,811 in first quarter 2016, a decrease of $1,002 or 1.5%. As a percentage of net product sales, adjusted product cost of goods sold was 63.7% and 63.3% in first quarter 2016 and 2015, respectively, an unfavorable increase of 0.4%. Adjusted cost of goods sold as a percent of sales benefited from higher price realization in first quarter 2016 compared to first quarter 2015, however, increased manufacturing costs had an adverse impact in first quarter 2016. These higher manufacturing costs reflect the effects of lower production volumes in first quarter 2016 in order to reduce finished goods inventory levels to meet nearer term sales demands. This inventory reduction was in response to uncertainties surrounding changes in state and national labeling regulations and requirements, and facilitates the Company’s compliance and readiness to respond to possible changes under consideration.  These higher plant manufacturing costs in first quarter 2016 result from reduced efficiencies relating to decreased production volumes and reflect the adverse effects of plant overhead costs which are generally fixed and do not change in proportion to changes in production volumes. Increases in certain ingredients costs, wages and benefits also adversely affected adjusted cost of goods sold in first quarter 2016 compared to first quarter 2015. Ongoing cost containment programs and the benefits of certain capital investments did mitigate some of these increased costs.

 

Selling, marketing and administrative expenses were $24,053 in first quarter 2016 compared to $25,984 in first quarter 2015. Selling, marketing and administrative expenses includes $40 and $1,086 of certain deferred compensation expenses in first quarter 2016 and 2015, 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, selling, marketing and administrative expenses decreased from $24,898 in first quarter 2015 to $24,013 in first quarter 2016, a decrease of $885 or 3.6%. As a percentage of net product sales, adjusted selling, marketing and administrative expenses decreased from 23.6% in first quarter 2015 to 23.2% in first quarter 2016, a favorable decrease of 0.4% as a percent of net product sales. Selling, marketing and administrative expenses include $9,186 and $9,924 for freight, delivery and warehousing expenses in first quarter 2016 and 2015, respectively. These expenses were 8.9% and 9.4% of net product sales in first quarter 2016 and 2015, respectively. Lower freight and delivery expenses reflect the effects of internal cost savings programs and initiatives as well as more favorable energy and diesel fuel costs, and principally contributed to the above discussed decrease in selling, marketing and administrative expenses in first quarter 2016.

 

Earnings from operations were $14,216 in first quarter 2016 compared to $12,964 in first quarter 2015. Earnings from operations include $53 and $1,418 of certain defer