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, 2017

 

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, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

`

Large accelerated filer ☒

Accelerated filer ☐

Non-accelerated filer ☐

Smaller reporting company ☐

Emerging growth company ☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ☐  No ☒

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date (June  30, 2017).

 

 

 

 

Class

 

Outstanding

 

 

 

Common Stock, $.69 4/9 par value

 

38,318,644

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

 

24,917,660

 

 

 

 


 

Table of Contents

TOOTSIE ROLL INDUSTRIES, INC.

 

June 30, 2017

 

INDEX

 

 

 

 

 

 

Page No.

 

 

 

Part I — 

Financial Information

 

 

 

 

Item 1. 

 

 

 

 

 

Condensed Consolidated Statements of Financial Position

3-4

 

 

 

 

Condensed Consolidated Statements of Earnings and Retained Earnings

5

 

 

 

 

Condensed Consolidated Statements of Comprehensive Earnings

6

 

 

 

 

Condensed Consolidated Statements of Cash Flows

7

 

 

 

 

Notes to Condensed Consolidated Financial Statements

8-15

 

 

 

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

 

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, 2017

 

December 31, 2016

 

June 30, 2016

 

 

 

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

 

 

 

Cash & cash equivalents

   

$

57,804

    

$

119,145

    

$

91,950

Restricted cash

 

 

415

 

 

382

 

 

403

Investments

 

 

71,940

 

 

67,513

 

 

32,986

Trade accounts receivable, less allowances of $1,944,  $1,884 & $2,038

 

 

31,254

 

 

42,964

 

 

29,061

Other receivables

 

 

6,610

 

 

3,299

 

 

2,419

Inventories:

 

 

 

 

 

 

 

 

 

Finished goods & work-in-process

 

 

64,980

 

 

34,631

 

 

59,764

Raw material & supplies

 

 

29,606

 

 

22,900

 

 

33,899

Prepaid expenses

 

 

5,207

 

 

7,146

 

 

7,722

Deferred income taxes

 

 

 -

 

 

1,320

 

 

3,155

Total current assets

 

 

267,816

 

 

299,300

 

 

261,359

 

 

 

 

 

 

 

 

 

 

PROPERTY, PLANT & EQUIPMENT, at cost:

 

 

 

 

 

 

 

 

 

Land

 

 

22,202

 

 

22,081

 

 

22,166

Buildings

 

 

116,547

 

 

116,398

 

 

114,504

Machinery & equipment

 

 

369,667

 

 

369,802

 

 

355,212

Construction in progress

 

 

10,245

 

 

3,546

 

 

14,993

 

 

 

518,661

 

 

511,827

 

 

506,875

Less-accumulated depreciation

 

 

339,871

 

 

330,922

 

 

322,270

Net property, plant and equipment

 

 

178,790

 

 

180,905

 

 

184,605

 

 

 

 

 

 

 

 

 

 

OTHER ASSETS:

 

 

 

 

 

 

 

 

 

Goodwill

 

 

73,237

 

 

73,237

 

 

73,237

Trademarks

 

 

175,024

 

 

175,024

 

 

175,024

Investments

 

 

196,308

 

 

164,665

 

 

186,931

Split dollar officer life insurance

 

 

26,042

 

 

26,042

 

 

26,042

Prepaid expenses and other assets

 

 

40

 

 

602

 

 

1,739

Deferred income taxes

 

 

 -

 

 

326

 

 

289

Total other assets

 

 

470,651

 

 

439,896

 

 

463,262

Total assets

 

$

917,257

 

$

920,101

 

$

909,226

 

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

3


 

Table of Contents

(in thousands except per share data) (Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2017

 

December 31, 2016

 

June 30, 2016

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

 

 

 

Accounts payable

   

$

13,819

    

$

10,320

    

$

14,621

Bank loans

 

 

334

 

 

336

 

 

305

Dividends payable

 

 

5,692

 

 

5,573

 

 

5,625

Accrued liabilities

 

 

44,266

 

 

46,300

 

 

44,677

Postretirement health care

 

 

513

 

 

513

 

 

448

Income taxes payable

 

 

 -

 

 

 -

 

 

 -

Deferred income taxes

 

 

 -

 

 

519

 

 

667

Total current liabilities

 

 

64,624

 

 

63,561

 

 

66,343

 

 

 

 

 

 

 

 

 

 

NONCURRENT LIABILITIES:

 

 

 

 

 

 

 

 

 

Deferred income taxes

 

 

44,257

 

 

46,060

 

 

49,197

Bank loans

 

 

 -

 

 

230

 

 

317

Postretirement health care

 

 

11,832

 

 

11,615

 

 

11,158

Industrial development bonds

 

 

7,500

 

 

7,500

 

 

7,500

Liability for uncertain tax positions

 

 

5,361

 

 

5,185

 

 

5,128

Deferred compensation and other liabilities

 

 

80,161

 

 

74,412

 

 

69,185

Total noncurrent liabilities

 

 

149,111

 

 

145,002

 

 

142,485

 

 

 

 

 

 

 

 

 

 

TOOTSIE ROLL INDUSTRIES, INC. SHAREHOLDERS’ EQUITY:

 

 

 

 

 

 

 

 

 

Common stock, $.69-4/9 par value- 120,000 shares authorized; 38,319,  37,701 & 38,231, respectively, issued

 

 

26,610

 

 

26,181

 

 

26,549

Class B common stock, $.69-4/9 par value- 40,000 shares authorized; 24,918,  24,221 & 24,227, respectively, issued

 

 

17,304

 

 

16,820

 

 

16,824

Capital in excess of par value

 

 

670,477

 

 

646,768

 

 

666,322

Retained earnings

 

 

9,615

 

 

43,833

 

 

8,491

Accumulated other comprehensive loss

 

 

(18,581)

 

 

(20,246)

 

 

(16,059)

Treasury stock (at cost)- 85,  83 & 83 shares, respectively

 

 

(1,992)

 

 

(1,992)

 

 

(1,992)

Total Tootsie Roll Industries, Inc. shareholders’ equity

 

 

703,433

 

 

711,364

 

 

700,135

Noncontrolling interests

 

 

89

 

 

174

 

 

263

Total equity

 

 

703,522

 

 

711,538

 

 

700,398

Total liabilities and shareholders’ equity

 

$

917,257

 

$

920,101

 

$

909,226

 

(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, 2017

 

June 30, 2016

 

June 30, 2017

 

June 30, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

Net product sales

   

$

104,897

    

$

104,259

    

$

208,322

     

$

207,621

Rental and royalty revenue

 

 

899

 

 

910

 

 

1,929

 

 

1,943

Total revenue

 

 

105,796

 

 

105,169

 

 

210,251

 

 

209,564

 

 

 

 

 

 

 

 

 

 

 

 

 

Product cost of goods sold

 

 

65,259

 

 

65,009

 

 

130,675

 

 

130,833

Rental and royalty cost

 

 

251

 

 

245

 

 

517

 

 

547

Total costs

 

 

65,510

 

 

65,254

 

 

131,192

 

 

131,380

 

 

 

 

 

 

 

 

 

 

 

 

 

Product gross margin

 

 

39,638

 

 

39,250

 

 

77,647

 

 

76,788

Rental and royalty gross margin

 

 

648

 

 

665

 

 

1,412

 

 

1,396

Total gross margin

 

 

40,286

 

 

39,915

 

 

79,059

 

 

78,184

Selling, marketing and administrative expenses

 

 

26,429

 

 

25,618

 

 

53,027

 

 

49,671

Earnings from operations

 

 

13,857

 

 

14,297

 

 

26,032

 

 

28,513

Other income (loss), net

 

 

2,465

 

 

2,239

 

 

4,444

 

 

2,204

Earnings before income taxes

 

 

16,322

 

 

16,536

 

 

30,476

 

 

30,717

Provision for income taxes

 

 

4,472

 

 

5,462

 

 

8,615

 

 

9,787

Net earnings

 

 

11,850

 

 

11,074

 

 

21,861

 

 

20,930

Less: Net earnings (loss) attributable to noncontrolling interests

 

 

(45)

 

 

(62)

 

 

(85)

 

 

(102)

Net earnings attributable to Tootsie Roll Industries, Inc.

 

$

11,895

 

$

11,136

 

$

21,946

 

$

21,032

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

$

0.19

 

$

0.17

 

$

0.35

 

$

0.33

Dividends per share *

 

$

0.09

 

$

0.09

 

$

0.18

 

$

0.18

 

 

 

 

 

 

 

 

 

 

 

 

 

Average number of shares outstanding

 

 

63,270

 

 

64,274

 

 

63,439

 

 

64,313

 

 

 

 

 

 

 

 

 

 

 

 

 

Retained earnings at beginning of period

 

$

3,405

 

$

2,972

 

$

43,833

 

$

52,349

Net earnings attributable to Tootsie Roll Industries, Inc.

 

 

11,895

 

 

11,136

 

 

21,946

 

 

21,032

Cash dividends

 

 

(5,685)

 

 

(5,617)

 

 

(11,240)

 

 

(11,074)

Stock dividends

 

 

 -

 

 

 -

 

 

(44,924)

 

 

(53,816)

Retained earnings at end of period

 

$

9,615

 

$

8,491

 

$

9,615

 

$

8,491

 


*Does not include 3% stock dividend to shareholders of record on 3/7/17 and 3/8/16.

 

(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, 2017

 

June 30, 2016

 

June 30, 2017

 

June 30, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings

   

$

11,850

    

$

11,074

    

$

21,861

    

$

20,930

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss), before tax:

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

991

 

 

(1,636)

 

 

3,091

 

 

(1,431)

 

 

 

 

 

 

 

 

 

 

 

 

 

Pension and postretirement reclassification adjustments:

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gains (losses) for the period on postretirement and pension benefits

 

 

(175)

 

 

 -

 

 

91

 

 

 -

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

 

 

(366)

 

 

(410)

 

 

(731)

 

 

(821)

Unrealized gains (losses) on postretirement and pension benefits

 

 

(541)

 

 

(410)

 

 

(640)

 

 

(821)

 

 

 

 

 

 

 

 

 

 

 

 

 

Investments:

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gains (losses) for the period on investments

 

 

149

 

 

509

 

 

379

 

 

999

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

 

 

 -

 

 

 -

 

 

 -

 

 

 4

Unrealized gains (losses) on investments

 

 

149

 

 

509

 

 

379

 

 

1,003

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives:

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gains (losses) for the period on derivatives

 

 

(1,204)

 

 

2,162

 

 

(1,754)

 

 

3,123

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

 

 

985

 

 

370

 

 

(137)

 

 

983

Unrealized gains (losses) on derivatives

 

 

(219)

 

 

2,532

 

 

(1,891)

 

 

4,106

 

 

 

 

 

 

 

 

 

 

 

 

 

Total other comprehensive income (loss), before tax

 

 

380

 

 

995

 

 

939

 

 

2,857

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

 

 

333

 

 

(953)

 

 

726

 

 

(1,552)

Total comprehensive earnings

 

 

12,563

 

 

11,116

 

 

23,526

 

 

22,235

Comprehensive earnings (loss) attributable to noncontrolling interests

 

 

(45)

 

 

(62)

 

 

(85)

 

 

(102)

Total comprehensive earnings attributable to Tootsie Roll Industries, Inc.

 

$

12,608

 

$

11,178

 

$

23,611

 

$

22,337

 

(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, 2017

 

June 30, 2016

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

Net earnings

   

$

21,861

    

$

20,930

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

 

 

 

 

 

 

Depreciation and amortization

 

 

9,338

 

 

10,069

Deferred income taxes

 

 

21

 

 

675

Amortization of marketable security premiums

 

 

1,216

 

 

1,503

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

12,535

 

 

21,748

Other receivables

 

 

(4,522)

 

 

1,877

Inventories

 

 

(36,460)

 

 

(31,639)

Prepaid expenses and other assets

 

 

2,138

 

 

1,823

Accounts payable and accrued liabilities

 

 

1,820

 

 

(142)

Income taxes payable

 

 

79

 

 

(6,102)

Postretirement health care benefits

 

 

(423)

 

 

(615)

Deferred compensation and other liabilities

 

 

776

 

 

1,521

Net cash from operating activities

 

 

8,379

 

 

21,648

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

Restricted cash

 

 

(22)

 

 

(2)

Capital expenditures

 

 

(7,427)

 

 

(10,389)

Purchases of trading securities

 

 

(3,007)

 

 

(2,774)

Sales of trading securities

 

 

435

 

 

613

Purchase of available for sale securities

 

 

(40,622)

 

 

(34,826)

Sale and maturity of available for sale securities

 

 

10,985

 

 

12,777

Net cash used in investing activities

 

 

(39,658)

 

 

(34,601)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

Shares purchased and retired

 

 

(20,140)

 

 

(9,166)

Dividends paid in cash

 

 

(11,282)

 

 

(11,077)

Proceeds from bank loans

 

 

724

 

 

1,762

Repayment of bank loans

 

 

(965)

 

 

(1,764)

Net cash used in financing activities

 

 

(31,663)

 

 

(20,245)

Effect of exchange rate changes on cash

 

 

1,601

 

 

(997)

Decrease in cash and cash equivalents

 

 

(61,341)

 

 

(34,195)

Cash and cash equivalents at beginning of year

 

 

119,145

 

 

126,145

Cash and cash equivalents at end of quarter

 

$

57,804

 

$

91,950

Supplemental cash flow information:

 

 

 

 

 

 

Income taxes paid, net

 

$

8,798

 

$

15,390

Interest paid

 

$

31

 

$

 9

Stock dividend issued

 

$

69,739

 

$

61,671

 

(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, 2017

(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 Form 10-K for the year ended December 31, 2016 (the “2016 Form 10-K”).

 

Results of operations for the period ended June 30, 2017 are not necessarily indicative of results to be expected for the year to end December 31, 2017 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 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 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 standard is effective for fiscal years beginning after December 15, 2017, including interim periods within that reporting period. The Company is currently evaluating this new guidance to determine the impact it will have on its consolidated financial statements.

 

8


 

Table of Contents

In August 2016, the FASB issued ASU 2016-15, which includes amendments addressing eight specific cash flow issues with the objective of reducing the existing diversity in practice. The effective date of the amendments to the standard is for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company is currently evaluating this new guidance to determine the impact it will have on its consolidated financial statements.

 

In March 2017, the FASB issued ASU 2017-07, which requires employers who offer defined benefit and postretirement benefit plans to report the service cost component in the same line item as other compensation costs arising from services rendered by employees during the reporting period. The other components of net benefit costs will be presented in the income statement separately from the service cost and outside of a subtotal of income from operations. In addition, only the service cost component may be eligible for capitalization where applicable. This guidance is effective for annual periods beginning after December 15, 2017. The Company is currently evaluating this new guidance to determine the impact it will have on its consolidated financial statements.

 

 

 

 

Recently Adopted Pronouncements

 

In November 2015, the FASB issued ASU 2015-17 which simplifies the presentation of deferred income taxes by requiring that deferred tax assets and liabilities be classified as non-current in a classified statement of financial position. This guidance was adopted on January 1, 2017 on a prospective basis. Prior period balances have not been adjusted.

 

 

 

Note 2 — Average Shares Outstanding

 

The average number of shares outstanding for six months 2017 reflects stock purchases of 536 shares for $20,140 and a 3% stock dividend of 1,850 shares distributed on April 17, 2017. The average number of shares outstanding for six months 2016 reflects stock purchases of 283 shares for $9,166 and a 3% stock dividend of 1,819 shares distributed on April 8, 2016.

 

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 2015. 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 27.4% and 33.0% in second quarter 2017 and 2016, respectively, and 28.3% and 31.9% in first half 2017 and 2016, respectively. The lower effective tax rate in second quarter and first half 2017 compared to second quarter and first half 2016 principally reflects certain benefits resulting from filing amended federal and state income tax returns, including a state income tax carry forward.

 

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.

9


 

Table of Contents

 

As of June 30, 2017, December 31, 2016 and June 30, 2016, the Company held certain financial assets that are required to be measured at fair value on a recurring basis. These included derivative hedging instruments related to the purchase of certain raw materials and foreign currencies, investments in trading securities and available for sale securities. The Company’s available for sale securities principally consist of corporate and municipal bonds that are publicly traded and variable rate demand notes with interest rates that generally reset weekly and the security can be “put” back and sold weekly. Trading securities principally consist of equity mutual funds that are publicly traded.

 

The following table presents information about the Company’s financial assets and liabilities measured at fair value as of June 30, 2017, December 31, 2016 and June 30, 2016 and indicate the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Estimated Fair Value June 30, 2017

 

 

Total

 

Input Levels Used

 

 

Fair Value

 

Level 1

 

Level 2

 

Level 3

Cash and cash equivalents

   

$

57,804

    

$

57,804

    

$

 -

    

$

 -

Available for sale securities

 

 

192,983

 

 

2,406

 

 

190,577

 

 

 -

Foreign currency forward contracts

 

 

83

 

 

 -

 

 

83

 

 

 -

Commodity futures contracts

 

 

(348)

 

 

(348)

 

 

 -

 

 

 -

Trading securities

 

 

75,265

 

 

75,265

 

 

 -

 

 

 -

Total assets measured at fair value

 

$

325,787

 

$

135,127

 

$

190,660

 

$

 -

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Estimated Fair Value December 31, 2016

 

 

 

Total

 

Input Levels Used

 

 

 

Fair Value

 

 

Level 1

 

 

Level 2

 

 

Level 3

Cash and cash equivalents

   

$

119,145

    

$

119,145

    

$

 -

    

$

 -

Available for sale securities

 

 

164,183

 

 

2,419

 

 

161,764

 

 

 -

Foreign currency forward contracts

 

 

(119)

 

 

 -

 

 

(119)

 

 

 -

Commodity futures contracts, net

 

 

1,746

 

 

1,746

 

 

 -

 

 

 -

Trading securities

 

 

67,995

 

 

67,995

 

 

 -

 

 

 -

Total assets measured at fair value

 

$

352,950

 

$

191,305

 

$

161,645

 

$

 -

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Estimated Fair Value June 30, 2016

 

 

 

Total

 

Input Levels Used

 

 

 

Fair Value

 

 

Level 1

 

 

Level 2

 

 

Level 3

Cash and cash equivalents

   

$

91,950

    

$

91,950

    

$

 -

    

$

 -

Available for sale securities

 

 

156,051

 

 

2,440

 

 

153,611

 

 

 -

Foreign currency forward contracts

 

 

(911)

 

 

 -

 

 

(911)

 

 

 -

Commodity futures contracts

 

 

2,661

 

 

2,661

 

 

 -

 

 

 -

Trading securities

 

 

63,866

 

 

63,866

 

 

 -

 

 

 -

Total assets measured at fair value

 

$

313,617

 

$

160,917

 

$

152,700

 

$

 -

 

The fair value of the Company’s industrial revenue development bonds at June 30, 2017, December 31, 2016 and June 30, 2016 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.

 

10


 

Table of Contents

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 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, 2017, December 31, 2016 and June 30, 2016:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2017

 

 

Notional

    

    

    

    

 

 

Amounts

 

Assets

 

Liabilities

 

 

 

 

 

 

 

 

 

 

Derivatives designated as hedging instruments:

 

 

 

 

 

 

 

 

 

Foreign currency forward contracts

 

$

3,200

 

$

83

 

$

 -

Commodity futures contracts

 

 

12,543

 

 

74

 

 

(422)

Total derivatives

 

 

 

 

$

157

 

$

(422)

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2016

 

 

Notional

    

    

    

    

 

 

Amounts

 

Assets

 

Liabilities

 

 

 

 

 

 

 

 

 

 

Derivatives designated as hedging instruments:

 

 

 

 

 

 

 

 

 

Foreign currency forward contracts

 

$

2,357

 

$

 -

 

$

(119)

Commodity futures contracts

 

 

10,811

 

 

1,932

 

 

(186)

Total derivatives

 

 

 

 

$

1,932

 

$

(305)

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2016

 

 

Notional

    

    

    

    

 

 

Amounts

 

Assets

 

Liabilities

 

 

 

 

 

 

 

 

 

 

Derivatives designated as hedging instruments:

 

 

 

 

 

 

 

 

 

Foreign currency forward contracts

 

$

9,010

 

$

 -

 

$

(911)

Commodity futures contracts

 

 

11,631

 

 

2,664

 

 

(3)

Total derivatives

 

 

 

 

$

2,664

 

$

(914)

 

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, 2017 and June 30, 2016 are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For Quarter Ended June 30, 2017

 

 

    

    

    

    

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

 

$

125

 

$

(29)

 

$

 -

Commodity futures contracts

 

 

(1,329)