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EX-32 - EX-32 - TOOTSIE ROLL INDUSTRIES INCtr-20160930xex32.htm
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EX-31.1 - EX-31.1 - TOOTSIE ROLL INDUSTRIES INCtr-20160930ex311634cbd.htm

 

 

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 September 30, 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 (September 30, 2016).

 

 

 

 

Class

 

Outstanding

 

 

 

Common Stock, $.69 4/9 par value

 

37,774,914

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

 

24,226,459

 

 

 

 

 


 

TOOTSIE ROLL INDUSTRIES, INC.

 

September 30, 2016

 

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

 

 

 

 

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

16-20

 

 

 

Item 3. 

Quantitative and Qualitative Disclosures About Market Risk

20 

 

 

 

Item 4. 

Controls and Procedures

20 

 

 

 

Part II — 

Other Information

 

 

 

 

Item 2. 

Unregistered Sales of Equity Securities and Use of Proceeds

21 

 

 

 

Item 6. 

Exhibits

22 

 

 

Signatures 

22 

 

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


 

PART I - FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

TOOTSIE ROLL INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

(in thousands) (Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2016

 

December 31, 2015

 

September 30, 2015

 

 

 

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

 

 

 

Cash & cash equivalents

   

$

94,239

    

$

126,145

    

$

70,726

Restricted cash

 

 

409

 

 

395

 

 

1,273

Investments

 

 

27,905

 

 

42,155

 

 

53,422

Trade accounts receivable, less allowances of $3,274, $2,225 & $3,349

 

 

81,718

 

 

51,010

 

 

98,088

Other receivables

 

 

1,552

 

 

2,772

 

 

4,549

Inventories:

 

 

 

 

 

 

 

 

 

Finished goods & work-in-process

 

 

36,173

 

 

35,032

 

 

45,929

Raw material & supplies

 

 

28,613

 

 

27,231

 

 

31,644

Prepaid expenses

 

 

5,077

 

 

5,935

 

 

5,401

Deferred income taxes

 

 

3,149

 

 

3,131

 

 

6,776

Total current assets

 

 

278,835

 

 

293,806

 

 

317,808

 

 

 

 

 

 

 

 

 

 

PROPERTY, PLANT & EQUIPMENT, at cost:

 

 

 

 

 

 

 

 

 

Land

 

 

22,155

 

 

22,188

 

 

22,214

Buildings

 

 

114,473

 

 

114,562

 

 

113,091

Machinery & equipment

 

 

355,059

 

 

357,627

 

 

348,988

Construction in progress

 

 

17,511

 

 

5,158

 

 

14,162

 

 

 

509,198

 

 

499,535

 

 

498,455

Less-accumulated depreciation

 

 

326,609

 

 

314,949

 

 

310,887

Net property, plant and equipment

 

 

182,589

 

 

184,586

 

 

187,568

 

 

 

 

 

 

 

 

 

 

OTHER ASSETS:

 

 

 

 

 

 

 

 

 

Goodwill

 

 

73,237

 

 

73,237

 

 

73,237

Trademarks

 

 

175,024

 

 

175,024

 

 

175,024

Investments

 

 

189,956

 

 

152,930

 

 

152,491

Split dollar officer life insurance

 

 

26,042

 

 

26,042

 

 

26,042

Prepaid expenses and other assets

 

 

1,526

 

 

3,050

 

 

3,722

Deferred income taxes

 

 

275

 

 

308

 

 

1,505

Total other assets

 

 

466,060

 

 

430,591

 

 

432,021

Total assets

 

$

927,484

 

$

908,983

 

$

937,397

 

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

3


 

(in thousands except per share data) (Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2016

 

December 31, 2015

 

September 30, 2015

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

 

 

 

Accounts payable

   

$

13,366

    

$

11,322

    

$

16,592

Bank loans

 

 

164

 

 

231

 

 

253

Dividends payable

 

 

5,578

 

 

5,486

 

 

5,512

Accrued liabilities

 

 

52,354

 

 

50,117

 

 

53,119

Postretirement health care

 

 

448

 

 

448

 

 

328

Income taxes payable

 

 

3,955

 

 

4,436

 

 

10,737

Liability for uncertain tax positions

 

 

 -

 

 

 -

 

 

1,001

Deferred compensation

 

 

 -

 

 

 -

 

 

13,514

Deferred income taxes

 

 

666

 

 

22

 

 

 -

Total current liabilities

 

 

76,531

 

 

72,062

 

 

101,056

 

 

 

 

 

 

 

 

 

 

NONCURRENT LIABILITIES:

 

 

 

 

 

 

 

 

 

Deferred income taxes

 

 

49,276

 

 

47,594

 

 

51,608

Bank loans

 

 

283

 

 

383

 

 

430

Postretirement health care

 

 

11,283

 

 

10,952

 

 

12,475

Industrial development bonds

 

 

7,500

 

 

7,500

 

 

7,500

Liability for uncertain tax positions

 

 

4,939

 

 

5,101

 

 

6,109

Deferred compensation and other liabilities

 

 

72,119

 

 

66,843

 

 

64,701

Total noncurrent liabilities

 

 

145,400

 

 

138,373

 

 

142,823

 

 

 

 

 

 

 

 

 

 

TOOTSIE ROLL INDUSTRIES, INC. SHAREHOLDERS’ EQUITY:

 

 

 

 

 

 

 

 

 

Common stock, $.69-4/9 par value- 120,000 shares authorized; 37,775, 37,382 & 37,688, respectively, issued

 

 

26,232

 

 

25,960

 

 

26,172

Class B common stock, $.69-4/9 par value- 40,000 shares authorized; 24,226, 23,542 & 23,555, respectively, issued

 

 

16,824

 

 

16,348

 

 

16,358

Capital in excess of par value

 

 

649,514

 

 

622,882

 

 

632,667

Retained earnings

 

 

31,557

 

 

52,349

 

 

38,123

Accumulated other comprehensive loss

 

 

(16,805)

 

 

(17,364)

 

 

(18,217)

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

 

 

(1,992)

 

 

(1,992)

 

 

(1,992)

Total Tootsie Roll Industries, Inc. shareholders’ equity

 

 

705,330

 

 

698,183

 

 

693,111

Noncontrolling interests

 

 

223

 

 

365

 

 

407

Total equity

 

 

705,553

 

 

698,548

 

 

693,518

Total liabilities and shareholders’ equity

 

$

927,484

 

$

908,983

 

$

937,397

 

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

4


 

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

 

 

September 30, 2016

 

September 30, 2015

 

September 30, 2016

 

September 30, 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

Net product sales

   

$

185,473

    

$

183,806

    

$

393,094

     

$

396,811

Rental and royalty revenue

 

 

884

 

 

819

 

 

2,827

 

 

2,571

Total revenue

 

 

186,357

 

 

184,625

 

 

395,921

 

 

399,382

 

 

 

 

 

 

 

 

 

 

 

 

 

Product cost of goods sold

 

 

114,748

 

 

117,046

 

 

245,581

 

 

252,924

Rental and royalty cost

 

 

235

 

 

213

 

 

782

 

 

671

Total costs

 

 

114,983

 

 

117,259

 

 

246,363

 

 

253,595

 

 

 

 

 

 

 

 

 

 

 

 

 

Product gross margin

 

 

70,725

 

 

66,760

 

 

147,513

 

 

143,887

Rental and royalty gross margin

 

 

649

 

 

606

 

 

2,045

 

 

1,900

Total gross margin

 

 

71,374

 

 

67,366

 

 

149,558

 

 

145,787

Selling, marketing and administrative expenses

 

 

32,101

 

 

26,338

 

 

81,772

 

 

78,161

Earnings from operations

 

 

39,273

 

 

41,028

 

 

67,786

 

 

67,626

Other income (loss), net

 

 

1,943

 

 

(2,879)

 

 

4,147

 

 

(1,085)

Earnings before income taxes

 

 

41,216

 

 

38,149

 

 

71,933

 

 

66,541

Provision for income taxes

 

 

12,619

 

 

12,008

 

 

22,406

 

 

20,077

Net earnings

 

 

28,597

 

 

26,141

 

 

49,527

 

 

46,464

Less: Net earnings (loss) attributable to noncontrolling interests

 

 

(40)

 

 

(30)

 

 

(142)

 

 

80

Net earnings attributable to Tootsie Roll Industries, Inc.

 

$

28,637

 

$

26,171

 

$

49,669

 

$

46,384

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

$

0.46

 

$

0.41

 

$

0.80

 

$

0.73

Dividends per share *

 

$

0.09

 

$

0.09

 

$

0.27

 

$

0.26

 

 

 

 

 

 

 

 

 

 

 

 

 

Average number of shares outstanding

 

 

62,174

 

 

63,172

 

 

62,358

 

 

63,408

 

 

 

 

 

 

 

 

 

 

 

 

 

Retained earnings at beginning of period

 

$

8,491

 

$

17,454

 

$

52,349

 

$

64,927

Net earnings attributable to Tootsie Roll Industries, Inc.

 

 

28,637

 

 

26,171

 

 

49,669

 

 

46,384

Cash dividends

 

 

(5,571)

 

 

(5,502)

 

 

(16,645)

 

 

(15,829)

Stock dividends

 

 

 -

 

 

 -

 

 

(53,816)

 

 

(57,359)

Retained earnings at end of period

 

$

31,557

 

$

38,123

 

$

31,557

 

$

38,123

 


*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.)

5


 

TOOTSIE ROLL INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE EARNINGS

(in thousands except per share amounts) (Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter Ended

 

Year to Date Ended

 

 

September 30, 2016

 

September 30, 2015

 

September 30, 2016

 

September 30, 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings

   

$

28,597

    

$

26,141

    

$

49,527

    

$

46,464

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss), before tax:

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

(906)

 

 

(1,995)

 

 

(2,337)

 

 

(3,706)

 

 

 

 

 

 

 

 

 

 

 

 

 

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)

 

 

(362)

 

 

(1,232)

 

 

(1,088)

Unrealized gains (losses) on postretirement and pension benefits

 

 

(411)

 

 

(362)

 

 

(1,232)

 

 

(1,088)

 

 

 

 

 

 

 

 

 

 

 

 

 

Investments:

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gains (losses) for the period on investments

 

 

(289)

 

 

108

 

 

710

 

 

108

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

 

 

 -

 

 

 -

 

 

4

 

 

 -

Unrealized gains (losses) on investments

 

 

(289)

 

 

108

 

 

714

 

 

108

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives:

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gains (losses) for the period on derivatives

 

 

1,288

 

 

(2,022)

 

 

4,411

 

 

(4,537)

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

 

 

(337)

 

 

1,628

 

 

646

 

 

3,302

Unrealized gains (losses) on derivatives

 

 

951

 

 

(394)

 

 

5,057

 

 

(1,235)

 

 

 

 

 

 

 

 

 

 

 

 

 

Total other comprehensive income (loss), before tax

 

 

(655)

 

 

(2,643)

 

 

2,202

 

 

(5,921)

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

 

 

(91)

 

 

235

 

 

(1,643)

 

 

802

Total comprehensive earnings

 

 

27,851

 

 

23,733

 

 

50,086

 

 

41,345

Comprehensive earnings (loss) attributable to noncontrolling interests

 

 

(40)

 

 

(30)

 

 

(142)

 

 

80

Total comprehensive earnings attributable to Tootsie Roll Industries, Inc.

 

$

27,891

 

$

23,763

 

$

50,228

 

$

41,265

 

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

6


 

TOOTSIE ROLL INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands) (Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year to Date Ended

 

 

September 30, 2016

 

September 30, 2015

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

Net earnings

   

$

49,527

    

$

46,464

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

 

 

 

 

 

 

Depreciation and amortization

 

 

14,651

 

 

15,112

Deferred income taxes

 

 

23

 

 

170

Amortization of marketable security premiums

 

 

2,221

 

 

2,349

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

(31,367)

 

 

(55,672)

Other receivables

 

 

2,622

 

 

(966)

Inventories

 

 

(2,826)

 

 

(7,804)

Prepaid expenses and other assets

 

 

3,678

 

 

11,364

Accounts payable and accrued liabilities

 

 

6,906

 

 

11,136

Income taxes payable

 

 

3

 

 

8,195

Postretirement health care and life insurance benefits

 

 

(902)

 

 

(597)

Deferred compensation and other liabilities

 

 

2,496

 

 

509

Net cash from operating activities

 

 

47,032

 

 

30,260

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

Restricted cash

 

 

 -

 

 

227

Capital expenditures

 

 

(13,067)

 

 

(12,421)

Purchases of trading securities

 

 

(3,064)

 

 

(3,333)

Sales of trading securities

 

 

645

 

 

2,275

Purchase of available for sale securities

 

 

(45,298)

 

 

(45,826)

Sale and maturity of available for sale securities

 

 

26,517

 

 

40,390

Net cash used in investing activities

 

 

(34,267)

 

 

(18,688)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

Shares purchased and retired

 

 

(26,293)

 

 

(22,998)

Dividends paid in cash

 

 

(16,694)

 

 

(15,269)

Proceeds from bank loans

 

 

2,156

 

 

 -

Repayment of bank loans

 

 

(2,339)

 

 

(87)

Net cash used in financing activities

 

 

(43,170)

 

 

(38,354)

Effect of exchange rate changes on cash

 

 

(1,501)

 

 

(2,600)

Decrease in cash and cash equivalents

 

 

(31,906)

 

 

(29,382)

Cash and cash equivalents at beginning of year

 

 

126,145

 

 

100,108

Cash and cash equivalents at end of quarter

 

$

94,239

 

$

70,726

Supplemental cash flow information:

 

 

 

 

 

 

Income taxes paid, net

 

$

22,622

 

$

11,766

Interest paid

 

$

19

 

$

15

Stock dividend issued

 

$

61,671

 

$

57,220

 

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

7


 

 

 

TOOTSIE ROLL INDUSTRIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 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 Form 10-K.

 

Results of operations for the period ended September 30, 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

8


 

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.

 

In August 2016, the FASB issued ASU 2016-15, the amendments in this update address 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.

 

Note 2 — Average Shares Outstanding

 

The average number of shares outstanding for nine months 2016 reflect stock purchases of 740 shares for $26,293 and a 3% stock dividend distributed on April 8, 2016. The average number of shares outstanding for nine months 2015 reflect stock purchases of 728 shares for $22,998 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 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 30.6% and 31.5% in third quarter 2016 and 2015, respectively, and 31.1% and 30.2% in nine months 2016 and 2015, respectively. The lower effective tax rate in nine months 2015 compared to nine months 2016 principally reflects 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 the second quarter 2015.

 

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 September 30, 2016, December 31, 2015 and September 30, 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 securities principally consist of corporate and municipal bonds that are publicly traded, and its trading securities principally consist of equity mutual funds that are publicly traded.

.

9


 

The following table presents information about the Company’s financial assets and liabilities measured at fair value as of September 30, 2016, December 31, 2015 and September 30, 2015 and indicate the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Estimated Fair Value September 30, 2016

 

 

Total

 

Input Levels Used

 

 

Fair Value

 

Level 1

 

Level 2

 

Level 3

Cash and cash equivalents

   

$

94,239

    

$

94,239

    

$

 -

    

$

 -

Available for sale securities

 

 

151,776

 

 

2,429

 

 

149,347

 

 

 -

Foreign currency forward contracts

 

 

(532)

 

 

 -

 

 

(532)

 

 

 -

Commodity futures contracts

 

 

3,234

 

 

3,234

 

 

 -

 

 

 -

Trading securities

 

 

66,085

 

 

66,085

 

 

 -

 

 

 -

Total assets measured at fair value

 

$

314,802

 

$

165,987

 

$

148,815

 

$

 -

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 September 30, 2015

 

 

 

Total

 

Input Levels Used

 

 

 

Fair Value

 

 

Level 1

 

 

Level 2

 

 

Level 3

Cash and cash equivalents

   

$

70,726

    

$

70,726

    

$

 -

    

$

 -

Available for sale securities

 

 

134,542

 

 

2,453

 

 

132,089

 

 

 -

Foreign currency forward contracts

 

 

(2,977)

 

 

 -

 

 

(2,977)

 

 

 -

Commodity futures contracts

 

 

(932)

 

 

(932)

 

 

 -

 

 

 -

Trading securities

 

 

71,371

 

 

71,371

 

 

 -

 

 

 -

Total assets measured at fair value

 

$

272,730

 

$

143,618

 

$

129,112

 

$

 -

 

The fair value of the Company’s industrial revenue development bonds at September 30, 2016, December 31, 2015 and September 30, 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

10


 

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 September 30, 2016, December 31, 2015 and September 30, 2015:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2016

 

 

Notional

    

    

    

    

 

 

Amounts

 

Assets

 

Liabilities

 

 

 

 

 

 

 

 

 

 

Derivatives designated as hedging instruments:

 

 

 

 

 

 

 

 

 

Foreign currency forward contracts

 

$

5,684

 

$

 -

 

$

(532)

Commodity futures contracts

 

 

11,047

 

 

3,256

 

 

(22)

Total derivatives

 

 

 

 

$

3,256

 

$

(554)

 

 

 

 

 

 

 

 

 

 

 

 

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)

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2015

 

 

Notional

    

    

    

    

 

 

Amounts

 

Assets

 

Liabilities

 

 

 

 

 

 

 

 

 

 

Derivatives designated as hedging instruments:

 

 

 

 

 

 

 

 

 

Foreign currency forward contracts

 

$

22,500

 

$

 -

 

$

(2,977)

Commodity futures contracts

 

 

10,263

 

 

49

 

 

(981)

Total derivatives

 

 

 

 

$

49

 

$

(3,958)

 

11


 

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 September 30, 2016 and September 30, 2015 are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For Quarter Ended September 30, 2016

 

 

    

    

    

    

Gain (Loss)

 

 

 

 

Gain (Loss)

 

on Amount Excluded

 

 

Gain (Loss)