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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, 2020

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, ChicagoIllinois

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 every Interactive Data File required to be submitted 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 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, 2020).

Class

Outstanding

Common Stock, $0.69-4/9 par value

39,663,934

Class B Common Stock, $0.69-4/9 par value

27,024,933

Securities registered pursuant to Section 12(b) of the Act:

Title of each class:

    

Trading Symbol

    

Name of each exchange on which registered:

Common Stock, par value $0.69-4/9 per share

TR

New York Stock Exchange

TOOTSIE ROLL INDUSTRIES, INC.

JUNE 30, 2020

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

5

Condensed Consolidated Statements of Comprehensive Earnings

6

Condensed Consolidated Statements of Cash Flows

7

Notes to Condensed Consolidated Financial Statements

8-16

Item 2.

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

17-23

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

23

Item 4.

Controls and Procedures

23

Part II —

Other Information

Item 1.

Legal Proceedings

24

Item 1A.

Risk Factors

24

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

25

Item 6.

Exhibits

26

Signatures

26

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)

June 30, 2020

December 31, 2019

June 30, 2019

ASSETS

CURRENT ASSETS:

Cash and cash equivalents

   

$

106,289

    

$

138,960

    

$

57,857

Restricted cash

380

380

385

Investments

80,096

100,444

82,703

Accounts receivable trade, less allowances of $1,556, $1,949 and $1,652

30,010

45,044

36,824

Other receivables

4,739

3,418

3,224

Inventories:

Finished goods and work-in-process

64,176

35,909

62,333

Raw materials and supplies

30,678

23,179

30,011

Prepaid expenses

6,341

5,996

7,752

Total current assets

322,709

353,330

281,089

PROPERTY, PLANT AND EQUIPMENT, at cost:

Land

21,651

21,740

21,735

Buildings

122,645

122,843

121,841

Machinery and equipment

414,850

416,625

401,153

Construction in progress

10,484

4,427

11,362

Operating lease right-of-use assets

1,265

1,580

1,258

570,895

567,215

557,349

Less - accumulated depreciation

386,674

378,760

370,619

Net property, plant and equipment

184,221

188,455

186,730

OTHER ASSETS:

Goodwill

73,237

73,237

73,237

Trademarks

175,024

175,024

175,024

Investments

186,057

153,031

195,359

Split dollar officer life insurance

26,042

26,042

26,042

Prepaid expenses and other assets

6,650

8,056

10,507

Deferred income taxes

561

689

536

Total other assets

467,571

436,079

480,705

Total assets

$

974,501

$

977,864

$

948,524

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

3

(in thousands except per share data) (Unaudited)

June 30, 2020

December 31, 2019

June 30, 2019

LIABILITIES AND SHAREHOLDERS’ EQUITY

CURRENT LIABILITIES:

Accounts payable

   

$

12,935

    

$

12,720

    

$

14,326

Bank loans

864

747

686

Dividends payable

6,005

5,861

5,901

Accrued liabilities

40,235

41,611

38,077

Postretirement health care benefits

598

598

580

Operating lease liabilities

1,063

1,062

717

Deferred compensation

17,139

16,945

-

Income taxes payable

5,353

-

-

Total current liabilities

84,192

79,544

60,287

NONCURRENT LIABILITIES:

Deferred income taxes

47,174

47,295

45,001

Postretirement health care benefits

13,247

13,145

12,030

Industrial development bonds

7,500

7,500

7,500

Liability for uncertain tax positions

3,811

4,240

4,001

Operating lease liabilities

202

518

541

Deferred compensation and other liabilities

65,984

65,973

76,539

Total noncurrent liabilities

137,918

138,671

145,612

TOOTSIE ROLL INDUSTRIES, INC. SHAREHOLDERS’ EQUITY:

Common stock, $.69-4/9 par value - 120,000 shares authorized; 39,664, 38,836 and 39,233, respectively, issued

27,544

26,969

27,245

Class B common stock, $.69-4/9 par value - 40,000 shares authorized; 27,025, 26,287 and 26,302, respectively, issued

18,767

18,254

18,264

Capital in excess of par value

725,605

696,059

710,703

Retained earnings

4,588

40,809

8,121

Accumulated other comprehensive loss

(21,904)

(20,245)

(19,537)

Treasury stock (at cost) - 93, 90 and 90 shares, respectively

(1,992)

(1,992)

(1,992)

Total Tootsie Roll Industries, Inc. shareholders’ equity

752,608

759,854

742,804

Noncontrolling interests

(217)

(205)

(179)

Total equity

752,391

759,649

742,625

Total liabilities and shareholders’ equity

$

974,501

$

977,864

$

948,524

(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

June 30, 2020

June 30, 2019

June 30, 2020

June 30, 2019

Net product sales

   

$

79,796

    

$

106,021

    

$

182,599

     

$

207,040

Rental and royalty revenue

845

931

1,803

1,889

Total revenue

80,641

106,952

184,402

208,929

Product cost of goods sold

50,379

65,945

116,822

130,801

Rental and royalty cost

210

276

512

531

Total costs

50,589

66,221

117,334

131,332

Product gross margin

29,417

40,076

65,777

76,239

Rental and royalty gross margin

635

655

1,291

1,358

Total gross margin

30,052

40,731

67,068

77,597

Selling, marketing and administrative expenses

29,559

28,216

45,831

59,324

Earnings from operations

493

12,515

21,237

18,273

Other income (loss), net

9,727

3,053

4,233

9,070

Earnings before income taxes

10,220

15,568

25,470

27,343

Provision for income taxes

2,838

4,024

6,112

6,888

Net earnings

7,382

11,544

19,358

20,455

Less: net earnings (loss) attributable to noncontrolling interests

(6)

(12)

(12)

(56)

Net earnings attributable to Tootsie Roll Industries, Inc.

$

7,388

$

11,556

$

19,370

$

20,511

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

$

0.11

$

0.17

$

0.29

$

0.30

Dividends per share *

$

0.09

$

0.09

$

0.18

$

0.18

Average number of shares outstanding

66,671

67,501

66,781

67,664

Retained earnings at beginning of period

$

3,197

$

2,459

$

40,809

$

33,767

Net earnings attributable to Tootsie Roll Industries, Inc.

7,388

11,556

19,370

20,511

Cash dividends

(5,997)

(5,894)

(11,838)

(11,651)

Stock dividends

-

-

(43,753)

(34,506)

Retained earnings at end of period

$

4,588

$

8,121

$

4,588

$

8,121

*Does not include 3% stock dividend to shareholders of record on 3/3/20 and 3/5/19.

(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

June 30, 2020

June 30, 2019

June 30, 2020

June 30, 2019

Net earnings

   

$

7,382

    

$

11,544

    

$

19,358

    

$

20,455

Other comprehensive income (loss), before tax:

Foreign currency translation adjustments

610

205

(3,064)

596

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

(337)

(380)

(675)

(761)

Unrealized gains (losses) on postretirement and pension benefits

(337)

(380)

(675)

(761)

Investments:

Unrealized gains (losses) for the period on investments

3,419

1,185

2,328

2,652

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

-

-

-

-

Unrealized gains (losses) on investments

3,419

1,185

2,328

2,652

Derivatives:

Unrealized gains (losses) for the period on derivatives

739

57

(222)

607

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

169

162

422

258

Unrealized gains (losses) on derivatives

908

219

200

865

Total other comprehensive income (loss), before tax

4,600

1,229

(1,211)

3,352

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

(965)

(248)

(448)

(667)

Total comprehensive earnings

11,017

12,525

17,699

23,140

Comprehensive earnings (loss) attributable to noncontrolling interests

(6)

(12)

(12)

(56)

Total comprehensive earnings attributable to Tootsie Roll Industries, Inc.

$

11,023

$

12,537

$

17,711

$

23,196

(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

June 30, 2020

June 30, 2019

CASH FLOWS FROM OPERATING ACTIVITIES:

Net earnings

   

$

19,358

    

$

20,455

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

Depreciation

9,219

9,334

Deferred income taxes

(568)

393

Amortization of marketable security premiums

557

694

Changes in operating assets and liabilities:

Accounts receivable

14,333

13,038

Other receivables

(1,208)

(242)

Inventories

(36,863)

(37,692)

Prepaid expenses and other assets

1,183

1,529

Accounts payable and accrued liabilities

40

(167)

Income taxes payable

5,033

2,750

Postretirement health care benefits

(573)

(602)

Deferred compensation and other liabilities

369

1,531

Net cash provided by operating activities

10,880

11,021

CASH FLOWS FROM INVESTING ACTIVITIES:

Capital expenditures

(6,410)

(9,945)

Purchases of trading securities

(2,438)

(2,641)

Sales of trading securities

380

362

Purchase of available for sale securities

(53,269)

(33,558)

Sale and maturity of available for sale securities

44,466

12,120

Net cash from (used in) investing activities

(17,271)

(33,662)

CASH FLOWS FROM FINANCING ACTIVITIES:

Shares purchased and retired

(12,959)

(19,186)

Dividends paid in cash

(11,853)

(11,699)

Proceeds from bank loans

2,133

1,911

Repayment of bank loans

(2,019)

(1,594)

Net cash used in financing activities

(24,698)

(30,568)

Effect of exchange rate changes on cash

(1,582)

164

Increase (Decrease) in cash and cash equivalents

(32,671)

(53,045)

Cash, cash equivalents and restricted cash at beginning of year

139,340

111,287

Cash, cash equivalents and restricted cash at end of quarter

$

106,669

$

58,242

Supplemental cash flow information:

Income taxes paid/(received), net

$

1,035

$

4,226

Interest paid

$

49

$

65

Stock dividend issued

$

63,402

$

70,557

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

7

TOOTSIE ROLL INDUSTRIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2020

(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, 2019 (the “2019 Form 10-K”).

Results of operations for the period ended June 30, 2020 are not necessarily indicative of results to be expected for the year to end December 31, 2020 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.

On March 11, 2020, the World Health Organization designated the recent novel coronavirus ("COVID-19") as a global pandemic. We continue to actively monitor COVID-19 and its potential impact on our operations and financial results. We expect Covid-19 to adversely affect net earnings in third quarter 2020 and likely to a lesser extent in fourth quarter 2020 as well. The impact that COVID-19 will have on our consolidated financial statements throughout 2020 remains uncertain and ultimately will be dictated by the length and severity of the pandemic, as well as the economic recovery and federal, state, local and foreign government actions taken in response. The effects of Covid-19 pandemic are unprecedented, and therefore the Company is unable to determine its effects on its sales and net earnings for the balance of 2020.

Revenue Recognition

The Company’s revenues, primarily net product sales, principally result from the sale of goods, reflect the consideration to which the Company expects to be entitled generally based on customer purchase orders. The Company records revenue based on a five-step model in accordance with Accounting Standards Codification ("ASC") Topic 606 which became effective January, 1, 2018. Adjustments for estimated customer cash discounts upon payment, discounts for price adjustments, product returns, allowances, and certain advertising and promotional costs, including consumer coupons, are variable consideration and are recorded as a reduction of product sales revenue in the same period the related product sales are recorded. Such estimates are calculated using historical averages adjusted for any expected changes due to current business conditions and experience. A net product sale is recorded when the Company delivers the product to the customer, or in certain instances, the customer picks up the goods at the Company’s distribution center, and thereby obtains control of such product. Amounts billed and due from our customers are classified as accounts receivable trade on the balance sheet and require payment on a short-term basis. Accounts receivable trade are unsecured. Shipping and handling costs of $8,397 and $11,185 in second quarter 2020 and 2019, respectively, and $19,069 and $22,217 in first half 2020 and 2019, respectively, are included in selling, marketing and administrative expenses. A minor amount of royalty income (less than 0.2% of our consolidated net sales) is also recognized from sales-based licensing arrangements, pursuant to which revenue is recognized as the third-party licensee sales occur. Rental income (less than 1% of our consolidated net sales) is not considered revenue from contracts from customers.

Leases

The Company identifies leases by evaluating its contracts to determine if the contract conveys the right to use an identified asset for a stated period of time in exchange for consideration. The Company considers whether it can control the underlying asset and have the right to obtain substantially all of the economic benefits or outputs from

8

the asset. Leases with terms greater than 12 months are classified as either operating or finance leases at the commencement date.  For these leases, we capitalize the present value of the minimum lease payments over the lease term as a right-of-use asset with an offsetting lease liability. The discount rate used to calculate the present value of the minimum lease payments is typically our incremental borrowing rate, as the rate implicit in the lease is generally not known or determinable. The lease term includes any noncancelable period for which the Company has the right to use the asset. Currently, all capitalized leases are classified as operating leases and the Company records rental expense on a straight-line basis over the term of the lease.

Recently Adopted Accounting Pronouncements

In June 2016, the FASB issued ASU No. 2016-13, (ASC Topic 326) which replaces the current incurred loss impairment method with a new method that reflects expected credit losses. Subsequent to the issuance of ASC Topic 326, the FASB clarified and amended guidance through several Accounting Standard Updates; hereinafter the collection of credit loss guidance is referred to as “ASC Topic 326”. Under this new guidance an entity would recognize an impairment allowance equal to its current estimate of credit losses on financial assets measured at amortized cost. The Company adopted ASU 2016-13 and related amendments (ASC Topic 326) on January 1, 2020. The adoption of this ASC did not have a material impact on the Company’s consolidated financial statements.

Recently Issued Accounting Pronouncements - Not Yet Adopted

In December 2019, the FASB issued ASU No. 2019-12 which is designed to simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. ASU No. 2019-12 is effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years; this ASU allows for early adoption in any interim period after issuance of the update. The Company is currently assessing the impact this ASU will have on its consolidated financial statements.

In March 2020, the FASB issued ASU 2020-04 which provides optional guidance for a limited time to ease the potential burden in accounting for reference rate reform. The new guidance provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts and hedging relationships that reference LIBOR or another reference rate expected to be discontinued due to reference rate reform. These amendments are effective immediately and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022. We are currently evaluating our contracts and the optional expedients provided by the new standard.

Note 2 — Average Shares Outstanding

The average number of shares outstanding for six months 2020 reflects aggregate stock purchases of 378 shares for $12,959 and a 3% stock dividend of 1,942 shares distributed on April 3, 2020. The average number of shares outstanding for six months 2019 reflects aggregate stock purchases of 510 shares for $19,186 and a 3% stock dividend of 1,914 shares distributed on April 5, 2019.

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 2016 through 2018. The Company’s consolidated effective income tax rate was 27.8% and 25.8% in second quarter 2020 and 2019, respectively, and 24.0% and 25.2% in first half 2020 and 2019, respectively.

9

NOTE 4—Share Capital and Capital In Excess of Par Value:

Capital in

 

Class B

Excess

 

Common Stock

Common Stock

Treasury Stock

of Par

 

    

Shares

    

Amount

    

Shares

    

Amount

    

Shares

    

Amount

    

Value

 

(000’s)

(000’s)

(000’s)

 

Balance at March 31, 2020

 

39,769

$

27,617

 

27,037

$

18,776

 

93

$

(1,992)

$

729,673

Issuance of 3% stock dividend

 

 

 

 

 

 

 

Conversion of Class B common shares to common shares

 

12

 

9

 

(12)

 

(9)

 

 

 

Purchase and retirement of common shares and other

 

(117)

 

(82)

 

 

 

 

 

(4,068)

Balance at June 30, 2020

 

39,664

$

27,544

 

27,025

$

18,767

 

93

$

(1,992)

$

725,605

Balance at March 31, 2019

 

39,418

$

27,374

 

26,342

$

18,293

 

90

$

(1,992)

$

719,212

Issuance of 3% stock dividend

 

 

 

 

 

 

 

Conversion of Class B common shares to common shares

 

40

 

29

 

(40)

 

(29)

 

 

 

Purchase and retirement of common shares and other

 

(225)

 

(158)

 

-

 

 

 

 

(8,509)

Balance at June 30, 2019

 

39,233

$

27,245

 

26,302

$

18,264

 

90

$

(1,992)

$

710,703

Balance at December 31, 2019

38,836

$

26,969

 

26,287

$

18,254

 

90

$

(1,992)

$

696,059

Issuance of 3% stock dividend

 

1,157

803

 

786

547

 

3

42,243

Conversion of Class B common shares to common shares

 

48

 

34

 

(48)

 

(34)

 

 

 

Purchase and retirement of common shares and other

 

(377)

 

(262)

 

 

 

 

 

(12,697)

Balance at June 30, 2020

 

39,664

$

27,544

 

27,025

$

18,767

 

93

$

(1,992)

$

725,605

Balance at December 31, 2018

38,544

$

26,767

 

25,584

$

17,767

 

88

$

(1,992)

$

696,535

Issuance of 3% stock dividend

 

1,150

798

 

767

532

 

2

32,999

Conversion of Class B common shares to common shares

 

49

 

35

 

(49)

 

(35)

 

 

 

Purchase and retirement of common shares and other

 

(510)

 

(355)

 

 

 

 

 

(18,831)

Balance at June 30, 2019

 

39,233

$

27,245

 

26,302

$

18,264

 

90

$

(1,992)

$

710,703

Note 5 — 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 are reflected in the hierarchy assessment disclosed in the table below.

10

As of June 30, 2020, December 31, 2019 and June 30, 2019, 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 bonds.

The following table presents information about the Company’s financial assets and liabilities measured at fair value as of June 30, 2020, December 31, 2019 and June 30, 2019 and indicate the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value:

Estimated Fair Value June 30, 2020

Total

Input Levels Used

Fair Value

Level 1

Level 2

Level 3

Cash and cash equivalents

   

$

106,289

    

$

106,289

    

$

-

    

$

-

Available for sale securities

187,868

3,169

184,699

-

Foreign currency forward contracts

428

-

428

-

Commodity futures contracts

(94)

(94)

-

-

Trading securities

78,285

50,664

27,621

-

Total assets measured at fair value

$

372,776

$

160,028

$

212,748

$

-

Estimated Fair Value December 31, 2019

Total

Input Levels Used

Fair Value

Level 1

Level 2

Level 3

Cash and cash equivalents

   

$

138,960

    

$

138,960

    

$

-

    

$

-

Available for sale securities

177,292

3,588

173,704

-

Foreign currency forward contracts

14

-

14

-

Commodity futures contracts, net

121

121

-

-

Trading securities

76,183

48,260

27,923

-

Total assets measured at fair value

$

392,570

$

190,929

$

201,641

$

-

Estimated Fair Value June 30, 2019

Total

Input Levels Used

Fair Value

Level 1

Level 2

Level 3

Cash and cash equivalents

   

$

57,857

    

$

57,857

    

$

-

    

$

-

Available for sale securities

206,687

3,078

203,609

-

Foreign currency forward contracts

(17)

-

(17)

-

Commodity futures contracts

(112)

(112)

-

-

Trading securities

71,375

45,110

26,265

-

Total assets measured at fair value

$

335,790

$

105,933

$

229,857

$

-

The fair value of the Company’s industrial revenue development bonds at June 30, 2020, December 31, 2019 and June 30, 2019 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.

11

Note 6 — Derivative Instruments and Hedging Activities

From time to time, the Company uses derivative instruments, including foreign currency forward contracts and commodity futures contracts to manage its exposures to foreign exchange and commodity prices. Commodity futures 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, and periodic equipment purchases from foreign suppliers denominated in a foreign currency. 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 hedge accounting for its foreign currency and commodity derivative instruments as discussed above. 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. Approximately $(199) and $105 of this accumulated comprehensive gain (loss) is expected to be reclassified as a charge to earnings in 2020 and 2021, respectively. Approximately $114, $161 and $153 reported in accumulated other comprehensive gain for foreign currency derivatives are expected to be reclassified to other income, net in 2020, 2021 and 2022, respectively.  

The following table summarizes the Company’s outstanding derivative contracts and their effects on its Condensed Consolidated Statements of Financial Position at June 30, 2020, December 31, 2019 and June 30, 2019:

June 30, 2020

Notional

    

    

    

    

Amounts

Assets

Liabilities

Derivatives designated as hedging instruments:

Foreign currency forward contracts

$

8,574

$

428

$

-

Commodity futures contracts

7,375

170

(264)

Total derivatives

$

598

$

(264)

December 31, 2019

Notional

    

    

    

    

Amounts

Assets

Liabilities

Derivatives designated as hedging instruments:

Foreign currency forward contracts

$

5,533

$

14

$

Commodity futures contracts

7,147

205

(84)

Total derivatives

$

219

$

(84)

June 30, 2019

Notional

    

    

    

    

Amounts

Assets

Liabilities

Derivatives designated as hedging instruments:

Foreign currency forward contracts

$

11,050

$

-

$

(17)

Commodity futures contracts

6,911

120

(232)

Total derivatives

$

120

$

(249)

12

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, 2020 and June 30, 2019 are as follows:

For Quarter Ended June 30, 2020

    

    

    

    

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

$

352

$

(169)

$

-

Commodity futures contracts

387

-

-

Total

$

739

$

(169)

$

-

For Quarter Ended June 30, 2019

    

    

    

    

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

$

180

$

-

$

-

Commodity futures contracts

(123)

(162)

-

Total

$

57