Hasbro, Inc.
HASBRO INC (Form: 10-Q, Received: 07/26/2016 16:33:12)  

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C.   20549

_________________

 

FORM 10-Q

______________

(Mark One)

 

[x]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 26, 2016

[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 1-6682

_______________

 

HASBRO, INC.

(Exact name of registrant as specified in its charter)

 

Rhode Island

05-0155090

(State of Incorporation)

(I.R.S. Employer Identification No.)

 

1027 Newport Avenue, Pawtucket, Rhode Island  02861

(Address of Principal Executive Offices, Including Zip Code)

 

(401) 431-8697

(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 [x]  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 [x]  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 definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer  [x]

Accelerated filer  [ ]

Non-accelerated filer (Do not check if a smaller reporting company)  [ ]

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  [x]

 

The number of shares of Common Stock, par value $.50 per share, outstanding as of July 18, 2016 was 125,407,912.

 


 

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

HASBRO, INC. AND SUBSIDIARIES

 

Consolidated Balance Sheets

 

(Thousands of Dollars Except Share Data)

 

(Unaudited)

 

 

 

 

 

 

June 26,

 

June 28,

 

December 27,

 

 

 

 

 

 

2016

 

2015

 

2015

 

ASSETS

 

 

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

 

 

  

Cash and cash equivalents

 

$

924,098

 

 

858,458

 

 

976,750

 

 

Accounts receivable, less allowance for doubtful accounts of $32,800,

 

 

 

 

 

 

 

 

 

 

 

 

$16,300 and $14,900

 

 

703,821

 

 

709,437

 

 

1,217,850

 

  

Inventories

 

 

572,391

 

 

403,789

 

 

384,492

 

  

Prepaid expenses and other current assets

 

 

323,046

 

 

360,101

 

 

286,506

 

  

  

  

Total current assets

 

 

2,523,356

 

 

2,331,785

 

 

2,865,598

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property, plant and equipment, less accumulated depreciation of $375,300,

 

 

 

 

 

 

 

 

 

 

 

 

$359,300 and $363,600

 

 

242,607

 

 

225,911

 

 

237,527

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other assets

 

 

 

 

 

 

 

 

 

 

  

Goodwill

 

 

592,806

 

 

592,802

 

 

592,695

 

  

Other intangibles, net, accumulated amortization of $858,700, $823,800

 

 

 

 

 

 

 

 

 

 

 

 

and $841,300

 

 

263,425

 

 

298,231

 

 

280,807

 

  

Other

 

 

722,191

 

 

768,960

 

 

744,090

 

  

 

Total other assets

 

 

1,578,422

 

 

1,659,993

 

 

1,617,592

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

 

Total assets

 

$

4,344,385

 

 

4,217,689

 

 

4,720,717

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS

 

 

 

 

 

 

 

 

 

 

 

AND SHAREHOLDERS' EQUITY

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

 

 

  

Short-term borrowings

 

$

5,400

 

 

167,877

 

 

164,563

 

  

Accounts payable

 

 

214,243

 

 

185,631

 

 

241,210

 

  

Accrued liabilities

 

 

525,377

 

 

447,380

 

 

658,874

 

  

 

Total current liabilities

 

 

745,020

 

 

800,888

 

 

1,064,647

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term debt

 

 

1,547,753

 

 

1,546,477

 

 

1,547,115

 

Other liabilities

 

 

402,614

 

 

400,432

 

 

404,883

 

  

 

Total liabilities

 

 

2,695,387

 

 

2,747,797

 

 

3,016,645

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Redeemable noncontrolling interests

 

 

36,465

 

 

41,387

 

 

40,170

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders' equity

 

 

 

 

 

 

 

 

 

 

  

Preference stock of $2.50 par value. Authorized 5,000,000 shares; none

 

 

 

 

 

 

 

 

 

 

 

 

 

issued

 

 

-

 

 

-

 

 

-

 

  

Common stock of $.50 par value. Authorized 600,000,000 shares; issued

 

 

 

 

 

 

 

 

 

 

 

 

209,694,630 at June 26, 2016, June 28, 2015, and December 27, 2015

 

 

104,847

 

 

104,847

 

 

104,847

 

  

Additional paid-in capital

 

 

945,802

 

 

850,582

 

 

893,630

 

  

Retained earnings

 

 

3,825,289

 

 

3,583,803

 

 

3,852,321

 

  

Accumulated other comprehensive loss

 

 

(174,301)

 

 

(103,476)

 

 

(146,001)

 

  

Treasury stock, at cost; 84,241,018 shares at June 26, 2016; 84,781,723

 

 

 

 

 

 

 

 

 

 

 

 

shares at June 28, 2015; and 84,899,200 shares at December 27, 2015

 

 

(3,089,104)

 

 

(3,007,251)

 

 

(3,040,895)

 

  

 

Total shareholders' equity

 

 

1,612,533

 

 

1,428,505

 

 

1,663,902

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

 

Total liabilities, redeemable noncontrolling interests and

 

 

 

 

 

 

 

 

 

 

 

 

 

shareholders' equity

 

$

4,344,385

 

 

4,217,689

 

 

4,720,717

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying condensed notes to consolidated financial statements.

 

 


 

 

 

HASBRO, INC. AND SUBSIDIARIES

 

 

Consolidated Statements of Operations

 

 

(Thousands of Dollars Except Per Share Data)

 

 

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter Ended

 

Six Months Ended

 

 

 

 

June 26,

 

June 28,

 

June 26,

 

June 28,

 

 

 

 

2016

 

2015

 

2016

 

2015

Net revenues

 

$

878,945

 

 

797,658

 

 

1,710,125

 

 

1,511,158

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of sales

 

 

321,676

 

 

295,399

 

 

611,916

 

 

543,134

 

Royalties

 

 

69,408

 

 

57,069

 

 

139,377

 

 

116,158

 

Product development

 

 

63,671

 

 

57,609

 

 

120,835

 

 

109,506

 

Advertising

 

 

86,957

 

 

78,365

 

 

166,816

 

 

146,107

 

Amortization of intangibles

 

 

8,691

 

 

13,348

 

 

17,382

 

 

26,299

 

Program production cost amortization

 

 

5,033

 

 

7,220

 

 

11,219

 

 

18,316

 

Selling, distribution and administration

 

 

238,635

 

 

213,148

 

 

471,790

 

 

421,933

 

 

Total costs and expenses

 

 

794,071

 

 

722,158

 

 

1,539,335

 

 

1,381,453

Operating profit

 

 

84,874

 

 

75,500

 

 

170,790

 

 

129,705

Non-operating (income) expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

23,914

 

 

24,186

 

 

47,958

 

 

48,771

 

Interest income

 

 

(2,312)

 

 

(690)

 

 

(4,525)

 

 

(1,620)

 

Other (income) expense, net

 

 

(3,748)

 

 

(1,642)

 

 

1,124

 

 

(5,407)

 

 

Total non-operating expense, net

 

 

17,854

 

 

21,854

 

 

44,557

 

 

41,744

Earnings before income taxes

 

 

67,020

 

 

53,646

 

 

126,233

 

 

87,961

Income tax expense

 

 

17,601

 

 

13,364

 

 

29,843

 

 

21,858

Net earnings

 

 

49,419

 

 

40,282

 

 

96,390

 

 

66,103

Net loss attributable to noncontrolling interests

 

 

(2,687)

 

 

(1,527)

 

 

(4,467)

 

 

(2,373)

Net earnings attributable to Hasbro, Inc.

 

$

52,106

 

 

41,809

 

 

100,857

 

 

68,476

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings attributable to Hasbro, Inc. per common share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.42

 

 

0.33

 

 

0.80

 

 

0.55

 

Diluted

 

$

0.41

 

 

0.33

 

 

0.79

 

 

0.54

Cash dividends declared per common share

 

$

0.51

 

 

0.46

 

 

1.02

 

 

0.92

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying condensed notes to consolidated financial statements.

 


 

 

 

HASBRO, INC. AND SUBSIDIARIES

 

 

Consolidated Statements of Comprehensive Earnings

 

 

(Thousands of Dollars)

 

 

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter Ended

 

Six Months Ended

 

 

 

 

June 26,

 

June 28,

 

June 26,

 

June 28,

 

 

 

 

2016

 

2015

 

2016

 

2015

Net earnings

 

$

49,419

 

 

40,282

 

 

96,390

 

 

66,103

Other comprehensive earnings (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

7,825

 

 

642

 

 

19,965

 

 

(46,669)

 

Net (losses) gains on cash flow hedging activities, net of tax

 

 

(8,258)

 

 

(9,672)

 

 

(24,044)

 

 

52,628

 

Unrealized holding (losses) gains on available-for-sale

 

 

 

 

 

 

 

 

 

 

 

 

 

 

securities, net of tax

 

 

(327)

 

 

715

 

 

1,353

 

 

941

 

Reclassifications to earnings, net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net gains on cash flow hedging activities

 

 

(10,363)

 

 

(9,458)

 

 

(27,924)

 

 

(17,419)

 

 

Unrecognized pension and postretirement amounts

 

 

1,175

 

 

1,293

 

 

2,350

 

 

2,497

Total other comprehensive loss, net of tax

 

 

(9,948)

 

 

(16,480)

 

 

(28,300)

 

 

(8,022)

Comprehensive earnings

 

 

39,471

 

 

23,802

 

 

68,090

 

 

58,081

Comprehensive loss attributable to noncontrolling interests

 

 

(2,687)

 

 

(1,527)

 

 

(4,467)

 

 

(2,373)

Comprehensive earnings attributable to Hasbro, Inc.

 

$

42,158

 

 

25,329

 

 

72,557

 

 

60,454

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying condensed notes to consolidated financial statements.

 


 

HASBRO, INC. AND SUBSIDIARIES

 

Consolidated Statements of Cash Flows

 

(Thousands of Dollars)

 

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended

 

 

 

 

 

 

June 26,

 

June 28,

 

 

 

 

 

 

2016

 

2015

 

Cash flows from operating activities:

 

 

 

 

 

 

 

  

Net earnings

 

$

96,390

 

 

66,103

 

  

Adjustments to reconcile net earnings to net cash provided by operating activities:

 

 

 

 

 

 

 

  

 

Depreciation of plant and equipment

 

 

57,091

 

 

50,749

 

 

 

Amortization of intangibles

 

 

17,382

 

 

26,299

 

  

 

Program production cost amortization

 

 

11,219

 

 

18,316

 

  

 

Deferred income taxes

 

 

8,702

 

 

(5,234)

 

  

 

Stock-based compensation

 

 

25,577

 

 

21,714

 

Change in operating assets and liabilities:

 

 

 

 

 

 

 

  

 

Decrease in accounts receivable

 

 

519,376

 

 

333,467

 

  

 

Increase in inventories

 

 

(185,048)

 

 

(100,563)

 

  

 

(Increase) decrease in prepaid expenses and other current assets

 

 

(60,483)

 

 

435

 

  

 

Program production costs

 

 

(25,387)

 

 

(21,557)

 

  

 

Decrease in accounts payable and accrued liabilities

 

 

(193,785)

 

 

(162,483)

 

  

 

Other

 

 

(2,193)

 

 

8,858

 

  

 

 

Net cash provided by operating activities

 

 

268,841

 

 

236,104

 

Cash flows from investing activities:

 

 

 

 

 

 

 

  

 

Additions to property, plant and equipment

 

 

(66,390)

 

 

(67,709)

 

  

 

Other

 

 

20,431

 

 

8,706

 

  

 

 

Net cash utilized by investing activities

 

 

(45,959)

 

 

(59,003)

 

Cash flows from financing activities:

 

 

 

 

 

 

 

  

 

Net repayments of other short-term borrowings

 

 

(159,136)

 

 

(84,420)

 

  

 

Purchases of common stock

 

 

(57,337)

 

 

(49,156)

 

  

 

Stock option transactions

 

 

36,388

 

 

34,297

 

  

 

Excess tax benefits from stock-based compensation

 

 

18,423

 

 

7,947

 

  

 

Dividends paid

 

 

(121,311)

 

 

(110,902)

 

  

 

Other

 

 

762

 

 

(81)

 

  

 

 

Net cash utilized by financing activities

 

 

(282,211)

 

 

(202,315)

 

Effect of exchange rate changes on cash

 

 

6,677

 

 

(9,495)

 

Decrease in cash and cash equivalents

 

 

(52,652)

 

 

(34,709)

 

Cash and cash equivalents at beginning of year

 

 

976,750

 

 

893,167

 

Cash and cash equivalents at end of period

 

$

924,098

 

 

858,458

 

 

 

 

 

 

 

 

 

 

 

 

Supplemental information

 

 

 

 

 

 

 

  

Cash paid during the period for:

 

 

 

 

 

 

 

  

 

Interest

 

$

43,682

 

 

43,977

 

  

 

Income taxes

 

$

49,297

 

 

36,727

 

 

 

 

 

 

 

 

 

 

  

 

See accompanying condensed notes to consolidated financial statements.

 

 

 

 

 

 

 

 


 

HASBRO, INC. AND SUBSIDIARIES

Condensed Notes to Consolidated Financial Statements

(Thousands of Dollars and Shares Except Per Share Data)

(Unaudited)

 

 

(1) Basis of Presentation

 

In the opinion of management, the accompanying unaudited interim financial statements contain all normal and recurring adjustments necessary to present fairly the financial position of Hasbro, Inc. and all majority-owned subsidiaries ("Hasbro" or the "Company") as of June 26, 2016 and June 28, 2015, and the results of its operations and cash flows for the periods then ended in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP"). The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and notes thereto. Actual results could differ from those estimates.

 

The quarters ended June 26, 2016 and June 28, 2015 are each 13-week periods. The six-month periods ended June 26, 2016 and June 28, 2015 are each 26-week periods.

 

The results of operations for the quarter and six-month periods ended June 26, 2016 are not necessarily indicative of results to be expected for the full year, nor were those of the comparable 2015 periods representative of those actually experienced for the full year 2015.

 

These condensed consolidated financial statements have been prepared without audit, pursuant to the rules and regulations of the Securities and Exchange Commission.  Certain information and disclosures normally included in the consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations.  The Company filed audited consolidated financial statements for the fiscal year ended December 27, 2015 in its Annual Report on Form 10-K, which includes all such information and disclosures and, accordingly, should be read in conjunction with the financial information included herein.

 

The Company's accounting policies are the same as those described in Note 1 to the Company's consolidated financial statements in its Annual Report on Form 10-K for the fiscal year ended December 27, 2015.

 

(2) Earnings Per Share

 

Net earnings per share data for the quarters and six-month periods ended June 26, 2016 and June 28, 2015 were computed as follows:

 

 

2016

 

2015

Quarter

Basic

 

Diluted

 

Basic

 

Diluted

Net earnings attributable to Hasbro, Inc.

$

52,106

 

 

52,106

 

 

41,809

 

 

41,809

 

 

 

 

 

 

 

 

 

 

 

 

Average shares outstanding

 

125,475

 

 

125,475

 

 

125,093

 

 

125,093

Effect of dilutive securities:

 

 

 

 

 

 

 

 

 

 

 

   Options and other share-based awards

 

-

 

 

1,566

 

 

-

 

 

1,713

Equivalent Shares

 

125,475

 

 

127,041

 

 

125,093

 

 

126,806

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings attributable to Hasbro, Inc. per common share

$

0.42

 

 

0.41

 

 

0.33

 

 

0.33

 

 


 

 

2016

 

2015

Six Months

Basic

 

Diluted

 

Basic

 

Diluted

Net earnings attributable to Hasbro, Inc.

$

100,857

 

 

100,857

 

 

68,476

 

 

68,476

 

 

 

 

 

 

 

 

 

 

 

 

Average shares outstanding

 

125,371

 

 

125,371

 

 

124,973

 

 

124,973

Effect of dilutive securities:

 

 

 

 

 

 

 

 

 

 

 

     Options and other share-based awards

 

-

 

 

1,624

 

 

-

 

 

1,601

Equivalent Shares

 

125,371

 

 

126,995

 

 

124,973

 

 

126,574

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings attributable to Hasbro, Inc. per common share

$

0.80

 

 

0.79

 

 

0.55

 

 

0.54

 

For the quarter ended June 26, 2016, options and restricted stock units totaling 492 were excluded from the calculation of diluted earnings per share because to include them would have been antidilutive.  No options and restricted stock units were excluded from the calculation of diluted earnings per share for the quarter ended June 28, 2015. For the six-month periods ended June 26, 2016 and June 28, 2015, options and restricted stock units totaling 492 and 391, respectively, were excluded from the calculation of diluted earnings per share because to include them would have been antidilutive.

 

(3) Other Comprehensive Earnings (Loss)

  

 

Components of other comprehensive earnings (loss) are presented within the consolidated statements of comprehensive earnings. The following table presents the related tax effects on changes in other comprehensive earnings (loss) for the quarter and six-month periods ended June 26, 2016 and June 28, 2015.

 

 

 

Quarter Ended

 

Six Months Ended

 

 

June 26,

 

June 28,

 

June 26,

 

June 28,

 

 

2016

 

2015

 

2016

 

2015

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive earnings (loss), tax effect:

 

 

 

 

 

 

 

 

 

 

 

Tax benefit (expense) on cash flow hedging activities

$

4,747

 

 

853

 

 

8,003

 

 

(3,962)

Tax benefit (expense) on unrealized holding gains (losses)

 

185

 

 

(408)

 

 

(768)

 

 

(536)

Reclassifications to earnings, tax effect:

 

 

 

 

 

 

 

 

 

 

 

 

Tax expense on cash flow hedging activities

 

1,069

 

 

708

 

 

2,818

 

 

1,050

 

Tax benefit on unrecognized pension and postretirement

 

 

 

 

 

 

 

 

 

 

 

  

amounts reclassified to the consolidated statements of operations

 

(666)

 

 

(596)

 

 

(1,333)

 

 

(1,280)

Total tax effect on other comprehensive earnings (loss)

$

5,335

 

 

557

 

 

8,720

 

 

(4,728)

 

 


 

Changes in the components of accumulated other comprehensive loss for the six months ended June 26, 2016 and June 28, 2015 are as follows:

  

 

 

 

 

 

 

 

Unrealized

 

 

 

 

 

 

 

 

 

 

 

 

 

Holding

 

 

 

 

Total

 

 

 

 

Gains

 

Gains on

 

Foreign

 

Accumulated

 

Pension and

 

(Losses) on

 

Available-

 

Currency

 

Other

 

Postretirement

 

Derivative

 

for-Sale

 

Translation

 

Comprehensive

 

Amounts

 

Instruments

 

Securities

 

Adjustments

 

Earnings (Loss)

2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 27, 2015

$

(102,931)

 

 

79,317

 

 

1,258

 

 

(123,645)

 

 

(146,001)

Current period other comprehensive earnings (loss)

 

2,350

 

 

(51,968)

 

 

1,353

 

 

19,965

 

 

(28,300)

Balance at June 26, 2016

$

(100,581)

 

 

27,349

 

 

2,611

 

 

(103,680)

 

 

(174,301)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 27, 2014

$

(113,092)

 

 

43,689

 

 

1,900

 

 

(27,951)

 

 

(95,454)

Current period other comprehensive earnings (loss)

 

2,497

 

 

35,209

 

 

941

 

 

(46,669)

 

 

(8,022)

Balance at June 28, 2015

$

(110,595)

 

 

78,898

 

 

2,841

 

 

(74,620)

 

 

(103,476)

 

At June 26, 2016, the Company had remaining net deferred gains on foreign currency forward contracts, net of tax, of $46,138 in accumulated other comprehensive loss ("AOCE"). These instruments hedge payments related to inventory purchased in the second quarter of 2016 or forecasted to be purchased during the remainder of 2016 and, to a lesser extent, 2017 through 2020, intercompany expenses expected to be paid or received during 2016 and 2017, cash receipts for sales made at the end of the second quarter of 2016 or forecasted to be made in the remainder of 2016 and, to a lesser extent, 2017 through 2018. These amounts will be reclassified into the consolidated statements of operations upon the sale of the related inventory or recognition of the related sales or expenses. 

 

In addition to foreign currency forward contracts, the Company entered into hedging contracts on future interest payments related to the long-term notes due 2021 and 2044.  At the date of debt issuance in 2014, these contracts were terminated and the fair value on the date of settlement was deferred in AOCE and is being amortized to interest expense over the life of the related notes using the effective interest rate method. At June 26, 2016, deferred losses, net of tax of $18,789 related to these instruments remained in AOCE. For the quarters ended June 26, 2016 and June 28, 2015, previously deferred losses of $450 were reclassified from AOCE to net earnings. For the six month periods ended June 26, 2016 and June 28, 2015, previously deferred losses of $899 were reclassified from AOCE to net earnings.

 

Of the amount included in AOCE at June 26, 2016, the Company expects approximately $26,920 to be reclassified to the consolidated statements of operations within the next 12 months. However, the amount ultimately realized in earnings is dependent on the fair value of the hedging instruments on the settlement dates.

 

(4) Financial Instruments

 

The Company's financial instruments include cash and cash equivalents, accounts receivable, short-term borrowings, accounts payable and certain accrued liabilities. At June 26, 2016, June 28, 2015 and December 27, 2015, the carrying cost of these instruments approximated their fair value. The Company's financial instruments at June 26, 2016, June 28, 2015 and December 27, 2015 also include certain assets and liabilities measured at fair value (see Notes 6 and 8) as well as long-term borrowings. The carrying costs which are equal to the outstanding principal amounts, and fair values of the Company's long-term borrowings as of June 26, 2016, June 28, 2015 and December 27, 2015 are as follows:

 

 


 

 

June 26, 2016

 

June 28, 2015

 

December 27, 2015

 

Carrying

 

Fair

 

Carrying

 

Fair

 

Carrying

 

Fair

 

Cost

 

Value

 

Cost

 

Value

 

Cost

 

Value

6.35% Notes Due 2040

$

500,000

 

 

608,600

 

 

500,000

 

 

557,450

 

 

500,000

 

 

556,300

6.30% Notes Due 2017

 

350,000

 

 

370,125

 

 

350,000

 

 

382,235

 

 

350,000

 

 

374,045

5.10% Notes Due 2044

 

300,000

 

 

317,490

 

 

300,000

 

 

287,010

 

 

300,000

 

 

286,710

3.15% Notes Due 2021

 

300,000

 

 

308,640

 

 

300,000

 

 

301,800

 

 

300,000

 

 

300,060

6.60% Debentures Due 2028

 

109,895

 

 

133,006

 

 

109,895

 

 

121,115

 

 

109,895

 

 

121,269

Total long-term debt

$

1,559,895

 

 

1,737,861

 

 

1,559,895

 

 

1,649,610

 

 

1,559,895

 

 

1,638,384

Less: Deferred debt expenses

 

12,142

 

 

-

 

 

13,418

 

 

-

 

 

12,780

 

 

-

Long-term debt

$

1,547,753

 

 

1,737,861

 

 

1,546,477

 

 

1,649,610

 

 

1,547,115

 

 

1,638,384

 

The fair values of the Company's long-term debt are considered Level 3 fair values (see Note 6 for further discussion of the fair value hierarchy) and are measured using the discounted future cash flows method. In addition to the debt terms, the valuation methodology includes an assumption of a discount rate that approximates the current yield on a similar debt security. This assumption is considered an unobservable input in that it reflects the Company's own assumptions about the inputs that market participants would use in pricing the asset or liability. The Company believes that this is the best information available for use in the fair value measurement.

 

In April 2015, the FASB issued ASU No. 2015-03, Interest – Imputation of Interest (ASC 835-30), which simplifies the presentation of debt issuance costs. ASU 2015-03 requires debt issuance costs related to long-term debt to be presented in the balance sheet as a reduction to the carrying amount of the related debt liability, consistent with the presentation of discounts. The Company adopted ASU 2015-03 at December 27, 2015 and deferred debt costs are presented as a reduction of long-term debt.  Debt issuance costs of $13,418 have been reclassified from other assets in the consolidated balance sheet for June 28, 2015, to reflect this change in accounting principle.

  

 

(5) Income Taxes

 

The Company and its subsidiaries file income tax returns in the United States and various state and international jurisdictions. In the normal course of business, the Company is regularly audited by U.S. federal, state and local and international tax authorities in various tax jurisdictions.

 

The Company is no longer subject to U.S. federal income tax examinations for years before 2013. With few exceptions, the Company is no longer subject to U.S., state or local and non-U.S. income tax examinations by tax authorities in its major jurisdictions for years before 2009. The Company is currently under income tax examination in several U.S., state and local and non-U.S. jurisdictions.

 

In November 2015, the FASB issued ASU 2015-17, Income Taxes , which simplifies the presentation of deferred income taxes by removing the requirement to bifurcate deferred income tax assets and liabilities between current and non-current. The Company adopted ASU 2015-17 as of December 27, 2015 and deferred income tax assets and liabilities are presented as non-current in the consolidated balance sheets. This adoption was applied retrospectively and $74,044 has been reclassified from prepaid expenses and other current assets to other assets and $5,015 has been reclassified from accrued liabilities to other liabilities in the consolidated balance sheet as of June 28, 2015.

 

(6) Fair Value of Financial Instruments

 

The Company measures certain financial instruments at fair value. The fair value hierarchy consists of three levels: Level 1 fair values are based on quoted market prices in active markets for identical assets or liabilities that the entity has the ability to access; Level 2 fair values are those based on quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable data for substantially the full term of the assets or liabilities; and Level 3 fair values are based on inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

 


 

 

Accounting standards permit entities to measure many financial instruments and certain other items at fair value and establish presentation and disclosure requirements designed to facilitate comparisons between entities that choose different measurement attributes for similar assets and liabilities. The Company has elected the fair value option for certain available-for-sale investments. At June 26, 2016, June 28, 2015 and December 27, 2015, these investments totaled $23,056, $32,766 and $22,539, respectively, and are included in prepaid expenses and other current assets in the consolidated balance sheets. The Company recorded net gains of $399 and $482 on these investments in other (income) expense, net for the quarter and six-months ended June 26, 2016, respectively, related to the change in fair value of such instruments.  For the quarter and six-month periods ended June 28, 2015 the Company recorded net losses of $87 and $70, respectively, in other (income) expense, net, related to the change in fair value of such instruments.

 

 


 

At June 26, 2016, June 28, 2015 and December 27, 2015, the Company had the following assets and liabilities measured at fair value (excluding assets for which the fair value is measured using net asset value per share) in its consolidated balance sheets:

 

Fair Value Measurements Using:

 

 

 

 

Quoted

 

 

 

 

 

 

 

 

 

 

Prices in

 

 

 

 

 

 

 

 

 

 

Active

 

 

 

 

 

 

 

 

 

 

Markets

 

Significant

 

 

 

 

 

 

 

for

 

Other

 

Significant

 

 

 

 

Identical

 

Observable

 

Unobservable

 

Fair

 

Assets

 

Inputs

 

Inputs

 

Value

 

(Level 1)

 

(Level 2)

 

(Level 3)

June 26, 2016

 

 

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

Available-for-sale securities

$

5,597

 

 

5,597

 

 

-

 

 

-

Derivatives

 

63,277

 

 

-

 

 

63,277

 

 

-

Total assets

$

68,874

 

 

5,597

 

 

63,277

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

Derivatives

$

13,148

 

 

-

 

 

13,148

 

 

-

Option agreement

 

27,560

 

 

-

 

 

-

 

 

27,560

Total liabilities

$

40,708

 

 

-

 

 

13,148

 

 

27,560

 

 

 

 

 

 

 

 

 

 

 

 

June 28, 2015

 

 

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

Available-for-sale securities

$

5,959

 

 

5,959

 

 

-

 

 

-

Derivatives

 

105,906

 

 

-

 

 

105,906

 

 

-

Total assets

$

111,865

 

 

5,959

 

 

105,906

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

Derivatives

$

2,748

 

 

-

 

 

2,748

 

 

-

Option agreement

 

25,190

 

 

-

 

 

-

 

 

25,190

Total liabilities

$

27,938

 

 

-

 

 

2,748

 

 

25,190

 

 

 

 

 

 

 

 

 

 

 

 

December 27, 2015

 

 

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

Available-for-sale securities

$

3,476

 

 

3,476

 

 

-

 

 

-

Derivatives

 

107,634