Hasbro, Inc.
HASBRO INC (Form: 10-Q, Received: 08/02/2017 16:18:15)  

 

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 July 2, 2017

[ ]  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 24, 2017 was 125,081,081.

 


 

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

HASBRO, INC. AND SUBSIDIARIES

 

Consolidated Balance Sheets

 

(Thousands of Dollars Except Share Data)

 

(Unaudited)

 

 

 

 

 

July 2,

 

June 26,

 

December 25,

 

 

 

 

 

2017

 

2016

 

2016

 

ASSETS

 

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

 

  

Cash and cash equivalents

$

1,433,500

 

 

924,098

 

 

1,282,285

 

 

Accounts receivable, less allowance for doubtful accounts of $15,200,

 

 

 

 

 

 

 

 

 

 

 

$32,800 and $16,800

 

846,547

 

 

703,821

 

 

1,319,963

 

  

Inventories

 

557,507

 

 

572,391

 

 

387,675

 

  

Prepaid expenses and other current assets

 

257,251

 

 

323,046

 

 

237,684

 

  

  

  

Total current assets

 

3,094,805

 

 

2,523,356

 

 

3,227,607

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property, plant and equipment, less accumulated depreciation of $408,200,

 

 

 

 

 

 

 

 

 

 

 

$375,300 and $383,700

 

268,973

 

 

242,607

 

 

267,398

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other assets

 

 

 

 

 

 

 

 

 

  

Goodwill

 

572,143

 

 

592,806

 

 

570,555

 

  

Other intangibles, net, accumulated amortization of $891,800, $858,700

 

 

 

 

 

 

 

 

 

 

 

and $876,000

 

230,188

 

 

263,425

 

 

245,949

 

  

Other

 

746,634

 

 

722,191

 

 

779,857

 

  

 

Total other assets

 

1,548,965

 

 

1,578,422

 

 

1,596,361

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

 

Total assets

$

4,912,743

 

 

4,344,385

 

 

5,091,366

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS

 

 

 

 

 

 

 

 

 

 

AND SHAREHOLDERS' EQUITY

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

 

  

Short-term borrowings

$

186,863

 

 

5,400

 

 

172,582

 

 

Current portion of long-term debt

 

349,916

 

 

-

 

 

349,713

 

  

Accounts payable

 

368,312

 

 

214,243

 

 

319,525

 

  

Accrued liabilities

 

567,156

 

 

525,377

 

 

776,039

 

  

 

Total current liabilities

 

1,472,247

 

 

745,020

 

 

1,617,859

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term debt

 

1,199,114

 

 

1,547,753

 

 

1,198,679

 

Other liabilities

 

408,888

 

 

402,614

 

 

389,388

 

  

 

Total liabilities

 

3,080,249

 

 

2,695,387

 

 

3,205,926

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Redeemable noncontrolling interests

 

-

 

 

36,465

 

 

22,704

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 July 2, 2017, June 26, 2016,

 

 

 

 

 

 

 

 

 

 

 

and December 25, 2016

 

104,847

 

 

104,847

 

 

104,847

 

  

Additional paid-in capital

 

1,021,690

 

 

945,802

 

 

985,418

 

  

Retained earnings

 

4,141,903

 

 

3,825,289

 

 

4,148,722

 

  

Accumulated other comprehensive loss

 

(226,613)

 

 

(174,301)

 

 

(194,570)

 

  

Treasury stock, at cost; 84,615,971 shares at July 2, 2017; 84,241,018

 

 

 

 

 

 

 

 

 

 

 

shares at June 26, 2016; and 85,207,677 shares at December 25, 2016

 

(3,209,333)

 

 

(3,089,104)

 

 

(3,181,681)

 

  

 

Total shareholders' equity

 

1,832,494

 

 

1,612,533

 

 

1,862,736

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

 

Total liabilities, redeemable noncontrolling interests and

 

 

 

 

 

 

 

 

 

 

 

 

shareholders' equity

$

4,912,743

 

 

4,344,385

 

 

5,091,366

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

July 2,

 

June 26,

 

July 2,

 

June 26,

 

 

 

 

2017

 

2016

 

2017

 

2016

Net revenues

 

$

972,506

 

 

878,945

 

 

1,822,169

 

 

1,710,125

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of sales

 

 

368,233

 

 

321,676

 

 

674,315

 

 

611,916

 

Royalties

 

 

79,152

 

 

69,408

 

 

143,532

 

 

139,377

 

Product development

 

 

62,793

 

 

63,671

 

 

125,379

 

 

120,835

 

Advertising

 

 

92,374

 

 

86,957

 

 

173,310

 

 

166,816

 

Amortization of intangibles

 

 

7,881

 

 

8,691

 

 

15,762

 

 

17,382

 

Program production cost amortization

 

 

5,188

 

 

5,033

 

 

10,758

 

 

11,219

 

Selling, distribution and administration

 

 

256,901

 

 

238,635

 

 

500,786

 

 

471,790

 

 

Total costs and expenses

 

 

872,522

 

 

794,071

 

 

1,643,842

 

 

1,539,335

Operating profit

 

 

99,984

 

 

84,874

 

 

178,327

 

 

170,790

Non-operating (income) expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

24,224

 

 

23,914

 

 

48,680

 

 

47,958

 

Interest income

 

 

(5,116)

 

 

(2,312)

 

 

(10,680)

 

 

(4,525)

 

Other (income) expense, net

 

 

(6,010)

 

 

(3,748)

 

 

(17,396)

 

 

1,124

 

 

Total non-operating expense, net

 

 

13,098

 

 

17,854

 

 

20,604

 

 

44,557

Earnings before income taxes

 

 

86,886

 

 

67,020

 

 

157,723

 

 

126,233

Income tax expense

 

 

19,163

 

 

17,601

 

 

21,401

 

 

29,843

Net earnings

 

 

67,723

 

 

49,419

 

 

136,322

 

 

96,390

Net loss attributable to noncontrolling interests

 

 

-

 

 

(2,687)

 

 

-

 

 

(4,467)

Net earnings attributable to Hasbro, Inc.

 

$

67,723

 

 

52,106

 

 

136,322

 

 

100,857

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.54

 

 

0.42

 

 

1.09

 

 

0.80

 

Diluted

 

$

0.53

 

 

0.41

 

 

1.07

 

 

0.79

Cash dividends declared per common share

 

$

0.57

 

 

0.51

 

 

1.14

 

 

1.02

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

July 2,

 

June 26,

 

July 2,

 

June 26,

 

 

 

 

2017

 

2016

 

2017

 

2016

Net earnings

 

$

67,723

 

 

49,419

 

 

136,322

 

 

96,390

Other comprehensive earnings (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

4,139

 

 

7,825

 

 

28,812

 

 

19,965

 

Net losses on cash flow hedging activities,

 

 

 

 

 

 

 

 

 

 

 

 

 

  

net of tax

 

 

(33,880)

 

 

(8,258)

 

 

(57,197)

 

 

(24,044)

 

Unrealized holding gains (losses) on available

 

 

 

 

 

 

 

 

 

 

 

 

 

 

-for-sale securities, net of tax

 

 

260

 

 

(327)

 

 

229

 

 

1,353

 

Reclassifications to earnings, net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net gains on cash flow hedging activities

 

 

(1,410)

 

 

(10,363)

 

 

(6,784)

 

 

(27,924)

 

 

Unrecognized pension and postretirement amounts

 

 

1,449

 

 

1,175

 

 

2,897

 

 

2,350

Total other comprehensive loss, net of tax

 

 

(29,442)

 

 

(9,948)

 

 

(32,043)

 

 

(28,300)

Comprehensive earnings

 

 

38,281

 

 

39,471

 

 

104,279

 

 

68,090

Comprehensive loss attributable to noncontrolling interests

 

 

-

 

 

(2,687)

 

 

-

 

 

(4,467)

Comprehensive earnings attributable to Hasbro, Inc.

 

$

38,281

 

 

42,158

 

 

104,279

 

 

72,557

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying condensed notes to consolidated financial statements.

 


 

HASBRO, INC. AND SUBSIDIARIES

 

Consolidated Statements of Cash Flows

 

(Thousands of Dollars)

 

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended

 

 

 

 

 

 

July 2,

 

June 26,

 

 

 

 

 

 

2017

 

2016

 

Cash flows from operating activities:

 

 

 

 

 

 

 

  

Net earnings

 

$

136,322

 

 

96,390

 

  

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

 

 

 

 

 

 

 

  

 

Depreciation of plant and equipment

 

 

65,791

 

 

57,091

 

 

 

Amortization of intangibles

 

 

15,762

 

 

17,382

 

  

 

Program production cost amortization

 

 

10,758

 

 

11,219

 

  

 

Deferred income taxes

 

 

10,908

 

 

8,702

 

  

 

Stock-based compensation

 

 

25,132

 

 

25,577

 

Change in operating assets and liabilities net of acquired and disposed balances:

 

 

 

 

 

 

 

  

 

Decrease in accounts receivable

 

 

491,935

 

 

519,376

 

  

 

Increase in inventories

 

 

(157,059)

 

 

(185,048)

 

  

 

Increase in prepaid expenses and other current assets

 

 

(28,150)

 

 

(60,483)

 

  

 

Program production costs

 

 

(19,135)

 

 

(25,387)

 

  

 

Decrease in accounts payable and accrued liabilities

 

 

(208,903)

 

 

(156,690)

 

  

 

Other

 

 

22,745

 

 

(2,193)

 

  

 

 

Net cash provided by operating activities

 

 

366,106

 

 

305,936

 

Cash flows from investing activities:

 

 

 

 

 

 

 

  

 

Additions to property, plant and equipment

 

 

(66,321)

 

 

(66,390)

 

  

 

Other

 

 

(1,465)

 

 

20,431

 

  

 

 

Net cash utilized by investing activities

 

 

(67,786)

 

 

(45,959)

 

Cash flows from financing activities:

 

 

 

 

 

 

 

  

 

Net proceeds from (repayments of) other short-term borrowings

 

 

14,258

 

 

(159,136)

 

  

 

Purchases of common stock

 

 

(18,561)

 

 

(57,337)

 

  

 

Stock-based compensation transactions

 

 

9,902

 

 

36,388

 

  

 

Dividends paid

 

 

(134,655)

 

 

(121,311)

 

 

 

Payments related to tax withholding for share-based compensation

 

 

(31,400)

 

 

(18,672)

 

  

 

Other

 

 

-

 

 

762

 

  

 

 

Net cash utilized by financing activities

 

 

(160,456)

 

 

(319,306)

 

Effect of exchange rate changes on cash

 

 

13,351

 

 

6,677

 

Increase (decrease) in cash and cash equivalents

 

 

151,215

 

 

(52,652)

 

Cash and cash equivalents at beginning of year

 

 

1,282,285

 

 

976,750

 

Cash and cash equivalents at end of period

 

$

1,433,500

 

 

924,098

 

 

 

 

 

 

 

 

 

 

 

 

Supplemental information

 

 

 

 

 

 

 

  

Cash paid during the period for:

 

 

 

 

 

 

 

  

 

Interest

 

$

43,960

 

 

43,682

 

  

 

Income taxes

 

$

64,787

 

 

49,297

 

 

 

 

 

 

 

 

 

 

  

 

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 July 2, 2017 and June 26, 2016, 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 July 2, 2017 and June 26, 2016 were each 13-week periods. The six-month period ended July 2, 2017 was a 27-week period while the six-month period ended June 26, 2016 was a 26-week period.

 

The results of operations for the quarter and six-month periods ended July 2, 2017 are not necessarily indicative of results to be expected for the full year, nor were those of the comparable 2016 periods representative of those actually experienced for the full year 2016.

 

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 25, 2016 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 25, 2016 with the exception of the accounting policy related to stock compensation.  During the first quarter of 2017, the Company adopted Accounting Standards Update (“ASU”) 2016-09, Improvements to Employee Share-Based Payment Accounting. The ASU includes provisions intended to simplify how share-based payments are accounted for and presented in the financial statements including:

·            Prospectively, the requirement to record all of the tax effects related to share-based payments at settlement through the income statement.  For the six-months ended July 2, 2017, excess tax benefits of $15,461 were recorded to income tax expense.  

·            A requirement that all tax-related cash flows resulting from share-based payments be reported as operating activities on the statement of cash flows.  Previously, these amounts were reported as a cash inflow from financing activities.  The Company elected to apply this requirement of the standard retrospectively.  Accordingly, the cash flow statement for the six months ended June 26, 2016 has been restated to include $ 18,423 of cash flows from excess tax benefits, previously included as financing activities, in operating activities with other income tax cash flows.  For the six months ended July 2, 2017 excess tax benefits of $ 15,461 were reported as operating activities.

·            A requirement that all cash payments made to taxing authorities on the employees’ behalf for withheld shares shall be presented as financing activities in the statements of cash flows.  Prior to adoption of ASU 2016-09, these cash flows were included as operating activities. This change was required to be applied on a retrospective basis and as a result, the Company has restated the consolidated statement of cash flows for the six months ended June 26, 2016. This change resulted in payments of $ 18,672 for the six months ended June 26, 2016 being included in financing activities.  For the six months ended July 2, 2017, such payments amounted to $ 31,400 .

 


 

·            Entities are permitted to make an accounting policy election for the impact of forfeitures on the recognition of expense for share-based payment awards choosing either to estimate forfeitures as previously required or recognize forfeitures as they occur. The Company elected to change its method of accounting for forfeitures from estimating the number of stock-based awards expected to vest, to accounting for forfeitures as they occur which resulted in a one-time charge, net of tax, of $ 700 to retained earnings recorded during the first quarter of 2017. Based upon the Company’s history of forfeitures, it is not expected that this election will have a material impact on its financial statements going forward however, as any impact will be based on future forfeitures, the actual impact could differ from the Company’s expectation.

 

Through 2016, the Company had one investment with a redeemable noncontrolling interest which was the Company’s 70 % majority interest in Backflip Studios, LLC (“Backflip”). During the first quarter of 2017, the Company acquired the remaining 30 % of Backflip for no additional consideration, making it a wholly-owned subsidiary of the Company.  

 

(2) Earnings Per Share

 

Net earnings per share data for the quarters and six-month periods ended July 2, 2017 and June 26, 2016 were computed as follows:

 

 

2017

 

2016

Quarter

Basic

 

Diluted

 

Basic

 

Diluted

Net earnings attributable to Hasbro, Inc.

$

67,723

 

 

67,723

 

 

52,106

 

 

52,106

 

 

 

 

 

 

 

 

 

 

 

 

Average shares outstanding

 

125,263

 

 

125,263

 

 

125,475

 

 

125,475

Effect of dilutive securities:

 

 

 

 

 

 

 

 

 

 

 

   Options and other share-based awards

 

-

 

 

2,104

 

 

-

 

 

1,566

Equivalent Shares

 

125,263

 

 

127,367

 

 

125,475

 

 

127,041

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings attributable to Hasbro, Inc. per common share

$

0.54

 

 

0.53

 

 

0.42

 

 

0.41

 

 

2017

 

2016

Six Months

Basic

 

Diluted

 

Basic

 

Diluted

Net earnings attributable to Hasbro, Inc.

$

136,322

 

 

136,322

 

 

100,857

 

 

100,857

 

 

 

 

 

 

 

 

 

 

 

 

Average shares outstanding

 

125,221

 

 

125,221

 

 

125,371

 

 

125,371

Effect of dilutive securities:

 

 

 

 

 

 

 

 

 

 

 

     Options and other share-based awards

 

-

 

 

2,075

 

 

-

 

 

1,624

Equivalent Shares

 

125,221

 

 

127,296

 

 

125,371

 

 

126,995

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings attributable to Hasbro, Inc. per common share

$

1.09

 

 

1.07

 

 

0.80

 

 

0.79

 

For the quarters ended July 2, 2017 and June 26, 2016, options and restricted stock units totaling 453 and 492, respectively, were excluded from the calculation of diluted earnings per share because to include them would have been antidilutive. For the six-month periods ended July 2, 2017 and June 26, 2016, options and restricted stock units totaling 546 and 492, 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 July 2, 2017 and June 26, 2016.

 


 

 

  

 

 

 

Quarter Ended

 

Six Months Ended

 

 

July 2,

 

June 26,

 

July 2,

 

June 26,

 

 

2017

 

2016

 

2017

 

2016

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive earnings (loss), tax effect:

 

 

 

 

 

 

 

 

 

 

 

Tax (expense) benefit on cash flow hedging activities

$

(1,074)

 

 

4,747

 

 

4,236

 

 

8,003

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

 

(148)

 

 

185

 

 

(130)

 

 

(768)

Reclassifications to earnings, tax effect:

 

 

 

 

 

 

 

 

 

 

 

 

Tax expense (benefit) on cash flow hedging activities

 

(640)

 

 

1,069

 

 

(1,009)

 

 

2,818

 

Tax benefit on unrecognized pension and

 

 

 

 

 

 

 

 

 

 

 

 

postretirement amounts reclassified to the

 

 

 

 

 

 

 

 

 

 

 

  

consolidated statements of operations

 

(822)

 

 

(666)

 

 

(1,644)

 

 

(1,333)

Total tax effect on other comprehensive earnings (loss)

$

(2,684)

 

 

5,335

 

 

1,453

 

 

8,720

 

Changes in the components of accumulated other comprehensive loss for the quarters ended July 2, 2017 and June 26, 2016 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

 

Loss

2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 25, 2016

$

(118,401)

 

 

51,085

 

 

1,424

 

 

(128,678)

 

 

(194,570)

Current period other comprehensive earnings (loss)

 

2,897

 

 

(63,981)

 

 

229

 

 

28,812

 

 

(32,043)

Balance at July 2, 2017

$

(115,504)

 

 

(12,896)

 

 

1,653

 

 

(99,866)

 

 

(226,613)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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)

 

At July 2, 2017, the Company had remaining net deferred gains on foreign currency forward contracts, net of tax, of $4,724 in accumulated other comprehensive loss ("AOCE"). These instruments hedge payments related to inventory purchased in the second quarter of 2017 or forecasted to be purchased during the remainder of 2017 and, to a lesser extent, 2018 through 2021, intercompany expenses expected to be paid or received during 2017 and 2018, cash receipts for sales made at the end of the second quarter of 2017 or forecasted to be made in the remainder of 2017 and, to a lesser extent, 2018 through 2019. 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, 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 July 2, 2017, deferred losses, net of tax of $17,620 related to these instruments remained in AOCE. For the quarters ended July 2, 2017 and June 26, 2016, previously deferred losses of $450 were reclassified from AOCE to net earnings. For the six month periods ended July 2, 2017 and June 26, 2016, previously deferred losses of $934 and $899 were reclassified from AOCE to net earnings, respectively.

 

 


 

Of the amount included in AOCE at July 2, 2017, the Company expects net losses of approximately $8,476 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 July 2, 2017, June 26, 2016 and December 25, 2016, the carrying cost of these instruments approximated their fair value. The Company's financial instruments at July 2, 2017, June 26, 2016 and December 25, 2016 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 July 2, 2017, June 26, 2016 and December 25, 2016 are as follows:

 

 

July 2, 2017

 

June 26, 2016

 

December 25, 2016

 

Carrying

 

Fair

 

Carrying

 

Fair

 

Carrying

 

Fair

 

Cost

 

Value

 

Cost

 

Value

 

Cost

 

Value

6.35% Notes Due 2040

$

500,000

 

 

614,800

 

 

500,000

 

 

608,600

 

 

500,000

 

 

584,850

6.30% Notes Due 2017

 

350,000

 

 

353,115

 

 

350,000

 

 

370,125

 

 

350,000

 

 

361,900

5.10% Notes Due 2044

 

300,000

 

 

325,500

 

 

300,000

 

 

317,490

 

 

300,000

 

 

297,600

3.15% Notes Due 2021

 

300,000

 

 

307,230

 

 

300,000

 

 

308,640

 

 

300,000

 

 

300,450

6.60% Debentures Due 2028

 

109,895

 

 

127,940

 

 

109,895

 

 

133,006

 

 

109,895

 

 

123,984

Total long-term debt

$

1,559,895

 

 

1,728,585

 

 

1,559,895

 

 

1,737,861

 

 

1,559,895

 

 

1,668,784

Less: Current portion

 

350,000

 

 

353,115

 

 

-

 

 

-

 

 

350,000

 

  

361,900

Less: Deferred debt expenses

 

10,781

 

 

-

 

 

12,142

 

 

-

 

 

11,216

 

 

-

Long-term debt

$

1,199,114

 

 

1,375,470

 

 

1,547,753

 

 

1,737,861

 

 

1,198,679

 

 

1,306,884

 

Current portion of long-term debt at July 2, 2017 and December 25, 2016 of $ 349,916 and $ 349,713 , respectively, as shown on the consolidated balance sheet represents the $350,000 principal of 6.30% notes less $ 84 and $ 287 , respectively, of deferred debt expenses.

 

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.

  

 

(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 2012. 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.  In the third quarter of 2016, the U.S. Internal Revenue Service commenced an examination related to the 2012 and 2013 amended U.S. federal income tax returns.  The Company is also under income tax examination in several U.S. state and local and non-U.S. jurisdictions.                  

 

(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 July 2, 2017, June 26, 2016 and December 25, 2016, these investments totaled $23,967, $23,056 and $23,571, respectively, and are included in prepaid expenses and other current assets in the consolidated balance sheets. The Company recorded net gains of $384 and $1,015 on these investments in other (income) expense, net for the quarter and six-months ended July 2, 2017, respectively, related to the change in fair value of such instruments.  For the quarter and six-month periods ended June 26, 2016 the Company recorded net losses of $399 and $482, respectively, in other (income) expense, net, related to the change in fair value of such instruments.

 

 


 

At July 2, 2017, June 26, 2016 and December 25, 2016, the Company had the following assets and liabilities measured at fair value in its consolidated balance sheets (excluding assets for which the fair value is measured using net asset value per share):

 

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)

July 2, 2017

 

 

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

Available-for-sale securities

$

4,096

 

 

4,096

 

 

-

 

 

-

Derivatives

 

25,372

 

 

-

 

 

25,372

 

 

-

Total assets

$

29,468

 

 

4,096

 

 

25,372

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

Derivatives

$

22,244

 

 

-

 

 

22,244

 

 

-

Option agreement

 

28,500

 

 

-

 

 

-

 

 

28,500

Total liabilities

$

50,744

 

 

-

 

 

22,244

 

 

28,500

 

 

 

 

 

 

 

 

 

 

 

 

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