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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C.   20549
__________________
FORM 10-Q
__________________
(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2019
or
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 or other jurisdiction of incorporation or organization)
 
 
(I.R.S. Employer Identification No.)
 
 
 
1027 Newport Avenue
Pawtucket,
Rhode Island
02860
 
(Address of Principal Executive Offices)
 
 
(Zip Code)
 
(401) 431-8697
Registrant's telephone number, including area code

    
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, $0.50 par value per share
HAS
The NASDAQ Global Select Market
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 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 [x]  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 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
x
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  [x]
The number of shares of Common Stock, par value $.50 per share, outstanding as of July 23, 2019 was 126,200,837.





PART I. FINANCIAL INFORMATION
Item 1.    Financial Statements.
HASBRO, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Thousands of Dollars Except Share Data)
(Unaudited)
 
June 30,
2019
 
July 1,
2018
 
December 30,
2018
ASSETS
 
 
 
 
 
Current assets
 
 
 
 
 
Cash and cash equivalents
$
1,151,042

 
1,159,072

 
1,182,371

Accounts receivable, less allowance for doubtful accounts of $17,000
$95,900 and $9,100
805,288

 
739,268

 
1,188,052

Inventories
564,769

 
610,248

 
443,383

Prepaid expenses and other current assets
308,996

 
319,045

 
268,698

Total current assets
2,830,095

 
2,827,633

 
3,082,504

Property, plant and equipment, less accumulated depreciation of $490,000
$444,500 and $462,700
387,372

 
265,904

 
256,473

Other assets
 
 
 
 
 
Goodwill
485,765

 
572,488

 
485,881

Other intangible assets, net of accumulated amortization of $759,900
$915,900 and $721,700
670,214

 
741,076

 
693,842

Other
665,164

 
706,755

 
744,288

Total other assets
1,821,143

 
2,020,319

 
1,924,011

Total assets
$
5,038,610

 
5,113,856

 
5,262,988

LIABILITIES AND SHAREHOLDERS' EQUITY
 
 
 
 
 
Current liabilities
 
 
 
 
 
Short-term borrowings
$
12,787

 
20,121

 
9,740

Accounts payable
330,053

 
339,861

 
333,521

Accrued liabilities
729,856

 
692,462

 
931,063

Total current liabilities
1,072,696

 
1,052,444

 
1,274,324

Long-term debt
1,695,833

 
1,694,350

 
1,695,092

Other liabilities
554,212

 
600,312

 
539,086

Total liabilities
3,322,741

 
3,347,106

 
3,508,502

Shareholders' equity
 
 
 
 
 
Preference stock of $2.50 par value. Authorized 5,000,000 shares; none issued

 

 

Common stock of $0.50 par value. Authorized 600,000,000 shares; issued 209,694,630 at June 30, 2019, July 1, 2018, and December 30, 2018
104,847

 
104,847

 
104,847

Additional paid-in capital
1,290,540

 
1,263,657

 
1,275,059

Retained earnings
4,053,266

 
4,070,661

 
4,184,374

Accumulated other comprehensive loss
(173,175
)
 
(295,076
)
 
(294,514
)
Treasury stock, at cost; 83,488,022 shares at June 30, 2019; 82,370,078 shares at July 1, 2018; and 83,565,598 shares at December 30, 2018
(3,559,609
)
 
(3,377,339
)
 
(3,515,280
)
Total shareholders' equity
1,715,869

 
1,766,750

 
1,754,486

Total liabilities and shareholders' equity
$
5,038,610

 
5,113,856

 
5,262,988

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 30,
2019
 
July 1,
2018
 
June 30,
2019
 
July 1,
2018
Net revenues
$
984,537

 
904,458

 
$
1,717,047

 
1,620,799

Costs and expenses:
 
 
 
 
 
 
 
Cost of sales
343,694

 
338,306

 
603,681

 
593,493

Royalties
71,061

 
66,045

 
130,949

 
135,697

Product development
65,632

 
59,859

 
121,892

 
117,243

Advertising
92,799

 
87,601

 
169,403

 
155,617

Amortization of intangibles
11,815

 
4,554

 
23,631

 
11,032

Program production cost amortization
23,502

 
7,297

 
30,077

 
19,331

Selling, distribution and administration
247,701

 
253,208

 
472,954

 
581,217

Total costs and expenses
856,204

 
816,870

 
1,552,587

 
1,613,630

Operating profit
128,333

 
87,588

 
164,460

 
7,169

Non-operating (income) expense:
 
 
 
 
 
 
 
Interest expense
22,018

 
22,803

 
44,332

 
45,612

Interest income
(5,996
)
 
(6,308
)
 
(13,678
)
 
(12,556
)
Other expense (income), net
106,203

 
2,969

 
98,103

 
(5,623
)
Total non-operating expense, net
122,225

 
19,464

 
128,757

 
27,433

Earnings (loss) before income taxes
6,108

 
68,124

 
35,703

 
(20,264
)
Income tax expense (benefit)
(7,325
)
 
7,825

 
(4,457
)
 
31,929

Net earnings (loss)
$
13,433

 
60,299

 
$
40,160

 
(52,193
)
 
 
 
 
 
 
 
 
Net earnings (loss) per common share:
 
 
 
 
 
 
 
Basic
$
0.11

 
0.48

 
$
0.32

 
(0.42
)
Diluted
$
0.11

 
0.48

 
$
0.32

 
(0.42
)
Cash dividends declared per common share
$
0.68

 
0.63

 
$
1.36

 
1.26

See accompanying condensed notes to consolidated financial statements.





HASBRO, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Earnings (Loss)
(Thousands of Dollars)
(Unaudited)
 
Quarter Ended
 
Six Months Ended
 
June 30,
2019
 
July 1,
2018
 
June 30,
2019
 
July 1,
2018
Net earnings (loss)
$
13,433

 
60,299

 
40,160

 
(52,193
)
Other comprehensive earnings (loss):
 
 
 
 
 
 
 
Foreign currency translation adjustments
3,334

 
(50,627
)
 
10,327

 
(37,798
)
Unrealized holding gains (losses) on available-for-sale securities, net of tax
290

 
87

 
555

 
(56
)
Net (losses) gains on cash flow hedging activities, net of tax
(2,079
)
 
43,712

 
4,513

 
18,442

Changes in unrecognized pension amounts, net of tax
19,589

 

 
19,589

 
(26,058
)
Reclassifications to earnings (loss), net of tax:
 
 
 
 
 
 
 
Net (gains) losses on cash flow hedging activities
(1,982
)
 
1,635

 
(4,796
)
 
6,990

Amortization of unrecognized pension and postretirement amounts
4,160

 
2,512

 
5,299

 
4,332

Settlement of U.S. defined benefit plan
85,852

 

 
85,852

 

Total other comprehensive earnings (loss), net of tax
109,164

 
(2,681
)
 
121,339

 
(34,148
)
Comprehensive earnings (loss)
$
122,597

 
57,618

 
161,499

 
(86,341
)
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 30,
2019
 
July 1,
2018
Cash flows from operating activities:
 
 
 
Net earnings (loss)
$
40,160

 
(52,193
)
Adjustments to reconcile net earnings (loss) to net cash provided by operating activities:
 
 
 
Depreciation of plant and equipment
62,408

 
62,292

Amortization of intangibles
23,631

 
11,032

Program production cost amortization
30,077

 
19,331

Deferred income taxes
(15,236
)
 
(17,839
)
Stock-based compensation
15,894

 
23,545

Non-cash pension settlement
110,777

 

Other non-cash items
(8,241
)
 
(8,442
)
Change in operating assets and liabilities net of acquired balances:
 
 
 
Decrease in accounts receivable
431,557

 
657,175

Increase in inventories
(119,647
)
 
(194,838
)
Increase in prepaid expenses and other current assets
(33,073
)
 
(87,863
)
Program production costs
(59,417
)
 
(78,020
)
Decrease in accounts payable and accrued liabilities
(134,574
)
 
(142,172
)
Change in net deemed repatriation tax
(14,550
)
 
54,622

Other
6,510

 
(5,829
)
Net cash provided by operating activities
336,276

 
240,801

Cash flows from investing activities:
 
 
 
Additions to property, plant and equipment
(58,195
)
 
(71,755
)
Acquisitions

 
(155,451
)
Other
(2,281
)
 
3,384

Net cash utilized by investing activities
(60,476
)
 
(223,822
)
Cash flows from financing activities:
 
 
 
Net proceeds from (repayments of) other short-term borrowings
3,095

 
(133,582
)
Purchases of common stock
(58,633
)
 
(103,493
)
Stock-based compensation transactions
25,779

 
20,108

Dividends paid
(164,908
)
 
(149,528
)
Payments related to tax withholding for share-based compensation
(11,889
)
 
(54,730
)
Deferred acquisition payments
(100,000
)
 

Net cash utilized by financing activities
(306,556
)
 
(421,225
)
Effect of exchange rate changes on cash
(573
)
 
(17,916
)
Decrease in cash and cash equivalents
(31,329
)
 
(422,162
)
Cash and cash equivalents at beginning of year
1,182,371

 
1,581,234

Cash and cash equivalents at end of period
$
1,151,042

 
1,159,072

 
 
 
 
Supplemental information
 
 
 
Cash paid during the period for:
 
 
 
Interest
$
40,807

 
41,200

Income taxes
$
40,014

 
72,545






See accompanying condensed notes to consolidated financial statements.





HASBRO, INC. AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity
(Thousands of Dollars)
Three Months Ended June 30, 2019
 
Common
Stock
 
Additional
Paid-in Capital
 
Retained
Earnings
 
Accumulated Other
Comprehensive  
Loss
 
Treasury
Stock
 
Total
Shareholders'
Equity
Balance, March 31, 2019
$
104,847

 
1,269,230

 
4,125,686

 
(282,339
)
 
(3,562,893
)
 
$
1,654,531

Net earnings

 

 
13,433

 

 

 
13,433

Other comprehensive earnings

 

 

 
109,164

 

 
109,164

Stock-based compensation transactions

 
10,937

 

 

 
12,499

 
23,436

Purchases of common stock

 

 

 

 
(9,451
)
 
(9,451
)
Stock-based compensation expense

 
10,373

 

 

 
236

 
10,609

Dividends declared

 

 
(85,853
)
 

 

 
(85,853
)
Balance, June 30, 2019
$
104,847

 
1,290,540

 
4,053,266

 
(173,175
)
 
(3,559,609
)
 
$
1,715,869

 
Three Months Ended July 1, 2018
 
Common
Stock
 
Additional
Paid-in Capital
 
Retained
Earnings
 
Accumulated Other
Comprehensive  
Loss
 
Treasury
Stock
 
Total
Shareholders'
Equity
Balance, April 1, 2018
104,847

 
1,053,368

 
4,090,637

 
(292,395
)
 
(3,385,098
)
 
1,571,359

Net earnings

 

 
60,299

 

 

 
60,299

Issuance of shares for Saban purchase

 
198,853

 

 

 
81,544

 
280,397

Other comprehensive earnings

 

 

 
(2,681
)
 

 
(2,681
)
Stock-based compensation transactions

 
(1,602
)
 

 

 
101

 
(1,501
)
Purchases of common stock

 

 

 

 
(74,102
)
 
(74,102
)
Stock-based compensation expense

 
13,038

 

 

 
216

 
13,254

Dividends declared

 

 
(80,275
)
 

 

 
(80,275
)
Balance, July 1, 2018
$
104,847

 
$
1,263,657

 
$
4,070,661

 
$
(295,076
)
 
$
(3,377,339
)
 
$
1,766,750

See accompanying condensed notes to consolidated financial statements.













HASBRO, INC. AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity
(Thousands of Dollars)
Six Months Ended June 30, 2019
 
Common
Stock
 
Additional
Paid-in Capital
 
Retained
Earnings
 
Accumulated Other
Comprehensive  
Loss
 
Treasury
Stock
 
Total
Shareholders'
Equity
Balance, December 30, 2018
$
104,847

 
1,275,059

 
4,184,374

 
(294,514
)
 
(3,515,280
)
 
$
1,754,486

Net earnings

 

 
40,160

 

 

 
40,160

Other comprehensive loss

 

 

 
121,339

 

 
121,339

Stock-based compensation transactions

 
(177
)
 

 

 
14,068

 
13,891

Purchases of common stock

 

 

 

 
(58,633
)
 
(58,633
)
Stock-based compensation expense

 
15,658

 

 

 
236

 
15,894

Dividends declared

 

 
(171,268
)
 

 

 
(171,268
)
Balance, June 30, 2019
$
104,847

 
1,290,540

 
4,053,266

 
(173,175
)
 
(3,559,609
)
 
$
1,715,869

 
Six Months Ended July 1, 2018
 
Common
Stock
 
Additional
Paid-in Capital
 
Retained
Earnings
 
Accumulated Other
Comprehensive  
Loss
 
Treasury
Stock
 
Total
Shareholders'
Equity
Balance, December 31, 2017
104,847

 
1,050,605

 
4,260,222

 
(239,425
)
 
(3,346,292
)
 
1,829,957

Net earnings (loss)

 

 
(52,193
)
 

 

 
(52,193
)
Impact of adoption of ASU 2018-02

 

 
21,503

 
(21,503
)
 

 

Issuance of shares for Saban purchase

 
198,853

 

 

 
81,544

 
280,397

Other comprehensive earnings

 

 

 
(34,148
)
 

 
(34,148
)
Stock-based compensation transactions

 
(9,130
)
 

 

 
86

 
(9,044
)
Purchases of common stock

 

 

 

 
(112,893
)
 
(112,893
)
Stock-based compensation expense

 
23,329

 

 

 
216

 
23,545

Dividends declared

 

 
(158,871
)
 

 

 
(158,871
)
Balance, July 1, 2018
$
104,847

 
$
1,263,657

 
$
4,070,661

 
$
(295,076
)
 
$
(3,377,339
)
 
$
1,766,750

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 consolidated financial statements contain all normal and recurring adjustments necessary to present fairly the consolidated financial position of Hasbro, Inc. and all majority-owned subsidiaries ("Hasbro" or the "Company") as of June 30, 2019 and July 1, 2018, and the results of its operations and cash flows and shareholders' equity for the periods then ended in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP"). The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and notes thereto. Actual results could differ from those estimates.
The quarters ended June 30, 2019 and July 1, 2018 were each 13-week periods. The six -month periods ended June 30, 2019 and July 1, 2018 were each 26-week periods.
The results of operations for the quarter and six month periods ended June 30, 2019 are not necessarily indicative of results to be expected for the full year, nor were those of the comparable 2018 period representative of those actually experienced for the full year 2018. Certain reclassifications have been made to prior year amounts to conform to the current period presentation.
These condensed consolidated financial statements have been prepared without audit, pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”).  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 with the SEC audited consolidated financial statements for the fiscal year ended December 30, 2018 in its Annual Report on Form 10-K (“2018 Form 10-K”), which includes all such information and disclosures and, accordingly, should be read in conjunction with the financial information included herein.
Recently Adopted Accounting Standards
The Company's accounting policies are the same as those described in Note 1 to the Company's consolidated financial statements in its 2018 Form 10-K with the exception of the accounting policies related to leases and derivatives and hedging.
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update 2016-02 (ASU 2016-02), Leases (Topic 842), which requires lessees to recognize a right-of-use asset and a lease liability for virtually all leases. The liability is based on the present value of lease payments and the asset is based on the liability. For income statement purposes, a dual model was retained requiring leases to be either classified as operating or finance. Operating leases result in straight-line expense while finance leases result in a front-loaded expense pattern. Certain other quantitative and qualitative disclosures are also required. ASU 2016-02 was required for public companies for fiscal years beginning after December 15, 2018. ASU 2016-02 as originally issued required modified retrospective adoption. In July 2018, the FASB issued ASU 2018-11, which provides an alternative transition method in addition to the existing method by allowing entities to apply ASU 2016-02 as of the adoption date and recognize a cumulative effect adjustment to the opening balance of retained earnings in the period of adoption. The Company adopted ASU-2016-02 on December 31, 2018 using the retrospective basis as provided in ASU 2018-11. No cumulative effect was recorded to retained earnings. The Company also elected certain practical expedients as provided under the standard. These included (i) the election not to reassess whether contracts existing at the adoption date contain a lease under the new definition of a lease under the standard; (ii) the election not to reassess the lease classification for existing leases as of the adoption date; (iii) the election not to reassess whether previously capitalized initial direct costs would qualify for capitalization under the standard; (iv) the election to use hindsight in determining the relevant lease terms for use in the capitalization of the lease liability; and (v) the election to use hindsight in reviewing the right-of-use assets for impairment. For all leases, the terms were evaluated, including extension and renewal options as well as the lease payments associated with the leases. As a result of the adoption of the standard, in the first quarter of 2019, the Company recorded right-of-use assets of $121,230 and lease liabilities of $139,520. The Company’s results of operations were not impacted by this standard. The adoption of this standard did not have an impact on the Company’s cash flows. For further details, see Note 10.





In August 2017, the FASB issued Accounting Standards Update No. 2017-12 (ASU 2017-12), Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. The amendments expand and refine hedge accounting for both non-financial and financial risk components and align the recognition and presentation of the effects of the hedging instrument and the underlying hedged item in the financial statements. The impact of the standard includes elimination of the requirement to separately measure and recognize hedge ineffectiveness and requires the presentation of fair value adjustments to hedging instruments to be included in the same income statement line as the hedged item. For public companies, this standard is effective for annual reporting periods beginning after December 15, 2018, and early adoption is permitted. The Company adopted ASU 2017-12 in the first quarter of 2019 and the adoption of this standard did not have a material impact on the Company’s results or consolidated financial statements.
Recently Issued Accounting Pronouncements
In March 2019, the FASB issued Accounting Standards Update No. 2019-02 (ASU 2019-02) Entertainment—Films—Other Assets—Film Costs (Subtopic 926-20) and Entertainment—Broadcasters—Intangibles—Goodwill and Other (Subtopic 920-350) - Improvements to Accounting for Costs of Films and License Agreements for Program Materials. The amendments in this update align cost capitalization of episodic television series production costs with that of film production cost capitalization. In addition, this update addresses impairment testing procedures with regard to film groups, when a film or license agreement is expected to be monetized with other films and/or license agreements.  The intention of this update is to align accounting treatment with changes in production and distribution models within the entertainment industry and to provide increased transparency of information provided to users of financial statements about produced and licensed content.  For public companies, this standard is effective for annual reporting periods beginning after December 15, 2019, and early adoption is permitted. The Company is currently evaluating the standard and the impact, if any, to its consolidated financial statements.
(2) Revenue Recognition
Revenue Recognition
Revenue is recognized when control of the promised goods is transferred to the customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for transferring those goods.  The Company accounts for a contract when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance, and collectability of consideration is probable.
Contract Assets and Liabilities
Within our Entertainment, Licensing and Digital segment, the Company may receive royalty payments from licensees in advance of the licensees’ subsequent sales to their customers, or in advance of the Company’s performance obligation being satisfied.  In addition, the Company may receive payments from its digital gaming business in advance of the recognition of the revenues. The Company defers revenues on these advanced payments until its performance obligation is satisfied.  The aggregate deferred revenues are recorded as liabilities and were $51,182, $41,380, and $50,759 as of June 30, 2019, July 1, 2018, and December 30, 2018, respectively, and the changes in deferred revenues are not material to the Company’s consolidated statements of operations for the six months ended June 30, 2019 and July 1, 2018, respectively. The Company records contract assets in the case of minimum guarantees that are being recognized ratably over the term of the respective license periods.  At June 30, 2019, July 1, 2018 and December 30, 2018, these contract assets were $41,414, $22,105 and $18,166, respectively, of which $32,199, $18,356 and $12,895, respectively, were recorded in Prepaid Expenses and Other Current Assets and $9,215, $3,749 and $5,271, respectively, were recorded as Other Long-Term Assets.
Disaggregation of revenues
The Company disaggregates its revenues from contracts with customers by segment: U.S. and Canada, International, Entertainment, Licensing and Digital, and Global Operations.  The Company further disaggregates revenues within its International segment by major geographic region: Europe, Latin America, and Asia Pacific.  Finally, the Company disaggregates its revenues by brand portfolio into four brand categories: Franchise brands, Partner brands, Hasbro gaming, and Emerging brands.  We believe these collectively depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors. See Note 11, Segment Reporting, for further information.






(3) Earnings (Loss) Per Share
Net earnings (loss) per share data for the quarters and six months ended June 30, 2019 and July 1, 2018 were computed as follows:
 
2019
 
2018
Quarter
Basic
 
Diluted
 
Basic
 
Diluted
Net earnings
$
13,433

 
13,433

 
60,299

 
60,299

 
 
 
 
 
 
 
 
Average shares outstanding
126,329

 
126,329

 
125,711

 
125,711

Effect of dilutive securities:
 
 
 
 
 
 
 
Options and other share-based awards

 
518

 

 
624

Equivalent Shares
126,329

 
126,847

 
125,711

 
126,335

 
 
 
 
 
 
 
 
Net earnings per common share
$
0.11

 
0.11

 
0.48

 
0.48


 
2019
 
2018
Six Months
Basic
 
Diluted
 
Basic
 
Diluted
Net earnings (loss)
$
40,160

 
40,160

 
(52,193
)
 
(52,193
)
 
 
 
 
 
 
 
 
Average shares outstanding
126,308

 
126,308

 
125,392

 
125,392

Effect of dilutive securities:
 
 
 
 
 
 
 
Options and other share-based awards

 
523

 

 

Equivalent Shares
126,308

 
126,831

 
125,392

 
125,392

 
 
 
 
 
 
 
 
Net earnings (loss) per common share
$
0.32

 
0.32

 
(0.42
)
 
(0.42
)

For the quarters ended June 30, 2019 and July 1, 2018, options and restricted stock units totaling 1,570 and 1,214 shares, respectively, were excluded from the calculation of diluted earnings per share because to include them would have been anti-dilutive. For the six month periods ended June 30, 2019 and July 1, 2018, options and restricted stock units totaling 1,631 and 3,127 shares, respectively, were excluded from the calculation of diluted earnings per share because to include them would have been antidilutive. Of the 2018 amount, 1,921 shares would have been included in the calculation of diluted shares had the Company not had a net loss in the six month period ended July 1, 2018. Assuming that these awards and options were included, under the treasury stock method, they would have resulted in an additional 823 shares being included in the diluted earnings per share calculation for the six month period ended July 1, 2018.





(4) Other Comprehensive Earnings (Loss)
Components of other comprehensive earnings (loss) are presented within the consolidated statements of comprehensive earnings (loss). The following table presents the related tax effects on changes in other comprehensive earnings (loss) for the quarter and six month periods ended June 30, 2019 and July 1, 2018.
 
Quarter Ended
 
Six Months Ended
 
June 30,
2019
 
July 1,
2018
 
June 30,
2019
 
July 1,
2018
 
 
 
 
 
 
 
 
Other comprehensive earnings (loss), tax effect:
 
 
 
 
 
 
 
Tax (expense) benefit on unrealized holding gains (losses)
$
(85
)
 
(25
)
 
(162
)
 
16

Tax benefit (expense) on cash flow hedging activities
49

 
(5,669
)
 
46

 
311

Tax (expense) benefit on changes in unrecognized pension amounts
(5,687
)
 

 
(5,687
)
 
7,565

Reclassifications to earnings, tax effect:
 
 
 
 
 
 
 
Tax expense (benefit) on cash flow hedging activities
188

 
(114
)
 
534

 
(908
)
Tax benefit on unrecognized pension and postretirement amounts reclassified to the consolidated statements of operations
(1,208
)
 
(729
)
 
(1,539
)
 
(1,257
)
Tax benefit on settlement of U.S defined benefit plan
(24,925
)
 

 
(24,925
)
 

Total tax effect on other comprehensive earnings (loss)
$
(31,668
)
 
(6,537
)
 
(31,733
)
 
5,727



Changes in the components of accumulated other comprehensive earnings (loss) for the six months ended June 30, 2019 and July 1, 2018 are as follows:

 
Pension and
Postretirement
Amounts
 
Gains
(Losses) on
Derivative
Instruments
 
Unrealized
Holding
Gains
(Losses) on
Available-
for-Sale
Securities
 
Foreign
Currency
Translation
Adjustments
 
Total
Accumulated
Other
Comprehensive
Loss
2019
 
 
 
 
 
 
 
 
 
Balance at December 30, 2018
$
(143,134
)
 
1,549

 
(744
)
 
(152,185
)
 
(294,514
)
Current period other comprehensive earnings (loss)
110,740

 
(283
)
 
555

 
10,327

 
121,339

Balance at June 30, 2019
$
(32,394
)
 
1,266

 
(189
)
 
(141,858
)
 
(173,175
)
 
 
 
 
 
 
 
 
 
 
2018
 
 
 
 
 
 
 
 
 
Balance at December 31, 2017
$
(110,971
)
 
(32,827
)
 
1,034

 
(96,661
)
 
(239,425
)
Adoption of ASU 2018-02
(18,065
)
 
(3,660
)
 
222

 

 
(21,503
)
Current period other comprehensive earnings (loss)
(21,726
)
 
25,432

 
(56
)
 
(37,798
)
 
(34,148
)
Balance at July 1, 2018
$
(150,762
)
 
(11,055
)
 
1,200

 
(134,459
)
 
(295,076
)

Gains (Losses) on Derivative Instruments
At June 30, 2019, the Company had remaining net deferred gains on foreign currency forward contracts, net of tax, of $19,881 in accumulated other comprehensive loss ("AOCE"). These instruments hedge payments related to inventory purchased in the second quarter of 2019 or forecasted to be purchased during the remainder of 2019 through 2022, intercompany expenses expected to be paid or received during 2019, television and movie production costs paid in 2019, and cash receipts for sales made at the end of the second quarter of 2019 or forecasted to be made in the remainder of 2019 and, to a lesser extent, 2020 through 2021. 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 in 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 June 30, 2019, deferred losses, net of tax of $18,615 related to these instruments remained in AOCE. For the quarters ended June 30, 2019 and July 1, 2018, previously deferred losses of $449, were reclassified from AOCE to net earnings. For the six month periods ended June 30, 2019 and July 1, 2018, previously deferred losses of $899 were reclassified from AOCE to net earnings.
Of the amount included in AOCE at June 30, 2019, the Company expects net gains of approximately $14,296 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.
(5) 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 30, 2019, July 1, 2018 and December 30, 2018, the carrying cost of these instruments approximated their fair value. The Company's financial instruments at June 30, 2019, July 1, 2018 and December 30, 2018 also include certain assets and liabilities measured at fair value (see Notes 7 and 9) 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 30, 2019, July 1, 2018 and December 30, 2018 are as follows:
 
June 30, 2019
 
July 1, 2018
 
December 30, 2018
 
Carrying
Cost
 
Fair
Value
 
Carrying
Cost
 
Fair
Value
 
Carrying
Cost
 
Fair
Value
6.35% Notes Due 2040
$
500,000

 
591,850

 
500,000

 
557,250

 
500,000

 
535,000

3.50% Notes Due 2027
500,000

 
507,200

 
500,000

 
464,600

 
500,000

 
457,350

5.10% Notes Due 2044
300,000

 
310,860

 
300,000

 
287,730

 
300,000

 
272,640

3.15% Notes Due 2021
300,000

 
303,900

 
300,000

 
297,960

 
300,000

 
297,600

6.60% Debentures Due 2028
109,895

 
132,984

 
109,895

 
127,094

 
109,895

 
123,346

Total long-term debt
$
1,709,895

 
1,846,794

 
1,709,895

 
1,734,634

 
1,709,895

 
1,685,936

Less: Deferred debt expenses
14,062

 

 
15,545

 

 
14,803

 

Long-term debt
$
1,695,833

 
1,846,794

 
1,694,350

 
1,734,634

 
1,695,092

 
1,685,936


The fair values of the Company's long-term debt are considered Level 3 fair values (see Note 7 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.
(6) 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.
On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”).  The Tax Act made broad and complex changes to the U.S. tax code including, but not limited to, reducing the U.S. federal corporate tax rate and requiring a one-time tax on certain unrepatriated earnings of foreign subsidiaries.





On December 22, 2017, Staff Accounting Bulletin No. 118 (“SAB 118”) established a one-year measurement period to complete the accounting for the ASC 740 income tax effects of the Tax Act.  An entity recognizes the impact of those amounts for which the accounting is complete.  December 22, 2018 marked the end of the measurement period for purposes of SAB 118. As such, the Company has completed its analysis based on legislative updates relating to the Tax Act.
As a result, the Company recorded a discrete tax expense of $47,800 in the first quarter of 2018 which reversed certain discrete benefits recorded in 2017 as well as increased our provisional deemed repatriation tax liability. No adjustments were made to provisional amounts during the second quarter of 2018.

For the six months ended June 30, 2019, the Company recorded a discrete tax benefit of $24,925 as a result of the charge incurred from the settlement of its U.S. Pension Plan during the second quarter of 2019.
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 2012. The Company is currently under income tax examination in several U.S. state and local and non-U.S. jurisdictions.
(7) 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 30, 2019, July 1, 2018 and December 30, 2018, these investments totaled $24,358, $24,219 and $23,913, respectively, and are included in prepaid expenses and other current assets in the consolidated balance sheets. The Company recorded net gains of $177 and $727 on these investments in other (income) expense, net for the quarter and six months ended June 30, 2019, respectively, related to the change in fair value of such instruments. For the quarter and six month periods ended July 1, 2018, the Company recorded net (losses) gains of $(342) and $106, respectively, in other (income) expense, net, related to the change in fair value of such instruments.






At June 30, 2019, July 1, 2018 and December 30, 2018, 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:
 
Fair
Value
 
Quoted
Prices in
Active
Markets
for
Identical
Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
June 30, 2019
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
Available-for-sale securities
$
1,349

 
1,349

 

 

Derivatives
24,622

 

 
24,622

 

Total assets
$
25,971

 
1,349

 
24,622

 

 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
Derivatives
$
1,894

 

 
1,894

 

Option agreement
22,471

 

 

 
22,471

Total liabilities
$
24,365

 

 
1,894

 
22,471

 
 
 
 
 
 
 
 
July 1, 2018
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
Available-for-sale securities
$
3,054

 
3,054

 

 

Derivatives
22,551

 

 
22,551

 

Total assets
$
25,605

 
3,054

 
22,551