PART I. FINANCIAL INFORMATION
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Item 1. Financial Statements.
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HASBRO,
INC. AND SUBSIDIARIES
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Consolidated
Balance Sheets
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(Thousands
of Dollars Except Share Data)
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(Unaudited)
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September
25,
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September
27,
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December
27,
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2016
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2015
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2015
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ASSETS
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Current assets
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Cash and cash equivalents
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$
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830,372
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551,292
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976,750
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Accounts receivable, less allowance
for doubtful accounts of $36,500,
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$16,200 and $14,900
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1,452,931
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1,390,274
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1,217,850
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Inventories
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607,701
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447,090
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384,492
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Prepaid expenses and other current
assets
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255,983
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320,895
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286,506
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Total current assets
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3,146,987
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2,709,551
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2,865,598
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Property, plant and equipment, less
accumulated depreciation of $383,500,
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$358,100 and $363,600
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247,231
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219,656
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237,527
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Other assets
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Goodwill
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604,700
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592,781
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592,695
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Other intangibles, net, accumulated
amortization of $867,300, $832,900
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and $841,300
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254,637
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289,200
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280,807
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Other
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701,592
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755,959
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744,090
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Total other assets
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1,560,929
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1,637,940
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1,617,592
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Total assets
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$
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4,955,147
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4,567,147
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4,720,717
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LIABILITIES, REDEEMABLE
NONCONTROLLING INTERESTS
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AND SHAREHOLDERS' EQUITY
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Current liabilities
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Short-term borrowings
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$
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178,666
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113,970
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164,563
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Current portion of long-term debt
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349,611
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-
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-
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Accounts payable
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344,874
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282,772
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241,210
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Accrued liabilities
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742,568
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642,827
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658,874
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Total current liabilities
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1,615,719
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1,039,569
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1,064,647
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Long-term debt
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1,198,461
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1,546,796
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1,547,115
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Other liabilities
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364,378
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396,772
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404,883
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Total liabilities
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3,178,558
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2,983,137
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3,016,645
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Redeemable noncontrolling interests
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34,829
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41,173
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40,170
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Shareholders' equity
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Preference stock of $2.50 par value.
Authorized 5,000,000 shares; none
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issued
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-
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-
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-
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Common stock of $.50 par value.
Authorized 600,000,000 shares; issued
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209,694,630 at September 25, 2016,
September 27, 2015,
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and December 27, 2015
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104,847
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104,847
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104,847
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Additional paid-in capital
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959,859
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863,543
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893,630
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Retained earnings
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4,019,370
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3,733,995
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3,852,321
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Accumulated other comprehensive loss
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(203,989)
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(126,185)
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(146,001)
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Treasury stock, at cost; 84,751,773
shares at September 25, 2016; 84,987,076
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shares at September 27, 2015; and
84,899,200 shares at December 27, 2015
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(3,138,327)
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(3,033,363)
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(3,040,895)
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Total shareholders' equity
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1,741,760
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1,542,837
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1,663,902
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Total liabilities, redeemable
noncontrolling interests and
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shareholders' equity
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$
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4,955,147
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4,567,147
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4,720,717
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See accompanying condensed notes to
consolidated financial statements.
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HASBRO,
INC. AND SUBSIDIARIES
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Consolidated
Statements of Operations
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(Thousands
of Dollars Except Per Share Data)
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(Unaudited)
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Quarter
Ended
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Nine
Months Ended
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September
25,
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September
27,
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September
25,
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September
27,
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2016
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2015
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2016
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2015
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Net revenues
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$
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1,679,757
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1,470,997
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3,389,882
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2,982,155
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Costs and expenses:
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Cost of sales
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658,986
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579,149
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1,270,902
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1,122,283
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Royalties
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134,294
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113,950
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273,671
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230,108
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Product development
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70,083
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64,793
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190,918
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174,299
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Advertising
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154,132
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142,029
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320,948
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288,136
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Amortization of intangibles
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8,691
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9,031
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26,073
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35,330
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Program production cost amortization
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6,282
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11,496
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17,501
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29,812
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Selling, distribution and
administration
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285,188
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247,022
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756,978
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668,955
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Total costs and expenses
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1,317,656
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1,167,470
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2,856,991
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2,548,923
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Operating profit
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362,101
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303,527
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532,891
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433,232
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Non-operating (income) expense:
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Interest expense
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24,305
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24,045
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72,263
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72,816
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Interest income
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(1,944)
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(672)
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(6,469)
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(2,292)
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Other (income) expense, net
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(6,584)
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(4,463)
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(5,460)
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(9,870)
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Total non-operating expense, net
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15,777
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18,910
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60,334
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60,654
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Earnings before income taxes
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346,324
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284,617
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472,557
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372,578
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Income tax expense
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90,162
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78,242
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120,005
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100,100
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Net earnings
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256,162
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206,375
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352,552
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272,478
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Net loss attributable to
noncontrolling interests
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(1,636)
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(1,224)
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(6,103)
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(3,597)
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Net earnings attributable to Hasbro,
Inc.
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$
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257,798
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207,599
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358,655
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276,075
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Net earnings attributable to Hasbro,
Inc. per common share:
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Basic
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$
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2.05
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1.66
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2.86
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2.21
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Diluted
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$
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2.03
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1.64
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2.82
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2.18
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Cash dividends declared per common
share
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$
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0.51
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0.46
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1.53
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1.38
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See accompanying condensed notes to
consolidated financial statements.
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HASBRO,
INC. AND SUBSIDIARIES
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Consolidated
Statements of Comprehensive Earnings
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(Thousands
of Dollars)
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(Unaudited)
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Quarter
Ended
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Nine
Months Ended
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September
25,
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September
27,
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September
25,
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September
27,
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2016
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2015
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2016
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2015
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Net earnings
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$
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256,162
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206,375
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352,552
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272,478
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Other comprehensive earnings (loss):
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Foreign currency translation
adjustments
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(1,483)
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(39,086)
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18,482
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(85,755)
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Net (losses) gains on cash flow
hedging activities,
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net of tax
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(12,960)
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25,948
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(37,004)
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78,576
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Unrealized holding (losses) gains on
available-for-sale
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securities, net of tax
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(390)
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(1,231)
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963
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(290)
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Changes in unrecognized pension and
postretirement
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amounts, net of tax
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-
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5,194
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-
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5,194
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Reclassifications to earnings, net of
tax:
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Net gains on cash flow hedging
activities
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(16,028)
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(12,698)
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(43,952)
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(30,117)
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Unrecognized pension and
postretirement amounts
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1,173
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(836)
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3,523
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|
1,661
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Total other comprehensive loss, net of
tax
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(29,688)
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(22,709)
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(57,988)
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(30,731)
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Comprehensive earnings
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226,474
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|
183,666
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|
294,564
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|
241,747
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Comprehensive loss attributable to
noncontrolling interests
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(1,636)
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(1,224)
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(6,103)
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(3,597)
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Comprehensive earnings attributable to
Hasbro, Inc.
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$
|
228,110
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|
184,890
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|
|
300,667
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|
|
245,344
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See accompanying condensed notes to
consolidated financial statements.
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HASBRO, INC. AND SUBSIDIARIES
|
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Consolidated
Statements of Cash Flows
|
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(Thousands
of Dollars)
|
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(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine
Months Ended
|
|
|
|
|
|
|
September
25,
|
|
September
27,
|
|
|
|
|
|
|
2016
|
|
2015
|
|
Cash flows from operating activities:
|
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|
|
|
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Net earnings
|
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$
|
352,552
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|
$272,478
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Adjustments to reconcile net earnings
to net cash provided by operating activities:
|
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|
|
|
|
|
|
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Depreciation of plant and equipment
|
|
|
89,327
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|
|
86,393
|
|
|
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Amortization of intangibles
|
|
|
26,073
|
|
|
35,330
|
|
|
|
Program production cost amortization
|
|
|
17,501
|
|
|
29,812
|
|
|
|
Deferred income taxes
|
|
|
25,091
|
|
|
(10,236)
|
|
|
|
Stock-based compensation
|
|
|
39,673
|
|
|
33,073
|
|
Change in operating assets and
liabilities:
|
|
|
|
|
|
|
|
|
|
Increase in accounts receivable
|
|
|
(224,172)
|
|
|
(382,573)
|
|
|
|
Increase in inventories
|
|
|
(214,734)
|
|
|
(156,221)
|
|
|
|
(Increase) decrease in prepaid
expenses and other current assets
|
|
|
(4,063)
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|
|
39,521
|
|
|
|
Program production costs
|
|
|
(36,010)
|
|
|
(28,222)
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|
|
|
Increase in accounts payable and
accrued liabilities
|
|
|
129,661
|
|
|
165,632
|
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Other
|
|
|
(47,118)
|
|
|
(15,429)
|
|
|
|
|
Net cash provided by operating
activities
|
|
|
153,781
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|
|
69,558
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Cash flows from investing activities:
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|
|
|
|
|
|
|
|
Additions to property, plant and
equipment
|
|
|
(103,639)
|
|
|
(97,873)
|
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|
|
Investments and acquisitions, net of
cash acquired
|
|
|
(12,436)
|
|
|
(3,000)
|
|
|
|
Cash proceeds from dispositions
|
|
|
-
|
|
|
18,632
|
|
|
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Other
|
|
|
25,576
|
|
|
23,447
|
|
|
|
|
Net cash utilized by investing
activities
|
|
|
(90,499)
|
|
|
(58,794)
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
Net proceeds from (repayments of)
other short-term borrowings
|
|
|
14,160
|
|
|
(138,101)
|
|
|
|
Purchases of common stock
|
|
|
(104,273)
|
|
|
(74,110)
|
|
|
|
Stock option transactions
|
|
|
37,515
|
|
|
33,929
|
|
|
|
Excess tax benefits from stock-based
compensation
|
|
|
19,712
|
|
|
9,804
|
|
|
|
Dividends paid
|
|
|
(185,265)
|
|
|
(168,393)
|
|
|
|
Other
|
|
|
762
|
|
|
928
|
|
|
|
|
Net cash utilized by financing
activities
|
|
|
(217,389)
|
|
|
(335,943)
|
|
Effect of exchange rate changes on
cash
|
|
|
7,729
|
|
|
(16,696)
|
|
Decrease in cash and cash equivalents
|
|
|
(146,378)
|
|
|
(341,875)
|
|
Cash and cash equivalents at beginning
of year
|
|
|
976,750
|
|
|
893,167
|
|
Cash and cash equivalents at end of
period
|
|
$
|
830,372
|
|
|
551,292
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental information
|
|
|
|
|
|
|
|
|
Cash paid during the period for:
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
74,700
|
|
|
78,056
|
|
|
|
Income taxes
|
|
$
|
64,854
|
|
|
80,833
|
|
|
|
|
|
|
|
|
|
|
|
|
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 September 25, 2016 and September 27, 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 September
25, 2016 and September 27, 2015 are each 13-week periods. The nine-month
periods ended September 25, 2016 and September 27, 2015 are each 39-week
periods.
The results of operations
for the quarter and nine-month periods ended September 25, 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.
Certain
amounts in the 2015 consolidated financial statements have been reclassified to
conform to the 2016 presentation.
(2)
Earnings Per Share
Net earnings per share data
for the quarters and nine-month periods ended September 25, 2016 and September
27, 2015 were computed as follows:
|
2016
|
|
2015
|
Quarter
|
Basic
|
|
Diluted
|
|
Basic
|
|
Diluted
|
Net earnings attributable to Hasbro,
Inc.
|
$
|
257,798
|
|
|
257,798
|
|
|
207,599
|
|
|
207,599
|
|
|
|
|
|
|
|
|
|
|
|
|
Average shares outstanding
|
|
125,500
|
|
|
125,500
|
|
|
125,100
|
|
|
125,100
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
Options and other share-based
awards
|
|
-
|
|
|
1,678
|
|
|
-
|
|
|
1,817
|
Equivalent Shares
|
|
125,500
|
|
|
127,178
|
|
|
125,100
|
|
|
126,917
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings attributable to Hasbro,
Inc. per common share
|
$
|
2.05
|
|
|
2.03
|
|
|
1.66
|
|
|
1.64
|
|
2016
|
|
2015
|
Nine Months
|
Basic
|
|
Diluted
|
|
Basic
|
|
Diluted
|
Net earnings attributable to Hasbro,
Inc.
|
$
|
358,655
|
|
|
358,655
|
|
|
276,075
|
|
|
276,075
|
|
|
|
|
|
|
|
|
|
|
|
|
Average shares outstanding
|
|
125,414
|
|
|
125,414
|
|
|
125,016
|
|
|
125,016
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
Options and other share-based
awards
|
|
-
|
|
|
1,642
|
|
|
-
|
|
|
1,673
|
Equivalent Shares
|
|
125,414
|
|
|
127,056
|
|
|
125,016
|
|
|
126,689
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings attributable to Hasbro,
Inc. per common share
|
$
|
2.86
|
|
|
2.82
|
|
|
2.21
|
|
|
2.18
|
For the quarter ended September
25, 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 September 27, 2015. For the nine-month periods
ended September 25, 2016 and September 27, 2015, options and restricted stock
units totaling 492 and 261, 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 nine-month
periods ended September 25, 2016 and September 27, 2015.
|
|
Quarter
Ended
|
|
Nine
Months Ended
|
|
|
September
25,
|
|
September
27,
|
|
September
25,
|
|
September
27,
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive earnings (loss),
tax effect:
|
|
|
|
|
|
|
|
|
|
|
|
Tax benefit (expense) on cash flow
hedging activities
|
$
|
1,420
|
|
|
(7,400)
|
|
|
9,423
|
|
|
(11,362)
|
Tax benefit (expense) on unrealized
holding gains (losses)
|
|
221
|
|
|
700
|
|
|
(547)
|
|
|
164
|
Tax expense on changes in unrecognized
pension and
|
|
|
|
|
|
|
|
|
|
|
|
|
postretirement amounts
|
|
-
|
|
|
(660)
|
|
|
-
|
|
|
(660)
|
Reclassifications to earnings, tax
effect:
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax expense on cash flow hedging
activities
|
|
2,456
|
|
|
1,487
|
|
|
5,274
|
|
|
2,537
|
|
Tax (benefit) expense on unrecognized
pension and
|
|
|
|
|
|
|
|
|
|
|
|
|
postretirement amounts
|
|
(666)
|
|
|
338
|
|
|
(1,999)
|
|
|
(942)
|
Total tax effect on other
comprehensive earnings (loss)
|
$
|
3,431
|
|
|
(5,535)
|
|
|
12,151
|
|
|
(10,263)
|
Changes in the components of
accumulated other comprehensive loss for the nine months ended September 25, 2016
and September 27, 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)
|
|
3,523
|
|
|
(80,956)
|
|
|
963
|
|
|
18,482
|
|
|
(57,988)
|
Balance at September 25, 2016
|
$
|
(99,408)
|
|
|
(1,639)
|
|
|
2,221
|
|
|
(105,163)
|
|
|
(203,989)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 28, 2014
|
$
|
(113,092)
|
|
|
43,689
|
|
|
1,900
|
|
|
(27,951)
|
|
|
(95,454)
|
Current period other comprehensive
earnings (loss)
|
|
6,855
|
|
|
48,459
|
|
|
(290)
|
|
|
(85,755)
|
|
|
(30,731)
|
Balance at September 27, 2015
|
$
|
(106,237)
|
|
|
92,148
|
|
|
1,610
|
|
|
(113,706)
|
|
|
(126,185)
|
At September 25, 2016, the
Company had remaining net deferred gains on foreign currency forward contracts,
net of tax, of $16,864 in accumulated other comprehensive loss
("AOCE"). These instruments hedge payments related to inventory
purchased in the third quarter of 2016 or forecasted to be purchased during the
remainder of 2016 and, to a lesser extent, 2017 through 2021, intercompany
expenses expected to be paid or received during 2016 and 2017, cash receipts
for sales made at the end of the third 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 September 25, 2016, deferred losses, net of tax of
$18,503 related to these instruments remained in AOCE. For the quarters ended
September 25, 2016 and September 27, 2015, previously deferred losses of $450 were
reclassified from AOCE to net earnings. For the nine month periods ended
September 25, 2016 and September 27, 2015, previously deferred losses of $1,349
were reclassified from AOCE to net earnings.
Of the amount included in
AOCE at September 25, 2016, the Company expects net gains of approximately
$11,699 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 September 25, 2016, September 27, 2015 and December 27, 2015,
the carrying cost of these instruments approximated their fair value. The
Company's financial instruments at September 25, 2016, September 27, 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 September 25, 2016, September 27, 2015 and
December 27, 2015 are as follows:
|
September
25, 2016
|
|
September
27, 2015
|
|
December
27, 2015
|
|
Carrying
|
|
Fair
|
|
Carrying
|
|
Fair
|
|
Carrying
|
|
Fair
|
|
Cost
|
|
Value
|
|
Cost
|
|
Value
|
|
Cost
|
|
Value
|
6.35% Notes Due 2040
|
$
|
500,000
|
|
|
611,200
|
|
|
500,000
|
|
|
563,400
|
|
|
500,000
|
|
|
556,300
|
6.30% Notes Due 2017
|
|
350,000
|
|
|
366,205
|
|
|
350,000
|
|
|
379,925
|
|
|
350,000
|
|
|
374,045
|
5.10% Notes Due 2044
|
|
300,000
|
|
|
324,450
|
|
|
300,000
|
|
|
291,900
|
|
|
300,000
|
|
|
286,710
|
3.15% Notes Due 2021
|
|
300,000
|
|
|
310,620
|
|
|
300,000
|
|
|
303,990
|
|
|
300,000
|
|
|
300,060
|
6.60% Debentures Due 2028
|
|
109,895
|
|
|
132,786
|
|
|
109,895
|
|
|
123,225
|
|
|
109,895
|
|
|
121,269
|
Total long-term debt
|
$
|
1,559,895
|
|
|
1,745,261
|
|
|
1,559,895
|
|
|
1,662,440
|
|
|
1,559,895
|
|
|
1,638,384
|
Less: Current portion
|
|
350,000
|
|
|
366,205
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
Less: Deferred debt expenses
|
|
11,434
|
|
|
-
|
|
|
13,099
|
|
|
-
|
|
|
12,780
|
|
|
-
|
Long-term debt
|
$
|
1,198,461
|
|
|
1,379,056
|
|
|
1,546,796
|
|
|
1,662,440
|
|
|
1,547,115
|
|
|
1,638,384
|
Current portion of long-term
debt of $349,611 as shown on the balance sheet represents the $350,000
principal of 6.30% notes less $389 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.
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 expenses are presented as a
reduction of long-term debt. Deferred debt expenses of $13,099 have been
reclassified from other assets in the consolidated balance sheet for September
27, 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 2012. The
Company’s claims for refunds for 2012 and 2013 U.S. federal income tax returns
are currently under exam. 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 $68,565 has been
reclassified from prepaid expenses and other current assets to other assets and
$10,927 has been reclassified from accrued liabilities to other liabilities in
the consolidated balance sheet as of September 27, 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 September 25, 2016,
September 27, 2015 and December 27, 2015, these investments totaled $23,490,
$22,834 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 $440 and $922 on these investments in other (income) expense, net
for the quarter and nine-months ended September 25, 2016, respectively, related
to the change in fair value of such instruments. For the quarter and nine-month
periods ended September 27, 2015 the Company recorded net losses of $176 and
$246, respectively, in other (income) expense, net, related to the change in
fair value of such instruments.
At September 25, 2016, September 27, 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)
|
September 25, 2016
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities
|
$
|
4,986
|
|
|
4,986
|
|
|
-
|
|
|
-
|
Derivatives
|
|
39,115
|
|
|
-
|
|
|
39,115
|
|
|
-
|
Total assets
|
$
|
44,101
|
|
|
4,986
|
|
|
39,115
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
|
$
|
19,390
|
|
|
-
|
|
|
19,390
|
|
|
-
|
Option agreement
|
|
27,460
|
|
|
-
|
|
|
-
|
|
|
27,460
|
Total liabilities
|
$
|
46,850
|
|
|
-
|
|
|
19,390
|
|
|
27,460
|
|
|
|
|
|
|
|
|
|
|
|
|
September 27, 2015
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities
|
$
|
4,029
|
|
|
4,029
|
|
|
-
|
|
|
-
|
Derivatives
|
|
119,123
|
|
|
-
|
|
|
119,123
|
|
|
-
|
Total assets
|
$
|
123,152
|
|
|
4,029
|
|
|
119,123
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
|
$
|
605
|
|
|
-
|
|
|
605
|
|
|
-
|
Option agreement
|
|
24,780
|
|
|
-
|
|
|
-
|
|
|
24,780
|
Total liabilities
|
$
|
25,385
|
|
|
-
|
|
|
605
|
|
|
24,780
|
|
|
|
|
|
|
|
|
|
|
|
|
December 27, 2015
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities
|
$
|
3,476
|
|
|
3,476
|
|
|
-
|
|
|
-
|
Derivatives
|
|
107,634
|
|
|
-
|
|
|
107,634
|
|
|
-
|
Total assets
|
$
|
111,110
|
|
|
3,476
|
|
|
107,634
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
|
$
|
1,240
|
|
|
-
|
|
|
1,240
|
|
|
-
|
Option agreement
|
|
28,360
|
|
|
-
|
|
|
-
|
|
|
28,360
|
Total Liabilities
|
$
|
29,600
|
|
|
-
|
|
|
1,240
|
|
|
28,360
|
Available-for-sale
securities include equity securities of one company quoted on an active public
market.
The
Company's derivatives consist of foreign currency forward contracts. The
Company used current forward rates of the respective foreign currencies to
measure the fair value of these contracts. The option agreement included in
other liabilities at September 25, 2016, September 27, 2015 and December 27, 2015,
is valued using an option pricing model based on the fair value of the related
investment. Inputs used in the option pricing model include the
volatility and fair value of the underlying company which are considered
unobservable inputs as they reflect 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. There were no changes in these valuation techniques during
the nine-month period ended September 25, 2016.
The following is a
reconciliation of the beginning and ending balances of the fair value
measurements of the Company's financial instruments which use significant
unobservable inputs (Level 3):
|
2016
|
|
2015
|
Balance at beginning of year
|
$
|
(28,360)
|
|
|
(25,340)
|
Gain from change in fair value
|
|
900
|
|
|
560
|
Balance at end of third quarter
|
$
|
(27,460)
|
|
|
(24,780)
|
In addition to the above,
the Company has three investments for which the fair value is measured using
net asset value per share. At September 25, 2016, September 27, 2015 and
December 27, 2015, these investments had fair values of $23,490, $22,834 and $22,539,
respectively. Two of the investments have net asset values that are
predominantly based on underlying investments which are traded on an active
market and are redeemable within 45 days. The third investment invests in hedge
funds which are generally redeemable on a quarterly basis with 30 – 90 days’
notice.
In
May 2015, the FASB issued ASU No. 2015-07, Fair Value Measurement —
Disclosure for Investments in Certain Entities that Calculate Net Asset Value
Per Share (or its Equivalent), which simplifies the presentation of the fair
value hierarchy by removing the requirement to include those investments that
are eligible to be measured at fair value using the net asset value per share
practical expedient. The Company adopted ASU 2015-07 in the first quarter of
2016. Prior year disclosures have been adjusted to conform to current year
presentation.
(7)
Pension and Postretirement
Benefits
The components of the net
periodic cost of the Company's defined benefit pension and other postretirement
plans for the quarter and nine-month periods ended September 25, 2016 and September
27, 2015 are as follows:
|
Quarter
Ended
|
|
Pension
|
|
Postretirement
|
|
September
25,
|
|
September
27,
|
|
September
25,
|
|
September
27,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Service cost
|
$
|
1,002
|
|
|
1,006
|
|
|
132
|
|
|
150
|
Interest cost
|
|
4,611
|
|
|
4,603
|
|
|
294
|
|
|
285
|
Expected return on assets
|
|
(5,512)
|
|
|
(5,476)
|
|
|
-
|
|
|
-
|
Net amortization and deferrals
|
|
2,134
|
|
|
2,202
|
|
|
-
|
|
|
(114)
|
Curtailment
|
|
-
|
|
|
643
|
|
|
-
|
|
|
(3,842)
|
Net periodic benefit cost
|
$
|
2,235
|
|
|
2,978
|
|
|
426
|
|
|
(3,521)
|
|
Nine
Months Ended
|
|
Pension
|
|
Postretirement
|
|
September
25,
|
|
September
27,
|
|
September
25,
|
|
September
27,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Service cost
|
$
|
2,995
|
|
|
3,038
|
|
|
397
|
|
|
450
|
Interest cost
|
|
13,821
|
|
|
13,827
|
|
|
881
|
|
|
855
|
Expected return on assets
|
|
(16,523)
|
|
|
(16,452)
|
|
|
-
|
|
|
-
|
Net amortization and deferrals
|
|
6,398
|
|
|
6,610
|
|
|
-
|
|
|
(341)
|
Curtailment
|
|
-
|
|
|
781
|
|
|
-
|
|
|
(3,842)
|
Net periodic benefit cost
|
$
|
6,691
|
|
|
7,804
|
|
|
1,278
|
|
|
(2,878)
|
During the nine months ended
September 25, 2016, the Company made cash contributions to its defined benefit
pension plans of approximately $64,800 in the aggregate. The Company expects to
contribute approximately $350 during the remainder of fiscal 2016.
(8)
Derivative Financial
Instruments
Hasbro uses foreign currency
forward contracts to mitigate the impact of currency rate fluctuations on
firmly committed and projected future foreign currency transactions. These
over-the-counter contracts, which hedge future currency requirements related to
purchases of inventory, product sales and other cross-border transactions not
denominated in the functional currency of the business unit, are primarily
denominated in United States and Hong Kong dollars, and Euros. All contracts
are entered into with a number of counterparties, all of which are major
financial institutions. The Company believes that a default by a single
counterparty would not have a material adverse effect on the financial
condition of the Company. Hasbro does not enter into derivative financial
instruments for speculative purposes.
Cash Flow Hedges
The Company uses foreign
currency forward contracts to reduce the impact of currency rate fluctuations
on firmly committed and projected future foreign currency transactions. All of
the Company's designated foreign currency forward contracts are considered to
be cash flow hedges. These instruments hedge a portion of the Company's
currency requirements associated with anticipated inventory purchases, product
sales and other cross-border transactions in 2016 through 2021.
At September
25, 2016, September 27, 2015 and December 27, 2015, the notional amounts and
fair values of the Company's foreign currency forward contracts designated as
cash flow hedging instruments were as follows:
|
September
25, 2016
|
|
September
27, 2015
|
|
December
27, 2015
|
|
Notional
|
|
Fair
|
|
Notional
|
|
Fair
|
|
Notional
|
|
Fair
|
Hedged transaction
|
Amount
|
|
Value
|
|
Amount
|
|
Value
|
|
Amount
|
|
Value
|
Inventory purchases
|
$
|
1,045,400
|
|
|
23,662
|
|
|
1,122,827
|
|
|
124,422
|
|
|
1,380,488
|
|
|
108,521
|
Sales
|
|
318,283
|
|
|
(559)
|
|
|
213,841
|
|
|
(3,352)
|
|
|
97,350
|
|
|
803
|
Royalties and Other
|
|
233,367
|
|
|
(4,111)
|
|
|
57,360
|
|
|
(2,512)
|
|
|
54,360
|
|
|
(1,886)
|
Total
|
$
|
1,597,050
|
|
|
18,992
|
|
|
1,394,028
|
|
|
118,558
|
|
|
1,532,198
|
|
|
107,438
|
The Company has a master
agreement with each of its counterparties that allows for the netting of
outstanding forward contracts. The fair values of the Company's foreign
currency forward contracts designated as cash flow hedges are recorded in the
consolidated balance sheets at September 25, 2016, September 27, 2015 and December
27, 2015 as follows:
|
September
25,
|
|
September
27,
|
|
December
27,
|
|
2016
|
|
2015
|
|
2015
|
Prepaid expenses and other
current assets
|
|
|
|
|
|
|
|
|
Unrealized gains
|
$
|
34,179
|
|
|
81,718
|
|
|
78,910
|
Unrealized losses
|
|
(9,247)
|
|
|
(9,717)
|
|
|
(5,932)
|
Net unrealized gain
|
$
|
24,932
|
|
|
72,001
|
|
|
72,978
|
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
|
|
|
|
|
|
Unrealized gains
|
$
|
20,974
|
|
|
48,111
|
|
|
35,366
|
Unrealized losses
|
|
(7,524)
|
|
|
(989)
|
|
|
(710)
|
Net unrealized gains
|
$
|
13,450
|
|
|
47,122
|
|
|
34,656
|
|
|
|
|
|
|
|
|
|
Accrued liabilities
|
|
|
|
|
|
|
|
|
Unrealized gains
|
$
|
4,352
|
|
|
62
|
|
|
-
|
Unrealized losses
|
|
(19,420)
|
|
|
(566)
|
|
|
-
|
Net unrealized loss
|
$
|
(15,068)
|
|
|
(504)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
|
|
|
|
|
|
Unrealized gains
|
$
|
992
|
|
|
-
|
|
|
241
|
Unrealized losses
|
|
(5,314)
|
|
|
(61)
|
|
|
(437)
|
Net unrealized loss
|
$
|
(4,322)
|
|
|
(61)
|
|
|
(196)
|
Net gains (losses) on cash
flow hedging activities have been reclassified from other comprehensive
earnings (loss) to net earnings for the quarter and nine-month periods ended September
25, 2016 and September 27, 2015 as follows:
|
Quarter
Ended
|
|
Nine
Months Ended
|
|
September
25,
|
|
September
27,
|
|
September
25,
|
|
September
27,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Statements of Operations
Classification
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
$
|
13,863
|
|
|
19,244
|
|
|
40,999
|
|
|
41,990
|
Sales
|
|
7,125
|
|
|
(4,507)
|
|
|
7,541
|
|
|
(8,506)
|
Other
|
|
(1,505)
|
|
|
(377)
|
|
|
(2,236)
|
|
|
(322)
|
Net realized gains
|
$
|
19,483
|
|
|
14,360
|
|
|
46,304
|
|
|
33,162
|
In addition, (losses) gains
of $(549) and $4,271 were reclassified to earnings as a result of hedge
ineffectiveness for the quarter and nine-month periods ended September 25, 2016,
respectively. Net gains of $275 and $842 were reclassified to earnings as a
result of hedge ineffectiveness for the quarter and nine-month periods ended September
27, 2015, respectively.
Undesignated Hedges
The Company also enters into
foreign currency forward contracts to minimize the impact of changes in the
fair value of intercompany loans due to foreign currency fluctuations. Due to
the nature of the derivative contracts involved, the Company does not use hedge
accounting for these contracts. At September 25, 2016, September 27, 2015
and December 27, 2015 the total notional amounts of the Company's undesignated
derivative instruments were $264,029, $263,247 and $341,389, respectively.
At September
25, 2016, September 27, 2015 and December 27, 2015, the fair values of the
Company's undesignated derivative financial instruments were recorded in the
consolidated balance sheets as follows:
|
September
25,
|
|
September
27,
|
|
December
27,
|
|
2016
|
|
2015
|
|
2015
|
Prepaid expenses and other
current assets
|
|
|
|
|
|
|
|
|
Unrealized gains
|
$
|
812
|
|
|
93
|
|
|
-
|
Unrealized losses
|
|
(79)
|
|
|
-
|
|
|
-
|
Net unrealized gain
|
|
733
|
|
|
93
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Accrued liabilities
|
|
|
|
|
|
|
|
|
Unrealized gains
|
|
-
|
|
|
360
|
|
|
416
|
Unrealized losses
|
|
-
|
|
|
(493)
|
|
|
(1,460)
|
Net unrealized loss
|
|
-
|
|
|
(133)
|
|
|
(1,044)
|
|
|
|
|
|
|
|
|
|
Total unrealized gain (loss), net
|
$
|
733
|
|
|
(40)
|
|
|
(1,044)
|
The Company recorded net
gains of $6,533 and $14,867 on these instruments to other (income) expense, net
for the quarter and nine-month periods ended September 25, 2016, respectively,
and $21,070 and $40,024 on these instruments to other (income) expense, net for
the quarter and nine-month periods ended September 27, 2015, respectively,
relating to the change in fair value of such derivatives, substantially
offsetting gains and losses from the change in fair value of intercompany loans
to which the contracts relate.
For additional information
related to the Company's derivative financial instruments see Notes 4 and 6.
(9)
Segment
Reporting
Hasbro is a global play and
entertainment company with a broad portfolio of brands and entertainment
properties spanning toys, games, licensed products ranging from traditional to
high-tech and digital, and film and television entertainment. The Company's
segments are (i) U.S. and Canada, (ii) International, (iii) Entertainment and
Licensing, and (iv) Global Operations.
The U.S. and Canada segment
includes the marketing and selling of action figures, arts and crafts and
creative play products, electronic toys and related electronic interactive
products, fashion and other dolls, infant products, play sets, preschool toys,
plush products, sports action blasters and accessories, vehicles and
toy-related specialty products, as well as traditional board games and puzzles,
and trading card and role-playing games primarily within the United States and
Canada. Within the International segment, the Company markets and sells both
toy and game products in markets outside of the U.S. and Canada, primarily in
the European, Asia Pacific, and Latin and South American regions. The Company's
Entertainment and Licensing segment includes the Company's consumer products
licensing, digital gaming, movie and television entertainment operations. The
Global Operations segment is responsible for sourcing finished products for the
Company's U.S. and Canada and International segments.
Segment performance is
measured at the operating profit level. Included in Corporate and Eliminations
are certain corporate expenses, including the elimination of intersegment
transactions and certain assets benefiting more than one segment. Intersegment
sales and transfers are reflected in management reports at amounts
approximating cost. Certain shared costs, including global development and
marketing expenses and corporate administration, are allocated to segments
based upon expenses and foreign exchange rates fixed at the beginning of the
year, with adjustments to actual expenses and foreign exchange rates included
in Corporate and Eliminations. The accounting policies of the segments are the
same as those referenced in note 1.
Results shown for the
quarter and nine months are not necessarily representative of those which may
be expected for the full year 2016, nor were those of the comparable 2015
period representative of those actually experienced for the full year 2015.
Similarly, such results are not necessarily those which would be achieved were
each segment an unaffiliated business enterprise.
Information by segment and a reconciliation to reported amounts
for the quarter and nine-month periods ended September 25, 2016 and September
27, 2015 are as follows.
|
Quarter
Ended
|
|
September
25, 2016
|
|
September
27, 2015
|
Net revenues
|
External
|
|
Affiliate
|
|
External
|
|
Affiliate
|
U.S. and Canada
|
$
|
932,844
|
|
|
2,392
|
|
|
803,824
|
|
|
1,352
|
International
|
|
690,745
|
|
|
417
|
|
|
612,645
|
|
|
8
|
Entertainment and Licensing
|
|
56,130
|
|
|
7,806
|
|
|
52,139
|
|
|
7,604
|
Global Operations (a)
|
|
38
|
|
|
629,090
|
|
|
2,389
|
|
|
595,476
|
Corporate and Eliminations
|
|
-
|
|
|
(639,705)
|
|
|
-
|
|
|
(604,440)
|
|
$
|
1,679,757
|
|
|
-
|
|
|
1,470,997
|
|
|
-
|
|
Nine
Months Ended
|
|
September
25, 2016
|
|
September
27, 2015
|
Net revenues
|
External
|
|
Affiliate
|
|
External
|
|
Affiliate
|
U.S. and Canada
|
$
|
1,802,391
|
|
|
5,388
|
|
|
1,534,697
|
|
|
4,120
|
International
|
|
1,436,911
|
|
|
678
|
|
|
1,281,118
|
|
|
8
|
Entertainment and Licensing
|
|
150,521
|
|
|
16,607
|
|
|
160,410
|
|
|
15,038
|
Global Operations (a)
|
|
59
|
|
|
1,298,337
|
|
|
5,930
|
|
|
1,183,183
|
Corporate and Eliminations
|
|
-
|
|
|
(1,321,010)
|
|
|
-
|
|
|
(1,202,349)
|
|
$
|
3,389,882
|
|
|
-
|
|
|
2,982,155
|
|
|
-
|
|
Quarter
Ended
|
|
Nine
Months Ended
|
|
September
25,
|
|
September
27,
|
|
September
25,
|
|
September
27,
|
Operating profit (loss)
|
2016
|
|
2015
|
|
2016
|
|
2015
|
U.S. and Canada
|
$
|
228,034
|
|
|
187,052
|
|
|
364,322
|
|
|
275,622
|
International
|
|
133,075
|
|
|
114,206
|
|
|
165,582
|
|
|
141,470
|
Entertainment and Licensing
|
|
14,095
|
|
|
16,245
|
|
|
33,367
|
|
|
40,090
|
Global Operations (a)
|
|
24,852
|
|
|
13,805
|
|
|
25,428
|
|
|
12,042
|
Corporate and Eliminations (b)
|
|
(37,955)
|
|
|
(27,781)
|
|
|
(55,808)
|
|
|
(35,992)
|
|
$
|
362,101
|
|
|
303,527
|
|
|
532,891
|
|
|
433,232
|
|
September
25,
|
|
September
27,
|
|
December
27,
|
Total assets
|
2016
|
|
2015
|
|
2015
|
U.S. and Canada
|
$
|
2,316,624
|
|
|
3,569,803
|
|
|
2,654,270
|
International
|
|
2,261,742
|
|
|
2,486,589
|
|
|
2,345,847
|
Entertainment and Licensing
|
|
632,933
|
|
|
727,002
|
|
|
567,753
|
Global Operations
|
|
2,038,736
|
|
|
2,431,866
|
|
|
2,410,142
|
Corporate and Eliminations (b)
|
|
(2,294,888)
|
|
|
(4,648,113)
|
|
|
(3,257,295)
|
|
$
|
4,955,147
|
|
|
4,567,147
|
|
|
4,720,717
|
(a)
The Global Operations
segment derives substantially all of its revenues, and thus its operating
results, from intersegment activities.
(b)
Certain long-term assets, including
property, plant and equipment, goodwill and other intangibles, which benefit
multiple operating segments, are included in Corporate and Eliminations.
Allocations of certain expenses related to these assets to the individual
operating segments are done at the beginning of the year based on budgeted
amounts. Any differences between actual and budgeted amounts are reflected in
Corporate and Eliminations because allocations are translated from the US
Dollar to local currency at budget rates when recorded, and Corporate and
Eliminations also includes the elimination of inter-company balance sheet
amounts.
The following table
represents consolidated International segment net revenues by major geographic
region for the quarter and nine-month periods ended September 25, 2016 and September
27, 2015.
|
Quarter
Ended
|
|
Nine
Months Ended
|
|
September
25,
|
|
September
27,
|
|
September
25,
|
|
September
27,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Europe
|
$
|
452,834
|
|
|
389,024
|
|
|
905,081
|
|
|
770,555
|
Latin America
|
|
154,985
|
|
|
141,901
|
|
|
307,949
|
|
|
297,877
|
Asia Pacific
|
|
82,926
|
|
|
81,720
|
|
|
223,881
|
|
|
212,686
|
Net revenues
|
$
|
690,745
|
|
|
612,645
|
|
|
1,436,911
|
|
|
1,281,118
|
The following table presents
consolidated net revenues by class of principal products for the quarter and nine-month
periods ended September 25, 2016 and September 27, 2015.
|
Quarter
Ended
|
|
Nine
Months Ended
|
|
September
25,
|
|
September
27,
|
|
September
25,
|
|
September
27,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Boys
|
$
|
605,452
|
|
|
593,094
|
|
|
1,297,358
|
|
|
1,206,118
|
Games
|
|
409,528
|
|
|
363,470
|
|
|
868,373
|
|
|
810,748
|
Girls
|
|
462,021
|
|
|
294,785
|
|
|
799,700
|
|
|
539,401
|
Preschool
|
|
202,756
|
|
|
219,648
|
|
|
424,451
|
|
|
425,888
|
Net revenues
|
$
|
1,679,757
|
|
|
1,470,997
|
|
|
3,389,882
|
|
|
2,982,155
|
(10)
Acquisition
On
July 13, 2016
, the Company acquired
Boulder Media
Limited
(“Boulder”), an animation
studio based in Dublin, Ireland. The consideration included an initial cash
payment of approximately $
13.2
million and provisions for
future earnout payments. Based on the Company’s preliminary analysis, goodwill
in the amount of $
11.8
million was recorded. The
final analysis will be completed during the fourth quarter of 2016.
Item
2. Management's Discussion and Analysis of Financial Condition and Results of
Operations.
This Quarterly Report on
Form 10-Q, including the following section entitled Management's Discussion and
Analysis of Financial Condition and Results of Operations, contains
forward-looking statements expressing management's current expectations, goals,
objectives and similar matters. These forward-looking statements may include
statements concerning the Company's product and entertainment plans,
anticipated product and entertainment performance, business opportunities,
plans and strategies, financial goals, cost savings and efficiency enhancing
initiatives and expectations for achieving the Company's financial goals and
other objectives. See Item 1A, in Part II of this report and Item 1A, in Part I
of the Annual Report on Form 10-K for the year ended December 27, 2015, for a
discussion of factors which may cause the Company's actual results or
experience to differ materially from that anticipated in these forward-looking
statements. The Company undertakes no obligation to revise the forward-looking
statements in this report after the date of the filing. Unless otherwise
specifically indicated, all dollar or share amounts herein are expressed in
millions of dollars or shares, except for per share amounts.
EXECUTIVE
SUMMARY
Hasbro,
Inc. ("Hasbro" or the "Company") is a global play and
entertainment company committed to Creating the World's Best Play Experiences.
The Company strives to do this through deep consumer engagement and the
application of consumer insights, the use of immersive storytelling to build
brands, product innovation and development of global business reach. Hasbro
applies these principles to leverage its beloved owned and controlled brands,
including LITTLEST PET SHOP, MAGIC: THE GATHERING, MONOPOLY, MY LITTLE PONY,
NERF, PLAY-DOH and TRANSFORMERS, as well as Partner Brands. From toys and games
to television, motion pictures, digital gaming and consumer products, Hasbro
fulfills the fundamental need for play and connection for children and families
around the world. The Company's wholly-owned Hasbro Studios creates
entertainment brand-driven storytelling across mediums, including television,
film and more.
Each of these elements is
executed globally in alignment with Hasbro's strategic game plan, its brand
blueprint. At the center of this blueprint, Hasbro re-imagines, re-invents and
re-ignites its owned and controlled brands and imagines, invents and ignites
new brands, through toy and game innovation, immersive entertainment offerings,
including television and motion pictures, digital gaming and a broad range of
consumer products. Hasbro generates revenue and earns cash by developing,
marketing and selling products based on global brands in a broad variety of
consumer goods categories including toy and game products and distribution of
television programming based on the Company's properties, as well as through
the out-licensing of rights for third parties to use its properties in
connection with products, including digital media and games and lifestyle
products. Hasbro also leverages its competencies to develop and market products
based on well-known licensed brands, including, but not limited to, DISNEY
PRINCESS and DISNEY’S FROZEN, DISNEY DESCENDANTS, MARVEL, SESAME STREET and
STAR WARS. MARVEL and STAR WARS are owned by The Walt Disney Company.
The Company's business is
separated into three principal business segments: U.S. and Canada,
International and Entertainment and Licensing. The U.S. and Canada segment
markets and sells both toy and game products primarily in the United States and
Canada. The International segment consists of the Company's European, Asia
Pacific and Latin and South American toy and game marketing and sales
operations. The Company's Entertainment and Licensing segment includes the
Company's consumer product licensing, digital licensing and gaming, and movie
and television entertainment operations. In addition to these three primary
segments, the Company's product sourcing operations are managed through its
Global Operations segment.
Third
quarter 2016 highlights:
· Third
quarter net revenues grew 14% compared to the third quarter of 2015 despite an
unfavorable foreign currency translation of approximately $2.8 million.
· 2016
third quarter net revenues from the U.S. and Canada segment increased 16%
compared to the third quarter of 2015 while net revenues from the International
segment increased 13%, which includes an unfavorable foreign currency
translation impact of $3.0 million for the quarter. Entertainment and Licensing
segment net revenues increased 8% in the third quarter of 2016 compared to the
same period in 2015.
· Net
revenues from the Girls, Boys and Games categories increased 57%, 2% and 13%,
respectively, during the third quarter of 2016 compared to the third quarter of
2015, while Preschool category net revenues were down 8% for the quarter.
· Franchise
Brand revenues increased 2% with growth in MAGIC: THE GATHERING, NERF,
TRANSFORMERS and PLAY-DOH products.
· Operating
profit improved 19% in the third quarter of 2016 compared to the third quarter
of 2015 while net earnings attributable to Hasbro, Inc. increased 24% to $257.8
million compared to $207.6 million in the third quarter of 2015.
First
nine months 2016 highlights:
· Net
revenues increased 14% in first nine months of 2016 compared to the first nine
months of 2015 including an unfavorable foreign currency translation of
approximately $49.1 million.
· Net revenues for the nine months ended September 25,
2016 from the U.S. and Canada and International segments were up 17% and 12%,
respectively, compared to the comparable period of 2015, whereas net revenues
from the Entertainment and Licensing segment declined 6% compared to the
comparable period of 2015.
· Net
revenues from the Girls category for the nine months ended September 25, 2016
increased 48%, Boys category net revenues grew 8%, Games category net revenues
grew 7% while Preschool net revenues remained flat in the first nine months of
2016 compared to 2015. Net revenues from Franchise Brands increased 2% while
Partner Brands increased 28% in the first nine months of 2016.
· Operating
profit grew 23% to $532.9 million in the first nine months of 2016 compared to
$433.2 million in the first nine months of 2015, while net earnings
attributable to Hasbro, Inc. increased 30% to $358.7 million compared to $276.1
million for the first nine months of 2015.
In July 2016,
the Company acquired
Boulder Media Limited
(“Boulder”), an animation studio based in Dublin, Ireland.
In addition to working on a variety of projects for Hasbro Studios
and Allspark Pictures, Boulder plans to continue to produce non-Hasbro content
under the Boulder name.
The Company is
committed to returning excess cash to its shareholders through dividends and
share repurchases. The Company seeks to return cash to its shareholders through
the payment of quarterly dividends.
Hasbro
increased the quarterly dividend rate from $0.46 per share to $0.51 per share
which was effective for the dividend paid in May 2016. In addition to the
dividend, the Company returns cash through its share repurchase program.
As part of this initiative, from 2005 to 2015, the
Company's Board of Directors (the "Board") adopted eight successive
share repurchase authorizations with a cumulative authorized repurchase amount
of $3,825 million. The eighth authorization was approved in February 2015 for
$500 million.
During the third quarter of 2016, Hasbro repurchased
approximately 0.6 million shares at a total cost of $48.4 million, at an
average price of $80.87 per share. During the first nine months of 2016, Hasbro
repurchased approximately 1.3 million shares at a total cost of $106.2 million
and an average price of $78.97 per share, respectively.
At September 25, 2016, the Company had $373.1 million remaining under
this authorization.
Share repurchases are subject to market conditions,
the availability of funds and other uses of funds.
SUMMARY OF FINANCIAL
PERFORMANCE
The
components of the results of operations, stated as a percent of net revenues,
are illustrated below for the quarter and nine-month periods ended September
25, 2016 and September 27, 2015.
|
Quarter
Ended
|
|
Nine
Months Ended
|
|
September
25,
|
|
September
27,
|
|
September
25,
|
|
September
27,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Net revenues
|
|
100.0%
|
|
|
100.0%
|
|
|
100.0%
|
|
|
100.0%
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
39.2
|
|
|
39.4
|
|
|
37.5
|
|
|
37.6
|
Royalties
|
|
8.0
|
|
|
7.7
|
|
|
8.1
|
|
|
7.7
|
Product development
|
|
4.2
|
|
|
4.4
|
|
|
5.6
|
|
|
5.8
|
Advertising
|
|
9.2
|
|
|
9.7
|
|
|
9.5
|
|
|
9.7
|
Amortization of intangibles
|
|
0.5
|
|
|
0.6
|
|
|
0.8
|
|
|
1.2
|
Program production cost amortization
|
|
0.4
|
|
|
0.8
|
|
|
0.5
|
|
|
1.0
|
Selling, distribution and
administration
|
|
17.0
|
|
|
16.8
|
|
|
22.3
|
|
|
22.4
|
Operating profit
|
|
21.6
|
|
|
20.6
|
|
|
15.7
|
|
|
14.5
|
Interest expense
|
|
1.4
|
|
|
1.6
|
|
|
2.1
|
|
|
2.4
|
Interest income
|
|
(0.1)
|
|
|
(0.0)
|
|
|
(0.2)
|
|
|
(0.1)
|
Other (income) expense, net
|
|
(0.4)
|
|
|
(0.3)
|
|
|
(0.2)
|
|
|
(0.3)
|
Earnings before income taxes
|
|
20.6
|
|
|
19.3
|
|
|
13.9
|
|
|
12.5
|
Income tax expense
|
|
5.4
|
|
|
5.3
|
|
|
3.5
|
|
|
3.4
|
Net earnings
|
|
15.2
|
|
|
14.0
|
|
|
10.4
|
|
|
9.1
|
Net loss attributable to
noncontrolling interests
|
|
(0.1)
|
|
|
(0.1)
|
|
|
(0.2)
|
|
|
(0.1)
|
Net earnings attributable to Hasbro,
Inc.
|
|
15.3%
|
|
|
14.1%
|
|
|
10.6%
|
|
|
9.3%
|
RESULTS
OF OPERATIONS – CONSOLIDATED
Third
Quarter of 2016
The quarters ended September
25, 2016 and September 27, 2015 were each 13-week periods. Net earnings and net
earnings attributable to Hasbro, Inc. increased to $256.2 million and $257.8
million, respectively, for the quarter ended September 25, 2016, from $206.4
million and $207.6 million, respectively, for the comparable period of 2015.
Diluted earnings per share attributable to Hasbro, Inc. increased to $2.03 in
the third quarter of 2016 from $1.64 in the third quarter of 2015. Third
quarter 2015 net earnings included a favorable adjustment, net of tax, of
$7,050, or $0.06 per diluted share, related to the sale of the Company's
manufacturing operations.
Consolidated net revenues for the quarter ended September 25, 2016
increased approximately 14% compared to the quarter ended September 27, 2015,
despite a negative impact from foreign currency translation of approximately
$2.8 million as a result of the stronger U.S. dollar in 2016 compared to 2015.
The impact of changes in exchange rates is calculated by translating the 2016
local currency revenues at 2015 actual rates and comparing this amount to the
2016 reported revenues. Overall, Franchise Brands revenues increased 2% during
the third quarter of 2016 compared to 2015. This growth was led by MAGIC: THE
GATHERING, NERF, TRANSFORMERS and PLAY-DOH products and more than offset
declines in MY LITTLE PONY, MONOPOLY and LITTLEST PET SHOP products. Partner
Brand net revenues grew by 19% in the quarter driven by DISNEY PRINCESS and
DISNEY’S FROZEN, DREAMWORKS’ TROLLS and YO-KAI WATCH products.
The
following table presents net revenues by product category for the quarters
ended September 25, 2016 and September 27, 2015.
|
Quarter
Ended
|
|
September
25,
|
|
September
27,
|
|
%
|
|
2016
|
|
2015
|
|
Change
|
Boys
|
$
|
605.5
|
|
|
593.1
|
|
2
|
%
|
Games
|
|
409.5
|
|
|
363.5
|
|
13
|
%
|
Girls
|
|
462.0
|
|
|
294.8
|
|
57
|
%
|
Preschool
|
|
202.8
|
|
|
219.6
|
|
-8
|
%
|
Net revenues
|
$
|
1,679.8
|
|
|
1,471.0
|
|
14
|
%
|
BOYS:
Net revenues in the boys' category increased 2% in 2016 compared
to 2015. Higher net revenues from Franchise Brands NERF and TRANSFORMERS
contributed to the increase as well as higher net revenues from Partner Brand
YO-KAI WATCH products. These increases
were partially offset by lower
third quarter 2016 net revenues from JURASSIC WORLD and STAR WARS products.
GAMES:
Net
revenues from the games’
category increased 13% in the third quarter of 2016 compared to the third
quarter of 2015. Higher net revenues from Franchise Brand MAGIC: THE
GATHERING products were partially offset by a decline in net revenues from
MONOPOLY products. Higher net revenues from PIE FACE as well as other games
brands, particularly, DUEL MASTERS, SIMON, BOP-IT, YAHTZEE and CLUE products
were partially offset by lower net revenues from OPERATION and TWISTER products
as well as certain other games brands.
GIRLS:
Net revenues in the girls' category increased 57% in the third
quarter of 2016 compared to 2015. The increase primarily resulted from higher
net revenues from Partner Brands, including Hasbro’s line of DISNEY PRINCESS
and DISNEY’S FROZEN fashion and small dolls as well as DREAMWORKS’ TROLLS
products. In addition, girls’ net revenues benefited from higher sales of BABY
ALIVE and FURBY products. These increases more than offset declines in DISNEY DESCENDANTS
products as well as Franchise Brands NERF, MY LITTLE PONY, LITTLEST PET SHOP
and PLAY-DOH products.
PRESCHOOL:
Net revenues in the preschool category decreased 8% in 2016
compared to 2015. Higher net revenues from Franchise Brand PLAY-DOH products
were more than offset by lower net revenues from core PLAYSKOOL products, STAR
WARS, JURASSIC WORLD, SESAME STREET products and, to a lesser extent, MY LITTLE
PONY, MARVEL and TRANSFORMERS products.
Operating
profit for the quarter ended September 25, 2016 increased 19% to $362.1
million, or 21.6% of net revenues, from $303.5 million, or 20.6% of net
revenues, for the quarter ended September 27, 2015. Foreign currency
translation had a $2.6 million favorable impact on operating profit in the
third quarter of 2016. Contributing to operating profit growth were
higher net revenues combined with greater operating expense leverage and lower
intangible asset amortization and programming costs. These factors were
partially offset by higher royalties and selling, distribution and administration
expenses. Operating profit for the third quarter 2015 included a $3.1 million
gain in administrative expense due to the sale of manufacturing operations
during the quarter.
First
Nine Months of 2016
The nine-month periods ended
September 25, 2016 and September 27, 2015 were each 39-week periods. Net
earnings and net earnings attributable to Hasbro, Inc. for the first nine
months of 2016 were $352.6 million and $358.7 million, respectively, compared
to $272.5 million and $276.1 million, respectively, for the first nine months
of 2015. Diluted earnings per share attributable to Hasbro, Inc. increased to
$2.82 in 2016 from $2.18 in 2015.
For the nine months ended September
25, 2016, consolidated net revenues were $3,389.9 million compared to $2,982.2 million
for the nine months ended September 27, 2015 and were negatively impacted by
foreign currency translation of approximately $49.1 million as a result of the
stronger U.S. dollar in 2016 compared to 2015. Absent the impact of foreign
currency, consolidated net revenues grew 15% in 2016 compared to 2015.
During the first nine months of 2016, Franchise Brand net revenues grew 2%
while Partner Brand net revenues grew 28%.
The
following table presents net revenues by product category for the first nine
months of 2016 and 2015.
|
Nine
Months Ended
|
|
September
25,
|
|
September
27,
|
|
%
|
|
2016
|
|
2015
|
|
Change
|
Boys
|
$
|
1,297.4
|
|
|
1,206.1
|
|
8
|
%
|
Games
|
|
868.4
|
|
|
810.8
|
|
7
|
%
|
Girls
|
|
799.7
|
|
|
539.4
|
|
48
|
%
|
Preschool
|
|
424.4
|
|
|
425.9
|
|
0
|
%
|
Net revenues
|
$
|
3,389.9
|
|
|
2,982.2
|
|
14
|
%
|
BOYS:
Net revenues in the boys' category increased 8% in the first nine
months of 2016 compared to 2015. Higher net revenues from Franchise Brand
NERF and Partner Brands STAR WARS and YO-KAI WATCH more than offset lower net
revenues from the JURASSIC WORLD, MARVEL and TRANSFORMERS brands.
GAMES:
Net revenues from the games category grew 7% in the first nine
months of 2016 compared to 2015. Higher net revenues from PIE FACE, DUEL
MASTERS and Franchise Brand MAGIC: THE GATHERING along with SIMON, YAHTZEE and
BOP-IT were partially offset by lower net revenues from other games brands,
including Franchise Brand MONOPOLY.
GIRLS:
Net revenues in the girls' category increased 48% in the nine
months ended September 25, 2016 compared to the nine months ended September 27,
2015, primarily related to Hasbro’s line of DISNEY PRINCESS and DISNEY’S FROZEN
fashion and small dolls as well as higher net revenues from DREAMWORKS’ TROLLS,
BABY ALIVE and EASY BAKE products. These increases were partially offset by
lower net revenues from Franchise Brands NERF, MY LITTLE PONY, and to a lesser
extent LITTLEST PET SHOP products.
PRESCHOOL:
Net revenues from the preschool category were essentially flat for
the first nine months of 2016 compared to 2015.
Higher net revenues
from Franchise Brand PLAY-DOH were fully offset by lower net revenues from JURASSIC
WORLD, core PLAYSKOOL, TRANSFORMERS, SESAME STREET and MARVEL products.
Operating profit for the
nine months ended September 25, 2016 increased 23% to $532.9 million, or 15.7%
of net revenues, from $433.2 million, or 14.5% of net revenues, for the nine
months ended September 27, 2015. Foreign currency translation did not have a
significant impact on operating profit in the first nine months of 2016. The
growth in operating profit was due to higher net revenues combined with lower
intangible asset amortization and programming costs and greater operating
expense leverage, partially offset by higher royalty expense.
SEGMENT
RESULTS
Most of the Company's
revenues and operating profit are derived from its three principal business
segments: the U.S. and Canada segment, the International segment and the
Entertainment and Licensing segment. The results of these operations are
discussed in detail below.
Third
Quarter of 2016
The
following table presents net revenues and operating profit data for the
Company's three principal segments for the quarters ended September 25, 2016
and September 27, 2015.
|
Quarter
Ended
|
|
September
25,
|
|
September
27,
|
|
%
|
|
2016
|
|
2015
|
|
Change
|
Net Revenues
|
|
|
|
|
|
|
|
|
U.S. and Canada segment
|
$
|
932.8
|
|
|
803.8
|
|
16
|
%
|
International segment
|
|
690.7
|
|
|
612.6
|
|
13
|
%
|
Entertainment and Licensing segment
|
|
56.1
|
|
|
52.1
|
|
8
|
%
|
|
|
|
|
|
|
|
|
|
Operating Profit
|
|
|
|
|
|
|
|
|
U.S. and Canada segment
|
$
|
228.0
|
|
|
187.1
|
|
22
|
%
|
International segment
|
|
133.1
|
|
|
114.2
|
|
17
|
%
|
Entertainment and Licensing segment
|
|
14.1
|
|
|
16.2
|
|
-13
|
%
|
U.S.
and Canada Segment
The U.S. and Canada segment
net revenues for the quarter ended September 25, 2016 increased 16% compared to
2015. Foreign currency translation did not have a significant impact on
this segment's net revenues. In the third quarter of 2016, higher net revenues
from the girls and games categories more than offset lower net revenues from
the preschool category and to a lesser extent, the boys’ category.
The
boys’ category benefited from higher net revenues from NERF, TRANSFORMERS,
MARVEL, and YO-KAI WATCH products which were more than offset by lower net
revenues from STAR WARS and JURASSIC WORLD products. Games’ category net
revenues increased primarily related to higher net revenues from PIE FACE,
MAGIC: THE GATHERING, DUEL MASTERS, SIMON and BOP-IT products, which were
partially offset by lower net revenues from MONOPOLY and certain other game
brands. In the girls' category higher net revenues primarily from the Company’s
DISNEY PRINCESS and DISNEY’S FROZEN fashion and small dolls as well as
DREAMWORKS’ TROLLS, BABY ALIVE, FURBY and EASY BAKE products, were partially
offset by lower net revenues in Franchise Brands NERF, MY LITTLE PONY, LITTLEST
PET SHOP, and PLAY-DOH products. In the Preschool category higher net revenues
from PLAY-DOH products were more than offset by lower revenues from other
Preschool brands products including STAR WARS, SESAME STREET, JURASSIC WORLD
and MARVEL products, as well as core PLAYSKOOL products.
U.S. and Canada segment
operating profit for the quarter ended September 25, 2016 was $228.0 million,
or 24.4% of segment net revenues, compared to $187.1 million, or 23.3% of
segment net revenues, for the quarter ended September 27, 2015. Operating
profit improved due to the impact of higher net revenues and greater operating
expense leverage.
International
Segment
International segment net
revenues increased 13% to $690.7 million for the quarter ended September 25,
2016 from $612.6 million for the quarter ended September 27, 2015. The
following table presents net revenues by geographic region for the Company's
International segment for the quarters ended September 25, 2016 and September
27, 2015.
|
Quarter
Ended
|
|
September
25,
|
|
September
27,
|
|
%
|
|
2016
|
|
2015
|
|
Change
|
Europe
|
$
|
452.8
|
|
|
389.0
|
|
16
|
%
|
Latin America
|
|
155.0
|
|
|
141.9
|
|
9
|
%
|
Asia Pacific
|
|
82.9
|
|
|
81.7
|
|
1
|
%
|
Net revenues
|
$
|
690.7
|
|
|
612.6
|
|
13
|
%
|
International segment net
revenues grew across all regions in the third quarter of 2016. Foreign currency
translation did not have a material impact on net revenues from the European
and Asia Pacific regions in the quarter as net revenues from those regions
increased 16% and 1%, respectively, during the third quarter of 2016. Net
revenues in the Latin American region included a $3.2 million unfavorable
foreign currency impact. Emerging markets experienced revenue growth of
approximately 16% in the third quarter of 2016.
In the third quarter of 2016
the boys, girls and preschool categories grew, while the games category was
flat compared to the same period in 2015. The boys’ category benefitted from
higher net revenues from Franchise Brands NERF and TRANSFORMERS and Partner
Brand YO-KAI WATCH which more than offset lower net revenues from STAR WARS,
JURASSIC WORLD and to a lesser extent MARVEL products. Girls category net
revenues increased primarily due to DISNEY PRINCESS and DISNEY’S FROZEN fashion
dolls and small dolls, as well as DREAMWORKS’ TROLLS, BABY ALIVE and FURBY
brands, partially offset by lower net revenues from Franchise Brands NERF, and
to a lesser extent LITTLEST PET SHOP and PLAY-DOH products. In the games
category, higher net revenues from PIE FACE and MAGIC: THE GATHERING products
were offset by lower net revenues from MONOPOLY and certain other games brands.
In the preschool category, higher net revenues from PLAY-DOH products more than
offset lower net revenues from core PLAYSKOOL, MY LITTLE PONY, MARVEL and
JURASSIC WORLD products.
International
segment operating profit increased 17% to $133.1 million, or 19.3% of segment
net revenues, for the quarter ended September 25, 2016 from $114.2 million, or
18.6% of segment net revenues, for the quarter ended September 27, 2015. The
increase in operating profit was primarily due to the increase in net revenues
discussed above, partially offset by higher expense levels.
Entertainment
and Licensing Segment
Entertainment and Licensing
segment net revenues for the quarter ended September 25, 2016 increased 8% to
$56.1 million compared to $52.1 million for the quarter ended September 27,
2015. Digital gaming and consumer product licensing experienced revenue
increases during the third quarter of 2016 compared to the same period in 2015.
Entertainment and Licensing
segment operating profit decreased to $14.1 million, or 25.1% of external
segment net revenues, for the quarter ended September 25, 2016 from $16.2
million, or 31.2% of segment net revenues, for the quarter ended September 27,
2015. Overall, Entertainment and Licensing segment operating profit and
operating profit margin decreased primarily due to the increase in net revenues
and lower program production costs being more than offset by higher expenses
associated with digital game launches by Backflip Studios and investments in
building our consumer products team globally. Boulder revenue and expenses are
being recorded in this segment, and were not material in the quarter.
Global
Operations
The Global Operations
segment had an operating profit of $24.9 million for the quarter ended
September 25, 2016 compared to an operating profit of $13.8 million for the
quarter ended September 27, 2015, attributable to higher sourcing volume and
lower costs of sales as a percentage of net revenues in 2016.
Corporate
and Eliminations
The operating loss in
Corporate and eliminations totaled $38.0 million for the third quarter of 2016
compared to $27.8 million for the third quarter of 2015.
First
Nine Months of 2016
The
following table presents net external revenues and operating profit data for the
Company's three principal segments for each of the nine months ended September
25, 2016 and September 27, 2015.
|
Nine
Months Ended
|
|
September
25,
|
|
September
27,
|
|
%
|
|
2016
|
|
2015
|
|
Change
|
Net Revenues
|
|
|
|
|
|
|
|
|
U.S. and Canada segment
|
$
|
1,802.4
|
|
|
1,534.7
|
|
17
|
%
|
International segment
|
|
1,436.9
|
|
|
1,281.1
|
|
12
|
%
|
Entertainment and Licensing segment
|
|
150.5
|
|
|
160.4
|
|
-6
|
%
|
|
|
|
|
|
|
|
|
|
Operating Profit
|
|
|
|
|
|
|
|
|
U.S. and Canada segment
|
$
|
364.3
|
|
|
275.6
|
|
32
|
%
|
International segment
|
|
165.6
|
|
|
141.5
|
|
17
|
%
|
Entertainment and Licensing segment
|
|
33.4
|
|
|
40.1
|
|
-17
|
%
|
U.S. and Canada Segment
The U.S. and Canada segment
net revenues for the nine months ended September 25, 2016 increased 17%
compared to 2015. Foreign currency translation did not have a significant
impact on segment net revenues. In the first nine months of 2016, higher net
revenues from the boys’, games’ and girls’ categories were partially offset by
lower net revenues from the preschool category.
In the boys’ category,
higher net revenues from, NERF, STAR WARS and YO-KAI WATCH products were
partially offset by lower net revenues from JURASSIC WORLD, MARVEL and
TRANSFORMERS products. Growth in the games’ category primarily reflects higher
net revenues from PIE FACE, DUEL MASTERS, SIMON and BOP-IT games. These
increases were only partially offset by lower net revenues from MONOPOLY, and
certain other games brands. In the girls' category higher net revenues
primarily from the DISNEY PRINCESS and DISNEY’S FROZEN fashion and small dolls
products as well as DREAMWORKS’ TROLLS, BABY ALIVE, EASY BAKE, FURBY and
FURREAL FRIENDS products, were partially offset by lower net revenues in
Franchise Brands NERF, MY LITTLE PONY, and PLAY-DOH products. Net revenues from
the preschool category decreased in the first nine months of 2016 compared to
2015, primarily due to lower net revenues from JURASSIC WORLD, core PLAYSKOOL,
SESAME STREET products, and to a lesser extent MARVEL, MY LITTLE PONY, STAR
WARS, and TRANSFORMERS products. These lower net revenues were partially
offset by continued strength from Franchise Brand, PLAY-DOH.
U.S. and Canada segment
operating profit for the nine months ended September 25, 2016 increased to
$364.3 million, or 20.2% of segment net revenues, from $275.6 million, or 18.0%
of segment net revenues, for the nine months ended September 27, 2015. Higher
operating profit reflects higher net revenues and lower intangible amortization
partially offset by higher expenses, including royalties, advertising, product
development, marketing and sales, selling, distribution and administration
expenses.
International
Segment
International segment net
revenues increased 12% to $1,436.9 million for the nine months ended September
25, 2016 from $1,281.1 million for the nine months ended September 27, 2015.
2016 International segment net revenues include unfavorable foreign currency
translation of approximately $46.7 million. Absent the impact of foreign
currency translation, International segment net revenues grew 16% for the first
nine months of 2016. The following table presents net revenues by geographic
region for the Company's International segment for the nine-month periods ended
September 25, 2016 and September 27, 2015.
|
Nine
Months Ended
|
|
September
25,
|
|
September
27,
|
|
%
|
|
2016
|
|
2015
|
|
Change
|
Europe
|
$
|
905.1
|
|
|
770.5
|
|
17
|
%
|
Latin America
|
|
307.9
|
|
|
297.9
|
|
3
|
%
|
Asia Pacific
|
|
223.9
|
|
|
212.7
|
|
5
|
%
|
Net revenues
|
$
|
1,436.9
|
|
|
1,281.1
|
|
12
|
%
|
Foreign
currency translation negatively impacted the major geographic regions as
follows: Europe - $12.4 million, Latin America - $28.4 million and Asia Pacific
- $5.9 million. Absent foreign currency translation, the underlying business
grew across all major geographic regions, up 19% in Europe, 13% in Latin
America and 8% in Asia Pacific. Net revenues in emerging markets were up 6% in
the first nine months of 2016 compared to 2015; however, excluding the impact
of unfavorable foreign exchange, emerging markets net revenues increased
approximately 12%.
In the first nine months of 2016, higher net revenues from the
girls, boys and preschool categories more than offset slightly lower net
revenues from the games category. In the boys category, higher net revenues
from Franchise Brand NERF products, Partner Brands STAR WARS and YO-KAI WATCH
products were partially offset by lower net revenues from MARVEL, JURASSIC
WORLD and TRANSFORMERS products. In the games category, higher net revenues
from PIE FACE and MAGIC: THE GATHERING were more than offset by lower net
revenues from other game brands, primarily MONOPOLY. Girls category net
revenues increased during the first nine months of 2016 compared to 2015
primarily due to strong sales of DISNEY PRINCESS and DISNEY’S FROZEN fashion
and small dolls, as well as DREAMWORKS’ TROLLS and BABY ALIVE and to a lesser
extent, DISNEY DECENDANTS, MY LITTLE PONY brands. These increases were
partially offset by lower net revenues from NERF, FURBY, LITTLEST PET SHOP and
PLAY-DOH. In the preschool category, higher net revenues from PLAY-DOH products
in the first nine months of 2016 compared to 2015 were only partially offset by
lower net revenues from JURASSIC WORLD, MARVEL and core PLAYSKOOL products.
International
segment operating profit increased to $165.6 million, or 11.5% of segment net
revenues, for the nine months ended September 25, 2016 from $141.5 million, or
11.0% of segment net revenues, for the nine months ended September 27, 2015.
The increase in operating profit is primarily due to the impact of higher net
revenues partially offset by higher expense levels, primarily royalties and
selling, distribution and administration expenses. Administration expense for
the nine months ended September 25, 2016 includes a $13.8 million bad debt
provision.
Entertainment
and Licensing Segment
Entertainment and Licensing segment net revenues for the nine
months ended September 25, 2016 decreased 6% to $150.5 million from $160.4
million for the nine months ended September 27, 2015. Lower net revenues from
entertainment were only partially offset by an increase in digital gaming net
revenues. Entertainment net revenues in 2015 included revenue from a multi-year
streaming deal for Hasbro Studios television programming.
Entertainment and Licensing
segment operating profit decreased to $33.4 million, or 22.2% of net revenues,
for the nine months ended September 25, 2016 from $40.1 million, or 25.0% of
segment net revenues, for the nine months ended September 27, 2015. Overall,
Entertainment and Licensing segment operating profit and operating profit
margin declined primarily due to lower revenues and higher costs associated
with the launch of new games from Backflip Studios and building the consumer
products team globally. These higher costs were partially offset by a decrease
in programming amortization costs as well as lower intangible amortization
expense.
Global
Operations
Global Operations segment
operating profit of $25.4 million for the first nine of 2016 compares to $12.0
million for the first nine months of 2015. The improvement is primarily due to
higher sourcing levels and improved product costs.
Corporate
and Eliminations
Operating loss in Corporate
and Eliminations for the first nine months of 2016 was $55.8 million, compared
to $36.0 million for the first nine months of 2015.
OPERATING COSTS AND EXPENSES
Third Quarter of 2016
The
Company's costs and expenses, stated as percentages of net revenues, are
illustrated below for the quarters ended September 25, 2016 and September 27,
2015.
|
Quarter
Ended
|
|
|
September
25,
|
|
|
September
27,
|
|
|
2016
|
|
|
2015
|
|
Cost of sales
|
39.2
|
%
|
|
39.4
|
%
|
Royalties
|
8.0
|
|
|
7.7
|
|
Product development
|
4.2
|
|
|
4.4
|
|
Advertising
|
9.2
|
|
|
9.7
|
|
Amortization of intangibles
|
0.5
|
|
|
0.6
|
|
Program production cost amortization
|
0.4
|
|
|
0.8
|
|
Selling, distribution and
administration
|
17.0
|
|
|
16.8
|
|
Cost of sales increased
13.8% from $579.1 million, or 39.4% of net revenues, for the quarter ended
September 27, 2015 to $659.0 million, or 39.2% of net revenues for the quarter
ended September 25, 2016. Costs of sales increased in dollars primarily
due to higher net revenues compared to the third quarter of 2015. As a percent
of net revenues, the decrease reflects a combination of a more favorable
product and revenue mix. Specifically, DREAMWORKS TROLLS and YO-KAI WATCH along
with higher MAGIC: THE GATHERING revenues contributed to the lower costs of
sales as a percentage of revenues for the quarter.
Royalty expense for the
quarter ended September 25, 2016 was $134.3 million, or 8.0% of net revenues,
compared to $114.0 million, or 7.7% of net revenues, for the quarter ended
September 27, 2015. Fluctuations in royalty expense are generally related
to the volume of entertainment-driven products sold in a given period, especially
if there is a major motion picture release. Growth in net revenues from Partner
Brands, particularly related to DISNEY PRINCESS, DISNEY’S FROZEN, DREAMWORKS’
TROLLS and YO-KAI WATCH products, generated higher royalty expense in dollars
and higher as a percentage of net revenues during the third quarter of 2016
compared to the same period in 2015.
Product development expense
for the quarter ended September 25, 2016 was $70.1 million, or 4.2% of net
revenues, compared to $64.8 million, or 4.4% of net revenues, for the
quarter ended September 27, 2015. Higher product development expense, in
dollars, primarily reflects the Company’s continued investment in innovation
across our brand portfolio in both Franchise and Partner Brands.
Advertising expense for the
quarter ended September 25, 2016 was $154.1 million, or 9.2% of revenues,
compared to $142.0 million, or 9.7% of net revenues, for the quarter ended
September 27, 2015. In dollars, the increase primarily reflects growth in
revenue. Advertising expense was lower as a percentage of net revenues,
reflecting the impact of a higher level of Partner Brand net revenues
attributed to DISNEY PRINCESS, DISNEY’S FROZEN, DREAMWORKS’ TROLLS and YO-KAI
WATCH, which tend to carry lower levels of advertising by Hasbro, reflective of
the value of our partner’s entertainment, in addition to leverage from higher
overall net revenues.
Amortization of intangibles
was $8.7 million, or 0.5% of net revenues for the quarter ended September 25,
2016 compared to $9.0 million, or 0.6% of net revenues, for the quarter ended
September 27, 2015.
Program production cost
amortization decreased to $6.3 million or 0.4% of net revenues, for the quarter
ended September 25, 2016 from $11.5 million, or 0.8% of net revenues, for the
quarter ended September 27, 2015. Program production costs are capitalized as
incurred and amortized using the individual-film-forecast method. The decrease
in the third quarter of 2016 primarily reflects a lower number of television
programs being amortized in 2016.
For
the quarter ended September 25, 2016, the Company's selling, distribution and
administration expenses increased to $285.2 million, or 17.0% of net revenues,
from $247.0 million, or 16.8% of net revenues, for the quarter ended September
27, 2015. These higher costs reflect increases in marketing and sales,
administration, and distribution costs in the third quarter of 2016 compared to
2015. Foreign exchange resulted in an increase of approximately $1.7 million.
Increases in administration and marketing and sales included increased
compensation, including stock compensation, higher depreciation and continued
investments in our brands. The increase in administration expense also
includes investments in our consumer products team globally and in digital
projects for MAGIC: THE GATHERING and new gaming launches at BACKFLIP STUDIOS.
Additionally, administration expense in 2015 benefited from a $3.1 million gain
related to the sale of manufacturing operations in the third quarter of 2015.
The increase in distribution costs during the third quarter of 2016 is
primarily due to higher sales volume and inventory levels.
First Nine Months of 2016
The
Company's costs and expenses, stated as percentages of net revenues, are
illustrated below for the nine-month periods ended September 25, 2016 and September
27, 2015.
|
Nine
Months Ended
|
|
|
September
25,
|
|
|
September
27,
|
|
|
2016
|
|
|
2015
|
|
Cost of sales
|
37.5
|
%
|
|
37.6
|
%
|
Royalties
|
8.1
|
|
|
7.7
|
|
Product development
|
5.6
|
|
|
5.8
|
|
Advertising
|
9.5
|
|
|
9.7
|
|
Amortization of intangibles
|
0.8
|
|
|
1.2
|
|
Program production cost amortization
|
0.5
|
|
|
1.0
|
|
Selling, distribution and
administration
|
22.3
|
|
|
22.4
|
|
Cost of sales for the nine
months ended September 25, 2016 increased to $1,270.9 million, or 37.5% of net
revenues, from $1,122.3 million, or 37.6% of net revenues, for the nine months
ended September 27, 2015. Costs of sales increased in dollars primarily due to
higher net revenues compared to the first nine months of 2015. As a percent of
net revenues, the relatively flat cost of sales reflects a combination
of a more favorable product mix offset by the impact of lower
entertainment and licensing revenues during the first nine months of 2016. This
more favorable product mix in part reflects higher net revenues from
royalty-bearing products, specifically those related to the STAR WARS,
DREAMWORKS’ TROLLS and YO-KAI WATCH brands which generally carry higher pricing
and, therefore, have a lower cost of sales as a percentage of net revenues.
Royalty expense for the nine
months ended September 25, 2016 was $273.7 million, or 8.1% of net revenues,
compared to $230.1 million, or 7.7% of net revenues, for the nine months ended
September 27, 2015. Fluctuations in royalty expense are generally related to
the volume of entertainment-driven products sold in a given period, especially
if there is a major motion picture release. Growth in net revenues from Partner
Brands, particularly related to STAR WARS, DISNEY PRINCESS, DISNEY’S FROZEN,
DREAMWORKS’ TROLLS and YO-KAI WATCH products, generated higher royalty expense
in dollars and higher as a percentage of net revenues during the first nine
months of 2016 compared to the same period in 2015.
Product development expense
for the nine months ended September 25, 2016 increased to $190.9 million, or
5.6% of net revenues, from $174.3 million, or 5.8% of net revenues for the nine
months ended September 27, 2015. Higher product development expense, in
dollars, primarily reflects the Company’s continued investment in innovation and
anticipated growth across our brand portfolio in both Franchise and Partner
Brands.
Advertising
expense for the nine months ended September 25, 2016 was $320.9 million, or 9.5%
of net revenues, compared to $288.1 million, or 9.7% of net revenues, for the
nine months ended September 27, 2015. In dollars, the increase primarily
reflects growth in revenue. Advertising expense was lower as a percentage of
net revenues, reflecting greater expense leveraging as well as the impact of a
heavier mix of Partner Brands through the first nine months of 2016 compared to
the first nine months of 2015.
Amortization of intangibles
was $26.1 million, or 0.8% of net revenues, for the nine months ended September
25, 2016 compared to $35.3 million, or 1.2% of net revenues, in the first nine
months of 2015. The decrease reflects amortization related to certain digital
gaming rights, which became fully amortized during the first half of 2015.
Program production cost
amortization decreased in the first nine months of 2016 to $17.5 million, or
0.5% of net revenues, from $29.8 million, or 1.0% of net revenues, in the first
nine months of 2015. Program production costs are capitalized as incurred and
amortized using the individual-film-forecast method. The decrease is primarily
due to a lower number of television programs being amortized during 2016. In
addition, higher revenues in 2015 primarily due to the multi-year digital
distribution agreement contributed to a higher expense level in 2015.
For the nine months ended
September 25, 2016, the Company's selling, distribution and administration
expenses increased to $757.0 million or 22.3% of net revenues from $669.0
million or 22.4% of net revenues for the nine months ended September 27, 2015.
These higher costs include growth in marketing and sales, administration, and
distribution costs. Foreign exchange resulted in a decrease of approximately
$18 million. Higher marketing and sales and administration costs include increased
compensation, including stock compensation, higher depreciation expense, and
continued investments in our brands. Administration expense for the nine
months ended September 25, 2016 and September 27, 2015 includes bad debt
expense of $19.1 million and $1.5 million, respectively. Bad debt expense for
the nine months ended September 25, 2016, primarily relates to a potentially
uncollectable account in the International segment. The increase in distribution
costs during the first nine months of 2016 is primarily due to higher sales
volume and inventory levels. The first nine months of 2015 administration
expense includes a $3.1 million gain from the sale of manufacturing operations.
NON-OPERATING
(INCOME) EXPENSE
Interest expense for the
third quarter and first nine months of 2016 totaled $24.3 million and $72.3
million, respectively, compared to $24.0 million and $72.8 million for the
comparable and respective periods of 2015.
Interest income was $1.9
million and $6.5 million for the third quarter and first nine months of 2016,
respectively, compared to $0.7 million and $2.3 million in the third quarter
and first nine months of 2015. Higher invested cash balances and higher average
interest rates in 2016 compared to 2015 contributed to the increase.
Other (income) expense, net
of $(6.6) million for the quarter ended September 25, 2016, compared to other
(income) expense, net of $(4.5) million for the quarter ended September 27,
2015. Other (income) expense, net of $(5.5) million for the nine month
period ended September 25, 2016, compared to other (income) expense, net of
$(9.9) million for same period in 2015. The increase in the third quarter is
primarily due to a small gain related to foreign currency compared to foreign
currency losses for the same period in 2015 offset by the gain on sale of
manufacturing operations in the third quarter of 2015. Other (income) expense,
net also benefited from higher earnings from Discovery Family Channel for both
the quarter and the nine months. Other (income) expense, net for the nine
months ended September 25, 2016 decreased primarily due to the gain on sale of
the manufacturing business in 2015.
INCOME
TAXES
Income taxes totaled $90.2 million on pre-tax earnings of $346.3
million in the third quarter of 2016 compared to income taxes of $78.2 million
on pre-tax earnings of $284.6 million in the third quarter of 2015. For the
nine month period, income taxes totaled $120.0 million on pre-tax earnings of
$472.6 million in 2016 compared to income taxes of $100.1 million on pre-tax
earnings of $372.6 million in 2015. Both periods, as well as the full year
2015, were impacted by certain discrete tax events including the accrual of
potential interest and penalties on certain tax positions. During the first
nine months of 2016, favorable discrete tax adjustments were a net benefit of
$3.3 million compared to a net benefit of $2.0 million in the first nine months
of 2015. The favorable discrete tax adjustment for the first nine months of
2016 includes benefits related to expiration of statutes for certain tax
positions. Absent discrete items, the adjusted tax rate for the first nine
months of 2016 and 2015 were 26.1% and 27.2%, respectively. The adjusted rate
of 26.1% for the nine months ended September 25, 2016 is comparable to the full
year 2015 adjusted rate of 26.4%.
OTHER
INFORMATION
Historically, the Company's
revenue pattern has shown the second half of the year to be more significant to
its overall business than the first half. The Company expects that this
concentration will continue, particularly as more of its business has shifted
to larger customers with order patterns concentrated in the second half of the
year. The concentration of sales in the second half of the year increases the
risk of (a) underproduction of popular items, (b) overproduction of less
popular items, and (c) failure to achieve compressed shipping schedules.
The toy and game business is
characterized by customer order patterns which vary from year to year largely
because of differences each year in the degree of consumer acceptance of
product lines, product availability, marketing strategies and inventory
policies of retailers, the dates of theatrical releases of major motion
pictures for which the Company has product licenses, and changes in overall
economic conditions. As a result, comparisons of the Company's unshipped orders
on any date with those at the same date in a prior year are not necessarily
indicative of the Company's expected sales for that year. Moreover, quick
response inventory management practices result in fewer orders being placed
significantly in advance of shipment and more orders being placed for immediate
delivery. Although the Company may receive orders from customers in advance, it
is a general industry practice that these orders are subject to amendment or
cancellation by customers prior to shipment and, as such, the Company does not
believe that these unshipped orders, at any given date, are indicative of
future sales.
In May 2014, the Financial
Accounting Standards Board ("FASB"), in cooperation with the
International Accounting Standards Board ("IASB"), issued ASU No.
2014-09,
Revenue from Contracts with Customers (ASC 606)
. This ASU
supersedes the revenue recognition requirements in Accounting Standards
Codification 605 –
Revenue Recognition
and most industry-specific
guidance throughout the Codification. This new guidance provides a five-step
model for analyzing contracts and transactions to determine when, how and if
revenue is recognized. Revenue should be recognized to depict the transfer of
promised goods or services to customers in an amount that reflects the
consideration to which the company expects to be entitled in exchange for those
goods or services. This ASU is now effective for fiscal years beginning
after December 15, 2017, and for interim periods within those fiscal years, and
may be adopted early but not before December 15, 2016. The Company is
evaluating the requirements of ASU 2014-09 and its potential impact on the
Company's financial statements and does not presently believe the adoption of
this new standard will have a material impact on the Company’s results or
financial statements.
In February 2016, the FASB
issued ASU 2016-02,
Leases (Topic 842) (ASU 2016-02)
, which will require
lessees to recognize a right-of-use asset and a lease liability for virtually
all of their leases. The liability will be based on the present value of lease
payments and the asset will be 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 will result in straight-line expense
while finance leases will result in a front-loaded expense pattern. Additional
quantitative and qualitative disclosures will be required. ASU 2016-02 is
required for public companies for fiscal years beginning after December 15,
2018 and must be adopted using a modified retrospective transition. The Company
is evaluating the requirements of ASU 2016-02 and its potential impact on the
Company’s financial statements.
In March 2016, the FASB issued ASU
2016-09,
Improvements to Employee Share-Based Payment Accounting
, which
amends ASC Topic 718, Compensation – Stock Compensation. The ASU includes
provisions intended to simplify various aspects related to how share-based
payments are accounted for and presented in the financial statements including
(1) a requirement to record all of the tax effects related to share-based
payments at settlement (or expiration) through the income statement; (2) a
requirement that all tax-related cash flows resulting from share-based payments
be reported as operating activities on the statement of cash flows; (3) the
removal of the requirement to withhold shares upon settlement of an award at
the minimum statutory withholding requirement; (4) 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; (5) entities will be 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 required today or recognize
forfeitures as they occur. ASU 2016-09 is effective for public companies for
annual reporting periods beginning after December 15, 2016, and interim periods
within that reporting period. Early adoption will be permitted in any interim
or annual period, with any adjustments reflected as of the beginning of the
year of adoption. The Company is evaluating the requirements of ASU 2016-09 and
its potential impact on the Company’s financial statements.
In July 2015, the FASB issued ASU 2015-11,
Simplifying the Measurement of Inventory
(ASU 2015-11), which replaces
the concept of market price with the single measurement of net realizable
value. ASU 2015-11 is effective for public companies for fiscal years beginning
after December 15, 2016 and interim periods within fiscal years beginning after
December 15, 2017. The Company has evaluated the requirements of ASU 2015-11
and does not presently believe that the adoption of the new standard will have
a material impact on the Company’s results or financial statements.
In August 2016, the FASB issued ASU
2016-15,
Statement of Cash Flows (ASC 230) – Classification of Certain
Cash Receipts and Cash Payments
. The new guidance is intended to reduce
diversity in practice across all industries, in how certain transactions are
classified in the statement of cash flows. ASU 2016-15 is effective for public
companies for fiscal years beginning after December 15, 2017. The Company has
evaluated the requirements of ASU 2016-15 and does not presently believe that
the adoption of the new standard will have a material impact on the Company’s
results or financial statements.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically
generated a significant amount of cash from operations. In 2016 the Company
funded its operations and liquidity needs primarily through cash flows from
operations, and, when needed, using borrowings under its available lines of
credit and commercial paper program.
During
the first nine months of 2016, the Company continued to fund its working
capital needs primarily through cash flows from operations and, when needed,
lines of credit and commercial paper. The Company believes that the funds
available to it, including cash expected to be generated from operations and
funds available through its available lines of credit and commercial paper
program, are adequate to meet its working capital needs for the remainder of
2016. However, unexpected events or circumstances such as material operating
losses or increased capital or other expenditures may reduce or eliminate the
availability of external financial resources. In addition, significant
disruptions to credit markets may also reduce or eliminate the availability of
external financial resources. Although management believes the risk of
nonperformance by the counterparties to the Company's financial facilities is
not significant, in times of severe economic downturn in the credit markets it
is possible that one or more sources of external financing may be unable or unwilling
to provide funding to the Company.
As of September 25, 2016 the
Company's cash and cash equivalents totaled $830.4 million, substantially all
of which is held outside of the United States. Deferred income taxes have not
been provided on the majority of undistributed earnings of international
subsidiaries as such earnings are indefinitely reinvested by the Company.
Accordingly, such international cash balances are not available to fund cash
requirements in the United States unless the Company changes its reinvestment
policy. The Company currently has sufficient sources of cash in the United
States to fund cash requirements without the need to repatriate any funds. If
the Company changes its policy of permanently reinvesting international
earnings, it would be required to accrue for any additional income taxes
representing the difference between the tax rates in the United States and the
applicable tax jurisdiction of the international subsidiaries. If the Company
repatriated the funds from its international subsidiaries, it would then be
required to pay the additional U.S. income tax. The majority of the Company's
cash and cash equivalents held outside of the United States as of September 25,
2016 are denominated in the U.S. dollar.
Because of the seasonality
in the Company's cash flow, management believes that on an interim basis,
rather than discussing only its cash flows, a better understanding of its
liquidity and capital resources can be obtained through a discussion of the
various balance sheet categories as well. Also, as several of the major
categories, including cash and cash equivalents, accounts receivable,
inventories and short-term borrowings, fluctuate significantly from quarter to
quarter, again due to the seasonality of its business, management believes that
a comparison to the comparable period in the prior year is generally more
meaningful than a comparison to the prior quarter or prior year-end.
At September 25, 2016, cash
and cash equivalents, net of short-term borrowings, increased to $651.7 million
from $437.3 million at September 27, 2015. Net cash provided by operating
activities in the first nine months of 2016 was $153.8 million compared to
$69.6 million in the first nine months of 2015. On a trailing twelve month
basis, the Company generated $636.7 million in operating cash flows as of the
end of the third quarter of 2016 compared to $497.1 million as of the end of
the third quarter of 2015 and $552.4 million for the fiscal year ended December
27, 2015.
Accounts receivable
increased 5% to $1,452.9 million at September 25, 2016, compared to $1,390.3
million at September 27, 2015. The increase reflects the 14% increase in
revenues in the third quarter of 2016 as compared to the third quarter of 2015
partially offset by improved collections. Days sales outstanding decreased from
85 days at September 27, 2015 to 78 days at September 25, 2016, primarily
reflecting the improved collections.
Inventories increased 36% to
$607.7 million at September 25, 2016 from $447.1 million at September 27, 2015.
The increase in inventories is primarily related to building inventory for new
and high growth product lines such as DISNEY PRINCESS and DISNEY’S FROZEN,
YO-KAI WATCH and PIE-FACE, as well as products relating to fourth quarter movie
releases such as STAR WARS and TROLLS products.
Prepaid expenses and other
current assets decreased 20% to $256.0 million at September 25, 2016
from $320.9 million at September 27, 2015. The majority of the decrease is
due to lower prepaid royalties as well as a decrease in the value of foreign
exchange contracts at 2016 compared to 2015.
Goodwill and other
intangible assets, net decreased to $859.3 million at September 25, 2016 from
$882.0 million at September 27, 2015. The decrease was due to amortization of
intangible assets over the last twelve months, partially offset by an $11.8
million increase as a result of the acquisition of Boulder in July 2016.
Other assets decreased
approximately 7% to $701.6 million at September 25, 2016 from $756.0 million at
September 27, 2015. The decrease was primarily related to a lower value of
long-term foreign exchange contracts as well as lower long-term royalty
advances. These were partially offset by higher capitalized movie and
television production costs.
Accounts payable and accrued
liabilities increased 17% to $1,087.4 million at September 25, 2016 from $925.6
million at September 27, 2015. The increase was primarily due to higher
accounts payable reflecting the higher levels of inventory at September 25,
2016 as well as higher accrued royalties at September 25, 2016 due to lower
advances. Also contributing to the increase was higher value of foreign
exchange contracts as well as higher accrued dividends.
Other liabilities decreased
8% to $364.4 million at September 25, 2016 from $396.8 million at September 27,
2015. The decrease in 2016 compared to 2015 reflects lower accrued pension
balances as the result of a $62 million U.S. pension contribution in the third
quarter of 2016. This decrease was partially offset by higher uncertain tax
positions
Net cash utilized by
investing activities was $90.5 million in the first nine months of 2016
compared to $58.8 million in the first nine months of 2015. Additions to
property, plant and equipment were $103.6 million in the first nine months of
2016 compared to $97.9 million in the first nine months of 2015. Net investing
activity for 2016 includes $12.4 million paid to purchase Boulder and $6.4 million
received from payment on an installment note receivable while 2015 investing
activity includes $18.6 million proceeds from the sale of the Company’s
manufacturing facilities in the third quarter of 2015 as well as a $3.0 million
capital contribution to a 50% joint venture with Guangdong Alpha Animation
and Culture Co., Ltd.
Net cash utilized by
financing activities was $217.4 million in the first nine months of 2016
compared to $335.9 million in the first nine months of 2015. Cash payments
related to purchases of the Company's common stock were $104.3 million in the
first nine months of 2016 compared to $74.1 million in the first nine months of
2015. At September 27, 2016, the Company had $373.1 million remaining available
under its current share repurchase authorization approved by the Board of
Directors. Dividends paid in the first nine months of 2016 totaled $185.3
million compared to $168.4 million in the first nine months of 2015. Net
proceeds from short-term borrowings were $14.2 million in the first nine months
of 2016 compared to net repayments of $138.1 million in the first nine months
of 2015.
The Company has an agreement
with a group of banks for a commercial paper program (the "Program").
Under the Program, at the request of the Company and subject to market
conditions, the banks may either purchase from the Company, or arrange for the
sale by the Company, of unsecured commercial paper notes. Under the
Program the Company may issue notes from time to time up to an aggregate
principal amount outstanding at any given time of $700 million. The maturities
of these notes will vary but may not exceed 397 days. The notes will be
sold under customary terms in the commercial paper market and will be issued at
a discount or par, or alternatively, will be sold at par and will bear varying
interest rates based on a fixed or floating rate basis. The interest
rates will vary based on market conditions and the ratings assigned to the
notes by the credit rating agencies at the time of issuance. Subject to
market conditions, the Company intends to utilize the Program as its primary
short-term borrowing facility and does not intend to sell unsecured commercial
paper notes in excess of the available amount under the revolving credit
agreement discussed below. If, for any reason, the Company is unable to
access the commercial paper market, the Company intends to use the revolving
credit agreement to meet the Company's short-term liquidity needs. At
September 25, 2016 the Company had borrowings of approximately $165.8 million
outstanding related to the Program.
The
Company has a revolving credit agreement (the "Agreement"), which
provides it with a $700 million committed borrowing facility. The Agreement
contains certain financial covenants setting forth leverage and coverage
requirements, and certain other limitations typical of an investment grade
facility, including with respect to liens, mergers and incurrence of
indebtedness. The Company was in compliance with all covenants as of and for
the quarter ended September 25, 2016. The Company had no borrowings outstanding
under its committed revolving credit facility at September 25, 2016. However,
the Company had letters of credit outstanding under this facility as of
September 25, 2016 of approximately $0.8 million. Amounts available and unused
under the committed line, less outstanding balances under the commercial paper
program, as of September 25, 2016 were approximately $533.4 million. The
Company also has other uncommitted lines from various banks, of which
approximately $57.6 million was utilized at September 25, 2016, of which $44.7
million represents outstanding letters of credit and $12.9 million represents
outstanding borrowings.
The Company has principal
amounts of long-term debt at September 25, 2016 of $1,559.9 million, of which
$350 million is due in September 2017 and recorded as a current liability and
the remainder are due at varying times from 2021 through 2044. The Company also
had letters of credit of approximately $45.5 million and purchase commitments
of approximately $284.5 million outstanding at September 25, 2016.
Other contractual
obligations and commercial commitments, as detailed in the Company's Annual
Report on Form 10-K for the year ended December 27, 2015, did not materially
change outside of payments made in the normal course of business and as
otherwise set forth in this report. The table of contractual obligations and
commercial commitments, as detailed in the Company's Annual Report on Form 10-K
for the year ended December 27, 2015, does not include certain tax liabilities
recorded related to uncertain tax positions. These liabilities were $92.7
million at September 25, 2016, and are included as a component of other
liabilities in the accompanying consolidated balance sheets.
The Company believes that
cash from operations, and, if necessary, its committed line of credit and other
borrowing facilities, will allow the Company to meet these and other
obligations listed.
CRITICAL
ACCOUNTING POLICIES AND SIGNIFICANT ESTIMATES
The Company prepares its
consolidated financial statements in accordance with accounting principles
generally accepted in the United States of America. As such, management
is required to make certain estimates, judgments and assumptions that it
believes are reasonable based on the information available. These
estimates and assumptions affect the reported amounts of assets and liabilities
at the date of the financial statements and the reported amounts of revenues
and expenses for the periods presented. The significant accounting
policies which management believes are the most critical to aid in fully
understanding and evaluating the Company's reported financial results include
sales allowances, program production costs, recoverability of goodwill and
intangible assets, recoverability of royalty advances and commitments, pension
costs and obligations and income taxes. These critical accounting policies are
the same as those detailed in the Annual Report on Form 10-K for the year ended
December 27, 2015.
The Company has $119.1
million of goodwill related to its acquisition of Backflip Studios, as more
fully described in the Company’s 2015 Annual Report on Form 10-K. The
underlying cash flows supporting the goodwill are based on long-term financial
projections for revenues and profitability growth which includes anticipated
game releases in 2016. During the second quarter of 2016, Backflip Studios
released TRANSFORMERS: EARTH WARS, the first of its major title releases for
2016. Results for this game have been positive. In the fourth quarter, Backflip
Studios is expected to release DRAGONVALE WORLD and MY LITTLE PONY: PUZZLE
PARTY. Should future results for titles released and/or the other anticipated
2016 game releases not achieve our projected targets, including, without
limitation, due to delays in release dates, the Company may be required to
recognize an impairment charge during 2016. In the fourth quarter of 2016, the
Company will be conducting its annual goodwill impairment review related to the
Backflip Studios goodwill and all other goodwill balances recorded.
FINANCIAL
RISK MANAGEMENT
The Company is exposed to
market risks attributable to fluctuations in foreign currency exchange rates,
primarily as the result of sourcing products priced in U.S. dollars, Hong Kong
dollars and Euros while marketing those products in more than twenty currencies.
Results of operations may be affected primarily by changes in the value of the
U.S. dollar, Hong Kong dollar, Euro, British pound sterling, Swiss franc,
Canadian dollar, Brazilian real, Russian ruble and Mexican peso and, to a
lesser extent, other currencies in European, Latin American and Asia Pacific
countries.
To manage this exposure, the
Company has hedged a portion of its forecasted foreign currency transactions for
fiscal years 2016 through 2021 using foreign exchange forward contracts. The
Company is also exposed to foreign currency risk with respect to its net cash
and cash equivalents or short-term borrowing positions in currencies other than
the U.S. dollar. The Company believes, however, that the on-going risk on the
net exposure should not be material to its financial condition. In addition,
the Company's revenues and costs have been, and will likely continue to be,
affected by changes in foreign currency rates. A significant change in foreign
exchange rates can materially impact the Company's revenues and earnings due to
translation of foreign-denominated revenues and expenses. The Company does not
hedge against translation impacts of foreign exchange. From time to time,
affiliates of the Company may make or receive intercompany loans in currencies
other than their functional currency. The Company manages this exposure at the
time the loan is made by using foreign exchange contracts. Other than as
set forth above, the Company does not hedge foreign currency exposures.
The Company reflects all
forward contracts at their fair value as an asset or liability on the
consolidated balance sheets. The Company does not speculate in foreign currency
exchange contracts. At September 25, 2016, these contracts had net unrealized
gains of $6.8 million, of which $25.5 million are recorded in prepaid expenses
and other current assets, $13.5 million are recorded in other assets, $15.1
million are recorded in accrued liabilities and $4.3 million are recorded in
other liabilities. Included in accumulated other comprehensive loss at September
25, 2016 are deferred gains, net of tax, of $16.8 million, related to these
derivatives.
At September 25, 2016, the
Company had fixed rate long-term debt of $1,559.9 million. Of this long-term
debt, $600 million represents the aggregate issuance of long-term debt in May
2014 which consisted of $300 million of 3.15% Notes Due 2021 and $300 million
of 5.10% Notes Due 2044. The Company had forward-starting interest rate
swap agreements with a total notional value of $500 million related to the May
2014 issuance which hedged the anticipated underlying U.S. Treasury interest
rate. These interest rate swaps were matched with this debt issuance and were
designated and effective as hedges of the change in future interest payments.
At the date of debt issuance, the Company terminated these interest rate swap
agreements and their fair value was recorded in accumulated other comprehensive
loss and is being amortized through the consolidated statements of operations
using an effective interest rate method over the life of the related debt.
Included in accumulated other comprehensive loss at September 25, 2016 are
deferred losses, net of tax, of $18.5 million related to these derivatives.
Item 3.
|
Quantitative and Qualitative Disclosures About
Market Risk.
|
The information required by this item is included in
Part I Item 2. "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and is incorporated herein by reference.
Item 4.
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Controls and Procedures.
|
The Company maintains
disclosure controls and procedures, as defined in Rule 13a-15(e) promulgated
under the Securities Exchange Act of 1934 (the "Exchange Act"), that
are designed to ensure that information required to be disclosed by the Company
in the reports that it files or submits under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission's rules and forms and that such information
is accumulated and communicated to the Company's management, including its
Chief Executive Officer and Chief Financial Officer, as appropriate to allow
timely decisions regarding required disclosure. The Company carried out an
evaluation, under the supervision and with the participation of the Company's
management, including the Company's Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of the Company's
disclosure controls and procedures as of September 25, 2016. Based on the
evaluation of these disclosure controls and procedures, the Chief Executive
Officer and Chief Financial Officer concluded that the Company's disclosure
controls and procedures were effective.
There were no changes in the Company's internal
control over financial reporting, as defined in Rule 13a-15(f) promulgated
under the Exchange Act, during the quarter ended September 25, 2016 that have
materially affected, or are reasonably likely to materially affect, the
Company's internal control over financial reporting.
PART II. OTHER
INFORMATION
Item 1.
|
Legal Proceedings.
|
The Company is currently party to certain legal
proceedings, none of which it believes to be material to its business or
financial condition.
This Quarterly Report on Form 10-Q contains
"forward-looking statements," within the meaning of the Private
Securities Litigation Reform Act of 1995, concerning management's expectations,
goals, objectives, and similar matters. These forward-looking statements may
include statements concerning the Company's product and entertainment plans,
anticipated product and entertainment performance, business opportunities and
strategies, financial and business goals, expectations for achieving the
Company's financial and business goals, cost savings and efficiency enhancing
initiatives and other objectives and anticipated uses of cash and may be
identified by the use of forward-looking words or phrases such as
"anticipate," "believe," "could,"
"expect," "intend," "look forward,"
"may," "planned," "potential,"
"should," "will," and "would" or any variations
of words with similar meanings. These forward-looking statements are inherently
subject to known and unknown risks and uncertainties.
The Company's actual results or experience may
differ materially from those expected or anticipated in the forward-looking
statements. The Company has included, under Item 1A. of its Annual Report on
Form 10-K, for the year ended December 27, 2015 (the "Annual
Report"), a discussion of factors which may impact these forward-looking
statements. In furtherance, and not in limitation, of the more detailed
discussion set forth in the Annual Report, specific factors that might cause
such a difference include, but are not limited to:
· the Company's
ability to successfully re-imagine, re-invent and re-ignite its existing
brands, products and product lines, including through the use of immersive
entertainment experiences, to maintain and further their success;
· the
Company's ability to successfully design, develop, produce, introduce, market
and sell innovative new brands, products and product lines which achieve and
sustain interest from retailers and consumers and keep pace with changes in
consumer preferences and lifestyles;
· the
Company's ability to offer products that (i) expand consumer demand for its
product offerings and do not significantly compete with the Company's other
existing product offerings and (ii) consumers want to purchase and select over
competitors' products;
· the
Company's ability to source and ship products in a timely and cost-effective
manner and customers' and consumers' acceptance and purchase of those products
in quantities and at prices that will be sufficient to profitably recover the
Company's costs for developing, marketing and selling those products;
· recessions,
other economic downturns or challenging economic conditions affecting the
Company's markets which can negatively impact the financial health of the
Company's retail customers and consumers, and which can result in lower
employment levels, lower consumer disposable income and spending, including
lower spending on purchases of the Company's products;
· potential
difficulties or delays the Company may experience in implementing its cost
savings and efficiency enhancing initiatives or the realization of fewer
benefits than are expected from such initiatives;
· currency
fluctuations, including movements in foreign exchange rates, which can lower
the Company's net revenues and earnings, and significantly impact the Company's
costs;
· other
economic and public health conditions or regulatory changes in the markets in
which the Company and its customers and suppliers operate, which could create
delays or increase the Company's costs, such as higher commodity prices, labor
costs or higher transportation costs, or outbreaks of diseases;
· delays,
increased costs or difficulties associated with the development and offering of
our or our partners' planned digital applications or media initiatives related
to the Company's brands;
· the
concentration of the Company's retail customers, potentially increasing the
negative impact to the Company of difficulties experienced by any of the
Company's retail customers or changes in their purchasing or selling patterns;
· the
Company's ability to generate sales during the second half of the year,
particularly during the relatively brief holiday shopping season, which is the
period in which the Company derives a substantial portion of its revenues and
earnings;
· the inventory
policies of the Company's retail customers, including the retailers' potential
decisions to lower their inventories, even if it results in lost sales, as well
as the concentration of the Company's revenues in the second half of the year,
which coupled with reliance by retailers on quick response inventory management
techniques, increases the risk of underproduction of popular items,
overproduction of less popular items and failure to achieve compressed shipping
schedules;
· work
stoppages or disruptions which may impact the Company's ability to manufacture
or deliver products in a timely and cost-effective manner;
· concentration
of manufacturing of the substantial majority of the Company's products by third
party vendors in the People's Republic of China and the associated impact to
the Company of social, economic or public health conditions and other factors
affecting China, the movement of people and products into and out of China, the
cost of producing products in China and the cost of exporting them to the
Company's other markets or affecting the exchange rates for the Chinese
Renminbi, including, without limitation, the impact of tariffs or other trade
restrictions being imposed upon goods manufactured in China;
· consumer
interest in and acceptance of the Discovery Family channel, the Company's cable
television joint venture with Discovery Communications, the programming
appearing on Discovery Family, products related to Discovery Family's
programming, and other factors impacting the financial performance of the
Discovery Family channel;
· consumer
interest in and acceptance of programming and entertainment created by Hasbro
Studios and/or our other entertainment partners, as well as products related to
such programming and entertainment;
· the ability
to develop and distribute compelling entertainment, including television,
motion pictures and digital content, based on our brands, in a timely
and financially profitable manner, and the success of that entertainment in
driving consumer interest in and engagement with our brands;
· the ability
of the Company to hire and retain key officers and employees who are critical
to the Company's success;
· the costs
of complying with product safety and consumer protection requirements
worldwide, including the risk that greater regulation in the future may
increase such costs, may require changes in the Company's products and/or may
impact the Company's ability to sell some products in particular markets in the
absence of making changes to such products;
· the
risk that one of the Company's third-party manufacturers will not comply with
applicable labor, consumer protection, product safety or other laws or
regulations, or with aspects of the Company's Global Business Ethics Principles,
and that such noncompliance will not be promptly detected, either of which
could cause damage to the Company's reputation, harm sales of its products,
result in product recalls and potentially create other liabilities for the
Company;
· an adverse
change in purchasing policies or promotional programs or the bankruptcy or
other economic difficulties or lack of success of one or more of the Company's
significant retailers comprising its relatively concentrated retail customer
base, which could negatively impact the Company's revenues or bad debt
exposure;
· the risk
that the market appeal of the Company's licensed products will be less than
expected or that sales revenue generated by these products will be insufficient
to cover the minimum guaranteed royalties or other commitments;
· the risk
the Company will lose rights to a significant licensed property or properties,
which will harm the Company's revenues and earnings;
· the risk
that the Company may face product recalls or product liability suits relating
to products it manufactures or distributes which may have significant direct
costs to the Company and which may also harm the reputation of the Company and
its products, potentially harming future product sales;
· the impact
of competition on revenues, margins and other aspects of the Company's
business, including the ability to offer Company products which consumers
choose to buy instead of competitor’s products, the ability to secure, maintain
and renew popular licenses and the ability to attract and retain employees;
· the risk
that anticipated benefits of acquisitions or investments may not occur or be
delayed or reduced in their realization;
· the
Company's ability to obtain and enforce intellectual property rights both in
the United States and other worldwide territories;
· the risk
that any litigation or arbitration disputes or government and regulatory
investigations could entail significant resources and expense and result in
significant fines or other harm to the Company's business or reputation;
· the
Company's ability to maintain or obtain external financing on terms acceptable
to it in order to meet working capital needs;
· the risk
that one or more of the counterparties to the Company's financing arrangements
may experience financial difficulties or otherwise be unable or unwilling to
allow the Company to access financing under such arrangements;
· the
Company's ability to generate sufficient available cash flow to service its
outstanding debt;
· restrictions
that the Company is subject to under its credit agreement;
· unforeseen
circumstances, such as severe softness in or collapse of the retail and/or
banking environment that may result in a significant decline in revenues and
operating results of the Company, thereby causing the Company to be in
non-compliance with its debt covenants and the Company being unable to utilize
borrowings under its revolving credit facility, a circumstance likely to occur
when operating shortfalls would result in the Company being in the greatest
need of such supplementary borrowings;
· market
conditions, third party actions or approvals, the impact of competition and
other factors that could delay or increase the cost of implementation of the
Company's programs, or alter the Company's actions and reduce actual results;
· the risk
that the Company may be subject to governmental penalties, fines, sanctions or
additional taxes for failure to comply with applicable laws or regulations in
any of the markets in which it operates, or that governmental regulations or
requirements will require changes in the manner in which the company does
business and/or increase the costs of doing business;
· failure to
operate our information systems and implement new technology effectively, as
well as maintain the systems and processes designed to protect our electronic
data;
· the risk
that the Company's reported goodwill may become impaired, requiring the Company
to take a charge against its income; or
· other
risks and uncertainties as are or may be detailed from time to time in the Company's
public announcements and filings with the SEC, such as filings on Forms 8-K,
10-Q and 10-K.
The Company undertakes no obligation to revise the
forward-looking statements contained in this Quarterly Report on Form 10-Q to
reflect events or circumstances occurring after the date of the filing of this
report.
Item 2.
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Unregistered Sales of Equity Securities and Use of
Proceeds.
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Repurchases Made
in the Quarter (in whole dollars and number of shares)
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(d)
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Maximum
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Number
(or
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(c)
Total
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Approximate
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|
|
Number
of
|
|
Dollar
|
|
|
|
|
|
|
|
Shares
(or
|
|
Value)
of
|
|
|
|
|
|
|
|
Units)
|
|
Shares
(or
|
|
|
|
|
|
|
|
Purchased
|
|
Units)
that
|
|
(a)
Total
|
|
(b)
|
|
as
Part of
|
|
May
Yet Be
|
|
Number
of
|
|
Average
|
|
Publicly
|
|
Purchased
|
|
Shares
(or
|
|
Price
Paid
|
|
Announced
|
|
Under
the
|
Period
|
Units)
|
|
per
Share
|
|
Plans
or
|
|
Plans
or
|
|
Purchased
|
|
(or
Unit)
|
|
Programs
|
|
Programs
|
July 2016
|
|
|
|
|
|
|
|
|
|
|
|
6/27/16 – 7/24/16
|
|
70,800
|
|
$
|
82.16
|
|
|
70,800
|
|
$
|
415,727,603
|
August 2016
|
|
|
|
|
|
|
|
|
|
|
|
7/25/16 – 8/28/16
|
|
300,000
|
|
$
|
81.22
|
|
|
300,000
|
|
$
|
391,361,897
|
September 2016
|
|
|
|
|
|
|
|
|
|
|
|
8/29/16 – 9/25/16
|
|
228,000
|
|
$
|
80.01
|
|
|
228,000
|
|
$
|
373,120,738
|
Total
|
|
598,800
|
|
$
|
80.87
|
|
|
598,800
|
|
$
|
373,120,738
|
In February 2015, the
Company announced that its Board of Directors authorized the repurchase of an additional
$500 million of common stock. Purchases of the Company's common stock may be
made from time to time, subject to market conditions. These shares may be
repurchased in the open market or through privately negotiated transactions.
The Company has no obligation to repurchase shares under this authorization,
and the timing, actual number, and value of the shares that are repurchased
will depend on a number of factors, including the price of the Company's stock
and the Company’s generation of, and uses for, cash. The Company may suspend or
discontinue the program at any time and there is no expiration date.
Item 3.
|
Defaults Upon Senior Securities.
|
None.
Item 4.
|
Mine Safety Disclosures.
|
Not applicable.
Item 5.
|
Other Information.
|
None.
3.1 Restated Articles of Incorporation of the
Company. (Incorporated by reference to Exhibit 3.1 to the Company's Quarterly
Report on Form 10-Q for the period ended July 2, 2000, File No. 1-6682.)
3.2 Amendment
to Articles of Incorporation, dated June 28, 2000. (Incorporated by reference
to Exhibit 3.4 to the Company's Quarterly Report on Form 10-Q for the period
ended July 2, 2000, File No. 1-6682.)
3.3 Amendment
to Articles of Incorporation, dated May 19, 2003. (Incorporated by
reference to Exhibit 3.3 to the Company's Quarterly Report on Form 10-Q for the
period ended June 29, 2003, File No. 1-6682.)
3.4 Amended
and Restated Bylaws of the Company, as amended. (Incorporated by reference to
Exhibit 3(d) to the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 2006, File No. 1-6682.)
3.5 Amendment
to Amended and Restated Bylaws of the Company, as amended. (Incorporated by
reference to Exhibit 3.1 to the Company's Current Report on Form 8-K dated
August 6, 2014, File No. 1-6682.)
3.6 Amendment
to Amended and Restated Bylaws of the Company, as amended. (Incorporated by
reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K dated
October 5, 2015, File No. 1-6682.)
3.7 Amendment
to Amended and Restated Bylaws of the Company, as amended. (Incorporated by
reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K dated
December 10, 2015, File No. 1-6682.)
3.8 Certificate
of Designations of Series C Junior Participating Preference Stock of Hasbro,
Inc. dated June 29, 1999. (Incorporated by reference to Exhibit 3.2 to the
Company's Quarterly Report on Form 10-Q for the period ended July 2, 2000, File
No. 1-6682.)
3.9 Certificate
of Vote(s) authorizing a decrease of class or series of any class of shares.
(Incorporated by reference to Exhibit 3.3 to the Company's Quarterly Report on
Form 10-Q for the period ended July 2, 2000, File No 1-6682.)
4.1 Indenture,
dated as of July 17, 1998, by and between the Company and The Bank of New York
Mellon Trust Company, N.A. as successor Trustee to Citibank, N.A. as Trustee.
(Incorporated by reference to Exhibit 4.1 to the Company's Current Report on
Form 8-K dated July 14, 1998, File No. 1-6682.)
4.2 Indenture,
dated as of March 15, 2000, by and between the Company and The Bank of New York
Mellon Trust Company, N.A. as successor Trustee to the Bank of Nova Scotia
Trust Company of New York. (Incorporated by reference to Exhibit 4(b)(i) to the
Company's Annual Report on Form 10-K for the fiscal year ended December 26,
1999, File No. 1-6682.)
4.3 First
Supplemental Indenture, dated as of September 17, 2007, between the Company and
The Bank of New York Mellon Trust Company, N.A. as successor Trustee to the
Bank of Nova Scotia Trust Company of New York. (Incorporated by reference to
Exhibit 4.1 to the Company's Current Report on Form 8-K filed September 17,
2007, File No. 1-6682.)
4.4 Second
Supplemental Indenture, dated as of May 13, 2009, between the Company and The
Bank of New York Mellon Trust Company, N.A. as successor Trustee to the Bank of
Nova Scotia Trust Company of New York. (Incorporated by reference to Exhibit
4.1 to the Company's Current Report on Form 8-K filed May 13, 2009, File No.
1-6682.)
4.5 Third
Supplemental Indenture, dated as of March 11, 2010, between the Company and The
Bank of New York Mellon Trust Company, N.A. as successor Trustee to the Bank of
Nova Scotia Trust Company of New York. (Incorporated by reference to
Exhibit 4.1 to the Company's Current Report on Form 8-K filed March 11, 2010,
File No. 1-6682.)
4.6 Fourth Supplemental Indenture, dated May 13,
2014, between the Company and The Bank of New York Mellon Trust Company, N.A.
as successor Trustee to the Bank of Nova Scotia Trust Company of New
York. (Incorporated by reference to Exhibit 4.1 to the Company's Current
Report on Form 8-K filed May 13, 2014, file No. 1-6682.)
31.1 Certification
of the Chief Executive Officer Pursuant to Rule 13a-14(a) under the Securities
Exchange Act of 1934.
31.2 Certification
of the Chief Financial Officer Pursuant to Rule 13a-14(a) under the Securities
Exchange Act of 1934.
32.1* Certification
of the Chief Executive Officer Pursuant to Rule 13a-14(b) under the Securities
Exchange Act of 1934.
32.2* Certification
of the Chief Financial Officer Pursuant to Rule 13a-14(b) under the Securities
Exchange Act of 1934.
101.INS XBRL
Instance Document
101.SCH Taxonomy
Extension Schema Document
101.SCH Taxonomy
Extension Schema Document
101.CAL XBRL
Taxonomy Extension Calculation Linkbase Document
101.LAB XBRL
Taxonomy Extension Labels Linkbase Document
101.PRE XBRL
Taxonomy Extension Presentation Linkbase Document
101.DEF XBRL
Taxonomy Extension Definition Linkbase Document
*
Furnished herewith.
SIGNATURES
Pursuant to the requirements of
the Securities Exchange Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the undersigned thereunto duly authorized.
|
HASBRO, INC.
|
|
(Registrant)
|
|
Date: November 2, 2016
|
By: /s/ Deborah Thomas
|
|
Deborah Thomas
|
|
|
|
Executive Vice President and
|
|
Chief Financial Officer
|
|
(Duly Authorized Officer and
|
|
Principal Financial Officer)
|
Exhibit Index
3.1
|
Restated Articles of Incorporation of the Company.
(Incorporated by reference to Exhibit 3.1 to the Company's Quarterly Report
on Form 10-Q for the period ended July 2, 2000, File No. 1-6682.)
|
|
|
3.2
|
Amendment to Articles of Incorporation, dated June
28, 2000. (Incorporated by reference to Exhibit 3.4 to the Company's
Quarterly Report on Form 10-Q for the period ended July 2, 2000, File No.
1-6682.)
|
|
|
3.3
|
Amendment to Articles of Incorporation, dated May
19, 2003. (Incorporated by reference to Exhibit 3.3 to the Company's
Quarterly Report on Form 10-Q for the period ended June 29, 2003, File No.
1-6682.)
|
|
|
3.4
|
Amended and Restated Bylaws of the Company, as
amended. (Incorporated by reference to Exhibit 3(d) to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 2006, File No.
1-6682.)
|
|
|
3.5
|
Amendment to Amended and Restated Bylaws of the
Company, as amended. (Incorporated by reference to Exhibit 3.1 to the
Company's Current Report on Form 8-K dated August 6, 2014, File No. 1-6682)
|
|
|
3.6
|
Amendment to Amended and Restated Bylaws of the
Company, as amended. (Incorporated by reference to Exhibit 3.1 to the
Company’s Current Report on Form 8-K dated October 5, 2015, File No. 1-6682.)
|
|
|
3.7
|
Amendment to Amended and Restated Bylaws of the
Company, as amended. (Incorporated by reference to Exhibit 3.1 to the Company’s
Current Report on Form 8-K dated December 10, 2015, File No. 1-6682.)
|
3.8
3.9
|
Certificate of Designations of Series C Junior
Participating Preference Stock of Hasbro, Inc. dated June 29, 1999.
(Incorporated by reference to Exhibit 3.2 to the Company's Quarterly Report
on Form 10-Q for the period ended July 2, 2000, File No. 1-6682.)
Certificate of Vote(s) authorizing a decrease of
class or series of any class of shares. (Incorporated by reference to Exhibit
3.3 to the Company's Quarterly Report on Form 10-Q for the period ended July
2, 2000, File No 1-6682.)
|
4.1
|
Indenture, dated as of July 17, 1998, by and between
the Company and The Bank of New York Mellon Trust Company, N.A. as successor
Trustee to Citibank, N.A. as Trustee. (Incorporated by reference to Exhibit
4.1 to the Company's Current Report on Form 8-K dated July 14, 1998, File No.
1-6682.)
|
|
|
4.2
|
Indenture, dated as of March 15, 2000, by and
between the Company and The Bank of New York Mellon Trust Company, N.A. as
successor Trustee to the Bank of Nova Scotia Trust Company of New York.
(Incorporated by reference to Exhibit 4(b)(i) to the Company's Annual Report
on Form 10-K for the year ended December 26, 1999, File No. 1-6682.)
|
|
|
4.3
|
First Supplemental Indenture, dated as of September
17, 2007, between the Company and The Bank of New York Mellon Trust Company,
N.A. as successor Trustee to the Bank of Nova Scotia Trust Company of New
York. (Incorporated by reference to Exhibit 4.1 to the Company's Current
Report on Form 8-K filed September 17, 2007, File No. 1-6682.)
|
|
|
4.4
|
Second Supplemental Indenture, dated as of May 13,
2009, between the Company and The Bank of New York Mellon Trust Company, N.A.
as successor Trustee to the Bank of Nova Scotia Trust Company of New York.
(Incorporated by reference to Exhibit 4.1 to the Company's Current Report on
Form 8-K filed May 13, 2009, File No. 1-6682.)
|
|
|
4.5
|
Third Supplemental Indenture, dated as of March 11,
2010, between the Company and The Bank of New York Mellon Trust Company, N.A.
as successor Trustee to the Bank of Nova Scotia Trust Company of New
York. (Incorporated by reference to Exhibit 4.1 to the Company's
Current Report on Form 8-K filed March 11, 2010, File No. 1-6682.)
|
|
|
4.6
|
Fourth Supplemental Indenture, dated May 13, 2014,
between the Company and The Bank of New York Mellon Trust Company, N.A. as
successor Trustee to the Bank of Nova Scotia Trust Company of New York.
(Incorporated by reference to Exhibit 4.1 to the Company's Current Report on
Form 8-K filed May 13, 2014, file No. 1-6682.)
|
|
|
31.1
|
Certification of the Chief Executive Officer
Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.
|
31.2
|
Certification of the Chief Financial Officer
Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.
|
|
|
32.1*
|
Certification of the Chief Executive Officer
Pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934.
|
|
|
32.2*
|
Certification of the Chief Financial Officer
Pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934.
|
|
|
101.INS
|
XBRL Instance Document
|
101.SCH
|
XBRL Taxonomy Extension Schema Document
|
|
|
101.CAL
|
XBRL Taxonomy Calculation Linkbase Document
|
|
|
101.LAB
|
XBRL Taxonomy Extension Labels Linkbase Document
|
|
|
101.PRE
|
XBRL Taxonomy Extension Presentation Linkbase
Document
|
|
|
101.DEF
|
XBRL Taxonomy Extension Definition Linkbase Document
|
|
|
|
* Furnished herewith.
|
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