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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October 1,
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September 25,
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December 25,
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2017
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2016
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2016
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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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1,244,778
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830,372
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1,282,285
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Accounts receivable, less allowance for doubtful accounts of
$33,900
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$36,500 and $16,800
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1,655,752
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1,452,931
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1,319,963
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Inventories
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629,120
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607,701
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387,675
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Prepaid expenses and other current assets
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232,590
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255,983
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237,684
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Total current assets
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3,762,240
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3,146,987
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3,227,607
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Property, plant and equipment, less accumulated depreciation of
$417,000,
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$358,100 and $383,700
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263,862
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247,231
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267,398
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Other assets
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Goodwill
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572,762
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604,700
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570,555
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Other intangibles, net, accumulated amortization of $898,300,
$867,300
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and $876,000
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223,695
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254,637
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245,949
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Other
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722,089
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701,592
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779,857
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Total other assets
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1,518,546
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1,560,929
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1,596,361
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Total assets
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$
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5,544,648
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4,955,147
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5,091,366
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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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189,012
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178,666
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172,582
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Current portion of long-term debt
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-
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349,611
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349,713
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Accounts payable
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525,852
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344,874
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319,525
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Accrued liabilities
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769,893
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742,568
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776,039
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Total current liabilities
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1,484,757
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1,615,719
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1,617,859
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Long-term debt
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1,693,261
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1,198,461
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1,198,679
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Other liabilities
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410,378
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364,378
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389,388
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Total liabilities
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3,588,396
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3,178,558
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3,205,926
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Redeemable noncontrolling interests
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-
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34,829
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22,704
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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 $0.50 par value. Authorized 600,000,000 shares;
issued
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209,694,630 at October 1, 2017, September 25, 2016,
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and December 25, 2016
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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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1,043,981
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959,859
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985,418
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Retained earnings
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4,336,420
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4,019,370
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4,148,722
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Accumulated other comprehensive loss
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(234,792)
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(203,989)
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(194,570)
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Treasury stock, at cost; 85,139,302 shares at October 1, 2017;
84,751,773
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shares at September 25, 2016; and 85,207,677 shares at December
25, 2016
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(3,294,204)
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(3,138,327)
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(3,181,681)
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Total shareholders' equity
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1,956,252
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1,741,760
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1,862,736
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Total liabilities, redeemable noncontrolling interests and
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shareholders' equity
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$
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5,544,648
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4,955,147
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5,091,366
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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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October 1,
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September 25,
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October 1,
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September 25,
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2017
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2016
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2017
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2016
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Net revenues
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$
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1,791,502
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1,679,757
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3,613,671
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3,389,882
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Costs and expenses:
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Cost of sales
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730,656
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658,986
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1,404,971
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1,270,902
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Royalties
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139,222
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134,294
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282,754
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273,671
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Product development
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67,386
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70,083
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192,765
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190,918
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Advertising
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168,926
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154,132
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342,236
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320,948
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Amortization of intangibles
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6,492
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8,691
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22,254
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26,073
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Program production cost amortization
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5,394
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6,282
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16,152
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17,501
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Selling, distribution and administration
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312,482
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285,188
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813,268
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756,978
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Total costs and expenses
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1,430,558
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1,317,656
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3,074,400
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2,856,991
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Operating profit
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360,944
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362,101
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539,271
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532,891
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Non-operating (income) expense:
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Interest expense
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25,072
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24,305
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73,752
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72,263
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Interest income
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(5,362)
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(1,944)
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(16,042)
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(6,469)
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Other income, net
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(8,607)
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(6,584)
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(26,003)
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(5,460)
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Total non-operating expense, net
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11,103
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15,777
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31,707
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60,334
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Earnings before income taxes
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349,841
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346,324
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507,564
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472,557
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Income tax expense
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84,258
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90,162
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105,659
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120,005
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Net earnings
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265,583
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256,162
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401,905
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352,552
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Net loss attributable to noncontrolling interests
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-
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(1,636)
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-
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(6,103)
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Net earnings attributable to Hasbro, Inc.
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$
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265,583
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257,798
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401,905
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358,655
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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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2.12
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2.05
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3.21
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2.86
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Diluted
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$
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2.09
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2.03
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3.16
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2.82
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Cash dividends declared per common share
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$
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0.57
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0.51
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1.71
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1.53
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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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October 1,
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September 25,
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October 1,
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September 25,
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2017
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2016
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2017
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2016
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Net earnings
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$
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265,583
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256,162
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401,905
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352,552
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Other comprehensive earnings (loss):
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Foreign currency translation adjustments
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13,142
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(1,483)
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41,954
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18,482
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Net losses on cash flow hedging activities,
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net of tax
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(26,532)
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(12,960)
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(83,729)
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(37,004)
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Unrealized holding (losses) gains on available
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-for-sale securities, net of tax
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(784)
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(390)
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(555)
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963
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Reclassifications to earnings, net of tax:
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Net losses (gains) on cash flow hedging activities
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4,547
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(16,028)
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(2,237)
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(43,952)
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Unrecognized pension and postretirement amounts
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1,448
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1,173
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4,345
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3,523
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Total other comprehensive loss, net of tax
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(8,179)
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(29,688)
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(40,222)
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(57,988)
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Comprehensive earnings
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257,404
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226,474
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361,683
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294,564
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Comprehensive loss attributable to noncontrolling interests
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-
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(1,636)
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-
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(6,103)
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Comprehensive earnings attributable to Hasbro, Inc.
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$
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257,404
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228,110
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361,683
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300,667
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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)
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Nine Months Ended
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October 1,
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September 25,
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2017
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2016
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Cash flows from operating activities:
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Net earnings
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$
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401,905
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352,552
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Adjustments to reconcile net earnings to net cash provided by
operating activities:
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Depreciation of plant and equipment
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107,853
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89,327
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Amortization of intangibles
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22,254
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26,073
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Program production cost amortization
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16,152
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17,501
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Deferred income taxes
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|
17,797
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25,091
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Stock-based compensation
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37,390
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39,673
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Other non-cash items
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(16,033)
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(15,523)
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Change in operating assets and liabilities net of
acquired and disposed balances:
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Increase in accounts receivable
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(300,693)
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(224,172)
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Increase in inventories
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(222,546)
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|
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(214,734)
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Increase in prepaid expenses and other current assets
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(4,437)
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|
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(4,063)
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Program production costs
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|
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(25,309)
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(36,010)
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Increase in accounts payable and accrued liabilities
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|
137,518
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|
171,287
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Other
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29,945
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(31,595)
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Net cash provided by operating activities
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|
201,796
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|
|
195,407
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Cash flows from investing activities:
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|
|
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Additions to property, plant and equipment
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(102,512)
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(103,639)
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Investments and acquisitions, net of cash acquired
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|
-
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|
|
(12,436)
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Other
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|
|
5,516
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|
|
25,576
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Net cash utilized by investing activities
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(96,996)
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(90,499)
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Cash flows from financing activities:
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|
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Net proceeds from borrowings with maturity greater than three
months
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493,878
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|
-
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Repayments of borrowings with maturity greater than three months
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(350,000)
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-
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Net proceeds from other short-term borrowings
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15,663
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14,160
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Purchases of common stock
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(112,241)
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(104,273)
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Stock-based compensation transactions
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|
29,432
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37,515
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Dividends paid
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(206,012)
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(185,265)
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Payments related to tax withholding for share-based compensation
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(31,973)
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|
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(21,914)
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Other
|
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|
-
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|
|
762
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|
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Net cash utilized by financing activities
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|
(161,253)
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|
|
(259,015)
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Effect of exchange rate changes on cash
|
|
|
18,946
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|
|
7,729
|
Decrease in cash and cash equivalents
|
|
|
(37,507)
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|
|
(146,378)
|
Cash and cash equivalents at beginning of year
|
|
|
1,282,285
|
|
|
976,750
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Cash and cash equivalents at end of period
|
|
$
|
1,244,778
|
|
|
830,372
|
|
|
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|
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Supplemental information
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Cash paid during the period for:
|
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|
|
|
|
|
|
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Interest
|
|
$
|
75,567
|
|
|
74,700
|
|
|
Income taxes
|
|
$
|
86,441
|
|
|
64,854
|
|
|
|
|
|
|
|
|
|
|
See accompanying condensed notes to consolidated financial
statements.
|
|
|
|
|
|
|
HASBRO, INC. AND SUBSIDIARIES
Condensed Notes to Consolidated Financial Statements
(Thousands of Dollars and Shares Except Per Share Data)
(Unaudited)
(1)
Basis of Presentation
In the opinion of
management, the accompanying unaudited interim consolidated financial
statements contain all normal and recurring adjustments necessary to present
fairly the consolidated financial position of Hasbro, Inc. and all
majority-owned subsidiaries ("Hasbro" or the "Company") as
of October 1, 2017 and September 25, 2016, and the results of its operations
and cash flows for the periods then ended in accordance with accounting
principles generally accepted in the United States of America ("U.S.
GAAP"). The preparation of financial statements in conformity with U.S.
GAAP requires management to make estimates and assumptions that affect the
amounts reported in the financial statements and notes thereto. Actual results
could differ from those estimates.
The quarters ended October
1, 2017 and September 25, 2016 were each 13-week periods. The nine-month period
ended October 1, 2017 was a 40-week period while the nine-month period ended
September 25, 2016 was a 39-week period.
The results of operations
for the quarter and nine-month periods ended October 1, 2017 are not
necessarily indicative of results to be expected for the full year, nor were
those of the comparable 2016 periods representative of those actually
experienced for the full year 2016. Certain reclassifications have been made to
prior year amounts to conform to the current period presentation.
These condensed consolidated financial
statements have been prepared without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain
information and disclosures normally included in the consolidated financial
statements prepared in accordance with U.S. GAAP have been condensed or omitted
pursuant to such rules and regulations. The Company filed audited
consolidated financial statements for the fiscal year ended December 25, 2016
in its Annual Report on Form 10-K (“2016 Form 10-K”), which includes all such
information and disclosures and, accordingly, should be read in conjunction
with the financial information included herein.
Recently Adopted Accounting Standards
The Company's accounting policies are the same as those
described in Note 1 to the Company's consolidated financial statements in its 2016
Form 10-K
with the
exception of the accounting policy related to stock compensation. During the
first quarter of 2017, the Company adopted Accounting Standards Update (“ASU”)
2016-09, Improvements to Employee Share-Based Payment Accounting. The ASU
includes provisions intended to simplify how share-based payments are accounted
for and presented in the financial statements including:
·
Prospectively, the requirement to record
all of the tax effects related to share-based payments at settlement through
the income statement. For the quarter and nine months ended October 1, 2017,
excess tax benefits of $
5,014
and $
20,478
, respectively, were
recorded to income tax expense.
·
A requirement that all tax-related
cash flows resulting from share-based payments be reported as operating activities,
included with other income tax cash flows on the statement of cash flows.
Previously, these amounts were reported as a cash inflow from financing
activities. The Company elected to apply this requirement of the standard
retrospectively. Accordingly, the cash flow statement for the nine months
ended September 25, 2016 has been restated to include $
19,712
of cash flows from excess
tax benefits, previously included as financing activities, in operating
activities within the increase in accounts payable and other accrued
liabilities. For the nine months ended October 1, 2017 excess tax benefits of
$
20,478
were reported as operating
activities.
·
A requirement that all cash payments
made to taxing authorities on the employees’ behalf for withheld shares shall
be presented as financing activities in the statements of cash flows. Prior to
adoption of ASU 2016-09, these cash flows were included as operating
activities. This change was required to be applied on a retrospective basis and
as a result, the Company has restated the consolidated statement of cash flows
for the nine months ended September 25, 2016. This change resulted in payments
of $
21,914
for the nine months ended
September 25, 2016 being included in financing activities. For the nine months
ended October 1, 2017, such payments amounted to $
31,973
.
·
Entities are permitted to make an
accounting policy election for the impact of forfeitures on the recognition of
expense for share-based payment awards choosing either to estimate forfeitures
as previously required or recognize forfeitures as they occur. The Company
elected to change its method of accounting for forfeitures from estimating the
number of stock-based awards expected to vest, to accounting for forfeitures as
they occur which resulted in a one-time charge, net of tax, of $
700
to retained earnings
recorded during the first quarter of 2017. Based upon the Company’s history of
forfeitures, it is not expected that this election will have a material impact
on its financial statements going forward however, as any impact will be based
on future forfeitures, the actual impact could differ from the Company’s
expectation.
Recent Transactions
Through
2016, the Company had one investment with a redeemable noncontrolling interest
which was the Company’s
70
% majority interest in
Backflip Studios, LLC (“Backflip”). During the first quarter of 2017, the
Company acquired the remaining
30
% of Backflip for no
additional consideration, making it a wholly-owned subsidiary of the Company.
(2)
Earnings Per Share
Net
earnings per share data for the quarters and nine-month periods ended October
1, 2017 and September 25, 2016 were computed as follows:
|
2017
|
|
2016
|
Quarter
|
Basic
|
|
Diluted
|
|
Basic
|
|
Diluted
|
Net earnings attributable to Hasbro, Inc.
|
$
|
265,583
|
|
|
265,583
|
|
|
257,798
|
|
|
257,798
|
|
|
|
|
|
|
|
|
|
|
|
|
Average shares outstanding
|
|
125,170
|
|
|
125,170
|
|
|
125,500
|
|
|
125,500
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
Options and other share-based awards
|
|
-
|
|
|
1,980
|
|
|
-
|
|
|
1,678
|
Equivalent Shares
|
|
125,170
|
|
|
127,150
|
|
|
125,500
|
|
|
127,178
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings attributable to Hasbro, Inc. per common share
|
$
|
2.12
|
|
|
2.09
|
|
|
2.05
|
|
|
2.03
|
|
2017
|
|
2016
|
Nine Months
|
Basic
|
|
Diluted
|
|
Basic
|
|
Diluted
|
Net earnings attributable to Hasbro, Inc.
|
$
|
401,905
|
|
|
401,905
|
|
|
358,655
|
|
|
358,655
|
|
|
|
|
|
|
|
|
|
|
|
|
Average shares outstanding
|
|
125,204
|
|
|
125,204
|
|
|
125,414
|
|
|
125,414
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
Options and other share-based awards
|
|
-
|
|
|
2,044
|
|
|
-
|
|
|
1,642
|
Equivalent Shares
|
|
125,204
|
|
|
127,248
|
|
|
125,414
|
|
|
127,056
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings attributable to Hasbro, Inc. per common share
|
$
|
3.21
|
|
|
3.16
|
|
|
2.86
|
|
|
2.82
|
For the quarters ended October
1, 2017 and September 25, 2016, options and restricted stock units totaling 450
and 492, respectively, were excluded from the calculation of diluted earnings
per share
because to include them would have been
antidilutive. For
the nine-month periods ended October 1, 2017 and September 25, 2016, options
and restricted stock units totaling 514 and 492, respectively, were excluded
from the calculation of diluted earnings per share because to include them
would have been antidilutive.
(3)
Other Comprehensive
Earnings (Loss)
Components
of other comprehensive earnings (loss) are presented within the consolidated
statements of comprehensive earnings. The following table presents the related
tax effects on changes in other comprehensive earnings (loss) for the quarter
and nine-month periods ended October 1, 2017 and September 25, 2016.
|
|
Quarter Ended
|
|
Nine Months Ended
|
|
|
October 1,
|
|
September 25,
|
|
October 1,
|
|
September 25,
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive earnings (loss), tax effect:
|
|
|
|
|
|
|
|
|
|
|
|
Tax benefit on cash flow hedging activities
|
$
|
1,700
|
|
|
1,420
|
|
|
5,936
|
|
|
9,423
|
Tax benefit (expense) on unrealized holding losses and gains
|
|
445
|
|
|
221
|
|
|
315
|
|
|
(547)
|
Reclassifications to earnings, tax effect:
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax (benefit) expense on cash flow hedging activities
|
|
(1,875)
|
|
|
2,456
|
|
|
(2,884)
|
|
|
5,274
|
|
Tax benefit on unrecognized pension and
|
|
|
|
|
|
|
|
|
|
|
|
|
postretirement amounts reclassified to the
|
|
|
|
|
|
|
|
|
|
|
|
|
consolidated statements of operations
|
|
(822)
|
|
|
(666)
|
|
|
(2,466)
|
|
|
(1,999)
|
Total tax effect on other comprehensive earnings (loss)
|
$
|
(552)
|
|
|
3,431
|
|
|
901
|
|
|
12,151
|
Changes in the components of
accumulated other comprehensive loss for the nine months ended October 1, 2017
and September 25, 2016 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Holding
|
|
|
|
|
Total
|
|
|
|
|
Gains
|
|
Gains on
|
|
Foreign
|
|
Accumulated
|
|
Pension and
|
|
(Losses) on
|
|
Available-
|
|
Currency
|
|
Other
|
|
Postretirement
|
|
Derivative
|
|
for-Sale
|
|
Translation
|
|
Comprehensive
|
|
Amounts
|
|
Instruments
|
|
Securities
|
|
Adjustments
|
|
Loss
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 25, 2016
|
$
|
(118,401)
|
|
|
51,085
|
|
|
1,424
|
|
|
(128,678)
|
|
|
(194,570)
|
Current period other comprehensive earnings (loss)
|
|
4,345
|
|
|
(85,966)
|
|
|
(555)
|
|
|
41,954
|
|
|
(40,222)
|
Balance at October 1, 2017
|
$
|
(114,056)
|
|
|
(34,881)
|
|
|
869
|
|
|
(86,724)
|
|
|
(234,792)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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)
|
At October 1, 2017, the
Company had remaining net deferred losses on foreign currency forward contracts,
net of tax, of $17,547 in accumulated other comprehensive loss
("AOCE"). These instruments hedge payments related to inventory
purchased in the third quarter of 2017 or forecasted to be purchased during the
remainder of 2017 and, to a lesser extent, 2018 through 2022, intercompany
expenses expected to be paid or received during 2017 and 2018, and cash
receipts for sales forecasted to be made in the remainder of 2017 and, to a
lesser extent, 2018 through 2019. These amounts will be reclassified into the
consolidated statements of operations upon the sale of the related inventory or
recognition of the related sales or expenses.
In
addition to foreign currency forward contracts, the Company entered into
hedging contracts on future interest payments related to the long-term notes
due 2021 and 2044. At the date of debt issuance, these contracts were
terminated and the fair value on the date of settlement was deferred in AOCE
and is being amortized to interest expense over the life of the related notes
using the effective interest rate method. At October 1, 2017, deferred losses,
net of tax, of $17,332 related to these instruments remained in AOCE. For the
quarters ended October 1, 2017 and September 25, 2016, previously deferred
losses of $450 were reclassified from AOCE to net earnings. For the nine-month
periods ended October 1, 2017 and September 25, 2016, previously deferred losses
of $1,384 and $1,349 were reclassified from AOCE to net earnings, respectively.
Of the amount included in
AOCE at October 1, 2017, the Company expects net losses of approximately $18,932
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 October 1, 2017, September 25, 2016 and December 25, 2016, the
carrying cost of these instruments approximated their fair value. The Company's
financial instruments at October 1, 2017, September 25, 2016 and December 25, 2016
also include certain assets and liabilities measured at fair value (see Notes 6
and 8) as well as long-term borrowings. The carrying costs, which are equal to
the outstanding principal amounts, and fair values of the Company's long-term
borrowings as of October 1, 2017, September 25, 2016 and December 25, 2016 are
as follows:
|
October 1, 2017
|
|
September 25, 2016
|
|
December 25, 2016
|
|
Carrying
|
|
Fair
|
|
Carrying
|
|
Fair
|
|
Carrying
|
|
Fair
|
|
Cost
|
|
Value
|
|
Cost
|
|
Value
|
|
Cost
|
|
Value
|
6.35% Notes Due 2040
|
$
|
500,000
|
|
|
613,750
|
|
|
500,000
|
|
|
611,200
|
|
|
500,000
|
|
|
584,850
|
3.50% Notes Due 2027
|
|
500,000
|
|
|
496,850
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
6.30% Notes Due 2017
|
|
-
|
|
|
-
|
|
|
350,000
|
|
|
366,205
|
|
|
350,000
|
|
|
361,900
|
5.10% Notes Due 2044
|
|
300,000
|
|
|
324,300
|
|
|
300,000
|
|
|
324,450
|
|
|
300,000
|
|
|
297,600
|
3.15% Notes Due 2021
|
|
300,000
|
|
|
306,840
|
|
|
300,000
|
|
|
310,620
|
|
|
300,000
|
|
|
300,450
|
6.60% Debentures Due 2028
|
|
109,895
|
|
|
132,830
|
|
|
109,895
|
|
|
132,786
|
|
|
109,895
|
|
|
123,984
|
Total long-term debt
|
$
|
1,709,895
|
|
|
1,874,570
|
|
|
1,559,895
|
|
|
1,745,261
|
|
|
1,559,895
|
|
|
1,668,784
|
Less: Current portion
|
|
-
|
|
|
-
|
|
|
350,000
|
|
|
366,205
|
|
|
350,000
|
|
|
361,900
|
Less: Deferred debt expenses
|
|
16,634
|
|
|
-
|
|
|
11,434
|
|
|
-
|
|
|
11,216
|
|
|
-
|
Long-term debt
|
$
|
1,693,261
|
|
|
1,874,570
|
|
|
1,198,461
|
|
|
1,379,056
|
|
|
1,198,679
|
|
|
1,306,884
|
In September 2017 the
Company issued $
500,000
of Notes due in 2027
that bear interest at a fixed rate of 3.50% (the "3.50% Notes"). Net
proceeds from the issuance of the 3.50% Notes, after deduction of $
6,122
of underwriting discount
and debt issuance expenses, totaled $
493,878
. These costs are being
amortized over the life of the 3.50% Notes, or 10 years. The Company may redeem
the 3.50% Notes at its option at the greater of the principal amount of the
Notes or the present value of the remaining scheduled payments discounted using
the effective interest rate on applicable U.S. Treasury bills at the time of
repurchase, plus 25 basis points. In addition, three months prior to their
maturity date, the Company may redeem at its option the 3.50% Notes, in whole
at any time or in part from time to time, at a redemption price equal to 100%
of the principal amount of the 3.50% Notes to be redeemed.
The proceeds from this debt
issuance were used to repay the $
350,000
aggregate principal amount
of its 6.30% Notes that matured during the third quarter 2017. The Company used
the remaining net proceeds for general corporate purposes.
Current portion of long-term
debt at September 25, 2016 and December 25, 2016 of $
349,611
and $
349,713
, respectively, as shown on
the consolidated balance sheet represents the $350,000 principal of 6.30% notes
less $
389
and $
287
, respectively, of deferred
debt expenses.
The
fair values of the Company's long-term debt are considered Level 3 fair values
(see Note 6 for further discussion of the fair value hierarchy) and are
measured using the discounted future cash flows method. In addition to the debt
terms, the valuation methodology includes an assumption of a discount rate that
approximates the current yield on a similar debt security. This assumption is
considered an unobservable input in that it reflects the Company's own
assumptions about the inputs that market participants would use in pricing the
asset or liability. The Company believes that this is the best information
available for use in the fair value measurement.
(5)
Income Taxes
The Company and its
subsidiaries file income tax returns in the United States and various state and
international jurisdictions. In the normal course of business, the Company is
regularly audited by U.S. federal, state and local and international tax
authorities in various tax jurisdictions.
The Company is no longer
subject to U.S. federal income tax examinations for years before 2012. With
few exceptions, the Company is no longer subject to U.S. state or local and
non-U.S. income tax examinations by tax authorities in its major jurisdictions
for years before 2009. In the third quarter of 2016, the U.S. Internal Revenue
Service commenced an examination related to the 2012 and 2013 amended U.S.
federal income tax returns. The Company is currently under income tax
examination in several U.S. state and local and non-U.S. jurisdictions.
(6)
Fair Value of
Financial Instruments
The Company measures certain
financial instruments at fair value. The fair value hierarchy consists of three
levels: Level 1 fair values are based on quoted market prices in active markets
for identical assets or liabilities that the entity has the ability to access;
Level 2 fair values are those based on quoted prices for similar assets or
liabilities, quoted prices in markets that are not active, or other inputs that
are observable or can be corroborated by observable data for substantially the
full term of the assets or liabilities; and Level 3 fair values are based on
inputs that are supported by little or no market activity and that are
significant to the fair value of the assets or liabilities.
Accounting standards permit
entities to measure many financial instruments and certain other items at fair
value and establish presentation and disclosure requirements designed to
facilitate comparisons between entities that choose different measurement
attributes for similar assets and liabilities. The Company has elected the fair
value option for certain available-for-sale investments. At October 1, 2017, September
25, 2016 and December 25, 2016, these investments totaled $24,405, $23,490 and
$23,571, respectively, and are included in prepaid expenses and other current
assets in the consolidated balance sheets. The Company recorded net gains of $446
and $1,461 on these investments in other income, net for the quarter and nine months
ended October 1, 2017, respectively, related to the change in fair value of
such instruments. For the quarter and nine-month periods ended September
25, 2016, the Company recorded net gains of $440 and $922, respectively, in
other income, net, related to the change in fair value of such instruments.
At October 1, 2017, September 25, 2016 and December 25, 2016, the
Company had the following assets and liabilities measured at fair value in its
consolidated balance sheets (excluding assets for which the fair value is
measured using net asset value per share):
|
Fair Value Measurements Using:
|
|
|
|
|
Quoted
|
|
|
|
|
|
|
|
|
|
|
Prices in
|
|
|
|
|
|
|
|
|
|
|
Active
|
|
|
|
|
|
|
|
|
|
|
Markets
|
|
Significant
|
|
|
|
|
|
|
|
for
|
|
Other
|
|
Significant
|
|
|
|
|
Identical
|
|
Observable
|
|
Unobservable
|
|
Fair
|
|
Assets
|
|
Inputs
|
|
Inputs
|
|
Value
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
October 1, 2017
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities
|
$
|
2,866
|
|
|
2,866
|
|
|
-
|
|
|
-
|
Derivatives
|
|
11,975
|
|
|
-
|
|
|
11,975
|
|
|
-
|
Total assets
|
$
|
14,841
|
|
|
2,866
|
|
|
11,975
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
|
$
|
22,671
|
|
|
-
|
|
|
22,671
|
|
|
-
|
Option agreement
|
|
28,510
|
|
|
-
|
|
|
-
|
|
|
28,510
|
Total liabilities
|
$
|
51,181
|
|
|
-
|
|
|
22,671
|
|
|
28,510
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
December 25, 2016
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities
|
$
|
3,736
|
|
|
3,736
|
|
|
-
|
|
|
-
|
Derivatives
|
|
87,894
|
|
|
-
|
|
|
87,894
|
|
|
-
|
Total assets
|
$
|
91,630
|
|
|
3,736
|
|
|
87,894
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
|
$
|
11,309
|
|
|
-
|
|
|
11,309
|
|
|
-
|
Option agreement
|
|
28,770
|
|
|
-
|
|
|
-
|
|
|
28,770
|
Total Liabilities
|
$
|
40,079
|
|
|
-
|
|
|
11,309
|
|
|
28,770
|
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 Company’s option agreement
relates to an equity method investment in Discovery Family Channel
(“Discovery”). The option agreement is included in other liabilities at October
1, 2017, September 25, 2016 and December 25, 2016, 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
October 1, 2017.
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):
|
2017
|
|
2016
|
Balance at beginning of year
|
$
|
(28,770)
|
|
|
(28,360)
|
Gain from change in fair value
|
|
260
|
|
|
900
|
Balance at end of third quarter
|
$
|
(28,510)
|
|
|
(27,460)
|
In addition to the above,
the Company has three investments for which the fair value is measured using
net asset value per share. At October 1, 2017, September 25, 2016 and December
25, 2016, these investments had fair values of $24,405, $23,490 and $23,571,
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.
(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 October 1, 2017 and September
25, 2016 are as follows:
|
Quarter Ended
|
|
Pension
|
|
Postretirement
|
|
October 1,
|
|
September 25,
|
|
October 1,
|
|
September 25,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Service cost
|
$
|
925
|
|
|
1,002
|
|
|
172
|
|
|
132
|
Interest cost
|
|
4,443
|
|
|
4,611
|
|
|
295
|
|
|
294
|
Expected return on assets
|
|
(5,896)
|
|
|
(5,512)
|
|
|
-
|
|
|
-
|
Net amortization and deferrals
|
|
2,525
|
|
|
2,134
|
|
|
-
|
|
|
-
|
Net periodic benefit cost
|
$
|
1,997
|
|
|
2,235
|
|
|
467
|
|
|
426
|
|
Nine Months Ended
|
|
Pension
|
|
Postretirement
|
|
October 1,
|
|
September 25,
|
|
October 1,
|
|
September 25,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Service cost
|
$
|
2,798
|
|
|
2,995
|
|
|
517
|
|
|
397
|
Interest cost
|
|
13,598
|
|
|
13,821
|
|
|
885
|
|
|
881
|
Expected return on assets
|
|
(18,057)
|
|
|
(16,523)
|
|
|
-
|
|
|
-
|
Net amortization and deferrals
|
|
7,738
|
|
|
6,398
|
|
|
-
|
|
|
-
|
Net periodic benefit cost
|
$
|
6,077
|
|
|
6,691
|
|
|
1,402
|
|
|
1,278
|
During
the nine months ended October 1, 2017, the Company made cash contributions of
$26,600 to its defined benefit pension plans. During fiscal 2017, the Company
expects to make cash contributions to its defined benefit pension plans of
approximately $29,000 in the aggregate.
(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 2017 through 2022.
At October
1, 2017, September 25, 2016 and December 25, 2016, the notional amounts and
fair values of the Company's foreign currency forward contracts designated as
cash flow hedging instruments were as follows:
|
October 1, 2017
|
|
September 25, 2016
|
|
December 25, 2016
|
|
Notional
|
|
Fair
|
|
Notional
|
|
Fair
|
|
Notional
|
|
Fair
|
Hedged transaction
|
Amount
|
|
Value
|
|
Amount
|
|
Value
|
|
Amount
|
|
Value
|
Inventory purchases
|
$
|
894,529
|
|
|
(16,597)
|
|
|
1,045,400
|
|
|
23,662
|
|
|
945,728
|
|
|
60,520
|
Sales
|
|
579,421
|
|
|
17,215
|
|
|
318,283
|
|
|
(559)
|
|
|
290,181
|
|
|
9,775
|
Royalties and Other
|
|
266,670
|
|
|
(12,567)
|
|
|
233,367
|
|
|
(4,111)
|
|
|
198,849
|
|
|
1,633
|
Total
|
$
|
1,740,620
|
|
|
(11,949)
|
|
|
1,597,050
|
|
|
18,992
|
|
|
1,434,758
|
|
|
71,928
|
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 October 1, 2017, September 25, 2016 and December
25, 2016 as follows:
|
October 1,
|
|
September 25,
|
|
December 25,
|
|
2017
|
|
2016
|
|
2016
|
Prepaid expenses and other current
assets
|
|
|
|
|
|
|
|
|
Unrealized gains
|
$
|
10,207
|
|
|
34,179
|
|
|
34,265
|
Unrealized losses
|
|
(7,977)
|
|
|
(9,247)
|
|
|
(2,075)
|
Net unrealized gains
|
$
|
2,230
|
|
|
24,932
|
|
|
32,190
|
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
|
|
|
|
|
|
Unrealized gains
|
$
|
11,631
|
|
|
20,974
|
|
|
51,839
|
Unrealized losses
|
|
(3,139)
|
|
|
(7,524)
|
|
|
(792)
|
Net unrealized gains
|
$
|
8,492
|
|
|
13,450
|
|
|
51,047
|
|
|
|
|
|
|
|
|
|
Accrued liabilities
|
|
|
|
|
|
|
|
|
Unrealized gains
|
$
|
5,354
|
|
|
4,352
|
|
|
8,481
|
Unrealized losses
|
|
(20,999)
|
|
|
(19,420)
|
|
|
(19,790)
|
Net unrealized losses
|
$
|
(15,645)
|
|
|
(15,068)
|
|
|
(11,309)
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
|
|
|
|
|
|
Unrealized gains
|
$
|
8,325
|
|
|
992
|
|
|
-
|
Unrealized losses
|
|
(15,351)
|
|
|
(5,314)
|
|
|
-
|
Net unrealized losses
|
$
|
(7,026)
|
|
|
(4,322)
|
|
|
-
|
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 October
1, 2017 and September 25, 2016 as follows:
|
Quarter Ended
|
|
Nine Months Ended
|
|
October 1,
|
|
September 25,
|
|
October 1,
|
|
September 25,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Statements of Operations Classification
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
$
|
(5,971)
|
|
|
13,863
|
|
|
6,614
|
|
|
40,999
|
Net Revenues
|
|
2,316
|
|
|
7,125
|
|
|
3,332
|
|
|
7,541
|
Other
|
|
(2,311)
|
|
|
(1,505)
|
|
|
(2,716)
|
|
|
(2,236)
|
Net realized (losses) gains
|
$
|
(5,966)
|
|
|
19,483
|
|
|
7,230
|
|
|
46,304
|
In addition, losses of $9
and $6,495 were reclassified to earnings as a result of hedge ineffectiveness
for the quarter and nine-month periods ended October 1, 2017, respectively. Net
(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.
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 changes.
The Company does not use hedge accounting for these contracts as
changes in the fair values of these contracts are substantially offset by
changes in the fair value of the intercompany loans. As of October 1,
2017, September 25, 2016 and December 25, 2016 the total notional amounts of
the Company's undesignated derivative instruments were $339,227, $264,029 and
$268,308, respectively.
At October
1, 2017, September 25, 2016 and December 25, 2016, the fair values of the
Company's undesignated derivative financial instruments were recorded in the
consolidated balance sheets as follows:
|
October 1,
|
|
September 25,
|
|
December 25,
|
|
2017
|
|
2016
|
|
2016
|
Prepaid expenses and other current
assets
|
|
|
|
|
|
|
|
|
Unrealized gains
|
$
|
2,606
|
|
|
812
|
|
|
5,854
|
Unrealized losses
|
|
(1,353)
|
|
|
(79)
|
|
|
(1,197)
|
Net unrealized gain
|
$
|
1,253
|
|
|
733
|
|
|
4,657
|
|
|
|
|
|
|
|
|
|
Total unrealized gain, net
|
$
|
1,253
|
|
|
733
|
|
|
4,657
|
The Company recorded net losses
of $2,976 and $2,251 on these instruments to other income, net for the quarter
and nine-month periods ended October 1, 2017, respectively, and net gains of
$6,533 and $14,867 on these instruments to other income, net for the quarter
and nine-month periods ended September 25, 2016, 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 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 licensing and gaming, and 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 2017, nor were those of the comparable 2016
period representative of those actually experienced for the full year 2016.
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 October 1, 2017 and September 25, 2016 are as follows.
|
Quarter Ended
|
|
October 1, 2017
|
|
September 25, 2016
|
Net revenues
|
External
|
|
Affiliate
|
|
External
|
|
Affiliate
|
U.S. and Canada
|
$
|
993,833
|
|
|
2,201
|
|
|
932,844
|
|
|
2,392
|
International
|
|
739,229
|
|
|
198
|
|
|
690,745
|
|
|
417
|
Entertainment and Licensing
|
|
58,440
|
|
|
7,714
|
|
|
56,130
|
|
|
7,806
|
Global Operations (a)
|
|
-
|
|
|
665,746
|
|
|
38
|
|
|
629,090
|
Corporate and Eliminations
|
|
-
|
|
|
(675,859)
|
|
|
-
|
|
|
(639,705)
|
|
$
|
1,791,502
|
|
|
-
|
|
|
1,679,757
|
|
|
-
|
|
Nine Months Ended
|
|
October 1, 2017
|
|
September 25, 2016
|
Net revenues
|
External
|
|
Affiliate
|
|
External
|
|
Affiliate
|
U.S. and Canada
|
$
|
1,939,837
|
|
|
7,047
|
|
|
1,802,391
|
|
|
5,388
|
International
|
|
1,511,074
|
|
|
213
|
|
|
1,436,911
|
|
|
678
|
Entertainment and Licensing
|
|
162,663
|
|
|
14,727
|
|
|
150,521
|
|
|
16,607
|
Global Operations (a)
|
|
97
|
|
|
1,329,516
|
|
|
59
|
|
|
1,298,337
|
Corporate and Eliminations
|
|
-
|
|
|
(1,351,503)
|
|
|
-
|
|
|
(1,321,010)
|
|
$
|
3,613,671
|
|
|
-
|
|
|
3,389,882
|
|
|
-
|
|
Quarter Ended
|
|
Nine Months Ended
|
|
October 1,
|
|
September 25,
|
|
October 1,
|
|
September 25,
|
Operating profit (loss)
|
2017
|
|
2016
|
|
2017
|
|
2016
|
U.S. and Canada
|
$
|
217,278
|
|
|
228,034
|
|
|
363,589
|
|
|
364,322
|
International
|
|
132,007
|
|
|
133,075
|
|
|
149,435
|
|
|
165,582
|
Entertainment and Licensing
|
|
16,910
|
|
|
14,095
|
|
|
39,580
|
|
|
33,367
|
Global Operations (a)
|
|
11,497
|
|
|
24,852
|
|
|
4,723
|
|
|
25,428
|
Corporate and Eliminations (b)
|
|
(16,748)
|
|
|
(37,955)
|
|
|
(18,056)
|
|
|
(55,808)
|
|
$
|
360,944
|
|
|
362,101
|
|
|
539,271
|
|
|
532,891
|
|
October 1,
|
|
September 25,
|
|
December 25,
|
Total assets
|
2017
|
|
2016
|
|
2016
|
U.S. and Canada
|
$
|
3,423,213
|
|
|
2,316,624
|
|
|
2,559,792
|
International
|
|
2,524,821
|
|
|
2,261,742
|
|
|
2,368,761
|
Entertainment and Licensing
|
|
884,014
|
|
|
632,933
|
|
|
692,898
|
Global Operations
|
|
3,080,573
|
|
|
2,038,736
|
|
|
2,326,566
|
Corporate and Eliminations (b)
|
|
(4,367,973)
|
|
|
(2,294,888)
|
|
|
(2,856,651)
|
|
$
|
5,544,648
|
|
|
4,955,147
|
|
|
5,091,366
|
(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 U.S.
Dollar to local currency at budget rates when recorded. 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 quarters and nine-month periods ended October
1, 2017 and September 25, 2016.
|
Quarter Ended
|
|
Nine Months Ended
|
|
October 1,
|
|
September 25,
|
|
October 1,
|
|
September 25,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Europe
|
$
|
467,740
|
|
|
452,834
|
|
|
921,467
|
|
|
905,081
|
Latin America
|
|
174,446
|
|
|
154,985
|
|
|
339,071
|
|
|
307,949
|
Asia Pacific
|
|
97,043
|
|
|
82,926
|
|
|
250,536
|
|
|
223,881
|
Net revenues
|
$
|
739,229
|
|
|
690,745
|
|
|
1,511,074
|
|
|
1,436,911
|
The following table presents
consolidated net revenues by brand portfolio for the quarters and nine-month
periods ended October 1, 2017 and September 25, 2016.
|
Quarter Ended
|
|
Nine Months Ended
|
|
October 1,
|
|
September 25,
|
|
October 1,
|
|
September 25,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Franchise brands
|
$
|
827,282
|
|
|
773,415
|
|
|
1,803,744
|
|
|
1,642,057
|
Partner brands
|
|
485,747
|
|
|
493,738
|
|
|
928,724
|
|
|
979,051
|
Hasbro gaming
|
|
280,097
|
|
|
229,850
|
|
|
549,736
|
|
|
456,516
|
Emerging brands
|
|
198,376
|
|
|
182,754
|
|
|
331,467
|
|
|
312,258
|
Net revenues
|
$
|
1,791,502
|
|
|
1,679,757
|
|
|
3,613,671
|
|
|
3,389,882
|
Hasbro's total
gaming category, including
the Hasbro Gaming portfolio as reported
above and all other
gaming revenue, most notably MAGIC: THE GATHERING and
MONOPOLY, which are included in the Franchise Brands portfolio, totaled $
424,836
and $
951,386
for the quarter and nine
months ended October 1, 2017, respectively. For the quarter and nine months
ended September 25, 2016, revenues were $
409,528
and $
868,373
, respectively.
Hasbro believes its gaming portfolio is a competitive differentiator and views
it in its entirety.
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 25, 2016 (“2016
Form 10-K”), 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 owned and controlled brands, including
Franchise Brands 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, movies, digital gaming and a comprehensive consumer
products licensing program, Hasbro fulfills the fundamental need for play and connection
for children and families around the world. The Company's wholly-owned Hasbro
Studios and its film label, Allspark Pictures, create entertainment
brand-driven storytelling across mediums, including television, film, digital
and more.
These elements are executed
globally in alignment with Hasbro's strategic 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 and distribution of television programming and motion pictures 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
partners’ brands including, but not limited to, BEYBLADE, DISNEY PRINCESS and
DISNEY FROZEN, DISNEY’S DESCENDANTS, MARVEL, SESAME STREET, STAR WARS, and
DREAMWORKS’ TROLLS. MARVEL, STAR WARS, DISNEY PRINCESS, DISNEY FROZEN and
DISNEY’S DECENDANTS 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 products 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.
The impact of changes in
foreign currency exchange rates used to translate the consolidated statements
of operations is quantified by translating the current period revenues at the
prior period exchange rates and comparing this amount to the prior period
reported revenues. The Company believes that the presentation of the impact of
changes in exchange rates, which are beyond the Company’s control, is helpful
to an investor’s understanding of the performance of the underlying business.
Third
quarter 2017 highlights:
· Third
quarter net revenues grew 7% to $1,791.5 million from $1,679.8 million in the
third quarter of 2016, driven by increases in the U.S. and Canada,
International and Entertainment and Licensing segments of 7%, 7%, and 4%,
respectively. The growth in International segment net revenues included a
favorable $27.9 million in foreign currency translation.
· Net
revenues from Franchise Brands, Hasbro Gaming and Emerging Brands categories
increased 7%, 22% and 9%, respectively, during the third quarter of 2017
compared to the third quarter of 2016, while Partner Brands category net
revenues were down 2% for the quarter.
· Operating
profit was essentially flat in the third quarter of 2017 compared to the third
quarter of 2016 and net earnings attributable to Hasbro, Inc. increased 3% to
$265.6 million or $2.09 per diluted share in the third quarter of 2017 compared
to $257.8 million or $2.03 per diluted share in the third quarter of 2016.
· Third
quarter 2017 operating profit was negatively impacted by the Toys“R”Us
bankruptcy as a result of incremental bad debt expense recorded during the
third quarter of 2017.
First
nine months 2017 highlights:
· Net
revenues increased 7% to $3,613.7 million in first nine months of 2017 compared
to $3,389.9 the first nine months of 2016, driven by increases in the U.S. and
Canada, International and Entertainment and Licensing segments of 8%, 5% and
8%, respectively. The growth in International segment net revenues included a
favorable $33.3 million in foreign currency translation.
· Franchise
Brands category net revenues for the nine months ended October 1, 2017
increased 10%, Hasbro Gaming net revenues grew 20%, Emerging Brands net
revenues grew 6% while Partner Brands category net revenues declined 5% during
the first nine months of 2017 compared to the same period in 2016.
· Operating
profit grew 1% to $539.3 million in the first nine months of 2017 compared to
$532.9 million in the first nine months of 2016 and net earnings attributable
to Hasbro, Inc. increased 12% to $401.9 million or $3.16 per diluted share in
the first nine months of 2017 compared to $358.7 million or $2.82 per diluted
share in the first nine months of 2016.
The
above variances for the quarter and nine month periods are discussed in further
detail below.
As of December 2016, the
Company owned a 70% majority stake in Backflip Studios, LLC (“Backflip”), a
mobile game developer, and in January 2017, the Company increased its ownership
to 100% making it a wholly owned subsidiary.
Amounts
Returned to Shareholders
The Company is
committed to returning excess cash to its shareholders through quarterly
dividends and share repurchases. Hasbro increased the quarterly dividend rate
from $0.51 per share to $0.57 per share effective for the dividend paid in May
2017.
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 first nine months
of 2017, Hasbro repurchased approximately 1.2 million shares at a total cost of
$111.5 million and at an average price of $95.21 per share.
At October 1, 2017, the Company had $216.5 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 October 1,
2017 and September 25, 2016.
|
Quarter Ended
|
|
Nine Months Ended
|
|
October 1,
|
|
September 25,
|
|
October 1,
|
|
September 25,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Net revenues
|
|
100.0%
|
|
|
100.0%
|
|
|
100.0%
|
|
|
100.0%
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
40.8
|
|
|
39.2
|
|
|
38.9
|
|
|
37.5
|
Royalties
|
|
7.8
|
|
|
8.0
|
|
|
7.8
|
|
|
8.1
|
Product development
|
|
3.8
|
|
|
4.2
|
|
|
5.3
|
|
|
5.6
|
Advertising
|
|
9.4
|
|
|
9.2
|
|
|
9.5
|
|
|
9.5
|
Amortization of intangibles
|
|
0.4
|
|
|
0.5
|
|
|
0.6
|
|
|
0.8
|
Program production cost amortization
|
|
0.3
|
|
|
0.4
|
|
|
0.4
|
|
|
0.5
|
Selling, distribution and administration
|
|
17.4
|
|
|
17.0
|
|
|
22.5
|
|
|
22.3
|
Operating profit
|
|
20.1
|
|
|
21.6
|
|
|
14.9
|
|
|
15.7
|
Interest expense
|
|
1.4
|
|
|
1.4
|
|
|
2.0
|
|
|
2.1
|
Interest income
|
|
(0.3)
|
|
|
(0.1)
|
|
|
(0.4)
|
|
|
(0.2)
|
Other (income) expense, net
|
|
(0.5)
|
|
|
(0.4)
|
|
|
(0.7)
|
|
|
(0.2)
|
Earnings before income taxes
|
|
19.5
|
|
|
20.6
|
|
|
14.0
|
|
|
13.9
|
Income tax expense
|
|
4.7
|
|
|
5.4
|
|
|
2.9
|
|
|
3.5
|
Net earnings
|
|
14.8
|
|
|
15.2
|
|
|
11.1
|
|
|
10.4
|
Net loss attributable to noncontrolling interests
|
|
-
|
|
|
(0.1)
|
|
|
-
|
|
|
(0.2)
|
Net earnings attributable to Hasbro, Inc.
|
|
14.8%
|
|
|
15.3%
|
|
|
11.1%
|
|
|
10.6%
|
RESULTS
OF OPERATIONS – CONSOLIDATED
Third
Quarter of 2017
The quarters ended October
1, 2017 and September 25, 2016 were each 13-week periods. Net earnings and net
earnings attributable to Hasbro, Inc. both increased to $265.6 million for the
third quarter of 2017, from $256.2 million and $257.8 million, respectively, for
the comparable period of 2016. Diluted earnings per share increased to
$2.09 in the third quarter of 2017 from $2.03 in the third quarter of 2016. Net
earnings during the third quarter of 2017 included a $0.04 per diluted share
benefit due to the adoption of Accounting Standards Update No. 2016-09 in 2017,
as discussed in Note 1 to the consolidated financial statements.
Consolidated net revenues
for the third quarter of 2017 increased 7% compared to the third quarter of
2016 and included a favorable impact from foreign currency translation of $29.6
million as a result of strengthening currencies in the European, Latin American
and Asia Pacific markets in 2017 compared to 2016.
The following table presents net revenues by brand portfolio for
the quarters ended October 1, 2017 and September 25, 2016.
|
Quarter Ended
|
|
October 1,
|
|
September 25,
|
|
%
|
|
2017
|
|
2016
|
|
Change
|
Franchise brands
|
$
|
827.3
|
|
|
773.4
|
|
7
|
%
|
Partner brands
|
|
485.7
|
|
|
493.7
|
|
-2
|
%
|
Hasbro gaming
|
|
280.1
|
|
|
229.9
|
|
22
|
%
|
Emerging brands
|
|
198.4
|
|
|
182.8
|
|
9
|
%
|
Total
|
$
|
1,791.5
|
|
|
1,679.8
|
|
7
|
%
|
FRANCHISE BRANDS:
Net revenues in the Franchise Brands category increased 7% in the
third quarter of 2017 compared to the third quarter of 2016, driven by higher
net revenues from NERF, TRANSFORMERS, MY LITTLE PONY and MONOPOLY products. Net
revenues from MY LITTLE PONY products benefited ahead of the October 2017
theatrical release of
MY LITTLE PONY: THE MOVIE
. These increases were
partially offset by lower third quarter 2017 net revenues from MAGIC: THE
GATHERING products as a result of the timing of releases in 2017 compared to
2016.
PARTNER BRANDS:
Net
revenues from the Partner
Brands category decreased 2% in the third quarter of 2017 compared to the third
quarter of 2016. Revenue growth from BEYBLADE, STAR WARS, DISNEY’S
DESCENDANTS and SESAME STREET products were more than offset by declines in net
revenues from YO-KAI WATCH products and DREAMWORKS’ TROLLS products.
DREAMWORKS’ TROLLS products were supported in 2016 by the theatrical release of
the
DREAMWORKS’ TROLLS
motion picture.
HASBRO GAMING:
Net revenues in the Hasbro Gaming category increased 22% in the
third quarter of 2017 compared to 2016. Higher net revenues from social gaming
products, such as SPEAKOUT and FANTASTIC GYMNASTICS, as well as classic games,
such as LIFE and CLUE, drove revenue growth in the third quarter of 2017.
Net revenues for Hasbro’s
total gaming category, including the Hasbro Gaming portfolio as reported above
and all other gaming revenue, most notably MAGIC: THE GATHERING and MONOPOLY,
which are included in the Franchise Brands portfolio, totaled $424.8 million
for the third quarter of 2017, up 4%, versus $409.5 million in the third
quarter 2016.
EMERGING BRANDS:
Net revenues from the Emerging Brands category increased 9%
during the third quarter of 2017 compared to the same period in 2016. Higher
net revenues from BABY ALIVE and FURREAL FRIENDS products were partially offset
by lower net revenues from FURBY products.
Operating
profit for the third quarter of 2017 was essentially flat at $360.9 million, or
20.1% of net revenues compared to $362.1 million, or 21.6% of net revenues, for
the third quarter of 2016. Operating profit was negatively impacted from
incremental bad debt expense associated with the bankruptcy filing by Toys“R”Us
during the third quarter of 2017. Excluding this incremental bad debt expense,
operating profit would have increased, driven by higher net revenues, partially
offset by higher cost of sales and higher advertising expense. Foreign currency
translation did not have a significant impact on operating profit results in
the third quarter of 2017, as compared to the third quarter of 2016.
First Nine Months of 2017
The nine-month period ended October
1, 2017 was a 40-week period while the nine-month period ended September 25,
2016 was a 39-week period. Net earnings and net earnings attributable to
Hasbro, Inc. both increased to $401.9 million for the first nine months of 2017,
compared to $352.6 million and $358.7 million, respectively, for the first nine
months of 2016. Diluted earnings per share increased to $3.16 in 2017 from
$2.82 in 2016. Net earnings for the nine month period ended October 1, 2017
included a $0.16 per diluted share benefit due to the adoption of Accounting
Standards Update No. 2016-09 during 2017.
For the first nine months of
2017, consolidated net revenues increased 7% compared to the first nine months of
2016 including a favorable variance of $34.9 million as a result of foreign
currency translation due to strengthening currencies in the European, Latin
American and Asia Pacific markets in 2017 compared to 2016.
The
following table presents net revenues by product category for the first nine
months of 2017 and 2016.
|
Nine Months Ended
|
|
October 1,
|
|
September 25,
|
|
%
|
|
2017
|
|
2016
|
|
Change
|
Franchise brands
|
$
|
1,803.8
|
|
|
1,642.1
|
|
10
|
%
|
Partner brands
|
|
928.7
|
|
|
979.1
|
|
-5
|
%
|
Hasbro gaming
|
|
549.7
|
|
|
456.5
|
|
20
|
%
|
Emerging brands
|
|
331.5
|
|
|
312.3
|
|
6
|
%
|
Net revenues
|
$
|
3,613.7
|
|
|
3,390.0
|
|
7
|
%
|
FRANCHISE BRANDS:
Net revenues in the Franchise Brands category increased 10% in the
first nine months of 2017 compared to 2016. Higher net revenues from
TRANSFORMERS, NERF and MONOPOLY products and, to a lesser extent, MY LITTLE
PONY products, contributed to growth in the first nine months of 2017.
TRANSFORMERS products benefited from the June 2017 theatrical release of
TRANSFORMERS:
THE LAST KNIGHT.
These increases were partially offset by lower net
revenues from MAGIC: THE GATHERING products, as well as lower net revenues from
PLAY-DOH products.
PARTNER BRANDS:
Net revenues from the Partner Brands category declined 5% during
the first nine months of 2017 compared to 2016 due to lower net revenues from
STAR WARS products partially due to the timing of the 2017 theatrical release
of
STAR WARS: THE LAST JEDI
expected in the fourth quarter of 2017, as
compared to the timing of the 2016 theatrical release of
ROGUE ONE: A STAR
WARS STORY
, in addition to lower net revenues from YO-KAI WATCH, DISNEY
FROZEN and MARVEL products. These declines were partially offset by higher net
revenue contributions from BEYBLADE and DREAMWORKS’ TROLLS products as well as
increased net revenues from Hasbro’s line of DISNEY PRINCESS products in the
first nine months of 2017 compared to the same period in 2016.
HASBRO GAMING:
Net revenues in the Hasbro Gaming category increased 20% in the
first nine months of 2017 compared to the first nine months of 2016. Increased
net revenues from social gaming products, as well as higher net sales of
DUNGEONS & DRAGONS products, were marginally offset by lower net revenues
from PIE FACE as well as certain other Hasbro Gaming products.
Net
revenues for Hasbro’s total gaming category, including the Hasbro Gaming
portfolio as reported above and all other gaming revenue, most notably from
MAGIC: THE GATHERING and MONOPOLY products, which are included in the Franchise
Brands portfolio, totaled $951.4 million in the first nine months of 2017, up
10%, versus $868.4 million in the first nine months of 2016.
EMERGING BRANDS:
Net revenues from the
Emerging Brands category increased 6%
for the first nine months of 2017 compared to the first nine months of 2016.
Higher
net revenues from BABY ALIVE and FURREAL FRIENDS products were partially offset
by lower net revenues from FURBY products.
Operating profit for the
first nine months of 2017 increased slightly to $539.3 million, or 14.9% of net
revenues, from $532.9 million, or 15.7% of net revenues, for the first nine
months of 2016. The operating profit increase was driven by higher net revenues
mostly offset by higher cost of sales and operating expenses including higher
sales & marketing costs, higher advertising costs and higher royalty
expenses.
SEGMENT
RESULTS
Most of the Company's net 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 2017
The
following table presents net revenues and operating profit data for the
Company's three principal segments for the quarters ended October 1, 2017 and September
25, 2016.
|
Quarter Ended
|
|
October 1,
|
|
September 25,
|
|
%
|
|
2017
|
|
2016
|
|
Change
|
Net Revenues
|
|
|
|
|
|
|
|
|
U.S. and Canada segment
|
$
|
993.8
|
|
|
932.8
|
|
7
|
%
|
International segment
|
|
739.2
|
|
|
690.7
|
|
7
|
%
|
Entertainment and Licensing segment
|
|
58.4
|
|
|
56.1
|
|
4
|
%
|
|
|
|
|
|
|
|
|
|
Operating Profit
|
|
|
|
|
|
|
|
|
U.S. and Canada segment
|
$
|
217.3
|
|
|
228.0
|
|
-5
|
%
|
International segment
|
|
132.0
|
|
|
133.1
|
|
-1
|
%
|
Entertainment and Licensing segment
|
|
16.9
|
|
|
14.1
|
|
20
|
%
|
U.S.
and Canada Segment
The U.S. and Canada segment
net revenues for the third quarter of 2017 increased 7% compared to the third
quarter of 2016. Foreign currency translation did not have a significant
impact on this segment's net revenues. In the third quarter of 2017, revenues grew
in all product categories including Franchise Brands, Partner Brands, Hasbro
Gaming and Emerging Brands categories.
The
Franchise Brands category benefited from higher net revenues from NERF,
MONOPOLY, TRANSFORMERS and MY LITTLE PONY products, which were partially offset
by lower net revenues from MAGIC: THE GATHERING and PLAY-DOH products. In the
Partner Brands category, higher net revenues from STAR WARS, BEYBLADE and DISNEY’S
DESCENDANTS products were offset by lower net revenues from the Company’s
DISNEY PRINCESS products as well as DREAMWORKS’ TROLLS and YO-KAI WATCH
products. In the Hasbro Gaming category, higher net revenues from social gaming
products and DUNGEONS & DRAGONS were partially offset by decreased net revenues
from PIE FACE products. In the Emerging Brands category increased net revenues
from BABY ALIVE and FURREAL FRIENDS products were partially offset by lower net
revenues from FURBY products.
U.S. and Canada segment
operating profit decreased 5% for the quarter ended October 1, 2017 to $217.3
million, or 21.9% of segment net revenues, compared to $228.0 million, or 24.4%
of segment net revenues, for the quarter ended September 25, 2016. The decline
in operating profit was due to a shift in product mix as a result of lower
sales of higher margin products such as MAGIC: THE GATHERING, as well as
increased bad debt expense related to the bankruptcy filing of Toys“R”Us.
International
Segment
International segment net
revenues increased 7% to $739.2 million for the quarter ended October 1, 2017
from $690.7 million for the quarter ended September 25, 2016. The following
table presents net revenues by geographic region for the Company's
International segment for the quarters ended October 1, 2017 and September 25,
2016.
|
Quarter Ended
|
|
October 1,
|
|
September 25,
|
|
%
|
|
2017
|
|
2016
|
|
Change
|
Europe
|
$
|
467.7
|
|
|
452.8
|
|
3
|
%
|
Latin America
|
|
174.5
|
|
|
155.0
|
|
13
|
%
|
Asia Pacific
|
|
97.0
|
|
|
82.9
|
|
17
|
%
|
Net revenues
|
$
|
739.2
|
|
|
690.7
|
|
7
|
%
|
The
increase in International segment net revenues included a $27.9 million benefit
from the impact of foreign currency translation primarily related to the Company’s
European region, and, to a lesser extent, Latin American and Asia Pacific
regions during the third quarter of 2017 compared to the third quarter of
2016. Net revenues from the Franchise Brands and Hasbro Gaming categories
grew, while net revenues from the Partner Brands and Emerging Brands categories
declined compared to the same period in 2016. The Franchise Brands category
benefitted from higher net revenues from NERF, TRANSFORMERS, MY LITTLE PONY,
and MONOPOLY products which were partially offset by lower revenues from MAGIC:
THE GATHERING products. Partner Brands category net revenues decreased due to
lower net revenues from YO-KAI WATCH, DREAMWORKS’ TROLLS and DISNEY FROZEN
products which were partially offset by higher net revenues from BEYBLADE
products. In the Hasbro Gaming category, higher net revenues were driven by
increases from social gaming products, including PIE FACE products. In the
Emerging Brands category, higher net revenues from BABY ALIVE products were
more than offset by lower net revenues from FURBY products.
International
segment operating profit declined $1.1 million or 1% to $132.0 million or 17.9%
of segment net revenues for the quarter ended October 1, 2017 from $133.1
million, or 19.3% of segment net revenues, for the quarter ended September 25,
2016. The decrease in operating profit is the result of a shift in product mix
and higher expense levels in the third quarter of 2017, as compared to the
third quarter of 2016.
Entertainment
and Licensing Segment
Entertainment and Licensing
segment net revenues increased 4% for the quarter ended October 1, 2017 to
$58.4 million compared to $56.1 million for the quarter ended September 25,
2016. Higher consumer product and entertainment revenues drove growth during the
third quarter of 2017.
Entertainment
and Licensing segment operating profit increased 20% to $16.9 million, or 28.9%
of external segment net revenues, for the quarter ended October 1, 2017 from
$14.1 million, or 25.1% of segment net revenues, for the quarter ended
September 25, 2016. Overall, the increase in Entertainment and Licensing
segment operating profit and operating profit margin was primarily due to
increased revenues, as well as, reduced intangible amortization as the Backflip
property rights were fully amortized in the second quarter of 2017.
Global
Operations
The Global Operations
segment operating profit of $11.5 million for the quarter ended October 1, 2017
compared to an operating profit of $24.9 million for the quarter ended
September 25, 2016. The decline in operating results is attributable to cost
of sales increases and higher operating expenses in 2017.
Corporate
and Eliminations
The operating loss in
Corporate and eliminations totaled $16.7 million for the third quarter of 2017
compared to a loss of $38.0 million for the third quarter of 2016.
First
Nine Months of 2017
The
following table presents net revenues and operating profit data for the
Company's three principal segments for each of the nine months ended October 1,
2017 and September 25, 2016.
|
Nine Months Ended
|
|
October 1,
|
|
September 25,
|
|
%
|
|
2017
|
|
2016
|
|
Change
|
Net Revenues
|
|
|
|
|
|
|
|
|
U.S. and Canada segment
|
$
|
1,939.8
|
|
|
1,802.4
|
|
8
|
%
|
International segment
|
|
1,511.1
|
|
|
1,436.9
|
|
5
|
%
|
Entertainment and Licensing segment
|
|
162.7
|
|
|
150.5
|
|
8
|
%
|
|
|
|
|
|
|
|
|
|
Operating Profit
|
|
|
|
|
|
|
|
|
U.S. and Canada segment
|
$
|
363.6
|
|
|
364.3
|
|
0
|
%
|
International segment
|
|
149.4
|
|
|
165.6
|
|
-10
|
%
|
Entertainment and Licensing segment
|
|
39.6
|
|
|
33.4
|
|
19
|
%
|
U.S.
and Canada Segment
The U.S. and Canada segment
net revenues for the nine months ended October 1, 2017 increased 8% compared to
2016. Foreign currency translation did not have a significant impact on this
segment’s net revenues. In the first nine months of 2017, revenues from the
Franchise Brands, Hasbro Gaming and Emerging Brands categories grew while net
revenues from the Partner Brands category were essentially flat.
The Franchise Brands
category benefited from higher net revenues from NERF, TRANSFORMERS and
MONOPOLY products which were partially offset by lower net revenues from MAGIC:
THE GATHERING and PLAY-DOH products. In the Partner Brands category, higher
net revenues from BEYBLADE, DREAMWORKS’ TROLLS and MARVEL were more than offset
by lower net revenues from STAR WARS and YO-KAI WATCH products. In the Hasbro
Gaming category, higher net revenues from social gaming products, as well as
higher net sales of DUNGEONS & DRAGONS products, were partially offset by
decreased net revenues from PIE FACE products. In the Emerging Brands category
increased net revenues from BABY ALIVE and FURREAL FRIEND products were
partially offset by lower net revenues from FURBY products.
U.S.
and Canada segment operating profit for the nine months ended October 1, 2017
was essentially flat at $363.6 million, or 18.7% of segment net revenues, compared
to $364.3 million, or 20.2% of segment net revenues, for the nine months ended
September 25, 2016. Lower operating profit margin reflects a shift in product
mix as a result of lower sales of higher margin products such as MAGIC: THE
GATHERING, as well as an overall increase in expenses including the incremental
bad debt expense related to the bankruptcy filing of Toys“R”Us.
International
Segment
International segment net
revenues increased 5% to $1,511.1 million for the nine months ended October 1,
2017 from $1,436.9 million for the nine months ended September 25, 2016. The
following table presents net revenues by geographic region for the Company's
International segment for the nine-month periods ended October 1, 2017 and September
25, 2016.
|
Nine Months Ended
|
|
October 1,
|
|
September 25,
|
|
%
|
|
2017
|
|
2016
|
|
Change
|
Europe
|
$
|
921.5
|
|
|
905.1
|
|
2
|
%
|
Latin America
|
|
339.1
|
|
|
307.9
|
|
10
|
%
|
Asia Pacific
|
|
250.5
|
|
|
223.9
|
|
12
|
%
|
Net revenues
|
$
|
1,511.1
|
|
|
1,436.9
|
|
5
|
%
|
In the
first nine months of 2017 compared to the first nine months of 2016,
international segment net revenues were positively impacted by $33.3 million
from foreign currency translation variances related to the Company’s European
region and, to a lesser extent, Latin American and Asia Pacific regions.
Absent the impact of foreign exchange, segment net revenues increased $40.9
million or 3% during the first nine months of 2017. Net revenues from the
Franchise Brands and Hasbro Gaming categories grew during the first nine months
of 2017, while net revenues from the Partner Brands and Emerging Brands
categories declined compared to the same period in 2016. The Franchise Brands
category benefitted from higher net revenues from TRANSFORMERS, NERF, MONOPOLY
and MY LITTLE PONY products. These increases were partially offset by net
revenue decreases from PLAY-DOH and MAGIC: THE GATHERING products. Partner
Brands category net revenues decreased due to lower net revenues from STAR
WARS, MARVEL and YO-KAI WATCH products, partially offset by higher net revenues
from BEYBLADE products. In the Hasbro Gaming category, higher net revenues
were driven by social gaming products, as well as PIE FACE products. In the
Emerging Brands category, lower net revenues from FURBY and core PLAYSKOOL
products, were partially offset by higher net revenues from FURREAL FRIENDS,
HANAZUKI and BABY ALIVE products.
International
segment operating profit decreased to $149.4 million, or 9.9% of segment net
revenues, for the nine months ended October 1, 2017 from $165.6 million, or
11.5% of segment net revenues, for the nine months ended September 25, 2016.
The decrease in operating profit is due to a shift in product mix and increased
expense levels.
Entertainment
and Licensing Segment
Entertainment and Licensing segment net revenues for the nine
months ended October 1, 2017 increased 8% to $162.7 million from $150.5 million
for the nine months ended September 25, 2016. Growth in revenues was due
primarily to higher consumer products and entertainment revenues compared to
the same period in 2016.
Entertainment and Licensing
segment operating profit increased to $39.6 million, or 24.3% of net revenues,
for the nine months ended October 1, 2017 from $33.4 million, or 22.2% of
segment net revenues, for the nine months ended September 25, 2016. Overall,
the increase in Entertainment and Licensing segment operating profit and
operating profit margin reflects the higher revenues noted above and lower
intangible amortization expense partially offset by higher administration costs
associated with building the consumer products team globally.
Global Operations
The Global Operations
segment operating profit of $4.7 million for the first nine months of 2017
compares to operating profit of $25.4 million for the first nine months of
2016. The decline is primarily due to increased cost of sales in 2017 due to
product mix as well as increased operating expenses in 2017.
Corporate
and Eliminations
Operating loss in Corporate
and Eliminations for the first nine months of 2017 was $18.1 million, compared
to $55.8 million for the first nine months of 2016.
OPERATING COSTS AND EXPENSES
Third Quarter of 2017
The
Company's costs and expenses, stated as percentages of net revenues, are
illustrated below for the quarters ended October 1, 2017 and September 25, 2016.
|
Quarter Ended
|
|
|
October 1,
|
|
|
September 25,
|
|
|
2017
|
|
|
2016
|
|
Cost of sales
|
40.8
|
%
|
|
39.2
|
%
|
Royalties
|
7.8
|
|
|
8.0
|
|
Product development
|
3.8
|
|
|
4.2
|
|
Advertising
|
9.4
|
|
|
9.2
|
|
Amortization of intangibles
|
0.4
|
|
|
0.5
|
|
Program production cost amortization
|
0.3
|
|
|
0.4
|
|
Selling, distribution and administration
|
17.4
|
|
|
17.0
|
|
Cost of sales increased 11%
from $659.0 million, or 39.2% of net revenues, for the quarter ended September
25, 2016 to $730.7 million, or 40.8% of net revenues for the quarter ended
October 1, 2017. Costs of sales increased in dollars primarily due to higher
sales volumes compared to the third quarter of 2016. As a percent of net revenues,
the cost of sales increase was driven by a shift in product mix in the third
quarter of 2017 compared to the third quarter of 2016.
Royalty expense for the
quarter ended October 1, 2017 was $139.2 million, or 7.8% of net revenues,
compared to $134.3 million, or 8.0% of net revenues, for the quarter ended
September 25, 2016. 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. The favorable decline in royalty
expense as a percentage of net revenues in the third quarter of 2017 was driven
by lower Partner Brand revenues partially offset by sales from products related
to the June 2017 theatrical release of
TRANSFORMERS: THE LAST KNIGHT
.
Product development expense
for the quarter ended October 1, 2017 was $67.4 million, or 3.8% of net
revenues, compared to $70.1 million, or 4.2% of net revenues, for the quarter
ended September 25, 2016. The favorable decline in product development expense
in the third quarter of 2017 was driven by lower levels of spending at Backflip,
as compared to the third quarter of 2016.
Advertising expense for the
quarter ended October 1, 2017 was $168.9 million, or 9.4% of revenues, compared
to $154.1 million, or 9.2% of net revenues, for the quarter ended September 25,
2016. The higher spend in advertising expense was consistent with the
increases in net revenues.
Amortization
of intangibles was $6.5 million, or 0.4% of net revenues for the quarter ended
October 1, 2017 compared to $8.7 million, or 0.5% of net revenues, for the
quarter ended September 25, 2016. The decrease reflects the full amortization
of property rights related to Backflip during the second quarter of 2017.
Program production cost
amortization decreased to $5.4 million or 0.3% of net revenues, for the quarter
ended October 1, 2017 from $6.3 million, or 0.4% of net revenues, for the
quarter ended September 25, 2016. Program production costs are capitalized as
incurred and amortized using the individual-film-forecast method. As a percent
of net revenues, program production cost amortization is consistent period over
period.
For the quarter ended
October 1, 2017, the Company's selling, distribution and administration
expenses increased to $312.5 million, or 17.4% of net revenues, from $285.2
million, or 17.0% of net revenues, for the quarter ended September 25, 2016. This
increase was primarily driven by the higher bad debt expense related to the
bankruptcy filing by Toys“R”Us, as well as higher marketing and sales costs
consistent with the increase in net revenues and higher depreciation costs
within administration costs.
First Nine Months of 2017
The
Company's costs and expenses, stated as percentages of net revenues, are
illustrated below for the nine-month periods ended October 1, 2017 and September
25, 2016.
|
Nine Months Ended
|
|
|
October 1,
|
|
|
September 25,
|
|
|
2017
|
|
|
2016
|
|
Cost of sales
|
38.9
|
%
|
|
37.5
|
%
|
Royalties
|
7.8
|
|
|
8.1
|
|
Product development
|
5.3
|
|
|
5.6
|
|
Advertising
|
9.5
|
|
|
9.5
|
|
Amortization of intangibles
|
0.6
|
|
|
0.8
|
|
Program production cost amortization
|
0.4
|
|
|
0.5
|
|
Selling, distribution and administration
|
22.5
|
|
|
22.3
|
|
Cost of sales for the nine
months ended October 1, 2017 increased to $1,405.0 million, or 38.9% of net
revenues, from $1,270.9 million, or 37.5% of net revenues, for the nine months
ended September 25, 2016. Costs of sales increased in dollars primarily due to
higher net revenues compared to the first nine months of 2016. As a percent of
net revenues, the cost of sales increase was driven by a shift in product mix
such as declines in higher margin products like MAGIC: THE GATHERING in the
nine months ended October 1, 2017 compared to the same period in 2016.
Royalty expense for the nine
months ended October 1, 2017 was $282.8 million, or 7.8% of net revenues,
compared to $273.7 million, or 8.1% of net revenues, for the nine months ended September
25, 2016. 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. The favorable decline in royalty expense as a
percentage of net revenues in the first nine months of 2017 was driven by declines
in net revenues from Partner Brands partially offset by sales from products
related to the June 2017 theatrical release of
TRANSFORMERS: THE LAST KNIGHT
.
Product development expense
for the nine months ended October 1, 2017 was essentially flat at $192.8
million, or 5.3% of net revenues, from $190.9 million, or 5.6% of net revenues
for the nine months ended September 25, 2016. Product development expenditures
reflect the Company’s continued investment in innovation and anticipated growth
across our brand portfolio. As a percent of net revenues, the decrease in
product development costs reflects lower expenses related to Backflip in 2017.
Advertising expense for the
nine months ended October 1, 2017 was $342.2 million, or 9.5% of net revenues,
compared to $320.9 million, or 9.5% of net revenues, for the nine months ended September
25, 2016. The higher spend in advertising expense was consistent with the
increases in net revenues.
Amortization of intangibles
was $22.3 million, or 0.6% of net revenues, for the nine months ended October
1, 2017 compared to $26.1 million, or 0.8% of net revenues, in the first nine
months of 2016. The decrease reflects the full amortization of property rights
related to Backflip during the first half of 2017.
Program production cost
amortization decreased in the first nine months of 2017 to $16.2 million, or
0.4% of net revenues, from $17.5 million, or 0.5% of net revenues, in the first
nine months of 2016. Program production costs are capitalized as incurred and
amortized using the individual-film-forecast method. The decrease during the
first nine months of 2017 primarily reflects lower television programing
revenues in 2017.
For the nine months ended
October 1, 2017, the Company's selling, distribution and administration
expenses increased to $813.3 million or 22.5% of net revenues from $757.0
million or 22.3% of net revenues for the nine months ended September 26,
2016. These higher costs reflect the incremental expense associated with the
extra week included in the first nine months of 2017, expenditures related to
ongoing information technology initiatives, as well as increases in marketing
and sales costs reflecting the higher revenues in 2017 compared to the same
period in 2016.
NON-OPERATING
(INCOME) EXPENSE
Interest expense for the
third quarter and first nine months of 2017 totaled $25.1 million and $73.8
million, respectively, compared to $24.3 million and $72.3 million for the
comparable and respective periods of 2016. In the third quarter of 2017, the Company
refinanced $350 million of 6.3% notes that matured in September 2017 by issuing
$500 million of 3.5% notes.
Interest income was $5.4
million and $16.0 million for the third quarter and first nine months of 2017,
respectively, compared to $1.9 million and $6.5 million in the third quarter
and first nine months of 2016. The increase reflects higher invested cash
balances and higher average interest rates in 2017 compared to 2016.
Other income, net of $8.6
million for the quarter ended October 1, 2017, compared to other income, net of
$6.6 million for the quarter ended September 25, 2016. Other income, net
of $26.0 million for the nine-month period ended October 1, 2017, compared to
other income, net of $5.5 million for same period in 2016. The increase in the
third quarter is primarily due to increased investment income in the third
quarter of 2017 compared to the third quarter of 2016. In the first nine
months of 2017, the increase in other income, net relates primarily to foreign
exchange gains as compared to foreign exchange losses during the same period in
2016.
INCOME
TAXES
Income
taxes totaled $84.3 million on pre-tax earnings of $349.8 million in the third
quarter of 2017 compared to income taxes of $90.2 million on pre-tax earnings
of $346.3 million in the third quarter of 2016. For the nine-month period,
income taxes totaled $105.7 million on pre-tax earnings of $507.6 million in
2017 compared to income taxes of $120.0 million on pre-tax earnings of $472.6
million in 2016. Both nine-month periods, as well as the full year 2016, were
impacted by discrete tax events including the accrual of potential interest and
penalties on uncertain tax positions. During the first nine months of 2017,
favorable discrete tax adjustments were a net benefit of $15.6 million compared
to a net benefit of $3.3 million in the first nine months of 2016. The
favorable discrete tax adjustments for the first nine months of 2017 primarily
relate to excess tax benefits on share-based payments (resulting from the
adoption of ASU No. 2016-09, as discussed in Note 1 to the consolidated
financial statements in Part I, Item 1). Absent discrete items, the adjusted
tax rates for the first nine months of 2017 and 2016 were 23.9% and 26.1%,
respectively. The adjusted rate of 23.9% for the nine months ended October 1,
2017 is comparable to the full year 2016 adjusted rate of 24.5%.
OTHER
INFORMATION
Business Seasonality
and Shipments
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 around the holiday season. 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 sells products, 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 the 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.
Accounting Pronouncement Updates
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 an entity expects to be entitled in exchange for those goods or services.
ASU 2014-09 also requires enhanced qualitative and quantitative revenue related
disclosures. ASU 2014-09 may be adopted on a full retrospective basis and
applied to all prior periods presented, or on a modified retrospective basis
through a cumulative adjustment recorded to opening retained earnings in the
year of initial application. This ASU is effective for fiscal years beginning
after December 15, 2017, and for interim periods within those fiscal years.
The Company’s revenue is primarily generated from the sale of finished product
to customers. Revenue is recognized at the point of time when ownership,
risks, and rewards transfer. These transactions are generally not impacted by
the new standard. The Company does however offer certain types of variable
payments to these customers such as pricing allowances, rebates, coupons and
collaborative marketing arrangements. These types of payments are defined as
variable consideration under ASU 2014-09. The Company has substantially
completed evaluating the quantitative impact related to ASU 2014-09. Based on
the analysis performed to date, the Company does not expect revenue recognition
from the sale of finished product to our customers, which is the majority of
our revenues, to change. We expect that within our Entertainment and Licensing
business, the timing of revenue recognition for minimum guarantees that we
receive from licensees will change under ASU 2014-09, but we do not expect the
impact to be material. No other areas of our business will be materially
impacted by the new standard. The Company is currently in the process of
evaluating the impact of ASU 2014-09 on internal controls and disclosures. The
Company expects to adopt ASU 2014-09 on January 1, 2018 using the modified
retrospective basis.
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 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
consolidated financial statements. The Company has a significant number of
leases globally, primarily for property and office equipment, and is in the
process of identifying and evaluating these leases in relation to the
requirements of ASU 2016-02. For each of these leases, the term will be
evaluated, including extension and renewal options as well as the lease payments
associated with the leases. The Company does not expect that its results of
operations will be materially impacted by this standard. The Company expects
to record assets and liabilities on its consolidated balance sheets upon
adoption of this standard, which may be material. The adoption of this
standard will not have an impact on the Company’s cash flows.
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 prospectively 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; and (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 was
effective for public companies for annual reporting periods beginning after
December 15, 2016, and interim periods within that reporting period. The
Company adopted ASU 2016-09 in the first quarter of 2017. The impact of the
adoption resulted in the following:
·
The Company
recorded excess tax benefits related to share-based payment awards of $5.0
million and $20.5 million as part of income tax expense for the quarter and
nine months ended October 1, 2017, respectively.
·
In accordance
with the standard, for the nine months ended October 1, 2017, the Company
classified excess tax benefits related to share-based employee awards of $20.5
million as part of operating activities in the consolidated statements of cash
flows. These amounts were previously recorded as cash inflows from financing
activities. To keep the statements of cash flows comparable, the Company
elected to apply this portion of the standard retrospectively and restate its statement
of cash flows for the third quarter of 2016 as allowed by the standard. Excess
tax benefits of $19.7 million for the nine-month period ended September 25,
2016, previously shown as financing activities were reclassified with other
income tax cash flows as operating activities.
·
In accordance
with the standard, the Company now classifies cash outflows for employee taxes
paid related to shares withheld from share-based payment awards as financing
activities in the consolidated statements of cash flows. For the nine months
ended October 1, 2017, these payments amount to $32.0 million. Prior to
adoption of ASU 2016-09, these cash flows were included as operating
activities. This change is required to be applied on a retrospective basis and
as a result, the Company has restated the consolidated statement of cash flows
for the nine-month period ended September 25, 2016 by reclassifying payments of
$21.9 million to financing activities from operating activities.
·
The Company
elected to change its policy on accounting for forfeitures, from estimating the
number of stock-based awards expected to vest, to accounting for forfeitures as
they occur. This election resulted in a one-time share based payment expense,
net of tax, of $0.7 million which was recorded directly to retained earnings
during the first quarter of 2017. Based upon the Company’s history of
forfeitures, it is not expected that this election will have a material impact
on its consolidated financial statements going forward however, as any impact will
be based on future forfeitures, the actual impact could differ from the
Company’s expectation.
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 was effective for public companies for fiscal
years beginning after December 15, 2016 and interim periods within fiscal years
beginning after December 15, 2017. The adoption of this standard did not have a
material impact on the Company’s results or consolidated 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
consolidated financial statements.
In October 2016, the FASB issued Accounting
Standards Update No. 2016-16 (ASU 2016-16),
Accounting for Income Taxes:
Intra-Entity Transfers of Assets Other Than Inventory
. For public
companies, this standard is effective for annual reporting periods beginning
after December 15, 2017, and early adoption is permitted. The standard requires
that the income tax impact of intra-entity sales and transfers of property,
except for inventory, be recognized when the transfer occurs requiring any
deferred taxes not yet recognized on intra-entity transfers to be recorded to
retained earnings. The Company has evaluated the standard, and does not expect
that it will not have a material impact on our consolidated financial
statements.
Recently Issued Accounting Pronouncements
In January 2017, the FASB issued Accounting Standards Update No.
2017- 04 (ASU 2017-04),
Intangibles -Goodwill and Other (Topic 350):
Simplifying the Test for Goodwill Impairment
. The standard eliminates the
requirement to measure the implied fair value of goodwill by assigning the fair
value of a reporting unit to all assets and liabilities within that unit (“the
Step 2 test”) from the goodwill impairment test. Instead, if the carrying
amount of a reporting unit exceeds its fair value, an impairment loss is
recognized in an amount equal to that excess, limited by the amount of goodwill
in that reporting unit. For public companies, this standard is effective and
must be applied to annual or any interim goodwill impairment tests beginning
after December 15, 2019. Early adoption is permitted. The Company is currently
evaluating the standard, but expects that it will not have a material impact on
our consolidated financial statements.
In March 2017, the FASB
issued Accounting Standards Update No. 2017-07 (ASU 2017-07),
Improving the
Presentation of Net Periodic Pension Cost and Net Periodic Postretirement
Benefit Cost.
The
standard requires companies to present the service cost component of net
benefit cost in the income statement line items where they report compensation
cost. Companies will present all other components of net benefit cost outside
operating income, if this subtotal is presented. For public companies, this
standard is effective for annual reporting periods beginning after December 15,
2017, and early adoption is permitted. The Company is currently evaluating the
standard, but expects that it will not have a material impact on our
consolidated financial statements.
In August 2017, the FASB issued
Accounting Standards Update No. 2017-12 (ASU 2017-12),
Derivatives and Hedging
(Topic 815): Targeted Improvements to Accounting for Hedging Activities.
The amendments expand and refine hedge accounting for both nonfinancial and
financial risk components and align the recognition and presentation of the effects
of the hedging instrument and the underlying hedged item in the financial
statements. The impact of the standard includes elimination of the requirement
to separately measure and recognize hedge ineffectiveness and requires the
presentation of fair value adjustments to hedging instruments to be included in
the same income statement line as the hedged item. For public companies, this
standard is effective for annual reporting periods beginning after December 15,
2018, and early adoption is permitted.
The Company is currently evaluating the standard and its impact on
our consolidated financial statements.
LIQUIDITY AND CAPITAL
RESOURCES
The Company has historically
generated a significant amount of cash from operations. In the first nine
months of 2017 and 2016 the Company funded its operations and liquidity needs
primarily through cash flows from operations, and, when needed, used borrowings
under its available lines of credit and commercial paper program.
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 2017 and 2018. 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.
In September 2017, the
Company issued $500.0 million in principal amount of Notes Due 2027 that bear
interest at a rate of 3.50%. Net proceeds of the Notes offering, after
deduction of the underwriting discount and debt issuance expenses, totaled
approximately $493.9 million. The Company may redeem the Notes at its option at
the greater of the principal amount of the Notes or the present value of the
remaining scheduled payments using the effective interest rate on applicable
U.S. Treasury bills plus 25 basis points. In addition, on or after June 15,
2027, the Company may redeem at its option, any portion of the Notes at a
redemption price equal to 100% of the principal amount of the notes to be
redeemed. The proceeds from the issuance of the Notes were used, primarily, to
repay $350 million aggregate principal amount of the 6.30% Notes Due 2017 upon
maturity, including accrued and unpaid interest. The remaining net proceeds
were utilized for general corporate and working capital purposes.
As of October 1, 2017, the
Company's cash and cash equivalents totaled $1,244.8 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 deemed to be 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 indefinitely 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
October 1, 2017 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 October 1, 2017, cash and
cash equivalents, net of short-term borrowings, increased to $1,055.8 million
from $651.7 million at September 25, 2016. Net cash provided by operating
activities in the first nine months of 2017 was $201.8 million compared to
$195.4 million in the first nine months of 2016. For the fiscal year ended
December 25, 2016, net cash provided by operating activities was $817.3
million. Net cash provided by operating activities in the first nine months of
2017 and 2016 include pension contributions of $26.6 million and $64.8 million,
respectively.
Accounts receivable
increased 14% to $1,655.8 million at October 1, 2017, compared to $1,452.9
million at September 25, 2016. The increase reflects the 7% increase in
revenues in the third quarter of 2017 as compared to the third quarter 2016 and
the mix of revenues including growth in markets with longer collection terms.
Days sales outstanding increased from 78 days at September 25, 2016 to 83 days
at October 1, 2017, also reflecting the timing of revenues in the quarter as
well as growth in revenues with longer terms in 2017 compared to 2016.
Inventories
increased 4% to $629.1 million at October 1, 2017 from $607.7 million at
September 25, 2016. Absent foreign exchange, inventories are essentially flat
with the prior year.
Prepaid expenses and other
current assets decreased 9% to $232.6 million at October 1, 2017 from $256.0
million at September 25, 2016. The decrease was primarily related to lower
unrealized gains on foreign exchange contracts and lower royalties partially
offset by higher prepaid non-income related taxes, primarily value-added taxes.
Goodwill and other
intangible assets, net, decreased to $796.5 million at October 1, 2017 from
$859.3 million at September 25, 2016. The decrease was due to a non-cash
goodwill impairment charge of $32.9 million related to Backflip taken in the
fourth quarter of 2016 in addition to amortization of intangible assets over
the last twelve months.
Other assets increased
approximately 3% to $722.1 million at October 1, 2017 from $701.6 million at
September 25, 2016. The increase was primarily related to the increased
deferred tax asset balances, higher capitalized movie and television production
costs, net of related production rebates, as well as higher accounts receivable
related to long-term multi-year programming distribution agreements. These
increases were partially offset by payments received in relation to a long-term
note receivable related to the sale of the Company’s manufacturing operations
in August 2015, lower long-term royalty advances and decreases in the value of
long-term foreign exchange contracts.
Accounts payable and accrued
liabilities increased 19% to $1,295.7 million at October 1, 2017 from $1,087.4
million at September 25, 2016. The increase was primarily due to higher
accounts payable balances in the Company’s Global Operations business
reflecting longer payment terms, higher accrued income tax and other tax
balances and increases to dividend accruals due to a higher dividend rate.
These increases were partially offset by lower royalty balances in 2017 as well
as lower accrued advertising at October 1, 2017.
Other liabilities increased
13% to $410.4 million at October 1, 2017 from $364.4 million at September 25,
2016. The increase in 2017 compared to 2016 reflects increases in uncertain tax
position reserves and higher balances related to deferred rent expenses.
Net cash utilized by
investing activities was $97.0 million in the nine months of 2017 compared to
$90.5 million in the first nine months of 2016. Additions to property, plant
and equipment were $102.5 million in the first nine months of 2017 compared to
$103.6 million in the first nine months of 2016. Net investing activity for
2016 included a $19.8 million return of capital from the Discovery Family
Channel joint venture. The joint venture has since achieved sufficient earnings
for the distributions to be treated as dividends and as a result, the 2017
distributions totaling $20.2 million were included in other operating
activities. Cash utilized by investing activity for the nine months ended
September 25, 2016 includes a cash payment of $12.4 million related to the
purchase price, net of cash acquired, for Boulder Studios, which was acquired
in July 2016.
Net
cash utilized by financing activities was $161.3 million in the first nine
months of 2017 compared to $259.0 million in the first nine months of 2016.
Financing activities in 2017 include proceeds of $493.9 million from the
issuance of $500.0 million in long-term notes in September 2017, net of $6.1
million of debt issuance costs, offset by the repayment of $350.0 million of
long-term notes due September 2017. Cash payments related to purchases of the
Company's common stock were $112.2 million in the first nine months of 2017
compared to $104.3 million in the first nine months of 2016. At October 1,
2017, the Company had $216.5 million remaining available under its current
share repurchase authorization approved by the Board of Directors. Dividends
paid in the first nine months of 2017 totaled $206.0 million compared to $185.3
million in the first nine months of 2016 reflecting the higher dividend rate
commencing with the May 2017 dividend. Net proceeds from short-term borrowings
were $15.7 million in the first nine months of 2017 compared to net proceeds of
$14.2 million in the first nine months of 2016. Financing activities in the
first nine months of 2017 and 2016 include payments of $32.0 million and $21.9
million, respectively, relating to tax payments made to tax authorities for
which shares were withheld from employees’ share-based payment awards.
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 $700.0 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 October 1, 2017 the Company had borrowings of
approximately $175.1 million outstanding related to the Program.
The Company has a revolving
credit agreement (the "Agreement"), which provides it with a $1,000.0
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. Prior to September 2017, the
Agreement provided for a $700.0 million revolving credit facility. During the
third quarter of 2017 and pursuant to the Agreement, the Company proposed and
the Lenders agreed to increase the committed borrowing facility from $700.0
million to $1,000.0 million. The Company was in compliance with all covenants
as of and for the quarter ended October 1, 2017. The Company had no borrowings
outstanding under its committed revolving credit facility at October 1, 2017.
However, the Company had letters of credit outstanding under this facility as
of October 1, 2017 of approximately $1.1 million. Amounts available and unused
under the committed line, less outstanding balances under the commercial paper
program, as of October 1, 2017 were approximately $823.7 million. The Company
also has other uncommitted lines from various banks, of which approximately
$57.8 million was utilized at October 1, 2017, including $48.4 million of
outstanding letters of credit and $9.4 million of outstanding borrowings.
The Company has principal
amounts of long-term debt at October 1, 2017 of $1,709.9 million, due at
varying times from 2021 through 2044. Of this long-term debt, $500.0 million
represents the 3.50% Notes Due 2027 that were issued in September 2017. The
Company also had letters of credit of approximately $49.5 million and purchase
commitments of approximately $434.7 million outstanding at October 1, 2017.
Future payments on long-term
debt and future interest payments on long-term debt included as part of the
Company’s contractual obligations and commercial commitments in its 2016 Form
10-K, were impacted by the issuance of $500.0 million of 3.50% notes due 2027,
in the third quarter, and the related interest obligations, as detailed below.
|
|
|
|
|
|
|
Payments due by Fiscal Year
|
|
|
|
|
|
|
|
|
2017
|
|
|
2018
|
|
|
2019
|
|
|
2020
|
|
|
2021
|
|
|
Thereafter
|
|
|
Total
|
|
Long-term debt
|
$
|
350.0
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
300.0
|
|
|
1,409.9
|
|
|
2,059.9
|
|
Interest payments on long-term debt
|
|
85.8
|
|
|
81.3
|
|
|
81.3
|
|
|
81.3
|
|
|
76.5
|
|
|
1,087.4
|
|
|
1,493.6
|
|
The
remainder of the contractual obligation and commercial commitments 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 2016 Form 10-K, does not
include certain tax liabilities recorded related to uncertain tax positions.
These liabilities were $115.4 million at October 1, 2017, 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 its
obligations over the next twelve months.
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 2016 Form 10-K.
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, Brazilian real, Russian ruble and Mexican peso and, to a lesser extent,
other currencies in, 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 2017 through 2022 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 October 1, 2017, these contracts had
net unrealized losses of $10.6 million, of which $3.5 million of unrealized
gains are recorded in prepaid expenses and other current assets, $8.5 million
of unrealized gains are recorded in other assets, $15.6 million of unrealized
losses are recorded in accrued liabilities and $7.0 million of unrealized
losses are recorded in other liabilities. Included in accumulated other
comprehensive loss at October 1, 2017 are deferred losses, net of tax, of $17.5
million, related to these derivatives.
At October 1, 2017, the
Company had fixed rate long-term debt of $1,709.9 million. Of this long-term
debt, $600 million represents the aggregate issuance of long-term debt in May
2014 which consists of $300 million of 3.15% Notes Due 2021 and $300 million of
5.10% Notes Due 2044. Prior to the May 2014 debt issuance, the Company
entered into forward-starting interest rate swap agreements with a total
notional value of $500 million to hedge 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 at the date of issuance 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 October 1, 2017 are deferred losses, net of tax, of $17.3
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.
|
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 October 1, 2017. 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 October 1, 2017 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 goals and objectives, 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 25, 2016 (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 grow its franchise and key partner brands,
which constitute a substantial majority of the Company’s total revenues;
· 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 keep them fresh and relevant and 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 technology;
· 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;
· successful
brand and/or product introductions from competitors that capture market share
and sales from the Company;
· 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, challenging economic conditions or economic
uncertainty affecting one or more of the Company's significant markets
including, without limitation, the United Kingdom and Brazil, which can
negatively impact the financial health of the Company's customers and
consumers, and which can result in lower employment levels, lower consumer
disposable income and lower consumer spending, including lower spending on
purchases of the Company's products;
· 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, lack of consumer acceptance or other difficulties associated
with the development and offering of our or our partners' entertainment and
media initiatives related to products offered by the Company;
· 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
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 and e-commerce customers, including
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 programming and entertainment created by Hasbro
Studios and/or Allspark Pictures, 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 impact
of the bankruptcy filing by Toys “R” Us in the United States and Canada,
including lost sales and bad debt expense;
· the ability
of Toys “R” Us to successfully re-emerge from bankruptcy;
· 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 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;
· 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;
· changes in
foreign exchange rates and other potential regulations, increased costs and/or
economic uncertainty associated with the United Kingdom (“UK”) vote to leave
the European Union (“EU”), commonly referred to as Brexit, may harm our sales
and the profitability of our business in the UK and the EU; 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.
|
Unregistered Sales of Equity Securities and Use of
Proceeds.
|
Repurchases Made
in the Quarter (in whole dollars and number of shares)
|
|
|
|
|
|
|
|
|
|
(d)
|
|
|
|
|
|
|
|
|
|
|
Maximum
|
|
|
|
|
|
|
|
|
|
|
Number (or
|
|
|
|
|
|
|
|
(c) Total
|
|
Approximate
|
|
|
|
|
|
|
|
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 2017
|
|
|
|
|
|
|
|
|
|
|
|
7/3/17 – 7/30/17
|
|
85,200
|
|
$
|
105.75
|
|
|
85,200
|
|
$
|
300,349,525
|
August 2017
|
|
|
|
|
|
|
|
|
|
|
|
7/31/17 – 9/3/17
|
|
499,600
|
|
$
|
98.76
|
|
|
499,600
|
|
$
|
251,008,986
|
September 2017
|
|
|
|
|
|
|
|
|
|
|
|
9/4/17 – 10/1/17
|
|
362,500
|
|
$
|
95.29
|
|
|
362,500
|
|
$
|
216,466,165
|
Total
|
|
947,300
|
|
$
|
98.06
|
|
|
947,300
|
|
$
|
216,466,165
|
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.)
4.7 Fifth Supplemental Indenture, dated September
13, 2017, 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 13, 2017, file No. 1-6682.)
10.1 Increase
Supplement added as of August 24, 2017, by and among Hasbro, Inc., Hasbro SA,
Bank of America, N.A., and the lenders party thereto. (Incorporated by
reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on
August 28, 2017, 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 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 8, 2017
|
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
|
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 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.)
|
4.7
|
Fifth Supplemental Indenture, dated September 13, 2017,
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 13, 2017, file No. 1-6682.)
|
10.1
|
Increase Supplement added as of August 24, 2017, by
and among Hasbro, Inc., Hasbro SA, Bank of America, N.A., and the lenders
party thereto. (Incorporated by reference to Exhibit 10.1 to the Company’s
Current Report on Form 8-K filed on August 28, 2017, 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 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.
|
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