UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
_________________
FORM 10-Q
______________
(Mark One)
R[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 28, 2015
¨[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-6682
_______________
HASBRO, INC.
(Exact name of registrant as specified in its charter)
Rhode Island | 05-0155090 |
(State of Incorporation) | (I.R.S. Employer Identification No.) |
1027 Newport Avenue, Pawtucket, Rhode Island 02861 |
(Address of Principal Executive Offices, Including Zip Code) |
(401) 431-8697 |
(Registrant's Telephone Number, Including Area Code) |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes R [x] No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes R [x] No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer | Accelerated filer |
Non-accelerated filer (Do not check if a smaller reporting company) | Smaller reporting Company |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐[ ] No R
The number of shares of Common Stock, par value $.50 per share, outstanding as of July 20, 2015April 18, 2016 was 124,902,730.124,702,080.
PART I. FINANCIAL INFORMATION | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
HASBRO, INC. AND SUBSIDIARIES Consolidated Balance Sheets (Thousands of Dollars Except Share Data) (Unaudited) March 27, March 29, December 27, 2016 2015 2015 ASSETS Current assets Cash and cash equivalents $ 1,095,880 1,081,397 976,750 Accounts receivable, less allowance for doubtful accounts of $31,100, $16,400 and $14,900 670,663 563,301 1,217,850 Inventories 461,734 340,654 384,492 Prepaid expenses and other current assets 295,806 346,726 286,506 Total current assets 2,524,083 2,332,078 2,865,598 Property, plant and equipment, less accumulated depreciation of $365,600, $510,700 and $363,600 241,253 243,589 237,527 Other assets Goodwill 592,793 592,724 592,695 Other intangibles, net, accumulated amortization of $850,000, $810,500 and $841,300 272,116 311,576 280,807 Other 734,450 767,149 744,090 Total other assets 1,599,359 1,671,449 1,617,592 Total assets $ 4,364,695 4,247,116 4,720,717 LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND Current liabilities Short-term borrowings $ 89,000 231,914 164,563 Accounts payable 176,665 142,946 241,210 Accrued liabilities 502,708 442,209 658,874 Total current liabilities 768,373 817,069 1,064,647 Long-term debt 1,547,434 1,546,169 1,547,115 Other liabilities 402,346 396,137 404,883 Total liabilities 2,718,153 2,759,375 3,016,645 Redeemable noncontrolling interests 39,152 42,234 40,170 Shareholders' equity Preference stock of
$2.50 par value. Authorized 5,000,000 shares; none issued - - - Common stock of $.50 par value. Authorized 600,000,000 shares; issued 209,694,630 at March 27, 2016, March 29, 2015, and December 27, 2015 104,847 104,847 104,847 Additional paid-in capital 906,211 825,489 893,630 Retained earnings 3,837,372 3,599,571 3,852,321 Accumulated other comprehensive loss (164,353) (86,996) (146,001) Treasury stock, at cost; 84,829,514 shares at March 27, 2016; 85,120,544 shares at March 29, 2015; and 84,899,200 shares at December 27, 2015 (3,076,687) (2,997,404) (3,040,895) Total shareholders' equity 1,607,390 1,445,507 1,663,902 Total liabilities, redeemable noncontrolling interests and shareholders' equity $ 4,364,695 4,247,116 4,720,717 See accompanying condensed notes to consolidated financial statements. |
HASBRO, INC. AND SUBSIDIARIES | |||||||||
Consolidated Statements of Operations | |||||||||
(Thousands of Dollars Except Per Share Data) | |||||||||
(Unaudited) | |||||||||
|
|
|
|
|
|
|
|
| |
|
|
|
| Quarter Ended | |||||
|
|
|
| March 27, |
| March 29, | |||
|
|
|
| 2016 |
| 2015 | |||
Net revenues |
| $ | 831,180 |
|
| 713,500 | |||
Costs and expenses: |
|
|
|
|
|
| |||
| Cost of sales |
|
| 290,240 |
|
| 247,735 | ||
| Royalties |
|
| 69,969 |
|
| 59,089 | ||
| Product development |
|
| 57,164 |
|
| 51,897 | ||
| Advertising |
|
| 79,859 |
|
| 67,742 | ||
| Amortization of intangibles |
|
| 8,691 |
|
| 12,951 | ||
| Program production cost amortization |
|
| 6,186 |
|
| 11,096 | ||
| Selling, distribution and administration |
|
| 233,155 |
|
| 208,785 | ||
|
| Total costs and expenses |
|
| 745,264 |
|
| 659,295 | |
Operating profit |
|
| 85,916 |
|
| 54,205 | |||
Non-operating (income) expense: |
|
|
|
|
|
| |||
| Interest expense |
|
| 24,044 |
|
| 24,585 | ||
| Interest income |
|
| (2,213) |
|
| (930) | ||
| Other (income) expense, net |
|
| 4,872 |
|
| (3,765) | ||
|
| Total non-operating expense, net |
|
| 26,703 |
|
| 19,890 | |
Earnings before income taxes |
|
| 59,213 |
|
| 34,315 | |||
Income tax expense |
|
| 12,242 |
|
| 8,494 | |||
Net earnings |
|
| 46,971 |
|
| 25,821 | |||
Net loss attributable to noncontrolling interests |
|
| (1,780) |
|
| (846) | |||
Net earnings attributable to Hasbro, Inc. |
| $ | 48,751 |
|
| 26,667 | |||
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
| |
Net earnings attributable to Hasbro, Inc. per common share: |
|
|
|
|
| ||||
| Basic |
| $ | 0.39 |
|
| 0.21 | ||
| Diluted |
| $ | 0.38 |
|
| 0.21 | ||
Cash dividends declared per common share |
| $ | 0.51 |
|
| 0.46 | |||
|
|
|
|
|
|
|
|
| |
See accompanying condensed notes to consolidated financial statements. |
HASBRO, INC. AND SUBSIDIARIES | |||||||||
Consolidated Statements of Comprehensive Earnings | |||||||||
(Thousands of Dollars) | |||||||||
(Unaudited) | |||||||||
|
|
|
|
|
|
|
|
| |
|
|
|
| Quarter Ended | |||||
|
|
|
| March 27, |
| March 29, | |||
|
|
|
| 2016 |
| 2015 | |||
Net earnings |
| $ | 46,971 |
|
| 25,821 | |||
Other comprehensive earnings (loss): |
|
|
|
|
|
| |||
| Foreign currency translation adjustments |
|
| 12,140 |
|
| (47,311) | ||
| Net (losses) gains on cash flow hedging activities, net of tax |
|
| (15,786) |
|
| 62,300 | ||
| Unrealized holding gains on available-for-sale securities, |
|
|
|
|
|
| ||
|
| net of tax |
|
| 1,680 |
|
| 226 | |
| Reclassifications to earnings, net of tax: |
|
|
|
|
|
| ||
|
| Net gains on cash flow hedging activities |
|
| (17,561) |
|
| (7,961) | |
|
| Unrecognized pension and postretirement amounts |
|
| 1,175 |
|
| 1,204 | |
Total other comprehensive earnings (loss), net of tax |
|
| (18,352) |
|
| 8,458 | |||
Comprehensive earnings |
|
| 28,619 |
|
| 34,279 | |||
Comprehensive loss attributable to noncontrolling interests |
|
| (1,780) |
|
| (846) | |||
Comprehensive earnings attributable to Hasbro, Inc. |
| $ | 30,399 |
|
| 35,125 | |||
|
|
|
|
|
|
|
|
| |
See accompanying condensed notes to consolidated financial statements. |
HASBRO, INC. AND SUBSIDIARIES | ||||||||||
Consolidated Statements of Cash Flows | ||||||||||
(Thousands of Dollars) | ||||||||||
(Unaudited) | ||||||||||
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
| Three Months Ended | |||||
|
|
|
|
| March 27, |
| March 29, | |||
|
|
|
|
| 2016 |
| 2015 | |||
Cash flows from operating activities: |
|
|
|
|
|
| ||||
| Net earnings |
| $ | 46,971 |
|
| 25,821 | |||
| Adjustments to reconcile net earnings to net cash provided by operating activities: |
|
|
|
|
|
| |||
|
| Depreciation of plant and equipment |
|
| 25,126 |
|
| 21,404 | ||
|
| Amortization of intangibles |
|
| 8,691 |
|
| 12,951 | ||
|
| Program production cost amortization |
|
| 6,186 |
|
| 11,096 | ||
|
| Deferred income taxes |
|
| 9,466 |
|
| (3,406) | ||
|
| Stock-based compensation |
|
| 11,973 |
|
| 9,624 | ||
Change in operating assets and liabilities: |
|
|
|
|
|
| ||||
|
| Decrease in accounts receivable |
|
| 547,154 |
|
| 478,330 | ||
|
| Increase in inventories |
|
| (73,238) |
|
| (20,309) | ||
|
| Increase in prepaid expenses and other current assets |
|
| (32,032) |
|
| (6,319) | ||
|
| Program production costs |
|
| (11,619) |
|
| (9,252) | ||
|
| Decrease in accounts payable and accrued liabilities |
|
| (238,127) |
|
| (206,030) | ||
|
| Other |
|
| (6,928) |
|
| 1,371 | ||
|
|
| Net cash provided by operating activities |
|
| 293,623 |
|
| 315,281 | |
Cash flows from investing activities: |
|
|
|
|
|
| ||||
|
| Additions to property, plant and equipment |
|
| (31,218) |
|
| (31,151) | ||
|
| Other |
|
| 3,626 |
|
| (1,960) | ||
|
|
| Net cash utilized by investing activities |
|
| (27,592) |
|
| (33,111) | |
Cash flows from financing activities: |
|
|
|
|
|
| ||||
|
| Net repayments of other short-term borrowings |
|
| (75,526) |
|
| (20,325) | ||
|
| Purchases of common stock |
|
| (33,710) |
|
| (26,507) | ||
|
| Stock option transactions |
|
| 8,153 |
|
| 14,023 | ||
|
| Excess tax benefits from stock-based compensation |
|
| 6,056 |
|
| 3,440 | ||
|
| Dividends paid |
|
| (57,406) |
|
| (53,470) | ||
|
| Other |
| �� | 762 |
|
| 350 | ||
|
|
| Net cash utilized by financing activities |
|
| (151,671) |
|
| (82,489) | |
Effect of exchange rate changes on cash |
|
| 4,770 |
|
| (11,451) | ||||
Increase in cash and cash equivalents |
|
| 119,130 |
|
| 188,230 | ||||
Cash and cash equivalents at beginning of year |
|
| 976,750 |
|
| 893,167 | ||||
Cash and cash equivalents at end of period |
| $ | 1,095,880 |
|
| 1,081,397 | ||||
|
|
|
|
|
|
|
|
|
| |
Supplemental information |
|
|
|
|
|
| ||||
| Cash paid during the period for: |
|
|
|
|
|
| |||
|
| Interest |
| $ | 31,066 |
|
| 30,940 | ||
|
| Income taxes |
| $ | 34,332 |
|
| 28,292 | ||
|
|
|
|
|
|
|
|
|
| |
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)
In the opinion of management, the accompanying unaudited interim financial statements contain all normal and recurring adjustments necessary to present fairly the financial position of Hasbro, Inc. and all majority-owned subsidiaries ("Hasbro" or the "Company") as of March 27, 2016 and March 29, 2015, and the results of its operations and cash flows for the periods then ended in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP"). The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and notes thereto. Actual results could differ from those estimates.
The quarters ended March 27, 2016 and March 29, 2015 are each 13-week periods.
The results of operations for the quarter are not necessarily indicative of results to be expected for the full year, nor were those of the comparable 2015 period representative of those actually experienced for the full year 2015.
These condensed consolidated financial statements have been prepared without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and disclosures normally included in the consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. The Company filed audited consolidated financial statements for the fiscal year ended December 27, 2015 in its Annual Report on Form 10-K, which includes all such information and disclosures and, accordingly, should be read in conjunction with the financial information included herein.
The Company's accounting policies are the same as those described in Note 1 to the Company's consolidated financial statements in its Annual Report on Form 10-K for the fiscal year ended December 27, 2015.
Net earnings per share data for the quarters ended March 27, 2016 and March 29, 2015 were computed as follows:
| 2016 |
| 2015 | ||||||||
Quarter | Basic |
| Diluted |
| Basic |
| Diluted | ||||
Net earnings attributable to Hasbro, Inc. | $ | 48,751 |
|
| 48,751 |
|
| 26,667 |
|
| 26,667 |
|
|
|
|
|
|
|
|
|
|
|
|
Average shares outstanding |
| 125,266 |
|
| 125,266 |
|
| 124,853 |
|
| 124,853 |
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
Options and other share-based awards |
| - |
|
| 1,682 |
|
| - |
|
| 1,489 |
Equivalent Shares |
| 125,266 |
|
| 126,948 |
|
| 124,853 |
|
| 126,342 |
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings attributable to Hasbro, Inc. per common share | $ | 0.39 |
|
| 0.38 |
|
| 0.21 |
|
| 0.21 |
For the quarters ended March 27, 2016 and March 29, 2015, options and restricted stock units totaling 492 and 782, 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 quarters ended March 27, 2016 and March 29, 2015.
|
| Quarter Ended | ||||
|
| March 27, |
| March 29, | ||
|
| 2016 |
| 2015 | ||
|
|
|
|
|
|
|
Other comprehensive earnings (loss), tax effect: |
|
|
|
|
| |
Tax benefit (expense) on cash flow hedging activities | $ | 3,256 |
|
| (4,815) | |
Tax expense on unrealized holding gains |
| (953) |
|
| (128) | |
Reclassifications to earnings, tax effect: |
|
|
|
|
| |
| Tax expense (benefit) on cash flow hedging activities |
| 1,749 |
|
| 342 |
| Tax benefit on unrecognized pension and postretirement |
|
|
|
|
|
| amounts reclassified to the consolidated statements of operations |
| (667) |
|
| (684) |
Total tax effect on other comprehensive earnings (loss) | $ | 3,385 |
|
| (5,285) |
Changes in the components of accumulated other comprehensive loss for the three months ended March 27, 2016 and March 29, 2015 are as follows:
|
|
|
|
|
|
| Unrealized |
|
|
|
|
|
| |
|
|
|
|
|
|
| Holding |
|
|
|
| Total | ||
|
|
|
| Gains |
| Gains on |
| Foreign |
| Accumulated | ||||
| Pension and |
| (Losses) on |
| Available- |
| Currency |
| Other | |||||
| Postretirement |
| Derivative |
| for-Sale |
| Translation |
| Comprehensive | |||||
| Amounts |
| Instruments |
| Securities |
| Adjustments |
| Earnings (Loss) | |||||
2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 27, 2015 | $ | (102,931) |
|
| 79,317 |
|
| 1,258 |
|
| (123,645) |
|
| (146,001) |
Current period other comprehensive earnings (loss) |
| 1,175 |
|
| (33,347) |
|
| 1,680 |
|
| 12,140 |
|
| (18,352) |
Balance at March 27, 2016 | $ | (101,756) |
|
| 45,970 |
|
| 2,938 |
|
| (111,505) |
|
| (164,353) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 27, 2014 | $ | (113,092) |
|
| 43,689 |
|
| 1,900 |
|
| (27,951) |
|
| (95,454) |
Current period other comprehensive earnings (loss) |
| 1,204 |
|
| 54,339 |
|
| 226 |
|
| (47,311) |
|
| 8,458 |
Balance at March 29, 2015 | $ | (111,888) |
|
| 98,028 |
|
| 2,126 |
|
| (75,262) |
|
| (86,996) |
At March 27, 2016, the Company had remaining net deferred gains on foreign currency forward contracts, net of tax, of $65,046 in accumulated other comprehensive loss ("AOCE"). These instruments hedge payments related to inventory purchased in the first quarter of 2016 or forecasted to be purchased during the remainder of 2016 and, to a lesser extent, 2017 through 2020, intercompany expenses expected to be paid or received during 2016 and 2017, cash receipts for sales made at the end of the first quarter of 2016 or forecasted to be made in the remainder of 2016 and, to a lesser extent, 2017 through 2018. These amounts will be reclassified into the consolidated statements of operations upon the sale of the related inventory or recognition of the related sales or expenses.
In addition to foreign currency forward contracts, the Company entered into hedging contracts on future interest payments related to the long-term notes due 2021 and 2044. At the date of debt issuance, 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 March 27, 2016, deferred losses, net of tax of $19,076 related to these instruments remained in AOCE. For the quarters ended March 27, 2016 and March 29, 2015, losses of $450 were reclassified from AOCE to net earnings.
Of the amount included in AOCE at March 27, 2016, the Company expects approximately $44,500 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.
The Company's financial instruments include cash and cash equivalents, accounts receivable, short-term borrowings, accounts payable and certain accrued liabilities. At March 27, 2016, March 29, 2015 and December 27, 2015, the carrying cost of these instruments approximated their fair value. The Company's financial instruments at March 27, 2016, March 29, 2015 and December 27, 2015 also include certain assets and liabilities measured at fair value (see Notes 6 and 8) as well as long-term borrowings. The carrying costs which are equal to the outstanding principal amounts, and fair values of the Company's long-term borrowings as of March 27, 2016, March 29, 2015 and December 27, 2015 are as follows:
| March 27, 2016 |
| March 29, 2015 |
| December 27, 2015 | ||||||||||||
| Carrying |
| Fair |
| Carrying |
| Fair |
| Carrying |
| Fair | ||||||
| Cost |
| Value |
| Cost |
| Value |
| Cost |
| Value | ||||||
6.35% Notes Due 2040 | $ | 500,000 |
|
| 560,900 |
|
| 500,000 |
|
| 597,900 |
|
| 500,000 |
|
| 556,300 |
6.30% Notes Due 2017 |
| 350,000 |
|
| 370,965 |
|
| 350,000 |
|
| 389,305 |
|
| 350,000 |
|
| 374,045 |
5.10% Notes Due 2044 |
| 300,000 |
|
| 287,610 |
|
| 300,000 |
|
| 316,260 |
|
| 300,000 |
|
| 286,710 |
3.15% Notes Due 2021 |
| 300,000 |
|
| 302,880 |
|
| 300,000 |
|
| 308,970 |
|
| 300,000 |
|
| 300,060 |
6.60% Debentures Due 2028 |
| 109,895 |
|
| 122,456 |
|
| 109,895 |
|
| 131,039 |
|
| 109,895 |
|
| 121,269 |
Total long-term debt | $ | 1,559,895 |
|
| 1,644,811 |
|
| 1,559,895 |
|
| 1,743,474 |
|
| 1,559,895 |
|
| 1,638,384 |
Less: Deferred debt expenses |
| 12,461 |
|
| - |
|
| 13,726 |
|
| - |
|
| 12,780 |
|
| - |
Long-term debt | $ | 1,547,434 |
|
| 1,644,811 |
|
| 1,546,169 |
|
| 1,743,474 |
|
| 1,547,115 |
|
| 1,638,384 |
The fair values of the Company's long-term debt are considered Level 3 fair values (see Note 6 for further discussion of the fair value hierarchy) and are measured using the discounted future cash flows method. In addition to the debt terms, the valuation methodology includes an assumption of a discount rate that approximates the current yield on a similar debt security. This assumption is considered an unobservable input in that it reflects the Company's own assumptions about the inputs that market participants would use in pricing the asset or liability. The Company believes that this is the best information available for use in the fair value measurement.
In April 2015, the FASB issued ASU No. 2015-03, Interest – Imputation of Interest (ASC 835-30), which simplifies the presentation of debt issuance costs. ASU 2015-03 requires debt issuance costs related to long-term debt to be presented in the balance sheet as a reduction to the carrying amount of the related debt liability, consistent with the presentation of discounts. The Company adopted ASU 2015-03 at December 27, 2015 and deferred debt costs are presented as a reduction of long-term debt. Debt issuance costs of $13,726 have been reclassified from other assets in the consolidated balance sheet for March 29, 2015 to reflect this change in accounting principle.
The Company and its subsidiaries file income tax returns in the United States and various state and international jurisdictions. In the normal course of business, the Company is regularly audited by U.S. federal, state and local and international tax authorities in various tax jurisdictions.
The Company is no longer subject to U.S. federal income tax examinations for years before 2013. With few exceptions, the Company is no longer subject to U.S., state or local and non-U.S. income tax examinations by tax authorities in its major jurisdictions for years before 2009. The Company is currently under income tax examination in several U.S., state and local and non-U.S. jurisdictions.
In November 2015, the FASB issued ASU 2015-17, Income Taxes, which simplifies the presentation of deferred income taxes by removing the requirement to bifurcate deferred income tax assets and liabilities between current and non-current. The Company adopted ASU 2015-17 as of December 27, 2015 and deferred income tax assets and liabilities are presented as non-current in the consolidated balance sheets. This adoption was applied retrospectively and $73,230 has been reclassified from prepaid expenses and other current assets to other assets and $3,658 has been reclassified from accrued liabilities to other liabilities in the consolidated balance sheet as of March 29, 2015.
(6) Fair Value of Financial Instruments
The Company measures certain financial instruments at fair value. The fair value hierarchy consists of three levels: Level 1 fair values are based on quoted market prices in active markets for identical assets or liabilities that the entity has the ability to access; Level 2 fair values are those based on quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable data for substantially the full term of the assets or liabilities; and Level 3 fair values are based on inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
Accounting standards permit entities to measure many financial instruments and certain other items at fair value and establish presentation and disclosure requirements designed to facilitate comparisons between entities that choose different measurement attributes for similar assets and liabilities. The Company has elected the fair value option for certain available-for-sale investments. At March 27, 2016, March 29, 2015 and December 27, 2015, these investments totaled $22,665, $23,141 and $22,539, respectively, and are included in prepaid expenses and other current assets in the consolidated balance sheets. The Company recorded net gains and interest income of $83 and $17 on these investments in other (income) expense, net for the quarters ended March 27, 2016 and March 29, 2015, respectively, related to the change in fair value of such instruments.
At March 27, 2016, March 29, 2015 and December 27, 2015, the Company had the following assets and liabilities measured at fair value (excluding assets for which the fair value is measured using net assets value per share) in its consolidated balance sheets:
| Fair Value Measurements Using: | ||||||||||
|
|
|
| Quoted |
|
|
|
|
|
| |
|
|
|
| Prices in |
|
|
|
|
|
| |
|
|
|
| Active |
|
|
|
|
|
| |
|
|
|
| Markets |
| Significant |
|
|
| ||
|
|
|
| for |
| Other |
| Significant | |||
|
|
|
| Identical |
| Observable |
| Unobservable | |||
| Fair |
| Assets |
| Inputs |
| Inputs | ||||
| Value |
| (Level 1) |
| (Level 2) |
| (Level 3) | ||||
March 27, 2016 |
|
|
|
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities | $ | 6,109 |
|
| 6,109 |
|
| - |
|
| - |
Derivatives |
| 69,720 |
|
| - |
|
| 69,720 |
|
| - |
Total assets | $ | 75,829 |
|
| 6,109 |
|
| 69,720 |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
Derivatives | $ | 3,932 |
|
| - |
|
| 3,932 |
|
| - |
Option agreement |
| 27,920 |
|
| - |
|
| - |
|
| 27,920 |
Total liabilities | $ | 31,852 |
|
| - |
|
| 3,932 |
|
| 27,920 |
|
|
|
|
|
|
|
|
|
|
|
|
March 29, 2015 |
|
|
|
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities | $ | 4,836 |
|
| 4,836 |
|
| - |
|
| - |
Derivatives |
| 130,550 |
|
| - |
|
| 130,550 |
|
| - |
Total assets | $ | 135,386 |
|
| 4,836 |
|
| 130,550 |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
Derivatives | $ | 3,513 |
|
| - |
|
| 3,513 |
|
| - |
Option agreement |
| 24,920 |
|
| - |
|
| - |
|
| 24,920 |
Total liabilities | $ | 28,433 |
|
| - |
|
| 3,513 |
|
| 24,920 |
|
|
|
|
|
|
|
|
|
|
|
|
December 27, 2015 |
|
|
|
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities | $ | 3,476 |
|
| 3,476 |
|
| - |
|
| - |
Derivatives |
| 107,634 |
|
| - |
|
| 107,634 |
|
| - |
Total assets | $ | 111,110 |
|
| 3,476 |
|
| 107,634 |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
Derivatives | $ | 1,240 |
|
| - |
|
| 1,240 |
|
| - |
Option agreement |
| 28,360 |
|
| - |
|
| - |
|
| 28,360 |
Total Liabilities | $ | 29,600 |
|
| - |
|
| 1,240 |
|
| 28,360 |
Available-for-sale securities include equity securities of one company quoted on an active public market.
The Company's derivatives consist primarily of foreign currency forward contracts. The Company used current forward rates of the respective foreign currencies to measure the fair value of these contracts. The option agreement included in other liabilities at March 27, 2016, March 29, 2015 and December 27, 2015, is valued using an option pricing model based on the fair value of the related investment. Inputs used in the option pricing model include the volatility and fair value of the underlying company which are considered unobservable inputs as they reflect the Company's own assumptions about the inputs that market participants would use in pricing the asset or liability. The Company believes that this is the best information available for use in the fair value measurement. There were no changes in these valuation techniques during the three-month period ended March 27, 2016.
The following is a reconciliation of the beginning and ending balances of the fair value measurements of the Company's financial instruments which use significant unobservable inputs (Level 3):
| 2016 |
| 2015 | ||
Balance at beginning of year | $ | (28,360) |
|
| (25,340) |
Gain from change in fair value |
| 440 |
|
| 420 |
Balance at end of first quarter | $ | (27,920) |
|
| (24,920) |
In addition to the above, the Company has three investments for which the fair value is measured using net asset value per share. At March 27, 2016, March 29, 2015 and December 27, 2015, these investments had fair values of $22,665, $23,141 and $22,539, respectively. Two of the investments have net asset values that are predominantly based on underlying investments which are traded on an active market and are redeemable within 45 days. The third investment invests in hedge funds which are generally redeemable on a quarterly basis with 30 – 90 days notice.
(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 quarters ended March 27, 2016 and March 29, 2015 are as follows:
| Quarter Ended | ||||||||||
| Pension |
| Postretirement | ||||||||
| March 27, |
| March 29, |
| March 27, |
| March 29, | ||||
| 2016 |
| 2015 |
| 2016 |
| 2015 | ||||
Service cost | $ | 998 |
|
| 1,011 |
|
| 132 |
|
| 150 |
Interest cost |
| 4,606 |
|
| 4,605 |
|
| 294 |
|
| 285 |
Expected return on assets |
| (5,507) |
|
| (5,479) |
|
| - |
|
| - |
Net amortization and deferrals |
| 2,132 |
|
| 2,201 |
|
| - |
|
| (114) |
Net periodic benefit cost | $ | 2,229 |
|
| 2,338 |
|
| 426 |
|
| 321 |
During the three months ended March 27, 2016, the Company made cash contributions to its defined benefit pension plans of approximately $370 in the aggregate. The Company expects to contribute approximately $3,130 during the remainder of fiscal 2016.
(8) Derivative Financial Instruments
Hasbro uses foreign currency forward contracts to mitigate the impact of currency rate fluctuations on firmly committed and projected future foreign currency transactions. These over-the-counter contracts, which hedge future currency requirements related to purchases of inventory, product sales and other cross-border transactions not denominated in the functional currency of the business unit, are primarily denominated in United States and Hong Kong dollars, and Euros. All contracts are entered into with a number of counterparties, all of which are major financial institutions. The Company believes that a default by a single counterparty would not have a material adverse effect on the financial condition of the Company. Hasbro does not enter into derivative financial instruments for speculative purposes.
The Company uses foreign currency forward contracts to reduce the impact of currency rate fluctuations on firmly committed and projected future foreign currency transactions. All of the Company's designated foreign currency forward contracts are considered to be cash flow hedges. These instruments hedge a portion of the Company's currency requirements associated with anticipated inventory purchases, product sales and other cross-border transactions in 2016 through 2020.
At March 27, 2016, March 29, 2015 and December 27, 2015, the notional amounts and fair values of the Company's foreign currency forward contracts designated as cash flow hedging instruments were as follows:
| March 27, 2016 |
| March 29, 2015 |
| December 27, 2015 | ||||||||||||
| Notional |
| Fair |
| Notional |
| Fair |
| Notional |
| Fair | ||||||
Hedged transaction | Amount |
| Value |
| Amount |
| Value |
| Amount |
| Value | ||||||
Inventory purchases | $ | 1,277,977 |
|
| 69,748 |
|
| 912,376 |
|
| 135,512 |
|
| 1,380,488 |
|
| 108,521 |
Sales |
| 82,072 |
|
| 258 |
|
| 232,643 |
|
| (6,769) |
|
| 97,350 |
|
| 803 |
Royalties and Other |
| 270,207 |
|
| (4,077) |
|
| 84,518 |
|
| (2,766) |
|
| 54,360 |
|
| (1,886) |
Total | $ | 1,630,256 |
|
| 65,929 |
|
| 1,229,537 |
|
| 125,977 |
|
| 1,532,198 |
|
| 107,438 |
The Company has a master agreement with each of its counterparties that allows for the netting of outstanding forward contracts. The fair values of the Company's foreign currency forward contracts designated as cash flow hedges are recorded in the consolidated balance sheets at March 27, 2016, March 29, 2015 and December 27, 2015 as follows:
| March 27, |
| March 29, |
| December 27, | |||
| 2016 |
| 2015 |
| 2015 | |||
Prepaid expenses and other current assets |
|
|
|
|
|
|
|
|
Unrealized gains | $ | 53,774 |
|
| 74,219 |
|
| 78,910 |
Unrealized losses |
| (6,890) |
|
| (10,253) |
|
| (5,932) |
Net unrealized gain | $ | 46,884 |
|
| 63,966 |
|
| 72,978 |
|
|
|
|
|
|
|
|
|
Other assets |
|
|
|
|
|
|
|
|
Unrealized gains | $ | 26,454 |
|
| 66,438 |
|
| 35,366 |
Unrealized losses |
| (3,618) |
|
| (914) |
|
| (710) |
Net unrealized gains | $ | 22,836 |
|
| 65,524 |
|
| 34,656 |
|
|
|
|
|
|
|
|
|
Accrued liabilities |
|
|
|
|
|
|
|
|
Unrealized gains | $ | 1,900 |
|
| 3,149 |
|
| - |
Unrealized losses |
| (3,086) |
|
| (6,662) |
|
| - |
Net unrealized loss | $ | (1,186) |
|
| (3,513) |
|
| - |
|
|
|
|
|
|
|
|
|
Other liabilities |
|
|
|
|
|
|
|
|
Unrealized gains | $ | 1,349 |
|
| - |
|
| 241 |
Unrealized losses |
| (3,954) |
|
| - |
|
| (437) |
Net unrealized loss | $ | (2,605) |
|
| - |
|
| (196) |
Net gains (losses) on cash flow hedging activities have been reclassified from other comprehensive earnings (loss) to net earnings for the quarters ended March 27, 2016 and March 29, 2015 as follows:
| Quarter Ended | ||||
| March 27, |
| March 29, | ||
| 2016 |
| 2015 | ||
Statements of Operations Classification |
|
|
|
|
|
Cost of sales | $ | 15,698 |
|
| 10,063 |
Sales |
| 98 |
|
| (1,354) |
Royalties and Other |
| 7 |
|
| 43 |
Net realized gains | $ | 15,803 |
|
| 8,752 |
In addition, gains of $3,957 were reclassified to earnings as a result of hedge ineffectiveness for the quarter ended March 27, 2016. There were no reclassifications as a result of hedge ineffectiveness during the first quarter of 2015.
The Company also enters into foreign currency forward contracts to minimize the impact of changes in the fair value of intercompany loans due to foreign currency fluctuations. Due to the nature of the derivative contracts involved, the Company does not use hedge accounting for these contracts. At March 27, 2016, March 29, 2015 and December 27, 2015 the total notional amounts of the Company's undesignated derivative instruments were $88,862, $119,395 and $341,389, respectively.
At March 27, 2016, March 29, 2015 and December 27, 2015, the fair values of the Company's undesignated derivative financial instruments were recorded in the consolidated balance sheets as follows:
| March 27, |
| March 29, |
| December 27, | |||
| 2016 |
| 2015 |
| 2015 | |||
Prepaid expenses and other current assets |
|
|
|
|
|
|
|
|
Unrealized gains | $ | - |
|
| 1,088 |
|
| - |
Unrealized losses |
| - |
|
| (28) |
|
| - |
Net unrealized gain |
| - |
|
| 1,060 |
|
| - |
|
|
|
|
|
|
|
|
|
Accrued liabilities |
|
|
|
|
|
|
|
|
Unrealized gains |
| 321 |
|
| - |
|
| 416 |
Unrealized losses |
| (462) |
|
| - |
|
| (1,460) |
Net unrealized loss |
| (141) |
|
| - |
|
| (1,044) |
|
|
|
|
|
|
|
|
|
Total unrealized gain (loss), net | $ | (141) |
|
| 1,060 |
|
| (1,044) |
The Company recorded net gains of $3,255 and $10,071 on these instruments to other (income) expense, net for the quarters ended March 27, 2016 and March 29, 2015, respectively, relating to the change in fair value of such derivatives, substantially offsetting gains and losses from the change in fair value of intercompany loans to which the contracts relate.
For additional information related to the Company's derivative financial instruments see Notes 4 and 6.
Hasbro is a worldwide leader in children's and family leisure time products and services 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 product licensing, digital gaming, movie and television entertainment operations. The Global Operations segment is responsible for sourcing finished products for the Company's U.S. and Canada and International segments.
Segment performance is measured at the operating profit level. Included in Corporate and Eliminations are certain corporate expenses, including the elimination of intersegment transactions and certain assets benefiting more than one segment. Intersegment sales and transfers are reflected in management reports at amounts approximating cost. Certain shared costs, including global development and marketing expenses and corporate administration, are allocated to segments based upon expenses and foreign exchange rates fixed at the beginning of the year, with adjustments to actual expenses and foreign exchange rates included in Corporate and Eliminations. The accounting policies of the segments are the same as those referenced in note 1.
Results shown for the quarter are not necessarily representative of those which may be expected for the full year 2016, nor were those of the comparable 2015 period representative of those actually experienced for the full year 2015. Similarly, such results are not necessarily those which would be achieved were each segment an unaffiliated business enterprise.
Information by segment and a reconciliation to reported amounts for the quarters ended March 27, 2016 and March 29, 2015 are as follows:
| Quarter Ended | ||||||||||
| March 27, 2016 |
| March 29, 2015 | ||||||||
Net revenues | External |
| Affiliate |
| External |
| Affiliate | ||||
U.S. and Canada | $ | 443,648 |
|
| 1,444 |
|
| 345,690 |
|
| 1,050 |
International |
| 345,037 |
|
| - |
|
| 305,713 |
|
| 96 |
Entertainment and Licensing |
| 42,495 |
|
| 4,701 |
|
| 60,631 |
|
| 3,409 |
Global Operations (a) |
| - |
|
| 297,189 |
|
| 1,466 |
|
| 236,843 |
Corporate and Eliminations |
| - |
|
| (303,334) |
|
| - |
|
| (241,398) |
| $ | 831,180 |
|
| - |
|
| 713,500 |
|
| - |
| Quarter Ended | ||||
| March 27, |
| March 29, | ||
Operating profit (loss) | 2016 |
| 2015 | ||
U.S. and Canada | $ | 78,335 |
|
| 41,423 |
International |
| 2,853 |
|
| 1,903 |
Entertainment and Licensing |
| 5,442 |
|
| 16,402 |
Global Operations (a) |
| 3,444 |
|
| (3,782) |
Corporate and Eliminations (b) |
| (4,158) |
|
| (1,741) |
| $ | 85,916 |
|
| 54,205 |
| March 27, |
| March 29, |
| December 27, | |||
Total assets | 2016 |
| 2015 |
| 2015 | |||
U.S. and Canada | $ | 2,751,504 |
|
| 3,430,196 |
|
| 2,654,270 |
International |
| 1,983,747 |
|
| 2,088,096 |
|
| 2,345,847 |
Entertainment and Licensing |
| 614,003 |
|
| 800,337 |
|
| 567,753 |
Global Operations |
| 2,423,811 |
|
| 2,330,734 |
|
| 2,410,142 |
Corporate and Eliminations (b) |
| (3,408,370) |
|
| (4,402,247) |
|
| (3,257,295) |
| $ | 4,364,695 |
|
| 4,247,116 |
|
| 4,720,717 |
(a) The Global Operations segment derives substantially all of its revenues, and thus its operating results, from intersegment activities.
(b) Certain long-term assets, including property, plant and equipment, goodwill and other intangibles, which benefit multiple operating segments, are included in Corporate and Eliminations. Allocations of certain expenses related to these assets to the individual operating segments are done at the beginning of the year based on budgeted amounts. Any differences between actual and budgeted amounts are reflected in Corporate and Eliminations because allocations are translated from the US Dollar to local currency at budget rates when recorded, and Corporate and Eliminations also includes the elimination of inter-company balance sheet amounts.
The following table represents consolidated International segment net revenues by major geographic region for the quarters ended March 27, 2016 and March 29, 2015.
| Quarter Ended | ||||
| March 27, |
| March 29, | ||
| 2016 |
| 2015 | ||
Europe | $ | 224,123 |
|
| 195,871 |
Latin America |
| 55,596 |
|
| 57,608 |
Asia Pacific |
| 65,318 |
|
| 52,234 |
Net revenues | $ | 345,037 |
|
| 305,713 |
The following table presents consolidated net revenues by class of principal products for the quarters ended March 27, 2016 and March 29, 2015.
| Quarter Ended | ||||
| March 27, |
| March 29, | ||
| 2016 |
| 2015 | ||
Boys | $ | 336,855 |
|
| 272,598 |
Games |
| 231,142 |
|
| 235,649 |
Girls |
| 165,353 |
|
| 117,127 |
Preschool |
| 97,830 |
|
| 88,126 |
Net revenues | $ | 831,180 |
|
| 713,500 |
Quarter Ended | Six Months Ended | |||||||||||||||
June 28, 2015 | June 29, 2014 | June 28, 2015 | June 29, 2014 | |||||||||||||
Net revenues | $ | 797,658 | 829,262 | 1,511,158 | 1,508,715 | |||||||||||
Costs and expenses: | ||||||||||||||||
Cost of sales | 295,399 | 320,336 | 543,134 | 578,881 | ||||||||||||
Royalties | 57,069 | 70,533 | 116,158 | 120,114 | ||||||||||||
Product development | 57,609 | 51,707 | 109,506 | 98,964 | ||||||||||||
Advertising | 78,365 | 81,693 | 146,107 | 148,952 | ||||||||||||
Amortization of intangibles | 13,348 | 11,892 | 26,299 | 25,294 | ||||||||||||
Program production cost amortization | 7,220 | 6,710 | 18,316 | 11,368 | ||||||||||||
Selling, distribution and administration | 213,148 | 203,827 | 421,933 | 399,130 | ||||||||||||
Total costs and expenses | 722,158 | 746,698 | 1,381,453 | 1,382,703 | ||||||||||||
Operating profit | 75,500 | 82,564 | 129,705 | 126,012 | ||||||||||||
Non-operating (income) expense: | ||||||||||||||||
Interest expense | 24,186 | 22,802 | 48,771 | 45,230 | ||||||||||||
Interest income | (690 | ) | (1,165 | ) | (1,620 | ) | (2,491 | ) | ||||||||
Other income, net | (1,642 | ) | (3,590 | ) | (5,407 | ) | (7,239 | ) | ||||||||
Total non-operating expense, net | 21,854 | 18,047 | 41,744 | 35,500 | ||||||||||||
Earnings before income taxes | 53,646 | 64,517 | 87,961 | 90,512 | ||||||||||||
Income tax expense | 13,364 | 31,697 | 21,858 | 26,178 | ||||||||||||
Net earnings | 40,282 | 32,820 | 66,103 | 64,334 | ||||||||||||
Net loss attributable to noncontrolling interests | (1,527 | ) | (655 | ) | (2,373 | ) | (1,228 | ) | ||||||||
Net earnings attributable to Hasbro, Inc. | $ | 41,809 | 33,475 | 68,476 | 65,562 | |||||||||||
Net earnings attributable to Hasbro, Inc. per common share: | ||||||||||||||||
Basic | $ | 0.33 | 0.26 | 0.55 | 0.50 | |||||||||||
Diluted | $ | 0.33 | 0.26 | 0.54 | 0.50 | |||||||||||
Cash dividends declared per common share | $ | 0.46 | 0.43 | 0.92 | 0.86 |
Quarter Ended | Six Months Ended | |||||||||||||||
June 28, 2015 | June 29, 2014 | June 28, 2015 | June 29, 2014 | |||||||||||||
Net earnings | $ | 40,282 | 32,820 | 66,103 | 64,334 | |||||||||||
Other comprehensive earnings (loss): | ||||||||||||||||
Foreign currency translation adjustments | 642 | 6,336 | (46,669 | ) | 4,042 | |||||||||||
Net (losses) gains on cash flow hedging activities, net of tax | (9,672 | ) | (11,689 | ) | 52,628 | (27,840 | ) | |||||||||
Unrealized holding gains on available-for-sale securities, net of tax | 715 | 1,282 | 941 | 3,525 | ||||||||||||
Reclassifications to earnings, net of tax: | ||||||||||||||||
Net (gains) losses on cash flow hedging activities | (9,458 | ) | 286 | (17,419 | ) | 1,524 | ||||||||||
Unrecognized pension and postretirement amounts | 1,293 | 566 | 2,497 | 1,100 | ||||||||||||
Total other comprehensive loss, net of tax | (16,480 | ) | (3,219 | ) | (8,022 | ) | (17,649 | ) | ||||||||
Comprehensive earnings | 23,802 | 29,601 | 58,081 | 46,685 | ||||||||||||
Comprehensive loss attributable to noncontrolling interests | (1,527 | ) | (655 | ) | (2,373 | ) | (1,228 | ) | ||||||||
Comprehensive earnings attributable to Hasbro, Inc. | $ | 25,329 | 30,256 | 60,454 | 47,913 |
Six Months Ended | ||||||||
June 28, 2015 | June 29, 2014 | |||||||
Cash flows from operating activities: | ||||||||
Net earnings | $ | 66,103 | 64,334 | |||||
Adjustments to reconcile net earnings to net cash provided by operating activities: | ||||||||
Depreciation of plant and equipment | 50,749 | 50,078 | ||||||
Amortization of intangibles | 26,299 | 25,294 | ||||||
Program production cost amortization | 18,316 | 11,368 | ||||||
Deferred income taxes | (5,234 | ) | (2,613 | ) | ||||
Stock-based compensation | 21,714 | 17,850 | ||||||
Change in operating assets and liabilities: | ||||||||
Decrease in accounts receivable | 333,467 | 342,413 | ||||||
Increase in inventories | (100,563 | ) | (143,102 | ) | ||||
Decrease (increase) in prepaid expenses and other current assets | 435 | (1,019 | ) | |||||
Program production costs | (21,557 | ) | (15,818 | ) | ||||
Decrease in accounts payable and accrued liabilities | (162,483 | ) | (217,617 | ) | ||||
Other | 8,858 | (21,898 | ) | |||||
Net cash provided by operating activities | 236,104 | 109,270 | ||||||
Cash flows from investing activities: | ||||||||
Additions to property, plant and equipment | (67,709 | ) | (51,636 | ) | ||||
Investments and acquisitions, net of cash acquired | (3,000 | ) | - | |||||
Other | 11,706 | (1,028 | ) | |||||
Net cash utilized by investing activities | (59,003 | ) | (52,664 | ) | ||||
Cash flows from financing activities: | ||||||||
Net proceeds from borrowings with maturity greater than three months | - | 559,986 | ||||||
Repayments of borrowings with maturity greater than three months | - | (425,000 | ) | |||||
Net (repayments of) proceeds from other short-term borrowings | (84,420 | ) | 1,430 | |||||
Purchases of common stock | (49,156 | ) | (213,935 | ) | ||||
Stock option transactions | 34,297 | 26,776 | ||||||
Excess tax benefits from stock-based compensation | 7,947 | 4,693 | ||||||
Dividends paid | (110,902 | ) | (108,097 | ) | ||||
Other | (81 | ) | - | |||||
Net cash utilized by financing activities | (202,315 | ) | (154,147 | ) | ||||
Effect of exchange rate changes on cash | (9,495 | ) | 1,243 | |||||
Decrease in cash and cash equivalents | (34,709 | ) | (96,298 | ) | ||||
Cash and cash equivalents at beginning of year | 893,167 | 682,449 | ||||||
Cash and cash equivalents at end of period | $ | 858,458 | 586,151 | |||||
Supplemental information | ||||||||
Cash paid during the period for: | ||||||||
Interest | $ | 43,977 | 51,023 | |||||
Income taxes | $ | 36,727 | 41,905 |
2015 | 2014 | |||||||||||||||
Quarter | Basic | Diluted | Basic | Diluted | ||||||||||||
Net earnings attributable to Hasbro, Inc. | $ | 41,809 | 41,809 | 33,475 | 33,475 | |||||||||||
Average shares outstanding | 125,093 | 125,093 | 129,381 | 129,381 | ||||||||||||
Effect of dilutive securities: | ||||||||||||||||
Options and other share-based awards | - | 1,713 | - | 1,549 | ||||||||||||
Equivalent Shares | 125,093 | 126,806 | 129,381 | 130,930 | ||||||||||||
Net earnings attributable to Hasbro, Inc. per common share | $ | 0.33 | 0.33 | 0.26 | 0.26 |
2015 | 2014 | |||||||||||||||
Six Months | Basic | Diluted | Basic | Diluted | ||||||||||||
Net earnings attributable to Hasbro, Inc. | $ | 68,476 | 68,476 | 65,562 | 65,562 | |||||||||||
Average shares outstanding | 124,973 | 124,973 | 130,306 | 130,306 | ||||||||||||
Effect of dilutive securities: | ||||||||||||||||
Options and other share-based awards | - | 1,601 | - | 1,525 | ||||||||||||
Equivalent Shares | 124,973 | 126,574 | 130,306 | 131,831 | ||||||||||||
Net earnings attributable to Hasbro, Inc. per common share | $ | 0.55 | 0.54 | 0.50 | 0.50 |
Quarter Ended | Six Months Ended | |||||||||||||||
June 28, 2015 | June 29, 2014 | June 28, 2015 | June 29, 2014 | |||||||||||||
Other comprehensive earnings (loss), tax effect: | ||||||||||||||||
Tax benefit (expense) on cash flow hedging activities | $ | 853 | 5,437 | (3,962 | ) | 14,911 | ||||||||||
Tax expense on unrealized holding gains | (408 | ) | (727 | ) | (536 | ) | (1,999 | ) | ||||||||
Reclassifications to earnings, tax effect: | ||||||||||||||||
Tax expense (benefit) on cash flow hedging activities | 708 | (119 | ) | 1,050 | (342 | ) | ||||||||||
Tax benefit on unrecognized pension and postretirement amounts reclassified to the consolidated statements of operations | (596 | ) | (321 | ) | (1,280 | ) | (624 | ) | ||||||||
Total tax effect on other comprehensive earnings (loss) | $ | 557 | 4,270 | (4,728 | ) | 11,946 |
Pension and Postretirement Amounts | Gains (Losses) on Derivative Instruments | Unrealized Holding Gains on Available-for-Sale Securities | Foreign Currency Translation Adjustments | Total Accumulated Other Comprehensive Loss | ||||||||||||||||
2015 | ||||||||||||||||||||
Balance at Dec. 28, 2014 | $ | (113,092 | ) | 43,689 | 1,900 | (27,951 | ) | (95,454 | ) | |||||||||||
Current period other comprehensive earnings (loss) | 2,497 | 35,209 | 941 | (46,669 | ) | (8,022 | ) | |||||||||||||
Balance at June 28, 2015 | $ | (110,595 | ) | 78,898 | 2,841 | (74,620 | ) | (103,476 | ) | |||||||||||
2014 | ||||||||||||||||||||
Balance at Dec. 29, 2013 | $ | (64,841 | ) | (7,313 | ) | - | 38,019 | (34,135 | ) | |||||||||||
Current period other comprehensive earnings (loss) | 1,100 | (26,316 | ) | 3,525 | 4,042 | (17,649 | ) | |||||||||||||
Balance at June 29, 2014 | $ | (63,741 | ) | (33,629 | ) | 3,525 | 42,061 | (51,784 | ) |
June 28, 2015 | June 29, 2014 | December 28, 2014 | ||||||||||||||||||||||
Carrying Cost | Fair Value | Carrying Cost | Fair Value | Carrying Cost | Fair Value | |||||||||||||||||||
6.35% Notes Due 2040 | $ | 500,000 | 557,450 | 500,000 | 587,350 | 500,000 | 617,700 | |||||||||||||||||
6.30% Notes Due 2017 | 350,000 | 382,235 | 350,000 | 396,725 | 350,000 | 387,660 | ||||||||||||||||||
5.10% Notes Due 2044 | 300,000 | 287,010 | 300,000 | 307,950 | 300,000 | 316,980 | ||||||||||||||||||
3.15% Notes Due 2021 | 300,000 | 301,800 | 300,000 | 300,330 | 300,000 | 302,700 | ||||||||||||||||||
6.60% Debentures Due 2028 | 109,895 | 121,115 | 109,895 | 124,687 | 109,895 | 128,698 | ||||||||||||||||||
Total long-term debt | $ | 1,559,895 | 1,649,610 | 1,559,895 | 1,717,042 | 1,559,895 | 1,753,738 |
Fair Value Measurements Using: | ||||||||||||||||
Fair Value | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||||
June 28, 2015 | ||||||||||||||||
Assets: | ||||||||||||||||
Available-for-sale securities | $ | 38,725 | 5,959 | 21,777 | 10,989 | |||||||||||
Derivatives | 105,906 | - | 105,906 | - | ||||||||||||
Total assets | $ | 144,631 | 5,959 | 127,683 | 10,989 | |||||||||||
Liabilities: | ||||||||||||||||
Derivatives | $ | 2,748 | - | 2,748 | - | |||||||||||
Option agreement | 25,190 | - | - | 25,190 | ||||||||||||
Total liabilities | $ | 27,938 | - | 2,748 | 25,190 | |||||||||||
June 29, 2014 | ||||||||||||||||
Assets: | ||||||||||||||||
Available-for-sale securities | $ | 40,712 | 7,183 | 27,912 | 5,617 | |||||||||||
Derivatives | 533 | - | 533 | - | ||||||||||||
Total assets | $ | 41,245 | 7,183 | 28,445 | 5,617 | |||||||||||
Liabilities: | ||||||||||||||||
Derivatives | $ | 16,131 | - | 16,131 | - | |||||||||||
December 28, 2014 | ||||||||||||||||
Assets: | ||||||||||||||||
Available-for-sale securities | $ | 28,042 | 4,482 | 17,773 | 5,787 | |||||||||||
Derivatives | 69,148 | - | 69,148 | - | ||||||||||||
Total assets | $ | 97,190 | 4,482 | 86,921 | 5,787 | |||||||||||
Liabilities: | ||||||||||||||||
Derivatives | $ | 2,591 | - | 2,591 | - | |||||||||||
Option agreement | 25,340 | - | - | 25,340 | ||||||||||||
Total Liabilities | $ | 27,931 | - | 2,591 | 25,340 |
2015 | 2014 | |||||||
Balance at beginning of year | $ | (19,553 | ) | 5,484 | ||||
Purchases | 5,000 | - | ||||||
Gain from change in fair value | 352 | 133 | ||||||
Balance at end of second quarter | $ | (14,201 | ) | 5,617 |
Quarter Ended | ||||||||||||||||
Pension | Postretirement | |||||||||||||||
June 28, 2015 | June 29, 2014 | June 28, 2015 | June 29, 2014 | |||||||||||||
Service cost | $ | 1,021 | 969 | 150 | 138 | |||||||||||
Interest cost | 4,619 | 5,053 | 285 | 333 | ||||||||||||
Expected return on assets | (5,497 | ) | (5,558 | ) | - | - | ||||||||||
Net amortization and deferrals | 2,207 | 1,251 | (114 | ) | (114 | ) | ||||||||||
Curtailment | 138 | - | - | - | ||||||||||||
Net periodic benefit cost | $ | 2,488 | 1,715 | 321 | 357 |
Six Months Ended | ||||||||||||||||
Pension | Postretirement | |||||||||||||||
June 28, 2015 | June 29, 2014 | June 28, 2015 | June 29, 2014 | |||||||||||||
Service cost | $ | 2,032 | 1,940 | 300 | 275 | |||||||||||
Interest cost | 9,224 | 10,111 | 570 | 665 | ||||||||||||
Expected return on assets | (10,976 | ) | (11,118 | ) | - | - | ||||||||||
Net amortization and deferrals | 4,408 | 2,503 | (228 | ) | (227 | ) | ||||||||||
Curtailment | 138 | - | - | - | ||||||||||||
Net periodic benefit cost | $ | 4,826 | 3,436 | 642 | 713 |
June 28, 2015 | June 29, 2014 | December 28, 2014 | ||||||||||||||||||||||
Hedged transaction | Notional Amount | Fair Value | Notional Amount | Fair Value | Notional Amount | Fair Value | ||||||||||||||||||
Inventory purchases | $ | 1,081,451 | 111,252 | 747,516 | (8,500 | ) | 863,232 | 69,049 | ||||||||||||||||
Sales | 239,415 | (7,659 | ) | 189,357 | (4,613 | ) | 139,946 | 829 | ||||||||||||||||
Other | 74,433 | (971 | ) | 43,042 | (1,949 | ) | 51,213 | (1,008 | ) | |||||||||||||||
Total | $ | 1,395,299 | 102,622 | 979,915 | (15,062 | ) | 1,054,391 | 68,870 |
June 28, 2015 | June 29, 2014 | December 28, 2014 | ||||||||||
Prepaid expenses and other current assets | ||||||||||||
Unrealized gains | $ | 63,740 | 422 | 46,594 | ||||||||
Unrealized losses | (12,302 | ) | (248 | ) | (11,508 | ) | ||||||
Net unrealized gain | $ | 51,438 | 174 | 35,086 | ||||||||
Other assets | ||||||||||||
Unrealized gains | $ | 54,664 | 315 | 34,234 | ||||||||
Unrealized losses | (732 | ) | (22 | ) | (172 | ) | ||||||
Net unrealized gains | $ | 53,932 | 293 | 34,062 | ||||||||
Accrued liabilities | ||||||||||||
Unrealized gains | $ | 4,349 | 2,563 | 447 | ||||||||
Unrealized losses | (7,026 | ) | (16,475 | ) | (725 | ) | ||||||
Net unrealized loss | $ | (2,677 | ) | (13,912 | ) | (278 | ) | |||||
Other liabilities | ||||||||||||
Unrealized gains | $ | - | 1,118 | - | ||||||||
Unrealized losses | (71 | ) | (2,735 | ) | - | |||||||
Net unrealized loss | $ | (71 | ) | (1,617 | ) | - | ||||||
Quarter Ended | Six Months Ended | |||||||||||||||
June 28, 2015 | June 29, 2014 | June 28, 2015 | June 29, 2014 | |||||||||||||
Statements of Operations Classification | ||||||||||||||||
Cost of sales | $ | 12,683 | 821 | 22,746 | (198 | ) | ||||||||||
Sales | (2,645 | ) | (704 | ) | (3,999 | ) | (863 | ) | ||||||||
Other | 12 | (260 | ) | 55 | (610 | ) | ||||||||||
Net realized gains (losses) | $ | 10,050 | (143 | ) | 18,802 | (1,671 | ) |
June 28, 2015 | June 29, 2014 | December 28, 2014 | ||||||||||
Prepaid expenses and other current assets | ||||||||||||
Unrealized gains | $ | 563 | - | - | ||||||||
Unrealized losses | (27 | ) | - | - | ||||||||
Net unrealized gain | 536 | - | - | |||||||||
Other assets | ||||||||||||
Unrealized gains | - | 66 | - | |||||||||
Unrealized losses | - | - | - | |||||||||
Net unrealized gain | - | 66 | - | |||||||||
Accrued liabilities | ||||||||||||
Unrealized gains | - | 663 | 1,733 | |||||||||
Unrealized losses | - | (1,265 | ) | (4,046 | ) | |||||||
Net unrealized loss | - | (602 | ) | (2,313 | ) | |||||||
Total unrealized gain (loss), net | $ | 536 | (536 | ) | (2,313 | ) |
Quarter Ended | ||||||||||||||||
June 28, 2015 | June 29, 2014 | |||||||||||||||
Net revenues | External | Affiliate | External | Affiliate | ||||||||||||
U.S. and Canada | $ | 385,183 | 1,718 | 383,001 | 1,467 | |||||||||||
International | 362,760 | (96 | ) | 396,849 | 21 | |||||||||||
Entertainment and Licensing | 47,640 | 4,025 | 47,663 | 3,496 | ||||||||||||
Global Operations (a) | 2,075 | 350,864 | 1,749 | 355,328 | ||||||||||||
Corporate and Eliminations | - | (356,511 | ) | - | (360,312 | ) | ||||||||||
$ | 797,658 | - | 829,262 | - |
Six Months Ended | ||||||||||||||||
June 28, 2015 | June 29, 2014 | |||||||||||||||
Net revenues | External | Affiliate | External | Affiliate | ||||||||||||
U.S. and Canada | $ | 730,873 | 2,768 | 720,700 | 2,677 | |||||||||||
International | 668,473 | - | 702,324 | 92 | ||||||||||||
Entertainment and Licensing | 108,271 | 7,434 | 82,537 | 6,738 | ||||||||||||
Global Operations (a) | 3,541 | 587,707 | 3,154 | 606,868 | ||||||||||||
Corporate and Eliminations | - | (597,909 | ) | - | (616,375 | ) | ||||||||||
$ | 1,511,158 | - | 1,508,715 | - |
Quarter Ended | Six Months Ended | |||||||||||||||
Operating profit (loss) | June 28, 2015 | June 29, 2014 | June 28, 2015 | June 29, 2014 | ||||||||||||
U.S. and Canada | $ | 47,147 | 46,928 | 88,570 | 82,691 | |||||||||||
International | 25,361 | 29,232 | 27,264 | 31,646 | ||||||||||||
Entertainment and Licensing | 7,443 | 14,645 | 23,845 | 20,627 | ||||||||||||
Global Operations (a) | 2,019 | 1,810 | (1,763 | ) | 66 | |||||||||||
Corporate and Eliminations (b) | (6,470 | ) | (10,051 | ) | (8,211 | ) | (9,018 | ) | ||||||||
$ | 75,500 | 82,564 | 129,705 | 126,012 |
Total assets | June 28, 2015 | June 29, 2014 | December 28, 2014 | |||||||||
U.S. and Canada | $ | 3,095,862 | 3,050,072 | 3,663,497 | ||||||||
International | 2,164,440 | 2,007,777 | 2,422,046 | |||||||||
Entertainment and Licensing | 675,082 | 741,718 | 783,878 | |||||||||
Global Operations | 2,334,761 | 2,134,524 | 2,433,888 | |||||||||
Corporate and Eliminations (b) | (4,039,038 | ) | (3,795,496 | ) | (4,771,167 | ) | ||||||
$ | 4,231,107 | 4,138,595 | 4,532,142 |
Quarter Ended | Six Months Ended | |||||||||||||||
June 28, 2015 | June 29, 2014 | June 28, 2015 | June 29, 2014 | |||||||||||||
Europe | $ | 185,660 | 216,268 | 381,531 | 423,810 | |||||||||||
Latin America | 98,368 | 97,019 | 155,976 | 150,303 | ||||||||||||
Asia Pacific | 78,732 | 83,562 | 130,966 | 128,211 | ||||||||||||
Net revenues | $ | 362,760 | 396,849 | 668,473 | 702,324 |
Quarter Ended | Six Months Ended | |||||||||||||||
June 28, 2015 | June 29, 2014 | June 28, 2015 | June 29, 2014 | |||||||||||||
Boys | $ | 340,426 | 335,798 | 613,024 | 583,573 | |||||||||||
Games | 211,629 | 225,702 | 447,278 | 446,228 | ||||||||||||
Girls | 127,489 | 163,817 | 244,616 | 302,517 | ||||||||||||
Preschool | 118,114 | 103,945 | 206,240 | 176,397 | ||||||||||||
Net revenues | $ | 797,658 | 829,262 | 1,511,158 | 1,508,715 |
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 28, 2014,27, 2015, for a discussion of factors which may cause the Company's actual results or experience to differ materially from that anticipated in these forward-looking statements. The Company undertakes no obligation to revise the forward-looking statements in this report after the date of the filing. Unless otherwise specifically indicated, all dollar or share amounts herein are expressed in thousandsmillions of dollars or shares, except for per share amounts.
EXECUTIVE SUMMARY
Hasbro, Inc. ("Hasbro" or the "Company") is a global company dedicated to Creating the World's Best Play Experiences. The Company strives to do this through deep consumer engagement and the application of consumer insights, the use of immersive storytelling to build brands, product innovation and development of global business reach. Hasbro applies these principles to leverage its beloved owned and controlled brands, including LITTLEST PET SHOP, MAGIC: THE GATHERING, MONOPOLY, MY LITTLE PONY, NERF, PLAY-DOH and TRANSFORMERS, as well as partner brands. From toys and games, to television programming, motion pictures, digital gaming and a comprehensive consumer product 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 creates entertainment brand-driven storytelling across mediums, including television, film and more.
Each of these elements is executed globally in alignment with Hasbro's strategic game plan, its brand blueprint. At the center of this blueprint, Hasbro re-imagines, re-invents and re-ignites its owned and controlled brands and imagines, invents and ignites new brands, through toy and game innovation, immersive entertainment offerings, including television programming and motion pictures, and a broad range of licensed products. Utilizing consumer engagement and insights coupled with immersive storytelling and product innovation, Hasbro generates revenue and earns cash by developing, marketing and selling products based on global brands in a broad variety of consumer goods categories including toy and game products and distribution of television programming based on the Company's properties, as well as through the out-licensing of rights for third parties to use its properties in connection with products, including digital media and games and lifestyle products. Hasbro also leverages its competencies to develop and market products based on well-known licensed brands, including, but not limited to, DISNEY DESCENDENTS,PRINCESS and FROZEN, DISNEY DESCENDANTS, JURASSIC WORLD, MARVEL, SESAME STREET and STAR WARS. MARVEL and STAR WARS are owned by The Walt Disney Company.
The Company's business is separated into three principal business segments: U.S. and Canada, International and Entertainment and Licensing. The U.S. and Canada segment markets and sells both toy and game products primarily in the United States and Canada. The International segment consists of the Company's European, Asia Pacific and Latin and South American toy and game marketing and sales operations. The Company's Entertainment and Licensing segment includes the Company's lifestyleconsumer product licensing, digital licensing and gaming, and movie and television entertainment operations. In addition to these three primary segments, the Company's global development, marketing, manufacturing and product sourcing operations are managed through its Global Operations segment.
First quarter 2016 highlights:
· First quarter net revenues grew 16% compared to the first quarter of 2015. Absent unfavorable foreign currency translation of approximately $28.6 million, net revenues in the first quarter of 2016 grew 20% compared to the first quarter of 2015.
· 2016 first quarter net revenues from the U.S. and Canada and International segments were up 28% and 13%, respectively, compared to the first quarter of 2015. Absent unfavorable foreign currency translation impact, International segment net revenues in the first quarter of 2016 increased 22% compared to the first quarter of 2015. Entertainment and Licensing segment operating profit declined 67% to $5.4 million compared to $16.4 million in 2015.
· 2016 first quarter net revenues from the Girls category increased 41%, the Boys and Preschool categories increased 24% and 11%, respectively, while Games category revenues declined 2% for the quarter. Franchise Brand revenues grew 1% and were up 4% for the quarter absent the negative impact of foreign exchange.
· Operating profit improved 59% in the first quarter of 2016 compared to the first quarter of 2015 highlights:
In line with our commitment to return excess cash to shareholders, Hasbro increased the quarterly dividend rate from $0.43$0.46 per share to $0.46$0.51 per share which wasis effective for the dividend paid inscheduled for May 201516, 2016 and going forward. During the first half of 2015,2016, Hasbro repurchased approximately 7470.5 million shares at a total cost of $46,826$35.8 million and an average price of $62.64$75.41 per share, respectively.
SUMMARY OF FINANCIAL PERFORMANCE
The components of the results of operations, stated as a percent of net revenues, are illustrated below for the quarterquarters ended March 27, 2016 and six-month periods ended June 28, 2015 and JuneMarch 29, 2014.2015.
| Quarter Ended | ||||
| March 27, |
| March 29, | ||
| 2016 |
| 2015 | ||
Net revenues |
| 100.0% |
|
| 100.0% |
Costs and expenses: |
|
|
|
|
|
Cost of sales |
| 34.9 |
|
| 34.7 |
Royalties |
| 8.4 |
|
| 8.3 |
Product development |
| 6.9 |
|
| 7.3 |
Advertising |
| 9.6 |
|
| 9.5 |
Amortization of intangibles |
| 1.0 |
|
| 1.8 |
Program production cost amortization |
| 0.7 |
|
| 1.6 |
Selling, distribution and administration |
| 28.1 |
|
| 29.3 |
Operating profit |
| 10.3 |
|
| 7.6 |
Interest expense |
| 2.9 |
|
| 3.4 |
Interest income |
| (0.3) |
|
| (0.2) |
Other (income) expense, net |
| 0.6 |
|
| (0.5) |
Earnings before income taxes |
| 7.1 |
|
| 4.8 |
Income tax expense |
| 1.5 |
|
| 1.2 |
Net earnings |
| 5.7 |
|
| 3.6 |
Net loss attributable to noncontrolling interests |
| (0.2) |
|
| (0.1) |
Net earnings attributable to Hasbro, Inc. |
| 5.9% |
|
| 3.7% |
Quarter Ended | Six Months Ended | |||||||||||||||
June 28, 2015 | June 29, 2014 | June 28, 2015 | June 29, 2014 | |||||||||||||
Net revenues | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||
Costs and expenses: | ||||||||||||||||
Cost of sales | 37.0 | 38.6 | 35.9 | 38.4 | ||||||||||||
Royalties | 7.2 | 8.5 | 7.7 | 8.0 | ||||||||||||
Product development | 7.2 | 6.2 | 7.2 | 6.6 | ||||||||||||
Advertising | 9.8 | 9.9 | 9.7 | 9.9 | ||||||||||||
Amortization of intangibles | 1.7 | 1.4 | 1.7 | 1.7 | ||||||||||||
Program production cost amortization | 0.9 | 0.8 | 1.2 | 0.8 | ||||||||||||
Selling, distribution and administration | 26.7 | 24.6 | 27.9 | 26.5 | ||||||||||||
Operating profit | 9.5 | 10.0 | 8.6 | 8.4 | ||||||||||||
Interest expense | 3.0 | 2.7 | 3.2 | 3.0 | ||||||||||||
Interest income | (0.1 | ) | (0.2 | ) | (0.1 | ) | (0.2 | ) | ||||||||
Other (income) expense, net | (0.2 | ) | (0.4 | ) | (0.4 | ) | (0.4 | ) | ||||||||
Earnings before income taxes | 6.7 | 7.8 | 5.8 | 6.0 | ||||||||||||
Income tax expense | 1.7 | 3.8 | 1.4 | 1.7 | ||||||||||||
Net earnings | 5.1 | 4.0 | 4.4 | 4.3 | ||||||||||||
Net loss attributable to noncontrolling interests | (0.2 | ) | (0.1 | ) | (0.2 | ) | (0.1 | ) | ||||||||
Net earnings attributable to Hasbro, Inc. | 5.2 | % | 4.0 | % | 4.5 | % | 4.3 | % |
RESULTS OF OPERATIONS – CONSOLIDATED
The quarters ended June 28,March 27, 2016 and March 29, 2015 and June 29, 2014 were each 13-week periods. Net earnings and net earnings attributable to Hasbro, Inc. increased to $40,282$47.0 million and $41,809,$48.8 million, respectively, for the quarter ended June 28, 2015,March 27, 2016, from $32,820$25.8 million and $33,475,$26.7 million, respectively, for the comparable period of 2014.2015. Diluted earnings per share attributable to Hasbro, Inc. increased to $0.33$0.38 in the secondfirst quarter of 20152016 from $0.26$0.21 in the secondfirst quarter of 2014. Second quarter 2014 net earnings included an unfavorable tax adjustment of $13,846, or $0.10 per diluted share.
Consolidated net revenues for the quarter ended June 28, 2015 decreasedMarch 27, 2016 increased approximately 4%16% compared to the quarter ended JuneMarch 29, 2014 and were negatively impacted2015 despite a negative impact by foreign currency translation of approximately $71,500$28.6 million as a result of the stronger U.S. dollar in 20152016 compared to 2014.2015. Absent the impact of foreign currency, consolidated net revenues grew 5%20% in the secondfirst quarter of 20152016 compared to 2014.2015. Higher net revenues from NERF and PLAY-DOH were more than offset by lower net revenues from TRANSFORMERS, which faced challenging comparisons to the second quarter of 2014 which benefited from the June 2014 theatrical release of TRANSFORMERS: AGE OF EXTINCTION, and, to a lesser extent, lower net revenues from MAGIC: THE GATHERING and MY LITTLE PONYLITTLEST PET SHOP. As a result,Overall, franchise brands decreased 10%increased 1% during the secondfirst quarter of 20152016 compared to 2014.2015. Absent an unfavorablethe impact of foreign currency translation, MY LITTLE PONY revenuesexchange, franchise brands grew during4% for the second quarterquarter. Partner Brands also increased due to continued demand for STAR WARS: THE FORCE AWAKENS products and the addition of 2015.DISNEY PRINCESS and FROZEN products.
The followfollowing table presents net revenues by product category for the quarters ended June 28, 2015March 27, 2016 and JuneMarch 29, 2014.2015.
| Quarter Ended | |||||||
| March 27, |
| March 29, |
| % | |||
| 2016 |
| 2015 |
| Change | |||
Boys | $ | 336.9 |
|
| 272.6 |
| 24 | % |
Games |
| 231.1 |
|
| 235.6 |
| -2 | % |
Girls |
| 165.4 |
|
| 117.1 |
| 41 | % |
Preschool |
| 97.8 |
|
| 88.1 |
| 11 | % |
Net revenues | $ | 831.2 |
|
| 713.5 |
| 16 | % |
Quarter Ended | ||||||||||||
June 28, 2015 | June 29, 2014 | % Change | ||||||||||
Boys | $ | 340,426 | 335,798 | 1 | % | |||||||
Games | 211,629 | 225,702 | -6 | % | ||||||||
Girls | 127,489 | 163,817 | -22 | % | ||||||||
Preschool | 118,114 | 103,945 | 14 | % | ||||||||
Net revenues | $ | 797,658 | 829,262 |
BOYS: Net revenues in the boys' category increased 1%24% in 20152016 compared to 2014. The boys' category continues to benefit from a strong entertainment line-up.2015. Higher net revenues from partner brands, specifically JURASSIC WORLD, MARVEL and STAR WARS, more thanFranchise Brand NERF were partially offset by lower net revenues from TRANSFORMERS, which in the TRANSFORMERS brand, which benefitedfirst quarter of 2015 continued to experience benefits from the June 2014 theatrical release. The MARVEL and JURASSIC WORLD brands were each supported by a second quarterrelease TRANSFORMERS: AGE OF EXTINCTION. Higher net revenues from Partner Brand STAR WARS, which benefited from the December 2015 theatrical releases, AVENGERS: AGE OF ULTRONrelease in May 2015 and JURASSIC WORLD in June 2015. Furthermore, STAR WARS is supported by animated television programming, STAR WARS REBELS, and will be supported by the highly anticipated theatrical release of STAR WARS: THE FORCE AWAKENS, in December 2015. were partially offset by lower first quarter 2016 net revenues from MARVEL products.Lastly, the franchise brand NERF also contributed to boys' category growth.
GAMES: Net revenues from the games category decreased approximately 6%2% in the secondfirst quarter of 20152016 compared to the secondfirst quarter of 2014.2015. Higher net revenues from franchise brand MONOPOLYPIEFACE as well as other games brands, particularly CLUE, CONNECT 4, DUNGEONS & DRAGONS, TROUBLEYAHTZEE, DUEL MASTERS, TRIVIAL PURSUIT, JENGA and TWISTER,RISK, were more than offset by lower net revenues from franchise brand MAGIC: THE GATHERING. Net revenues frombrands MAGIC: THE GATHERING products are significantly driven by the timing of new releases. During 2015 the major set release for the first half of the year occurred during the first quarter compared to the second quarter in 2014.
GIRLS: Net revenues in the girls' category decreased 22%increased 41% in 2015the first quarter of 2016 compared to 2014 primarily due to expected2015. The first quarter of 2016 marked the on-shelf date for Hasbro’s line of DISNEY PRINCESS and FROZEN fashion and small dolls. The addition of these Partner Brands along with DISNEY’S DESCENDANTS and growth in BABY ALIVE more than offset declines from FURBY products. Lower net revenues fromin Furby as well as Franchise Brands NERF, LITTLEST PET SHOP and MY LITTLE PONY, NERF and FURREAL FRIENDS brands also contributed to the decline. These lower net revenues were slightly offset by increases from PLAY-DOH DOHVINCI products and initial shipments of DISNEY DESCENDANTS products.
PRESCHOOL: Net revenues in the preschool category increased 14%11% in 20152016 compared to 2014.2015. Higher net revenues from PLAY-DOH products as well as sales of product related to the JuneDecember 2015 theatrical release of JURASSIC WORLDSTAR WARS: THE FORCE AWAKENS were slightly offset by lower net revenues from core PLAYSKOOL products. In 2014, net revenues from the TRANSFORMERS brand benefited from the June 2014 theatrical release of TRANSFORMERS: AGE OF EXTINCTION.TRANSFORMERS.
Operating profit for the quarter ended June 28, 2015 decreased 9%March 27, 2016 increased 59% to $75,500,$85.9 million, or 9.5%10.3% of net revenues, from $82,564,$54.2 million, or 10.0%7.6% of net revenues, for the quarter ended JuneMarch 29, 2014, primarily due to the negative foreign currency translation of approximately $15,000. Absent foreign currency, operating profit grew 10% in the second quarter of 2015 compared to 2014. Higher net revenues combined with more favorable cost of sales and royalty expense contributed to growth in operating profit, absent foreign currency translation.
Six Months Ended | ||||||||||||
June 28, 2015 | June 29, 2014 | % Change | ||||||||||
Boys | $ | 613,024 | 583,573 | 5 | % | |||||||
Games | 447,278 | 446,228 | 0 | % | ||||||||
Girls | 244,616 | 302,517 | -19 | % | ||||||||
Preschool | 206,240 | 176,397 | 17 | % | ||||||||
Net revenues | $ | 1,511,158 | 1,508,715 |
First Quarter of 2015
The following table presents net external revenues and operating profit data for the Company's three principal segments for the quarters ended June 28, 2015March 27, 2016 and JuneMarch 29, 2014.2015.
| Quarter Ended | |||||||
| March 27, |
| March 29, |
| % | |||
| 2016 |
| 2015 |
| Change | |||
Net Revenues |
|
|
|
|
|
|
|
|
U.S. and Canada segment | $ | 443.6 |
|
| 345.7 |
| 28 | % |
International segment |
| 345.0 |
|
| 305.7 |
| 13 | % |
Entertainment and Licensing segment |
| 42.5 |
|
| 60.6 |
| -30 | % |
|
|
|
|
|
|
|
|
|
Operating Profit |
|
|
|
|
|
|
|
|
U.S. and Canada segment | $ | 78.3 |
|
| 41.4 |
| 89 | % |
International segment |
| 2.9 |
|
| 1.9 |
| 50 | % |
Entertainment and Licensing segment |
| 5.4 |
|
| 16.4 |
| -67 | % |
Quarter Ended | ||||||||||||
June 28, 2015 | June 29, 2014 | % Change | ||||||||||
Net Revenues | ||||||||||||
U.S. and Canada segment | $ | 385,183 | 383,001 | 1 | % | |||||||
International segment | 362,760 | 396,849 | -9 | % | ||||||||
Entertainment and Licensing segment | 47,640 | 47,663 | 0 | % | ||||||||
Operating Profit | ||||||||||||
U.S. and Canada segment | $ | 47,147 | 46,928 | 0 | % | |||||||
International segment | 25,361 | 29,232 | -13 | % | ||||||||
Entertainment and Licensing segment | 7,443 | 14,645 | -49 | % |
U.S. and Canada Segment
The U.S. and Canada segment net revenues for the quarter ended June 28, 2015March 27, 2016 increased 1%28% compared to 2014.2015. Foreign currency translation did not have a significant impact on this segment's net revenues. In the secondfirst quarter of 2015,2016, higher net revenues from the boys, girls and preschool categories weremore than offset by lower net revenues from the games and girls categories.
The boys category benefited from higher net revenues from JURASSIC WORLD,STAR WARS, NERF and STAR WARSYOKAI WATCH products which were partially offset by lower net revenues from MARVEL, JURASSIC WORLD and TRANSFORMERS products. Games category net revenues declined primarily related to lower net revenues from MAGIC: THE GATHERING products, attributable to the change in release timing described above. The girls' category declined primarily due to lower net revenues from FURBY, NERF REBELLE and FURREAL FRIENDS products. Partially offsetting the declines werepartially offset by higher net revenues from LITTLEST PET SHOPDUEL MASTERS and MY LITTLE PONY products. NetPIE FACE. In the Preschool category higher net revenues from PLAY-DOH were partially offset by lower revenues from other Preschool brands products. In the preschoolgirls' category benefitedhigher net revenues primarily from the June 2015 theatrical release of JURASSIC WORLD and continued strengthdebut of the Company's franchise brand, PLAY-DOH. These increasesCompany’s DISNEY PRINCESS and FROZEN fashion and small dolls products were only partially offset by lower net revenues from and core PLAYSKOOL products.
U.S. and Canada segment operating profit for the quarter ended June 28, 2015March 27, 2016 was $47,147,$78.3 million, or 12.2%17.7% of net revenues, compared to $46,928,$41.4 million, or 12.3%12% of segment net revenues, for the quarter ended JuneMarch 29, 2014.
International Segment
International segment net revenues decreased 9%increased 13% to $362,760$345.0 million for the quarter ended June 28, 2015March 27, 2016 from $396,849$305.7 million for the quarter ended JuneMarch 29, 2014.2015. International segment net revenues for the secondfirst quarter of 20152016 included unfavorable foreign currency translation of approximately $69,500$26.7 million as a result of the stronger U.S. dollar in 20152016 compared to 2014.2015. Absent the impact of foreign currency translation, International segment net revenues increased approximately 9%22% in the secondfirst quarter 20152016 compared to the secondfirst quarter of 2014.2015. The following table presents net revenues by geographic region for the Company's International segment for the quarters ended June 28, 2015March 27, 2016 and JuneMarch 29, 2014.2015.
| Quarter Ended | |||||||
| March 27, |
| March 29, |
| % | |||
| 2016 |
| 2015 |
| Change | |||
Europe | $ | $224.1 |
|
| $195.9 |
| 14 | % |
Latin America |
| $55.6 |
|
| $57.6 |
| -3 | % |
Asia Pacific |
| $65.3 |
|
| $52.2 |
| 25 | % |
Net revenues | $ | $345.0 |
|
| $305.7 |
| 13 | % |
Quarter Ended | ||||||||||||
June 28, 2015 | June 29, 2014 | % Change | ||||||||||
Europe | $ | 185,660 | 216,268 | -14 | % | |||||||
Latin America | 98,368 | 97,019 | 1 | % | ||||||||
Asia Pacific | 78,732 | 83,562 | -6 | % | ||||||||
Net revenues | $ | 362,760 | 396,849 |
Foreign currency translation negatively impacted the major geographic regions as follows: Europe - $43,300,$9.8 million, Latin America - $20,800$13.0 million and Asia Pacific - $5,400.$3.9 million. Absent foreign currency translation, the underlying business grew across all major geographic regions, up 6%33% in Europe, 23%19% in Latin America and 1%19% in Asia Pacific. Net revenues in emerging markets decreased 11% in the second quarter of 2015 compared to 2014; however, excludingExcluding the impact of unfavorable foreign exchange, these net revenues in emerging markets increased 9%.approximately 6% in the first quarter of 2016 compared to 2015.
In the secondfirst quarter of 2015, higher2016, all four product categories experienced net revenues from the preschool category were more than offset by lower net revenues from the boys, games and girls categories.
International segment operating profit decreased 13%increased 50% to $25,361,$2.9 million, or 7.0%0.8% of net external revenues, for the quarter ended June 28, 2015March 27, 2016 from $29,232,$1.9 million, or 7.4%0.6% of segment net external revenues, for the quarter ended JuneMarch 29, 2014. Foreign exchange had a significant impact on net revenues from the International segment which also impacted operating profit; absent the impact of foreign exchange translation,2015. The increase in operating profit would have increasedwas primarily due to the increase in the second quarter of 2015 compared to 2014.
Entertainment and Licensing Segment
Entertainment and Licensing segment net revenues for the quarter ended June 28, 2015 were $47,640March 27, 2016 decreased 30% to $42.5 million compared to $47,663$60.6 million for the quarter ended JuneMarch 29, 2014. Higher2015. Lower net revenues from lifestyleentertainment and consumer product licensing, were whollyonly partially offset by loweran increase in Digital Gaming. Entertainment net revenues in 2015 included revenue from distribution ofa multi-year streaming deal for Hasbro Studios television programming and digital gaming.
Entertainment and Licensing segment operating profit decreased to $7,443,$5.4 million, or 15.6%12.8% of external net revenues, for the quarter ended June 28, 2015March 27, 2016 from $14,645,$16.4 million, or 30.7%27.1% of segment net revenues, for the quarter ended JuneMarch 29, 2014.2015. Overall, Entertainment and Licensing segment operating profit and operating profit margin declined primarily due to a less favorable revenue mix and higher operating expenses, including increased amortization of intangibles related to digital gaming rights reacquiredthe decline in 2005 and 2007.
Global Operations
Global Operations segment operating profit was consistent compared with 2014, increasing marginallyincreased to $2,019$3.4 million for the quarter ended June 28, 2015 from $1,810March 27, 2016 compared to a loss of $3.8 million for the quarter ended JuneMarch 29, 2014.
Corporate and Eliminations
The operating loss in Corporate and eliminations totaled $6,470$4.2 million for the second quarter of 2015 compared to $10,051 for the second quarter of 2014.
Six Months Ended | ||||||||||||
June 28, 2015 | June 29, 2014 | % Change | ||||||||||
Net Revenues | ||||||||||||
U.S. and Canada segment | $ | 730,873 | 720,700 | 1 | % | |||||||
International segment | 668,473 | 702,324 | -5 | % | ||||||||
Entertainment and Licensing segment | 108,271 | 82,537 | 31 | % | ||||||||
Operating Profit | ||||||||||||
U.S. and Canada segment | $ | 88,570 | 82,691 | 7 | % | |||||||
International segment | 27,264 | 31,646 | -14 | % | ||||||||
Entertainment and Licensing segment | 23,845 | 20,627 | 16 | % |
Six Months Ended | ||||||||||||
June 28, 2015 | June 29, 2014 | % Change | ||||||||||
Europe | $ | 381,531 | 423,810 | -10 | % | |||||||
Latin America | 155,976 | 150,303 | 4 | % | ||||||||
Asia Pacific | 130,966 | 128,211 | 2 | % | ||||||||
Net revenues | $ | 668,473 | 702,324 |
OPERATING COSTS AND EXPENSES
First Quarter of 2015
The Company's costs and expenses, stated as percentages of net revenues, are illustrated below for the quarters ended June 28, 2015March 27, 2016 and JuneMarch 29, 2014.2015.
| Quarter Ended |
| |||
| March 27, |
|
| March 29, |
|
| 2016 |
|
| 2015 |
|
Cost of sales | 34.9 | % |
| 34.7 | % |
Royalties | 8.4 |
|
| 8.3 |
|
Product development | 6.9 |
|
| 7.3 |
|
Advertising | 9.6 |
|
| 9.5 |
|
Amortization of intangibles | 1.0 |
|
| 1.8 |
|
Program production cost amortization | 0.7 |
|
| 1.6 |
|
Selling, distribution and administration | 28.1 |
|
| 29.3 |
|
Quarter Ended | ||||||||
June 28, 2015 | June 29, 2014 | |||||||
Cost of sales | 37.0 | % | 38.6 | % | ||||
Royalties | 7.2 | 8.5 | ||||||
Product development | 7.2 | 6.2 | ||||||
Advertising | 9.8 | 9.9 | ||||||
Amortization of intangibles | 1.7 | 1.4 | ||||||
Program production cost amortization | 0.9 | 0.8 | ||||||
Selling, distribution and administration | 26.7 | 24.6 |
Cost of sales decreased 8%increased 17.2% from $320,336,$247.7 million, or 38.6%34.7% of net revenues, for the quarter ended JuneMarch 29, 20142015 to $295,399,$290.2, or 37.0%34.9% of net revenues for the quarter ended June 28, 2015. In dollars, the reduction in costsMarch 27, 2016. Costs of sales reflects a combination of lowerincreased in dollars primarily due to higher net revenues andcompared to the impactfirst quarter of foreign exchange.2015. As a percent of net revenues, the reduction inrelatively flat costs of sales reflects a combination of a more favorable product mix and foreign exchange hedges related to product purchases.purchases, offset by the impact of lower entertainment and licensing revenues and lower MAGIC: THE GATHERING revenues. This more favorable product mix in part reflects higher net revenues from royalty-bearing products, specifically those related to the JURASSIC WORLD and MARVEL brands,STAR WARS brand which generally carry higher pricing and, therefore, have a lower cost of sales as a percentage of net revenues.
Royalty expense for the quarter ended June 28, 2015March 27, 2016 was $57,069,$70.0 million, or 7.2%8.4% of net revenues, compared to $70,533,$59.1 million, or 8.5%8.3% of net revenues, for the quarter ended JuneMarch 29, 2014. Lower royalty expense in the second quarter of 2015 compared to 2014 reflects a favorable royalty-bearing product mix, including lower net sales of royalty-bearing TRANSFORMERS products, supported by the June 2014 release of TRANSFORMERS: AGE OF EXTINCTION, partially offset by royalties related to higher net sales of MARVEL, JURASSIC WORLD and STAR WARS products in the second quarter of 2015.
Six Months Ended | ||||||||
June 28, 2015 | June 29, 2014 | |||||||
Cost of sales | 35.9 | % | 38.4 | % | ||||
Royalties | 7.7 | 8.0 | ||||||
Product development | 7.2 | 6.6 | ||||||
Advertising | 9.7 | 9.9 | ||||||
Amortization of intangibles | 1.7 | 1.7 | ||||||
Program production cost amortization | 1.2 | 0.8 | ||||||
Selling, distribution and administration | 27.9 | 26.5 |
Product development expense for the six monthsquarter ended June 28, 2015 increased to $109,506,March 27, 2016 was $57.2 million, or 7.2%6.9% of net revenues, from $98,964,compared to $51.9 million, or 6.6%7.3% of net revenues, for the six monthsquarter ended JuneMarch 29, 2014.2015. Higher product development expense, in dollars, primarily reflects the Company’s continued investment in innovation across our brand portfolio in both Franchise and Partner brands.
Advertising expense for the quarter ended March 27, 2016 was $79.9 million, or 9.6% of revenues, compared to $67.7 million, or 9.5% of net revenues, for the quarter ended March 29, 2015. In dollars, the increase primarily reflects growth in revenue. Advertising expense was fairly consistent as a percentage of net revenues, primarily reflects costs associated with developmentrevenues.
Amortization of the DISNEY PRINCESS and FROZEN product lines under the license agreement with The Walt Disney Company. The Company will continue to incur these development costs in 2015 in advance of commencement of the licensing period and product shipments in 2016.
Program production cost amortization decreased to $6.2 million or 1.7%0.7% of net revenues, for the six monthsquarter ended June 28, 2015 compared to $25,294,March 27, 2016 from $11.1 million, or 1.7%1.6% of net revenues, infor the first six months of 2014. The marginal increase reflects higher amortization related to digital gaming rights which became fully amortized during the second quarter of 2015, partially offset by certain assets which were fully amortized during 2014.
For the six monthsquarter ended June 28, 2015,March 27, 2016, the Company's selling, distribution and administration expenses increased to $421,933,$233.2 million, or 27.9%28.1% of net revenues, from $399,130,$208.8 million, or 26.5%29.3% of net revenues, for the six monthsquarter ended JuneMarch 29, 2014,2015. Higher selling, distribution and administrative costs primarily related toreflect higher administration expenses. Shipping and warehousing and marketing and sales, expenses were flatadministration, and distribution costs in the first quarter of 2016 compared to the first half of 2014.2015. Foreign exchange resulted in a decrease of $28,900. Excludingapproximately $7.7 million. Administration costs in the impactfirst quarter of foreign exchange,2016 includes $13.8 million related to a provision for bad debt related to a customer in the International segment. Other increases in administration and marketing and sales included increased 2015 expenses are primarily the result of higher performance-basedcompensation, including stock compensation, and continued investments in our brands. The increase in distribution costs during the MAGIC: THE GATHERING brand, depreciation expensefirst quarter of 2016 was primarily due to higher revenue volume and other general cost increases, such as salaries and wages.
NON-OPERATING (INCOME) EXPENSE
Interest expense for the secondfirst quarter and first six months of 2015 totaled $24,186 and $48,771, respectively,$24.0 million compared to $22,802 and $45,230$24.6 million for the comparable and respective periodsperiod of 2014. Increased interest expense2015.
Interest income was $2.2 million for the first quarter of 2016 compared to $0.9 million in the first quarter and year-to-date periods reflects favorable interest rate swap agreements that were in place during the first half of 2014.
Other income,expense, net of $1,642 and $5,407$4.9 million for the quarter and six months ended June 28, 2015, respectively,March 27, 2016 compared to other income, net of $3,590 and $7,239$3.8 million for the quarter and six months ended JuneMarch 29, 2014.2015. Improved earnings from Discovery Family Channelthe Company’s joint venture television network in the secondfirst quarter and first half of 20152016 compared to 20142015 were more than offset by increased foreign exchange losses in 20152016 compared to foreign exchange gains in the second quarter and first six months of 2014. Other income, net in the first six monthsquarter of 2015 and 2014 each include gains on the sale of certain assets of $2,800 and $3,400, respectively.
INCOME TAXES
Income taxes totaled $13,364$12.2 million on pre-tax earnings of $53,646$59.2 million in the secondfirst quarter of 2015 compared to income taxes of $31,697$8.5 million on pre-tax earnings of $64,517$34.3 million in the secondfirst quarter of 2014. For the six month period, income taxes totaled $21,858 on pre-tax earnings of $87,961 in 2015 compared to income taxes of $26,178 on pre-tax earnings of $90,512 in 2014.2015. Both periods, as well as the full year 2014,2015, were impacted by certain discrete tax events including the accrual of potential interest and penalties on certain tax positions. During the first sixthree months of 2015,2016, favorable discrete tax adjustments were a net benefit of $1,979$3.4 million compared to a net expensebenefit of $1,921$0.8 million in the first sixthree months of 2014.2015. The favorable discrete tax adjustment for the first sixthree months of 20152016 includes benefits related to expiration of statutes of limitation for certain tax positions and the filing of 2012 and 2013 amended tax returns.positions. Absent discrete items, the adjusted tax rate for the first six monthsquarters of 2016 and 2015 were 26.5% and 2014 were 27.1% and 26.8%27.0%, respectively. The adjusted rate of 27.1%26.5% for the sixthree months ended June 28, 2015March 27, 2016 is comparable to the full year 20142015 adjusted rate 26.5%of 26.4%.
OTHER INFORMATION
Historically, the Company's revenue pattern has shown the second half of the year to be more significant to its overall business than the first half. The Company expects that this concentration will continue, particularly as more of its business has shifted to larger customers with order patterns concentrated in the second half of the year. The concentration of sales in the second half of the year increases the risk of (a) underproduction of popular items, (b) overproduction of less popular items, and (c) failure to achieve compressed shipping schedules.
The toy and game business is characterized by customer order patterns which vary from year to year largely because of differences each year in the degree of consumer acceptance of product lines, product availability, marketing strategies and inventory policies of retailers, the dates of theatrical releases of major motion pictures for which the Company has product licenses, and changes in overall economic conditions. As a result, comparisons of the Company's unshipped orders on any date with those at the same date in a prior year are not necessarily indicative of the Company's expected sales for that year. Moreover, quick response inventory management practices result in fewer orders being placed significantly in advance of shipment and more orders being placed for immediate delivery. Although the Company may receive orders from customers in advance, it is a general industry practice that these orders are subject to amendment or cancellation by customers prior to shipment and, as such, the Company does not believe that these unshipped orders, at any given date, are indicative of future sales.
In May 2014, the Financial Accounting Standards Board ("FASB"), in cooperation with the International Accounting Standards Board ("IASB"), issued ASU No. 2014-09, Revenue from Contracts with Customers (ASC 606). This ASU supersedes the revenue recognition requirements in Accounting Standards Codification 605 – Revenue Recognition and most industry-specific guidance throughout the Codification. This new guidance provides a five-step model for analyzing contracts and transactions to determine when, how and if revenue is recognized. Revenue should be recognized to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. This ASU is now effective for fiscal years beginning after December 15, 2017, and for interim periods within those fiscal years, and may be adopted early but not before December 15, 2016. The Company is evaluating the requirements of ASU 2014-09 and its potential impact on the Company's financial statements and does not presently believe the adoption of this new standard will have a material impact on the Company’s results or financial statements.
In April 2015,February 2016, the FASB issued ASU No. 2015-03, 2016-02, Interest – ImputationLeases (Topic 842) (ASU 2016-02), which will require lessees to recognize a right-of-use asset and a lease liability for virtually all of Interest (ASC 835-30), which simplifiestheir leases. The liability will be based on the presentationpresent value of debt issuance costs. ASU 2015-03 requires debt issuance costs related to long-term debtlease payments and the asset will be based on the liability. For income statement purposes, a dual model was retained requiring leases to be presentedeither classified as operating or finance. Operating leases will result in the balance sheet asstraight-line expense while finance leases will result in a reduction to the carrying amount of the related debt liability, consistent with the presentation of discounts.front-loaded expense pattern. Additional quantitative and qualitative disclosures will be required. ASU 2015-032016-02 is effectiverequired for public companies for fiscal years beginning after December 15, 2015,2018 and must be adopted using a modified retrospective transition. The Company is evaluating the requirements of ASU 2016-02 and its potential impact on the Company’s financial statements.
In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting, which amends ASC Topic 718, Compensation – Stock Compensation. The ASU includes provisions intended to simplify various aspects related to how share-based payments are accounted for and presented in the financial statements including (1) a requirement to record all of the tax effects related to share-based payments at settlement (or expiration) through the income statement; (2) a requirement that all tax-related cash flows resulting from share-based payments be reported as operating activities on the statement of cash flows; (3) the removal of the requirement to withhold shares upon settlement of an award at the minimum statutory withholding requirement; (4) a requirement that all cash payments made to taxing authorities on the employees’ behalf for withheld shares shall be presented as financing activities in the statements of cash flows; (5) entities will be permitted to make an accounting policy election for the impact of forfeitures on the recognition of expense for share-based payment awards choosing either to estimate forfeitures as required today or recognize forfeitures as they occur. ASU 2016-09 is effective for public companies for annual reporting periods beginning after December 15, 2016, and interim periods within those fiscal years, and is eligible for earlythat reporting period. Early adoption will be permitted in any interim or annual period, with any adjustments reflected as of the beginning of the year of adoption. The Company is evaluating the requirements of ASU 2016-09 and its potential impact on the Company’s financial statements.
In July 2015, the FASB issued ASU 2015-11, Simplifying the Measurement of Inventory (“ASU 2015-11), which replaces the concept of market price with the single measurement of net realizable value. ASU 2015-11 is effective for public companies for fiscal years beginning after December 15, 2016 and interim periods within fiscal years beginning after December 15, 2017. The Company has evaluated the requirements of ASU 2015-11 and does not presently records deferred debt costs in other assets inbelieve that the consolidated balance sheet. At June 28, 2015, deferred debt costs related to long-term debt totaled $14,018. Upon adoption these deferred debt costsof the new standard will be presented ashave a reduction of long-term debt.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically generated a significant amount of cash from operations. In 20142015 the Company funded its operations and liquidity needs primarily through cash flows from operations, and, when needed, using borrowings under its available lines of credit and commercial paper program.
During the first halfquarter of 2015,2016, the Company continued to fund its working capital needs primarily through cash flows from operations and, when needed, lines of credit and commercial paper. The Company believes that the funds available to it, including cash expected to be generated from operations and funds available through its available lines of credit and commercial paper program, are adequate to meet its working capital needs for the remainder of 2015.2016. However, unexpected events or circumstances such as material operating losses or increased capital or other expenditures may reduce or eliminate the availability of external financial resources. In addition, significant disruptions to credit markets may also reduce or eliminate the availability of external financial resources. Although management believes the risk of nonperformance by the counterparties to the Company's financial facilities is not significant, in times of severe economic downturn in the credit markets it is possible that one or more sources of external financing may be unable or unwilling to provide funding to the Company.
As of June 28, 2015March 27, 2016 the Company's cash and cash equivalents totaled $858,458,$1,095.9 million, substantially all of which is held outside of the United States. Deferred income taxes have not been provided on the majority of undistributed earnings of international subsidiaries as such earnings are indefinitely reinvested by the Company. Accordingly, such international cash balances are not available to fund cash requirements in the United States unless the Company changes its reinvestment policy. The Company currently has sufficient sources of cash in the United States to fund cash requirements without the need to repatriate any funds. If the Company changes its policy of permanently reinvesting international earnings, it would be required to accrue for any additional income taxes representing the difference between the tax rates in the United States and the applicable tax jurisdiction of the international subsidiaries. If the Company repatriated the funds from its international subsidiaries, it would then be required to pay the additional U.S. income tax. The majority of the Company's cash and cash equivalents held outside of the United States as of June 28, 2015March 27, 2016 is 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 June 28, 2015,March 27, 2016, cash and cash equivalents, net of short-term borrowings, increased to $690,581$1,006.9 million from $576,963$849.5 million at JuneMarch 29, 2014.2015. Net cash provided by operating activities in the first halfquarter of 20152016 was $236,104$293.6 million compared to $109,270$315.3 million in the first halfquarter of 2014. Lower net cash provided by operating activities in 2014 reflects a payment of $58,040 resulting from the settlement of an arbitration award, higher royalty advances, and increased working capital.2015. On a trailing twelve month basis, the Company generated $581,245$530.8 million in operating cash flows as of the end of the first halfquarter of 20152016 compared to $212,266$527.7 million as of the end of the first halfquarter of 20142015 and $454,411$552.4 million for the fiscal year ended December 28, 2014.
Accounts receivable decreased 4%increased 19% to $709,437$670.7 million at June 28,March 27, 2016 from $563.3 million at March 29, 2015 from $738,899 at June 29, 2014 and includes a decrease of approximately $100,800$20.9 million due to a stronger U.S. dollar at June 28, 2015March 27, 2016 compared to JuneMarch 29, 2014.2015. Absent the impact of foreign currency translation, accounts receivable increased approximately 10%23% reflecting the aforementioned 5%20% revenue growth, absent foreign exchange translation, in the secondfirst quarter of 20152016 compared to 2014.2015. Days sales outstanding was flatincreased from June71 days at March 29, 20142015 to June 28, 201573 days at 80 days.
Inventories decreased 18%increased 36% to $403,789$461.7 million at June 28, 2015March 27, 2016 from $492,822$340.7 million at JuneMarch 29, 2014.2015. The inventory balance at June 28, 2015March 27, 2016 includes a decrease of approximately $70,900$17.8 million resulting from a stronger U.S. dollar. Furthermore, approximately $19,700 of inventories were reclassified as assets held for sale related to the anticipated sale of the Company's manufacturing operations and are included in prepaid expenses and other current assets. Excluding these items, inventories at June 28, 2015 were flat compared to inventories at June 29, 2014.
Prepaid expenses and other current assets increased approximately 19% compareddecreased 15% to June$295.8 million at March 27, 2016 from $346.7 million at March 29, 2014.2015. The majority of increasedecrease is due to lower prepaid royalties as well as a decrease in the higher value of foreign exchange contracts due to a stronger U.S. dollar in 2015at 2016 compared to 2014. In addition to these contracts, prepaid expenses and other current assets includes approximately $19,700 in assets held for sale, primarily inventory, related to the anticipated sale of the Company's manufacturing operations as well as higher income tax receivables related to a December 2014 tax settlement in Mexico.2015. These higher balancesdecreases were partially offset by lower royalty advances.
Accounts payable and accrued liabilities decreased 11%increased 16% to $638,026$679.4 million at June 28, 2015March 27, 2016 from $715,504$585.2 million at JuneMarch 29, 2014.2015. The decrease reflects lowerincrease was primarily due to higher accrued royalties accrued severance, foreign exchange contracts andat March 27, 2016 as advances made in 2015 were fully earned in that year. In addition, accounts payable.
Goodwill and other intangible assets, net decreased to $891,033$864.9 million at June 28, 2015March 27, 2016 from $945,025$904.3 million at JuneMarch 29, 2014.2015. The decrease was due to amortization of intangible assets over the last twelve months.
Other assets decreased approximately 6%4% to $708,334$734.5 million at June 28, 2015March 27, 2016 from $752,484$767.1 million at JuneMarch 29, 2014. This2015. The decrease was primarily reflects the partial salerelated to a lower value of the Company's television joint venture in the third quarter of 2014long-term foreign exchange contracts as well as lower long-term royalty advances. These decreases were partially offset by more favorable foreign exchange contracts as well as higher deferred tax assets reflecting increased pension liabilities in December 2014. Other assets at June 28, 2015 also includes approximately $26,400 in assets held for sale, primarily property, plant and equipment, net of accumulated depreciation,an increase due to a long-term note receivable related to the anticipated sale of the Company'sCompany’s manufacturing operations.
Other liabilities increased 11%2% to $395,417$402.3 million at June 28, 2015March 27, 2016 from $357,766$396.1 million at JuneMarch 29, 2014.2015. The increase in 20152016 compared to 20142015 reflects higher uncertain tax positions partially offset by lower pension liabilities, primarily due to changes in actuarial assumptions, including a lowerhigher discount rate and updated mortality tables. The increase in 2015 compared to 2014 reflects the September 2014 amendment to the Company's relationship with Discovery Communications, Inc. which resulted in a net increase to other liabilities of approximately $10,000 reflecting the fair value of the option agreement offset by a reduction in the related tax sharing agreement. These increases were partially offset by lower accruals for uncertain income tax positions at June 28, 2015 compared to June 29, 2014, reflecting the settlement of tax exams primarily related to Mexico.
Net cash utilized by investing activities was $59,003$27.6 million in the first halfquarter of 20152016 compared to $52,664$33.1 million in the first halfquarter of 2014.2015. Additions to property, plant and equipment were $67,709$31.2 million in 2015 compared to $51,636 in 2014. Increased capital expenditures reflect the Company's investment in toolingboth 2016 and information systems.2015. 2015 investing activity also includes approximately $20,700 in capital and tax distributions from Discovery Family Channel partially offset by a $3,000$3 million capital contribution to a 50% joint venture with Guangdong Alpha Animation and Culture Co., Ltd.Ltd while 2016 investing activity includes a $4.2 million distribution from the Discovery Family Channel joint venture.
Net cash utilized by financing activities was $202,315$151.7 million in the first halfquarter of 20152016 compared to $154,147$82.5 million in the first halfquarter of 2014.2015. Cash payments related to purchases of the Company's common stock were $49,156$33.7 million in the first halfquarter of 20152016 compared to $213,935$26.5 million in the first halfquarter of 2014.2015. At June 28, 2015,March 27, 2016, the Company had $517,340$443.5 million remaining available under its current share repurchase authorization approved by the Board of Directors. Dividends paid in the first halfquarter of 20152016 totaled $110,902$57.4 million compared to $108,097$53.5 million in the first halfquarter of 2014.2015. Repayments of short-term borrowings totaling $84,420were $75.5 million in the first halfquarter of 20152016 compared to proceeds from short-term borrowings of $1,430$20.3 million in the first halfquarter of 2014. The 2014 cash provided also reflects net proceeds of $559,986 from the issuance of $600,000 in long-term notes in May 2014; these net proceeds include a payment of $33,306 for the termination of forward-starting interest rate swap contracts associated with this expected issuance of debt as well as $6,708 in debt issuance costs. The majority of the proceeds from this issuance were used to repay $425,000 of long-term notes due May 2014.
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 $700,000.$700 million. The maturities of these notes will vary but may not exceed 397 days. The notes will be sold under customary terms in the commercial paper market and will be issued at a discount or par, or alternatively, will be sold at par and will bear varying interest rates based on a fixed or floating rate basis. The interest rates will vary based on market conditions and the ratings assigned to the notes by the credit rating agencies at the time of issuance. Subject to market conditions, the Company intends to utilize the Program as its primary short-term borrowing facility and does not intend to sell unsecured commercial paper notes in excess of the available amount under the revolving credit agreement, discussed below. If, for any reason, the Company is unable to access the commercial paper market, the Company intends to use the revolving credit agreement to meet the Company's short-term liquidity needs. At June 28, 2015March 27, 2016 the Company had approximately $166,000$89.0 million in borrowings outstanding related to the Program.
The Company has a revolving credit agreement (the "Agreement"), which provides it with a $700,000$700 million committed borrowing facility. The Agreement contains certain financial covenants setting forth leverage and coverage requirements, and certain other limitations typical of an investment grade facility, including with respect to liens, mergers and incurrence of indebtedness. The Company was in compliance with all covenants as of and for the quarter ended June 28, 2015.March 27, 2016. The Company had no borrowings outstanding under its committed revolving credit facility at June 28, 2015.March 27, 2016. However, the Company had letters of credit outstanding under this facility as of June 28, 2015March 27, 2016 of approximately $900.$0.8 million and borrowings under the Company’s commercial paper program of approximately $89.0 million. Amounts available and unused under the committed line, less outstanding balances under the commercial paper program, as of June 28, 2015March 27, 2016 were approximately $533,100.$610.2 million. The Company also has other uncommitted lines from various banks, of which approximately $21,600$33.2 million was utilized at June 28, 2015. Of the amount utilized under the uncommitted lines, approximately $1,400 and $20,200 representMarch 27, 2016, all of which represents outstanding borrowings and letters of credit, respectively.
The Company has principal amounts of long-term debt at June 28, 2015March 27, 2016 of $1,559,895$1,559.9 million due at varying times from 2017 through 2044. The Company also had letters of credit and other similar instruments of approximately $22,500$34.0 million and purchase commitments of approximately $416,600$366.5 million outstanding at June 28, 2015.
Other contractual obligations and commercial commitments, as detailed in the Company's Annual Report on Form 10-K for the year ended December 28, 2014,27, 2015, did not materially change outside of payments made in the normal course of business and as otherwise set forth in this report. The table of contractual obligations and commercial commitments, as detailed in the Company's Annual Report on Form 10-K for the year ended December 28, 2014,27, 2015, does not include certain tax liabilities recorded related to uncertain tax positions. These liabilities were $41,485$67.5 million at June 28, 2015,March 27, 2016, and are included as a component of other liabilities in the accompanying consolidated balance sheets.
The Company believes that cash from operations, and, if necessary, its committed line of credit and other borrowing facilities, will allow the Company to meet these and other obligations listed.
CRITICAL ACCOUNTING POLICIES AND SIGNIFICANT ESTIMATES
The Company prepares its consolidated financial statements in accordance with accounting principles generally accepted in the United States of America. As such, management is required to make certain estimates, judgments and assumptions that it believes are reasonable based on the information available. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses for the periods presented. The significant accounting policies which management believes are the most critical to aid in fully understanding and evaluating the Company's reported financial results include sales allowances, program production costs, recoverability of goodwill and intangible assets, recoverability of royalty advances and commitments, pension costs and obligations and income taxes. These critical accounting policies are the same as those detailed in the Annual Report on Form 10-K for the year ended December 28, 2014.
FINANCIAL RISK MANAGEMENT
The Company is exposed to market risks attributable to fluctuations in foreign currency exchange rates, primarily as the result of sourcing products priced in U.S. dollars, Hong Kong dollars and Euros while marketing those products in more than twenty currencies. Results of operations may be affected primarily by changes in the value of the U.S. dollar, Hong Kong dollar, Euro, British pound sterling, Swiss franc, Canadian dollar, Brazilian real, Russian ruble and Mexican peso and, to a lesser extent, other currencies in European, Latin American and Asia Pacific countries.
To manage this exposure, the Company has hedged a portion of its forecasted foreign currency transactions for fiscal years 2015 through 20192020 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 June 28, 2015,March 27, 2016, these contracts had net unrealized gains of $103,158,$65.8 million, of which $51,974$46.9 million are recorded in prepaid expenses and other current assets, $53,932$22.8 million are recorded in other assets, $2,677$1.3 million are recorded in accrued liabilities and $71$2.6 million are recorded in other liabilities. Included in accumulated other comprehensive loss at June 28, 2015March 27, 2016 are deferred gains, net of tax, of $98,835,$65.0 million, related to these derivatives.
At June 28, 2015,March 27, 2016, the Company had fixed rate long-term debt of $1,559,895.$1,559.9 million. Of this long-term debt, $600,000$600 million represents the aggregate issuance of long-term debt in May 2014 which consisted of $300,000$300 million of 3.15% Notes Due 2021 and $300,000$300 million of 5.10% Notes Due 2044. The Company had forward-starting interest rate swap agreements with a total notional value of $500,000$500 million related to the May 2014 issuance which hedged the anticipated underlying U.S. Treasury interest rate. These interest rate swaps were matched with this debt issuance and were designated and effective as hedges of the change in future interest payments. At the date of debt issuance, the Company terminated these interest rate swap agreements and their fair value was recorded in accumulated other comprehensive loss and is being amortized through the consolidated statements of operations using an effective interest rate method over the life of the related debt. Included in accumulated other comprehensive loss at June 28, 2015March 27, 2016 are deferred losses, net of tax, of $19,937$19.1 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 June 28, 2015.March 27, 2016. Based on the evaluation of these disclosure controls and procedures, the Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective.
There were no changes in the Company's internal control over financial reporting, as defined in Rule 13a-15(f) promulgated under the Exchange Act, during the quarter ended June 28, 2015March 27, 2016 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. | Legal Proceedings. |
The Company is currently party to certain legal proceedings, none of which it believes to be material to its business or financial condition.
Item 1A. | Risk Factors. |
This Quarterly Report on Form 10-Q contains "forward-looking statements," within the meaning of the Private Securities Litigation Reform Act of 1995, concerning management's expectations, goals, objectives, and similar matters. These forward-looking statements may include statements concerning the Company's product and entertainment plans, anticipated product and entertainment performance, business opportunities and strategies, financial and business goals, expectations for achieving the Company's financial and business goals, cost savings and efficiency enhancing initiatives and other objectives and anticipated uses of cash and may be identified by the use of forward-looking words or phrases such as "anticipate," "believe," "could," "expect," "intend," "look forward," "may," "planned," "potential," "should," "will," and "would" or any variations of words with similar meanings. These forward-looking statements are inherently subject to known and unknown risks and uncertainties.
The Company's actual results or experience may differ materially from those expected or anticipated in the forward-looking statements. The Company has included, under Item 1A. of its Annual Report on Form 10-K, for the year ended December 28, 201427, 2015 (the "Annual Report"), a discussion of factors which may impact these forward-looking statements. In furtherance, and not in limitation, of the more detailed discussion set forth in the Annual Report, specific factors that might cause such a difference include, but are not limited to:
· the Company's ability to successfully re-imagine, re-invent and re-ignite its existing brands, products and product lines, including through the use of immersive entertainment experiences, to maintain and further their success;
· the Company's ability to successfully design, develop, produce, introduce, market and sell innovative new brands, products and product lines which achieve and sustain interest from retailers and consumers and keep pace with changes in consumer preferences and lifestyles;
· the Company's ability to offer products that (i) expand consumer demand for its product offerings and do not significantly compete with the Company's other existing product offerings and (ii) consumers want to purchase and select over competitors' products;
· the Company's ability to source and ship products in a timely and cost-effective manner and customers' and consumers' acceptance and purchase of those products in quantities and at prices that will be sufficient to profitably recover the Company's costs for developing, marketing and selling those products;
· recessions, other economic downturns or challenging economic conditions affecting the Company's markets which can negatively impact the financial health of the Company's retail customers and consumers, and which can result in lower employment levels, lower consumer disposable income and spending, including lower spending on purchases of the Company's products;
· potential difficulties or delays the Company may experience in implementing its cost savings and efficiency enhancing initiatives or the realization of fewer benefits than are expected from such initiatives;
· currency fluctuations, including movements in foreign exchange rates, which can lower the Company's net revenues and earnings, and significantly impact the Company's costs;
· other economic and public health conditions or regulatory changes in the markets in which the Company and its customers and suppliers operate, which could create delays or increase the Company's costs, such as higher commodity prices, labor costs or higher transportation costs or outbreaks of diseases;
· delays, increased costs or difficulties associated with the development and offering of our or our partners' planned digital applications or media initiatives based on the Company's brands;
· the concentration of the Company's retail customers, potentially increasing the negative impact to the Company of difficulties experienced by any of the Company's retail customers or changes in their purchasing or selling patterns;
· the Company's ability to generate sales during the fourth quarter, particularly during the relatively brief holiday shopping season, which is the period in which the Company derives a substantial portion of its revenues and earnings;
· the inventory policies of the Company's retail customers, including the retailers' potential decisions to lower their inventories, even if it results in lost sales, as well as the concentration of the Company's revenues in the second half and fourth quarter of the year, which coupled with reliance by retailers on quick response inventory management techniques, increases the risk of underproduction of popular items, overproduction of less popular items and failure to achieve compressed shipping schedules;
· work stoppages or disruptions which may impact the Company's ability to manufacture or deliver products in a timely and cost-effective manner;
· concentration of manufacturing of the substantial majority of the Company's products by third party vendors in the People's Republic of China and the associated impact to the Company of social, economic or public health conditions and other factors affecting China, the movement of people and products into and out of China, the cost of producing products in China and the cost of exporting them to the Company's other markets or affecting the exchange rates for the Chinese Renminbi, including, without limitation, the impact of tariffs or other trade restrictions being imposed upon goods manufactured in China;
· consumer interest in and acceptance of the Discovery Family channel, the Company's cable television joint venture with Discovery Communications, the programming appearing on Discovery Family, products related to Discovery Family's programming, and other factors impacting the financial performance of the Discovery Family channel;
· consumer interest in and acceptance of programming and entertainment created by Hasbro Studios and/or our other entertainment partners, as well as products related to such programming and entertainment;
· the ability to develop and distribute compelling entertainment, including television, motion pictures and digital content, based on our brands, in a timely and financially profitable manner, and the success of that entertainment in driving consumer interest in and engagement with our brands;
· the ability of the Company to hire and retain key officers and employees who are critical to the Company's success;
· the costs of complying with product safety and consumer protection requirements worldwide, including the risk that greater regulation in the future may increase such costs, may require changes in the Company's products and/or may impact the Company's ability to sell some products in particular markets in the absence of making changes to such products;
· the risk that one of the Company's third-party manufacturers will not comply with applicable labor, consumer protection, product safety or other laws or regulations, or with aspects of the Company's Global Business Ethics Principles, and that such noncompliance will not be promptly detected, either of which could cause damage to the Company's reputation, harm sales of its products, result in product recalls and potentially create other liabilities for the Company;
· an adverse change in purchasing policies or promotional programs or the bankruptcy or other economic difficulties or lack of success of one or more of the Company's significant retailers comprising its relatively concentrated retail customer base, which could negatively impact the Company's revenues or bad debt exposure;
· the risk that the market appeal of the Company's licensed products will be less than expected or that sales revenue generated by these products will be insufficient to cover the minimum guaranteed royalties or other commitments;
· the risk the Company will lose rights to a significant licensed property or properties, which will harm the Company's revenues and earnings;
· the risk that the Company may face product recalls or product liability suits relating to products it manufactures or distributes which may have significant direct costs to the Company and which may also harm the reputation of the Company and its products, potentially harming future product sales;
· the impact of competition on revenues, margins and other aspects of the Company's business, including the ability to offer Company products which consumers choose to buy instead of competitor 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 may not occur or be delayed or reduced in their realization;
· the Company's ability to obtain and enforce intellectual property rights both in the United States and other worldwide territories;
· the risk that any litigation or arbitration disputes or government and regulatory investigations could entail significant resources and expense and result in significant fines or other harm to the Company's business or reputation;
· the Company's ability to maintain or obtain external financing on terms acceptable to it in order to meet working capital needs;
· the risk that one or more of the counterparties to the Company's financing arrangements may experience financial difficulties or otherwise be unable or unwilling to allow the Company to access financing under such arrangements;
· the Company's ability to generate sufficient available cash flow to service its outstanding debt;
· restrictions that the Company is subject to under its credit agreement;
· unforeseen circumstances, such as severe softness in or collapse of the retail environment that may result in a significant decline in revenues and operating results of the Company, thereby causing the Company to be in non-compliance with its debt covenants and the Company being unable to utilize borrowings under its revolving credit facility, a circumstance likely to occur when operating shortfalls would result in the Company being in the greatest need of such supplementary borrowings;
· market conditions, third party actions or approvals, the impact of competition and other factors that could delay or increase the cost of implementation of the Company's programs, or alter the Company's actions and reduce actual results;
· the risk that the Company may be subject to governmental penalties, fines, sanctions or additional taxes for failure to comply with applicable laws or regulations in any of the markets in which it operates, or that governmental regulations or requirements will require changes in the manner in which the company does business and/or increase the costs of doing business;
· failure to operate our information systems and implement new technology effectively, as well as maintain the systems and processes designed to protect our electronic data;
· the risk that the Company's reported goodwill may become impaired, requiring the Company to take a charge against its income; or
· other risks and uncertainties as are or may be detailed from time to time in the Company's public announcements and filings with the SEC, such as filings on Forms 8-K, 10-Q and 10-K.
The Company undertakes no obligation to revise the forward-looking statements contained in this Quarterly Report on Form 10-Q to reflect events or circumstances occurring after the date of the filing of this report.
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds. |
Repurchases Made in the Quarter (in whole dollars and number of shares)
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January 2016 |
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12/28/15 – 1/24/16 |
| - |
| $ | - |
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| $ | 479,282,560 |
February 2016 |
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1/25/16 – 2/28/16 |
| 228,000 |
| $ | 73.35 |
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| 228,000 |
| $ | 462,761,849 |
March 2016 |
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2/29/16 – 3/27/16 |
| 247,000 |
| $ | 78.13 |
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| 247,000 |
| $ | 443,463,712 |
Total |
| 475,000 |
| $ | 75.41 |
|
| 475,000 |
| $ | 443,463,712 |
Period | (a) Total Number of Shares (or Units) Purchased | (b) Average Price Paid per Share (or Unit) | (c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs | (d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs | ||||||||||||
April 2015 3/30/15 – 4/26/15 | 100,365 | $ | 63.83 | 100,365 | $ | 532,552,527 | ||||||||||
May 2015 4/27/15 – 5/31/15 | 120,000 | $ | 71.52 | 120,000 | $ | 523,970,018 | ||||||||||
June 2015 6/1/15 – 6/28/15 | 91,100 | $ | 72.77 | 91,100 | $ | 517,340,236 | ||||||||||
Total | 311,465 | $ | 69.41 | 311,465 | $ | 517,340,236 |
In February 9, 2015, the Company announced that its Board of Directors authorized the repurchase of an additional $500 million in 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. 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.
Item 6. | Exhibits. |
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.)
10.1 Form of 2016 Fair Market Value Stock Option Agreement under the Hasbro, Inc. Restated 2003 Stock Incentive Performance Plan. (Applicable for Duncan Billing, John Frascotti, Wiebe Tinga, Deborah Thomas and certain other employees of the Company.)
10.2 Form of 2016 Fair Market Value Stock Option Agreement for Brian Goldner under the Hasbro, Inc. Restated 2003 Stock Incentive Performance Plan.
10.3 Form of 2016 Contingent Stock Performance Award under the Hasbro, Inc. Restated 2003 Stock Incentive Performance Plan. (Applicable to Duncan Billing, John Frascotti, Wiebe Tinga, Deborah Thomas and certain other employees of the Company.)
10.4 Form of 2016 Contingent Stock Performance Award for Brian Goldner under the Hasbro, Inc. Restated 2003 Stock Incentive Performance Plan.
10.5 Form of 2016 Restricted Stock Unit Agreement under the Hasbro, Inc. Restated 2003 Stock Incentive Performance Plan. (Applicable to Duncan Billing, John Frascotti, Wiebe Tinga, Deborah Thomas and certain other employees of the Company.)
10.6 Form of 2016 Non-Competition, Non-Solicitation and Confidentiality Agreement. (Applicable to Duncan Billing, John Frascotti, Wiebe Tinga, Deborah Thomas and certain other employees of the Company.)
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.
31.1* Certification of the Chief Executive Officer Pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934.
31.2* Certification of the Chief Financial Officer Pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934.
101.INS XBRL Instance Document
101.SCH Taxonomy Extension Schema Document
101.SCH Taxonomy Extension Schema Document
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB XBRL Taxonomy Extension Labels Linkbase Document
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF XBRL Taxonomy Extension Definition Linkbase Document
* Furnished herewith.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
HASBRO, INC. | |
(Registrant) | |
Date: May 4, 2016 | By: /s/ Deborah Thomas |
Deborah Thomas | |
Executive Vice President and | |
Chief Financial Officer | |
(Duly Authorized Officer and | |
Principal Financial Officer) |
Exhibit Index
Exhibit | |
No. | Exhibits |
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 | 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.) |
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.) |
10.1 | Form of 2016 Fair Market Value Stock Option Agreement under the Hasbro, Inc. Restated 2003 Stock Incentive Performance Plan. (Applicable for Duncan Billing, John Frascotti, Wiebe Tinga, Deborah Thomas and certain other employees of the Company.) |
10.2 | Form of 2016 Fair Market Value Stock Option Agreement for Brian Goldner under the Hasbro, Inc. Restated 2003 Stock Incentive Performance Plan. |
10.3 | Form of 2016 Contingent Stock Performance Award under the Hasbro, Inc. Restated 2003 Stock Incentive Performance Plan. (Applicable to Duncan Billing, John Frascotti, Wiebe Tinga, Deborah Thomas and certain other employees of the Company.) |
10.4 | Form of 2016 Contingent Stock Performance Award for Brian Goldner under the Hasbro, Inc. Restated 2003 Stock Incentive Performance Plan. |
10.5 | Form of 2016 Restricted Stock Unit Agreement under the Hasbro, Inc. Restated 2003 Stock Incentive Performance Plan. (Applicable to Duncan Billing, John Frascotti, Wiebe Tinga, Deborah Thomas and certain other employees of the Company.) |
10.6 | Form of 2016 Non-Competition, Non-Solicitation and Confidentiality Agreement. (Applicable to Duncan Billing, John Frascotti, Wiebe Tinga, Deborah Thomas and certain other employees of the Company.) |
31.1 | Certification of the Chief Executive Officer Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934. |
31.2 | |
Certification of the Chief Financial Officer Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934. | |
32.1* | Certification of the Chief Executive Officer Pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934. |
32.2* | Certification of the Chief Financial Officer Pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934. |
101.INS | XBRL Instance Document |
101.SCH | XBRL Taxonomy Extension Schema Document |
101.CAL | XBRL Taxonomy Calculation Linkbase Document |
101.LAB | XBRL Taxonomy Extension Labels Linkbase Document |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document |
* Furnished herewith. |