HASBRO, INC.
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 short 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 No ¨
Indicated 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 short period that the registrant was required to submit and post such files). Yes R No ¨
Indicated by check mark whether the registrant is a large accelerated filed, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of "large accelerated filed," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Indicated 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 19, 2013 was 129,726,055.
Item 1. Financial Statements.
See accompanying condensed notes to consolidated financial statements.
See accompanying condensed notes to consolidated financial statements.
See accompanying condensed notes to consolidated financial statements.
The components of the net periodic cost of the Company's defined benefit pension and other postretirement plans for the quarter and six-month periods ended June 30, 2013 and July 1, 2012 are as follows:
During the first two quarters of fiscal 2013, the Company made cash contributions to its defined benefit pension plans of approximately $3,000 in the aggregate. The Company expects to contribute approximately $2,800 during the remainder of fiscal 2013.
The Company is currently involved in a dispute with an inventor related to contractual interpretation of products subject to license agreements between the inventor and the Company, and payment of royalties. The inventor is claiming damages for all claims and products in excess of $90,000. Certain of the claims in this matter are currently being adjudicated in binding arbitration and other matters are subject to a complaint filed in February 2013 in the Northern District of Georgia. The Company is disputing the inventor's contractual interpretation and claims, believes it has meritorious defenses, and intends to vigorously defend its position. The Company currently cannot estimate a possible loss or range of loss.
The Company is party to certain other legal proceedings, as well as certain asserted and unasserted claims. Amounts accrued, as well as the total amount of reasonably possible losses with respect to such matters, individually and in the aggregate, are not deemed to be material to the consolidated financial statements.
On July 8, 2013, the Company acquired a majority interest in Backflip Studios, LLC ("Backflip"), a mobile game developer based in Boulder, Colorado. The Company paid cash of $112,000 to acquire a 70% interest in Backflip, and will be required to purchase the remaining 30% in the future contingent upon if Backflip achieves certain predetermined financial performance metrics. The Company will account for this investment using the acquisition method and will consolidate the financial statements of Backflip commencing as of the acquisition date and report the 30% minority share as a non-controlling interest.
On July 22, 2013 the Company announced that it had entered into amended agreements related to its MARVEL and STAR WARS licenses with The Walt Disney Company ("Disney"). The term of the MARVEL agreement was extended through 2020 and the amendment requires an additional $80,000 of guaranteed royalties, contingent on the quantity and type of theatrical movie releases. In anticipation of Disney's release of the next three STAR WARS sequel motion pictures, as well as other anticipated entertainment, the amended agreement for STAR WARS provides for guaranteed payments of $225,000, of which $75,000 is expected to be paid during the third quarter of 2013.
HASBRO, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial
Condition and Results of Operations
(Thousands of Dollars and Shares Except Per Share Data)
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 30, 2012, 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.
EXECUTIVE SUMMARY
Hasbro, Inc. ("Hasbro" or the "Company") is a branded-play company dedicated to fulfilling the fundamental need for play for children and families through creative expression of the Company's world class brand portfolio. From toys and games, to television programming, motion pictures, digital gaming and a comprehensive licensing program, Hasbro applies its brand blueprint to its broad portfolio of properties. The brand blueprint revolves around the objectives of continuously re-imagining, re-inventing and re-igniting the Company's existing brands, imagining, inventing and igniting new brands and offering consumers the ability to experience the Company's brands in all areas of their lives.
To accomplish these objectives, the Company offers consumers the ability to experience its branded play through innovative toys and games, digital media, lifestyle licensing, publishing and entertainment, including television programming and motion pictures. The Company's focus remains on growing owned and controlled brands, developing new and innovative products which respond to market insights, offering entertainment experiences which allow consumers to experience the Company's brands across multiple forms and formats and optimizing efficiencies within the Company to increase operating margins and maintain a strong balance sheet.
The Company earns revenues and generates cash primarily through the sale of a broad variety of 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 use of its properties in connection with complementary products including digital media and games and lifestyle products, offered by third parties. The Company's brand architecture includes franchise brands, challenger brands, gaming mega brands, key licensed brands and new brands. The Company's franchise and challenger brands represent Company-owned brands or brands which if not entirely owned, are broadly controlled by the Company, and which have been successful over the long term. Franchise brands are the Company's most significant owned or controlled brands which have the ability to deliver significant revenue over the long-term. Challenger brands are brands which have not achieved franchise brand status yet, but have the potential to do so with investment and time. These franchise brands include LITTLEST PET SHOP, MAGIC: THE GATHERING, MONOPOLY, MY LITTLE PONY, NERF, PLAY-DOH and TRANSFORMERS, while challenger brands include BABY ALIVE, FURREAL FRIENDS, KRE-O and PLAYSKOOL. The Company has a large portfolio of owned and controlled brands, which can be introduced in new forms and formats over time.
HASBRO, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
(Thousands of Dollars and Shares Except Per Share Data)
These brands may also be further extended by pairing a licensed concept with an owned or controlled brand. By focusing on these brands, the Company is working to build a more consistent revenue stream and basis for future growth, and to leverage profitability. During the first six months of 2013, the Company had strong revenues from many owned or controlled brands, including MAGIC: THE GATHERING, NERF, TRANSFORMERS, PLAY-DOH, FURBY and MY LITTLE PONY.
The Company's innovative product offerings encompass a broad variety of toys including boys' action figures, vehicles and playsets, girls' toys, electronic toys, plush products, preschool toys and infant products, electronic interactive products, creative play and toy-related specialty products. Games offerings include boys' action, board, off-the-board, digital, card, electronic, trading card and role-playing games.
While the Company believes it has built a more sustainable revenue base by developing and maintaining its owned or controlled brands and avoiding reliance on licensed entertainment properties, it continues to opportunistically enter into or leverage existing strategic licenses which complement its brands and key strengths and allow the Company to offer innovative products based on movie, television, music and other entertainment properties owned by third parties. The Company's primary licenses include agreements with Marvel Characters B.V. ("Marvel") for characters in the Marvel Universe, including SPIDER-MAN and the AVENGERS; Lucas Licensing Ltd. ("Lucas"), related to the STAR WARS brand; and Sesame Workshop, related to the SESAME STREET characters. Both Marvel and Lucas are owned by The Walt Disney Company ("Disney"). In July 2013, the Company and Disney announced amendments to both the Marvel and Lucas license agreements, which extend the term of the license for Marvel through 2020 and provide additional guaranteed royalty payments with respect to both MARVEL and STAR WARS products in anticipation of expected future motion pictures and other related entertainment from Disney through 2020. Sales of MARVEL products can vary based on the number and quality of theatrical releases in any given year. During 2013 the Company's offerings include products related to several MARVEL properties backed by entertainment, including products based on theatrical motion picture release of IRON MAN 3 in May 2013 and expected release of THOR: THE DARK WORLD in November 2013. During 2012, the Company's offerings included products related to two theatrical motion picture releases based on MARVEL properties, THE AVENGERS and THE AMAZING SPIDER-MAN. Sales of STAR WARS products benefited during the first quarter of 2012 from the release of STAR WARS: EPISODE I – THE PHANTOM MENANCE in 3D in February 2012. The Company also continued to benefit from sales of BEYBLADE products which continued to provide a high level of sales in 2012 and, to a lesser extent, the first six months of 2013. In addition to offering products based on licensed entertainment properties, the Company offers products which are licensed from outside inventors.
The Company seeks to build all-encompassing brand experiences and drive product-related revenues by increasing the visibility of its owned or controlled brands through entertainment such as motion pictures and television programming. Since 2007, the Company has had a number of motion pictures based on its brands released by major motion picture studios, including three motion pictures based on its TRANSFORMERS brand, two motion pictures based on its G.I. JOE brand, including G.I. JOE: RETALIATION released in March 2013, and a major motion picture based on its gaming mega brand, BATTLESHIP. The Company has motion picture projects based on other brands in development for potential release in future years.
In addition to using motion pictures to provide entertainment experiences for its brands, the Company has a wholly-owned production studio, Hasbro Studios, which is responsible for the creation and development of television programming based primarily on Hasbro's brands. This programming is currently aired in markets around the world.
HASBRO, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
(Thousands of Dollars and Shares Except Per Share Data)
The Company is also a 50% partner in a joint venture with Discovery Communications, Inc. ("Discovery") which runs The Hub Network, a cable television network in the United States dedicated to high-quality children's and family entertainment and educational programming. Programming on The Hub Network includes content based on Hasbro's brands, Discovery's library of children's educational programming, as well as programming developed by third parties. Hasbro Studios programming is distributed in the United States to The Hub Network, other leading children's networks internationally and on various digital platforms, such as Netflix and iTunes. The Company's television initiatives support its strategy of growing its brands well beyond traditional toys and games and providing entertainment experiences for consumers of all ages in many forms or formats.
The Company's strategic blueprint and brand architecture also focus on extending its brands further into digital media and gaming, including through the licensing of the Company's properties to a number of partners who develop and offer digital games based on those brands. An example of these digital gaming relationships is the Company's agreement with Electronic Arts Inc. ("EA") under which EA will develop eight of Hasbro's best-selling gaming brands for mobile platforms globally. Similarly, the Company has an agreement with Activision under which Activision offers digital games based on the TRANSFORMERS brand, as well as agreements with other third party digital gaming companies such as DeNA and GameLoft.
Furthermore, on July 8, 2013, the Company acquired a 70% majority stake in Backflip Studios, LLC ("Backflip"), a mobile game developer based in Boulder, Colorado. Backflip's product offerings include games for mobile devices including DRAGONVALE, NINJUMP and PAPER TOSS. The Company expects that the acquisition of Backflip will allow it to continue extending its own brands through mobile digital gaming while developing new intellectual properties and leveraging Backflip's existing brands.
The Company also seeks to express its brands through its lifestyle licensing business. Under its lifestyle licensing programs, the Company enters into relationships with a broad spectrum of apparel, food, bedding, publishing and other lifestyle products companies for the global marketing and distribution of licensed products based on the Company's brands. These relationships further broaden and amplify the consumer's ability to experience the Company's brands.
As the Company seeks to grow its business in entertainment, licensing and digital gaming, the Company will continue to evaluate strategic alliances and acquisitions which may complement its current product offerings, allow it entry into an area which is adjacent to or complementary to the toy and game business, or allow it to further develop awareness of its brands and expand the ability of consumers to experience its brands in different forms and formats.
During the fourth quarter of 2012 the Company announced a multi-year cost savings initiative plan in which it targets annual cost reduction of $100,000 by 2015. This plan included an approximate 10% workforce reduction, facility consolidations and process improvements which reduce redundancy and increase efficiencies. Other cost savings initiatives include focus on fewer, larger global brands and a reduction in the number of SKUs. During the first half of 2013, the Company incurred expenses of $31,388 related to this plan in addition to charges of $36,045 recognized during the fourth quarter of 2012. The Company expects it may incur additional restructuring charges of up to $6,000 during 2013 prior to potential pension charges. During the second quarter of 2013, the Company incurred partial pension settlement charges of $2,462 related to these restructuring activities.
HASBRO, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
(Thousands of Dollars and Shares Except Per Share Data)
Additional pension charges will result based on lump sum distribution made from the Company's U.S. defined benefit pension plan to plan participants during the remainder of 2013. For the full year 2013, the Company estimates gross cost savings from these actions of $45,000 to $48,000 and net savings, excluding restructuring costs, of $13,000 to $15,000, prior to pension charges.
The Company's business is highly seasonal with a significant amount of revenues occurring in the second half of the year. In 2012, 2011and 2010, the second half of the year accounted for 64%, 63% and 65% of the Company's net revenues, respectively.
The Company sells its products both within the United States and in a number of international markets. In recent years, the Company's international net revenues have experienced growth as the Company has sought to increase its international presence. Net revenues of the Company's International segment represented 44%, 43% and 39% of total net revenues in 2012, 2011 and 2010, respectively. One of the ways the Company has driven international growth is by opportunistically opening offices in certain markets to develop a greater presence. Since 2006, the Company has opened operations in seven new markets around the world; namely China, Brazil, Russia, Korea, Czech Republic, Peru and Colombia. These represent emerging markets where the Company believes that it can achieve higher revenue growth rates than it could achieve in more mature markets. Net revenues in emerging markets increased by 16% in 2012 compared to 2011 and represented more than 10% of consolidated net revenues in 2012.
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 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 lifestyle licensing, digital gaming, movie, television and online entertainment operations. In addition to these three primary segments, the Company's world-wide manufacturing and product sourcing operations are managed through its Global Operations segment.
The Company is committed to returning excess cash to its shareholders through share repurchases and dividends. As part of this initiative, from 2005 to 2011, the Company's Board of Directors (the "Board") adopted six successive share repurchase authorizations with a cumulative authorized repurchase amount of $2,825,000. The sixth authorization was approved in May 2011 for $500,000. At June 30, 2013, the Company had $71,777 remaining on this authorization. For the quarter and six-month periods ended June 30, 2013, the Company invested $35,354 and $55,531, respectively, to repurchase approximately 771 and 1,291 shares of common stock in the open market, respectively. During the three years ended 2012, the Company spent $1,159,730 to repurchase 28,918 shares in the open market. The Company has no obligation to repurchase shares under the 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. The Company intends, at its discretion to, opportunistically repurchase shares in the future subject to market conditions, the Company's other potential uses of cash and the Company's levels of cash generation. In addition to the share repurchase program, the Company also seeks to return cash to its shareholders through the payment of quarterly dividends. In February 2013 the Board increased the Company's quarterly dividend rate, effective for the dividend paid in May 2013, to $0.40 per share, an 11% increase from the prior quarterly dividend rate of $0.36 per share. This was the ninth dividend increase in the previous 10 years. During that ten-year period, the Company has increased its quarterly cash dividend from $0.03 to $0.40 per share.
HASBRO, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial
Condition and Results of Operations
(Thousands of Dollars and Shares Except Per Share Data)
SUMMARY OF FINANCIAL PERFORMANCE
The components of the results of operations, stated as a percent of net revenues, are illustrated below for the quarters and six months ended June 30, 2013 and July 1, 2012.
|
|
|
Quarter Ended
|
|
|
Six Months Ended
|
|
|
|
|
June 30, 2013
|
|
|
July 1, 2012
|
|
|
June 30, 2013
|
|
|
July 1, 2012
|
|
|
Net revenues
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
39.2
|
|
|
|
38.5
|
|
|
|
39.7
|
|
|
|
39.0
|
|
|
Royalties
|
|
|
6.6
|
|
|
|
8.7
|
|
|
|
7.0
|
|
|
|
8.4
|
|
|
Product development
|
|
|
6.2
|
|
|
|
6.2
|
|
|
|
6.6
|
|
|
|
6.5
|
|
|
Advertising
|
|
|
9.6
|
|
|
|
9.8
|
|
|
|
9.9
|
|
|
|
9.9
|
|
|
Amortization of intangibles
|
|
|
1.6
|
|
|
|
1.4
|
|
|
|
1.7
|
|
|
|
1.5
|
|
|
Program production cost amortization
|
|
|
1.3
|
|
|
|
1.2
|
|
|
|
1.1
|
|
|
|
0.9
|
|
|
Selling, distribution and administration
|
|
|
25.8
|
|
|
|
23.6
|
|
|
|
28.1
|
|
|
|
26.8
|
|
|
Operating profit
|
|
|
9.7
|
|
|
|
10.6
|
|
|
|
5.9
|
|
|
|
7.0
|
|
|
Interest expense
|
|
|
2.9
|
|
|
|
2.7
|
|
|
|
3.2
|
|
|
|
3.1
|
|
|
Interest income
|
|
|
(0.2
|
)
|
|
|
(0.2
|
)
|
|
|
(0.2
|
)
|
|
|
(0.3
|
)
|
|
Other (income) expense, net
|
|
|
0.3
|
|
|
|
0.7
|
|
|
|
0.5
|
|
|
|
0.4
|
|
|
Earnings before income taxes
|
|
|
6.7
|
|
|
|
7.4
|
|
|
|
2.4
|
|
|
|
3.8
|
|
|
Income tax expense
|
|
|
1.9
|
|
|
|
2.0
|
|
|
|
0.3
|
|
|
|
1.0
|
|
|
Net earnings
|
|
|
4.8
|
%
|
|
|
5.4
|
%
|
|
|
2.1
|
%
|
|
|
2.8
|
%
|
RESULTS OF OPERATIONS
The quarters ended June 30, 2013 and July 1, 2012 were each 13-week periods. The six-month period ended June 30, 2013 was a 26-week period whereas the six-month period ended July 1, 2012 was a 27-week period. Net earnings for the quarter and six-month periods ended June 30, 2013 were $36,480 and $29,809, respectively, compared to $43,427 and $40,848 for the respective periods of 2012. Diluted earnings per share were $0.28 and $0.23 for the quarter and six-month periods ended June 30, 2013, respectively, compared to diluted earnings per share of $0.33 and $0.31 for the respective periods in 2012. Net earnings for the quarter and six-month periods ended June 30, 2013 includes restructuring charges, net of tax, of $1,790, or $0.01 per share, and $20,567, or $0.16 per share, respectively, related to the multi-year cost savings initiative announced during the fourth quarter of 2012. Net earnings for the six months ended July 1, 2012 includes severance costs, net of tax, of $7,675, or $0.06 per share, related to a restructuring of certain business units and functions.
HASBRO, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial
Condition and Results of Operations
(Thousands of Dollars and Shares Except Per Share Data)
Consolidated net revenues for the quarter ended June 30, 2013 decreased 6% to $766,342 compared to $811,467 for the quarter ended July 1, 2012. For the six months ended June 30, 2013, consolidated net revenues decreased 2% to $1,430,036 from $1,460,317 for the six months ended July 1, 2012. Consolidated net revenues were positively impacted by foreign currency translation of approximately $1,000 for the quarter ended June 30, 2013 and negatively impacted by foreign currency translation of approximately $2,400 for the six months ended June 30, 2013. The following table presents net revenues by product category for the quarter and six-month periods ended June 30, 2013 and July 1, 2012.
|
|
|
Quarter Ended
|
|
|
Six Months Ended
|
|
|
|
|
June 30, 2013
|
|
|
July 1, 2012
|
|
|
%
Change
|
|
|
June 30, 2013
|
|
|
July 1, 2012
|
|
|
%
Change
|
|
|
Boys
|
|
$
|
253,684
|
|
|
|
389,062
|
|
|
|
-35
|
%
|
|
|
496,480
|
|
|
|
691,821
|
|
|
|
-28
|
%
|
|
Games
|
|
|
255,409
|
|
|
|
214,842
|
|
|
|
19
|
%
|
|
|
486,324
|
|
|
|
397,758
|
|
|
|
22
|
%
|
|
Girls
|
|
|
149,419
|
|
|
|
104,191
|
|
|
|
43
|
%
|
|
|
264,193
|
|
|
|
197,427
|
|
|
|
34
|
%
|
|
Preschool
|
|
|
107,830
|
|
|
|
103,372
|
|
|
|
4
|
%
|
|
|
183,039
|
|
|
|
173,311
|
|
|
|
6
|
%
|
|
Net revenues
|
|
$
|
766,342
|
|
|
|
811,467
|
|
|
|
|
|
|
|
1,430,036
|
|
|
|
1,460,317
|
|
|
|
|
|
For the quarter and six-month periods ended June 30, 2013, decreased net revenues in the boys category were partially offset by increased net revenues in the girls, games and preschool categories.
BOYS: Net revenues in the boys category decreased in the second quarter and first six months of 2013, driven by lower net revenues from MARVEL, BEYBLADE and STAR WARS products. The quarter and six-month periods ended July 1, 2012 benefited from significant shipments of MARVEL products related to two theatrical releases, THE AVENGERS in May 2012 and THE AMAZING SPIDER-MAN in July 2012, whereas the quarter and six-month periods ended June 30, 2013 only benefited from shipments of MARVEL products related to one theatrical release, IRON MAN 3 in May 2013. The timing of these movie releases resulted in difficult quarter-over-quarter and year-over-year comparisons of net revenues for the boys category. Furthermore, sales of STAR WARS products during the first six months of 2012 benefited from the re-release of STAR WARS: EPISODE I – THE PHANTOM MENACE in 3D in February 2012 for which there was not a comparable release in 2013.
GAMES: Net revenues in the games category increased 19% and 22% in the second quarter and first six months of 2013, respectively. These increases were primarily driven by higher revenue from MAGIC: THE GATHERING, TWISTER, including TWISTER RAVE, MONOPOLY, and JENGA, including sales of products co-branded under ANGRY BIRDS STAR WARS. Sales in the six-month period ended June 30, 2013 were positively impacted by higher sales of boys action gaming products, including TRANSFORMERS BOT SHOTS and ANGRY BIRDS STAR WARS products. To a lesser extent, several other games brands contributed to growth in the category for the quarter and six-month periods ended June 30, 2013, including ELEFUN & FRIENDS, DUEL MASTER, CANDYLAND and BOP-IT.
GIRLS: Net revenues in the girls category increased 43% and 34% for the quarter and six-month periods ended June 30, 2013, respectively, primarily related to net revenues from FURBY and MY LITTLE PONY products. FURBY products were a new initiative introduced to English speaking markets during the second half of 2012 and globally in the first half of 2013. Net revenues from MY LITTLE PONY products, which are supported by the successful television program, MY LITTLE PONY: FRIENDSHIP IS MAGIC, also contributed to higher net revenues in the girls category.
HASBRO, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial
Condition and Results of Operations
(Thousands of Dollars and Shares Except Per Share Data)
Net revenues from ONEDIRECTION and CARE BEARS products also contributed to growth in the quarter and six-month periods. Both brands are supported by entertainment. These higher net revenues were partially offset by declines in net revenues from LITTLEST PET SHOP and FURREAL FRIENDS products.
PRESCHOOL: The preschool category grew 4% and 6% for the quarter and six-month periods ended June 30, 2013. Increased revenues from the PLAY-DOH, PLAYSKOOL HEROES, which includes MARVEL products and TRANSFOMERS RESCUE BOTS, and SESAME STREET lines, were partially offset by lower net revenues from TONKA and other PLAYSKOOL products.
Operating profit for the quarter ended June 30, 2013 was $74,088, or 9.7% of net revenues, compared to $86,282, or 10.6% of net revenues, for the quarter ended July 1, 2012. Operating profit for the quarter ended June 30, 2013 included partial pension settlement charges related to restructuring activities of $2,462. Excluding these charges, operating profit totaled $76,550, or 10.0% of net revenues. The decrease in operating profit, absent restructuring charges, in the second quarter of 2013 compared to the second quarter of 2012 is primarily driven by the lower net revenues discussed above as well as higher selling, distribution and administration expenses.
Operating profit for the six-month period ended June 30, 2013 was $84,715, or 5.9% of net revenues, compared to an operating profit of $102,008, or 7.0% of net revenues, for the comparable six-month period in 2012. Operating profit for the six-month periods ended June 30, 2013 and July 1, 2012 included restructuring charges of $31,388 and $11,130, respectively. Excluding restructuring charges, operating profit totaled $116,103, or 8.1% of net revenues, for the six months of 2013 compared to $113,138, or 7.7% of net revenues, for the six months of 2012. The increase in operating profit, absent restructuring charges, in 2013 compared to 2012 primarily relates to lower expense levels. Certain fixed expenses were higher in 2012 due to the extra week of certain expenses in the first six months of 2012 compared to 2013. Foreign currency translation did not have a material impact on operating profit for the quarter and six-month periods ended June 30, 2013.
HASBRO, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial
Condition and Results of Operations
(Thousands of Dollars and Shares Except Per Share Data)
Most of the Company's revenues and operating profit are derived from its three principal business segments: the U.S. and Canada segment, the International segment and the Entertainment and Licensing segment, which are discussed in detail below. The following table presents net external revenues and operating profit data for the Company's three principal segments for the quarter and six-month periods ended June 30, 2013 and July 1, 2012.
|
|
|
Quarter Ended
|
|
|
Six Months Ended
|
|
|
|
|
June 30, 2013
|
|
|
July 1, 2012
|
|
|
% Change
|
|
|
June 30, 2013
|
|
|
July 1, 2012
|
|
|
% Change
|
|
|
Net Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. and Canada segment
|
|
$
|
389,243
|
|
|
|
406,588
|
|
|
|
-4
|
%
|
|
|
731,302
|
|
|
|
735,573
|
|
|
|
-1
|
%
|
|
International segment
|
|
|
340,176
|
|
|
|
360,493
|
|
|
|
-6
|
%
|
|
|
629,989
|
|
|
|
650,222
|
|
|
|
-3
|
%
|
|
Entertainment and Licensing segment
|
|
|
35,336
|
|
|
|
43,216
|
|
|
|
-18
|
%
|
|
|
66,110
|
|
|
|
72,552
|
|
|
|
-9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. and Canada segment
|
|
$
|
59,004
|
|
|
|
60,928
|
|
|
|
-3
|
%
|
|
|
96,747
|
|
|
|
75,339
|
|
|
|
28
|
%
|
|
International segment
|
|
|
14,793
|
|
|
|
29,851
|
|
|
|
-50
|
%
|
|
|
10,288
|
|
|
|
24,767
|
|
|
|
-58
|
%
|
|
Entertainment and Licensing segment
|
|
|
3,712
|
|
|
|
8,192
|
|
|
|
-55
|
%
|
|
|
8,997
|
|
|
|
15,930
|
|
|
|
-44
|
%
|
U.S. AND CANADA SEGMENT
The U.S. and Canada segment net revenues for the quarter ended June 30, 2013 decreased 4% to $389,243 from $406,588 for the quarter ended July 1, 2012. Net revenues for the six-month period ended June 30, 2013 were $731,302 compared to $735,573 for the six months ended July 1, 2012. The impact of currency translation was not material for the quarter and six-month periods ended June 30, 2013. For both the quarter and six-month periods, growth in the girls, games and preschool categories were more than offset by declines in the boys category.
In the boys category, lower sales of MARVEL, BEYBLADE and STAR WARS products for the quarter and six-month periods were slightly offset by higher net revenues from NERF and TRANSFORMERS products. In the six months ended June 30, 2013, net revenues of G.I. JOE products benefited from the release of G.I. JOE: RETALIATION in March 2013.
In the games category, higher net revenues from several game brands, including MAGIC: THE GATHERING, TWISTER, JENGA, ELEFUN & FRIENDS, MONOPOLY, CANDYLAND, and DUEL MASTER, contributed to the category's growth in the second quarter and first six months of 2013 compared to 2012.
In the girls category, higher net revenues from FURBY, MY LITTLE PONY and, to a lesser extent, CARE BEARS products in the quarter and six-month periods were partially offset by lower net revenues from LITTLEST PET SHOP products. Net revenues from FURREAL FRIENDS products were flat in the second quarter of 2013, but grew, along with net revenues from ONE DIRECTION products, for the six months ended June 30, 2013.
HASBRO, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial
Condition and Results of Operations
(Thousands of Dollars and Shares Except Per Share Data)
In the preschool category, higher net revenues from PLAY-DOH, PLAYSKOOL HEROES and SESAME STREET products were partially offset by decreased net revenues from TONKA and, to a lesser extent, other PLAYSKOOL products.
U.S. and Canada segment operating profit decreased in dollars but increased as a percent of net revenues to $59,004, or 15.2% of net revenues, for the quarter ended June 30, 2013 compared to $60,928, or 15.0% of net revenues, for the quarter ended July 1, 2012. For the quarter ended June 30, 2013, operating profit was negatively impacted by the lower net revenues discussed above, and higher selling, distribution and administration costs partially offset by lower advertising expense. Operating profit margin improved as a result of favorable product mix, primarily continued growth in net revenues from MAGIC: THE GATHERING products.
For the six months ended June 30, 2013, operating profit increased to $96,747, or 13.2% of net revenues, from $75,339, or 10.2% of net revenues, for the six-month period ended July 1, 2012. Operating profit for the first half of 2012 includes restructuring charges of $2,444. Excluding restructuring charges, operating profit for this period totaled $77,783, or 10.6% of net revenues. The increases in operating profit and operating profit margin for the six months ended June 30, 2013 were due to the favorable product mix discussed above as well as lower advertising expenses.
INTERNATIONAL SEGMENT
International segment net revenues were $340,176 for the quarter ended June 30, 2013 compared to $360,493 for the quarter ended July 1, 2012. Net revenues for the six months ended June 30, 2013 were $629,989 compared to $650,222 for the six months ended July 1, 2012. International segment net revenues for the second quarter of 2013 were positively impacted by currency translation of approximately $1,200 whereas the first half of 2013 were negatively impacted by currency translation of approximately $(1,800) as a result of the fluctuating strength of the U.S. dollar during 2013 compared to 2012. The following table presents net revenues by geographic region for the Company's International segment for the quarter and six-month periods ended June 30, 2013 and July 1, 2012.
|
|
|
Quarter Ended
|
|
|
Six Months Ended
|
|
|
|
|
June 30, 2013
|
|
|
July 1, 2012
|
|
|
%
Change
|
|
|
June 30, 2013
|
|
|
July 1, 2012
|
|
|
% Change
|
|
|
Europe
|
|
$
|
185,860
|
|
|
|
198,153
|
|
|
|
-6
|
%
|
|
|
378,449
|
|
|
|
406,266
|
|
|
|
-7
|
%
|
|
Latin America
|
|
|
82,816
|
|
|
|
82,779
|
|
|
|
0
|
%
|
|
|
128,529
|
|
|
|
121,748
|
|
|
|
6
|
%
|
|
Asia Pacific
|
|
|
71,500
|
|
|
|
79,561
|
|
|
|
-10
|
%
|
|
|
123,011
|
|
|
|
122,208
|
|
|
|
1
|
%
|
|
Net revenues
|
|
$
|
340,176
|
|
|
|
360,493
|
|
|
|
|
|
|
|
629,989
|
|
|
|
650,222
|
|
|
|
|
|
Net revenues in emerging markets, which includes but is not limited to Russia, Brazil, China and Korea, increased 24% in the second quarter of 2013 and 28% for the six months of 2013 compared to the comparable periods in 2012 while many of the developed economies have experienced a challenging economic environment during the first half of 2013 compared to 2012.
HASBRO, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial
Condition and Results of Operations
(Thousands of Dollars and Shares Except Per Share Data)
By product category and for both the quarter and six-month periods ended June 30, 2013, growth in the girls, games and preschool categories were more than offset by declines in the boys category. In the boys category, lower sales of BEYBLADE, MARVEL and STAR WARS products and, to a lesser extent, lower net revenues from KRE-O products, contributed to the category's decline for the quarter and six months ended June 30, 2013 compared to 2012. The games category experienced growth across several brands, including, but not limited to, MAGIC: THE GATHERING, action battling games, including STAR WARS and TRANSFOMERS, as well as JENGA and TWISTER. Growth in the girls category for both the quarter and the six-month periods was driven by net revenues from FURBY products, which were introduced to English-speaking markets in the second half of 2012 and certain non-English speaking markets during the first half of 2013, as well as higher net revenues from MY LITTLE PONY products. These increases were partially offset by decreased net revenues from LITTLEST PET SHOP and FURREAL FRIENDS products. Higher net revenues from PLAY-DOH products contributed to growth in the preschool category for both the quarter and six-month periods ended June 30, 2013. These higher net revenues were partially offset by lower net revenues from SESAME STREET and PLAYSKOOL products.
International segment operating profit decreased to $14,793, or 4.3% of net revenues, for the quarter ended June 30, 2013 from $29,851, or 8.3% of net revenues, for the quarter ended July 1, 2012. Operating profit and operating profit margin in the second quarter of 2013 was negatively impacted by the decline in net revenues discussed above and higher selling, distribution and administration expenses. These were partially offset by reduced advertising expenses in the second quarter of 2013. For the six months ended June 30, 2013, operating profit decreased to $10,288, or 1.6% of net revenues, from $24,767, or 3.8% of net revenues, for the six months ended July 1, 2012. Operating profit for the six months ended July 1, 2012 includes restructuring charges of $1,628. Absent these restructuring charges, operating profit and operating profit margin decreased as a result of the lower net revenues discussed above and higher selling, distribution and administration expense. Foreign currency translation did not have a material impact on International segment operating profit for the quarter and six-month periods ended June 30, 2013.
ENTERTAINMENT AND LICENSING SEGMENT
Entertainment and Licensing segment net revenues for the quarter ended June 30, 2013 decreased to $35,336 from $43,216 for the quarter ended July 1, 2012. Lower net revenues were primarily the result of lower television programming distribution sales, as the second quarter of 2012 included higher revenues from a multi-year digital distribution agreement. Net revenues for the six months ended June 30, 2013 were $66,110 compared to $72,552 for the six months ended July 1, 2012. In addition to lower net revenue from television programming distribution, licensing revenues were down primarily due to higher revenues in 2012 from licensing programs related to the 2011 theatrical release TRANSFORMERS: DARK OF THE MOON.
Entertainment and Licensing segment operating profit decreased to $3,712 for the quarter ended June 30, 2013 compared to $8,192 for the quarter ended July 1, 2012. For the six months ended June 30, 2013, operating profit decreased to $8,997 from $15,930 for the six months ended July 1, 2012. Operating profit for the first six months of 2013 and 2012 include restructuring charges of $1,729 and $555, respectively. Operating profit decreased primarily due to the impact of lower net revenues during the second quarter and first six months of 2013 compared to 2012.
HASBRO, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
(Thousands of Dollars and Shares Except Per Share Data)
COSTS AND EXPENSES
The Company's costs and expenses, stated as percentages of net revenues, are illustrated below for the quarter and six-month periods ended June 30, 2013 and July 1, 2012.
|
|
Quarter Ended
|
|
Six Months Ended
|
|
|
June 30, 2013
|
|
July 1, 2012
|
|
June 30, 2013
|
|
July 1, 2012
|
|
Cost of sales
|
39.2%
|
|
38.5%
|
|
39.7%
|
|
39.0%
|
|
Royalties
|
6.6
|
|
8.7
|
|
7.0
|
|
8.4
|
|
Product development
|
6.2
|
|
6.2
|
|
6.6
|
|
6.5
|
|
Advertising
|
9.6
|
|
9.8
|
|
9.9
|
|
9.9
|
|
Amortization of intangibles
|
1.6
|
|
1.4
|
|
1.7
|
|
1.5
|
|
Program production cost amortization
|
1.3
|
|
1.2
|
|
1.1
|
|
0.9
|
|
Selling, distribution and administration
|
25.8
|
|
23.6
|
|
28.1
|
|
26.8
|
Operating expenses for the quarter and six months ended June 30, 2013 and the six months ended July 1, 2012 each include costs resulting from restructuring activities. During the fourth quarter of 2012, the Company announced a multi-year cost savings initiative aimed at reducing annual operating costs by a target amount of $100,000 by 2015. This initiative includes an approximate 10% workforce reduction, facility consolidations and process improvements. During the second quarter of 2013, the Company recognized $2,462 of partial pension settlement charges related to the Company's defined benefit pension plan as a result of the amount of lump sum distributions due to the workforce reduction and voluntary retirement program established during the first quarter of 2013. For the six month period ended June 30, 2013, the Company recognized total charges of $31,388, primarily related to the voluntary retirement program. During the six months ended July 1, 2012, the Company incurred employee severance charges of $11,130 associated with measures to right size certain businesses and functions.
These expenses were included in the consolidated statement of operations as follows:
|
|
|
Quarter Ended
|
|
|
Six Months Ended
|
|
|
|
|
June 30, 2013
|
|
|
July 1, 2012
|
|
|
June 30, 2013
|
|
|
July 1, 2012
|
|
|
Cost of sales
|
|
$
|
-
|
|
|
|
-
|
|
|
|
8,493
|
|
|
|
2,764
|
|
|
Product development
|
|
|
-
|
|
|
|
-
|
|
|
|
3,515
|
|
|
|
2,479
|
|
|
Selling, distribution and administration
|
|
|
2,462
|
|
|
|
-
|
|
|
|
19,380
|
|
|
|
5,887
|
|
|
Total
|
|
$
|
2,462
|
|
|
|
-
|
|
|
|
31,388
|
|
|
|
11,130
|
|
Cost of sales decreased in dollars but increased as a percent of net revenues to $300,570, or 39.2% of net revenues, for the quarter ended June 30, 2013 from $311,984, or 38.5% of net revenues, for the quarter ended July 1, 2012. For the six months ended June 30, 2013, cost of sales were $568,142, or 39.7% of net revenues, compared to $569,020, or 39.0% of net revenues, for the six months ended July 1, 2012. Absent the restructuring charges above, cost of sales as a percentage of net revenues were 39.1% and 38.8% for the first six months of 2013 and 2012, respectively.
HASBRO, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
(Thousands of Dollars and Shares Except Per Share Data)
While the decrease in cost of sales for the quarter and six months primarily reflects decreased net revenues compared to 2012, the increase as a percentage of revenues, absent restructuring charges, is due to the mix of products sold, primarily due to the royalty-bearing products in 2013 compared to 2012. Royalty-bearing products generally carry higher pricing and, therefore, have lower cost of sales as a percent of net revenues. Increased costs of sales as a percentage of net revenues is primarily due to lower sales of royalty-bearing products, partially offset by the favorable impact of products such as those branded under MAGIC: THE GATHERING.
Royalty expense for the quarter ended June 30, 2013 decreased to $50,229, or 6.6% of net revenues, from $70,893, or 8.7% of net revenues, for the quarter ended July 1, 2012. Royalty expense for the six months ended June 30, 2013 decreased to $99,621, or 7.0% of net revenues, from $123,327, or 8.4% of net revenues. Fluctuations in royalty expense are generally related to the volume of entertainment-driven products sold in a given period, especially if there is a major motion picture release. During the second quarter and first half of 2013, the Company experienced lower sales of MARVEL, BEYBLADE and, to a lesser extent, STAR WARS products. In 2012, sales of MARVEL products benefited from the theatrical release of THE AVENGERS in May 2012 and THE AMAZING SPIDER-MAN in July 2012. In addition, sales of STAR WARS products during the first half of 2012 benefited from the theatrical re-release of STAR WARS: EPISODE I – THE PHANTOM MENACE in 3D during February 2012. In 2013, sales related to MAVEL's theatrical release of IRON MAN 3 were not as significant as those in the prior year, which included THE AVENGERS and SPIDER-MAN products.
Product development expense for the quarter ended June 30, 2013 decreased to $47,904 from $50,113 for the quarter ended July 1, 2012; however, were consistent as a percentage of net revenues at 6.2% in both periods. Product development expense for the six months ended June 30, 2013 was flat at $95,089, or 6.6% of net revenues, compared to $95,039, or 6.5% of net revenues, for the six months ended July 1, 2012 and includes restructuring charges of $3,515 and $2,479, respectively. Absent the impact of these restructuring charges, product development expense decreased slightly in dollars and remained consistent as a percentage of net revenues in 2013 compared to 2012.
Advertising expense for the quarter ended June 30, 2013 decreased to $73,657, or 9.6% of net revenues, from $79,297, or 9.8% of net revenues, for the quarter ended July 1, 2012. Advertising expense for the six months ended June 30, 2013 decreased to $140,791, or 9.9% of net revenues, from $144,342, or 9.9% of net revenues. The decrease in advertising expense in dollars for both the quarter and six months reflects the lower net revenues in the second quarter and first six months of 2013 compared to 2012.
Amortization of intangibles increased to $12,037, or 1.6% of net revenues, in the second quarter of 2013 from $11,501, or 1.4% of net revenues, in the second quarter of 2012. Amortization of intangibles increased to $23,453, or 1.7% of net revenues for the six months ended June 30, 2013 from $22,156, or 1.5% of net revenues, for the six months ended July 1, 2012. Increased amortization in 2013 compared to 2012 was the result of higher expense related to certain intangibles that are amortized based on actual and projected revenues.
Program production cost amortization was flat in the second quarter of 2013 at $10,309, or 1.3% of net revenues, compared to $10,018, or 1.2% of net revenues, in the second quarter of 2012. Program product cost amortization for the six months ended June 30, 2013 increased to $16,032, or 1.1% of net revenues, from $13,156, or 0.9% of net revenues for the six months ended July 1, 2012. Program production costs are capitalized as incurred and amortized using the individual-film-forecast method. The increase reflects the higher number of television programs produced and distributed in 2013 compared to 2012.
HASBRO, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
(Thousands of Dollars and Shares Except Per Share Data)
For the quarter ended June 30, 2013, the Company's selling, distribution and administration expenses increased to $197,548, or 25.8% of net revenues, from $191,379, or 23.6% of net revenues, for the quarter ended July 1, 2012. Selling, distribution and administration expenses for the second quarter of 2013 include partial pension settlement charges related to restructuring activities of $2,462. Absent the impact of these charges, selling, distribution and administration expenses were 25.5% of net revenues for the quarter ended June 30, 2013. The increase in the second quarter was due to several items, including higher depreciation expense associated with systems and new facilities, compensation, and other administrative expenses. Selling, distribution and administration expense for the first six months of 2013 increased to $402,193, or 28.1% of net revenues, from $391,269, or 26.8% of net revenues, for the comparable period in 2012. Selling, distribution and administration expenses for the first six months of 2013 and 2012 include restructuring charges of $19,380 and $5,887, respectively. Absent the impact of restructuring charges, selling, distribution and administration expense decreased to $382,813, or 26.7% of net revenues, for the six months ended June 30, 2013, compared to $385,382, or 26.4% of net revenues, for the six months ended July 1, 2012. Selling, distribution and administration expense in 2012 included an extra week of expenses as compared to 2013.
NON-OPERATING (INCOME) EXPENSE
Interest expense for the quarter and six months ended June 30, 2013 was $22,225 and $45,204, respectively, compared to $22,413 and $45,525 for the comparable periods of 2012. The impact of lower average short-term borrowings in 2013 compared to 2012 as well as an extra week of expense in the first quarter of 2012 compared to 2013 was largely offset by higher amortization of deferred debt expense associated with the Company's revolving credit agreement.
Interest income for the quarter ended June 30, 2013 was $1,432 compared to $1,689 for the quarter ended July 1, 2012. Interest income for the six months ended June 30, 2013 was $2,913 compared to $4,164 in 2012. A lower effective interest rate resulted in decreased interest income for the quarter and six-month periods.
Other (income) expense, net, was $2,219 for the second quarter of 2013 compared to $5,899 for the second quarter of 2012. Other (income) expense, net for the six months ended June 30, 2013 was $7,841 compared to $5,854 for the six months ended July 1, 2012. Other (income) expense, net in the quarter and six month periods includes the Company's 50% share in the losses (earnings) of The Hub Network. During the second quarter of 2013, the Company recognized gains of $(131) related to The Hub Network compared to losses of $2,408 in the comparable period of 2012. During the first six months of 2013, the Company recognized losses of $933 compared to losses of $4,194 during the first six months of 2012. This was partially offset by higher foreign exchange losses in the quarter and six months ended June 30, 2013.
HASBRO, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
(Thousands of Dollars and Shares Except Per Share Data)
INCOME TAXES
Income taxes totaled $14,596 on pre-tax earnings of $51,076 in the second quarter of 2013 compared to income taxes of $16,232 on pre-tax earnings of $59,659 in the second quarter of 2012. For the six month period, income taxes totaled $4,774 on pre-tax earnings of $34,583 in 2013 compared to income taxes of $13,945 on pre-tax earnings of $54,793 in 2012. Both periods, as well as the full year 2012, are impacted by certain discrete tax events including the accrual of potential interest and penalties on certain tax positions. During the first six months of 2013, favorable discrete tax adjustments were a net benefit of $4,667 compared to a net benefit of $739 for the first six months of 2012. The favorable discrete tax adjustment for the first six months of 2013 includes a decrease in liabilities for uncertain tax positions due to the resolution of the related matter. Absent these items, the adjusted tax rate for the first six months of 2013 and 2012 were 27.4% and 26.8%, respectively. The adjusted rate of 27.4% for the six months ended June 30, 2013 is comparable to the full year 2012 adjusted rate of 27.0%.
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.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically generated a significant amount of cash from operations. In 2012 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 half of 2013, the Company continued to fund its working capital needs primarily through cash flows from operations and, when needed, sales of 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 2013. 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.
HASBRO, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
(Thousands of Dollars and Shares Except Per Share Data)
As of June 30, 2013 the Company's cash and cash equivalents totaled $1,022,345, 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 the majority of such earnings are indefinitely reinvested by the Company. Such international cash balances are not available to fund cash requirements
in the United States unless the Company changes its reinvestment policy. The Company 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 30, 2013 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.
Net cash provided by operating activities for the first six months of 2013 was $298,136 compared to $200,781 in the first six months of 2012, and $632,151 during the trailing twelve-month period ended June 30, 2013 compared to $467,995 during the trailing twelve-month period ended July 1, 2012. Operating cash flows for the first six months of 2013 include a $30,000 royalty advance payment related to MARVEL products. Accounts receivable decreased 2% to $640,503 at June 30, 2013 from $651,410 at July 1, 2012. The accounts receivable balance at June 30, 2013 includes a decrease of approximately $4,400 as a result of a stronger U.S. dollar at June 30, 2013 as compared to July 1, 2012. Absent the impact of foreign currency translation, the decrease in accounts receivable are the result of lower net revenues for the quarter ended June 30, 2013 compared to the quarter ended July 1, 2012 and lower collections. Days sales outstanding increased to 75 days at June 30, 2013 from 72 days at July 1, 2012 primarily due to growth in certain markets which have longer payment terms and, to a lesser extent, the impact of television programming receivables.
Inventories decreased approximately 14% to $359,969 at June 30, 2013 from $416,905 at July 1, 2012. The inventory balance at June 30, 2013 includes a decrease of approximately $1,400 as a result of a stronger U.S. dollar at June 30, 2013 as compared to July 1, 2012. Absent the impact of foreign exchange translation, inventories decreased approximately 13%. Inventories declined approximately 30% in the U.S. and Canada segment as a result of the Company's efforts to reduce inventories in this segment, partially offset by higher International segment inventory balances in support of growth in emerging markets, particularly Brazil, Russia, China and Korea.
HASBRO, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
(Thousands of Dollars and Shares Except Per Share Data)
Prepaid expenses and other current assets increased 15% to $343,385 at June 30, 2013 from $297,580 at July 1, 2012. Higher prepaid expenses and other current assets are primarily due to increases in prepaid royalties primarily related to prepaid royalties previously recorded as long-term which have become current, as well as an advance paid in 2013 related to the MARVEL license and The HUB Network as well as higher deferred income taxes. These increases were partially offset by lower non-income based tax receivables, primarily value added taxes in Europe, compared to 2012 as a result of collections during the remainder of 2012 and the first half of 2013. The high balance in 2012 was primarily due to changes in the legal structure of the Company's European business.
Accounts payable and accrued liabilities increased 9% to $671,346 at June 30, 2013 from $618,088 at July 1, 2012. Higher severance and other closing costs resulting from the multi-year cost savings initiative announced during the fourth quarter of 2012 and primarily relating to the voluntary retirement program established during the first quarter of 2013 were partially offset by decreased accrued royalties as a result of lower sales of royalty-bearing products, including BEYBLADE and STAR WARS products, as well as utilization of royalty advances, which are included in prepaid expenses and other current assets, in 2013 related to MARVEL products. Higher accrued dividends due to the increased dividend rate in 2013 and higher non-income based taxes also contributed to higher accounts payable and accrued liabilities at June 30, 2013.
Property, plant, and equipment, net increased to $237,774 at June 30, 2013 from $223,383 at July 1, 2012. Goodwill and other intangible assets, net decreased to $867,979 at June 30, 2013 from $919,681 at July 1, 2012. This decrease is entirely due to amortization of intangibles.
Other assets decreased 3% to $706,344 at June 30, 2013 from $725,831 at July 1, 2012. This decrease primarily relates to prepaid royalties previously recorded as long-term which have become current at June 30, 2013, primarily related to the MARVEL license. In addition, the decrease is also due to the termination of the interest rate swap agreements in November 2012 for which a balance of $14,662 was included in other assets at July 1, 2012. These decreases were partially offset by increases in long-term receivables, deferred taxes and television programming.
Other liabilities increased 24% to $465,656 at June 30, 2013 from $376,981 at July 1, 2012. Higher non-current liabilities are primarily the result of higher liabilities related to defined benefit pension plans and uncertain income tax positions at June 30, 2013 compared to July 1, 2012.
Net cash utilized by investing activities was $49,096 in the first half of 2013 compared to $44,143 in 2012. Additions to property, plant and equipment were $53,555 in 2013 compared to $50,084 in 2012. The net utilization in 2012 included a cash distribution from The HUB TV Network of approximately $7,100.
Net cash utilized by financing activities was $67,139 in the first half of 2013 compared to $14,085 in the first half of 2012. Cash payments related to purchases of the Company's common stock were $55,932 for the first half of 2013 compared to $9,926 in 2012. At June 30, 2013, the Company had $71,777 remaining available under a $500,000 May 2011 Board of Directors share repurchase authorization. There were no dividends paid in the first quarter of 2013 as the payment historically made in February was accelerated and paid in December 2012, thereby, dividends paid were $52,125 in the first half of 2013 compared to $85,317 in the first half of 2012. The second quarter 2013 dividends were paid at the new quarterly rate of $0.40 per share compared to the $0.36 per share rate in 2012. Repayments of short-term borrowings were $31,147 in the six months ended June 30, 2013 compared to proceeds of $39,756 in 2012. Cash proceeds from stock option transactions were $62,465 in 2013 compared to $33,422 in 2012.
HASBRO, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
(Thousands of Dollars and Shares Except Per Share Data)
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. The maturities of the 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 30, 2013 the Company had approximately $185,500 in borrowings outstanding related to the Program.
The Company has a revolving credit agreement (the "Agreement"), which provides it with a $700,000 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 30, 2013. The Company had no borrowings outstanding under its committed revolving credit facility at June 30, 2013. However, the Company had letters of credit outstanding under this facility as of June 30, 2013 of approximately $1,000 and borrowings under the Company's commercial paper program were approximately $185,500. Amounts available and unused under the committed line, less outstanding balances under the commercial paper program, as of June 30, 2013 were approximately $513,500. The Company also has other uncommitted lines from various banks, of which approximately $25,100 was utilized at June 30, 2013. Of the amount utilized under the uncommitted lines, approximately $7,400 and $17,700 represent outstanding borrowings and letters of credit, respectively.
The Company has principal amounts of long-term debt at June 30, 2013 of $1,384,895 due at varying times from 2014 through 2040. The Company also had letters of credit and other similar instruments of approximately $203,600 and purchase commitments of $486,200 outstanding at June 30, 2013. Letters of credit and similar instruments include $184,990 related to the defense of tax assessments in Mexico. These assessments relate to transfer pricing that the Company is defending and expects to be successful in sustaining its position.
In July 2013, the Company entered into amendments with Disney related to its license agreements for the MARVEL and STAR WARS properties. These amendments include additional minimum guaranteed royalty payments aggregating $305,000 through 2020. Of this amount, the Company expects to pay $75,000 during the third quarter of 2013. Other contractual obligations and commercial commitments, as detailed in the Company's Annual Report on Form 10-K for the year ended December 30, 2012, 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 30, 2012, does not include certain tax liabilities recorded related to uncertain tax positions. These liabilities were $123,085 at June 30, 2013, and are included as a component of other liabilities in the accompanying consolidated balance sheets.
HASBRO, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
(Thousands of Dollars and Shares Except Per Share Data)
The Company believes that it is reasonably possible that within the next twelve months these liabilities for unrecognized tax benefits may decrease by up to $68,000, of which $28,000 may be reclassified into accrued income taxes. For the remaining balance, the Company does not know the ultimate resolution of these liabilities and as such, does not know the ultimate timing of payments, if required, related to these liabilities.
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 30, 2012.
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 Europe, 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 2013 through 2014 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 balance sheet. The Company does not speculate in foreign currency exchange contracts. At June 30, 2013, these contracts had net unrealized gains of $14,665, of which $13,974 are recorded in prepaid expenses and other current assets, $1,926 are recorded in other assets and $1,235 are recorded in other liabilities.
HASBRO, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
(Thousands of Dollars and Shares Except Per Share Data)
Included in accumulated other comprehensive loss at June 30, 2013 are deferred gains, net of tax, of $10,334, related to these derivatives.
At June 30, 2013, the Company had fixed rate long-term debt, excluding fair value adjustments, of $1,384,895. The Company was party to several interest rate swap agreements, with a total notional amount of $400,000, to adjust the amount of long-term debt subject to fixed interest rates. The interest rates were matched with specific long-term debt issues and were designated and effective as hedges of the change in the fair value of the associated debt. Changes in fair value of these contracts
were wholly offset in earnings by changes in the fair value of the related long-term debt. In November 2012, these interest rate swap agreements were terminated. The fair value was recorded as an adjustment to long-term debt and is now being amortized through the statement of operations over the life of the remaining long-term debt using a straight-line method. At June 30, 2013, the adjustment to long-term debt was $7,458. As a result of this termination, long-term debt is no longer affected by variable interest rates and, thereby, earnings and cash flows are not expected to be impacted by changes in interest rates.
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 30, 2013. 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 30, 2013, 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 has outstanding tax assessments in Mexico relating to the years 2000 through 2007. These tax assessments, which total approximately $245 million (at June 30, 2013 exchange rates) in aggregate (including interest, penalties, and inflation updates) are based on transfer pricing issues between the Company's subsidiaries with respect to the Company's operations in Mexico. The Company has filed suit in the Federal Tribunal of Fiscal and Administrative Justice in Mexico challenging the 2000 through 2004 assessments. The Company filed the suit related to the 2000 and 2001 assessments in May 2009; the 2002 assessment in June 2008; the 2003 assessment in March 2009; and the 2004 assessment in July 2011. The Company is challenging the 2005 and 2007 assessments through administrative appeals and expects to file for administrative appeal with respect to the 2006 assessment. The Company expects to be successful in sustaining its positions for all of these years. However, in order to challenge the outstanding tax assessments related to the years 2000 through 2004 in court, as is usual and customary in Mexico in these matters, the Company was required to either make a deposit or post a bond in the full amount of the assessments. The Company elected to post bonds and accordingly, as of June 30, 2013, bonds totaling approximately $185 million (at June 30, 2013 exchange rates) have been posted related to the assessments for the years 2000 through 2004. These bonds guarantee the full amounts of the outstanding related tax assessments in the event the Company is not successful in its challenge to them. The Company does not currently expect that it will be required to make a deposit or post bonds related to the 2005, 2006 or 2007 assessments as the Company is challenging, or plans to challenge, these through administrative appeals.
An inventor has brought claims against the Company based on two license agreements between the parties. One license agreement relates to certain products included in the SUPER SOAKER line. The other agreement relates to certain products included in the NERF line. The inventor is claiming that the license agreements require the payment of royalties by the Company on significantly more products in those respective lines than the Company believes is the case. The inventor is claiming damages for all claims and products under the two license agreements in excess of $90,000. The claims in this matter related to NERF products are currently being pursued in binding arbitration. The demand for arbitration was made by the plaintiff in February of 2013 and the arbitration is currently expected to occur in the third quarter of 2013. The claims related to the SUPER SOAKER products are subject to a complaint filed in February 2013 in the Northern District of Georgia. The Company is disputing the inventor's contractual interpretations and claims in both matters, the Company believes it has meritorious defenses, and the Company intends to continue vigorously defending its position.
The Company is currently party to certain other 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 30, 2012 (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 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 and introduce 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 expand consumer demand for its product offerings and do not significantly compete with the Company's existing product offerings;
|
|
·
|
the Company's ability to manufacture, source and ship new and continuing 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 development, manufacturing, marketing, royalty and other costs;
|
|
·
|
recessions or other economic downturns affecting the U.S., Europe, or any of the Company's other major markets which can negatively impact the retail and credit markets, and the financial health of the Company's retail customers and consumers, and which can result in lower employment levels, less consumer disposable income, lower consumer confidence and, as a consequence, lower consumer spending, including lower spending on purchases of the Company's products;
|
|
·
|
potential difficulties or delays the Company may experience in implementing 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 in the various markets in which the Company and its customers and suppliers operate throughout the world, which impact the Company's ability and cost to manufacture and deliver products, such as higher fuel and other commodity prices, higher labor costs, higher transportation costs, outbreaks of diseases which affect public health and the movement of people and goods, and other factors, including government regulations, which can create potential manufacturing and transportation delays or impact costs;
|
|
·
|
delays, increased costs or difficulties associated with the development and offering of 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 by the Company's retail customers 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 the inventories they are willing to carry, 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, slowdowns or strikes, which may impact the Company's ability to manufacture or deliver product 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 health conditions and other factors affecting social and economic activity in China, affecting the movement of people and products into and out of China, impacting 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 Hub Network, the Company's cable television joint venture with Discovery Communications, the programming appearing on The Hub Network, products related to The Hub Network's programming, and other factors impacting the financial performance of The Hub Network;
|
|
·
|
consumer interest in and acceptance of programming and entertainment created by Hasbro Studios, as well as products related to Hasbro Studios' programming and entertainment;
|
|
·
|
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 and potentially create liability 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;
|
|
·
|
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 secure, maintain and renew popular licenses and the ability to attract and retain employees in a competitive environment;
|
|
·
|
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 regulatory investigations could entail significant expense and result in significant fines or other harm to the Company's business;
|
|
·
|
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 sanctions for failure to comply with applicable regulations;
|
|
·
|
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)
|
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 2013
4/1/13 – 4/28/13
|
-
|
-
|
-
|
$107,115,703
|
|
May 2013
4/29/13 – 6/2/13
|
401,650
|
$47.13
|
401,650
|
$88,184,342
|
|
June 2013
6/3/13 – 6/30/13
|
369,561
|
$44.40
|
369,561
|
$71,776,804
|
|
Total
|
771,211
|
$45.82
|
771,211
|
$71,776,804
|
On May 19, 2011, the Company announced that its Board of Directors authorized the repurchase of $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 the 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
|
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.)
|
|
|
|
|
|
|
3.6
|
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 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 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 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 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 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.)
|
|
|
|
|
|
|
10.1
|
Form of Fair Market Value Stock Option Agreement under the Hasbro, Inc. Restated 2003 Stock Incentive Performance Plan. (Applicable to Duncan Billing, John Frascotti, Wiebe Tinga and Deborah Thomas and certain other employees of the Company.)
|
|
|
|
|
|
|
10.2
|
Form of Fair Market Value Stock Option Agreement under the Hasbro, Inc. Restated 2003 Stock Incentive Performance Plan.
|
|
|
|
|
|
|
10.3
|
Form of Contingent Stock Performance Award under the Hasbro, Inc. Restated 2003 Stock Incentive Performance Plan. (Applicable to Duncan Billing, John Frascotti, Wiebe Tinga and Deborah Thomas and certain other employees of the Company.)
|
|
|
|
|
|
|
10.4
|
Form of Contingent Stock Performance Award for Brian Goldner under the Hasbro, Inc. Restated 2003 Stock Incentive Performance Plan.
|
|
|
|
|
|
|
10.5
|
Form of Restricted Stock Unit Agreement under the Hasbro, Inc. Restated 2003 Stock Incentive Performance Plan. (Applicable to Duncan Billing, John Frascotti, Wiebe Tinga and Deborah Thomas and certain other employees of the Company.)
|
|
|
|
|
|
|
10.6
|
Form of Restricted Stock Unit Agreement for Brian Goldner under the Hasbro, Inc. Restated 2003 Stock Incentive Performance Plan.
|
|
|
|
|
|
|
10.7
|
Form of Non-Competition, Non-Solicitation and Confidentiality Agreement. (Applicable to Duncan Billing, John Frascotti, Wiebe Tinga and 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 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: July 31, 2013
|
By: /s/ Deborah Thomas
|
|
|
Deborah Thomas
|
|
|
|
|
|
Executive Vice President and
|
|
|
Chief Financial Officer
|
|
|
(Duly Authorized Officer and
|
|
|
Principal Financial Officer)
|
HASBRO, INC. AND SUBSIDIARIES
Quarterly Report on Form 10-Q
For the Period Ended June 30, 2013
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
|
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.)
|
|
|
|
|
|
3.6
|
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 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 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 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 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 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.)
|
|
|
|
|
10.1
|
Form of Fair Market Value Stock Option Agreement under the Hasbro, Inc. Restated 2003 Stock Incentive Performance Plan. (Applicable to Duncan Billing, John Frascotti, Wiebe Tinga and Deborah Thomas and certain other employees of the Company.)
|
|
|
|
|
10.2
|
Form of Fair Market Value Stock Option Agreement under the Hasbro, Inc. Restated 2003 Stock Incentive Performance Plan.
|
|
|
|
|
10.3
|
Form of Contingent Stock Performance Award under the Hasbro, Inc. Restated 2003 Stock Incentive Performance Plan. (Applicable to Duncan Billing, John Frascotti, Wiebe Tinga and Deborah Thomas and certain other employees of the Company.)
|
|
|
|
|
10.4
|
Form of Contingent Stock Performance for Brian Goldner Award under the Hasbro, Inc. Restated 2003 Stock Incentive Performance Plan.
|
|
|
|
|
10.5
|
Form of Restricted Stock Unit Agreement under the Hasbro, Inc. Restated 2003 Stock Incentive Performance Plan. (Applicable to Duncan Billing, John Frascotti, Wiebe Tinga and Deborah Thomas and certain other employees of the Company.)
|
|
|
|
|
10.6
|
Form of Restricted Stock Unit Agreement for Brian Goldner under the Hasbro, Inc. Restated 2003 Stock Incentive Performance Plan.
|
|
|
|
|
10.7
|
Form of Non-Competition, Non-Solicitation and Confidentiality Agreement. (Applicable to Duncan Billing, John Frascotti, Wiebe Tinga and 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.
|