Edgar Filing: HASBRO INC

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

_________________

FORM 10-Q

______________

(Mark One)

[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 26, 2016

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 1-6682

_______________

HASBRO, INC.

(Exact name of registrant as specified in its charter)

Rhode Island	05-0155090
(State of Incorporation)	(I.R.S. Employer Identification No.)

1027 Newport Avenue, Pawtucket, Rhode Island 02861

(Address of Principal Executive Offices, Including Zip Code)

(401) 431-8697

(Registrant's Telephone Number, Including Area Code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [x] No [ ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [x] No [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer [x]	Accelerated filer [ ]
Non-accelerated filer (Do not check if a smaller reporting company) [ ]	Smaller reporting Company [ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [x]

The number of shares of Common Stock, par value $.50 per share, outstanding as of July 18, 2016 was 125,407,912.

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.


HASBRO, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Thousands of Dollars Except Share Data)
(Unaudited)
				June 26,		June 28,		December 27,
				2016		2015		2015
ASSETS
Current assets
	Cash and cash equivalents			$	924,098		858,458		976,750
	Accounts receivable, less allowance for doubtful accounts of $32,800,
		$16,300 and $14,900			703,821		709,437		1,217,850
	Inventories				572,391		403,789		384,492
	Prepaid expenses and other current assets				323,046		360,101		286,506
			Total current assets		2,523,356		2,331,785		2,865,598

Property, plant and equipment, less accumulated depreciation of $375,300,
		$359,300 and $363,600			242,607		225,911		237,527

Other assets
	Goodwill				592,806		592,802		592,695
	Other intangibles, net, accumulated amortization of $858,700, $823,800
		and $841,300			263,425		298,231		280,807
	Other				722,191		768,960		744,090
		Total other assets			1,578,422		1,659,993		1,617,592

		Total assets		$	4,344,385		4,217,689		4,720,717

LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS
	AND SHAREHOLDERS' EQUITY
Current liabilities
	Short-term borrowings			$	5,400		167,877		164,563
	Accounts payable				214,243		185,631		241,210
	Accrued liabilities				525,377		447,380		658,874
		Total current liabilities			745,020		800,888		1,064,647

Long-term debt					1,547,753		1,546,477		1,547,115
Other liabilities					402,614		400,432		404,883
		Total liabilities			2,695,387		2,747,797		3,016,645

Redeemable noncontrolling interests					36,465		41,387		40,170

Shareholders' equity
	Preference stock of $2.50 par value. Authorized 5,000,000 shares; none
			issued		-		-		-
	Common stock of $.50 par value. Authorized 600,000,000 shares; issued
		209,694,630 at June 26, 2016, June 28, 2015, and December 27, 2015			104,847		104,847		104,847
	Additional paid-in capital				945,802		850,582		893,630
	Retained earnings				3,825,289		3,583,803		3,852,321
	Accumulated other comprehensive loss				(174,301)		(103,476)		(146,001)
	Treasury stock, at cost; 84,241,018 shares at June 26, 2016; 84,781,723
		shares at June 28, 2015; and 84,899,200 shares at December 27, 2015			(3,089,104)		(3,007,251)		(3,040,895)
		Total shareholders' equity			1,612,533		1,428,505		1,663,902

		Total liabilities, redeemable noncontrolling interests and
			shareholders' equity	$	4,344,385		4,217,689		4,720,717

See accompanying condensed notes to consolidated financial statements.

		HASBRO, INC. AND SUBSIDIARIES
		Consolidated Statements of Operations
		(Thousands of Dollars Except Per Share Data)
		(Unaudited)

			Quarter Ended				Six Months Ended
			June 26,		June 28,		June 26,		June 28,
			2016		2015		2016		2015
Net revenues			$	878,945		797,658		1,710,125		1,511,158
Costs and expenses:
	Cost of sales			321,676		295,399		611,916		543,134
	Royalties			69,408		57,069		139,377		116,158
	Product development			63,671		57,609		120,835		109,506
	Advertising			86,957		78,365		166,816		146,107
	Amortization of intangibles			8,691		13,348		17,382		26,299
	Program production cost amortization			5,033		7,220		11,219		18,316
	Selling, distribution and administration			238,635		213,148		471,790		421,933
		Total costs and expenses		794,071		722,158		1,539,335		1,381,453
Operating profit				84,874		75,500		170,790		129,705
Non-operating (income) expense:
	Interest expense			23,914		24,186		47,958		48,771
	Interest income			(2,312)		(690)		(4,525)		(1,620)
	Other (income) expense, net			(3,748)		(1,642)		1,124		(5,407)
		Total non-operating expense, net		17,854		21,854		44,557		41,744
Earnings before income taxes				67,020		53,646		126,233		87,961
Income tax expense				17,601		13,364		29,843		21,858
Net earnings				49,419		40,282		96,390		66,103
Net loss attributable to noncontrolling interests				(2,687)		(1,527)		(4,467)		(2,373)
Net earnings attributable to Hasbro, Inc.			$	52,106		41,809		100,857		68,476


Net earnings attributable to Hasbro, Inc. per common share:
	Basic		$	0.42		0.33		0.80		0.55
	Diluted		$	0.41		0.33		0.79		0.54
Cash dividends declared per common share			$	0.51		0.46		1.02		0.92

See accompanying condensed notes to consolidated financial statements.

		HASBRO, INC. AND SUBSIDIARIES
		Consolidated Statements of Comprehensive Earnings
		(Thousands of Dollars)
		(Unaudited)

			Quarter Ended				Six Months Ended
			June 26,		June 28,		June 26,		June 28,
			2016		2015		2016		2015
Net earnings			$	49,419		40,282		96,390		66,103
Other comprehensive earnings (loss):
	Foreign currency translation adjustments			7,825		642		19,965		(46,669)
	Net (losses) gains on cash flow hedging activities, net of tax			(8,258)		(9,672)		(24,044)		52,628
	Unrealized holding (losses) gains on available-for-sale
		securities, net of tax		(327)		715		1,353		941
	Reclassifications to earnings, net of tax:
		Net gains on cash flow hedging activities		(10,363)		(9,458)		(27,924)		(17,419)
		Unrecognized pension and postretirement amounts		1,175		1,293		2,350		2,497
Total other comprehensive loss, net of tax				(9,948)		(16,480)		(28,300)		(8,022)
Comprehensive earnings				39,471		23,802		68,090		58,081
Comprehensive loss attributable to noncontrolling interests				(2,687)		(1,527)		(4,467)		(2,373)
Comprehensive earnings attributable to Hasbro, Inc.			$	42,158		25,329		72,557		60,454

		See accompanying condensed notes to consolidated financial statements.

HASBRO, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Thousands of Dollars)
(Unaudited)

				Six Months Ended
				June 26,		June 28,
				2016		2015
Cash flows from operating activities:
	Net earnings			$	96,390		66,103
	Adjustments to reconcile net earnings to net cash provided by operating activities:
		Depreciation of plant and equipment			57,091		50,749
		Amortization of intangibles			17,382		26,299
		Program production cost amortization			11,219		18,316
		Deferred income taxes			8,702		(5,234)
		Stock-based compensation			25,577		21,714
Change in operating assets and liabilities:
		Decrease in accounts receivable			519,376		333,467
		Increase in inventories			(185,048)		(100,563)
		(Increase) decrease in prepaid expenses and other current assets			(60,483)		435
		Program production costs			(25,387)		(21,557)
		Decrease in accounts payable and accrued liabilities			(193,785)		(162,483)
		Other			(2,193)		8,858
			Net cash provided by operating activities		268,841		236,104
Cash flows from investing activities:
		Additions to property, plant and equipment			(66,390)		(67,709)
		Other			20,431		8,706
			Net cash utilized by investing activities		(45,959)		(59,003)
Cash flows from financing activities:
		Net repayments of other short-term borrowings			(159,136)		(84,420)
		Purchases of common stock			(57,337)		(49,156)
		Stock option transactions			36,388		34,297
		Excess tax benefits from stock-based compensation			18,423		7,947
		Dividends paid			(121,311)		(110,902)
		Other			762		(81)
			Net cash utilized by financing activities		(282,211)		(202,315)
Effect of exchange rate changes on cash					6,677		(9,495)
Decrease in cash and cash equivalents					(52,652)		(34,709)
Cash and cash equivalents at beginning of year					976,750		893,167
Cash and cash equivalents at end of period				$	924,098		858,458

Supplemental information
	Cash paid during the period for:
		Interest		$	43,682		43,977
		Income taxes		$	49,297		36,727

See accompanying condensed notes to consolidated financial statements.

HASBRO, INC. AND SUBSIDIARIES

Condensed Notes to Consolidated Financial Statements

(Thousands of Dollars and Shares Except Per Share Data)

(Unaudited)

(1) Basis of Presentation

In the opinion of management, the accompanying unaudited interim financial statements contain all normal and recurring adjustments necessary to present fairly the financial position of Hasbro, Inc. and all majority-owned subsidiaries ("Hasbro" or the "Company") as of June 26, 2016 and June 28, 2015, and the results of its operations and cash flows for the periods then ended in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP"). The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and notes thereto. Actual results could differ from those estimates.

The quarters ended June 26, 2016 and June 28, 2015 are each 13-week periods. The six-month periods ended June 26, 2016 and June 28, 2015 are each 26-week periods.

The results of operations for the quarter and six-month periods ended June 26, 2016 are not necessarily indicative of results to be expected for the full year, nor were those of the comparable 2015 periods representative of those actually experienced for the full year 2015.

These condensed consolidated financial statements have been prepared without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and disclosures normally included in the consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. The Company filed audited consolidated financial statements for the fiscal year ended December 27, 2015 in its Annual Report on Form 10-K, which includes all such information and disclosures and, accordingly, should be read in conjunction with the financial information included herein.

The Company's accounting policies are the same as those described in Note 1 to the Company's consolidated financial statements in its Annual Report on Form 10-K for the fiscal year ended December 27, 2015.

(2) Earnings Per Share

Net earnings per share data for the quarters and six-month periods ended June 26, 2016 and June 28, 2015 were computed as follows:

	2016				2015
Quarter	Basic		Diluted		Basic		Diluted
Net earnings attributable to Hasbro, Inc.	$	52,106		52,106		41,809		41,809

Average shares outstanding		125,475		125,475		125,093		125,093
Effect of dilutive securities:
Options and other share-based awards		-		1,566		-		1,713
Equivalent Shares		125,475		127,041		125,093		126,806

Net earnings attributable to Hasbro, Inc. per common share	$	0.42		0.41		0.33		0.33

	2016				2015
Six Months	Basic		Diluted		Basic		Diluted
Net earnings attributable to Hasbro, Inc.	$	100,857		100,857		68,476		68,476

Average shares outstanding		125,371		125,371		124,973		124,973
Effect of dilutive securities:
Options and other share-based awards		-		1,624		-		1,601
Equivalent Shares		125,371		126,995		124,973		126,574

Net earnings attributable to Hasbro, Inc. per common share	$	0.80		0.79		0.55		0.54

For the quarter ended June 26, 2016, options and restricted stock units totaling 492 were excluded from the calculation of diluted earnings per share because to include them would have been antidilutive. No options and restricted stock units were excluded from the calculation of diluted earnings per share for the quarter ended June 28, 2015. For the six-month periods ended June 26, 2016 and June 28, 2015, options and restricted stock units totaling 492 and 391, respectively, were excluded from the calculation of diluted earnings per share because to include them would have been antidilutive.

(3) Other Comprehensive Earnings (Loss)

Components of other comprehensive earnings (loss) are presented within the consolidated statements of comprehensive earnings. The following table presents the related tax effects on changes in other comprehensive earnings (loss) for the quarter and six-month periods ended June 26, 2016 and June 28, 2015.

		Quarter Ended				Six Months Ended
		June 26,		June 28,		June 26,		June 28,
		2016		2015		2016		2015

Other comprehensive earnings (loss), tax effect:
Tax benefit (expense) on cash flow hedging activities		$	4,747		853		8,003		(3,962)
Tax benefit (expense) on unrealized holding gains (losses)			185		(408)		(768)		(536)
Reclassifications to earnings, tax effect:
	Tax expense on cash flow hedging activities		1,069		708		2,818		1,050
	Tax benefit on unrecognized pension and postretirement
	amounts reclassified to the consolidated statements of operations		(666)		(596)		(1,333)		(1,280)
Total tax effect on other comprehensive earnings (loss)		$	5,335		557		8,720		(4,728)

Changes in the components of accumulated other comprehensive loss for the six months ended June 26, 2016 and June 28, 2015 are as follows:

					Unrealized
					Holding				Total
			Gains		Gains on		Foreign		Accumulated
	Pension and		(Losses) on		Available-		Currency		Other
	Postretirement		Derivative		for-Sale		Translation		Comprehensive
	Amounts		Instruments		Securities		Adjustments		Earnings (Loss)
2016
Balance at December 27, 2015	$	(102,931)		79,317		1,258		(123,645)		(146,001)
Current period other comprehensive earnings (loss)		2,350		(51,968)		1,353		19,965		(28,300)
Balance at June 26, 2016	$	(100,581)		27,349		2,611		(103,680)		(174,301)

2015
Balance at December 27, 2014	$	(113,092)		43,689		1,900		(27,951)		(95,454)
Current period other comprehensive earnings (loss)		2,497		35,209		941		(46,669)		(8,022)
Balance at June 28, 2015	$	(110,595)		78,898		2,841		(74,620)		(103,476)

At June 26, 2016, the Company had remaining net deferred gains on foreign currency forward contracts, net of tax, of $46,138 in accumulated other comprehensive loss ("AOCE"). These instruments hedge payments related to inventory purchased in the second quarter of 2016 or forecasted to be purchased during the remainder of 2016 and, to a lesser extent, 2017 through 2020, intercompany expenses expected to be paid or received during 2016 and 2017, cash receipts for sales made at the end of the second quarter of 2016 or forecasted to be made in the remainder of 2016 and, to a lesser extent, 2017 through 2018. These amounts will be reclassified into the consolidated statements of operations upon the sale of the related inventory or recognition of the related sales or expenses.

In addition to foreign currency forward contracts, the Company entered into hedging contracts on future interest payments related to the long-term notes due 2021 and 2044. At the date of debt issuance in 2014, these contracts were terminated and the fair value on the date of settlement was deferred in AOCE and is being amortized to interest expense over the life of the related notes using the effective interest rate method. At June 26, 2016, deferred losses, net of tax of $18,789 related to these instruments remained in AOCE. For the quarters ended June 26, 2016 and June 28, 2015, previously deferred losses of $450 were reclassified from AOCE to net earnings. For the six month periods ended June 26, 2016 and June 28, 2015, previously deferred losses of $899 were reclassified from AOCE to net earnings.

Of the amount included in AOCE at June 26, 2016, the Company expects approximately $26,920 to be reclassified to the consolidated statements of operations within the next 12 months. However, the amount ultimately realized in earnings is dependent on the fair value of the hedging instruments on the settlement dates.

(4) Financial Instruments

The Company's financial instruments include cash and cash equivalents, accounts receivable, short-term borrowings, accounts payable and certain accrued liabilities. At June 26, 2016, June 28, 2015 and December 27, 2015, the carrying cost of these instruments approximated their fair value. The Company's financial instruments at June 26, 2016, June 28, 2015 and December 27, 2015 also include certain assets and liabilities measured at fair value (see Notes 6 and 8) as well as long-term borrowings. The carrying costs which are equal to the outstanding principal amounts, and fair values of the Company's long-term borrowings as of June 26, 2016, June 28, 2015 and December 27, 2015 are as follows:

	June 26, 2016				June 28, 2015				December 27, 2015
	Carrying		Fair		Carrying		Fair		Carrying		Fair
	Cost		Value		Cost		Value		Cost		Value
6.35% Notes Due 2040	$	500,000		608,600		500,000		557,450		500,000		556,300
6.30% Notes Due 2017		350,000		370,125		350,000		382,235		350,000		374,045
5.10% Notes Due 2044		300,000		317,490		300,000		287,010		300,000		286,710
3.15% Notes Due 2021		300,000		308,640		300,000		301,800		300,000		300,060
6.60% Debentures Due 2028		109,895		133,006		109,895		121,115		109,895		121,269
Total long-term debt	$	1,559,895		1,737,861		1,559,895		1,649,610		1,559,895		1,638,384
Less: Deferred debt expenses		12,142		-		13,418		-		12,780		-
Long-term debt	$	1,547,753		1,737,861		1,546,477		1,649,610		1,547,115		1,638,384

The fair values of the Company's long-term debt are considered Level 3 fair values (see Note 6 for further discussion of the fair value hierarchy) and are measured using the discounted future cash flows method. In addition to the debt terms, the valuation methodology includes an assumption of a discount rate that approximates the current yield on a similar debt security. This assumption is considered an unobservable input in that it reflects the Company's own assumptions about the inputs that market participants would use in pricing the asset or liability. The Company believes that this is the best information available for use in the fair value measurement.

In April 2015, the FASB issued ASU No. 2015-03, Interest – Imputation of Interest (ASC 835-30), which simplifies the presentation of debt issuance costs. ASU 2015-03 requires debt issuance costs related to long-term debt to be presented in the balance sheet as a reduction to the carrying amount of the related debt liability, consistent with the presentation of discounts. The Company adopted ASU 2015-03 at December 27, 2015 and deferred debt costs are presented as a reduction of long-term debt. Debt issuance costs of $13,418 have been reclassified from other assets in the consolidated balance sheet for June 28, 2015, to reflect this change in accounting principle.

(5) Income Taxes

The Company and its subsidiaries file income tax returns in the United States and various state and international jurisdictions. In the normal course of business, the Company is regularly audited by U.S. federal, state and local and international tax authorities in various tax jurisdictions.

The Company is no longer subject to U.S. federal income tax examinations for years before 2013. With few exceptions, the Company is no longer subject to U.S., state or local and non-U.S. income tax examinations by tax authorities in its major jurisdictions for years before 2009. The Company is currently under income tax examination in several U.S., state and local and non-U.S. jurisdictions.

In November 2015, the FASB issued ASU 2015-17, Income Taxes, which simplifies the presentation of deferred income taxes by removing the requirement to bifurcate deferred income tax assets and liabilities between current and non-current. The Company adopted ASU 2015-17 as of December 27, 2015 and deferred income tax assets and liabilities are presented as non-current in the consolidated balance sheets. This adoption was applied retrospectively and $74,044 has been reclassified from prepaid expenses and other current assets to other assets and $5,015 has been reclassified from accrued liabilities to other liabilities in the consolidated balance sheet as of June 28, 2015.

(6) Fair Value of Financial Instruments

The Company measures certain financial instruments at fair value. The fair value hierarchy consists of three levels: Level 1 fair values are based on quoted market prices in active markets for identical assets or liabilities that the entity has the ability to access; Level 2 fair values are those based on quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable data for substantially the full term of the assets or liabilities; and Level 3 fair values are based on inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Accounting standards permit entities to measure many financial instruments and certain other items at fair value and establish presentation and disclosure requirements designed to facilitate comparisons between entities that choose different measurement attributes for similar assets and liabilities. The Company has elected the fair value option for certain available-for-sale investments. At June 26, 2016, June 28, 2015 and December 27, 2015, these investments totaled $23,056, $32,766 and $22,539, respectively, and are included in prepaid expenses and other current assets in the consolidated balance sheets. The Company recorded net gains of $399 and $482 on these investments in other (income) expense, net for the quarter and six-months ended June 26, 2016, respectively, related to the change in fair value of such instruments. For the quarter and six-month periods ended June 28, 2015 the Company recorded net losses of $87 and $70, respectively, in other (income) expense, net, related to the change in fair value of such instruments.

At June 26, 2016, June 28, 2015 and December 27, 2015, the Company had the following assets and liabilities measured at fair value (excluding assets for which the fair value is measured using net asset value per share) in its consolidated balance sheets:

	Fair Value Measurements Using:
			Quoted
			Prices in
			Active
			Markets		Significant
			for		Other		Significant
			Identical		Observable		Unobservable
	Fair		Assets		Inputs		Inputs
	Value		(Level 1)		(Level 2)		(Level 3)
June 26, 2016
Assets:
Available-for-sale securities	$	5,597		5,597		-		-
Derivatives		63,277		-		63,277		-
Total assets	$	68,874		5,597		63,277		-

Liabilities:
Derivatives	$	13,148		-		13,148		-
Option agreement		27,560		-		-		27,560
Total liabilities	$	40,708		-		13,148		27,560

June 28, 2015
Assets:
Available-for-sale securities	$	5,959		5,959		-		-
Derivatives		105,906		-		105,906		-
Total assets	$	111,865		5,959		105,906		-

Liabilities:
Derivatives	$	2,748		-		2,748		-
Option agreement		25,190		-		-		25,190
Total liabilities	$	27,938		-		2,748		25,190

December 27, 2015
Assets:
Available-for-sale securities	$	3,476		3,476		-		-
Derivatives		107,634		-		107,634		-
Total assets	$	111,110		3,476		107,634		-

Liabilities:
Derivatives	$	1,240		-		1,240		-
Option agreement		28,360		-		-		28,360
Total Liabilities	$	29,600		-		1,240		28,360

Available-for-sale securities include equity securities of one company quoted on an active public market.