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 September 25, 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 October 17, 2016 was 124,787,571.

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.


HASBRO, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Thousands of Dollars Except Share Data)
(Unaudited)
				September 25,		September 27,		December 27,
				2016		2015		2015
ASSETS
Current assets
	Cash and cash equivalents			$	830,372		551,292		976,750
	Accounts receivable, less allowance for doubtful accounts of $36,500,
		$16,200 and $14,900			1,452,931		1,390,274		1,217,850
	Inventories				607,701		447,090		384,492
	Prepaid expenses and other current assets				255,983		320,895		286,506
			Total current assets		3,146,987		2,709,551		2,865,598

Property, plant and equipment, less accumulated depreciation of $383,500,
		$358,100 and $363,600			247,231		219,656		237,527

Other assets
	Goodwill				604,700		592,781		592,695
	Other intangibles, net, accumulated amortization of $867,300, $832,900
		and $841,300			254,637		289,200		280,807
	Other				701,592		755,959		744,090
		Total other assets			1,560,929		1,637,940		1,617,592

		Total assets		$	4,955,147		4,567,147		4,720,717

LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS
	AND SHAREHOLDERS' EQUITY
Current liabilities
	Short-term borrowings			$	178,666		113,970		164,563
	Current portion of long-term debt				349,611		-		-
	Accounts payable				344,874		282,772		241,210
	Accrued liabilities				742,568		642,827		658,874
		Total current liabilities			1,615,719		1,039,569		1,064,647

Long-term debt					1,198,461		1,546,796		1,547,115
Other liabilities					364,378		396,772		404,883
		Total liabilities			3,178,558		2,983,137		3,016,645

Redeemable noncontrolling interests					34,829		41,173		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 September 25, 2016, September 27, 2015,
		and December 27, 2015			104,847		104,847		104,847
	Additional paid-in capital				959,859		863,543		893,630
	Retained earnings				4,019,370		3,733,995		3,852,321
	Accumulated other comprehensive loss				(203,989)		(126,185)		(146,001)
	Treasury stock, at cost; 84,751,773 shares at September 25, 2016; 84,987,076
		shares at September 27, 2015; and 84,899,200 shares at December 27, 2015			(3,138,327)		(3,033,363)		(3,040,895)
		Total shareholders' equity			1,741,760		1,542,837		1,663,902

		Total liabilities, redeemable noncontrolling interests and
			shareholders' equity	$	4,955,147		4,567,147		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				Nine Months Ended
			September 25,		September 27,		September 25,		September 27,
			2016		2015		2016		2015
Net revenues			$	1,679,757		1,470,997		3,389,882		2,982,155
Costs and expenses:
	Cost of sales			658,986		579,149		1,270,902		1,122,283
	Royalties			134,294		113,950		273,671		230,108
	Product development			70,083		64,793		190,918		174,299
	Advertising			154,132		142,029		320,948		288,136
	Amortization of intangibles			8,691		9,031		26,073		35,330
	Program production cost amortization			6,282		11,496		17,501		29,812
	Selling, distribution and administration			285,188		247,022		756,978		668,955
		Total costs and expenses		1,317,656		1,167,470		2,856,991		2,548,923
Operating profit				362,101		303,527		532,891		433,232
Non-operating (income) expense:
	Interest expense			24,305		24,045		72,263		72,816
	Interest income			(1,944)		(672)		(6,469)		(2,292)
	Other (income) expense, net			(6,584)		(4,463)		(5,460)		(9,870)
		Total non-operating expense, net		15,777		18,910		60,334		60,654
Earnings before income taxes				346,324		284,617		472,557		372,578
Income tax expense				90,162		78,242		120,005		100,100
Net earnings				256,162		206,375		352,552		272,478
Net loss attributable to noncontrolling interests				(1,636)		(1,224)		(6,103)		(3,597)
Net earnings attributable to Hasbro, Inc.			$	257,798		207,599		358,655		276,075


Net earnings attributable to Hasbro, Inc. per common share:
	Basic		$	2.05		1.66		2.86		2.21
	Diluted		$	2.03		1.64		2.82		2.18
Cash dividends declared per common share			$	0.51		0.46		1.53		1.38

See accompanying condensed notes to consolidated financial statements.

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

			Quarter Ended				Nine Months Ended
			September 25,		September 27,		September 25,		September 27,
			2016		2015		2016		2015
Net earnings			$	256,162		206,375		352,552		272,478
Other comprehensive earnings (loss):
	Foreign currency translation adjustments			(1,483)		(39,086)		18,482		(85,755)
	Net (losses) gains on cash flow hedging activities,
		net of tax		(12,960)		25,948		(37,004)		78,576
	Unrealized holding (losses) gains on available-for-sale
		securities, net of tax		(390)		(1,231)		963		(290)
	Changes in unrecognized pension and postretirement
		amounts, net of tax		-		5,194		-		5,194
	Reclassifications to earnings, net of tax:
		Net gains on cash flow hedging activities		(16,028)		(12,698)		(43,952)		(30,117)
		Unrecognized pension and postretirement amounts		1,173		(836)		3,523		1,661
Total other comprehensive loss, net of tax				(29,688)		(22,709)		(57,988)		(30,731)
Comprehensive earnings				226,474		183,666		294,564		241,747
Comprehensive loss attributable to noncontrolling interests				(1,636)		(1,224)		(6,103)		(3,597)
Comprehensive earnings attributable to Hasbro, Inc.			$	228,110		184,890		300,667		245,344

		See accompanying condensed notes to consolidated financial statements.

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

				Nine Months Ended
				September 25,		September 27,
				2016		2015
Cash flows from operating activities:
	Net earnings			$	352,552		$272,478
	Adjustments to reconcile net earnings to net cash provided by operating activities:
		Depreciation of plant and equipment			89,327		86,393
		Amortization of intangibles			26,073		35,330
		Program production cost amortization			17,501		29,812
		Deferred income taxes			25,091		(10,236)
		Stock-based compensation			39,673		33,073
Change in operating assets and liabilities:
		Increase in accounts receivable			(224,172)		(382,573)
		Increase in inventories			(214,734)		(156,221)
		(Increase) decrease in prepaid expenses and other current assets			(4,063)		39,521
		Program production costs			(36,010)		(28,222)
		Increase in accounts payable and accrued liabilities			129,661		165,632
		Other			(47,118)		(15,429)
			Net cash provided by operating activities		153,781		69,558
Cash flows from investing activities:
		Additions to property, plant and equipment			(103,639)		(97,873)
		Investments and acquisitions, net of cash acquired			(12,436)		(3,000)
		Cash proceeds from dispositions			-		18,632
		Other			25,576		23,447
			Net cash utilized by investing activities		(90,499)		(58,794)
Cash flows from financing activities:
		Net proceeds from (repayments of) other short-term borrowings			14,160		(138,101)
		Purchases of common stock			(104,273)		(74,110)
		Stock option transactions			37,515		33,929
		Excess tax benefits from stock-based compensation			19,712		9,804
		Dividends paid			(185,265)		(168,393)
		Other			762		928
			Net cash utilized by financing activities		(217,389)		(335,943)
Effect of exchange rate changes on cash					7,729		(16,696)
Decrease in cash and cash equivalents					(146,378)		(341,875)
Cash and cash equivalents at beginning of year					976,750		893,167
Cash and cash equivalents at end of period				$	830,372		551,292

Supplemental information
	Cash paid during the period for:
		Interest		$	74,700		78,056
		Income taxes		$	64,854		80,833

See accompanying condensed notes to consolidated financial statements.

HASBRO, INC. AND SUBSIDIARIES

Condensed Notes to Consolidated Financial Statements

(Thousands of Dollars and Shares Except Per Share Data)

(Unaudited)

(1) Basis of Presentation

In the opinion of management, the accompanying unaudited interim financial statements contain all normal and recurring adjustments necessary to present fairly the financial position of Hasbro, Inc. and all majority-owned subsidiaries ("Hasbro" or the "Company") as of September 25, 2016 and September 27, 2015, and the results of its operations and cash flows for the periods then ended in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP"). The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and notes thereto. Actual results could differ from those estimates.

The quarters ended September 25, 2016 and September 27, 2015 are each 13-week periods. The nine-month periods ended September 25, 2016 and September 27, 2015 are each 39-week periods.

The results of operations for the quarter and nine-month periods ended September 25, 2016 are not necessarily indicative of results to be expected for the full year, nor were those of the comparable 2015 periods representative of those actually experienced for the full year 2015.

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

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

Certain amounts in the 2015 consolidated financial statements have been reclassified to conform to the 2016 presentation.

(2) Earnings Per Share

Net earnings per share data for the quarters and nine-month periods ended September 25, 2016 and September 27, 2015 were computed as follows:

	2016				2015
Quarter	Basic		Diluted		Basic		Diluted
Net earnings attributable to Hasbro, Inc.	$	257,798		257,798		207,599		207,599

Average shares outstanding		125,500		125,500		125,100		125,100
Effect of dilutive securities:
Options and other share-based awards		-		1,678		-		1,817
Equivalent Shares		125,500		127,178		125,100		126,917

Net earnings attributable to Hasbro, Inc. per common share	$	2.05		2.03		1.66		1.64

	2016				2015
Nine Months	Basic		Diluted		Basic		Diluted
Net earnings attributable to Hasbro, Inc.	$	358,655		358,655		276,075		276,075

Average shares outstanding		125,414		125,414		125,016		125,016
Effect of dilutive securities:
Options and other share-based awards		-		1,642		-		1,673
Equivalent Shares		125,414		127,056		125,016		126,689

Net earnings attributable to Hasbro, Inc. per common share	$	2.86		2.82		2.21		2.18

For the quarter ended September 25, 2016, options and restricted stock units totaling 492 were excluded from the calculation of diluted earnings per share because to include them would have been antidilutive. No options and restricted stock units were excluded from the calculation of diluted earnings per share for the quarter ended September 27, 2015. For the nine-month periods ended September 25, 2016 and September 27, 2015, options and restricted stock units totaling 492 and 261, respectively, were excluded from the calculation of diluted earnings per share because to include them would have been antidilutive.

(3) Other Comprehensive Earnings (Loss)

Components of other comprehensive earnings (loss) are presented within the consolidated statements of comprehensive earnings. The following table presents the related tax effects on changes in other comprehensive earnings (loss) for the quarter and nine-month periods ended September 25, 2016 and September 27, 2015.

		Quarter Ended				Nine Months Ended
		September 25,		September 27,		September 25,		September 27,
		2016		2015		2016		2015

Other comprehensive earnings (loss), tax effect:
Tax benefit (expense) on cash flow hedging activities		$	1,420		(7,400)		9,423		(11,362)
Tax benefit (expense) on unrealized holding gains (losses)			221		700		(547)		164
Tax expense on changes in unrecognized pension and
	postretirement amounts		-		(660)		-		(660)
Reclassifications to earnings, tax effect:
	Tax expense on cash flow hedging activities		2,456		1,487		5,274		2,537
	Tax (benefit) expense on unrecognized pension and
	postretirement amounts		(666)		338		(1,999)		(942)
Total tax effect on other comprehensive earnings (loss)		$	3,431		(5,535)		12,151		(10,263)

Changes in the components of accumulated other comprehensive loss for the nine months ended September 25, 2016 and September 27, 2015 are as follows:

					Unrealized
					Holding				Total
			Gains		Gains on		Foreign		Accumulated
	Pension and		(Losses) on		Available-		Currency		Other
	Postretirement		Derivative		for-Sale		Translation		Comprehensive
	Amounts		Instruments		Securities		Adjustments		Earnings (Loss)
2016
Balance at December 27, 2015	$	(102,931)		79,317		1,258		(123,645)		(146,001)
Current period other comprehensive earnings (loss)		3,523		(80,956)		963		18,482		(57,988)
Balance at September 25, 2016	$	(99,408)		(1,639)		2,221		(105,163)		(203,989)

2015
Balance at December 28, 2014	$	(113,092)		43,689		1,900		(27,951)		(95,454)
Current period other comprehensive earnings (loss)		6,855		48,459		(290)		(85,755)		(30,731)
Balance at September 27, 2015	$	(106,237)		92,148		1,610		(113,706)		(126,185)

At September 25, 2016, the Company had remaining net deferred gains on foreign currency forward contracts, net of tax, of $16,864 in accumulated other comprehensive loss ("AOCE"). These instruments hedge payments related to inventory purchased in the third quarter of 2016 or forecasted to be purchased during the remainder of 2016 and, to a lesser extent, 2017 through 2021, intercompany expenses expected to be paid or received during 2016 and 2017, cash receipts for sales made at the end of the third quarter of 2016 or forecasted to be made in the remainder of 2016 and, to a lesser extent, 2017 through 2018. These amounts will be reclassified into the consolidated statements of operations upon the sale of the related inventory or recognition of the related sales or expenses.

In addition to foreign currency forward contracts, the Company entered into hedging contracts on future interest payments related to the long-term notes due 2021 and 2044. At the date of debt issuance in 2014, these contracts were terminated and the fair value on the date of settlement was deferred in AOCE and is being amortized to interest expense over the life of the related notes using the effective interest rate method. At September 25, 2016, deferred losses, net of tax of $18,503 related to these instruments remained in AOCE. For the quarters ended September 25, 2016 and September 27, 2015, previously deferred losses of $450 were reclassified from AOCE to net earnings. For the nine month periods ended September 25, 2016 and September 27, 2015, previously deferred losses of $1,349 were reclassified from AOCE to net earnings.

Of the amount included in AOCE at September 25, 2016, the Company expects net gains of approximately $11,699 to be reclassified to the consolidated statements of operations within the next 12 months. However, the amount ultimately realized in earnings is dependent on the fair value of the hedging instruments on the settlement dates.

(4) Financial Instruments

The Company's financial instruments include cash and cash equivalents, accounts receivable, short-term borrowings, accounts payable and certain accrued liabilities. At September 25, 2016, September 27, 2015 and December 27, 2015, the carrying cost of these instruments approximated their fair value. The Company's financial instruments at September 25, 2016, September 27, 2015 and December 27, 2015 also include certain assets and liabilities measured at fair value (see Notes 6 and 8) as well as long-term borrowings. The carrying costs which are equal to the outstanding principal amounts, and fair values of the Company's long-term borrowings as of September 25, 2016, September 27, 2015 and December 27, 2015 are as follows:

	September 25, 2016				September 27, 2015				December 27, 2015
	Carrying		Fair		Carrying		Fair		Carrying		Fair
	Cost		Value		Cost		Value		Cost		Value
6.35% Notes Due 2040	$	500,000		611,200		500,000		563,400		500,000		556,300
6.30% Notes Due 2017		350,000		366,205		350,000		379,925		350,000		374,045
5.10% Notes Due 2044		300,000		324,450		300,000		291,900		300,000		286,710
3.15% Notes Due 2021		300,000		310,620		300,000		303,990		300,000		300,060
6.60% Debentures Due 2028		109,895		132,786		109,895		123,225		109,895		121,269
Total long-term debt	$	1,559,895		1,745,261		1,559,895		1,662,440		1,559,895		1,638,384
Less: Current portion		350,000		366,205		-		-		-		-
Less: Deferred debt expenses		11,434		-		13,099		-		12,780		-
Long-term debt	$	1,198,461		1,379,056		1,546,796		1,662,440		1,547,115		1,638,384

Current portion of long-term debt of $349,611 as shown on the balance sheet represents the $350,000 principal of 6.30% notes less $389 of deferred debt expenses.

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

In April 2015, the FASB issued ASU No. 2015-03, Interest – Imputation of Interest (ASC 835-30), which simplifies the presentation of debt issuance costs. ASU 2015-03 requires debt issuance costs related to long-term debt to be presented in the balance sheet as a reduction to the carrying amount of the related debt liability, consistent with the presentation of discounts. The Company adopted ASU 2015-03 at December 27, 2015 and deferred debt expenses are presented as a reduction of long-term debt. Deferred debt expenses of $13,099 have been reclassified from other assets in the consolidated balance sheet for September 27, 2015, to reflect this change in accounting principle.

(5) Income Taxes

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

The Company is no longer subject to U.S. federal income tax examinations for years before 2012. The Company’s claims for refunds for 2012 and 2013 U.S. federal income tax returns are currently under exam. With few exceptions, the Company is no longer subject to U.S. state or local and non-U.S. income tax examinations by tax authorities in its major jurisdictions for years before 2009. The Company is currently under income tax examination in several U.S. state and local and non-U.S. jurisdictions.

In November 2015, the FASB issued ASU 2015-17, Income Taxes, which simplifies the presentation of deferred income taxes by removing the requirement to bifurcate deferred income tax assets and liabilities between current and non-current. The Company adopted ASU 2015-17 as of December 27, 2015 and deferred income tax assets and liabilities are presented as non-current in the consolidated balance sheets. This adoption was applied retrospectively and $68,565 has been reclassified from prepaid expenses and other current assets to other assets and $10,927 has been reclassified from accrued liabilities to other liabilities in the consolidated balance sheet as of September 27, 2015.

(6) Fair Value of Financial Instruments

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

Accounting standards permit entities to measure many financial instruments and certain other items at fair value and establish presentation and disclosure requirements designed to facilitate comparisons between entities that choose different measurement attributes for similar assets and liabilities. The Company has elected the fair value option for certain available-for-sale investments. At September 25, 2016, September 27, 2015 and December 27, 2015, these investments totaled $23,490, $22,834 and $22,539, respectively, and are included in prepaid expenses and other current assets in the consolidated balance sheets. The Company recorded net gains of $440 and $922 on these investments in other (income) expense, net for the quarter and nine-months ended September 25, 2016, respectively, related to the change in fair value of such instruments. For the quarter and nine-month periods ended September 27, 2015 the Company recorded net losses of $176 and $246, respectively, in other (income) expense, net, related to the change in fair value of such instruments.

At September 25, 2016, September 27, 2015 and December 27, 2015, the Company had the following assets and liabilities measured at fair value (excluding assets for which the fair value is measured using net asset value per share) in its consolidated balance sheets:

	Fair Value Measurements Using:
			Quoted
			Prices in
			Active
			Markets		Significant
			for		Other		Significant
			Identical		Observable		Unobservable
	Fair		Assets		Inputs		Inputs
	Value		(Level 1)		(Level 2)		(Level 3)
September 25, 2016
Assets:
Available-for-sale securities	$	4,986		4,986		-		-
Derivatives		39,115		-		39,115		-
Total assets	$	44,101		4,986		39,115		-

Liabilities:
Derivatives	$	19,390		-		19,390		-
Option agreement		27,460		-		-		27,460
Total liabilities	$	46,850		-		19,390		27,460

September 27, 2015
Assets:
Available-for-sale securities	$	4,029		4,029		-		-
Derivatives		119,123		-		119,123		-
Total assets	$	123,152		4,029		119,123		-

Liabilities:
Derivatives	$	605		-		605		-
Option agreement		24,780		-		-		24,780
Total liabilities	$	25,385		-		605		24,780

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