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HAS > SEC Filings for HAS > Form 10-Q on 8-May-2013All Recent SEC Filings

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Form 10-Q for HASBRO INC


8-May-2013

Quarterly Report

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 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


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)

are brands which have not achieved franchise brand status yet, but have the potential to do so with investment and time. These franchise and challenger brands include TRANSFORMERS, NERF, LITTLEST PET SHOP, MY LITTLE PONY, FURREAL FRIENDS, BABY ALIVE, G.I. JOE, MONOPOLY, MAGIC: THE GATHERING, PLAY-DOH and PLAYSKOOL. The Company has a large portfolio of owned and controlled brands, which can be introduced in new forms and formats over time. 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 quarter of 2013, the Company had strong revenues from owned or controlled brands such as MAGIC: THE GATHERING, NERF, TRANSFORMERS, PLAY-DOH, FURBY, MY LITTLE PONY, MONOPOLY, LITTLEST PET SHOP, FURREAL FRIENDS and PLAYSKOOL.

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 its 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. 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 expected theatrical motion picture releases of IRON MAN 3 and THOR: THE DARK WORLD. 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. 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 one 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.


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)

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 throughout the world. The Company is a 50% partner in a joint venture with Discovery Communications, Inc. ("Discovery") which runs THE HUB, a cable television network in the United States dedicated to high-quality children's and family entertainment and educational programming. Programming on THE HUB 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, 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"), which provides EA the exclusive worldwide rights, subject to existing limitations on the Company's rights and certain other exclusions, to create digital games for all platforms, such as mobile devices, gaming consoles and personal computers, based on a number of the Company's intellectual properties, including MONOPOLY, SCRABBLE, YAHTZEE and BOGGLE. Similarly, the Company has an agreement with Activision under which Activision offers digital games based on the TRANSFORMERS brand, as well as with other third party digital gaming companies such as DeNA and GameLoft. The Company continues to seek and develop additional outlets for its brands in digital gaming, including casual, mobile and online gaming. 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.


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)

During the fourth quarter of 2012 the Company announced a multi-year cost savings initiative plan in which it targets annual cost savings 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 quarter of 2013, the Company incurred expenses of $28,926 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. Potential pension charges may result depending on the level of lump sum distributions 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 savings, net of restructuring charges, of $13,000 to $15,000.

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.


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)

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 March 31, 2013, the Company had $107,116 remaining on this authorization. For the quarter ended March 31, 2013, the Company invested $20,177 to repurchase approximately 520 shares of common stock in the open market. During the three years ended 2012, the Company spent $1,159,730 to repurchase 28,918 shares in the open market. 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 payment 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.

SUMMARY OF FINANCIAL PERFORMANCE

The components of the results of operations, stated as a percent of net
revenues, are illustrated below for the quarters ended March 31, 2013 and April
1, 2012.

                                             2013         2012
Net revenues                                  100.0 %      100.0 %
Costs and expenses:
 Cost of sales                                 40.3         39.6
 Royalties                                      7.5          8.1
 Product development                            7.1          6.9
 Advertising                                   10.1         10.0
 Amortization of intangibles                    1.7          1.7
 Program production cost amortization           0.9          0.5
 Selling, distribution and administration      30.8         30.8
Operating profit                                1.6          2.4
 Interest expense                               3.5          3.6
 Interest income                               (0.2 )       (0.4 )
 Other (income) expense, net                    0.8          0.0
Loss before income taxes                       (2.5 )       (0.8 )
Income tax benefit                             (1.5 )       (0.4 )
Net loss                                       (1.0 )%      (0.4 )%


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)

RESULTS OF OPERATIONS

The quarter ended March 31, 2013 was a 13-week period while the quarter ended April 1, 2012 was a 14-week period. The net loss for the first quarter of 2013 was $(6,671) compared to a net loss of $(2,579) for the first quarter of 2012. Basic and diluted loss per share for the first quarter of 2013 were $(0.05) compared to basic and diluted loss per share of $(0.02) for the first quarter of 2012. The net loss for the quarter ended March 31, 2013 includes restructuring charges, net of tax, of $18,777, or $0.14 per share, related to the multi-year cost savings initiative announced during the fourth quarter of 2012. The net loss for the quarter ended April 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.

Consolidated net revenues for the quarter ended March 31, 2013 increased 2% to $663,694 compared to $648,850 for the quarter ended April 1, 2012. Consolidated net revenues were negatively impacted by foreign currency translation of approximately $3,300 for the quarter ended March 31, 2013 as a result of the stronger U.S. dollar in 2013. The following table presents net revenues by product category for the quarters ended March 31, 2013 and April 1, 2012.

                                              %
                 2013          2012         Change
Boys           $ 242,796       302,759          -20 %
Games            230,915       182,916           26 %
Girls            114,774        93,236           23 %
Preschool         75,209        69,939            8 %
Net revenues   $ 663,694       648,850

For the quarter ended March 31, 2013, increased net revenues in the games, girls and preschool categories were partially offset by decreases in the boys category.

BOYS: Net revenues in the boys category decreased 20% in the first quarter of 2013 primarily resulting from lower net revenues from BEYBLADE, STAR WARS and SUPER SOAKER products, which were partially offset by higher sales of MARVEL products and increased net revenues from G.I. JOE and NERF products. Net revenues from G.I. JOE products experienced growth, benefiting modestly from the theatrical release of G.I. JOE: RETALIATION in March 2013. During the first quarter of 2013, MARVEL products benefited from initial product shipments related to the expected theatrical release of IRON MAN 3 in May 2013. In the first quarter of 2012, sales of STAR WARS products benefitted from the re-release of STAR WARS: EPISODE I - THE PHANTOM MENANCE in 3D in February 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)

GAMES: Net revenues in the games category increased 26% in the first quarter of 2013 compared to 2012. Higher revenue from MAGIC: THE GATHERING, TWISTER, including TWISTER RAVE, MONOPOLY and boys action gaming, including TRANSFORMERS BOT SHOTS and ANGRY BIRDS STAR WARS products contributed to the category's growth. In addition, revenues from JENGA products benefited from sales of products co-branded under ANGRY BIRDS STAR WARS.

GIRLS: Net revenues in the girls category increased 23% for the quarter ended March 31, 2013, 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 quarter 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. The first quarter of 2013 also benefited from sales of ONE DIRECTION products, which were also introduced during the second half of 2012. 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 8% for the first quarter of 2013 compared to 2012. Increased revenues from the PLAY-DOH and PLAYSKOOL HEROES lines, which include MARVEL products and TRANSFOMERS RESCUE BOTS, were partially offset by lower net revenues from TONKA products.

Operating profit for the quarter ended March 31, 2013 was $10,627 compared to $15,726 for the quarter ended April 1, 2012. Operating profit for the quarters ended March 31, 2013 and April 1, 2012 included restructuring charges of $28,926 and $11,130, respectively. Excluding restructuring charges, operating profit totaled $39,553 in the first quarter of 2013 compared to $26,856 during the first quarter of 2012. The increase in operating profit in 2013 compared to 2012, absent restructuring charges, is primarily due to increased net revenues, favorable product mix, lower royalty expense, and lower selling, distribution and administration expenses. Certain fixed expenses were higher due to the extra week of certain expenses in the first quarter of 2012 compared to 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 quarters ended
March 31, 2013 and April 1, 2012.

                                          2013          2012        % Change
Net Revenues
  U.S. and Canada segment               $ 342,059       328,985             4 %
  International segment                   289,813       289,729             0 %
  Entertainment and Licensing segment      30,774        29,336             5 %

Operating Profit (Loss)
  U.S. and Canada segment               $  37,743        14,411           162 %
  International segment                    (4,505 )      (5,084 )          11 %
  Entertainment and Licensing segment       5,285         7,738           -32 %

U.S. AND CANADA SEGMENT
The U.S. and Canada segment net revenues for the quarter ended March 31, 2013 increased 4% to $342,059 from $328,985 for the quarter ended April 1, 2012. The impact of currency translation was not material for the first quarter 2013. This growth was mostly driven by higher net revenues from the games category and, to a lesser extent, higher net revenues from the girls category, partially offset by lower net revenues from the boys and preschool categories. Net revenues from FURBY and, to a lesser extent, ONE DIRECTION products, which were introduced in the second half of 2012, as well as higher net revenues from FURREAL FRIENDS, CARE BEARS and EASY BAKE products contributed to growth in the girls category in the first quarter of 2013. These increases were partially offset by decreased net revenues from LITTLEST PET SHOP and BABY ALIVE products. In the games category, higher net revenues from MAGIC: THE GATHERING, TWISTER, JENGA and boys action gaming products contributed to growth. The boys category declined due to lower sales of STAR WARS, SUPER SOAKER and BEYBLADE products, partially offset by higher sales of NERF, MARVEL, G.I. JOE and KRE-O products. In the preschool category, lower net revenues from TONKA and PLAYSKOOL products were partially offset by higher net revenues from PLAY-DOH products.

U.S. and Canada segment operating profit increased to $37,743, or 11.0% of net revenues, for the quarter ended March 31, 2013 compared to $14,411, or 4.4% of net revenues, for the quarter ended April 1, 2012. Operating profit for the first quarter of 2012 includes restructuring charges of $2,444. Excluding restructuring charges, operating profit for the first quarter of 2012 totaled $16,855. The increase in operating profit was due to higher net revenues discussed above, favorable product mix and lower overall expense levels, including the impact of an extra week in the first quarter of 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)

INTERNATIONAL SEGMENT
International segment net revenues were $289,813 for the quarter ended March 31,
2013 compared to $289,729 for the quarter ended April 1, 2012. International
segment net revenues were negatively impacted by currency translation of
approximately $3,000 as a result of the stronger U.S. dollar during 2013. Absent
the impact of foreign exchange, International segment net revenues grew 1% in
the first quarter of 2013 compared to 2012. The following table presents net
revenues by geographic region for the Company's International segment for the
quarters ended March 31, 2013 and April 1, 2012.
                                               %
                  2013          2012        Change
Europe          $ 192,589       208,113          -7 %
Latin America      45,713        38,969          17 %
Asia Pacific       51,511        42,647          21 %
Net revenues    $ 289,813       289,729

Absent the impact of foreign exchange translation, net revenue declines in Europe were more than offset by revenue growth in Asia Pacific and Latin America. Net revenues in emerging markets, which includes but is not limited to Russia, Brazil, China and Korea, increased 34% in the first quarter of 2013 compared to the comparable period in 2012.

By product category, growth in the girls, games and preschool categories were offset by declines in the boys category. In the girls category, 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 quarter of 2013, and higher net revenues from MY LITTLE PONY products were . . .

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