New Lead Content Limits Set
The U.S. Consumer Product Safety Commission (CPSC) voted (3-2) that there was insufficient evidence to make a determination that manufacturers of children’s products sold in the United States could not meet a total lead content limit of 100 parts per million (ppm) for a product or product category. The new total lead content limit, which is called for in the Consumer Product Safety Improvement Act (CPSIA), goes into effect on August 14, 2011, for manufacturers, importers, retailers, and distributors of children’s products.
Through the CPSIA, Congress set tough new levels for lead content in products designed or primarily intended for children 12 and younger. Lead is a heavy metal that is toxic for children, and associated with lowered levels of learning, impaired hearing, brain damage and, at high levels, can be fatal.
Congress directed CPSC to phase in the reduced levels for lead content over a three-year period, starting with 600 ppm on February 10, 2009. The level dropped to 300 ppm on August 14, 2009. Finally, Congress directed the total lead content limit be set at 100 ppm, unless the Commission determined it was not technologically feasible for a product or product category.
The Commission was not able to determine that 100 ppm total lead content is not technologically feasible, as staff found that materials containing less than 100 ppm total lead content are commercially available in the marketplace for manufacturers. CPSC staff also found many products currently on the market, that have been tested by CPSC or other organizations, that are already in compliance with the new 100 ppm total lead content limit.
Starting on August 14, 2011, manufacturers, importers, retailers, and distributors of children’s products must comply with the new 100 ppm federal limit for total lead content. CPSC will not enforce the CPSIA’s independent third-party testing requirement for total lead content until December 31, 2011, due to a stay of enforcement that is already in place.
The stay of enforcement does not apply to children’s metal jewelry, which currently must undergo independent third party testing.
The new 100 ppm lead content limit does not apply to inaccessible (internal) parts of children’s products and certain component parts of children’s electronic devices, such as electronic connectors and plugs, including headphone plugs.
Lead content levels for children’s products are different from the levels Congress set for lead in paint or surface coatings. The limit for lead in paint or surface coatings is .009 percent. The .009 percent level has been in place since August 14, 2009, and independent third party testing is required for all paints or surfaces coatings used on children’s products.
Mattel Reports Second Quarter Results
Mattel reported 2011 second quarter financial results. For the quarter, the company reported net income of $80.5 million, or $0.23 per share, compared to last year’s second quarter net income of $51.6 million, or $0.14 per share.
For the quarter, net sales were $1.16 billion, up 14 percent compared to $1.02 billion last year, including favorable changes in currency exchange rates of 5 percentage points. On a regional basis, second quarter gross sales increased 7 percent in the U.S. and increased 23 percent in international markets, including favorable changes in currency exchange rates of 11 percentage points. Operating income for the quarter was $109.3 million, compared to prior year’s operating income for the quarter of $69.4 million.
The company’s debt-to-total-capital ratio was 28 percent. Consistent with the seasonality of the business, net cash flow used for operating activities was approximately $227 million in the first half of 2011, a decrease of $145 million, compared with a use of approximately $372 million in 2010.
Cash flows used for financing and other activities were $592 million in the first half of 2011, an increased usage of $489 million, compared to approximately $103 million used for financing and other activities in 2010, primarily reflecting increased debt repayments consistent with scheduled maturities, dividend payments, and increased share repurchases.
During the second quarter of 2011, the company repurchased approximately 5.8 million shares of its common stock at a cost of approximately $152 million.
Additionally, the company announced that its board of directors declared a third quarter cash dividend of $0.23 per share on the company’s common stock. The dividend will be payable on September 23, 2011, to stockholders of record on August 31, 2011. The dividend is the third of four quarterly dividends the company expects to pay this year, reflecting an annualized dividend of $0.92 per share, which represents an increase of $0.09, or 11 percent, versus last year’s annual dividend of $0.83 per share.
Mattel Girls and Boys Brands:
For the second quarter, worldwide gross sales for the Mattel Girls & Boys Brands business unit were $795.6 million, up 22 percent versus a year ago. Worldwide gross sales for the Barbie brand were up 12 percent. Worldwide gross sales for Other Girls Brands were up 29 percent, driven by the Monster High and Disney Princess doll lines. Worldwide gross sales for the Wheels business, which includes the Hot Wheels, Matchbox, and Tyco R/C brands, were down 2 percent. Worldwide gross sales for the Entertainment business, which includes Radica and Games and Puzzles, were up 41 percent for the quarter, primarily driven by growth in the Cars 2 and Green Lantern properties.
Second quarter worldwide gross sales for the Fisher-Price Brands business unit, which includes the Fisher-Price Core, Fisher-Price Friends, and Power Wheels brands, were $400 million, or up 4 percent versus the prior year, primarily driven by sales of Baby Gear and Infant and Preschool products, as well as solid performance in the Thomas and Friends line.
American Girl Brand:
Second quarter gross sales for the American Girl Brand business unit were $66.4 million, up 13 percent versus last year, primarily reflecting sales of products related to Kanani, the 2011 Girl of the Year.
Hasbro Report Second Quarter Results
Hasbro reported revenue and earnings growth for the second quarter 2011. The company reported 23 percent net revenues growth to $908.5 million compared to $737.8 million in the second quarter 2010. Second quarter 2011 net revenues include a positive $35.8 million impact of foreign exchange. The company reported net earnings for the second quarter 2011 of $58.1 million or $0.42 per diluted share compared to $43.6 million or $0.29 per diluted share in 2010. Second quarter 2011 net earnings were $0.33 per diluted share, excluding a favorable tax adjustment of $20.5 million or $0.15 per diluted share, as well as $13.1 million pre-tax expense, or $0.06 per diluted share for severance, relocation, and related costs associated with establishing a Center of Excellence for Hasbro Games in Rhode Island.
During the second quarter, the company announced the establishment of its Center of Excellence for Hasbro Games in Rhode Island. As part of this announcement, Hasbro is reorganizing its global games business and moving some games marketing and development employees from East Longmeadow, Mass. to Rhode Island. This action resulted in $13.1 million of pre-tax expense in the second quarter. An additional $7 million is expected over the next three to four quarters primarily associated with recruiting and office space.
In the second quarter, worldwide net revenues in the Boys’ product category increased 96 percent to $460.4 million; the Games and Puzzles category decreased 12 percent to $231.3 million; the Girls’ category declined 11 percent to $119.1 million; and the Preschool category was down 10 percent to $97.6 million.
U.S. and Canada segment net revenues grew 14 percent to $505 million, an increase of $60.5 million compared to $444.5 million in 2010. The results reflect growth in the Boys’ category partially offset by a decline in the other three product categories. The U.S. and Canada segment reported an operating profit of $57.7 million, compared to $58.7 million in 2010.
International segment net revenues grew 43 percent to $374.5 million, an increase of $113.1 million compared to $261.4 million in 2010. Net revenues in the International segment grew 30 percent absent the positive $34.1 million impact of foreign exchange. Revenue in the International segment reflects growth in the Boys and Games and Puzzles categories partially offset by declines in the Girls and Preschool categories. The International segment reported a 191 percent increase in operating profit to $33.8 million, compared to an operating profit of $11.6 million in 2010.
Entertainment and Licensing segment net revenues declined 11 percent to $27.2 million, compared to $30.5 million in 2010. Revenue in the Entertainment and Licensing segment declined primarily due to lower movie-related revenue versus the second quarter 2010 partially offset by higher revenue from television programming. (Licensing revenue associated with Transformers: Dark of the Moon will begin to be recorded in the third quarter 2011.) The Entertainment and Licensing segment reported an operating profit of $0.6 million compared to $13.0 million in 2010.
Hasbro repurchased a total of 2.4 million shares of common stock during the second quarter 2011 at a total cost of $112 million and an average price of $45.80 per share. For the first two quarters in 2011, the company repurchased a total of 3.8 million shares at a total cost of $175.7 million and an average price of $45.69. At quarter-end, $474.5 million remained available under the current share repurchase authorization.
Caryl Liebmann Launches Agency
Caryl Liebmann, industry veteran, has established Liebmann Licensing, an entertainment licensing agency. Specializing in product development, brand management, licensing, retail, and business development.
Liebmann Licensing recently signed the American Grammy Award-winning musician Prodigy for licensing and branding, and is now in discussion with manufacturers for licensing.
Prodigy has been on the music scene for more than 10 years, and is half of the hip-hop duo Mobb Deep. Mobb Deep have become one of the most successful rap duos in hip hop, having sold more than 7 million records. In addition to his musical career, Prodigy is an ambassador for the Sickle Cell Disease Association of America, speaking out about his own battle with sickle cell anemia.