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Toy Fair 2013, February 11, 2013

TOTY Award Winners Announced

The Toy Industry Association (TIA) kicked off Toy Fair on Saturday night with the 13th annual Toy of the Year (TOTY) Awards and Toy Industry Hall of Fame induction ceremony at New York City’s Plaza Hotel. Interspersed with the presentation of the TOTY Awards were two inductions into the Toy Industry Hall of Fame: Judith (Judy) Ellis, chair of the Toy Design Department at the Fashion Institute of Technology, and the late Russell (Russ) Berrie, founder of Russ Berrie, Inc. The new inductees join a roster of 59 other luminaries who have been inducted into the Hall since its establishment in 1985.

Award winners were selected with the input of consumers (on ToyAwards.org), retailers (mass and specialty), media, and members of the toy industry. The five ballots—open from November 19, 2012, to January 13, 2013—were weighted and used to determine the category winners, with the exception of the “People’s Choice” award which was selected exclusively by consumers who voted on ToyAwards.org.

The winners are listed below.
Activity Toy of the Year—LEGO Friends (The LEGO Group)
Boy Toy of the Year—Teenage Mutant Ninja Turtles Shellraiser (Playmates Toys)
e-Connected Toy of the Year—Skylanders Giants (Activision Publishing, Inc.)
Educational Toy of the Year—LeapPad2 (LeapFrog Enterprises, Inc.)
Game of the Year—Perplexus Epic (PlaSmart, Inc.)
Girl Toy of the Year—LEGO Friends (The LEGO Group)
Infant/Toddler Toy of the Year—Tranquil Turtle (Cloud b)
Innovative Toy of the Year—Digital Light Designer (Crayola)
Outdoor Toy of the Year—The Original Big Wheel (Kids Only, Inc., a division of Jakks Pacific, Inc.)
Preschool Toy of the Year—Doc McStuffins Time For Your Check-Up Doll (Just Play)
Property of the Year—Teenage Mutant Ninja Turtles (Nickelodeon)
Specialty Toy of the Year—LEGO Architecture (The LEGO Group)

Hasbro Reported Q4 and 2012 Results

Hasbro reported financial results for the full-year and fourth quarter 2012. Net revenues for the full-year 2012 were $4.09 billion compared to $4.29 billion in 2011. Excluding a negative $98.5 million impact of foreign exchange, net revenues declined 2 percent to $4.19 billion.

Net earnings for the full-year 2012 were $336 million, or $2.55 per diluted share, versus $385.4 million, or $2.82 per diluted share, in 2011. 2012 net earnings include $47.2 million pre-tax, or $0.26 per diluted share, of restructuring charges. Excluding these charges, net earnings were $370.8 million, or $2.81 per diluted share. Additionally, full-year 2012 earnings per share include $0.10 per diluted share from the negative impact of foreign exchange.

Hasbro’s reported 2011 earnings per diluted share included the impact of a $20.5 million favorable tax adjustment, or $0.15 per diluted share, and pre-tax expense of $14.4 million, or $0.07 per diluted share, related to costs associated with establishing Hasbro’s Gaming Center of Excellence in Rhode Island. Earnings per diluted share for 2011 excluding these two items were $2.74.

For the fourth quarter 2012, Hasbro reported net revenues of $1.28 billion compared to $1.33 billion in 2011. Foreign exchange had an $8.2 million negative impact on revenues in the quarter. The Company reported net earnings for the quarter of $130.3 million or $0.99 per diluted share, including $36 million pre-tax, or $0.21 per share, in restructuring charges, versus $139.1 million or $1.06 per diluted share in 2011. Excluding these charges, fourth quarter net earnings were $157.4 million, or $1.20 per diluted share.

Dividend and Share Repurchase
Hasbro’s board of directors has declared a quarterly cash dividend of $0.40 per common share. This represents an increase of $0.04 per share, or 11 percent, from the previous quarterly dividend of $0.36 per common share. The dividend will be payable on May 15, 2013, to shareholders of record at the close of business on May 1, 2013.

Hasbro paid $225.5 million in cash dividends to shareholders during 2012, including the $46.6 million accelerated payment of its fourth quarter dividend historically paid in February.

Additionally, Hasbro repurchased a total of 2.7 million shares of common stock during 2012 at a total cost of $100 million and an average price of $37.11 per share. At year-end, $127.3 million remained available in the current share repurchase authorization.

Major Segment Performance
U.S. and Canada segment net revenues were $2.12 billion compared to $2.25 billion in 2011. The segment’s results reflect growth in the Girls and Games categories, which was more than offset by declines in Boys and Preschool. The U.S. and Canada segment reported 15 percent operating profit growth to $319.1 million, or 15.1 percent of revenues, compared to $278.4 million, or 12.4 percent of revenues, in 2011.

Net revenues in the International segment grew 1 percent absent the negative $97.9 million impact of foreign exchange. Including the impact of foreign exchange, International segment net revenues were $1.78 billion, down 4 percent, compared to $1.86 billion in 2011. Revenue in the International segment reflects 8 percent growth in Latin America offset by a decline in Europe and Asia Pacific. Additionally, the Games and Preschool category were flat in 2012, while Boys and Girls declined. The International segment reported an operating profit of $215.5 million compared to $270.6 million in 2011.

Entertainment and Licensing segment net revenues increased 12 percent to $181.4 million compared to $162.2 million in 2011. The segment continued to benefit from the sale of television programming in all formats in the U.S. and internationally offset by lower movie-related revenues. The Entertainment and Licensing segment reported 24 percent operating profit growth to $53.2 million compared to $42.8 million in 2011.

In the Boys category, net revenues decreased 13 percent to $1.58 billion. Marvel-branded products, driven primarily by Marvel’s The Avengers and The Amazing Spider-Man, posted strong year-over-year gains globally. This growth was more than offset by expected declines in Transformers and Beyblade products following a strong 2011 for both lines.

Net revenues in the Games category increased 2 percent to $1.19 billion. Magic: The Gathering, Twister, Battleship as well as Boys Action Gaming, including Transformers Bot Shots and Angry Birds Star Wars all helped the category grow in 2012.

The Girls category net revenues increased 7 percent to $792.3 million. Furby was very successful in 2012 and will launch globally in 2013. My Little Pony posted strong growth for the year and the addition of One Direction to the Girls category was favorable.

Net revenues in the Preschool category declined 5 percent to $527.6 million. The Playskool Heroes line had a strong 2012 and Play-Doh product revenues grew in the year. The category faced difficult comparisons against the initial launch of Sesame Street products in 2011.

LeapFrog Reports Q4 and 2012 Results

LeapFrog Enterprises, Inc., announced financial results for the fourth quarter and full year ended December 31, 2012.

Highlights of full year 2012 results compared to full year 2011 results:
• Consolidated net sales were up 28 percent.
• U.S. segment net sales were up 24 percent, and international segment net sales were up 38 percent.
• Income from operations was up 170 percent.
• Income from operations as a percentage of net sales was up 11 percent, more than double the prior year.
• Net income was $86.5 million, up 334 percent.
• Net income per diluted share was $1.24, up $0.94.
• Adjusted EBITDA was $93.1 million, up 89 percent.
• Cash and cash equivalents were $120 million as of December 31, 2012, up 67 percent compared to the balance as of December 31, 2011.

Q4 2012 Versus Q4 2011
Fourth quarter 2012 net sales were $244.7 million, up 16 percent compared to $210.2 million last year, and were not materially impacted by changes in currency exchange rates. Net sales growth was primarily driven by strong content sales, high consumer demand for the LeapPad learning tablets and accessories, and the introduction of the LeapsterGS game system. In the U.S. segment, net sales were $177.8 million, up 11 percent compared to $160.6 million last year. In the International segment, net sales were $67 million, up 35 percent compared to $49.6 million last year, and included a 2 percent positive impact from changes in currency exchange rates.

Income from operations for the fourth quarter was $43.2 million, up 28 percent compared to $33.7 million reported a year ago. Income from operations as a percentage of net sales was 17.7 percent, up 170 basis points compared to 16 percent a year ago.

Net income for the fourth quarter was $62.3 million, up 90 percent compared to $32.8 million a year ago.

Net income per diluted share was $0.89, up 82 percent compared to $0.49 a year ago. Net income in the fourth quarter of 2012 included a tax benefit of $20.3 million, or $0.29 per diluted share, as a result of recording the expected tax benefit of a portion of the company’s past accumulated net operating losses due to improved historical results and future prospects.

Adjusted EBITDA for the fourth quarter was $50.4 million, up 24 percent compared to $40.7 million a year ago.

Full Year 2012 Versus Full Year 2011
Full year 2012 net sales were $581.3 million, up 28 percent compared to $455.1 million last year, and were not materially impacted by changes in currency exchange rates. Net sales growth was primarily driven by strong content sales, high consumer demand for the LeapPad and its accessories, and the introduction of the LeapsterGS. In the U.S. segment, net sales were $424.8 million, up 24 percent compared to $342 million last year. In the International segment, net sales were $156.5 million, up 38 percent compared to $113.1 million last year, and included a 1 percent negative impact from changes in currency exchange rates.

Income from operations was $64.1 million in 2012, up $40.4 million or 170 percent compared to 2011.

Income from operations as a percentage of net sales was 11 percent, up 112 percent, or 580 basis points, compared to 5.2 percent a year ago.

Net income was $86.5 million in 2012, more than four times the net income of $19.9 million in 2011. Net income per diluted share was $1.24, more than four times the net income per share of $0.30 in 2011. Net income in 2012 included a tax benefit of $20.3 million, or $0.29 per diluted share, as a result of recording the expected tax benefit of a portion of the company’s past accumulated net operating losses due to improved historical results and future prospects. Net income in 2012 also included a $6.4 million, or $0.09 per diluted share, tax benefit due to expiring statute of limitations. Adjusted EBITDA for the full year was $93.1 million, up 89 percent compared to $49.3 million a year ago.

LeapFrog announced its first quarter 2013 guidance.
• Net sales are expected to increase by about 10 percent compared to the first quarter of 2012.
• Net loss per share to be in the range of $0.07 to $0.09, which includes a tax benefit at a 37.5 percent effective tax rate, compared to a net loss per share of $0.14 in the first quarter 2012. First quarter 2012 results did not include a net tax benefit related to the period operating loss.

New Funding for Thames & Kosmos, Quartin Named CEO

Thames & Kosmos announced the completion of a major new investment from its primary partner company, Germany-based Kosmos International GmbH. The deal will boost Thames & Kosmos marketing, product development, and logistical resources, while the 191-year-old publishing house Kosmos becomes the principal shareholder in 12-year-old Thames & Kosmos.

“With this investment, we aim to strengthen T&K’s position in the U.S. market as well as grow the entire U.S. market for science kits by continuing to introduce innovative products. Kosmos is entering an important phase in its development by accelerating international expansion and supplementing the physical products with digital components and apps,” said Michael Fleissner, CEO and main shareholder of Kosmos, in a statement.

“I am absolutely thrilled to be solidifying our partnership with Kosmos after 12 excellent years of collaboration,” said Ted McGuire, president of Thames & Kosmos. “Functioning as a partially owned subsidiary, we can now realize new efficiencies that were previously impossible.”

Kosmos also recently acquired a producer of educational software games called USM, a leading app publisher with many educational games, including Redshift, Catan, and Ingenious.

In addition, Thames & Kosmos also announced the hiring of Andrew Quartin as CEO. Most recently, Quartin was a portfolio manager at Schottenfeld Associates, where he managed a portfolio of media, retail, technology, and diversified consumer products companies. Prior to that, he was a co-founder and president of TUTM entertainment, a successful consumer products venture.