SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the period ended March 27, 1994 Commission file number 1-6682
HASBRO, INC.
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(Name of Registrant)
Rhode Island O5-0155090
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(State of Incorporation) (I.R.S. Employer Identification No.)
1027 Newport Avenue, Pawtucket, Rhode Island 02861
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(Principal Executive Offices)
(401) 431-8697
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 or No
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The number of shares of Common Stock, par value $.50 per share,
outstanding as of April 29, 1994 was 88,051,294
HASBRO, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Thousands of Dollars Except Share Data)
(Unaudited)
Mar. 27, Mar. 28, Dec. 26,
Assets 1994 1993 1993
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Current assets
Cash and cash equivalents $ 250,262 100,250 186,254
Marketable securities, at cost which
approximates market - 50,000 -
Accounts receivable, less allowance
for doubtful accounts of $53,500,
$53,900 and $54,200 449,981 420,057 720,442
Inventories:
Finished products 203,757 172,871 183,899
Work in process 23,274 21,924 22,486
Raw materials 44,288 42,753 43,682
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Total inventories 271,319 237,548 250,067
Deferred income taxes 86,933 77,047 78,413
Prepaid expenses 63,571 70,716 65,959
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Total current assets 1,122,066 955,618 1,301,135
Property, plant and equipment, net 282,978 252,521 279,803
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Other assets
Cost in excess of acquired net assets,
less accumulated amortization of
$71,768, $56,826 and $68,122 472,367 486,509 475,607
Other intangibles, less accumulated
amortization of $89,609, $69,970 and
$85,290 180,839 201,370 185,953
Other 55,100 25,786 50,520
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Total other assets 708,306 713,665 712,080
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Total assets $2,113,350 1,921,804 2,293,018
========= ========= =========
HASBRO, INC. AND SUBSIDIARIES
Consolidated Balance Sheets, Continued
(Thousands of Dollars Except Share Data)
(Unaudited)
Mar. 27, Mar. 28, Dec. 26,
Liabilities and Shareholders' Equity 1994 1993 1993
-------- -------- --------
Current liabilities
Short-term borrowings $ 53,091 51,851 62,242
Current installments of long-term debt 3,230 690 3,236
Trade payables 102,050 107,090 170,309
Accrued liabilities 293,557 277,980 420,476
Income taxes 92,906 85,337 92,051
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Total current liabilities 544,834 522,948 748,314
Long-term debt, excluding current
installments 200,479 206,152 200,510
Deferred liabilities 73,171 70,823 67,511
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Total liabilities 818,484 799,923 1,016,335
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Shareholders' equity
Preference stock of $2.50 par
value. Authorized 5,000,000
shares; none issued - - -
Common stock of $.50 par value.
Authorized 300,000,000 shares; issued
87,981,176, 87,306,626 and 87,795,251 43,991 43,653 43,898
Additional paid-in capital 299,064 289,592 296,823
Retained earnings 937,227 763,335 920,956
Cumulative translation adjustments 14,584 25,301 15,006
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Total shareholders' equity 1,294,866 1,121,881 1,276,683
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Total liabilities and
shareholders' equity $2,113,350 1,921,804 2,293,018
========= ========= =========
See accompanying condensed notes to consolidated financial statements.
HASBRO, INC. AND SUBSIDIARIES
Consolidated Statements of Earnings
(Thousands of Dollars Except Share Data)
(Unaudited)
Thirteen Weeks Ended
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Mar. 27, Mar. 28,
1994 1993
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Net revenues $489,133 487,036
Cost of sales 208,200 208,021
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Gross profit 280,933 279,015
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Expenses
Amortization 8,793 8,659
Royalties, research and
development 50,320 47,403
Advertising 64,559 67,837
Selling, distribution and
administrative 110,290 109,559
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Total expenses 233,962 233,458
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Operating profit 46,971 45,557
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Nonoperating (income) expense
Interest expense 5,436 4,415
Other (income), net (1,908) (1,729)
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Total nonoperating expense 3,528 2,686
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Earnings before income taxes and
cumulative effect of change in
accounting principles 43,443 42,871
Income taxes 16,726 16,291
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Net earnings before cumulative
effect of change in accounting
principles 26,717 26,580
Cumulative effect of change in
accounting principles (4,282) -
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Net earnings $ 22,435 26,580
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Per common share
Net earnings before cumulative
effect of change in accounting
principles $ .30 .30
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Net earnings $ .25 .30
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Cash dividends declared $ .07 .06
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See accompanying condensed notes to consolidated financial statements.
HASBRO, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Thirteen Weeks Ended March 27, 1994 and March 28, 1993
(Thousands of Dollars)
(Unaudited)
1994 1993
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Cash flows from operating activities
Net earnings $ 22,435 26,580
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization of plant and equipment 16,424 17,845
Other amortization 8,793 8,659
Deferred income taxes (11,023) (1,079)
Change in current assets and liabilities (other than
cash and cash equivalents):
Decrease in accounts receivable 268,687 217,639
(Increase) in inventories (21,178) (15,226)
(Increase) decrease in prepaid expenses 2,075 (13,015)
(Decrease) in trade payables and accrued
liabilities (193,199) (154,151)
Other 4,129 (2,124)
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Net cash provided by operating activities 97,143 85,128
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Cash flows from investing activities
Additions to property, plant and equipment (19,590) (19,376)
Purchase of marketable securities - (141,411)
Proceeds from sale of marketable securities - 91,689
Investments and acquisitions, net of cash acquired - (4,580)
Other 198 237
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Net cash utilized by investing activities (19,392) (73,441)
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Cash flows from financing activities
Net repayment of short-term borrowings (10,551) (22,909)
Repayment of long-term debt (37) (11,168)
Stock option and warrant transactions 2,334 2,179
Dividends paid (5,271) (4,363)
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Net cash utilized by financing activities (13,525) (36,261)
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Effect of exchange rate changes on cash (218) (1,129)
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Increase (decrease) in cash and cash equivalents 64,008 (25,703)
Cash and cash equivalents at beginning of year 186,254 125,953
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Cash and cash equivalents at end of period $250,262 100,250
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Supplemental information
Cash paid during the period for:
Interest $ 2,859 4,572
Income taxes $ 20,893 14,806
See accompanying condensed notes to consolidated financial statements.
HASBRO, INC. AND SUBSIDIARIES
Condensed Notes to Consolidated Financial Statements
(Thousands of Dollars)
(Unaudited)
(1) In the opinion of management and subject to year-end audit, the
accompanying unaudited interim financial statements contain all adjustments
(consisting of only normal recurring accruals) necessary to present fairly the
financial position of the Company as of March 27, 1994 and March 28, 1993, and
the results of operations and cash flows for the periods then ended.
The results of operations for the thirteen week period ended March 27,
1994, are not necessarily indicative of results to be expected for the full
year.
(2) The Company has several plans covering certain groups of employees
which may provide benefits to such employees following their period of active
employment but prior to their retirement. These plans include certain
severance plans which provide benefits to employees involuntarily terminated
and certain plans which continue the Company's health and life insurance
contribution for employees who have left the Company's employ under terms of
its long-term disability plan.
The Company adopted the provisions of Statement of Financial
Accounting Standards No. 112, Employers' Accounting for Postemployment
Benefits (SFAS 112) as of the beginning of the current fiscal year. SFAS 112
requires that the cost of certain postemployment benefits be accrued over the
employee service period, which is a change from the Company's prior practice
of recording such benefits when incurred. The effect of initially applying
SFAS 112, net of a deferred tax benefit of $2,513, has been reported as the
cumulative effect of a change in accounting principles, negatively impacting
the Company's first quarter 1994 earnings by $4,282. The adoption of SFAS 112
is not expected to have a future significant effect on either the Company's
earnings or its financial condition.
(3) Earnings per common share are based on the weighted average number of
shares of common stock and dilutive common stock equivalents outstanding
during each period. Common stock equivalents include stock options and
warrants for the period prior to their exercise. Under the treasury stock
method, the unexercised options and warrants were assumed to be exercised at
the beginning of the period or at issuance, if later. The assumed proceeds
were then used to purchase common stock at the average market price during the
period.
For each of the reported periods the difference between primary and
fully diluted earnings per share was not significant.
HASBRO, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial
Condition and Results of Operations
(Thousands of dollars)
NET REVENUES
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Net revenues for the quarter ended March 27, 1994 were $489,133, compared to
the $487,036 reported in the first quarter of 1993. Internationally, the
Company had a successful quarter, experiencing revenue growth in virtually all
countries. International revenues increased by approximately 15% over those of
the first quarter of 1993 and absent the effect of the strengthened U.S.
dollar increased in excess of 20%. Particularly noteworthy this quarter were
the Netherlands and the U.K., up more than 50% and 30%, respectively, from
first quarter 1993 levels. Domestically, the Company's customers reported
increased consumer purchases of many of its products in comparison to 1993.
The ongoing efforts of the those customers to minimize their inventory levels,
however, adversely affected the volume of replacement orders. Within the
promotional toy group, Kenner had a successful quarter essentially matching
their 1993 revenues, which had increased more than 80% from the prior year. In
the games area, Milton Bradley exceeded its 1993 volume, while Parker
Brothers, also feeling the effect of a comparison against a strong 1993 first
quarter, fell short. The infant and preschool group, while continuing to face
significant competition in its market, was marginally above the comparable
1993 level.
COST OF SALES
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The gross profit margin, expressed as a percentage of net revenues, improved
slightly to 57.4% from the 1993 level of 57.3%.
EXPENSES
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Royalties, research and development expenses, although increasing in both
dollars and as a percentage of revenues compared to the first quarter of 1993,
approximates the full year 1993 rate. The increase over the comparable period
in 1993 is attributable to both royalties, where the Company has experienced
greater sales, particularly within the international group, of products
carrying relatively high royalty rates, and expanded product development
efforts domestically.
As a percentage of net revenues, advertising expense has decreased to 13.2%
from 13.9% a year ago. This decrease is the composite of an increase
internationally and a decrease domestically. Internationally, the Company's
continuing efforts to establish certain brands is the primary cause of the
increase, while domestically the decrease results primarily from a planned
reduction in certain promotional toy advertising.
Selling, distribution and administrative expenses for the quarter remained
constant at the 1993 level of 22.5% of net revenues.
HASBRO, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial
Condition and Results of Operations, Continued
(Thousands of dollars)
NONOPERATING (INCOME) EXPENSE
- -----------------------------
The increase of approximately $1,000 in interest expense during the first
quarter of 1994 is attributable to a combination of factors including an
increase in average borrowing requirements during the quarter and the 1993
early redemption of a portion of the Company's long-term debt.
INCOME TAXES
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Income tax expense, as a percentage of pretax earnings, was 38.5% for the
first quarter of 1994, an increase from the 38.0% for the same period in 1993.
This increase was primarily the result of the U.S. federal tax rate which
increased from 34% to 35% during 1993.
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLES
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At the beginning of the quarter, the Company adopted Statement of Financial
Accounting Standards No. 112, Employers' Accounting for Postemployment
Benefits (SFAS 112). SFAS 112 requires that the cost of certain postemployment
benefits be accrued over the employee service period, which is a change from
the Company's prior practice of recording such benefits when incurred. The
recognition of the Company's obligation relating to prior service, net of a
deferred tax benifit of $2,513, (the cumulative effect of the change in
accounting principles) reduced net earnings by $4,282. Additionally, this
recognition required the recording of a long-term liability approximating
$6,000 and a long-term deferred tax asset approximating $2,000. The adoption
of SFAS 112 is not expected to have a future significant effect on either the
Company's earnings or its financial condition.
OTHER INFORMATION
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The business of the Company is characterized by customer order patterns which
vary from year to year largely because of differences in the degree of
consumer acceptance of a product line, product availability, marketing
strategies and inventory levels of retailers and differences in overall
economic conditions. Also, more retailers are using quick response inventory
management practices which results in fewer orders being placed in advance of
shipment and more orders, when placed, for immediate delivery. As a result,
comparisons of unshipped orders on any date in a given year with those at the
same date in a prior year are not necessarily indicative of sales for the
entire year. In addition, it is a general industry practice that orders are
subject to amendment or cancellation by customers prior to shipment. The
Company's unshipped orders were approximately $350,000 at April 24, 1994
compared to $575,000 at April 25, 1993. During the past several years the
Company has experienced a gradual shift in its revenue pattern wherein the
second half of the year has grown in significance to its overall business and
within that half the fourth quarter has become more prominent. The Company
expects that this trend will continue.
HASBRO, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial
Condition and Results of Operations, Continued
(Thousands of dollars)
LIQUIDITY AND CAPITAL RESOURCES
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Several of the major balance sheet categories, including cash and cash
equivalents, marketable securities, accounts receivable, inventories and
short-term borrowings, fluctuate significantly from quarter to quarter. This
reflects the seasonality of the Company's business coupled with certain
customer incentives, mainly in the form of extended payment terms. Generally,
accounts receivable, inventories and short-term debt are lower at the end of
December or March than at the end of the other quarters while cash and related
amounts are higher. As a result, management believes that a comparison to the
comparable period in the prior year is generally more meaningful than a
comparison to the prior year-end.
Cash and cash equivalents at $250,262 were approximately $100,000 higher than
the aggregate of it and marketable securities at the same time in 1993. This
increase is reflective of the cash generated during the prior twelve months
and will be used for working capital requirements as the year progresses.
Receivables, at $449,981, were above their comparable 1993 level due to a
combination of factors including the mix of first quarter sales with a greater
percentage being made to customers with extended payment terms. Inventories
increased approximately $34,000, largely due to the lower volume of domestic
sales during the first quarter and the Company's continuing efforts to have
product available for immediate delivery to its customers.
Short-term borrowings at $53,091 were approximately the same as in 1993. While
the Company attempts to keep its borrowings at the lowest level possible,
especially when it has excess cash, the cash available and the borrowing
required may be in different countries and currencies and may make it
impractical to substitute one for the other. Other current liabilities
increased approximately $20,500 from those of a year ago, primarily due to
timing differences on payments.
As part of the traditional marketing strategies of the toy industry, many
sales made early in the year are not due for payment until the fourth quarter,
thus making it necessary for the Company to borrow significant amounts pending
collection of these receivables. Currently, the Company has available
committed unsecured lines of credit totaling approximately $450,000. It also
has available uncommitted lines exceeding $850,000. The Company believes that
these amounts are adequate for its needs. Of these available lines, at March
27, 1994, approximately $65,000 was in use.
RECENT INFORMATION
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On April 1, 1994, the Company amended its existing revolving credit agreement.
The amendment decreases the available amount to $440,000, extends the maturity
of the agreement to May 31, 1997, removes certain compliance requirements and
reduces the commitment rate and margin, making the facility more economical
for the Company.
PART II. Other Information
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
4 Amendment No. 1 to Revolving Credit Agreement, dated
as of April 1, 1994, among the Company, certain banks
(the "Banks") and The First National Bank of Boston,
as agent for the Banks.
11 Computation of Earnings Per Common Share - Thirteen
Weeks Ended March 27, 1994 and March,28,1993.
12 Computation of Ratio of Earnings to Fixed Charges -
Thirteen Weeks Ended March 27, 1994.
(b) Reports on Form 8-K
A current Report on Form 8-K dated April 13, 1994 was filed
by the Company and included the Press Release dated April
13, 1994 announcing the Company's results for the current
quarter. Consolidated Statements of Earnings (without notes)
for the quarters ended March 27, 1994 and March 28, 1993 and
Consolidated Condensed Balance Sheets (without notes) as of
said dates were also filed.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HASBRO, INC.
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(Registrant)
Date: May 11, 1994 By: /s/ John T. O'Neill
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John T. O'Neill
Executive Vice President and
Chief Financial Officer
(Duly Authorized Officer and
Principal Financial Officer)
HASBRO, INC. AND SUBSIDIARIES
Quarterly Report on Form 10-Q
For the Period Ended March 27, 1994
Exhibit Index
Exhibit
No. Exhibits
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4 Amendment No. 1 to Revolving Credit Agreement
11 Statement re computation of per share earnings -
thirteen weeks
12 Statement re computation of ratios