EXHIBIT 13
HASBRO, INC. AND SUBSIDIARIES
Selected Information Contained in
Annual Report to Shareholders
for the Year Ended December 25, 1994
MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
-------------------------------------------------------------------------
The Company's Common Stock, Par Value $.50 per share (the "Common Stock"), is
traded on the American and London Stock Exchanges. The following table sets
forth the high and low sales prices as reported on the Composite Tape of the
American Stock Exchange and the cash dividends declared per share of Common
Stock for the periods listed.
Sales Prices
---------------- Cash Dividends
Period High Low Declared
------ ---- --- --------------
1993
1st Quarter $34 7/8 28 1/8 $.06
2nd Quarter 38 3/8 29 7/8 .06
3rd Quarter 39 5/8 34 .06
4th Quarter 40 1/8 35 1/8 .06
1994
1st Quarter $36 5/8 33 3/8 $.07
2nd Quarter 36 1/8 28 1/8 .07
3rd Quarter 32 1/8 28 1/8 .07
4th Quarter 33 1/2 27 7/8 .07
The approximate number of holders of record of the Company's Common Stock as of
March 3, 1995 was 5,000.
Dividends
---------
Declaration of dividends is at the discretion of the Company's Board of
Directors and will depend upon the earnings, financial condition of the Company
and such other factors as the Board of Directors deems appropriate. Payment of
dividends is further subject to restrictions contained in agreements relating
to the Company's outstanding long-term debt. At December 25, 1994, under the
most restrictive agreement the full amount of retained earnings is free of
restrictions.
On February 17, 1995 the Company's Board of Directors declared a quarterly cash
dividend on the Company's Common Stock of $.08 per share payable on May 19,
1995 to holders of record on May 5, 1995.
SELECTED FINANCIAL DATA
-----------------------
(Thousands of Dollars and Shares Except per share Data and Ratios)
Fiscal Year
------------------------------------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
Statement of
Earnings Data:
Net revenues $2,670,262 2,747,176 2,541,055 2,141,096 1,520,032
Net earnings
before cumulative
effect of change
in accounting
principles $ 179,315 200,004 179,164 81,654 89,182
Net earnings $ 175,033 200,004 179,164 81,654 89,182
Per Common Share
Data:
Net earnings
before cumulative
effect of change
in accounting
principles $ 2.01 2.22 2.01 .94 1.02
Net earnings $ 1.96 2.22 2.01 .94 1.02
Cash dividends
declared $ .28 .24 .20 .16 .13
Balance Sheet Data:
Total assets $2,378,375 2,293,018 2,082,766 1,950,127 1,284,765
Long-term debt $ 150,000 200,510 206,189 380,304 56,912
Ratio of Earnings
to Fixed Charges (1) 7.58 8.59 7.08 3.76 7.58
Weighted Average
Number of Common
Shares 89,331 90,031 89,086 86,983 87,119
(1) For purposes of calculating the ratio of earnings to fixed charges,
fixed charges include interest, amortization of debt expense and
one-third of rentals, and earnings available for fixed charges
represent earnings before fixed charges and income taxes.
MANAGEMENT'S REVIEW
-------------------
Summary
-------
A percentage analysis of results of operations follows:
1994 1993 1992
---- ---- ----
Net revenues 100.0% 100.0% 100.0%
Cost of sales 43.5 43.0 43.1
----- ----- -----
Gross profit 56.5 57.0 56.9
Amortization 1.4 1.3 1.3
Royalties, research and development 10.2 10.2 9.8
Advertising 14.9 14.0 14.8
Selling, distribution and administration 18.5 18.1 18.2
Restructuring .5 .6 -
Interest expense 1.1 1.1 1.4
Other income, net (1.0) (.1) (.1)
----- ----- -----
Earnings before income taxes and cumulative
effect of change in accounting principles 10.9 11.8 11.5
Income taxes 4.2 4.5 4.5
----- ----- -----
Earnings before cumulative effect of change
in accounting principles 6.7 7.3 7.0
Cumulative effect of change in accounting
principles (.1) - -
----- ----- -----
Net earnings 6.6% 7.3% 7.0%
===== ===== =====
(Thousands of Dollars Except Share Data)
Results of Operations
---------------------
Net revenues for 1994 were $2,670,262 compared to $2,747,176 and $2,541,055
for 1993 and 1992, respectively. Decreased consumer demand for two lines of
licensed products, Barney(TM) and Jurassic Park(TM), which provided
approximately $220,000 of revenues during 1993, was a major contributor to the
decrease, with these items contributing less than $50,000 of revenues in 1994.
Domestically, the games group, helped by the products acquired from Western
Publishing, enjoyed another year of record revenues. New products, including
Elefun(TM) and Gator Golf(R) received very favorable consumer acceptance,
while the classics, such as Monopoly(R) and Scrabble(R) again demonstrated
their staying power. Within the toy group, boy's toys were led by the
continued strength of the Batman(R) action figures and the new Ricochet(TM)
remote-controlled vehicle. In the girl's/activity area, the Fantastic Sticker
Maker(TM) enjoyed a successful first year while the Littlest Pet Shop(R) items
continued to be strong and the redesigned Easy Bake(R) Oven was well accepted.
In the infant and preschool arena, Playskool's In-Line Skates had a good
second year and its new 4-in-1 Busy(R) Center was very well received. The
Company's growth in the international marketplace approximated 10% in 1994
following a marginal decrease experienced in 1993. European growth was led by
the U.K., France, Italy and Spain while elsewhere Mexico was the most
significant, in local currency up more than 60%. During 1994, changed foreign
currency rates had a positive impact of approximately $19,000 while in 1993
they negatively affected revenues by approximately $107,000.
The Company's gross profit margin decreased marginally to 56.5% from 57.0% in
1993 and 56.9% in 1992. The decrease in 1994 results from a combination of
factors including increased tooling charges and a lower volume of promotional
products.
Amortization expense, which includes amortization of both intellectual
property rights and cost in excess of net assets acquired, of $36,903 compares
with $35,366 in 1993 and $33,528 in 1992. These increases were attributable to
the acquisitions during 1994 and 1993.
Expenditures for royalties, research and development decreased to $273,039
from $280,571 in 1993 while in 1992, they were $249,851. Included in these
amounts are expenditures for research and development of $135,406 in 1994,
$125,566 in 1993 and $109,655 in 1992. As percentages of net revenues,
research and development was 5.1% in 1994, 4.6% in 1993 and 4.3% in 1992. The
increased percentages in both 1994 and 1993 were largely attributable to the
Company's efforts to remain competitive in a changing technological
environment. The decreased royalties in 1994, both in amount and as a
percentage of net revenues, were primarily attributable to the reduced
revenues from promotional products, which generally have higher royalty rates.
The 1993 increase over 1992 was largely due to the higher revenues from those
same products.
During 1994, the Company completed a restructuring of its Domestic Toy group,
merging its Hasbro Toy, Playskool, Playskool Baby, Kenner and Kid Dimension
units into one organization, the Hasbro Toy Group, and also announced a
consolidation of its domestic manufacturing facilities. To provide for these
and other immaterial restructuring costs, the Company recorded a $12,500
pretax charge during the third quarter. In January 1994, the Company announced
the planned closure of its Netherlands manufacturing facility. During the
fourth quarter of 1993, the Company recorded a $15,500 charge related to this
planned closure and other non-recurring reorganization expenses classified as
restructuring charges. Both amounts include facility costs, severance and
other related costs.
Interest expense was $30,789 during 1994 compared to $29,814 during 1993 and
$35,891 in 1992. The increase during the current year reflected the effect of
increased interest rates partially offset by the availability of funds
generated from operations during 1993. The decrease in 1993 from 1992 was
largely reflective of the lower average borrowings outstanding and the lower
interest rates experienced during 1993.
Other income of $26,681 in 1994 compares with $3,836 and $3,729 in 1993 and
1992, respectively. During 1994, the Company liquidated its investment in J.W.
Spear & Sons PLC (Spear) and sold its investment in Virgin Interactive
Entertainment plc (Virgin). The gains on these two transactions were the
primary cause of the change from 1993.
Income tax expense as a percentage of pretax earnings in 1994 remained
constant at 38.5% after decreasing from 38.7% in 1992. The 1993 decrease was
primarily attributable to two factors; an increase resulting from the U.S.
federal rate changing from 34% to 35%, partially offset by the impact of this
change on domestic net deferred tax assets, and a decrease resulting from
lower effective state tax rates.
Liquidity and Capital Resources
-------------------------------
The Company continued to have a strong and highly liquid balance sheet with
cash and cash equivalents of $137,028 at December 25, 1994. Cash and cash
equivalents were $186,254 and $125,953 at December 26, 1993 and December 27,
1992, respectively.
During 1994, the Company generated $283,785 of net cash from its operating
activities compared with $217,237 in 1993 and $229,810 in 1992. Included in
this amount in 1994 was $13,176 from changes in operating assets and
liabilities, primarily inventories, reflecting the Company's efforts to more
closely coordinate supply and demand. In both 1993 and 1992 the change in
operating assets and liabilities was negative, largely due to increased levels
of fourth quarter sales in those years, significant portions of which did not
become due until after the end of the Company's fiscal year.
Cash flows from investing activities were a net use of funds during all three
reported years; $244,178, $126,001 and $93,994 in 1994, 1993 and 1992,
respectively. During each of the three years, the Company expended an average
of approximately $100,000 in additions to its property, plant and equipment.
Of these amounts, 43% in 1994, 44% in 1993 and 36% in 1992 were for purchases
of tools, dies and molds related to the Company's products. During those same
three years, depreciation and amortization expenses were $85,368, $65,282 and
$62,087, respectively. During 1994, the Company purchased certain game and
puzzle assets of Western Publishing Company, Inc. and the Games Division of
John Waddington PLC for an aggregate purchase price of $177,379 and made
several other investments. During 1993 and 1992, the Company made several
small acquisitions and investments, none of which were material. The $59,322
of proceeds from sale of investments in 1994 relates to the Spear and Virgin
transactions previously discussed.
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
or early in the first quarter of the subsequent year, thus making it necessary
for the Company to borrow significant amounts pending these collections.
During the year the Company borrowed through the issuance of commercial paper
and short-term lines of credit to fund its seasonal working capital
requirements in excess of funds available from operations. During 1995, the
Company expects to fund these needs in a similar manner and believes that the
funds available to it are adequate to meet its needs. At March 3, 1995, the
Company's unused committed and uncommitted lines of credit, including a
$440,000 revolving credit agreement, were in excess of $1,000,000.
During the three reported years, the Company's activities resulted in the
utilization of funds from financing activities. In 1994 the Company repaid
more than $53,000 of long-term debt, including the early redemption of its
$50,000 subordinated variable rate notes due in 1995. Several equity
transactions also required the utilization of funds during 1994. These
included the repurchase of more than $26,000 of the Company's common stock on
the open market and approximately $16,000 in payments to exercising
warrantholders in lieu of issuing shares of common stock. The $11,705 and
$161,413 repayment of long-term debt in 1993 and 1992, respectively, was
primarily related to debt acquired in the 1991 acquisition of Tonka
Corporation.
During August 1990, the Board of Directors authorized a program to purchase up
to 4,500,000 shares of the Company's common stock. On June 22, 1994, the
Executive Committee of the Board of Directors authorized the purchase of up to
an additional 5,000,000 shares. Through the end of 1994, 6,564,100 shares
remained under these authorizations. The shares acquired under these programs
are being issued upon the exercise of stock options.
Foreign Currency Activity
-------------------------
The Company manages its foreign exchange exposure in various ways including
forward exchange contracts, agreements with vendors for rate protection and
the netting of foreign exchange exposure. In addition, where possible, the
Company minimizes its foreign asset exposure by borrowing in foreign
currencies. Its policy is not to enter into derivative financial instruments
for speculative purposes. It does, however, enter into certain foreign
currency forward exchange contracts to protect itself from adverse currency
rate fluctuations on identifiable foreign currency commitments, primarily for
future purchases of inventory. Such contracts are denominated in currencies of
major industrial countries and entered into with creditworthy banks for terms
of not more than twelve months. At both December 25, 1994 and December 26,
1993, outstanding contracts related to purchases of either U.S. dollars or
Hong Kong dollars. The Company does not anticipate any material adverse impact
on its results of operations or financial position from these contracts.
Cumulative translation adjustments decreased to $14,526 at December 25, 1994
from $15,006 at December 26, 1993. This decrease was principally due to the
relationship of the U.S. dollar relative to currencies in foreign countries in
which the Company operates.
The Economy and Inflation
-------------------------
The Company continued to experience a difficult economic environment
throughout much of the world during 1994. The principal market for the
Company's products is the retail sector where certain customers have
experienced economic difficulty. The Company closely monitors the credit
worthiness of its customers and adjusts credit policies and limits as it deems
appropriate.
The effect of inflation on the Company's operations during 1994 was not
significant and the Company will continue its policy of monitoring costs and
adjusting prices accordingly.
Other Information
-----------------
As previously discussed, during both 1994 and 1993, the Company incurred
certain restructuring costs. The 1994 actions, when completed in the first
quarter of 1995, will have resulted in the termination of approximately 600
employees, of which approximately 100 were management positions. The closure
of the Company's Netherlands manufacturing facility, which was the major
portion of the 1993 charge, originally planned for the second quarter of 1994
was delayed due to the time necessary to comply with local requirements. When
completed, again in the first quarter of 1995, this will have resulted in the
severance of approximately 200 additional employees. The Company expects to
experience the financial benefits from these actions beginning in 1995.
During 1994, the Company continued to experience a gradual shift in its
revenue pattern so that 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 believes that this trend will continue in 1995.
As discussed here a year ago, the Company was engaged in legal action against
CBS Inc. (CBS) to recover all costs associated with the environmental clean-up
of the Company's former manufacturing facility in Lancaster, Pennsylvania. On
August 10, 1994, the U.S. District Court for the Eastern District of
Pennsylvania entered judgment in favor of the Company, awarding the Company
all of its past and future costs associated with such environmental
remediation. The Company and CBS subsequently negotiated and concluded a
resolution of the matter involving CBS' waiver of its rights to appeal the
judgment, a payment by CBS to the Company on account of costs to date
associated with environmental remediation together with interest and certain
litigation costs, CBS' undertaking responsibility for future remediation of
the site, the termination by the Pennsylvania Department of Environmental
Resources of the consent order directing the Company to undertake such
responsibility and the Company's agreement to sell the site to CBS on or
before April 15, 1995. The Company is not aware of any material amounts of
potential exposure relating to environmental matters and does not believe its
compliance costs or liabilities to be material to its operating results or
financial position.
On February 17, 1995, the Company announced a 14% increase in its quarterly
cash dividend from that previously in effect. The first dividend at the
increased rate of $.08 per share is payable on May 19, 1995 to shareholders of
record on May 5, 1995.
On February 23, 1995, the Company announced that it had acquired the Super
Soaker(R) line of products and certain other assets from the Larami Group of
companies. This acquisition brings to the Company a core franchise in an area
in which it had not previously been represented.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
See attached pages.
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Hasbro, Inc.:
We have audited the accompanying consolidated balance sheets of
Hasbro, Inc. and subsidiaries as of December 25, 1994 and December 26, 1993
and the related consolidated statements of earnings, shareholders' equity and
cash flows for each of the fiscal years in the three-year period ended
December 25, 1994. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
Hasbro, Inc. and subsidiaries at December 25, 1994 and December 26, 1993 and
the results of their operations and their cash flows for each of the fiscal
years in the three-year period ended December 25, 1994 in conformity with
generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
Providence, Rhode Island
February 8, 1995
HASBRO, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 25, 1994 and December 26, 1993
(Thousands of Dollars Except Share Data)
Assets 1994 1993
------ ---- ----
Current assets
Cash and cash equivalents $ 137,028 186,254
Accounts receivable, less allowance for
doubtful accounts of $51,000 in 1994
and $54,200 in 1993 717,890 720,442
Inventories 244,407 250,067
Prepaid expenses and other current assets 153,138 144,372
--------- ---------
Total current assets 1,252,463 1,301,135
Property, plant and equipment, net 308,879 279,803
--------- ---------
Other assets
Cost in excess of acquired net assets, less
accumulated amortization of $82,949 in 1994
and $68,122 in 1993 479,960 475,607
Other intangibles, less accumulated amortization
of $58,178 in 1994 and $85,290 in 1993 295,333 185,953
Other 41,740 50,520
--------- ---------
Total other assets 817,033 712,080
--------- ---------
Total assets $2,378,375 2,293,018
========= =========
HASBRO, INC. AND SUBSIDIARIES
Consolidated Balance Sheets, Continued
December 25, 1994 and December 26, 1993
(Thousands of Dollars Except Share Data)
Liabilities and Shareholders' Equity 1994 1993
------------------------------------ ---- ----
Current liabilities
Short-term borrowings $ 81,805 62,242
Trade payables 165,378 173,545
Accrued liabilities 417,763 420,476
Income taxes 98,786 92,051
--------- ---------
Total current liabilities 763,732 748,314
Long-term debt, excluding current installments 150,000 200,510
Deferred liabilities 69,226 67,511
--------- ---------
Total liabilities 982,958 1,016,335
--------- ---------
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 88,085,802 shares
in 1994 and 87,795,251 shares in 1993 44,043 43,898
Additional paid-in capital 282,151 296,823
Retained earnings 1,071,416 920,956
Cumulative translation adjustments 14,526 15,006
Treasury stock, at cost, 557,455 shares in 1994 (16,719) -
--------- ---------
Total shareholders' equity 1,395,417 1,276,683
--------- ---------
Total liabilities and shareholders' equity $2,378,375 2,293,018
========= =========
See accompanying notes to consolidated financial statements.
HASBRO, INC. AND SUBSIDIARIES
Consolidated Statements of Earnings
Fiscal Years Ended in December
(Thousands of Dollars Except Share Data)
1994 1993 1992
---- ---- ----
Net revenues $2,670,262 2,747,176 2,541,055
Cost of sales 1,161,479 1,182,567 1,094,031
--------- --------- ---------
Gross profit 1,508,783 1,564,609 1,447,024
--------- --------- ---------
Expenses
Amortization 36,903 35,366 33,528
Royalties, research and development 273,039 280,571 249,851
Advertising 397,094 383,918 377,219
Selling, distribution and administration 493,570 498,066 461,888
Restructuring charges 12,500 15,500 -
--------- --------- ---------
Total expenses 1,213,106 1,213,421 1,122,486
--------- --------- ---------
Operating profit 295,677 351,188 324,538
--------- --------- ---------
Nonoperating (income) expense
Interest expense 30,789 29,814 35,891
Other (income), net (26,681) (3,836) (3,729)
--------- --------- ---------
Total nonoperating expense 4,108 25,978 32,162
--------- --------- ---------
Earnings before income taxes and
cumulative effect of change in
accounting principles 291,569 325,210 292,376
Income taxes 112,254 125,206 113,212
--------- --------- ---------
Earnings before cumulative
effect of change in accounting
principles 179,315 200,004 179,164
Cumulative effect of change in
accounting principles (4,282) - -
--------- --------- ---------
Net earnings $ 175,033 200,004 179,164
========= ========= =========
Per common share
Earnings before cumulative effect
of change in accounting principles $ 2.01 2.22 2.01
========= ========= =========
Net earnings $ 1.96 2.22 2.01
========= ========= =========
Cash dividends declared $ .28 .24 .20
========= ========= =========
See accompanying notes to consolidated financial statements.
HASBRO, INC. AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity
Fiscal Years Ended in December
(Thousands of Dollars)
1994 1993 1992
---- ---- ----
Common stock
Balance at beginning of year $ 43,898 43,588 43,397
Stock option and warrant transactions 145 310 191
--------- --------- ---------
Balance at end of year 44,043 43,898 43,588
--------- --------- ---------
Additional paid-in capital
Balance at beginning of year 296,823 287,478 276,725
Stock option and warrant transactions (14,672) 9,345 10,753
--------- --------- ---------
Balance at end of year 282,151 296,823 287,478
--------- --------- ---------
Retained earnings
Balance at beginning of year 920,956 741,987 580,211
Net earnings 175,033 200,004 179,164
Dividends declared (24,573) (21,035) (17,388)
--------- --------- ---------
Balance at end of year 1,071,416 920,956 741,987
--------- --------- ---------
Cumulative translation adjustments
Balance at beginning of year 15,006 32,568 60,297
Equity adjustments from foreign
currency translation (480) (17,562) (27,729)
--------- --------- ---------
Balance at end of year 14,526 15,006 32,568
--------- --------- ---------
Treasury stock
Balance at beginning of year - - (5,361)
Purchases (26,140) - -
Stock option and warrant transactions 9,421 - 5,361
--------- --------- ---------
Balance at end of year (16,719) - -
--------- --------- ---------
Total shareholders' equity $1,395,417 1,276,683 1,105,621
========= ========= =========
See accompanying notes to consolidated financial statements.
HASBRO, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Fiscal Years Ended in December
(Thousands of Dollars)
1994 1993 1992
---- ---- ----
Cash flows from operating activities
Net earnings $175,033 200,004 179,164
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation and amortization of plant
and equipment 85,368 65,282 62,087
Other amortization 36,903 35,366 33,528
Deferred income taxes (1,245) 2,281 2,228
Gain on investments (25,284) - -
Change in operating assets and liabilities
(other than cash and cash equivalents):
(Increase) decrease in accounts
receivable 9,871 (90,833) (132,935)
(Increase) decrease in inventories 28,678 (34,088) (15,182)
(Increase) decrease in prepaid expenses
and other current assets (3,142) (8,434) 9,555
(Decrease) increase in trade payables
and accrued liabilities (22,231) 52,761 94,820
Other (166) (5,102) (3,455)
------- ------- -------
Net cash provided by operating
activities 283,785 217,237 229,810
------- ------- -------
Cash flows from investing activities
Additions to property, plant and
equipment (110,944) (99,792) (90,431)
Investments and acquisitions, net of
cash acquired (192,379) (32,171) (13,516)
Purchase of marketable securities - (141,411) (144,000)
Sale of investments 59,322 141,839 144,000
Other (177) 5,534 9,953
------- ------- -------
Net cash utilized by investing
activities (244,178) (126,001) (93,994)
------- ------- -------
Cash flows from financing activities
Net (payments) proceeds of short-term
borrowing 18,938 (9,054) 38,397
Repayment of long-term debt (53,736) (11,705) (161,413)
Purchase of common stock (26,140) - -
Stock option and warrant transactions (5,106) 9,655 16,305
Dividends paid (23,711) (20,125) (16,476)
------- ------- -------
Net cash utilized by financing
activities (89,755) (31,229) (123,187)
------- ------- -------
HASBRO, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows, Continued
Fiscal Years Ended in December
(Thousands of Dollars)
1994 1993 1992
---- ---- ----
Effect of exchange rate changes on cash 922 294 (7,290)
------- ------- -------
Increase (decrease) in cash and
cash equivalents (49,226) 60,301 5,339
Cash and cash equivalents at beginning
of year 186,254 125,953 120,614
------- ------- -------
Cash and cash equivalents at end
of year $137,028 186,254 125,953
======= ======= =======
Supplemental information
Cash paid during the year for
Interest $ 33,471 31,842 41,665
Income taxes $ 99,601 107,716 83,160
See accompanying notes to consolidated financial statements.
HASBRO, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Thousands of Dollars Except Share Data)
(1) Summary of Significant Accounting Policies
------------------------------------------
Principles of Consolidation
---------------------------
The consolidated financial statements include the accounts of Hasbro, Inc.
and all significant majority-owned subsidiaries (the Company). Investments
in affiliates representing 20% to 50% ownership interest are accounted for
using the equity method. All significant intercompany balances and
transactions have been eliminated.
Fiscal Year
-----------
The Company's fiscal year ends on the last Sunday in December. Each of the
three fiscal years reported are fifty-two week periods.
Cash and Cash Equivalents
-------------------------
Cash and cash equivalents include all cash balances and highly liquid
investments purchased with a maturity to the Company of three months or
less.
Inventories
-----------
Inventories are valued at the lower of cost (first-in, first-out) or
market.
Cost in Excess of Net Assets Acquired and Other Intangibles
-----------------------------------------------------------
The Company continually monitors its cost in excess of net assets acquired
(goodwill) and its other intangibles to determine whether any impairment of
these assets has occurred. In making such determination with respect to
goodwill, the Company evaluates the performance, on an undiscounted basis,
of the underlying businesses which gave rise to such amount. With respect
to other intangibles, which include the cost of license agreements,
trademarks and copyrights and cost in excess of net assets acquired through
the purchase of product rights and licenses, the Company bases its
determination on the performance, on an undiscounted basis, of the related
products or product lines. Approximately 75% of the Company's goodwill and
other intangibles result from the 1984 acquisition of Milton Bradley
Company, including its Playskool and international subsidiaries, and the
1991 acquisition of Tonka Corporation, including its Kenner, Parker
Brothers and international units. The assets acquired in these transactions
continue to contribute a significant portion of the Company's net revenues
and earnings. A further 19% is attributable to the Company's two
acquisitions during 1994 (see note 2).
HASBRO, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(Thousands of Dollars Except Share Data)
Substantially all costs in excess of net assets (goodwill) of subsidiaries
acquired are being amortized on the straight-line method over forty years.
Other intangibles, which include the cost of license agreements, trademarks
and copyrights and cost in excess of net assets acquired through the
purchase of product rights and licenses, are being amortized over five to
twenty-five years using the straight-line method.
Depreciation and Amortization
-----------------------------
Depreciation and amortization are computed using accelerated and straight-
line methods to amortize the cost of property, plant and equipment over
their estimated useful lives. The principal lives, in years, used in
determining depreciation rates of various assets are: land improvements 15
to 19, buildings and improvements 15 to 25 and machinery and equipment 3 to
12.
Tools, dies and molds are amortized over a three year period or their
useful lives, whichever is less, using an accelerated method.
Income Taxes
------------
The Company uses the asset and liability approach for financial accounting
and reporting for income taxes. Deferred income taxes have not been
provided on undistributed earnings of foreign subsidiaries as substantially
all of such earnings are indefinitely reinvested by the Company.
Foreign Currency Translation
----------------------------
Foreign currency assets and liabilities are translated into dollars at
current rates, and revenues, costs and expenses are translated at average
rates during each reporting period. Gains or losses resulting from foreign
currency transactions are included in earnings currently, while those
resulting from translation of financial statements are shown as a separate
component of shareholders' equity.
HASBRO, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(Thousands of Dollars Except Share Data)
Pension Plans, Postretirement and Postemployment Benefits
---------------------------------------------------------
The Company, except for certain foreign subsidiaries, has pension plans
covering substantially all of its full-time employees. Pension expense is
based on actuarial computations of current and future benefits. The
Company's policy is to fund amounts which are required by applicable
regulations and which are tax deductible. The estimated amounts of future
payments to be made under other retirement programs are being accrued
currently over the period of active employment and are also included in
pension expense.
The Company has a contributory postretirement health and life insurance
plan covering substantially all employees who retire under any of the
Company's domestic defined benefit pension plans and meet certain age and
length of service requirements. It also has several plans covering certain
groups of employees which may provide benefits to such employees following
their period of employment but prior to their retirement. At the beginning
of 1994, the Company adopted Statement of Financial Accounting Standards
No. 112, Employers' Accounting for Postemployment Benefits (SFAS 112) and
at the beginning of 1992, adopted Statement of Financial Accounting
Standards No. 106, Employers' Accounting for Postretirement Benefits Other
Than Pensions (SFAS 106). Both SFAS 112 and SFAS 106 require that the cost
of such benefits be accrued over the employee service period, a change from
the Company's prior practice of recording those costs when incurred.
Research and Development
------------------------
Research and product development costs for 1994, 1993 and 1992 were
$135,406, $125,566 and $109,655, respectively.
Advertising
-----------
Production costs of commercials and programming are charged to operations
in the fiscal year first aired. The costs of other advertising, promotion
and marketing programs are charged to operations in the fiscal year
incurred.
Earnings Per Common Share
-------------------------
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.
HASBRO, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(Thousands of Dollars Except Share Data)
The weighted average number of shares outstanding used in the computation
of earnings per common share was 89,330,752, 90,030,568 and 89,085,751 in
1994, 1993 and 1992, respectively.
The difference between primary and fully diluted earnings per share was not
significant for any year.
(2) Acquisitions and Investments
----------------------------
On August 4, 1994, the Company purchased certain game and puzzle assets of
Western Publishing Company, Inc. and on November 30, 1994 purchased the
Games Division of John Waddington PLC. The total consideration for these
purchases is estimated by the Company to be $177,379. Accounting for these
acquisitions using the purchase method, the Company allocated the purchase
price based on estimates of fair market value which included $28,890 of net
tangible assets, $132,022 of product rights and licenses and $16,467 of
cost in excess of net assets acquired.
During the third quarter of 1994, the Company liquidated its minority
investments in J.W. Spear & Sons PLC and Virgin Interactive Entertainment
plc, acquired in 1990 and 1993, respectively. While these investments had
initially been made for the long-term, the 1994 disposition of their
interests by the majority shareholders of each entity resulted in the
Company's decision to do likewise.
(3) Inventories
-----------
1994 1993
---- ----
Finished products $181,202 183,899
Work in process 19,342 22,486
Raw materials 43,863 43,682
------- -------
$244,407 250,067
======= =======
HASBRO, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(Thousands of Dollars Except Share Data)
(4) Property, Plant and Equipment
-----------------------------
1994 1993
---- ----
Land and improvements $ 15,655 12,010
Buildings and improvements 206,523 188,713
Machinery and equipment 209,794 173,050
------- -------
431,972 373,773
Less accumulated depreciation 163,358 133,182
------- -------
268,614 240,591
Tools, dies and molds, less accumulated
amortization 40,265 39,212
------- -------
$308,879 279,803
======= =======
Expenditures for maintenance and repairs which do not materially extend the
life of the assets are charged to operations.
(5) Short-Term Borrowings
---------------------
The Company has available unsecured committed and uncommitted lines of
credit from various banks approximating $450,000 and $900,000,
respectively. All of the short-term borrowings outstanding at the end of
1994 and 1993 represent bank borrowings of foreign units made under these
lines of credit at weighted average interest rates of 9.6% and 9.0%,
respectively. The Company's working capital needs were fulfilled by
borrowing under these lines of credit and through the issuance of
commercial paper, both of which were on terms and at interest rates
generally extended to companies of comparable credit worthiness. Included
as part of the committed line is $440,000 available from a revolving credit
agreement. This agreement contains certain restrictive covenants with which
the Company is in compliance. Compensating balances and facility fees were
not material.
(6) Accrued Liabilities
-------------------
1994 1993
---- ----
Royalties $ 76,602 83,820
Advertising 119,334 116,243
Payroll and management incentives 30,880 37,438
Other 190,947 182,975
------- -------
$417,763 420,476
======= =======
HASBRO, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(Thousands of Dollars Except Share Data)
(7) Long-Term Debt
--------------
1994 1993
---- ----
6% Convertible Subordinated Notes Due 1998.
Interest is paid semi-annually.(a) $150,000 150,000
Subordinated variable rate notes due 1995.(b) - 50,000
Other (excluding current installments). - 510
------- -------
$150,000 200,510
======= =======
(a) These notes are convertible into common stock at a conversion price
of $29.33 per share and are redeemable, at a premium, by the Company.
(b) These notes were redeemed on September 22, 1994.
Current installments aggregated $3,236 at December 26, 1993 and were
included in trade payables. All of the long-term debt outstanding at
December 25, 1994 matures in 1998.
(8) Income Taxes
------------
Income taxes attributable to earnings before income taxes are:
1994 1993 1992
---- ---- ----
Current
Federal $ 60,539 81,770 64,825
Foreign 42,543 28,614 33,147
State and local 10,417 12,541 13,012
------- ------- -------
113,499 122,925 110,984
------- ------- -------
Deferred
Federal 1,924 315 2,612
Foreign (3,349) 1,817 (663)
State and local 180 149 279
------- ------- -------
(1,245) 2,281 2,228
------- ------- -------
$112,254 125,206 113,212
======= ======= =======
HASBRO, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(Thousands of Dollars Except Share Data)
The cumulative effect of the change in accounting principles resulting from
the adoption of Statement of Financial Accounting Standards No. 109,
Accounting for Income Taxes, increased 1992 net earnings by $12,349.
Certain tax benefits are not reflected in income taxes on the Consolidated
Statements of Earnings. Such benefits of $9,800 in 1994, $6,299 in 1993 and
$12,583 in 1992, relate primarily to stock options and cumulative effect of
changes in accounting principles.
A reconciliation of the statutory United States federal income tax rate to
the Company's effective income tax rate is as follows:
1994 1993 1992
---- ---- ----
Statutory income tax rate 35.0% 35.0% 34.0%
State and local income taxes, net
of federal income tax effect 2.4 2.6 3.0
Amortization of goodwill 1.6 1.4 1.4
Foreign earnings taxed at rates other
than the United States statutory rate (.7) - (.6)
Other, net .2 (.5) .9
---- ---- ----
38.5% 38.5% 38.7%
==== ==== ====
The components of earnings before income taxes are as follows:
1994 1993 1992
---- ---- ----
Domestic $177,672 243,820 190,268
Foreign 113,897 81,390 102,108
------- ------- -------
$291,569 325,210 292,376
======= ======= =======
HASBRO, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(Thousands of Dollars Except Share Data)
The components of deferred income tax expense arise from various temporary
differences and relate to items included in the statements of earnings.
During 1993, domestic deferred tax assets and liabilities were adjusted for
the effect of legislation enacted that year increasing the United States
federal tax rate from 34% to 35%. The adjustment decreased the 1993
deferred tax expense by $1,266.
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at December 25, 1994
and December 26, 1993 are:
1994 1993
---- ----
Deferred tax assets:
Accounts receivable $ 27,782 30,049
Inventories 12,600 12,090
Net operating loss and other loss
carryovers 16,923 11,073
Operating expenses 33,948 32,393
Postretirement benefits 11,487 8,675
Other 41,223 39,554
------- -------
Total gross deferred tax assets 143,963 133,834
Valuation allowance (11,829) (10,376)
------- -------
Net deferred tax assets 132,134 123,458
------- -------
Deferred tax liabilities:
Property rights and property, plant
and equipment 64,743 68,614
Other 7,786 6,468
------- -------
Total gross deferred tax liabilities 72,529 75,082
------- -------
Net deferred income taxes $ 59,605 48,376
======= =======
The Company has a valuation allowance for deferred tax assets at December
25, 1994 of $11,829, which is an increase of $1,453 from the $10,376 at
December 26, 1993. These allowances pertain to certain foreign operating
loss carryforwards, some of which have no expiration and others that will
expire beginning in 1997. If fully realized, future income tax expense will
be reduced by $11,829.
HASBRO, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(Thousands of Dollars Except Share Data)
Based on the Company's history of taxable income and the anticipation of
sufficient taxable income in years when the temporary differences are
expected to become tax deductions, the Company believes that it will
realize the benefit of the deferred tax assets, net of the existing
valuation allowance. More than 70% of the deferred tax assets are expected
to be realized during the next two years.
Deferred income taxes of $83,730 and $78,413 at the end of 1994 and 1993,
respectively, are included as a component of prepaid expenses and other
current assets.
The cumulative amounts of undistributed earnings of the Company's foreign
subsidiaries held for reinvestment amounted to approximately $289,000 and
$271,000 at December 25, 1994 and December 26, 1993, respectively.
(9) Capital Stock
-------------
Preference Share Purchase Rights
--------------------------------
The Company maintains a Preference Share Purchase Right plan (the Rights
Plan). Under the terms of the Rights Plan, each share of common stock is
accompanied by a Preference Share Purchase Right. Each Right is only
exercisable under certain circumstances and, until exercisable, the Rights
are not transferable apart from the Company's common stock. When
exercisable, each Right will entitle its holder to purchase until June 30,
1999, in certain merger or other business combination or recapitalization
transactions, at the Right's then current exercise price, a number of the
acquiring company's or the Company's, as the case may be, common shares
having a market value at that time of twice the Right's exercise price.
Under certain circumstances, the rightholder may, at the option of the
Board of Directors of the Company (the Board), receive shares of the
Company's stock in exchange for Rights.
Prior to the acquisition by the person or group of beneficial ownership of
a certain percentage of the Company's common stock, the Rights are
redeemable for two-thirds of a cent per Right. The Rights Plan contains
certain exceptions with respect to the Hassenfeld family and related
entities.
Common Stock
------------
In August 1990, the Board authorized the purchase of up to 4,500,000 shares
of the Company's common stock and in June 1994, the Executive Committee of
the Board authorized the purchase of up to an additional 5,000,000 shares.
At December 25, 1994, a balance of 6,564,100 shares remained under these
authorizations.
HASBRO, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(Thousands of Dollars Except Share Data)
(10) Employee Stock Options and Warrants
-----------------------------------
The Company has a Non-Qualified Stock Option Plan, an Incentive Stock
Option Plan, a 1992 Stock Incentive Plan and a Stock Option Plan for Non-
Employee Directors (the plans).
The Company has reserved 7,105,011 shares of its common stock for issuance
upon exercise of options granted or to be granted under the plans. These
options generally vest in equal annual amounts over three to five years
beginning one year after grant. The plans provide that options be granted
at exercise prices not less than market value on the date the option is
granted and options are adjusted for such changes as stock splits and
stock dividends. No options are exercisable for periods of more than ten
years after date of grant. Although certain of the plans may permit the
granting of awards in the form of stock options, stock appreciation
rights, stock awards and cash awards, to date, only stock options have
been granted.
On July 12, 1994, the Company's outstanding warrants expired. The Company
elected to pay exercising warrantholders in cash rather than issue shares
of its stock.
The changes in outstanding options and warrants for the three years ended
December 25, 1994 follow:
Shares Exercise Price
(In Thousands) Per Share
------------ --------------
Outstanding at December 29, 1991 4,944 $ 1.48 - $53.88
Granted 1,333 25.00 - 31.88
Exercised (1,012) 1.48 - 25.00
Expired and canceled (61) 7.58 - 53.88
-----
Outstanding at December 27, 1992 5,204 7.58 - 43.49
Granted 2,712 31.62 - 37.44
Exercised (730) 7.58 - 31.62
Expired and canceled (63) 10.25 - 38.29
-----
Outstanding at December 26, 1993 7,123 7.58 - 43.49
Granted 1,246 29.56 - 36.58
Exercised (1,994) 7.58 - 31.88
Expired and canceled (505) 10.25 - 38.29
-----
Outstanding at December 25, 1994 5,870 $ 7.58 - $43.49
=====
HASBRO, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(Thousands of Dollars Except Share Data)
The number of shares exercisable at the end of 1994, 1993 and 1992 were
2,176,568, 2,919,654 and 2,831,801, respectively. The prices at which
these shares may be exercised are those shown for outstanding options and
warrants in the preceding table.
(11) Pension, Postretirement and Postemployment Benefits
---------------------------------------------------
Pension Benefits
----------------
The Company's net pension and profit sharing cost for 1994, 1993 and 1992
was approximately $12,500, $12,900 and $11,400, respectively.
Domestic Plans
--------------
Substantially all of the Company's domestic employees are members of one
of three non-contributory defined benefit plans. In addition, the Company
has a supplementary unfunded pension plan providing benefits otherwise due
employees under the benefit formula but which are in excess of those
permitted for such plan under the Internal Revenue Code. Benefits under
the major plan, covering non-union employees, are based primarily on
salary and years of service. Benefits under plans covering members of
collective bargaining units are based primarily on fixed amounts for
specified years of service. The Company also has an unfunded plan covering
those members of its Board who are not covered by employee plans. Benefits
for this plan are based on the annual retainer paid to Board members.
The net periodic pension cost of these plans included the following
components:
1994 1993 1992
---- ---- ----
Benefits earned during the year $ 7,029 5,630 5,248
Interest cost on projected benefits 8,219 7,243 5,438
Actual return on plan assets (521) (10,834) (5,183)
Net amortization and deferral (8,429) 3,190 (1,099)
------ ------ ------
$ 6,298 5,229 4,404
====== ====== ======
The funded status and the amounts recognized in the Company's balance
sheets relating to these plans are:
HASBRO, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(Thousands of Dollars Except Share Data)
1994 1993
----------------------- -----------------------
Plans With Plans With Plans With Plans With
Assets Accumulated Assets Accumulated
Exceeding Benefits Exceeding Benefits
Accumulated Exceeding Accumulated Exceeding
Benefits Assets Benefits Assets
----------- ----------- ----------- -----------
Actuarial present value of:
Vested benefits $ 76,761 4,626 14,144 58,581
Nonvested benefits 1,403 719 409 1,447
------- ------ ------ ------
Accumulated benefit
obligation 78,164 5,345 14,553 60,028
Effect of assumed
increase in
compensation level 21,937 6,024 - 30,301
------- ------ ------ ------
Projected benefit
obligation 100,101 11,369 14,553 90,329
Net assets available
for benefits 108,990 630 23,159 80,413
------- ------ ------ ------
Plan assets in excess
of (less than)
projected benefits $ 8,889 (10,739) 8,606 (9,916)
======= ====== ====== ======
Consisting of:
Unrecognized net
asset $ 2,059 - 782 1,618
Unrecognized prior
service cost (897) (4,850) (841) (2,204)
Unrecognized net gain
(loss) 8,313 (425) 5,864 2,146
Prepaid (accrued)
pension recognized
in the balance sheet (586) (5,464) 2,801 (11,476)
------- ------ ------ ------
$ 8,889 (10,739) 8,606 (9,916)
======= ====== ====== ======
The assets of the funded plans are managed by investment advisors and
consist primarily of pooled indexed and actively managed bond and stock
funds. The projected benefits have been determined using assumed discount
rates of 8.5% for 1994, 7.2% for 1993 and 8% for 1992, assumed long-term
rates of compensation increase of 5% for 1994 and 1993 and 5.5% for 1992
and an assumed long-term rate of return on plan assets of 9% for all years.
HASBRO, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(Thousands of Dollars Except Share Data)
The Company also has a profit sharing plan covering substantially all of
its domestic non-union employees. The plan provides for an annual
discretionary contribution by the Company which for 1994, 1993 and 1992 was
approximately $5,100, $6,100 and $5,400, respectively.
Foreign Plans
-------------
Pension coverage for employees of the Company's foreign subsidiaries is
provided, through separate plans, to the extent deemed appropriate. These
plans were neither significant individually nor in the aggregate.
Postretirement Benefits
-----------------------
The Company provides certain postretirement health care and life insurance
benefits to eligible domestic employees who retire and have either attained
age 65 with 5 years of service or age 55 with 10 years of service. The cost
of providing these benefits on behalf of employees who retired prior to
1993 is and will continue to be substantially borne by the Company. The
cost of providing benefits on behalf of employees who retire after 1992 is
shared, with the employee contributing an increasing percentage of the
cost, resulting in an employee-paid plan after the year 2002. The plan is
not funded.
The cumulative effect of the change in accounting principles resulting from
the adoption of SFAS 106 reduced 1992 earnings by $19,457 ($12,135 after
tax).
The accumulated benefit obligation relating to this plan at December 25,
1994 and December 26, 1993 consists of:
1994 1993
---- ----
Retired employees $16,148 16,265
Fully eligible active employees 1,267 1,329
Other active employees 7,086 5,898
------ ------
$24,501 23,492
====== ======
HASBRO, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(Thousands of Dollars Except Share Data)
The net periodic postretirement benefit cost included the following
components:
1994 1993 1992
---- ---- ----
Benefits earned during the period $ 403 338 290
Interest cost on projected benefits 1,709 1,783 1,640
------ ------ ------
2,112 2,121 1,930
Recognition of transition obligation - - 19,457
------ ------ ------
$ 2,112 2,121 21,387
====== ====== ======
For measuring the expected postretirement benefit obligation, a 9.2%,
10.4% and 12.0% annual rate of increase in the per capita cost of covered
health care benefits was assumed for 1994, 1993 and 1992, respectively.
These rates were further assumed to decrease gradually to 6%, 5% and 6%,
respectively, in 2012 and remain level thereafter. The weighted average
discount rate used in determining the accumulated postretirement benefit
obligation was 8.5% in 1994, 7.2% in 1993 and 8.0% in 1992.
If the health care cost trend rate were increased one percentage point in
each year, the accumulated postretirement benefit obligation at December
25, 1994 would have increased by approximately 11% and the aggregate of
the benefits earned during the period and the interest cost would have
each increased by approximately 12%.
Postemployment Benefits
-----------------------
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 contributions for employees who have left the Company's employ
under terms of its long-term disability plan.
The Company adopted the provisions of SFAS 112 as of the beginning of
1994. 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 recorded as the cumulative effect of a change in
accounting principles. Other than this, the adoption of SFAS 112 has
neither had a significant effect on the Company's earnings or its
financial condition nor is it expected to in the future.
HASBRO, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(Thousands of Dollars Except Share Data)
(12) Leases
------
The Company occupies certain manufacturing facilities and sales offices and
uses certain equipment under various operating lease arrangements. The rent
expense under such arrangements, net of sublease income which is not
material, for 1994, 1993 and 1992 amounted to $39,186, $37,917 and $34,609,
respectively.
Minimum rentals, net of minimum sublease income which is not material,
under long-term operating leases for the five years subsequent to 1994 and
in the aggregate are as follows:
1995 $ 30,695
1996 21,762
1997 17,697
1998 14,621
1999 12,061
Later years 66,792
-------
$163,628
=======
All leases expire prior to 2014. Real estate taxes, insurance and
maintenance expenses are generally obligations of the Company. It is
expected that in the normal course of business, leases that expire will be
renewed or replaced by leases on other properties; thus, it is anticipated
that future minimum lease commitments will not be less than the amounts
shown for 1994.
In addition, the Company leases certain facilities which, as a result of
the restructuring of operations, are no longer in use. Future costs
relating to such facilities were included as a component of the
restructuring charge and thus are not included in the table above.
(13) Restructuring
-------------
During the fourth quarter of 1993, the Company recorded a restructuring
charge of $15,500, primarily related to the closure of its manufacturing
facility in The Netherlands. This closure was initially planned for the
second quarter of 1994, however, the actions necessary to comply with local
regulations relating to such closure took longer than anticipated and the
closure will not be completed until the first quarter of 1995. As a result,
the major portion of the liability established for this action remains to
be paid.
During the third quarter of 1994, the Company recorded a restructuring
charge of $12,500, primarily related to the reorganization of its Domestic
Toy Group and the consolidation of its domestic manufacturing operations.
While these actions have been substantially completed, due to timing of the
pay-outs, a majority of the liability remains to be
paid.
HASBRO, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(Thousands of Dollars Except Share Data)
(14) Financial Instruments
---------------------
The Company's financial instruments include cash and cash equivalents,
accounts receivable, short- and long-term borrowings, accounts payable,
accrued liabilities and foreign currency forward exchange contracts. At
December 25, 1994, the carrying value of these instruments approximated
their fair value based on current market prices and rates and there were no
material unrealized gains or losses on foreign currency forward exchange
contracts.
As estimates of the fair values of financial instruments are subjective and
involve uncertainties and judgments, they cannot be determined with
precision. Any changes in assumptions would affect these estimates.
The Company's policy is not to enter into derivative financial instruments
for speculative purposes. It does enter into certain foreign currency
forward exchange contracts to protect itself from adverse currency rate
fluctuations on identifiable foreign currency commitments made in the
ordinary course of business. These contracts, which relate to future
purchases of inventory, are denominated in currencies of major industrial
countries and entered into with creditworthy banks for terms of not more
than twelve months. The Company does not anticipate any material adverse
effect on its results of operations or financial position from these
contracts.
(15) Commitments and Contingencies
-----------------------------
The Company had unused open letters of credit of approximately $15,000 and
$19,000 at December 25, 1994 and December 26, 1993, respectively.
The Company had the equivalent of approximately $80,000 and $65,000 of
forward exchange contracts outstanding at December 25, 1994 and December
26, 1993, respectively. Such contracts have been determined to be hedges of
foreign currency commitments and as such any gain or loss has been deferred
and will be included in the measurement of the related transaction. The
aggregate amount of gains and losses resulting from foreign currency
transactions was not material.
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's future results of operations or liquidity.
HASBRO, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(Thousands of Dollars Except Share Data)
(16) Segment Reporting
-----------------
Industry and Geographic Information
-----------------------------------
The Company operates primarily in one industry segment which includes the
development, manufacture and marketing of toy products and related items
and the licensing of certain related properties.
Information about the Company's operations in different geographic areas,
determined by the location of the subsidiary or unit, for each of the
fiscal years in the three-year period ended December 1994 follows. The
Company's primary operations in areas outside of the United States include
Europe, Canada, Mexico, Australia and New Zealand and Hong Kong. As the
foreign areas have similar business environments and the Company's
operations in those areas are similar, they are presented as one category.
1994 1993 1992
---- ---- ----
Net revenues:
United States $1,530,928 1,670,272 1,506,522
Foreign 1,139,334 1,076,904 1,034,533
--------- --------- ---------
$2,670,262 2,747,176 2,541,055
========= ========= =========
Operating profit:
United States $ 169,782 242,038 193,466
Foreign 125,895 109,150 131,072
--------- --------- ---------
$ 295,677 351,188 324,538
========= ========= =========
Identifiable assets:
United States $1,612,982 1,540,887 1,451,951
Foreign 765,393 752,131 630,815
--------- --------- ---------
$2,378,375 2,293,018 2,082,766
========= ========= =========
HASBRO, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(Thousands of Dollars Except Share Data)
Other Information
-----------------
The Company markets its products primarily to customers in the retail
sector. Although the Company closely monitors the credit worthiness of its
customers, adjusting credit policies and limits as deemed appropriate, a
substantial portion of its customers' ability to discharge amounts owed is
dependent upon the retail economic environment.
Sales to the Company's two largest customers, Toys R Us, Inc. and Wal-Mart
Stores, Inc., amounted to 21% and 12%, respectively, of consolidated net
revenues during 1994, 20% and 11%, respectively, in 1993 and 17% and 9%,
respectively, in 1992.
(17) Quarterly Financial Data (Unaudited)
------------------------------------
Quarter
----------------------------------
First Second Third Fourth Full Year
1994 ----- ------ ----- ------ ---------
----
Net revenues $489,133 444,324 796,222 940,583 2,670,262
Gross profit $280,933 241,146 444,093 542,611 1,508,783
Earnings before
income taxes and
cumulative ef-
fect of changes
in accounting
principles $ 43,443 2,657 122,196(a) 123,273 291,569
Net earnings $ 22,435 1,634 75,151 75,813 175,033
======= ======= ======= ======= =========
Per common share
Earnings before
cumulative
effect of
change in
accounting
principles $ .30 .02 .85 .86 2.01
Earnings $ .25 .02 .85 .86 1.96
Market price
High $ 36 5/8 36 1/8 32 1/8 33 1/2 36 5/8
Low $ 33 3/8 28 1/8 28 1/8 27 7/8 27 7/8
Cash dividends
declared $ .07 .07 .07 .07 .28
HASBRO, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(Thousands of Dollars Except Share Data)
Quarter
----------------------------------
First Second Third Fourth Full Year
1993 ----- ------ ----- ------ ---------
----
Net revenues $487,036 515,551 812,393 932,196 2,747,176
Gross profit $279,015 294,031 461,329 530,234 1,564,609
Earnings before
income taxes $ 42,871 43,791 122,865 115,683(b) 325,210
Net earnings $ 26,580 27,150 75,548 70,726 200,004
======= ======= ======= ======= =========
Per common share
Earnings $ .30 .30 .84 .78 2.22
Market price
High $ 34 7/8 38 3/8 39 5/8 40 1/8 40 1/8
Low $ 28 1/8 29 7/8 34 35 1/8 28 1/8
Cash dividends
declared $ .06 .06 .06 .06 .24
Quarter
----------------------------------
First Second Third Fourth Full Year
1992 ----- ------ ----- ------ ---------
----
Net revenues $452,569 485,958 771,192 831,336 2,541,055
Gross profit $256,609 276,545 437,373 476,497 1,447,024
Earnings before
income taxes $ 38,552 37,540 111,415 104,869 292,376
Net earnings $ 23,408 22,712 67,406 65,638 179,164
======= ======= ======= ======= =========
Per common share
Earnings $ .26 .26 .75 .73 2.01
Market price
High $ 28 1/4 29 3/4 34 3/8 35 7/8 35 7/8
Low $ 23 3/4 23 1/8 26 1/2 31 1/2 23 1/8
Cash dividends
declared $ .05 .05 .05 .05 .20
(a) Includes the effect of a nonrecurring charge of $12,500 relating
to restructuring of operations. (See note 13)
(b) Includes the effect of a nonrecurring charge of $15,500 relating
to restructuring of operations. (See note 13)