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 29, 1998 Commission file number 1-6682
HASBRO, INC.
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(Name of Registrant)
Rhode Island O5-0155090
- - ------------------------ ------------------------------------
(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 26, 1998 was 132,852,476.
HASBRO, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Thousands of Dollars Except Share Data)
(Unaudited)
Mar. 29, Mar. 30, Dec. 28,
Assets 1998 1997 1997
-------- -------- --------
Current assets
Cash and cash equivalents $ 430,601 289,546 361,785
Accounts receivable, less allowance
for doubtful accounts of $53,400,
$47,000 and $51,700 362,328 517,022 783,008
Inventories:
Finished products 219,105 214,342 198,215
Work in process 14,743 17,167 12,208
Raw materials 35,249 37,436 32,279
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Total inventories 269,097 268,945 242,702
Deferred income taxes 97,576 77,641 96,489
Prepaid expenses 107,633 102,754 89,890
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Total current assets 1,267,235 1,255,908 1,573,874
Property, plant and equipment, net 271,607 299,626 280,603
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Other assets
Cost in excess of acquired net assets,
less accumulated amortization of
$131,873, $118,986 and $128,237 478,558 455,358 486,502
Other intangibles, less accumulated
amortization of $145,030, $107,850
and $135,467 486,474 362,267 478,798
Other 88,092 76,729 79,940
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Total other assets 1,053,124 894,354 1,045,240
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Total assets $2,591,966 2,449,888 2,899,717
========= ========= =========
HASBRO, INC. AND SUBSIDIARIES
Consolidated Balance Sheets, Continued
(Thousands of Dollars Except Share Data)
(Unaudited)
Mar. 29, Mar. 30, Dec. 28,
Liabilities and Shareholders' Equity 1998 1997 1997
-------- -------- --------
Current liabilities
Short-term borrowings $ 112,465 69,543 122,024
Trade payables 83,075 91,967 179,156
Accrued liabilities 447,949 315,913 596,033
Income taxes 85,991 120,428 106,333
--------- --------- ---------
Total current liabilities 729,480 597,851 1,003,546
Long-term debt, excluding current
installments - 149,208 -
Deferred liabilities 59,771 68,937 58,054
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Total liabilities 789,251 815,996 1,061,600
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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
139,799,011, 132,168,378 and 139,799,011 69,900 66,084 69,900
Additional paid-in capital 487,734 280,128 489,447
Retained earnings 1,454,697 1,379,737 1,457,495
Accumulated other comprehensive earnings (12,185) 4,533 (3,903)
Treasury stock, at cost, 6,726,738,
3,705,166 and 6,357,948 shares (197,431) (96,590) (174,822)
--------- --------- ---------
Total shareholders' equity 1,802,715 1,633,892 1,838,117
--------- --------- ---------
Total liabilities and
shareholders' equity $2,591,966 2,449,888 2,899,717
========= ========= =========
See accompanying condensed notes to consolidated financial statements.
HASBRO, INC. AND SUBSIDIARIES
Consolidated Statements of Earnings
(Thousands of Dollars Except Share Data)
(Unaudited)
Quarter Ended
--------------------
Mar. 29, Mar. 30,
1998 1997
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Net revenues $482,820 555,784
Cost of sales 204,312 235,371
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Gross profit 278,508 320,413
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Expenses
Amortization 14,143 10,032
Royalties, research and development 67,336 63,892
Advertising 55,757 71,302
Selling, distribution and administration 135,249 134,781
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Total expenses 272,485 280,007
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Operating profit 6,023 40,406
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Nonoperating (income) expense
Interest expense 2,312 4,430
Other (income), net (8,097) (4,171)
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Total nonoperating (income) expense (5,785) 259
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Earnings before income taxes 11,808 40,147
Income taxes 4,015 14,453
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Net earnings $ 7,793 25,694
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Per common share
Net earnings
Basic $ .06 .20
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Diluted $ .06 .20
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Cash dividends declared $ .08 .08
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See accompanying condensed notes to consolidated financial statements.
HASBRO, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Quarters Ended March 29, 1998 and March 30, 1997
(Thousands of Dollars)
(Unaudited)
1998 1997
---- ----
Cash flows from operating activities
Net earnings $ 7,793 25,694
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization of plant and equipment 19,548 20,600
Other amortization 14,143 10,032
Deferred income taxes (5,644) (1,553)
Change in operating assets and liabilities (other
than cash and cash equivalents):
Decrease in accounts receivable 413,956 271,373
Increase in inventories (29,002) (2,616)
Increase in prepaid expenses (18,525) 4,757
Decrease in trade payables and accrued liabilities (255,514) (164,747)
Other (5,289) 930
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Net cash provided by operating activities 141,466 164,470
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Cash flows from investing activities
Additions to property, plant and equipment (17,559) (12,536)
Investments and acquisitions, net of cash acquired (17,500) (2,719)
Other 10,627 (1,577)
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Net cash utilized by investing activities (24,432) (16,832)
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Cash flows from financing activities
Proceeds from borrowings with original maturities
of more than three months 850 -
Repayments of borrowings with original maturities
of more than three months (838) (2,499)
Net repayments of other short-term borrowings (7,234) (42,596)
Purchase of common stock (52,371) (32,511)
Stock option transactions 28,049 14,191
Dividends paid (10,640) (8,561)
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Net cash utilized by financing activities (42,184) (71,976)
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Effect of exchange rate changes on cash (6,034) (5,087)
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Increase in cash and cash equivalents 68,816 70,575
Cash and cash equivalents at beginning of year 361,785 218,971
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Cash and cash equivalents at end of period $430,601 289,546
======= =======
Supplemental information
Cash paid during the period for:
Interest $ 1,740 1,697
Income taxes $ 25,226 29,617
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 29, 1998 and March 30,
1997, and the results of operations and cash flows for the periods then
ended.
The results of operations for the quarter ended March 29, 1998, are
not necessarily indicative of results to be expected for the full year.
(2) Earnings per share data for the fiscal quarters ended March 29, 1998
and March 30, 1997 were computed as follows:
1998 1997
----------------- -----------------
Basic Diluted Basic Diluted
------- ------- ------- -------
Net earnings $ 7,793 7,793 25,694 25,694
Effect of dilutive securities;
6% Convertible Notes due 1998 - - - 1,437
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Adjusted net earnings $ 7,793 7,793 25,694 27,131
======= ======= ======= =======
Average shares outstanding (in
thousands) 133,110 133,110 128,599 128,599
Effect of dilutive securities;
6% Convertible Notes due 1998 - - - 7,635
Options and warrants - 5,099 - 2,475
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Equivalent shares 133,110 138,209 128,599 138,709
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Earnings per share $ .06 .06 .20 .20
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HASBRO, INC. AND SUBSIDIARIES
Condensed Notes to Consolidated Financial Statements (continued)
(Thousands of Dollars)
(Unaudited)
(3) Effective for fiscal 1998, Hasbro adopted Statement of Financial
Accounting Standards No. 130, Reporting Comprehensive Income (SFAS 130). SFAS
130 requires that all items recognized under accounting standards as
components of comprehensive earnings be reported in a financial statement
that is displayed with the same prominence as other financial statements.
SFAS 130 also requires that an entity classify items of other comprehensive
earnings by their nature in the financial statements and display the
accumulated amount thereof separately within the equity section of the
balance sheet. The Company's other comprehensive earnings (loss) primarily
results from foreign currency translation adjustments. Hasbro's total
comprehensive earnings (loss) for the fiscal quarters ended March 29, 1998
and March 30, 1997 were as follows:
1998 1997
---- ----
Net earnings $ 7,793 25,694
Other comprehensive earnings (loss) (8,282) (15,460)
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Total comprehensive earnings (loss) $ (489) 10,234
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(4) Late in the fourth quarter of 1997, the Company announced a global
integration and profit enhancement program which anticipated the redundancy
of approximately 2,500 employees, principally in manufacturing, and provided
for actions in three principal areas: a continued consolidation of the
Company's manufacturing operations; the streamlining of marketing and sales,
while exiting from certain underperforming markets and product lines; and the
further leveraging of overheads. Of the $140,000 estimated costs related to
these actions, $125,000 was reported as a nonrecurring charge and $15,000 was
reflected in cost of sales. Of the nonrecurring amount, approximately $54,000
related to severance and people costs, $52,000 to property, plant and
equipment and leases and $19,000 to product line related costs. During the
first quarter of 1998, approximately 1,000 employees were terminated. The
approximate $110,000 accrual remaining at March 29, 1998, is principally
attributable to severance costs, which will be disbursed over the employee's
entitlement period, and property, plant and equipment costs, which will not
be incurred prior to the cessation of production at the various facilities.
The program remains on schedule to be substantially completed by the end of
1998.
HASBRO, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial
Condition and Results of Operations
(Thousands of dollars)
NET REVENUES
- - ------------
Net revenues for the first quarter of 1998 were $482,820, compared with the
$555,784 reported for the same period of 1997, a decrease of approximately
13%. Substantially all of the decrease was due to changes in inventory flow
policies at Toys `R Us, a key customer, including a significant reduction in
their absolute level of inventories and a change in their seasonal purchasing
patterns. The stronger U.S. dollar did, however, also contribute
approximately $10,000 to the reduction in revenues. Offsetting these
decreases was approximately $33,000 in additional revenues attributable to
the Company's OddzOn unit, acquired in the second quarter of 1997. Taking
these factors into consideration, the Company's product lines performed
substantially as expected. In the first quarter of 1997, revenues were
boosted by the timing of movie releases of two of the Company's major
entertainment properties, Star Wars(TM) and Jurassic Park(R).
GROSS PROFIT
- - ------------
The Company's gross profit margin, expressed as a percentage of net revenues,
remained constant with the 1997 level of 57.7%. The lower mix of promotional
product sales, which could have been expected to erode margins, was offset by
the benefits of certain cost saving actions implemented by the Company during
mid-1997.
EXPENSES
- - --------
Royalties, research and development expenses for the quarter increased in
both amount and as a percentage of revenues from 1997 levels. The royalty
component decreased in dollars, reflecting the lower revenues, while
increasing as a percentage of revenues, more closely reflecting the rates
experienced during the later quarters of 1997. Research and development, at
$35,276, increased in both dollars and as a percentage of revenues from the
$31,057 in 1997. This increase reflects both the activities of the Company's
OddzOn unit, acquired in May of 1997, and the increased development activity
within the Company's Interactive unit as it continues building for the
future.
The current quarter advertising expense decreased as a percentage of net
revenues to 11.5% from 12.8% a year ago, as well as decreasing in amount.
This decrease reflects both the Company's efforts to make more effective use
of its advertising dollars and the greater proportion of first quarter
revenues arising from products which are not as extensively advertised as
many of the Company's other offerings.
HASBRO, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial
Condition and Results of Operations, Continued
(Thousands of dollars)
The Company's selling, distribution and administration expenses, which are
largely fixed, increased $500 from their 1997 levels, despite the inclusion
of the OddzOn unit, acquired in May of 1997, and the full quarter impact of
the Latin American units, which began operation during the first quarter of
1997. The increase in percentage terms is principally a function of the lower
1998 revenues.
NONOPERATING (INCOME) EXPENSE
- - -----------------------------
Within the nonoperating category, the lower interest expense, $2,312 in 1998
compared with $4,430 in 1997, reflects both the conversion of the Company's
6% notes into common stock during the fourth quarter of 1997 and the lower
short-term borrowing requirements and rates in 1998. The increased level of
other nonoperating income, net in 1998 reflects increases in both earnings
from short-term investments and income resulting from minority interests in
certain subsidiaries.
INCOME TAXES
- - ------------
Income tax expense as a percentage of pretax earnings in the first quarter of
1998 remained constant with the full year 1997 rate of 34.0% while decreasing
from 36.0% in the first quarter of 1997. The decrease in the quarter to
quarter rate resulted primarily from the continued reorganization of the
Company's global business which reduced the tax on international earnings.
OTHER INFORMATION
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During the past several years the Company has experienced a 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. This
concentration increases the risk of (a) underproduction of popular items, (b)
overproduction of less popular items and (c) failure to achieve tight and
compressed shipping schedules. 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, quick response inventory
management practices now being used 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. At the end of its fiscal April (April 26, 1998 and April 27, 1997)
the Company's unshipped orders were approximately $190,000 and $410,000,
respectively.
HASBRO, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial
Condition and Results of Operations, Continued
(Thousands of dollars)
Late in the fourth quarter of 1997, the Company announced a global
integration and profit enhancement program which anticipated the redundancy
of approximately 2,500 employees, principally in manufacturing, and provided
for actions in three principal areas: a continued consolidation of the
Company's manufacturing operations; the streamlining of marketing and sales,
while exiting from certain underperforming markets and product lines; and the
further leveraging of overheads. Of the $140,000 estimated costs related to
these actions, $125,000 was reported as a nonrecurring charge and $15,000 was
reflected in cost of sales. Of the nonrecurring amount, approximately $54,000
related to severance and people costs, $52,000 to property, plant and
equipment and leases and $19,000 to product line related costs. During the
first quarter of 1998, approximately 1,000 employees were terminated. The
approximate $110,000 accrual remaining at March 29, 1998, is principally
attributable to severance costs, which will be disbursed over the employee's
entitlement period, and property, plant and equipment costs, which will not
be incurred prior to the cessation of production at the various facilities.
The program remains on schedule to be substantially completed by the end of
1998.
LIQUIDITY AND CAPITAL RESOURCES
- - -------------------------------
Because of the seasonality of the Company's business coupled with certain
customer incentives, mainly in the form of extended payment terms, the
interim cash flow statements are not representative of that which may be
expected for the full year. As a result of these extended payment terms, the
majority of the Company's cash collections occur late in the fourth quarter
and early in the first quarter of the subsequent year. As receivables are
collected late in the fourth quarter and through the first quarter of the
subsequent year, cash flow from operations becomes positive and is used to
repay a significant portion of the short-term borrowings.
As a result, management believes that on an interim basis, rather than
discussing its cash flows, a better understanding of its liquidity and
capital resources can be obtained through a discussion of the various balance
sheet categories. Also, as several of the major categories, including cash
and cash equivalents, accounts receivable, inventories and short-term
borrowings, fluctuate significantly from quarter to quarter, again due to the
seasonality of its business and the extended payment terms offered,
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.
HASBRO, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial
Condition and Results of Operations, Continued
(Thousands of dollars)
Net cash (cash and cash equivalents less short- and long-term borrowings), at
$318,136 increased more than threefold from the $70,795 at March 28, 1997,
even though more than $330,000 of cash was utilized during the last twelve
months for acquisitions and the continuation of Hasbro's share repurchase
program. The Company attempts to keep its cash and cash equivalents at the
lowest level possible whenever it has short-term borrowings, although at
times the cash available and the borrowing requirement may be in different
countries and currencies which may make it impractical to substitute one for
the other. At March 29, 1998, the Company had committed unsecured lines of
credit totaling approximately $550,000 available to it. It also had available
uncommitted lines approximating $760,000. The Company believes that these
amounts are adequate for its needs. Of these available lines, approximately
$130,000 was in use at March 29, 1998. The subsequent acquisition of the
assets of Tiger Electronics, Inc. (see Recent Information) utilized some of
the available cash with additional funds provided by short-term borrowings.
Receivables, at $362,328, were down slightly more than double the quarter's
revenue decrease. This reflects lower balances at the beginning of the
current year and the impact of increased revenues generated from the
Company's letter of credit and emerging business units, each of which has
shorter payment terms. Inventories remained essentially constant with those
of a year ago with the impact of the OddzOn acquisition being largely offset
by the impact of foreign currency translation rates. Other assets, as a
group, increased from their 1997 levels, reflecting the acquisition of the
OddzOn unit as well as several acquisitions of product rights and licenses
during the most recent twelve months, all partially offset by twelve
additional months of amortization expense.
RECENT INFORMATION
- - ------------------
On April 1, 1998, the Company completed its previously announced acquisition
of the business and operating assets of Tiger Electronics, Inc. and certain
affiliates thereof, for $335,000, subject to post-closing adjustment, plus
the acquisition date value of acquired inventory, tooling, equipment and
prepaid assets.
In February 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 132, Employers' Disclosures about
Pensions and Other Postretirement Benefits (SFAS 132). SFAS 132, which will
be adopted by the Company during 1998, revises disclosure requirements
related to pensions and other postretirement benefits and as such will not
have any impact on the Company's financial condition or its results of
operations.
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.
10 Amended and Restated Nonqualified Deferred Compensation
Plan
11 Computation of Earnings Per Common Share - Quarters Ended
March 29, 1998 and March 30, 1997.
12 Computation of Ratio of Earnings to Fixed Charges -
Quarter Ended March 29, 1998.
27 Financial Data Schedule.
(b) Reports on Form 8-K
A Current Report on Form 8-K dated April 1, 1998 was filed by
the Company and included the Asset Purchase Agreement dated as
of February 8, 1998, together with Amendment thereto dated as of
March 31, 1998, by and among Hasbro, Inc., HIAC X Corp., a
Delaware corporation wholly owned by Hasbro, Inc. and now named
Tiger Electronics, Ltd., Tiger Electronics, Inc. and certain
affiliates thereof and Owen Randall Rissman and the Rissman
Family 1997 Trust.
A Current Report on Form 8-K dated April 16, 1998 was filed by
the Company and included the Press Release dated April 16, 1998
announcing the Company's results for the current quarter.
Consolidated Statements of Earnings (without notes) for the
quarters ended March 29, 1998 and March 30, 1997 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 13, 1998 By: /s/ John T. O'Neill
---------------------
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 29, 1998
Exhibit Index
Exhibit
No. Exhibits
- - ------- --------
10 Amended and Restated Nonqualified Deferred Compensation Plan
11 Statement re computation of per share earnings - quarter
12 Statement re computation of ratios
27 Financial Data Schedule