SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-K
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended December 27, 1998 Commission file number 1-6682
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Hasbro, Inc.
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(Name of Registrant)
Rhode Island 05-0155090
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(State of Incorporation) (I.R.S. Employer
Identification No.)
1027 Newport Avenue, Pawtucket, Rhode Island 02861
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(Address of Principal Executive Offices)
(401) 431-8697
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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Common Stock American Stock Exchange
Preference Share Purchase Rights American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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[ ].
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part II of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of the
registrant computed by reference to the price at which the stock was sold on
March 19, 1999 was $5,076,732,539.
The number of shares of Common Stock outstanding as of March 19, 1999 was
195,889,550.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of registrant's definitive proxy statement for its 1999 Annual
Meeting of Shareholders are incorporated by reference into Part III of this
Report.
Selected information contained in registrant's Annual Report to
Shareholders for the fiscal year ended December 27, 1998, is included as
Exhibit 13, and incorporated by reference into Parts I and II of this Report.
PART I
ITEM 1. BUSINESS
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(a) General Development of Business
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Except as expressly indicated or unless the context otherwise requires, as
used herein, the "Company" means Hasbro, Inc., a Rhode Island corporation
organized on January 8, 1926, and its subsidiaries.
The Company is a worldwide leader in the design, manufacture and marketing
of toys, games, interactive software, puzzles and infant products. Included
in its offerings are games, including traditional board and card, hand-held
electronic and interactive CD-ROM, and puzzles, preschool, boys' action and
girls' toys, dolls, plush products and infant products. The Company also
licenses various trademarks, characters and other property rights for use in
connection with the sale by others of noncompeting toys and non-toy products.
Both internationally and in the U.S., its PLAYSKOOL, KENNER, TONKA, GALOOB,
ODDZON, LARAMI, MILTON BRADLEY, PARKER BROTHERS, TIGER and HASBRO INTERACTIVE
products provide children and families with what the Company believes to be
the highest quality and most recognizable toys and games in the world.
(b) Description of Business Products
--------------------------------
The Company's products are categorized for marketing purposes as follows:
(i) Toys and Games
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Boys' toys are offered in a wide range of products, many of which are tied
to entertainment properties, including STAR WARS and BATMAN action figures
and accessories. The Company also offers such classic properties as G.I. JOE,
ACTION MAN, STARTING LINE-UP, TRANSFORMERS action figures, the TONKA line of
trucks, vehicles including the WINNER'S CIRCLE line of die cast vehicle
assortments and the NERF line of soft action play equipment. In 1999, the
Company will be launching a comprehensive range of action figures and
accessories using characters associated with Lucasfilms' STAR WARS: EPISODE
1: THE PHANTOM MENACE as well as the G.I. JOE CLASSIC COLLECTION, celebrating
the 35th birthday of this great American hero, ANIMORPHS TRANSFORMERS, a line
of NASCAR MICRO MACHINES and an extensive line of POKEMON toys and
collectibles.
Hasbro's girls toys include TV promoted large dolls, such as 1998's number
one selling MCDONALDLAND HAPPY MEAL GIRL, the MY LITTLE PONY line of small
dolls as well as the classic RAGGEDY ANN and RAGGEDY ANDY rag dolls. In 1999
the company will be introducing new large dolls, launching a line of products
designed to help celebrate the 50th anniversary of the CLASSIC PEANUTS
license, expanding the girls POKEMON product line, as well as expanding the
POUND PUPPIES and SPICE GIRLS lines.
The preschool business is a portfolio of three key brands: PLAYSKOOL,
BARNEY and TELETUBBIES. The PLAYSKOOL line includes such well-known products
as MR. POTATO HEAD, SIT 'N SPIN, GLOWORM, as well as a successful line of
infant toys and toddler role-play products. The BARNEY brand includes a
complete line of preschool toys such as PLAY ALONG BARNEY and the BARNEY SONG
MAGIC BANJO, featuring that adorable purple dinosaur and his friends. The new
PBS television show, TELETUBBIES, inspired a line of products featuring the
lovable quartet of TINKY WINKY, DIPSY, LALA and PO. Included on a list of
many new products being introduced during 1999 are the PLAYSKOOL KICK START
GYM, SING 'N STRUM BARNEY and TELETUBBIES TUMMY SURPRISE plush dolls.
Creative Play items for both girls and boys include such classic lines as
PLAY-DOH, EASY-BAKE OVEN, both of which enjoyed record years in 1998,
TINKERTOYS construction toys and LITE-BRITE and SPIROGRAPH design toys.
During 1999, the Company will be offering new PLAY-DOH playsets, licensed
refill bake sets for the EASY-BAKE OVEN, including KELLOGS POP TARTS SNACK
STIX, which allow children to bake fruity flavored cookie sticks, as well as
a STAR WARS PICTURE REFILL for LITE-BRITE. Internationally the Company will
continue to expand and develop the creative play business with the GET SET
and ART ATTACK product lines.
The LARAMI line of toys features a comprehensive range of water products,
including the SUPER SOAKER line, celebrating its tenth anniversary in 1999.
The ODDZON range includes the KOOSH and VORTEX brands of sports and
activity products, the RUBIK'S brand of logic puzzles plus the CAP CANDY
brand of interactive candy and the SOUND BITES brand of electronic
interactive candy - which allows one to hear sounds inside one's head while
eating candy. New for 1999 in the ODDZON line will be the MARK MCGUIRE VORTEX
power bat, LOOP DARTS, a `soft' dart-board game and several interactive candy
additions, including new M&M MARS licensed candy dispensers and a SOUND BITES
radio where consumers can listen to their favorite radio station in their
head.
The Company markets its games and puzzles under several well known brands.
MILTON BRADLEY maintains a line of board, strategy and word games, skill and
action games, hand-held electronic games and travel games with a diversified
line of more than 200 games and puzzles for children and adults. The
Company's staple items include BATTLESHIP, THE GAME OF LIFE, SCRABBLE, CHUTES
AND LADDERS, CANDY LAND, TROUBLE, MOUSETRAP, OPERATION, HUNGRY HUNGRY HIPPOS,
CONNECT FOUR, TWISTER and BIG BEN puzzles. The Company also provides games
and puzzles for the entire family, including such games as YAHTZEE,
PARCHEESI, AGGRAVATION, JENGA and SCATTERGORIES and PUZZ 3-D, a series of
three dimensional jigsaw puzzles. Items added within the MILTON BRADLEY brand
for 1999 include SONNY THE SEAL ring toss game, BALLZERKO, an electronic
hand-held pinball maze game, and an anniversary edition of CANDY LAND.
Under the PARKER BROTHERS brand, the Company markets a full line of games
for families, children and adults. Its classic line of family board games
includes MONOPOLY, CLUE, SORRY!, RISK, BOGGLE, OUIJA and TRIVIAL PURSUIT,
some of which have been in the Parker Brothers' line for more than 50 years.
The Company also markets traditional card games such as MILLE BORNES, ROOK
and RACK-O, games for adults such as OUTBURST and CATCH PHRASE, a line of
PLAYSKOOL games for children, as well as a line of puzzles. New under the
PARKER BROTHERS brand in 1999 will be millennium editions of MONOPOLY and
TRIVIAL PURSUIT, an updated version of A QUESTION OF SCRUPLES and BOP IT
EXTREME, a new version of the popular electronic twist-pull game.
The HASBRO INTERACTIVE line began with CD-ROM games based on the Company's
traditional games and brands, including MONOPOLY, RISK, SORRY!, BATTLESHIP
and, for younger children, a series of TONKA titles, including TONKA
CONSTRUCTION and TONKA GARAGE and CD-ROM playsets which hook onto computer
keyboards and combine traditional play with computer games. The line now
includes action games from ATARI and simulation games from MICROPROSE and
licensed properties such as FROGGER, WHEEL OF FORTUNE and JEOPARDY, many of
which are also marketed for use on video console systems such as NINTENDO and
the SONY PLAYSTATION. In 1999, among other more traditional family and
children's CD-ROM games, HASBRO INTERACTIVE will be launching a line of EM@IL
GAMES in which two players communicate their moves via e-mail and an EASY-
BAKE OVEN and a CLUE JR. CD-ROM playset.
TIGER products are among the most popular hand held electronic games and
innovation keys its line for 1999. Fueled by the stunning success of FURBY in
1998, TIGER will be offering a complete line of extensions within this
category. Included will be FURBY BUDDIES, which are low cost bean bag plush
toys and the FURBY HAPPY MEAL toys, which will be available both as premiums
at MCDONALDS and as products for sale at retail. TIGER has also freshened its
lines with brands like SPORTS FEEL GAMES, WCW PRO POWER games, which feature
sculpted action figures of real wrestlers with a dot matrix video game built
in, and a line of NASCAR-themed racing electronic games. Other strong
licenses which will continue to grow as part of TIGER'S 1999 offerings
include a comprehensive line of STAR WARS: EPISODE 1 electronic games, WINNIE
THE POOH electronic learning aids, POKEMON, TELETUBBIES, and, oriented
towards adults, products based on television game shows including WHEEL OF
FORTUNE, JEOPARDY, CONCENTRATION and THE PRICE IS RIGHT. Also being
introduced in 1999 are E YO, TIGER'S introduction into the yo-yo category,
and a table top tennis game that allows players to compete by playing table
tennis with a special light as the "ball".
In addition to the United States, the Company operates in more than 25
countries which sell a representative range of the global brands and products
marketed in the United States together with some items which are sold only
internationally. To further extend its range of products, the Company has
Hong Kong units which market directly to retailers, both in the United States
and internationally, a line of high quality, low priced toys, games and
related products, primarily on a direct import basis.
In addition, certain products and trademarks are licensed to other
companies for certain countries and markets where the Company does not
otherwise have a presence.
The Company manufactures products in the United States, Mexico, Ireland and
Spain and sources products, largely through a Hong Kong subsidiary working
primarily through unrelated manufacturers in various Far East countries.
Working Capital Requirements
----------------------------
Production has been financed historically by means of short-term borrowings
which reach peak levels during September through November of each year when
receivables also generally reach peak levels. The revenue pattern of the
Company continues to shift with the second half of the year growing in
significance to its overall business and, within that half, the fourth
quarter becoming more prominent. The Company expects that this trend will
continue. The toy business is also characterized by customer order patterns
which vary from year to year largely because of differences each year in the
degree of consumer acceptance of a product line, product availability,
marketing strategies and inventory policies of retailers and differences in
overall economic conditions. As a result, comparisons of unshipped orders on
any date with those at the same date in a prior year are not necessarily
indicative of sales for that entire given year. 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. The Company's unshipped orders at February 28, 1999 and March 1,
1998 were approximately $570,000,000 and $155,000,000, respectively. Also, it
is a general industry practice that orders are subject to amendment or
cancellation by customers prior to shipment. The backlog at any date in a
given year can be affected by programs the Company may employ to induce its
customers to place orders and accept shipments early in the year. This method
is a general industry practice. The programs the Company is employing to
promote sales in 1999 are not substantially different from those employed in
1998.
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 relies on internally generated
funds and short-term borrowing arrangements, including commercial paper, to
finance its working capital needs. Currently, the Company has available to it
unsecured lines of credit, which it believes are adequate, of approximately
$1,000,000,000 including a $350,000,000 long-term and a $150,000,000 short-
term revolving credit agreement with a group of banks which is also used as a
back-up to commercial paper issued by the Company.
Royalties, Research and Development
-----------------------------------
The Company's business is based to a substantial extent on the continuing
development of new products and the redesigning of existing items for
continuing market acceptance. In 1998, 1997 and 1996, approximately
$184,962,000, $154,710,000 and $152,487,000, respectively, were incurred on
activities relating to the development, design and engineering of new
products and their packaging (including items brought to the Company by
independent designers) and to the improvement or modification of ongoing
products. Much of this work is performed by the Company's staff of designers,
artists, model makers and engineers.
In addition to its own staff, the Company deals with a number of
independent toy designers for whose designs and ideas the Company competes
with other toy manufacturers. Rights to such designs and ideas, when acquired
by the Company, are usually exclusive under agreements requiring the Company
to pay the designer a royalty on the Company's net sales of the item. These
designer royalty agreements in some cases provide for advance royalties and
minimum guarantees.
The Company also produces a number of toys under trademarks and copyrights
utilizing the names or likenesses of familiar movie, television and comic
strip characters, for whose rights the Company competes with other toy
manufacturers. Licensing fees are generally paid as a royalty on the
Company's net sales of the item. Licenses for the use of characters are
generally exclusive for specific products or product lines in specified
territories. In many instances, advance royalties and minimum guarantees are
required by character license agreements. Under terms of currently existing
agreements, in certain circumstances the Company may be required to pay an
aggregate of up to $660,000,000 in guaranteed or minimum royalties between
1998 and 2007. Of this amount, in excess of $110,000,000 has been paid and is
included in the $145,066,000 of prepaid royalties which are a component of
prepaid expenses and other current assets on the balance sheet. Of the
remaining amount, Hasbro may be required to pay approximately $250,000,000,
$120,000,000 and $120,000,000 in 1999, 2002 and 2005, respectively. Such
payments are related to royalties which are expected to be incurred on
anticipated revenues in the years 1999 through 2007.
Marketing and Sales
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The Company's products are sold nationally and internationally to a broad
spectrum of customers including wholesalers, distributors, chain stores,
discount stores, mail order houses, catalog stores, department stores and
other retailers, large and small. The Company and its subsidiaries employ
their own sales forces which account for nearly all of the sales of their
products. Remaining sales are generated by independent distributors who sell
the Company's products principally in areas of the world where the Company
does not otherwise maintain a presence. The Company maintains showrooms in
New York and selected other major cities world-wide as well as at most of its
subsidiary locations. Although the Company has more than 2,000 customers in
the United States and Canada, most of which are wholesalers, distributors or
large chain stores, there has been significant consolidation at the retail
level over the last several years. In other countries, the Company has in
excess of 20,000 customers, many of which are individual retail stores.
During 1998, sales to the Company's two largest customers, Wal-Mart Stores,
Inc. and Toys `R Us, Inc., represented 18% and 17%, respectively, of
consolidated net revenues.
The Company advertises many of its toy and game products extensively on
television. The Company generally advertises selected items in its product
groups in a manner designed to promote the sale of other specific items in
those product groups. Each year, the Company introduces its new products in
New York City at the time of the American International Toy Fair in February.
It also introduces some of its products to major customers during the prior
year.
In 1998, the Company spent approximately $440,692,000 in advertising,
promotion and marketing programs compared to $411,574,000 in 1997 and
$418,003,000 in 1996.
Manufacturing and Importing
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As a result of the global integration and profit enhancement program
announced in December 1997, the Company manufactures its products in four
principal facilities, East Longmeadow, Massachusetts, Waterford, Ireland,
Tijuana, Mexico and Valencia, Spain. Most of its products are manufactured
from basic raw materials such as plastic and cardboard, although certain
products also make use of electronics components. All of these materials are
readily available but may be subject to significant fluctuations in price.
The Company's manufacturing process includes injection molding, blow molding,
metal stamping, spray painting, printing, box making and assembly. The
Company purchases certain components and accessories used in its toys and
games and some finished items from United States manufacturers as well as
from manufacturers in the Far East, which is the largest manufacturing center
of toys in the world, and other countries. The 1996 implementation of the
General Agreement on Tariffs and Trade reduced or eliminated customs duties
on many products imported by the Company. The Company believes that the
manufacturing capacity of its facilities and the supply of components,
accessories and completed products which it purchases from unaffiliated
manufacturers is adequate to meet the foreseeable demand for the products
which it markets. The Company's reliance on external sources of manufacturing
can be shifted, over a period of time, to alternative sources of supply for
products it sells, should such changes be necessary.
However, if the Company is prevented from obtaining products from a
substantial number of its current Far East suppliers due to political, labor
or other factors beyond its control, the Company's operations would be
disrupted while alternative sources of product were secured. The imposition
of trade sanctions by the United States or the European Union against a class
of products imported by the Company from, or the loss of "most favored
nation" trading status by, the People's Republic of China could significantly
increase the cost of the Company's products imported into the United States
or Europe from China.
The Company makes its own tools and fixtures but purchases dies and molds
principally from independent United States and international sources. Several
of the Company's North American production departments operate on a two-shift
basis and its molding departments operate on a continuous basis through most
of the year.
Competition
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The Company's business is highly competitive and it competes with several
large and many small United States and international manufacturers. The
Company is a worldwide leader in the design, manufacture and marketing of
toys and games.
Employees
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The Company employs approximately 10,000 persons worldwide, approximately
6,000 of whom are located in the United States.
Trademarks, Copyrights and Patents
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The Company's products are protected, for the most part and in as many
countries as practical, by registered trademarks, copyrights and patents to
the extent that such protection is available and meaningful. The loss of such
rights concerning any particular product would not have a material adverse
effect on the Company's business, although the loss of such protection for a
number of significant items might have such an effect.
Government Regulation
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The Company's toy products sold in the United States are subject to the
provisions of the Consumer Product Safety Act (the "CPSA"), The Federal
Hazardous Substances Act (the "FHSA") and the regulations promulgated
thereunder. The CPSA empowers the Consumer Product Safety Commission (the
"CPSC") to take action against hazards presented by consumer products,
including the formulation and implementation of regulations and uniform
safety standards. The CPSC has the authority to seek to declare a product "a
banned hazardous substance" under the CPSA and to ban it from commerce. The
CPSC can file an action to seize and condemn an "imminently hazardous
consumer product" under the CPSA and may also order equitable remedies such
as recall, replacement, repair or refund for the product. The FHSA provides
for the repurchase by the manufacturer of articles which are banned. Similar
laws exist in some states and cities within the United States and in Canada,
Australia and Europe. The Company maintains laboratories which have testing
and other procedures intended to maintain compliance with the CPSA and FHSA.
Notwithstanding the foregoing, there can be no assurance that all of the
Company's products are or will be hazard free. Any material product recall
could have an effect on the Company, depending on the product, and could
affect sales of other products.
During 1998, the CPSC released the results of a study of a chemical,
diisononyl phthalate ("DINP") used to soften some plastic toys and children's
products. The study concluded that few if any children are at risk from DINP
because the amount that they ingest does not even come close to a harmful
level. Therefore, the CPSC staff did not recommend a ban on these products.
However, the CPSC indicated that the study identified several areas of
uncertainty where additional scientific research is needed. As a precaution
while more scientific work is done, the CPSC staff requested the industry to
remove DINP from soft rattles and teethers. Approximately 90% of
manufacturers, including the Company, indicated to the CPSC that they have or
will remove DINP from the soft rattles and teethers by early 1999. Canada and
certain European countries have requested or required similar removal of DINP
from products meant to be mouthed by children. The Company does not believe
such removal will materially affect the Company.
The Children's Television Act of 1990 and the rules promulgated thereunder
by the United States Federal Communications Commission as well as the laws of
certain countries place certain limitations on television commercials during
children's programming.
The Company maintains programs to comply with various United States
federal, state, local and international requirements relating to the
environment, plant safety and other matters.
Toys "R" Us Litigation
----------------------
On September 25, 1997, an administrative law judge ("ALJ") of the Federal
Trade Commission (the "Commission") issued an Initial Decision against Toys
"R" Us, finding that Toys "R" Us had engaged in unfair business practices in
violation of Section 5 of the Federal Trade Commission Act. In particular,
the ALJ found that Toys "R" Us entered into vertical agreements with, and
facilitated horizontal agreements among, various toy manufacturers, including
the Company, to restrict the supply of certain toys to warehouse club
retailers. Although the Company voluntarily produced documents and witnesses
in the action, the Company was not named a defendant by the Commission in the
action. The ALJ's decision was affirmed by the Commission on October 14,
1998.
In the wake of the ALJ's decision, numerous antitrust actions were filed
naming Toys "R" Us, the Company, and certain other toy manufacturers as
defendants. All of these actions generally allege that Toys "R" Us
orchestrated an illegal conspiracy with various toy manufacturers to
improperly cut-off supplies of popular toys to the warehouse clubs and other
low margin retailers that compete with Toys "R" Us. The Company was named as
a defendant in twenty-seven private antitrust class actions in federal courts
in California, Illinois, Maryland, New Jersey, New York, Pennsylvania and
Vermont, all of which purport to represent nationwide classes of customers.
These actions allege, among other things, violations of the Sherman and
Clayton Acts. In addition, on October 2, 1997, the Attorney General of the
State of New York ("NYAG") filed an action against Toys "R" Us, the Company,
and several other toy manufacturers alleging violations of federal and state
antitrust law, on behalf of all persons in the State of New York who
purchased toy products from retailers from 1989 to the present. The NYAG
complaint was amended to add as plaintiffs attorneys general from an
additional forty-three states, the District of Columbia and the Commonwealth
of Puerto Rico.
On February 11, 1998, the Judicial Panel on Multi-District Litigation
consolidated and transferred, for all pretrial proceedings, the NYAG action
and all of the pending private actions in the federal courts. The
consolidated cases are titled In Re Toys "R" Us Antitrust Litigation, MDL-
1211 and are pending in the Federal District Court in the Eastern District of
New York.
In addition, the Company was named as a defendant, along with Toys "R" Us
and certain other toy manufacturers, in an action titled Struthers v. Toys
"R" Us et al., No. H198813-6, filed in the Superior Court for the State of
California, Alameda County, alleging violations of state antitrust laws. On
February 9, 1998, the Superior Court ordered the Struthers case to be
coordinated with three pending state court actions previously filed against
Toys "R" Us in California. All of the California litigations were stayed to
encourage the parties to pursue settlement discussions and negotiations in
good faith. These discussions were coordinated with a mediation ordered in a
case titled Wilson v. Toys "R" Us, Case No. CV96-574, pending in Tuscaloosa
County Circuit Court in Alabama. The Company is not a party to the Alabama
case.
All of the foregoing complaints seek injunctive relief, unspecified treble
damages, expenses or costs and attorneys fees. The Company has not responded
to the complaints in any of these actions.
On December 9, 1998, Hasbro entered into a Settlement Agreement and Release
with the State Attorneys General and the Private Plaintiffs with respect to
all of the pending state and federal actions. The parties are currently in
the process of presenting the Settlement to the District Court for
preliminary approval. Following this process, the Company anticipates that
notice of the Settlement will be sent to potential class members, and
thereafter the Settlement will be presented to the Court for final approval.
No dates for these hearings have been scheduled.
Forward-Looking Information
---------------------------
From time to time, the Company may publish forward-looking statements
relating to such matters as anticipated financial performance, business
prospects, technological developments, new products, research and development
activities and similar matters. Forward-looking statements are inherently
subject to risks and uncertainties, many of which are known by, or self-
evident to, the investing public. The Private Securities Litigation Reform
Act of 1995 provides a safe harbor for forward-looking statements. In order
to comply with the terms of the safe harbor, the Company notes that a variety
of factors could cause its actual results and experience to differ materially
from the anticipated results or other expectations expressed in its forward-
looking statements. The risks and uncertainties that may affect the
operations, performance, development and results of Hasbro's business include
the following:
1) The Company's dependence on its timely development and introduction of
new products and the acceptance, in a competitive product environment, by
both the customer and consumer, of new and continuing products;
2) The impact of competition on revenue, margins and other aspects of the
Company's business;
3) Economic conditions and currency fluctuations in the various markets
in which the Company operates throughout the world, including the effect of
currency fluctuations on reportable income;
4) The inventory policies of retailers, including the continuing trend of
increased concentration of Hasbro's revenues in the second half and fourth
quarter of the year, together with the increased reliance by retailers on
quick response inventory management practices, which increases the risk of
the Company's underproduction of popular items, overproduction of less
popular items and failure to achieve tight and compressed shipping schedules;
5) The impact of Year 2000 issues, including the Company's incurring
higher than expected costs to achieve, or not achieving, Year 2000 readiness
with respect to its systems, or its customers, vendors or service providers
failing to achieve such readiness; unanticipated technical malfunctions or
difficulties which would arise during the validation process or otherwise;
the inherent risk that assurances, warranties, and specifications provided by
third parties with respect to the Company's systems, or such third party's
Year 2000 readiness, may prove to be inaccurate, despite the Company's review
process; the continued availability of qualified persons to carry out the
remaining anticipated phases; the risk that governments may not be Year 2000
ready, which could affect the commercial sector in trade, finance and other
areas, notwithstanding private sector Year 2000 readiness; whether, despite a
comprehensive review, the Company has successfully identified all Year 2000
issues and risks; and the risk that proposed actions and contingency plans of
the Company and third parties with respect to Year 2000 issues may conflict
or themselves give rise to additional issues;
6) The risk that anticipated benefits of acquisitions and the Company's
global integration and profit enhancement program may not occur or be delayed
or reduced in their realization; and
7) Other risks and uncertainties as are or may be detailed from time to
time in Hasbro's public announcements and filings with the Securities and
Exchange Commission.
(c) Financial Information About International and United States
-----------------------------------------------------------
Operations and Export Sales
---------------------------
The information required by this item is included in note 16 of Notes to
Consolidated Financial Statements in Exhibit 13 to this Report and is
incorporated herein by reference.
ITEM 2. PROPERTIES
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Lease
Square Type of Expiration
Location Use Feet Possession Dates
- - -------- --- ------ ---------- ----------
Rhode Island
- - ------------
Pawtucket Administrative, Sales
& Marketing Offices &
Product Development 343,000 Owned --
Pawtucket Executive Office 23,000 Owned --
East Providence Administrative Office 120,000 Leased 1999
California
- - ----------
Ontario Warehouse 432,000 Leased 2002
Napa Office & Warehouse 400,000 Leased 2013
South San Francisco Office 69,000 Owned --
Alameda Product Development 38,400 Leased 2002
Illinois
- - --------
Vernon Hills Office & Warehouse 21,000 Leased 2002
Massachusetts
- - -------------
East Longmeadow Office, Manufacturing
& Warehouse 1,147,500 Owned --
East Longmeadow Warehouse 500,000 Leased 2000
Beverly Office 100,000 Owned --
Maryland
- - --------
Hunt Valley Product Development 29,900 Leased 2003
New Jersey
- - ----------
Northvale Warehouse 75,000 Leased 2002
Mt. Laurel Office 11,000 Leased 1999
New York
- - --------
New York Office & Showroom 70,300 Leased 2011
New York Offices & Showrooms 32,300 Leased 1999
New York Office & Showroom 17,200 Leased 2006
Ohio
- - ----
Bedford Heights Office and warehouse 187,100 Leased 2000
Cincinnati Office 174,000 Leased 2007
Cincinnati Warehouse 31,800 Leased 2008
Texas
- - -----
El Paso Warehouse 1,000,000 Leased 2008
Australia
- - ---------
Lidcombe Office & Warehouse 161,400 Leased 2002
Eastwood Office 16,900 Leased 2001
Argentina
- - ---------
Buenos Aires Office and Warehouse 54,000 Leased 2000
Austria
- - -------
Vienna Office 4,000 Leased 1999
Belgium
- - -------
Brussels Office & Showroom 20,700 Leased 1999
Canada
- - ------
Montreal Office, Warehouse
& Showroom 133,900 Leased 2001
Mississauga Sales Office & Showroom 16,300 Leased 2004
Montreal Warehouse 88,100 Leased 2001
Chile
- - -----
Santiago Warehouse 23,800 Leased 2000
Santiago Office 3,500 Leased 2000
Denmark
- - -------
Glostrup Office 9,200 Leased 1999
England
- - -------
Uxbridge Office & Showroom 94,500 Leased 2013
Gloucestershire Office 28,700 Leased 1999
France
- - ------
Le Bourget du Lac Office & Warehouse 108,300 Owned --
Savoie Technolac Office 33,500 Owned --
Creutzwald Warehouse 217,200 Owned --
Creutzwald Warehouse 30,700 Leased 1999
Gresy Warehouse 24,500 Leased 1999
Germany
- - -------
Dietzenbach Office 39,400 Leased 1999
Soest Office & Warehouse 164,200 Owned --
Boner Office & Warehouse 111,300 Owned --
Greece
- - ------
Athens Office & Warehouse 25,100 Leased 2007
Hong Kong
- - ---------
Kowloon Offices 20,000 Leased 1999
Kowloon Offices 73,400 Leased 2000
New Territories Office & Warehouse 17,800 Leased 1999
Kowloon Warehouses 11,300 Leased 2000
New Territories Warehouse 11,500 Leased 2000
Hungary
- - -------
Budapest Office 6,300 Leased 1999
Ireland
- - -------
Waterford Office, Manufacturing
& Warehouse 244,400 Owned --
Italy
- - -----
Milan Office & Showroom 12,100 Leased 2002
Malaysia
- - -------
Selangor
Darul Ehsan Office 4,900 Leased 2000
Mexico
- - ------
Tijuana Office, Manufacturing
& Warehouse 143,800 Leased 1999
Tijuana Manufacturing &
Warehouse 205,000 Leased 1999
Tijuana Warehouse 48,600 Leased 1999
Tijuana Warehouse 46,900 Leased 1999
Periferico Office 16,100 Leased 2001
Venados Warehouses 118,100 Leased 1999
The Netherlands
- - ---------------
Ter Apel Office & Warehouse 139,300 Owned --
Ter Apel Warehouse 79,400 Leased 1999
Utrecht Office 17,000 Leased 2003
New Zealand
- - -----------
Auckland Office & Warehouse 110,900 Leased 2005
Norway
- - ------
Asker Office 5,900 Leased 1999
Peru
- - ----
Lima Warehouse 32,400 Leased 1999
Lima Office 11,000 Leased 1999
Poland
- - ------
Warsaw Office & Warehouse 14,300 Leased 2000
Portugal
- - --------
Estoril-Lisboa Office 2,900 Leased 2003
Singapore
- - ---------
Singapore Office & Warehouse 9,300 Leased 2000
Spain
- - -----
Valencia Office, Manufacturing
& Warehouse 115,100 Leased 1999
Valencia Office 27,600 Leased 2011
Valencia Manufacturing
& Warehouse 201,900 Leased 2011
Valencia Warehouse 48,100 Leased 1999
Valencia Warehouse 161,700 Leased 2002
Sweden
- - ------
Vosby Office 7,400 Leased 1999
Switzerland
- - -----------
Berikon Office & Warehouse 25,000 Leased 1999
Delemont Office 9,200 Leased 2004
Taiwan
- - ------
TPE County Warehouse 14,400 Leased 1999
Wales
- - -----
Newport Warehouse 72,000 Leased 2003
Newport Warehouse 198,000 Owned --
In addition to the above listed facilities, the Company either owns or
leases various other properties approximating 450,000 square feet which are
utilized in its operations. The Company also either owns or leases an
aggregate of approximately 2,100,000 square feet not currently being utilized
in its operations, approximately 1,300,000 of which results from the
Company's global integration and profit enhancement program implemented
during 1998. Most of these properties are being leased, subleased or offered
for sublease or sale.
The foregoing properties consist, in general, of brick, cinder block or
concrete block buildings which the Company believes are in good condition and
well maintained.
ITEM 3. LEGAL PROCEEDINGS
-----------------
The Company is party to certain legal proceedings, substantially involving
routine litigation incidental to the Company's business, none of which,
individually or in the aggregate, is deemed to be material to the financial
condition of the Company. For a description of the "Toys `R' Us litigation",
see Item 1.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
None.
EXECUTIVE OFFICERS OF THE REGISTRANT
- - ------------------------------------
The following persons are the executive officers of the Company and its
subsidiaries and divisions. Such executive officers are elected annually. The
position and office listed below are the principal position(s) and office(s)
held by such person with the Company, subsidiary or divisions employing such
person. The persons listed below generally also serve as officers and
directors of the Company's various subsidiaries at the request and
convenience of the Company.
Period
Serving in
Current
Name Age Position and Office Held Position
- - ---- --- ------------------------ ----------
Alan G. Hassenfeld (1) 50 Chairman of the Board and
Chief Executive Officer Since 1999
Herbert M. Baum (2) 62 President and Chief
Operating Officer Since 1999
Harold P. Gordon (3) 61 Vice Chairman Since 1995
John T. O'Neill 54 Executive Vice President and
Chief Financial Officer Since 1989
Alfred J. Verrecchia (4) 56 Executive Vice President,
Global Operations and
Development Since 1999
Virginia H. Kent (5) 44 Senior Vice President and
Sector Head, Toys Since 1999
E. David Wilson (6) 61 Senior Vice President and
Sector Head, Games Since 1999
George B. Volanakis (7) 51 Senior Vice President and
Sector Head, International
Businesses Since 1999
Richard B. Holt 57 Senior Vice President and
Controller Since 1992
Cynthia S. Reed (8) 43 Senior Vice President and
General Counsel Since 1995
Douglas J. Schwinn (9) 48 Senior Vice President and
Chief Information Officer Since 1999
Martin R. Trueb (10) 47 Senior Vice President and
Treasurer Since 1997
Phillip H. Waldoks (11) 46 Senior Vice President -
Corporate Legal Affairs
and Secretary Since 1995
(1) Prior thereto, Chairman of the Board, President and Chief Executive
Officer.
(2) Prior thereto, President and Chief Executive Officer, Quaker State
Corporation.
(3) Prior thereto, Partner, Stikeman, Elliott (law firm).
(4) Prior thereto, Executive Vice President and President, Global
Operations from 1996 to 1999; prior thereto, Chief Operating Officer,
Domestic Toy Operations.
(5) Prior thereto, President, Brands and Product Development from 1996
to 1999; prior thereto, General Manager, Girls/Boys/Nerf.
(6) Prior thereto, President, Hasbro Americas from 1996 to 1999; prior
thereto, President, Hasbro Games Group, from 1995 to 1996; prior
thereto, President, Milton Bradley.
(7) Prior thereto, President, European Sales and Marketing from 1998 to
1999; prior thereto, President and Chief Executive Officer, The Ertl
Company, Inc.
(8) Prior thereto, Vice President - Legal.
(9) Prior thereto, Senior Vice President and Chief Information Officer,
OfficeMax, Inc., from 1997 to 1999; prior thereto, Senior Vice
President, Information Services and Chief Information Officer,
FoxMeyer Drug Company from 1995 to 1997; prior thereto, Vice
President, Software Development, FoxMeyer Drug Company.
(10) Prior thereto, Assistant Treasurer, Amway Corporation, from 1995
to 1997; prior thereto, Director, International Treasury,
RJR Nabisco, Inc.
(11) Prior thereto, Senior Vice President - Corporate Legal Affairs.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
-----------------------------------------------------
STOCKHOLDER MATTERS
-------------------
On October 30, 1998, the Company issued an aggregate of 6,000,000 warrants
to purchase 6,000,000 shares of common stock, par value $.50 per share, of
the Company, at an exercise price of $23.3333 per share(as adjusted for the
three-for-two stock split paid in the form of a 50% stock dividend on March
15, 1999), subject to anti-dilution adjustment in certain events, to
Lucasfilm Ltd. and its subsidiary Lucas Licensing Ltd., in connection with,
and as partial consideration for, the acquisition of certain long-term
rights. The warrants were issued without registration under the Securities
Act of 1933 (the "Act") on the basis of Section 4(2) of the Act in reliance
upon the representations of each warrant holder that it is an accredited
investor, as defined in Rule 501 of Regulation D under the Act, and that it
is acquiring the warrants for investment purposes only and not with a view
to, or for resale in connection with, any "distribution" thereof for purposes
of the Act. The warrants are not exercisable prior to the theatrical release
in the United States of Star Wars: Episode 1: The Phantom Menace, which is
expected to take place on May 19, 1999, except that exercisability would be
accelerated on a change in control of the Company. The warrants would remain
exercisable, with respect to 3,600,000 warrants until October 30, 2009 and
with respect to 2,400,000 warrants until October 30, 2010.
The remainder of the information required by this item is included in
Market for the Registrant's Common Equity and Related Stockholder Matters in
Exhibit 13 to this Report and is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
-----------------------
The information required by this item is included in Selected Financial
Data in Exhibit 13 to this Report and is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-----------------------------------------------------------
AND RESULTS OF OPERATIONS
-------------------------
The information required by this item is included in Management's Review in
Exhibit 13 to this Report and is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
The information required by this item is included in Financial Statements
and Supplementary Data in Exhibit 13 to this Report and is incorporated
herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
-----------------------------------------------------------
AND FINANCIAL DISCLOSURE
------------------------
None.
PART III
ITEMS 10, 11, 12 and 13.
The information required by these items is included in registrant's
definitive proxy statement for the 1999 Annual Meeting of Shareholders and is
incorporated herein by reference, except that the sections under the headings
(a) "Comparison of Five Year Cumulative Total Shareholder Return Among
Hasbro, S&P 500 and Russell 1000 Consumer Discretionary Economic Sector" and
accompanying material and (b) "Report of the Compensation and Stock Option
Committee of the Board of Directors" in the definitive proxy statement shall
not be deemed "filed" with the Securities and Exchange Commission or subject
to Section 18 of the Securities Exchange Act of 1934.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
---------------------------------------------------------------
(a) Financial Statements, Financial Statement Schedules and Exhibits
----------------------------------------------------------------
(1) Financial Statements
--------------------
Included in PART II of this report:
Independent Auditors' Report
Consolidated Balance Sheets at December 27, 1998 and
December 28, 1997
Consolidated Statements of Earnings for the Three Fiscal
Years Ended in December 1998, 1997 and 1996
Consolidated Statements of Shareholders' Equity for the
Three Fiscal Years Ended in December 1998, 1997 and 1996
Consolidated Statements of Cash Flows for the Three
Fiscal Years Ended in December 1998, 1997 and 1996
Notes to Consolidated Financial Statements
(2) Financial Statement Schedules
-----------------------------
Included in PART IV of this Report:
Report of Independent Certified Public Accountants
on Financial Statement Schedule
For the Three Fiscal Years Ended in December 1998, 1997
and 1996:
Schedule II - Valuation and Qualifying Accounts and
Reserves
Schedules other than those listed above are omitted for the reason that they
are not required or are not applicable, or the required information is shown
in the financial statements or notes thereto. Columns omitted from schedules
filed have been omitted because the information is not applicable.
(3) Exhibits
--------
The Company will furnish to any shareholder, upon written request, any
exhibit listed below upon payment by such shareholder to the Company of the
Company's reasonable expenses in furnishing such exhibit.
Exhibit
- - -------
3. Articles of Incorporation and Bylaws
(a) Restated Articles of Incorporation of the Company.
(Incorporated by reference to Exhibit (c)(2) to the
Company's Current Report on Form 8-K, dated July 15,
1993, File No. 1-6682.)
(b) Amended and Restated Bylaws of the Company. (Incorporated by
reference to Exhibit (3) to the Company's Current Report on
Form 8-K, dated February 16, 1996, File No. 1-6682.)
4. Instruments defining the rights of security holders, including
indentures.
(a) Indenture, dated as of July 17, 1998, by and between the
Company and Citibank, N.A. as Trustee. (Incorporated by
reference to Exhibit 4.1 to the Company's Current Report on
Form 8-K dated July 14, 1998, File No. 1-6682.)
10. Material Contracts
(a) Lease between Hasbro Canada Inc. (formerly named Hasbro
Industries (Canada) Ltd.) and Central Toy Manufacturing Co.
("Central Toy"), dated December 23, 1976. (Incorporated by
reference to Exhibit 10.15 to the Company's Registration
Statement on Form S-14, File No. 2-92550.)
(b) Lease between Hasbro Canada Inc. and Central Toy, together
with an Addendum thereto, each dated as of May 1, 1987.
(Incorporated by reference to Exhibit 10(f) to the Company's
Annual Report on Form 10-K for the Fiscal Year Ended
December 27, 1987, File No. 1-6682.)
(c) Addendum to lease, dated March 5, 1998, between Hasbro Canada
and Central Toy. (Incorporated by reference to Exhibit 10(c)
to the Company's Annual Report on Form 10-K for the Fiscal
Year Ended December 28, 1997, File No. 1-6682.)
(d) Toy License Agreement between Lucas Licensing Ltd. and the
Company, dated as of October 14, 1997. (Portions of this
agreement have been omitted pursuant to a request for
confidential treatment under Rule 24b-2 of the Securities
Exchange Act of 1934, as amended.)
(e) First Amendment to Toy License Agreement between Lucas
Licensing Ltd. and the Company, dated as of September 25, 1998.
(Portions of this agreement have been omitted pursuant to a
request for confidential treatment under Rule 24b-2 of the
Securities Exchange Act of 1934, as amended.)
(f) Agreement of Strategic Relationship between Lucasfilm Ltd. and
the Company dated as of October 14, 1997. (Portions of this
agreement have been omitted pursuant to a request for
confidential treatment under Rule 24b-2 of the Securities
Exchange Act of 1934, as amended.)
(g) First Amendment to Agreement of Strategic Relationship between
Lucasfilm Ltd. and the Company, dated as of September 25, 1998.
(h) Warrant, dated October 14, 1997 between the Company and
Lucas Licensing Ltd.
(i) Warrant, dated October 14, 1997 between the Company and
Lucasfilm Ltd.
(j) Warrant, dated October 30, 1998 between the Company and
Lucas Licensing Ltd.
(k) Warrant, dated October 30, 1998 between the Company and
Lucasfilm Ltd.
(l) Asset Purchase Agreement dated as of February 8, 1998,
together with Amendment thereto dated as of March 31, 1998,
by and among the Company, Tiger Electronics Ltd. (formerly
named HIAC X Corp. and a wholly-owned subsidiary of the
Company), Tiger Electronics, Inc. and certain affiliates
thereof and Owen Randall Rissman and the Rissman Family 1997
Trust. (Incorporated by reference to Exhibit 2(a) to the
Company's Current Report on Form 8-K, dated April 1, 1998,
File No. 1-6682.)
Executive Compensation Plans and Arrangements
(m) Employee Incentive Stock Option Plan. (Incorporated by
reference to Exhibit 4.1 to the Company's Registration
Statement on Form S-8, File No. 2-78018.)
(n) Amendment No. 1 to Employee Incentive Stock Option Plan.
(Incorporated by reference to Exhibit 10(l) to the Company's
Annual Report on Form 10-K for the Fiscal Year Ended
December 28, 1986, File No. 1-6682.)
(o) Amendment No. 2 to Employee Incentive Stock Option Plan.
(Incorporated by reference to Exhibit 10(n) to the Company's
Annual Report on Form 10-K for the Fiscal Year Ended
December 27, 1987, File No. 1-6682.)
(p) Amendment No. 3 to Employee Incentive Stock Option Plan.
(Incorporated by reference to Exhibit 10(o) to the Company's
Annual Report on Form 10-K for the Fiscal Year Ended
December 25, 1988, File No. 1-6682.)
(q) Amendment No. 4 to Employee Incentive Stock Option Plan.
(Incorporated by reference to Exhibit 10(s) to the Company's
Annual Report on Form 10-K for the Fiscal Year Ended
December 31, 1989, File No. 1-6682.)
(r) Form of Non Qualified Stock Option Agreement under the
Employee Incentive Stock Option Plan. (Incorporated by
reference to Exhibit 10(q) to the Company's Annual Report
on Form 10-K for the Fiscal Year Ended December 25, 1988,
File No. 1-6682.)
(s) Non Qualified Stock Option Plan. (Incorporated by reference
to Exhibit 10.10 to the Company's Registration Statement on
Form S-14, File No. 2-92550.)
(t) Amendment No. 1 to Non Qualified Stock Option Plan.
(Incorporated by reference to Exhibit 10(j) to the
Company's Annual Report on Form 10-K for the Fiscal
Year Ended December 28, 1986, File No. 1-6682.)
(u) Amendment No. 2 to Non Qualified Stock Option Plan.
(Incorporated by reference to Appendix A to the Company's
definitive proxy statement for its 1987 Annual Meeting of
Shareholders, File No. 1-6682.)
(v) Amendment No. 3 to Non Qualified Stock Option Plan.
(Incorporated by reference to Exhibit 10(l) to the Company's
Annual Report on Form 10-K for the Fiscal Year Ended
December 31, 1989, File No. 1-6682.)
(w) Form of Stock Option Agreement (For Employees) under the Non
Qualified Stock Option Plan. (Incorporated by reference to
Exhibit 10(t) to the Company's Annual Report on Form 10-K
for the Fiscal Year Ended December 27, 1992, File No.
1-6682.)
(x) 1992 Stock Incentive Plan. (Incorporated by reference to
Appendix A to the Company's definitive proxy statement for
its 1992 Annual Meeting of Shareholders, File No. 1-6682.)
(y) Form of Stock Option Agreement under the 1992 Stock Incentive
Plan, the Stock Incentive Performance Plan and the Employee
Non-Qualified Stock Plan. (Incorporated by reference to
Exhibit 10(v) to the Company's Annual Report on Form 10-K for
the Fiscal Year Ended December 27, 1992, File No. 1-6682.)
(z) Hasbro, Inc. Stock Incentive Performance Plan. (Incorporated
by reference to Appendix A to the Company's definitive proxy
statement for its 1995 Annual Meeting of Shareholders, File
No. 1-6682.)
(aa) Employee Non-Qualified Stock Plan. (Incorporated by reference
to Exhibit 10(dd) to the Company's Annual Report on Form 10-K
for the Fiscal Year Ended December 29, 1996, File No. 1-6682.)
(bb) Form of Stock Option Agreement (For Participants in the Long
Term Incentive Program) under the 1992 Stock Incentive Plan
and the Stock Incentive Performance Plan. (Incorporated by
reference to Exhibit 10(w) to the Company's Annual Report on
Form 10-K for the Fiscal Year Ended December 27, 1992, File
No. 1-6682.)
(cc) Form of Employment Agreement between the Company and eleven
officers of the Company. (Incorporated by reference to
Exhibit 10(v) to the Company's Annual Report on Form 10-K for
the Fiscal Year Ended December 31, 1989, File No. 1-6682.)
(dd) Hasbro, Inc. Retirement Plan for Directors. (Incorporated
by reference to Exhibit 10(x) to the Company's Annual
Report on Form 10-K for the Fiscal Year Ended December 30,
1990, File No. 1-6682.)
(ee) Form of Director's Indemnification Agreement. (Incorporated
by reference to Appendix B to the Company's definitive proxy
statement for its 1988 Annual Meeting of Shareholders, File
No. 1-6682.)
(ff) Hasbro, Inc. Deferred Compensation Plan for Non-Employee
Directors.(Incorporated by reference to Exhibit 10(cc) to
the Company's Annual Report on Form 10-K for the Fiscal Year
Ended December 26, 1993, File No. 1-6682.)
(gg) Hasbro, Inc. Stock Option Plan for Non-Employee Directors.
(Incorporated by reference to Appendix A to the Company's
definitive proxy statement for its 1994 Annual Meeting of
Shareholders, File No. 1-6682.)
(hh) Form of Stock Option Agreement for Non-Employee Directors
under the Hasbro, Inc. Stock Option Plan for Non-Employee
Directors. (Incorporated by reference to Exhibit 10(w) to
the Company's Annual Report on Form 10-K for the Fiscal Year
Ended December 25, 1994, File No. 1-6682.)
(ii) Hasbro, Inc. Senior Management Annual Performance Plan.
(Incorporated by reference to Appendix B to the Company's
definitive proxy statement for its 1994 Annual Meeting of
Shareholders, File No. 1-6682.)
(jj) Hasbro, Inc. Amended and Restated Nonqualified Deferred
Compensation Plan. (Incorporated by reference to Exhibit 10
to the Company's Quarterly Report on Form 10-Q for the Period
Ended March 29, 1998, File No. 1-6682.)
(kk) Employment Agreement, dated as of January 1, 1996, between
the Company and Harold P. Gordon. (Incorporated by reference
to Exhibit 10(aa) to the Company's Annual Report on Form 10-K
for the Fiscal Year Ended December 31, 1995, File No. 1-6682.)
(ll) Severance And Settlement Agreement And Release, dated as of
December 20, 1995, and addendum thereto, between the Company
and Dan D. Owen. (Incorporated by reference to Exhibit 10(bb)
to the Company's Annual Report on Form 10-K for the Fiscal
Year Ended December 31, 1995, File No. 1-6682.)
(mm) Amendment, effective as of January 1, 1997 to Severance and
Settlement Agreement and Release between the Company and
Dan D. Owen. (Incorporated by reference to Exhibit 10(cc)
to the Company's Annual Report on Form 10-K for the Fiscal
Year Ended December 29, 1996, File No. 1-6682.)
(nn) Amendment, dated February 20, 1998, to Severance
And Settlement Agreement And Release between the Company and
Dan D. Owen. (Incorporated by reference to Exhibit 10(ff)
to the Company's Annual Report on Form 10-K for the Fiscal
Year Ended December 28, 1997, File No. 1-6682.)
(oo) Letter agreements, dated January 30, 1998, between the Company
and George R. Ditomassi, Jr. (Incorporated by reference to
Exhibit 10(gg) to the Company's Annual Report on Form 10-K for
the Fiscal Year Ended December 28, 1997, File No. 1-6682.)
(pp) Consulting Agreement, dated January 31, 1998, between the
Company and George R. Ditomassi, Jr. (Incorporated by
reference to Exhibit 10(hh) to the Company's Annual Report on
Form 10-K for the Fiscal Year Ended December 28, 1997, File
No. 1-6682.)
(qq) Letter dated January 26, 1998 from the Company to George B.
Volanakis. (Incorporated by reference to Exhibit 10(ii) to
the Company's Annual Report on Form 10-K for the Fiscal Year
Ended December 28, 1997, File No. 1-6682.)
(rr) Employment Agreement dated as of January 5, 1999, between the
Company and Herbert M. Baum.
(ss) Letter agreement, dated March 23, 1999, between the Company
and Adam Klein.
11. Statement re computation of per share earnings
12. Statement re computation of ratios
13. Selected information contained in Annual Report to Shareholders
22. Subsidiaries of the registrant
24. Consents of experts and counsel
(a) Consent of KPMG LLP
27. Financial data schedule
The Company agrees to furnish the Securities and Exchange Commission, upon
request, a copy of each agreement with respect to long-term debt of the
Company, the authorized principal amount of which does not exceed 10% of the
total assets of the Company and its subsidiaries on a consolidated basis.
(b) Reports on Form 8-K
-------------------
A Current Report on Form 8-K dated February 4, 1999 was filed to
announce the Company's results for the quarter and year ended
December 27, 1998. Consolidated statements of earnings (without
notes) for the quarter and year ended December 27, 1998 and
December 28, 1997 and consolidated condensed balance sheets
(without notes) as of said dates were also filed.
(c) Exhibits
--------
See (a)(3) above
(d) Financial Statement Schedules
-----------------------------
See (a)(2) above
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Hasbro, Inc.:
Under date of February 3, 1999, we reported on the consolidated
balance sheets of Hasbro, Inc. and subsidiaries as of December 27, 1998 and
December 28, 1997 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 27, 1998, as contained in the 1998 annual
report to shareholders. These consolidated financial statements and our
report thereon are incorporated by reference in the annual report on Form 10-
K for the year 1998. In connection with our audits of the aforementioned
consolidated financial statements, we also audited the related financial
statement schedule listed in Item 14 (a)(2). This financial statement
schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion on this financial statement schedule
based on our audits.
In our opinion, such financial statement schedule when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ KPMG LLP
Providence, Rhode Island
February 3, 1999
HASBRO, INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts and Reserves
Fiscal Years Ended in December
(Thousands of Dollars)
Provision
Balance at Charged to Write-Offs Balance
Beginning of Costs and Other And at End of
Year Expenses Additions Other (a) Year
------------ ---------- ------------ ----------- ---------
Valuation
accounts
deducted
from assets
to which
they apply -
for doubtful
accounts
receivable:
1998 $51,700 13,057 2,832 (3,189) $64,400
====== ====== ====== ====== ======
1997 $46,600 9,229 - (4,129) $51,700
====== ====== ====== ====== ======
1996 $48,800 5,834 - (8,034) $46,600
====== ====== ====== ====== ======
(a) Includes write-offs, recoveries of previous write-offs and
translation adjustments.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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. (Registrant)
By: /s/ Alan G. Hassenfeld Date: March 26, 1999
------------------------- ---------------
Alan G. Hassenfeld
Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
- - --------- ----- ----
/s/ Alan G. Hassenfeld
- - ---------------------------- Chairman of the Board, March 26, 1999
Alan G. Hassenfeld Chief Executive Officer
and Director
(Principal Executive Officer)
/s/ John T. O'Neill
- - ---------------------------- Executive Vice President March 26, 1999
John T. O'Neill and Chief Financial Officer
(Principal Financial and
Accounting Officer)
/s/ Alan R. Batkin
- - ---------------------------- Director March 26, 1999
Alan R. Batkin
/s/ Herbert M. Baum
- - ---------------------------- Director March 26, 1999
Herbert M. Baum
/s/ Harold P. Gordon
- - ---------------------------- Director March 26, 1999
Harold P. Gordon
/s/ Alex Grass
- - ---------------------------- Director March 26, 1999
Alex Grass
/s/ Sylvia K. Hassenfeld
- - ---------------------------- Director March 9, 1999
Sylvia K. Hassenfeld
/s/ Marie-Josee Kravis
- - ---------------------------- Director March 26, 1999
Marie-Josee Kravis
/s/ Claudine B. Malone
- - ---------------------------- Director March 26, 1999
Claudine B. Malone
/s/ Morris W. Offit
- - ---------------------------- Director March 4, 1999
Morris W. Offit
/s/ Norma T. Pace
- - ---------------------------- Director March 26, 1999
Norma T. Pace
/s/ E. John Rosenwald, Jr.
- - ---------------------------- Director March 26, 1999
E. John Rosenwald, Jr.
/s/ Carl Spielvogel
- - ---------------------------- Director March 26, 1999
Carl Spielvogel
/s/ Preston Robert Tisch
- - ---------------------------- Director March 26, 1999
Preston Robert Tisch
/s/ Paul Wolfowitz
- - ---------------------------- Director March 26, 1999
Paul Wolfowitz
/s/ Alfred J. Verrecchia
- - ---------------------------- Director March 26, 1999
Alfred J. Verrecchia
HASBRO, INC.
Annual Report on Form 10-K
for the Year Ended December 27, 1998
Exhibit Index
Exhibit
- - -------
3. Articles of Incorporation and Bylaws
(a) Restated Articles of Incorporation of the Company.
(Incorporated by reference to Exhibit (c)(2) to the
Company's Current Report on Form 8-K, dated July 15,
1993, File No. 1-6682.)
(b) Amended and Restated Bylaws of the Company. (Incorporated by
reference to Exhibit (3) to the Company's Current Report on
Form 8-K, dated February 16, 1996, File No. 1-6682.)
4. Instruments defining the rights of security holders, including
indentures.
(a) Indenture, dated as of July 17, 1998, by and between the
Company and Citibank, N.A. as Trustee. (Incorporated by
reference to Exhibit 4.1 to the Company's Current Report on
Form 8-K dated July 14, 1998, File No. 1-6682.)
10. Material Contracts
(a) Lease between Hasbro Canada Inc. (formerly named Hasbro
Industries (Canada) Ltd.) and Central Toy Manufacturing Co.
("Central Toy"), dated December 23, 1976. (Incorporated by
reference to Exhibit 10.15 to the Company's Registration
Statement on Form S-14, File No. 2-92550.)
(b) Lease between Hasbro Canada Inc. and Central Toy, together
with an Addendum thereto, each dated as of May 1, 1987.
(Incorporated by reference to Exhibit 10(f) to the Company's
Annual Report on Form 10-K for the Fiscal Year Ended
December 27, 1987, File No. 1-6682.)
(c) Addendum to lease, dated March 5, 1998, between Hasbro Canada
and Central Toy. (Incorporated by reference to Exhibit 10(c)
to the Company's Annual Report on Form 10-K for the Fiscal
Year Ended December 28, 1997, File No. 1-6682.)
(d) Toy License Agreement between Lucas Licensing Ltd. And the
Company, dated as of October 14, 1997. (Portions of this
agreement have been omitted pursuant to a request for
confidential treatment under Rule 24b-2 of the Securities
Exchange Act of 1934, as amended.)
(e) First Amendment to Toy License Agreement between Lucas
Licensing Ltd. and the Company, dated as of September 25, 1998.
(Portions of this agreement have been omitted pursuant to a
request for confidential treatment under Rule 24b-2 of the
Securities Exchange Act of 1934, as amended.)
(f) Agreement of Strategic Relationship between Lucasfilm Ltd. and
the Company dated as of October 14, 1997. (Portions of this
agreement have been omitted pursuant to a request for
confidential treatment under Rule 24b-2 of the Securities
Exchange Act of 1934, as amended.)
(g) First Amendment to Agreement of Strategic Relationship between
Lucasfilm Ltd. and the Company, dated as of September 25, 1998.
(h) Warrant, dated October 14, 1997 between the Company and
Lucas Licensing Ltd.
(i) Warrant, dated October 14, 1997 between the Company and
Lucasfilm Ltd.
(j) Warrant, dated October 30, 1998 between the Company and
Lucas Licensing Ltd.
(k) Warrant, dated October 30, 1998 between the Company and
Lucasfilm Ltd.
(l) Asset Purchase Agreement dated as of February 8, 1998,
together with Amendment thereto dated as of March 31, 1998,
by and among the Company, Tiger Electronics Ltd. (formerly
named HIAC X Corp. and a wholly-owned subsidiary of the
Company), Tiger Electronics, Inc. and certain affiliates
thereof and Owen Randall Rissman and the Rissman Family 1997
Trust. (Incorporated by reference to Exhibit 2(a) to the
Company's Current Report on Form 8-K, dated April 1, 1998,
File No. 1-6682.)
Executive Compensation Plans and Arrangements
(m) Employee Incentive Stock Option Plan. (Incorporated by
reference to Exhibit 4.1 to the Company's Registration
Statement on Form S-8, File No. 2-78018.)
(n) Amendment No. 1 to Employee Incentive Stock Option Plan.
(Incorporated by reference to Exhibit 10(l) to the Company's
Annual Report on Form 10-K for the Fiscal Year Ended
December 28, 1986, File No. 1-6682.)
(o) Amendment No. 2 to Employee Incentive Stock Option Plan.
(Incorporated by reference to Exhibit 10(n) to the Company's
Annual Report on Form 10-K for the Fiscal Year Ended
December 27, 1987, File No. 1-6682.)
(p) Amendment No. 3 to Employee Incentive Stock Option Plan.
(Incorporated by reference to Exhibit 10(o) to the Company's
Annual Report on Form 10-K for the Fiscal Year Ended
December 25, 1988, File No. 1-6682.)
(q) Amendment No. 4 to Employee Incentive Stock Option Plan.
(Incorporated by reference to Exhibit 10(s) to the Company's
Annual Report on Form 10-K for the Fiscal Year Ended
December 31, 1989, File No. 1-6682.)
(r) Form of Non Qualified Stock Option Agreement under the
Employee Incentive Stock Option Plan. (Incorporated by
reference to Exhibit 10(q) to the Company's Annual Report
on Form 10-K for the Fiscal Year Ended December 25, 1988,
File No. 1-6682.)
(s) Non Qualified Stock Option Plan. (Incorporated by reference
to Exhibit 10.10 to the Company's Registration Statement on
Form S-14, File No. 2-92550.)
(t) Amendment No. 1 to Non Qualified Stock Option Plan.
(Incorporated by reference to Exhibit 10(j) to the
Company's Annual Report on Form 10-K for the Fiscal
Year Ended December 28, 1986, File No. 1-6682.)
(u) Amendment No. 2 to Non Qualified Stock Option Plan.
(Incorporated by reference to Appendix A to the Company's
definitive proxy statement for its 1987 Annual Meeting of
Shareholders, File No. 1-6682.)
(v) Amendment No. 3 to Non Qualified Stock Option Plan.
(Incorporated by reference to Exhibit 10(l) to the Company's
Annual Report on Form 10-K for the Fiscal Year Ended
December 31, 1989, File No. 1-6682.)
(w) Form of Stock Option Agreement (For Employees) under the Non
Qualified Stock Option Plan. (Incorporated by reference to
Exhibit 10(t) to the Company's Annual Report on Form 10-K
for the Fiscal Year Ended December 27, 1992, File No.
1-6682.)
(x) 1992 Stock Incentive Plan. (Incorporated by reference to
Appendix A to the Company's definitive proxy statement for
its 1992 Annual Meeting of Shareholders, File No. 1-6682.)
(y) Form of Stock Option Agreement under the 1992 Stock Incentive
Plan, the Stock Incentive Performance Plan and the Employee
Non-Qualified Stock Plan. (Incorporated by reference to
Exhibit 10(v) to the Company's Annual Report on Form 10-K for
the Fiscal Year Ended December 27, 1992, File No. 1-6682.)
(z) Hasbro, Inc. Stock Incentive Performance Plan. (Incorporated
by reference to Appendix A to the Company's definitive proxy
statement for its 1995 Annual Meeting of Shareholders, File
No. 1-6682.)
(aa) Employee Non-Qualified Stock Plan. (Incorporated by reference
to Exhibit 10(dd) to the Company's Annual Report on Form 10-K
for the Fiscal Year Ended December 29, 1996, File No. 1-6682.)
(bb) Form of Stock Option Agreement (For Participants in the Long
Term Incentive Program) under the 1992 Stock Incentive Plan
and the Stock Incentive Performance Plan. (Incorporated by
reference to Exhibit 10(w) to the Company's Annual Report on
Form 10-K for the Fiscal Year Ended December 27, 1992, File
No. 1-6682.)
(cc) Form of Employment Agreement between the Company and eleven
officers of the Company. (Incorporated by reference to
Exhibit 10(v) to the Company's Annual Report on Form 10-K for
the Fiscal Year Ended December 31, 1989, File No. 1-6682.)
(dd) Hasbro, Inc. Retirement Plan for Directors. (Incorporated
by reference to Exhibit 10(x) to the Company's Annual
Report on Form 10-K for the Fiscal Year Ended December 30,
1990, File No. 1-6682.)
(ee) Form of Director's Indemnification Agreement. (Incorporated
by reference to Appendix B to the Company's definitive proxy
statement for its 1988 Annual Meeting of Shareholders, File
No. 1-6682.)
(ff) Hasbro, Inc. Deferred Compensation Plan for Non-Employee
Directors.(Incorporated by reference to Exhibit 10(cc) to
the Company's Annual Report on Form 10-K for the Fiscal Year
Ended December 26, 1993, File No. 1-6682.)
(gg) Hasbro, Inc. Stock Option Plan for Non-Employee Directors.
(Incorporated by reference to Appendix A to the Company's
definitive proxy statement for its 1994 Annual Meeting of
Shareholders, File No. 1-6682.)
(hh) Form of Stock Option Agreement for Non-Employee Directors
under the Hasbro, Inc. Stock Option Plan for Non-Employee
Directors. (Incorporated by reference to Exhibit 10(w) to
the Company's Annual Report on Form 10-K for the Fiscal Year
Ended December 25, 1994, File No. 1-6682.)
(ii) Hasbro, Inc. Senior Management Annual Performance Plan.
(Incorporated by reference to Appendix B to the Company's
definitive proxy statement for its 1994 Annual Meeting of
Shareholders, File No. 1-6682.)
(jj) Hasbro, Inc. Amended and Restated Nonqualified Deferred
Compensation Plan. (Incorporated by reference to Exhibit 10
to the Company's Quarterly Report on Form 10-Q for the Period
Ended March 29, 1998, File No. 1-6682.)
(kk) Employment Agreement, dated as of January 1, 1996, between
the Company and Harold P. Gordon. (Incorporated by reference
to Exhibit 10(aa) to the Company's Annual Report on Form 10-K
for the Fiscal Year Ended December 31, 1995, File No. 1-6682.)
(ll) Severance And Settlement Agreement And Release, dated as of
December 20, 1995, and addendum thereto, between the Company
and Dan D. Owen. (Incorporated by reference to Exhibit 10(bb)
to the Company's Annual Report on Form 10-K for the Fiscal
Year Ended December 31, 1995, File No. 1-6682.)
(mm) Amendment, effective as of January 1, 1997 to Severance and
Settlement Agreement and Release between the Company and
Dan D. Owen. (Incorporated by reference to Exhibit 10(cc)
to the Company's Annual Report on Form 10-K for the Fiscal
Year Ended December 29, 1996, File No. 1-6682.)
(nn) Amendment, dated February 20, 1998, to Severance
And Settlement Agreement And Release between the Company and
Dan D. Owen. (Incorporated by reference to Exhibit 10(ff)
to the Company's Annual Report on Form 10-K for the Fiscal
Year Ended December 28, 1997, File No. 1-6682.)
(oo) Letter agreements, dated January 30, 1998, between the Company
and George R. Ditomassi, Jr. (Incorporated by reference to
Exhibit 10(gg) to the Company's Annual Report on Form 10-K for
the Fiscal Year Ended December 28, 1997, File No. 1-6682.)
(pp) Consulting Agreement, dated January 31, 1998, between the
Company and George R. Ditomassi, Jr. (Incorporated by
reference to Exhibit 10(hh) to the Company's Annual Report on
Form 10-K for the Fiscal Year Ended December 28, 1997, File
No. 1-6682.)
(qq) Letter dated January 26, 1998 from the Company to George B.
Volanakis. (Incorporated by reference to Exhibit 10(ii) to
the Company's Annual Report on Form 10-K for the Fiscal Year
Ended December 28, 1997, File No. 1-6682.)
(rr) Employment Agreement dated as of January 5, 1999, between the
Company and Herbert M. Baum.
(ss) Letter agreement, dated March 23, 1999, between the Company
and Adam Klein.
11. Statement re computation of per share earnings
12. Statement re computation of ratios
13. Selected information contained in Annual Report to Shareholders
22. Subsidiaries of the registrant
24. Consents of experts and counsel
(a) Consent of KPMG LLP
27. Financial data schedule