Hasbro, Inc.
Jul 23, 2007
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Hasbro Reports Second Quarter Results

Highlights

PAWTUCKET, R.I.--(BUSINESS WIRE)--July 23, 2007--Hasbro, Inc. (NYSE: HAS) today reported second quarter net revenues of $691.4 million, an increase of $163.6 million or 31% compared to $527.8 million a year ago. The Company reported net earnings for the quarter of $4.8 million or $0.03 per diluted share, compared to $27.1 million or $0.07 per diluted share in 2006. The results for the quarter include a final mark to market expense of $36.5 million or $0.21 per diluted share related to the repurchase of the Lucas warrants. Excluding the final Lucas mark to market expense, earnings for the quarter would have been $41.3 million or $0.24 per diluted share.

"We are very pleased with our second quarter and first half performance," said Alfred J. Verrecchia, President and Chief Executive Officer. "Our core brands, especially TRANSFORMERS and LITTLEST PET SHOP; and new product initiatives have performed very well both domestically and internationally, contributing to second quarter revenue growth of 31% and first half revenue growth of 32%."

"In addition, our second quarter operating margin improved to 8.1% compared to 3.9% in the prior year and our first half operating margin improved to 8.3% from 1.9% a year earlier," Verrecchia added.

North American segment net revenues for the quarter were $449.4 million, an increase of $87.4 million or 24% compared to $362.0 million in 2006. The growth in revenue is attributable to shipments of the TRANSFORMERS and MARVEL product lines, as well as growth in other Hasbro brands including FURREAL FRIENDS, LITTLEST PET SHOP, PLAYSKOOL, NERF, OPERATION, SORRY! and PLAY-DOH. The North American segment reported an operating profit of $41.8 million, which includes a $10.4 million provision related to the EASY-BAKE OVEN product recall announced last week. This compares to $30.4 million in operating profit in 2006.

International segment net revenues for the quarter were $227.6 million, an increase of $74.4 million or 49% compared to $153.2 million in 2006. The revenues include a positive foreign exchange impact of approximately $11.7 million or 8%. The results reflect shipments of the TRANSFORMERS and MARVEL product lines, as well as growth in core brands including LITTLEST PET SHOP, MY LITTLE PONY, PLAYSKOOL and board games. The International segment reported an operating profit of $11.3 million compared to an operating loss of ($8.1) million in 2006.

"Having delivered a very successful first half, we are focused on delivering a strong second half, laying the foundation for future revenue growth and maintaining the financial discipline that has allowed us to significantly improve profitability and create value for our shareholders," said David Hargreaves, Executive Vice President and Chief Financial Officer.

On May 9, 2007 Hasbro exercised its call option to repurchase all of the outstanding warrants for Hasbro's common stock held by Lucasfilm Ltd. and Lucas Licensing Ltd. (together "Lucas"). At the time of the call Lucas held exercisable warrants (the "Warrants") to purchase an aggregate of 15,750,000 shares of Hasbro's common stock. On May 24, 2007 Hasbro paid Lucas $200 million in cash and closed the repurchase of all of the Warrants. In connection with the repurchase, Hasbro recognized a final mark to market charge of $36.5 million in the second quarter of 2007 related to these warrants.

The Company will web cast its second quarter earnings conference call at 8:30 a.m. Eastern Standard Time today. Investors and the media are invited to listen at http://www.hasbro.com (select "Corporate Info" from the home page, click on "Investor Information," and then click on the web cast microphone).

Hasbro is a worldwide leader in children's and family leisure time entertainment products and services, including the design, manufacture and marketing of games and toys ranging from traditional to high-tech. Both internationally and in the U.S., its PLAYSKOOL, TONKA, MILTON BRADLEY, PARKER BROTHERS, TIGER, and WIZARDS OF THE COAST brands and products provide the highest quality and most recognizable play experiences in the world.

Certain statements contained in this release contain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements include expectations concerning the Company's future opportunities and ability to achieve its financial goals and may be identified by the use of forward-looking words or phrases such as "anticipate," "believe," "could," "expect," "intend," "look forward," "may," "planned," "potential," "should," "will" and "would." Such forward-looking statements are inherently subject to known and unknown risks and uncertainties. The Company's actual actions or results may differ materially from those expected or anticipated in the forward-looking statements. Specific factors that might cause such a difference include, but are not limited to: the Company's ability to design, manufacture, source and ship new and continuing products on a timely and cost-effective basis, interest in and acceptance and purchase of those products by retail customers and consumers in quantities and at prices that will be sufficient to profitably recover development, manufacturing, marketing, royalty and other costs of products; economic and public health conditions in the various markets in which the Company and its customers and suppliers operate throughout the world, including factors which impact the retail market, disposable income or consumer demand for the Company's products, the Company's ability to manufacture and deliver products, higher fuel and other commodity prices, higher transportation costs and potential transportation delays, currency fluctuations and government regulation; the concentration of the Company's customers; the inventory policies of the Company's retail customers, including the concentration of the Company's revenues in the second half and fourth quarter of the year, together with increased reliance by retailers on quick response inventory management techniques, which increases the risk of underproduction of popular items, overproduction of less popular items and failure to achieve tight and compressed shipping schedules; work stoppages, slowdowns or strikes, which may impact the Company's ability to manufacture or deliver product in a timely and cost-effective manner; the bankruptcy or other lack of success of one of the Company's significant retailers which could negatively impact the Company's revenues or bad debt exposure; the impact of competition on revenues, margins and other aspects of the Company's business, including the ability to secure, maintain and renew popular licenses and the ability to attract and retain talented employees in a competitive environment; market conditions, third party actions or approvals and the impact of competition which could reduce demand for the Company's products or delay or increase the cost of implementation of the Company's programs or alter the Company's actions and reduce actual results; the risk that anticipated benefits of acquisitions may not occur or be delayed or reduced in their realization; and other risks and uncertainties as may be detailed from time to time in the Company's public announcements and SEC filings. The Company undertakes no obligation to make any revisions to the forward-looking statements contained in this release or to update them to reflect events or circumstances occurring after the date of this release.

This presentation includes a non-GAAP financial measure as defined under rules of the Securities and Exchange Commission ("SEC"), specifically EBITDA. As required by SEC rules, we have provided reconciliation on the attached schedule of this measure to the most directly comparable GAAP measure. EBITDA (earnings before interest, taxes, depreciation and amortization) represents net earnings excluding, interest expense, income taxes, depreciation and amortization. Management believes that EBITDA is one of the appropriate measures for evaluating the operating performance of the Company because it reflects the resources available for strategic opportunities including, among others, to invest in the business, strengthen the balance sheet, and make strategic acquisitions. However, this measure should be considered in addition to, not as a substitute for, or superior to, net earnings or other measures of financial performance prepared in accordance with GAAP as more fully discussed in the Company's financial statements and filings with the SEC. As used herein, "GAAP" refers to accounting principles generally accepted in the United States of America.

This presentation further discusses diluted earnings per share for the quarter ended July 1, 2007 excluding the impact of the mark to market expense for the Lucas warrants. The Company is required to assess if these warrants, classified as a liability, have a more dilutive impact on earnings per share assuming they were treated as an equity contract. For the quarter ended July 1, 2007, had the warrants been treated as an equity contract, the mark to market expense of $36.5 million would have been added to net earnings, and diluted shares would have been increased by 3.1 million (representing the weighted average shares related to the warrants outstanding during the period), in the computation of diluted earnings per share. In addition, excluding the mark to market expense for the quarter would require a further adjustment to the diluted earnings per share computation to add back to net earnings interest expense on the convertible debentures totaling $1.1 million and to increase diluted shares by 11.6 million. For the quarter ended July 2, 2006, the mark to market income related to the Lucas warrants was excluded from net earnings and the diluted impact of the warrants were included in the share count in the computation of reported diluted earnings per share. Management believes that the presentation of diluted earnings per share absent the impact of the Lucas warrant mark to market expense is helpful to an investor's understanding of the results of the Company's underlying operations and business as the mark to market expense is primarily based on changes in the Company's stock price which are beyond the control of management.

HASBRO, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS

(Thousands of Dollars)                       July 1, 2007 July 2, 2006
                                             ------------ ------------
                   ASSETS
Cash and Cash Equivalents                    $    525,573 $    417,087
Short-term Investments                                  -       72,625
Accounts Receivable, Net                          417,687      290,480
Inventories                                       352,457      258,500
Other Current Assets                              238,229      229,662
                                             ------------ ------------
Total Current Assets                            1,533,946    1,268,354
Property, Plant and Equipment, Net                184,905      164,057
Other Assets                                    1,190,093    1,302,954
                                             ------------ ------------
Total Assets                                 $  2,908,944 $  2,735,365
                                             ============ ============

    LIABILITIES AND SHAREHOLDERS' EQUITY
Short-term Borrowings                        $     89,051 $     10,017
Payables and Accrued Liabilities                  530,309      629,736
                                             ------------ ------------
Total Current Liabilities                         619,360      639,753
Long-term Debt                                    494,658      494,359
Other Liabilities                                 247,982      143,732
                                             ------------ ------------
Total Liabilities                               1,362,000    1,277,844
Total Shareholders' Equity                      1,546,944    1,457,521
                                             ------------ ------------
Total Liabilities and Shareholders' Equity   $  2,908,944 $  2,735,365
                                             ============ ============
HASBRO, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS

                                 Quarter Ended      Six Months Ended
                               ------------------ --------------------

(Thousands of Dollars and      July 1,  July 2,    July 1,   July 2,
 Shares Except Per Share Data)   2007      2006      2007       2006
                               -------- --------- ---------- ---------
Net Revenues                   $691,408 $527,764  $1,316,675 $995,945
Cost of Sales                   273,212  210,369     516,664  396,461
                               -------- --------- ---------- ---------
Gross Profit                    418,196  317,395     800,011  599,484
Amortization                     17,574   19,140      35,532   37,392
Royalties                        62,524   30,200     112,784   56,190
Research and Product
 Development                     38,787   39,606      74,097   77,770
Advertising                      78,995   60,466     146,630  115,320
Selling, Distribution and
 Administration                 164,539  147,384     321,464  294,339
                               -------- --------- ---------- ---------
Operating Profit                 55,777   20,599     109,504   18,473
Interest Expense                  6,661    6,812      12,845   13,938
Other (Income) Expense, Net      27,155  (18,715)     25,098  (22,514)
                               -------- --------- ---------- ---------
Earnings before Income Taxes     21,961   32,502      71,561   27,049
Income Taxes                     17,160    5,414      33,870    4,860
                               -------- --------- ---------- ---------
Net Earnings                   $  4,801 $ 27,088  $   37,691 $ 22,189
                               ======== ========= ========== =========

Per Common Share
   Net Earnings
       Basic                   $   0.03 $   0.16  $     0.23 $   0.13
                               ======== ========= ========== =========
       Diluted                 $   0.03 $   0.07  $     0.23 $   0.06
                               ======== ========= ========== =========

   Cash Dividends Declared     $   0.16 $   0.12  $     0.32 $   0.24
                               ======== ========= ========== =========

Weighted Average Number of
 Shares
   Basic                        160,398  169,648     160,661  173,475
                               ======== ========= ========== =========
   Diluted                      164,643  177,376     176,436  181,046
                               ======== ========= ========== =========
HASBRO, INC.
Supplemental Financial Data
Major Segment Results and EBITDA

(Thousands of Dollars)

                   Quarter Ended             Six Months Ended
                 ------------------         ------------------
                 July 1,  July 2,     %     July 1,  July 2,     %
                   2007      2006   Change    2007      2006   Change
                 -------- --------- ------- -------- --------- -------
Major Segment
 Results

North American
 Segment
----------------
 External Net
  Revenues       $449,403 $361,956      24% $870,487 $672,260      29%
 Operating
  Profit           41,754   30,402      37%   87,079   35,172     148%

International
 Segment
----------------
 External Net
  Revenues        227,644  153,244      49%  415,320  298,735      39%
 Operating
  Profit (Loss)    11,293   (8,093)    240%   11,185  (16,416)    168%

Reconciliation
 of EBITDA

Net Earnings     $  4,801 $ 27,088          $ 37,691 $ 22,189
Interest Expense    6,661    6,812            12,845   13,938
Income Taxes       17,160    5,414            33,870    4,860
Depreciation       21,764   18,341            38,624   31,936
Amortization       17,574   19,140            35,532   37,392
                 -------- ---------         -------- ---------
    EBITDA       $ 67,960 $ 76,795          $158,562 $110,315
                 ======== =========         ======== =========

HASBRO, INC.
Supplemental Financial Data

(Thousands of Dollars and Shares, except Per Share Data)

Net Earnings Per Share
                                        2007              2006
                                  ----------------- ------------------
                                   Basic   Diluted   Basic    Diluted
                                  -------- -------- -------- ---------
             Quarter
 --------------------------------
 Net earnings                     $  4,801 $  4,801 $ 27,088 $ 27,088
 Effect of dilutive securities:
   Change in fair value of
    liabilities potentially
    settleable in common stock           -        -        -  (15,270)
                                  -------- -------- -------- ---------
                                  $  4,801 $  4,801 $ 27,088 $ 11,818
                                  ======== ======== ======== =========

 Average shares outstanding        160,398  160,398  169,648  169,648
 Effect of dilutive securities:
   Liabilities potentially
    settleable in common stock           -        -        -    6,036
   Options and warrants                  -    4,245        -    1,692
                                  -------- -------- -------- ---------
 Equivalent shares                 160,398  164,643  169,648  177,376
                                  ======== ======== ======== =========

 Net earnings per share           $   0.03 $   0.03 $   0.16 $   0.07
                                  ======== ======== ======== =========

            Six Months
 --------------------------------
 Net earnings                     $ 37,691 $ 37,691 $ 22,189 $ 22,189
 Effect of dilutive securities:
   Change in fair value of
    liabilities potentially
    settleable in common stock           -        -        -  (11,940)
   Interest expense on Contingent
    Convertible Debentures due
    2021                                 -    2,130        -        -
                                  -------- -------- -------- ---------
                                  $ 37,691 $ 39,821 $ 22,189 $ 10,249
                                  ======== ======== ======== =========

 Average shares outstanding        160,661  160,661  173,475  173,475
 Effect of dilutive securities:
   Liabilities potentially
    settleable in common stock           -        -        -    5,656
   Options and warrants                  -    4,206        -    1,915
   Contingent Convertible
    Debentures due 2021                  -   11,569        -        -
                                  -------- -------- -------- ---------
 Equivalent shares                 160,661  176,436  173,475  181,046
                                  ======== ======== ======== =========

 Net earnings per share           $   0.23 $   0.23 $   0.13 $   0.06
                                  ======== ======== ======== =========

CONTACT:
Hasbro, Inc.
Investor Relations
Karen A. Warren, 401-727-5401

News Media
Wayne S. Charness, 401-727-5983


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