Hasbro Reports Second Quarter Results
Highlights
- Net revenues of $691.4 million for the quarter, an increase of $163.6 million or 31% from a year ago;
- Operating profit improved 171% to $55.8 million or 8.1% of revenue;
- Net earnings of $4.8 million, or $0.03 per diluted share (net earnings of $41.3 million or $0.24 per diluted share excluding a $0.21 impact from the final Lucas mark to market expense) for the quarter, compared to $27.1 million, or $0.07 per diluted share last year;
- North American segment net revenues were up 24% and International segment net revenues were up 49% in the second quarter;
- Growth driven by shipments of TRANSFORMERS and MARVEL movie-related products, as well as strong performances from LITTLEST PET SHOP, NERF, FURREAL FRIENDS, PLAYSKOOL and board games.
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