SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the period ended March 30, 1997 Commission file number 1-6682
HASBRO, INC.
--------------------
(Name of Registrant)
Rhode Island O5-0155090
- - ------------------------ ------------------------------------
(State of Incorporation) (I.R.S. Employer Identification No.)
1027 Newport Avenue, Pawtucket, Rhode Island 02861
---------------------------------------------------
(Principal Executive Offices)
(401) 431-8697
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports) and (2) has
been subject to such filing requirements for the past 90 days.
Yes X or No
--- ---
The number of shares of Common Stock, par value $.50 per share,
outstanding as of April 25, 1997 was 128,079,854.
HASBRO, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Thousands of Dollars Except Share Data)
(Unaudited)
Mar. 30, Mar. 31, Dec. 29,
Assets 1997 1996 1996
-------- -------- --------
Current assets
Cash and cash equivalents $ 289,546 136,860 218,971
Accounts receivable, less allowance
for doubtful accounts of $47,000,
$49,800 and $46,600 517,022 528,632 807,149
Inventories:
Finished products 214,342 266,020 209,903
Work in process 17,167 18,145 16,810
Raw materials 37,436 50,902 46,534
--------- --------- ---------
Total inventories 268,945 335,067 273,247
Deferred income taxes 77,641 85,131 78,031
Prepaid expenses 102,754 90,830 109,191
--------- --------- ---------
Total current assets 1,255,908 1,176,520 1,486,589
Property, plant and equipment, net 299,626 307,217 313,545
--------- --------- ---------
Other assets
Cost in excess of acquired net assets,
less accumulated amortization of
$118,986, $103,332 and $115,312 455,358 478,264 460,467
Other intangibles, less accumulated
amortization of $107,850, $84,421 and
$102,387 362,267 373,514 364,987
Other 76,729 68,345 75,921
--------- --------- ---------
Total other assets 894,354 920,123 901,375
--------- --------- ---------
Total assets $2,449,888 2,403,860 2,701,509
========= ========= =========
HASBRO, INC. AND SUBSIDIARIES
Consolidated Balance Sheets, Continued
(Thousands of Dollars Except Share Data)
(Unaudited)
Mar. 30, Mar. 31, Dec. 29,
Liabilities and Shareholders' Equity 1997 1996 1996
-------- -------- --------
Current liabilities
Short-term borrowings $ 69,543 93,402 120,736
Trade payables 91,967 107,607 174,337
Accrued liabilities 315,913 315,601 399,896
Income taxes 120,428 111,270 135,849
--------- --------- ---------
Total current liabilities 597,851 627,880 830,818
Long-term debt, excluding current
installments 149,208 149,987 149,382
Deferred liabilities 68,937 72,409 69,263
--------- --------- ---------
Total liabilities 815,996 850,276 1,049,463
--------- --------- ---------
Shareholders' equity
Preference stock of $2.50 par
value. Authorized 5,000,000
shares; none issued - - -
Common stock of $.50 par value.
Authorized 300,000,000 shares; issued
132,168,378, 88,087,198 and 132,160,293 66,084 44,044 66,080
Additional paid-in capital 280,128 306,327 282,922
Retained earnings 1,378,803 1,215,639 1,362,791
Foreign currency translation 5,467 20,148 21,487
Treasury stock, at cost, 3,705,166,
1,019,161 and 3,297,628 shares (96,590) (32,574) (81,234)
--------- --------- ---------
Total shareholders' equity 1,633,892 1,553,584 1,652,046
--------- --------- ---------
Total liabilities and
shareholders' equity $2,449,888 2,403,860 2,701,509
========= ========= =========
See accompanying condensed notes to consolidated financial statements.
HASBRO, INC. AND SUBSIDIARIES
Consolidated Statements of Earnings
(Thousands of Dollars Except Share Data)
(Unaudited)
Quarter Ended
--------------------
Mar. 30, Mar. 31,
1997 1996
-------- --------
Net revenues $555,784 538,685
Cost of sales 235,371 237,771
------- -------
Gross profit 320,413 300,914
------- -------
Expenses
Amortization 10,032 9,799
Royalties, research and
development 63,892 54,422
Advertising 71,302 70,276
Selling, distribution and
administration 134,781 125,365
------- -------
Total expenses 280,007 259,862
------- -------
Operating profit 40,406 41,052
------- -------
Nonoperating (income) expense
Interest expense 4,430 4,906
Other (income), net (4,171) (2,963)
------- -------
Total nonoperating expense 259 1,943
------- -------
Earnings before income taxes 40,147 39,109
Income taxes 14,453 14,744
------- -------
Net earnings $ 25,694 24,365
======= =======
Per common share
Net earnings $ .20 .18
======= =======
Cash dividends declared $ .08 .07
======= =======
See accompanying condensed notes to consolidated financial statements.
HASBRO, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Quarters Ended March 30, 1997 and March 31, 1996
(Thousands of Dollars)
(Unaudited)
1997 1996
---- ----
Cash flows from operating activities
Net earnings $ 25,694 24,365
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization of plant and equipment 20,600 18,678
Other amortization 10,032 9,799
Deferred income taxes (1,553) 1,991
Change in operating assets and liabilities (other
than cash and cash equivalents):
Decrease in accounts receivable 271,373 258,408
Increase in inventories (2,616) (18,196)
Decrease (increase) in prepaid expenses 4,757 (18,678)
Decrease in trade payables and accrued liabilities (164,747) (215,994)
Other 930 1,658
------- -------
Net cash provided by operating activities 164,470 62,031
------- -------
Cash flows from investing activities
Additions to property, plant and equipment (12,536) (13,811)
Investments and acquisitions, net of cash acquired (2,719) (21,296)
Other (1,577) (7,228)
------- -------
Net cash utilized by investing activities (16,832) (42,335)
------- -------
Cash flows from financing activities
Proceeds from borrowings with original maturities
of more than three months - 5,778
Repayments of borrowings with original maturities
of more than three months (2,499) (21,905)
Net repayments of other short-term borrowings (42,596) (8,851)
Purchase of common stock (32,511) (14,969)
Stock option transactions 14,191 4,380
Dividends paid (8,561) (6,977)
------- -------
Net cash utilized by financing activities (71,976) (42,544)
------- -------
Effect of exchange rate changes on cash (5,087) (1,322)
------- -------
Increase (decrease) in cash and cash equivalents 70,575 (24,170)
Cash and cash equivalents at beginning of year 218,971 161,030
------- -------
Cash and cash equivalents at end of period $289,546 136,860
======= =======
Supplemental information
Cash paid during the period for:
Interest $ 1,697 2,206
Income taxes $ 29,617 10,890
See accompanying condensed notes to consolidated financial statements.
HASBRO, INC. AND SUBSIDIARIES
Condensed Notes to Consolidated Financial Statements
(Thousands of Dollars)
(Unaudited)
(1) In the opinion of management and subject to year-end audit, the
accompanying unaudited interim financial statements contain all adjustments
(consisting of only normal recurring accruals) necessary to present fairly
the financial position of the Company as of March 30, 1997 and March 31,
1996, and the results of operations and cash flows for the periods then
ended.
The results of operations for the quarter ended March 30, 1997, are
not necessarily indicative of results to be expected for the full year.
(2) Per share data have been adjusted to reflect the three-for-two stock
split paid March 21, 1997.
(3) Earnings per common share are based on the weighted average number
of shares of common stock and dilutive common stock equivalents outstanding
during each period. Common stock equivalents include stock options and
warrants for the period prior to their exercise. Under the treasury stock
method, the unexercised options and warrants are assumed to be exercised at
the beginning of the period or at issuance, if later. The assumed proceeds
are then used to purchase common stock at the average market price during the
period.
For each of the reported periods the difference between primary and
fully diluted earnings per share was not significant.
HASBRO, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial
Condition and Results of Operations
(Thousands of dollars)
NET REVENUES
- - ------------
Net revenues for the first quarter of 1997 were $555,784, compared with the
$538,685 reported for the same period of 1996. Increased revenue from
products associated with the theatrical re-release of the Star Wars trilogy,
was a major factor in this growth. Also contributing to increased volumes in
the United States were the Company's line of Super Soaker water toys and the
Hasbro Interactive range of CD-ROM classic games. Internationally, the
Company experienced growth, both in local currency and U.S. dollars, in
Canada, Mexico, Latin America and Australia, while in Europe, moderate local
currency gains were more than offset by the approximate $8 million impact of
the strengthened dollar.
GROSS PROFIT
- - ------------
The Company's gross profit margin, expressed as a percentage of net revenues,
increased almost two percentage points to 57.7% from the 1996 level of 55.9%.
The mix of products sold, coupled with reduced manufacturing overheads, is
primarily responsible for the 1997 improvement.
EXPENSES
- - --------
Royalties, research and development expenses for the quarter increased in
both amount and as a percentage of revenues from 1996 levels. The royalty
component increased in both, reflecting the increased revenues and the change
in mix of products sold. Research and development remained constant as a
percentage of revenues while increasing slightly in amount to $31,057 for the
quarter, compared to $30,119 in 1996.
The current quarter advertising decreased as a percentage of net revenues to
12.8% from 13.0% a year ago, while increasing marginally in amount. The
decrease in percentage is the result of several factors including the lower
portion of the Company's revenues coming from the international marketing
units which generally have higher advertising to sales ratios than do the
United States groups and lower advertising costs with respect to the United
States toy products.
The Company's selling, distribution and administration expenses increased
from their 1996 levels, both in amount and as a percentage of net revenues.
Absent the impact of the previously announced closure of a manufacturing
facility in the U.K., however, they remained essentially flat when expressed
as a percentage of net revenues. The increased dollar amount reflects
increased shipping costs as well as the impact of new operations in Chile,
Peru and Argentina.
HASBRO, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial
Condition and Results of Operations, Continued
(Thousands of dollars)
NONOPERATING (INCOME) EXPENSE
- - -----------------------------
Net nonoperating expense decreased to $259 in the first quarter of 1997 from
$1,943 a year ago. This was primarily the result of lower net interest
expense, as both short-term borrowing and investment levels were favorable
compared to 1996, reflecting the cash generated from operations during the
most recent twelve months. Additionally, interest rates on short-term
investments were favorable as compared to 1996.
INCOME TAXES
- - ------------
Income tax expense as a percentage of pretax earnings in the first quarter of
1997 decreased to 36.0% from 37.7% in the first quarter of 1996. This
decrease reflects changes in Hasbro's operations begun in prior years, as
well as the impact of certain strategies implemented during 1996. These
changes and strategies realized a tax benefit for certain international
operating losses and helped further reduce state income taxes.
OTHER INFORMATION
- - -----------------
During the past several years the Company has experienced a shift in its
revenue pattern wherein the second half of the year has grown in significance
to its overall business and within that half the fourth quarter has become
more prominent. The Company expects that this trend will continue. This
concentration increases the risk of (a) underproduction of popular items, (b)
overproduction of less popular items and (c) failure to achieve tight and
compressed shipping schedules. The business of the Company is characterized
by customer order patterns which vary from year to year largely because of
differences in the degree of consumer acceptance of a product line, product
availability, marketing strategies and inventory levels of retailers and
differences in overall economic conditions. Also, quick response inventory
management practices now being used results in fewer orders being placed in
advance of shipment and more orders, when placed, for immediate delivery. As
a result, comparisons of unshipped orders on any date in a given year with
those at the same date in a prior year are not necessarily indicative of
sales for the entire year. In addition, it is a general industry practice
that orders are subject to amendment or cancellation by customers prior to
shipment. At the end of its fiscal April (April 27, 1997 and April 28, 1996)
the Company's unshipped orders were approximately $410,000 and $380,000,
respectively.
HASBRO, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial
Condition and Results of Operations, Continued
(Thousands of dollars)
LIQUIDITY AND CAPITAL RESOURCES
- - -------------------------------
Because of the seasonality of the Company's business coupled with certain
customer incentives, mainly in the form of extended payment terms, the
interim cash flow statements are not representative of that which may be
expected for the full year. As a result of these extended payment terms, the
majority of the Company's cash collections occur late in the fourth quarter
and early in the first quarter of the subsequent year. As receivables are
collected late in the fourth quarter and through the first quarter of the
subsequent year, cash flow from operations becomes positive and is used to
repay a significant portion of the short-term borrowings.
As a result, management believes that on an interim basis, rather than
discussing its cash flows, a better understanding of its liquidity and
capital resources can be obtained through a discussion of the various balance
sheet categories. Also, as several of the major categories, including cash
and cash equivalents, accounts receivable, inventories and short-term
borrowings, fluctuate significantly from quarter to quarter, again due to the
seasonality of its business and the extended payment terms offered,
management believes that a comparison to the comparable period in the prior
year is generally more meaningful than a comparison to the prior year-end.
Cash and cash equivalents at March 30, 1997, were approximately double their
1996 level. The Company attempts to keep its cash and cash equivalents at the
lowest level possible whenever it has short-term borrowings, although at
times the cash available and the borrowing requirement may be in different
countries and currencies which may make it impractical to substitute one for
the other. Despite first quarter revenue growth of $17,000, receivables were
approximately $10,000 less than at the same time a year ago. This reflects
the favorable impact of increased sales in markets with shorter sales terms.
Inventories decraesed significantly from the prior year, primarily in the
U.S., reflecting the Company's continuing efforts to better manage its
inventories while still being able to supply customers on a timely basis.
Other assets, as a group, decreased from their 1996 levels, reflecting twelve
additional months of amortization expense, partially offset by the Company's
acquisitions of product rights and licenses during the most recent twelve
months.
Short-term borrowings, at $69,543 were approximately $24,000, or 25% less
than last year, again reflecting funds generated from operations within the
most recent twelve months available to reduce such borrowings. At March 30,
1997, the Company had committed unsecured lines of credit totaling
approximately $550,000 available to it. It also had available uncommitted
lines approximating $750,000. The Company believes that these amounts are
adequate for its needs. Of these available lines, approximately $90,000 was
in use at March 30, 1997.
HASBRO, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial
Condition and Results of Operations, Continued
(Thousands of dollars)
RECENT INFORMATION
- - ------------------
On May 2, 1997, the Company completed its previously announced acquisition of
the assets of Cap Toys and OddzOn Products from Russ Berrie and Company, Inc.
In the fourth quarter of 1997, the Company will adopt Statement of Financial
Accounting Standards No. 128, Earnings Per Share (SFAS 128) and Statement of
Financial Accounting Standards No. 129, Disclosure of Information about
Capital Structure (SFAS 129). SFAS 128 establishes new computation,
presentation and disclosure requirements for earnings per share, however, the
Company does not expect that its adoption will have any material impact on
its earnings per share. SFAS 129 formalizes disclosure requirements related
to an entity's capital structure and, as such, will not have any impact on
the Company's financial condition or its results of operation.
PART II. Other Information
Item 1. Legal Proceedings.
On April 22, 1997, the United States Environmental Protection
Agency (EPA) and Hasbro, Inc. entered into a negotiated Consent
Agreement to resolve a dispute concerning Hasbro's compliance with
the Federal Insecticide, Fungicide and Rodenticide Act in
connection with its labeling of certain Playskool toys containing
an antibacterial additive known as Microban(R). In the Consent
Agreement, Hasbro agreed to pay an administrative penalty of one
hundred and twenty thousand dollars ($120,000) to the United
States Treasury.
Item 2. Changes in Securities.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
11 Computation of Earnings Per Common Share - Quarters Ended
March 30, 1997 and March 31, 1996.
12 Computation of Ratio of Earnings to Fixed Charges -
Quarter Ended March 30, 1997.
27 Financial Data Schedule.
(b) Reports on Form 8-K
A Current Report on Form 8-K dated April 21, 1997 was filed by
the Company and included the Press Release dated April 21, 1997
announcing the Company's results for the current quarter.
Consolidated Statements of Earnings (without notes) for the
quarters ended March 30, 1997 and March 31, 1996 and
Consolidated Condensed Balance Sheets (without notes) as of said
dates were also filed.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HASBRO, INC.
------------
(Registrant)
Date: May 13, 1997 By: /s/ John T. O'Neill
---------------------
John T. O'Neill
Executive Vice President and
Chief Financial Officer
(Duly Authorized Officer and
Principal Financial Officer)
HASBRO, INC. AND SUBSIDIARIES
Quarterly Report on Form 10-Q
For the Period Ended March 30, 1997
Exhibit Index
Exhibit
No. Exhibits
- - ------- --------
11 Statement re computation of per share earnings - quarter
12 Statement re computation of ratios
27 Financial Data Schedule
EXHIBIT 11
HASBRO, INC. AND SUBSIDIARIES
Computation of Earnings Per Common Share
Quarters Ended March 30, 1997 and March 31, 1996
(Thousands of Dollars and Shares Except Per Share Data)
1997 1996(a)
----------------- -----------------
Fully Fully
Primary Diluted Primary Diluted
------- ------- ------- -------
Net earnings $ 25,694 25,694 24,365 24,365
Interest and amortization on 6%
convertible notes, net of taxes - 1,437 - 1,441
------- ------- ------- -------
Net earnings applicable to
common shares $ 25,694 27,131 24,365 25,806
======= ======= ======= =======
Weighted average number of shares
outstanding:(b)
Outstanding at beginning of
period 128,863 128,863 131,017 131,017
Actual exercise of stock
options 327 327 112 112
Assumed exercise of stock
options and warrants 2,476 2,554 1,288 1,579
Actual conversion of 6%
convertible notes 5 5 - -
Assumed conversion of 6%
convertible notes - 7,635 - 7,671
Purchase of common stock (597) (597) (256) (256)
------- ------- ------- -------
Total 131,074 138,787 132,161 140,123
======= ======= ======= =======
Per common share:
Net earnings $ .20 .20 .18 .18
======= ======= ======= =======
(a) Adjusted to reflect the three-for-two stock split paid March 21, 1997.
(b) Computation to arrive at the average number is a weighted average
computation.
EXHIBIT 12
HASBRO, INC. AND SUBSIDIARIES
Computation of Ratio of Earnings to Fixed Charges
Quarter Ended March 30, 1997
(Thousands of Dollars)
Earnings available for fixed charges:
Net earnings $ 25,694
Add:
Fixed charges 8,134
Income taxes 14,453
-------
Total $ 48,281
=======
Fixed Charges:
Interest on long-term debt $ 2,304
Other interest charges 2,126
Amortization of debt expense 85
Rental expense representative
of interest factor 3,619
-------
Total $ 8,134
=======
Ratio of earnings to fixed charges 5.94
=======
5
1,000
3-MOS
DEC-28-1997
MAR-30-1997
289,546
0
564,022
47,000
268,945
1,255,908
554,807
255,181
2,449,888
597,851
149,208
0
0
66,084
1,567,808
2,449,888
555,784
555,784
235,371
235,371
145,226
1,451
4,430
40,147
14,453
25,694
0
0
0
25,694
.20
0
