View:
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 April 1, 2001 Commission file number 1-6682
HASBRO, INC.
--------------------
(Name of Registrant)
Rhode Island 05-0155090
- ------------------------ ------------------------------------
(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 29, 2001 was 172,461,389.
HASBRO, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Thousands of Dollars Except Share Data)
(Unaudited)
Apr. 1, Apr. 2, Dec. 31,
Assets 2001 2000 2000
-------- -------- --------
Current assets
Cash and cash equivalents $ 180,766 343,643 127,115
Accounts receivable, less allowance
for doubtful accounts of $55,300,
$67,300 and $55,000 255,450 455,374 685,975
Inventories:
Finished products 257,447 381,574 285,884
Work in process 22,508 25,634 19,071
Raw materials 26,669 34,942 30,538
--------- --------- ---------
Total inventories 306,624 442,150 335,493
Deferred income taxes 153,583 117,475 155,291
Prepaid expenses 237,013 334,121 276,339
--------- --------- ---------
Total current assets 1,133,436 1,692,763 1,580,213
Property, plant and equipment, net 279,184 315,091 296,729
--------- --------- ---------
Other assets
Cost in excess of acquired net assets,
less accumulated amortization of
$236,203, $201,844 and $225,770 791,409 811,922 803,189
Other intangibles, less accumulated
amortization of $336,696, $287,484
and $347,149 872,809 931,336 902,893
Other 286,120 255,574 245,435
--------- --------- ---------
Total other assets 1,950,338 1,998,832 1,951,517
--------- --------- ---------
Total assets $3,362,958 4,006,686 3,828,459
========= ========= =========
HASBRO, INC. AND SUBSIDIARIES
Consolidated Balance Sheets, Continued
(Thousands of Dollars Except Share Data)
(Unaudited)
Apr. 1, Apr. 2, Dec. 31,
Liabilities and Shareholders' Equity 2001 2000 2000
-------- -------- --------
Current liabilities
Short-term borrowings $ 92,229 79,597 228,085
Accounts payable 129,591 156,739 191,749
Accrued liabilities 583,443 981,690 819,978
--------- --------- ---------
Total current liabilities 805,263 1,218,026 1,239,812
Long-term debt, excluding current
installments 1,167,528 1,169,406 1,167,838
Deferred liabilities 116,784 105,180 93,403
--------- --------- ---------
Total liabilities 2,089,575 2,492,612 2,501,053
--------- --------- ---------
Shareholders' equity
Preference stock of $2.50 par
value. Authorized 5,000,000
shares; none issued - - -
Common stock of $.50 par value.
Authorized 600,000,000 shares; issued
209,694,630, 209,694,630 and 209,694,630 104,847 104,847 104,847
Additional paid-in capital 463,468 469,708 464,084
Deferred compensation (5,391) (9,884) (6,889)
Retained earnings 1,553,199 1,768,990 1,583,394
Accumulated other comprehensive earnings (69,967) (43,011) (44,718)
Treasury stock, at cost, 37,229,915,
37,330,934 and 37,253,164 shares (772,773) (776,576) (773,312)
--------- --------- ---------
Total shareholders' equity 1,273,383 1,514,074 1,327,406
--------- --------- ---------
Total liabilities and
shareholders' equity $3,362,958 4,006,686 3,828,459
========= ========= =========
See accompanying condensed notes to consolidated financial statements.
HASBRO, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(Thousands of Dollars Except Share Data)
(Unaudited)
Quarter Ended
--------------------
Apr. 1, Apr. 2,
2001 2000
-------- --------
Net revenues $463,286 773,481
Cost of sales 189,805 300,301
------- -------
Gross profit 273,481 473,180
------- -------
Expenses
Amortization 29,421 32,856
Royalties, research and development 56,735 126,039
Advertising 47,613 69,359
Selling, distribution and administration 153,819 204,736
------- -------
Total expenses 287,588 432,990
------- -------
Operating profit (loss) (14,107) 40,190
------- -------
Nonoperating (income) expense
Interest expense 25,890 21,443
Other (income) expense, net (4,765) (3,176)
------- -------
Total nonoperating (income) expense 21,125 18,267
------- -------
Earnings (loss) before income taxes and
cumulative effect of accounting change (35,232) 21,923
Income taxes (11,274) 6,796
------- -------
Earnings (loss) before cumulative effect
of accounting change (23,958) 15,127
Cumulative effect of accounting change (1,066) -
------- -------
Net earnings (loss) $(25,024) 15,127
======= =======
Basic and diluted per common share
Earnings (loss) before cumulative effect of
accounting change $ (.14) .08
Cumulative effect of accounting change (.01) -
------- -------
Net earnings (loss) $ (.15) .08
======= =======
Cash dividends declared $ .03 .06
======= =======
See accompanying condensed notes to consolidated financial statements.
HASBRO, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Three Months Ended April 1, 2001 and April 2, 2000
(Thousands of Dollars)
(Unaudited)
2001 2000
---- ----
Cash flows from operating activities
Net earnings (loss) $(25,024) 15,127
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization of plant and equipment 19,113 22,425
Other amortization 29,421 32,856
Deferred income taxes 40,810 19,253
Compensation earned under restricted stock plans 1,088 -
Change in operating assets and liabilities (other
than cash and cash equivalents):
Decrease in accounts receivable 419,897 620,452
Decrease (increase) in inventories 18,671 (39,299)
Increase in prepaid expenses (23,422) (93,628)
Decrease in accounts payable and accrued liabilities(278,491) (201,215)
Other (8,291) (8)
------- -------
Net cash provided by operating activities 193,772 375,963
------- -------
Cash flows from investing activities
Additions to property, plant and equipment (10,424) (25,081)
Investments and acquisitions, net of cash acquired - (20,790)
Other 13,945 (9,429)
------- -------
Net cash provided (utilized) by investing activities 3,521 (55,300)
------- -------
Cash flows from financing activities
Proceeds from borrowings with original maturities
of more than three months - 750,000
Repayments of borrowings with original maturities
of more than three months (25,000) (148,324)
Net repayments of other short-term borrowings (107,688) (478,609)
Purchase of common stock - (363,413)
Stock option transactions 472 128
Dividends paid (5,173) (11,484)
------- -------
Net cash utilized by financing activities (137,389) (251,702)
------- -------
Effect of exchange rate changes on cash (6,253) (5,477)
------- -------
Increase in cash and cash equivalents 53,651 63,484
Cash and cash equivalents at beginning of year 127,l15 280,159
------- -------
Cash and cash equivalents at end of period $180,766 343,643
======= =======
HASBRO, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (continued)
Three Months Ended April 1, 2001 and April 2, 2000
(Thousands of Dollars)
(Unaudited)
2001 2000
------- ------
Supplemental information
Cash paid (received) during the period for:
Interest $ 42,539 20,025
Income taxes $(58,986) 33,210
See accompanying condensed notes to consolidated financial statements.
HASBRO, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Earnings
(Thousands of Dollars)
(Unaudited)
Quarter Ended
--------------------
Apr. 1, Apr. 2,
2001 2000
-------- --------
Net earnings (loss) $ (25,024) 15,127
Cumulative effect of accounting change (753) -
Other comprehensive
earnings (loss) (24,496) (10,029)
-------- --------
Total comprehensive earnings (loss) $ (50,273) 5,098
======== ========
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 April 1, 2001 and April 2, 2000, and
the results of operations and cash flows for the periods then ended.
The quarter ended April 1, 2001 is a thirteen week period. The quarter
ended April 2, 2000 is a fourteen week period.
The results of operations for the quarter ended April 1, 2001 are not
necessarily indicative of results to be expected for the full year.
(2) Earnings per share data for the fiscal quarters ended April 1, 2001 and
April 2, 2000 were computed as follows:
2001 2000
----------------- -----------------
Basic Diluted Basic Diluted
------- ------- ------- -------
Earnings (loss) before cumulative
effect of accounting change $(23,958) (23,958) 15,127 15,127
======= ======= ======= =======
Average shares outstanding (in
thousands) 171,933 171,933 189,563 189,563
Effect of dilutive securities;
Options and warrants - - - 778
------- ------- ------- -------
Equivalent shares 171,933 171,933 189,563 190,341
======= ======= ======= =======
Earnings (loss) per share before
cumulative effect of accounting
change $ (.14) (.14) .08 .08
======= ======= ======= =======
(3) The Company's other comprehensive earnings (loss) primarily results from
foreign currency translation adjustments, changes in value of the Company's
available-for-sale investments, and the impact of deferred gains or losses on
changes in the fair value of foreign currency contracts.
(4) In January 2001, the Company closed on the sale (commenced in 2000) of
certain business units comprising Hasbro Interactive, as well as its internet
portal, Games.com, to Infogrames Entertainment SA (Infogrames) for Infogrames
securities and cash, resulting in a loss of $43,965 that was recognized at
December 31, 2000. The sale is subject to certain post closing adjustments
which are expected to be finalized in 2001.
HASBRO, INC. AND SUBSIDIARIES
Condensed Notes to Consolidated Financial Statements (continued)
(Thousands of Dollars)
(Unaudited)
The Infogrames securities received in the sale have been classified as
available-for-sale and are included in other assets. Net revenues and
operating losses of the business units sold for the quarter ended April 2,
2000 were $24,995 and $(34,730), respectively.
(5) The Company is exposed to market risks attributable to fluctuations in
foreign currency exchange rates primarily as a result of sourcing products in
four currencies while marketing those products in more than thirty currencies.
Results of operations will be affected primarily by changes in the value of
the U.S. dollar, Hong Kong dollar, British pound, Euro, Canadian dollar and
Mexican peso versus other currencies, principally in Europe and the United
States. To manage this exposure, the Company hedges a portion of its estimated
future foreign currency transactions using a combination of forward foreign
exchange contracts and purchased foreign currency options.
Effective January 1, 2001, the Company adopted Statement of Financial
Accounting Standards No. 133, Accounting for Derivative Instruments and
Hedging Activities, as amended by Statement of Accounting Standards No. 138,
(collectively "SFAS 133") which require that the Company record all
derivatives, such as foreign exchange products, on the balance sheet at fair
value. Changes in the derivative fair values that are designated, effective
and qualify as cash flow hedges are deferred and recorded as a component of
accumulated other comprehensive earnings (AOCE) until the hedged transactions
occur and are recognized in the consolidated statements of operations. The
Company's foreign currency contracts hedging anticipated cash flows are
designated as cash flow hedges. The ineffective portion of a hedging
derivative is immediately recognized in the consolidated statements of
operations. As a result of adopting SFAS 133 and in accordance with the
transition provisions, the Company recorded a one-time after tax charge of
$1,066 during the quarter ended April 1, 2001 representing the cumulative
effect of the adoption in its consolidated statements of operations and an
after tax unrealized loss of $753 to AOCE, which the Company expects to be
reclassified to the consolidated statements of operations during the remainder
of fiscal 2001.
For the quarter ended April 1, 2000, changes in fair value which the Company
excludes from its assessment of hedge effectiveness, which are included in the
consolidated statement of operations were $60. A summary of the after tax
activity in AOCE relating to the Company's hedging program is as follows:
Balance, December 31, 2000 $ -
Cumulative effect of accounting change (753)
Change in fair value of cash flow hedges 3,810
Change in fair value transferred to earnings as a
result of ineffectiveness 32
------
Balance, April 1, 2001 $3,089
======
HASBRO, INC. AND SUBSIDIARIES
Condensed Notes to Consolidated Financial Statements (continued)
(Thousands of Dollars)
(Unaudited)
The remaining balance in AOCE at April 1, 2001 represents a net unrealized
gain on hedges of 2001 inventory purchases either purchased in the first
quarter or forecasted to be purchased during the remainder of fiscal 2001.
This amount will be transferred to the consolidated statements of operations
upon the sale of the related inventory. The Company expects the entire balance
in AOCE to be reclassified to the consolidated statements of operations within
the next 12 months.
The Company recorded a net gain to other (income) expense of $840 relating to
the change in fair value of foreign currency derivatives that were not
designated as accounting hedges. Changes in the fair value of these
derivatives offset changes in fair value of the underlying transactions to
which they relate, which are also included in other (income) expense.
The Company formally documents all relationships between hedging instruments
and hedged items as well as its risk management objectives and strategies for
undertaking various hedge transactions. All hedges designated as cash flow
hedges are linked to forecasted transactions and the Company assesses, both at
the inception of the hedge and on an on-going basis, the effectiveness of the
derivatives used in hedging transactions in offsetting changes in the cash
flows of the hedged items. When it is determined that a derivative is not
highly effective as a hedge under the requirements of SFAS 133, the Company
discontinues hedge accounting prospectively. Any gain or loss deferred through
that date remains in AOCE until the forecasted transaction occurs at which
time it is reclassified into the consolidated statements of operations. To the
extent the transaction is no longer deemed probable of occurring, hedge
accounting treatment is discontinued prospectively and amounts deferred would
be reclassified to the consolidated statements of operations.
(6) On October 12, 2000, the Company announced a plan to consolidate its U.S.
Toy group into Rhode Island, significantly reduce overhead through reductions
in product development, sales and marketing, and administrative functions
across the Company and to increase its development of the Company's core
brands. Costs associated with this consolidation program, recorded in the
fourth quarter of 2000, amounted to $152,270, of which $70,079 was recorded as
a restructuring charge and $82,191 in various other operating expense
categories.
The significant components of the plan included the closing of offices in
Cincinnati, Ohio, the Napa, California office and warehouse and a small office
in San Francisco, California, thereby essentially consolidating the U.S. Toy
group in Rhode Island. These actions were substantially completed at December
31, 2000.
HASBRO, INC. AND SUBSIDIARIES
Condensed Notes to Consolidated Financial Statements (continued)
(Thousands of Dollars)
(Unaudited)
Additionally, the plan included the reduction of overhead, particularly in
marketing and sales, product development and administration. This included a
curtailment of the expansion of the retail business of Wizards, the further
consolidation of certain international operating offices into regional centers
and consolidation and streamlining of the Company's marketing activities. The
Company is also increasing its focus on developing and marketing its core
brands thereby seeking to reduce its reliance on licenses. This focus resulted
in product lines which will be discontinued or for which the Company has
significantly reduced expectations.
The 2000 restructuring charge of $70,079 represented approximately $31,800 of
cash charges for severance benefits for termination of approximately 850
employees, which will be disbursed over the employees' entitlement period,
$21,400 of cash charges for lease costs to be expended over the contractual
lease term of the closed facilities and non-cash charges of $16,900 for fixed
asset write-offs, arising primarily in Corporate and the U.S. Toy segment. Non-
cash charges relating to fixed asset write-offs were credited to the
respective line items on the balance sheet as of December 31, 2000. Details of
activity in the restructuring plan for the current period follow:
Balance at Balance at
Dec. 31, Apr. 1,
2000 Activity 2001
------- -------- -------
Severance $ 31,800 (12,100) 19,700
Lease costs 21,400 (1,100) 20,300
------- ------- -------
$ 53,200 (13,200) 40,000
======= ======= =======
Employee redundancies by area:
Manufacturing activities 27 (24) 3
Research, product development, marketing
sales and administration 322 (196) 126
------- ------- -------
349 (220) 129
======= ======= =======
The remaining severance liability represents cash charges for severance
benefits for employees not yet terminated and amounts for employees made
redundant which will be disbursed over the employees' entitlement period. The
balance in lease costs will be expended over the contractual lease term of the
closed facilities.
HASBRO, INC. AND SUBSIDIARIES
Condensed Notes to Consolidated Financial Statements (continued)
(Thousands of Dollars)
(Unaudited)
(7) Hasbro is a worldwide marketer and distributor of children's and family
entertainment products and services, principally engaged in the design,
manufacture and marketing of games and toys ranging from traditional to high-
tech. The Company's reportable segments are U.S. Toys, Games, International
and Operations. In 2001, the Company has realigned its business segments to
consolidate its toy-related product lines into its U.S. Toy segment. In
addition, manufacturing facilities previously included in the Operations
segment are now assessed as part of the segments which these facilities
support. Prior year amounts have been reclassified to reflect the Company's
current focus.
In the United States, the U.S. Toy segment includes the design, marketing and
selling of boys action figures, vehicles and playsets, girls toys, preschool
toys and infant products, creative play products and toy-related specialty
products. The Games segment includes the development, manufacturing, marketing
and selling of traditional board games and puzzles, handheld electronic games,
electronic interactive products, children's consumer electronics, electronic
learning aids, trading card and role-playing games. Within the International
segment, the Company develops, manufactures, markets and sells both toy and
certain game products in non-U.S. markets. Operations sources product for the
majority of the Company's segments. The Company also has other segments which
license out certain toy and game properties and which operate retail stores.
These other segments do not meet the quantitative thresholds for reportable
segments and have been combined for reporting purposes.
Segment performance is measured at the operating profit level. Included in
Corporate and eliminations are general corporate expenses, the elimination of
intersegment transactions and assets not identified with a specific segment.
Intersegment sales and transfers are reflected in management reports at
amounts approximating cost.
The accounting policies of the segments are the same as those described in
note 1 to the Company's consolidated financial statements for the fiscal year
ended December 31, 2000.
Results shown for the quarter are not necessarily representative of those
which may be expected for the full year 2001 nor were those of the 2000 first
quarter representative of those actually experienced for the full year 2000.
Similarly, such results are not necessarily those which would be achieved were
each segment an unaffiliated business enterprise.
HASBRO, INC. AND SUBSIDIARIES
Condensed Notes to Consolidated Financial Statements (continued)
(Thousands of Dollars)
(Unaudited)
Information by segment and a reconciliation to reported amounts for the three
months ended April 1, 2001 and April 2, 2000 are as follows:
Quarter Ended Quarter Ended
April 1, 2001 April 2, 2000
------------- -------------
Net revenues External Affiliate External Affiliate
-------- --------- -------- ---------
U.S. Toys $ 131,028 3,114 188,506 3,173
Games 189,739 16,592 398,643 40,964
International 119,221 16,125 166,179 16,016
Operations (a) 3,486 51,391 1,700 129,234
Other segments 19,812 709 18,453 701
Corporate and eliminations - (87,931) - (190,088)
--------- --------- --------- ---------
$ 463,286 - 773,481 -
========= ========= ========= =========
Quarter ended Quarter ended
April 1, 2001 April 2, 2000
------------- --------------
Operating profit (loss)
U.S. Toys $ (3,769) (28,337)
Games 9,517 76,659
International (27,624) (15,273)
Operations (3,288) 1,781
Other segments (850) 2,955
Corporate and eliminations 11,907 2,405
--------- ---------
$ (14,107) 40,190
========= =========
April 1, 2001 April 2, 2000
------------- -------------
Total assets
U.S. Toys $ 477,735 625,203
Games 1,927,846 2,072,700
International 957,501 947,101
Operations 316,358 297,993
Other segments 64,495 27,673
Corporate and eliminations (380,977) 36,016
--------- ---------
$3,362,958 4,006,686
========= =========
(a) The Operations segment derives substantially all of its revenues and
operating results from intersegment activities.
HASBRO, INC. AND SUBSIDIARIES
Condensed Notes to Consolidated Financial Statements (continued)
(Thousands of Dollars)
(Unaudited)
The following table presents consolidated net revenues by classes of principal
products for the quarters ended April 1, 2001 and April 2, 2000:
2001 2000
------- -------
Boys toys $ 80,700 140,900
Games and puzzles 245,700 440,600
Preschool toys 28,300 38,700
Other 108,586 153,281
------- -------
Net revenues $ 463,286 773,481
======= =======
HASBRO, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial
Condition and Results of Operations
(Thousands of dollars)
NET EARNINGS AND SEGMENT RESULTS
- --------------------------------
Net loss for the first quarter of 2001 was $(25,024) compared with net income
of $15,127 in the first quarter of 2000. Diluted loss per share for the
quarter was $(.15) in 2001 compared with a diluted earnings per share of $.08
in 2000. The net loss and diluted earnings per share for 2001 include a
cumulative effect of accounting change of $(1,066) or $(.01) per share
relating to the adoption of SFAS 133 as discussed in the condensed notes to
the consolidated financial statements. Net revenues decreased in all three of
the Company's major business segments, U.S. Toys, Games and International,
from comparable 2000 levels. Operating loss of the U.S. Toys segment decreased
from 2000 levels while the operating profit of the other two major business
segments decreased from 2000 levels. The first quarter of 2001 includes 13
weeks compared to 14 weeks in the first quarter of 2000. A more detailed
discussion of items impacting consolidated net earnings (loss) and segment
results follows.
NET REVENUES
- ------------
Net revenues for the first quarter of 2001 decreased approximately 40% to
$463,286 from $773,481 in 2000. This decrease is primarily due to reduced
revenues, across all segments, from POKEMON products. In the Games segment,
revenues decreased 52% to $189,739 from the comparable period of 2000. In
addition to decreased sales of POKEMON products, reduced sales of FURBY
products and the sale of Hasbro Interactive in January 2001 negatively
impacted Games segment revenues. Revenues in the U.S. Toy segment decreased
30% to $131,028 in 2001 from $188,506 in 2000 as a result of a decrease in
sales of POKEMON related products and to a lesser extent, sales of KOOSH and
SUPER SOAKER products. Revenues in the International segment decreased 28% to
$119,221 in 2001 from $166,179 in 2000 primarily as a result of the decrease
in sales of POKEMON products. Worldwide revenues were adversely impacted by
$9,790 from the stronger U.S. dollar.
GROSS PROFIT
- ------------
Decreased revenues in all three of the Company's major segments primarily from
POKEMON products, resulted in an overall decrease in gross margin of the
Company to 59.0% of net revenues from 61.2%. The decrease in gross profit is
also due to a change in product mix as POKEMON trading cards, which
constituted a significant portion of the decrease in revenues, carry higher
gross margins. This decrease was partially offset by the impact of the sale of
Hasbro Interactive in January 2001, which had lower gross margins in 2000.
HASBRO, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
(Thousands of dollars)
EXPENSES
- --------
Amortization expense of $29,421 in 2001 decreased from $32,856 in 2000,
primarily reflecting the sale of Hasbro Interactive in January 2001.
Royalties, research and development expenses for the quarter decreased to
$56,735 or 12.2% of net revenues in 2001 from $126,039 or 16.3% of net
revenues in 2000. The decrease was primarily due to a $49,831 decrease in the
royalty component as a result of lower revenues derived from royalty based
items, primarily POKEMON products. Research and development decreased to
$30,297 in 2001 from $49,770 in 2000. The decrease is primarily the result of
the Company's sale of Hasbro Interactive and its internet portal, Games.com,
in January 2001.
Advertising expense decreased in amount to $47,613 in 2001 from $69,359 in
2000 but increased as a percentage of revenues to 10.3% in 2001 compared with
9.0% in 2000 due to a lower revenue base. The decrease in dollar amount
reflects reduced spending due to the anticipated lower sales volume in 2001.
The Company's selling, distribution and administration expenses, which, with
the exception of distribution costs, are largely fixed, decreased in amount to
$153,819 in 2001 from $204,736 in 2000 but increased as a percentage of
revenues to 33.2% in 2001 from 26.5% in 2000. The decrease in dollar amount is
due to the sale of Hasbro Interactive and Games.com in January 2001, decreased
sales volume, and the Company's 2000 consolidation program to reduce overhead
in the sales and marketing and administrative functions as well as other cost
reduction efforts of the Company.
NONOPERATING (INCOME) EXPENSE
- -----------------------------
Interest expense for the first quarter of 2001 was $25,890 compared with
$21,443 in 2000. The increase is the result of an increase in the average
outstanding debt in the first quarter of 2001 compared with the first quarter
of 2000.
HASBRO, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
(Thousands of dollars)
INCOME TAXES
- ------------
Income tax expense (benefit) as a percentage of pretax earnings (loss) in the
first quarter of 2001 was (32)% compared to 31% in the first quarter of 2000.
OTHER INFORMATION
- -----------------
On January 1, 2001, the Company implemented Statement of Financial Accounting
Standards No. 133, as amended by Statement of Financial Accounting Standards
No. 138, which require that all derivative instruments, such as foreign
exchange contracts be recorded on the balance sheet at fair value. The effect
of adopting these standards on earnings, net of taxes, was $(1,066) while the
effect on Accumulated Other Comprehensive Earnings was $(753).
In January 2001, the Company closed on the sale (commenced in 2000) of certain
business units comprising Hasbro Interactive, as well as its internet portal,
Games.com. The sale resulted in a loss of $43,965, which was recognized at
December 31, 2000. The sale is subject to certain post closing adjustments
which are expected to be finalized in 2001.
Due to the seasonal nature of the business and in particular the mix of
products offered in 2001, the Company continues to expect the second half of
the year and within that half, the fourth quarter, to be more significant to
its overall business for the full year. 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,
inventory levels, policies of retailers and differences in overall economic
conditions. The trend of retailers over the past few years has been to
purchase product within or close to the fourth quarter holiday consumer
selling season, which includes Christmas. Quick response inventory management
practices now being used result in fewer orders being placed in advance of
shipment and more orders, when placed, for immediate delivery. Consequently,
unshipped orders on any date in a given 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 April 29, 2001 and April 30, 2000, the Company's unshipped orders
were approximately $287,000 and $434,000, respectively.
On October 12, 2000, the Company announced a plan approved by its Board of
Directors to consolidate its U.S. Toys group into Rhode Island, significantly
reduce overhead through reductions in product development, sales and
marketing, and administrative functions across the Company and to increase its
focus on development of the Company's core brands.
HASBRO, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
(Thousands of dollars)
The plan began in 2000 and is expected to be completed in 2001. The cost
savings achieved as a result of the restructuring plan actions for which the
Company incurred a charge in 2000 were approximately $10,000 in the first
quarter of 2001.
The components of activity in the plan and the balance remaining at the end
of the quarter are as follows:
Balance at Balance at
Dec. 31, Apr. 1,
2000 Activity 2001
------- -------- -------
Severance $ 31,800 (12,100) 19,700
Lease costs 21,400 (1,100) 20,300
------- ------- -------
$ 53,200 (13,200) 40,000
======= ======= =======
Employee redundancies by area:
Manufacturing activities 27 (24) 3
Research, product development, sales
marketing and administration 322 (196) 126
------- ------- -------
349 (220) 129
======= ======= =======
The significant components of the plan included the closing of offices in
Cincinnati, Ohio, the Napa, California office and warehouse and a small office
in San Francisco, California, thereby essentially consolidating the U.S. Toys
group in Rhode Island. These actions were substantially completed at December
31, 2000. The remaining severance liability represents cash charges for
severance benefits for employees not yet terminated and amounts for employees
made redundant which will be disbursed over the employee's entitlement period.
The balance in lease costs will be expended over the contractual lease terms.
The Company expects to generate full year pre-tax savings of approximately
$49,000 in 2001 and $53,000 in 2002 from the actions for which the Company
incurred a charge in 2000.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The seasonality of the Company's business results in the interim cash flow
statements not being representative of that which may be expected for the full
year. Historically, 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, the proceeds are used to repay a significant
portion of outstanding short-term debt.
HASBRO, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
(Thousands of dollars)
Because of this seasonality in cash flow, management believes that on an
interim basis, rather than discussing only its cash flows, a better
understanding of its liquidity and capital resources can be obtained through a
discussion of the various balance sheet categories as well. 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,
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 flows provided by operating activities were $193,772 and $375,963 for the
first quarters of 2001 and 2000, respectively. Receivables were $255,450 at
April 1, 2001 compared to $455,374 at April 2, 2000. The decrease in
receivables is primarily the result of the 40% decrease in revenues in the
first quarter of 2001 compared to the first quarter of 2000 as well as the
sale of Hasbro Interactive and improved collections. Inventories decreased
approximately 31% from last year's levels, primarily reflecting improved
inventory management and to a lesser extent the sale of Hasbro Interactive.
Other current assets decreased to $390,596 at April 1, 2001 from $451,596 at
April 2, 2000. The decrease is primarily due to a decrease in advance
royalties as the result of licensed products, primarily POKEMON products,
comprising a higher percentage of 2000 sales and the sale of Hasbro
Interactive and Games.com. These decreases were partially offset by an
increase in deferred income taxes. Accounts payable and accrued liabilities
decreased by $425,395 from comparable 2000 levels. Approximately 74% of the
decrease was due to the impact of amounts accrued at April 1, 2000 for shares
acquired under the Company's first quarter 2000 Modified Dutch Auction Tender
Offer. The remainder of the decrease in accounts payable and accrued
liabilities relates to a decrease in accrued income taxes as the result of a
decrease in taxable income as well as decreases in accrued royalties and trade
payables as the result of decreased sales volume and decreased inventory
levels, respectively.
Collectively, property, plant and equipment and other assets decreased $84,401
over the comparable period in the prior year, reflecting the sale of Hasbro
Interactive and Games.com as well as assets written off or written down to
fair market value in connection with the Company's 2000 consolidation program
offset in part by securities received from the sale of Hasbro Interactive and
Games.com.
HASBRO, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
(Thousands of dollars)
Net borrowings (short and long-term borrowings less cash and cash equivalents)
increased to $1,078,991 at April 1, 2001 from $905,360 at April 2, 2000. This
reflects the use of approximately $313,000 of cash in the prior twelve months
for the Company's repurchase of its common stock through the Modified Dutch
Auction Tender Offer. This was offset in part by cash provided by operations.
In February 2001, the Company entered into amended and restated secured
revolving and line of credit facility agreements with existing lenders. The
facilities are secured by substantially all domestic accounts receivable and
inventory, as well as certain investments and intangible assets of the
Company. Amounts available for borrowing under these committed facilities of
$325,000 (long-term) and $325,000 (short-term) were at their lowest point in
the first quarter of 2001. At April 1, 2001, approximately $300,000 was
available under the committed lines and approximately $161,000 of uncommitted
lines were available. The Company expects that funds provided by operations
and amounts available for borrowing from time to time under these lines of
credit are adequate to meet its needs. Included in short-term borrowings is
$1,746 of current installments of long-term debt.
EURO CONVERSION
- ---------------
Certain member countries of the European Union established fixed conversion
rates between their existing currencies and the European Economic Monetary
Union common currency, or Euro. While the Euro was introduced on January 1,
1999, member countries will continue to use their existing currencies through
January 1, 2002, with the transition period for full conversion to the Euro
ending June 30, 2002. Transition to the Euro creates certain issues for the
Company with respect to upgrading information technology systems for 2002 full
use requirements, reassessing currency risk, product pricing, amending
business and financial contracts as well as processing tax and accounting
records. The Company has and will continue to address these transition issues
and does not expect the Euro to have a material effect on the results of
operations or financial condition of the Company.
FORWARD-LOOKING STATEMENTS
- --------------------------
This discussion contains "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995. These statements
include, without limitation, any statement that may predict, forecast,
indicate or imply future results, performance or achievements, and may contain
the use of forward-looking words or phrases such as "anticipate," "believe,"
"could," "expect," "intend," "look forward," "may," "planned," "potential,"
"should," "will," and "would" or any variations of such words with similar
meanings. These 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.
HASBRO, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
Specific factors that might cause such a difference include, but are not
limited to, the Company's ability to manufacture, source and ship new and
continuing products on a timely basis and the acceptance of those products by
customers and consumers at prices that will be sufficient to profitably
recover development, manufacturing, marketing, royalty and other costs of
products; economic conditions, including higher fuel prices, currency
fluctuations and government regulations and other actions in the various
markets in which the Company operates throughout the world; the inventory
policies of retailers, including the concentration of the Company's revenues
in the second half and fourth quarter of the year, together with the 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;
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 that could delay or increase the cost of
implementation of the Company's consolidation programs or alter the Company's
actions and reduce actual results, and the risk that anticipated benefits of
acquisitions may not occur or be delayed or reduced in their realization; and
other risks and uncertainties as are or may be detailed from time to time in
the Company's public announcements and filings with the SEC such as Forms 8-K,
10-Q and 10-K. The Company undertakes no obligation to revise the forward-
looking statements contained in this discussion or to update the forward-
looking statements to reflect events or circumstances occurring after the date
of this discussion.
PART II. Other Information
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
11 Computation of Earnings Per Common Share - Quarters Ended
April 1, 2001 and April 2, 2000.
12 Computation of Ratio of Earnings to Fixed Charges -
Quarter Ended April 1, 2001.
(b) Reports on Form 8-K
A Current Report on Form 8-K dated April 23, 2001 was filed by
the Company and included the Press Release dated April 23, 2001
announcing the Company's results for the current quarter.
Consolidated Statements of Earnings (without notes) for the
quarters ended April 1, 2001 and April 2, 2000 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 16, 2001 By: /s/ David D. R. Hargreaves
---------------------------
David D. R. Hargreaves
Senior 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 April 1, 2001
Exhibit Index
Exhibit
No. Exhibits
- ------- --------
11 Statement re computation of per share earnings - quarter
12 Statement re computation of ratios
EXHIBIT 11
HASBRO, INC. AND SUBSIDIARIES
Computation of Earnings Per Common Share
Quarters Ended April 1, 2001 and April 2, 2000
(Thousands of Dollars and Shares Except Per Share Data)
2001 2000
----------------- -----------------
Basic Diluted Basic Diluted
------- ------- ------- -------
Earnings (loss) before cumulative
effect of accounting change $ (23,958) (23,958) 15,127 15,127
======= ======= ======= =======
Weighted average number of shares
Outstanding:
Outstanding at beginning of
period 171,886 171,886 192,984 192,984
Exercise of stock options
and warrants:
Actual 47 47 5 5
Assumed - - - 778
Purchase of common stock - - (3,426) (3,426)
------- ------- ------- -------
Total 171,933 171,933 189,563 190,341
======= ======= ======= =======
Per common share:
Earnings (loss) before cumulative
effect of accounting change $ (.14) (.14) .08 .08
======= ======= ======= =======
EXHIBIT 12
HASBRO, INC. AND SUBSIDIARIES
Computation of Ratio of Earnings to Fixed Charges
Quarter Ended April 1, 2001
(Thousands of Dollars)
Earnings available for fixed charges:
Net loss $(25,024)
Add:
Cumulative effect of accounting change 1,066
Fixed charges 31,620
Income taxes (11,274)
-------
Total $ (3,612)
=======
Fixed Charges:
Interest on long-term debt $ 21,670
Other interest charges 4,220
Amortization of debt expense 511
Rental expense representative
of interest factor 5,219
-------
Total $ 31,620
=======
Ratio of earnings to fixed charges (0.11)
=======