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 September 29, 1996 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 November 8, 1996 was 86,222,330.
<PAGE>
HASBRO, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Thousands of Dollars Except Share Data)
(Unaudited)
Sep. 29, Oct.1, Dec. 31,
Assets 1996 1995 1995
--------- --------- ---------
Current assets
Cash and cash equivalents $ 57,753 53,785 161,030
Accounts receivable, less allowance
for doubtful accounts of $54,300,
$49,000 and $48,800 1,184,615 1,128,119 791,111
Inventories:
Finished products 315,227 296,358 240,126
Work in process 25,042 28,374 22,093
Raw materials 62,435 65,363 53,401
--------- --------- ---------
Total inventories 402,704 390,095 315,620
Deferred income taxes 80,661 84,175 85,849
Prepaid expenses 75,280 74,089 71,888
--------- --------- ---------
Total current assets 1,801,013 1,730,263 1,425,498
Property, plant and equipment, net 301,453 306,464 313,240
--------- --------- ---------
Other assets
Cost in excess of acquired net assets,
less accumulated amortization of
$111,367, $95,438 and $99,404 469,522 480,749 473,388
Other intangibles, less accumulated
amortization of $96,172, $73,959 and
$79,648 364,340 346,383 343,624
Other 63,147 53,650 60,638
--------- --------- ---------
Total other assets 897,009 880,782 877,650
--------- --------- ---------
Total assets $2,999,475 2,917,509 2,616,388
========= ========= =========
<PAGE>
HASBRO, INC. AND SUBSIDIARIES
Consolidated Balance Sheets, Continued
(Thousands of Dollars Except Share Data)
(Unaudited)
Sep. 29, Oct. 1, Dec. 31,
Liabilities and Shareholders' Equity 1996 1995 1995
--------- --------- ---------
Current liabilities
Short-term borrowings $ 553,136 566,820 119,987
Trade payables 136,587 140,743 198,328
Accrued liabilities 417,338 448,243 433,567
Income taxes 101,022 84,635 117,982
--------- --------- ---------
Total current liabilities 1,208,083 1,240,441 869,864
Long-term debt, excluding current
installments 149,907 149,991 149,991
Deferred liabilities 70,556 65,143 70,921
--------- --------- ---------
Total liabilities 1,428,546 1,455,575 1,090,776
--------- --------- ---------
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
88,088,968, 88,086,108 and 88,086,108 44,044 44,043 44,043
Additional paid-in capital 304,409 279,320 279,288
Retained earnings 1,270,758 1,120,707 1,201,242
Cumulative translation adjustments 18,631 25,588 23,450
Treasury stock, at cost; 1,930,844,
262,653 and 741,237 shares (66,913) (7,724) (22,411)
--------- --------- ---------
Total shareholders' equity 1,570,929 1,461,934 1,525,612
--------- --------- ---------
Total liabilities and
shareholders' equity $2,999,475 2,917,509 2,616,388
========= ========= =========
See accompanying condensed notes to consolidated financial statements.
<PAGE>
HASBRO, INC. AND SUBSIDIARIES
Consolidated Statements of Earnings
(Thousands of Dollars Except Share Data)
(Unaudited)
Quarter Ended Nine Months Ended
------------------- --------------------
Sep. 29, Oct. 1, Sep. 29, Oct. 1,
1996 1995 1996 1995
-------- -------- --------- ---------
Net revenues $845,148 826,165 1,895,442 1,834,522
Cost of sales 372,273 360,852 844,228 807,509
------- ------- --------- ---------
Gross profit 472,875 465,313 1,051,214 1,027,013
------- ------- --------- ---------
Expenses
Amortization 9,939 9,718 29,745 28,686
Royalties, research and
development 85,929 78,318 204,707 195,487
Discontinued development
project - - - 31,100
Advertising 116,446 123,537 252,893 261,934
Selling, distribution and
administration 146,941 142,977 397,215 382,785
------- ------- --------- ---------
Total expenses 359,255 354,550 884,560 899,992
------- ------- --------- ---------
Operating profit 113,620 110,763 166,654 127,021
------- ------- --------- ---------
Nonoperating (income) expense
Interest expense 9,419 10,932 19,678 24,139
Other (income), net (733) (3,539) (6,210) (11,528)
------- ------- --------- ---------
Total nonoperating expense 8,686 7,393 13,468 12,611
------- ------- --------- ---------
Earnings before income taxes 104,934 103,370 153,186 114,410
Income taxes 34,465 39,798 52,366 44,048
------- ------- --------- ---------
Net earnings $ 70,469 63,572 100,820 70,362
======= ======= ========= =========
Per common share
Net earnings $ .81 .72 1.15 .80
======= ======= ========= =========
Cash dividends declared $ .10 .08 .30 .24
======= ======= ========= =========
See accompanying condensed notes to consolidated financial statements.
<PAGE>
HASBRO, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Nine Months Ended September 29, 1996 and October 1, 1995
(Thousands of Dollars)
(Unaudited)
1996 1995
------- -------
Cash flows from operating activities
Net earnings $100,820 70,362
Adjustments to reconcile net earnings to net cash
utilized by operating activities:
Depreciation and amortization of plant and equipment 71,016 65,652
Other amortization 29,745 28,686
Deferred income taxes 2,388 (6,652)
Change in operating assets and liabilities (other
than cash and cash equivalents):
Increase in accounts receivable (400,077) (397,487)
Increase in inventories (87,392) (137,331)
Increase in prepaid expenses (3,573) (3,227)
Decrease in trade payables and accrued liabilities (88,530) (8,437)
Other 1,839 12,346
------- -------
Net cash utilized by operating activities (373,764) (376,088)
------- -------
Cash flows from investing activities
Additions to property, plant and equipment (62,504) (62,813)
Investments and acquisitions, net of cash acquired (21,313) (112,531)
Other (4,540) 4,912
------- -------
Net cash utilized by investing activities (88,357) (170,432)
------- -------
Cash flows from financing activities
Proceeds from borrowings with original maturities
of more than three months 230,788 413,953
Repayments of borrowings with original maturities
of more than three months (30,990) (32,071)
Net proceeds of other short-term borrowings 231,603 89,733
Purchase of common stock (58,350) (312)
Stock option transactions 11,318 6,476
Dividends paid (24,329) (20,170)
------- -------
Net cash provided by financing activities 360,040 457,609
------- -------
Effect of exchange rate changes on cash (1,196) 5,668
------- -------
Decrease in cash and cash equivalents (103,277) (83,243)
Cash and cash equivalents at beginning of year 161,030 137,028
------- -------
Cash and cash equivalents at end of period $ 57,753 53,785
======= =======
Supplemental information
Cash paid during the period for:
Interest $ 12,892 15,558
Income taxes $ 59,165 60,320
See accompanying condensed notes to consolidated financial statements.
<PAGE>
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 September 29, 1996 and October
1, 1995, and the results of operations and cash flows for the periods then
ended.
The nine months ended September 29, 1996 consisted of 39 weeks while
the nine months ended October 1, 1995 consisted of 40 weeks.
The results of operations for the nine months ended September 29, 1996,
are not necessarily indicative of results to be expected for the full year.
(2) During the second quarter of 1995, the Company discontinued its
efforts, begun in 1992, related to the development of a mass-market virtual
reality game system. The impact of this decision on the quarter was a
pretax charge of $31,100. (See further discussion in Management's
Discussion and Analysis of Financial Condition and Results of Operations.)
(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 except the quarter ended September 29,
1996, the difference between primary and fully diluted earnings per share
was not significant. For the quarter ended September 29, 1996, the primary
and fully diluted earnings per share were $.81 and $.78, respectively.
<PAGE>
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 third quarter and nine months of 1996 were $845,148
and $1,895,442, respectively, up from the $826,165 and $1,834,522 reported
for the same periods of 1995. Continuing the trend experienced during the
first half of 1996, the increased volume during the quarter was primarily
attributable to growth in games and boys' toys in the United States. During
the quarter, the Company's revenues from its international operations
remained flat although absent the adverse impact of the strengthened U.S.
dollar they increased marginally. For the nine months, again absent the
impact of currency, they were essentially flat.
COST OF SALES
- - -------------
For both the quarter and nine months, the Company's gross margin
percentages showed a moderate decline. Contributing to this was the adverse
impact of excess manufacturing capacity. As the Company has moved certain
of its production requirements to lower-cost regions and contract
manufacturers, excess capacity has resulted, a situation which led to the
recently announced closing of a manufacturing facility. Also contributing
to the reduced margins was the impact of sales made at less than normal
margins. The aforementioned were partially offset by reduced prices on
certain raw material commodities, most notably plastics and paper.
EXPENSES
- - --------
Royalties, research and development expenses for both the third quarter and
nine months increased both in amount and as a percentage of net revenues.
The increase in the royalty component reflected both the Company's revenue
growth and the mix of products sold with more revenue being derived from
items carrying higher royalty rates. Research and development was $36,583
and $102,093 for the quarter and nine months of 1996, respectively,
compared with $34,576 and $102,004 for the same periods of 1995.
During the second quarter of 1995, the Company discontinued its efforts,
begun in 1992, related to the development of a mass-market virtual reality
game system. The impact of this decision on the nine months of 1995 was a
pretax charge of $31,100, the estimated costs associated with such action.
Substantially all of these costs have now been paid.
Advertising expense for both the quarter and nine months again reflected
decreases both in amount and when expressed as a percentage of net
revenues. For the third quarter and nine months of 1996, the amounts were
$116,446 and $252,893, respectively, compared with $123,537 and $261,934 in
the same periods of 1995. Expressed as a percentage of net revenues, 1996
was 13.8% and 13.3% while 1995 was 15.0% and 14.3%. The decreases in the
<PAGE>
HASBRO, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial
Condition and Results of Operations
(Thousands of dollars)
current year continue to reflect the lower proportion of the Company's
revenues arising from the international marketing units, which generally
have a higher advertising to sales ratio than the domestic groups.
When expressed as a percentage of net revenues, the Company's selling,
distribution and administration expenses remained relatively constant
during both the third quarter and nine months of 1996 when compared with
the same periods of 1995, although each period showed an increase in
amount. Included in this expense category for the third quarter and nine
months of 1996 is a charge of approximately $2,500 for costs associated
with the previously announced closure of the Company's Amsterdam, New York
manufacturing facility.
NONOPERATING (INCOME) EXPENSE
- - -----------------------------
Interest expense during the third quarter and nine months of 1996 decreased
from the comparable 1995 levels continuing to reflect both lower interest
rates and the Company's reduced borrowing requirements.
Other income, net, also declined during both the quarter and nine months,
again largely reflecting the lower interest rates being earned on the
Company's short-term investments.
INCOME TAXES
- - ------------
Income tax expense as a percentage of pretax earnings for the nine months
of 1996 and 1995 was 34.2% and 38.5%, respectively. The decrease in the
effective rate reflects changes in the Company's operations as well as the
impact of certain strategies implemented during 1996. These strategies
included a tax benefit amounting to $3,500 arising from certain prior year
international operating losses which are now expected to be utilized.
The lower effective tax rate for the quarter results from the impact of the
aforementioned tax benefit as well as the adjustment of first and second
quarter earnings to a lower annual tax rate.
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
<PAGE>
HASBRO, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial
Condition and Results of Operations
(Thousands of dollars)
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,
more retailers are using quick response inventory management practices
which results in fewer orders being placed in advance 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 October (October 27, 1996 and October 29, 1995) the Company's
unshipped orders were approximately $570,000 and $550,000, respectively.
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 those 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.
Receivables were approximately $55,000 greater than at the same time in
1995, largely reflecting the Company's increased revenues in 1996 and, when
expressed as days sales outstanding, are marginally higher than those of a
year ago. The growth in inventories which has been evident during the past
year moderated somewhat during the third quarter and reflects the Company's
plan to have product available during the increasingly important fourth
quarter. Other assets, as a group, increased from their level of a year
ago, primarily resulting from the Company's acquisitions of product rights
and licenses during the most recent twelve months, partially offset by
twelve additional months of amortization expense.
<PAGE>
HASBRO, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial
Condition and Results of Operations
(Thousands of dollars)
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. The Company's net borrowings (short-term borrowings less cash and
cash equivalents), at $495,383 were approximately $18,000 less than last
year. This decrease occurred even after the repurchase of approximately
2,100,000 shares of the Company's common stock during the past twelve
months. At October 27, 1996, the Company had committed unsecured lines of
credit totaling approximately $540,000 available to it. It also had
available uncommitted lines approximating $810,000. The Company believes
that these amounts are adequate for its needs. Of these available lines,
approximately $575,000 was in use at October 27, 1996.
RECENT EVENT
- - ------------
As a part of its continuing focus on becoming a more global entity, the
Company recently created two groups who will support its global brand
marketing emphasis, while focusing the sales effort regionally. The first,
a brands and product development group who will be responsible for the
strategic marketing, management and development of all the Company's brands
- - - both games and toys - with a global perspective. This group will be
headed by Virginia Kent, formerly General Manager of Boys and Girls Toys.
The second, an organization of regional sales and marketing teams who will
help leverage brands, coordinate promotional activities and better serve
customers around the world by focusing on their local market needs. This
responsibility was split into three regions: The Americas, Europe
(including the Middle East and Africa) and Asia/Pacific. E. David Wilson,
formerly President of the Hasbro Games Group, will head the Americas,
Norman Walker will continue with the European activities and a new head of
Asia/Pacific will be named in the future. Both of these groups will report
to the President of Global Marketing and Sales, a position for which the
Company is actively recruiting.
<PAGE>
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.
11.1 Computation of Earnings Per Common Share -
Nine Months Ended September 29, 1996 and October 1,
1995.
11.2 Computation of Earnings Per Common Share -
Quarters Ended September 29, 1996 and October 1, 1995.
12 Computation of Ratio of Earnings to Fixed Charges -
Nine Months and Quarter Ended September 29, 1996.
27 Article 5 Financial Data Schedule -
Third Quarter 1996
(b) Reports on Form 8-K
A Current Report on Form 8-K, dated October 21, 1996, was filed
by the Company and included the Press Release dated October 21,
1996, announcing the Company's results for the current quarter.
Consolidated Statements of Earnings (without notes) for the
quarters and nine months ended September 29, 1996 and October
1, 1995 and Consolidated Condensed Balance Sheets (without
notes) as of said dates were also filed.
<PAGE>
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: November 14, 1996 By: /s/ John T. O'Neill
---------------------
John T. O'Neill
Executive Vice President and
Chief Financial Officer
(Duly Authorized Officer and
Principal Financial Officer)
<PAGE>
HASBRO, INC. AND SUBSIDIARIES
Quarterly Report on Form 10-Q
For the Period Ended September 29, 1996
Exhibit Index
Exhibit
No. Exhibits
- - ------- --------
11.1 Computation of Earnings Per Common Share -
Nine Months Ended September 29, 1996 and October 1, 1995
11.2 Computation of Earnings Per Common Share -
Quarters Ended September 29, 1996 and October 1, 1995
12 Computation of Ratio of Earnings to Fixed Charges -
Nine Months and Quarter Ended September 29, 1996
27 Article 5 Financial Data Schedule -
Third Quarter 1996
EXHIBIT 11.1
HASBRO, INC. AND SUBSIDIARIES
Computation of Earnings Per Common Share
Nine Months Ended September 29, 1996 and October 1, 1995
(Thousands of Dollars and Shares Except Per Share Data)
1996 1995
----------------- -----------------
Fully Fully
Primary Diluted Primary Diluted
------- ------- ------- -------
Net earnings $100,820 100,820 70,362 70,362
Interest and amortization on 6%
convertible notes, net of taxes - 4,321 - 4,338
------- ------- ------- -------
Net earnings applicable to
common shares $100,820 105,141 70,362 74,700
======= ======= ======= =======
Weighted average number of shares
outstanding:(a)
Outstanding at beginning of
period 87,345 87,345 87,528 87,528
Actual exercise of stock
options and warrants 217 217 169 169
Assumed exercise of stock
options and warrants 1,090 1,324 600 704
Actual conversion of 6%
convertible notes 1 1 - -
Assumed conversion of 6%
convertible notes - 5,112 - 5,114
Purchase of common stock (684) (684) (7) (7)
------- ------- ------- -------
Total 87,969 93,315 88,290 93,508
======= ======= ======= =======
Per common share:
Net earnings $ 1.15 1.13 .80 .80
======= ======= ======= =======
(a) Computation to arrive at the average number is a weighted average
computation.
EXHIBIT 11.2
HASBRO, INC. AND SUBSIDIARIES
Computation of Earnings Per Common Share
Quarter Ended September 29, 1996 and October 1, 1995
(Thousands of Dollars and Shares Except Per Share Data)
1996 1995
----------------- -----------------
Fully Fully
Primary Diluted Primary Diluted
------- ------- ------- -------
Net earnings $ 70,469 70,469 63,572 63,572
Interest and amortization on 6%
convertible notes, net of taxes - 1,440 - 1,426
------- ------- ------- -------
Net earnings applicable to common
shares $ 70,469 71,909 63,572 64,998
======= ======= ======= =======
Weighted average number of shares
outstanding:(a)
Outstanding at beginning of
period 86,837 86,837 87,751 87,751
Actual exercise of stock
options and warrants 34 34 36 36
Assumed exercise of stock
options and warrants 1,096 1,352 560 561
Actual conversion of 6%
convertible notes - - - -
Assumed conversion of 6%
convertible notes - 5,111 - 5,114
Purchase of common stock (554) (554) - -
------- ------- ------- -------
Total 87,413 92,780 88,347 93,462
======= ======= ======= =======
Per common share:
Net earnings $ .81 .78 .72 .70
======= ======= ======= =======
(a) 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
Nine Months and Quarter Ended September 29, 1996
(Thousands of Dollars)
Nine
Months Quarter
------- -------
Earnings available for fixed charges:
Net earnings $100,820 70,469
Add:
Fixed charges 31,002 13,053
Income taxes 52,366 34,465
------- -------
Total $184,188 117,987
======= =======
Fixed Charges:
Interest on long-term debt $ 6,948 2,316
Other interest charges 12,730 7,103
Amortization of debt expense 255 85
Rental expense representative
of interest factor 11,069 3,549
------- -------
Total $ 31,002 13,053
======= =======
Ratio of earnings to fixed charges 5.94 9.04
======= =======
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-29-1996
<PERIOD-END> SEP-29-1996
<CASH> 57,753
<SECURITIES> 0
<RECEIVABLES> 1,238,915
<ALLOWANCES> 54,300
<INVENTORY> 402,704
<CURRENT-ASSETS> 1,801,013
<PP&E> 551,057
<DEPRECIATION> 249,604
<TOTAL-ASSETS> 2,999,475
<CURRENT-LIABILITIES> 1,208,083
<BONDS> 149,907
0
0
<COMMON> 44,044
<OTHER-SE> 1,526,885
<TOTAL-LIABILITY-AND-EQUITY> 2,999,475
<SALES> 1,895,442
<TOTAL-REVENUES> 1,895,442
<CGS> 844,228
<TOTAL-COSTS> 844,228
<OTHER-EXPENSES> 487,345
<LOSS-PROVISION> 7,203
<INTEREST-EXPENSE> 19,678
<INCOME-PRETAX> 153,186
<INCOME-TAX> 52,366
<INCOME-CONTINUING> 100,820
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 100,820
<EPS-PRIMARY> 1.15
<EPS-DILUTED> 0
</TABLE>
