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 June 29, 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 August 8, 1997 was 126,977,710.
<PAGE>
<TABLE>
HASBRO, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Thousands of Dollars Except Share Data)
(Unaudited)
<CAPTION>
Jun. 29, Jun. 30, Dec. 29,
Assets 1997 1996 1996
--------- --------- ---------
<S> <C> <C> <C>
Current assets
Cash and cash equivalents $ 82,510 69,998 218,971
Accounts receivable, less allowance
for doubtful accounts of $49,600,
$51,200 and $46,600 714,212 683,906 807,149
Inventories:
Finished products 302,213 312,863 209,903
Work in process 16,025 26,619 16,810
Raw materials 49,983 58,617 46,534
--------- --------- ---------
Total inventories 368,221 398,099 273,247
Deferred income taxes 78,461 83,115 78,031
Prepaid expenses 110,452 77,721 109,191
--------- --------- ---------
Total current assets 1,353,856 1,312,839 1,486,589
Property, plant and equipment, net 296,139 305,772 313,545
--------- --------- ---------
Other assets
Cost in excess of acquired net assets,
less accumulated amortization of
$123,524, $107,321 and $115,312 508,439 473,594 460,467
Other intangibles, less accumulated
amortization of $114,346, $90,281
and $102,387 419,439 370,129 364,987
Other 68,922 65,180 75,921
--------- --------- ---------
Total other assets 996,800 908,903 901,375
--------- --------- ---------
Total assets $2,646,795 2,527,514 2,701,509
========= ========= =========
</TABLE>
<PAGE>
<TABLE>
HASBRO, INC. AND SUBSIDIARIES
Consolidated Balance Sheets, Continued
(Thousands of Dollars Except Share Data)
(Unaudited)
<CAPTION>
Jun. 29, Jun. 30, Dec. 29,
Liabilities and Shareholders' Equity 1997 1996 1996
--------- --------- ---------
<S> <C> <C> <C>
Current liabilities
Short-term borrowings $ 314,288 288,872 120,736
Trade payables 89,967 106,444 174,337
Accrued liabilities 336,112 293,937 399,896
Income taxes 91,151 79,891 135,849
--------- --------- ---------
Total current liabilities 831,518 769,144 830,818
Long-term debt, excluding current
installments 149,040 149,920 149,382
Deferred liabilities 67,206 72,066 69,263
--------- --------- ---------
Total liabilities 1,047,764 991,130 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 132,176,967, 88,088,526
and 132,160,293 66,088 44,044 66,080
Additional paid-in capital 279,798 305,915 282,922
Retained earnings 1,378,073 1,211,565 1,362,791
Foreign currency translation (2,591) 17,137 21,487
Treasury stock, at cost; 4,735,697,
1,251,853 and 3,297,628 shares (122,337) (42,277) (81,234)
--------- --------- ---------
Total shareholders' equity 1,599,031 1,536,384 1,652,046
--------- --------- ---------
Total liabilities and
shareholders' equity $2,646,795 2,527,514 2,701,509
========= ========= =========
</TABLE>
See accompanying condensed notes to consolidated financial statements.
<PAGE>
<TABLE>
HASBRO, INC. AND SUBSIDIARIES
Consolidated Statements of Earnings
(Thousands of Dollars Except Share Data)
(Unaudited)
<CAPTION>
Quarter Ended Six Months Ended
------------------- --------------------
Jun. 29, Jun. 30, Jun. 29, Jun. 30,
1997 1996 1997 1996
-------- -------- --------- ---------
<S> <C> <C> <C> <C>
Net revenues $583,886 511,609 1,139,670 1,050,294
Cost of sales 252,917 234,184 488,288 471,955
------- ------- --------- ---------
Gross profit 330,969 277,425 651,382 578,339
------- ------- --------- ---------
Expenses
Amortization 11,194 10,007 21,226 19,806
Royalties, research and
development 87,864 64,356 151,756 118,778
Advertising 66,908 66,171 138,210 136,447
Selling, distribution and
administration 142,289 124,909 277,070 250,274
------- ------- --------- ---------
Total expenses 308,255 265,443 588,262 525,305
------- ------- --------- ---------
Operating profit 22,714 11,982 63,120 53,034
------- ------- --------- ---------
Nonoperating (income) expense
Interest expense 5,493 5,353 9,923 10,259
Other (income), net (3,062) (2,514) (7,233) (5,477)
------- ------- --------- ---------
Total nonoperating expense 2,431 2,839 2,690 4,782
------- ------- --------- ---------
Earnings before income taxes 20,283 9,143 60,430 48,252
Income taxes 7,302 3,157 21,755 17,901
------- ------- --------- ---------
Net earnings $ 12,981 5,986 38,675 30,351
======= ======= ========= =========
Per common share
Net earnings $ .10 .05 .30 .23
======= ======= ========= =========
Cash dividends declared $ .08 .07 .16 .14
======= ======= ========= =========
</TABLE>
See accompanying condensed notes to consolidated financial statements.
<PAGE>
<TABLE>
HASBRO, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Six Months Ended June 29, 1997 and June 30, 1996
(Thousands of Dollars)
(Unaudited)
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Cash flows from operating activities
Net earnings $ 38,675 30,351
Adjustments to reconcile net earnings to net cash
utilized by operating activities:
Depreciation and amortization of plant and equipment 48,297 45,843
Other amortization 21,226 19,806
Deferred income taxes (2,325) 2,882
Change in operating assets and liabilities (other
than cash and cash equivalents):
Decrease in accounts receivable 87,426 101,284
Increase in inventories (78,110) (83,079)
Decrease (increase) in prepaid expenses 1 (6,145)
Decrease in trade payables and accrued liabilities (185,664) (266,450)
Other 739 3,553
------- -------
Net cash utilized by operating activities (69,735) (151,955)
------- -------
Cash flows from investing activities
Additions to property, plant and equipment (34,655) (40,943)
Investments and acquisitions, net of cash acquired (164,153) (21,300)
Other 1,166 (8,310)
------- -------
Net cash utilized by investing activities (197,642) (70,553)
------- -------
Cash flows from financing activities
Proceeds from borrowings with original maturities
of more than three months 70,446 96,026
Repayments of borrowings with original maturities
of more than three months (31,721) (30,990)
Net proceeds of other short-term borrowings 160,646 106,278
Purchase of common stock (63,539) (28,869)
Stock option transactions 18,978 7,991
Dividends paid (18,801) (15,688)
------- -------
Net cash provided by financing activities 136,009 134,748
------- -------
Effect of exchange rate changes on cash (5,093) (3,272)
------- -------
Decrease in cash and cash equivalents (136,461) (91,032)
Cash and cash equivalents at beginning of year 218,971 161,030
------- -------
Cash and cash equivalents at end of period $ 82,510 69,998
======= =======
</TABLE>
<PAGE>
<TABLE>
HASBRO, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (continued)
Six Months Ended June 29, 1997 and June 30, 1996
(Thousands of Dollars)
(Unaudited)
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Supplemental information
Cash paid during the period for:
Interest $ 8,017 8,799
Income taxes $ 74,875 48,790
</TABLE>
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 June 29, 1997 and June 30,
1996, and the results of operations and cash flows for the periods then
ended.
The results of operations for the six months ended June 29, 1997, are
not necessarily indicative of results to be expected for the full year.
(2) On May 2, 1997, the Company purchased certain assets of OddzOn
Products and Cap Toys, Inc. (OddzOn/Cap Toys). The consideration for this
purchase is currently estimated by the Company to be $161,434. Accounting
for this acquisition using the purchase method, the Company has allocated
the purchase price based on preliminary estimates of fair market value
which included $40,610 of net tangible assets, $63,100 of property rights
and licenses and $57,724 of cost in excess of net assets acquired. The
Consolidated Statements of Earnings include the results of OddzOn/Cap Toys
from date of acquisition.
(3) Per share data have been adjusted to reflect the three-for-two stock
split paid March 21, 1997.
(4) 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.
<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 second quarter and six months of 1997 were $583,886
and $1,139,670, respectively, up from the $511,609 and $1,050,294 reported
for the same periods of 1996. Revenue growth continued to be driven by the
strength of the Company's range of boys' products, including those
associated with three of its major entertainment properties, Star Wars(R),
Jurassic Park(TM) and Batman(TM). Also contributing to revenue growth in
the United States markets was Hasbro's acquisition of certain assets of
OddzOn Products and Cap Toys (OddzOn/Cap), during the month of May, which
brought with it such well known brands as Koosh(R) balls, Vortex(TM) sport
products and Cap Toy's line of interactive candy. Internationally,
significant local currency growth was experienced in Canada, Mexico and in
Latin America where the Company has three newly established operations, as
well as more moderate growth in several other countries. The negative
effect of the strengthened dollar, which this quarter amounted to
approximately $10 million, reduced the impact of these gains. Hasbro
Interactive also contributed to revenue growth as its worldwide line of CD-
ROM games continued to be very well accepted.
GROSS PROFIT
- - ------------
The Company's gross profit margin, expressed as a percentage of net
revenues, increased in comparison to 1996 levels; for the quarter to 56.7%
from 54.2%, and for the six months to 57.2% from 55.1%. The mix of products
sold, including the favorable impact of lower levels of sales made at less
than normal margins, contributed to this improvement. Adversely impacting
gross margin for both the quarter and six months were unfavorable changes
in foreign currency rates.
EXPENSES
- - --------
Royalties, research and development expenses for the second quarter and six
months increased both in amount and when expressed as a percentage of net
revenues. The increases were primarily attributable to the royalty
component, reflecting the increased revenues and the change in the mix of
the products sold. Research and development was $37,376 and $68,433 for the
quarter and six months of 1997, respectively, compared with $35,391 and
$65,510 for the same periods of 1996.
Advertising expense for both the second quarter and six months increased
marginally in amount but decreased as a percentage of net revenues. As in
the first quarter, the decreased percentage is the result of several
factors including the lower portion of the Company's revenues coming from
its international marketing units, which generally have higher advertising
to sales ratios than do the United States groups. Also contributing was the
leverage resulting from the major entertainment properties, particularly
with respect to the United States boys' products.
<PAGE>
HASBRO, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial
Condition and Results of Operations
(Thousands of dollars)
The Company's selling, distribution and administration expenses for the
quarter, when expressed as a percentage of revenues, remained constant with
those of a year ago, although increasing in amount. Contributing to the
increase was the impact of the Company's new operations in Latin America
and the OddzOn/Cap acquisition. For the six months, selling, distribution
and administration expenses increased in both amount and percentage, again
reflecting the impact of these new units.
NONOPERATING (INCOME) EXPENSE
- - -----------------------------
Net nonoperating expense for the quarter and six months of 1997 decreased
by $408 and $2,092, respectively. The primary contributors to these
reductions were increased interest income and gains on investments, both
partially offset by increased losses on foreign exchange transactions.
INCOME TAXES
- - ------------
Income tax expense as a percentage of pretax earnings for the quarter and
six months of 1997 was 36% while a year ago it was 34.5% and 37.1%,
respectively. The lower percentage in the second quarter of 1996 was
attributable to the implementation during the quarter of certain tax
strategies which impacted the year to date results. The decrease in the six
month rate of 1997 from that of a year ago reflects the effect of these
strategies as well as changes in Hasbro's operations in the third quarter
of 1996. These strategies and changes realize tax benefits for certain
international operating losses and contribute to a reduction in 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
<PAGE>
HASBRO, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial
Condition and Results of Operations
(Thousands of dollars)
amendment or cancellation by customers prior to shipment. At the end of its
fiscal July (July 27, 1997 and July 28, 1996) the Company's unshipped
orders were approximately $860,000 and $890,000.
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.
Receivables, when measured in days sales outstanding, show a four-day
improvement over 1996, although in amount were approximately $30,000, or 4%
greater, than at the same time a year ago. A major portion of the increase
in amount is attributable to the recently acquired OddzOn/Cap units as well
as the new Latin American operations. In spite of the increases related to
these new units, inventories were less than those of the same period in the
prior year, as the Company continued efforts to balance reduced levels with
customers' needs for prompt fulfillment of their orders. Other assets, as a
group, increased substantially from their 1996 levels, largely due to the
approximate $121,000 of intangible assets acquired in the OddzOn/Cap
transaction.
Net borrowings (short- and long-term borrowings less cash) were only
$12,000 above the 1996 level, even though approximately $161,000 of cash
was utilized for the OddzOn/Cap acquisition and more than $118,000 during
the last twelve months for the continuation of Hasbro's share repurchase
program. At June 29, 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 $340,000 was in use at June 29, 1997.
<PAGE>
HASBRO, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial
Condition and Results of Operations
(Thousands of dollars)
RECENT INFORMATION
- - ------------------
During the quarter, The Financial Accounting Standards Board issued two
pronouncements which Hasbro will adopt in fiscal 1998. The first, Statement
of Financial Accounting Standards No. 130, Reporting Comprehensive Income
(SFAS 130), establishes standards for reporting and display of
comprehensive income and its components in a full set of general-purpose
financial statements. The second, Statement of Financial Accounting
Standards No. 131, Disclosures about Segments of an Enterprise and Related
Information (SFAS 131), establishes requirements for the reporting of
certain information in its financial statements about the operating
segments of a business enterprise. Both SFAS 130 and SFAS 131 relate to
disclosure of financial information and, as such, will not have any impact
on the Company's financial condition or its results of operations.
<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.
At the Company's Annual Meeting of Shareholders held on May
14, 1997, the Company's shareholders reelected the following
persons to the Board of Directors of the Company: Harold P.
Gordon (114,842,921 votes for, 1,115,596 votes withheld); Alex
Grass (114,856,468 votes for, 1,102,049 votes withheld); Alan
G. Hassenfeld (114,839,052 votes for, 1,119,465 votes withheld;
Marie Josee Kravis (114,882,870 votes for, 1,075,647 votes
withheld; and Preston Robert Tisch (114,832,940 votes for,
1,125,577 votes withheld). There were no votes against any
nominee and no broker nonvotes.
In addition, the Company's shareholders ratified the selection
of KPMG Peat Marwick LLP as the independent public accountants
for the Company for the 1997 fiscal year by a vote of
115,725,967 for, 34,032 against, 198,518 abstentions and no
broker nonvotes.
Item 5. Other Information
None.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
4 Amendment No. 4 to Revolving Credit Agreement, dated as
of May 14, 1997, among the Company, certain banks (the
"Banks") and BankBoston, N.A., as agent for the Banks.
11.1 Computation of Earnings Per Common Share - Six Months
Ended June 29, 1997 and June 30, 1996.
11.2 Computation of Earnings Per Common Share - Quarter
Ended June 29, 1997 and June 30, 1996.
12 Computation of Ratio of Earnings to Fixed Charges -
Six Months and Quarter Ended June 29, 1997.
27 Article 5 Financial Data Schedule - Second Quarter 1997
(b) Reports on Form 8-K
A Current Report on Form 8-K, dated July 17, 1997, was filed by
the Company and included the Press Release dated July 17, 1997,
announcing the Company's results for the current quarter.
Consolidated Statements of Earnings (without notes) for the
quarters and six months ended June 29, 1997 and June 30, 1996
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: August 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)
<PAGE>
HASBRO, INC. AND SUBSIDIARIES
Quarterly Report on Form 10-Q
For the Period Ended June 29, 1997
Exhibit Index
Exhibit
No. Exhibits
- - ------- --------
4 Amendment No. 4 to Revolving Credit Agreement, dated as of
May 14, 1997, among the Company, certain banks (the "Banks")
and BankBoston, N.A., as agent for the Banks.
11.1 Computation of Earnings Per Common Share -
Six Months Ended June 29, 1997 and June 30, 1996
11.2 Computation of Earnings Per Common Share -
Quarter Ended June 29, 1997 and June 30, 1996
12 Computation of Ratio of Earnings to Fixed Charges -
Six Months and Quarter Ended June 29, 1997
27 Article 5 Financial Data Schedule - Second Quarter 1997
EXHIBIT 4
AMENDMENT NO. 4
TO
REVOLVING CREDIT AGREEMENT
This Amendment (the "Amendment"), dated as of May 14, 1997, among
Hasbro, Inc., a Rhode Island corporation (the "Company") and BankBoston,
N.A. ("BKB" f/k/a The First National Bank of Boston), The Bank of Nova
Scotia, Citibank, N.A., Fleet National Bank, Bank of America Illinois (as
successor to Continental Bank, N.A.), Mellon Bank, N.A., Istituto Bancario
San Paolo di Torino, S.P.A., Commerzbank AG New York and/or Grand Cayman
Branches and Union Bank of Switzerland, (collectively, the "Banks") and
BankBoston, N.A. (f/k/a The First National Bank of Boston), as agent for
the Banks (the "Agent"), amends the Revolving Credit Agreement dated as of
June 22, 1992, as amended by Amendment No. 1 thereto dated as of April 1,
1994, Amendment No. 2 thereto dated as of May 1, 1995 and Amendment No. 3
thereto dated as of May 10, 1996, among the Company, the Banks and the
Agent (as so amended and as may be further amended and in effect from time
to time, the "Credit Agreement"). Capitalized terms used herein without
definition that are defined in the Credit Agreement shall have the meanings
set forth in the Credit Agreement.
WHEREAS, the Company has requested that the Banks and the Agent make
certain amendments to the Credit Agreement in order, among other things, to
change certain margins and rates, and to extend the maturity date thereof;
and
WHEREAS, Union Bank of Switzerland (the "Declining Bank") and the
Company have agreed that the Declining Bank's Commitment under the Credit
Agreement should not be extended, and the Declining Bank wishes to
terminate its Commitment under the Credit Agreement and to have all
obligations owing to it repaid in full;
WHEREAS, the Banks and the Agent have agreed to make such amendments
upon the terms and conditions described herein;
NOW, THEREFORE, in consideration of the foregoing premises, the
parties hereby agree as follows:
1. Definitions.
-----------
Section 1 of the Credit Agreement is hereby amended as follows:
1.1. Commitment Fee Rate.
-------------------
The definition of "Commitment Fee Rate" is hereby amended by deleting
clause (a) thereof in its entirety and by replacing it with the following
new clause (a):
"(a) With respect to the Revolving Credit Commitment Fee, effective May
14, 1997, the applicable annual percentage rate set forth in the table
below opposite the Debt Ratings with respect to Long Term Senior Debt
of the Company then in effect, subject to the provisions set forth in
<PAGE>
clauses (i) through (iv) of the definition of "Margin":
Debt Rating
----------- Applicable
Standard Commitment
& Poor's Moody's Fee Rate
-------- ------- ----------
AA- or better Aa3 or better 0.06%
A or A+ A2 or A1 0.07%
A- A3 0.08%
BBB+ Baa1 0.09%
BBB Baa2 0.12%
BBB- or below Baa3 or below 0.15%"
1.2. Final Maturity Date.
-------------------
The definition of Final Maturity Date is hereby amended by substituting
the date "May 31, 2000" for the date "May 31, 1999" appearing therein.
1.3. Margin.
------
The definition of Margin is hereby amended by substituting the following
table for the table appearing therein:
"Debt Rating Applicable Margin
----------- -----------------
Euro-
Base currency CD
Standard Rate Rate Rate
& Poor's Moody's Amounts Amounts Amounts
-------- ------- ------- -------- -------
AA- or better Aa3 or better 0% .170% .295%
A or A+ A2 or A1 0% .220% .345%
A- A3 0% .240% .365%
BBB+ Baa1 0% .275% .400%
BBB Baa2 0% .330% .450%
BBB- Baa3 0% .430% .565%
Below BBB- Below Baa3 The applicable Margins for Debt
Ratings of BBB-/Baa3 subject to
Clause (vii) below"
2. Commitment to Lend.
-------------------
Section 2.1(c) of the Credit Agreement is hereby amended by deleting the
table in said Section 2.1(c) and substituting therefor the following:
Amount of Commitment
Bank Commitment Percentage
---- ---------- ----------
FNBB $100,000,000 22.7272728%
The Bank of Nova Scotia $ 60,000,000 13.6363636%
Citibank, N.A. $ 60,000,000 13.6363636%
Fleet National Bank $ 60,000,000 13.6363636%
Mellon Bank, N.A. $ 60,000,000 13.6363636%
<PAGE>
Bank of America Illinois $ 50,000,000 11.3636364%
Istituto Bancario San Paolo
di Torino, S.P.A $ 25,000,000 5.6818182%
Commerzbank AG New York
and/or Grand Cayman Branches $ 25,000,000 5.6818182%
----------- -----------
$440,000,000 100.0000000%
3. Termination of Commitment.
-------------------------
The Commitment of Union Bank of Switzerland (the "Declining Bank") is
terminated as of the date hereof as a result of the assignment of its Loans
and Commitments referred to herein, and from and after the effectiveness of
this Amendment the Declining Bank shall not have any obligations under or
in respect of, or be party to, the Credit Agreement or any other Loan
Documents, and all references to the Banks in the Loan Documents shall be
deemed not to refer to the Declining Bank. The Banks and the Agent
acknowledge and agree that payments shall be made to the Declining Bank in
connection with such assignment to satisfy all outstanding obligations of
the Borrower to the Declining Bank under the Credit Agreement, including
principal, interest and fees, and that such payments shall not be shared
pro rata with the Remaining Banks; provided, however, that no such payment
shall discharge the liability of the Borrower with respect to any of its
obligations to the Declining Bank which are expressly stated to survive the
termination of the Credit Agreement.
4. Conditions to Effectiveness.
---------------------------
The effectiveness of this Amendment shall be conditioned upon the
satisfaction of the following conditions precedent:
4.1. Delivery of Documents.
---------------------
(a) The Company shall have delivered to the Agent, contemporaneously with
the execution hereof, the following, in form and substance satisfactory to
the Banks:
(i) this Amendment signed by the Company;
(ii) certified copies of the resolutions of the Company approving this
Amendment together with Officer's Certificates as to the incumbency and
true signatures of officers; and
(iii) Officer's Certificates of the Company certifying as to the legal
existence, good standing, and qualification to do business of the Company.
(b) each Bank shall have delivered to the Agent this Amendment, signed by
such Bank.
4.2. Legality of Transaction.
-----------------------
No change in applicable law shall have occurred as a consequence of which
it shall have become and continue to be unlawful on the date this Amendment
is to become effective (a) for the Agent or any Bank to perform any of its
<PAGE>
obligations under any of the Loan Documents or (b) for the Company to
perform any of its agreements or obligations under any of the Loan
Documents.
4.3. Performance.
-----------
The Company shall have duly and properly performed, complied with and
observed in all material respects its covenants, agreements and obligations
contained in the Loan Documents required to be performed, complied with or
observed by it on or prior to the date this Amendment is to become
effective. No event shall have occurred on or prior to the date this
Amendment is to become effective and be continuing, and no condition shall
exist on the date this Amendment is to become effective which constitutes a
Default or Event of Default under any of the Loan Documents.
4.4. Assignments and Acceptances.
---------------------------
The Declining Bank shall have assigned and sold to each of Istituto
Bancario San Paolo di Torino, S.P.A. and Commerzbank AG New York and/or
Grand Cayman Branches a portion of its Commitment in the amount of
$25,000,000, and Istituto Bancario San Paolo di Torino, S.P.A. and
Commerzbank AG New York and/or Grand Cayman Branches shall have assumed and
accepted from the Declining Bank, such portion of the Declining Bank's
interests, rights and obligations under the Credit Agreement pursuant to
Assignments and Acceptances in form satisfactory to the parties thereto,
the Borrower and the Agent, (ii) each such Assignment and Acceptance shall
be in full force and effect, (iii) the Declining Bank shall have delivered
its Note to the Borrower for cancellation, (iv) the Borrower shall have
issued to each of Istituto Bancario San Paolo di Torino, S.P.A. and
Commerzbank AG New York and/or Grand Cayman Branches a Note in accordance
with the terms of the Assignment and Acceptance to which such Bank is a
party.
4.5. Proceedings and Documents.
-------------------------
All corporate, governmental and other proceedings in connection with the
transactions contemplated by this Amendment and all instruments and
documents incidental thereto shall be in the form and substance reasonably
satisfactory to the Agent and the Agent shall have received all such
counterpart originals or certified or other copies of all such instruments
and documents as the Agent shall have reasonably requested.
5. Representations and Warranties.
------------------------------
The Company hereby represents and warrants to the Banks as follows:
(a) The representations and warranties of the Company contained in the
Credit Agreement, as amended hereby, were true and correct in all material
respects when made and continue to be true and correct in all material
respects on the date hereof, except that the financial statements referred
to therein shall be the financial statements of the Company most recently
delivered to the Agent, and except as such representations and warranties
are affected by the transactions contemplated hereby;
<PAGE>
(b) The execution, delivery and performance by the Company of this
Amendment and the consummation of the transactions contemplated hereby; (i)
are within the corporate powers of the Company and have been duly
authorized by all necessary corporate action on the part of the Company,
(ii) do not require any approval, consent of, or filing with, any
governmental agency or authority, or any other person, association or
entity, which bears on the validity of this Amendment and which is required
by law or the regulation or rule of any agency or authority, or other
person, association or entity, (iii) do not violate any provisions of any
order, writ, judgment, injunction, decree, determination or award presently
in effect in which the Company is named, or any provision of the charter
documents or by-laws of the Company, (iv) do not result in any breach of or
constitute a default under any agreement or instrument to which the Company
is a party or to which it or any of its properties are bound, including
without limitation any indenture, loan or credit agreement, lease, debt
instrument or mortgage, except for such breaches and defaults which would
not have a material adverse effect on the Company and its subsidiaries
taken as a whole, and (v) do not result in or require the creation or
imposition of any mortgage, deed of trust, pledge or encumbrance of any
nature upon any of the assets or properties of the Company; and
(c) This Amendment, the Credit Agreement as amended hereby, and the other
Loan Documents constitute the legal, valid and binding obligations of the
Company, enforceable against the Company in accordance with their
respective terms, provided that (i) enforcement may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or similar
laws of general application affecting the rights and remedies of creditors,
and (ii) enforcement may be subject to general principles of equity, and
the availability of the remedies of specific performance and injunctive
relief may be subject to the discretion of the court before which any
proceeding for such remedies may be brought.
6. No Other Amendments.
-------------------
Except as expressly provided in this Amendment, all of the terms and
conditions of the Credit Agreement, the Notes and the other Loan Documents
shall remain in full force and effect.
7. Execution in Counterparts.
-------------------------
This Amendment may be executed in any number of counterparts and by each
party on a separate counterpart, each of which when so executed and
delivered shall be an original, but all of which together shall constitute
one instrument. In proving this Amendment, it shall not be necessary to
produce or account for more than one such counterpart signed by the party
against whom enforcement is sought.
8. Effective Date.
--------------
Subject to the satisfaction of the conditions precedent set forth in
paragraph 4 hereof, this Amendment shall be deemed to be effective as of
the date first set forth above.
9. Governing Law.
<PAGE>
-------------
This Amendment is intended to take effect as a sealed instrument and
shall be governed by and construed in accordance with, the internal laws of
the Commonwealth of Massachusetts, without regard to conflicts of law
rules.
IN WITNESS WHEREOF, the Company, the Banks and the Agent have duly
executed this Amendment as of the date first above written.
HASBRO, INC.
By: /s/ John T. O'Neill
---------------------------
Title: Executive Vice President and
Chief Financial Officer
BANKBOSTON, N.A. (f/k/a THE FIRST NATIONAL
BANK OF BOSTON), individually and as Agent
By: /s/ Ellen H. Allen
---------------------------
Title: Director
THE BANK OF NOVA SCOTIA
By: /s/ M. R. Bradley
---------------------------
Title: Authorized Signatory
CITIBANK, N.A.
By: /s/ Robert M. Spence
---------------------------
Title: Attorney in Fact
FLEET NATIONAL BANK
By: /s/ John Webb
---------------------------
Title: Vice President
Bank of America Illinois
<PAGE>
By: /s/ Dale Robert Mason
---------------------------
Title: Vice President
MELLON BANK, N.A.
By: /s/ John Paul Marotta
---------------------------
Title: Assistant Vice President
ISTITUTO BANCARIO SAN PAOLO DI TORINO, s.p.a.
By: /s/ Gerard M. McKenna
---------------------------
Title: Vice President
By: /s/ Robert Wurster
---------------------------
Title: First Vice President
COMMERZBANK AG NEW YORK and/or GRAND CAYMAN
BRANCHES
By: /s/ Subash R. Viswanathan
---------------------------
Title: Vice President
By: /s/ Andrew R. Campbell
---------------------------
Title:Assistant Treasurer
UNION BANK OF SWITZERLAND
By: /s/ Samuel Azizo
---------------------------
Title: Vice President
By: /s/ Deiter Hoeppli
---------------------------
Title: Vice President
<TABLE>
EXHIBIT 11.1
HASBRO, INC. AND SUBSIDIARIES
Computation of Earnings Per Common Share
Six Months Ended June 29, 1997 and June 30, 1996
(Thousands of Dollars and Shares Except Per Share Data)
<CAPTION>
1997 1996(a)
----------------- -----------------
Fully Fully
Primary Diluted Primary Diluted
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net earnings $ 38,675 38,675 30,351 30,351
Interest and amortization on 6%
convertible notes, net of taxes (b) - - - -
------- ------- ------- -------
Net earnings applicable to
common shares $ 38,675 38,675 30,351 30,351
======= ======= ======= =======
Weighted average number of shares
outstanding:(c)
Outstanding at beginning of
period 128,863 128,863 131,017 131,017
Actual exercise of stock
options and warrants 555 555 234 234
Assumed exercise of stock
options and warrants 2,302 2,801 1,629 1,629
Actual conversion of 6%
convertible notes 8 8 1 1
Assumed conversion of 6%
convertible notes (b) - - - -
Purchase of common stock (1,203) (1,203) (510) (510)
------- ------- ------- -------
Total 130,525 131,024 132,371 132,371
======= ======= ======= =======
Per common share:
Net earnings $ .30 .30 .23 .23
======= ======= ======= =======
</TABLE>
(a) Adjusted to reflect the three-for-two stock split paid March 21, 1997.
(b) The effect of these notes is antidilutive and as such is not included.
(c) Computation to arrive at the average number is a weighted average
computation.
<TABLE>
EXHIBIT 11.2
HASBRO, INC. AND SUBSIDIARIES
Computation of Earnings Per Common Share
Quarter Ended June 29, 1997 and June 30, 1996
(Thousands of Dollars and Shares Except Per Share Data)
<CAPTION>
1997 1996(a)
----------------- -----------------
Fully Fully
Primary Diluted Primary Diluted
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net earnings $ 12,981 12,981 5,986 5,986
Interest and amortization on 6%
convertible notes, net of taxes (b) - - - -
------- ------- ------- -------
Net earnings applicable to
common shares $ 12,981 12,981 5,986 5,986
======= ======= ======= =======
Weighted average number of shares
outstanding:(c)
Outstanding at beginning of
period 128,463 128,463 130,602 130,602
Actual exercise of stock
options and warrants 102 102 113 113
Assumed exercise of stock
options and warrants 2,129 2,707 1,970 1,971
Actual conversion of 6%
convertible notes 2 2 1 1
Assumed conversion of 6%
convertible notes (b) - - - -
Purchase of common stock (720) (720) (106) (106)
------- ------- ------- -------
Total 129,976 130,554 132,580 132,581
======= ======= ======= =======
Per common share:
Net earnings $ .10 .10 .05 .05
======= ======= ======= =======
</TABLE>
(a) Adjusted to reflect the three-for-two stock split paid March 21, 1997.
(b) The effect of these notes is antidilutive and as such is not included.
(c) Computation to arrive at the average number is a weighted average
computation.
<TABLE>
EXHIBIT 12
HASBRO, INC. AND SUBSIDIARIES
Computation of Ratio of Earnings to Fixed Charges
Six Months and Quarter Ended June 29, 1997
(Thousands of Dollars)
<CAPTION>
Six
Months Quarter
------- -------
<S> <C> <C>
Earnings available for fixed charges:
Net earnings $ 38,675 12,981
Add:
Fixed charges 17,607 9,473
Income taxes 21,755 7,302
------- -------
Total $ 78,037 29,756
======= =======
Fixed Charges:
Interest on long-term debt $ 4,608 2,304
Other interest charges 5,315 3,189
Amortization of debt expense 170 85
Rental expense representative
of interest factor 7,514 3,895
------- -------
Total $ 17,607 9,473
======= =======
Ratio of earnings to fixed charges 4.43 3.14
======= =======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-28-1997
<PERIOD-END> JUN-29-1997
<CASH> 82,510
<SECURITIES> 0
<RECEIVABLES> 763,812
<ALLOWANCES> 49,600
<INVENTORY> 368,221
<CURRENT-ASSETS> 1,353,856
<PP&E> 558,284
<DEPRECIATION> 262,145
<TOTAL-ASSETS> 2,646,795
<CURRENT-LIABILITIES> 831,518
<BONDS> 149,040
0
0
<COMMON> 66,088
<OTHER-SE> 1,532,943
<TOTAL-LIABILITY-AND-EQUITY> 2,646,795
<SALES> 1,139,670
<TOTAL-REVENUES> 1,139,670
<CGS> 488,288
<TOTAL-COSTS> 488,288
<OTHER-EXPENSES> 311,192
<LOSS-PROVISION> 4,980
<INTEREST-EXPENSE> 9,923
<INCOME-PRETAX> 60,430
<INCOME-TAX> 21,755
<INCOME-CONTINUING> 38,675
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 38,675
<EPS-PRIMARY> .30
<EPS-DILUTED> 0
</TABLE>
