SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the period ended March 28, 1999 Commission file number 1-6682
HASBRO, INC.
--------------------
(Name of Registrant)
Rhode Island O5-0155090
- - ------------------------ ------------------------------------
(State of Incorporation) (I.R.S. Employer Identification No.)
1027 Newport Avenue, Pawtucket, Rhode Island 02861
---------------------------------------------------
(Principal Executive Offices)
(401) 431-8697
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports) and (2) has
been subject to such filing requirements for the past 90 days.
Yes X or No
--- ---
The number of shares of Common Stock, par value $.50 per share,
outstanding as of April 25, 1999 was 195,437,108.
<PAGE>
HASBRO, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Thousands of Dollars Except Share Data)
(Unaudited)
Mar. 28, Mar. 29, Dec. 27,
Assets 1999 1998 1998
-------- -------- --------
Current assets
Cash and cash equivalents $ 217,276 430,601 177,748
Accounts receivable, less allowance
for doubtful accounts of $66,000,
$53,400 and $64,400 518,183 362,328 958,826
Inventories:
Finished products 302,346 219,105 283,160
Work in process 13,339 14,743 12,698
Raw materials 38,157 35,249 38,943
--------- --------- ---------
Total inventories 353,842 269,097 334,801
Deferred income taxes 97,034 97,576 100,332
Prepaid expenses 250,090 107,633 218,279
--------- --------- ---------
Total current assets 1,436,425 1,267,235 1,789,986
Property, plant and equipment, net 319,908 271,607 330,355
--------- --------- ---------
Other assets
Cost in excess of acquired net assets,
less accumulated amortization of
$160,563, $131,873 and $152,008 697,936 478,558 704,282
Other intangibles, less accumulated
amortization of $189,279, $145,030
and $192,268 820,939 486,474 837,899
Other 132,035 88,092 131,323
--------- --------- ---------
Total other assets 1,650,910 1,053,124 1,673,504
--------- --------- ---------
Total assets $3,407,243 2,591,966 3,793,845
========= ========= =========
<PAGE>
HASBRO, INC. AND SUBSIDIARIES
Consolidated Balance Sheets, Continued
(Thousands of Dollars Except Share Data)
(Unaudited)
Mar. 28, Mar. 29, Dec. 27,
Liabilities and Shareholders' Equity 1999 1998 1998
-------- -------- --------
Current liabilities
Short-term borrowings $ 295,548 112,465 372,249
Trade payables 123,179 83,075 209,119
Accrued liabilities 552,533 447,949 729,605
Income taxes 41,334 85,991 55,327
--------- --------- ---------
Total current liabilities 1,012,594 729,480 1,366,300
Long-term debt, excluding current
installments 410,146 - 407,180
Deferred liabilities 75,723 59,771 75,570
--------- --------- ---------
Total liabilities 1,498,463 789,251 1,849,050
--------- --------- ---------
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
209,694,630, 139,799,011 and 209,698,516 104,847 69,900 104,849
Additional paid-in capital 521,421 487,734 521,316
Retained earnings 1,623,865 1,454,697 1,621,799
Accumulated other comprehensive earnings (21,235) (12,185) (9,625)
Treasury stock, at cost, 14,095,761,
6,726,738 and 13,523,983 shares (320,118) (197,431) (293,544)
--------- --------- ---------
Total shareholders' equity 1,908,780 1,802,715 1,944,795
--------- --------- ---------
Total liabilities and
shareholders' equity $3,407,243 2,591,966 3,793,845
========= ========= =========
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
--------------------
Mar. 28, Mar. 29,
1999 1998
-------- --------
Net revenues $668,398 482,820
Cost of sales 256,517 204,312
------- -------
Gross profit 411,881 278,508
------- -------
Expenses
Amortization 25,926 14,143
Royalties, research and development 111,942 67,336
Advertising 81,084 55,757
Selling, distribution and administration 163,281 135,249
------- -------
Total expenses 382,233 272,485
------- -------
Operating profit 29,648 6,023
------- -------
Nonoperating (income) expense
Interest expense 11,973 2,312
Other (income), net (2,318) (8,097)
------- -------
Total nonoperating (income) expense 9,655 (5,785)
------- -------
Earnings before income taxes 19,993 11,808
Income taxes 6,198 4,015
------- -------
Net earnings $ 13,795 7,793
======= =======
Per common share
Net earnings
Basic $ .07 .04
======= =======
Diluted $ .07 .04
======= =======
Cash dividends declared $ .06 .05
======= =======
See accompanying condensed notes to consolidated financial statements.
<PAGE>
HASBRO, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Quarters Ended March 28, 1999 and March 29, 1998
(Thousands of Dollars)
(Unaudited)
1999 1998
---- ----
Cash flows from operating activities
Net earnings $ 13,795 7,793
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization of plant and equipment 20,225 19,548
Other amortization 25,926 14,143
Deferred income taxes (2,324) (5,644)
Change in operating assets and liabilities (other
than cash and cash equivalents):
Decrease in accounts receivable 430,525 413,956
Increase in inventories (24,502) (29,002)
Increase in prepaid expenses (34,221) (18,525)
Decrease in trade payables and accrued liabilities (272,221) (255,514)
Other 889 (5,289)
------- -------
Net cash provided by operating activities 158,092 141,466
------- -------
Cash flows from investing activities
Additions to property, plant and equipment (18,547) (17,559)
Investments and acquisitions, net of cash acquired - (17,500)
Other 5,763 10,627
------- -------
Net cash utilized by investing activities (12,784) (24,432)
------- -------
Cash flows from financing activities
Proceeds from borrowings with original maturities
of more than three months 3,500 850
Repayments of borrowings with original maturities
of more than three months (6) (838)
Net repayments of other short-term borrowings (69,195) (7,234)
Purchase of common stock (44,349) (52,371)
Stock option transactions 17,879 28,049
Dividends paid (10,445) (10,640)
------- -------
Net cash utilized by financing activities (102,616) (42,184)
------- -------
Effect of exchange rate changes on cash (3,164) (6,034)
------- -------
Increase in cash and cash equivalents 39,528 68,816
Cash and cash equivalents at beginning of year 177,748 361,785
------- -------
Cash and cash equivalents at end of period $217,276 430,601
======= =======
<PAGE>
HASBRO, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Quarters Ended March 28, 1999 and March 29, 1998
(Thousands of Dollars)
(Unaudited)
1999 1998
------- ------
Supplemental information
Cash paid during the period for:
Interest $ 14,371 1,740
Income taxes $ 10,267 25,226
See accompanying condensed notes to consolidated financial statements.
<PAGE>
HASBRO, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Earnings
Quarters Ended March 28, 1999 and March 29, 1998
(Thousands of Dollars)
(Unaudited)
Quarter Ended
------------------
March 28, March 29,
1999 1998
-------- --------
Net earnings $ 13,795 7,793
Other comprehensive
earnings (loss) (11,610) (8,282)
-------- --------
Total comprehensive earnings (loss) $ 2,185 (489)
======== ========
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 March 28, 1999 and March 29, 1998, and
the results of operations and cash flows for the periods then ended.
The results of operations for the quarter ended March 28, 1999 are not
necessarily indicative of results to be expected for the full year.
(2) Except for the balance sheet presentation of the March 29, 1998
outstanding and treasury shares, all share and per share amounts have been
adjusted to reflect the three-for-two stock split paid March 15, 1999.
(3) Earnings per share data for the fiscal quarters ended March 28, 1999 and
March 29, 1998 were computed as follows:
1999 1998
----------------- -----------------
Basic Diluted Basic Diluted
------- ------- ------- -------
Net earnings $ 13,795 13,795 7,793 7,793
======= ======= ======= =======
Average shares outstanding (in
thousands) 195,898 195,898 199,665 199,665
Effect of dilutive securities;
Options and warrants - 8,723 - 7,648
------- ------- ------- -------
Equivalent shares 195,898 204,621 199,665 207,313
======= ======= ======= =======
Earnings per share $ .07 .07 .04 .04
======= ======= ======= =======
(4) The Company's other comprehensive earnings (loss) primarily results from
foreign currency translation adjustment.
(5) Effective at year end 1998, the Company adopted Statement of Financial
Accounting Standards No. 131, Disclosures about Segments of an Enterprise and
Related Information. Hasbro and its subsidiaries operate in one segment, the
marketing, licensing, development, manufacture and sourcing of toy and game
products on a global basis. The Company has continued to manage its business
under this segment during the first quarter of 1999.
<PAGE>
HASBRO, INC. AND SUBSIDIARIES
Condensed Notes to Consolidated Financial Statements (continued)
(Thousands of Dollars)
(Unaudited)
(6) Late in the fourth quarter of 1997, the Company announced a global
integration and profit enhancement program which anticipated the redundancy of
approximately 2,500 employees, principally in manufacturing, and provided for
actions in three principal areas: a continued consolidation of the Company's
manufacturing operations; the streamlining of marketing and sales, while
exiting from certain underperforming markets and product lines; and the
further leveraging of overheads. Of the $140,000 estimated costs related to
these actions, $125,000 was reported as a nonrecurring charge and $15,000 was
reflected in cost of sales. Of the nonrecurring amount, approximately $54,000
related to severance and people costs, $52,000 to property, plant and
equipment and leases and $19,000 to product line related costs. During 1998,
all employees planned for redundancy had their employment terminated. The
approximate $54,000 accrual remaining at March 28, 1999, is principally
attributable to severance costs, which will be disbursed over the employee's
entitlement period, and costs associated with lease terminations and closing
of certain facilities. In the balance sheet, such property, plant and
equipment is included as a component of other assets. With the exception of
the disposition of certain facilities closed as a result of this program, the
program has been substantially completed.
(7) The Company made three major acquisitions during 1998, having an
aggregate purchase price of $669,737. On April 1, 1998, the Company acquired
substantially all of the business and operating assets of Tiger Electronics,
Inc. and certain affiliates (Tiger). On September 14, 1998, the Company
acquired MicroProse, Inc. (MicroProse) through a cash tender offer of $6.00
for each outstanding share of MicroProse. Upon completion of a short-form
merger, MicroProse became a wholly-owned subsidiary of the Company and each
untendered share was converted into the right to receive $6.00 in cash. On
October 30, 1998, the Company acquired Galoob Toys, Inc. (Galoob) through a
cash tender offer of $12.00 for each outstanding share of Galoob. Upon
completion of a short-form merger, Galoob became a wholly-owned subsidiary of
the Company and each untendered Galoob share was converted into the right to
receive $12.00 in cash.
These three acquisitions were accounted for using the purchase method, and
accordingly, the net assets acquired have been recorded at their estimated
fair value and the results of their operations included from the dates of
acquisition. Based on estimates of fair market value, $90,494 has been
allocated to net tangible assets, $306,710 to product rights, $252,533 to
goodwill and $20,000 to acquired in-process research and development. The
appraised fair value of this acquired in-process research and development
(interactive game software projects under development at the date of
<PAGE>
HASBRO, INC. AND SUBSIDIARIES
Condensed Notes to Consolidated Financial Statements (continued)
(Thousands of Dollars)
(Unaudited)
acquisition) was determined using the discounted cash flow approach,
considered the percentage of completion at the date of acquisition and was
expensed at acquisition.
On a pro forma basis, reflecting these three acquisitions as if they had taken
place at the beginning of the period and after giving effect to adjustments
recording the acquisitions, and excluding the charge for in-process research
and development, unaudited net revenues, net loss and basic and diluted loss
per share for the thirteen weeks ended March 29, 1998 would have been
$562,331, $(20,590), $(.10) and $(.10), respectively. These pro forma results
are not indicative of either future performance or actual results which would
have occurred had the acquisitions taken place at the beginning of the period.
<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 first quarter of 1999 were $668,398, an increase of 38%
over the $482,820 reported for the same period of 1998. This increase reflects
the impact of Tiger Electronics, Inc. (Tiger), acquired on April 1, 1998,
shipments of TELETUBBIES product, increased volume in the Hasbro Interactive
line, WINNERS CIRCLE product line and water toys from the Larami line , as
well as selected shipments of product related to STAR WARS: EPISODE 1: THE
PHANTOM MENACE, the first episode of the new STAR WARS trilogy. The effect of
currency on revenues for the quarter was not material. The first quarter of
1998 was adversely affected by changes in inventory flow policies at Toys `R
Us, a key customer, including a significant reduction in their absolute level
of inventories and a change in their seasonal purchasing patterns.
GROSS PROFIT
- - ------------
The Company's gross profit margin, expressed as a percentage of net revenues,
was 61.6% compared to the 1998 level of 57.7%. This increase is attributable
to the removal of excess capacity resulting from the closure of seven
manufacturing facilities throughout 1998, increased sales of interactive and
promotional products which have a higher gross margin and more favorable
material prices.
EXPENSES
- - --------
Amortization expense of $25,926 in 1999 compares to $14,143 in the same period
of 1998. The increase reflects amortization of both cost in excess of net
assets acquired and property rights arising from the Company's 1998
acquisitions (see note 7).
Royalties, research and development expenses for the quarter increased from
1998 levels in both amount and as a percentage of revenues. The increase in
the royalty component primarily reflects higher rates on Tiger and TELETUBBIES
product sales, the commencement of shipments of new STAR WARS product and
sales of product acquired in connection with the Galoob acquisition, which
occurred in the fourth quarter of 1998. The Company believes this trend of
increasing royalty expense is likely to continue with the higher percentage of
the Company's product which is expected to arise from licensed product
carrying higher royalty rates. Research and development expenditures were
$42,787 and $35,276 in the first quarter of 1999 and 1998, respectively.
<PAGE>
HASBRO, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial
Condition and Results of Operations, Continued
(Thousands of dollars)
As a percentage of net revenues, research and development was 6.4% in 1999,
down from 7.3% in 1998. The increase in amount results from the Company's 1998
acquisitions as well as continued investment to grow the Hasbro Interactive
line, while the decrease in percentage reflects higher revenues in the first
quarter of 1999.
Advertising expense increased as a percentage of net revenues to 12.1% from
11.5% a year ago, as well as increasing in amount. These increases result
primarily from the inclusion of Tiger.
The Company's selling, distribution and administration expenses, which are
largely fixed, increased in amount while decreasing as a percentage of net
revenues from their 1998 levels. The increase in amount is due primarily to
the inclusion of Tiger and the effect of increased 1999 volume on shipping
costs. The decrease in percentage from 1998 reflects the increase in 1999
revenues and the leveraging of costs relating to the 1998 acquisitions of
MicroProse and Galoob.
NONOPERATING (INCOME) EXPENSE
- - -----------------------------
Interest expense for the first quarter of 1999 was $11,973, compared with
$2,312 in the same period of 1998. The increase reflects the costs associated
with funding the Company's 1998 acquisitions as well as the continuation of
the share repurchase program. The change in other nonoperating income, net,
primarily reflects lower earnings from short-term investments and the impact
of foreign exchange.
INCOME TAXES
- - ------------
Income tax expense as a percentage of pretax earnings in the first quarter of
1999 decreased to 31.0% from the full year 1998 rate of 32.0%, while
decreasing from 34.0% in the first quarter of 1998. The decrease in the
quarter to quarter rate reflects the impact of the Tiger acquisition, the
implementation of various tax strategies and the downward trend of the tax on
international earnings due to the reorganization of the Company's global
business.
<PAGE>
HASBRO, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial
Condition and Results of Operations, Continued
(Thousands of dollars)
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 generally will continue,
although the first half of 1999 may represent a greater proportion of full
year revenues than the first half of 1998, principally because of the May 19,
1999 theatrical release of STAR WARS: EPISOSE 1: THE PHANTOM MENACE. 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 and policies of
retailers and differences in overall economic conditions. Also, quick response
inventory management practices now being used results in fewer orders being
placed in advance of shipment and more orders, when placed, for immediate
delivery. As a result, comparisons of unshipped orders on any date in a given
year with those at the same date in a prior year are not necessarily
indicative of sales for the entire year. In addition, it is a general industry
practice that orders are subject to amendment or cancellation by customers
prior to shipment. At the end of its fiscal April (April 25, 1999 and April
26, 1998) the Company's unshipped orders were approximately $788,500 and
$190,000, respectively.
Late in the fourth quarter of 1997, the Company announced a global integration
and profit enhancement program which anticipated the redundancy of
approximately 2,500 employees, principally in manufacturing, and provided for
actions in three principal areas: a continued consolidation of the Company's
manufacturing operations; the streamlining of marketing and sales, while
exiting from certain underperforming markets and product lines; and the
further leveraging of overheads. Of the $140,000 estimated costs related to
these actions, $125,000 was reported as a nonrecurring charge and $15,000 was
reflected in cost of sales. Of the nonrecurring amount, approximately $54,000
related to severance and people costs, $52,000 to property, plant and
equipment and leases and $19,000 to product line related costs. During 1998,
all employees planned for redundancy had their employment terminated. The
approximate $54,000 accrual remaining at March 28, 1999, is principally
attributable to severance costs, which will be disbursed over the employee's
entitlement period, and costs associated with lease terminations and closing
<PAGE>
HASBRO, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial
Condition and Results of Operations, Continued
(Thousands of dollars)
of certain facilities. In the balance sheet, such property, plant and
equipment is included as a component of other assets. With the exception of
the disposition of certain facilities closed as a result of this program, the
program has been substantially completed. The Company initially estimated its
pretax cost savings from this initiative to be $40,000 in 1998 and $350,000
over the period 1998 through 2002. Because of the unanticipated shortfall in
sales to Toys 'R Us during 1998 and product mix, factory utilization rates
were not as high as initially anticipated, which resulted in below target
savings in 1998. The Company estimates that it realized pretax savings of
approximately $30,000 for the full year 1998 and approximately $10,000 for the
first quarter of 1999. The positive cash flow impact from this program has and
will occur largely in the form of reduced outflows for payment of costs
associated with the manufacture and sourcing of products.
LIQUIDITY AND CAPITAL RESOURCES
- - -------------------------------
The seasonality of the Company's business coupled with certain customer
incentives, mainly in the form of extended payment terms, result in the
interim cash flow statements being not 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, 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.
<PAGE>
HASBRO, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial
Condition and Results of Operations, Continued
(Thousands of dollars)
Receivables, at $518,183, were $155,855 greater than March 1998 levels in
spite of higher collections made during the first quarter of 1999. This
primarily reflects the impact of increased 1999 first quarter revenues, which
had a higher proportion of sales in the last month of the quarter, as well as
higher balances at the beginning of the current year, in part due to units
acquired during 1998. Inventories increased approximately 31% from last year's
levels, reflecting the Company's 1998 acquisitions and the planned build-up
for product shipments in connection with the May 19, 1999 release of STAR
WARS: EPISODE 1: THE PHANTOM MENACE, the first episode of the new STAR WARS
trilogy. Other current assets increased to $347,124 at March 1999 from
$205,209 at March 1998 reflecting the impact of the Tiger and MicroProse
acquisitions and an advance royalty under the STAR WARS license agreement.
Property, plant and equipment and other assets, as a group, increased from
their 1998 levels, reflecting the Company's acquisitions of Tiger, MicroProse
and Galoob as well as several acquisitions of product rights and licenses
during the most recent twelve months, all partially offset by twelve
additional months of depreciation and amortization expense.
Net borrowings (short- and long-term borrowings less cash and cash
equivalents) were $488,418 at March 28, 1999 compared to net cash (cash and
cash equivalents less short and long-term borrowings) of $318,136 at March 29,
1998. This change reflects the utilization of approximately $820,000 of cash
during the last twelve months for acquisitions and the Company's continued
repurchase of its common stock on the open market, both of which are
traditionally funded through a combination of cash provided by operating
activities and short- and long-term borrowings. During the year ended December
27, 1998, the Company issued $150,000 of 6.15% notes due July 15, 2008,
$100,000 of 5.60% notes due November 1, 2005 and $150,000 of 6.60% debentures
due July 15, 2028. At March 28, 1999, the Company had committed unsecured
lines of credit totaling approximately $500,000 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 $320,000 was in use at March 28, 1999. Trade payables and
accrued liabilities both increased from the comparable 1998 levels, largely
due to the impact of the Company's 1998 acquisitions and increased inventory
purchases.
<PAGE>
HASBRO, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial
Condition and Results of Operations, Continued
(Thousands of dollars)
YEAR 2000
- - ---------
The Company has developed plans that address its possible exposure from the
impact of the Year 2000. This project is being managed by a global cross-
functional team of employees. The team meets regularly and makes periodic
reports on its progress to a management steering committee, the Audit
Committee of the Board of Directors and the Board of Directors.
The Company has completed the awareness and assessment phases of this project
through the inventorying and assessment of its critical financial, operational
(including imbedded and non-information technology) and information systems.
The renovation phase is now nearing completion, as a number of non-compliant
systems have been modified or replaced and plans are in place for the required
modifications or replacements of other non-compliant systems. A planned global
'enterprise' system became operational at several of the Company's major units
during 1998 and replaced a number of older non-compliant systems. As the
global rollout of this enterprise system continues, additional Year 2000
compliance will occur. The Company is now in the validation and implementation
phases and believes that approximately 90% of its mission critical systems are
currently Year 2000 compliant and virtually all will be by mid-1999. Excluding
costs related to the enterprise system, the Company's out of pocket costs
associated with becoming Year 2000 compliant are estimated to approximate
$3,000. These costs are being expensed as incurred and more than half of this
amount has been spent to date.
The Company is also well into the process of reviewing the Year 2000 readiness
of its customers, vendors and service providers. This review process includes
both the obtaining of confirmation from these business partners of their
readiness as well as reviews of such readiness by independent third party
consultants. While this review process is ongoing, nothing has come to the
attention of the Company that would lead it to believe that its material
customers, vendors and service providers will not be Year 2000 ready.
The Company's risk management program includes disaster recovery contingency
plans that will be expanded by mid-year 1999 to include Year 2000 issues and
may include, for example, the maintaining and development of back-up systems
and procedures, early identification and selection of alternative Year 2000
ready suppliers and service providers, revisions to credit policies and
possible temporary increases in levels of inventories.
<PAGE>
HASBRO, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial
Condition and Results of Operations, Continued
(Thousands of dollars)
Year 2000 readiness has been a senior management priority of the Company for
some time and the Company believes that it is taking such reasonable and
prudent steps as are necessary to mitigate its risks related to Year 2000.
However, the effect, if any, on the Company's results of operations from Year
2000 if it, its customers, vendors or service providers are not fully Year
2000 compliant cannot be reasonably estimated. Notwithstanding the above, the
most likely impact on the Company would be a reduced level of activity in the
early part of the first quarter of the year 2000, a time at which, as a result
of the seasonality of the Company's business, its activities in sales,
manufacturing and sourcing are at their low.
Certain statements contained in this discussion contain "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Such forward-looking statements are inherently subject to known and
unknown risks and uncertainties. The Company's actual actions or results may
differ materially from those expected or anticipated in the forward-looking
statements. Specific factors that might cause such a difference include, but
are not limited to, delays in, or increases in the anticipated cost of, the
implementation of planned actions as a result of unanticipated technical
malfunctions or difficulties which would arise during the validation process
or otherwise; the inherent risk that assurances, warranties, and
specifications provided by third parties with respect to the Company's
systems, or such third party's Year 2000 readiness, may prove to be
inaccurate, despite the Company's review process; the continued availability
of qualified persons to carry out the remaining anticipated phases; the risk
that governments may not be Year 2000 ready, which could affect the commercial
sector in trade, finance and other areas, notwithstanding private sector Year
2000 readiness; whether, despite a comprehensive review, the Company has
successfully identified all Year 2000 issues and risks; and the risk that
proposed actions and contingency plans of the Company and third parties with
respect to Year 2000 issues may conflict or themselves give rise to additional
issues.
<PAGE>
HASBRO, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial
Condition and Results of Operations, Continued
(Thousands of dollars)
RECENT INFORMATION
- - ------------------
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities (SFAS 133), which the Company is required to adopt not
later than the beginning of fiscal 2000. SFAS 133 will require that the
Company record all derivatives, such as foreign exchange contracts, on the
balance sheet at fair value. Changes in derivative fair values will either be
recognized in earnings as an offset to the changes in the fair value of the
related hedged assets, liabilities and firm commitments or, for forecasted
transactions, deferred and recorded as a component of other shareholders'
equity until the hedged transactions occur and are recognized in earnings.
Any portion of a hedging derivative's change in fair value which does not
offset the change in fair value of the underlying exposure will be immediately
recognized in earnings. The Company does not believe adoption of SFAS 133
will have a material impact on either 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.
None
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
10 Amendment No. 1, Dated as of April 22, 1999, to Hasbro,
Inc. Employee Non-Qualified Stock Plan.
11 Computation of Earnings Per Common Share - Quarters Ended
March 28, 1999 and March 29, 1998.
12 Computation of Ratio of Earnings to Fixed Charges -
Quarter Ended March 28, 1999.
27 Financial Data Schedule.
(b) Reports on Form 8-K
A Current Report on Form 8-K dated April 15, 1999 was filed by
the Company and included the Press Release dated April 15, 1999
announcing the Company's results for the current quarter.
Consolidated Statements of Earnings (without notes) for the
quarters ended March 28, 1999 and March 29, 1998 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: May 12, 1999 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 March 28, 1999
Exhibit Index
Exhibit
No. Exhibits
- - ------- --------
10 Amendment No. 1, Dated as of April 22, 1999, to Hasbro, Inc.
Employee Non-Qualified Stock Plan.
11 Statement re computation of per share earnings - quarter
12 Statement re computation of ratios
27 Financial Data Schedule
EXHIBIT 10
AMENDMENT NO. 1, DATED AS OF APRIL 22, 1999,
TO HASBRO, INC. EMPLOYEE NON-QUALIFIED STOCK PLAN.
WHEREAS, the Compensation and Stock Option Committee (the "Committee")
of the Board of Directors of Hasbro, Inc. ("Hasbro") adopted the Employee
Non-Qualified Stock Plan (the "Plan") on February 13, 1997; and
WHEREAS, Hasbro declared two 3 for 2 stock splits, each in the form of a
50% stock dividend paid on March 21, 1997 and March 15, 1999, respectively,
which increased the number of shares subject to the Plan from Four Million
(4,000,000) to Nine Million (9,000,000); and
WHEREAS, pursuant to the power of amendment granted to the Committee in
Section 13 of the Plan, the Committee approved an amendment to the Plan on
April 22, 1999 to add an additional Nine Million (9,000,000) shares to the
Plan;
NOW, THEREFORE, in order to reflect and accomplish the foregoing, the
Plan is hereby amended as follows, effective as of the date hereof:
The first sentence of Section 5 of the Plan is amended to read in its
entirety as follows:
"The aggregate number and class of shares which may be made the subject
of awards granted pursuant to the Plan is Eighteen Million (18,000,000)
shares of common stock of Hasbro, par value $.50 per share (the "Common
Stock"), subject in each case to adjustment as provided in Section 6,
provided, however, that the number of shares which may be made the subject of
awards granted or issued (a) in any one year may not exceed more than 5% of
the outstanding Common Stock and (b) in any five year period may not exceed
10% of the outstanding Common Stock."
IN WITNESS WHEREOF, Hasbro, Inc. has caused this Amendment No. 1 to be
executed by its duly authorized officer as of the 22nd day of April, 1999.
HASBRO, INC.
By: /s/ Phillip H. Waldoks
-----------------------
Title: Senior Vice President - Corporate
Legal Affairs and Secretary
EXHIBIT 11
HASBRO, INC. AND SUBSIDIARIES
Computation of Earnings Per Common Share
Quarters Ended March 28, 1999 and March 29, 1998
(Thousands of Dollars and Shares Except Per Share Data)
1999 1998
----------------- -----------------
Basic Diluted Basic Diluted
------- ------- ------- -------
Net earnings applicable to
common shares $ 13,795 13,795 7,793 7,793
======= ======= ======= =======
Weighted average number of shares
Outstanding (a):
Outstanding at beginning of
period 196,175 196,175 200,162 200,162
Exercise of stock options
and warrants:
Actual 332 332 717 717
Assumed - 8,723 - 7,648
Purchase of common stock (609) (609) (1,214) (1,214)
------- ------- ------- -------
Total 195,898 204,621 199,665 207,313
======= ======= ======= =======
Per common share:
Net earnings $ .07 .07 .04 .04
======= ======= ======= =======
(a) Adjusted to reflect the three-for-two stock split paid March 15, 1999.
EXHIBIT 12
HASBRO, INC. AND SUBSIDIARIES
Computation of Ratio of Earnings to Fixed Charges
Quarter Ended March 28, 1999
(Thousands of Dollars)
Earnings available for fixed charges:
Net earnings $ 13,795
Add:
Fixed charges 16,154
Income taxes 6,198
-------
Total $ 36,147
=======
Fixed Charges:
Interest on long-term debt $ 6,173
Other interest charges 5,800
Amortization of debt expense 108
Rental expense representative
of interest factor 4,073
-------
Total $ 16,154
=======
Ratio of earnings to fixed charges 2.24
=======
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-26-1999
<PERIOD-END> MAR-28-1999
<CASH> 217,276
<SECURITIES> 0
<RECEIVABLES> 584,183
<ALLOWANCES> 66,000
<INVENTORY> 353,842
<CURRENT-ASSETS> 1,436,425
<PP&E> 593,266
<DEPRECIATION> 273,358
<TOTAL-ASSETS> 3,407,243
<CURRENT-LIABILITIES> 1,012,594
<BONDS> 410,146
0
0
<COMMON> 104,847
<OTHER-SE> 1,803,933
<TOTAL-LIABILITY-AND-EQUITY> 3,407,243
<SALES> 668,398
<TOTAL-REVENUES> 668,398
<CGS> 256,517
<TOTAL-COSTS> 256,517
<OTHER-EXPENSES> 218,952
<LOSS-PROVISION> 3,078
<INTEREST-EXPENSE> 11,973
<INCOME-PRETAX> 19,993
<INCOME-TAX> 6,198
<INCOME-CONTINUING> 13,795
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,795
<EPS-PRIMARY> .07
<EPS-DILUTED> .07
</TABLE>
