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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 26, 1994 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 July 29, 1994 was 87,745,672. HASBRO, INC. AND SUBSIDIARIES Consolidated Balance Sheets (Thousands of Dollars Except Share Data) (Unaudited) Jun. 26, Jun. 27, Dec. 26, Assets 1994 1993 1993 -------- -------- -------- Current assets Cash and cash equivalents $ 46,427 16,611 186,254 Accounts receivable, less allowance for doubtful accounts of $53,500, $55,900 and $54,200 635,893 647,899 720,442 Inventories: Finished products 271,620 227,028 183,899 Work in process 22,549 37,904 22,486 Raw materials 44,275 50,093 43,682 --------- --------- --------- Total inventories 338,444 315,025 250,067 Deferred income taxes 89,356 78,104 78,413 Prepaid expenses 63,719 63,158 65,959 --------- --------- --------- Total current assets 1,173,839 1,120,797 1,301,135 Property, plant and equipment, net 292,794 253,899 279,803 --------- --------- --------- Other assets Cost in excess of acquired net assets, less accumulated amortization of $75,461, $60,301 and $68,122 469,384 484,487 475,607 Other intangibles, less accumulated amortization of $94,803, $75,189 and $85,290 175,793 196,121 185,953 Other 55,332 22,213 50,520 --------- --------- --------- Total other assets 700,509 702,821 712,080 --------- --------- --------- Total assets $2,167,142 2,077,517 2,293,018 ========= ========= ========= HASBRO, INC. AND SUBSIDIARIES Consolidated Balance Sheets, Continued (Thousands of Dollars Except Share Data) (Unaudited) Jun. 26, Jun. 27, Dec. 26, Liabilities and Shareholders' Equity 1994 1993 1993 -------- -------- -------- Current liabilities Short-term borrowings $ 129,488 207,068 62,242 Current installments of long-term debt 3,214 657 3,236 Trade payables 105,249 100,472 170,309 Accrued liabilities 297,094 288,854 420,476 Income taxes 67,425 67,205 92,051 --------- --------- --------- Total current liabilities 602,470 664,256 748,314 Long-term debt, excluding current installments 200,458 205,736 200,510 Deferred liabilities 70,946 69,878 67,511 --------- --------- --------- Total liabilities 873,874 939,870 1,016,335 --------- --------- --------- 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 88,081,902, 87,464,265 and 87,795,251 44,041 43,732 43,898 Additional paid-in capital 292,455 292,542 296,823 Retained earnings 932,690 785,230 920,956 Cumulative translation adjustments 27,933 16,143 15,006 Treasury stock, at cost, 134,400 shares in 1994 (3,851) - - --------- --------- --------- Total shareholders' equity 1,293,268 1,137,647 1,276,683 --------- --------- --------- Total liabilities and shareholders' equity $2,167,142 2,077,517 2,293,018 ========= ========= ========= See accompanying condensed notes to consolidated financial statements. HASBRO, INC. AND SUBSIDIARIES Consolidated Statements of Earnings (Thousands of Dollars Except Share Data) (Unaudited) Thirteen Weeks Ended Twenty-Six Weeks Ended -------------------- ---------------------- Jun. 26, Jun. 27, Jun. 26, Jun. 27, 1994 1993 1994 1993 -------- -------- -------- -------- Net revenues $444,324 515,551 933,457 1,002,587 Cost of sales 203,178 221,520 411,378 429,541 ------- ------- --------- --------- Gross profit 241,146 294,031 522,079 573,046 ------- ------- --------- --------- Expenses Amortization 8,805 8,717 17,598 17,376 Royalties, research and development 55,102 55,880 105,422 103,283 Advertising 60,428 67,775 124,987 135,612 Selling, distribution and administrative 109,980 113,807 220,270 223,366 ------- ------- --------- --------- Total expenses 234,315 246,179 468,277 479,637 ------- ------- --------- --------- Operating profit 6,831 47,852 53,802 93,409 ------- ------- --------- --------- Nonoperating (income) expense Interest expense 4,609 6,133 10,045 10,548 Other (income), net (435) (2,072) (2,343) (3,801) ------- ------- --------- --------- Total nonoperating expense 4,174 4,061 7,702 6,747 ------- ------- --------- --------- Earnings before income taxes and cumulative effect of change in accounting principles 2,657 43,791 46,100 86,662 Income taxes 1,023 16,641 17,749 32,932 ------- ------- --------- --------- Net earnings before cumulative effect of change in accounting principles 1,634 27,150 28,351 53,730 Cumulative effect of change in accounting principles - - (4,282) - ------- ------- --------- --------- Net earnings $ 1,634 27,150 24,069 53,730 ======= ======= ========= ========= Per common share Net earnings before cumulative effect of change in accounting principles $ .02 .30 .32 .60 ======= ======= ========= ========= Net earnings $ .02 .30 .27 .60 ======= ======= ========= ========= Cash dividends declared $ .07 .06 .14 .12 ======= ======= ========= ========= See accompanying condensed notes to consolidated financial statements. HASBRO, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows Twenty-Six Weeks Ended June 26, 1994 and June 27, 1993 (Thousands of Dollars) (Unaudited) 1994 1993 ---- ---- Cash flows from operating activities Net earnings $ 24,069 53,730 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization of plant and equipment 35,529 32,421 Other amortization 17,598 17,376 Deferred income taxes (13,241) (1,660) Change in current assets and liabilities (other than cash and cash equivalents): (Increase) decrease in accounts receivable 90,098 (12,760) (Increase) in inventories (82,645) (96,808) (Increase) decrease in prepaid expenses 3,193 (5,419) (Decrease) in trade payables and accrued liabilities (219,678) (170,165) Other 1,475 (1,118) ------- ------- Net cash utilized by operating activities (143,602) (184,403) ------- ------- Cash flows from investing activities Additions to property, plant and equipment (45,825) (39,529) Purchase of marketable securities - (141,411) Proceeds from sale of marketable securities - 141,839 Acquisitions, net of cash acquired - (6,023) Other 1,114 3,526 ------- ------- Net cash utilized by investing activities (44,711) (41,598) ------- ------- Cash flows from financing activities Net proceeds of short-term borrowings 63,944 133,870 Repayment of long-term debt (74) (11,617) Stock option and warrant transactions (4,225) 5,208 Purchase of common stock (3,851) - Dividends paid (11,434) (9,607) ------- ------- Net cash provided by financing activities 44,360 117,854 ------- ------- Effect of exchange rate changes on cash 4,126 (1,195) ------- ------- Decrease in cash and cash equivalents (139,827) (109,342) Cash and cash equivalents at beginning of year 186,254 125,953 ------- ------- Cash and cash equivalents at end of period $ 46,427 16,611 ======= ======= Supplemental information Cash paid during the period for: Interest $ 10,958 12,525 Income taxes $ 43,361 48,085 See accompanying condensed notes to consolidated financial statements. HASBRO, INC. AND SUBSIDIARIES Condensed Notes to Consolidated Financial Statements (Thousands of Dollars) (Unaudited) (1) In the opinion of management and subject to year-end audit, the accompanying unaudited interim financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the financial position of the Company as of June 26, 1994 and June 27, 1993, and the results of operations and cash flows for the periods then ended. The results of operations for the twenty-six week period ended June 26, 1994, are not necessarily indicative of results to be expected for the full year. (2) 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 were assumed to be exercised at the beginning of the period or at issuance, if later. The assumed proceeds were then used to purchase common stock at the average market price during the period. For each of the reported periods the difference between primary and fully diluted earnings per share was not significant. HASBRO, INC. AND SUBSIDIARIES Management's Discussion and Analysis of Financial Condition and Results of Operations (Thousands of dollars) NET REVENUES - - ------------ Net revenues for the second quarter and six months of 1994 were $444,324 and $933,457, compared to the $515,551 and $1,002,587 reported for the same periods of 1993. During the quarter, the Company's international revenues were essentially flat while its domestic revenues decreased approximately 20%. Domestically, data received from several larger customers indicates that consumer purchases of the Company's products through the end of June have increased over 1993 levels. With many retailers moving toward more sophisticated inventory management techniques, however, this increase has not yet resulted in a higher level of replacement orders. Additionally, a comparison with 1993 is adversely impacted by the fact that revenues during the second quarter of 1993 were at record levels, in part due to the introduction of certain Jurassic Park(TM) and Barney(R) products in mid-quarter, while 1994 introductions are on a more traditional time-line of late second quarter or early third quarter. Internationally, many of the Company's units were able to exceed last year's amounts in their local currencies although this growth was largely offset by the adverse effect of changed foreign currency translation rates. Although the dollar has recently weakened against certain currencies, for the quarter as a whole it was stronger than in the comparable period of 1993. For the three months, the adverse effect of changed foreign currency translation rates approximated $8,000. COST OF SALES - - ------------- The gross profit margin, expressed as a percentage of net revenues, for the quarter decreased to 54.3% from the 1993 level of 57.0% and for the six months to 55.9% from 57.2%. This deterioration is largely attributable to the effect of the decreased domestic sales volumes as well as a less favorable mix of products sold. EXPENSES - - -------- Royalties, research and development expenses for the second quarter and six months increased as a percentage of revenues and, for the six months, in amount from 1993 levels. The royalty component decreased in both categories, reflecting both the effect of reduced revenues and rates on certain 1993 products which carried higher than traditional royalty rates. Research and development was $32,959 and $61,462 for the second quarter and six months of 1994 compared to $27,113 and $54,101 in the same periods of 1993. These increases were largely attributable to the Company's domestic units whose development efforts have been expanded. HASBRO, INC. AND SUBSIDIARIES Management's Discussion and Analysis of Financial Condition and Results of Operations, Continued (Thousands of dollars) The current quarter advertising decreased approximately $7,300 from the comparable 1993 level while for the six months it decreased approximately $10,600. As a percentage of net revenues, for the quarter it increased to 13.6% from 13.1% in the same period last year and for the six months it decreased to 13.4% from 13.5% a year ago. The reduction in amounts reflect the reduced revenues while the increased percentage during the quarter is largely the result of higher spending to establish selected core brands in certain international markets. Both the second quarter and six months selling, distribution and administrative expenses show decreases from the respective 1993 amounts, while increasing as a percentage of net revenues. The decreases in amount are partially the result of lower distribution costs resulting from the lower revenues, while the increases in percentage are reflective of the fact that most other expenses in this category are relatively fixed. NONOPERATING (INCOME) EXPENSE - - ----------------------------- Interest expense decreased from 1993 levels in both the second quarter and the six months. This decrease reflects the Company's lower borrowing requirements, partially offset by slightly higher interest rates. The major component of other income continues to be income from temporary investments. Also included are various other items, none of which are material, of both income and expense. INCOME TAXES - - ------------ Income tax expense, as a percentage of pretax earnings, was 38.5% for both the second quarter and six months of 1994, compared with 38.0% in both periods of 1993. This increase primarily results from the third quarter 1993 increase in the U. S. federal income tax rate from 34% to 35%. OTHER INFORMATION - - ----------------- 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, more retailers are using quick response inventory management practices which 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. The Company's unshipped orders were approximately $850,000 at July 24, 1994 compared to $950,000 at July 25, 1993. 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. HASBRO, INC. AND SUBSIDIARIES Management's Discussion and Analysis of Financial Condition and Results of Operations, Continued (Thousands of dollars) LIQUIDITY AND CAPITAL RESOURCES - - ------------------------------- Several of the major balance sheet categories, including cash and cash equivalents, accounts receivable, inventories and short-term borrowings, fluctuate significantly from quarter to quarter. This reflects the seasonality of the Company's business coupled with certain customer incentives, mainly in the form of extended payment terms. Generally, accounts receivable, inventories and short-term debt are lower at the end of December and March than at the end of the other quarters while cash and related amounts are higher. As a result, management believes that a comparison to the comparable period in the prior year is generally more meaningful than a comparison to the prior year-end. Cash and cash equivalents were above their 1993 level which is the result of the timing of cash receipts and their currency. The Company attempts to keep its cash at the lowest level possible whenever it has short-term borrowings. At times, however, 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. Receivables were less than at the same time in 1993 reflecting the Company's reduced revenues, partially offset by a change in sales mix with a larger percentage being made to customers with extended payment terms. Inventories were modestly above the level of a year ago as the Company continues to commit to production at levels sufficient to support its anticipated second half revenues. Short-term borrowings, at $129,488 were approximately $77,600 less than last year, reflecting both the Company's decreased activity and the funds generated from operations within the most recent twelve months. Other current liabilities increased marginally, primarily due to timing differences on payments. As part of the traditional marketing strategies of the toy industry, many sales made early in the year are not due for payment until the fourth quarter, thus making it necessary for the Company to borrow significant amounts pending collection of these receivables. At June 26, 1994, the Company had committed unsecured lines of credit totaling approximately $450,000 available to it. It also had available uncommitted lines exceeding $900,000. The Company believes that these amounts are adequate for its needs. Of these available lines, approximately $150,000 was in use at June 26, 1994. RECENT DEVELOPMENTS - - ------------------- On June 22, 1994, the Company announced that the Executive Committee of its Board of Directors authorized the repurchase of up to five million shares of common stock from time to time in the open market or otherwise. This authorization is in addition to the 2,445,300 shares of common stock that the Company is authorized to repurchase pursuant to prior authorization by the Board. Shares repurchased will be used for general corporate purposes including funding of the Company's existing stock option plans. HASBRO, INC. AND SUBSIDIARIES Management's Discussion and Analysis of Financial Condition and Results of Operations, Continued (Thousands of dollars) On July 12, 1994, the Company's outstanding warrants, which were issued in connection with the purchase of assets from Coleco Industries, Inc. in 1989, expired and prior to this date most had been exercised. Under terms of the warrants, upon exercise the Company had the option of either issuing shares of its stock or paying the exercising warrantholder an equivalent amount in cash. For all but a small number of warrants exercised prior to mid-1993, the Company elected to pay the equivalent cash amounts, approximating $16,000, rather than diluting its equity. On July 18, 1994, in response to a public offer to acquire shares in J.W. Spear & Sons PLC at a price of 11.50 pounds sterling per share, the Company tendered all of its approximately 1,400,000 shares. These shares were purchased by the Company in 1990 at a cost of approximately $9,000. On July 29, 1994, the Company exchanged its investment in approximately 1,500,000 shares of Virgin Interactive Entertainment Plc (VIE) for approximately 1,300,000 shares of Blockbuster Entertainment Corporation (Blockbuster). The Company acquired the VIE shares in September 1993 at a cost of approximately $25,000 while the value of the Blockbuster shares on July 29, 1994 was approximately $34,000. 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 11, 1994, the Company's Shareholders, by a vote of 75,077,738 for, 2,419,162 against, 431,516 abstentions and no broker nonvotes, approved the Stock Option Plan for Non-employee Directors of the Company. They also, by a vote of 68,186,493 for, 9,252,726 against, 489,197 abstentions and no broker nonvotes, approved the Senior Management Annual Performance Plan for the Company. In addition, the Company's Shareholders reelected the following persons to the Board of Directors of the Company: Alan G. Hassenfeld (77,265,949 votes for, 662,367 votes withheld); George R. Ditomassi, Jr. (77,422,923 votes for, 505,393 votes withheld); Harold P. Gordon (76,401,225 votes for, 1,527,091 votes withheld); Alex Grass (77,414,385 votes for, 513,931 votes withheld); and Preston Robert Tisch (74,237,060 votes for, 3,691,256 votes withheld). There were no votes against any nominee and no broker nonvotes. Finally, the Company's Shareholders ratified the selection of KPMG Peat Marwick as the independent public accountants for the Company for the 1994 fiscal year by a vote of 77,558,979 for, 28,733 against, 340,704 abstentions and no broker nonvotes. Item 5. Other Information None. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits. 11.1 Computation of Earnings Per Common Share - Twenty-Six Weeks Ended June 26, 1994 and June 27,1993. 11.2 Computation of Earnings Per Common Share - Thirteen Weeks Ended June 26, 1994 and June 27,1993. 12 Computation of Ratio of Earnings to Fixed Charges - Twenty-Six Weeks Ended June 26, 1994. (b) Reports on Form 8-K A current Report on Form 8-K dated June 16, 1994 was filed by the Company and included the Press Release dated June 16, 1994 announcing the Company's revenue and earnings expectations for the second quarter and full year 1994. A current Report on Form 8-K dated July 14, 1994 was filed by the Company and included the Press Release dated July 14, 1994 announcing the Company's results for the current quarter. Consolidated Statements of Earnings (without notes) for the quarters ended June 26, 1994 and June 27, 1993 and Consolidated Condensed Balance Sheets (without notes) as of said dates were also filed. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. HASBRO, INC. ------------ (Registrant) Date: August 4, 1994 By: /s/ John T. O'Neill --------------------- John T. O'Neill Executive Vice President and Chief Financial Officer (Duly Authorized Officer and Principal Financial Officer) HASBRO, INC. AND SUBSIDIARIES Quarterly Report on Form 10-Q For the Period Ended June 26, 1994 Exhibit Index Exhibit No. Exhibits - - ------- -------- 11.1 Statement re computation of per share earnings - twenty-six weeks ended June 26, 1994 and June 27, 1993 11.2 Statement re computation of per share earnings - thirteen weeks ended June 26, 1994 and June 27, 1993 12 Statement re computation of ratios
EXHIBIT 11.1 HASBRO, INC. AND SUBSIDIARIES Computation of Earnings Per Common Share Twenty-Six Weeks Ended June 26, 1994 and June 27, 1993 (Thousands of Dollars and Shares Except Per Share Data) 1994 1993 ----------------- ----------------- Fully Fully Primary Diluted Primary Diluted ------- ------- ------- ------- Net earnings before cumulative effect of change in accounting principles $28,351 28,351 53,730 53,730 Interest and amortization on 6% convertible notes, net of taxes - -(a) - 2,929 ------ ------ ------ ------ Net earnings before cumulative effect of change in accounting principles applicable to common shares 28,351 28,351 53,730 56,659 Cumulative effect of change in accounting principles (4,282) (4,282) - - ------ ------ ------ ------ Net earnings applicable to common shares $24,069 24,069 53,730 56,659 ====== ====== ====== ====== Weighted average number of shares outstanding:(b) Outstanding at beginning of period 87,795 87,795 87,176 87,176 Actual exercise of stock options and warrants 168 168 156 156 Assumed exercise of stock options and warrants 2,008 2,008 2,451 2,790 Assumed conversion of 6% convertible notes - -(a) - 5,114 Purchase of common stock (3) (3) - - ------ ------ ------ ------ Total 89,968 89,968 89,783 95,236 ====== ====== ====== ====== Per common share: Earnings before cumulative effect of change in accounting principles $ .32 .32 .60 .59 Cumulative effect of change in accounting principles (.05) (.05) - - ------ ------ ------ ------ Net earnings $ .27 .27 .60 .59 ====== ====== ====== ====== (a) The effect of these notes in 1994 is antidilutive and as such is not included. (b) 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 Thirteen Weeks Ended June 26, 1994 and June 27, 1993 (Thousands of Dollars and Shares Except Per Share Data) 1994 1993 ----------------- ----------------- Fully Fully Primary Diluted Primary Diluted ------- ------- ------- ------- Net earnings before cumulative effect of change in accounting principles $ 1,634 1,634 27,150 27,150 Interest and amortization on 6% convertible notes, net of taxes - -(a) - 1,464 ------ ------ ------ ------ Net earnings before cumulative effect of change in accounting principles applicable to common shares 1,634 1,634 27,150 28,614 Cumulative effect of change in accounting principles - - - - ------ ------ ------ ------ Net earnings applicable to common shares $ 1,634 1,634 27,150 28,614 ====== ====== ====== ====== Weighted average number of shares outstanding:(b) Outstanding at beginning of period 87,981 87,981 87,307 87,307 Actual exercise of stock options and warrants 63 63 89 89 Assumed exercise of stock options and warrants 1,798 1,798 2,530 2,791 Assumed conversion of 6% convertible notes - -(a) - 5,114 Purchase of common stock (6) (6) - - ------ ------ ------ ------ Total 89,836 89,836 89,926 95,301 ====== ====== ====== ====== Per common share: Earnings before cumulative effect of change in accounting principles $ .02 .02 .30 .30 Cumulative effect of change in accounting principles - - - - ------ ------ ------ ------ Net earnings $ .02 .02 .30 .30 ====== ====== ====== ====== (a) The effect of these notes in 1994 is antidilutive and as such is not included. (b) Computation to arrive at the average number is a weighted average computation.
EXHIBIT 12 HASBRO, INC. AND SUBSIDIARIES Computation of Ratio of Earnings to Fixed Charges Twenty-Six Weeks and Thirteen Weeks Ended June 26, 1994 (Thousands of Dollars) Twenty-Six Thirteen Weeks Weeks ---------- ---------- Earnings available for fixed charges: Net earnings $24,069 1,634 Add: Cumulative effect of change in accounting principles 4,282 - Fixed charges 16,622 7,948 Income taxes 17,749 1,023 ------ ------ Total $62,722 10,605 ====== ====== Fixed Charges: Interest on long-term debt $ 5,849 2,946 Other interest charges 4,196 1,663 Amortization of debt expense 193 96 Rental expense representative of interest factor 6,384 3,243 ------ ------ Total $16,622 7,948 ====== ====== Ratio of earnings to fixed charges 3.77 1.33 ====== ======