Hasbro Reports Strong Fourth Quarter and Record Full Year Results
Highest Net Earnings in Company History
Full Year Highlights
- Company reported net earnings of $230.1 million, the highest net earnings in its history;
- Net earnings per diluted share of $1.29 ($1.43 excluding a $0.14 impact from the Lucas mark to market expense), this was the sixth consecutive year of earnings growth;
- Net revenues up 2.1%, or $63.9 million, to $3.2 billion;
- Growth driven by strong performance of core brands including LITTLEST PET SHOP, PLAYSKOOL, NERF, PLAY-DOH, MONOPOLY, TRANSFORMERS, CLUE and MAGIC: THE GATHERING;
- STAR WARS continued to do very well, contributing $284.9 million in revenue for the year; and
- During the year, the Company repurchased approximately 22.8 million shares of common stock at a total cost of $456.7 million.
Fourth Quarter Highlights
- Net earnings per diluted share of $0.62 ($0.74 excluding a $0.12 impact from the Lucas mark to market expense);
- Net revenues increased 4.1%, or $44.2 million, to $1.1 billion, led by a 10% increase in North American segment revenues; and
- Operating profit improved 25.5% to $192.7 million, or 17.3% of revenues.
PAWTUCKET, R.I.--(BUSINESS WIRE)--Feb. 9, 2007--Hasbro, Inc. (NYSE: HAS):Hasbro, Inc. (NYSE: HAS) today reported its 2006 full year and fourth quarter results. For the year, the Company reported record net earnings of $230.1 million, or $1.29 per diluted share, compared to $212.1 million or $1.09 per diluted share in 2005. Excluding the $0.14 impact of the Lucas warrants mark to market expense, 2006 earnings would have been $1.43 per diluted share, a 25% increase over the prior year's results, as adjusted to exclude the impact of the repatriation of foreign earnings and include the impact of stock-based compensation. Earnings per diluted share in 2005, excluding the $0.13 impact from the repatriation of foreign earnings and including the $0.08 impact from stock-based compensation, were $1.14.
For the fourth quarter, the Company reported net earnings of $108.3 million, or $0.62 per diluted share, compared to $94.3 million or $0.48 per diluted share last year. Excluding the impact of the Lucas warrants mark to market expense of $0.12 per diluted share, fourth quarter earnings per diluted share would have been $0.74, a 25% increase over prior year results, as adjusted to exclude the impact of the repatriation of foreign earnings and include the impact of stock-based compensation. Earnings per diluted share in the fourth quarter of 2005, excluding the $0.13 impact from the repatriation of foreign earnings and including the $0.02 impact of stock-based compensation, were $0.59.
For the year, worldwide net revenues were $3.2 billion, an increase of 2.1% or $63.9 million, compared to $3.1 billion a year ago. The 2006 results included $284.9 million in STAR WARS revenue, compared to $494.1 million in the prior year. For the fourth quarter, the Company reported worldwide net revenues of $1.1 billion, an increase of 4.1% or $44.2 million.
"2006 was another good year for Hasbro, we achieved the highest net earnings in the history of the Company," said Alfred J. Verrecchia, President and Chief Executive Officer. "Our performance for both the quarter and year is a solid indication of the success we have had in growing our core brands. Given the exceptional performance of STAR WARS in 2005, it is particularly meaningful to have grown revenue 2.1% for the year and 4.1% for the quarter."
"As we look ahead, we have momentum in our core brands and commitment to continued innovation. With the richest and most diversified toy and game product line in the industry, including product tied to upcoming releases of the TRANSFORMERS and SPIDER-MAN movies, we're very excited about the opportunities for 2007," Verrecchia concluded.
North American segment revenues, which include all of the Company's toys and games business in the United States, Canada and Mexico, were $2.1 billion for the year compared to $2.0 billion a year ago, reflecting strong performances from LITTLEST PET SHOP, CLUE, PLAYSKOOL, MONOPOLY, TRANSFORMERS, NERF, PLAY-DOH and MAGIC: THE GATHERING. The segment reported an operating profit of $276.0 million for the year compared to $165.7 million last year, as adjusted to include the impact of stock-based compensation. In addition to the higher revenues, the improvement in operating profit reflected lower amortization and royalty expenses, as well as a decline in inventory obsolescence expenses.
International segment revenues for the year were $959.3 million compared to $988.6 million a year ago and included a $24.3 million favorable impact from foreign exchange. The results reflect declines in FURBY, STAR WARS and DUEL MASTERS, partially offset by strong performance from a number of core brands including LITTLEST PET SHOP, PLAYSKOOL, TRANSFORMERS and MONOPOLY. The International segment reported an operating profit of $90.9 million for the year compared to an operating profit of $106.4 million in 2005, as adjusted to include the impact of stock-based compensation expense. The decline in operating profit was primarily due to lower revenues.
During the fourth quarter, the Company repurchased approximately 1.6 million shares of common stock at a total cost of $39.5 million. For the year the Company purchased 22.8 million shares at a total cost of $456.7 million. Since June of 2005, Hasbro has repurchased approximately 25.2 million shares, at a total cost of $504.8 million.
"I am pleased we delivered our sixth consecutive year of earnings growth," said David Hargreaves, Chief Financial Officer. "Our balance sheet remains strong and our operating margin at 11.9% is very close to the near-term target of 12% that we have been articulating for a number of years," concluded Hargreaves.
As mentioned above, the quarter and full year results for 2006 were impacted by the Lucas mark to market adjustment. For the quarter and full year periods in 2006, the impact of the mark to market adjustment for the Lucas warrants was a non-cash expense of $24.0 million and $31.8 million, respectively. This compares to non-cash income of $1.0 million and $2.1 million, respectively, for the comparable periods in 2005. 2006 net earnings also include stock-based compensation due to the required implementation of SFAS 123R at the beginning of the year. Net earnings prior to fiscal 2006 did not include stock-based compensation. As previously disclosed in Hasbro's financial statement footnotes, the impact of stock-based compensation expense for the quarter and full year of 2005 under SFAS 123 was $0.02 and $0.08 per diluted share, respectively. A supplemental table for the 2005 quarter and full year results adjusted to include the impact of stock-based compensation is attached. Additionally, the 2005 results include a tax impact of $25.8 million for the repatriation of foreign earnings under the American Jobs Creation Act.
The Company reported full year Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) of $515.7 million compared to $521.6 million in 2005. The attached schedules provide a reconciliation of diluted earnings per share and EBITDA to net earnings for the fourth quarter and full year of 2006 and 2005.
The Company will web cast its fourth quarter earnings conference call at 9:00 a.m. Eastern Standard Time today. Investors and the media are invited to listen at http://www.hasbro.com (select "Corporate Info" from the home page, click on "Investor Information," and then click on the web cast microphone).
Investors and the media are also invited to listen to a Hasbro web cast on Wednesday, February 14, 2007 at 8:00 a.m. Eastern Standard Time, at which time management will be discussing its strategy and new product line for 2007. Please follow the instructions in the prior paragraph to listen to this web cast.
Hasbro is a worldwide leader in children's and family leisure time entertainment products and services, including the design, manufacture and marketing of games and toys ranging from traditional to high-tech. Both internationally and in the U.S., its PLAYSKOOL, TONKA, MILTON BRADLEY, PARKER BROTHERS, TIGER, and WIZARDS OF THE COAST brands and products provide the highest quality and most recognizable play experiences in the world.
Certain statements contained in this release contain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements include expectations concerning the Company's future opportunities and ability to achieve its financial goals and may be identified by the use of forward-looking words or phrases such as "anticipate," "believe," "could," "expect," "intend," "look forward," "may," "planned," "potential," "should," "will" and "would." 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: the Company's ability to design, manufacture, source and ship new and continuing products on a timely and cost-effective basis, interest in and acceptance and purchase of those products by retail customers and consumers in quantities and at prices that will be sufficient to profitably recover development, manufacturing, marketing, royalty and other costs of products; economic and public health conditions in the various markets in which the Company and its customers and suppliers operate throughout the world, including factors which impact the retail market, disposable income or consumer demand for the Company's products, the Company's ability to manufacture and deliver products, higher fuel and other commodity prices, higher transportation costs and potential transportation delays, currency fluctuations and government regulation; the concentration of the Company's customers; the inventory policies of the Company's retail customers, including the concentration of the Company's revenues in the second half and fourth quarter of the year, together with increased reliance by retailers on quick response inventory management techniques, which increases the risk of underproduction of popular items, overproduction of less popular items and failure to achieve tight and compressed shipping schedules; work stoppages, slowdowns or strikes, which may impact the Company's ability to manufacture or deliver product in a timely and cost-effective manner; the bankruptcy or other lack of success of one of the Company's significant retailers which could negatively impact the Company's revenues or bad debt exposure; the impact of competition on revenues, margins and other aspects of the Company's business, including the ability to secure, maintain and renew popular licenses and the ability to attract and retain talented employees in a competitive environment; market conditions, third party actions or approvals and the impact of competition which could reduce demand for the Company's products or delay or increase the cost of implementation of the Company's programs or alter the Company's actions and reduce actual results; the risk that anticipated benefits of acquisitions may not occur or be delayed or reduced in their realization; and other risks and uncertainties as may be detailed from time to time in the Company's public announcements and SEC filings. The Company undertakes no obligation to make any revisions to the forward-looking statements contained in this release or to update them to reflect events or circumstances occurring after the date of this release.
This presentation includes a non-GAAP financial measure as defined under rules of the Securities and Exchange Commission ("SEC"), specifically EBITDA. As required by SEC rules, we have provided reconciliation on the attached schedule of this measure to the most directly comparable GAAP measure. EBITDA (earnings before interest, taxes, depreciation and amortization) represents net earnings excluding, interest expense, income taxes, depreciation and amortization. Management believes that EBITDA is one of the appropriate measures for evaluating the operating performance of the Company because it reflects the resources available for strategic opportunities including, among others, to invest in the business, strengthen the balance sheet, and make strategic acquisitions. However, this measure should be considered in addition to, not as a substitute for, or superior to, net earnings or other measures of financial performance prepared in accordance with GAAP as more fully discussed in the Company's financial statements and filings with the SEC. As used herein, "GAAP" refers to accounting principles generally accepted in the United States of America. This presentation also discusses 2005 segment operating profit and diluted earnings per share adjusted for the impact of stock-based compensation as disclosed under SFAS 123. Management believes that presentation of adjusted 2005 segment operating profit and diluted earnings per share is appropriate in order to provide a comparison to 2006 segment operating results and diluted earnings per share on a consistent basis.
This presentation further discusses diluted earnings per share for the fourth quarter and full year of 2006 excluding the impact of the mark to market adjustment for the Lucas warrants. The Company is required to assess if these warrants, classified as a liability, have a more dilutive impact on earnings per share assuming they were treated as an equity contract. For the fourth quarter and full year of 2006, had the warrants been treated as an equity contract, the mark to market adjustment of $24.0 million and $31.8 million, respectively, would have been added to net earnings for the quarter and full year, and diluted shares would have been increased by 4.1 million and 5.1 million shares, respectively, in the computation of diluted earnings per share. Management believes that the presentation of diluted earnings per share absent the impact of the Lucas warrant mark to market adjustment is helpful to an investor's understanding of the results of the Company's underlying operations and business as the mark to market adjustment is primarily based on changes in the Company's stock price which are beyond the control of management. Finally, the presentation in this release includes 2005 diluted earnings per share absent the impact of the repatriation of foreign earnings. Management believes that the presentation of 2005 earnings excluding the tax expense associated with the repatriation of foreign earnings under the American Jobs Creation Act of 2004 increases the comparability of the prior year results by eliminating a tax charge in 2005 associated with a non-recurring event.
HASBRO, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
December 31, December 25,
(Thousands of Dollars) 2006 2005
-------------------------
ASSETS
Cash and Cash Equivalents $ 715,400 $ 942,268
Accounts Receivable, Net 556,287 523,232
Inventories 203,337 179,398
Other Current Assets 243,291 185,297
------------ ------------
Total Current Assets 1,718,315 1,830,195
Property, Plant and Equipment, Net 181,726 164,045
Other Assets 1,196,864 1,306,903
------------ ------------
Total Assets $ 3,096,905 $ 3,301,143
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Short-term Borrowings $ 10,582 $ 14,676
Current Portion of Long-term Debt - 32,770
Payables and Accrued Liabilities 895,311 863,280
------------ ------------
Total Current Liabilities 905,893 910,726
Long-term Debt 494,917 495,619
Deferred Liabilities 158,205 171,322
------------ ------------
Total Liabilities 1,559,015 1,577,667
Total Shareholders' Equity 1,537,890 1,723,476
------------ ------------
Total Liabilities and Shareholders' Equity $ 3,096,905 $ 3,301,143
============ ============
HASBRO, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Quarter Ended Year Ended
----------------------- -----------------------
(Thousands of Dollars December December December December
and Shares Except Per 31, 25, 31, 25,
Share Data) 2006 2005 2006 2005
-----------------------------------------------
Net Revenues $1,116,398 $1,072,243 $3,151,481 $3,087,627
Cost of Sales 445,913 450,755 1,303,885 1,286,271
----------- ----------- ----------- -----------
Gross Profit 670,485 621,488 1,847,596 1,801,356
Amortization 21,038 22,183 78,934 102,035
Royalties 62,191 89,077 169,731 247,283
Research and Product
Development 49,143 43,644 171,358 150,586
Advertising 126,847 128,362 368,996 366,371
Selling, Distribution
and Administration 218,573 184,639 682,214 624,560
----------- ----------- ----------- -----------
Operating Profit 192,693 153,583 376,363 310,521
Interest Expense 7,425 7,341 27,521 30,537
Other (Income)
Expense, Net 14,719 (8,880) 7,368 (30,929)
----------- ----------- ----------- -----------
Earnings before Income
Taxes 170,549 155,122 341,474 310,913
Income Taxes 62,267 60,851 111,419 98,838
----------- ----------- ----------- -----------
Net Earnings $ 108,282 $ 94,271 $ 230,055 $ 212,075
=========== =========== =========== ===========
Per Common Share
Net Earnings
Basic $ 0.68 $ 0.53 $ 1.38 $ 1.19
=========== =========== =========== ===========
Diluted $ 0.62 $ 0.48 $ 1.29 $ 1.09
=========== =========== =========== ===========
Cash Dividends
Declared $ 0.12 $ 0.09 $ 0.48 $ 0.36
=========== =========== =========== ===========
Weighted Average
Number of Shares
Basic 159,655 178,057 167,100 178,303
=========== =========== =========== ===========
Diluted 175,049 196,883 181,043 197,436
=========== =========== =========== ===========
HASBRO, INC.
Supplemental Financial Data
Major Segment Results and EBITDA
(Thousands of Dollars)
Quarter Ended Year Ended
------------------ ----------------------
December December December December
31, 25, % 31, 25, %
2006 2005 Change 2006 2005 Change
------------------------- -----------------------------
Major Segment
Results
(2005 Operating
Profit
Adjusted (1))
North American
Segment
---------------
External Net
Revenues $712,554 $649,600 10% $2,130,290 $2,038,556 4%
Operating
Profit 129,206 50,342 157% 275,959 165,676 67%
International
Segment
---------------
External Net
Revenues 380,163 398,342 -5% 959,319 988,591 -3%
Operating
Profit 64,107 80,201 -20% 90,893 106,435 -15%
Reconciliation
of EBITDA
Net Earnings $108,282 $ 94,271 $ 230,055 $ 212,075
Interest
Expense 7,425 7,341 27,521 30,537
Income Taxes 62,267 60,851 111,419 98,838
Depreciation 13,802 20,572 67,773 78,097
Amortization 21,038 22,183 78,934 102,035
------------------ ----------------------
EBITDA $212,814 $205,218 $ 515,702 $ 521,582
================== ======================
(1) 2005 segment operating profit has been adjusted to include the
amount of stock-based compensation as disclosed under SFAS 123.
Because 2006 operating profit includes stock-based compensation
expense, management believes that presentation of adjusted 2005
segment operating profit is appropriate in order to provide a
comparison to 2006 segment operating results. See the attached
Supplemental Financial Data schedule for a reconciliation of reported
segment operating profit to the segment operating profit adjusted for
stock-based compensation under SFAS 123.
HASBRO, INC.
Supplemental Financial Data
(Thousands of Dollars and Shares, Except Per Share Data)
Earnings Per Share
2006 2005
------------------- -------------------
Basic Diluted Basic Diluted
--------- --------- --------- ---------
Quarter
-----------------------------
Net earnings $108,282 $108,282 $ 94,271 $ 94,271
Effect of dilutive
securities:
Change in fair value of
liabilities potentially
settleable in common stock - - - (750)
Interest expense on
contingent convertible
debentures due 2021 - 1,066 - 1,066
--------- --------- --------- ---------
$108,282 $109,348 $ 94,271 $ 94,587
========= ========= ========= =========
Average shares outstanding 159,655 159,655 178,057 178,057
Effect of dilutive
securities:
Liabilities potentially
settleable in common stock - - - 5,396
Contingent convertible
debentures due 2021 - 11,574 - 11,574
Options and warrants - 3,820 - 1,856
--------- --------- --------- ---------
Equivalent shares 159,655 175,049 178,057 196,883
========= ========= ========= =========
Net earnings per share $ 0.68 $ 0.62 $ 0.53 $ 0.48
========= ========= ========= =========
Full Year
-----------------------------
Net earnings $230,055 $230,055 $212,075 $212,075
Effect of dilutive
securities:
Change in fair value of
liabilities potentially
settleable in common stock - - - (2,080)
Interest expense on
contingent convertible
debentures due 2021 - 4,262 - 4,263
--------- --------- --------- ---------
$230,055 $234,317 $212,075 $214,258
========= ========= ========= =========
Average shares outstanding 167,100 167,100 178,303 178,303
Effect of dilutive
securities:
Liabilities potentially
settleable in common stock - - - 5,339
Contingent convertible
debentures due 2021 - 11,574 - 11,574
Options and warrants - 2,369 - 2,220
--------- --------- --------- ---------
Equivalent shares 167,100 181,043 178,303 197,436
========= ========= ========= =========
Net earnings per share $ 1.38 $ 1.29 $ 1.19 $ 1.09
========= ========= ========= =========
HASBRO, INC.
Supplemental Financial Data
(Thousands of Dollars, Except Per Share Data)
2005 Net Earnings including the Effect of
Stock-based Compensation Expense under
SFAS 123
Quarter Ended Year Ended
Dec. 25, 2005 Dec. 25, 2005
------------- -------------
Net Earnings, as Reported (1) $ 94,271 $ 212,075
Stock-based Compensation Expense (6,066) (23,044)
Tax Benefit 2,025 7,966
------------- -------------
Stock-based Compensation Expense, Net
of Tax (4,041) (15,078)
------------- -------------
Net Earnings, Including the Effect of
Stock-based Compensation Expense (2) $ 90,230 $ 196,997
============= =============
Diluted Net Earnings Per Share, as
Reported (1) $ 0.48 $ 1.09
Stock-based Compensation, Net of Tax, Per
Share (2) (0.02) (0.08)
------------- -------------
Diluted Net Earnings Per Share, Including
the Effect of Stock-based Compensation
(2) $ 0.46 $ 1.01
============= =============
2005 Major Segment Results
Quarter Ended Year Ended
Dec. 25, 2005 Dec. 25, 2005
------------- -------------
North American Segment
------------------------------------------
External Net Revenues (3) $ 649,600 $ 2,038,556
============= =============
Operating Profit (3) $ 54,402 $ 181,093
Stock-based Compensation Expense (4,060) (15,417)
------------- -------------
Adjusted Operating Profit (4) $ 50,342 $ 165,676
============= =============
International Segment
------------------------------------------
External Net Revenues (3) $ 398,342 $ 988,591
============= =============
Operating Profit (3) $ 81,336 $ 110,744
Stock-based Compensation Expense (1,135) (4,309)
------------- -------------
Adjusted Operating Profit (4) $ 80,201 $ 106,435
============= =============
(1) Net earnings and diluted net earnings per share prior to fiscal
2006 did not include stock-based compensation expense under SFAS
123R.
(2) Stock-based compensation expense and stock-based compensation
expense per share prior to fiscal 2006 are calculated based on the
amounts as previously disclosed in Hasbro's 2005 quarterly and annual
financial statement footnotes.
(3) Effective the beginning of fiscal 2006, Hasbro has restructured
its business and as a result its operating segments. External net
revenues and operating profit reflect the 2005 results, as reported,
reclassified into our new operating segment presentation.
(4) 2005 segment operating profit has been adjusted to reflect 2005
stock-based compensation expense as disclosed under SFAS 123.
CONTACT: Hasbro, Inc.
Investor Relations
Karen A. Warren, 401-727-5401
or
News Media
Wayne S. Charness, 401-727-5983
SOURCE: Hasbro, Inc.
