HASBRO INC - 10-Q Quarterly Report

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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 quarterly period ended June 30, 2002

Commission file number 1-6682

HASBRO, INC.

(Exact Name of Registrant, As Specified in its Charter)

Rhode Island	05-0155090
(State of Incorporation)	(I.R.S. Employer Identification No.)

1027 Newport Avenue, Pawtucket, Rhode Island 02862

(Address of Principal Executive Offices, Including Zip Code)

(401) 431-8697

(Registrant's Phone Number, Including Area Code)

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 26, 2002 was 173,140,341.

PART I. FINANCIAL INFORMATION

ITEM 1: FINANCIAL STATEMENTS

HASBRO, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(Thousands of Dollars Except Share Data)

		(Unaudited)
		June 30,	July 1,	Dec. 30,
Assets		2002	2001	2001
		---------	---------	---------
Current assets
Cash and cash equivalents	$	57,057	56,819	233,095
Accounts receivable, less allowance
for doubtful accounts of $50,500,
$56,200 and $49,300		479,443	399,402	572,499
Inventories:
Finished products		250,660	291,002	180,286
Work in process		13,405	24,007	19,639
Raw materials		15,808	21,629	17,554
		--------------	--------------	--------------
Total inventories		279,873	336,638	217,479

Deferred income taxes		99,078	151,078	103,657
Prepaid expenses		191,841	234,344	241,888
		--------------	--------------	--------------
Total current assets		1,107,292	1,178,281	1,368,618

Property, plant and equipment, net		228,588	268,054	235,360
		--------------	--------------	--------------

Other assets
Goodwill		465,212	784,670	761,575
Other intangibles, less accumulated
amortization of $434,300, $355,100
and $398,200		763,364	849,001	805,027
Other		320,321	253,783	198,399
		--------------	--------------	--------------
Total other assets		1,548,897	1,887,454	1,765,001
		--------------	--------------	--------------

Total assets	$	2,884,777	3,333,789	3,368,979
		========	========	========

HASBRO, INC. AND SUBSIDIARIES

Consolidated Balance Sheets, continued

(Thousands of Dollars Except Share Data)

				(Unaudited)
				June 30,		July 1,		Dec. 30,
Liabilities and Shareholders' Equity				2002		2001		2001
				---------		---------		---------
Current liabilities
Short-term borrowings			$	17,066		173,253		34,024
Current installments of long-term debt				277,928		1,729		2,304
Accounts payable				124,127		148,703		123,109
Accrued liabilities				429,081		468,138		599,154
				--------------		--------------		--------------
		Total current liabilities		848,202		791,823		758,591

Long-term debt, excluding current
	installments			846,361		1,167,035		1,165,649
Deferred liabilities				98,185		117,000		91,875
				--------------		--------------		--------------
		Total liabilities		1,792,748		2,075,858		2,016,115
				--------------		--------------		--------------
Shareholders' equity
Preference stock of $2.50 par
	value. Authorized 5,000,000
	shares; none issued			-		-		-
Common stock of $.50 par value.
	Authorized 600,000,000 shares;
	issued 209,694,630 at June 30, 2002,
	July 1, 2001 and December 30, 2001			104,847		104,847		104,847
Additional paid-in capital				459,184		462,149		457,544
Deferred compensation				(1,836	)	(4,436	)	(2,996	)
Retained earnings				1,323,336		1,529,689		1,622,402
Accumulated other comprehensive earnings				(37,563	)	(63,647	)	(68,398	)
Treasury stock, at cost; 36,550,420
	37,156,990 and 36,736,156 shares			(755,939	)	(770,671	)	(760,535	)
				--------------		--------------		--------------
		Total shareholders' equity		1,092,029		1,257,931		1,352,864
				--------------		--------------		--------------

		Total liabilities and shareholders' equity	$	2,884,777		3,333,789		3,368,979
				========		========		========

See accompanying condensed notes to consolidated financial statements.

HASBRO, INC. AND SUBSIDIARIES
Consolidated Statements of Operations

(Thousands of Dollars Except Per Share Data)
(Unaudited)


			Quarter Ended					Six Months Ended
			--------------------					-------------------------
			June 30, 2002 - --------			July 1, 2001 - --------		June 30, 2002 - ---------		July 1, 2001 - ---------
Net revenues			$	545,990		510,971		998,257		974,257
Cost of sales				196,165		204,008		362,579		393,813
				------------		------------		-------------		-------------
Gross profit				349,825		306,963		635,678		580,444
				------------		------------		-------------		-------------
Expenses
	Amortization			22,766		28,862		44,215		58,283
	Royalties			65,712		39,961		117,168		66,399
	Research and product development			36,770		29,907		69,983		60,204
	Advertising			58,507		51,065		105,396		98,678
	Selling, distribution and administration			152,069		157,209		291,260		311,028
				------------		-------------		-------------		--------------
		Total expenses		335,824		307,004		628,022		594,592
				------------		-------------		-------------		--------------
Operating profit (loss)				14,001		(41	)	7,656		(14,148	)
				------------		-------------		-------------		--------------
Nonoperating (income) expense
	Interest expense			18,317		25,321		37,859		51,211
	Other (income) expense, net			30,667		1,595		27,832		(3,170	)
				------------		-------------		-------------		--------------
		Total nonoperating (income) expense		48,984		26,916		65,691		48,041
				------------		-------------		-------------		--------------
Earnings (loss) before income taxes and
	cumulative effect of accounting change			(34,983	)	(26,957	)	(58,035	)	(62,189	)
Income taxes				(9,095	)	(8,626	)	(15,089	)	(19,900	)
				------------		-------------		-------------		--------------
Net earnings (loss) before cumulative
	effect of accounting change			(25,888	)	(18,331	)	(42,946	)	(42,289	)
Cumulative effect of accounting change,
	net of tax			-		-		(245,732	)	(1,066	)
				------------		-------------		-------------		--------------
Net earnings (loss)			$	(25,888	)	(18,331	)	(288,678	)	(43,355	)
				=======		=======		=======		========

(continued)

HASBRO, INC. AND SUBSIDIARIES
Consolidated Statements of Operations (continued)

(Thousands of Dollars Except Per Share Data)
(Unaudited)


			Quarter Ended					Six Months Ended
			--------------------					-------------------------
			June 30, 2002 - --------			July 1, 2001 - --------		June 30, 2002 - ---------		July 1, 2001 - ---------
Basic and diluted per common share
	Earnings (loss) before cumulative
	effect of accounting change		$	(0.15	)	(0.11	)	(0.25	)	(0.25	)
				=======		=======		=======		========
	Cumulative effect of accounting
	change, net of tax		$	-		-		(1.42	)	(0.01	)
				=======		=======		=======		========
	Net earnings (loss)		$	(0.15	)	(0.11	)	(1.67	)	(0.25	)
				=======		=======		=======		========
	Cash dividends declared	$		.03		.03		.06		.06
				=======		=======		=======		========

See accompanying condensed notes to consolidated financial statements.

HASBRO, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Six Months Ended June 30, 2002 and July 1, 2001

(Thousands of Dollars)
(Unaudited)
						2002		2001
						-------		-------
Cash flows from operating activities
	Net earnings (loss)				$	(288,678	)	(43,355	)
	Adjustments to reconcile net earnings to net cash
	provided (utilized) by operating activities:
		Cumulative effect of accounting change, net of tax				245,732		1,066
		Depreciation and amortization of plant and equipment				40,258		41,622
		Other amortization				44,215		58,283
		Loss on impairment of investment				38,633		-
		Deferred income taxes				7,208		40,125
		Compensation earned under restricted stock programs				818		1,562
	Change in operating assets and liabilities (other
		than cash and cash equivalents):
		Decrease in accounts receivable				103,156		273,985
		Increase in inventories				(53,717	)	(13,807	)
		Decrease in prepaid expenses				62,731		21,412
		Decrease in accounts payable and accrued liabilities				(163,271	)	(356,622	)
		Other, including long-term advances				(113,988	)	(10,341	)
						------------		------------
				Net cash provided (utilized) by operating activities		(76,903	)	13,930
						------------		------------
Cash flows from investing activities
		Additions to property, plant and equipment				(25,550	)	(22,534	)
		Investments and acquisitions, net of cash acquired				(7,419	)	-
		Other				855		2,587
						------------		------------
				Net cash utilized by investing activities		(32,114	)	(19,947	)
						------------		------------
Cash flows from financing activities
		Repayments of borrowings with original maturities
			of more than three months			(50,000	)	(25,000	)
		Net repayments of other short-term borrowings				(16,897	)	(24,647	)
		Stock option transactions				2,591		1,737
		Dividends paid				(10,383	)	(10,347	)
						------------		------------
				Net cash utilized by financing activities		(74,689	)	(58,257	)
						------------		------------
Effect of exchange rate changes on cash						7,668		(6,022	)
						------------		------------
				Decrease in cash and cash equivalents		(176,038	)	(70,296	)
Cash and cash equivalents at beginning of year						233,095		127,115
						------------		------------
				Cash and cash equivalents at end of period	$	57,057		56,819
						=======		=======

HASBRO, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (continued)
Six Months Ended June 30, 2002 and July 1, 2001

(Thousands of Dollars)
(Unaudited)


		2002		2001
		-------		-------
Supplemental information
Cash paid (received) during the period for:
Interest	$ 39,552			$ 50,267
Income taxes	$(50,402		)	$(49,909	)

See accompanying condensed notes to consolidated financial statements.

HASBRO, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Earnings

(Thousands of Dollars)
(Unaudited)


	Quarter Ended						Six Months Ended
	------------------						------------------
	June 30, 2002 - -------			July 1, 2001 - -------			June 30, 2002 - -------		July 1, 2001 - -------
Net earnings (loss)	$	(25,888	)		(18,331	)	(288,678	)	(43,355	)
Cumulative effect of accounting change		-			-		-		(753	)
Other comprehensive earnings (loss)		37,695			6,320		30,835		(18,176	)
		----------			----------		----------		----------
Total comprehensive earnings (loss)	$	11,807			(12,011	)	(257,843	)	(62,284	)
		======			======		======		======

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 30, 2002 and July 1, 2001, and the results of operations and cash flows for the periods then ended in accordance with U.S. GAAP.

The year to date periods ended June 30, 2002 and July 1, 2001 are 26-week periods.

The results of operations for the six months ended June 30, 2002 are not necessarily indicative of results to be expected for the full year.

(2) The Company's other comprehensive earnings (loss) for the quarter and six months ended June 30, 2002 and July 1, 2001 consist of the following:

		Quarter Ended				Six Months Ended
		June 30,		July 1,		June 30,		July 1,
		2002		2001		2002		2001
		---------		---------		---------		---------
Foreign currency translation adjustments	$	34,526		(1,488	)	28,391		(21,252	)
Changes in value of available-for-sale securities		(16,367	)	7,223		(17,784	)	(1,351	)
Gains (losses) on cash flow hedging activities, net of tax		(7,620	)	780		(6,677	)	4,590
Reclassifications to earnings		27,156		(195	)	26,905		(163	)
		----------		----------		----------		----------
	$	37,695		6,320		30,835		(18,176	)
		======		======		======		======

Reclassification adjustments from other comprehensive earnings to earnings for the quarter ended June 30, 2002 are comprised primarily of an impairment charge relating to an other than temporary decrease in the value of the Company's available-for-sale securities. Additionally for the quarter and six months ended June 30, 2002, net gains on cash flow hedging derivatives for which the related transaction has impacted earnings and was reflected in costs of sales, have been reclassified to earnings. The gains on cash flow hedging derivatives for the quarter and six months ended June 30, 2002 are net of losses on cash flows reclassified to earnings as the result of hedge ineffectiveness of $14 and $18 for the respective periods.

Reclassification adjustments from other comprehensive earnings for the quarter and six months ended July 1, 2001 consist primarily of net gains on cash flow hedging derivatives for which the related transaction had impacted earnings, largely offset by losses on available-for-sale securities sold during the period. The gains on cash flow hedging derivatives for the quarter ended July 1, 2001 include gains on cash flows reclassified to earnings as the result of hedge ineffectiveness of $10, while the gains on cash flow hedging derivatives for the six months ended July 1, 2001 were net of losses on cash flows reclassified to earnings as the result of hedge ineffectiveness of $32. Additionally, in the six months ended July 1, 2001, a loss of $1,103 was recognized in earnings relating to changes in fair value of derivatives which the Company excluded from its assessment of hedge effectiveness. There was no such amount for the quarter ended June 30, 2002.

HASBRO, INC. AND SUBSIDIARIES
Condensed Notes to Consolidated Financial Statements (continued)
(Thousands of Dollars)
(Unaudited)

The Company expects substantially all of the remaining deferred loss of $5,174 on derivative hedging instruments in accumulated other comprehensive earnings to be reclassified to earnings within the next twelve months. The remainder of the balance in accumulated other comprehensive income relates primarily to losses on the translation of foreign currency financial statements.

(3) Effective at the beginning of fiscal 2002, the Company adopted Statement of Financial Accounting Standards No. 141, "Business Combinations", and No. 142, "Goodwill and Other Intangible Assets." As a result of adopting these statements, the Company's goodwill and certain intangible assets are no longer amortized. In addition, the Company evaluated its existing intangible assets and goodwill acquired in prior purchase business combinations based on the requirements included in Statement 141 and reassessed the useful lives and residual values of those intangible assets other than goodwill. As a result of this assessment, the lives of product rights having a net book value of $75,700 obtained in the Company's acquisition of Milton Bradley in 1984 and Tonka in 1991 were determined to have an indefinite life and tested for impairment in accordance with the provisions of Statement 142. No other reclassifications or adjustments of remaining useful lives were made as a result of this assessmen t.

Statement 142 requires the Company to perform an annual impairment test for goodwill and intangible assets with indefinite lives. Additionally, within six months of adopting the statement, the Company was required to perform an assessment of whether there was an indication that goodwill was impaired as of the date of adoption. This assessment was completed during the second quarter. As part of this assessment, the Company allocated goodwill and other corporate assets and liabilities to its various reporting units. It then compared the carrying values of its reporting units to the fair values of these reporting units. The fair values of the reporting units were calculated using an income approach, which looks to the present value of expected future cash flows and compares these values in total with the fair value of the business based on market capitalization at the date of testing. Based on the result of this assessment, the Company recorded a one-time transitional charge of $245,732, net of tax, resultin g from the impairment of goodwill relating to the U.S. Toys reporting unit. This transitional charge was recorded as a cumulative effect of a change in accounting principle and, in accordance with the statement, recorded retroactively to the first quarter.

A portion of the Company's goodwill and other intangible assets reside in the Corporate segment of the business. For purposes of SFAS 142 testing, these assets were allocated to the reporting units within the Company's operating segments. Including this allocation, the changes in carrying amount of goodwill, by operating segment for the six months ended June 30, 2002 are as follows:


	U.S. Toys	Games	International	Corporate	Total
	-------------	----------	-----------------	--------------	-------
Balance at Dec. 30, 2001	$105,773	158,321	19,893	477,588	$761,575
Allocation of Corporate	208,885	104,893	163,810	(477,588)	-
Impairment	(296,223)	-	-	-	(296,223)
Foreign Exchange	-	-	1,311	-	1,311
Other	-	(1,451)	-	-	(1,451)
	--------------	------------	-----------	------------	--------------
	$ 18,435	261,763	185,014	-	$465,212
	========	=======	======	=======	========

HASBRO, INC. AND SUBSIDIARIES
Condensed Notes to Consolidated Financial Statements (continued)
(Thousands of Dollars)
(Unaudited)

The other reduction in the carrying value of the Games segment goodwill results primarily from the settlement of a dispute with the former shareholders of Wizards of the Coast, which was acquired in September 1999.

The following table provides a reconciliation of the reported net income by quarter for 2001 to adjusted net income had SFAS 142 been applied as of the beginning of fiscal year 2001:

	Quarter
	------------------------------------------------------------
	First		Second		Third	Fourth	Full Year
	------		----------		-------	--------	------------
Reported net earnings (loss)	$(25,024	)	(18,331	)	50,602	52,485	59,732
Add back amortization:
Goodwill	10,564		10,209		10,902	12,175	43,850	</