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 September 29, 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

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes X or No

The number of shares of Common Stock, par value $.50 per share, outstanding as of October 25, 2002 was 173,166,593.

PART I. FINANCIAL INFORMATION

Item 1: Financial Statements

HASBRO, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(Thousands of Dollars Except Share Data)

		(Unaudited)
		Sept. 29,	Sept. 30,	Dec. 30,
Assets		2002	2001	2001
		---------	---------	---------
Current assets
Cash and cash equivalents	$	43,850	37,080	233,095
Accounts receivable, less allowance
for doubtful accounts of $51,100,
$56,800 and $49,300		799,122	785,807	572,499
Inventories:
Finished products		260,297	298,019	180,286
Work in process		8,611	23,888	19,639
Raw materials		13,238	23,783	17,554
		--------------	--------------	--------------
Total inventories		282,146	345,690	217,479

Deferred income taxes		101,292	153,039	103,657
Prepaid expenses		189,308	235,053	241,888
		--------------	--------------	--------------
Total current assets		1,415,718	1,556,669	1,368,618

Property, plant and equipment, net		213,628	256,982	235,360
		--------------	--------------	--------------

Other assets
Goodwill		465,444	774,960	761,575
Other intangibles, less accumulated
amortization of $456,700, $374,500
and $398,200		741,075	830,408	805,027
Other		288,333	171,567	198,399
		--------------	--------------	--------------
Total other assets		1,494,852	1,776,935	1,765,001
		--------------	--------------	--------------

Total assets	$	3,124,198	3,590,586	3,368,979
		========	========	========

(continued)

HASBRO, INC. AND SUBSIDIARIES

Consolidated Balance Sheets (continued)

(Thousands of Dollars Except Share Data)

				(Unaudited)
				Sept. 29,		Sept. 30,		Dec. 30,
Liabilities and Shareholders' Equity				2002		2001		2001
				---------		---------		---------
Current liabilities
Short-term borrowings			$	63,392		298,698		34,024
Current installments of long-term debt				255,248		3,344		2,304
Accounts payable				180,197		187,968		123,109
Accrued liabilities				535,461		558,789		599,154
				--------------		--------------		--------------
		Total current liabilities		1,034,298		1,048,799		758,591

Long-term debt, excluding current
	installments			856,257		1,166,360		1,165,649
Deferred liabilities				94,561		90,293		91,875
				--------------		--------------		--------------
		Total liabilities		1,985,116		2,305,452		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 September 29, 2002,
	September 30, 2001 and December 30, 2001			104,847		104,847		104,847
Additional paid-in capital				458,199		460,966		457,544
Deferred compensation				(1,197	)	(3,646	)	(2,996	)
Retained earnings				1,373,989		1,575,110		1,622,402
Accumulated other comprehensive earnings				(41,524	)	(84,906	)	(68,398	)
Treasury stock, at cost; 36,528,037
	37,008,706 and 36,736,156 shares			(755,232	)	(767,237	)	(760,535	)
				--------------		--------------		--------------
		Total shareholders' equity		1,139,082		1,285,134		1,352,864
				--------------		--------------		--------------

		Total liabilities and shareholders' equity	$	3,124,198		3,590,586		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			Nine Months Ended
			--------------------			-------------------------
			Sept. 29, 2002 - ---------		Sept. 30, 2001 - ---------	Sept. 29, 2002 - ---------		Sept. 30, 2001 - ---------
Net revenues			$	820,532	893,353	1,818,789		1,867,610
Cost of sales				342,918	402,155	705,497		795,968
				------------	------------	-------------		-------------
Gross profit				477,614	491,198	1,113,292		1,071,642
				------------	------------	-------------		-------------
Expenses
	Amortization			22,268	29,761	66,483		88,044
	Royalties			85,210	65,105	202,378		131,504
	Research and product development			36,687	32,077	106,670		92,281
	Advertising			82,911	90,655	188,307		189,333
	Selling, distribution and administration			153,821	169,826	445,081		480,854
				------------	-------------	-------------		--------------
		Total expenses		380,897	387,424	1,008,919		982,016
				------------	-------------	-------------		--------------
Operating profit				96,717	103,774	104,373		89,626
				------------	-------------	-------------		--------------
Nonoperating (income) expense
	Interest expense			17,897	26,116	55,756		77,327
	Other (income) expense, net			3,350	3,244	31,182		74
				------------	-------------	-------------		--------------
		Total nonoperating (income) expense		21,247	29,360	86,938		77,401
				------------	-------------	-------------		--------------
Earnings before income taxes and
	cumulative effect of accounting change			75,470	74,414	17,435		12,225
Income taxes				19,622	23,812	4,533		3,912
				------------	-------------	-------------		--------------
Net earnings before cumulative
	effect of accounting change			55,848	50,602	12,902		8,313
Cumulative effect of accounting change,
	net of tax			-	-	(245,732	)	(1,066	)
				------------	-------------	-------------		--------------
Net earnings (loss)			$	55,848	50,602	(232,830	)	7,247
				=======	=======	=======		========

(continued)

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

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


			Quarter Ended			Nine Months Ended
			--------------------			-------------------------
			Sept. 29, 2002 - ---------		Sept. 30, 2001 - ---------	Sept. 29, 2002 - ---------		Sept. 30, 2001 - ---------
Per common share
	Earnings before cumulative
	effect of accounting change
	Basic and diluted		$	.32	.29	.07		.05
				=======	=======	=======		========
	Cumulative effect of accounting
	change, net of tax
	Basic and diluted		$	-	-	(1.42	)	(.01	)
				=======	=======	=======		========

	Net earnings (loss)
	Basic		$	.32	.29	(1.35	)	.04
				=======	=======	=======		========
	Diluted		$	.32	.29	(1.34	)	.04
				=======	=======	=======		========

	Cash dividends declared	$		.03	.03	.09		.09
				=======	=======	=======		========

See accompanying condensed notes to consolidated financial statements.

HASBRO, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Nine Months Ended September 29, 2002 and September 30, 2001

(Thousands of Dollars)
(Unaudited)
						2002		2001
						-------		-------
Cash flows from operating activities
	Net earnings (loss)				$	(232,830	)	7,247
	Adjustments to reconcile net earnings (loss) to net cash
	utilized by operating activities:
		Cumulative effect of accounting change, net of tax				245,732		1,066
		Depreciation and amortization of plant and equipment				67,364		69,378
		Other amortization				66,483		88,044
		Loss on impairment of investment				38,633		-
		Deferred income taxes				7,935		31,687
		Compensation earned under restricted stock programs				729		2,168
	Change in operating assets and liabilities (other
		than cash and cash equivalents):
		Increase in accounts receivable				(219,520	)	(106,585	)
		Increase in inventories				(57,316	)	(15,770	)
		Decrease in prepaid expenses				99,795		54,574
		Increase (decrease) in accounts payable and accrued liabilities				1,864		(240,257	)
		Other, including long-term advances				(117,466	)	(12,672	)
						------------		------------
				Net cash utilized by operating activities		(98,597	)	(121,120	)
						------------		------------
Cash flows from investing activities
		Additions to property, plant and equipment				(38,167	)	(33,425	)
		Investments and acquisitions, net of cash acquired				(7,419	)	-
		Other				2,756		5,348
						------------		------------
				Net cash utilized by investing activities		(42,830	)	(28,077	)
						------------		------------
Cash flows from financing activities
		Repayments of borrowings with original maturities
			of more than three months			(72,650	)	(25,000	)
		Net proceeds of other short-term borrowings				29,708		100,748
		Stock option transactions				3,041		4,198
		Dividends paid				(15,577	)	(15,523	)
						------------		------------
				Net cash (utilized) provided by financing activities		(55,478	)	64,423
						------------		------------
Effect of exchange rate changes on cash						7,660		(5,261	)
						------------		------------
				Decrease in cash and cash equivalents		(189,245	)	(90,035	)
Cash and cash equivalents at beginning of year						233,095		127,115
						------------		------------
				Cash and cash equivalents at end of period	$	43,850		37,080
						=======		=======
(continued)

HASBRO, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (continued)
Nine Months Ended September 29, 2002 and September 30, 2001

(Thousands of Dollars)
(Unaudited)


		2002		2001
		-------		-------
Supplemental information
Cash paid (received) during the period for:
Interest	$ 68,943			$ 95,325
Income taxes	$(45,158		)	$(42,150	)

See accompanying condensed notes to consolidated financial statements.

HASBRO, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Earnings

(Thousands of Dollars)
(Unaudited)


		Quarter Ended				Nine Months Ended
		--------------------				---------------------------
		Sept. 29, 2002 - -------		Sept. 30, 2001 - -------		Sept. 29, 2002 - -------		Sept. 30, 2001 - -------
Net earnings (loss)	$	55,848		50,602		(232,830	)	7,247
Cumulative effect of accounting change		-		-		-		(753	)
Other comprehensive earnings (loss)		(3,961	)	(21,259	)	26,874		(39,435	)
		----------		----------		----------		----------
Total comprehensive earnings (loss)	$	51,887		29,343		(205,956	)	(32,941	)
		======		======		======		======

See accompanying condensed notes to consolidated financial statements.

HASBRO, INC. AND SUBSIDIARIES
Condensed Notes to Consolidated Financial Statements
(Thousands of Dollars and Shares, Except Per Share Data)
(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 September 29, 2002 and September 30, 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 September 29, 2002 and September 30, 2001 are 39-week periods.

The results of operations for the nine months ended September 29, 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 nine months ended September 29, 2002 and September 30, 2001 consist of the following:

		Quarter Ended				Nine Months Ended
		Sept. 29,		Sept. 30,		Sept. 29,		Sept. 30,
		2002		2001		2002		2001
		---------		---------		---------		---------
Foreign currency translation adjustments	$	(2,551	)	11,390		25,840		(9,862	)
Changes in value of available-for-sale securities		(2,651	)	(29,408	)	(20,435	)	(30,759	)
Gains (losses) on cash flow hedging activities, net of tax		734		(2,338	)	(5,943	)	2,252
Reclassifications to earnings		507		(903	)	27,412		(1,066	)
		----------		----------		----------		----------
	$	(3,961	)	(21,259	)	26,874		(39,435	)
		======		======		======		======

Reclassification adjustments from other comprehensive earnings to earnings for the nine months ended September 29, 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 nine months ended September 29, 2002, net losses 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 (losses) on cash flow hedging derivatives for the quarter and nine months ended September 29, 2002 include gains on cash flows reclassified to earnings as the result of hedge ineffectiveness of $431 and $413 for the respective periods.

Reclassification adjustments from other comprehensive earnings for the quarter and nine months ended September 30, 2001 consist primarily of net gains on cash flow hedging derivatives for which the related transaction had impacted earnings, partially offset for the nine month period by losses on available-for-sale securities sold during the period. The gains on cash flow hedging derivatives for the quarter and nine months ended September 30, 2001 include losses on cash flows reclassified to earnings as the result of hedge ineffectiveness of $11 and $33, respectively.

HASBRO, INC. AND SUBSIDIARIES
Condensed Notes to Consolidated Financial Statements (continued)
(Thousands of Dollars and Shares, Except Per Share Data)
(Unaudited)

Additionally, in the nine months ended September 30, 2001, a loss of $1,091 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 periods ended September 29, 2002.

The Company expects substantially all of the remaining deferred loss of $3,934 on derivative hedging instruments in accumulated other comprehensive earnings at September 29, 2002 to be reclassified to earnings within the next twelve months. The remainder of the balance in accumulated other comprehensive earnings 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 of 2002. 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, resulting 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 nine months ended September 29, 2002 are as follows:

HASBRO, INC. AND SUBSIDIARIES
Condensed Notes to Consolidated Financial Statements (continued)
(Thousands of Dollars and Shares, Except Per Share Data)
(Unaudited)


	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	-	-	1,543	-	1,543
Other	-	(1,451)	-	-	(1,451)
	--------------	------------	-----------	------------	--------------
	$ 18,435	261,763	185,246	-	$465,444
	========	=======	=====