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 March 30, 2003

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 April 30, 2003 was 173,213,009.

PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

HASBRO, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(Thousands of Dollars Except Share Data)

				(Unaudited)
				March 30,	March 31,	Dec. 29,
		Assets		2003	2002	2002
				--------	--------	--------
Current assets
		Cash and cash equivalents		$ 310,526	355,112	495,372
		Accounts receivable, less allowance
			for doubtful accounts of $52,000,
			$47,900 and $50,700	286,576	287,379	555,144
		Inventories:
			Finished products	203,680	198,134	173,168
			Work in process	8,103	16,518	6,131
			Raw materials	10,513	17,518	10,845
				-------------	-------------	-------------
		Total inventories		222,296	232,170	190,144

		Deferred income taxes		110,145	106,106	109,839
		Prepaid expenses		118,155	217,642	81,125
				-------------	-------------	-------------
			Total current assets	1,047,698	1,198,409	1,431,624

	Property, plant and equipment, net			210,264	227,086	213,499
				-------------	-------------	-------------

Other assets
		Goodwill		460,888	463,977	460,993
		Other intangibles, less accumulated amortization
			of $386,537, $307,855 and $373,493	767,581	780,822	715,736
		Other		317,575	218,522	321,029
				-------------	-------------	-------------
			Total other assets	1,546,044	1,463,321	1,497,758
				-------------	-------------	-------------

			Total assets	$2,804,006	2,888,816	3,142,881
				========	========	========

(continued)

HASBRO, INC. AND SUBSIDIARIES

Consolidated Balance Sheets (continued)

(Thousands of Dollars Except Share Data)

			(Unaudited)
			March 30,	March 31,	Dec. 29,
	Liabilities and Shareholders' Equity		2003	2002	2002
			--------	--------	--------
Current liabilities
	Short-term borrowings		$ 18,014	33,728	21,051
	Current installments of long-term debt		1,121	327,167	201,841
	Accounts payable		111,883	93,547	166,316
	Accrued liabilities		420,524	419,821	577,642
			-------------	-------------	-------------
		Total current liabilities	551,542	874,263	966,850

	Long-term debt		856,936	840,399	857,274
	Deferred liabilities		133,165	94,567	127,391
			-------------	-------------	-------------
		Total liabilities	1,541,643	1,809,229	1,951,515
			-------------	-------------	-------------
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 March 30, 2003,
		March 31, 2002 and December 29, 2002	104,847	104,847	104,847
	Additional paid-in capital		524,742	455,824	458,130
	Deferred compensation		(258)	(2,572)	(613)
	Retained earnings		1,426,895	1,354,420	1,430,950
	Accumulated other comprehensive earnings		(38,525)	(75,258)	(46,814)
	Treasury stock, at cost, 36,597,585 at
		March 30, 2003, 36,611,811 at March 31,
		2002 and 36,525,120 shares at
		December 29, 2002	(755,338)	(757,674)	(755,134)
			-------------	-------------	-------------
		Total shareholders' equity	1,262,363	1,079,587	1,191,366
			-------------	-------------	-------------


		Total liabilities and shareholders' equity	$2,804,006	2,888,816	3,142,881
			========	========	========

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
			--------------------
			March 30,		March 31,
			2003		2002
			--------		--------
Net revenues			$461,768	452,267
Cost of sales			172,237	166,414
			------------	------------
Gross profit			289,531	285,853
			------------	------------
Expenses
	Amortization		16,178	21,449
	Royalties		33,820	51,456
	Research and product development		30,500	33,213
	Advertising		53,178	46,889
	Selling, distribution and administration		139,899	139,191
			------------	------------
		Total expenses	273,575	292,198
			------------	------------
Operating profit (loss)			15,956	(6,345)
			------------	------------
Nonoperating (income) expense
	Interest expense		15,022	19,542
	Other (income) expense, net		(695)	(2,835)
			------------	------------
		Total nonoperating (income) expense	14,327	16,707
			------------	------------
Earnings (loss) before income taxes and
	cumulative effect of accounting change		1,629	(23,052)
Income taxes			440	(5,994)
			------------	------------
Earnings (loss) before cumulative effect
	of accounting change		1,189	(17,058)
Cumulative effect of accounting change, net of tax			-	(245,732)
			------------	------------
Net earnings (loss)			$ 1,189	(262,790)
			=======	=======

(continued)

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

(Thousands of Dollars Except Per Share Data)
(Unaudited)
			Quarter Ended
			--------------------
			March 30,	March 31,
			2003	2002
			--------	--------
Basic and diluted per common share
	Earnings (loss) before cumulative effect of
		accounting change	$ .01	(.10)
	Cumulative effect of accounting change		-	(1.42)
			------------	------------
	Net earnings (loss)		$ .01	(1.52)
			=======	=======
Cash dividends declared per common share			$ .03	.03
			=======	=======


See accompanying condensed notes to consolidated financial statements.

HASBRO, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Quarters Ended March 30, 2003 and March 31, 2002

(Thousands of Dollars)
(Unaudited)
				2003	2002
				------	------
Cash flows from operating activities
	Net earnings (loss)			$ 1,189	(262,790)
	Adjustments to reconcile net earnings (loss) to net
		cash provided by operating activities:
			Cumulative effect of accounting change, net of tax	-	245,732
			Depreciation and amortization of plant and equipment	14,569	16,950
			Other amortization	16,178	21,449
			Deferred income taxes	3,711	8,736
			Compensation earned under restricted stock plans	(14)	537
	Change in operating assets and liabilities (other
		than cash and cash equivalents):
			Decrease in accounts receivable	273,581	282,100
			Increase in inventories	(30,362)	(15,887)
			(Increase) decrease in prepaid expenses	(35,979)	31,256
			Decrease in accounts payable and accrued liabilities	(209,476)	(194,032)
			Other	3,110	3,829
				------------	------------
			Net cash provided by operating activities	36,507	137,880
				------------	------------
Cash flows from investing activities
	Additions to property, plant and equipment			(9,228)	(10,270)
	Investments and acquisitions, net of cash acquired			-	(2,419)
	Other			(5,389)	(2,596)
				------------	------------
			Net cash utilized by investing activities	(14,617)	(15,285)
				------------	------------
Cash flows from financing activities
	Repayments of borrowings with original maturities
		of more than three months		(200,288)	-
	Net repayments of other short-term borrowings			(2,882)	(370)
	Stock option transactions			224	1,028
	Dividends paid			(5,195)	(5,189)
				------------	------------
			Net cash utilized by financing activities	(208,141)	(4,531)
				------------	------------
Effect of exchange rate changes on cash				1,405	3,953
				------------	------------
			(Decrease) increase in cash and cash equivalents	(184,846)	122,017
Cash and cash equivalents at beginning of year				495,372	233,095
				------------	------------
			Cash and cash equivalents at end of period	$ 310,526	355,112
				=======	=======

HASBRO, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows (continued)

Quarters Ended March 30, 2003 and March 31, 2002

(Thousands of Dollars)

(Unaudited)

			2003	2002
			-------	------
Supplemental information
	Cash paid (received) during the period for:
		Interest	$ 26,002	31,309
		Income taxes	$ 7,650	(45,906)

See accompanying condensed notes to consolidated financial statements.

HASBRO, INC. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Earnings

(Thousands of Dollars)

(Unaudited)

	Quarter Ended
	--------------------
	March 30,	March 31,
	2003	2002
	--------	--------
Net earnings (loss)	$ 1,189	(262,790)
Other comprehensive earnings (loss)	8,289	(6,860)
	------------	------------
Total comprehensive earnings (loss)	$ 9,478	(269,650)
	=======	=======

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 March 30, 2003 and March 31, 2002, and the results of operations and cash flows for the periods then ended in accordance with U.S. GAAP.

The quarters ended March 30, 2003 and March 31, 2002 are thirteen week periods.

The results of operations for the quarter ended March 30, 2003 are not necessarily indicative of results to be expected for the full year.

The consolidated balance sheet and statement of operations for the period ended March 31, 2002 have been restated to reflect the adoption of Statement of Financial Accounting Standards No. 142 at the beginning of 2002. (See note 4.)

Hasbro uses the intrinsic-value method of accounting for stock options granted to employees. As required by the Company's existing stock plans, stock options are granted at, or above, the fair market value of the Company's stock, and, accordingly, no compensation expense is recognized for these grants in the Consolidated Statements of Operations. The Company records compensation expense related to other stock-based awards, such as restricted stock grants, over the period the award vests, typically three years. Had compensation expense been recorded under the fair value method as set forth in the provisions of Statement of Financial Accounting Standards No. 123 for stock options awarded, the impact on the Company's net earnings (loss) and net earnings (loss) per share for the fiscal quarters ended March 30, 2003 and March 31, 2002 would have been:

		2003	2002
		-------	-------
Reported net earnings (loss)		$ 1,189	(262,790)
Pro forma compensation expense, net of tax		(3,175)	(3,578)
		------------	------------
Pro forma net loss		$ (1,986)	(266,368)
		=======	=======

Pro forma net earnings (loss) per share
	Basic and diluted	$ (.01)	(1.54)
		=======	=======

HASBRO, INC. AND SUBSIDIARIES
Condensed Notes to Consolidated Financial Statements (continued)

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

(2) Earnings per share data for the fiscal quarters ended March 30, 2003 and March 31, 2002 were computed as follows:

		2003		2002
		-----------------		-----------------
		Basic	Diluted	Basic	Diluted
		-------	-------	-------	-------
Earnings (loss) before cumulative
	effect of accounting change	$ 1,189	1,189	(17,058)	(17,058)
		=======	=======	=======	=======

Average shares outstanding		172,918	172,918	172,594	172,594
Effect of dilutive securities:
	Options	-	480	-	-
	Warrants	-	5,291	-	-
		------------	------------	------------	------------
Equivalent shares		172,918	178,689	172,594	172,594
		=======	=======	=======	=======

Earnings (loss) per share before
	cumulative effect of accounting
	change	$ .01	.01	(.10)	(.10)
		=======	=======	=======	=======

Options and warrants to acquire shares totaling 19,337 at March 30, 2003 and 36,409 at March 31, 2002, were excluded from the calculation of diluted earnings per share because to include them would have been antidilutive. The Company also has contingent convertible debt under which potentially issuable shares were not included, as the contingency features were not met. If the contingent conversion features are met, an additional 11,574 shares would be included in the calculation of diluted earnings per share, to the extent those shares would be dilutive.

(3) Other comprehensive earnings (loss) for the quarters ended March 30, 2003 and March 31, 2002 consist of the following:

	2003	2002
	------	------
Foreign currency translation adjustments	$ 10,368		(6,135)
Changes in value of available-for-sale securities, net of tax	(931)		(1,417)
(Loss) gain on cash flow hedging activities, net of tax	(2,546)		943
Reclassifications to income	1,398		(251)
	----------		----------
	$ 8,289		(6,860)
	======		======

HASBRO, INC. AND SUBSIDIARIES
Condensed Notes to Consolidated Financial Statements (continued)

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

Reclassification adjustments from other comprehensive earnings to earnings of $1,398 and $(251) for the quarters ended March 30, 2003 and March 31, 2002, respectively, represent net losses (gains) on cash flow hedging derivatives for which the related transaction has impacted earnings and was reflected in cost of sales. These losses (gains) were net of losses (gains) on cash flow hedges reclassified to earnings as the result of hedge ineffectiveness of $(1) and $4 for the quarters ended March 30, 2003 and March 31, 2002, respectively. The Company expects the remaining deferred losses on derivative hedging instruments at March 30, 2003 of $5,944 in accumulated other comprehensive earnings to be reclassified to earnings within the next twelve months.

(4) Effective at the beginning of fiscal 2002, the Company adopted Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" (SFAS 142). As a result of adopting this statement, the Company's goodwill and certain intangible assets are no longer amortized. The Company also evaluated its existing intangible assets and goodwill acquired in prior purchase business combinations 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 totaling $75,700 obtained in the Company's acquisition of Milton Bradley in 1984 and Tonka in 1991 were adjusted to an indefinite life and tested for impairment in accordance with the provisions of SFAS 142. No other reclassifications or adjustments of remaining useful lives were made as a result of this assessment.

SFAS 142 required the Company, within six months of the date of adoption, to perform an assessment of whether there was an indication that goodwill was impaired as of the date of adoption. This initial 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 those 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. These values were compared 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 primarily as the result of the change in goodwi ll impairment criteria from an undiscounted to a discounted cash flow method. 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. The first quarter of 2002 has been restated to reflect this application. The Company performs its annual impairment test in the fourth quarter of the fiscal year. The impairment test for the fourth quarter of 2002 indicated that there was no impairment.

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, in 2002, these assets were allocated to the reporting units within the Company's operating segments. Including this allocation for 2002, the changes in carrying amount of goodwill, by operating segment for the three months ended March 30, 2003 and March 31, 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
	-------------	----------	-----------------	--------------	-------
2003
Balance at Dec. 29, 2002	$ 13,234	261,767	185,992	-	$ 460,993
Foreign Exchange	-	-	(30)	-	(30)
Other	-	(75)	-	-	(75)
	--------------	------------	-----------	------------	--------------
Balance at Mar. 30, 2003	$ 13,234	261,692	185,962	-	$ 460,888
	========	=======	======	=======	========

2002
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	-	-	(387)	-	(387)
Other	-	(988)	-	-	(988)
	--------------	------------	-----------	------------	--------------
Balance at Mar. 31, 2002	$ 18,435	262,226	183,316	-	$ 463,977
	========	=======	======	=======	========

The other reduction in the carrying value of the Games segment goodwill in 2002 results primarily from the settlement of a dispute with the former shareholders of Wizards of the Coast, which was acquired in September 1999.

(5) Hasbro is a worldwide leader in children's and family leisure time and entertainment products and services, including the design, manufacture and marketing of games and toys ranging from traditional to high-tech. The Company's main reportable segments are U.S. Toys, Games, and International. The Company has two other segments, Operations and Retail, which meet the quantitative thresholds for reportable segments.

In the United States, the U.S. Toys segment includes the design, marketing and selling of boys' action figures, vehicles and playsets, girls' toys, preschool toys and infant products, creative play products, electronic interactive products, children's consumer electronics, electronic learning aids, and toy-related specialty products. The Games segment includes the development, manufacturing, marketing and selling of traditional board games and puzzles, handheld electronic games, trading card and role-playing games. Within the International segment, the Company develops, manufactures, markets and sells both toy and certain game products in non-U.S. markets. The Operations segment sources product for the majority of the Company's segments. The Retail segment operates retail shops, which sell game products and offer an area for organized play of trading card and role-playing games. The Company also has other segments which primarily license out certain toy and game properties. These other segments do not mee t the quantitative thresholds for reportable segments and have been combined for reporting purposes.

HASBRO, INC. AND SUBSIDIARIES
Condensed Notes to Consolidated Financial Statements (continued)

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

Segment performance is measured at the operating profit level. Included in Corporate and eliminations are general corporate expenses, the elimination of intersegment transactions and certain assets benefiting more than one segment. Intersegment sales and transfers are reflected in management reports at amounts approximating cost. Certain shared costs are allocated to segments based upon foreign exchange rates fixed at the beginning of the year, with adjustment to actual foreign exchange rates included in Corporate and eliminations.

The accounting policies of the segments are the same as those described in note 1 to the Company's consolidated financial statements for the fiscal year ended December 29, 2002, except for the Company's adoption of Statement of Financial Accounting Standards No. 146 as of December 30, 2002, which did not have an effect on the Company's consolidated results of operations and financial position.

Results shown for the quarter are not necessarily representative of those which may be expected for the full year 2003 nor were those of the 2002 first quarter representative of those actually experienced for the full year 2002. Similarly, such results are not necessarily those which would be achieved were each segment an unaffiliated business enterprise.

Information by segment and a reconciliation to reported amounts for the quarters ended March 30, 2003 and March 31, 2002 are as follows:

		Quarter Ended		Quarter Ended
		March 30, 2003		March 31, 2002
		----------------------		----------------------
		External	Affiliate	External	Affiliate
Net revenues		------------	-----------	------------	-----------
	U.S. Toys	$ 153,444	1,446	200,860	1,636
	Games	112,210	6,445	92,849<