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 29, 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 July 27, 2003 was 173,713,556.

PART I. FINANCIAL INFORMATION

ITEM 1: Financial Statements

HASBRO, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(Thousands of Dollars Except Share Data)

		(Unaudited)
		June 29,	June 30,	Dec. 29,
Assets		2003	2002	2002
		---------	---------	---------
Current assets
Cash and cash equivalents	$	172,577	57,057	495,372
Accounts receivable, less allowance
for doubtful accounts of $54,500,
$50,500 and $50,700		485,108	479,443	555,144
Inventories:
Finished products		250,058	250,660	173,168
Work in process		9,772	13,405	6,131
Raw materials		13,973	15,808	10,845
		--------------	--------------	--------------
Total inventories		273,803	279,873	190,144

Deferred income taxes		111,604	99,078	109,839
Prepaid expenses		123,313	191,841	81,125
		--------------	--------------	--------------
Total current assets		1,166,405	1,107,292	1,431,624

Property, plant and equipment, net		211,960	228,588	213,499
		--------------	--------------	--------------

Other assets
Goodwill		461,967	465,212	460,993
Other intangibles, less accumulated
amortization of $405,200, $322,600
and $373,500		753,501	763,364	715,736
Other		310,394	320,321	321,029
		--------------	--------------	--------------
Total other assets		1,525,862	1,548,897	1,497,758
		--------------	--------------	--------------

Total assets	$	2,904,227	2,884,777	3,142,881
		========	========	========

(continued)

HASBRO, INC. AND SUBSIDIARIES

Consolidated Balance Sheets (continued)

(Thousands of Dollars Except Share Data)

				(Unaudited)
				June 29,		June 30,		Dec. 29,
Liabilities and Shareholders' Equity				2003		2002		2002
				---------		---------		---------
Current liabilities
Short-term borrowings			$	16,815		17,066		21,051
Current installments of long-term debt				1,201		277,928		201,841
Accounts payable				153,741		124,127		166,316
Accrued liabilities				424,034		429,081		577,642
				--------------		--------------		--------------
		Total current liabilities		595,791		848,202		966,850

Long-term debt, excluding current installments				861,280		846,361		857,274
Deferred liabilities				137,294		98,185		127,391
				--------------		--------------		--------------
		Total liabilities		1,594,365		1,792,748		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 June 29, 2003,
	June 30, 2002 and December 29, 2002			104,847		104,847		104,847
Additional paid-in capital				523,805		459,184		458,130
Deferred compensation				(257	)	(1,836	)	(613	)
Retained earnings				1,433,099		1,323,336		1,430,950
Accumulated other comprehensive earnings				(10,228	)	(37,563	)	(46,814	)
Treasury stock, at cost; 36,008,341 at
	June 29, 2003, 36,550,420 at June 30,
	2002 and 36,525,120 shares at December
	29, 2002			(741,404	)	(755,939	)	(755,134	)
				--------------		--------------		--------------
		Total shareholders' equity		1,309,862		1,092,029		1,191,366
				--------------		--------------		--------------

		Total liabilities and shareholders' equity	$	2,904,227		2,884,777		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				Six Months Ended
			--------------------				-------------------------
			June 29, 2003 - --------		June 30, 2002 - --------		June 29, 2003 - ---------	June 30, 2002 - ---------
Net revenues			$	581,469	545,990		1,043,237	998,257
Cost of sales				230,807	196,165		403,044	362,579
				------------	------------		-------------	-------------
Gross profit				350,662	349,825		640,193	635,678
				------------	------------		-------------	-------------
Expenses
	Amortization			18,410	22,766		34,588	44,215
	Royalties			52,650	65,712		86,470	117,168
	Research and product development			33,105	36,770		63,605	69,983
	Advertising			67,686	58,507		120,864	105,396
	Selling, distribution and administration			150,420	152,069		290,319	291,260
				------------	-------------		-------------	--------------
		Total expenses		322,271	335,824		595,846	628,022
				------------	-------------		-------------	--------------
Operating profit				28,391	14,001		44,347	7,656
				------------	-------------		-------------	--------------
Nonoperating (income) expense
	Interest expense			11,974	18,317		26,996	37,859
	Other (income) expense, net			777	30,667		82	27,832
				------------	-------------		-------------	--------------
		Total nonoperating (income) expense		12,751	48,984		27,078	65,691
				------------	-------------		-------------	--------------
Earnings (loss) before income taxes and
	cumulative effect of accounting change			15,640	(34,983	)	17,269	(58,035	)
Income taxes				4,223	(9,095	)	4,663	(15,089	)
				------------	-------------		-------------	--------------
Net earnings (loss) before cumulative
	effect of accounting change			11,417	(25,888	)	12,606	(42,946	)
Cumulative effect of accounting change,
	net of tax			-	-		-	(245,732	)
				------------	-------------		-------------	--------------
Net earnings (loss)			$	11,417	(25,888	)	12,606	(288,678	)
				=======	=======		=======	========

(continued)

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

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


				Quarter Ended				Six Months Ended
				--------------------				-------------------------
				June 29, 2003 - --------		June 30, 2002 - --------		June 29, 2003 - ---------	June 30, 2002 - ---------
Per common share
	Earnings (loss) before cumulative
	effect of accounting change
		Basic		$	.07	(0.15	)	.07	(0.25	)
					=======	=======		=======	=======
		Diluted		$	.06	(0.15	)	.07	(0.25	)
					=======	=======		=======	========
	Cumulative effect of accounting
	change, net of tax			$	-	-		-	(1.42	)
					=======	=======		=======	========
	Net earnings (loss)
		Basic		$	.07	(0.15	)	.07	(1.67	)
					=======	=======		=======	=======
		Diluted		$	.06	(0.15	)	.07	(1.67	)
					=======	=======		=======	========

	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 29, 2003 and June 30, 2002

(Thousands of Dollars)
(Unaudited)
						2003		2002
						-------		-------
Cash flows from operating activities
	Net earnings (loss)				$	12,606		(288,678	)
	Adjustments to reconcile net earnings to net cash
	provided (utilized) by operating activities:
		Cumulative effect of accounting change, net of tax				-		245,732
		Depreciation and amortization of plant and equipment				35,366		40,258
		Other amortization				34,588		44,215
		Loss on impairment of investment				-		38,633
		Deferred income taxes				14,497		7,208
		Compensation earned under restricted stock programs				(14	)	818
	Change in operating assets and liabilities (other
		than cash and cash equivalents):
		Decrease in accounts receivable				82,063		103,156
		Increase in inventories				(75,497	)	(53,717	)
		(Increase) decrease in prepaid expenses				(31,038	)	62,731
		Decrease in accounts payable and accrued liabilities				(167,711	)	(163,271	)
		Other, including long-term advances				6,842		(113,988	)
						------------		------------
				Net cash utilized by operating activities		(88,298	)	(76,903	)
						------------		------------
Cash flows from investing activities
		Additions to property, plant and equipment				(26,417	)	(25,550	)
		Investments and acquisitions, net of cash acquired				-		(7,419	)
		Other				(5,501	)	855
						------------		------------
				Net cash utilized by investing activities		(31,918	)	(32,114	)
						------------		------------
Cash flows from financing activities
		Repayments of borrowings with original maturities
			of more than three months			(200,288	)	(50,000	)
		Net repayments of other short-term borrowings				(4,562	)	(16,897	)
		Stock option transactions				8,995		2,591
		Dividends paid				(10,392	)	(10,383	)
						------------		------------
				Net cash utilized by financing activities		(206,247	)	(74,689	)
						------------		------------
Effect of exchange rate changes on cash						3,668		7,668
						------------		------------
				Decrease in cash and cash equivalents		(322,795	)	(176,038	)
Cash and cash equivalents at beginning of year						495,372		233,095
						------------		------------
				Cash and cash equivalents at end of period	$	172,577		57,057
						=======		=======

HASBRO, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (continued)
Six Months Ended June 29, 2003 and June 30, 2002

(Thousands of Dollars)
(Unaudited)


		2003	2002
		-------	-------
Supplemental information
Cash paid (received) during the period for:
Interest	$32,676		39,552
Income taxes	$13,688		(50,402	)

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 29, 2003 - -------		June 30, 2002 - -------			June 29, 2003 - -------	June 30, 2002 - -------
Net earnings (loss)	$	11,417		(25,888	)	12,606	(288,678	)
Other comprehensive earnings		28,297		37,695		36,586	30,835
		----------		----------		----------	----------
Total comprehensive earnings (loss)	$	39,714		11,807		49,192	(257,843	)
		======		======		======	======

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 June 29, 2003 and June 30, 2002, and the results of its operations and cash flows for the periods then ended in accordance with United States generally accepted accounting principles.

The quarterly and year to date periods ended June 29, 2003 and June 30, 2002 are 13-week and 26-week periods, respectively.

The results of operations for the six months ended June 29, 2003 are not necessarily indicative of results to be expected for the full year.

These condensed consolidated financial statements have been prepared without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in the financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. The Company filed audited financial statements for the year ended December 29, 2002 in its annual report on Form 10-K, which includes all such information and disclosures, and accordingly, should be read in conjunction with the financial information included herein.

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 and six months ended June 29, 2003 and June 30, 2002 would have been:

	Quarter Ended						Six Months Ended
	------------------						------------------
	June 29, 2003 - -------			June 30, 2002 - -------			June 29, 2003 - -------			June 30, 2002 - -------
Reported net earnings (loss)	$	11,417			(25,888	)		12,606			(288,678	)
Pro forma compensation expense, net of tax		(3,120	)		(4,946	)		(6,295	)		(8,524	)
		----------			----------			----------			----------
Pro forma net earnings (loss)		8,297			(30,834	)		6,311			(297,202	)
		======			======			======			======

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

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

		Quarter Ended					Six Months Ended
		------------------					------------------
		June 29, 2003 - -------		June 30, 2002 - -------			June 29, 2003 - -------		June 30, 2002 - -------
Reported earnings (loss) per share
	Basic		.07		(.15	)		.07		(1.67	)
			======		======			======		======
	Diluted		.06		(.15	)		.07		(1.67	)
			======		======			======		======

Pro forma net earnings (loss) per share
	Basic and diluted		.05		(.18	)		.04		(1.72	)
			======		======			======		======

(2) Earnings per share data for the quarters and six months ended June 29, 2003 and June 30, 2002 were computed as follows:

		2003 - -----------------		2002 - -----------------
Quarter - ----------		Basic - -------	Diluted - -------	Basic - -------		Diluted - ----------
Earnings (loss) before cumulative
effect of accounting change	$	11,417	11,417	(25,888	)	(25,888	)
		======	=======	======		======

Average shares outstanding		173,327	173,327	172,723		172,723
Effect of dilutive securities: