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 28, 2004

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 23, 2004 was 176,382,147.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

HASBRO, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(Thousands of Dollars Except Share Data)

Unaudited


				March 28,	March 30,	Dec. 28,
		Assets		2004	2003	2003
				--------	--------	--------
Current assets
		Cash and cash equivalents		$ 631,720	310,526	520,747
		Accounts receivable, less allowance
			for doubtful accounts of $38,900,
			$52,000 and $39,200	206,201	286,576	607,556
		Inventories:
			Finished products	170,500	203,680	155,180
			Work in process	6,133	8,103	5,144
			Raw materials	11,624	10,513	8,655
				-------------	-------------	-------------
		Total inventories		188,257	222,296	168,979

		Deferred income taxes		118,727	110,145	119,664
		Prepaid expenses		123,639	118,155	92,317
				-------------	-------------	-------------
			Total current assets	1,268,544	1,047,698	1,509,263

	Property, plant and equipment, net			197,793	210,264	199,854
				-------------	-------------	-------------

Other assets
		Goodwill		473,056	460,888	463,680
		Other intangibles, less accumulated amortization
			of $449,809, $386,537 and $435,014	695,617	767,581	710,639
		Other		270,893	317,575	279,940
				-------------	-------------	-------------
			Total other assets	1,439,566	1,546,044	1,454,259
				-------------	-------------	-------------

			Total assets	$2,905,903	2,804,006	3,163,376
				========	========	========

(continued)

HASBRO, INC. AND SUBSIDIARIES

Consolidated Balance Sheets (continued)

(Thousands of Dollars Except Share Data)

Unaudited


			March 28,	March 30,	Dec. 28,
	Liabilities and Shareholders' Equity		2004	2003	2003
			--------	--------	--------
Current liabilities
	Short-term borrowings		$ 15,835	18,014	23,354
	Current installments of long-term debt		1,315	1,121	1,333
	Accounts payable		100,323	111,883	158,969
	Accrued liabilities		555,065	420,524	746,399
			-------------	-------------	-------------
		Total current liabilities	672,538	551,542	930,055

	Long-term debt		686,191	856,936	686,871
	Deferred liabilities		142,926	133,165	141,210
			-------------	-------------	-------------
		Total liabilities	1,501,655	1,541,643	1,758,136
			-------------	-------------	-------------
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	104,847	104,847	104,847
	Additional paid-in capital		391,566	524,742	397,878
	Deferred compensation		(589)	(258)	(679)
	Retained earnings		1,563,649	1,426,895	1,567,693
	Accumulated other comprehensive earnings		21,187	(38,525)	30,484
	Treasury stock, at cost, 33,462,722 shares at
		March 28, 2004, 36,597,585 at March 30,
		2003 and 34,195,301 at December 28, 2003	(676,412)	(755,338)	(694,983)
			-------------	-------------	-------------
		Total shareholders' equity	1,404,248	1,262,363	1,405,240
			-------------	-------------	-------------


		Total liabilities and shareholders' equity	$2,905,903	2,804,006	3,163,376
			========	========	========

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 28,					March 30,
				2004					2003
				--------					--------
Net revenues				$474,247					461,768
Cost of sales				186,723					172,237
				------------					------------
Gross profit				287,524					289,531
				------------					------------
Expenses
	Amortization			15,241					16,178
	Royalties			32,639					33,820
	Research and product development			31,683					30,500
	Advertising			55,330					53,178
	Selling, distribution and administration			137,959					139,899
				------------					------------
		Total expenses		272,852					273,575
				------------					------------
Operating profit					14,672				15,956
			------------						------------
Nonoperating (income) expense
	Interest expense		8,307						15,022
	Other income, net		(2,046)						(695)
			------------						------------
		Total nonoperating (income) expense	6,261						14,327
					------------				------------
Earnings before income taxes					8,411				1,629
Income taxes					1,879				440
					------------				------------
Net earnings					$ 6,532				1,189
					=======				=======

Net earnings per common share
	Basic				$ .04				.01
					=======				=======
	Diluted				$ .03				.01
							=======		=======
Cash dividends declared per common share						$ .06			.03
								=======	=======


See accompanying condensed notes to consolidated financial statements.

HASBRO, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Quarters Ended March 28, 2004 and March 30, 2003
(Thousands of Dollars)
(Unaudited)
				2004	2003
				------	------
Cash flows from operating activities
	Net earnings			$ 6,532	1,189
	Adjustments to reconcile net earnings to net
		cash provided by operating activities:
			Depreciation and amortization of plant and equipment	13,739	14,569
			Other amortization	15,241	16,178
			Change in fair value of liabilities potentially settleable
			in common stock	(1,700)	-
			Deferred income taxes	4,476	3,711
			Compensation earned under restricted stock plans	90	(14)
	Change in operating assets and liabilities (other
		than cash and cash equivalents):
			Decrease in accounts receivable	401,569	273,581
			Increase in inventories	(18,379)	(30,362)
			Increase in prepaid expenses	(32,493)	(35,979)
			Decrease in accounts payable and accrued liabilities	(258,220)	(209,476)
			Other	3,217	3,110
				------------	------------
			Net cash provided by operating activities	134,072	36,507
				------------	------------
Cash flows from investing activities
	Additions to property, plant and equipment			(13,855)	(9,228)
	Investments and acquisitions			(9,564)	-
	Other			1,091	(5,389)
				------------	------------
			Net cash utilized by investing activities	(22,328)	(14,617)
				------------	------------
Cash flows from financing activities
	Repayments of borrowings with original maturities
		of more than three months		(324)	(200,288)
	Net repayments of other short-term borrowings			(7,256)	(2,882)
	Stock option transactions			12,259	224
	Dividends paid			(5,267)	(5,195)
				------------	------------
			Net cash utilized by financing activities	(588)	(208,141)
				------------	------------
Effect of exchange rate changes on cash				(183)	1,405
				------------	------------
			Increase (decrease) in cash and cash equivalents	110,973	(184,846)
Cash and cash equivalents at beginning of year				520,747	495,372
				------------	------------
			Cash and cash equivalents at end of period	$631,720	310,526
				=======	=======

HASBRO, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows (continued)

Quarters Ended March 28, 2004 and March 30, 2003

(Thousands of Dollars)

(Unaudited)

			2004	2003
			-------	------
Supplemental information
	Cash paid during the period for:
		Interest	$ 11,082	26,002
		Income taxes	$ 14,951	7,650

See accompanying condensed notes to consolidated financial statements.

HASBRO, INC. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Earnings

(Thousands of Dollars)

(Unaudited)

	Quarter Ended
	--------------------
	March 28,	March 30,
	2004	2003
	--------	--------
Net earnings	$ 6,532	1,189
Other comprehensive earnings (loss)	(9,297)	8,289
	------------	------------
Total comprehensive earnings (loss)	$ (2,765)	9,478
	=======	=======

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, 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 28, 2004 and March 30, 2003, and the results of its operations and cash flows for the periods then ended in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP").

The quarters ended March 28, 2004 and March 30, 2003 are thirteen week periods.

The results of operations for the quarter ended March 28, 2004 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 disclosures normally included in the financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. The Company filed audited financial statements for the year ended December 28, 2003 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.

The Company's accounting policies are the same as those described in Note 1 to the Company's consolidated financial statements for the fiscal year ended December 28, 2003.

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 28, 2004 and March 30, 2003 were computed as follows:

		2004		2003
		-----------------		-----------------
		Basic	Diluted	Basic	Diluted
		-------	-------	-------	-------
Net earnings		$ 6,532	6,532	1,189	1,189
Effect of dilutive securities:
Change in fair value of liabilities
potentially settleable in common stock		-	(1,700)	-	-
		------------	------------	------------	------------
Adjusted net earnings		$ 6,532	4,832	1,189	1,189
		=======	=======	=======	=======

Average shares outstanding		175,742	175,742	172,918	172,918
Effect of dilutive securities:
	Liabilities potentially settleable in
	common stock	-	5,006	-	-
	Options and warrants	-	3,205	-	5,771
		------------	------------	------------	------------
Equivalent shares		175,742	183,953	172,918	178,689
		=======	=======	=======	=======

Net earnings per share		$ .04	.03	.01	.01
		=======	=======	=======	=======

Certain warrants containing a put feature that may be settled in cash or common stock are required to be accounted for as a liability at fair value. The Company is required to assess if these warrants, which are classified as a liability, have a more dilutive impact on earnings per share when treated as an equity contract. For the 2004 first quarter, the warrants had a more dilutive impact on earnings per share, assuming they were treated as an equity contract. Accordingly, the numerator includes an adjustment to earnings for the income included therein related to the fair market value adjustment and the denominator includes an adjustment for the shares issuable as of quarter end.

Options and warrants to acquire shares totaling 3,439 at March 28, 2004 and 19,337 at March 30, 2003, were excluded from the calculation of diluted earnings per share because to include them would have been antidilutive. The Company also has convertible debt under which potentially issuable shares were not included as the contingency features were not met. If the contingent conversion features are met, the impact of conversion of the debentures would result in an additional 11,574 shares being included in the calculation of diluted earnings per share, to the extent those shares would be dilutive.

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

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

(3) 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 and net earnings per share for the fiscal quarters ended March 28, 2004 and March 30, 2003 would have been:

			2004	2003
			-------	-------
Reported net earnings			$ 6,532	1,189
Add:
		Stock-based employee compensation expense included in reported net earnings, net of related tax effects	61	22
Deduct:
		Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects	(2,643)	(3,197)
			------------	------------
Pro forma compensation expense, net of tax			(2,582)	(3,175)
			------------	------------
Pro forma net earnings (loss)			$ 3,950	(1,986)
			=======	=======

Reported net earnings per share
	Basic		$ .04	.01
			=======	=======
	Diluted		$ .03	.01
			=======	=======

Pro forma net earnings (loss) per share
	Basic		$ .02	(.01)
			=======	=======
	Diluted		$ .01	(.01)
			=======	=======

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

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

(4) Other comprehensive earnings (loss) for the quarters ended March 28, 2004 and March 30, 2003 consist of the following:

	2004	2003
	------	------
Foreign currency translation adjustments	$(9,324)		10,368
Changes in value of available-for-sale securities, net of tax	(3,088)		(931)
Gains (losses) on cash flow hedging activities, net of tax	224		(2,546)
Reclassifications to earnings	2,891		1,398
	----------		----------
	$(9,297)		8,289
	======		======

Reclassification adjustments from other comprehensive earnings (loss) to net earnings of $2,891 and $1,398 for the quarters ended March 28, 2004 and March 30, 2003, respectively, represent net losses on cash flow hedging derivatives for which the related transaction has impacted earnings and was reflected in cost of sales. These losses on cash flow hedging derivatives include losses (gains) on cash flows reclassified to earnings as the result of hedge ineffectiveness of $160 and $(1) for the quarters ended March 28, 2004 and March 30, 2003, respectively. The Company expects the remaining deferred losses on derivative hedging instruments at March 28, 2004 of $6,659 in accumulated other comprehensive earnings to be reclassified to earnings within the next twelve months.

(5) The components of the net periodic cost of the Company's defined benefit pension and other postretirement plans for the quarters ended March 28, 2004 and March 30, 2003 are as follows:

	Pension				Postretirement
	2004		2003		2004	2003
	-------		-------		-------	-------
Service cost	$ 2,160		2,066		151	132
Interest cost	3,659		3,507		571	571
Expected return on assets	(3,624	)	(3,088	)	-	-
Net amortization and deferrals	695		765		134	162
	--------		--------		--------	--------
Net periodic benefit cost	$ 2,890		3,250		856	865
	=====		=====		=====	=====

In April 2004, the Company made a cash contribution to its pension plans of approximately $12,400. The Company does not expect to make any further contributions in 2004.

(6) 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 one other segment, Operations, which meets the quantitative thresholds for reportable segments.

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

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

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, and 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 finished product for the majority of the Company's segments. The Company also has other segments that primarily license out certain toy and game properties and a retail segment, which operated retail stores in 2003. The Company announced the closure of these stores in December 2003. These other segments do not mee t the quantitative thresholds for reportable segments and have been combined for reporting purposes.

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 referenced in Note 1.

Results shown for the quarter are not necessarily representative of those which may be expected for the full year 2004 nor were those of the 2003 first quarter representative of those actually experienced for the full year 2003. Similarly, such results are not necessarily those which would be achieved were each segment an unaffiliated business enterprise.

Information by segment for the quarters ended March 28, 2004 and March 30, 2003 is as follows:

		Quarter Ended		Quarter Ended
		March 28, 2004		March 30, 2003
		----------------------		----------------------
		External	Affiliate	External	Affiliate
Net revenues		------------	-----------	-----------	-----------
	U.S. Toys	$ 152,390	701	153,444	1,446
	Games	127,598	6,537	112,210	6,445
	International	180,741	12,883	175,383	22,026
	Operations (a)	521	112,662	446	106,070
	Other segments	12,997	-	20,285	-
	Corporate and eliminations	-	(132,783)	-	(135,987)
		------------	------------	------------	------------
		$ 474,247	-	461,768	-
		=======	=======	=======	=======

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

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

	Quarter ended	Quarter ended
	March 28, 2004	March 30, 2003
	---------------------	---------------------
&n