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 27, 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 July 23, 2004 was 176,845,162.

PART I. FINANCIAL INFORMATION

ITEM 1: Financial Statements

HASBRO, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(Thousands of Dollars Except Share Data)

Unaudited


		June 27,	June 29,	Dec. 28,
Assets		2004	2003	2003
		---------	---------	---------
Current assets
Cash and cash equivalents	$	480,144	172,577	520,747
Accounts receivable, less allowance
for doubtful accounts of $39,300,
$54,500 and $39,200		307,013	485,108	607,556
Inventories:
Finished products		216,887	250,058	155,180
Work in process		7,079	9,772	5,144
Raw materials		13,163	13,973	8,655
		--------------	--------------	--------------
Total inventories		237,129	273,803	168,979

Deferred income taxes		114,101	111,604	119,664
Prepaid expenses		150,359	123,313	92,317
		--------------	--------------	--------------
Total current assets		1,288,746	1,166,405	1,509,263

Property, plant and equipment, net		203,586	211,960	199,854
		--------------	--------------	--------------

Other assets
Goodwill		473,402	461,967	463,680
Other intangibles, less accumulated amortization
of $465,600, $405,200 and $435,000		681,302	753,501	710,639
Other		230,115	310,394	279,940
		--------------	--------------	--------------
Total other assets		1,384,819	1,525,862	1,454,259
		--------------	--------------	--------------

Total assets	$	2,877,151	2,904,227	3,163,376
		========	========	========

(continued)

HASBRO, INC. AND SUBSIDIARIES

Consolidated Balance Sheets (continued)

(Thousands of Dollars Except Share Data)

Unaudited


				June 27,		June 29,		Dec. 28,
Liabilities and Shareholders' Equity				2004		2003		2003
				---------		---------		---------
Current liabilities
Short-term borrowings			$	43,014		16,815		23,354
Current installments of long-term debt				1,331		1,201		1,333
Accounts payable				125,696		153,741		158,969
Accrued liabilities				493,334		424,034		746,399
				--------------		--------------		--------------
		Total current liabilities		663,375		595,791		930,055

Long-term debt, excluding current installments				651,281		861,280		686,871
Deferred liabilities				145,370		137,294		141,210
				--------------		--------------		--------------
		Total liabilities		1,460,026		1,594,365		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				385,919		523,805		397,878
Deferred compensation				(499	)	(257	)	(679	)
Retained earnings				1,571,871		1,433,099		1,567,693
Accumulated other comprehensive earnings				16,946		(10,228	)	30,484
Treasury stock, at cost; 32,902,491 shares at
	June 27, 2004, 36,008,341 at June 29, 2003
	and 34,195,301 at December 28, 2003			(661,959	)	(741,404	)	(694,983	)
				--------------		--------------		--------------
		Total shareholders' equity		1,417,125		1,309,862		1,405,240
				--------------		--------------		--------------

		Total liabilities and shareholders' equity	$	2,877,151		2,904,227		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				Six Months Ended
			--------------------				-------------------------
			June 27, 2004 - --------			June 29, 2003 - --------	June 27, 2004 - ---------		June 29, 2003 - ---------
Net revenues			$	516,433		581,469	990,680		1,043,237
Cost of sales				207,350		230,807	394,073		403,044
				------------		------------	-------------		-------------
Gross profit				309,083		350,662	596,607		640,193
				------------		------------	-------------		-------------
Expenses
	Amortization			15,752		18,410	30,993		34,588
	Royalties			34,021		52,650	66,660		86,470
	Research and product development			37,696		33,105	69,379		63,605
	Advertising			59,018		67,686	114,348		120,864
	Selling, distribution and administration			139,867		150,420	277,826		290,319
				------------		-------------	-------------		--------------
		Total expenses		286,354		322,271	559,206		595,846
				------------		-------------	-------------		--------------
Operating profit				22,729		28,391	37,401		44,347
				------------		-------------	-------------		--------------
Nonoperating (income) expense
	Interest expense			7,924		11,974	16,231		26,996
	Other (income) expense, net			(8,047	)	777	(10,093	)	82
				------------		-------------	-------------		--------------
		Total nonoperating (income) expense		(123	)	12,751	6,138		27,078
				------------		-------------	-------------		--------------
Earnings before income taxes				22,852		15,640	31,263		17,269
Income taxes				4,013		4,223	5,892		4,663
				------------		-------------	-------------		--------------
Net earnings			$	18,839		11,417	25,371		12,606
				=======		=======	=======		========

Net earnings per common share
Basic			$	.11		.07	.14		.07
				=======		=======	=======		========
Diluted			$	.06		.06	.08		.07
				=======		=======	=======		========
Cash dividends declared per
common share			$	.06		.03	.12		.06
				=======		=======	=======		========

See accompanying condensed notes to consolidated financial statements.

HASBRO, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Six Months Ended June 27, 2004 and June 29, 2003

(Thousands of Dollars)
(Unaudited)
						2004		2003
						-------		-------
Cash flows from operating activities
	Net earnings				$	25,371		12,606
	Adjustments to reconcile net earnings to net cash
	provided (utilized) by operating activities:
		Depreciation and amortization of plant and equipment				30,939		35,366
		Other amortization				30,993		34,588
		Change in fair value of liabilities potentially settleable
		in common stock				(10,220	)	-
		Deferred income taxes				9,454		14,497
		Compensation earned under restricted stock programs				180		(14	)
	Change in operating assets and liabilities (other
		than cash and cash equivalents):
		Decrease in accounts receivable				309,200		82,063
		Increase in inventories				(67,138	)	(75,497	)
		Increase in prepaid expenses and other current assets				(30,568	)	(31,038	)
		Decrease in accounts payable and accrued liabilities				(292,983	)	(167,711	)
		Other				5,622		6,842
						------------		------------
				Net cash provided (utilized) by operating activities		10,850		(88,298	)
						------------		------------
Cash flows from investing activities
		Additions to property, plant and equipment				(37,775	)	(26,417	)
		Investments and acquisitions, net of cash acquired				(9,824	)	-
		Other				2,129		(5,501	)
						------------		------------
				Net cash utilized by investing activities		(45,470	)	(31,918	)
						------------		------------
Cash flows from financing activities
		Repurchases of and repayments of borrowings with original
			maturities of more than three months			(29,523	)	(200,288	)
		Net proceeds (repayments) of other short-term borrowings				20,101		(4,562	)
		Stock option transactions				18,996		8,995
		Dividends paid				(15,851	)	(10,392	)
						------------		------------
				Net cash utilized by financing activities		(6,277	)	(206,247	)
						------------		------------
Effect of exchange rate changes on cash						294		3,668
						------------		------------
				Decrease in cash and cash equivalents		(40,603	)	(322,795	)
Cash and cash equivalents at beginning of year						520,747		495,372
						------------		------------
				Cash and cash equivalents at end of period	$	480,144		172,577
						=======		=======

HASBRO, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (continued)
Six Months Ended June 27, 2004 and June 29, 2003

(Thousands of Dollars)
(Unaudited)


		2004	2003
		-------	-------
Supplemental information
Cash paid during the period for:
Interest	$18,560		32,676
Income taxes	$25,455		13,688

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 27, 2004 - -------			June 29, 2003 - -------		June 27, 2004 - -------		June 29, 2003 - -------
Net earnings	$	18,839			11,417	25,371		12,606
Other comprehensive earnings (loss)		(4,241	)		28,297	(13,538	)	36,586
		----------			----------	----------		----------
Total comprehensive earnings	$	14,598			39,714	11,833		49,192
		======			======	======		======

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 June 27, 2004 and June 29, 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 quarterly and year to date periods ended June 27, 2004 and June 29, 2003 are 13-week and 26-week periods, respectively.

The results of operations for the six months ended June 27, 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 and six months ended June 27, 2004 and June 29, 2003 were computed as follows:

		2004		2003
		-----------------		-----------------
Quarter - ----------		Basic	Diluted	Basic	Diluted
		-------	-------	-------	-------
Net earnings		$ 18,839	18,839	11,417	11,417
Effect of dilutive securities:
Change in fair value of liabilities
potentially settleable in common stock		-	(8,520)	-	-
		------------	------------	------------	------------
Adjusted net earnings		$ 18,839	10,319	11,417	11,417
		=======	=======	=======	=======

Average shares outstanding		176,417	176,417	173,327	173,327
Effect of dilutive securities:
	Liabilities potentially settleable in
	common stock	-	5,721	-	-
	Options and warrants	-	2,529	-	7,568
		------------	------------	------------	------------
Equivalent shares		176,417	184,667	173,327	180,895
		=======	=======	=======	=======

Net earnings per share		$ .11	.06	.07	.06
		=======	=======	=======	=======

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

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

		2004		2003
		-----------------		-----------------
Six Months - ---------------		Basic	Diluted	Basic	Diluted
		-------	-------	-------	-------
Net earnings		$ 25,371	25,371	12,606	12,606
Effect of dilutive securities:
Change in fair value of liabilities
potentially settleable in common stock		-	(10,220)	-	-
		------------	------------	------------	------------
Adjusted net earnings		$ 25,371	15,151	12,606	12,606
		=======	=======	=======	=======

Average shares outstanding		176,079	176,079	173,122	173,122
Effect of dilutive securities:
	Liabilities potentially settleable in
	common stock	-	5,363	-	-
	Options and warrants	-	2,868	-	6,670
		------------	------------	------------	------------
Equivalent shares		176,079	184,310	173,122	179,792
		=======	=======	=======	=======

Net earnings per share		$ .14	.08	.07	.07
		=======	=======	=======	=======

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 second quarter and six months ended June 27, 2004, 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 June 27, 2004.

Options and warrants to acquire shares totaling 5,509 at June 27, 2004 and 11,188 at June 29, 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. See Note 7.

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 and six months ended June 27, 2004 and June 29, 2003 would have been:

		Quarter Ended						Six Months Ended
		------------------						------------------
		June 27, 2004 - -------			June 29, 2003 - -------			June 27, 2004 - -------			June 29, 2003 - -------
Reported net earnings		$	18,839			11,417			25,371			12,606
Add:
	Stock-based employee compensation expense included in reported net earnings (loss), net of related tax effects		61			(21	)		122			(1	)
Deduct:
	Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects		(3,897	)		(3,099	)		(6,540	)		(6,294	)
			----------			----------			----------			----------
Pro forma net earnings		$	15,003			8,297			18,953			6,311
			======			======			======			======

Reported net earnings per share