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 26, 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 October 22, 2004 was 177,016,516.

PART I. FINANCIAL INFORMATION

ITEM 1: Financial Statements

HASBRO, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(Thousands of Dollars Except Share Data)

(Unaudited)

		Sept. 26,	Sept. 28,	Dec. 28,
Assets		2004	2003	2003
		---------	---------	---------
Current assets
Cash and cash equivalents	$	305,089	155,357	520,747
Accounts receivable, less allowance
for doubtful accounts of $40,500,
$54,200 and $39,200		697,430	879,669	607,556
Inventories:
Finished products		295,447	266,713	155,180
Work in process		14,153	7,762	5,144
Raw materials		7,520	14,936	8,655
		--------------	--------------	--------------
Total inventories		317,120	289,411	168,979

Deferred income taxes		110,437	114,021	119,664
Prepaid expenses		147,985	108,683	92,317
		--------------	--------------	--------------
Total current assets		1,578,061	1,547,141	1,509,263

Property, plant and equipment, net		195,208	206,756	199,854
		--------------	--------------	--------------

Other assets
Goodwill		473,271	462,088	463,680
Other intangibles, less accumulated amortization
of $482,500, $412,200 and $435,000		664,452	734,232	710,639
Other		211,246	298,277	279,940
		--------------	--------------	--------------
Total other assets		1,348,969	1,494,597	1,454,259
		--------------	--------------	--------------

Total assets	$	3,122,238	3,248,494	3,163,376
		========	========	========

(continued)

HASBRO, INC. AND SUBSIDIARIES

Consolidated Balance Sheets (continued)

(Thousands of Dollars Except Share Data)

(Unaudited)

				Sept. 26,		Sept. 28,		Dec. 28,
Liabilities and Shareholders' Equity				2004		2003		2003
				---------		---------		---------
Current liabilities
Short-term borrowings			$	16,356		104,576		23,354
Current installments of long-term debt				1,356		1,219		1,333
Accounts payable				188,831		169,352		158,969
Accrued liabilities				635,465		698,559		746,399
				--------------		--------------		--------------
		Total current liabilities		842,008		973,706		930,055

Long-term debt, excluding current installments				632,411		856,934		686,871
Deferred liabilities				146,169		146,463		141,210
				--------------		--------------		--------------
		Total liabilities		1,620,588		1,977,103		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				383,849		409,787		397,878
Deferred compensation				(248	)	(771	)	(679	)
Retained earnings				1,649,930		1,496,388		1,567,693
Accumulated other comprehensive earnings				20,785		(5,917	)	30,484
Treasury stock, at cost; 32,720,445 shares at
	September 26, 2004, 35,702,707 at September
	28, 2003 and 34,195,301 at December 28, 2003			(657,513	)	(732,943	)	(694,983	)
				--------------		--------------		--------------
		Total shareholders' equity		1,501,650		1,271,391		1,405,240
				--------------		--------------		--------------

		Total liabilities and shareholders' equity	$	3,122,238		3,248,494		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					Nine Months Ended
			--------------------					-------------------------
			Sept. 26, 2004 - --------			Sept. 28, 2003 - --------		Sept. 26, 2004 - ---------		Sept. 28, 2003 - ---------
Net revenues			$	947,312		971,071		1,937,992		2,014,308
Cost of sales				423,458		419,869		817,531		822,913
				------------		------------		-------------		-------------
Gross profit				523,854		551,202		1,120,461		1,191,395
				------------		------------		-------------		-------------
Expenses
	Amortization			16,888		19,319		47,881		53,907
	Royalties			65,087		82,535		131,747		169,005
	Research and product development			39,257		38,811		108,636		102,416
	Advertising			129,403		105,039		243,751		225,903
	Selling, distribution and administration			151,179		168,505		429,005		458,824
				------------		-------------		-------------		--------------
		Total expenses		401,814		414,209		961,020		1,010,055
				------------		-------------		-------------		--------------
Operating profit				122,040		136,993		159,441		181,340
				------------		-------------		-------------		--------------
Nonoperating (income) expense
	Interest expense			8,257		12,570		24,488		39,566
	Other (income) expense, net			(5,513	)	6,299		(15,606	)	6,381
				------------		-------------		-------------		--------------
		Total nonoperating (income) expense		2,744		18,869		8,882		45,947
				------------		-------------		-------------		--------------
Earnings before income taxes and
	cumulative effect of accounting change			119,296		118,124		150,559		135,393
Income taxes				30,609		32,309		36,501		36,972
				------------		-------------		-------------		--------------
Earnings before cumulative effect
	of accounting change			88,687		85,815		114,058		98,421
Cumulative effect of accounting change,
	net of tax			-		(17,351	)	-		(17,351	)
				------------		-------------		-------------		--------------
Net earnings			$	88,687		68,464		114,058		81,070
				=======		=======		=======		========

(continued)

HASBRO, INC. AND SUBSIDIARIES
Consolidated Statements of Operations (continued)
(Thousands of Dollars Except Per Share Data)
(Unaudited)

			Quarter Ended				Nine Months Ended
			--------------------				-------------------------
			Sept. 26, 2004 - ---------		Sept. 28, 2003 - ---------		Sept. 26, 2004 - ---------	Sept. 28, 2003 - ---------
Per common share
	Earnings before cumulative
	effect of accounting change
	Basic		$	.50	.49		.65	.57
				=======	=======		=======	========
	Diluted		$	.45	.48		.54	.55
				=======	=======		=======	========
	Cumulative effect of accounting
	change, net of tax
	Basic and diluted		$	-	(.10	)	-	(.10	)
				=======	=======		=======	========

	Net earnings
	Basic		$	.50	.39		.65	.47
				=======	=======		=======	========
	Diluted		$	.45	.38		.54	.45
				=======	=======		=======	========

	Cash dividends declared	$		.06	.03		.18	.09
				=======	=======		=======	========

See accompanying condensed notes to consolidated financial statements.

HASBRO, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Nine Months Ended September 26, 2004 and September 28, 2003
(Thousands of Dollars)
(Unaudited)
						2004		2003
Cash flows from operating activities						-------		-------
	Net earnings				$	114,058		81,070
	Adjustments to reconcile net earnings to net cash
	utilized by operating activities:
		Cumulative effect of accounting change, net of tax				-		17,351
		Depreciation and amortization of plant and equipment				55,138		55,627
		Other amortization				47,881		53,907
		Loss on early extinguishment of debt				1,072		-
		Change in fair value of liabilities potentially settleable
		in common stock				(15,370	)	1,540
		Deferred income taxes				22,969		21,187
		Compensation earned under restricted stock programs				164		79
	Change in operating assets and liabilities (other
		than cash and cash equivalents):
		Increase in accounts receivable				(78,432	)	(309,382	)
		Increase in inventories				(146,373	)	(91,298	)
		Increase in prepaid expenses and other current assets				(6,298	)	(19,772	)
		Decrease in accounts payable and accrued liabilities				(79,728	)	(1,282	)
		Other				(8,820	)	15,546
						------------		------------
				Net cash utilized by operating activities		(93,739	)	(175,427	)
						------------		------------
Cash flows from investing activities
		Additions to property, plant and equipment				(55,265	)	(42,872	)
		Investments and acquisitions, net of cash acquired				(9,824	)	-
		Other				5,138		(3,029	)
						------------		------------
				Net cash utilized by investing activities		(59,951	)	(45,901	)
						------------		------------
Cash flows from financing activities
		Repurchases of and repayments of borrowings with original
			maturities of more than three months			(50,385	)	(200,288	)
		Net (repayments) proceeds of other short-term borrowings				(6,803	)	82,765
		Purchase of common stock and other equity securities				-		(3,378	)
		Stock option transactions				21,249		13,792
		Dividends paid				(26,467	)	(15,607	)
						------------		------------
				Net cash utilized by financing activities		(62,406	)	(122,716	)
						------------		------------
Effect of exchange rate changes on cash						438		4,029
						------------		------------
				Decrease in cash and cash equivalents		(215,658	)	(340,015	)
Cash and cash equivalents at beginning of year						520,747		495,372
						------------		------------
				Cash and cash equivalents at end of period	$	305,089		155,357
						=======		=======

HASBRO, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (continued)
Nine Months Ended September 26, 2004 and September 28, 2003

(Thousands of Dollars)
(Unaudited)


		2004	2003
		-------	-------
Supplemental information
Cash paid during the period for:
Interest	$ 29,255		50,534
Income taxes	$ 30,623		18,847

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. 26, 2004 - -------		Sept. 28, 2003 - -------		Sept. 26, 2004 - -------		Sept. 28, 2003 - -------
Net earnings	$	88,687		68,464	114,058		81,070
Other comprehensive earnings (loss)		3,839		4,311	(9,699	)	40,897
		----------		----------	----------		----------
Total comprehensive earnings	$	92,526		72,775	104,359		121,967
		======		======	======		======

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 September 26, 2004 and September 28, 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 September 26, 2004 and September 28, 2003 are 13-week and 39-week periods, respectively.

The results of operations for the nine months ended September 26, 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 nine months ended September 26, 2004 and September 28, 2003 were computed as follows:

		2004		2003
		-----------------		-----------------
Quarter - ----------		Basic	Diluted	Basic	Diluted
		-------	-------	-------	-------
Earnings before cumulative
effect of accounting change		$ 88,687	88,687	85,815	85,815
Effect of dilutive securities:
Change in fair value of liabilities
potentially settleable in common stock		-	(5,150)	-	1,540
		------------	------------	------------	------------
Adjusted earnings before cumulative
effect of accounting change		$ 88,687	83,537	85,815	87,355
		=======	=======	=======	=======

Average shares outstanding		176,885	176,885	173,833	173,833
Effect of dilutive securities:
	Liabilities potentially settleable in
	common stock	-	5,918	-	5,873
	Options and warrants	-	1,730	-	2,289
		------------	------------	------------	------------
Equivalent shares		176,885	184,533	173,833	181,995
		=======	=======	=======	=======

Earnings per share before cumulative
effect of accounting change		$ .50	.45	.49	.48
		=======	=======	=======	=======

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

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

	2004		2003
	-----------------		-----------------
Nine Months - -----------------	Basic	Diluted	Basic	Diluted
	-------	-------	-------	-------
Earnings before cumulative
effect of accounting change	$ 114,058	114,058	98,421	98,421
Effect of dilutive securities:
Change in fair value of liabilities
potentially settleable in common stock	-	(15,370)	-	-
	------------	------------	------------	------------
Adjusted earnings before cumulative
effect of accounting change	$ 114,058	98,688	98,421	98,421
	=======	=======	=======	=======

Aver