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 27, 2005

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 21, 2005 was 178,307,018.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

HASBRO, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(Thousands of Dollars Except Share Data)

(Unaudited)

		March 27,	March 28,	Dec. 26,
Assets		2005	2004	2004
		---------	---------	---------
Current assets
Cash and cash equivalents	$	876,891	631,720	725,002
Accounts receivable, less allowance
for doubtful accounts of $36,000,
$38,900 and $37,000		199,594	206,201	578,705
Inventories		232,660	188,257	194,780
Deferred income taxes		94,307	118,727	93,134
Prepaid expenses		138,828	123,639	126,601
		--------------	--------------	--------------
Total current assets		1,542,280	1,268,544	1,718,222

Property, plant and equipment, net		201,692	197,793	206,934
		--------------	--------------	--------------

Other assets
Goodwill		468,919	473,056	469,726
Other intangibles, less accumulated amortization
of $513,809, $449,809 and $489,238		613,999	695,617	637,929
Other		200,853	270,893	207,849
		--------------	--------------	--------------
Total other assets		1,283,771	1,439,566	1,315,504
		--------------	--------------	--------------

Total assets	$	3,027,743	2,905,903	3,240,660
		========	========	========

(continued)

HASBRO, INC. AND SUBSIDIARIES

Consolidated Balance Sheets (continued)

(Thousands of Dollars Except Share Data)

(Unaudited)

		March 27,	March 28,	Dec. 26,
Liabilities and Shareholders' Equity		2005	2004	2004
		--------	--------	--------
Current liabilities
Short-term borrowings	$	16,159	15,835	17,959
Current portion of long-term debt		356,619	1,315	324,124
Accounts payable		112,715	100,323	167,585
Accrued liabilities		505,593	555,065	638,943
		-------------	-------------	-------------
Total current liabilities		991,086	672,538	1,148,611

Long-term debt, excluding current portion		266,242	686,191	302,698
Deferred liabilities		151,229	142,926	149,627
		-------------	-------------	-------------
Total liabilities		1,408,557	1,501,655	1,600,936
		-------------	-------------	-------------
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		374,587	391,566	380,745
Deferred compensation		(65)	(589)	(98)
Retained earnings		1,701,448	1,563,649	1,721,209
Accumulated other comprehensive earnings		66,327	21,187	82,388
Treasury stock, at cost; 31,476,112 shares at
March 27, 2005, 33,462,722 at March 28,2004
and 32,379,369 at December 26, 2004		(627,958)	(676,412)	(649,367)
		-------------	-------------	-------------
Total shareholders' equity		1,619,186	1,404,248	1,639,724
		-------------	-------------	-------------

Total liabilities and shareholders' equity	$	3,027,743	2,905,903	3,240,660
		========	========	========

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 27,	March 28,
		2005	2004
		--------	--------
Net revenues		$ 454,944	474,247
Cost of sales		165,975	186,723
		------------	------------
Gross profit		288,969	287,524
		------------	------------
Expenses
Amortization		24,755	15,241
Royalties		40,872	32,639
Research and product development		31,041	31,683
Advertising		54,190	55,330
Selling, distribution and administration		136,571	137,959
		------------	------------
	Total expenses	287,429	272,852
		------------	------------
Operating profit		1,540	14,672
		------------	------------
Nonoperating (income) expense
Interest expense		7,731	8,307
Other income, net		(2,966)	(2,046)
		------------	------------
	Total nonoperating expense	4,765	6,261
		------------	------------
Earnings (loss) before income taxes		(3,225)	8,411

Income taxes		488	1,879
		------------	------------
Net earnings (loss)		$ (3,713)	6,532
		=======	=======

Net earnings (loss) per common share
	Basic	$ (.02)	.04
		=======	=======
	Diluted	$ (.02)	.03
		=======	=======
Cash dividends declared per common share		$ .09	.06
		=======	=======

See accompanying condensed notes to consolidated financial statements.

HASBRO, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Quarters Ended March 27, 2005 and March 28, 2004
(Thousands of Dollars)
(Unaudited)
	2005	2004
	-------	-------
Cash flows from operating activities
Net earnings (loss)	$ (3,713)	6,532
Adjustments to reconcile net earnings (loss) to net
cash provided by operating activities:
Depreciation and amortization of plant and equipment	13,361	13,739
Other amortization	24,755	15,241
Change in fair value of liabilities potentially settleable
in common stock	4,970	(1,700)
Deferred income taxes	(2,214)	4,476
Compensation earned under restricted stock plans	33	90
Change in operating assets and liabilities (other
than cash and cash equivalents):
Decrease in accounts receivable	370,893	401,569
Increase in inventories	(38,984)	(18,379)
Increase in prepaid expenses	(6,157)	(32,493)
Decrease in accounts payable and accrued liabilities	(205,436)	(258,220)
Other	2,134	3,217
	------------	------------
Net cash provided by operating activities	159,642	134,072
	------------	------------
Cash flows from investing activities
Additions to property, plant and equipment	(11,783)	(13,855)
Investments and acquisitions	-	(9,564)
Other	763	1,091
	------------	------------
Net cash utilized by investing activities	(11,020)	(22,328)
	------------	------------
Cash flows from financing activities
Repayments of borrowings with original maturities
of more than three months	(360)	(324)
Net repayments of other short-term borrowings	(1,164)	(7,256)
Stock option transactions	13,398	12,259
Dividends paid	(10,647)	(5,267)
	------------	------------
Net cash provided (utilized) by financing activities	1,227	(588)
	------------	------------
Effect of exchange rate changes on cash	2,040	(183)
	------------	------------
Increase in cash and cash equivalents	151,889	110,973
Cash and cash equivalents at beginning of year	725,002	520,747
	------------	------------
Cash and cash equivalents at end of period	$876,891	631,720
	=======	=======

HASBRO, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows (continued)

Quarters Ended March 27, 2005 and March 28, 2004

(Thousands of Dollars)

(Unaudited)

		2005	2004
		-------	------
Supplemental information
Cash paid during the period for:
	Interest	$ 9,732	11,082
	Income taxes	$ 3,219	14,951

See accompanying condensed notes to consolidated financial statements.

HASBRO, INC. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Earnings (Loss)

(Thousands of Dollars)

(Unaudited)

	Quarter Ended
	--------------------
	March 27,	March 28,
	2005	2004
	--------	--------
Net earnings (loss)	$ (3,713)	6,532
Other comprehensive loss	(16,061)	(9,297)
	------------	------------
Total comprehensive loss	$ (19,774)	(2,765)
	=======	=======

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 27, 2005 and March 28, 2004, 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 27, 2005 and March 28, 2004 are thirteen week periods.

The results of operations for the quarter ended March 27, 2005 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 26, 2004 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 26, 2004. Substantially all of the Company's inventories consist of finished goods.

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

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

(2) Net earnings (loss) per share data for the fiscal quarters ended March 27, 2005 and March 28, 2004 were computed as follows:

	2005		2004
	-----------------		-----------------
	Basic	Diluted	Basic	Diluted
	-------	-------	-------	-------
Net earnings (loss)	$ (3,713)	(3,713)	6,532	6,532
Effect of dilutive securities:
Change in fair value of liabilities
potentially settleable in common stock	-	-	-	(1,700)
	------------	------------	------------	------------
Adjusted net earnings (loss)	$ (3,713)	(3,713)	6,532	4,832
	=======	=======	=======	=======

Average shares outstanding	177,763	177,763	175,742	175,742
Effect of dilutive securities:
Liabilities potentially settleable in
common stock	-	-	-	5,006
Options and warrants	-	-	-	3,205
	------------	------------	------------	------------
Equivalent shares	177,763	177,763	175,742	183,953
	=======	=======	=======	=======

Net earnings (loss) per share	$ (.02)	(.02)	.04	.03
	=======	=======	=======	=======

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

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

In December 2004, the Company adopted Emerging Issues Task Force ("EITF") Issue 04-8, "The Effect of Contingently Convertible Instruments on Diluted Earnings per Share", which states that the dilutive effect of contingent convertible debt instruments must be included in dilutive earnings per share regardless of whether the triggering contingency has been satisfied. Issue 04-8 requires application on a retroactive basis and restatement of prior period earnings per share, and is effective for periods ending after December 15, 2004. For both the first quarter of 2005 and 2004, the effect of the assumed conversion had an anti-dilutive effect on earnings (loss) per share, and accordingly, no adjustment to the diluted earnings (loss) per share calculation was necessary. The impact of the assumed conversion of the debentures would result in an additional 11,574 shares be included in the calculation of the diluted earnings per share.

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, classified as a liability, have a more dilutive impact on earnings per share when treated as an equity contract. For the 2005 first quarter, these warrants, when treated as an equity contract, did not have a more dilutive impact on loss per share and no adjustment to the loss per share calculation was necessary. 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, for the first quarter 2004 diluted earnings per share calculation, the numerator includes an adjustment to earnings for the income included therein related to the fair market value adjustment and the denominator i ncludes an adjustment for the shares issuable as of quarter end.

Options and warrants to acquire shares totaling 21,706 at March 27, 2005 and 3,439 at March 28, 2004, were excluded from the calculation of diluted earnings per share because to include them would have been antidilutive. Of the options and warrants to acquire shares totaling 21,706 at March 27, 2005, 16,614 of these would have been included in the calculation of diluted earnings per share had the Company not had a net loss in the first quarter of 2005. Assuming that these options and warrants were included, under the treasury stock method, they would have resulted in an additional 2,296 shares being included in the diluted earnings per share calculation for the quarter ended March 27, 2005.

(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 ("SFAS 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 27, 2005 and March 28, 2004 would have been: