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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549

Form 10-K

For the fiscal year ended December 29, 2002

Commission file number 1-6682

Hasbro, Inc.
(Exact Name of Registrant, As Specified in its Charter)

Registrant's telephone number, including area code (401) 431-8697

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act: None

        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 ý    No o

        Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ý

        Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act). Yes ý    No o

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        The aggregate market value of the voting common stock held by non-affiliates of the registrant on June 28, 2002 computed by reference to the closing price of the stock on June 28, 2002 was approximately $2,103,964,000. The registrant does not have non-voting common stock outstanding.

        The number of shares of common stock outstanding as of March 12, 2003 was 173,088,636.

DOCUMENTS INCORPORATED BY REFERENCE

        Portions of registrant's definitive proxy statement for its 2003 Annual Meeting of Shareholders are incorporated by reference into Part III of this Report.

PART I

ITEM 1.    BUSINESS

General Development and Description of Business and Business Segments

        Except as expressly indicated or unless the context otherwise requires, as used herein, the "Company", "we", or "us", means Hasbro, Inc., a Rhode Island corporation organized on January 8, 1926, and its subsidiaries. Unless otherwise specifically indicated, all dollar or share amounts herein are expressed in thousands of dollars or shares, except for per share amounts.

        The Company 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. Both internationally and in the U.S., its widely recognized core brands such as PLAYSKOOL, TONKA, MILTON BRADLEY, PARKER BROTHERS, TIGER, and WIZARDS OF THE COAST provide what the Company believes to be the highest quality play experiences in the world. In its offerings are a broad variety of games, including traditional board and card, hand-held electronic, trading card and roleplaying games, as well as electronic learning aids and puzzles. Toy offerings include boys' action figures, vehicles and playsets, girls' toys, preschool toys and infant products, children's consumer electronics, electronic interactive products, creative play and toy related specialty products. The Company also licenses to others various trademarks, characters and other property rights for use in connection with consumer promotions and the sale by others of noncompeting toys and non-toy products.

        The Company's focus on managing its business covers two major areas, Toys and Games. Organizationally, the Company's principal segments are U.S. Toys, Games, and International, with additional reportable segments of Operations and Retail. Financial information with respect to the Company's segments is included in note 19 to the Company's financial statements, which are included in Item 8 of this 10-K and incorporated herein by reference.

        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, children's consumer electronics, electronic interactive products, creative play and toy related specialty products. The Games segment includes the development, manufacturing, marketing and selling of traditional board and card games, hand-held electronic games, trading card and roleplaying games, as well as learning aids and puzzles. Within the International segment, the Company develops, manufactures, markets and sells both toy and game products in non-U.S. markets.

        Operations sources product for the majority of the Company's segments. The Retail segment operates retail shops. The Company also has other segments which primarily license certain of the Company's intellectual property to third parties. In 2002, these other segments did not meet the quantitative thresholds for reportable segments.

U.S. Toys

        In the U.S. Toys segment, the Company's products are marketed as boys' toys, girls' toys, preschool, creative play, children's consumer electronics and other products.

        Boys' toys are offered across a wide range of core properties such as G.I. JOE and TRANSFORMERS action figures, and the TONKA line of trucks and vehicles. Other products are tied to entertainment properties, including STAR WARS toys and accessories, highlighted in 2003 by products based on the new CLONE WARS story line developed by Lucasfilm. In 2003, the Company will be introducing a new line-up of G.I. JOE action figures, G.I. JOE: SPY TROOPS, with special ACTION ATTACK features in the vehicles. Also, as part of the G.I. JOE authentic military

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line, a collection of NAVY SEALS figures will be added. The TRANSFORMERS ARMADA line will be expanded through a new storyline with the introduction of the UNICRON BATTLES. The TRANSFORMERS line in 2003 will also include TRANSFORMERS UNIVERSE, which will include selected TRANSFORMERS action figures from previous years. The TONKA 2003 product line includes the TEAM BUILDERS vehicles that have proven themes of police, fire and construction, as well as TONKA TOWN, an imaginary world with characterized vehicles and connectable playsets. In 2003, the Company will also be relaunching the MICRO MACHINES line in the U.S. with the introduction of SUPER STUNT CITY and a collection of vehicles and playsets. Also new in 2003 is the NAKNAK brand, a line of STACKING BATTLE figures.

        Girls' toys include the easy-to-operate remote control RADICAL ROLLIN' RACHEL doll, as well as the classic RAGGEDY ANN and RAGGEDY ANDY rag dolls. In 2003, the Company will be reintroducing the MY LITTLE PONY line, which will be supported by a licensing program in publishing, video, and other girl directed consumables.

        Since 2001, the Company has had a broad-based licensing relationship with Disney, which will continue in 2003. As part of this alliance, the Company offers the DISNEY PRINCESS line, which includes the MAGICAL PRINCESS CASTLES. The Company will also feature toy lines based on Walt Disney Pictures' and Pixar's anticipated release of FINDING NEMO, due out in 2003, as well as a variety of other toys based on classics such as THE LION KING and new Disney characters based on BROTHER BEAR, an animated movie scheduled for release in November.

        The U.S. Toys segment's preschool products include a portfolio of core brands primarily marketed under the PLAYSKOOL trademarks as well as a licensed product line based on HIT Entertainment's BOB THE BUILDER, which airs on Nickelodeon. The PLAYSKOOL line includes such well-known products as MR. POTATO HEAD, SIT 'N SPIN and GLOWORM, a successful line of infant toys such as TUMMY TIME PICTURE SHOW, AIR-TIVITY TABLE, and the MAGIC SCREEN infant line, as well as preschool role-play products such as YARD CREW. As part of the PLAYSKOOL line in 2003, the Company will be introducing toys which are designed with the "big kid" play that little kids want but with preschool-appropriate play patterns. This initiative will include MAJOR POWERS, an action figure hero that consists of a full line of action figures along with vehicles. MAJOR POWERS will be supported by videos to help communicate the storyline. GO-BOTS are robots made especially for little hands that convert easily into multiple forms. Also new for 2003 are SPEEDSTARS, which are air-powered race cars with track sets that fold up for easy portability.

        Creative play items for both girls and boys include such classic core lines as PLAY-DOH, EASY-BAKE oven, and LITE-BRITE and SPIROGRAPH design toys. During 2003, the Company plans to expand the PLAY-DOH line by introducing PLAY-DOH CREATIVITY TABLE, a kid-sized table with lots of places and ways to be creative with PLAY-DOH. For EASY-BAKE, celebrating its 40th birthday in 2003, the Company will introduce the EASY-BAKE REAL MEAL oven where kids can make their own meals including pizza, pretzels, and macaroni and cheese.

        Children's consumer electronics products include HITCLIPS micro music systems, which will continue to have new artists and innovative players added in 2003, and KIDCLIPS DISNEY TUNES, which contain classic Disney tunes on easy to use players. The consumer electronics product line also includes the FURREAL FRIENDS brand, a line of electronic toy pets launched in 2002 with both FURREAL FRIENDS cats and kittens. Following up on the 2002 success of the FURREAL FRIENDS brand, the Company will introduce FURREAL FRIENDS GO GO MY WALKIN' PUP in 2003. New in 2003 in the lifestyle entertainment area is THINTRONIX, a new line of fun, ultra-thin products including a real working speakerphone and a tunable analog FM radio each just over one inch thick. Also planned to launch in 2003 is VIDEONOW, a personal video-player that features 3"

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discs which play up to 30 minutes of uninterrupted content, allowing kids to watch their favorite show anytime, anywhere.

        Other products included in the U.S. Toys segment include the SUPER SOAKER line of water products and the NERF line of soft foam sports action toys. New in 2003 is the NERF TECH TARGET set as well as the NERF BIG PLAY FOOTBALL. Also new in 2003 is the POWER AIR SURFER SKY WOLF, a remote-control airplane which takes off right from the ground.

Games

        The Company markets its games and puzzles under several well known core brands, including MILTON BRADLEY, PARKER BROTHERS, AVALON HILL, and WIZARDS OF THE COAST.

        The MILTON BRADLEY, PARKER BROTHERS and AVALON HILL brand portfolios consist of a broad assortment of games for children, families and adults. The Company's core game items include MONOPOLY, BATTLESHIP, GAME OF LIFE, SCRABBLE, CHUTES AND LADDERS, CANDY LAND, TROUBLE, MOUSETRAP, OPERATION, HUNGRY HUNGRY HIPPOS, CONNECT FOUR, TWISTER, YAHTZEE, JENGA, CLUE, SORRY!, RISK, BOGGLE, OUIJA, DIPLOMACY, ACQUIRE and TRIVIAL PURSUIT, as well as a line of jigsaw puzzles for children and adults, including BIG BEN, GUILD and CROXLEY. The Company has put in place a series of marketing initiatives designed to encourage game play among a wide variety of audiences, including MY FIRST GAMES, FAMILY GAME NIGHT and GET TOGETHER GAMES. In 2002, the Company introduced the TRIVIAL PURSUIT 20th ANNIVERSARY EDITION, with questions on people, places and events of the last 20 years. This edition of TRIVIAL PURSUIT was the top-selling new game and the top-selling board game overall in the industry in 2002. The Company also introduced a line of NURSERY RHYME GAMES, including OLD MCDONALD HAD A FARM. In 2003, the Company will refresh the classic CLUE brand with new sculpted game pieces that represent each suspect. Also planned is a new version of CLUE that introduces additional suspects and incorporates an electronic game board. In addition, in 2003, the Company will be introducing TWISTER MOVES, which will combine the mat-based play associated with the classic TWISTER game with the hip hop fun of dance. Following up on the success of its products in the NURSERY RHYME GAMES line in 2002, the Company will expand the line in 2003 by introducing STORYTIME GAME WITH MOTHER GOOSE, along with the ABC SONG GAME and CAT AND THE FIDDLE. Another preschool game for 2003 is SILLY SOCCER, part of the Company's line of SILLY SPORTS action games, which lets kids develop their athletic skills while interacting with a cast of humorous characters. New boys' games in 2003 include BATTLEBALL, a futuristic battling football game, and MISSION COMMAND series with LAND, SEA and AIR editions which allow kids to assume the role of Army General, Navy Admiral or Air Force Commander. Also new in 2003 in children's games is PRO JAX, which is built around the classic game of jacks but adds new contemporary twists to the play. Finally, in the adult games category, the Company will introduce EXPRESS YOURSELF, a game that challenges players to draw, speak or act out words.

        WIZARDS OF THE COAST trading card and roleplaying games include the popular MAGIC: THE GATHERING and DUNGEONS AND DRAGONS. MAGIC: THE GATHERING has worldwide popularity, with millions of players in more than fifty-two countries. In order to mark the 10th anniversary of MAGIC: THE GATHERING in 2003, the Company plans to introduce redesigned cards as well as four new product releases, the MAGIC: THE GATHERING Eighth Edition core set as well as three expansion sets. In 2002, the Company introduced MAGIC: THE GATHERING ONLINE, where players can purchase digital cards, trade and play digital cards with other players, build and customize decks and organize their card collections right on their PCs. MAGIC: THE GATHERING ONLINE also features built-in tutorials and practice rooms for beginning players as well as leagues and tournaments for advanced players. WIZARDS OF THE COAST has a unique organized play program for its trading card games, sanctioning over 100,000 game tournaments

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around the world in 2002. Additionally in 2003, WIZARDS OF THE COAST will introduce the NEOPETS trading card game based on the popular activities at www.neopets.com. The NEOPETS trading card game will offer game play as well as a collectibility component. Also in 2003, the Company plans to issue a new release of its sports card game, MLB SHOWDOWN.

International

        In addition to the United States, the Company operates in more than 25 countries, selling a representative range of the toy and game products marketed in the United States, together with some items which are sold only internationally. Key international brands for 2002 included ACTION MAN, PLAY-DOH, MONOPOLY, BEYBLADES, and MAGIC: THE GATHERING, as well as DISNEY and STAR WARS entertainment-based licensed products. In addition, FURREAL FRIENDS were introduced into certain non-U.S. markets in the fourth quarter of 2002. In 2003, the Company's international line will include the relaunch of MY LITTLE PONY and G.I. JOE as well as a variety of new games including PRO JAX, DUNGEONS AND DRAGONS board game, and TWISTER MOVES.

Operations

        The Company primarily sources production through unrelated manufacturers in various Far East countries, principally China, using a Hong Kong based subsidiary for quality control and order coordination purposes. See "Manufacturing and Importing" below.

Retail

        The Company has a segment that operates approximately 80 retail stores under the WIZARDS OF THE COAST and GAME KEEPER names, many of which not only sell a wide range of games, but also provide locations for tournaments and other organized play activities.

Other Information

        The Company has another segment which generates revenue through the licensing of certain of the Company's intellectual property to third parties for promotional and merchandising uses.

        To further extend its range of products in its various segments, the Company has Hong Kong units which market directly to retailers a line of high quality, low priced toys, games and related products, primarily on a direct import basis. Direct sales to these customers are reflected in the revenue of the segment in which the product sold resides.

        In addition, various products are licensed to other companies for sale in certain countries where the Company does not otherwise have a presence.

        During the 2002 and 2001 fiscal years, there was no line of products whose revenues individually accounted for more than 10% of consolidated net revenues. During the 2000 fiscal year, revenues from the POKEMON trading card line of products contributed 15% of consolidated net revenues of the Company.

Working Capital Requirements

        The Company's working capital needs have primarily been financed through cash from normal operations and, when necessary, short-term borrowings which reach peak levels during September through November of each year when receivables also generally reach peak levels. The revenue pattern of the Company results in the second half of the year being more significant to its overall business and, within that half, the fourth quarter being the most prominent. The trend of retailers over the past few years has been to make a higher percentage of their purchases within or close to the fourth quarter holiday consumer selling season, which includes Christmas. The Company

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expects that this trend will continue. The toy business is also characterized by customer order patterns which vary from year to year largely because of differences each year in the degree of consumer acceptance of a product line, product availability, marketing strategies and inventory policies of retailers, the dates of theatrical releases of major motion pictures for which the Company has licenses for promotional product, and differences in overall economic conditions. As a result, comparisons of unshipped orders on any date with those at the same date in a prior year are not necessarily indicative of sales for that entire given year. Also, quick response inventory management practices now being used result in fewer orders being placed in advance of shipment and more orders being placed for immediate delivery. The Company's unshipped orders at March 2, 2003 and March 3, 2002 were approximately $216.6 million and $195.3 million, respectively. Also, it is a general industry practice that orders are subject to amendment or cancellation by customers prior to shipment. The backlog at any date in a given year can be affected by programs the Company may employ to induce its customers to place orders and accept shipments early in the year. This method is a general industry practice. The programs the Company is employing to promote sales in 2003 are not substantially different from those employed in 2002.

        The Company commits to inventory production, advertising and marketing expenditures prior to the peak third and fourth quarter retail selling season. Accounts receivable increase during the third and fourth quarter as customers increase their purchases to meet expected consumer demand in the holiday season. Due to the concentrated timeframe of this selling period, payments for these accounts receivable are generally not due until the fourth quarter or early in the first quarter of the subsequent year. This timing difference between expenses paid and revenues collected makes it necessary for the Company to borrow varying amounts during the year. During 2002 and 2001, the Company utilized cash from operations and borrowing under its secured amended and restated revolving credit agreement to meet its cash flow requirements. The Company's committed line at the end of 2002 included a secured revolving credit agreement of $380,000, maturing in March 2005. The facility is secured by substantially all domestic accounts receivable and inventory, as well as certain intangible assets of the Company. The Company is not required to maintain compensating balances under the agreement. The agreement contains certain restrictive covenants setting forth minimum cash flow and coverage requirements, and a number of other limitations, including with respect to capital expenditures, investments, acquisitions, share repurchases and dividend payments. The Company was in compliance with all restrictive covenants throughout the fiscal year ended December 29, 2002. The Company had no borrowings outstanding under its secured revolving credit agreement at March 2, 2003. Amounts available and unused under uncommitted lines at March 2, 2003 were approximately $55,000. During 2000, the Company borrowed through the issuance of commercial paper and against short-term lines of credit to fund its seasonal working capital requirements in excess of funds available from operations and the issuance of long-term debt.

Royalties, Research and Development

        The continuing development of new products and the redesigning of existing items for continued market acceptance are key determinants of success in the toy and game industry. In 2002, 2001 and 2000, $153,775, $125,633 and $208,485, respectively, were incurred on activities relating to the development, design and engineering of new products and their packaging (including items brought to the Company by independent designers) and to the improvement or modification of ongoing products. Much of this work is performed by the Company's internal staff of designers, artists, model makers and engineers.

        In addition to its own staff, the Company deals with a number of independent toy and game designers for whose designs and ideas the Company competes with other toy and game manufacturers. Rights to such designs and ideas, when acquired by the Company, are usually

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exclusive under agreements requiring the Company to pay the designer a royalty on the Company's net sales of the item. These designer royalty agreements in some cases provide for advance royalties and minimum guarantees.

        The Company also produces a number of toys under trademarks and copyrights utilizing the names or likenesses of characters from familiar movies, television shows and other entertainment media, for whose rights the Company competes with other toy and game manufacturers. Licensing fees are generally paid as a royalty on the Company's net sales of the item. Licenses for the use of characters are generally exclusive for specific products or product lines in specified territories. In many instances, advance royalties and minimum guarantees are required by character license agreements. Under terms of currently existing agreements, in certain circumstances, the Company may be required to pay an aggregate of $309,000 in guaranteed or minimum royalties in 2003 and thereafter. The Company has approximately $42,500 of prepaid royalties, which are a component of prepaid expenses and other current assets on the balance sheet. Included in other assets is $161,000 representing the long-term portion of advances paid. Of the unpaid guaranty, Hasbro may be required to pay approximately $91,000, $68,000, $97,000, $16,000, $12,000 and $25,000 in 2003, 2004, 2005, 2006, 2007, and 2008 and thereafter, respectively. Amounts paid and advances to be paid relate to anticipated revenues in the years 2003 through 2018.

Marketing and Sales

        The Company's products are sold nationally and internationally to a broad spectrum of customers including wholesalers, distributors, chain stores, discount stores, mail order houses, catalog stores, department stores and other traditional retailers, large and small, as well as internet-based "e-tailers." The Company and its subsidiaries employ their own sales forces which account for the majority of sales of their products. Remaining sales are generated by independent distributors who sell the Company's products principally in areas of the world where the Company does not otherwise maintain a presence. With the acquisition of Wizards of the Coast, Inc. in the fourth quarter of 1999, the Company acquired a specialized line of retail stores featuring game, hobby and related products and an area for in-store game play, as well as an online retail site. The Company maintains showrooms in selected major cities world-wide as well as at most of its subsidiary locations. Although the Company had more than 4,000 customers in the United States and Canada during 2002, including specialty retailers carrying trading card games and toy-related product, there has been significant consolidation at the retail level over the last several years, and the majority of the Company's sales are to large chain stores, distributors and wholesalers. In other countries, the Company has active customers in excess of 7,500, many of which are individual retail stores. During 2002, sales to the Company's two largest customers, Wal-Mart Stores, Inc. and Toys 'R Us, Inc., represented 19% and 16%, respectively, of consolidated net revenues, and sales to its top five customers accounted for approximately 52% of consolidated net revenues.

        The Company advertises many of its toy and game products extensively on television. The Company generally advertises selected items in its product groups in a manner designed to promote the sale of other specific items in those product groups. The Company conducts new product previews with many of its major customers in the months prior to showcasing the year's new toys and games to the media at the American International Toy Fair in New York each February.

        In 2002, the Company spent $296,549 in advertising, promotion and marketing programs compared to $290,829 in 2001 and $452,978 in 2000.

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Manufacturing and Importing

        During 2002, the Company's products were manufactured in third party facilities in the Far East as well as in the Company's own three facilities located in East Longmeadow, Massachusetts, Waterford, Ireland, and Valencia, Spain. Most of its products are manufactured from basic raw materials such as plastic, paper and cardboard, although certain products also make use of electronic components. All of these materials are readily available but may be subject to significant fluctuations in price. The Company's manufacturing processes include injection molding, blow molding, spray painting, printing, box making and assembly. The Company purchases certain components and accessories used in its toys and games and some finished items from United States manufacturers as well as from manufacturers in the Far East, which is the largest manufacturing center of toys in the world, and other countries. The 1996 implementation of the General Agreement on Tariffs and Trade reduced or eliminated customs duties on many products imported by the Company. The Company believes that the manufacturing capacity of third party manufacturers as well as its own facilities and the supply of components, accessories and completed products which it purchases from unaffiliated manufacturers are adequate to meet the anticipated demand in 2003 for the products which it markets. The Company's reliance on external sources of manufacturing can be shifted, over a period of time, to alternative sources of supply for products it sells, should such changes be necessary.

        However, if the Company is prevented from obtaining products from a substantial number of its current Far East suppliers due to political, labor or other factors beyond its control, the Company's operations would be disrupted while alternative sources of product were secured. The imposition of trade sanctions by the United States or the European Union against a class of products imported by the Company, or the loss of "normal trade relations" status by the People's Republic of China, could significantly increase the cost of the Company's products imported into the United States or Europe.

        The Company makes its own tools and fixtures for its manufacturing facilities but purchases dies and molds principally from independent United States and international sources.

Competition

        The Company is a worldwide leader in the design, manufacture and marketing of games and toys. The Company's business is highly competitive and it competes with several large toy companies, primarily Mattel, Inc., as well as many small United States and international designers, manufacturers and marketers. Competition is based primarily on consumer preferences and quality and, to a lesser extent, pricing. The volatility in consumer preferences with respect to family entertainment continually creates new opportunities for existing competitors and start-ups.

Employees

        At December 29, 2002, the Company employed approximately 7,200 persons worldwide, approximately 4,200 of whom are located in the United States.

Trademarks, Copyrights and Patents

        The Company's products are protected, for the most part and in as many countries as practical, by registered trademarks, copyrights and patents to the extent that such protection is available, cost effective, and meaningful. The loss of such rights concerning any particular product would not have a material adverse effect on the Company's business, although the loss of such protection for a number of significant items might have such an effect.

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Government Regulation

        The Company's toy and game products sold in the United States are subject to the provisions of The Consumer Product Safety Act (the "CPSA"), The Federal Hazardous Substances Act (the "FHSA"), The Flammable Fabrics Act (the "FFA"), and the regulations promulgated thereunder. The CPSA empowers the Consumer Product Safety Commission (the "CPSC") to take action against hazards presented by consumer products, including the formulation and implementation of regulations and uniform safety standards. The CPSC has the authority to seek to declare a product "a banned hazardous substance" under the CPSA and to ban it from commerce. The CPSC can file an action to seize and condemn an "imminently hazardous consumer product" under the CPSA and may also order equitable remedies such as recall, replacement, repair or refund for the product. The FHSA provides for the repurchase by the manufacturer of articles which are banned. Consumer product safety laws also exist in some states and cities within the United States and in Canada, Australia and Europe. The Company maintains laboratories which have testing and other procedures intended to maintain compliance with the CPSA, the FHSA, the FFA, international standards, and the Company's own standards. Notwithstanding the foregoing, there can be no assurance that all of the Company's products are or will be hazard free. Any material product recall could have an adverse effect on the Company's results of operations or financial condition, depending on the product, and could affect sales of other products.

        The Children's Television Act of 1990 and the rules promulgated thereunder by the United States Federal Communications Commission, as well as the laws of certain countries, place certain limitations on television commercials during children's programming.

        The Company maintains programs to comply with various United States federal, state, local and international requirements relating to the environment, plant safety and other matters.

Availability of Information

        The Company's internet address is http://www.hasbro.com. Hasbro makes available free of charge on or through its website its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable after the Company electronically files such material with, or furnishes it to, the Securities and Exchange Commission.

Forward-Looking Information and Risk Factors That May Affect Future Results

        From time to time, including in this Annual Report on Form 10-K and in the Company's annual report to shareholders, the Company publishes "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These "forward-looking statements" may relate to such matters as anticipated financial performance, business prospects, technological developments, new products, research and development activities, liquidity, and similar matters. Forward-looking statements are inherently subject to risks and uncertainties. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. These statements may be identified by the use of forward-looking words or phrases such as "anticipate," "believe," "could," "expect," "intend," "looking forward," "may," "planned," "potential," "should," "will" and "would" or any variations of words with similar meanings. The Company notes that a variety of factors could cause its actual results and experience to differ materially from the anticipated results or other expectations expressed or anticipated in its forward-looking statements. The factors listed below are illustrative and other risks and uncertainties may arise as are or may be detailed from time to time in the Company's public announcements and the Company's filings with the Securities and Exchange Commission, such as on Forms 8-K, 10-Q and 10-K. The Company

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undertakes no obligation to make any revisions to the forward-looking statements contained in this Annual Report on Form 10-K or in its annual report to shareholders to reflect events or circumstances occurring after the date of the filing of this report.

Volatility of consumer preferences and the high level of competition in the family entertainment industry makes it difficult to maintain the long-term success of existing product lines and consistently introduce successful new products. In addition, our inability to develop and introduce planned new products and product lines in a timely manner may damage our business.

        Our business and operating results depend largely upon the appeal of our family entertainment products, principally games and toys. A decline in the popularity of our existing products and product lines or the failure of new products and product lines to achieve and sustain market acceptance could result in reduced overall revenues and margins, which could have a material adverse effect on our business, financial condition and results of operations. Our continued success will depend on our ability to redesign, restyle and extend our existing family entertainment product lines and to develop, introduce and gain customer acceptance of new family entertainment product lines. However, consumer preferences with respect to family entertainment are continuously changing and are difficult to predict. Individual family entertainment products generally, and high technology products in particular, often have short life cycles. The success of entertainment properties released theatrically, such as STAR WARS or DISNEY related productions, can significantly affect revenues we derive from licensed product related to those properties. In addition, competition in the industry could adversely impact our ability to secure, maintain, and renew popular licenses on beneficial terms, if at all, and to attract and retain the talented employees necessary to design, develop and market successful products. The loss of ownership rights granted pursuant to any of our licensing agreements could have a material adverse effect on our business and competitive position. There can be no assurances that:

1)

Any of our current products or product lines will continue to be popular for any significant period of time;



2)

Any property for which we have a significant license will achieve popularity;



3)

Any new products and product lines introduced by us will achieve an adequate degree of market acceptance;



4)

Any new product's life cycle will be sufficient to permit us to profitably recover development, manufacturing, marketing, royalties (including royalty advances and guarantees) and other costs of the product; or



5)

We will be able to manufacture, source and ship new or continuing products in a timely basis to meet constantly changing consumer demands.

        In developing new products and product lines, we have anticipated dates for the associated product introductions. When we state that we will introduce, or anticipate introducing, a particular product or product line at a certain time in the future those expectations are based on completing the associated development and implementation work in accordance with our currently anticipated schedule. Unforeseen delays or difficulties in the development process, or significant increases in the planned cost of development, may cause the introduction date for products to be later than anticipated or, in some situations, may cause a product introduction to be discontinued. Any delay or cancellation of planned product development and introduction may decrease the number of products we sell and harm our business.

        Our failure to successfully anticipate, identify and react to consumer preferences in family entertainment could have an adverse effect on our revenues, profitability and results of operations.

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Our business is seasonal and therefore our annual operating results will depend, in large part, on our sales during the relatively brief holiday season. Further, this seasonality is increasing, as large retailers become more efficient in their control of inventory levels through quick response management techniques.

        Sales of our family entertainment products at retail are seasonal, with a majority of retail sales occurring during the period from September through December in anticipation of the holiday season, which includes Christmas. This seasonality is increasing, as large retailers become more efficient in their control of inventory levels through quick response management techniques. These customers are timing reorders so that they are being filled by suppliers closer to the time of purchase by consumers, which to a large extent occurs during September through December, rather than maintaining large on-hand inventories throughout the year to meet consumer demand. While these techniques reduce a retailer's investment in inventory, they increase pressure on suppliers like us to fill orders promptly and shift a significant portion of inventory risk and carrying costs to the supplier. The limited inventory carried by retailers may also reduce or delay retail sales. Additionally, the logistics of supplying more and more product within shorter time periods will increase the risk that we fail to achieve tight and compressed shipping schedules. This seasonal pattern requires significant use of working capital mainly to manufacture or acquire inventory during the year prior to the holiday season, and requires accurate forecasting of demand for products during the holiday season. Our failure to accurately predict and respond to consumer demand could result in our underproducing popular items and/or overproducing less popular items which would have an adverse effect on our sales and results of operations. In addition, as a result of the seasonal nature of our business, we would be significantly and adversely affected by unforeseen events, such as a terrorist attack or a military engagement, that negatively affect the retail environment or consumer buying patterns, if such events were to impact a key selling season.

The continuing consolidation of our retail customer base means that economic difficulties or changes in the purchasing policies of our major customers could have a significant impact on us.

        We depend upon a relatively small retail customer base to sell the majority of our products. For the fiscal year ended December 29, 2002, Wal-Mart Stores, Inc. and Toys 'R Us, Inc. accounted for approximately 19% and 16%, respectively, of our consolidated net revenues and our five largest customers, including Wal-Mart and Toys 'R Us, in the aggregate accounted for approximately 52% of our consolidated net revenues. If one or more of our major customers were to experience difficulties in fulfilling their obligations to us, cease doing business with us, significantly reduce the amount of their purchases from us or return substantial amounts of our products, it could have a material adverse effect on our business, financial condition and results of operations. In addition, the bankruptcy or other lack of success of one or more of our significant retailers could negatively impact our revenues and bad debt expense.

We may not realize anticipated benefits of acquisitions or these benefits may be delayed or reduced in their realization; our ability to make acquisitions is limited by our credit agreement.

        Acquisitions have been a significant part of our growth over the years and have enabled us to further broaden and diversify our product offerings. Although we target companies that we believe offer attractive family entertainment products, we cannot be certain that the products of companies we acquire will achieve or maintain popularity with consumers. In some cases, we expect that the integration of the product lines of the companies that we acquire into our operations will create production, marketing and other operating synergies. We believe that these synergies can create greater revenue growth and profitability and, where applicable, cost savings, operating efficiencies and other advantages. However, we cannot be certain that these synergies, efficiencies and cost

10

savings will be realized. Even if achieved, these benefits may be delayed or reduced in their realization. In other cases, we acquire companies that we believe have strong and creative management, in which case we plan to create synergies by operating them autonomously rather than integrating them into our operations. We cannot be certain that the key talented individuals at these companies will continue to work for us after the acquisition or that they will continue to develop popular and profitable products or services.

        Because of limitations in our credit agreement, we are limited in our ability to make substantial acquisitions in the near term. Although we plan to continue our focus and expend significant resources on our core owned and controlled brands, we cannot assure you that such efforts will produce revenue growth to replace the growth historically provided by acquisitions.

Our substantial sales and manufacturing operations outside the United States subject us to risks normally associated with international operations.

        We operate facilities and sell products in numerous countries outside the United States. For the year ended December 29, 2002, our net revenues from international customers comprised approximately 35% of our total consolidated net revenues. We expect our sales to international customers to continue to account for a significant portion of our revenues. Additionally, we utilize third-party manufacturers located principally in the Far East and we have manufacturing facilities in Ireland and Spain. These sales and manufacturing operations are subject to the risks normally associated with international operations, including:

1)

Currency conversion risks and currency fluctuations;



2)

Limitations, including taxes, on the repatriation of earnings;



3)

Political instability, civil unrest and economic instability;



4)

Greater difficulty enforcing intellectual property rights and weaker laws protecting such rights;



5)

Complications in complying with laws in varying jurisdictions and changes in governmental policies;



6)

Natural disasters and the greater difficulty and expense in recovering therefrom;



7)

Transportation delays and interruptions; and



8)

The imposition of tariffs.

        Our reliance on external sources of manufacturing can be shifted, over a period of time, to alternative sources of supply, should such changes be necessary. However, if we were prevented from obtaining products or components for a material portion of our product line due to political, labor or other factors beyond our control, our operations would be disrupted while alternative sources of products were secured. Also, the imposition of trade sanctions by the United States or the European Union against a class of products imported by us, or the loss of "normal trade relations" status by the People's Republic of China, could significantly increase our cost of products imported into the United States or Europe and harm our business. Because of the importance of our international sales and international sourcing of manufacturing to our business, our financial condition and results of operations could be significantly and adversely affected if any of the risks described above were to occur.

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We may not realize the full benefit of our licenses if the licensed material has less market appeal than expected or if sales revenue from the licensed products is not sufficient to earn out the minimum guaranteed royalties.

        An important part of our business involves obtaining licenses to produce products based on various theatrical releases, such as STAR WARS and DISNEY. The license agreements usually require us to pay minimum royalty guarantees that may be substantial, and in some cases may be greater than what we are able to recoup from actual sales, which could result in write-offs of such amounts that would adversely effect our results of operations. In addition, acquiring or renewing licenses may require the payment of minimum guaranteed royalties that we consider to be too high to be profitable, which may result in losing licenses we currently hold when they become available for renewal, or missing business opportunities for new licenses. As a licensee, we have no guaranty that a particular brand will be a successful toy or game product. We anticipate that the continuing trend toward shorter theatrical duration for movie releases will make it increasingly difficult for us to sell licensed products based on these entertainment properties and may lead our customers to reduce their demand for these products in order to minimize inventory risk. Furthermore, there can be no assurance that a successful brand will continue to be successful or maintain a high level of sales in the future. In the event that we are not able to acquire or maintain advantageous licenses, our revenues and profits may be adversely effected.

Our business is dependent on intellectual property rights and we may not be able to protect such rights successfully.

        Our intellectual property, including our license agreements and other agreements which establish our ownership rights and maintain the confidentiality of our intellectual property, are of great value. We rely on a combination of trade secret, copyright, trademark, patent and other proprietary rights laws to protect our rights to this valuable intellectual property related to our brands. From time to time, third parties have challenged, and may in the future try to challenge, our ownership of our intellectual property. In addition, our business is subject to the risk of third parties counterfeiting our products or infringing on our intellectual property rights. We may need to resort to litigation in the future to protect our intellectual property rights, which could result in substantial costs and diversion of resources. Our failure to protect our intellectual property rights could have a material adverse effect on our business and competitive position.

We are involved in certain litigation, arbitration and regulatory matters where the outcome is uncertain and which could entail significant expense.

        As is the case with many large multinational corporations, we are subject from time to time to regulatory investigations, litigation and arbitration disputes. Because the outcome of litigation, arbitration and regulatory investigations is inherently difficult to predict, it is possible that the outcome of such matters could entail significant expense.

        During 2001, we received two inquiries from the Office of Fair Trading in the United Kingdom (the "OFT") into allegedly anti-competitive pricing practices by our United Kingdom subsidiary, Hasbro U.K. Ltd. ("Hasbro U.K."). The first of the inquiries (the "wholesaler case"), begun in May of 2001, related to Hasbro U.K.'s interactions with certain of its wholesale distributors. The second inquiry (the "retailer case"), begun in August of 2001, related to Hasbro U.K.'s trading arrangements with certain of its direct retail accounts.

        On November 29, 2002, the OFT issued a decision in the wholesaler case, finding that Hasbro U.K. had entered into agreements with certain distributors to fix prices in violation of U.K. competition laws. The OFT assessed a fine in that case of approximately GBP 4,950 or

12

approximately $7,900 at the then current exchange rates. We filed an appeal of this decision in January 2003 to the U.K. Competition Commission Appeals Tribunal (the "CCAT").

        In light of the OFT's decision in the wholesaler case, we recorded a charge to earnings in the fourth quarter of 2002 of GBP 4,787 or $7,566 at applicable exchange rates. This resulted in a total amount accrued at December 29, 2002 of GBP 4,947 or $7,935 at year-end exchange rates.

        On February 19, 2003, the OFT issued a decision in the retailer case, finding that Hasbro U.K. had entered into agreements with certain direct retailers to fix prices in violation of U.K. competition laws. The OFT assessed a fine in this case but, due to our cooperation in the OFT's investigation, the OFT's decision stated that we would not be required to pay any of that fine.

        On March 3, 2003, we withdrew our appeal of the wholesaler case with the CCAT.

We rely on external financing, including our credit facility, to maintain our operations. If we are unable to obtain or service such financing, or if the restrictions imposed by such financing were too burdensome, our business would be negatively affected.

        Due to the seasonal nature of our business, in order to meet our working capital needs, particularly those prior to the fourth quarter, we rely on our credit facility. In March 2002, we entered into an amended and restated secured revolving credit agreement with existing and new lenders, which provides for a $380 million revolving credit facility. This facility is secured by substantially all of our domestic accounts receivable and inventory, as well as certain of our intangible assets. The agreement contains certain restrictive covenants setting forth minimum cash flow and coverage requirements, and a number of other limitations, including restrictions on capital expenditures, investments, acquisitions, share repurchases, incurrence of indebtedness and dividend payments. These restrictive covenants may limit our future actions, and financial, operating and strategic flexibility. In addition, our financial covenants were set at the time we entered into our credit facility. Our performance and financial condition may not meet our original expectations, causing us to fail to meet such financial covenants. If we were unable to meet our financial covenants, or if we failed to comply with other covenants in our credit facility, we could face significant negative consequences.

        We believe that our cash flow from operations, together with our cash and access to existing credit facilities, are adequate for current and planned needs in 2003. However, our actual experience may differ from these expectations. Factors that may lead to a difference include, but are not limited to, the matters discussed herein, as well as future events that might have the effect of reducing our available cash balance, such as unexpected material operating losses or increased capital or other expenditures, as well as increases in inventory or accounts receivable or future events that may reduce or eliminate the availability of external financial resources.

        We also may choose to finance our capital needs, from time to time, through the issuance of debt securities. Our ability to issue such securities on satisfactory terms, if at all, will depend on the state of our business and financial condition, any ratings issued by major credit rating agencies, market interest rates, and the overall condition of the financial and credit markets at the time of the offering. The condition of the credit markets and prevailing interest rates have fluctuated in the past and are likely to fluctuate in the future. Fluctuations in these factors could make it difficult for us to sell debt securities or require us to offer higher interest rates in order to sell new debt securities. The failure to receive financing on desirable terms, or at all, could adversely affect our ability to support our future operations or capital needs or engage in other business activities.

        As of December 29, 2002, we had approximately $1,063 million of total principal amount of indebtedness outstanding. This total indebtedness includes the $250 million in aggregate principal amount of convertible senior debentures which we issued in 2001. If we are unable to generate

13

sufficient available cash flow to service our outstanding debt we would need to refinance such debt or face default. There is no guarantee that we would be able to refinance debt on favorable terms, or at all. On December 1, 2005, December 1, 2011, and December 1, 2016, and upon the occurrence of certain fundamental corporate changes, holders of the 2.75% senior convertible debentures may require us to purchase their debentures. At that time, the purchase price may be paid in cash, shares of common stock or a combination of the two, at our discretion, provided that we will pay accrued and unpaid interest in cash. However, we may not have sufficient funds at that time to make the required repurchases.

        In January 2003, we amended warrants previously granted to Lucas Licensing Ltd. ("Lucas"). The warrant amendment agreement provides Lucas with an option through January 2008 to sell all of these warrants to us for a price to be paid at our election of either $100 million in cash or $110 million in our common stock, such stock being valued at the time of the exercise of the option. Should we be required to settle the warrants under this option, we believe that we will have adequate funds to settle in cash if necessary. However, we may not have sufficient funds at that time to make the required payment.

Market conditions, government actions and regulations and other third party conduct could negatively impact implementation of our consolidation programs, margins, and other business initiatives.

        Economic conditions, such as rising fuel and raw material prices or transportation costs, may adversely impact our margins. In addition, general economic conditions were significantly and negatively affected by the September 11, 2001 terrorist attacks and could be similarly affected by any future attacks. Economic conditions may also be negatively impacted by wars and other conflicts, or the prospect of such events. Such a weakened economic and business climate, as well as consumer uncertainty created by such a climate, could adversely affect our sales and profitability. Other conditions, such as the unavailability of electrical components, may impede our ability to manufacture, source and ship new and continuing products on a timely basis. Additional factors outside of our control could delay or increase the cost of implementing our consolidation programs or alter our actions and reduce actual results. Also, work stoppages, slowdowns or strikes, or the occurrence or threat of wars or other conflicts, could impact our ability to manufacture or deliver product.

As a manufacturer of consumer products and a large multinational corporation, we are subject to various government regulations, violation of which could subject us to sanctions. In addition, we could be the subject of future product liability suits, which could harm our business.

        As a manufacturer of consumer products, we are subject to significant government regulations under The Consumer Products Safety Act, The Federal Hazardous Substances Act, and The Flammable Fabrics Act. While we take all the steps we believe are necessary to comply with these acts, there can be no assurance that we will be in compliance in the future. Failure to comply could result in sanctions which could have a negative impact on our business, financial condition, and results of operations.

        In addition to government regulation, products that have been or may be developed by us may expose us to potential liability from personal injury or property damage claims by the users of such products. There can be no assurance that a claim will not be brought against us in the future. While we currently maintain product liability insurance coverage in amounts we believe sufficient for our business risks, we may not be able to maintain such coverage or such coverage may not be adequate to cover all potential claims. Moreover, even if we maintain sufficient insurance coverage, any successful claim could materially and adversely affect our business and financial condition and results of operations.

14

        As a large, multinational corporation, we are subject to a host of governmental regulations throughout the world, including antitrust and tax requirements, anti-boycott regulations and the Foreign Corrupt Practices Act. Our failure to successfully comply with any such legal requirements could subject us to monetary liabilities and other sanctions which could harm our business and financial condition.

We have a material amount of goodwill which, if it becomes impaired, would result in a reduction in our net income.

        Goodwill is the amount by which the cost of an acquisition accounted for using the purchase method exceeds the fair value of the net assets we acquire. Current accounting standards require that goodwill no longer be amortized but instead be periodically evaluated for impairment based on the fair value of the reporting unit. In 2002, as the result of the adoption of Statement of Financial Accounting Standard No. 142 on December 31, 2001, the first day of fiscal 2002, the Company recorded an impairment charge, before taxes, of $296,223 that was recorded as a cumulative effect of accounting change and reflected at $245,732, net of tax, in our consolidated statement of operations. At December 29, 2002, approximately $461.0 million, or 14.7%, of our total assets represented goodwill. Reductions in our net income caused by the write-down of goodwill could materially and adversely affect our results of operations.

Financial Information About International and United States Operations and Export Sales

        The information required by this item is included in note 19 of Notes to Consolidated Financial Statements included in Item 8 of Part II of this Report and is incorporated herein by reference.

ITEM 2.    PROPERTIES

15

16

(1)

Property used in the U.S. Toys segment.

(2)

Property used in the Games segment.

(3)

Property used in Other segments.

(4)

Property used in the Operations segment.

(5)

Property used in the International segment.

(6)

Property used in the Corporate area.

        In addition to the above listed facilities, the Company either owns or leases various other properties approximating an aggregate of 519,441 square feet which are utilized by its various segments, and include retail and game play locations operated under the WIZARDS OF THE COAST and GAME KEEPER names. The Company also either owns or leases an aggregate of approximately 1,637,570 square feet not currently being utilized in its operations or previously included in restructuring actions currently subleased or offered for sublease.

        The foregoing properties consist, in general, of brick, cinder block or concrete block buildings which the Company believes are in good condition and well maintained.

        The Company believes that its facilities are adequate for its current needs.

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ITEM 3.    LEGAL PROCEEDINGS

        During 2001, the Company received two inquiries from the Office of Fair Trading in the United Kingdom (the "OFT") into allegedly anti-competitive pricing practices by the Company's United Kingdom subsidiary, Hasbro U.K. Ltd. ("Hasbro U.K."). The first of the inquiries (the "wholesaler case"), begun in May of 2001, related to Hasbro U.K.'s interactions with certain of its wholesale distributors. The second inquiry (the "retailer case"), begun in August of 2001, related to Hasbro U.K.'s trading arrangements with certain of its direct retail accounts.

        On November 29, 2002, the OFT issued a decision in the wholesaler case, finding that Hasbro U.K. had entered into agreements with certain distributors to fix prices in violation of U.K. competition laws. The OFT assessed a fine in that case of GBP 4,947 or $7,935 at the then current exchange rates. The Company filed an appeal of this decision in January 2003 to the U.K. Competition Commission Appeals Tribunal (the "CCAT").

        On February 19, 2003, the OFT issued a decision in the retailer case, finding that Hasbro U.K. had entered into agreements with certain direct retailers to fix prices in violation of U.K. competition laws. The OFT assessed a fine in this case but, due to the Company's cooperation in the OFT's investigation, the OFT's decision stated that the Company would not be required to pay any of that fine.

        On March 3, 2003, the Company withdrew its appeal of the wholesaler case with the CCAT.

        The Company is party to certain other legal proceedings, none of which, individually or in the aggregate, is deemed to be material to the financial condition of the Company.

ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

        None.

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EXECUTIVE OFFICERS OF THE REGISTRANT

        The following persons are the executive officers of the Company. Such executive officers are elected annually. The position(s) and office(s) listed below are the principal position(s) and office(s) held by such persons with the Company, or its subsidiaries or divisions employing such person. The persons listed below generally also serve as officers and directors of certain of the Company's various subsidiaries at the request and convenience of the Company.

(1)

Prior thereto, Chairman of the Board, President and Chief Executive Officer.

(2)

Prior thereto, President, Chief Operating Officer and Chief Financial Officer from 2000 to 2001; prior thereto, Executive Vice President and Chief Financial Officer from 1999 to 2000; prior thereto Executive Vice President, Global Operations and Development during 1999; prior thereto, Executive Vice President and President, Global Operations from 1996 to 1999.

(3)

Prior thereto, Senior Vice President and Deputy Chief Financial Officer from 1999 to 2000; prior thereto, Senior Vice President, Finance during 1999; prior thereto, Senior Vice President, Finance and Planning, Global Marketing from 1997 to 1999; prior thereto, Senior Vice President, Finance and Planning, Global Operations from 1996 to 1997.

(4)

Prior thereto, from 2000 to 2001, Senior Vice President and General Manager, U.S. Toys; during 2000, Chief Operating Officer of Tiger Electronics, Ltd., a subsidiary of the Company; prior thereto, Chief Operating Officer, Bandai America, Inc., from 1997 to 2000.

(5)

Prior thereto, Senior Vice President and Controller.

(6)

Prior thereto, Senior Vice President and General Counsel from 2000 to 2001; prior thereto, Senior Vice President and General Counsel, Reebok International, Ltd. from 1997 to 2000.

(7)

Prior thereto, Senior Vice President and Sector Head, Games from 1999 to 2001; prior thereto, President, Hasbro Americas from 1997 to 1999.

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PART II

ITEM 5.    MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

        The Company's common stock, par value $.50 per share (the "Common Stock"), is traded on the New York Stock Exchange. The following table sets forth the high and low sales prices as reported on the Composite Tape of the New York Stock Exchange and the cash dividends declared per share of Common Stock for the periods listed.

        The approximate number of holders of record of the Company's Common Stock as of March 12, 2003 was 9,400.

Dividends

        Declaration of dividends is at the discretion of the Company's Board of Directors and will depend upon the earnings, financial condition of the Company and such other factors as the Board of Directors deems appropriate. Payment of dividends is further subject to restrictions contained in agreements relating to the Company's outstanding short-term and long-term debt. Under the most restrictive agreement, dividend payments are restricted to the greater of $.03 per share quarterly or 25% of prior fiscal year consolidated net income.

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ITEM 6.    SELECTED FINANCIAL DATA

(Thousands of Dollars and Shares Except per share Data and Ratios)

(1)

For purposes of calculating the ratio of earnings to fixed charges, fixed charges include interest, amortization of debt expense and one-third of rentals; earnings available for fixed charges represent earnings before fixed charges, income taxes and cumulative effect of accounting change. Earnings for 2000 were insufficient to cover fixed charges by $225,986.

        See "Business—Forward-Looking Information and Risk Factors That May Affect Future Results" contained in Item 1 of this report for a discussion of risks and uncertainties that may affect future results. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained in Item 7 of this report for a discussion of factors affecting the comparability of information contained in this Item 6.

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ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

        The following discussion should be read in conjunction with the audited consolidated financial statements of the Company included elsewhere in this document.

        This Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements concerning the Company's expectations and beliefs. See "Business-Forward-Looking Information and Risk Factors That May Affect Future Results" for a discussion of other uncertainties, risks and assumptions associated with these statements.

Summary

        A percentage analysis of results of operations follows:

(Thousands of Dollars and Shares Except Per Share Data)

Results of Operations

        Net loss for the fiscal year ended December 29, 2002 was $170,674, or $.98 per diluted share. Net earnings (loss) for fiscal 2001 and 2000 were $59,732 and $(144,631), or $.35 and $(.82) per diluted share, respectively.

        Included in the net loss for 2002 is a cumulative effect of accounting change, net of tax, of $(245,732), or $(1.42) per diluted share, relating to the adoption of Statement of Financial Accounting Standards No. 142 (SFAS 142), "Goodwill and Other Intangible Assets." The 2002 net loss also includes a non-cash charge, net of tax, of $31,747 for the write-down of the Company's investment in Infogrames Entertainment S.A. ("Infogrames") common stock. This write-down increased diluted loss per share by $.18. In addition, the 2002 net loss includes a charge of $7,566, or $.04 per diluted share, relating to a fine imposed on the Company's United Kingdom affiliate by the Office of Fair Trading in the United Kingdom ("OFT") for alleged anti-competitive pricing practices. The 2002 net loss was favorably impacted by the provisions of SFAS 142 which

22

eliminated the amortization of goodwill and certain intangibles deemed to have indefinite lives. The elimination of this amortization and its related tax effect had SFAS 142 been applied in 2001 and 2000 would have increased net earnings by $45,013 and $46,934, respectively, and diluted earnings per share by $.26 and $.27, respectively. Also favorably impacting the 2002 net loss was interest income, net of tax, of $7,556, received on an IRS tax settlement in 2002.

        Included in net earnings for 2001 is a $1,066 net of tax charge relating to the adoption of FASB Statement No. 133, "Accounting for Derivatives and Hedging Activities." Costs incurred in the Company's International segment relating to the deteriorating Argentine business environment and the devaluation of the peso amounted to $11,290, net of tax, in 2001. These costs negatively impacted diluted earnings per share by approximately $.07. Approximately half of this charge relates to the impact of the devaluation on U.S. dollar denominated intercompany liabilities the Company held in Argentina. Included in the net loss for 2000 were pretax charges relating to the Company's consolidation program of $146,142. These charges were $93,531, net of tax, and negatively impacted diluted earnings per share by $.53. Actions for which the Company provided charges under this program in 2000 were completed in 2001, and the Company recorded a credit in 2001 of $1,795 relating to costs not expended. In 2000, the Company also recognized a $43,965 pretax loss in connection with the sale to Infogrames of certain business units comprising Hasbro Interactive and Games.com. The sale of these business units closed in January 2001. A dispute with respect to certain post-closing adjustments to the sales price was resolved in January 2002 with no material impact to the Company's results of operations. The loss on the sale of these business units was $28,138, net of tax, and had a negative impact to 2000 diluted loss per share of $.16.

        Consolidated net revenues for the year ended December 29, 2002 were $2,816,230 compared to $2,856,339 in 2001 and $3,787,215 in 2000. Most of the Company's revenues and operating earnings result from its three principal segments: U.S. Toys, Games and International. In 2002, the Company reclassified its segment results for 2001 and 2000 to reflect the realignment of certain operating divisions. U.S. Tiger toy lines previously included in the Games segment are now included in the U.S. Toys segment. Certain Tiger electronic games, primarily handheld, remain in the Games segment. In addition, the International operations of Tiger and Wizards of the Coast, previously included in Games, are now included as part of the International segment.

U.S. Toys

        Net revenues in the U.S. Toys segment increased by 7% over 2001 to $996,496 in 2002. The increase is due primarily to sales of product in connection with the theatrical release of STAR WARS EPISODE II: ATTACK OF THE CLONES in May 2002 and the video and DVD release in November of 2002. In addition, revenues were positively impacted by increased shipments of products related to certain core brands, such as G.I. JOE, TRANSFORMERS and PLAYSKOOL products, as well as the introduction of BEYBLADES products. These increases were partially offset by decreased sales of electronic interactive products, such as B.I.O. BUGS and POO-CHI, remote control toys and, to a lesser extent, POKEMON products and E-KARA. In addition, prior year sales were favorably affected by the 2001 theatrical and video releases of JURASSIC PARK III and Disney's MONSTERS, INC. U.S. Toys' operating profit for the year ended December 29, 2002 was $75,664 compared with $15,808 in the prior year. The increase in operating profit was largely due to higher gross margins as the result of the mix of products sold in 2002 versus 2001. The increase in gross margin was partially offset by increased royalty expense resulting from higher sales of licensed products in 2002, primarily STAR WARS products. In addition to this, operating profit was positively impacted by lower sales and administration costs in 2002 as a result of the Company's focus on cost reduction and more effective management resulting from the consolidation of the U.S. Toys segment into essentially one location, a process begun in 2000. As noted above, gross margin and

23

royalty expense increased in 2002 because of increased sales of entertainment based products, principally STAR WARS products. Sales of product related to entertainment-based properties, such as STAR WARS, typically carry a higher gross margin as well as a higher royalty rate with the resulting operating profit generally lower than it is for revenues derived from sales of Hasbro owned brands. Higher amortization expense in 2002 relating to the product rights associated with STAR WARS was offset by the elimination of amortization of goodwill and product rights deemed to have an indefinite life as the result of the Company's adoption of SFAS 142 at the beginning of fiscal 2002. In 2003, the Company does not expect a theatrical, video or DVD release of a STAR WARS property. As a result, the Company expects royalty and amortization expenses to decrease in 2003 reflecting the anticipated reduction of sales of entertainment based licensed products.

        Net revenues in the U.S. Toys segment in 2001 decreased to $935,530 from $1,040,893 in 2000. This decline in revenues was primarily the result of decreased sales of POKEMON and FURBY products partially offset by revenues related to the 2001 theatrical worldwide release of JURASSIC PARK III and the U.S. release of MONSTERS, INC., as well as sales from BOB THE BUILDER products. U.S. Toys segment 2001 operating profit was $15,808 an increase from an operating loss of $(151,866) in 2000. This increase, despite the decrease in revenues, was the result of higher gross margin resulting primarily from lower obsolescence charges in 2001, lower royalty expense due to the mix of sales which included increased sales of non-licensed products, and cost reductions related to the 2000 consolidation programs and other cost reduction initiatives of the Company.

Games

        Games segment revenues declined 8% in 2002 to $739,782 from 2001 levels of $801,467. The decrease was primarily due to decreased sales of trading card games, primarily POKEMON, and, to a lesser extent, HARRY POTTER and MAGIC: THE GATHERING, as well as decreased sales of electronic games. These decreases were partially offset by increased sales of TRIVIAL PURSUIT resulting from the introduction of the 20th anniversary edition. Games segment operating profit decreased to $124,523 in 2002 from $156,089 in 2001. The decrease in operating profit was primarily due to the decrease in revenues as well as increased product development expenses. These factors were partially offset by a decrease in selling, distribution and administration expenses largely due to the Company's cost reduction initiatives as well as decreased intangible amortization expense resulting from the Company's adoption of SFAS 142, which eliminates amortization of goodwill and certain intangibles deemed to have indefinite lives.

        Games segment revenues for 2001 decreased to $801,467 from 2000 revenues of $1,186,594. This decrease was mainly due to declines in revenues from POKEMON products as well as the impact of the sale of Hasbro Interactive and Games.com business units in January 2001. These decreases were partially offset by increases in MAGIC: THE GATHERING revenues as well as sales from products derived from the combination of certain core brands and key licenses, such as the DISNEY edition of MONOPOLY. Operating profit of $156,089 in 2001 increased from $87,992 in 2000. This increase was the result of the sale of Hasbro Interactive and Games.com, which incurred operating losses in 2000.

International

        International segment revenues decreased 3% from 2001 to $970,825 in 2002. Decreases relating to POKEMON and JURASSIC PARK III products were mostly offset by increased sales of STAR WARS products, DISNEY products resulting from the international release of MONSTERS, INC. in 2002, and BEYBLADES products. Changes in foreign currency exchange rates positively impacted International segment revenues by approximately $34,700. International operating profit decreased to $5,177 in 2002 from $28,658 in 2001. Operating profit was negatively

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impacted by a fine against the Company by the OFT in 2002 for alleged anti-competitive pricing practices, which resulted in a charge of $7,566 in the fourth quarter, as well as increased product development expenses as the result of the Company's increased focus on developing its core brands. Increased gross margins were largely offset by higher royalty expenses resulting from increased sales of entertainment based licensed properties, primarily STAR WARS products. Overall, pretax earnings were favorably impacted by the weaker U.S. dollar by approximately $4,700, the result of higher translated U.S. dollar gross margins offset somewhat by higher translated U.S. dollar expenses.

        International revenues were $996,266 in 2001 compared to $1,451,279 in 2000. This decrease was caused primarily by the decline in sales of POKEMON and FURBY products. International operating profit in 2001 of $28,658 decreased from $129,530 in 2000 primarily as the result of the decrease in sales.

Other segments

        Revenues from the Retail segment, which represents the retail operations of Wizards of the Coast, were $48,983 in 2002 compared with $51,019 in 2001. The operating loss of this segment was $(19,877) in 2002 versus $(36,897) in 2001. The 2001 operating loss includes a charge of approximately $16,000 associated with impairment of long-lived assets. Revenues and operating loss in 2001 of $51,019 and $(36,897), respectively, compared with $57,328 and $(10,452), respectively, in 2000.

        The Company expects that revenues and related expenses of entertainment-based products are higher in the year of a theatrical release. Since STAR WARS EPISODE II: ATTACK OF THE CLONES was released theatrically worldwide in May 2002, the Company expects a decrease in revenues relating to STAR WARS products as well as corresponding decreases in amortization and royalty expense in 2003.

        The Company's gross profit margin increased in 2002 to 61.0% from 57.2% in 2001, which compares with 55.8% in 2000. The increase in margin primarily reflects product mix, with increased sales of STAR WARS and DISNEY products, partially offset by decreased sales of trading card games. All of these products have higher than average gross margins. The Company has been actively reducing inventory levels during 2001 and 2002, and throughout 2002 has maintained lower levels of inventory to avoid unnecessary expenditures of cash and potential charges related to obsolescence. Lower charges relating to obsolescence of inventory also contributed to margin growth from 2000. The Company's failure to accurately predict and respond to consumer demand could result in overproduction of less popular items, which could result in higher obsolescence costs in the future.

        Amortization expense of $94,576 in 2002 compares with amortization of $121,652 in 2001 and $157,763 in 2000. The 2001 and 2000 amortization amounts include $53,655 and $57,286, respectively, of amortization of goodwill and certain intangibles that have been determined to have indefinite lives. As noted above, on December 31, 2001, the Company adopted the provisions of SFAS 142, which requires that goodwill and other intangibles with indefinite useful lives no longer be amortized, but instead, be tested for impairment at least annually. When compared to adjusted amortization from 2001, the resulting increase in amortization expense in 2002 is, for the most part, the result of increased amortization of STAR WARS product rights, which are amortized in accordance with the expected sales curve of related products. Due to the fact that the Company does not expect a STAR WARS theatrical, video or DVD release in 2003, the Company expects amortization expense to decrease in 2003. During 2000, the $157,763 of amortization expense included impairment charges of $25,046 resulting from discontinued product line offerings arising from the Company's decision to focus on developing its core brands.

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        Royalty expense increased to $296,152, or 10.5% of net revenues in 2002 from $209,725 or 7.3% of net revenues in 2001. The increase is primarily related to increased sales of entertainment-based product, principally STAR WARS related as the result of the theatrical, video and DVD releases of STAR WARS EPISODE II: ATTACK OF THE CLONES in 2002. 2001 royalties of $209,725 decreased sharply from 2000 royalties of $426,881. Royalties in 2000 included charges of $42,270 relating to royalty commitments on discontinued product lines and product lines with significantly reduced expectations recognized in connection with the Company's consolidation program. Absent these charges in 2000, royalty expenditures were approximately 7.3% and 10.2% of net revenues in 2001 and 2000, respectively. The decrease in 2001 from 2000 is the result of decreased sales of licensed products, primarily POKEMON. Revenues derived from entertainment based properties, such as STAR WARS, and resultant royalties, while continuous over the life of a contract, are generally higher in amount in the year a theatrical release takes place. The degree to which revenues, royalties and operating profits fluctuate is dependent not only on theatrical release dates, but video and DVD release dates as well. The Company does not expect a theatrical, video or DVD release of a STAR WARS property in 2003 and, as a result, anticipates that royalty expense will decrease in 2003 as it continues to focus on its core brands.

        Expenditures for research and product development were $153,775 in 2002 compared to $125,633 in 2001 and $208,485 in 2000. As percentages of net revenues, research and product development was 5.5% in 2002 compared to 4.4% in 2001 and 5.5% in 2000. Absent the impact of costs associated with the business units sold to Infogrames, research and development expense would have been 3.9% in 2000. The increase in 2002 relates to the Company's continued focus on product innovation as part of its strategy to develop its core brands. The decrease in dollars in 2001 from 2000 primarily is the result of the sale of Hasbro Interactive and Games.com business units and, to a lesser extent, the Company's focus on reduced spending and synergies achieved from centralizing the U.S. Toys segment development team into one location.

        Advertising expense in 2002 increased to $296,549, or 10.5% of net revenues, compared to $290,829 or 10.2% of net revenues in 2001 but decreased from $452,978 or 12.0% of net revenues in 2000. Included in 2000 expense is $3,155 related to contractual commitments on discontinued product lines arising from the Company's 2000 consolidation program. The decrease from 2000 levels results from lower expenditures coinciding with lower revenues, lower media costs and a more efficient use of advertising spending. The Company expects advertising expense to increase in both dollars and as a percentage of net revenues in 2003 as it increases promotion of its core brands.

        Selling, distribution and administration costs decreased in dollars and as a percentage of net revenues in 2002 to $656,725 or 23.3% of net revenues from $675,482 or 23.6% in 2001. This decrease is primarily due to the Company's cost reduction efforts. Decreases resulting from these cost reduction efforts were partially offset by a charge of $7,566 in 2002 relating to a fine assessed by the OFT against the Company for alleged anti-competitive pricing practices. Decreases in 2002 selling, distribution and administration expenses were also partly offset by charges in 2002 for ongoing cost reductions that are expected to benefit the Company in 2003 and thereafter. Selling, distribution and administration costs decreased to $675,482 in 2001 from $863,496 in 2000 but increased as a percentage of net revenues to 23.6% in 2001 from 22.7% in 2000. The increase as a percentage of net revenues was largely due to decreased revenues in 2001. The decrease in dollars is primarily attributable to the business units sold to Infogrames in January 2001 and reductions in marketing, sales and administration expenses related to expense reduction programs. The Company is continuing its focus on reducing expenses in this area in 2003, and does not anticipate an increase in selling, distribution and administration costs in dollars or as a percentage of net revenues in 2003.

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        In the fourth quarter of 2000, the Company implemented a plan to consolidate its U.S. Toys group into Rhode Island, significantly reduce overhead through reductions in product development, sales and marketing, and administrative functions across the Company and to increase its focus on development of the Company's core brands. In 2000, the Company recorded a total of $152,270 in expense relating to this plan, $70,079 of restructuring expense and $82,191 of expense in other operating categories, including $6,625 to cost of sales, $25,046 in amortization, $42,270 in royalties, $3,155 in advertising and $5,095 in selling, distribution and administration expense. The significant components of the 2000 plan included the closing of three offices, thereby essentially consolidating the U.S. Toys group in Rhode Island, as well as the reduction of overhead. Overhead reductions were concentrated in marketing and sales, product development and administration, including a curtailment of expansion of the retail business of Wizards of the Coast, the further consolidation of certain international operating offices into regional centers and consolidation and streamlining of the Company's marketing activities. These actions were completed in 2001, and resulted in a restructuring credit of $(1,795), due to lower than expected severance costs necessary to complete the plan. The 2000 plan also included the refocus of the Company on developing and marketing its core brands and reducing its reliance on licensed properties. This focus resulted in product lines which were discontinued or for which the Company has significantly reduced expectations.

        The components of the plan included in the restructuring charge of $70,100 in the 2000 statement of operations were severance costs of $31,800, lease costs of $21,400 and fixed asset write-offs of $16,900. Fixed asset write-offs were recorded in 2000. Remaining balances accrued at December 29, 2002 include $500 of severance benefits remaining to be paid to terminated employees over their remaining entitlement period, and $2,600 of lease payments remaining on closed facilities.

        Total charges under the 2000 plan represented cash charges of approximately $31,800 for severance benefits disbursed over the employee's entitlement period, $21,400 for lease costs to be expended over the contractual lease term of the closed facilities and approximately $31,100 of contractual commitments on exited product lines and certain other licensed product lines with reduced expectations due to the Company's enhanced focus on its core brands. The product lines exited were not, either individually or in the aggregate, material to the Company's revenues or operating results. Total non-cash charges were $62,900. Non-cash charges of $16,900 for fixed asset write-offs related primarily to Corporate and the U.S. Toys segment. The remaining approximately $46,000 relates to asset write-offs and a write-down of assets impaired due to the Company's enhanced focus on its core brands. This also included impairment of intangible assets arising from the decision to discontinue product line offerings. Non-cash charges associated with asset write-offs were credited to the respective line items on the balance sheet in 2000. While the Company realized benefits from the consolidation of operations and focus on core product lines throughout its income statement, it achieved pretax savings directly related to specific actions under the restructuring plan of $52,000 in 2002.

        As noted above, in December 2000, the Company entered into an agreement to sell certain business units comprising Hasbro Interactive, as well as its internet portal, Games.com, to Infogrames for Infogrames securities and cash. The sale of the business units closed in January 2001. Net assets of the business units sold were written down to estimated fair value as of December 31, 2000, resulting in the recognition of a pretax loss of $43,965. During 2001, the Company was engaged in arbitration proceedings with Infogrames regarding a dispute over the amount of post-closing adjustments to the sales proceeds in connection with this sale. The dispute was settled with no material adjustments to the Company's results of operations. Proceeds from the sale were $56,200, of which $1,000 was in cash, $1,000 was in redeemable preferred stock of Hasbro Interactive and the remainder was in common stock of Infogrames. During 2002, the

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Company recognized charges relating to the other than temporary decline in the value of this common stock, which is detailed further below.

        Interest expense decreased to $77,499 in 2002 from $103,688 in 2001 and $114,421 in 2000. Approximately 53% of the decrease in 2002 as compared to 2001 is due to decreased average borrowing rates, predominantly the result of the issuance of $250,000 of 2.75% convertible senior debentures in November 2001, the proceeds of which were used to repurchase debt with higher interest rates. Also contributing to the decreased average rates in 2002 were several interest rate swap agreements initiated in the second quarter of 2002 to adjust the amount of the Company's total debt that is subject to fixed interest rates. The remainder of the decrease in interest is due to decreased average borrowings in 2002, primarily reflecting decreased short-term borrowings in 2002 as well as the repurchase of $124,585 in principal amount of 7.95% Notes due March 2003 during the last three quarters of 2002. The decrease in 2001 from 2000 is due primarily to decreased short-term borrowings. At December 29, 2002, $200,288 in principal amount of the 7.95% Notes due March 2003 remained outstanding. In March 2003, the Company repaid these notes. As a result, the Company expects interest expense to continue to decrease in 2003.

        Other expense of $37,704 in 2002 compares to other expense of $11,443 in 2001 and $7,288 in 2000. The 2002 amount includes a $42,902 write-down of the value of the common stock of Infogrames Entertainment SA, held by the Company as an available-for-sale investment. This charge was partially offset by interest income on a tax settlement of $10,211 received in the second quarter of 2002. The 2001 amount reflects a lower level of interest income coupled with an increase in losses on foreign currency transactions, including the impact of the Argentine peso devaluation. Expense in 2000 relates primarily to the write-down of investments held for sale which have experienced an other than temporary decline in value, coupled with a higher level of transactional losses resulting from an unfavorable movement in foreign currency.

        Income tax expense was 27.9% of pretax earnings in 2002 compared with 36.8% in 2001. Absent the effect of the OFT penalty, the 2002 tax rate would have been 26%. Income tax benefit on the 2000 pretax loss was 36.0%. The decrease in 2002 from 2001 is primarily due to the adoption of SFAS 142, which eliminates amortization of goodwill and certain intangibles deemed to have an indefinite life. The increase in 2001 from 2000 reflects the tax impact of operating losses in jurisdictions where benefits were not realizable.

        On December 31, 2001, the first day of fiscal 2002, the Company adopted SFAS 142, which eliminated the amortization of goodwill, as well as amortization of intangible assets deemed to have an indefinite life. Under this statement, goodwill and other intangible assets are allocated to applicable reporting units. Goodwill and intangible assets deemed to have indefinite lives are tested for impairment annually. The impairment test for goodwill uses a two step process that begins with an estimation of fair value of a reporting unit. The first step is a screen for potential impairment while the second step measures the amount of impairment if there is an indication from the first step that one exists. Completion of step one identified that the U.S. Toys reporting unit had a fair value which was less than its carrying value, indicating a need for a step two analysis. No other reporting units required step two procedures. After allocating the fair value of the U.S. Toys reporting unit to its assets and liabilities, the remaining value was insufficient to cover goodwill by $296,223. Goodwill of the U.S. Toys reporting unit was impaired by this amount. This impairment is included in results for 2002, net of related tax impact of $50,491. The Company performed its annual test in the fourth quarter of 2002 and no impairment was indicated.

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        During 2001, the Company adopted the provisions of FASB Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities" which required that the Company record all derivatives, such as foreign exchange contracts, on the balance sheet at fair value. Changes in the derivative fair values that are designated, effective and qualify as cash flow hedges, are deferred and recorded as a component of accumulated other comprehensive earnings (AOCE) until the hedged transactions occur and are then recognized in the consolidated statements of operations. As a result of adopting Statement 133, and in accordance with the transition provisions, the Company recorded a one-time after tax charge of $1,066 during 2001 representing the cumulative effect of the adoption in its consolidated statements of operations and an after tax unrealized loss of $753 to AOCE, which the Company reclassified to earnings in 2001.

Liquidity and Capital Resources

        Hasbro has historically generated a significant amount of cash from normal operations. Seasonal financing requirements have been met with the use of short-term borrowings, which in 2002 and 2001 included borrowings under a secured committed line of credit, and in 2000, issuance of commercial paper as well as borrowings under the Company's lines of credit. Long-term debt has increased from nil in 1997, to $857,274, excluding current installments, at December 29, 2002. This long-term debt has been used primarily to fund the Company's 1998 and 1999 business acquisitions, as well as the repurchase of the Company's common stock in the open market. The Company made no acquisitions of businesses or repurchases of its common stock in 2002 or 2001.

        At December 29, 2002, cash and cash equivalents, net of short-term borrowings, were $474,321. This compares with cash and cash equivalents, net of short-term borrowings of $199,071 and $(99,177) at December 30, 2001 and December 31, 2000, respectively. Hasbro generated approximately $473,000, $372,000 and $163,000 of net cash from its operating activities in 2002, 2001 and 2000, respectively. The increase in 2002 from 2001 results primarily from the Company's continued aggressive management of its cash flow requirements. Cash flows from operations were favorably impacted by the Company's cost reduction initiatives in both 2002 and 2001 which resulted in a lower level of operating expenses, and as a result, lower levels of prepaid expenses and accrued expenses. The Company used a significant part of its cash from operations in 2001 to reduce the levels of accounts payable and accrued expenses. Despite fourth quarter 2002 revenues increasing from 2001 levels, fourth quarter days sales outstanding improved to 50 days from 52 days in 2001 and 53 days in 2000. Accounts receivable at year-end is primarily composed of fourth quarter revenues. Improved inventory management resulted in inventory levels approximately $27,000, or 13% lower at December 2002 than December 2001. 2001 inventory levels were significantly reduced by $118,000 or 35% from 2000. Increased sales of entertainment based licensed products, primarily STAR WARS products, in 2002 resulted in a decrease in prepaid royalties from 2001, net of a $120,000 payment made in 2002 relating to the STAR WARS license. In comparing 2001 with 2000, the significant increase in cash provided by operating activities is due primarily to the improved management of accounts receivable and inventory, as well as efforts at cost reduction that resulted in reduced prepaid expenses, offset somewhat by corresponding reductions in accounts payable and accrued expenses in 2001 versus 2000.

        Cash flows from investing activities were a net utilization of $62,314, $57,779 and $180,710 in 2002, 2001 and 2000, respectively. During 2002, the Company expended approximately $59,000 on additions to its property, plant and equipment while during 2001 and 2000 it expended approximately $50,000 and $125,000, respectively. Of these amounts, 64% in 2002, 75% in 2001 and 33% in 2000 were for purchases of tools, dies and molds related to the Company's products. Under the terms of the Company's credit facility, the Company is restricted in the amount it can expend on additions to property, plant and equipment. As part of its cash management process,

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the Company further reduced its level of spending on property, plant and equipment in 2002 and 2001 below the level it was permitted under its outstanding credit facilities. In 2003, the Company expects capital expenditures to increase from the 2002 and 2001 levels. Based on underlying changes in the way the Company does business, the Company does not expect to return to capital expenditure levels of 2000. During the three years ended December 29, 2002, depreciation and amortization of plant and equipment was $89,262, $104,247 and $106,458, respectively.

        The Company made no acquisitions of businesses in 2002 or 2001. In 2002, the Company made payments of $7,419 relating to a settlement of a dispute with the former shareholders of Wizards of the Coast. During 2000, the Company made several small acquisitions for approximately $58,000 in total, net of cash acquired, none of which were considered individually significant. Additionally, 2000 investing activities included post closing adjustments and contingent payments in relation to the September 1999 acquisition of Wizards. Other investing activities in 2000 largely reflect a reduction in intangible and other long-term assets of Hasbro Interactive and Games.com, which were sold to Infogrames. Under the terms of the Company's credit facility, the Company is restricted in the amount it can expend on future acquisitions.

        The Company commits to inventory production, advertising and marketing expenditures prior to the peak third and fourth quarter retail selling season. Accounts receivable increase during the third and fourth quarter as customers increase their purchases to meet expected consumer demand in the holiday season. Due to the concentrated timeframe of this selling period, payments for these accounts receivable are generally not due until the fourth quarter or early in the first quarter of the subsequent year. This timing difference between expenses paid and revenues collected makes it necessary for the Company to borrow varying amounts during the year. During 2002 and 2001, the Company utilized cash from operations and borrowing under its secured amended and restated revolving credit and line of credit agreements to meet its cash flow requirements. At December 29, 2002, the Company had a committed secured revolving credit agreement of $380,000, maturing in March 2005. The facility is secured by substantially all domestic accounts receivable and inventory, as well as certain intangible assets of the Company. The Company is not required to maintain compensating balances under the agreement. The agreement contains certain restrictive covenants setting forth minimum cash flow and coverage requirements, and a number of other limitations, including with respect to capital expenditures, investments, acquisitions, share repurchases and dividend payments. The Company was in compliance with all restrictive covenants throughout the fiscal year ended December 29, 2002. The Company had no borrowings outstanding under its committed facility at March 2, 2003. Amounts available and unused under uncommitted lines at March 2, 2003 were approximately $55,000. During 2000, the Company borrowed through the issuance of commercial paper and against short-term lines of credit to fund its seasonal working capital requirements in excess of funds available from operations and the issuance of long-term debt.

        The Company funds its operations and liquidity needs primarily through cash flows from operations, as well as utilizing borrowings under the Company's secured and unsecured credit facilities when needed. During 2003, the Company expects to continue to fund its working capital needs through cash flows from operations and utilization of its revolving credit facility and believes that the funds available to it are adequate to meet its needs. The Company expects to be in compliance with its covenants in 2003. However, unforeseen circumstances, such as severe softness in, or a collapse of, the retail environment may result in a significant decline in revenues and operating results of the Company, thereby causing the Company to be in non-compliance with its debt covenants. This may cause the Company to be unable to utilize borrowings under its revolving credit facility, a circumstance most likely to occur when operating shortfalls would result in the Company being in greatest need of such supplementary borrowings.

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        Net cash utilized by financing activities was $159,337 in 2002. This was primarily the result of the Company's use of cash flows from operations to repurchase $124,585 and $2,385 in principal amount of 7.95% Notes due in March 2003 and 5.60% Notes due in 2005, respectively. At December 29, 2002, the Company had $200,288 in principal amount remaining of 7.95% Notes due in March 2003, which are included as current installments of long-term debt at December 29, 2002. These 7.95% Notes due in March 2003 were repaid using cash from operations.

        In November and December of 2001, the Company issued $250,000 in principal amount of senior convertible debentures due 2021. The proceeds from the sales along with cash on hand were used to repurchase $250,000 in original principal amount of existing long-term debt, specifically $225,000 of the 7.95% notes due 2003, $4,000 of the 6.15% notes due 2008, and $21,000 of the 6.60% notes due 2028. Cash on hand was used to repurchase an additional $124,585 of principal amount of the notes due in 2003 and $2,385 of principal amount of the 5.60% Notes due in 2005. The senior convertible debentures bear interest at 2.75%, which could be subject to an upward adjustment in the rate, not to exceed 11%, commencing in December 2005 depending on the price of the Company's stock. This contingent interest feature represents a derivative instrument which is recorded on the balance sheet at its fair value, and changes in fair value will be recognized in the statement of operations. If the closing price of the Company's stock exceeds certain levels for a specified period of time, or upon other specified events, the debentures will be convertible at an initial conversion price of $21.60. The holders of these debentures may put the notes back to Hasbro in December 2005, December 2011 and December 2016 at the original principal amount. At that time, the purchase price may be paid in cash, shares of common stock or a combination of the two. The Company's current intent is to settle in cash any puts exercised.

        In January 2003, the Company amended its license with Lucas Licensing Ltd. ("Lucas") for the manufacture and distribution of STAR WARS toys and games. Under the amended agreement the term was extended by ten years and is expected to run through 2018. In addition, the minimum guaranteed royalties due to Lucas were reduced by $85,000. In a separate agreement, the warrants previously granted to Lucas were also amended. Under this warrant amendment, the term of each of the warrants issued to Lucas was extended by ten years. The warrant amendment agreement provides the Company with an option through October 2016 to purchase all of these warrants from Lucas for a price to be paid at the Company's election of either $200 million in cash or $220 million in the Company's common stock, such stock being valued at the time of the exercise of the option. Also, the warrant amendment agreement provides Lucas with an option through January 2008 to sell all of these warrants to the Company for a price to be paid at the Company's election of either $100 million in cash or $110 million in Hasbro common stock, such stock being valued at the time of the exercise of the option. Should either the put or call be required to be settled, the Company believes that it will have adequate funds to settle this in cash if necessary. This warrant amendment agreement was not included in the computation of earnings per share at December 29, 2002. Had this agreement been included in the earnings per share calculation at December 29, 2002, diluted earnings per share prior to cumulative effect of accounting change for fiscal 2002 would have been $.41.

        Cash utilized by financing activities in 2001 was $202,661. This was principally the result of net repayments of short-term borrowings of $190,216 as the result of the Company's focus on reducing debt, a practice that was continued in 2002. During 2000, net financing activities utilized approximately $128,000 of funds of the Company, primarily as a result of the completion on March 27 of a "Modified Dutch Auction" tender offer, pursuant to which the Company accepted for payment 18,086 shares of common stock, representing approximately 9.5% of outstanding shares, at a purchase price of $17.25 per share. The aggregate purchase, including fees and expenses associated with the tender offer, was approximately $313,000. Offsetting this utilization were net

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borrowing activities in 2000 which included the issuance of $550,000 of 7.95% notes due March 15, 2003 and $200,000 of 8.50% notes due March 15, 2006.

        On December 6, 1999, the Board authorized a common stock repurchase program up to $500,000. A portion of this authorization was used in 2000 in connection with the repurchase of shares through the Modified Dutch Auction discussed above. At December 29, 2002 and December 30, 2001, $204,500 remains available under the 1999 authorization. Shares acquired under the Board authorization are being used for corporate purposes including issuance upon the exercise of stock options and warrants. Under terms of the Company's revolving credit agreement, share repurchases, purchasing long-term debt prior to maturity, and payment of dividends in excess of $.03 per share per quarter or 25% of prior year consolidated net income, which ever is greater, are restricted payments which are capped at $15,000 per fiscal year. Repurchases of the 7.95% Notes due March 2003 were subject to separate restrictions.

Critical Accounting Policies and Significant Estimates

        The Company prepares its consolidated financial statements in accordance with accounting principles generally accepted in the United States of America. As such, management is required to make certain estimates, judgments and assumptions that they believe are reasonable based on the information available. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses for the periods presented. The significant accounting policies which management believes are the most critical to aid in fully understanding and evaluating the Company's reported financial results include sales allowances, inventory valuation, recoverability of goodwill and intangible assets, recoverability of royalty advances and commitments and pensions.

        Sales allowances for customer promotions, discounts and returns are recorded as a reduction of revenue from product sales when the related revenue is recognized. Revenue from product sales is recognized upon the passing of title to the customer, at the time of shipment. Revenue from product sales, less related sales allowances, is added to royalty revenue and reflected as net revenues in the consolidated statements of operations. The Company routinely commits to promotional allowance programs with customers. These allowances primarily relate to fixed programs, which the customer earns based on purchases of Company products during the year. Discounts are recorded as a reduction of related revenue at the time of sale. While many of the allowances are based on fixed amounts, certain of the allowances, such as the returns allowance, are based on market data, historical trends and information from customers and are therefore subject to estimation.

        Inventory is valued at the lower of cost or market. Based upon a consideration of quantities on hand, actual and projected sales volume, anticipated product selling price and product lines planned to be discontinued, slow-moving and obsolete inventory is written down to its net realizable value. Failure to accurately predict and respond to consumer demand could result in the Company underproducing popular items or overproducing less popular items. Management estimates are monitored on a quarterly basis and a further adjustment to reduce inventory to its net realizable value is recorded when deemed necessary under the lower of cost or market standard.

        On December 31, 2001, the first day of fiscal 2002, the Company adopted SFAS No. 142, "Goodwill and Other Intangible Assets", which eliminates the amortization of goodwill, as well as amortization of intangible assets deemed to have an indefinite life. Under this Statement, goodwill and intangible assets are allocated to applicable reporting units. Goodwill and other intangible assets deemed to have indefinite lives are tested for impairment annually. Goodwill is tested using a two step process that begins with an estimation of the fair value of the reporting unit using an income approach, which looks to the present value of expected future cash flows. The first step is a

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screen for potential impairment while the second step measures the amount of impairment if there is an indication from the first step that one exists. Intangible assets with indefinite lives are tested for impairment by comparing their carrying value to their estimated fair value also calculated using the income approach. In connection with the adoption of SFAS 142, the Company recorded an impairment charge of $245,732, net of tax, primarily as the result of the change in goodwill impairment criteria from an undiscounted to a discounted cash flow method. The Company's annual impairment test was performed in the fourth quarter of 2002 and no impairment was indicated. At December 29, 2002, the Company has goodwill and intangible assets with indefinite lives of $536,731 recorded on the balance sheet.

        Intangible assets, other than those with indefinite lives, are reviewed for indications of impairment whenever events or changes in circumstances indicate the carrying value may not be recoverable. Recoverability of these intangible assets is measured by a comparison of the assets' carrying value to the estimated future undiscounted cash flows expected to be generated by the asset. If such assets were considered to be impaired, the impairment would be measured by the amount by which the carrying value of the asset exceeds its fair value based on estimated discounted cash flows. The preparation of future cash flows requires significant judgments and estimates with respect to future revenues related to the respective asset and the future cash outlays related to those revenues. Actual revenues and related cash flows or changes in anticipated revenues and related cash flows could result in a change in this assessment and result in an impairment charge. The preparation of discounted cash flows also requires the selection of an appropriate discount rate. The use of different assumptions would increase or decrease estimated discounted cash flows and could increase or decrease the related impairment charge. Intangible assets covered under this policy were $636,408 at December 29, 2002.

        The recoverability of royalty advances and contractual obligations with respect to minimum guaranteed royalties is assessed by comparing the remaining minimum guaranty to the estimated future sales forecasts and related cash flow projections to be derived from the related product. If sales forecasts and related cash flows from the particular product do not support the recoverability of the remaining minimum guaranty or, if the Company decides to discontinue a product line with royalty advances or commitments, a charge to write-off the remaining minimum guaranty is required. The preparation of revenue forecasts and related cash flows for these products requires judgments and estimates. Actual revenues and related cash flows or changes in the assessment of anticipated revenues and cash flows related to these products could result in a change to the assessment of recoverability of remaining minimum guaranteed royalties. At December 29, 2002, the Company had $203,500 of prepaid royalties, $42,500 of which are included in prepaid expenses and other current assets and $161,000 which are included in other assets.

        The Company, except for certain international subsidiaries, has pension plans covering substantially all of its full-time employees. Pension expense is based on actuarial computations of current and future benefits using estimates for expected return on assets, expected salary increases, and applicable discount rates. The Company estimates expected return on assets using a weighted average rate based on historical market data for the investment classes of assets held by the plan, the allocation of plan assets among those investment classes, and the current economic environment. Based on this information and, in light of recent decreases in historical average market returns, the Company reduced its expected return on plan assets in 2002 to 8.75% versus 9.00% used in 2001 and 2000. A decrease in the estimate used for expected return on plan assets would increase pension expense while an increase in this estimate would decrease pension expense. Expected salary increases are estimated using a combination of historical salary increases with expected salary increases in the Company's long-term business forecasts. Based on this analysis, the Company reduced expected salary increases in 2002 to 4.0% from 4.5% used in 2001 and 2000. Increases in estimated salary increases would increase pension expense while decreases

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would decrease pension expense. Discount rates are selected based upon rates of return on high quality fixed income investments currently available and expected to be available during the period to maturity of the pension benefits. The Company considers Moody's long-term Aa Corporate Bond yield at the measurement date as an appropriate guide in setting this rate. At September 30, 2002, the Company's measurement date for its pension assets and liabilities, the Moody's long-term Corporate Bond yield was 6.51%, and the Company selected a discount rate of 6.50%. A decrease in the discount rate would result in greater pension expense while an increase in the discount rate would decrease pension expense. Primarily as the result of the changes in these assumptions, the Company expects its pension expense in 2003 to increase by approximately $4,500. In accordance with Statement of Financial Accounting Standards No. 87, "Employers Accounting for Pensions", actual results that differ from the actuarial assumptions are accumulated and, if in excess of a certain corridor, amortized over future periods and, therefore generally affect recognized expense and the recorded obligation in future periods. Assets in the plan are valued on the basis of their fair market value on the measurement date. In 2002, the Company recorded a minimum pension liability of $44,811. This amount represents the amount by which the accumulated benefit obligation exceeds the sum of the fair market value of plan assets and accrued amounts previously recorded. The Company does not expect the changes in assumptions to impact its funding requirements in 2003.

Contractual Obligations and Commercial Commitments

        In the normal course of its business, the Company enters into contracts related to obtaining rights to produce product under license, which may require the payment of minimum guarantees, as well as contracts related to the leasing of facilities and equipment. In addition, the Company has $1,042,856 of long-term debt, including current installments and excluding fair value adjustments, outstanding at December 29, 2002. Future payments required under these and other obligations are as follows:

Payments due by Fiscal Year

        Certain of the future minimum guaranteed contractual royalty payments are contingent upon theatrical release of the related entertainment property.

        In additional to the contractual obligations noted above, the Company has letters of credit of approximately $38,000 at December 29, 2002.

Financial Risk Management

        The Company is exposed to market risks attributable to fluctuations in foreign currency exchange rates for the most part as the result of sourcing products in U.S. dollars, Hong Kong dollars and Euros while marketing those products in more than thirty currencies. Results of operations may be affected primarily by changes in the value of the U.S. dollar versus the Hong

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Kong dollar, Euro, British pound, Canadian dollar and Mexican peso and, to a lesser extent, other currencies, including those in Latin American countries.

        To manage this exposure, the Company has hedged a portion of its estimated upcoming fiscal year foreign currency transactions, first and foremost by using forward foreign exchange contracts and, to a lesser extent, zero cost option collars. From time to time, the Company may also hedge foreign currency exposure using purchased foreign currency options. The Company estimates that a hypothetical immediate 10% unfavorable movement in the U.S. dollar could result in an approximate $7.0 million decrease in the fair value of these instruments. The Company is also exposed to foreign currency risk with respect to its net cash and cash equivalents or short-term borrowing positions in other than the U.S. dollar. The Company believes, however, that the on-going risk on the net exposure should not be material to its financial condition. In addition, the Company's revenues and costs have been and will likely continue to be affected by changes in foreign currency rates. The Company does not speculate in, and, other than set forth above, the Company does not hedge foreign currencies. The Company reflects all derivatives at their fair value as an asset or liability on the balance sheet.

        At December 29, 2002, the Company had fixed rate long-term debt, including current installments, of $1,059,115. The Company entered into several interest rate swap agreements in 2002, with a total notional amount of $350,000, to adjust the amount of long-term debt subject to fixed interest rates. The interest rate swaps are matched with specific long-term debt obligations. These interest rate swaps are being accounted for as fair value hedges of the underlying debt. Changes in interest rates affect the fair value of fixed rate debt not hedged by interest rate swap agreements while affecting the earnings and cash flows of the long-term debt hedged by the interest rate swaps. The Company estimates that a hypothetical one percentage point decrease or increase in interest rates would increase or decrease the fair value of this long-term debt by approximately $68,000 or $59,000, respectively. A hypothetical one percentage point change in interest rates would increase or decrease 2003 pre-tax earnings and cash flows by $1,671 and $1,015, respectively.

The Economy and Inflation

        The Company continued to experience difficult economic environments in some parts of the world during 2002. The principal market for the Company's products is the retail sector. Revenues from the Company's top 5 customers, all retailers, accounted for approximately 52% and 48% of its consolidated net revenues in 2002 and 2001, respectively. In the past year certain customers in the retail sector have experienced economic difficulty. The Company monitors the creditworthiness of its customers and adjusts credit policies and limits as it deems appropriate.

        The Company's revenue pattern continues to show the second half of the year being more significant to its overall business. The trend of retailers over the past few years has been to make a higher percentage of their purchases within or close to the fourth quarter holiday consumer selling season, which includes Christmas. To the extent that retailers do not sell as much of their year-end inventory purchases during this holiday selling season as they had anticipated, their demand for additional product earlier in the following fiscal year may be curtailed, thus negatively impacting the Company's revenues. In addition, the bankruptcy or other lack of success of one of the Company's significant retailers could negatively impact the Company's future revenues.

        The effect of inflation on the Company's operations during 2002 was not significant and the Company will continue its policy of monitoring costs and adjusting prices, accordingly.

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Other Information

        During 2001, the Company received two inquiries from the Office of Fair Trading in the United Kingdom (the "OFT") into allegedly anti-competitive pricing practices by the Company's United Kingdom subsidiary, Hasbro U.K. Ltd. ("Hasbro U.K."). The first of the inquiries (the "wholesaler case"), begun in May of 2001, related to Hasbro U.K.'s interactions with certain of its wholesale distributors. The second inquiry (the "retailer case"), begun in August of 2001, related to Hasbro U.K.'s trading arrangements with certain of its direct retail accounts.

        On November 29, 2002, the OFT issued a decision in the wholesaler case, finding that Hasbro U.K. had entered into agreements with certain distributors to fix prices in violation of U.K. competition laws. The OFT assessed a fine in that case of approximately GBP 4,950 or approximately $7,900 at the then current exchange rates. The Company filed an appeal of this decision in January 2003 to the U.K. Competition Commission Appeals Tribunal (the "CCAT").

        On February 19, 2003, the OFT issued a decision in the retailer case, finding that Hasbro U.K. had entered into agreements with certain direct retailers to fix prices in violation of U.K. competition laws. The OFT assessed a fine in this case but, due to the Company's cooperation in the OFT's investigation, the OFT's decision stated that the Company would not be required to pay any of that fine.

        Before receiving the OFT's decisions in the wholesaler and retailer cases, the Company had disclosed an estimated range of aggregate loss for the two cases of approximately GBP 160 to GBP 26,000. Because a number of factors, including the lack of precedent under the applicable U.K. statute and the significant appeal rights available to the Company in the event of a final adverse determination by the OFT, the Company previously determined that there was no amount within this range which was a better estimate than any other amount in the range. As such, in accordance with applicable accounting requirements, the Company previously accrued a charge to earnings equal to the low end of this range, or GBP 160 in 2001.

        In light of the OFT's decision in the wholesaler case, the Company determined that the amount of GBP 4,947 was the best estimate of the ultimate expected loss from that case. To reflect this determination, the Company accrued an additional charge to earnings in the fourth quarter of 2002 of GBP 4,787 or $7,566, at applicable exchange rates, related to this liability. This resulted in a total amount accrued at December 29, 2002 of GBP 4,947 or $7,935 at year-end exchange rates. On March 3, 2003, the Company withdrew its appeal of the wholesaler case with the CCAT. In light of the OFT's decision in the retailer case, no charge will be recorded in connection with that case.

        The Company is not aware of any material amounts of potential exposure relating to environmental matters and does not believe its environmental compliance costs or liabilities to be material to its operating results or financial position.

        In June 2002, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 146, "Accounting for Costs Associated with Exit or Disposal Activities" (SFAS 146), which addresses the accounting and reporting for costs associated with exit or disposal activities. SFAS 146 nullifies Emerging Issue Task Force Issue 94-3. SFAS 146 is effective for exit or disposal activities that are initiated after December 31, 2002. The Company expects to adopt the provisions of this statement at the beginning of fiscal 2003 and does not expect that the adoption will result in a material impact to its consolidated results of operations and financial position.

        In December 2002, the FASB issued Financial Accounting Standard No. 148, "Accounting for Stock-Based Compensation—Transition and Disclosure—an amendment of FASB Statement No. 123" (SFAS 148), which provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation as well as

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amending the disclosure requirements of Statement 123. While the Company currently plans to retain the intrinsic value provisions of APB 25, the Company adopted portions of the disclosure requirements of SFAS 148 in its financial statements as of and for the year ended December 29, 2002. The remaining provisions of SFAS 148 will not effect the Company's consolidated results of operations and financial position.

ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

        The information required by this item is included in Item 7 of Part II of this Report and is incorporated herein by reference.

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ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEPENDENT AUDITORS' REPORT

The Board of Directors and Shareholders
Hasbro, Inc.:

        We have audited the accompanying consolidated balance sheets of Hasbro, Inc. and subsidiaries as of December 29, 2002 and December 30, 2001 and the related consolidated statements of operations, shareholders' equity and cash flows for each of the fiscal years in the three-year period ended December 29, 2002. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

        We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

        In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Hasbro, Inc. and subsidiaries as of December 29, 2002 and December 30, 2001 and the results of their operations and their cash flows for each of the fiscal years in the three-year period ended December 29, 2002 in conformity with accounting principles generally accepted in the United States of America.

        As discussed in note 1 to the consolidated financial statements, effective December 31, 2001, the first day of the Company's 2002 fiscal year, the Company adopted the provisions of Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangibles."

/s/ KPMG LLP

Providence, Rhode Island
February 12, 2003

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HASBRO, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 29, 2002 and December 30, 2001
(Thousands of Dollars Except Share Data)

See accompanying notes to consolidated financial statements.

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HASBRO, INC. AND SUBSIDIARIES

Consolidated Statements of Operations

Fiscal Years Ended in December

(Thousands of Dollars Except Per Share Data)

See accompanying notes to consolidated financial statements.

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HASBRO, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

Fiscal Years Ended in December

(Thousands of Dollars)

See accompanying notes to consolidated financial statements.

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HASBRO, INC. AND SUBSIDIARIES

Consolidated Statements of Shareholders' Equity

(Thousands of Dollars)