TABLE OF CONTENTS PART I Item 1. Business Item 1A. Risk Factors Item 1B. Unresolved Staff Comments Item 2. Properties Item 3. Legal Proceedings Item 4. Submission of Matters to a Vote of Security Holders PART II Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Item 6. Selected Financial Data Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations Item 7A. Quantitative and Qualitative Disclosures About Market Risk Item 8. Financial Statements and Supplementary Data Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Item 9A. Controls and Procedures Item 9B. Other Information PART III Item 10. Directors and Executive Officers of the Registrant Item 11. Executive Compensation Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Item 13. Certain Relationships and Related Transactions Item 14. Principal Accountant Fees and Services PART IV Item 15. Exhibits and Financial Statement Schedules SIGNATURES EX-10(w) Second Amendment to 1992 Stock Incentive Plan EX-10(x) Third Amendment to 1995 Stock Incentive Performance Plan EX-10(bb) Third Amendment to the 1997 Employee Non-Qualified Stock Plan EX-10(nn) Third Amendment to Deferred Compensation Plan EX-10(vv) Second Amendment 2003 Stock Incentive Performance Plan EX-11 Statement re computation of per share earnings EX-12 Statement re computation of ratios EX-21 Subsidiaries of the registrant EX-23 Consent of KPMG LLP EX-31.1 Section 302 Certification of CEO EX-31.2 Section 302 Certification of CFO EX-32.1 Section 906 Certification of CEO EX-32.2 Section 906 Certification of CFO
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, Hasbro, 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. Overview We are a worldwide leader in childrens and family leisure time and entertainment products and services, including the design, manufacture and marketing of games and toys. Both internationally and in the U.S., our widely recognized core brands such as PLAYSKOOL, TONKA, SUPER SOAKER, MILTON BRADLEY, PARKER BROTHERS, TIGER, and WIZARDS OF THE COAST provide what we believe are the highest quality play experiences in the world. Our offerings encompass a broad variety of games, including traditional board, card, hand-held electronic, trading card, roleplaying, plug and play and DVD games, as well as electronic learning aids and puzzles. Toy offerings include boys action figures, vehicles and playsets, girls toys, electronic toys, plush products, preschool toys and infant products, childrens consumer electronics, electronic interactive products, creative play and toy related specialty products. In addition, we license certain of our trademarks, characters and other property rights to third parties for use in connection with consumer promotions and for the sale of noncompeting toys and non-toy products. In managing our business in 2005, we focused on two major areas, toys and games. Organizationally, our principal segments were U.S. Toys, Games, and International. In 2005, our U.S. Toys segment engaged in the development, marketing and selling of toy and childrens consumer electronic products in the United States. Our Games segment included the development, manufacturing, marketing and selling of games, as well as electronic learning aids and puzzles, in the United States. Within the International segment, we developed, manufactured, marketed and sold both toy and game products in non-U.S. markets. Financial information with respect to our segments and geographic areas is included in note 15 to our financial statements, which are included in Item 8 of this Form 10-K. Beginning in 2006 we restructured our business by combining the existing U.S. Toys and Games segments and adding to this combined segment our Mexican and Canadian operations, which were formerly managed as part of the International segment. Under this new structure, all of our toy and game business in the United States, Canada, and Mexico is managed as one North American segment under common leadership. We believe this restructuring will allow us to better focus our efforts in the development, marketing and selling of products in this North American market. In 2006 we will continue to have an International segment, comprised of our operations in Europe and the Asia Pacific and Latin American regions. The International segment will manage toy and game sales, and the related marketing and certain development activity outside of North America. In addition, the Hasbro Properties Group outlicenses our intellectual property to third parties on a worldwide basis. In 2006, our Global Operations segment will be responsible for arranging product manufacturing and sourcing for all of our other segments. The remainder of this business discussion is formatted consistently with our 2005 segment structure. U.S. Toys The U.S. Toys segments strategy in 2005 was based on growing core brands through innovation and reinvention, introducing new initiatives driven by consumer and marketplace insights and leveraging opportunistic toy lines and licenses. In order to meet shifting consumer dynamics, the execution of this strategy centered on consumer insights, which are used to inform and motivate our product development. We use consumer insights to drive innovation across our business. In recent years, a major source of innovation 1

We believe that the manufacturing capacity of our third party manufacturers, together with our own facilities, as well as the supply of components, accessories and completed products which we purchase from unaffiliated manufacturers, are adequate to meet the anticipated demand in 2006 for our products. Our reliance on designated external sources of manufacturing could be shifted, over a period of time, to alternative sources of supply for our products, should such changes be necessary or desirable. However, if we were to be prevented from obtaining products from a substantial number of our current Far East suppliers due to political, labor or other factors beyond our control, our operations and our ability to obtain products 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 us from, or the loss of normal trade relations status by, the Peoples Republic of China could significantly disrupt our operations and increase the cost of our products imported into the United States or Europe. We purchase dies and molds, principally from independent United States and international sources. Competition We are a worldwide leader in the design, manufacture and marketing of games and toys, but our business is highly competitive. We compete with several large toy and game companies in our product categories, as well as many smaller United States and international toy and game designers, manufacturers and marketers. Competition is based primarily on meeting consumer entertainment preferences and on the quality and play value of our products. To a lesser extent, competition is also based on product pricing. In addition to contending with competition from other toy and game companies, in our business we must deal with the phenomena that many children have been moving away from traditional toys and games at a younger age. We refer to this as children getting older younger. As a result, our products not only compete with the offerings of other toy and game manufacturers, but we must compete, particularly in meeting the demands of older children, with the entertainment offerings of many other companies, such as makers of video games and consumer electronic products. The volatility in consumer preferences with respect to family entertainment and low barriers to entry continually create new opportunities for existing competitors and start-ups to develop products which compete with our toy and game offerings. Employees At December 25, 2005, we employed approximately 5,900 persons worldwide, approximately 3,300 of whom were located in the United States. Trademarks, Copyrights and Patents We seek to protect our products, for the most part, and in as many countries as practical, through 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 is unlikely to result in significant harm to our business, although the loss of such protection for a number of significant items might have such an effect. Government Regulation Our 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. In addition, certain of our products, such as the mixes for our EASY BAKE ovens, are also subject to regulation by the Food and Drug Administration. 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 7

in 2006. 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 that are ineligible for sale under our securitization facility, 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. Variations 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 damage our ability to support our future operations or capital needs or engage in other business activities. As of December 25, 2005, we had approximately $527.7 million of total principal amount of indebtedness outstanding. If we are unable to generate 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. This total indebtedness includes $249,996 in aggregate principal amount of 2.75% senior convertible debentures that we issued in 2001. On 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. We may not have sufficient cash at that time to make the required repurchases and may be required to settle in shares of common stock. We previously issued warrants that provide the holder 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 $100,000 in cash or $110,000 in our common stock, such stock being valued at the time of the exercise of the option. Should we be required to settle these 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 and may be required to settle the warrants in stock. 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. In addition, certain of our products are subject to regulation by the Food and Drug Administration. 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 significantly harm our business, financial condition and results of operations. As a large, multinational corporation, we are subject to a host of governmental regulations throughout the world, including antitrust, customs and tax requirements, anti-boycott regulations and the Foreign Corrupt 15

Practices Act. Our failure to successfully comply with any such legal requirements could subject us to monetary liabilities and other sanctions that 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. At December 25, 2005, approximately $467,061 or 14.1%, of our total assets represented goodwill. Declines in our profitability may impact the fair value of our reporting units, which could result in a further write-down of our goodwill. Reductions in our net income caused by the write-down of goodwill could harm our results of operations. Item 1B. Unresolved Staff Comments None Item 2. Properties
Square Feet Type of Possession Lease Expiration Dates

Location

Rhode Island Pawtucket(1) (2) (3) Pawtucket(3) East Providence(3) Central Falls(1) (2) (3) Massachusetts East Longmeadow(2) East Longmeadow(2) California Chino(1) (2) Texas Dallas(2) Washington Renton(2) Tukwilla(2) Australia Erskine Park(5) Eastwood(5) Belgium Brussels(5) Canada St. Laurent(2) Montreal(5) Mississauga(5) Montreal(5)
Administrative, Sales & Marketing Offices & Product Development Executive Office Administrative Office Warehouse Office, Manufacturing & Warehouse Warehouse Warehouse Warehouse Offices Warehouse Office & Warehouse Office Office & Showroom Office, Manufacturing & Warehouse Office, Warehouse & Showroom Sales Office & Showroom Warehouse 16
343,000 23,000 120,000 261,500 1,148,000 500,000 1,001,000 147,500 95,400 5,000 98,400 16,900 18,800 148,400 133,900 16,300 88,100
Owned Owned Leased Owned Owned Leased Leased Leased Leased Leased Leased Leased Leased Leased Leased Leased Leased

2014 2010 2010

Square Feet

Type of Possession

Lease Expiration Dates
Chile Santiago(5) Santiago(5) China Shenzhen(5) Shenzhen(5) Denmark Glostrup(5) England Uxbridge(5) France Le Bourget du Lac(5) Creutzwald(5) Germany Soest(5) Soest(5) Dreieich(5) Hong Kong Kowloon(4) New Territories(4) New Territories(4) Ireland Waterford(5) Italy Milan(5) Mexico Periferico(5) Carretera(5) The Netherlands Utrecht(5) New Zealand Auckland(5) Poland Warsaw(5) Spain Valencia(5) Switzerland Berikon(5) Delemont(5) Turkey Istanbul(5)
Warehouse Office Office Office Office Office & Showroom Office Warehouse Office & Warehouse Warehouse Office Offices Warehouse Warehouse Office, Manufacturing & Warehouse Office & Showroom Office Warehouse Office Office & Warehouse Office Office & Warehouse Office & Warehouse Office Office 17

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 future discounted cash flows. The estimation 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 estimation 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 $533,940 at December 25, 2005. During 2005, there were no impairment charges related to these intangible assets. 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 royalty expense 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 25, 2005, the Company had $126,515 of prepaid royalties, $37,107 of which are included in prepaid expenses and other current assets and $89,408 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 compensation 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, the Companys estimate of expected return on domestic plan assets was 8.75% in 2005, 2004 and 2003. 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. A decrease of.25% in the estimate of expected return on plan assets would increase pension expense for U.S. plans by approximately $470. Expected compensation increases are estimated using a combination of historical compensation increases with expected compensation increases in the Companys long-term business forecasts. Based on this analysis, the Companys estimate of expected long-term compensation increases for its U.S. plans was 4.0% in 2005, 2004 and 2003. Increases in estimated compensation increases would result in higher pension expense while decreases would lower pension expense. Discount rates are selected based upon rates of return at the measurement date on high quality corporate bond investments currently available and expected to be available during the period to maturity of the pension benefits. Based on this long-term corporate bond yield at September 30, 2005, the Companys measurement date for its pension assets and liabilities, the Company selected a discount rate for its domestic plans of 5.50%. A decrease in the discount rate would result in greater pension expense while an increase in the discount rate would decrease pension expense. A decrease of.25% in the Companys discount rate would increase pension expense and the projected benefit obligation by approximately $995 and $11,110, respectively. 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 outside 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 2005 and 2004, the Company recorded a minimum pension liability for its U.S. plans of $53,329 and $43,196, respectively. 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. 34

$ 3,087,627 1,286,271 1,801,356 102,035 247,283 150,586 366,371 624,560 1,490,835 310,521 30,537 (30,929) (392) 310,913 98,838 212,075 212,075
2,997,510 1,251,657 1,745,853 70,562 223,193 157,162 387,523 614,401 1,452,841 293,012 31,698 1,226 32,924 260,088 64,111 195,977 195,977
3,138,657 1,287,962 1,850,695 76,053 248,423 143,183 363,876 674,544 1,506,079 344,616 52,462 48,090 100,552 244,064 69,049 175,015 (17,351) 157,664

$ $ $ $ $

1.19 1.09 1.19 1.09.36

1.11.96 1.11.96.24

1.01.94.91.85.12
See accompanying notes to consolidated financial statements. 40
HASBRO, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows Fiscal Years Ended in December (Thousands of dollars)
Cash flows from operating activities Net earnings Adjustments to reconcile net earnings to net cash provided by operating activities: Cumulative effect of accounting change, net of tax Depreciation and amortization of plant and equipment Other amortization Loss on early extinguishment of debt Loss on impairment of investment Change in fair value of liabilities potentially settleable in common stock Deferred income taxes Compensation earned under restricted stock programs Change in operating assets and liabilities (other than cash and cash equivalents): Decrease (increase) in accounts receivable Decrease (increase) in inventories Decrease in prepaid expenses and other current assets Increase (decrease) in accounts payable and accrued liabilities Other, including long-term advances Net cash provided by operating activities Cash flows from investing activities Additions to property, plant and equipment Investments and acquisitions, net of cash acquired Proceeds from sale of property, plant and equipment Other Net cash utilized by investing activities Cash flows from financing activities Repurchases and repayments of borrowings with original maturities of more than three months Net repayments of other short-term borrowings Purchase of common stock and other equity securities Stock option transactions Dividends paid Net cash utilized by financing activities Effect of exchange rate changes on cash Increase in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year Supplemental information Interest paid Income taxes paid

HASBRO, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) (Thousands of Dollars and Shares Except Per Share Data) The Company records an allowance for doubtful accounts at the time revenue is recognized based on managements assessment of the business environment, customers financial condition, historical collection experience, accounts receivable aging and customer disputes. When a significant event occurs, such as a bankruptcy filing by a specific customer, and on a quarterly basis, the allowance is reviewed for adequacy and the balance or accrual rate is adjusted to reflect current risk prospects. Inventories Inventories are valued at the lower of cost (first-in, first-out) 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. At December 25, 2005 and December 26, 2004, finished goods comprised 89% and 92% of inventories, respectively. Long-Lived Assets The Companys long-lived assets consist of property, plant and equipment, goodwill and intangible assets with indefinite lives as well as other intangibles assets the Company considers to have a defined life. Goodwill results from purchase method acquisitions the Company has made over time. Substantially all of the other intangibles consist of the cost of acquired product rights. In establishing the value of such rights, the Company considers, but does not individually value, existing trademarks, copyrights, patents, license agreements and other product-related rights. These rights were valued at their acquisition date based on the anticipated future cash flows from the underlying product line. The Company has certain intangible assets related to the Tonka and Milton Bradley acquisitions that have an indefinite life, and amortization of these assets has been suspended until a remaining useful life can be determined. Goodwill and intangible assets deemed to have indefinite lives are not amortized and are tested for impairment at least annually. The annual test begins with goodwill and all intangible assets being allocated to applicable reporting units. Goodwill is then tested using a two-step process that begins with an estimation of 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 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 annually for impairment by comparing their carrying value to their estimated fair value, also calculated using the income approach. The remaining intangibles having defined lives are being amortized over three to twenty-five years, primarily using the straight-line method. Approximately 11% of other intangibles relate to rights acquired in connection with major motion picture entertainment properties and are being amortized over the contract life, in proportion to projected sales of the licensed products during the same period. Property, plant and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization are computed using accelerated and straight-line methods to amortize the cost of property, plant and equipment over their estimated useful lives. The principal lives, in years, used in determining depreciation rates of various assets are: land improvements 15 to 19, buildings and improvements 15 to 25 and machinery and equipment 3 to 12. Tools, dies and molds are amortized over a three-year period or their useful lives, whichever is less, using an accelerated method. The Company reviews property, plant and equipment and other intangibles with defined lives for impairment whenever events or changes in circumstances indicate the carrying value may not be recoverable. Recoverability is measured by a comparison of the carrying amount of an asset to future undiscounted net 44

HASBRO, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) (Thousands of Dollars and Shares Except Per Share Data) Advertising Production costs of commercials and programming are charged to operations in the fiscal year during which the production is first aired. The costs of other advertising, promotion and marketing programs are charged to operations in the fiscal year incurred. Shipping and Handling Hasbro expenses costs related to the shipment and handling of goods to customers as incurred. For 2005, 2004, and 2003, these costs were $144,953, $144,620 and $149,702, respectively, and are included in selling, distribution and administration expenses. Operating Leases Hasbro records lease expense in such a manner as to recognize this expense on a straight-line basis inclusive of rent concessions and rent increases. Reimbursements from lessors for leasehold improvements are deferred and recognized as a reduction to lease expense over the lease term. Income Taxes Hasbro uses the asset and liability approach for financial accounting and reporting of income taxes. Deferred income taxes have not been provided on undistributed earnings of international subsidiaries as substantially all of such earnings are indefinitely reinvested by the Company. See note 8, which includes discussion of the American Jobs Creation Act of 2004. Foreign Currency Translation Foreign currency assets and liabilities are translated into U.S. dollars at period-end rates, and revenues, costs and expenses are translated at weighted average rates during each reporting period. Earnings include gains or losses resulting from foreign currency transactions as well as translation gains and losses resulting from the use of the U.S. dollar as the functional currency in highly inflationary economies. Other gains and losses resulting from translation of financial statements are a component of other comprehensive earnings. Pension Plans, Postretirement and Postemployment Benefits Hasbro, 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. The Companys policy is to fund amounts which are required by applicable regulations and which are tax deductible. In 2006, the Company expects to contribute approximately $21,000 to its pension plans. The estimated amounts of future payments to be made under other retirement programs are being accrued currently over the period of active employment and are also included in pension expense. Hasbro has a contributory postretirement health and life insurance plan covering substantially all employees who retire under any of its United States defined benefit pension plans and meet certain age and length of service requirements. It also has several plans covering certain groups of employees, which may provide benefits to such employees following their period of employment but prior to their retirement. The Company measures the costs of these obligations based on actuarial computations. Risk Management Contracts Hasbro uses foreign currency forward and option contracts, generally purchased for terms of not more than eighteen months, to mitigate the impact of adverse currency rate fluctuations on firmly committed and 46

All leases expire prior to the end of 2018. Real estate taxes, insurance and maintenance expenses are generally obligations of the Company. It is expected that in the normal course of business, leases that expire will be renewed or replaced by leases on other properties; thus, it is anticipated that future minimum lease commitments will not be less than the amounts shown for 2005. In addition, Hasbro leases certain facilities which, as a result of restructurings, are no longer in use. Future costs relating to such facilities were accrued as a component of the original charge and are not included in the table above. (13) Derivative Financial Instruments Hasbro uses foreign currency forwards and options, generally purchased for terms of not more than eighteen months, to reduce the impact of currency rate fluctuations on firmly committed and projected future foreign currency transactions. 66
HASBRO, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) (Thousands of Dollars and Shares Except Per Share Data) During 2005, 2004, and 2003, the Company reclassified net losses, net of tax, from other comprehensive income to earnings of $2,005, $9,111, and $8,799, respectively, which included gains (losses) of $509, $(163), and $(436), respectively, as the result of ineffectiveness. The remaining balance in AOCE at December 25, 2005 of $3,848 represents a net unrealized gain on foreign currency contracts relating to hedges of inventory purchased during the fourth quarter of 2005 or forecasted to be purchased during 2006 and intercompany expenses and royalty payments expected to be paid or received during 2006. These amounts will be transferred to the consolidated statement of operations upon the sale of the related inventory and receipt or payment of the related royalties and expenses. The Company expects substantially all of the balance in AOCE to be reclassified to the consolidated statement of operations within the next 12 months. The Company also enters into derivative instruments to offset changes in the fair value of intercompany loans due to the impact of foreign currency changes. The Company recorded a net loss on these instruments to other (income) expense, net of $60,014, $30,882, and $13,545 in 2005, 2004, and 2003, respectively, relating to the change in fair value of such derivatives, substantially offsetting gains from the change in fair value of intercompany loans to which the contracts relate included in other (income) expense, net. (14) Commitments and Contingencies Hasbro had unused open letters of credit of approximately $33,619 and $13,300 at December 25, 2005 and December 26, 2004, respectively. The Company enters into license agreements with inventors, designers and others for the use of intellectual properties in its products. Certain of these agreements contain provisions for the payment of guaranteed or minimum royalty amounts. Additionally, the Company has a long-term commitment related to promotional and marketing activities at a U.S. based theme park. Under terms of currently existing agreements as of December 25, 2005, Hasbro may, provided the other party meets their contractual commitment, be required to pay amounts as follows: 2010 $ 27,500 14,940 12,130 7,100 5,100 $ 66,770

(b) (c) (d) (e) (f)

(h) (i)

(j) (k) (l) (m) (n) (o)

Lease between Hasbro Canada and Central Toy, together with an Addendum thereto, each dated as of May 1, 1987. (Incorporated by reference to Exhibit 10(f) to the Companys Annual Report on Form 10-K for the Fiscal Year Ended December 27, 1987, File No. 1-6682.) Addendum to lease, dated March 5, 1998, between Hasbro Canada and Central Toy. (Incorporated by reference to Exhibit 10(c) to the Companys Annual Report on Form 10-K for the Fiscal Year Ended December 28, 1997, File No. 1-6682.) Letter agreement, dated December 13, 2000, between Hasbro Canada and Central Toy. (Incorporated by reference to Exhibit 10(d) to the Companys Annual Report on Form 10-K for the Fiscal Year Ended December 31, 2000, File No. 1-6682.) Indenture and Agreement of Lease between Hasbro Canada and Central Toy, dated November 11, 2003. (Incorporated by reference to Exhibit 10(e) to the Companys Annual Report on Form 10-K for the Fiscal Year Ended December 28, 2003, File No. 1-6682.) Toy License Agreement between Lucas Licensing Ltd. and the Company, dated as of October 14, 1997. (Portions of this agreement have been omitted pursuant to a request for confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934, as amended.)(Incorporated by reference to Exhibit 10(d) to the Companys Annual Report on Form 10-K for the Fiscal Year Ended December 27, 1998, File No. 1-6682.) First Amendment to Toy License Agreement between Lucas Licensing Ltd. and the Company, dated as of September 25, 1998. (Portions of this agreement have been omitted pursuant to a request for confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934, as amended.)(Incorporated by reference to Exhibit 10(e) to the Companys Annual Report on Form 10-K for the Fiscal Year Ended December 27, 1998, File No. 1-6682.) Seventeenth Amendment to Toy License Agreement between Lucas Licensing Ltd. and the Company, dated as of January 30, 2003. (Incorporated by reference to Exhibit 10(g) to the Companys Annual Report on Form 10-K for the Fiscal Year Ended December 29, 2002, File No. 1-6682.) Agreement of Strategic Relationship between Lucasfilm Ltd. and the Company, dated as of October 14, 1997. (Portions of this agreement have been omitted pursuant to a request for confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934, as amended.) (Incorporated by reference to Exhibit 10(f) to the Companys Annual Report on Form 10-K for the Fiscal Year Ended December 27, 1998, File No. 1-6682.) First Amendment to Agreement of Strategic Relationship between Lucasfilm Ltd. and the Company, dated as of September 25, 1998. (Incorporated by reference to Exhibit 10(g) to the Companys Annual Report on Form 10-K for the Fiscal Year ended December 27, 1998, File No. 1-6682.) Second Amendment to Agreement of Strategic Relationship between Lucasfilm Ltd. and the Company, dated as of January 30, 2003. (Incorporated by reference to Exhibit 10(j) to the Companys Annual Report on Form 10-K for the Fiscal Year Ended December 29, 2002, File No. 1-6682.) Warrant, dated October 14, 1997 between the Company and Lucas Licensing Ltd. (Incorporated by reference to Exhibit 10(h) to the Companys Annual Report on Form 10-K for the Fiscal Year ended December 27, 1998, File No. 1-6682.) Warrant, dated October 14, 1997 between the Company and Lucasfilm Ltd. (Incorporated by reference to Exhibit 10(i) to the Companys Annual Report on Form 10-K for the Fiscal Year ended December 27, 1998, File No. 1-6682.) Warrant, dated October 30, 1998 between the Company and Lucas Licensing Ltd. (Incorporated by reference to Exhibit 10(j) to the Companys Annual Report on Form 10-K for the Fiscal Year ended December 27, 1998, File No. 1-6682.) Warrant, dated October 30, 1998 between the Company and Lucasfilm Ltd. (Incorporated by reference to Exhibit 10(k) to the Companys Annual Report on Form 10-K for the Fiscal Year ended December 27, 1998, File No. 1-6682.) 77

2005 ---------------------Basic Diluted ----------------Net earnings before cumulative effect of accounting change Effect of dilutive securities: Change in fair value of liabilities potentially settleable in common stock Interest expense on contingent convertible debentures due 2021 Adjusted net earnings Weighted average number of shares outstanding: Outstanding at beginning of year Exercise of stock options and warrants: Actual exercise of options Treasury share repurchase Assumed exercise of options and warrants Liabilities potentially settleable in common stock Contingent convertible debentures due 2021 Total Per common share: Net earnings before cumulative effect of accounting change
2004 --------------------Basic Diluted -----------------
2003 --------------------Basic Diluted -----------------

$ 212,075

----------$ 212,075 =========
(2,080) 4,263 --------214,258 =========
----------195,977 =========
(12,710) 4,263 --------187,530 =========
----------175,015 =========
-4,263 --------179,278 =========

177,315

175,479

172,805

1,713 (725) -----------178,303 =========
1,713 (725) 2,220 5,339 11,574 --------197,436 =========
1,061 ------------176,540 =========
1,061 -2,305 5,629 11,574 --------196,048 =========
943 ------------173,748 =========
943 -4,736 -11,574 --------190,058 =========

$ 1.19 =========

1.09 =========

1.11 =========

.96 =========

1.01 =========

.94 =========
EXHIBIT 12 HASBRO, INC. AND SUBSIDIARIES Computation of Ratio of Earnings to Fixed Charges Fiscal Years Ended in December (Thousands of Dollars)
2005 -------Earnings available for fixed charges: Net earnings (loss) Add: Cumulative effect of accounting change Fixed charges Taxes on income Total Fixed charges: Interest on long-term debt Other interest charges Amortization of debt expense Rental expense representative of interest factor Total Ratio of earnings to fixed charges $212,075 -42,394 98,838 -------$353,307 ======== $ 26,602 2,423 1,512 11,857 -------$ 42,394 ======== 8.33 ========
2004 -------195,977 -43,890 64,111 -------303,978 ======== 27,813 3,12,192 -------43,890 ======== 6.93 ========
2003 -------157,664 17,351 68,467 69,049 -------312,531 ======== 44,461 6,413 1,588 16,005 -------68,467 ======== 4.56 ========

The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: February 22, 2006 /s/ Alfred J. Verrecchia -------------------------------Alfred J. Verrecchia President and Chief Executive Officer
Exhibit 31.2 CERTIFICATION I, David D.R. Hargreaves, certify that: 1. 2. I have reviewed this annual report on Form 10-K of Hasbro, Inc.; Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and