
		Oct. 1,	Sept. 25,	Dec. 25,		April 1,	April 2,	Dec. 31,
Assets		2006	2005	2005		2007	2006	2006
		---------	---------	---------		---------	---------	---------
Current assets
Cash and cash equivalents	$	309,100	570,499	942,268	$	688,594	581,295	715,400
Short-term investments						15,000	147,675	-
Accounts receivable, less allowance
for doubtful accounts of $32,400,
$36,700 and $29,800		679,363	681,469	523,232
for doubtful accounts of $28,400,
$30,400 and $27,700						327,124	221,860	556,287
Inventories		312,041	330,779	179,398		265,402	213,183	203,337
Deferred income taxes		96,019	96,321	103,209		80,420	93,703	83,854
Prepaid expenses		163,716	99,386	82,088
Prepaid expenses and other current assets						171,488	122,127	159,437
		--------------	--------------	--------------		--------------	--------------	--------------
Total current assets		1,560,239	1,778,454	1,830,195		1,548,028	1,379,843	1,718,315

Property, plant and equipment, net		163,767	160,392	164,045
Property, plant and equipment, less accumulated
depreciation of $382,400, $357,200 and $379,000					depreciation of $382,400, $357,200 and $379,000	184,272	162,479	181,726
		--------------	--------------	--------------		--------------	--------------	--------------

Other assets
Goodwill		468,821	467,572	467,061		470,119	467,238	469,938
Other intangibles, less accumulated amortization					Other intangibles, less accumulated amortization
of $644,400, $568,400 and $586,000		556,919	635,166	613,433
of $676,200, $604,300 and $658,200						514,325	595,213	532,257
Other		213,031	230,056	226,409		175,387	292,006	194,669
		--------------	--------------	--------------		--------------	--------------	--------------
Total other assets		1,238,771	1,332,794	1,306,903		1,159,831	1,354,457	1,196,864
		--------------	--------------	--------------		--------------	--------------	--------------

Total assets	$	2,962,777	3,271,640	3,301,143	$	2,892,131	2,896,779	3,096,905
		========	========	========		========	========	========


			Oct. 1,		Sept. 25,		Dec. 25,			April 1,	April 2,	Dec. 31,
Liabilities and Shareholders' Equity	Liabilities and Shareholders' Equity		2006		2005		2005			2007	2006	2006
			---------		---------		---------			--------	--------	--------
Current liabilities	Current liabilities
Short-term borrowings	Short-term borrowings	$	11,596		13,854		14,676		$	7,396	10,289	10,582
Current portion of long-term debt			-		354,809		32,770
Accounts payable	Accounts payable		188,510		179,031		152,468			100,336	102,792	160,015
Accrued liabilities	Accrued liabilities		700,705		649,744		710,812			514,301	526,383	735,296
			--------------		--------------		--------------			-------------	-------------	-------------
Total current liabilities	Total current liabilities		900,811		1,197,438		910,726			622,033	639,464	905,893

Long-term debt, excluding current portion	Long-term debt, excluding current portion		494,989		246,480		495,619			494,864	494,871	494,917
Deferred liabilities			148,552		157,097		171,322
Other liabilities										242,983	139,794	158,205
			--------------		--------------		--------------			-------------	-------------	-------------
Total liabilities	Total liabilities		1,544,352		1,601,015		1,577,667			1,359,880	1,274,129	1,559,015
			--------------		--------------		--------------			-------------	-------------	-------------
Shareholders' equity	Shareholders' equity
Preference stock of $2.50 par
value. Authorized 5,000,000
shares; none issued			-		-		-
Preference stock of $2.50 par value
Authorized 5,000,000 shares; none issued										-	-	-
Common stock of $.50 par value.	Common stock of $.50 par value.
Authorized 600,000,000 shares;	Authorized 600,000,000 shares;
issued 209,694,630	issued 209,694,630		104,847		104,847		104,847			104,847	104,847	104,847
Additional paid-in capital	Additional paid-in capital		354,641		361,767		358,199			330,511	354,376	322,254
Deferred compensation			-		(38	)	(24	)
Retained earnings	Retained earnings		1,931,503		1,790,715		1,869,007			2,033,834	1,843,198	2,020,348
Accumulated other comprehensive earnings	Accumulated other comprehensive earnings		25,034		28,775		15,348			19,350	14,021	11,186
Treasury stock, at cost; 51,473,218 shares at
Oct. 1, 2006, 31,169,414 at Sept. 25, 2005
and 31,744,960 at December 25, 2005			(997,600	)	(615,441	)	(623,901	)
Treasury stock, at cost; 49,716,463 shares at
April 1, 2007, 35,464,112 at April 2, 2006									April 1, 2007, 35,464,112 at April 2, 2006
and 49,074,215 at December 31, 2006									and 49,074,215 at December 31, 2006	(956,291)	(693,792)	(920,745)
										-------------	-------------	-------------
Total shareholders' equity										1,532,251	1,622,650	1,537,890
			--------------		--------------		--------------			-------------	-------------	-------------
	Total shareholders' equity		1,418,425		1,670,625		1,723,476
Total liabilities and shareholders' equity									$	2,892,131	2,896,779	3,096,905
			--------------		--------------		--------------			========	========	========

	Total liabilities and shareholders' equity	$	2,962,777		3,271,640		3,301,143
			========		========		========

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


	Quarter					Nine Months					Quarter Ended
	-----------------------------------					------------------------------------					-------------------------------------------
	Thirteen			Thirteen		Forty		Thirty-Nine			Thirteen	Fourteen
	Weeks Ended			Weeks Ended		Weeks Ended		Weeks Ended			Weeks Ended	Weeks Ended
	Oct. 1, 2006			Sept. 25, 2005		Oct. 1, 2006		Sept. 25, 2005			April 1, 2007	April 2, 2006
	-------------------			------------------		-------------------		-------------------			----------------	----------------
Net revenues	$	1,039,138		988,052		2,035,083		2,015,384		Net revenues	$ 625,267	468,181
Cost of sales		461,511		444,775		857,972		835,516		Cost of sales	243,452	186,092
		------------		------------		-------------		-------------			------------	------------
Gross profit		577,627		543,277		1,177,111		1,179,868		Gross profit	381,815	282,089
		------------		------------		-------------		-------------			------------	------------
Expenses										Expenses
Amortization		20,504		28,167		57,896		79,852		Amortization	17,958	18,252
Royalties		51,350		66,539		107,540		158,206		Royalties	50,260	25,990
Research and product development		44,445		39,387		122,215		106,942		Research and product development	35,310	38,164
Advertising		126,829		118,845		242,149		238,009		Advertising	67,635	54,854
Selling, distribution and administration		169,302		162,061		463,641		439,921		Selling, distribution and administration	156,925	146,955
		------------		------------		-------------		-------------			------------	------------
Total expenses		412,430		414,999		993,441		1,022,930
		------------		------------		-------------		-------------		Total expenses	328,088	284,215
Operating profit		165,197		128,278		183,670		156,938
											------------	------------
Operating profit (loss)										Operating profit (loss)	53,727	(2,126)
		------------		------------		-------------		-------------			------------	------------
Nonoperating (income) expense										Nonoperating (income) expense
Interest expense		6,158		7,816		20,096		23,196		Interest expense	6,184	7,126
Interest income		(4,316	)	(5,226	)	(17,893	)	(19,639	)	Interest income	(8,939)	(7,334)
Other expense (income), net		19,479		(638	)	10,542		(2,410	)
Other expense, net										Other expense, net	6,882	3,535
		------------		------------		-------------		-------------			------------	------------
Total nonoperating expense		21,321		1,952		12,745		1,147
		------------		------------		-------------		-------------		Total nonoperating expense	4,127	3,327
Earnings before income taxes		143,876		126,326		170,925		155,791
											------------	------------
Earnings (loss) before income taxes										Earnings (loss) before income taxes	49,600	(5,453)

Income taxes		44,292		34,263		49,152		37,987		Income taxes	16,710	(554)
		------------		------------		-------------		-------------			------------	------------
Net earnings	$	99,584		92,063		121,773		117,804
Net earnings (loss)										Net earnings (loss)	$ 32,890	(4,899)
		=======		=======		=======		=======			=======	=======

Net earnings per common share
Basic	$	.62		.51		.72		.66
Net earnings (loss) per common share										Net earnings (loss) per common share
		=======		=======		=======		=======		Basic	$ .20	(.03)
Diluted	$	.58		.47		.68		.61
		=======		=======		=======		=======			=======	=======
Cash dividends declared per
common share	$	.12		.09		.36		.27
		=======		=======		=======		=======		Diluted	$ .19	(.03)
											=======	=======
Cash dividends declared per common share										Cash dividends declared per common share	$ .16	.12
											=======	=======

See accompanying condensed notes to consolidated financial statements.										See accompanying condensed notes to consolidated financial statements.

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

(1) In the opinion of management, the accompanying unaudited interim financial statements contain all ~~adjustments (consisting of only~~ normal and recurring ~~accruals)~~adjustments necessary to present fairly the financial position of the Company as of ~~October~~April 1, ~~2006~~2007 and ~~September 25, 2005,~~April 2, 2006, and the results of its operations and cash flows for the periods then ended in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP"). The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and notes thereto. Actual results could differ from those estimates.

The ~~nine months~~quarter ended ~~October~~April 1, ~~2006 was~~2007 is a ~~forty~~thirteen week period while the ~~nine months~~quarter ended ~~September 25, 2005 was~~April 2, 2006 is a ~~thirty-nine~~fourteen week period. ~~The quarters ended October 1, 2006 and September 25, 2005 were both thirteen week periods.~~

The results of operations for the quarter ended ~~October~~April 1, ~~2006~~2007 are not necessarily indicative of results to be expected for the full year.

These condensed consolidated financial statements have been prepared without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and disclosures normally included in the financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. The Company filed audited financial statements for the year ended December ~~25, 2005~~31, 2006 in its annual report on Form 10-K, which includes all such information and disclosures, and accordingly, should be read in conjunction with the financial information included herein.

The Company's accounting policies are the same as those described in Note 1 to the Company's consolidated financial statements for the fiscal year ended December ~~25, 2005~~31, 2006 with the exception of the accounting for ~~stock-based compensation.~~uncertain tax positions and accounting for pension and postretirement plans. Effective ~~December 26, 2005,~~January 1, 2007, the first day of fiscal ~~2006,~~2007, the Company adopted Financial Accounting Standards Board ("FASB") Interpretation No. 48, "Accounting for Uncertainty in Income Taxes" ("FIN 48"), which applies to all tax positions accounted for under Statement of Financial Accounting ~~Standards~~Standard No. 123 (revised 2004), "Share-Based Payment" ("SFAS 123R"), which amends Statement of Financial Accounting Standards No. 123, as amended by No. 148, and Statement of Financial Accounting Standards No. 95, "Statement of Cash Flows"109, "Accounting for Income Taxes". The Company adopted SFAS 123R under the modified prospective basis as defined in the statement. In 2006 the Company is recording stock option expense based on all unvested stock options as of the adoption date as well as all stock-based compensation awards granted subsequent to the adoption date. See footnote 46 for further information related to the adoption of this statement. In addition, effective January 1, 2007, the Company changed the measurement date of certain of its defined benefit pension plans and other postretirement plan from September 30 to its fiscal year- end date, pursuant to the requirements of Statement of Financial Accounting Standards No. 158, "Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans". See footnote 5 for further information related to the change in measurement dates.

Certain amounts in the 2006 consolidated financial statements have been reclassified to conform to the 2007 presentation.

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

(2) ~~Earnings~~Net earnings (loss) per share data for the fiscal quarters ended April 1, 2007 and ~~nine months ended October 1,~~April 2, 2006 ~~and September 25, 2005~~ were computed as follows:

~~HASBRO, INC. AND SUBSIDIARIES~~
~~Condensed Notes to Consolidated Financial Statements (continued)~~
~~(Thousands of Dollars and Shares Except Per Share Data)~~
~~(Unaudited)~~

Certain warrants containing a put feature that may be settled in cash or common stock are required to be accounted for as a liability at fair value. The Company is required to assess if these warrants, classified as a liability, have a more dilutive impact on earnings per share when treated as an equity contract. For the quarter ~~and nine months~~ ended ~~October~~April 1, ~~2006,~~2007, the warrants had a more dilutive impact on earnings per share assuming they were treated as a liability. Accordingly, the shares issuable under this contract are not included in the denominator and there is no adjustment to net earnings to exclude the expense included therein related to the fair ~~market~~ value adjustment. ~~For~~Since the ~~quarters and nine months ended September 25, 2005, the warrants~~Company had a ~~more dilutive impact on~~net loss in the first quarter of 2006, these warrants were not included in the calculation of diluted earnings per share ~~assuming~~because to include them would have been antidilutive. Had these warrants been included in 2007 and 2006, they ~~were treated as~~would have resulted in an ~~equity contract. Accordingly, for~~additional 4,564 and 5,277 shares, respectively, being included in the diluted earnings ~~pe r~~per share calculation ~~for these periods, the numerator includes an~~with a corresponding adjustment to ~~earnings~~add back the related expense of $7,920 and $3,330, respectively, to ~~exclude the income included therein related~~reported net earnings.

HASBRO, INC. AND SUBSIDIARIES
Condensed Notes to ~~the fair market value adjustment~~Consolidated Financial Statements (continued)

(Thousands of Dollars and ~~the denominator includes an adjustment to include the shares issuable under contract.~~Shares Except Per Share Data)
(Unaudited)

For the quarter ~~and nine months~~ ended ~~October~~April 1, ~~2006 and September 25, 2005,~~2007, the effect of the Company's contingent convertible debt was dilutive and, accordingly, for the diluted earnings per share calculation, the numerator includes an adjustment to earnings to exclude the interest expense incurred for these debentures and the denominator includes an adjustment to include the shares issuable upon conversion.

~~HASBRO, INC. AND SUBSIDIARIES~~
~~Condensed Notes~~ Since the Company had a net loss in the first quarter of 2006, the effect of the Company's contingent convertible debt would have been antidilutive for the first quarter of 2006. Had the Company not had a net loss in this period, 11,574 shares would have been included in dilutive shares and interest expense, net of tax, of $1,066 would have been added back to ~~Consolidated Financial Statements (continued)~~

~~(Thousands of Dollars and Shares Except Per Share Data)~~
~~(Unaudited)~~net earnings to calculate diluted earnings per share.

Options ~~and warrants~~ to acquire shares totaling ~~7,733~~1,683 at ~~October~~April 1, ~~2006~~2007 and ~~2,929~~21,263 at ~~September 25, 2005,~~April 2, 2006, were excluded from the calculation of diluted earnings per share because to include them would have been antidilutive. Of the options and warrants to acquire shares totaling 21,263 at April 2, 2006, 18,342 would have been included in the calculation of diluted earnings per share had the Company not had a net loss in the first quarter of 2006. Assuming that these options and warrants were included, under the treasury stock method, they would have resulted in an additional 2,167 shares being included in the diluted earnings per share calculation for the quarter ended April 2, 2006.

(3) ~~During~~At April 1, 2007 and April 2, 2006, the Company ~~has~~had invested $15,000 and $147,675, respectively, in auction rate securities, which ~~were~~are recorded as short-term investments on the consolidated balance sheet. These securities ~~were~~are being accounted for as an available-for-sale security and ~~were~~are reflected at par value, which ~~approximated~~approximates fair value. At October 1, 2006, there were no investments in auction rate securities. For the nine months ended October 1, 2006, the Company had purchased $941,120 of these securities, all of which were sold during the period.

(4) ~~Hasbro has reserved 23,464 shares of its common stock~~Other comprehensive earnings (loss) for ~~issuance upon exercise of options~~the quarters ended April 1, 2007 and ~~the grant of other awards granted or to be granted under stock incentive plans for employees and for non-employee members~~April 2, 2006 consist of the Board of Directors (collectively, the "plans"). These options generally vest in equal annual amounts over three to five years. The plans provide that options be granted at exercise prices not less than fair market value on the date the option is granted and options are adjusted for such changes as stock splits and stock dividends. Generally, options are exercisable for periods of no more than ten years after date of grant. Certain of the plans permit the granting of awards in the form of stock options, stock appreciation rights, stock awards and cash awards in addition to options. Upon exercise in the case of stock options, grant in the case of restricted stock or vesting in the case of performance based contingent stock grants, shares are issued out of available treasury shares. Additionally, the Company has reserved 17,450 shares of its common stock for issuance upon exercise of outstanding warrants.following:

~~The Company on occasion will issue restricted stock and grant deferred restricted stock units to certain key employees.~~ In the first quarter of 2007, in accordance with SFAS No. 158, the Company changed its measurement date for certain of its defined benefit pension plans and its postretirement plan from September 30 to the Company's fiscal year-end date. As a result of this change, the assets and liabilities of these plans were remeasured as of December 31, 2006, the ~~Company issued restricted stock~~2006 fiscal year end date of ~~20 shares. These shares or units are nontransferable and subject to forfeiture for periods prescribed by~~ the Company. ~~These awards are valued at~~This remeasurement resulted in an adjustment to accumulated other comprehensive earnings of $7,779 during the market value at the date of grant and are subsequently amortized over the periods during which the restrictions lapse, generally 3 years. Amortization of unearned compensation expense relating to the outstanding restricted stock and deferred restricted stock was $35 and $14 in the quarters ended October 1, 2006 and September 25, 2005, respectively, and $123 and $60 for the nine months ended October 1, 2006 and September 25, 2005, respectively. At October 1, 2006, the amount of total unrecognized compensation cost related to restricted stock is $329 and the weighted ave rage period over which this will be expensed is 27.5 months.

In July 2006, as part of its annual equity grant to executive officers and certain other employees, the Company's Board of Directors approved the issuance of contingent stock performance awards (the "Stock Performance Awards"), which provide the recipients with the ability to earn shares of the Company's Common Stock based on the Company's achievement of stated cumulative diluted earnings per share and cumulative net revenue targets over a ten quarter period beginning July 3, 2006 and ending December 28, 2008. Each Stock Performance Award has a target number of shares of Common Stock associated with such award which may be earned by the recipient if the Company achieves the stated diluted earnings per share and revenue targets. If the Company achieves 100% of the stated targets, it would expect to issue 752 shares under these awards.

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

~~During the third~~first quarter of 2006, the Company recognized $1,016 of expense relating to these awards. If minimum targets, as detailed under the award, are not met, no additional compensation cost will be recognized and any previously recognized compensation cost will be reversed. These awards were valued at the market value at the date of grant and are being amortized over the 10 quarter period from July 3, 2006 through December 28, 2008. The weighted average grant-date fair value of each Stock Performance Awards was $18.90. There have been no forfeitures of these awards at October 1, 2006. At October 1, 2006, the amount of total unrecognized compensation cost related to these awards is approximately $12,813 and the weighted average period over which this will be expensed is 27 months.2007.

Prior to fiscal 2006, Hasbro used the intrinsic-value method of accounting for stock options granted to employees and non-employee members of the Board of Directors. Effective December 26, 2005, the first day of fiscal 2006, the Company adopted SFAS 123R under the modified prospective transition method as defined in the statement. Under this adoption method, the Company is recording stock option expense in 2006 based on all unvested stock options as of the adoption date and any stock option awards made subsequent to the adoption date. Stock-based compensation is recognized on a straight-line basis over the requisite service period of the award. In accordance with the modified prospective transition method, the Company's consolidated financial statements for prior years have not been restated to reflect, and do not include, the impact of SFAS 123R.

Total compensation expense related to stock options and the stock performance awards recognized under SFAS 123R for the quarter and nine months ended October 1, 2006 was $5,702 and $15,676, respectively, and was recorded as follows:

Pro forma information for the third quarter and nine months ended September 25, 2005 regarding net earnings as required by SFAS No. 123, “Accounting for Stock-Based Compensation” determined as if the Company had accounted for its stock options under the fair value method is as follows:

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

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

~~Information with respect to stock options for the nine months ended October 1, 2006 is as follows:~~

The Company uses the Black-Scholes valuation model in determining fair value of stock-based awards. The weighted average fair value of options granted in 2006 and the fiscal year 2005 were $4.26 and $5.41, respectively. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions used for grants in the nine months ended October 1, 2006 and the fiscal year 2005, respectively:

The intrinsic value, which represents the difference between the fair market value on the date of exercise and the exercise price of the option, of the 1,419 options exercised during the nine months ended October 1, 2006 was $7,996.

In addition to the above, the Company currently has 17,450 warrants outstanding and exercisable at October 1, 2006, which have a weighted average exercise price, weighted average remaining life and intrinsic value at October 1, 2006 of $20.11, 11.71 years, and $49,599, respectively.

~~At October 1, 2006, the amount of total unrecognized compensation cost related to stock options is $25,048 and the weighted average period over which this will be expensed is 23.3 months.~~

~~HASBRO, INC. AND SUBSIDIARIES~~
~~Condensed Notes to Consolidated Financial Statements (continued)~~
~~(Thousands of Dollars and Shares Except Per Share Data)~~
~~(Unaudited)~~

In May 2006, the Company granted 52 shares of common stock to its non-employee members of its Board of Directors, of which the receipt of 43 shares have been deferred to the date upon which the respective director ceases to be a member of the Company's Board of Directors. This award was valued at the market value at the date of grant and vested upon grant. Compensation cost of $990 was recorded in connection with this grant.

~~(5)~~ ~~Other~~reclassification adjustment from other comprehensive earnings ~~(loss)~~to net income of $(80) for the quarter ~~and nine months~~ ended ~~October~~April 1, ~~2006 and September 25, 2005 consist~~2007 includes a realized gain of $(664) on the ~~following:~~

~~Reclassification~~sale of available-for-sale securities. The remaining amount of reclassification adjustments from other comprehensive earnings to net ~~earnings~~income of $2,898 for the nine months ended October 1, 2006 includes an impairment charge of $2,629 relating to an other than temporary decrease in the value of the Company's investment in Infogrames SA common stock. The reclassification adjustments$584 for the quarter ended April 1, 2007 and ~~the remainder of~~ the reclassification adjustments ~~for the nine months ended October 1, 2006 as well as the reclassification adjustments~~from other comprehensive loss for the quarter ~~and nine months~~ ended ~~September 25, 2005~~April 2, 2006 of $(316) represent net (gains) losses on cash flow hedging derivatives for which the related transaction has impacted earnings and was reflected in cost of sales. ~~The~~These losses on cash flow hedging derivatives for ~~the quarter and nine months ended October 1, 2006~~2007 include losses on cash flows reclassified to earnings as the result of hedge ineffectiveness of ~~$14 and $11. The losses on cash flow hedging derivatives for the quarter and nine months ended September 25, 2005 include gains on cash flows reclassified~~$13. There were no reclassifications to earnings as ~~the~~a result of hedge ineffectiveness in the first quarter of ~~$(462) and $(516), respectively.~~2006. The Company expects ~~substantially all of~~ the remaining deferred ~~loss, net of tax,~~gains on derivative hedging instruments at ~~October~~April 1, ~~2006~~2007 of ~~$455~~$2,316 in accumulated other comprehensive earnings to be reclassified to earnings within the next twelve months.

~~HASBRO, INC. AND SUBSIDIARIES~~
~~Condensed Notes to Consolidated Financial Statements (continued)~~
~~(Thousands of Dollars and Shares Except Per Share Data)~~
~~(Unaudited)~~

~~(6)~~(5) The following table presents the components of the net periodic cost of the Company's defined benefit pension and other postretirement plans for the quarters ended April 1, 2007 and ~~nine months ended October 1, 2006 and September 25, 2005 are as follows:~~April 2, 2006.

	Quarter Ended
	--------------------

	Pension				Postretirement
	------------------				------------------		Pension		Postretirement
	Oct. 1, 2006		Sept. 25, 2005		Oct. 1, 2006	Sept. 25, 2005	2007	2006	2007	2006
	-------		-------		-------	-------	-------	-------	-------	-------
Service cost	$ 3,242		2,971		166	144	$ 3,210	3,481	149	180
Interest cost	4,686		4,545		503	500	5,054	5,038	526	542
Expected return on assets	(5,372	)	(4,690	)	-		(6,705)	(5,774)	-	-
Net amortization and deferrals	1,172		886		113	88	656	1,259	91	122
	--------		--------		--------		--------	--------	--------	--------
Net periodic benefit cost	$ 3,728		3,712		782	732	$ 2,215	4,004	766	844
	=====		=====		=====		=====	=====	=====	=====

In accordance with SFAS No. 158, effective January 1, 2007, the Company elected to change the measurement date of certain of its defined benefit plans and the Company's other postretirement plan from September 30 to the Company fiscal year-end date, which is December 30 for 2007. This change was required by SFAS No. 158 to be made no later than the end of the Company's 2008 fiscal year with early adoption permitted. As a result of this election, the assets and liabilities of these plans were remeasured as of December 31, 2006. The remeasurement of the assets and liabilities resulted in an increase in the projected benefit of $536 and an increase in fair value of plan assets of $10,872. The impact of this accounting change was a reduction of retained earnings of $2,143, an increase to accumulated other comprehensive earnings of $7,779, a decrease in long-term accrued pension expense of $3,619, an increase in prepaid pension expense of $5,482, and a decrease in long-term deferred tax assets of $3,465.

~~During~~In the ~~nine months ended October 1, 2006~~first quarter of 2007, the Company ~~has~~ made cash contributions to its pension plans of approximately ~~$38,600.~~$1,600, which are included in other operating activities on the Company's consolidated statement of cash flows. The Company expects to contribute approximately ~~$1,400~~$5,500 during the ~~fourth quarter~~remainder of ~~fiscal 2006.~~2007.

(6)On January 1, 2007, the Company adopted Financial Accounting Standards Board ("FASB") Interpretation No. 48 ("FIN 48"), which applies to all tax positions accounted for under Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes". FIN 48 prescribes a two step process for the measurement of uncertain tax positions that have been taken or are expected to be taken in a tax return. The first step is a determination of whether the tax position should be recognized in the financial statements. The second step determines the measurement of the tax position. FIN 48 also provides guidance on derecognition of such tax positions, classification, potential interest and penalties, accounting in interim periods and disclosure. The adoption of FIN 48 resulted in a $88,798 decrease in current liabilities, a $85,773 increase in long-term liabilities, a $5,333 increase to the lo ng-term deferred tax assets and a $8,358 increase to retained earnings.

At the date of adoption, the amount of unrecognized tax benefits, including potential accrued interest and penalties, amounted to $85,773. Substantially all of these amounts, if recognized, would decrease the effective tax rate in the period in which each of the benefits are recognized. There have been no material changes in the amount of unrecognized tax benefits during the first quarter of 2007. During the first quarter of 2007, the Company recognized $962 of potential interest and penalties, which are included as a component of income tax in the accompanying statement of operations.

The Company and its subsidiaries file income tax returns in the United States and various state and international jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal, state or local or non-U.S. income tax examinations by tax authorities in its major jurisdictions for years before 2002. In the normal course of business, the Company is regularly audited by U.S. federal, state and local and international tax authorities in various tax jurisdictions. The ultimate resolution of these matters, including those that may be resolved within the next twelve months, is not yet determinable.

(7) Hasbro is a worldwide leader in children’s and family leisure time and entertainment products and services, including the development, manufacture and marketing of games and toys ranging from traditional to high-tech. ~~In 2006 the~~The Company ~~restructured its business by combining the U.S. Toys~~has three principal segments, North America, International and Games operations, previously reported as separate segments, with the Canadian and Mexican operations, previously managed as part of the International segment, into one segment, the North American segment. The International segment is now comprised of operations in the European, Asia Pacific and Latin American regions. The Company's manufacturing facilities in East Longmeadow, Massachusetts and Waterford, Ireland, which were previously included in the Games and International segment, respectively, along with the Company's Far East sourcing operations, are now managed as part of the Global ~~Operations segm ent.~~Operations.

The North American segment includes the development, marketing and selling of boys' action figures, vehicles and playsets, girls' toys, electronic toys and games, plush products, preschool toys and infant products, electronic interactive products, tween electronic products, toy-related specialty products, traditional board games and puzzles, DVD- based games, ~~fiction books,~~ and trading card and role-playing games within the United States, Canada and Mexico. Within the International segment, the Company develops, markets and sells both toy and certain game products in non-North American markets, primarily the European, Asia Pacific, and Latin American regions. The Global Operations segment is responsible for manufacturing and sourcing finished product for the majority of the Company's segments. The Company also has ~~another segment~~other segments that ~~licenses~~primarily license out certain toy and game properties.

Segment performance is measured at the operating profit level. Included in Corporate and eliminations are certain corporate expenses, the elimination of intersegment transactions and certain assets benefiting more than one segment. Intersegment sales and transfers are reflected in management reports at amounts approximating cost. Certain shared costs are allocated to segments based upon foreign exchange rates fixed at the beginning of the year, with adjustment to actual foreign exchange rates included in Corporate and eliminations.

2005 segment data has been restated to reflect the 2006 segment structure. In 2006 the Company adopted SFAS 123R, which requires the Company to record expense related to stock options in its consolidated financial statements. Consistent with management's approach in evaluating segment results, 2005 segment operating profit (loss) has been adjusted to include stock-based compensation as disclosed under SFAS 123. The ~~amount of 2005 stock option expense is subtracted from the total segment operating profit (loss) in order to reconcile to the operating profit (loss) in the consolidated financial statements.~~

~~With the exception of the treatment of stock-based compensation expense for 2005 management financial statements, the~~ accounting policies of the segments are the same as those referenced in Note 1.

Results shown for the quarter ~~and nine months~~ are not necessarily representative of those which may be expected for the full year ~~2006~~2007 nor were those of the ~~comparable 2005 periods~~2006 first quarter representative of those actually experienced for the full year ~~2005.~~2006. Similarly, such results are not necessarily those which would be achieved were each segment an unaffiliated business enterprise.

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

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

Information by segment ~~and a reconciliation to reported amounts~~ for the ~~quarter~~quarters ended April 1, 2007 and ~~nine months ended October 1,~~April 2, 2006 ~~and September 25, 2005 are~~is as ~~follows.~~follows:

	Quarter Ended
	------------------							Quarter Ended		Quarter Ended
	October 1, 2006				September 25, 2005			April 1, 2007		April 2, 2006
	----------------------				---------------------------			----------------------		----------------------
		External	Affiliate		External	Affiliate		External	Affiliate	External	Affiliate
Net revenues		-----------	----------		-----------	---------		------------	-----------	-----------	-----------
North America	$	745,476	2,651		712,321	2,368		$421,084	2,076	310,304	2,253
International		280,421	27		264,627	-		187,676	199	145,491	111
Global Operations (a)		3,776	489,566		2,354	485,388		1,342	268,155	1,936	189,476
Other segment		9,465	-		8,750	-
Other segments								15,165	-	10,450	-
Corporate and eliminations		-	(492,244	)	-	(487,756	)	-	(270,430)	-	(191,840)
		------------			------------	------------		------------	------------	------------	------------
	$	1,039,138	-		988,052	-		$625,267	-	468,181	-
		=======			=======	=======		=======	=======	=======	=======

~~HASBRO, INC. AND SUBSIDIARIES~~
~~Condensed Notes to Consolidated Financial Statements (continued)~~
~~(Thousands of Dollars and Shares Except Per Share Data)~~
~~(Unaudited)~~

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

(a) The Global Operations segment derives substantially all of its revenues, and thus its operating results from intersegment activities.

(b) Certain intangible assets, primarily goodwill, which benefit operating segments are reflected as Corporate assets for segment reporting purposes. These amounts have been allocated to the reporting unit which benefits from their use. In addition, allocations of certain expenses related to these assets to the individual operating segments are done prior to the start of the year based on budgeted amounts. Any ~~differences~~difference between actual and budgeted amounts are reflected in the Corporate segment.

(c) As noted in footnote 4, on December 26, 2005, the first day of fiscal 2006, the Company adopted SFAS 123R using the modified prospective method. Under this method, the Company recorded expense related to stock option compensation in 2006 related to unvested options as of that date as well as grants made in 2006. The Company did not restate any of the prior years but has adjusted the operating profit (loss) of each of its segments for the quarter and nine months ended September 25, 2005 to reflect compensation for those periods based on the Company's 2005 pro forma disclosure under SFAS 123. As such, the above amount represents the removal of the amount included in the segment disclosures to reconcile to the 2005 reported consolidated operating profit for the quarter and nine months ended September 25, 2005. The $6,162 of 2005 pro forma stock option expense for the quarter was allocated as follows: $4,1 22 to North America, $1,151 to International, $475 to Global Operations and $414 to Other Segment. The $16,978 of 2005 pro forma stock option expense for the nine months was allocated as follows: $11,358 to North America, $3,174 to International, $1,307 to Global Operations and $1,139 to Other Segment.

The following table presents consolidated net revenues by class of principal products for the quarters ended April 1, 2007 and ~~nine month periods ended October 1, 2006 and September 25, 2005. Certain 2005 amounts have been reclassified to conform to the current year presentation.~~ April 2, 2006.

Management's Discussion and Analysis of Financial ~~Statements (continued)~~

~~(8)~~In July 2006, the Company's Board of Directors authorized the repurchase of an additional $350,000 in common stock. The Board of Directors had previously authorized the repurchase of $350,000 of common stock in May of 2005, which was exhausted in July 2006. At October 1, 2006, the aggregate cost of repurchases under the July 2006 authorization, including commissions, totaled $114,756. Purchases of the Company's common stock under this authorization may be made from time to time, subject to market conditions and may be made in the open market or through privately negotiated transactions. The Company has no obligation to repurchase shares under the authorization and the timing, actual number, and value of shares which are repurchased will depend on a number of factors, including the price of the Company's common stock.

~~(9)~~In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes" ("FIN 48"), which applies to all tax positions accounted for under Statement of Financial Accounting Standard No. 109, "Accounting for Income Taxes". FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition of such tax positions, classification, interest and penalties, accounting in interim periods and disclosure. FIN 48 is applicable to the Company as of January 1, 2007, the first day of fiscal 2007. The Company is in the process of evaluating FIN 48 and the potential effect it will have on its financial position and results of operations .

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 158, "Employer's Accounting for Defined Benefit Pension and Other Postretirement Plans", ("SFAS No. 158") which amends Statements of Financial Accounting Standards No. 87, 88, 106 and 132R. Under SFAS No. 158, the Company is required to recognize on its balance sheet actuarial gains and losses and prior service costs that have not yet been included in income as an adjustment of equity through other comprehensive income with a corresponding adjustment to prepaid pension expense or the accrued pension liability. In addition, within two years of adoption, the measurement date for plan assets and liabilities would be required to be the Company's fiscal year end. SFAS No. 158 is effective for the Company in the fourth quarter of 2006. The Company is currently evaluating SFAS No. 158 and the potential effect it will have on its consolidated balance sheet or statement of comprehensive earnings.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, "Fair Value Measurements", ("SFAS No. 157") which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. SFAS No. 157 is applicable for the Company as of December 31, 2007, the first day of fiscal 2008. The Company is currently evaluating SFAS No. 157 and the potential effect it will have on its consolidated balance sheet and results of operations.

~~ITEM 2. Management's Discussion and Analysis of Financial Condition~~
~~and Results of Operations~~

~~HASBRO, INC. AND SUBSIDIARIES~~
~~Management's Discussion and Analysis of Financial~~
~~Condition and Results of Operations~~

The Company earns revenue and generates cash through the sale of a variety of toy and game products. The Company sells these products both within the United States and in a number of international markets. The Company's business is highly seasonal with a significant amount of revenues occurring in the second half of the year and, within that half, the fourth quarter. In 2006, 68% of the Company's net revenues were generated in the second half of the year with 35% of annual net revenues generated in the fourth quarter. In both 2005 and 2004, percentages were comparable at 67% and 35% for the second half and fourth quarter, respectively. While many of the Company's products are based on brands the Company owns or controls, the Company also offers products which are licensed from outside inventors. In addition, the Company licenses rights to produce products based on movie, television, music and other family entertainment properties, ~~such~~suc h as MARVEL and STAR WARS.

In January 2006 the Company announced that it had simplified and integrated its operating segment structure in order to better focus on consumer demands, better anticipate the needs of its retail customers, provide a more integrated toy and game marketing plan, place a greater company-wide focus on its core brands and thereby improve its overall business. The Company’s North American toy and games business is ~~now~~ managed under common leadership, providing a combined focus on developing, marketing, and selling products in the U.S., Canada and Mexico. The International segment consists of the Company’s European, Asia Pacific and Latin American marketing operations. The Company’s world-wide manufacturing and product sourcing operations are managed through its Global Operations segment. The Hasbro ~~Properties~~Products Group continues to be responsible for the world-wide licensing of the Company's ~~in tellectual~~intellectual properties and works closely with the North American and International segments on the development and ~~out-licensing~~outlicensing of the Company's brands.

The Company’s focus remains on growing core owned and controlled brands, developing new and innovative products which respond to market insights, and optimizing efficiencies within the Company to reduce costs, increase operating profits and strengthen its balance sheet. While the Company believes it has ~~sought to achieve~~achieved a more sustainable revenue base by developing and maintaining its core brands, ~~and avoiding reliance on licensed entertainment properties,~~ it continues to opportunistically enter into or leverage existing strategic licenses which complement its brands and leverage its key strengths. In 2007, the Company expects significant sales of products related to the Company's license with Marvel Entertainment, Inc. and Marvel Characters, Inc. (collectively "Marvel"), primarily due to the expected theatrical release of SPIDERMAN-3 in May of 2007. Given the strength of its core brands, the Company may also seek to drive product-related revenues by increasing the visibility of i ts core brands through entertainment-based vehicles. As an example of this, in July of 2007, the TRANSFORMERS motion picture is expected to be released and the Company has developed products based on the motion picture that will be marketed in 2007.

The Company's core brands represent Company-owned or Company–controlled brands, such as G.I. JOE, TRANSFORMERS, MY LITTLE PONY, MONOPOLY, MAGIC: THE GATHERING, PLAYSKOOL and TONKA, which have been successful for the Company over the long term. The Company has a large portfolio of owned and controlled brands, which can be introduced in new formats and platforms over time. These brands may also be further extended by pairing a licensed concept with a core brand. By focusing on core brands, the Company is working to build a more consistent revenue stream and basis for future growth. In the first quarter of 2007 and the fiscal year 2006, the Company had strong sales of core brand products, including PLAYSKOOL, LITTLEST PET SHOP, MONOPOLY, NERF, and PLAY-DOH.

In addition to its focus on core brands, the Company’s strategy also involves trying to meet ever-changing consumer preferences by identifying and offering innovative products based on market opportunities and insights. The Company believes its strategy of focusing on the development of its core brands and continuing to identify innovative new products will help to prevent the Company from being dependent on the success of any one product line.

With the theatrical release of Lucasfilm's STAR WARS EPISODE III: REVENGE OF THE SITH in May 2005, and the subsequent holiday season DVD release, sales of product related to the Company’s strategic STAR WARS license were a significant contributor to 2005 revenues and have continued to be strong in the first three quarters of 2006. Pairing this key licensed property with the Company's ability to design and produce action figures, role playing toys, and games, as well as its ability to launch an integrated marketing campaign to promote the product globally, was the key to this line's success. While sales of product related to this license performed well in the first three quarters of 2006, they were lower than the first three quarters of 2005 and are expected to be lower for the full year 2006 than 2005 since there is no movie release in 2006.

While the Company's strategy has continued to focus on growing its core brands and developing innovative, new products, it will continue to evaluate and enter into arrangements to license properties when the Company believes it is economically attractive. In ~~the first quarter of~~ 2006, the Company ~~announced that it had~~ entered into a license with Marvel ~~Entertainment, Inc. and Marvel Characters, Inc. (collectively "Marvel")~~ to produce toys and games based on Marvel’s portfolio of characters. The Company had significant sales of products related to this license in the first quarter of 2007 primarily due to the expected theatrical release of SPIDER-MAN 3 in May of 2007. The Company will also incur royalties on products based on the theatrical release of TRANSFORMERS in July 2007. While gross profits of theatrical entertainment-based products are generally higher than many of the Company's other products, sales from these products also incur royalty expenses payable to the licensor. Such royalties reduce the impact of these higher gross ~~margins.~~mar gins. In certain instances, such as with Lucasfilm's STAR WARS, the Company may also incur amortization expense on property right-based assets ~~a cquired~~acquired from the licensor of such properties, further impacting profit made on these products.

~~The Company's strategy~~While the Company remains committed to investing in the ~~last several years has also involved~~growth of its business, it continues to be focused on reducing fixed costs through efficiencies and ~~increasing~~profit improvement. Over the last 5 years the Company has improved its operating ~~margins.~~margin from 7.8% in 2002 to 11.9% in 2006. In the fourth quarter of 2006, as part of its ongoing cost reduction efforts, the Company determined that it would reduce its manufacturing activity in Ireland and transition the manufacture of certain products to the Company's suppliers in China. The Company ~~expects~~is also investing to ~~continuously review~~grow its ~~operations to best further this objective.~~business in emerging international markets. With a strong balance sheet and having achieved a debt to capitalization ratio of between 25-30%, the Company will also continue to evaluate strategic alliances and acquisitions which may complement its current product offerings or allow it entry into an area which is adjacent to and complementary to the toy and game business. ~~Additionally,~~The C ompany expects to leverage revenue to offset the impact of these investments and maintain 2007 operating margin levels near those in 2006.

In recent years, the Company has been seeking to return excess cash to its shareholders through share repurchase and dividends. As part of this initiative, in July 2006, the Company's Board of Directors (the ~~"Board'~~"Board") authorized the repurchase of an additional $350,000 in common ~~stock. The Board had previously authorized~~stock after a previous authorization of $350,000 ~~in May 2005 for the repurchase of common stock, which~~ was exhausted in July 2006. ~~At October 1, 2006, the aggregate amount spent on repurchases made under the July 2006 authorization, including commissions, was $1 14,756.~~ For the ~~nine months~~quarter ended ~~October~~April 1, ~~2006,~~2007, the Company ~~has~~ invested ~~$417,260~~$74,037 in the repurchase of 2,529 shares of common stock in the open market. As of April 1, 2007, approximately $122,019 remains under this authorization. In addition, in February 2007, the Company announced an increase in its May 2007 quarterly dividend to $0.16 per share. This is the fourth consecutive year that the Board of Directors has increased the dividend rate.

The ~~Company intends~~relationship between various components of the results of operations, stated as a percent of net revenues, is illustrated below for the first quarters of 2007 and 2006.

The first quarter of 2007 was a thirteen week period while the first quarter of 2006 was a fourteen week period. Net earnings for the first quarter of 2007 were $32,890 compared to ~~continue repurchasing shares subject~~a net loss for the first quarter of 2006 of $(4,899). Basic and diluted earnings per share for the first quarter of 2007 were $.20 and $.19, respectively, compared to ~~market conditions.~~a basic and diluted loss per share in the first quarter of 2006 of $(.03).

The relationship between various components of the results of operations, stated as a percent of net revenues, is illustrated below for the fiscal quarters and nine months ended October 1, 2006 and September 25, 2005.

~~RESULTS OF OPERATIONS~~
~~- -----------------------------------------~~
The nine months ended October 1, 2006 was a forty week period while the nine months ended September 25, 2005 was a thirty-nine week period. The quarters ended October 1, 2006 and September 25, 2005 were both thirteen week periods. Net earnings for the quarter and nine months ended October 1, 2006 were $99,584 and $121,773, respectively, compared with net earnings of $92,063 and $117,804 for the respective periods of 2005. Basic earnings per share for the quarter and nine months ended October 1, 2006 were $0.62 and $0.72 compared with basic earnings per share of $0.51 and $0.66 for the respective periods in 2005. Diluted earnings per share were $0.58 and $0.68 for the quarter and nine months ended October 1, 2006, compared with diluted earnings per share of $0.47 and $0.61 for the respective periods in 2005.

~~HASBRO, INC. AND SUBSIDIARIES~~
~~Management's Discussion and Analysis of Financial~~
~~Condition and Results of Operations (continued)~~

On December 26, 2005, the first day of fiscal 2006, the Company adopted Statement of Financial Accounting Standards No. 123 (revised 2004), "Share-Based Payment" ("SFAS 123R"), which required that the Company measure all stock-based compensation awards using a fair value method and record such expense in its financial statements. The Company adopted this statement using the modified prospective method. Under this adoption method, the Company is recording expense related to stock option awards that were unvested as of the date of adoption as well as all awards made after the date of adoption. The adoption of this statement resulted in total expense, net of tax, of $3,854 and $10,430 for the quarter and nine months ended October 1, 2006, respectively.

Consolidated net revenues for the quarter ended ~~October~~April 1, ~~2006~~2007 increased 5%34% to ~~$1,039,138 compared with $988,052~~$625,267 from $468,181 for the quarter ended September 25, 2005. For the nine months ended October 1, 2006, consolidated net revenues were $2,035,083 compared to $2,015,384 for the nine months ended September 25, 2005, an increase of 1%. Consolidated netApril 2, 2006. Net revenues were positively impacted by foreign currency translation in the amount of ~~$9,600 and $400 for the quarter and nine months ended October 1, 2006, respectively,~~$10,100 as the result of ~~the overall~~a weaker U.S. dollar in 2007. Operating profit for the quarter ended April 1, 2007 was $53,727 compared to an operating loss of $(2,126) for the quarter ended April 2, 2006. Operating profit for the quarter ended ~~October~~April 1, ~~2006~~2007 was ~~$165,197 compared to $128,278 in~~not materially impacted by the ~~third quarter of 2005. Operating profit for the 2006 nine-month period was $183,670 compared to an operating profit of $156,938 for the nine-month period of 2005.~~weaker U.S. dollar. Most of the Company's revenues and operating ~~earnings~~profit (loss) are derived from its two principal ~~segment s:~~segments: the North American segment and the International segment, which are discussed in detail below.

The following table presents net revenues and operating profit (loss) data for the Company's two principal segments for the first quarter of fiscal years 2007 and ~~nine months ending October~~2006.

The North American segment's net revenues for the quarter ended April 1, ~~2006 and September 25, 2005. 2005 results have been reclassified~~2007 increased 36% to ~~conform~~$421,084 as compared to the ~~Company's new operating~~same period in 2006. This increase primarily reflects shipments of MARVEL products and increased sales of core brands. The Company had a large number of MARVEL shipments during the first quarter partially due to shipment of products related to SPIDER-MAN 3, which is planned to be released in May of 2007. The increase in revenues from core brand products primarily related to increased sales of LITTLEST PET SHOP, NERF, PLAYSKOOL and DUNGEONS & DRAGONS products. Sales in the first quarter of 2007 were also positively impacted by sales of TOOTH TUNES products and BABY ALIVE dolls. The Company expects sales of MARVEL products to continue to be strong in the second quarter due to the planned theatrical release of SPIDER-MAN 3 in May.

The North American segment ~~structure. The~~ operating profit of $45,325 for ~~2005~~the quarter ended April 1, 2007 compares to an operating profit of $4,770 for ~~each of these segments have been adjusted to include~~ the ~~impact of expense~~quarter ended April 2, 2006. The increased operating profit in 2007 was primarily related to ~~stock options~~increased gross profit as ~~disclosed under SFAS 123, consistent with~~a result of the ~~Company's management reporting. See footnote 7~~increased sales in the first quarter of 2007. The increase in gross profit was partly offset by an increase in royalty expenses, principally due to the ~~consolidated financial statements for further details.~~increased sales of MARVEL products in the first quarter of 2007. In addition, operating profit was negatively impacted by increased advertising expense in the first quarter of 2007.

~~NORTH AMERICAN~~INTERNATIONAL SEGMENT
The North American segment net revenues for the quarter ended October 1, 2006 increased 5% to $745,476 from $712,321 for the quarter ended September 25, 2005. Net revenues for the nine months ended October 1, 2006 increased 2% to $1,417,736 from $1,388,956 for the nine months ended September 25, 2005. The increase for both the quarter and nine-month period was primarily due to increased sales of LITTLEST PET SHOP and PLAYSKOOL products as well as increased shipments of other core brands, such as NERF, PLAY-DOH, and MONOPOLY products. Sales for the quarter and nine-month periods were also positively impacted by the introduction of BABY ALIVE dolls and ZOOMBOX products in 2006 as well as continued strong sales of I-DOG products. These increases were partially offset by anticipated decreased shipments of STAR WARS products and, to a lesser extent, decreased sales of NOW, FURBY and LAZER TAG products. The Company had significant sales of STAR WARS products in 2005 related to the May 2005 theatrical rel ease of STAR WARS EPISODE III: REVENGE OF THE SITH and the subsequent DVD release in the fourth quarter of 2005. The Company expects revenues from the sales of STAR WARS products in 2006 to be significantly lower than 2005.

The North American segment had an operating profit of $111,581 for the quarter ended October 1, 2006 compared to $85,323 for the quarter ended September 25, 2005. For the nine months ended October 1, 2006, the North American segment had an operating profit of $146,753 compared to $115,334 for the nine months ended September 25, 2005. For the quarter ended October 1, 2006, the increase in operating profit is primarily due to increased gross profit largely resulting from the increase in revenues and, to a lesser extent, change in product mix as a result of increased sales of products with higher gross margins such as board games. Anticipated decreases in amortization and royalties in the quarter due to the decrease in sales of STAR WAR products were almost entirely offset by increases in advertising and product development. The increase in product development is primarily due to increased expenditures on dev elopment of MARVEL and PLAYSKOOL products. For the nine-month period, the increase in operating margin is primarily due to decreased royalty and amortization expenses as a result of the decrease in sales of STAR WARS products and, to a lesser extent, increased gross profit as the result of the increase in revenues. These increases were partially offset by increased product development, selling distribution and administrative expenses, and advertising expenses. The results for the nine months ended October 1, 2006 were impacted by one extra week in the nine-month period ended October 1, 2006 versus the nine-month period ended September 25, 2005. The quarters ended October 1, 2006 and September 25, 2005 were both thirteen week periods.

~~INTERNATIONAL~~
International segment net revenues increased by 6%29% to ~~$280,421~~$187,676 for the quarter ended ~~October~~April 1, ~~2006~~2007 from ~~$264,627~~$145,491 for the quarter ended ~~September 25, 2005. For the quarter ended October 1, 2006,~~April 2, 2006. International net revenues were positively impacted by currency translation of approximately ~~$9,300~~$11,500, as athe result of the weaker U.S. dollar. Absent the impact of currency translation, the increase in revenues for the quarter was primarily due to higher sales of LITTLEST PET SHOP products as well as higher sales of board games, including MONOPOLY games. Revenues for the quarter ended October 1, 2006 were also positively impacted by higher sales of core brand products, such as PLAYSKOOL, PLAY-DOH, TRANSFORMERS and MY LITTLE PONY products. These increases were partially offset by the anticipated decrease in shipments of STAR WARS products as well as decreased sales of FURBY products.

~~HASBRO, INC. AND SUBSIDIARIES~~
~~Management's Discussion and Analysis of Financial~~
~~Condition and Results of Operations (continued)~~

Net revenues for the nine months ended October 1, 2006 decreased 2% to $579,156 from $590,249 for the nine months ended September 25, 2005. For the nine months ended October 1, 2006, International segment net revenues were negatively impacted by currency translation of approximately $2,400, as the result of the stronger U.S. dollar in 2006 compared primarily to the Euro and Australian Dollar. Excluding the ~~negative~~favorable impact of foreign exchange, ~~the decrease~~International net revenues increased 21% in local currency to $176,159. The increase in local currency revenue for the quarter ~~and nine-month period~~ was primarily the result of ~~decreased sales~~shipments of ~~STAR WARS products and, to a lesser extent, decreased sales of DUEL MASTERS products. These decreases were partially offset by increased sales of LITTLEST PET SHOP and B-DAMAN~~MARVEL products as well as increased ~~shipments~~sales of ~~board games, primarily~~core brand products including LITTLEST PET SHOP, TRANSFORMERS, MY LITTLE PONY, PLAYSKOOL, MONOPOLY and PLAY-DOH. These increases were partially offset by decreased sales of B-DAMAN products.

~~The~~ International segment ~~had an~~ operating ~~profit of $43,202~~loss was $(108) for the quarter ended ~~October~~April 1, ~~2006,~~2007 compared to ~~$32,868~~a loss of $(8,323) for the quarter ended September 25, 2005. Operating profit for the nine months ended October 1, 2006 increased slightly to $26,786 from $26,234 for the nine months ended September 25, 2005. Operating profit for the quarter and nine months ended October 1, 2006April 2, 2006. Although revenues were positively impacted by ~~currency translation in~~ the ~~amount~~weaker U.S. dollar, as noted above, operating expenses were also impacted, with a resulting net negative impact to the International segment operating loss of ~~$800 and $1,800, respectively. For~~approximately $(674) for the quarter ended ~~October~~April 1, ~~2006,~~2007. Absent the ~~increase~~impact of foreign exchange rates, the decrease in operating ~~profit~~loss was primarily due to ~~decreased royalty expense as a result of the decrease in sales of STAR WARS products as well as increased~~higher gross profit resulting from the increase in ~~net revenues during~~sales in the ~~period. Absent~~first quarter of 2007 over the positive impact from currency translation, the decrease in operating profit for the nine months ended October 1, 2006 was due to decreased gross profit resulting from decreased revenues as well as a change in product mix that resulted in a lower gross margin infirst quarter of 2006. The ~~decrease~~increase in gross profit was partially offset by ~~lower~~increased royalty and ~~amortization expense as~~advertising expenses in the ~~result~~first quarter of ~~the decline in sales of STAR WARS products, decreased administration expense, and decreased advertising expense.~~2007.

The Company's gross profit margin increased to ~~55.6%~~61.1% for the quarter ended ~~October~~April 1, ~~2006~~2007 from ~~55.0%~~60.3% for the quarter ended ~~September 25, 2005 while gross margin for the nine months ended October 1, 2006 decreased to 57.8% from 58.5% in the comparable period of 2005. The~~April 2, 2006. This increase for the quarter was due to a change in product mix, due to increased sales of products with high gross margins such as board games. The decrease in gross margin for the nine months ended October 1, 2006 was due to changes in product mix primarily within our games business. The increase was also partially due to ~~the decreased~~higher sales of ~~STAR WARS~~core brand products ~~which tend to have a higher gross margin. To a lesser extent, gross margins in 2006 were negatively impacted by lower royalty income~~ in the first ~~nine months~~quarter of 2006 compared to the first nine months of 2005. The Company anticipates lower gross margins in 2006 due to the significant STAR WARS product revenues in 2005 in connection with the theatrical and DVD releases of STAR WARS EPISODE III: REVENGE OF THE SITH. However, the Company also expects that the decrease in gross margins attributable to STAR WARS product revenues will be partially offset by decreased royalty expense relating to these sales as well as decreased amortization of related product rights. 2007.

The Company aggressively monitors its levels of inventory, attempting to avoid unnecessary expenditures of cash and potential charges related to obsolescence. 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, causing a reduction in gross profit.

~~HASBRO, INC. AND SUBSIDIARIES~~
~~Management's Discussion and Analysis of Financial~~
~~Condition and Results of Operations (continued)~~

The Company's operating expenses, stated as percentages of net revenues, are illustrated below for the first quarters of fiscal years 2007 and ~~nine-month periods ended October 1, 2006 and September 25, 2005.~~2006.

	Quarter -----------		Nine Months ------------------
	2006	2005	2006	2005	2007	2006
	-----------	----------	------------	----------	-------------	------------
Amortization	2.0%	2.9%	2.8%	4.0%	2.9%	3.9%
Royalties	4.9	6.7	5.3	7.8	8.0	5.6
Research and product development	4.3	4.0	6.0	5.3	5.7	8.2
Advertising	12.2	12.0	11.9	11.8	10.8	11.7
Selling, distribution and administration	16.3	16.4	22.8	21.8	25.1	31.4

Management's Discussion and ~~nine-month period, amortization~~Analysis of Financial

Amortization expense decreased ~~in dollars and as a percentage of net revenues. Amortization expense of $20,504, or 2.0% of net revenues~~slightly to $17,958 in the ~~third~~first quarter of ~~2006, compared with $28,167, or 2.9% of net revenues~~2007 from $18,252 in the ~~third~~first quarter of 2005. For the nine months ended October 1, 2006, amortization expense was $57,896, or 2.8% of net revenues compared with $79,852, or 4.0% of net revenues for the nine months ended September 25, 2005.2006. A portion of amortization expense relates to licensing rights, primarily STAR WARS rights, and is based on expected sales of products related to those licensing rights. The decrease in amortization expense in the quarter and nine months ended October 1, 2006 relates to decreased amortization of the product rights related to STAR WARS as a result of decreased sales of STAR WARS products. The Company expects amortization expense to continue to be lower in 2006 compared to 2005 due to the anticipated decreased product revenues from STAR WARS products.

Royalty expense for the quarter ended ~~October~~April 1, ~~2006 decreased~~2007 increased to ~~$51,350,~~$50,260, or ~~4.9%~~8.0% of net revenues from ~~$66,539,~~$25,990, or ~~6.7%~~5.6% of net revenues in the ~~third~~first quarter of 2005. Royalty expense for the nine months ended October 1, 2006 decreased to $107,540, or 5.3% of net revenues from $158,206, or 7.8% of net revenues for the nine months ended September 25, 2005. The decrease2006. This increase is primarily ~~due to decreased~~the result of increased sales of entertainment-based products, ~~primarily~~including royalty expense related to ~~STAR WARS. As noted above, the~~MARVEL products. The Company expects ~~a lower level~~significant sales of ~~royalties~~MARVEL products in ~~2006 compared~~2007, primarily due to ~~2005~~the expected theatrical release of SPIDER-MAN 3 in May 2007, and as a result ~~of an anticipated decrease~~expects higher royalty expense in ~~sales of STAR WARS products.~~2007.

~~Investment in research and product development is an important component of the Company's strategy to grow core brands and to create new and innovative toy and game products.~~ Research and product development expenses for the quarter ended ~~October~~April 1, ~~2006 increased~~2007 decreased to ~~$44,445,~~$35,310, or ~~4.3%~~5.7% of net revenues from ~~$39,387~~$38,164, or ~~4.0%~~8.2% of net revenues for the quarter ended September 25, 2005. These expenses increased to $122,215 or 6.0% of net revenues for the nine months ended October 1, 2006 from $106,942 or 5.3% of net revenues for the nine months ended September 25, 2005.April 2, 2006. The ~~increase~~decrease reflects higher investments in ~~products~~the prior year related to games incorporating technology, including costs related to the Company's license agreement with Marvel, increased investments in the PLAYSKOOL brand as well as the increased technology of many of the Company's products as it continues to invest in new innovative electronic products.NET JET internet game system.

~~HASBRO, INC. AND SUBSIDIARIES~~
~~Management's Discussion and Analysis of Financial~~
~~Condition and Results of Operations (continued)~~

~~For~~Advertising expense for the quarter ~~advertising expense~~ended April 1, 2007 increased in dollars to ~~$126,829 in~~$67,635 from $54,854 for the quarter ended April 2, 2006 ~~from $118,845 in 2005,~~ but ~~remained consistent~~decreased as a percentage of net revenues ~~at 12.2% in 2006 and 12.0% in 2005. For the nine months ended October 1, 2006, advertising expense increased in dollars~~ to ~~$242,149 from $238,009 for the nine months ended September 25, 2005, but remained constant as a percentage of net revenues at 11.9% in 2006 and 11.8% in 2005.~~

~~For the quarter ended October 1, 2006, the Company's selling, distribution and administration expenses increased to $169,302, or 16.3% of net revenues, from $162,061, or 16.4%~~10.8% of net revenues for the quarter ended ~~September 25, 2005. For the nine months ended October~~April 1, ~~2006, these expenses increased to $463,641, or 22.8%~~2007 compared with 11.7% of net revenues for the quarter ended April 2, 2006.

The Company's selling, distribution and administration expenses for the quarter ended April 1, 2007 increased in dollars to $156,925 from ~~$439,921 or 21.8%~~$146,955 for the quarter ended April 2, 2006 but decreased as a percentage of ~~net~~sales to 25.1% for the quarter ended April 1, 2007 from 31.4% for the quarter ended April 2, 2006. The increase in dollars reflects higher costs, such as shipping and distribution, resulting from the increased revenues in ~~2005. Of~~ the ~~increases in~~first quarter of 2007 while the ~~quarter and nine months ended October 1, 2006, $5,270 and $14,548, respectively,~~decrease as a percentage of sales reflects the ~~Company's adoption in 2006~~fixed nature of ~~SFAS 123R which requires the Company to record expense related to any unvested stock options as~~certain of the beginning of the year as well as any future stock option grants. The increase for the nine months ended October 1, 2006 also reflects the additional week in this fiscal period versus the comparable period in 2005.other expenses.

Interest expense for the ~~third~~first quarter of ~~2006~~2007 was ~~$6,158~~$6,184 compared with ~~$7,816~~$7,126 in the ~~third~~first quarter of ~~2005. For the nine months ended October 1, 2006~~2006. The reduction in interest expense ~~decreased~~was due to ~~$20,096 from $23,196 in 2005. For the quarter and nine months ended October 1, 2006, decreases resulting from~~ lower levels of debt ~~were partially offset by increased~~as well as a lower effective interest ~~expense as the result of higher interest rates.~~rate in 2007.

Interest income for the quarter ended ~~October~~April 1, ~~2006~~2007 was ~~$4,316~~$8,939 compared to ~~$5,226 in 2005. Interest income~~$7,334 for the ~~nine months~~quarter ended ~~October 1,~~April 2, 2006. The increase in interest income in the first quarter of 2007 from the first quarter of 2006 ~~was $17,893 compared to $19,639 in 2005. Interest income for~~represented higher returns on cash and short-term investment balances, partially offset by lower balances of invested cash during the ~~nine months ended September 25, 2005 includes $4,140 related to an IRS tax settlement.~~quarter.

Other expense, net ~~amounted to $19,479~~ for the ~~third~~first quarter of ~~2006, which compares to other income, net, of $638~~2007 was $6,882 compared with $3,535 for the first quarter ~~ended September 25, 2005. For the nine-month periods, other expense, net was $10,542 in~~of 2006. These amounts primarily consist of non-cash charges of $7,920 and $3,330 for 2007 and 2006, ~~compared to other income, net, of $2,410 in 2005. Other expense for the third quarter and nine months ended October 1, 2006 includes non-cash expense of $19,760 and $7,820,~~ respectively, related to the increase during these periods in the fair value of certain warrants required to be classified as a liability. ~~These amounts compare to non-cash income~~

(Thousands of Dollars and ~~nine months ended September 25, 2005, respectively.~~ Shares Except Per Share Data)

These warrants are required to be adjusted to their fair value each quarter through earnings. The fair value of these warrants is primarily affected by the ~~Company's~~ stock price of the Company but is also affected by the Company's stock price volatility and dividends, ~~and the risk-f ree~~as well as risk-free interest rates. ~~The expense in the third quarter of 2006 relates primarily to the increase in the Company's stock during the quarter.~~ Assuming the Company's stock volatility and dividend payments, ~~and the~~as well as risk-free interest rates remain constant, the fair value of the warrants would increase and the Company would recognize a charge to earnings ifas the price of the Company's stock increases. If the price of the Company's stock decreases and the Company's stock volatility, dividend payments, and ~~the~~ risk-free interest rates remain constant, the fair value of the warrants will decrease and the Company will recognize income.

~~HASBRO, INC. AND SUBSIDIARIES~~
~~Management's Discussion and Analysis of Financial~~
~~Condition and Results of Operations (continued)~~

Based on a hypothetical ~~change~~increase in the Company's stock price to ~~$24.00~~$30.00 per share at ~~October~~April 1, ~~2006~~2007 from its actual price of ~~$22.75 per~~$28.62 a share on that date, the Company would have recognized a non-cash ~~expense~~charge of approximately ~~$26,960 and $15,020,~~$11,260 rather than the actual non-cash ~~expense~~charge of ~~$19,760 and $7,820,~~$7,920 for the quarter ~~and nine months~~ ended ~~October~~April 1, ~~2006, respectively,~~2007, to ~~adjust~~reflect the change in the fair value of the warrants tofrom their fair value of $155,630 at ~~October 1,~~December 31, 2006. This fair value adjustment has no related tax impact.

Income tax expense ~~as a percentage~~in the first quarter of 2007 was $16,710 on pretax earnings of $49,600, compared to a tax benefit of $554 on a pretax loss of $(5,453) in the ~~third~~first quarter of ~~2006 was 30.8%, and for the nine months was 28.8%, compared to 27.1% and 24.4% in the comparable periods of 2005. Absent the effect of certain non-taxable items, primarily~~2006. As noted above, the adjustment of certain warrants to their fair value ~~described above,~~has no tax effect. Absent the warrant fair value adjustment and certain other discrete tax events, the 2007 first quarter tax rate ~~for~~and the 2006 first quarter ~~and nine months ended October 1, 2006~~tax rate would have been 27.1%. Income tax expense for the nine months ended September 25, 2005 was reduced by approximately $4 million, due primarily to the completion of an Internal Revenue Service examination of tax years ended in December 2001.

27.9% and 26.1%, respectively. The income tax rate for the full year ~~2005~~2006 was ~~31.8%~~32.6%. In addition to the adjustment of certain warrants to their fair value, the ~~2005~~2006 full year tax rate was also impacted by ~~the repatriation~~approximately $7,800 of ~~foreign earnings pursuant~~discrete tax events, primarily relating to the ~~special incentive provided by the American Jobs Creation Act~~settlement of ~~2004 as well as the reduction of income~~various tax ~~expense noted above.~~exams in multiple jurisdictions. Absent the effect of these items, the ~~2005~~2006 full year tax rate would have been ~~24.9%~~27.6%.

The increase in the adjusted rate ~~from~~for the full year ~~2005~~2006 of ~~24.9%~~27.6% to the first ~~nine months~~quarter of ~~2006~~2007 adjusted rate of ~~27.1%~~27.9% is primarily due to the tax impact of higher expected ~~increase~~operating profits in ~~earnings from~~ jurisdictions with higher statutory tax rates.

The Company's revenue pattern continues to show the second half of the year, and within that half, the fourth quarter, to be increasingly more significant to its overall business for the full year. The Company expects that this concentration will continue, particularly as more of its business shifts to larger customers with order patterns concentrated in the second half of the year. In years where the Company has products tied to major motion picture releases, such as in 2007 with the releases of SPIDER-MAN 3 in May of 2007 and TRANSFORMERS in July of 2007, this concentration is not expected to be as pronounced due to the higher level of sales that occur around the time of the motion picture theatrical release. The concentration of sales in the second half of the year and, specifically, the fourth quarter increases the risk of (a) underproduction of popular items, (b) overproduction of less popular items, and (c) failure to ~~achieve~~achi eve tight and compressed shipping schedules. ~~In addition, the bankruptcy, restructuring, or other lack~~

(Thousands of ~~the Company's significant retail customers could negatively impact the Company's future revenues.~~ Dollars and Shares Except Per Share Data)

The business of the Company is characterized by customer order patterns which vary from year to year largely because of differences in the degree of consumer acceptance of a product line, product availability, marketing strategies, inventory levels, policies of retailers and differences in overall economic conditions. The strategy of larger mass market retailers has been to maintain lower inventories throughout the year and purchase a greater percentage of product within or close to the fourth quarter holiday consumer selling season, which includes Christmas. Quick response inventory management practices ~~now~~currently being used result in more orders being placed for immediate delivery and fewer orders being placed well in advance of shipment. This can be impacted by the timing of theatrical releases. Consequently, unshipped orders on any date in a given year are not necessarily indicative of future sales. At ~~October~~April 1, ~~2006~~2007 and ~~September 25, 2005,~~April 2, 2006, the Company's unshipped orders were approximately ~~$411,000~~$300,100 and ~~$461,000,~~$177,000, respectively.

~~HASBRO, INC. AND SUBSIDIARIES~~
~~Management's Discussion and Analysis~~ To the extent that retailers do not sell as much of ~~Financial~~
~~Condition and Results~~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 ~~Operations (continued)~~

~~(Thousands~~success of ~~Dollars Except Per Share Data)~~one of the Company's significant retailers could negatively impact the Company's future revenues.

In January 2006, the Company entered into a five-year license arrangement with Marvel to develop products based on certain Marvel properties. A selection of these products will be available for retail sale during the 2006 holiday season, with the majority available for retail sale beginning January 1, 2007. The arrangement requires the Company to make aggregate guaranteed minimum payments in the amount of $215,000 with $105,000 paid in February 2006. Of the remaining payments, $70,000 is expected to be paid in 2007 upon the release of the motion picture SPIDER-MAN 3, $2,500 is expected to be paid in January 2008, $2,500 is expected to be paid in January 2009 and the remainder to be paid upon the release of the motion picture SPIDER-MAN 4, whose release date has yet to be determined. Certain of the future minimum guaranteed contractual royalty payments are contingent upon the theatrical release of the related ent ertainment property.

~~In June~~September 2006, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes" ("FIN 48"), which applies to all tax positions accounted for under Statement of Financial Accounting Standard No. 109, "Accounting for Income Taxes". FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition of such tax positions, classification, interest and penalties, accounting in interim periods and disclosure. FIN 48 is applicable to the Company as of January 1, 2007, the first day of fiscal 2007. The Company is in the process of evaluating FIN 48 and the potential effect it will have on its financial position and results of operations.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 158, "Employer's Accounting for Defined Benefit Pension and Other Postretirement Plans", ("SFAS No. 158") which amends Statements of Financial Accounting Standards No. 87, 88, 106 and 132R. Under SFAS No. 158, the Company is required to recognize on its balance sheet actuarial gains and losses and prior service costs that have not yet been included in income as a reduction of equity through other comprehensive income with a corresponding adjustment to prepaid pension expense or the accrued pension liability. In addition, within two years of adoption, the measurement date for plan assets and liabilities would be required to be the Company's fiscal year end. SFAS No. 158 is effective for the Company in the fourth quarter of 2006. The Company is currently evaluating SFAS No. 158 and the potential effect it will ha ve on its consolidated balance sheet or statement of comprehensive earnings.

~~In September 2006, the FASB~~ issued Statement of Financial Accounting Standards No. 157, "Fair Value Measurements", ("SFAS No. 157") which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. SFAS No. 157 is applicable for the Company as of December 31, 2007, the first day of fiscal 2008. The Company ~~is currently evaluating~~does not expect the adoption of SFAS No. 157 ~~and the potential effect it will~~to have a material impact on its consolidated balance sheet and results of operations.

~~HASBRO, INC. AND SUBSIDIARIES~~
~~Management's Discussion~~In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, "The Fair Value Option for Financial Assets and ~~Analysis~~Financial Liabilities" ("SFAS No. 159"). SFAS No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value and establishes presentation and disclosure requirements designed to facilitate comparisons between entities that choose different measurement attributes for similar types of ~~Financial~~
~~Condition~~assets and ~~Results~~liabilities. SFAS No. 159 is effective for the Company beginning December 31, 2007, the first day of ~~Operations (continued)~~

~~(Thousands~~fiscal 2008. The Company has not yet determined the impact, if any, from the adoption of ~~Dollars Except Per Share Data)~~SFAS No. 159.

The Company has historically generated a significant amount of cash from operations. In ~~2005,~~2006, the Company funded its operations and liquidity needs primarily through cash flows from operations, and, when needed, proceeds from its accounts receivable securitization program and borrowings under its unsecured credit facilities. During ~~2006,~~2007 the Company expects to continue to fund its working capital needs primarily through operations and, when needed, using proceeds from ~~the~~its accounts receivable securitization program and borrowings under its available lines of credit.

The Company believes that the funds available to it, including cash it expects to generate from operations and funds available through ~~its~~the securitization program and other available lines of credit, are adequate to meet its needs for ~~2006. However, unforeseen circumstances in the toy~~2007.

Management's Discussion and ~~game industry, such as softness in the retail environment or unanticipated changes in consumer preferences could result in a significant decline in revenues~~Analysis of Financial

Condition and ~~operating results~~Results of the Company, which could result in the Company being non-compliant with covenants under its revolving credit facility and/or receivable securitization program. Non-compliance with its debt covenants could result in the Company being unable to utilize borrowings under its revolving credit facilityOperations (continued)

(Thousands of Dollars and other bank lines, a circumstance which potentially could occur when operating shortfalls would most likely require supplemental borrowings to enable the Company to continue to fund its operations. Also, non-compliance with covenants under its accounts receivable securitization program could result in the Company being unable to utilize this program. In addition, a significant deterioration in the business of a major U.S. customer could result in a decrease in eligible accounts receivable that would prevent the Company from being able to fully utilize its receivables securitization program. The Company has been and expects to continue to be in compliance with its borrowing and securitization financial covenants during 2006.Shares Except Per Share Data)

Because of ~~this~~the seasonality in the Company's cash flow, management believes that on an interim basis, rather than discussing only its cash flows, a better understanding of its liquidity and capital resources can be obtained through a discussion of the various balance sheet categories as well. Also, as several of the major categories, including cash and cash equivalents, short-term investments, accounts receivable, inventories and short-term borrowings, fluctuate significantly from quarter to quarter, again due to the seasonality of its business, management believes that a comparison to the comparable period in the prior year is generally more meaningful than a comparison to the prior quarter or prior year-end.

Cash flows ~~utilized~~provided (utilized) by operating activities were ~~$100,836~~$53,637 and $(75,239) for the ~~nine months ended October 1,~~first quarter of 2007 and 2006, ~~compared to cash utilized of $4,564 for the nine months ended September 25, 2005.~~respectively. Cash flows from operations in the first quarter of 2006 were negatively impacted by the royalty guarantee payment of $105,000 made to Marvel in connection with the new license agreement signed in the first quarter of 2006 and pension plan contributions of approximately ~~$38,600.~~$31,800. Of the $105,000 payment to Marvel, ~~$40,655 is~~$82,700 was classified as long-term in 2006 and iswas reflected in the consolidated statement of cash flows in other operating ~~activities~~ while the remainder was recorded to prepaid expenses and is reflected in the statement of cash flows as an increase toin prepaid expenses.

~~HASBRO, INC. AND SUBSIDIARIES~~
~~Management's Discussion and Analysis of Financial~~
~~Condition and Results of Operations (continued)~~

~~2005 cash flows~~Accounts receivable increased to $327,124 at April 1, 2007 from operations included a $35,000 advance royalty payment made in connection with the release of STAR WARS EPISODE III: REVENGE OF THE SITH. Cash flows from operations for 2005 were also positively impacted by a$221,860 at April 2, 2006 reflecting higher ~~portion of expenses being non-cash expenses, including amortization expense, as a result of the increased~~ sales ~~of STAR WARS products as well as the utilization of prepaid royalty amounts related to the higher level of sales of STAR WARS products.~~

Despite higher revenues in the third quarter 2006 compared to third quarter 2005, accounts receivable decreased to $679,363 at October 1, 2006 from $681,469 at September 25, 2005, primarily due to improved collections. Days sales outstanding decreased to 59 days in 2006 from 62 days in 2005. Inventories decreased to $312,041 at October 1, 2006 compared to $330,779 at September 25, 2005, primarily reflecting lower levels of inventories of board games due to increased sales in 2006. Prepaid expenses were $163,716 at October 1, 2006 compared to $99,386 at September 25, 2005. The increase was largely the result of the royalty advance paid to Marvel in the first quarter of 2007. Days sales outstanding were 47 days at April 1, 2007 compared to 43 days at April 2, 2006. In addition, approximately $9,800 of the increase relates to higher translation of international balances due to the currency impact of the weaker U.S. dollar.

Inventories increased to $265,402 at April 1, 2007 from $213,183 at April 2, 2006 ~~partly offset by utilization~~to support expected growth in the Company's business relating to expected 2007 theatrical releases, including SPIDER-MAN 3 in May and TRANSFORMERS in July. In addition, approximately $6,900 of the increase relates to higher translation of international balances due to the currency impact of the weaker U.S. dollar.

Prepaid expenses increased to $171,488 at April 1, 2007 compared to $122,127 at April 2, 2006. The increase is primarily due to an increase in current prepaid royalties ~~primarily STAR WARS royalties.~~as the result of increased portion of the advance paid to Marvel being classified as current. Generally, when the Company enters into a licensing agreement for entertainment-based properties, an advance royalty payment is required at the inception of the agreement. This payment is then recognized in the consolidated statement of operations as the related sales are made. With respect to the Marvel ~~and STAR WARS licenses,~~license, the Company ~~has~~may have prepaid royalties recorded in both current and non-current assets. Each reporting period, the Company reflects as current prepaid assets the amount of royalties it expects to reflect in operations in the upcoming twelve months. In periods prior to a major movie release such as with ~~STAR WARS~~Marvel in the first quarter of ~~2005,~~2007, larger ~~amounts~~amou nts will be reclassified from non-current to current in anticipation of higher sales during the periods surrounding the release. Approximately $6,200 of the increase relates to higher translation of international balances due to the currency impact of the weaker U.S. dollar.

Accounts payable and accrued expenses ~~increased~~decreased to ~~$889,215~~$614,637 at ~~October~~April 1, ~~2006~~2007 from ~~$828,775~~$629,175 at ~~September 25, 2005.~~April 2, 2006. The ~~increase~~decrease is primarily due to ~~higher accrued income taxes~~the reclassification of the liabilities related to uncertain tax positions as a result of ~~increased earnings as well as increased accrued advertising reflecting increased advertising expenditures as well as~~ the ~~timing~~adoption of ~~payments~~FASB Interpretation No. 48. This decrease was partially offset by an increase in the fair value of the Lucas warrants that the Company is required to record as liabilities. The Company classifies these warrants, which contain a put option, as a current ~~year compared~~liability and adjusts the amount of this liability to reflect the ~~pri or year.~~warrants fair value on a periodic basis.

Collectively, property, plant and equipment and other assets ~~at October 1, 2006~~ decreased ~~$90,648~~$172,833 from ~~September 25, 2005.~~the comparable period in the prior year. The decrease is primarily due to ~~amortization of intangibles in the first three quarters of 2006 and the fourth quarter of 2005. The increase~~a decrease in long-term ~~prepaid royalties as a result~~royalty advances of approximately $117,600. This primarily relates to the ~~$40,655~~ long-term portion of the ~~$105,000~~ Marvel ~~payment made~~advance paid in January 2006, which has been reclassified as a current asset due to expected realization of these royalties in the ~~first quarter~~next twelve months. In addition, other intangible assets decreased by approximately $80,900 primarily due to amortization of ~~2006 was more than~~these assets. These decreases were partially offset by ~~a decrease~~an increase in ~~the long-term portion~~property, plant and equipment of prepaid royalties related to the STAR WARS license. The Company made a royalty advance in the second quarter of 2005 of $35,000 in connection with the theatrical release of STAR WARS EPISODE III: REVENGE OF THE SITH.approximately $21,800.

Net ~~(borrowings)~~ cash (cash and cash equivalents less short-term borrowings, current portion of long-term debt, and long-term debt) increased to $186,334 at April 1, 2007 from $76,135 at April 2, 2006. This increase reflects an increase in the cash and cash equivalents of the Company to $688,594 at April 1, 2007 from $581,295 at April 2, 2006. At April 2, 2006, the Company had invested $147,675 of its excess cash in auction rate securities, which were classified on the balance sheet as short-term investments. At April 1, 2007, the Company had invested only $15,000 of excess cash in these securities. Including this decrease in investments in auction rate securities, net cash decreased ~~to $(197,485) at October 1, 2006 from $(44,644) at September 25, 2005. This decrease~~by $22,476, which reflects the Company's current share repurchase program under which ~~consists~~$434,771 of cash has been used in the prior 12 months to repurchase shares of the Company's common stock. These repurchases were primarily offset by cash provided by operations .

Cash flows from investing activities were a ~~$350,000 authorization approved by its Board~~net utilization of ~~Directors~~$32,393 in ~~May 2005 which became fully~~the first quarter of 2007 compared to $159,365 utilized in ~~July~~the first quarter of 2006. The 2006 ~~and an additional $350,000 authorization approved by its Board~~net utilization reflects a net use of ~~Directors~~cash of $147,675 to purchase auction rate securities compared to a utilization of $15,000 in ~~July 2006.~~the first quarter of 2007 to purchase these securities.

~~HASBRO, INC. AND SUBSIDIARIES~~
~~Management's Discussion and Analysis~~Cash flows from financing activities were a net utilization of ~~Financial~~
~~Condition and Results~~$48,308 in the first quarter of ~~Operations (continued)~~

~~(Thousands~~2007 compared to a net utilization of ~~Dollars Except Per Share Data)~~

~~Under these authorizations,~~$126,607 in the first quarter of 2006. The decrease in net utilization reflects maturity of long-term debt in the amount of $32,743 in the first quarter of 2006. Cash utilized to repurchase the Company's common stock decreased to $65,370 in the first quarter of 2007 compared to $87,343 in the first quarter of 2006. During the first quarter of 2007, the Company ~~has~~ repurchased ~~23,537~~2,529 shares at a total cost of ~~$465,290. Of these repurchases, 22,009 shares were purchased in the last twelve months at a total cost~~$74,037, of ~~$433,512. These share repurchases were primarily funded through cash generated from operations. At October 1, 2006, there~~which $8,667 was ~~$5,053~~included in accrued ~~expenses for treasury share~~liabilities related to repurchases that ~~were made at the end of the quarter but~~ had not yet settled ~~as of October~~at April 1, ~~2006.~~

Cash flows utilized by investing activities were $53,498 in 2006 versus $91,672 in 2005. The decrease primarily reflects the Company's reacquisition in 2005 of its digital gaming rights for all of its owned or controlled properties that it had originally licensed to Infogrames Entertainment SA in connection with the sale of its interactive business in December 2000. The Company paid $65,000 in cash to reacquire these rights, which were recorded to other intangibles. In addition, cash utilized by investing activities in 2005 reflects the Company's purchase of Wrebbit, Inc. for $14,109. Cash utilized by investing activities in 2005 were also positively impacted from proceeds from the sale of the Company's manufacturing facility in Spain during the second quarter of 2005.

Cash flows utilized by financing activities were $480,257 in 2006 versus $58,591 in 2005. This primarily reflects an increase in share repurchases as described above. Cash utilized for purchases of common stock were $412,207 in 2006 versus $31,777 in 2005. To a lesser extent, the increase in cash utilized by financing activities is also due to higher long-term debt repayments in 2006 and increased dividends paid as a result of the increase in the quarterly dividend rate to $.12 per share in 2006 from $.09 per share in 2005. Cash proceeds from the exercise of stock options decreased to $21,106 in 2006 from $41,529 in 2005 as a result of lower amounts of exercises attributable to a lower stock price during much of 2006.2007.

The Company has a ~~five-year~~ revolving credit agreement, ~~(the "Agreement")~~ which provides ~~the Company~~it with a $300,000 committed borrowing facility. The Company has the ability to request increases in the committed facility in additional increments of at least ~~$50 million,~~$50,000 up to a total committed facility of $500,000.

The Company is not required to maintain compensating balances under the agreement. The ~~Agreement~~agreement contains certain financial covenants setting forth leverage and coverage requirements, and certain other limitations typical of an investment grade facility, including with respect to liens, mergers and incurrence of indebtedness. The Company was in compliance with all covenants as of and for the quarter ended ~~October~~April 1, ~~2006.~~2007. The Company had no borrowings outstanding under its committed revolving credit facility at ~~October~~April 1, ~~2006.~~2007. The Company also has other uncommitted ~~li nes~~lines from various banks, of which approximately ~~$29,300~~$23,039 was utilized at ~~October~~April 1, ~~2006.~~2007. Amounts available and unused under the committed line at ~~October~~April 1, ~~2006~~2007 were approximately ~~$297,100.~~$297,131.

The Company is party to an accounts receivable securitization program whereby the Company sells, on an ongoing basis, substantially all of its U.S. trade accounts receivable to a bankruptcy remote special purpose entity, Hasbro Receivables Funding, LLC ("HRF"). HRF is consolidated with the Company for financial reporting purposes. The securitization program then allows HRF to sell, on a revolving basis, an undivided interest of up to $250,000 in the eligible receivables it holds to certain bank conduits. During the period from the first day of October fiscal month through the last day of the following January fiscal month, this limit is increased to $300,000. The program provides the Company with a cost-effective source of working capital. Based on the amount of eligible accounts receivable as of ~~October~~April 1, ~~2006,~~2007, the Company had availability under this program to sell approximately ~~$156,500, all~~$181,000, of which approximately $65,00 0 was utilized.

The Company had letters of credit and other similar instruments of approximately ~~$20,600~~$58,122 and purchase commitments of ~~$240,388~~$239,715 outstanding at ~~October~~April 1, ~~2006.~~2007. In ~~February 2006,~~May of 2007, upon the theatrical release of SPIDER-MAN 3, the Company ~~amended its license arrangement with Marvel~~will be required to ~~add additional toy lines. As~~pay a ~~result~~royalty advance of this amendment, the guaranteed minimum payments of $205,000 previously disclosed in the Company's report on Form 10-K increased by $10,000, of which $5,000 was paid in February 2006, $2,500 is expected$70,000 to be paid in January 2008 and $2,500 is expected to be paid in January 2009. In addition, the Company contributed approximately $38,600 to its pension plans during the first three quarters of 2006 which was higher than the amount expected and disclosed in the Company's report on Form 10-K. The Company expects its total contributions to its defined benefit pension plans in 2006 to be approximately $40,000. Other contractualMarvel. Contractual obligations and commercial commitments, as ~~detaile d~~detailed in the Company's annual report on Form 10-K for the year ended December ~~25, 2005,~~31, 2006, did not materially change outside of payments made in the normal course of business.

The Company has outstanding ~~$249,996~~$249,856 in principal amount of senior convertible debentures due 2021. The senior convertible debentures bear interest at 2.75%, subject to an upward adjustment in the rate, with the total rate not to exceed 11%, should the price of the Company's stock trade at or below $9.72 per share for 20 of 30 trading days preceding the fifth day prior to an interest payment date. This contingent interest feature represents a derivative instrument that is recorded on the balance sheet at its fair value, with changes in fair value recognized in the statement of operations. If the closing price of the Company's stock exceeds $23.76 for at least 20 trading days within the 30 consecutive trading day period ending on the last trading day of the calendar quarter, or upon other specified events, the debentures will be convertible at an initial conversion price of $21.60 in the next calendar quarter. ~~This contingent~~At December 3 1, 2006, this conversion feature was ~~not~~ met inand the ~~third~~bonds were convertible during the first quarter of ~~2006.~~ 2007. During the quarter, $140 of these bonds were converted and 6 shares were issued. At March 31, 2007, this contingent feature was again met and the bonds will remain convertible through June 30, 2007, at which time the conversion feature will be reassessed. In addition, if the closing price of the Company's stock exceeds $27.00 for at least 20 trading days in any 30 day period, the Company has the right to call the debentures by giving notice to the holders of the debentures. During a prescribed notice period, the holders of the debentures have the right to convert their debentures in accordance with the conversion terms described above.

The holders of these debentures may also put the notes back to Hasbro in 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, at the Company's discretion. While the Company's current intent is to settle in cash any puts exercised, there can be no guarantee that the Company will have the funds necessary to settle this obligation in cash.

The Company believes that cash from operations, including the securitization facility, and, if necessary, its committed line of credit, will allow the Company to meet these and other obligations listed. It is the Company's intent to continue to assess the desirability of using available cash from operations to reduce its outstanding long-term debt, as market conditions and the Company's revolving credit agreement and other sources of financing allow.

-------------------------------------------------------------------------------------------------

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 it believes 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, pension costs and obligations, stock-based compensation and ~~stock-based compensation.~~accounting for income taxes.

~~Sales allowances for customer promotions, discounts and returns are recorded as a reduction~~With the exception of ~~revenue when~~ the related revenue is recognized. Revenue from product sales is recognized upon passing of title to the customer, generally at the time of shipment. Revenue from product sales, less related sales allowances, is added to royalty revenue and reflected as net revenueschange in the ~~consolidated statements~~accounting policy related to pension costs and the addition of ~~operations. The~~accounting for income taxes that are detailed below, these critical accounting policies are the same as those detailed in the December 31, 2006 Form 10-K.

Prior to 2007, for certain of its defined benefit pension plans, the Company ~~routinely commits~~used a September 30 date to ~~promotional sales allowance programs with customers. These allowances primarily relate to fixed programs, which~~measure the ~~customer earns~~liabilities and assets of the plan. Expense for the subsequent year was established based on ~~purchases~~the assumptions used on that date to measure the assets and liabilities. In accordance with the requirements of SFAS No. 158, in the first quarter of 2007, the Company ~~products during the year. Discounts are recorded as~~elected to change its measurement date for these plans from September 30 to its fiscal year-end date. This change resulted in a ~~reduction of related revenue at the time of sale. While many~~remeasurement of the ~~allowances are~~assets and liabilities of the plans as of December 31, 2006, the 2006 fiscal year-end of the Company. The assumptions used for this remeasurement were substantially the same as those used for the September 30 measurement and disclosed in the December 31, 2006 Form 10-K. The expense, net of tax, measured for the period of October 1, 2006 through December 31, 2006 based on ~~fixed amounts, certain~~the September 30 actuarial valuation was record ed directly to retained earnings in accordance with SFAS No. 158. The effect of ~~the allowances, such as the returns allowance, are based on market data, historical trends and information from cus tomers 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 prices 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 resultthis change in the Company under producing 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, asmeasurement date resulted in an increase to ~~cost~~prepaid pension expense of ~~sales, when deemed necessary under the lower~~$5,482, a decrease to accrued pension expense of ~~cost or market standard.~~

~~Goodwill~~$3,619, a decrease to deferred tax assets of $3,465, an increase to accumulated other comprehensive earnings of $7,779, and ~~other intangible assets deemed~~a decrease to have indefinite lives are tested for impairment at least annually. If an event occurs or circumstances change that indicate that the carrying value may not be recoverable, the Company will perform an interim test at that time. The impairment test begins by allocating goodwill and intangible assets to applicable reporting units. Goodwill is then tested using a two step process that begins with an estimationretained earnings 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 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 which is also calculated using an income approach. The Company's annual impairment test was performed in the fourth quarter of 2005 and no impairment was indicated. At October 1, 2006, the Company has goodwill and intangible assets with indefinite lives of $544,559 recorded on the balance sheet.$2,143.

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 the value of these intangible assets is measured by a comparison of the assets' carrying value to the estimated future undiscounted cash flows the asset is expected to generate. 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 resu lt 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 $477,411 at October 1, 2006. During 2006, there have been 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 o f remaining minimum guaranteed royalties. At October 1, 2006, the Company had $195,356 of prepaid royalties, $96,456 of which are included in prepaid expenses and other current assets and $98,900 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~~Company's annual tax rate is based on ~~actuarial computations of current~~its income, statutory tax rates and ~~future benefits using~~tax planning opportunities available in the various jurisdictions in which it operates. Significant judgment and estimates ~~for expected return on assets, expected compensation increases,~~are required to determine the Company’s annual tax rate and ~~applicable discount rates. The estimates for~~in evaluating its tax positions. Despite the Company's ~~domestic plans~~belief that its tax return positions are fully supportable, these positions are subject to challenge and estimated liabilities are established atin the ~~Company's measurement date of September 30 to measure the liabilities and assets of the plans as of~~event that date and to establish the expense for the upcoming year. 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,these positions are challenged and the ~~current economic environment. Based on this information, the Company's estimate of expected return on plan assets for its domestic pl ans~~Company is ~~8.75% for 2006, which is the same estimate used~~not successful in 2005. 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. For the Company's domestic plans, a decrease of .25% in the 2005 estimate of expected return on plan assets would have increased 2005 annual pension expense by approximately $470.

~~Expected compensation increases~~these challenges. These estimated liabilities are estimated using a combination of historical and expected compensation increases. Based on this analysis, the Company's estimate of expected long-term compensation increases for its domestic plans is 4.0% in 2006, which is the same estimate used in 2005. 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 pension benefits. Based on this long-term corporate bond yield at September 30, 2005, the Company's measurement date for its pension assets and liabilities, the Company's discount rate for its domestic plans used for the calculation of 2006 pension expense was 5.50% compared to a rate of 5.75% selecte d at September 30, 2004 for the calculation of 2005 pension expense. Pension expense for the Company's domestic plans in 2005 was based on a discount rate of 5.75%. A decrease in the discount rate would result in greater pension expense while an increase in the discount rate would decrease pension expense. For the Company's domestic plans, a decrease of .25% in the Company's 2005 discount rate would have increased 2005 annual 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.

The Company has a stock-based compensation plan for employees and non-employee members of the Company's Board of Directors. Under this plan, the Company grants stock options at or above the fair market value of the Company's stock. On December 26, 2005, the first day of fiscal 2006, the Company adopted SFAS 123R, which requires the Company to measure all stock-based compensation awards using a fair value method and record such expense in its consolidated financial statements. The Company uses the Black-Scholes option pricing model to value the stock options that are granted under these plans. The Black-Scholes method includes four significant assumptions: (1) expected term of the option, (2) risk-free interest rate, (3) expected dividend yield, and (4) expected stock price volatility. For the Company's 2006 stock option grant, the weighted average expected term used was approximately 5 years. This amount is based on a review of employ ees' exercise history relating to stock optionsadjusted, as well as the ~~contractual term~~related interest, in light of changing facts and circumstances, such as the ~~option. The weighted average risk-free interest~~progress of a tax audit.

An estimated effective tax rate ~~used for 2006 stock option grants was 4.98%. This estimate was based~~is applied to the Company's quarterly operating results. In the event there is a significant unusual or extraordinary item recognized in the Company's quarterly operating results, the tax attributable to that item is separately calculated and recorded at the time. In addition, changes in judgment related to tax positions taken in a prior fiscal year, or tax costs or benefits from a resolution of such positions would be recorded entirely in the interim period the judgment changes or resolution occurs.

In certain cases, tax law requires items to be included in the Company's tax returns at a different time than when these items are recognized on the ~~interest rate available on U.S. treasury securities with durations~~financial statements. Some of these differences are permanent, such as expenses that ~~approximate the expected term of the option. For 2006 stock option grants, the weighted average expected dividend yield used was 2.55% which is based~~are not deductible on the Company's ~~current annual dividend amount divided by the stock price~~tax returns, while other differences are temporary and will reverse over time, such as depreciation expense. These differences that will reverse over time are recorded as deferred tax assets and liabilities on the ~~date of~~consolidated balance sheet. Deferred tax assets represent credits or deductions that have been reflected on the ~~grant. The weighted average expected stock price volatility used for 2006 stock option grants was 24%. This amount was derived using a combination of historical price volatility over~~financial statements but have not yet been reflected in the ~~most recent period approximating~~Company's income tax returns. Valuation allowances are established against deferred tax assets to the ~~expected term of~~extent that it is determined that the ~~option and implied price volatility. Implied price volatility represents~~Company will have insufficient future taxable income to fully realize the ~~volatility implied in publicly traded options~~future credits or deductions. Deferred tax liabilities represent expenses reco gnized on the Company's ~~stock, which the Company believes represents the expected future volatility of~~tax return that have not yet been recognized in the Company's ~~stock price. The Company believes~~financial statements or income recognized in the financial statements that ~~since this is a market-based estimate, it can provide a better estimate of expected future volatility.~~

In July 2006, as part of its employee stock-based compensation plan, the Company issued contingent stock performance awards, which provide the recipients with the ability to earn shares of the Company's common stock basedhas not yet been recognized on the Company's achievement of stated cumulative diluted earnings per share and cumulative net revenue targets over a ten quarter period beginning July 3, 2006 and ending December 28, 2008. Each award has a target number of shares of common stock associated with such award which may be earned by the recipient if the Company achieves the stated diluted earnings per share and net revenue targets. The measurement of the expense related to this award is based on the Company's current estimate of revenues and diluted earnings per share over the performance period. Changes in these estimates will impact the expense recognized related to these awards.tax return.

~~--------------------------------------------------~~-----------------------------------------------

The Company is exposed to market risks attributable to fluctuations in foreign currency exchange rates, primarily resulting from sourcing products priced in U.S. dollars, Hong Kong dollars and Euros while marketing those products in more than twenty currencies. Results of operations are more likely to be affected by changes in the value of the U.S. dollar, Hong Kong dollar, Euro, British pound, Canadian dollar and Mexican peso and, to a lesser extent, currencies in Latin American and Asia Pacific countries. ~~The Company may also be indirectly impacted by changes in the Chinese Renminbi.~~

To manage this exposure, the Company has hedged a portion of its estimated foreign currency transactions using forward foreign exchange ~~contracts and purchased foreign currency options.~~contracts. The Company is also exposed to foreign currency risk with respect to its net cash and cash equivalents or short-term borrowing positions in currencies 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. From time to time, affiliates of the Company may make or receive intercompany loans in currencies other than their functional currency. The Company manages this exposure at the time the loan is made by using foreign exchange contracts. Other than as set forth above, the Company does not hedge foreign currency exposures. The Company reflects all derivatives at their fair value as an asset or liability on the balance sheet. The Company does not speculate in foreign currency exchange ~~contracts.~~contracts.The Company may also be indirectly impacted by changes in the Chinese Renminbi.

At ~~October~~April 1, ~~2006,~~2007, the Company had fixed rate long-term debt, including current portions and excluding fair value adjustments, of ~~$494,983.~~$494,843. Also at ~~October~~April 1, ~~2006,~~2007, the Company had fixed-for-floating interest rate swaps with notional amounts of $75,000. The interest rate swaps are designed to adjust ~~the amount~~a portion of the Company's debt subject to a fixed interest rate. The interest rate swaps are matched with specific long-term debt issues and are designated and effective as hedges of the change in the fair value of the associated debt. Changes in fair value of these contracts are wholly offset in earnings by changes in the fair value of the related long-term debt. At ~~October~~April 1, ~~2006,~~2007, these contracts had a fair value of ~~$6,~~$21, which was included in other long-term assets, with a corresponding fair value adjustment to increase long-term debt.

The information required by this item is included in Part I Item 2. "Management's Discussion and Analysis of Financial Condition and Results of Operations" and is incorporated herein by reference.

The Company maintains disclosure controls and procedures, as defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934 (the "Exchange Act"), that are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms and that such information is accumulated and communicated to the Company's management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. The Company carried out an evaluation, under the supervision and with the participation of the Company's management, including the Company's Chief Executive Officer and Chief Financial Officer, ~~o f~~of the effectiveness of the design and operation of the Company's disclosure controls and procedures as of ~~October~~April 1, ~~2006.~~2007. Based on the evaluation of these disclosure controls and procedures, the Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective.

There were no changes in the Company's internal control over financial reporting, as defined in Rule 13a-15(f) promulgated under the Exchange Act, during the quarter ended ~~October~~April 1, ~~2006,~~2007, that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

This Quarterly Report on Form 10-Q contains “forward-looking statements,” within the meaning of the Private Securities Litigation Reform Act of 1995, concerning management's expectations, goals, objectives, and similar matters. These statements ~~include expectations concerning future trends in the Company's revenues, expenses and earnings, as well as future product plans, and~~ may be identified by the use of forward-looking words or phrases such as "anticipate," "believe," "could," "expect," "intend," "look forward," "may," "planned," "potential," "should," "will," and "would" or any variations of words with similar meanings. These forward-looking statements are inherently subject to known and unknown risks and uncertainties.

The Company's actual results or experience may differ materially from those expected or anticipated in the forward-looking statements. The Company has included, under Item 1A. of its Annual Report on Form 10-K, for the year ended December ~~25, 2005~~31, 2006 (the "Annual Report"), a discussion of factors which may impact these forward-looking statements. In furtherance, and not in limitation, of the more detailed discussion set forth in the Annual Report, specific factors that might cause such a difference include, but are not limited to:

the Company's ability to manufacture, source and ship new and continuing products inon a timely ~~manner~~and cost-effective basis and customers' and consumers' acceptance of those products in quantities and at prices that will be sufficient to profitably recover development, manufacturing, marketing, royalty and other costs of products;

economic and public health conditions in the various markets in which the Company and its customers and suppliers operate throughout the world, including factors which impact the retail market, ~~and retail~~disposable income or consumer demand for the Company's products or the Company's ability to manufacture and deliver products, higher fuel and other commodity prices, higher transportation costs and potential transportation delays, currency fluctuations and government ~~regulation and other conditions in the various markets in which the Company operates throughout the world;~~regulation;

the Company's ability to generate sales during the fourth quarter, particularly during the relatively brief holiday season, which is the period in which the Company derives a substantial portion of its revenues;

the inventory policies of ~~retailers,~~the Company's retail customers, including the concentration of the Company's revenues in the second half and fourth quarter of the year, together with the increased reliance by retailers on quick response inventory management techniques, which increases the risk of underproduction of popular items, overproduction of less popular items and failure to achieve tight and compressed shipping schedules;

work stoppages, slowdowns or strikes, which may impact the Company's ability to manufacture or deliver ~~product;~~product in a timely and cost-effective manner;

concentration of manufacturing of many of the Company's products in the People's Republic of China and the associated impact to the Company of health conditions and other factors affecting social and economic activity in China, affecting the movement of people and products into and out of China or affecting the exchange rates for the Chinese Renminbi, including, without limitation, the impact of tariffs or other trade restrictions being imposed upon goods manufactured in China;

an adverse change in purchasing policies or the bankruptcy or other lack of success of one or more of the Company's significant retailers comprising its relatively concentrated retail customer base, which could negatively impact the Company's revenues ~~operating margins,~~ or bad debt exposure;

the impact of competition on revenues, margins and other aspects of the Company's business, including the ability to secure, maintain and renew popular licenses and the ability to attract and retain employees in a competitive environment;

the risk that anticipated benefits of acquisitions may not occur or be delayed or reduced in their realization;

the risk that the market appeal of the Company's licensed products will be less than expected or that the sales revenue generated by those products will be insufficient to cover the minimum guaranteed royalties;

the Company's ability to obtain and enforce intellectual property rights both in the United States and other worldwide territories;

the risk that any litigation or arbitration disputes or regulatory investigations could entail significant expense and result in significant fines or other harm to the Company's business;

the Company's ability to obtain external financing on terms acceptable to it in order to meet working capital needs;

the Company's ability to generate sufficient available cash flow to service its outstanding debt;

unforeseen circumstances, such as severe softness in or collapse of the retail environment that 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 and the Company being unable to utilize borrowings under its revolving credit facility, a circumstance likely to occur when operating shortfalls would result in the Company being in the greatest need of such supplementary borrowings;

market conditions, third party actions or approvals, the impact of competition and other factors that could delay or increase the cost of implementation of the Company's ~~consolidation~~ programs, or alter the Company's actions and reduce actual results;

the risk that the Company may be subject to governmental sanctions for failure to comply with applicable regulations or to product liability suits relating to products it manufactures and distributes;

the risk that the Company's reported goodwill may become impaired, requiring the Company to take a charge against its income;

other risks and uncertainties as are or may be detailed from time to time in the Company's public announcements and filings with the SEC, such as filings on Forms 8-K, 10-Q and 10-K.

The Company undertakes no obligation to revise the forward-looking statements contained in this Quarterly Report on Form 10-Q to reflect events or circumstances occurring after the date of the filing of this report.

~~On May 19, 2005,~~In July 2006, the Company's Board of Directors authorized the repurchases of up to ~~$350 million in common stock. In July 2006, the Company utilized the remainder of the May 2005 authorization and its Board of Directors authorized the repurchase of up to an additional~~ $350 million in common stock. Purchases of the Company's common stock may be made from time to time, subject to certain market conditions. These shares may be repurchased in the open market or through privately negotiated transactions. The Company has no obligation to repurchase shares under the authorization, and the timing, actual number, and value of the shares that are repurchased will depend on a number of factors, including the price of the Company's stock. The Company may suspend or discontinue the program at any time and there is no expiration date.

Rhode Island	05-0155090
(State of Incorporation)	(I.R.S. Employer Identification No.)

HASBRO, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Thousands of Dollars)
(Unaudited)
	Quarter Ended
	-------------------------------------------
	Thirteen	Fourteen
	Weeks Ended	Weeks Ended
	April 1, 2007	April 2, 2006
	------------------	------------------
Cash flows from operating activities
Net earnings (loss)	$ 32,890	(4,899)
Adjustments to reconcile net earnings (loss) to net
cash provided (utilized) by operating activities:
Depreciation and amortization of plant and equipment	16,860	13,595
Other amortization	17,958	18,252
Change in fair value of liabilities potentially settleable
in common stock	7,920	3,330
Deferred income taxes	1,587	10,880
Stock-based compensation	7,160	6,262
Change in operating assets and liabilities (other
than cash and cash equivalents):
Decrease in accounts receivable	226,784	306,515
Increase in inventories	(60,585)	(33,766)
Decrease (increase) in prepaid expenses and other current assets	12,124	(28,631)
Decrease in accounts payable and accrued liabilities	(210,431)	(252,298)
Other, including long-term portion of royalty advances	1,370	(114,479)
	------------	------------
Net cash provided (utilized) by operating activities	53,637	(75,239)
	------------	------------
Cash flows from investing activities
Additions to property, plant and equipment	(19,289)	(11,613)
Proceeds from sale of property, plant and equipment	126	81
Purchases of short-term investments	(15,000)	(271,400)
Sales of short-term investments	-	123,725
Other	1,770	(158)
	------------	------------
Net cash utilized by investing activities	(32,393)	(159,365)
	------------	------------
Cash flows from financing activities
Repayments of borrowings with original maturities
of more than three months	-	(32,743)
Net repayments of other short-term borrowings	(3,089)	(4,214)
Purchases of common stock	(65,370)	(87,343)
Stock option transactions	32,215	12,276
Excess tax benefits from stock-based compensation	7,233	1,448
Dividends paid	(19,297)	(16,031)
	------------	------------
Net cash utilized by financing activities	(48,308)	(126,607)
	------------	------------
Effect of exchange rate changes on cash	258	238
	------------	------------
Decrease in cash and cash equivalents	(26,806)	(360,973)
Cash and cash equivalents at beginning of year	715,400	942,268
	------------	------------
Cash and cash equivalents at end of period	$688,594	581,295
	=======	=======

HASBRO, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Thousands of Dollars)
(Unaudited)
					Nine Months
					--------------------------------------
					Forty			Thirty-Nine
					Weeks Ended			Weeks Ended
					Oct. 1, 2006			Sept. 25, 2005
					-------------------			------------------
Cash flows from operating activities
	Net earnings				$	121,773		117,804
	Adjustments to reconcile net earnings to net cash
	utilized by operating activities:
		Depreciation and amortization of plant and equipment				53,971		57,525
		Other amortization				57,896		79,852
		Loss on impairment of investment				2,629		-
		Change in fair value of liabilities potentially settleable
		in common stock				7,820		(1,330	)
		Deferred income taxes				9,725		(11,505	)
		Stock-based compensation				16,788		60
		Excess tax benefits from stock-based compensation				(2,200	)	-
	Change in operating assets and liabilities (other
		than cash and cash equivalents):
		Increase in accounts receivable				(149,214	)	(116,790	)
		Increase in inventories				(129,905	)	(139,504	)
		(Increase) decrease in prepaid expenses and other current assets				(29,992	)	44,972
		Increase (decrease) in accounts payable and accrued liabilities				3,301		(4,818	)
		Other, including long-term portion of royalty advances				(63,428	)	(30,830	)
						------------		------------
				Net cash utilized by operating activities		(100,836	)	(4,564	)
						------------		------------
Cash flows from investing activities
		Additions to property, plant and equipment				(52,753	)	(45,604	)
		Investments and acquisitions				-		(79,109	)
		Proceeds from sale of property, plant and equipment				1,150		32,950
		Purchases of short-term investments				(941,120	)	-
		Sales of short-term investments				941,120		-
		Other				(1,895	)	91
						------------		------------
				Net cash utilized by investing activities		(53,498	)	(91,672	)
						------------		------------
Cash flows from financing activities
		Repayments of borrowings with original
			maturities of more than three months			(32,743	)	(21,329	)
		Net repayments of other short-term borrowings				(2,480	)	(4,154	)
		Purchases of common stock				(412,207	)	(31,777	)
		Stock option transactions				21,106		41,529
		Excess tax benefits from stock-based compensation				2,200		-
		Dividends paid				(56,133	)	(42,860	)
						------------		------------
				Net cash utilized by financing activities		(480,257	)	(58,591	)
						------------		------------
Effect of exchange rate changes on cash						1,423		324
						------------		------------
				Decrease in cash and cash equivalents		(633,168	)	(154,503	)
Cash and cash equivalents at beginning of year						942,268		725,002
						------------		------------
				Cash and cash equivalents at end of period	$	309,100		570,499
						=======		=======

	2007	2006
	------	------
Foreign currency translation adjustments	$ 2,411	2,017
Changes in value of available-for-sale securities, net of tax	(1,162)	(2,442)
Loss on cash flow hedging activities, net of tax	(784)	(586)
Reclassifications to earnings, net of tax	(80)	(316)
	----------	----------
	$ 385	(1,327)
	======	======

	Options	Weighted Average Exercise Price	Weighted Average Remaining Contractual Life	Aggregate Intrinsic Value
	-------------	----------	----------------	--------------
Outstanding at beginning of year	20,443	$19.04
Granted	3,126	18.83
Exercised	(1,419)	15.04
Expired or canceled	(540)	25.34
	------------
Outstanding at end of quarter	21,610	19.12	5.39 years	$86,353
	=======
Exercisable at end of quarter	15,129	19.01	4.85 years	$76,572
	=======

HASBRO, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (continued)
(Thousands of Dollars)
(Unaudited)

	Nine Months
	------------------------------------
	Forty	Thirty-Nine
	Weeks Ended	Weeks Ended
	Oct. 1, 2006	Sept. 25, 2005
	-------------------	------------------
Supplemental information
Cash paid during the period for:
Interest	$21,379	25,630
Income taxes	$58,477	12,903

See accompanying condensed notes to consolidated financial statements.

HASBRO, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Earnings
(Thousands of Dollars)
(Unaudited)


	Quarter					Nine Months
	-----------------------------------					------------------------------------
	Thirteen			Thirteen		Forty	Thirty-Nine
	Weeks Ended			Weeks Ended		Weeks Ended	Weeks Ended
	Oct. 1, 2006			Sept. 25, 2005		Oct. 1, 2006	Sept. 25, 2005
	-------------------			------------------		-------------------	-------------------
Net earnings	$	99,584		92,063		121,773	117,804
Other comprehensive earnings (loss)		(997	)	(7,091	)	9,686	(53,613	)
		----------		----------		----------	----------
Total comprehensive earnings	$	98,587		84,972		131,459	64,191
		======		======		======	======

See accompanying condensed notes to consolidated financial statements.

	2006		2005
	-----------------		-----------------
Quarter - ----------	Basic - -------	Diluted - --------	Basic - --------	Diluted - -------
Net earnings	$ 99,584	99,584	92,063	92,063
Effect of dilutive securities:
Change in fair value of liabilities
potentially settleable in common stock	-	-	-	(570)
Interest expense on contingent convertible
debentures due 2021	-	1,066	-	1,066
	------------	------------	------------	------------
Adjusted net earnings	$ 99,584	100,650	92,063	92,559
	=======	=======	=======	=======

Average shares outstanding	161,303	161,303	178,931	178,931
Effect of dilutive securities:
Liabilities potentially settleable in
common stock	-	-	-	5,243
Contingent convertible debentures
due 2021	-	11,574	-	11,574
Options and warrants	-	1,830	-	2,544
	------------	------------	------------	------------
Equivalent shares	161,303	174,707	178,931	198,292
	=======	=======	=======	=======

Net earnings per share	$ .62	.58	.51	.47
	=======	=======	=======	=======

	Quarter Ended Oct. 1, 2006 ------------------	Nine Months Ended Oct. 1, 2006 -----------------
Cost of sales	$ 81	226
Research and product development	351	902
Selling, distribution and administration	5,270	14,548
	--------	----------
	5,702	15,676
Income taxes	1,848	5,246
	--------	----------
	$ 3,854	10,430
	=====	======

	Quarter Ended Sept. 25, 2005 ------------	Nine Months Ended Sept. 25, 2005 -------------
Reported net earnings	$ 92,063	117,804
Add:
Stock-based employee compensation expense included in reported net earnings, net of related tax effects	9	38
Deduct:
Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects	(4,110)	(11,075)
	------------	------------
Pro forma compensation expense, net of tax	(4,101)	(11,037)
	------------	------------
Pro forma net earnings	$ 87,962	106,767
	=======	=======

Reported net earnings per share
Basic	$ .51	.66
	=======	=======
Diluted	$ .47	.61
	=======	=======
Pro forma net earnings per share
Basic	$ .49	.60
	=======	=======
Diluted	$ .45	.55
	=======	=======

	2006	2005
Risk-free interest rate	4.98%	3.84%
Expected dividend yield	2.55%	1.75%
Expected volatility	24%	29%
Expected option life	5 years	5 years

		Quarter Ended				Nine Months Ended
		Oct. 1,		Sept. 25,		Oct. 1,		Sept. 25,
		2006		2005		2006		2005
		---------		---------		---------		---------
Foreign currency translation adjustments	$	(492	)	(1,900	)	15,609		(57,507	)
Changes in value of available-for-sale securities, net of tax		(127	)	(909	)	(4,249	)	2,295
Losses on cash flow hedging activities, net of tax		(905	)	(4,061	)	(4,572	)	(530	)
Reclassifications to earnings, net of tax		527		(221	)	2,898		2,129
		----------		----------		----------		----------
Other comprehensive earnings (Ioss)	$	(997	)	(7,091	)	9,686		(53,613	)
		======		======		======		======

	Nine Months Ended
	-----------------------------

	Pension				Postretirement
	------------------				------------------
	Oct. 1, 2006		Sept. 25, 2005		Oct. 1, 2006	Sept. 25, 2005
	-------		-------		-------	-------
Service cost	$ 9,993		8,914		513	432
Interest cost	14,431		13,634		1,547	1,500
Expected return on assets	(16,543	)	(14,070	)	-	-
Net amortization and deferrals	3,610		2,660		347	263
	--------		----------		--------	--------
Net periodic benefit cost	$ 11,491		11,138		2,407	2,195
	=====		======		=====	=====

	Nine Months Ended - ----------------------------
	October 1, 2006 - -----------------------				September 25, 2005 - ----------------------------
Net revenues	External - -----------		Affiliate - ----------		External - -----------	Affiliate - ----------
North America	$	1,417,736	6,693		1,388,956	7,748
International		579,156	324		590,249	104
Global Operations (a)		8,319	913,313		6,220	888,732
Other segment		29,872	-		29,959	-
Corporate and eliminations		-	(920,330	)	-	(896,584	)
		------------	------------		------------	------------
	$	2,035,083	-		2,015,384	-
		=======	=======		=======	=======

	Quarter Ended ----------------------					Nine Months Ended --------------------------
Operating profit (loss) (c)	Oct. 1, 2006 - ---------------			Sept. 25, 2005 - -------		Oct. 1, 2006 - -------		Sept. 25, 2005 - -------
North America	$	111,581		85,323		146,753		115,334
International		43,202		32,868		26,786		26,234
Global Operations (a)		24,069		17,411		25,529		18,999
Other segment		569		292		6,598		7,250
Corporate and eliminations (b)		(14,224	)	(13,778	)	(21,996	)	(27,857	)
		-----------		-----------		------------		------------
Subtotal		165,197		122,116		183,670		139,960
Stock compensation (c)		-		6,162		-		16,978
		-----------		-----------		------------		------------
	$	165,197		128,278		183,670		156,938
		======		======		======		======

Total assets	October 1, 2006 - -------------			September 25, 2005 - -------------
North America	$	3,092,374		2,622,989
International		804,540		993,326
Global Operations		991,144		914,560
Other segment		126,956		109,584
Corporate and eliminations (b)		(2,052,237	)	(1,368,819	)
		--------------		--------------
	$	2,962,777		3,271,640
		========		========

	Quarter Ended			Nine Months Ended
		Oct. 1, 2006 - ---------	Sept. 25, 2005 - ---------	Oct. 1, 2006 - ---------	Sept. 25, 2005 - ---------
Boys' toys	$	157,648	192,602	374,573	494,146
Games and puzzles		410,682	387,352	809,698	791,068
Preschool toys		155,614	112,274	278,963	222,091
Tweens toys		111,042	115,628	197,469	194,612
Girls' toys		185,493	162,790	340,152	278,591
Other		18,659	17,406	34,228	34,876
		------------	------------	--------------	--------------
Net revenues	$	1,039,138	988,052	2,035,083	2,015,384
		=======	=======	========	========

	2007	2006	% Change
	-------------	-------------	-------------
Net Revenues
North American segment	$421,084	310,304	36%
International segment	187,676	145,491	29%

Operating Profit (Loss)
North American segment	$ 45,325	4,770	850%
International segment	(108)	(8,323)	99%

Item 1. Legal Proceedings.

	We are currently party to certain legal proceedings, none of which we believe to be material to our business or financial condition.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.