This Quarterly Report on Form 10-Q, including the following section entitled Management's Discussion and Analysis of Financial Condition and Results of Operations, contains forward-looking statements expressing management's current expectations, goals, objectives and similar matters. These forward-looking statements may include statements concerning the Company's product plans, anticipated product performance, business opportunities and strategies, financial goals and expectations for achieving the Company's financial goals and other objectives. See Item 1A, in Part II of this report, for a discussion of factors which may cause the Company's actual results or experience to differ materially from that anticipated in these forward-looking statements. The Company undertakes no obligation to revise the forward-looking statements in this report after the date of the filing.

EXECUTIVE SUMMARY

The Company earns revenue and generates cash primarily through the sale of a variety of toy and game products, as well as through the out-licensing of rights for use of its properties in connection with non-competing products, including digital games, offered by third-parties. The Company sells its 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. In 2008, 2007 and 2006, the second half of the year accounted for 63%, 66% and 68% of the Company's net revenues, 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 entertainment properties, such as MARVEL and STAR WARS properties.

The Company's business is primarily separated into three principal business segments, U.S. and Canada, International and Entertainment and Licensing. The U.S. and Canada segment develops, markets and sells both toy and game products in the U.S. and Canada. The International segment consists of the Company's European, Asia Pacific and Latin and South American marketing operations, including Mexico. During the second quarter, the Company changed the name of its' Other segment to Entertainment and Licensing. The Company's Entertainment and Licensing segment includes the Company's lifestyle licensing, digital gaming, movie, television and online entertainment operations. In addition to these three primary segments, the Company's world-wide manufacturing and product sourcing operations are managed through its Global Operations segment.

The Company seeks to make its brands relevant in all areas important to its consumers. Brand awareness is amplified through immersive traditional play, digital applications, publishing and lifestyle licensing and entertainment experiences presented for consumers' enjoyment. 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. The Company's core brands represent Company-owned or Company-controlled brands, such as TRANSFORMERS, MY LITTLE PONY, LITTLEST PET SHOP, MONOPOLY, MAGIC: THE GATHERING, PLAYSKOOL, G.I. JOE, NERF and TONKA, which have been successful 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. During the first six months of 2009 the Company had significant sales of core brand products, namely TRANSFORMERS, LITTLEST PET SHOP, NERF, G.I. JOE, PLAYSKOOL, PLAY-DOH, MONOPOLY and MAGIC: THE GATHERING. The Company's strategy of reimagining, reinventing and reigniting its brands has proved instrumental to achieving its overall growth objectives.

The Company also seeks to drive product-related revenues by increasing the visibility of its core brands through entertainment. As an example of this, in June of 2009, the TRANSFORMERS: REVENGE OF THE FALLEN motion picture was released as a sequel to the 2007 motion picture TRANSFORMERS. The Company developed and marketed product lines based on these motion pictures. As a result of pairing this core brand with motion picture entertainment, both the movie and the product line benefited. The Company expects to continue this strategy and anticipates increased revenues from G.I. JOE products as a result of the theatrical release of the G.I. JOE: THE RISE OF COBRA motion picture in August 2009. In addition, the Company has entered into a six-year strategic relationship with Universal Pictures to produce at least four motion pictures based on certain of Hasbro's core brands. The first movie is expected to be released in 2011, followed by anticipated releases of at least one movie per year thereafter. As part of its strategy, in addition to using theatrical entertainment, the Company continues to seek opportunities to use other entertainment outlets and forms of entertainment as a way to build awareness of its brands and broaden the ability of consumers to experience its brands.

In April 2009 the Company announced the entry into an agreement to form a joint venture with Discovery Communications ('Discovery") to create a television network in the United States dedicated to high-quality children's and family entertainment and educational programming. The transaction closed in May 2009.
Programming on the network will include content based on Hasbro's brands, Discovery's library of children's educational programming, as well as programming developed by third parties. The Company expects the rebranded network to debut in late fall of 2010 and believes that it will reach approximately 60 million homes in the U.S. at that time, with programming targeted to children 14 years of age and under. The Company believes that this effort will support its strategy of growing its core brands well beyond traditional toys and games - into brands which consistently provide immersive entertainment experiences for consumers of all ages in any form or format. In connection with this transaction, the Company will commence the start-up of an internal creative group that will be responsible for the creation and development of television programming based on Hasbro's

brands. The Company expects to incur a certain level of investment spending leading up to the debut of the rebranded channel.

While the Company believes it has 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 key strengths. In 2008 and 2007, the Company had significant sales of products related to the Company's license with Marvel Characters B.V. ("Marvel"), primarily due to the theatrical releases of IRON MAN in May 2008, THE INCREDIBLE HULK in June 2008 and SPIDER-MAN 3 in May 2007. In addition, the Company had significant sales in 2008 of products related to the movie release of STAR WARS:
CLONE WARS in August 2008 as well as sales from the movie release of INDIANA JONES AND THE KINGDOM OF THE CRYSTAL SKULL in May 2008. During the remainder of 2009 the Company expects to continue to have a high level of revenues from products related to television programming based on SPIDER-MAN and STAR WARS.

While gross profits of theatrical entertainment-based products are generally higher than many of the Company's other products, sales from these products, including Company owned or controlled brands based on a movie release, also incur royalty expense. Such royalties reduce the impact of these higher gross margins. In certain instances, such as with Lucasfilm's STAR WARS, the Company may also incur amortization expense on property right-based assets acquired from the licensor of such properties, further impacting operating profits earned on these products.

The Company's long-term strategy also focuses on extending its brands further into the digital world. As part of this strategy, the Company entered into a multi-year strategic agreement with Electronic Arts Inc. ("EA"). The agreement gives EA the exclusive worldwide rights, subject to existing limitations on the Company's rights and certain other exclusions, to create digital games for all platforms, such as mobile phones, gaming consoles and personal computers, based on a broad spectrum of the Company's intellectual properties, including MONOPOLY, SCRABBLE, YAHTZEE, NERF, TONKA, G.I. JOE and LITTLEST PET SHOP. A number of products under this agreement have been released in 2008 and the first half of 2009 and the line will continue to be updated and expanded during the remainder of 2009.

While the Company remains committed to investing in the growth of its business, it also continues to be focused on reducing fixed costs through efficiencies and on profit improvement. Over the last 6 years the Company has improved its full year operating margin from 7.8% in 2002 to 12.3% in 2008. The Company reviews its operations on an ongoing basis and seeks to reduce the cost structure of its underlying business and promote efficiency. The Company is also investing to grow its business in emerging markets. In 2008 the Company expanded its operations in China, Brazil, Russia, Korea and the Czech Republic. In addition, the Company is seeking to grow its business in entertainment and digital gaming, and will continue to evaluate strategic alliances and acquisitions which may complement its current product offerings, allow it entry into an area which is adjacent to or complementary to the toy and game business, or allow it to further develop awareness of its brands and expand the ability of consumers to experience its brands in different forms of media. In addition to the Discovery joint venture discussed above, other examples of this would include the acquisition of Cranium, Inc., a developer and

marketer of CRANIUM branded games and related products, in 2008. In addition, in the second quarter of 2008, the Company acquired the rights to TRIVIAL PURSUIT, a brand which the Company had previously licensed on a long-term basis. Ownership of the rights will allow the Company to further leverage the brand in different media.

In recent years, the Company has been seeking to return excess cash to its shareholders through share repurchases and dividends. As part of this initiative, over the last four years, the Company's Board of Directors (the "Board") has adopted four share repurchase authorizations with a cumulative authorized repurchase amount of $1,700,000. After fully exhausting the prior three authorizations, the fourth authorization was approved on February 7, 2008 for $500,000. During the first six months of 2009, there were no repurchases of common stock under these authorizations. For the years ended 2008, 2007 and 2006, the Company spent $357,589, $587,004 and $456,744, respectively, to repurchase 11,736, 20,795 and 22,767 shares, respectively, in the open market. The Company intends to, at its discretion, opportunistically repurchase shares in the future subject to market conditions and the Company's other uses of cash. At June 28, 2009, the Company had $252,364 remaining under the February 2008 authorization.

During the first half of 2009, the Company has been operating in an environment of both a stronger U.S. dollar relative to foreign currencies as well as weakened overall economic conditions compared to 2008. Accordingly, the Company has sought to mitigate the impact of these conditions by instituting a variety of cost control initiatives, including salary freezes, limitations on new hires, and an effort to reduce its overall SKU count. As of June 28, 2009 the Company had $392,034 in cash and cash equivalents and had available capacity, if needed, under its revolving credit agreement. In connection with the announcement of a joint venture agreement with Discovery in April 2009, the Company made a $300,000 investment to purchase its 50% share of the joint venture. The Company funded its investment through the issuance of debt with a principal amount of $425,000 in May 2009. The Company believes that the funds available to it, including cash expected to be generated from operations and funds available through its available lines of credit, accounts receivable securitization program and other borrowing facilities are adequate to meet its working capital needs for the remainder of 2009 and 2010.

SUMMARY OF FINANCIAL PERFORMANCE

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

The components of the results of operations, stated as a percent of net
revenues, are illustrated below for the quarters and six months ended June 28,
2009 and June 29, 2008.


                                                  Quarter                 Six Months
                                             2009         2008         2009         2008
                                           -------      -------      -------      -------
Net revenues                                   100.0%       100.0%       100.0%       100.0%
Cost of sales                                  40.3         39.3         39.9         38.9
                                         ------------ ------------ ------------ ------------
Gross profit                                   59.7         60.7         60.1         61.1
Amortization                                    2.4          2.6          2.7          2.6
Royalties                                       9.3          8.7          9.1          8.5
Research and product development                5.5          5.8          5.7          5.9
Advertising                                    10.3         11.0         10.2         11.0
Selling, distribution and administration       23.0         24.2         24.3         24.6
                                         ------------ ------------ ------------ ------------
Operating profit                                9.2          8.4          8.1          8.5
Interest expense                                2.2          1.6          1.9          1.6
Interest income                                (0.1)        (0.5)        (0.1)        (0.8)
Other (income) expense, net                    (0.1)         0.2          0.3          0.3
                                         ------------ ------------ ------------ ------------
Earnings before income taxes                    7.2          7.1          6.0          7.4
Income taxes                                    2.2          2.3          1.8          2.4
                                         ------------ ------------ ------------ ------------
Net earnings                                     5.0%         4.8%         4.2%         5.0%
                                              =======      =======      =======      =======

RESULTS OF OPERATIONS

The quarters and six months ended June 28, 2009 and June 29, 2008 were 13-week and 26-week periods, respectively. Net earnings for the quarter and six months ended June 28, 2009 were $39,275 and $59,005, respectively, compared with net earnings of $37,486 and $74,956 for the respective periods of 2008. Basic earnings per share for the quarter and six months ended June 28, 2009 were $0.28 and $0.42 compared to basic earnings per share of $0.27 and $0.53 for the respective periods of 2008. Diluted earnings per share were $0.26 and $0.40 for the quarter and six months ended June 28, 2009, compared with diluted earnings per share of $0.25 and $0.50 for the respective periods in 2008. Net earnings for both the quarter and six-month periods in 2009 include dilution from the Company's investment in the joint venture with Discovery and its' issuance of $425,000 of long-term debt, both of which closed in May 2009.

Consolidated net revenues for the quarter ended June 28, 2009 increased 1% to $792,202 compared to $784,286 for the quarter ended June 29, 2008. For the six months ended June 28, 2009, consolidated net revenues were $1,413,542 compared to $1,488,506 for the six months ended June 29, 2008, a decrease of 5%. Consolidated net revenues were negatively impacted by foreign currency translation in the amount of approximately $44,500 and $84,700 for the quarter and six months ended June 28, 2009, respectively, as the result of the stronger U.S. dollar in 2009. Operating profit for the quarter ended June 28, 2009 was $73,073 compared to $65,509 for the quarter ended June 29, 2008. Operating profit for the 2009 six-month period was $114,290 compared to an operating profit of $126,762 for the six-month period of 2008.

Most of the Company's revenues and operating profit are derived from its three principal segments: the U.S. and Canada segment, the International segment and the Entertainment and Licensing segment, which are discussed in detail below. The following table presents net external revenues and operating profit data for the Company's three principal segments for the quarters and six months ended June 28, 2009 and June 29, 2008.

                                         Quarter                            Six Months
                                                        %                                     %
                               2009        2008       Change       2009          2008       Change
                            ---------- ------------ ---------- ------------- ------------ ----------
Net Revenues
  U.S. and Canada segment     $490,877      467,663         5%       895,379      896,185         -%
  International segment        276,231      293,688        -6%       465,423      541,943       -14%
  Entertainment and             24,153       21,305        13%        51,386       47,591         8%
    Licensing segment

Operating Profit
  U.S. and Canada segment     $ 56,318       43,693        29%        97,868       81,004        21%
  International segment         16,450       13,978        18%         1,979       27,005       -93%
  Entertainment and              2,939        8,031       -63%        16,566       20,424       -19%
    Licensing segment

U.S. AND CANADA SEGMENT

The U.S. and Canada segment's net revenues for the quarter ended June 28, 2009 increased 5% to $490,877 from $467,663 for the quarter ended June 29, 2008. Net revenues for the six months ended June 28, 2009 were $895,379 compared to $896,185 for the six months ended June 29, 2008. For the quarter and six months ended June 28, 2009, U.S. and Canada segment net revenues were negatively impacted by currency translation of approximately $1,600 and $5,700, respectively, as the result of the stronger U.S. dollar in the first six months of 2009. Absent the effect of foreign exchange, the increase in the quarter and six months was driven by increased sales in the boys' toys category, primarily as a result of increased sales of TRANSFORMERS and GI JOE products due to the theatrical release of TRANSFORMERS: REVENGE OF THE FALLEN in June 2009 and the anticipated release of GI JOE: THE RISE OF COBRA in August 2009. Net revenues in the boys' toys categories also increased as a result of increased sales of NERF products. Increased sales in the boys' toys category were partially offset by decreased sales of MARVEL, STAR WARS and INDIANA JONES products in both the quarter and six months. Revenues from the girls' toys category increased for the

second quarter of 2009 but decreased for the six months ended June 28, 2009, primarily as a result of sales of LITTLEST PET SHOP products which increased in the quarter but decreased in the six months. Although revenues from LITTLEST PET SHOP products have decreased overall in the six months, this line increased in the second quarter and remained a significant contributor to U.S. and Canada segment net revenues in that period. Revenues from the games and puzzles category decreased in both the quarter and six month period primarily due to decreased sales of traditional board games, partially offset by increased revenues of MAGIC: THE GATHERING in the second quarter of 2009. Revenues in the preschool category decreased slightly in the quarter but increased overall for the six months. Increases in preschool net revenues were primarily the result of higher sales of PLAY-DOH and TONKA products. These increases were partially offset in the six months and more than offset in the quarter as a result of decreased sales of other products, primarily PLAYSKOOL. Revenues from sales of PLAYSKOOL products declined primarily as a result of decreased sales of the ROSE PETAL COTTAGE line which is no longer in the Company's product line. Net revenues in the quarter and six months were also negatively impacted by decreased sales of TOOTH TUNES, which has also been discontinued in the Company's product line.

U.S. and Canada segment operating profit increased to $56,318 for the quarter ended June 28, 2009 compared to $43,693 for the quarter ended June 29, 2008. For the six months ended June 28, 2009 operating profit increased to $97,868 from $81,004 for the six months ended June 29, 2008. The increase in operating profit for the quarter was primarily a result of increased gross profit due to the higher revenues discussed above. The increase in operating profit for the six months is primarily due to decreased selling, distribution and administration expenses which primarily reflect lower shipping and distribution costs.

INTERNATIONAL SEGMENT

International segment net revenues decreased by 6% to $276,231 for the quarter ended June 28, 2009 from $293,688 for the quarter ended June 29, 2008. Net revenues for the six months ended June 28, 2009 decreased 14% to $465,423 from $541,943 for the six months ended June 29, 2008. For the quarter and six months ended June 28, 2009, International segment net revenues were negatively impacted by currency translation of approximately $42,800 and $78,900, respectively, as the result of the stronger U.S. dollar in the first six months of 2009. Excluding the unfavorable impact of foreign exchange, International segment net revenues increased 9% in local currency for the second quarter of 2009 while revenues for the six month period of 2009 increased slightly. The increase in local currency net revenues for the quarter and six months was driven by increased sales of TRANSFORMERS products due to the theatrical release of TRANSFORMERS: REVENGE OF THE FALLEN in June 2009. Net revenues in the boys' toys category increased for the quarter but decreased for the six month period. Increases in boys' toys net revenues as a result of increased sales of TRANSFORMERS products were partially offset in the quarter and more than offset in the six months by lower revenues from MARVEL and INDIANA JONES products. Revenues in the games and puzzles category decreased in both the quarter and six month period as a result of decreased sales of board games. Net revenues in the quarter and six months were also negatively impacted by decreased revenues in the girls' toys category, driven by decreased sales of MY LITTLE PONY and, to a lesser extent, FURREAL FRIENDS and BABY ALIVE. Net revenues in the preschool category decreased for the quarter and six months primarily as a result of decreased sales of PLAYSKOOL and IN THE NIGHT GARDEN products, partially offset by increased revenues from sales of PLAY-DOH.

International segment operating profit increased to $16,450 for the quarter ended June 28, 2009 compared to $13,978 for the quarter ended June 29, 2008. For the six month period ended June 28, 2009 operating profit decreased to $1,979 from $27,005 in the comparable period of 2008. Absent the impact of foreign exchange, operating profit for the quarter increased by approximately $3,600 primarily as a result of the higher local currency revenues discussed above. Operating profit for the six month period decreased as a result of lower gross profit and increased operating expenses. In addition, operating profit for the six months ended June 29, 2008 was positively impacted by the recognition of a pension surplus in the United Kingdom of approximately $6,000.

ENTERTAINMENT AND LICENSING SEGMENT

During the second quarter of 2009, the Company changed the name of its Other segment to the Entertainment and Licensing segment. This segment includes the Company's lifestyle licensing, digital gaming, movie, television and online entertainment operations. The Entertainment and Licensing segment's net revenues for the quarter ended June 28, 2009 increased 13% to $24,153 from $21,305 for the quarter ended June 29, 2008. Net revenues for the six months ended June 28, 2009 increased 8% to $51,386 from $47,591 for the six months ended June 29, 2008. The increase in both the quarter and six month period was primarily due to higher licensing revenues in the boys' toys category, primarily relating to TRANSFORMERS, GI JOE and NERF. Revenues in the six month period were also positively impacted by increased revenues from digital gaming.

Entertainment and Licensing segment operating profit decreased to $2,939 for the quarter ended June 28, 2009 compared to $8,031 for the quarter ended June 29, 2008. For the six months ended June 28, 2009 operating profit decreased to $16,566 from $20,424 in the comparable period of 2008. Gross profit for the quarter and six months increased as a result of the higher revenues discussed above. The increases in gross profit were more than offset in the quarter and six months, primarily as a result of increased selling, distribution and administrative expenses which included approximately $7,200 in acquisition costs related to the Company's investment in the joint venture with Discovery. While the Discovery joint venture is a component of our television operations, the Company's 50% share in the earnings from the joint venture are included in other (income) expense and therefore are not a component of operating profit of the segment.

GROSS PROFIT . . .