PART I. FINANCIAL INFORMATION

ITEM 1: FINANCIAL STATEMENTS

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

(Thousands of Dollars)
(Unaudited)

(1) In the opinion of management and subject to year-end audit, the accompanying unaudited interim financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the financial position of the Company as of July 1, 2001 and July 2, 2000, and the results of operations and cash flows for the periods then ended.

The year to date period ended July 1, 2001 is a 26-week period while the year to date period ended July 2, 2000 is a 27-week period.

The results of operations for the six months ended July 1, 2001 are not necessarily indicative of results to be expected for the full year.

(2) The Company's other comprehensive earnings (loss) primarily results from foreign currency translation adjustments, changes in value of the Company's available-for-sale investments, and the impact of deferred gains or losses on changes in the fair value of foreign currency contracts.

(3) In January 2001, the Company closed on the sale (commenced in 2000) of certain business units comprising Hasbro Interactive, as well as its internet portal, Games.com, to Infogrames Entertainment SA (Infogrames) for Infogrames securities and cash, resulting in a loss of $43,965 that was recognized at December 31, 2000. The sale was subject to certain post closing adjustments, which are under discussion between the Company and Infogrames.

The Infogrames securities received in the sale have been classified as available-for-sale and are included in other assets. Net revenues and operating losses of the business units sold were $22,700 and $(29,100), respectively, for the three months ended July 2, 2000 and $47,700 and $(63,900), respectively for the six months ended July 2, 2000.

(4) The Company is exposed to market risks attributable to fluctuations in foreign currency exchange rates primarily as a result of sourcing products in four currencies while marketing those products in more than thirty currencies. Results of operations will be affected primarily by changes in the value of the U.S. dollar, Hong Kong dollar, British pound, Euro, Canadian dollar and Mexican peso versus other currencies, principally in Europe and the United States. To manage this exposure, the Company hedges a portion of its estimated future foreign currency transactions using a combination of forward foreign exchange contracts and purchased foreign currency options.

Effective January 1, 2001, the Company adopted Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended by Statement of Accounting Standards No. 138, (collectively "SFAS 133") which require that the Company record all derivatives, such as foreign exchange products, on the balance sheet at fair value. Changes in the derivative fair values that are designated, effective and qualify as cash flow hedges are deferred and recorded as a component of accumulated other comprehensive earnings (AOCE) until the hedged transactions occur and are recognized in the consolidated statements of operations. The Company's foreign currency contracts hedging anticipated cash flows are designated as cash flow hedges.

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

(Thousands of Dollars)
(Unaudited)

The ineffective portion of a hedging derivative is immediately recognized in the consolidated statements of operations. As a result of adopting SFAS 133 and in accordance with the transition provisions, the Company recorded a one-time after tax charge of $1,066 or $.01 per share during the quarter ended April 1, 2001 representing the cumulative effect of the adoption in its consolidated statements of operations and an after tax unrealized loss of $753 to AOCE, which the Company expects to be reclassified to the consolidated statements of operations during the remainder of fiscal 2001.

A summary of the after tax activity in AOCE relating to the Company's hedging program is as follows:

The remaining balance in AOCE at July 1, 2001 represents a net unrealized gain on hedges of 2001 inventory purchases either purchased in the first quarter or forecasted to be purchased during the remainder of fiscal 2001. This amount will be transferred to the consolidated statement of operations upon the sale of the related inventory. The Company expects the entire balance in AOCE to be reclassified to the consolidated statement of operations within the next 9-12 months.

Changes in fair value which the Company excludes from its assessment of hedge effectiveness, which are included in the consolidated statement of operations were $11 for the quarter ended July 1, 2001 and $71 for the six months ended July 1, 2001. In addition, during the three months ended July 1, 2001, the Company transferred $695, after taxes, to earnings relating to the portion of the net gains in AOCE that relate to inventory sold during the period.

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

(Thousands of Dollars)
(Unaudited)

Occasionally, the Company enters into derivative instruments to offset changes in the fair value of intercompany loans which are required to be recognized in earnings. The Company recorded a net loss to other (income) expense of $86 and $926 for the three and six months ended July 1, 2001, respectively, relating to the change in fair value of such derivatives, partially offsetting gains from the change in fair value of intercompany loans from foreign currency fluctuations included in other (income) expense.

The Company formally documents all relationships between hedging instruments and hedged items as well as its risk management objectives and strategies for undertaking various hedge transactions. All hedges designated as cash flow hedges are linked to forecasted transactions and the Company assesses, both at the inception of the hedge and on an on-going basis, the effectiveness of the derivatives used in hedging transactions in offsetting changes in the cash flows of the hedged items. When it is determined that a derivative is not highly effective as a hedge under the requirements of SFAS 133, the Company discontinues hedge accounting prospectively. Any gain or loss deferred through that date remains in AOCE until the forecasted transaction occurs at which time it is reclassified into the consolidated statements of operations. To the extent the transaction is no longer deemed probable of occurring, hedge accounting treatment is discontinued prospectively and amounts deferred would be reclassified to the consolidated statements of operations.

(5) Hasbro is a worldwide marketer and distributor of children's and family entertainment products and services, principally engaged in the design, manufacture and marketing of games and toys ranging from traditional to high-tech. The Company's reportable segments are U.S. Toys, Games, International and Operations. In 2001, the Company has realigned its business segments to consolidate its toy-related product lines into its U.S. Toy segment. In addition, manufacturing facilities previously included in the Operations segment are now assessed as part of the segments which these facilities support. Prior year amounts have been reclassified to reflect the Company's current focus.

In the United States, the U.S. Toy segment includes the design, marketing and selling of boys action figures, vehicles and playsets, girls toys, preschool toys and infant products, creative play products and toy related specialty products. The Games segment includes the development, manufacturing, marketing and selling of traditional board games and puzzles, handheld electronic games, electronic interactive products, children's consumer electronics, electronic learning aids, trading card and role-playing games. Within the International segment, the Company develops, manufactures, markets and sells both toy and certain game products in non-U.S. markets. Operations sources product for the majority of the Company's segments. The Company also has other segments which license out certain toy and game properties and which operate retail stores. These other segments do not meet the quantitative thresholds for reportable segments and have been combined for reporting purposes.

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

(Thousands of Dollars)
(Unaudited)

Segment performance is measured at the operating profit level. Included in Corporate and eliminations are general corporate expenses, the elimination of intersegment transactions and assets not identified with a specific segment. Intersegment sales and transfers are reflected in management reports at amounts approximating cost.

The accounting policies of the segments are the same as those described in Note 1 to the Company's consolidated financial statements for the fiscal year ended December 31, 2000.

Results shown for the quarter and six months are not necessarily representative of those which may be expected for the full year 2001 nor were those of the comparable 2000 periods representative of those actually experienced for the full year 2000. Similarly, such results are not necessarily those which would be achieved were each segment an unaffiliated business enterprise.

Information by segment and a reconciliation to reported amounts for the quarter and six months ended July 1, 2001 and July 2, 2000 are as follows.

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

(Thousands of Dollars)
(Unaudited)

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

The following table presents consolidated net revenues by classes of principal products for the quarters and six month periods ended July 1, 2001 and July 2, 2000.

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

(Thousands of Dollars)
(Unaudited)

(6) Earnings per share data for the quarters and six months ended July 1, 2001 and July 2, 2000 were computed as follows:

(7) During the second quarter of 2001, The Company continued actions under its plan, begun in the fourth quarter of 2000, to consolidate its U.S. Toy group into Rhode Island, significantly reduce overhead through reductions in product development, sales and marketing, and administrative functions across the Company and to increase its development of the Company's core brands. Costs associated with this consolidation program, recorded in the fourth quarter of 2000, amounted to $152,270, of which $70,079 was recorded as a restructuring charge and $82,191 in various other operating expense categories.

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

(Thousands of Dollars)
(Unaudited)

The significant components of the plan included the closing of offices in Cincinnati, Ohio, the Napa, California office and warehouse and a small office in San Francisco, California, thereby essentially consolidating the U.S. Toy group in Rhode Island. These actions were substantially completed at December 31, 2000.

Additionally, the plan included the reduction of overhead, particularly in marketing and sales, product development and administration. This included a curtailment of the expansion of the retail business of Wizards, the further consolidation of certain international operating offices into regional centers and consolidation and streamlining of the Company's marketing activities. The Company is also increasing its focus on developing and marketing its core brands, thereby seeking to reduce its reliance on licenses. This focus resulted in product lines which will be discontinued or for which the Company has significantly reduced expectations.

The 2000 restructuring charge of $70,079 represented approximately $31,800 of cash charges for severance benefits for termination of approximately 850 employees, which will be disbursed over the employees' entitlement period, $21,400 of cash charges for lease costs to be expended over the contractual lease term of the closed facilities and non-cash charges of $16,900 for fixed asset write-offs, arising primarily in Corporate and the U.S. Toy segment. Non-cash charges relating to fixed asset write-offs were credited to the respective line items on the balance sheet as of December 31, 2000. Details of activity in the restructuring plan for the current period follow:

The remaining severance liability represents cash charges for severance benefits for employees not yet terminated and amounts for employees made redundant which will be disbursed over the employee's entitlement period. The balance in lease costs will be expended over the contractual lease term of the closed facilities.

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

(Thousands of dollars)

NET EARNINGS (LOSS) AND SEGMENT RESULTS
------------------------------------------------------------------------
Net loss for the second quarter of 2001 was $(18,331) compared with net income of $6,500 in the second quarter of 2000. For the six month period ended July 1, 2001, net loss was $(43,355) compared with net income of $21,627 for the six months ended July 2, 2000. Diluted earnings (loss) per share for the second quarter was $(.11) and $.04 in 2001 and 2000, respectively, and $(.25) and $.12 for the first six months in 2001 and 2000, respectively. The net loss and diluted loss per share for the six months ended July 1, 2001 include a cumulative effect of accounting change of $(1,066) or $(.01) per share relating to the adoption of SFAS 133 as discussed in the condensed notes to the consolidated financial statements. Net revenues and operating profits for the quarter and six months decreased in 2001 relative to the comparable periods in 2000 in two of the Company's three major business segments, Games and International. The U.S. Toys segment had operating profit in the second quarter and first six months of 2001, compared to a loss in the comparable 2000 periods. U.S. Toys segment revenues for the second quarter increased marginally while decreasing for the six month period from 2000 levels. Games segment revenues were negatively impacted by the sale of Hasbro Interactive and Games.com in January 2001 while operating profit was positively impacted. The six months of 2001 includes 26 weeks compared to 27 weeks in the comparable period of 2000. A more detailed discussion of items impacting consolidated net earnings and segment results follows.

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

(Thousands of dollars)

GROSS PROFIT
-----------------------
The Company's gross profit margin, expressed as a percentage of net revenues, was 60.1% and 59.6% for the second quarter and first six months of 2001, respectively, compared to the 2000 levels of 61.7% and 61.4%. The decrease in gross margin was primarily due to decreased revenues from higher margin products, such as POKEMON trading cards, which carry higher gross margins.

EXPENSES
-----------------
Amortization expense for the second quarter of 2001 decreased to $28,862 from $31,928 in 2000 and decreased to $58,283 for the six months from $64,784 during the 2000 comparable period. This primarily reflects the sale of Hasbro Interactive in January 2001.

Royalties, research and development expenses for the quarter and year to date decreased in both amount and as a percentage of net revenues from comparable 2000 levels. The royalty component decreased in both dollars and as a percentage of net revenues principally reflecting decreased revenues derived from royalty based products, primarily POKEMON products. Research and development was $29,907 and $60,204 for the quarter and six months of 2001 respectively, compared to $48,807 and $98,577 in the comparable periods of a year ago. The Company's sale of Hasbro Interactive and its internet portal, Games.com, in January 2001 accounted for 86% and 84% of the decrease for the three and six months periods, respectively.

Advertising expense for the 2001 second quarter decreased in dollar amount while remaining consistent as a percentage of revenue while advertising expense for the six months decreased in dollar amount but increased as a percentage of revenue. The decrease in dollar amount reflects reduced spending due to the anticipated lower sales volume in 2001.

Selling, distribution and administration expenses, which are largely fixed, increased as a percentage of net revenues but decreased in amount in both the second quarter and six months of 2001 from comparable 2000 levels. The decrease in dollar amount is due to the sale of Hasbro Interactive and Games.com in January 2001, decreased sales volume, and the Company's 2000 consolidation program to reduce overhead in the sales and marketing and administrative functions as well as other cost reduction efforts of the Company.

NONOPERATING (INCOME) EXPENSE
-------------------------------------------------------
Interest expense for the 2001 second quarter and six months was $25,321 and $51,211, respectively, compared with $28,198 and $49,641 in 2000. The decrease in the second quarter reflects decreased average outstanding debt in the second quarter of 2001 versus comparable periods in 2000 partially offset by increased borrowing rates.

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

(Thousands of dollars)

OTHER INFORMATION
---------------------------------
On January 1, 2001, the Company implemented Statement of Financial Accounting Standards No. 133, as amended by Statement of Financial Accounting Standards No. 138, which require that all derivative instruments, such as foreign exchange contracts be recorded on the balance sheet at fair value. The effect of adopting these standards on earnings, net of taxes, was $(1,066) while the effect on Accumulated Other Comprehensive Earnings was $(753).

In January 2001, the Company closed on the sale (commenced in 2000) of certain business units comprising Hasbro Interactive, as well as its internet portal, Games.com, to Infogrames Entertainment SA (Infogrames). The sale resulted in a loss of $43,965, which was recognized at December 31, 2000. The sale is subject to certain post closing adjustments, which are under discussion between the Company and Infogrames.

Due to the seasonal nature of the business and in particular the mix of products offered in 2001, the Company continues to expect the second half of the year and within that half, the fourth quarter, to be more significant to its overall business for the full year in 2001. This concentration increases the risk of (a) underproduction of popular items, (b) overproduction of less popular items and (c) failure to achieve tight and compressed shipping schedules. 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 trend of retailers over the past few years has been to purchase product within or close to the fourth quarter holiday consumer selling season, which includes Christmas. Quick response inventory management practices now being used result in fewer orders being placed in advance of shipment and more orders, when placed, for immediate delivery. Consequently, unshipped orders on any date in a given year are not necessarily indicative of sales for the entire year. In addition, it is a general industry practice that orders are subject to amendment or cancellation by customers prior to shipment. At July 29, 2001 and July 30, 2000, the Company's unshipped orders were approximately $630,000 and $870,000, respectively.

During the second quarter of 2001, the Company continued actions under its plan, begun in the fourth quarter of 2000, to consolidate its U.S. Toys group into Rhode Island, significantly reduce overhead through reductions in product development, sales and marketing, and administrative functions across the Company and to increase its focus on development of the Company's core brands. The plan is expected to be completed in 2001. The cost savings achieved as a result of the restructuring plan actions, for which the Company incurred a charge in 2000, were approximately $13,000 and $23,000 for the quarter and six month period ended July 1, 2001.

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

(Thousands of dollars)

The significant components of the plan included the closing of the Company's offices in Cincinnati, Ohio, the Napa, California office and warehouse and a small office in San Francisco, California, thereby essentially consolidating the U.S. Toys group in Rhode Island. These actions were substantially completed at December 31, 2000. The remaining severance liability represents cash charges for severance benefits for employees not yet terminated and amounts for employees made redundant which will be disbursed over the employee's entitlement period. The balance in lease costs will be expended over the contractual lease terms. The Company expects to generate full year pre-tax savings of approximately $49,000 in 2001 and $53,000 in 2002 from the actions for which the Company incurred a charge in 2000.

LIQUIDITY AND CAPITAL RESOURCES
--------------------------------------------------------
The seasonality of the Company's business results in the interim cash flow statements not being representative of that which may be expected for the full year. Historically, the majority of the Company's cash collections occur late in the fourth quarter and early in the first quarter of the subsequent year. As receivables are collected, the proceeds are used to repay a significant portion of outstanding short-term debt.

Because of this seasonality in 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, 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 year-end.

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

(Thousands of dollars)

Cash flows provided by operating activities was $13,930 for the six months ended July 1, 2001 versus cash utilized by operating activities of $9,811 for the six months ended July 2, 2000. Receivables were $399,402 at July 1, 2001 compared to $573,869 at the end of the 2000 comparable period. The decrease in receivables primarily reflects the reduced second quarter revenues in comparison with the second quarter of 2000, combined with the sale of Hasbro Interactive in January 2001 and improved collections. Inventories decreased 33.8% from 2000 levels, primarily reflecting improved inventory management and to a lesser extent, the sale of Hasbro Interactive. Other current assets decreased to $385,422 at July 1, 2001 from $456,279 at July 2, 2000 primarily due to the sale of Hasbro Interactive and to a lesser extent decreases in advance royalties as the result of licensed products, primarily POKEMON products, comprising a higher percentage of 2000 sales. Accounts payable and accrued liabilities decreased to $616,841 from $881,204 in 2000. Of this $264,363 decrease, 14% was the result of the sale of Hasbro Interactive and Games.com. The remaining decrease was primarily attributable to decreased accrued income taxes as a result of a decrease in taxable income, decreased accrued royalties as the result of decreased sales volume, and a general decrease in accrued expenses as a result of decreased operating expenses.

Property, plant and equipment and other assets, as a group, decreased from their 2000 levels, reflecting the sale of Hasbro Interactive, assets written off or written down to fair market value in connection with the Company's 2000 consolidation program and twelve additional months of depreciation and amortization expense. These decreases were partially offset by securities received from the sale of Hasbro Interactive and Games.com.

Net cash utilized by financing activities of $58,257 in the six months of 2001 compares with cash provided in 2000 of $19,940. Net borrowings (short and long-term borrowings less cash and cash equivalents) decreased to $1,285,198 at July 1, 2001 from $1,343,789 at July 2, 2000. During 2001, the Company used its available cash to reduce its outstanding borrowings due to its increased focus on debt reduction. The decrease is also the result of borrowings in the prior year to finance the Company's repurchase of its common stock. In February 2001, the Company entered into amended and restated secured revolving and line of credit facility agreements with existing lenders. The facilities are secured by substantially all domestic accounts receivable and inventory, as well as certain investments and intangible assets of the Company. Amounts available for borrowing under these committed facilities of $325,000 (long-term) and $325,000 (short-term)was $500,000 at July 1, 2001. The available amounts under these lines were at their lowest point in the first quarter of 2001 and will increase to the maximum amount of $650,000 in the third quarter of 2001. In addition to these available committed lines, the Company also had available uncommitted lines approximating $127,000. The Company believes that these amounts are adequate for its needs. Of these available committed and uncommitted lines, approximately $202,000 was in use at July 1, 2001. Included in short-term borrowings is $1,729 of current installments of long-term debt.

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

(Thousands of dollars)

EURO CONVERSION
------------------------------
Certain member countries of the European Union established fixed conversion rates between their existing currencies and the European Economic Monetary Union common currency, or Euro. While the Euro was introduced on January 1, 1999, member countries will continue to use their existing currencies through January 1, 2002, with the transition period for full conversion to the Euro ending June 30, 2002. Transition to the Euro creates certain issues for the Company with respect to upgrading information technology systems for 2002 full use requirements, reassessing currency risk, product pricing, amending business and financial contracts as well as processing tax and accounting records. The Company has and will continue to address these transition issues and does not expect the Euro conversion to have a material effect on the results of operations or financial condition of the Company.

MARKET RISKS
-----------------------
The Company is exposed to market risks attributable to fluctuations in foreign currency exchange rates. The Company's objective is to reduce volatility in results from operations and cash flows associated with foreign currency exchange rate changes. Accordingly, the Company manages this exposure by hedging a portion of its anticipated and committed foreign currency transactions using a combination of forward foreign exchange contracts and purchased foreign currency option contracts. These contracts generally mature within twelve to fifteen months from the date into which they are entered. It is the Company's policy to only enter into foreign currency contracts considered necessary to support its business objective as stated above. The Company does not speculate in foreign currencies.

FORWARD-LOOKING STATEMENTS
----------------------------------------------------
This Quarterly Report on Form 10-Q contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements include, without limitation, any statement that may predict, forecast, indicate or imply future results, performance or achievements, and may contain 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 such words with similar meanings. These forward-looking statements are inherently subject to known and unknown risks and uncertainties. The Company's actual actions or results may differ materially from those expected or anticipated in the forward-looking statements.

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 on a timely basis and the acceptance of those products by customers and consumers at prices that will be sufficient to profitably recover development, manufacturing, marketing, royalty and other costs of products; economic conditions, including higher fuel prices, currency fluctuations and government regulations and other actions in the various markets in which the Company

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

(Thousands of dollars)

operates throughout the world; the inventory policies of retailers, 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; 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 talented employees in a competitive environment; the ability of the Company to generate sufficient available cash flow to service its outstanding debt; restrictions on the Company contained in the Company's credit agreements; market conditions, third party actions or approvals and the impact of competition that could delay or increase the cost of implementation of the Company's consolidation programs, prevent the Company from fully amortizing advance royalties paid in connection with licensed products, result in an impairment of the goodwill associated with acquired companies or impacted product lines, reduce actual results, and cause anticipated benefits of acquisitions to be delayed or reduced in their realization; and 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 Forms 8-K, 10-Q, and 10-K. The Company undertakes no obligation to make any revisions to 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.

RECENT INFORMATION
-----------------------------------
In July 2001, the FASB issued Statement No. 141, "Business Combinations", and Statement No. 142, "Goodwill and Other Intangible Assets." Statement 141 requires that the purchase method of accounting be used for all business combinations initiated or completed after June 30, 2001. Statement 141 also specifies the criteria intangible assets acquired in a purchase method business combination must meet to be recognized and reported apart from goodwill. Statement No. 142 will require that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead tested for impairment at least annually in accordance with the provisions of Statement 142. Statement 142 will also require that intangible assets with definite useful lives be amortized over their respective estimated useful lives down to their estimated residual values, and reviewed for impairment in accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."

The Company is required to adopt the provisions of Statement 141 immediately and Statement 142 effective January 1, 2002. Goodwill and intangible assets acquired in business combinations completed before July 1, 2001 will continue to be amortized prior to the adoption of Statement 142.

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

(Thousands of dollars)

Statement 141 will require, upon adoption of Statement 142, that the Company evaluate its existing intangible assets and goodwill that were acquired in prior purchase business combinations, and to make any necessary reclassifications in order to conform with the new criteria in Statement 141 for recognition apart from goodwill. Upon adoption of Statement 142, the Company will also be required to reassess the useful lives and residual values of all intangible assets acquired in purchase business combinations, and make any necessary amortization period adjustments by the end of the first interim period after adoption. In addition, to the extent an intangible asset is identified as having an indefinite useful life, the Company will be required to test the intangible asset for impairment in accordance with the provisions of Statement 142 within the first interim period. Any impairment loss arising from this assessment will be recognized as the cumulative effect of a change in accounting principle in this period.

Statement 142 will require the Company to also perform an assessment of whether there is an indication that goodwill is impaired as of the date of adoption.

This assessment and analysis of its results is required to be completed as soon as possible, but no later than the end of the year of adoption. Any transitional impairment loss will be recognized as the cumulative effect of a change in accounting principle in the Company's statement of operations.

Amortization expense related to goodwill (presented in the caption "Costs in excess of net assets" in the accompanying consolidated balance sheets) was $47,482 and $20,773 for the year ended December 31, 2000 and the six months ended July 1, 2001, respectively. Because of the extensive effort needed to comply with adopting Statements 141 and 142, it is not practicable to reasonably estimate the impact of adopting these Statements on the Company's financial statements at the date of this report, including whether any transitional impairment losses will be required to be recognized as the cumulative effect of a change in accounting principle.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

None.

Item 2. Changes in Securities.

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Submission of Matters to a Vote of Security Holders.

Item 5. Other Information

None.

Item 6. Exhibits and Reports on Form 8-K.

Item 6. Exhibits and Reports on Form 8-K. (continued)

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

HASBRO, INC. AND SUBSIDIARIES
Quarterly Report on Form 10-Q
For the Period Ended July 1, 2001

Exhibit Index