Hasbro (HAS)

Earnings Per Common Share

        Basic earnings per share is computed by dividing net earnings by the weighted average number of shares outstanding for the year. Diluted earnings per share is similar except that the weighted average number of shares outstanding is increased by dilutive securities, and net earnings are adjusted for certain amounts related to dilutive securities. Dilutive securities include shares issuable under convertible debt, as well as shares issuable upon exercise of stock options and warrants for which market price exceeds exercise price, less shares which could have been purchased by the Company with the related proceeds. Dilutive securities may also include shares potentially issuable to settle liabilities. Options and warrants totaling 10,207, 3,451 and 39,473 for 2004, 2003 and 2002, respectively, were excluded from the calculation of diluted earnings per share because to include them would have been antidilutive.

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        A reconciliation of earnings before cumulative effect of accounting change and average number of shares for the three fiscal years ended December 26, 2004 is as follows:

        In December 2004, the Company adopted Emerging Issues Task Force ("EITF") Issue 04-8, "The Effect of Contingently Convertible Instruments on Diluted Earnings per Share", which states that the dilutive effect of contingent convertible debt instruments must be included in dilutive earnings per share regardless of whether the triggering contingency has been satisfied. Issue 04-8 requires application on a retroactive basis and restatement of prior period earnings per share, and is effective for periods ending after December 15, 2004. Accordingly, diluted earnings per share for 2003 and 2002 were restated to reflect the dilutive effect of the conversion of the Company's Senior Convertible Debentures due 2021. The earnings per share calculations for the three years ended December 26, 2004 include adjustments to add back to earnings the interest expense, net of tax, incurred on the convertible debentures, as well as add back to outstanding shares the amount of shares potentially issuable as if the contingent conversion features were met.

        As a result of the adoption in 2003 of Statement of Financial Accounting Standards No. 150 "Accounting for Certain Financial Instruments with Characteristics of Liabilities and Equity" (note 7), 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. As of December 26, 2004, the warrants had a more dilutive impact on earnings per share, assuming they were treated as an equity contract. Accordingly, the numerator includes an

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adjustment to earnings for the income included therein related to the fair market value adjustment and the denominator includes an adjustment for the shares issuable as of December 26, 2004. As of December 28, 2003, the warrants had a more dilutive impact on earnings per share, assuming they were treated as a liability contract. Accordingly, the charge to earnings for the change in fair value of the contract in 2003 is not eliminated and no shares related to this warrant are included in dilutive securities. Prior to the adoption of SFAS 150, the dilutive effect of these warrants was included in the diluted earnings per share calculation using the treasury stock method.