Hasbro (HAS)

Other Expense, Net

        Other expense, net of $1,226 for the year ended December 26, 2004 compares to other expense, net of $48,090 in 2003. Other expense, net in 2004 includes non-cash income of $12,710 compared to a non-cash charge to earnings of $13,630 in 2003, related to the change in the fair value of certain warrants required to be classified as a liability. 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, but is also affected by the Company's stock price volatility and dividends, as well as risk-free interest rates. Assuming the Company's stock volatility and dividend payments, 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 as 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

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the warrants will decrease and the Company will recognize income. Based on a hypothetical increase in the Company's stock price to $20.00 per share at December 26, 2004 from its actual price of $19.19 a share on that date, the Company would have recognized non-cash income of approximately $11,100 rather than actual non-cash income recorded of $12,710 for the year ended December 26, 2004, to reflect the change in the fair value of the warrants from their fair value of $138,650 at December 28, 2003.

        Other expense, net in 2004 also includes a $8,988 write-down of the value of the common stock of Infogrames, held by the Company as an available-for-sale investment. This write-down resulted from an other than temporary decline in the fair value of this investment. At December 26, 2004 the carrying value of this investment is approximately $4,600.

        Other expense, net in 2003 includes a loss on extinguishment of debt of $20,342 relating to the 8.50% Notes due 2006, repurchased pursuant to a tender offer in the fourth quarter of 2003. Under the tender offer, the Company repurchased notes totaling $167,257 in aggregate principal amount.

        Nonoperating expense for 2002 includes a $42,902 write-down of the value of the common stock of Infogrames. This charge was partially offset by interest income of $10,211 on a tax settlement received in the second quarter of 2002.