Derivative Financial Instruments

6 Months Ended

Jun. 26, 2011

Derivative Financial Instruments (Thousands of Dollars) [Abstract]

Derivative Financial Instruments

(8) Derivative Financial Instruments

Hasbro uses foreign currency forward contracts to mitigate the impact of currency rate fluctuations on firmly committed and projected future foreign currency transactions. These over-the-counter contracts, which hedge future currency requirements related to purchases of inventory and other cross-border transactions not denominated in the functional currency of the business unit, are primarily denominated in United States and Hong Kong dollars, Euros and United Kingdom pound sterling and are entered into with a number of counterparties, all of which are major financial institutions. The Company believes that a default by a single counterparty would not have a material adverse effect on the financial condition of the Company. Hasbro does not enter into derivative financial instruments for speculative purposes.

The Company also has warrants to purchase common stock of an unrelated company that constitute and are accounted for as derivatives. For additional information related to these warrants see Note 6. In addition the Company is party to several interest rate swap agreements to effectively adjust the interest rates on a portion of the Company’s long-term debt from fixed to variable. For additional information related to these interest rate swaps see Note 4.

Cash Flow Hedges

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Hasbro uses foreign currency forward contracts to reduce the impact of currency rate fluctuations on firmly committed and projected future foreign currency transactions. All of the Company’s designated foreign currency forward contracts are considered to be cash flow hedges. These instruments hedge a portion of the Company’s currency requirements associated with anticipated inventory purchases and other cross-border transactions in 2011 through 2013.

At June 26, 2011, June 27, 2010 and December 26, 2010, the notional amounts and fair values of the Company’s foreign currency forward contracts designated as cash flow hedging instruments were as follows:

	June 26, 2011		June 27, 2010		Dec. 26, 2010
	---------------		---------------		---------------
Hedged transaction	Notional   Amount	Fair Value	Notional   Amount	Fair Value	Notional   Amount	Fair Value
----------------------------	--------------	----------	-------------	-----------	------------	----------
Inventory purchases	$ 607,076	(22,801)	468,389	38,204	593,953	11,074
Intercompany royalty transactions	185,568	(5,650)	167,786	16,597	179,308	5,344
Other	13,768	221	26,601	(216)	17,047	533
	------------	----------	------------	----------	------------	----------
Total	$ 806,412	(28,230)	662,776	54,585	790,308	16,951
	=======	======	=======	======	=======	======

The Company has a master agreement with each of its counterparties that allows for the netting of outstanding forward contracts. The fair values of the Company’s foreign currency forward contracts designated as cash flow hedges are recorded in the consolidated balance sheets at June 26, 2011, June 27, 2010 and December 26, 2010 as follows:

	June 26, 2011	June 27, 2010	Dec. 26, 2010
	-------------------	-------------------	-------------------
Prepaid expenses and other current assets
-----------------------------------------------------------
Unrealized gains	$         -	37,233	24,710
Unrealized losses	-	(2,751)	(9,229)
	------------	------------	------------
Net unrealized gain	-	34,482	15,481
	------------	------------	------------
Other assets
---------------------
Unrealized gains	-	20,398	4,403
Unrealized losses	-	(295)	(2,933)
	------------	------------	------------
Net unrealized gain	-	20,103	1,470
	------------	------------	------------
Total asset derivatives	$              -	54,585	16,951
	=======	=======	=======
Accrued expenses and other liabilities
-----------------------------------------------------------
Unrealized gains	$      9,695	-	-
Unrealized losses	(20,801)	-	-
	------------	------------	------------
Net unrealized loss	(11,106)	-	-
	------------	------------	------------
Other long-term liabilities
-------------------------------------
Unrealized gains	1,041	-	-
Unrealized losses	(18,165)	-	-
	------------	------------	------------
Net unrealized loss	(17,124)	-	-
	------------	------------	------------
Total liability derivatives	$    (28,230) =======	-   =======	-   =======

During the quarter and six months ended June 26, 2011, the Company reclassified net losses from other comprehensive earnings to net earnings of $(1,958) and $(112), respectively. Of the amount reclassified during the quarter ended June 26, 2011, $(1,375) was reclassified to cost of sales and $(524) was reclassified to royalty expense. Of the amount reclassified during the six months ended June 26, 2011, $(351) and $298 were reclassified to cost of sales and royalty expense, respectively. In addition, net losses of $(59) were reclassified to earnings as a result of hedge ineffectiveness in the second quarter of 2011. Other income (expense) for the six months

ended June 26, 2011 includes a loss of approximately $3,700 in other (income) expense related to certain derivatives which no longer qualified for hedge accounting.

During the quarter and six months ended June 27, 2010, the Company reclassified net gains from other comprehensive earnings to net earnings of $3,937 and $5,856, respectively. Of the amount reclassified during the quarter ended June 27, 2010, $2,739 was reclassified to cost of sales and $1,250 was reclassified to royalty expense. Of the amount reclassified during the six-month period ended June 27, 2010, $3,851 and $2,057 were reclassified to cost of sales and royalty expense, respectively. In addition, net losses of $(52) were reclassified to earnings as a result of hedge ineffectiveness in the second quarter of 2010.

Undesignated Hedges

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The Company also enters into foreign currency forward contracts to minimize the impact of changes in the fair value of intercompany loans due to foreign currency changes. Due to the short-term nature of the derivative contracts involved, the Company does not use hedge accounting for these contracts.  At June 26, 2011, June 27, 2010 and December 26, 2010, the total notional amounts of the Company’s undesignated derivative instruments were $158,734, $10,631 and $89,191, respectively.

At June 26, 2011, June 27, 2010 and December 26, 2010, the fair values of the Company’s undesignated derivative financial instruments were recorded in accrued expenses and other liabilities as follows:

	June 26, 2011	June 27, 2010	Dec. 26, 2010
	---------	---------	---------
Unrealized gains	$  1,675	49	27
Unrealized losses	(124)	(51)	(827)
	--------	---------	---------
Net unrealized gain (loss)	$  1,551	(2)	(800)
	=====	=====	=====

The Company recorded net gains (losses) of $1,570 and $3,268 on these instruments to other (income) expense, net for the quarter and six months ended June 26, 2011, respectively, and $(1,629) and $(1,509) on these instruments to other (income) expense, net for the quarter and six months ended June 27, 2010, respectively, relating to the change in fair value of such derivatives, substantially offsetting gains and losses from the change in fair value of intercompany loans to which the contracts relate.

For additional information related to the Company’s derivative financial instruments see Notes 4 and 6.