Derivative Financial Instruments

9 Months Ended

Sep. 25, 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 and Euros 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 unrelated companies 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 September 25, 2011, September 26, 2010 and December 26, 2010, the notional amounts and fair values representing the unrealized gains (losses) of the Company’s foreign currency forward contracts designated as cash flow hedging instruments were as follows:

	Sept. 25, 2011		Sept. 26, 2010		Dec. 26, 2010
	---------------		---------------		---------------
Hedged transaction	Notional   Amount	Fair Value	Notional   Amount	Fair Value	Notional   Amount	Fair Value
----------------------------	--------------	----------	-------------	-----------	------------	----------
Inventory purchases	$ 500,863	965	705,906	(4)	593,953	11,074
Intercompany royalty transactions	164,456	1,616	233,358	2,867	179,308	5,344
Sales	53,310	242	-	-	-	-
Other	6,957	5	24,853	441	17,047	533
	------------	-----------	------------	----------	------------	----------
Total	$ 725,586	2,828	964,117	3,304	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 September 25, 2011, September 26, 2010 and December 26, 2010 as follows:

	Sept. 25, 2011	Sept. 26, 2010	Dec. 26, 2010
	-------------------	-------------------	-------------------
Prepaid expenses and other current assets
-----------------------------------------------------------
Unrealized gains	$    15,313	20,528	24,710
Unrealized losses	(4,936)	(11,779)	(9,229)
	------------	------------	------------
Net unrealized gain	10,377	8,749	15,481
	------------	------------	------------
Other assets
---------------------
Unrealized gains	1,913	7,501	4,403
Unrealized losses	-	(12,946)	(2,933)
	------------	------------	------------
Net unrealized gain (loss)	1,913	(5,445)	1,470
	------------	------------	------------
Total asset derivatives	$    12,290	3,304	16,951
	=======	=======	=======
Accrued expenses and other liabilities
-----------------------------------------------------------
Unrealized gains	$         415	-	-
Unrealized losses	(3,712)	-	-
	------------	------------	------------
Net unrealized loss	(3,297)	-	-
	------------	------------	------------
Other long-term liabilities
-------------------------------------
Unrealized gains	739	-	-
Unrealized losses	(6,904)	-	-
	------------	------------	------------
Net unrealized loss	(6,165)	-	-
	------------	------------	------------
Total liability derivatives	$    (9,462)      =======	-        =======	-        =======

During the quarter and nine months ended September 25, 2011, the Company reclassified net losses from other comprehensive earnings to earnings of $(3,377) and $(3,489), respectively. Of the amount reclassified during the quarter ended September 25, 2011, $(4,424) was reclassified to cost of sales, $535 was reclassified to royalty expense, and $562 was reclassified to sales. Of the amount reclassified during the nine months ended September 25, 2011, $(4,775), $833, and $562 were reclassified to cost of sales, royalty expense and sales, respectively. In addition, net losses of $(50) and $(109) were reclassified to earnings as a result of hedge ineffectiveness for the quarter and nine months ended September 25, 2011, respectively. Other (income) expense for the nine months ended September 25, 2011 includes a loss of approximately $3,700 related to certain derivatives which no longer qualified for hedge accounting.

During the quarter and nine months ended September 26, 2010, the Company reclassified net gains from other comprehensive earnings to earnings of $6,930 and $12,786, respectively. Of the amount reclassified during the quarter ended September 26, 2010, $5,444 was reclassified to cost of sales and $1,504 was reclassified to royalty expense. Of the amount reclassified during the nine-month period ended September 26, 2010, $9,294 and $3,562 were reclassified to cost of sales and royalty expense, respectively. In addition, net losses of $(18) and $(70) were reclassified to earnings as a result of hedge ineffectiveness in the quarter and nine months ended September 26, 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 September 25, 2011, September 26, 2010 and December 26, 2010, the total notional amounts of the Company’s undesignated derivative instruments were $90,077, $72,322 and $89,191, respectively.

At September 25, 2011, the fair values of the Company’s undesignated derivative financial instruments were recorded in prepaid expenses and other current assets as follows and at September 26, 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:

	Sept. 25, 2011	Sept. 26, 2011	Dec. 26, 2010
	---------	---------	---------
Unrealized gains	$  3,234	32	27
Unrealized losses	(1,034)	(431)	(827)
	---------	---------	---------
Net unrealized gain (loss)	$  2,200	(399)	(800)
	=====	=====	=====

The Company recorded net gains (losses) of $(1,528) and $1,740 on these instruments to other (income) expense, net for the quarter and nine months ended September 25, 2011, respectively, and $693 and $(816) on these instruments to other (income) expense, net for the quarter and nine months ended September 26, 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.