Hasbro 2011 Annual Report Download - page 63

HASBRO, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements — (Continued)
(Thousands of Dollars and Shares Except Per Share Data)
Foreign Currency Translation
Foreign currency assets and liabilities are translated into U.S. dollars at period-end exchange rates, and
revenues, costs and expenses are translated at weighted average exchange rates during each reporting period.
Earnings include gains or losses resulting from foreign currency transactions and, when required, translation
gains and losses resulting from the use of the U.S. dollar as the functional currency in highly inflationary
economies. Other gains and losses resulting from translation of financial statements are a component of other
comprehensive earnings.
Pension Plans, Postretirement and Postemployment Benefits
Pension expense and related amounts in the consolidated balance sheet are based on actuarial computations
of current and future benefits. The Company’s policy is to fund amounts which are required by applicable
regulations and which are tax deductible. In 2012, the Company expects to contribute approximately $5,800 to its
pension plans. The estimated amounts of future payments to be made under other retirement programs are being
accrued currently over the period of active employment and are also included in pension expense. Hasbro has a
contributory postretirement health and life insurance plan covering substantially all employees who retire under
any of its United States defined benefit pension plans and meet certain age and length of service requirements.
The cost of providing these benefits on behalf of employees who retired prior to 1993 is and will continue to be
substantially borne by the Company. The cost of providing benefits on behalf of substantially all employees who
retire after 1992 is borne by the employee. It also has several plans covering certain groups of employees, which
may provide benefits to such employees following their period of employment but prior to their retirement. The
Company measures the costs of these obligations based on actuarial computations.
Accounting for Stock-Based Compensation
The Company has a stock-based employee compensation plan for employees and non-employee members of
the Company’s Board of Directors. Under this plan the Company may grant stock options at or above the fair
market value of the Company’s stock, as well as restricted stock, restricted stock units and contingent stock
performance awards. All awards are measured at fair value at the date of the grant and amortized as expense on a
straight-line basis over the requisite service period of the award. For awards contingent upon Company
performance, the measurement of the expense for these awards is based on the Company’s current estimate of its
performance over the performance period. See note 13 for further discussion.
Risk Management Contracts
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 purchases of inventory and other cross-border currency requirements 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 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.
At the inception of the contracts, Hasbro designates its derivatives as either cash flow or fair value hedges.
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 forecasted transaction. The ineffective portion of a hedging derivative, if any, is
immediately recognized in the consolidated statements of operations.
54