Hasbro 2011 Annual Report Download - page 64

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HASBRO, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements — (Continued)
(Thousands of Dollars and Shares Except Per Share Data)
The Company records all derivatives, such as foreign currency exchange contracts, on the balance sheet at
fair value. Changes in the derivative fair values that are designated as cash flow hedges and are effective are
deferred and recorded as a component of Accumulated Other Comprehensive (Loss) Earnings (“AOCE”) until
the hedged transactions occur and are then recognized in the consolidated statements of operations. The
Company’s foreign currency contracts hedging anticipated cash flows are designated as cash flow hedges. When
it is determined that a derivative is not highly effective as a hedge, the Company discontinues hedge accounting
prospectively. Any gain or loss deferred through that date remains in AOCE until the forecasted transaction
occurs, at which time it is reclassified to the consolidated statements of operations. To the extent the transaction
is no longer deemed probable of occurring, hedge accounting treatment is discontinued and amounts deferred
would be reclassified to the consolidated statements of operations. In the event hedge accounting requirements
are not met, gains and losses on such instruments are included currently in the consolidated statements of
operations. The Company uses derivatives to economically hedge intercompany loans denominated in foreign
currencies. The Company does not use hedge accounting for these contracts as changes in the fair value of these
contracts are substantially offset by changes in the fair value of the intercompany loans.
The Company also uses interest rate swap agreements to adjust the amount of long-term debt subject to
fixed interest rates. The interest rate swaps are matched with specific fixed rate long-term debt obligations and
are designated as fair value hedges of the change in fair value of the related debt obligations. These agreements
are recorded at their fair value as an asset or liability. Gains and losses on these contracts are included in the
consolidated statements of operations and are wholly offset by changes in the fair value of the related long-term
debt. These hedges are considered to be perfectly effective under current accounting guidance. The interest rate
swap contracts are with a number of major financial institutions in order to minimize counterparty credit risk.
The Company believes that it is unlikely that any of its counterparties will be unable to perform under the terms
of the contracts.
Net Earnings Per Common Share
Basic net earnings per share is computed by dividing net earnings by the weighted average number of shares
outstanding for the year. Diluted net 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 upon exercise of stock options for which the market
price exceeds the exercise price, less shares which could have been purchased by the Company with the related
proceeds. In addition, for the period that the Company’s convertible debt was outstanding, dilutive securities
included shares issuable under such debt. Options totaling 1,851, 94 and 5,784 for 2011, 2010 and 2009,
respectively, were excluded from the calculation of diluted earnings per share because to include them would
have been antidilutive.
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