Hasbro 2008 Annual Report Download - page 59

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the Company’s defined benefit plans was September 30. See notes 2 and 12 for the impact of adopting of this
statement.
The Company’s policy is to fund amounts which are required by applicable regulations and which are tax
deductible. In 2009, the Company expects to contribute approximately $17,100 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.
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 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 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.
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 effective and qualify as cash flow hedges
are deferred and recorded as a component of 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. Due
to the short-term nature of the derivative contracts involved, the Company does not use hedge accounting for
these contracts.
49
HASBRO, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements — (Continued)
(Thousands of Dollars and Shares Except Per Share Data)