Hasbro (HAS)

(14) Derivative Financial Instruments

        Hasbro uses foreign currency forwards and options, generally purchased for terms of not more than eighteen months, to reduce the impact of currency rate fluctuations on firmly committed and projected future foreign currency transactions.

        During 2004, 2003 and 2002, the Company reclassified net losses from other comprehensive income to earnings of $9,111, $8,799, and $1,929, respectively, which included (losses) gains of $(163), $(436), and $566, respectively, as the result of ineffectiveness.

        The remaining balance in AOCE at December 26, 2004 of $(4,617) represents a net unrealized loss on foreign currency contracts relating to hedges of inventory purchased during the fourth quarter of 2004 or forecasted to be purchased during 2005 and intercompany expenses and royalty payments expected to be paid or received during 2005. These amounts will be transferred to the consolidated statement of operations upon the sale of the related inventory and receipt or payment of the related royalties and expenses. The Company expects substantially all of the balance in AOCE to be reclassified to the consolidated statement of operations within the next 12 months.

        The Company also enters into derivative instruments to offset changes in the fair value of intercompany loans due to the impact of foreign currency changes. The Company recorded a net loss on these instruments to other expense, net of $30,882, $13,545 and $17,982 in 2004, 2003 and 2002, respectively, relating to the change in fair value of such derivatives, substantially offsetting gains from the change in fair value of intercompany loans to which the contracts relate included in other expense, net.

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