Derivative Financial Instruments

9 Months Ended

Sep. 30, 2012

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 an unrelated company 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

----------------------------------

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 2012 and 2013.

At September 30, 2012, September 25, 2011 and December 25, 2011, the notional amounts and fair values of the Company’s foreign currency forward contracts designated as cash flow hedging instruments were as follows.

	Sept. 30, 2012		Sept. 25, 2011		Dec. 25, 2011
	---------------		---------------		---------------
Hedged transaction	Notional   Amount	Fair Value	Notional   Amount	Fair Value	Notional   Amount	Fair Value
----------------------------	--------------	----------	-------------	-----------	------------	----------
Inventory purchases	$ 431,666	4,569	500,863	965	379,688	7,974
Intercompany royalty transactions	156,358	1,297	164,456	1,616	117,192	2,126
Sales	152,763	(2,925)	53,310	242	-	-
Other	9,956	273	6,957	5	29,517	(360)
	------------	----------	------------	----------	------------	----------
Total	$ 750,743	3,214	725,586	2,828	526,397	9,740
	=======	======	=======	======	=======	======

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 30, 2012, September 25, 2011 and December 25, 2011 as follows:

	Sept. 30, 2012	Sept. 25, 2011	Dec. 25, 2011
	-------------------	-------------------	-------------------
Prepaid expenses and other current assets
-----------------------------------------------------------
Unrealized gains	$    5,677	15,313	11,965
Unrealized losses	(2,692)	(4,936)	(4,187)
	------------	------------	------------
Net unrealized gain	2,985	10,377	7,778
	------------	------------	------------
Other assets
---------------------
Unrealized gains	2,448	1,913	2,113
Unrealized losses	(360)	-	(92)
	------------	------------	------------
Net unrealized gain	2,088	1,913	2,021
	------------	------------	------------
Total asset derivatives	$    5,073	12,290	9,799
	=======	=======	=======
Accrued liabilities
------------------------------
Unrealized gains	$    2,816	415	12
Unrealized losses	(4,617)	(3,712)	(50)
	------------	------------	------------
Net unrealized loss	(1,801)	(3,297)	(38)
	------------	------------	------------
Other liabilities
-------------------------
Unrealized gains	104	739	-
Unrealized losses	(162)	(6,904)	(21)
	------------	------------	------------
Net unrealized loss	(58)	(6,165)	(21)
	------------	------------	------------
Total liability derivatives	$   (1,859) =======	(9,462) =======	(59) =======

During the quarter and nine months ended September 30, 2012, the Company reclassified gains from other comprehensive earnings to net earnings of $2,124 and $5,442, respectively. Of the amount reclassified during the quarter ended September 30, 2012, $3,431 was reclassified to cost of sales, $824 was reclassified to royalty expense and $(2,178) was reclassified to sales. Of the amount reclassified during the nine months ended September 30, 2012, $6,372, $1,830 and $(2,821) were reclassified to cost of sales, royalty expense and sales, respectively. In addition, net gains of $47 and $61 were reclassified to earnings as a result of hedge ineffectiveness for the quarter and nine months ended September 30, 2012, respectively.

During the quarter and nine months ended September 25, 2011, the Company reclassified net losses from other comprehensive earnings to net 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 included a loss of approximately $3,700 in other (income) expense related to certain derivatives which no longer qualified for hedge accounting.

Undesignated Hedges

----------------------------------

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 30, 2012, September 25, 2011 and December 25, 2011, the total notional amounts of the Company’s undesignated derivative instruments were $184,555, $90,077 and $218,122, respectively.

At September 30, 2012, September 25, 2011 and December 25, 2011, the fair values of the Company’s undesignated derivative financial instruments were recorded in the consolidated balance sheets as follows:

	Sept. 30, 2012	Sept. 25, 2011	Dec. 25, 2011
	-----------------	------------------	-------------------
Prepaid expenses and other current assets
-----------------------------------------------------------
Unrealized gains	$   1,119	-	-
Unrealized losses	(504)	-	-
	---------	---------	---------
Net unrealized gain	615	-	-
	----------	----------	----------
Accrued liabilities --------------------------
Unrealized gains	-	3,234	41
Unrealized losses	-	(1,034)	(786)
	--------	--------	---------
Net unrealized gain (loss)	-	2,200	(745)
	---------	---------	----------
Other liabilities ---------------------
Unrealized gains	74	-	-
Unrealized losses	(527)	-	(1,104)
	---------	---------	----------
Net unrealized loss	(453)	-	(1,104)
	---------	---------	----------
Total unrealized gain (loss), net	$     162	2,200	(1,849)
	=====	=====	=====

The Company recorded net (gains) losses of $726 and $2,194 on these instruments to other (income) expense, net for the quarter and nine months ended September 30, 2012, respectively, and $(1,528) and $1,740 on these instruments to other (income) expense, net for the quarter and nine months ended September 25, 2011, 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.