Derivative Financial Instruments

9 Months Ended

Sep. 29, 2013

Derivative Financial Instruments (Thousands of Dollars) [Abstract]

Derivative Financial Instruments

HASBRO, INC. AND SUBSIDIARIES

Condensed Notes to Consolidated Financial Statements (continued)

(Thousands of Dollars and Shares Except Per Share Data)

(Unaudited)

(8) Derivative Financial Instruments

The Company 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, product sales 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.

Cash Flow Hedges

The Company 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, product sales and other cross-border transactions in 2013 and 2014.

At September 29, 2013, September 30, 2012 and December 30, 2012, the notional amounts and fair values of the Company's foreign currency forward contracts designated as cash flow hedging instruments were as follows.

	September 29, 2013					September 30, 2012					December 30, 2012
Hedged transaction	Notional Amount		Fair Value			Notional Amount		Fair Value			Notional Amount		Fair Value
Inventory purchases	$	525,911		(6,114	)		431,666		4,569			397,770		(2,638	)
Intercompany royalty transactions		174,974		(2,258	)		156,358		1,297			131,693		(1,168	)
Sales		232,709		497			152,763		(2,925	)		92,761		2,458
Other		27,148		1,000			9,956		273			2,420		(45	)
Total	$	960,742		(6,875	)		750,743		3,214			624,644		(1,393	)

HASBRO, INC. AND SUBSIDIARIES

Condensed Notes to Consolidated Financial Statements (continued)

(Thousands of Dollars and Shares Except Per Share Data)

(Unaudited)

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 29, 2013, September 30, 2012 and December 30, 2012 as follows:

	September 29, 2013			September 30, 2012			December 30, 2012
Prepaid expenses and other current assets
Unrealized gains	$	2,923			5,677			2,802
Unrealized losses		(1,572	)		(2,692	)		(1,073	)
Net unrealized gain	$	1,351			2,985			1,729
Other assets
Unrealized gains	$	109			2,448			12
Unrealized losses		(11	)		(360	)		-
Net unrealized gain	$	98			2,088			12
Accrued liabilities
Unrealized gains	$	3,023			2,816			1,466
Unrealized losses		(8,652	)		(4,617	)		(4,245	)
Net unrealized loss	$	(5,629	)		(1,801	)		(2,779	)
Other liabilities
Unrealized gains	$	191			104			20
Unrealized losses		(2,886	)		(162	)		(375	)
Net unrealized loss	$	(2,695	)		(58	)		(355	)

Net gains (losses) on cash flow hedging activities have been reclassified from other comprehensive earnings to net earnings for the quarter and nine-month periods ended September 29, 2013 and September 30, 2012 as follows:

	Quarter Ended						Nine Months Ended
	September 29, 2013			September 30, 2012			September 29, 2013			September 30, 2012
Statements of Operations Classification
Cost of sales	$	1,614			3,431			1,650			6,372
Royalties		(303	)		824			(347	)		1,830
Sales		2,906			(2,178	)		4,441			(2,821	)
Net realized gains	$	4,217			2,077			5,744			5,381

In addition, net gains of $233 and $165 were reclassified to earnings as a result of hedge ineffectiveness for the quarter and nine-month periods ended September 29, 2013, respectively, and net gains of $47 and $61 were reclassified to earnings as a result of hedge ineffectiveness for the quarter and nine-month periods ended September 30, 2012, respectively.

HASBRO, INC. AND SUBSIDIARIES

Condensed Notes to Consolidated Financial Statements (continued)

(Thousands of Dollars and Shares Except Per Share Data)

(Unaudited)

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 nature of the derivative contracts involved, the Company does not use hedge accounting for these contracts.  At September 29, 2013, September 30, 2012 and December 30, 2012 the total notional amounts of the Company's undesignated derivative instruments were $257,325, $184,555 and $189,217, respectively.

At September 29, 2013, September 30, 2012 and December 30, 2012, the fair values of the Company's undesignated derivative financial instruments were recorded in the consolidated balance sheets as follows:

	September 29, 2013			September 30, 2012			December 30, 2012
Prepaid expenses and other current assets
Unrealized gains	$	1,761			1,119			-
Unrealized losses		(1,107	)		(504	)		-
Net unrealized gain		654			615			-
Other assets
Unrealized gains		298			-			-
Unrealized losses		(80	)		-			-
Net unrealized gain		218			-			-
Accrued liabilities
Unrealized gains		-			-			469
Unrealized losses		-			-			(796	)
Net unrealized gain		-			-			(327	)
Other liabilities
Unrealized gains		-			74			-
Unrealized losses		-			(527	)		-
Net unrealized loss		-			(453	)		-
Total unrealized gain (loss), net	$	872			162			(327	)

The Company recorded net gains (losses) of $2,467 and $2,557 on these instruments to other (income) expense, net for the quarter and nine-month periods ended September 29, 2013, respectively, and $(726) and $(2,194) on these instruments to other (income) expense, net for the quarter and nine-month periods ended September 30, 2012, 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.

HASBRO, INC. AND SUBSIDIARIES

Condensed Notes to Consolidated Financial Statements (continued)

(Thousands of Dollars and Shares Except Per Share Data)

(Unaudited)