Derivative Financial Instruments

3 Months Ended

Mar. 30, 2014

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, 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. Further, Hasbro uses forward-starting interest rate swap agreements to hedge anticipated interest payments. All contracts 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.

In 2013, the Company also had warrants to purchase common stock of an unrelated company that constituted and were 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 2014 and 2015.

At March 30, 2014, March 31, 2013 and December 29, 2013, the notional amounts and fair values of the Company's foreign currency forward contracts designated as cash flow hedging instruments were as follows:

	March 30, 2014					March 31, 2013					December 29, 2013
Hedged transaction	Notional Amount		Fair Value			Notional Amount		Fair Value			Notional Amount		Fair Value
Inventory purchases	$	609,689		(6,966	)		394,818		5,858			577,138		(7,493	)
Intercompany royalty transactions		2,812		(2,403	)		132,677		2,053			4,948		(2,774	)
Sales		161,760		(1,155	)		83,942		3,465			171,393		(1,965	)
Other		51,243		(637	)		23,746		(22	)		46,563		302
Total	$	825,504		(11,161	)		635,183		11,354			800,042		(11,930	)

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 March 30, 2014, March 31, 2013 and December 29, 2013 as follows:

	March 30, 2014			March 31, 2013			December 29, 2013
Prepaid expenses and other current assets
Unrealized gains	$	999			10,324			1,088
Unrealized losses		(647	)		(2,483	)		(702	)
Net unrealized gain	$	352			7,841			386
Other assets
Unrealized gains	$	-			4,023			-
Accrued liabilities
Unrealized gains	$	4,597			1,095			3,425
Unrealized losses		(13,946	)		(1,605	)		(13,671	)
Net unrealized loss	$	(9,349	)		(510	)		(10,246	)
Other liabilities
Unrealized gains	$	256			-			-
Unrealized losses		(2,420	)		-			(2,070	)
Net unrealized loss	$	(2,164	)		-			(2,070	)

Net gains (losses) on cash flow hedging activities have been reclassified from other comprehensive earnings (loss) to net earnings (loss) for the quarters ended March 30, 2014 and March 31, 2013 as follows:

	Quarter Ended
	March 30, 2014			March 31, 2013
Statements of Operations Classification
Cost of sales	$	(1,019	)		341
Royalties		(350	)		(141	)
Net revenues		(159	)		475
Net realized (losses) gains	$	(1,528	)		675

In addition, net gains (losses) of $65 and $(1) were reclassified to earnings as a result of hedge ineffectiveness for the quarters ended March 30, 2014 and March 31, 2013, respectively.

During the fourth quarter of 2013, the Company entered into forward-starting interest rate swap agreements to hedge the variability of the anticipated underlying U.S. Treasury interest rate associated with the expected issuance of long-term debt which will be utilized to repay the 6.125% Notes Due 2014 with a principal of $425,000. These derivative instruments are designated and effective as cash flow hedges. At March 30, 2014 and December 29, 2013, the total notional amounts of the Company's forward-starting interest rate swap agreements were $500,000 and $300,000, respectively. Unrealized (losses) gains of $(21,540) and $3,172 were recorded to the consolidated balance sheets as of March 30, 2014 and December 29, 2013, respectively. The instruments will be settled on the date of the issuance of the related debt and any gains or losses on these instruments at that time will be amortized to interest expense over the life of the debt using the effective interest rate method.

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 March 30, 2014, March 31, 2013 and December 29, 2013 the total notional amounts of the Company's undesignated derivative instruments were $158,827, $109,433 and $294,888, respectively.

At March 30, 2014, March 31, 2013 and December 29, 2013, the fair values of the Company's undesignated derivative financial instruments were recorded in the consolidated balance sheets as follows:

	March 30, 2014			March 31, 2013			December 29, 2013
Prepaid expenses and other current assets
Unrealized gains	$	1,218			-			-
Unrealized losses		(421	)		-			-
Net unrealized gain		797			-			-
Other assets
Unrealized gains		163			-			1,069
Unrealized losses		(1	)		-			-
Net unrealized gain		162			-			1,069
Accrued liabilities
Unrealized gains		-			140			478
Unrealized losses		-			(1,123	)		(492	)
Net unrealized loss		-			(983	)		(14	)
Other liabilities
Unrealized loss		-			(1,738	)		-
Total unrealized gain (loss), net	$	959			(2,721	)		1,055

The Company recorded net losses of $4,117 and $3,107 on these instruments to other (income) expense, net for the quarters ended March 30, 2014 and March 31, 2013, 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.