Hasbro 2014 Annual Report Download - page 66

related instruments include bonds of approximately $146,410 related to tax assessments in Mexico which were
settled in December 2014. The Company expects these bonds to be cancelled during the first quarter of 2015.
The Company believes that cash from operations and funds available through its commercial paper program
or lines of credit will allow the Company to meet these and other obligations described above.
Financial Risk Management
The Company is exposed to market risks attributable to fluctuations in foreign currency exchange rates
primarily as the result of sourcing products priced in U.S. dollars, Hong Kong dollars and Euros while marketing
those products in more than twenty currencies. Results of operations may be affected primarily by changes in the
value of the U.S. dollar, Hong Kong dollar, Euro, British pound sterling, Canadian dollar, Brazilian real, Russian
ruble and Mexican peso and, to a lesser extent, other currencies in Latin American and Asia Pacific countries.
To manage this exposure, the Company has hedged a portion of its forecasted foreign currency transactions
using foreign exchange forward contracts. The Company estimates that a hypothetical immediate 10%
depreciation of the U.S. dollar against all foreign currencies included in these foreign exchange forward contracts
could result in an approximate $74,700 decrease in the fair value of these instruments. A decrease in the fair
value of these instruments would be substantially offset by decreases in the value of the forecasted foreign
currency transactions.
The Company is also exposed to foreign currency risk with respect to its net cash and cash equivalents or
short-term borrowing positions in currencies other than the U.S. dollar. The Company believes, however, that the
on-going risk on the net exposure should not be material to its financial condition. In addition, the Company’s
revenues and costs have been and will likely continue to be affected by changes in foreign currency rates. A
significant change in foreign exchange rates can materially impact the Company’s revenues and earnings due to
translation of foreign-denominated revenues and expenses. The Company does not hedge against translation
impacts of foreign exchange. From time to time, affiliates of the Company may make or receive intercompany
loans in currencies other than their functional currency. The Company manages this exposure at the time the loan
is made by using foreign exchange contracts.
The Company reflects all derivatives at their fair value as an asset or liability on the consolidated balance
sheets. The Company does not speculate in foreign currency exchange contracts. At December 28, 2014, these
contracts had net unrealized gains of $65,937, of which $35,086 are recorded in prepaid expenses and other
current assets, $34,062 are recorded in other assets, and ($2,591) are recorded in accrued liabilities. Included in
accumulated other comprehensive earnings at December 28, 2014 are deferred gains of $64,200, net of tax,
related to these derivatives.
At December 28, 2014, the Company had fixed rate long-term debt of $1,559,895. Of this long-term debt,
$600,000 represents the aggregate issuance of long-term debt in May 2014 which consists of $300,000 of 3.15%
Notes Due 2021 and $300,000 of 5.10% Notes Due 2044. During the fourth quarter of 2013 and first quarter of
2014, the Company entered into forward-starting interest rate swap agreements with a total notional value of
$500,000 to hedge the anticipated underlying U.S. Treasury interest rate associated with the May 2014 debt
issuance. These interest rate swaps were matched with this debt issuance and were designated and effective as
hedges of the change in future interest payments. At the date of issuance, the Company terminated these swap
agreements and their fair value at the date of issuance, $33,306, was recorded in accumulated other
comprehensive loss and is being amortized through the consolidated statements of operations using an effective
interest rate method over the life of the related debt. Included in accumulated other comprehensive loss at
December 28, 2014 are deferred losses, net of tax, of $20,511 related to these derivatives.
The Economy and Inflation
The principal market for the Company’s products is the retail sector. Revenues from the Company’s top five
customers, all retailers, accounted for approximately 38% of its consolidated net revenues in 2014 and 39% and
42% of its consolidated net revenues in 2013 and 2012, respectively. The Company monitors the
creditworthiness of its customers and adjusts credit policies and limits as it deems appropriate.
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