Hasbro 2015 Annual Report Download - page 78

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HASBRO, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements — (Continued)
(Thousands of Dollars and Shares Except Per Share Data)
provide benefits to such employees following their period of employment but prior to their retirement. The
Company measures the costs of these obligations based on actuarial computations.
Stock-Based Compensation
The Company has a stock-based employee compensation plan for employees and non-employee members of
the Company’s Board of Directors. Under this plan the Company may grant stock options at or above the fair
market value of the Company’s stock, as well as restricted stock, restricted stock units and contingent stock
performance awards. All awards are measured at fair value at the date of the grant and amortized as expense on a
straight-line basis over the requisite service period of the award. For awards contingent upon Company
performance, the measurement of the expense for these awards is based on the Company’s current estimate of its
performance over the performance period. For awards contingent upon the achievement of market conditions, the
probability of satisfying the market condition is considered in the estimation of the grant date fair value. See note
13 for further discussion.
Risk Management Contracts
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 purchases of inventory and other cross-border currency requirements not denominated in the
functional currency of the business unit, are primarily denominated in United States and Hong Kong dollars as
well as Euros. 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 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.
At the inception of the contracts, Hasbro designates its derivatives as either cash flow or fair value hedges.
The Company formally documents all relationships between hedging instruments and hedged items as well as its
risk management objectives and strategies for undertaking various hedge transactions. All hedges designated as
cash flow hedges are linked to forecasted transactions and the Company assesses, both at the inception of the
hedge and on an on-going basis, the effectiveness of the derivatives used in hedging transactions in offsetting
changes in the cash flows of the forecasted transaction. The ineffective portion of a hedging derivative, if any, is
immediately recognized in the consolidated statements of operations.
The Company records all derivatives, such as foreign currency exchange contracts, on the consolidated
balance sheets at fair value. Changes in the derivative fair values that are designated as cash flow hedges and are
effective are deferred and recorded as a component of Accumulated Other Comprehensive (Loss) Earnings
(“AOCE”) until the hedged transactions occur and are then recognized in the consolidated statements of
operations. The Company’s foreign currency contracts hedging anticipated cash flows are designated as cash
flow hedges. When it is determined that a derivative is not highly effective as a hedge, the Company discontinues
hedge accounting prospectively. Any gain or loss deferred through that date remains in AOCE until the
forecasted transaction occurs, at which time it is reclassified to the consolidated statements of operations. To the
extent the transaction is no longer deemed probable of occurring, hedge accounting treatment is discontinued and
amounts deferred would be reclassified to the consolidated statements of operations. In the event hedge
accounting requirements are not met, gains and losses on such instruments are included currently in the
consolidated statements of operations. The Company uses derivatives to economically hedge intercompany loans
denominated in foreign currencies. The Company does not use hedge accounting for these contracts as changes in
the fair value of these contracts are substantially offset by changes in the fair value of the intercompany loans.
Prior to the issuance of the Notes Due 2021 and Notes Due 2044, the Company entered into a forward-
starting interest rate swap contract to hedge the anticipated U.S. Treasury interest rates on the anticipated debt
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