Hasbro 2012 Annual Report Download - page 55

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, 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 $61,622 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 balance sheet. The
Company does not speculate in foreign currency exchange contracts. At December 30, 2012, these contracts had
net unrealized losses of $1,720, of which $1,729 are recorded in prepaid expenses and other current assets, $12
are recorded in other assets, $(3,106) are recorded in accrued liabilities, and $(355) are recorded in other
liabilities. Included in accumulated other comprehensive earnings at December 30, 2012 are deferred losses of
$1,008, net of tax, related to these derivatives.
At December 30, 2012, the Company had fixed rate long-term debt, excluding adjustments, of $1,384,895.
The Company was party to several interest rate swap agreements, with a total notional amount of $400,000, to
adjust the amount of long-term debt subject to fixed interest rates. The interest rate swaps were matched with
specific long-term debt issues and were designated and effective as hedges of the change in the fair value of the
associated debt. Changes in fair value of these contracts were wholly offset in earnings by changes in the fair
value of the related long-term debt. In November 2012, these interest rate swap agreements were terminated. The
fair value was recorded as an adjustment to long-term debt and is now being amortized through the statement of
operations over the life of the remaining long-term debt using a straight-line method. At December 30, 2012, this
adjustment to long-term debt was $11,526. As a result of this termination long-term debt is no longer affected by
variable interest rates and, thereby, earnings and cash flows are not expected to be impacted by changes in
interest rates. The Company estimates that a hypothetical quarter percentage point decrease or increase in interest
rates would increase or decrease the fair value of this long-term debt by approximately $31,000.
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 42% of its consolidated net revenues in 2012 and 45% and
50% of its consolidated net revenues in 2011 and 2010, respectively. In recent years certain customers in the
retail sector have experienced economic difficulty. The Company monitors the creditworthiness of its customers
and adjusts credit policies and limits as it deems appropriate.
The Company’s revenue pattern continues to show the second half of the year to be more significant to its
overall business for the full year. In 2012, approximately 64% of the Company’s full year net revenues were
recognized in the second half of the year. The Company expects that this concentration will continue. The
concentration of sales in the second half of the year increases the risk of (a) underproduction of popular items,
(b) overproduction of less popular items, and (c) failure to achieve tight and compressed shipping schedules. The
business of the Company is characterized by customer order patterns which vary from year to year largely
because of differences in the degree of consumer acceptance of a product line, product availability, marketing
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