Hasbro 2012 Annual Report Download - page 80

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HASBRO, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements — (Continued)
(Thousands of Dollars and Shares Except Per Share Data)
For a portion of the Company’s available-for-sale securities, the Company is able to obtain quoted prices
from stock exchanges to measure the fair value of these securities. Certain other available-for-sale securities held
by the Company are valued at the net asset value which is quoted on a private market that is not active; however,
the unit price is predominantly based on underlying investments which are traded on an active market. In 2012
the Company purchased an available-for-sale investment which invests in hedge funds which contain financial
instruments that are valued using certain estimates which are considered unobservable in that they reflect the
investment manager’s own assumptions about the inputs that market participants would use in pricing the asset or
liability. The Company believes that these estimates are the best information available for use in the fair value of
this investment. The Company’s derivatives consist primarily of foreign currency forward contracts. The
Company uses current forward rates of the respective foreign currencies to measure the fair value of these
contracts. At December 25, 2011 the Company’s derivatives also included interest rate swaps used to effectively
adjust the interest rates on a portion of the Company’s long-term debt from fixed to variable. The fair values of
the interest rate swaps were measured based on the present value of future cash flows using the swap curve as of
the valuation date. The remaining derivative instruments consist of warrants to purchase common stock of an
unrelated company. The Company uses the Black-Scholes model to value these warrants. One of the inputs used
in the Black-Scholes model, historical volatility, is considered an unobservable input in that it reflects the
Company’s own assumptions about the inputs that market participants would use in pricing the asset or liability.
The Company believes that this is the best information available for use in the fair value measurement. There
were no changes in these valuation techniques during 2012.
The following is a reconciliation of the beginning and ending balances of the fair value measurements of the
Company’s financial instruments which use significant unobservable inputs (Level 3):
2012 2011
Balance at beginning of year .......................................... $3,724 9,155
Purchases ......................................................... 5,000 —
Loss from change in fair value ......................................... (1,106) (5,431)
Balance at end of year ............................................... $7,618 3,724
(13) Stock Options, Other Stock Awards and Warrants
Hasbro has reserved 14,849 shares of its common stock for issuance upon exercise of options and other
awards granted or to be granted under stock incentive plans for employees and for non-employee members of the
Board of Directors (collectively, the “plans”). These options and other awards generally vest in equal annual
amounts over three to five years. The plans provide that options be granted at exercise prices not less than the
market value of the underlying common stock on the date the option is granted and options are adjusted for such
changes as stock splits and stock dividends. Generally, options are exercisable for periods of no more than ten
years after date of grant. Upon exercise in the case of stock options, grant in the case of restricted stock or
vesting in the case of performance based contingent stock grants, shares are issued out of available treasury
shares. The Company’s current plan permits the granting of awards in the form of stock, stock appreciation
rights, stock awards and cash awards in addition to stock options.
The Company on occasion will issue restricted stock or grant restricted stock units to certain key employees.
These shares or units are nontransferable and subject to forfeiture for periods prescribed by the Company. These
awards are valued at the market value of the underlying common stock at the date of grant and are subsequently
amortized over the periods during which the restrictions lapse, generally between three and five years. During
2012, 2011 and 2010, the Company recognized compensation expense, net of forfeitures, on these awards of
$2,328, $1,761 and $1,209, respectively. At December 30, 2012, the amount of total unrecognized compensation
70