Hasbro 2006 Annual Report Download - page 79

During 2006, 2005, and 2004, the Company reclassified net losses, net of tax, from other comprehensive
income to earnings of $1,448, $2,005, and $9,111, respectively, which included gains (losses) of $(68), $509,
and $(163), respectively, as the result of ineffectiveness.
The remaining balance in accumulated other comprehensive earnings at December 31, 2006 of $2,116
represents a net unrealized loss on foreign currency contracts relating to hedges of inventory purchased during
the fourth quarter of 2006 or forecasted to be purchased during 2007 and intercompany expenses and royalty
payments expected to be paid or received during 2007. These amounts will be transferred to the consolidated
statement of operations upon the sale of the related inventory and receipt or payment of the related royalties
and expenses. The Company expects substantially all of the balance in accumulated other comprehensive
earnings to be reclassified to the consolidated statement of operations within the next 12 months.
The Company also enters into derivative instruments to offset changes in the fair value of intercompany
loans due to the impact of foreign currency changes. The Company recorded a net loss on these instruments to
other (income) expense, net of $5,501, $60,014, and $30,882 in 2006, 2005, and 2004, respectively, relating to
the change in fair value of such derivatives, substantially offsetting gains from the change in fair value of
intercompany loans to which the contracts relate included in other (income) expense, net.
(14) Commitments and Contingencies
Hasbro had unused open letters of credit and related instruments of approximately $71,000 and $33,600
at December 31, 2006 and December 25, 2005, respectively.
The Company enters into license agreements with inventors, designers and others for the use of
intellectual properties in its products. Certain of these agreements contain provisions for the payment of
guaranteed or minimum royalty amounts. Additionally, the Company has a long-term commitment related to
promotional and marketing activities at a U.S. based theme park. Under terms of currently existing agreements
as of December 31, 2006, Hasbro may, provided the other party meets their contractual commitment, be
required to pay amounts as follows:
2007 ............................................................... $ 91,890
2008 ............................................................... 12,380
2009 ............................................................... 13,900
2010 ............................................................... 41,810
2011 ............................................................... 4,800
$164,780
In addition to the above commitments, certain of the above contracts impose minimum marketing
commitments on the Company, including the Company’s agreement with MARVEL, which requires the
expenditure of $15,000 in connection with the theatrical release of SPIDER-MAN 3 expected to occur in May
of 2007.
In addition, the Company has $116,792 of prepaid royalties included as a component of prepaid expenses
and other current assets in the balance sheet. The long-term portion of advances paid of $64,769 is included in
other assets. Advanced royalties paid and guaranteed or minimum royalties to be paid relate to anticipated
revenues in the years 2007 through 2018.
At December 31, 2006, including the $15,000 marketing commitment mentioned above, the Company
had approximately $249,554 in outstanding purchase commitments.
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HASBRO, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements — (Continued)
(Thousands of Dollars and Shares Except Per Share Data)