Hasbro 2007 Annual Report Download - page 43

At December 30, 2007, the Company has a liability, including potential interest and penalties, of $70,571
for uncertain tax positions that have been taken or expected to be taken in a tax return. The Company does not
know the ultimate resolution of these liabilities and as such, does not know the ultimate timing of payments
related to this liability.
Included in the Thereafter column above is $249,828 in principal amount of senior convertible debt due
2021. The holders of these debentures may put the notes back to the Company in December 2011 and
December 2016 at the principal amount. At that time, the purchase price may be paid in cash, shares of
common stock or a combination of the two. In addition, at December 30, 2007, these debentures may be
converted to shares at an initial conversion price of $21.60 per share through March 31, 2008, at which time
the requirements of the contingent conversion feature will be reevaluated. If the Company’s stock exceeds
$23.76 for at least 20 trading days, within the 30 consecutive trading day period ending on the last trading day
of a calendar quarter, or upon other specified events, the debentures will be convertible at the initial conversion
price of $21.60.
The Company’s agreement with MARVEL provides for minimum guaranteed royalty payments and
requires the Company to make minimum expenditures on marketing and promotional activities. The future
minimum contractual payments include future guaranteed contractual royalty payments of $35,000 payable to
MARVEL in 2010 that are contingent upon the theatrical release of SPIDER-MAN 4.
In addition, the Company expects to make contributions totaling approximately $9,200 to its pension
plans in 2008. The Company also has letters of credit and related instruments of approximately $70,000 at
December 30, 2007.
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, Canadian dollar 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 foreign currencies could result in an approximate $52,400 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 related forecasted foreign currency transaction.
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. 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, 2007, these contracts had unrealized losses of $10,437, of which $6,679 are recorded in accrued
liabilities and $3,758 recorded in other liabilities. Included in accumulated other comprehensive income at
December 30, 2007 are deferred losses of $11,080, net of tax.
At December 30, 2007, the Company had fixed rate long-term debt, excluding fair value adjustments, of
$844,815. At December 30, 2007, the Company had fixed-for-floating interest rate swaps with notional
amounts of $75,000. The interest rate swaps are designed to adjust a portion of the Company’s debt subject to
a fixed interest rate. The interest rate swaps are matched with specific long-term debt issues and are designated
and effective as hedges of the change in the fair value of the associated debt. Changes in fair value of these
contracts are wholly offset in earnings by changes in the fair value of the related long-term debt. At
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