Hasbro 2013 Annual Report Download - page 60

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payable during the next six years. Approximately $50,000 of these additional royalties are expected to be paid in
2014 based on expected qualifying theatrical releases. Additional guaranteed royalties related to the amendment
of the STAR WARS license agreement are included in the table above.
Purchase commitments represent agreements (including open purchase orders) to purchase inventory and
tooling in the ordinary course of business. The reported amounts exclude inventory and tooling purchase
liabilities included in accounts payable or accrued liabilities on the consolidated balance sheets as of
December 29, 2013.
In addition to the amounts included in the table above, the Company expects to make contributions totaling
approximately $6,400 related to its unfunded U.S. and other International pension plans in 2014. The Company
also has letters of credit and related instruments of approximately $209,398 at December 29, 2013.
The Company believes that cash from operations and funds available through its commercial paper program
or lines of credit will allow the Company to meet these and other obligations described above.
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 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 $48,144 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 consolidated balance
sheets. The Company does not speculate in foreign currency exchange contracts. At December 29, 2013, these
contracts had net unrealized losses of $10,875, of which $386 are recorded in prepaid expenses and other current
assets, $1,069 are recorded in other assets, $(10,260) are recorded in accrued liabilities, and $(2,070) are
recorded in other liabilities. Included in accumulated other comprehensive earnings at December 29, 2013 are
deferred losses of $9,337, net of tax, related to these derivatives.
At December 29, 2013, 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 consolidated
statements of operations over the life of the remaining long-term debt using a straight-line method. At
December 29, 2013, this adjustment to long-term debt was $3,390. As a result of this termination long-term debt
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